<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For Quarterly Period Ended October 31, 1995
----------------
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 2-98855
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PRISM ENTERTAINMENT CORPORATION
-------------------------------
(Exact name of registrant as specified in its charter)
-------------------------------------------------------
Delaware 95-3897052
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1888 Century Park East, Suite 350, Los Angeles, California 90067
- ----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's phone number, including area code (310)277-3270
-------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed from 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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at October 31, 1995
- ------ -------------------------------
Common 2,213,000
- ------ ---------
<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
- ------------------------------------------------
INDEX
- -----
PART I FINANCIAL INFORMATION PAGE
----
Consolidated Balance Sheets 1-2
October 31, 1995 and January 31, 1995
Consolidated Condensed Statements of Income 3
Three Months Ended October 31, 1995 and 1994 and
Nine Months Ended October 31, 1995 and 1994
Consolidated Condensed Statements of Cash Flows 4
Nine Months Ended October 31, 1995 and 1994
Notes to Consolidated Condensed Financial Statements 5
Management's Discussion and Analysis of the Results 6-9
of Operations and Financial Condition
PART II OTHER INFORMATION 10
<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS October 31, January 31,
1995 1995
----------- -----------
Unaudited
<S> <C> <C>
Cash and cash equivalents $532,000 $360,000
Trade receivables, net 6,265,000 7,573,000
Due from affiliate 251,000 351,000
Inventories 596,000 1,243,000
Film costs 15,559,000 17,920,000
Prepaid expenses 310,000 585,000
Furniture and equipment, net 438,000 541,000
Debenture issue costs, net 442,000 520,000
Other assets 301,000 310,000
----------- -----------
TOTAL ASSETS $24,694,000 $29,403,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
-1-
<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONCLUDED
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDER'S EQUITY October 31, January 31,
1995 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Loans and notes payable $3,905,000 $2,964,000
Accounts payable 1,253,000 1,416,000
Accrued expenses 902,000 1,135,000
Minimum guarantees 4,464,000 8,576,000
Obligations under capital leases 216,000 262,000
Deferred income taxes 633,000 914,000
Deferred income - related party 999,000 682,000
Deferred income 79,000 821,000
----------- -----------
Total liabilities before convertible
senior subordinated debentures 12,451,000 16,770,000
----------- -----------
CONVERTIBLE SENIOR SUBORDINATED DEBENTURES 4,952,000 4,964,000
----------- -----------
COMMITMENTS AND CONTINGENCIES - NOTE #4
STOCKHOLDER'S EQUITY
Common stock $.01 par value 20,000,000
shares authorized, 2,213,000 issued
and outstanding 22,000 22,000
Additional paid-in capital 4,282,000 4,282,000
Retained earnings 2,987,000 3,365,000
----------- -----------
7,291,000 7,669,000
----------- -----------
TOTAL $24,694,000 $29,403,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
-2-
<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three-Month Nine-Month
Periods Ended Periods Ended
October 31, October 31,
---------------------------- ------------------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
NET SALES $2,611,000 $3,168,000 $13,953,000 $12,091,000
COST OF SALES 2,315,000 2,056,000 9,641,000 7,820,000
------------ ------------ ------------- -------------
GROSS MARGIN 296,000 1,112,000 4,312,000 4,271,000
------------ ------------ ------------- -------------
OTHER EXPENSES (INCOME)
Selling, general and
administrative 1,315,000 1,557,000 3,805,000 5,180,000
Interest expense 432,000 295,000 1,054,000 732,000
Interest (income) (20,000) (6,000) (23,000) (32,000)
Amortization of loan costs 29,000 26,000 105,000 90,000
Other expense 0 0 0 18,000
------------ ------------ ------------- -------------
Total other expenses 1,756,000 1,872,000 4,941,000 5,988,000
------------ ------------ ------------- -------------
(LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES (1,460,000) (760,000) (629,000) (1,717,000)
PROVISION (BENEFIT) FOR INCOME
TAXES (583,000) (323,000) (251,000) (687,000)
------------ ------------ ------------- -------------
NET (LOSS) ($877,000) ($437,000) ($378,000) ($1,030,000)
============ ============ ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,213,000 2,213,000 2,213,000 2,213,000
============ ============ ============= =============
EARNINGS (LOSS) PER SHARE ($0.40) ($0.20) ($0.17) ($0.47)
============ ============ ============= =============
</TABLE>
See accompanying notes to consolidated financial statements
-3-
<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
October 31,
------------------------------
1995 1994
------------- ------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $5,575,000 $2,757,000
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of film rights (6,386,000) (2,421,000)
Capital Expenditures --- (105,000)
Proceeds from affiliate note receivable 100,000 ---
------------- ------------
Net cash provided by investing
activities (6,286,000) (2,526,000)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line
of credit 941,000 (429,000)
Repayments of capital lease obligations (46,000) ---
Redemption of convertible senior
subordinated debt (12,000) (9,000)
------------- ------------
Net cash used by financing
activities 883,000 (438,000)
------------- ------------
NET INCREASE (DECREASE) IN CASH 172,000 (207,000)
CASH, BEGINNING OF PERIOD 360,000 702,000
------------- ------------
CASH, END OF PERIOD $532,000 $495,000
============= ============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Acquisition of licensing rights under contract ($4,743,000) $3,993,000
Write down of investment in affiliate --- 100,000
</TABLE>
See accompanying notes to consolidated financial statements
-4-
<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
- ------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position of the Company as of
October 31, 1995, the results of its operations for the three-month and nine
month periods October 31, 1995 and 1994.
2. The results of operations for the interim periods of the Company's fiscal
year are not necessarily indicative of the results to be expected for the
entire year. Certain reclassifications have been made in the 1994 financial
statements to confirm with 1995 classifications.
3. On March 13, 1995 the Company and Imperial Bank of Los Angeles, California
entered into an agreement for the bank to supply the Company with a
$6,000,000 revolving line of credit secured by the assets of the Company,
reducing to $5,000,000 on December 31, 1995 with an expiration date of June
16, 1996. Borrowing is based upon certain percentages of acceptable
receivables. The outstanding balance at October 31, 1995 was $3,905,000. The
agreement contains various covenants the most restrictive of which (1)
require a liquidity ratio of not less than .45 to 1 at any time, (2) require
the debt to adjusted net worth to be not greater than 1.5 to 1 at any time,
(3) require the interest coverage for any quarter to be more than 1.25 to 1.
4. Commitments and Contingencies
The Company has contracted for the production of three films that require
payment of $2,400,000 upon delivery and acceptance. One film in the amount
of $575,000 is scheduled for delivery in May, 1996, a second film in the
amount of $625,000 is scheduled for delivery in June, 1996. The third film
in the amount of $1,200,000 is scheduled for delivery in August, 1996.
-5-
<PAGE>
Item 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
Results of Operations
- ---------------------
The following table breaks down the Company's sales by percentage into
the markets serviced.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
October 31, October 31,
-------------- --------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales
Video Sales
Domestic Rental Market 45.2 % 46 % 48.5 % 49 %
"Sell-Through" Market 3.1 2 7.8 1
Ancillary Sales -
Domestic Television 51.7 21 27.5 17
Foreign Rights -- 27 18.9 32
Theatrical -- 4 -- 1
----- ----- ----- -----
100 % 100 % 100 % 100 %
===== ===== ===== =====
</TABLE>
For The Nine Month Period Ended October 31, 1995 and October 31, 1994
- ---------------------------------------------------------------------
Net sales increased $1,862,000 or 15.4% to $13,953,000 from
$12,091,000. Home video sales into the "sell-through" market increased to almost
$1.1 million compared to $238,000 last year. Sales in the domestic television
market increased by more than 50% and sales in the domestic video rental market
increased 14.5%. These increases were offset by decreases in foreign sales of
20% and there were no theatrical releases during this period. The Company does
not have any plans for theatrical releases in the near future.
In November 1994, the Company entered into a three year exclusive
domestic distribution agreement with Turner Home Entertainment, Inc. The
agreement provides that Turner assume all domestic sales responsibility for the
Company's product in the domestic home video market, both rental and "sell-
through".
While there was an increase in home video rental sales for the nine
months all of that increase occurred in the first quarter. The second and third
quarter had decreases of 7% and 23% respectively. These decreases created a cash
shortage so that the Company could not commence and complete production of new
films. The decrease in sales of foreign rights was the result of no new films
available for sale in this third quarter.
Costs of sales increased $1,821,000 to $9,641,000 from $7,820,000
primarily from an $875,000 increase in film costs and minimum guaranteed royalty
payments to acquire higher quality films with more recognizable stars and
acquire broader rights for the foreign and television markets and a $1,000,000
increase in distribution expenses. Distribution expenses increased as a result
of the fees earned by Turner for the domestic home video sales into the rental
and "sell-through" markets.
-6-
<PAGE>
Item 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------
Selling, general and administrative expenses decreased $1,375,000 from
$5,180,000 to $3,805,000. This is primarily due to a decrease in advertising. In
the July 31, 1994 quarterly report, the Company announced it had instituted cost
reductions in the areas of distribution, sales and marketing. This decrease in
advertising is part of that program. Selling activities are now the
responsibility of Turner pursuant to the distribution agreement.
Interest expense increased $322,000, primarily due to increased
borrowings under the new Imperial Bank line of credit. (see below)
Interest income decreased $9,000 as the Company's shortage of cash did
not allow for any short term investments compared to last year.
Loan costs increased $15,000 as the Company begins amortization of
costs related to completing the Imperial Bank line of credit (see below) and
writing off all remaining unamortized costs relating to the Bank of America line
of credit. Loan costs include the amortization of the costs related to the
Convertible Subordinated Debentures over a 10-year period, the life of the
Debentures.
Other expenses for the nine months ended October 31, 1994 were losses
due to currency fluctuation relating to the Company's video operations in
Canada. In January, 1994, the Company entered into an agreement with C/FP
Distribution, a Canadian company, to distribute all of its new releases and
catalog to the Canadian home video market. The Company has closed its sales
office in Canada effective April 30, 1994.
The loss before taxes decreased by $1,088,000 due to the increase in
sales and the reduction in selling and general and administrative expenses. The
income increases were partially offset by cost of sales and interest expense
increases.
For the Three Months Ended October 31, 1995 and October 31, 1994
- ----------------------------------------------------------------
Net sales decreased $557,000 or 17.5% from $3,168,000 last year to
$2,611,000. The decrease was primarily a result of no sales for foreign rights
in this quarter since the Company was financially unable to produce any new
films for sale in this quarter. Last year's sale in the foreign marketplace for
this same quarter was $1,067,000.
There was a decrease in domestic home video sales of 23% as the
Company released only two films into that market as opposed to its normal three
films, one each month. These decreases were offset by an increase of more than
$850,000 in sale of rights to the domestic television market.
Cost of sales increased $259,000. This increase is primarily a write
down of approximately $400,000 of the Company's video finished goods inventory
to realizable cash value, offset by reductions in productions in production of
artwork and trailers as part of the Company's cost reduction program.
Selling, general and administrative expenses decreased $242,000. This
is due primarily to a decrease in advertising and selling expenses since these
activities are now the responsibility of Turner pursuant to the distribution
agreement.
Interest expense increased $137,000 due to increased borrowings under
the Imperial Loan Agreement and payment schedules negotiated with several
creditors requiring interest payments.
-7-
<PAGE>
Item 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
The Company finances its activities from cash flow and borrowing from
banks and other financial institutions and from the public debt market.
On March 13, 1995, the Company and Imperial Bank of Los Angeles,
California entered into an agreement for the bank to supply the Company with a
$6,000,000 revolving line of credit secured by the assets of the Company,
reducing to $5,000,000 on December 31, 1995 with an expiration date of June 16,
1996. This replaces the Company's previous $5,000,000 line of credit with Bank
of America NT & SA.
The Company has fully utilized its available line of credit at July
31, 1995 and must rely on its current cash flow to meets its future obligations.
The Company has incurred a substantial loss in this third quarter of 1995
creating a significant working capital shortfall and is unable to meet its
current obligations to its creditors. Therefore, on December 1, 1995 the Company
filed a petition for reorganization under Chapter 11 of the Bankruptcy Code.
(see subsequent events)
Cash flow from operating activities was $5,575,000 and was primarly
the result of a $1,308,000 decrease in accounts receivable, and film cost
amortization of $4,635,000. These amounts were partially offset by decreases in
accounts payable and accrued expenses.
Cash used in investing activities was $6,286,000 and was the result of
$6,386,000 in payments for the purchase of film rights offset by cash received
from a note receivable.
Cash received from financing activities was $883,000 and was mainly
atributable to the borrowings by the Company on its new line of credit with the
Imperial Bank.
Seasonality
-----------
Industry statistics and the Company's operating history indicate there
is a summer sales decline.
Inflation
---------
Management believes that inflation is not a material factor in the
operation of its business at this time.
Subsequent Events
-----------------
On December 1, 1995, the Company filed a petition for reorganization
under Chapter 11 of the Bankruptcy Code. As a result, of the third quarter loss
the Company has experienced a significant working capital shortfall as its
credit line has been fully utilized. The Company is presently engaged in
discussions with its lender regarding the use of cash collateral during the
bankruptcy proceeding.
-8-
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULT OF OPERATIONS (continued)
-------------------------------------------------
Subsequent Events (continued)
-----------------------------
Turner Home Entertainment will continue to distribute the Company's
films into the domestic video market. The three films to be distributed in the
Company's fourth quarter include a sequel to its best selling franchise, "Night
Eyes 4". However, the Company does not have sufficient capital to fully complete
its calendar 1996 production and release schedule, nor to satisfy, in a timely
fashion, its monetary obligations to certain of its larger creditors.
The Company does not satisfy all of the guidelines for the continued
listing of the Company's common stock on the American Stock Exchange.
Accordingly, there can be no assurances that the Company's stock will continue
to be listed. The American Stock Exchange has advised the Company that the
existing trading halt will not be lifted until full disclosure of the Company's
financial matters has been made and the Exchange has reviewed the Company's
continued listing eligibility. A meeting has been arranged for December 21, 1995
to review the Company's financial matters with the American Stock Exchange.
Ron Berger, Wirt Walker and Mishal Al Sabah have resigned from the
Board of Directors. Peter Graham and Barry Collier will continue as directors,
and Mr. Collier will continue to serve as President, Chief Executive Officer and
Chief Operating Office of the Company. The Company has also retained an
investment banking firm to find a strategic partner and/or acquisition.
-9-
<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART II Other Information
------------------
ITEM 6(B) Report on Form 8-K
None
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.
PRISM ENTERTAINMENT CORPORATION
AND SUBSIDIARIES (Registrant)
December 19, 1995 /s/ Barry L. Collier
---------------------------------
President
December 19, 1995 /s/ Earl Rosenstein
---------------------------------
Senior Vice President and
Chief Financial Officer
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 532,000
<SECURITIES> 0
<RECEIVABLES> 6,265,000
<ALLOWANCES> 0
<INVENTORY> 596,000
<CURRENT-ASSETS> 23,513,000
<PP&E> 438,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,694,000
<CURRENT-LIABILITIES> 12,451,000
<BONDS> 0
<COMMON> 22,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 24,694,000
<SALES> 13,953,000
<TOTAL-REVENUES> 13,953,000
<CGS> 9,641,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,910,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,054,000
<INCOME-PRETAX> (629,000)
<INCOME-TAX> (251,000)
<INCOME-CONTINUING> (378,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (378,000)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> 0
</TABLE>
