<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 July 31, 1995
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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
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(Exact name of registrant as specified in its charter)
Delaware 95-3897052
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1888 Century Park East, Suite 350, Los Angeles, California 90067
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(Address of principal executive offices) (Zip Code)
Registrant's phone number, including area code (310)277-3270
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______________________________________________________________________________
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 July 31, 1995
------ ----------------------------
Common 2,213,000
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<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
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INDEX
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I FINANCIAL INFORMATION
Consolidated Balance Sheets 1-2
July 31, 1995 and January 31, 1995
Consolidated Condensed Statements of Income 3
Three Months Ended July 31, 1995 and 1994 and
Six Months Ended July 31, 1995 and 1994
Consolidated Condensed Statements of Cash Flows 4
Six Months Ended July 31, 1995 and 1994
Notes to Consolidated Condensed Financial Statements 5
Management's Discussion and Analysis of the Results 6-8
of Operations and Financial Condition
PART II OTHER INFORMATION 9
</TABLE>
<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS July 31, January 31,
1995 1995
----------- -----------
Unaudited
<S> <C> <C>
Cash and cash equivalents $ 58,000 $ 360,000
Trade receivables, net 8,525,000 7,573,000
Due from affiliate 305,000 351,000
Inventories 1,053,000 1,243,000
Film costs 20,395,000 17,920,000
Prepaid expenses 639,000 585,000
Furniture and equipment, net 472,000 541,000
Debenture issue costs, net 468,000 520,000
Other assets 306,000 310,000
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TOTAL ASSETS $32,221,000 $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 July 31, January 31,
1995 1995
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(Unaudited)
<S> <C> <C>
Loans and notes payable $5,780,000 $2,964,000
Accounts payable 1,123,000 1,416,000
Accrued expenses 970,000 1,135,000
Minimum guarantees 8,574,000 8,576,000
Obligations under capital leases 231,000 262,000
Deferred income taxes 1,216,000 914,000
Deferred income - related party 1,155,000 682,000
Deferred income 45,000 821,000
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Total liabilities before convertible
senior subordinated debentures 19,094,000 16,770,000
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CONVERTIBLE SENIOR SUBORDINATED DEBENTURES 4,959,000 4,964,000
----------- -----------
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 3,864,000 3,365,000
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8,168,000 7,669,000
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TOTAL $32,221,000 $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 Six-Month
Periods Ended Periods Ended
July 31, July 31,
----------------------- ------------------------
1995 1994 1995 1994
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
NET SALES $5,414,000 $3,932,000 $11,342,000 $8,923,000
COST OF SALES 3,873,000 2,856,000 7,326,000 5,764,000
---------- ---------- ----------- ----------
GROSS MARGIN 1,541,000 1,076,000 4,016,000 3,159,000
---------- ---------- ----------- ----------
OTHER EXPENSES (INCOME)
Selling, general and administrative 1,087,000 1,772,000 2,490,000 3,623,000
Interest expense 311,000 220,000 622,000 437,000
Interest (income) 8,000 (22,000) (3,000) (26,000)
Amortization of loan costs 26,000 30,000 76,000 64,000
Other (income) expense 0 (4,000) 0 18,000
---------- ---------- ----------- ----------
Total other expenses 1,432,000 1,996,000 3,185,000 4,116,000
---------- ---------- ----------- ----------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 109,000 (920,000) 831,000 (957,000)
PROVISION (BENEFIT) FOR INCOME TAXES 43,000 (364,000) 332,000 (364,000)
---------- ---------- ----------- ----------
NET INCOME (LOSS) $66,000 ($556,000) $499,000 ($593,000)
========== ========== =========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,213,000 2,213,000 2,213,000 2,213,000
========== ========== =========== ==========
EARNINGS (LOSS) PER SHARE $0.03 ($0.25) $0.23 ($0.27)
========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
-3-
<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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<TABLE>
<CAPTION>
Six Months Ended
July 31,
------------------------
1995 1994
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<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $3,012,000 $2,757,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of film rights (6,119,000) (2,421,000)
Capital Expenditures -- (105,000)
Proceeds from affiliate note receivable 46,000 --
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Net cash provided by investing activities (6,073,000) (2,526,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under
line of credit 2,816,000 (429,000)
Repayments of capital lease obligations (52,000) --
Redemption of convertible senior
subordinated debentures (5,000) (9,000)
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Net cash used by financing activities 2,759,000 (438,000)
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NET DECREASE IN CASH (302,000) (207,000)
CASH, BEGINNING OF PERIOD 360,000 702,000
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CASH, END OF PERIOD $ 58,000 $ 495,000
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Acquisition of licensing rights under contract $5,965,000 $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
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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 July
31, 1995, the results of its operations for the three-month and six month
periods July 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 July 31, 1995 was $5,780,000. 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.
As of July 31, and for the six and three months then ended the Company is in
compliance with all of the covenants.
-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 Six Months
Ended Ended
July 31, July 31,
--------------- ---------------
1995 1994 1995 1994
------- ------ ------- ------
<S> <C> <C> <C> <C>
Net Sales
Video Sales
Domestic Rental Market 38% 56% 46% 45%
"Sell-Through" Market 19 1 9 2
Ancillary Sales -
Domestic Television 22 21 22 22
Foreign Rights 21 11 23 26
Theatrical -- 11 -- 5
--- --- --- ---
100% 100% 100% 100%
=== === === ===
</TABLE>
For the Six Month Period Ended July 31, 1995 and July 31, 1994
--------------------------------------------------------------
Net sales increased $2,419,000 or 28% to $11,342,000 from $8,923,000.
Each of the markets serviced had sales increases with the exception of the
theatrical market. The largest increase was in home video sales into the "sell-
through" market. The "sell-through" market sales were more than $1,000,000
compared to $200,000 last year. The Company together with Turner Home
Entertainment, the Company's exclusive domestic home video distributor, designed
a "sell-through" program of 38 titles priced to retail at $9.98.
Sales in both the home video rental market and domestic television
market increased more than 20% each while foreign sales increased 17%.
The Company did not have any theatrical releases during this period
and does not plan for any in this fiscal year.
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 home video market, both rental and "sell-through".
Cost of sales increased $1,562,000 to $7,326,000 from $5,764,000
primarily from an $880,000 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 $900,000
increase in distribution expenses. Distribution expenses increased as a result
of the fees earned by Turner for the home video sales increase in both the
rental and the "sell-through" market. These increases were offset by
approximately $250,000 in reductions in production of artwork and trailers as
part of the Company's cost reduction program announced in the July 31, 1994
quarter last year.
-6-
<PAGE>
Item 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Selling, general and administrative expenses decreased $1,133,000 from
$3,623,000 to $2,490,000. This is primarily due to a decrease in advertising of
$549,000 and the remaining balance decrease was of selling and travel expenses.
Selling activities are now the responsibilty of Turner pursuant to the
distribution agreement. 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 is part of that program.
Interest expense increased $185,000, primarily due to increased
borrowings under the new Imperial Bank line of credit. (see below)
Interest income decreased $23,000 since the Company utilized the
majority of its cash to acquire film rights and did not have the level of short
term investments compared to last year.
Loan costs increased $12,000 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 six months ended July 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.
Income before taxes increased by $1,788,000 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 July 31, 1995 and July 31, 1994
----------------------------------------------------------
Net sales increased $1,482,000 or 37.8% due primarily to substantial
increases in sales to the "sell-through", foreign and domestic television
markets. The sales to the domestic home video rental market had a modest
decrease of 7%.
All of the increases and decreases in the income statement for the three
month period are substantially the same as they are for the six month period.
Therefore, all management comments for the six month period are the same for the
three month period.
-7-
<PAGE>
Item 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Income before taxes increased by $1,029,000 due to the increase in
sales and the reduction in selling and general and administrative expenses. The
income increases was partially offset by cost of sales and interest expense
increases.
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 cash flow to meets its future obligations.
Cash flow from operating activities was $3,012,000 and was the result
of net earnings of $499,000 and film cost and other amoritzation and
depreciation of $3,784,000 reduced by a $952,000 increase in accounts receivable
and the remainder a decrease in accounts payable and accrued expenses.
Cash used in investing was $6,073,000 and was primarily payments of
$6,119,000 for the purchase of film rights offset by cash received from a note
receivable.
Cash received from financing activities was $2,759,000 and was mainly
attributable 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.
-8-
<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)
September 13, 1995 /s/ Barry L. Collier
_________________________________
Barry L. Collier
President
September 13, 1995 /s/ Earl Rosenstein
_________________________________
Earl Rosenstein
Senior Vice President and
Chief Financial Officer
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JUL-31-1995
<CASH> 58,000
<SECURITIES> 0
<RECEIVABLES> 8,830,000
<ALLOWANCES> 0
<INVENTORY> 1,053,000
<CURRENT-ASSETS> 30,975,000
<PP&E> 472,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 32,221,000
<CURRENT-LIABILITIES> 16,543,000
<BONDS> 0
<COMMON> 22,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 32,221,000
<SALES> 11,342,000
<TOTAL-REVENUES> 11,342,000
<CGS> 7,326,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,563,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 622,000
<INCOME-PRETAX> 831,000
<INCOME-TAX> 332,000
<INCOME-CONTINUING> 499,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 499,000
<EPS-PRIMARY> .23
<EPS-DILUTED> 0
</TABLE>
