<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, 1996
-------------
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
- -------- ----------
(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, 1996
- ------ ----------------------------
Common 2,213,000
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<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES (Debtor In Possession)
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INDEX
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<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
Consolidated Balance Sheets 1-2
July 31, 1996 and January 31, 1996
Consolidated Condensed Statements of Income 3
Three Months Ended July 31, 1996 and 1995 and
Six Months Ended July 31, 1996 and 1995
Consolidated Condensed Statements of Cash Flows 4
Six Months Ended July 31, 1996 and 1995
Notes to Consolidated Condensed Financial Statements 5
Management's Discussion and Analysis of the Results 6-7
of Operations and Financial Condition
PART II OTHER INFORMATION 8
</TABLE>
<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES (Debtor In Possession)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS July 31, January 31,
- ------ 1996 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 167,000 $ 589,000
Restricted cash 1,865,000 887,000
Trade receivables, net 2,897,000 4,440,000
Due from affiliate 166,000 257,000
Inventories ---- 363,000
Film costs 7,169,000 7,820,000
Prepaid expenses 65,000 82,000
Furniture and equipment, net 212,000 257,000
Debenture issue costs, net 325,000 390,000
Other assets 357,000 359,000
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TOTAL ASSETS $13,223,000 $15,444,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
1
<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES (Debtor In Possession)
CONSOLIDATED BALANCE SHEETS
CONCLUDED
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDER'S EQUITY July 31, January 31,
- -------------------- 1996 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Liabilities Not Subject To Compromise
- -------------------------------------
Line of credit $ 3,442,000 $ 3,989,000
Accounts payable (Note 3) 941,000 429,000
Accrued expenses 852,000 876,000
Deferred income 44,000 41,000
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Total liabilities not subject
to compromise 5,279,000 5,335,000
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LIABILITIES SUBJECT TO COMPROMISE 10,394,000 10,246,000
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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
Accumulated deficit (6,754,000) (4,441,000)
----------- -----------
(2,450,000) (137,000)
----------- -----------
TOTAL $13,223,000 $15,444,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES (Debtor In Possession)
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CONSOLIDATED CONDENSED STATEMENT OF INCOME (Unaudited)
- -----------------------------------------------------
<TABLE>
<CAPTION>
For The Three Month Period For The Six Month Period
Ended July 31, Ended July 31,
-------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 167,000 $5,414,000 $ 1,009,000 $11,342,000
COST OF SALES 365,000 3,873,000 1,175,000 7,326,000
----------- ---------- ----------- -----------
GROSS MARGIN (198,000) 1,541,000 (166,000) 4,016,000
----------- ---------- ----------- -----------
OTHER EXPENSES (INCOME)
Selling, general and administrative 564,000 1,087,000 1,285,000 2,490,000
Interest expense 104,000 311,000 203,000 622,000
Interest (income) (13,000) 8,000 (26,000) (3,000)
Amortization of loan costs 33,000 26,000 65,000 76,000
----------- ---------- ----------- -----------
Total other expenses 688,000 1,432,000 1,527,000 3,185,000
----------- ---------- ----------- -----------
(LOSS) INCOME FROM OPERATIONS BEFORE
REORGANIZATION ITEM AND INCOME TAXES (886,000) 109,000 (1,693,000) 831,000
REORGANIZATION ITEM
PROFESSIONAL FEES 435,000 --- 620,000 ---
----------- ---------- ----------- -----------
(LOSS) INCOME BEFORE PROVISION FOR
INCOME TAXES (1,321,000) 109,000 (2,313,000) 831,000
PROVISION FOR INCOME TAXES --- 43,000 --- 332,000
----------- ---------- ----------- -----------
NET (LOSS) INCOME $(1,321,000) $ 66,000 $(2,313,000) $ 499,000
=========== ========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,213,000 2,213,000 2,213,000 2,213,000
=========== ========== =========== ===========
(LOSS) EARNINGS PER SHARE $ (0.60) $ 0.03 $ (1.05) $ 0.23
=========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES (Debtor In Possession)
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
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<TABLE>
<CAPTION>
Six Months Ended
July 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $1,046,000 $3,012,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of film rights (20,000) (6,119,000)
Proceeds from affiliate note receivable 91,000 46,000
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Net cash provided by (used in) investing activities 71,000 (6,073,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit (547,000) 2,816,000
Increase in restricted cash (978,000) ---
Repayments of capital lease obligations (14,000) (52,000)
Redemption of convertible senior subordinated debentures ---- (5,000)
---------- ----------
Net cash provided by (used in) financing activities (1,539,000) 2,759,000
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NET (DECREASE) IN CASH AND CASH EQUIVALENTS (422,000) (302,000)
CASH, BEGINNING OF PERIOD 589,000 360,000
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CASH, END OF PERIOD $ 167,000 $ 58,000
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Acquisition of licensing rights under contract $ 0 $5,965,000
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
(Debtor In Possession)
July 31, 1996
(unaudited)
Note 1 - Statement of Information Furnished
- -------------------------------------------
In the opinion of management the accompanying unaudited financial statements
contain all adjustments (consisting only of normal and recurring accruals)
necessary to present fairly the financial position, the results of operations
and cashflows for the periods presented. These results have been determined on
the basis of generally accepted accounting principles and practices applied
consistently with those used in the preparation of the Company's Annual Report
on Form 10-K for the fiscal year ended January 31,1996.
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 any other
period or for the entire year.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. The accompanying financial statements should be
read in conjunction with the Company's audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
January 31, 1996.
Note 2 - Earnings Per Share
- ---------------------------
Earnings per share amounts are computed based upon the weighted average number
of common shares actually outstanding during the period. Common stock options
and purchase warrants, which are considered common stock equivalents, are not
considered in the average number of shares since the effect would be anti-
dilutive.
Note 3 - Accounts Payable
- -------------------------
Attorney's fee's attributed to the Company's bankruptcy proceeding, account for
$576,000 of the total accounts payable.
5
<PAGE>
Item 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Results of Operations
- ---------------------
For the Six Month Period Ended July 31, 1996 and July 31, 1995
- --------------------------------------------------------------
On December 1, 1995, the Company and its subsidiaries filed a voluntary
petition and commenced a case (the "Bankruptcy Proceedings") under Chapter 11 of
the United States Bankruptcy Code, which is still pending. Throughout the course
of the Bankruptcy Proceedings, the Company has been operating as debtor in
possession. No trustee has been appointed and no motion has been filed for the
appointment of a trustee. The Company filed a proposed plan of reorganization
(the "Plan") on August 30, 1996, with the United States Bankruptcy Court in Los
Angeles. The Plan calls for Lee Video City, Inc. a California corporation
("VCI") to merge with and into Prism Entertainment Corporation upon confirmation
of the Plan. The Plan also calls for the Company's unsecured creditors to
receive pro-rated shares of approximately 25.2% and current Prism shareholders
to retain approximately 7.2% of the Reorganized Prism. A creditor of VCI will be
receiving 15.0% of the Reorganized Prism shares in return for forgiveness of
$3,000,000 of long term debt. Although the Company has received a signed Letter
of Intent from VCI, no definitive merger agreement has been executed to date.
"The Plan" has not been approved by the Bankruptcy Court. No assurance can be
given that the Plan will be approved, and if approved, what the specific terms
thereof maybe, or that a definitive merger agreement will be executed and a
merger consummated between the Company and "VCI".
During the course of the Bankruptcy Proceedings the Company has entered
into a series of stipulations with Imperial Bank concerning the Company's use of
the Bank's collateral, including "cash collateral", for its operations. These
stipulations have all been approved by order of the Bankruptcy Court. Imperial
Bank has filed a motion with the Bankruptcy Court for a relief from stay, and
the Company intends to vigorously oppose that motion.
In view of the Company's cash position, the Company is presently engaged in
only limited business activities consisting of the sale of its existing film
products to domestic ancillary markets as well as foreign rights of it's
existing film library.
As a result of the contraction in the Company's business activity, the
Company has terminated the employment of a number of its employees and
management personnel, including the Senior Vice President of Sales & Marketing
and the President of Prism Pictures. The Company is not presently engaged in any
production activity.
Pursuant to an Agreement dated November 8, 1994 (the "The Agreement")
between the Company and Turner Home Entertainment, Inc. ("THE"), the Company
granted to THE the exclusive right to distribute the Company's new programming
as well as the Company's existing library in the United States home video
market. Because of the curtailment of the Company's production activities
discussed above, THE's activities are currently limited to sales of existing
products from Prism's library.
6
<PAGE>
Item 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (continued)
-----------------------------------
Within this limited business activity, the Company generated sales of
$1,009,000 compared to $11,342,000 for the six months ended July 31, of last
year. Cost of sales decreased $6,151,000 to $1,175,000 from $7,326,000 and
selling, general and administrative expenses decreased $1,205,000 to $1,285,000
from $2,490,000.
On this low level of sales activity the Company sustained a loss of
$2,313,000 for the six months ended July 31, compared to net income of $499,000
in the same six month period ending July 31, of last year.
For the Three Months Ended July 31, 1996 and July 31, 1995
- ----------------------------------------------------------
The Company generated sales of $167,000 compared to $5,514,000 in the same
quarter last year. Cost of sales decreased $3,508,000 to $365,000 from
$3,873,000 and selling and administrative expenses decreased $523,000 to
$546,000 from $1,087,000 for the same period last year.
Liquidity and Capital Resources
- -------------------------------
The Company had incurred a substantial loss in the fiscal years ended
January 31, 1995 and 1996 creating a significant working capital shortfall and
was unable to meet its current obligations to its creditors. Therefore, on
December 1, 1995 the Company filed for reorganization under Chapter 11 of the
Bankruptcy Code. Since that date, the Company has been operating as a debtor in
possession. The Company has entered into a series of stipulations with Imperial
Bank concerning the Company's use of the Bank's collateral, including "cash
collateral", for its operations, unless the Company is able to have its plan of
reorganization approved, substantial doubts exist's as to the Company's ability
to continue as a going concern.
On June 5, 1996, the Bankruptcy Court approved the "sixth stipulated
interim order for the use of cash collateral and non-cash collateral". This
order approves a Company budget through September 27, 1996. It also requires the
Company submit a plan of reorganization proposal to the creditors committee by
July 31, 1996. After that date, at their option, Imperial Bank (the only secured
creditor) and the Creditors can accept the proposal or file with the court their
own plans of reorganization and call for liquidation of the Company. Imperial
Bank (the only secured creditor) and the creditors have waived their option to
file their own plan as of this date. Imperial Bank has filed a motion with the
Bankruptcy Court for a relief from stay, and the Company intends to vigorously
oppose that motion.
Within this limited business activity cash flow from operating activities
was $1,046,000 and cash received from investing activities as $71,000. Cash use
from financing activities was $1,539,000 and was attributed to cash payments
made and cash set aside in a restricted cash account, to pay down the Imperial
Bank line of credit.
Seasonality
-----------
Not applicable
Inflation
---------
Not applicable
7
<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES (Debtor In Possession)
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 19, 1996 /s/ Barry L. Collier
------------------------------
Barry L. Collier
President
September 19, 1996 /s/ Rudy Patino
------------------------------
Rudy Patino
Chief Accounting Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 2,032,000
<SECURITIES> 0
<RECEIVABLES> 3,063,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,517,000
<PP&E> 212,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,223,000
<CURRENT-LIABILITIES> 4,427,000
<BONDS> 0
0
0
<COMMON> 22,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,223,000
<SALES> 1,009,000
<TOTAL-REVENUES> 1,009,000
<CGS> 1,175,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,944,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203,000
<INCOME-PRETAX> (2,313,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,313,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,313,000)
<EPS-PRIMARY> (1.05)
<EPS-DILUTED> 0
</TABLE>
