<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, 1996
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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
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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, 1996
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Common 2,213,000
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PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES (Debtor In Possession)
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INDEX
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<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
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<S> <C> <C>
Consolidated Balance Sheets 1-2
April 30, 1996 and January 31, 1996
Consolidated Condensed Statements of Income 3
Three Months Ended April 30, 1996 and 1995
Consolidated Condensed Statements of Cash Flows 4
Three Months Ended April 30, 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>
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PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES (Debtor In Possession)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS April 30, January 31,
1996 1996
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(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents $101,000 $589,000
Restricted cash 1,665,000 887,000
Trade receivables, net 3,775,000 4,440,000
Due from affiliate 220,000 257,000
Inventories 363,000 363,000
Film costs 7,481,000 7,820,000
Prepaid expenses 65,000 82,000
Furniture and equipment, net 235,000 257,000
Debenture issue costs, net 357,000 390,000
Other assets 358,000 359,000
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TOTAL ASSETS $14,620,000 $15,444,000
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</TABLE>
See accompanying notes to consolidated financial statements
1
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PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES (Debtor In Possession)
CONSOLIDATED BALANCE SHEETS
CONCLUDED
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDER'S EQUITY April 30, January 31,
1996 1996
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(Unaudited)
<S> <C> <C>
Liabilities Not Subject To Compromise
Line of credit $ 3,989,000 $ 3,989,000
Accounts payable 723,000 429,000
Accrued expenses 845,000 876,000
Deferred income 41,000 41,000
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Total liabilities not subject to compromise 5,598,000 5,335,000
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LIABILITIES SUBJECT TO COMPROMISE 10,151,000 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
Retained earnings (accumulated deficit) (5,433,000) (4,441,000)
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(1,129,000) (137,000)
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TOTAL $14,620,000 $15,444,000
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</TABLE>
See accompanying notes to consolidated financial statements
2
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PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES (Debtor In Possession)
CONSOLIDATED CONDENSED STATEMENT OF INCOME (Unaudited)
<TABLE>
<CAPTION>
For The Three Month Period
Ended April 30,
--------------------------
1996 1995
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<S> <C> <C>
NET SALES $842,000 $5,928,000
COST OF SALES 810,000 3,453,000
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GROSS MARGIN 32,000 2,475,000
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OTHER EXPENSES (INCOME)
Selling, general and administrative 721,000 1,403,000
Interest expense 99,000 311,000
Interest (income) (13,000) (11,000)
Amortization of loan costs 32,000 50,000
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Total other expenses 839,000 1,753,000
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(LOSS) INCOME FROM OPERATIONS BEFORE REORGANIZATION
ITEM AND INCOME TAXES (807,000) 722,000
REORGANIZATION ITEM
PROFESSIONAL FEES 185,000 ---
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(LOSS) INCOME BEFORE PROVISION FOR
INCOME TAXES (992,000) 722,000
PROVISION FOR INCOME TAXES --- 289,000
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NET (LOSS) INCOME (992,000) 433,000
========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,213,000 2,213,000
(LOSS) EARNINGS PER SHARE ($0.45) $0.20
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
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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>
Three Months Ended
April 30,
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1996 1995
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $266,000 $930,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of film rights (13,000) (4,167,000)
Proceeds from affiliate note receivable 37,000 35,000
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Net cash provided by (used in) investing activities 24,000 (4,132,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit ---- 3,036,000
Increase in restricted cash (778,000) ----
Repayments of capital lease obligations ---- (25,000)
Redemption of convertible senior subordinated debentures ---- (5,000)
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Net cash provided by (used in) financing activities (778,000) 3,006,000
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NET (DECREASE) IN CASH AND CASH EQUIVALENTS (488,000) (196,000)
CASH, BEGINNING OF PERIOD 589,000 360,000
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CASH, END OF PERIOD $101,000 $164,000
=========== ============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Acquisition of licensing rights under contract $0 $3,130,000
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES
(Debtor In Possession)
April 30, 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 as of April 30, 1996, and the
results of operations and cashflows for the three month period ended April 30,
1996 and 1995. 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 three month period ended April 30, 1996 are
not necessarily indicative of the results to be expected for any other period or
for the full 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.
5
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Item 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND RESULTS OF OPERATIONS
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Results of Operations
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For the Three Month Period Ended April 30, 1996 and April 30, 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 has not yet filed a plan of
reorganization. However, at the present time, the Company is in negotiations
with Imperial Bank, its principal secured creditor, and the Official Committee
of Unsecured Creditors ("Committee") concerning the formation of a consensual
plan.
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.
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 and the attempt to pre-sell certain ancillary rights for film
properties owned by the Company which the Company would then use to obtain
production financing.
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.
Management of the Company is presently focused on seeking merger/acquisition
candidates. While the Company is actively engaged in discussions with one such
candidate, no agreement has been entered into as of the date of this report, and
no assurance can be given that a transaction will be consummated with this or
any other firm. 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
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AND RESULTS OF OPERATIONS (continued)
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The Company has formed a separate division within Prism Pictures to sell
rights for Prism Pictures product to the domestic ancillary market, including
pay-per-view, pay and basic cable, free television and laser discs. The Company
continues to license rights to its existing product for the ancillary market.
Within this limited business activity during this quarter, the Company
generated sales of $842,000 compared to $5,928,000 in the first quarter last
year. Cost of sales decreased $2,643,000 to $810,000 from $3,453,000 and
selling, general and administrative expenses decreased $682,000 to $721,000 from
$1,403,000.
On this low level of sales activity the Company sustained a loss of $992,000
in this quarter compared to net income of $433,000 in the same quarter 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.
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.
Within this limited business activity cash flow from operating activities was
$266,000 and cash received from investing activities was $24,000. Cash use from
financing activities was $778,000 and was attributable to cash set aside to pay
down the Imperial Bank line of credit.
Seasonality
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Not applicable
Inflation
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Not applicable
7
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PRISM ENTERTAINMENT CORPORATION AND SUBSIDIARIES (Debtor In Possession)
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)
June 19, 1996 /s/ Barry L. Collier
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Barry L. Collier
President
June 19, 1996 /s/ Rudy Patino
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Rudy Patino
Chief Accounting Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 1,766,000
<SECURITIES> 0
<RECEIVABLES> 4,542,000
<ALLOWANCES> 547,000
<INVENTORY> 363,000
<CURRENT-ASSETS> 13,953,000
<PP&E> 235,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,620,000
<CURRENT-LIABILITIES> 10,791,000
<BONDS> 0
0
0
<COMMON> 22,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,620,000
<SALES> 842,000
<TOTAL-REVENUES> 842,000
<CGS> 810,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 938,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99,000
<INCOME-PRETAX> (922,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (922,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (922,000)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> 0
</TABLE>
