<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 April 30, 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
incorporation or organization) Identification No.)
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 sand 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
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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.
Class Outstanding at April 30, 1995
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Common 2,213,000
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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
April 30, 1995 and January 31, 1995
Consolidated Condensed Statements of Income 3
Three Months Ended April 30, 1995 and 1994
Consolidated Condensed Statements of Cash Flows 4
Three Months Ended April 30, 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
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PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
April 30, January 31,
1995 1995
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Unaudited
<S> <C> <C>
ASSETS
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Cash and cash equivalents $164,000 $360,000
Trade receivables, net 9,316,000 7,573,000
Due from afffiliate 316,000 351,000
Inventories 1,089,000 1,243,000
Film costs 19,089,000 17,920,000
Prepaid expenses 614,000 585,000
Furniture and equipment, net 506,000 541,000
Debenture issue costs, net 494,000 520,000
Other assets 308,000 310,000
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TOTAL ASSETS $31,896,000 $29,403,000
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</TABLE>
See accompanying notes to consolidated financial statements
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PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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CONCLUDED
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<TABLE>
<CAPTION>
April 30, January 31,
1995 1995
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(Unaudited)
<S> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
- --------------------
Loans and notes payable $6,000,000 $2,964,000
Accounts payable 1,184,000 1,416,000
Accrued expenses 1,021,000 1,135,000
Minimum guarantees 7,492,000 8,576,000
Obligations under capital leases 252,000 262,000
Deferred income taxes 1,173,000 914,000
Deferred income - related party 1,364,000 682,000
Deferred income 349,000 821,000
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Total liabilities before convertible
senior subordinated debentures 18,835,000 16,770,000
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CONVERTIBLE SENIOR SUBORDINATED DEBENTURES 4,959,000 4,964,000
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STOCKHOLDERS' 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 3,798,000 3,365,000
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8,102,000 7,669,000
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TOTAL $31,896,000 $29,403,000
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</TABLE>
See notes to consolidated financial statements
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PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
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<TABLE>
<CAPTION>
For The Three Month Period
Ended April 30,
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1995 1994
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<S> <C> <C>
NET SALES $5,928,000 $4,991,000
COST OF SALES 3,453,000 2,908,000
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GROSS MARGIN 2,475,000 2,083,000
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OTHER EXPENSES (INCOME)
Selling, general and administrative 1,403,000 1,851,000
Interest expense 311,000 217,000
Interest (income) (11,000) (4,000)
Amortization of loan costs 50,000 34,000
Other expense --- 22,000
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Total other expenses 1,753,000 2,120,000
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INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 722,000 (37,000)
PROVISION FOR INCOME TAXES 289,000 ---
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NET INCOME (LOSS) 433,000 (37,000)
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WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,213,000 2,213,000
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EARNINGS (LOSS) PER SHARE $ 0.20 $ (0.02)
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
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PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
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Increase (Decrease) in Cash
<TABLE>
<CAPTION>
Three Months Ended
April 30,
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1995 1994
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<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 930,000 $2,543,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of film rights (4,167,000) (1,744,000)
Capital expenditures --- (31,000)
Proceeds from affiliate note receivable 35,000 ---
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Net cash used in investing activities (4,132,000) (1,775,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit 3,036,000 (653,000)
Repayments of capital lease obligations (25,000) ---
Redemption of convertible senior
subordinated debentures (5,000) (7,000)
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Net cash provided by (used in) financing
activities 3,006,000 (660,000)
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (196,000) 108,000
CASH AND CASH EQUIVALENTS beginning of period 360,000 702,000
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CASH AND CASH EQUIVALENTS end of period $ 164,000 $ 810,000
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Acquisition of licensing rights under contract $3,130,000 $2,691,000
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
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PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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
April 30, 1995, the results of its operations for the three-month periods
April 30, 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 August 1, 1995 with an expiration date of June 16,
1996. Borrowing is based upon certain percentages of acceptable receivables.
The outstanding balance at April 30, 1995 was $6,000,000. 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 April 30, and for the three months then ended the Company is in
compliance with all of the covenants.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
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Results of Operations
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The following table breaks down the Company's sales by percentages into the
markets serviced.
<TABLE>
<CAPTION>
Three Month Period Ended,
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April 30,
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1995 1994
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<S> <C> <C>
Net Sales
Video Sales
Domestic Rental Market 53.4 37.5
"Sell-Through" Market ----- 2.9
Ancillary Sales -
Domestic Television 21.0 22.6
Foreign Rights 25.6 37.0
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100.0% 100.0%
</TABLE>
For the Three Month Period Ended April 30, 1995 and April 30, 1994
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Net sales increased $937,000 or 18.8% to $5,928,000 from $4,991,000. This
increase was the result of a 69% increase in home video sales to the rental
market partially offset by a 7% decrease in domestic television and foreign
rights sales.
In November 1994, the Company entered into a three year exclusive domestic
distribution agreement with Turner Home Entertainment, Inc. This was the first
full quarter that Turner has assumed all domestic sales responsibility for the
Company's product in the home video market.
Cost of sales increased $545,000 to $3,453,000 from $2,908,000 primarily
from an increase of $480,000 in distribution expenses and an increase in film
costs related to the films released in this quarter compared to those released
last year. Distribution expenses increased as a result of the fees earned by
Turner for this quarter's home video sales increase.
Selling, general and administrative expenses decreased $448,000. More than
$400,000 was a decrease in advertising with the remaining decrease from lower
selling expenses. Selling activities are now the responsibility of Turner
pursuant to the distribution agreement.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS (continued)
-----------------------------------
Interest expense increased by $94,000 as the Company increased its bank
debt to $6,000,000 from $2,964,000 at January 31, 1995. This was primarily due
to increased borrowings under the new Imperial Bank line of credit. (see below)
Interest income increased $7,000 as the Company collected payments from a
past due note and brought it current.
Loan costs increased $16,000 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 expense for the quarter ended April 30, 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 $759,000 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.
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 August 1, 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 line of credit at April 30, 1995 and
must rely on its cash flow to meet its future obligations.
Cash flow from operating activities was $930,000 and was primarily the
result of a $1,743,000 decrease in accounts receivable, a $499,000 increase in
deferred taxes and income, and film cost amortization of $1,913,000. These
amounts were partially offset by decreases in accounts payable, accrued expenses
and inventory.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS (continued)
-----------------------------------
Cash used by investing activities was $4,132,000 and was the result of
$4,167,000 in payments for the purchase of film rights offset by cash received
from a note receivable.
Cash received from financing activities was $3,006,000 and was mainly
atributable to the borrowings by the Company on its new line of credit with the
Imperial Bank.
Seasonality
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Industry statistics and the Company's operating history indicate there is a
summer sales decline.
Inflation
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Management believes that inflation is not a material factor in the
operation of its business at this time.
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PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART II Other Information
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ITEM 6(B) Report on Form 8-K
None
SIGNATURES
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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)
/s/ Barry L. Collier
June 14, 1995 --------------------------------
Barry L. Collier
President
/s/ Earl Rosenstein
June 14, 1995 --------------------------------
Earl Rosenstein
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> APR-30-1995
<CASH> 164,000
<SECURITIES> 0
<RECEIVABLES> 9,680,000
<ALLOWANCES> 48,000
<INVENTORY> 1,089,000
<CURRENT-ASSETS> 30,377,000
<PP&E> 506,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,896,000
<CURRENT-LIABILITIES> 16,066,000
<BONDS> 0
<COMMON> 22,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 31,896,000
<SALES> 5,928,000
<TOTAL-REVENUES> 5,928,000
<CGS> 3,453,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,453,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 311,000
<INCOME-PRETAX> 722,000
<INCOME-TAX> 289,000
<INCOME-CONTINUING> 433,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 433,000
<EPS-PRIMARY> .20
<EPS-DILUTED> 0
</TABLE>
