<PAGE>
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the period ended March 31, 2000
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or
[_] 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 0-18102
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MATTHEWS STUDIO EQUIPMENT GROUP
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(Exact name of registrant as specified in its charter)
California 95-1447751
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3111 North Kenwood Street, Burbank, CA 91505
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(Address of principal executive offices) (Zip Code)
(818) 525-5200
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since 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 Exchange Act 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. Common Stock, No Par Value
--------------------------
9,997,252 shares as of April 30, 2000
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1
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Index
Matthews Studio Equipment Group and Subsidiaries
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - March 31, 2000 and September
30, 1999
Condensed consolidated statements of operations - Three months ended
March 31, 2000 and 1999
- Six months ended March 31, 2000 and 1999
Condensed consolidated statements of cash flows - Six months ended
March 31, 2000 and 1999
Notes to condensed consolidated financial statements - March 31, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Part II. Other Information
Item 3. Defaults Upon Senior Securities
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
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Part I. Financial Information
Item I. Financial Statements (Unaudited)
Matthews Studio Equipment Group and Subsidiaries
Condensed Consolidated Balance Sheets
($ in thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
----------- -------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 483 $ 390
Accounts receivable, less allowance for
doubtful accounts of $1,400 at March 31,
2000 and $1,420 at September 30, 1999 8,262 9,893
Current portion of net investment in finance
and sales-type leases 256 264
Inventories 2,337 3,312
Prepaid expenses and other current assets 498 489
Income tax refund receivable - 36
---------- -----------
Total current assets 11,836 14,384
Property and equipment, net 40,609 54,168
Net investment in finance and sales-type leases,
less current portion 65 150
Goodwill less accumulated amortization of $6,708 at March 31,
2000 and $6,344 at September 30, 1999 16,994 17,358
Other assets 7,317 5,167
---------- -----------
Total assets $ 76,821 $ 91,227
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 7,034 $ 11,673
Accrued liabilities 6,665 7,610
Current portion of long-term debt and capital lease obligations 81,634 5,404
---------- -----------
Total current liabilities 95,333 24,687
Long-term debt and capital lease obligations less current portion 897 83,111
Shareholders' equity (accumulated deficit):
Preferred stock - -
Common stock 12,039 8,132
Accumulated deficit (31,448) (24,703)
---------- -----------
Total shareholders' equity (accumulated deficit) (19,409) (16,571)
---------- -----------
Total liabilities and shareholders' equity
(accumulated deficit) $ 76,821 $ 91,227
========== ===========
</TABLE>
Note: The balance sheet at September 30, 1999 has been derived from the audited
financial statements at that date.
The accompanying notes are an integral part of these consolidated financial
statements.
3
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Condensed Consolidated Statements of Operations
(Unaudited)
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenue from rental operations $ 7,219 $ 9,271 $ 18,273 $ 19,335
Net product sales 3,153 5,430 7,748 10,312
--------- --------- --------- ---------
10,372 14,701 26,021 29,647
Costs and expenses:
Cost of rental operations 4,913 6,097 11,936 12,047
Cost of sales 2,512 3,941 6,385 7,694
Selling, general and administrative 5,092 5,256 9,388 10,297
Interest, net 2,379 1,820 4,770 3,713
--------- --------- --------- ---------
14,896 17,114 32,479 33,751
Loss before income taxes (4,524) (2,413) (6,458) (4,104)
Benefit for income taxes - (261) - (600)
--------- --------- --------- ---------
Loss before extraordinary item (4,524) (2,152) (6,458) (3,504)
Extraordinary loss on early extinguishment
of debt. (287) - (287) -
--------- --------- --------- ---------
Net loss $ (4,811) $ (2,152) $ (6,745) $ (3,504)
========= ========= ========= =========
Loss per common share basic & diluted:
Loss before extraordinary item ($0.45) ($0.23) ($0.65) ($0.38)
Extraordinary loss (0.03) 0.00 (0.03) 0.00
--------- --------- --------- ---------
Loss per common share, basic and
diluted ($0.48) ($0.23) ($0.68) ($0.38)
========= ========= ========= =========
Weighted Average number of common shares
outstanding 9,996 9,251 9,995 9,184
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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Matthews Studio Equipment Group and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
($ in thousands)
<TABLE>
<CAPTION>
Six Months Ended March 31,
2000 1999
---------- --------
<S> <C> <C>
Operating activities:
Net loss $ (6,745) $ (3,504)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Provision for doubtful accounts 84 39
Depreciation & amortization 6,145 5,795
Deferred income taxes - (887)
Gain on sale of assets (686) (594)
Changes in operating assets and liabilities net of
effects from acquisitions:
Accounts receivable 1,547 (1,007)
Inventories 975 (199)
Net investment in leases 93 91
Prepaids and other assets (2,457) (897)
Income tax refund receivable (1) 291
Accounts payable and accrued liabilities (5,846) 2,470
---------- --------
Net cash provided by (used in) operating activities (6,891) 1,598
Investing activities:
Purchase of property and equipment (2,514) (5,767)
Proceeds from sale of property and equipment 10,782 185
---------- --------
Net cash provided by (used in) investing activities 8,268 (5,582)
Financing activities:
Proceeds from exercise of stock options 35 330
Proceeds from borrowings 3,061 4,398
Repayment of borrowings (4,380) (731)
---------- --------
Net cash provided by (used in) financing activities (1,284) 3,997
Net increase in cash and cash equivalents 93 13
Cash and cash equivalents at beginning of period 390 331
---------- --------
Cash and cash equivalents at end of period $ 483 $ 344
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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Matthews Studio Equipment Group and Subsidiaries
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
($ in thousands)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
2000 1999
------- ------
<S> <C> <C>
Schedule of noncash investing and financing
transactions:
Common stock issued for lawsuit settlement $ 1,175 $ -
Accounting for warrants in connection with
debt issue cost 2,700 -
Capital lease obligations incurred - 1,602
Note received for sale of assets - 1,289
Additional disclosures:
Cash paid during period for:
Interest 3,854 3,209
Income taxes 51 105
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
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Matthews Studio Equipment Group and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. General
Presentation
The accompanying unaudited condensed consolidated financial statements of
Matthews Studio Equipment Group and Subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended March
31, 2000 are not necessarily indicative of the results that may be expected for
the year ending September 30, 2000, due to fluctuations in film production
activities and the Company's petition for reorganization under Chapter 11 of the
U.S. Bankruptcy Code. For further information refer to the consolidated
financial statements and footnotes thereto included in the Matthews Studio
Equipment Group annual report on Form 10-K for the year ended September 30,
1999.
Petition For Relief Under Chapter 11
On April 6, 2000, the Company and its subsidiaries filed petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. The filing was made
in the U.S. Bankruptcy Court in the San Fernando Valley division of the Central
District of California. The case number assigned to the Company is SV 00-13471
KL. In Chapter 11, the Company will continue to manage its affairs and operate
its businesses as a debtor-in-possession while it attempts to develop a
reorganization plan that will restructure the Company and allow its emergence
from Chapter 11. The Chapter 11 proceedings are being jointly administered, with
the Company managing the business in the ordinary course as debtor-in-possession
subject to the control and supervision of the Bankruptcy Court.
The accompanying consolidated financial statements have been prepared on a going
concern basis, which comtemplates continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business.
However, as a result of the Chapter 11 filing, such realization of assets and
liquidation of liabilities is subject to uncertainty. While under the protection
of Chapter 11, the Company, in the normal course of business, may sell or
otherwise dispose of assets and liquidate or settle liabilities for amounts
other than those reflected in the consolidated financial statements. Further, a
plan of reorganization could materially change the amounts and classifications
reported in the consolidated historical financial statements, which do not give
effect to any adjustments to the carrying value of assets or amount of
liabilities that might be necessary as a consequence of a plan of
reorganization. The propriety of using the going concern basis is dependent
upon, among other things, confirmation of a plan of reorganization, which must
be approved by the creditors and confirmed by the Bankruptcy Court, and the
Company's ability to meet its business plan and generate sufficient cash flows
from operations and financial sources.
Business
The Company sells, leases and rents theatrical, film and production equipment
and accessories to the motion picture, television, corporate, theatrical, video
and photography industries. The Company operates in one business segment and
provides, as a single source, the necessary production equipment which is
otherwise only available by using many different suppliers. The Company supplies
equipment such as lights, grip lighting supports, camera mounts, tripods,
pedestals, fluid heads, camera dollies, portable camera cranes, power generators
and production trucks.
On January 21, 2000, the Company sold the video equipment rental operations
conducted by its Duke City Video, Inc. subsidiary ("Duke City") to Vitec DC
Holding Corp. ("Vitec") for a total purchase price of $12.25 million in cash.
The sale was structured as a sale of assets whereby Duke City sold its assets to
Vitec pursuant to an Asset Purchase Agreement dated January
7
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21, 2000, among the Company, Duke City Holdings, Inc. ("Holdings"), Duke City
and Vitec (the "Agreement"). Vitec has purchased the name "Duke City Video" and
derivations thereof as part of the sale. Excluded from the sale are Duke City's
Albuquerque property, its accounts receivable and certain other assets. Also,
Duke City retains responsibility for its liabilities.
$2.0 million of the $12.25 million purchase price was paid to Duke City on
closing. $557,000 of the purchase price is to be paid to Duke City following a
post-closing inventory of rental equipment sold in the transaction, and the
parties are in the process of completing the inventory. $8.93 million of the
purchase price is to be paid to Duke City and Duke City's trade and other
creditors, provided Duke City obtains certain financing statement terminations
pursuant to the terms of the Agreement. As of March 31, 2000, approximately
$7.81 million of this $8.93 million portion has been paid to Duke City and its
trade and other creditors. The remaining $1.3 million of the purchase price is
being held by Vitec as security for certain indemnification obligations of Duke
City and will be paid to Duke City upon the expiration of certain time periods
and the satisfaction of certain conditions specified in the Agreement. The
Company, Holdings and Duke City are obligated to indemnify Vitec against losses
arising out of any inaccuracy of representations and warranties made in the
Agreement and against losses arising out of Duke City's liabilities.
As noted, the Company applied part of the sale proceeds to satisfy obligations
that specifically apply to the Duke City business. The Company used some of the
sales proceeds to reduce bank and other debt.
Financial Statement Presentation - Certain balances from the March 31, 1999,
financial statements have been reclassified to conform to the March 31, 2000
presentation.
2. Equity
During the six months ended March 31, 2000, the Company recorded in equity
warrants issued and to be issued (pursuant to the terms of the Company's Note
Purchase Agreement dated June 30, 1999) for approximately $2.7 million. These
warrants relate to certain of the Company's debt agreements and have been
capitalized as debt issue costs, to be amortized over the shorter of the
remaining life of the warrants or the related debt instrument.
In October 1999, the Company issued 400,000 shares of common stock to settle a
litigation matter which was accrued at September 30, 1999.
8
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3. Per Share Data
Basic loss per share is calculated using the net loss divided by the weighted
average common shares outstanding. Shares outstanding. Shares from the assumed
exercise of outstanding warrants and options are omitted from the computations
of diluted loss per share because the effect would be antidilutive.
The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees,"
and related Interpretations in accounting for its stock-based compensation
plans. Accordingly, no compensation cost has been recognized for its fixed stock
option plans. Had compensation cost for the Company's option plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of FASB Statement 123, "Accounting for Stock-
Based Compensation," the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below (in thousands, except per
share data):
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months ended March 31,
2000 1999 2000 1999
-------- ------- -------- --------
($ in thousands, except per share data)
<S> <C> <C> <C> <C>
Net loss
As reported $ (4,811) $(2,152) $ (6,745) $ (3,504)
Pro forma (4,868) (2,201) (6,853) (3,588)
Net loss per share, basic and diluted:
As reported ($0.48) ($0.23) ($0.68) ($0.38)
Pro forma (0.49) (0.24) (0.69) (0.39)
</TABLE>
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
- ------------------------------------------
The Company is including the following cautionary statement in this Form 10-Q to
make applicable and take advantage of safe harbor provisions of the Private
Security Reform Act of 1995 for any forward looking statements made by, or on
behalf of, the Company. Forward-looking statements include statements concerning
plans, objectives, goals, strategies, future events or performance and
underlying assumptions and other statements which are other than statements of
historical facts. From time to time, the Company may publish or otherwise make
available forward-looking statements of this nature. All such subsequent
forward-looking statements, whether written or oral, and whether made by or on
behalf of the Company, are also expressly qualified by these cautionary
statements. Certain statements contained herein are forward-looking statements
and accordingly involve risk and uncertainties, which could cause actual
results, or outcomes to differ materially from those expressed in the forward-
looking statements.
Results of Operations
Overview
On April 6, 2000, the Company and its subsidiaries filed petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. The filing was made
in the U.S. Bankruptcy Court in the San Fernando Valley division of the Central
District of California. The case number assigned to the Company is SV 00-13471
KL. In Chapter 11, the Company will continue to manage its affairs and operate
its businesses as a debtor-in-possession while it attempts to develop a
reorganization plan that will restructure and allow its emergence from Chapter
11. The Chapter 11 proceedings are being jointly administered, with the Company
managing the business in the ordinary course as debtor-in-possession subject to
the control and supervision of the Bankruptcy Court.
Since the petition date, the Company has continued in possession of its
properties and, as Debtor-in-Possession, is authorized to operate and manage its
business and enter into all transactions (including obtaining services,
inventories and supplies) that it could have entered into in the ordinary course
of business without approval of the Bankruptcy Court. A statutory Creditors'
Committee has been appointed.
In a Chapter 11 filing, substantially all liabilities as of the petition date
are subject to compromise or other treatment under a plan of reorganization.
Generally, actions to enforce or otherwise effect payment of all pre-petition
liabilities as well as all pending litigation against the Company are stayed
while the Company continues its business operations as Debtor-in-Possession. The
ultimate amount of and settlement terms for such liabilities are subject to a
plan of reorganization and accordingly are not presently determinable.
Under the Bankruptcy Code, the Company may elect to assume or reject real estate
leases, employment contracts, personal property leases, service contracts and
other pre-petition executory contracts, subject to Bankruptcy Court approval.
The Company will continue to analyze its executory contracts and may assume or
reject additional contracts.
The Company's revenues for the first six months of fiscal 2000 decreased to
$26,021,000, a decrease of $3,626,000 or 12% over the first six months of fiscal
1999. In addition, EBITDA (earnings before interest expense, income taxes,
depreciation and amortization) decreased to $4,457,000 in the first six months
of fiscal 2000 as compared to $5,404,000 in fiscal 1999. Net loss for the first
six months of fiscal 2000 was $6,745,000 or $0.68 per share, compared to net
loss of $3,504,000 or $0.38 per share for the same period last year. Components
of the Company's operating results are discussed below. This loss resulted from
a combination of factors, the most significant of which were "runaway
productions" (fewer feature films whose principal photography was conducted in
the United States), shrinking margins due to competition pressures and increased
interest costs.
Three-Month Period ended March 31, 2000 and March 31, 1999
- ----------------------------------------------------------
Revenues From Rental Operations
- -------------------------------
Revenues from rental operations were $7,219,000 for the second quarter of fiscal
2000, compared to $9,271,000 for the same period last year, a decrease of
$2,052,000 or 22%. The decrease is primarily due to the sale of assets and
operations of Duke City during January 2000. Excluding Duke City's rental
revenues from the prior year, revenues from rental operations actually increased
by $626,000 or 9% in the second quarter of fiscal 2000. Approximately 32% or
$2,952,000 of rental revenues was generated by Duke City in fiscal 1999.
10
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Net Product Sales
- -----------------
Net equipment and expendable supply sales were $3,153,000 for the second quarter
of fiscal 2000, a decrease of $2,277,000 or 42%, from $5,430,000 for the second
quarter of fiscal 1999. The decrease is primarily due to the closure of an
expendable supply sale operation located in the Southeastern part of the U.S.
during the fourth quarter of fiscal 1999. Excluding the expendable supply sales
from this location (which accounted for $1,323,000 or 24% of the net equipment
and supply sales of the second quarter of fiscal 1999), sales decreased by
$954,000 or 23% over the second quarter of fiscal 1999. The decrease is
primarily due to a lower volume of business at the Las Vegas, Nevada operations.
Gross Profit - Rental
- ---------------------
Gross profit on rental revenues was $2,306,000 or 32% as a percentage of
revenues for the second quarter of fiscal 2000, compared to $3,174,000 or 34%
for the second quarter of fiscal 1999. Aggregate theatrical rental operations
accounted for approximately $1,640,000 or 71% of gross profit on rental
revenues. Production equipment rentals, primarily of lighting, grip, power
generators and trucks, accounted for approximately $1,308,000 or 57% of gross
profit on rental revenues, and video equipment rental operation "Cost of rental
revenues" exceed revenues by approximately $642,000 or 28%. The decrease in
gross profit percentage resulted primarily from the fixed nature of some costs
such as depreciation. The Company also experienced some price softening and
margin erosion has also resulted due to competition within the industry.
Gross Profit - Sales
- --------------------
Gross profit on sales decreased from $1,489,000 in the second quarter of 1999 to
$641,000 in the second quarter of 2000. Included in the 1999 results is gross
profit of $228,000 from the closed expendable supply sales location. As a
percentage of sales, gross profit was approximately 20% for the second quarter
of fiscal 2000, compared to approximately 27% for the same period in fiscal
1999. The lower gross profit percentage realized by the Company was primarily
attributable to the increase in expendable supply sales, which have lower gross
profit margins than equipment sales. Some margin erosion has also resulted due
to competition within the industry.
Selling, General and Administrative
- ----------------------------------
Selling, general and administrative expenses were $5,092,000 for the second
quarter of fiscal 2000, compared to $5,256,000 for the same period in fiscal
1999, a decrease of $164,000 or 3%. As a percentage of sales, selling, general
and administrative expenses were 49% for the second quarter of fiscal 2000,
compared to 36% for the same period in fiscal 1999. The percentage increase is
due primarily to costs and expenses incurred to dispose of or close operations,
which more than offset the cost cutting measures began in the fourth quarter of
fiscal 1999.
Interest
- --------
Interest increased to $2,379,000 in the second quarter of fiscal 2000, an
increase of $559,000 or 31% from $1,820,000 in the second quarter of fiscal
1999. The increase in interest costs is mainly due to additional debt incurred
and increases in interest rates.
Six-Month Period ended March 31, 2000 and March 31, 1999
- --------------------------------------------------------
Revenues From Rental Operations
- -------------------------------
Revenues from rental operations were $18,273,000 for the first six months of
fiscal 2000, compared to $19,335,000 for the same period last year, a decrease
of $1,062,000 or 6%. Aggregate theatrical rental operations accounted for
approximately $6,520,00 or 36% of revenues from rental operations. Production
equipment rentals, primarily of lighting, grip, power generators and trucks,
increased to approximately $8,102,000 or 44% of revenues from rental operations,
an increase of $501,000 or 7% from approximately $7,601,000 for the same period
last year. Approximately 19% or $3,426,000 of rental revenues was generated from
the video equipment rental operation and other operations accounted for
approximately 1%.
11
<PAGE>
Net Product Sales
- -----------------
Net equipment and expendable supply sales were $7,748,000 for the first six
months of fiscal 2000, a decrease of $2,564,000 or 25% from $10,312,000 for the
same period of fiscal 1999. The decrease is primarily due to the closure of an
expendable supply sale operation located in the southeastern part of the U.S.
during the fourth quarter of fiscal 1999. Excluding the expendable supply sales
from this location (which accounted for $2,277,000 or 22% of the net equipment
and expendable supply sales for the six months of fiscal 1999), sales decreased
by $287,000 or 4% over the first six months of fiscal 1999. The decrease is
primarily due to a lower volume of business at the Las Vegas, Nevada operation.
Gross Profit - Rental
- ---------------------
Gross profit on rental revenues was $6,337,000 or 35% as a percentage of
revenues for the first six months of fiscal 2000 compared to $7,288,000 or 38%
in fiscal 1999. Aggregate theatrical rental operations accounted for
approximately $3,524,000 of gross profit on rental revenues. Gross profit from
production equipment rentals, primarily of lighting, grip, power generators and
trucks accounted for approximately $2,981,000 and video equipment rental
operation "Cost of rental revenues" exceed revenues by approximately $168,000 in
fiscal 2000. The decrease in gross profit percentage resulted primarily from the
fixed nature of some costs such as depreciation. The Company also experienced
some price softening and margin erosion. Depreciation expense for rental
operations was $5,025,000 in the first six months of fiscal 2000, compared to
$4,437,000 in 1999.
Gross Profit - Sales
- --------------------
Gross profit on sales decreased from $2,618,000 in the first six months of
fiscal 1999 to $1,363,000 in the first six months of fiscal 2000. Included in
the 1999 results is gross profit of $392,000 from the expendable supply sales
location located in the Southeastern part of the U.S. which was closed in the
last quarter of fiscal 1999. As a percentage of sales, gross profit was
approximately 18% for the first six months of fiscal 2000, compared to
approximately 25% for the same period in fiscal 1999. The lower gross profit
percentage realized by the Company was primarily attributable to the increase in
expendable supply sales, which have lower gross profit margins than equipment
sales. Some margin erosion has also resulted due to competition within the
industry.
Selling, General and Administrative
- -----------------------------------
Selling, general and administrative expenses were $9,388,000 for the first six
months of fiscal 2000 compared to $10,297,000 for the same period in fiscal
1999, a decrease of $909,000 or 9%. As a percentage of sales, selling, general
and administrative expenses were 36% for the first six months of fiscal 2000,
compared to 35% for the same period in fiscal 1999. The percentage increase is
due primarily to costs and expenses incurred to dispose of or close operations,
which more than offset the cost cutting measures began in the fourth quarter of
fiscal 1999.
Interest
- --------
Interest increased to $4,770,000 in the first six months of fiscal 2000, an
increase of $1,057,000 or 29% from $3,713,000 in the same period of fiscal 1999.
The increase in interest costs is mainly due to additional debt incurred and
increases in interest rates.
Liquidity and Capital Resources
- -------------------------------
As indicated above, on April 6, 2000, the Company and its subsidiaries filed a
petition for reorganization under chapter 11 of the U.S. Bankruptcy Code.
The Company primarily applied cash from investing activities and additional
borrowings from the Company's bank line of approximately $8,000,000 and
$3,000,000 respectively to pay down capital lease obligations and other debt.
The major component of the net capital equipment additions was equipment for the
Company's theatrical rental operations of approximately $1,985,000.
The bank debt of $13,250,000 and $55,112,000 due June 1, 2000 and January 31,
2001, respectively, were reclassified as current liabilities.
The Company's liquidity, capital resources and result of operations may be
affected from time to time by a number of factors and risks, including the
ability to arrange debtor in possession financing, operating successfully under
a Chapter 11 proceeding, obtain shipments and negotiate terms with vendors and
service providers for current orders, fund and execute a new operating plan for
the Company, attract and retain key executive and associates and meet
competitive pressures, which may affect the nature
12
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and viability of the Company's business strategy, generate cash flow, attract
and retain customers and manage its business notwithstanding the potential
adverse publicity.
Year 2000 Readiness - Update
- ----------------------------
The Company has substantially completed its Year 2000 compliance program.
(Readers should refer to the Company's Annual Report on Form 10-K for a more
complete discussion of the Company's Year 2000 Readiness program.) The Company
is on schedule with completion of the remaining open items of its Year 2000
readiness plan.
The failure to identify and correct a Y2K problem could result in an
interruption in, or failure of, certain normal business activities or
operations. However, the Company does not expect such failures to have a
materially adverse effect on its results of operations or financial condition.
It is not presently possible to describe a reasonable likely "worst case Year
2000 scenario" without making numerous assumptions. The Company presently
believes that a most likely worst case scenario would make it necessary for the
Company to replace some suppliers or contractors, rearrange some plans, or
interrupt some office and field activities. Assuming this scenario is correct,
the Company does not believe that such circumstances would have a materially
adverse effect on its financial condition or the results of operations, even if
additional costs to correct unanticipated compliance failures are incurred. No
such failures have been experienced to date.
Subsequent Event
- ----------------
Effective April 24, 2000, Nasdaq delisted the Company's security which had been
suspended from trading since March 30, 2000, from the Nasdaq SmallCap market.
On April 28, 2000, the Company closed its operations in Las Vegas, Nevada.
13
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PART II. Other Information
Items 1, 2, 4 and 5 are not applicable.
Item 3. Defaults Upon Senior Securities.
On April 6, 2000, the Company and its subsidiaries filed a petition
for reorganization under Chapter 11 of the U.S. Bankruptcy Code. This
constituted an event of default under both the Purchase Agreement
dated July 27, 1995, as amended to date between the Company and ING
Equity Partners, L.P. I ("ING"), pursuant to which ING holds a
$100,000 Senior Subordinated Note II, and the Note Purchase Agreement
dated June 30, 1999 between the Company and ING, pursuant to which ING
holds a $10 million Convertible Senior Subordinated Note.
The same event constituted a default under the Amended and Restated
Credit Agreement dated as of April 1, 1998, as amended to date, among
the Company and its subsidiaries, The Chase Manhattan Bank, as agent
for the lenders, and the lenders named therein.
In a Chapter 11 filing, substantially all liabilities as of the
petition date are subject to compromise or other treatment under a
plan of reorganization. See Part I, Item 2, Management's Discussion
and Analysis of Financial Condition and Results of Operations.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith:
27 Financial Data Schedule (in Edgar filing only)
(b) Form 8-K dated January 27, 2000 relating to termination of
negotiations (under a letter of intent) to sell Four Star Lighting,
Inc.; Form 8-K dated February 4, 2000 and Form 8-K/A dated March 18,
2000 (both relating to the sale of assets and operations of Duke City
Video, Inc., during the three months ended March 31, 2000).
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report on Form 10-Q for the period
ending March 31, 2000, to be signed on its behalf by the undersigned hereunto
duly authorized.
MATTHEWS STUDIO EQUIPMENT GROUP
(Registrant)
Date: May 12, 2000
By: /s/ Carlos D. De Mattos
--------------------------------------------------
Carlos D. De Mattos
Chairman of the Board, and Chief Executive Officer
By: /s/ Miles R. Stover
--------------------------------------------------
Miles R. Stover
Chief Operating Officer and Chief Financial Officer
15
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<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q
PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
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