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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the Quarterly Period Ended June 30, 1996
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 0-19407
LASER-PACIFIC MEDIA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3824617
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
809 N. Cahuenga Blvd.
Hollywood, California 90038
(213) 462-6266
(Address, including zip code and telephone number, including area code of
principal executive offices)
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
The number of shares outstanding of each of the registrant's classes of
common stock, as of August 1, 1996 was 7,068,172 shares of Common Stock,
$.0001 par value.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Table of Contents
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements . . . . . . . . . . . . .1
Condensed Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . .1
Condensed Consolidated Statements of Operations . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Cash Flow . . . . . . . . . . . . . . . .3
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 5
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 6
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
<PAGE>
LASER-PACIFIC MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
December 31, June 30,
1995 1996
--------------- ----------------
Assets
Current assets $9,312,212 $3,530,687
Net property and equipment 18,260,971 16,013,475
Other assets 599,036 859,213
=============== ================
$28,172,219 $20,403,375
=============== ================
Liabilities and Stockholders' Equity
Current liabilities $11,411,304 $5,546,191
Notes payable to bank and long-term
debt, less current installments 7,892,905 8,092,925
Deferred revenue 160,123 160,123
Minority interest in consolidated
subsidiary 1,249,559 1,136,246
Stockholders' equity:
Common stock, $.0001 par value.
Authorized 25,000,000 shares; issued and
outstanding 6,568,172 shares at
December 31, 1995 and 7,068,172 shares
at June 30, 1996, respectively 657 707
Additional paid-in capital 19,258,746 19,633,696
Accumulated deficit (11,801,075) (14,166,513)
--------------- ----------------
Net stockholders' equity 7,458,328 5,467,890
--------------- ----------------
$28,172,219 $20,403,375
=============== ================
See accompanying notes to condensed consolidated financial statements.
<PAGE>
LASER-PACIFIC MEDIA AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------- -- ----------- ----------- --- -----------
------------ ------------ ------------ ------------
1995 1996 1995 1996
Revenues $5,366,448 $4,939,816 $13,717,167 $12,462,720
Operating costs 5,151,585 5,609,016 11,213,437 11,766,033
---------- ----------- ------------ -----------
Gross profit (loss) 214,863 (669,200) 2,503,730 696,687
Selling, general
and administrative
and other expenses 725,171 1,098,917 2,160,200 2,403,413
---------- ----------- ------------ ----------
Income (loss) from
operations (510,308) (1,768,117) 343,530 (1,706,726)
Interest expense 446,606 357,453 915,642 754,221
Other (income) loss 87,012 (10,958) (35,303) (95,509)
Income taxes (18,000) --- --- ---
----------- ------------ ------------ ------------
Net loss $(1,025,926) $(2,114,612) $(536,809) $(2,365,438)
=========== ============ ============ ===========
Net loss per common and common
equivalent shares $(.16) $(.30) $(.08) $(.33)
------------ ------------- ------------ ------------
Weighted average common
and common equivalent
shares outstanding 6,568,172 7,068,172 6,568,172 7,068,172
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
------------- --- --------------
------------- --------------
1995 1996
Cash flows from operating activities
Net loss ($536,809) ($2,365,437)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,414,686 2,589,800
Write-off of obsolete property and
equipment --- 226,681
Provision for doubtful accounts receivable 88,299 141,093
Other 99,889 (113,314)
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 2,295,894 5,299,309
Inventory 78,349 60,305
Prepaid expenses and other current assets 50,806 (37,736)
Other assets 441,604 (260,177)
Increase (decrease) in:
Accounts payable and accrued expenses (1,389,607) (2,964,769)
Deferred revenue (21,337) ---
------------- ---------------
Net cash provided by operating activities 3,521,774 2,575,755
------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment (1,380,203) (568,989)
Other
--- ---
Net proceeds from disposal of
property and equipment 297,173 ---
----------- -------------
Net cash used by investing activities (1,083,030) (568,989)
------------ -------------
Cash flows from financing activities :
Proceeds borrowed under notes payable
to bank and long-term debt 1,695,836 1,548,351
Repayment of notes payable to bank and
long-term debt (3,202,222) (4,300,461)
Other (297,173) ---
Redemption of preferred shares issued
by subsidiary (11,119) ---
Proceeds from issuance of common stock --- 426,789
------------- --------------
Net cash used by financing activities (1,814,678) (2,325,321)
------------- --------------
Net increase (decrease) in cash 624,066 (318,555)
Cash at beginning of period 283,480 812,989
------------- --------------
Cash at end of period $907,546 $494,434
============= ==============
Supplementary disclosure of cash flow information:
Cash paid during the period for interest $951,207 $658,952
============= ==============
See accompanying notes to condensed consolidated financial statements.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal
recurring items) necessary to present fairly the financial position of
Laser-Pacific Media Corporation ("the Company") and its subsidiaries as of
June 30, 1996 and December 31, 1995, the consolidated results of operations
for the three and six month periods ended June 30, 1995 and 1996, and the
consolidated statements of cash flows for the six month periods ended June
30, 1995 and 1996. The Company's business is subject to the prime time
television industry's typical seasonality. Historically, revenues and income
from operations have been highest during the first and fourth quarters, when
production of television programs and demand for the Company's services
is at its highest. The net income or loss of any interim quarter is seasonally
disproportionate to revenues since selling, general and administrative
expenses and certain operating expenses remain relatively constant during the
year. Therefore, interim results are not indicative of results to be expected
for the entire fiscal year.
The 1995 financial data has been reclassified to conform with the
current year's presentation.
In accordance with the directives of the Securities and Exchange
Commission under Rule 10-01 of Regulation S-X, the accompanying consolidated
financial statements and footnotes have been condensed and do not
contain certain information included in the Company's annual consolidated
financial statements and notes thereto.
(2) Loss per Share
Net loss per common and common equivalent shares are based upon the
weighted average number of common and common equivalent shares outstanding.
The outstanding stock options, warrants and convertible notes have not been
included in the calculations as their effect would not be material or would be
anti-dilutive.
(3) Income Taxes
The Company did not provide for income taxes for the six month period
ending June 30, 1996 due to the operating losses incurred and estimates of the
effective tax rate for the full fiscal year.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Revenues for the six months ended June 30, 1996 decreased to
$12,463,000 from $13,717,000 for the same year-ago period, a decrease of
$1,254,000 or 9.1%. This decrease in revenues is comprised of a decrease of
$86,000 in Production Services, a decrease of $150,000 in Film Production
Services and a decrease of $1,018,000 in Post Production Services.
The Revenues for the six months ended June 30, 1996 at the Company's U.S.
facilities decreased $1,060,000 versus the year-ago period, while revenues
from International Operations decreased $194,000 versus the year-ago period.
The decline in revenues was primarily caused by a reduction in Spectra Edit
System rentals and related services brought about by the technological
advancement of competing editing systems.
Revenues for the quarter ended June 30, 1996 decreased to
$4,940,000 from $5,366,000 for the same year-ago period, a decrease of
$426,000 or 7.9%. The decline in revenues for the quarter ended June 30, 1996
was primarily due to the decline in Spectra Edit System rentals cited above.
For the six months ended June 30, 1996 the Company recorded a gross
profit of $697,000 compared with $2,504,000 for the same year-ago period.
Operating costs for six months ended June 30, 1996 were $11,766,000 versus
$11,213,000 for the year-ago period. Operating costs, as a percentage of
revenues for the six months ended June 30, 1996 were 94.4% compared with
82.7% for the same year-ago period. The increase in operating costs is
primarily the consequence of accelerated depreciation resulting from
obsolescence and an increase in labor expense, partially offset by a reduction
in health insurance costs.
For the quarter ended June 30, 1996 the Company recorded a gross loss
of $669,000 compared to a gross profit of $215,000 for the same year-ago
period. Operating costs for the quarter ended June 30, 1996 were
$5,609,000 versus $5,152,000 for the year ago period. Operating costs, as a
percentage of revenues for the quarter ended June 30, 1996 were 113.5% compared
with 98.8% for the year ago period.
Selling, general and administrative (S, G & A), and other expenses
for the six months ended June 30, 1996 were $2,403,000 as compared to
$2,160,000 during the same year-ago period, an increase of $243,000 or 11.3%.
S, G & A, and other expenses for the three months ended June 30,
1996 were $1,099,000 as compared to $725,000 during the same year-ago
period, an increase of $374,000 or 51.6%. The increase in S, G & A, and
other expenses was primarily due to one-time credits applied, resulting
from legal settlements, which were applied against professional expenses
during the second quarter of 1995.
Interest expense for the six months ended June 30, 1996 was $754,000
compared to $916,000 for the same year-ago period, a decrease of $162,000 or
17.7%. Interest expense for the three months ended June 30, 1996 was $357,000
compared to $447,000 for the same year-ago period, a reduction of $90,000 or
20.1%. The reduction in interest expense resulted from negotiation of lower
variable interest rates from the Company's principal lender and decreases in
the prime interest rate.
Liquidity and Capital Resources
The Company and its subsidiaries are operating under a loan
agreement with The CIT Group/Credit Finance with a maturity date of August 3,
2000. The maximum credit under the agreement is $9 million. The loan
agreement provides for borrowings up to $5.4 million under the term loan
(limited to 85% of eligible equipment appraisal value) and $3.6 million
under the revolving loan (limited to 85% of eligible accounts receivable).
The term loan ($4.8 million at June 30, 1996) is payable in monthly
installments of $106,000 plus interest at prime plus 2% through May 15, 2001.
The revolving loan ($305,000 at June 30, 1996) bears interest at prime plus 2%
which is payable monthly. The loan contains automatic renewal provisions for
successive terms of two years thereafter unless terminated as of August 3,
2000 or as of the end of any renewal term by either party by giving the
other party at least 60 day written notice. The loans are secured by
substantially all assets of the Company and its subsidiaries.
The Company has outstanding borrowings at June 30, 1996 of $50,000
with the Bank of California. The loan is secured by certain real property and
Pacific Video Canada stock, payable in monthly installments of $50,000 plus
interest at prime plus 3% through August 1996. The loan agreement contains
restrictive covenants, including limits with respect to capital expenditures
and termination of real property leases, written consent prior to issuance of
warrants and stock, and that the Company provide written notice to the bank
of the occurrence of default. The Company was not in technical compliance
with the above mentioned covenants, however, those defaults are not of a
material nature. On July 26, 1996 the Company made the final payment on the
loan and the Bank of California released the security.
The Company has an outstanding real estate loan agreement with Bank
of America dated February 29, 1996, which is secured by the building where the
Company provides film processing and sound services. This loan agreement
matures on December 31, 1998 with an option to extend the maturity an
additional year upon payment to the Bank of America a $25,000 loan extension
fee prior to December 31, 1998.
The Company's principal source of funds is cash generated by
operations. On an annual basis, the Company anticipates that existing cash
balances and availability under existing loan agreements and cash generated
from operations will be sufficient to service existing debt. To fund
expenditures relating to the upgrading of the Company's plant and equipment
the Company will seek additional financing from new sources and/or
restructure current debt with existing lenders.
Part II -Other Information
Item 6. Exhibits and Reports on Form 8-K
No reports on From 8-K were filed during the second quarter covered by
this report.
<PAGE>
Signatures
LASER-PACIFIC MEDIA CORPORATION
Dated: August 13, 1996 /s/James R. Parks
James R. Parks
Chairman of the Board
and Chief Executive Officer
Dated: August 13, 1996 /s/Robert McClain
Robert McClain
Secretary and
Chief Financial Officer
(Principal Financial and Accounting Officer)
