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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the Quarterly Period Ended September 30, 1996
OR
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of
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 November 1, 1996 was 7,068,172 shares of Common Stock, $.0001 par
value.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Table of Contents
Page
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 Flows . . . . . . . . . . . . . . 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 4. Submission of Matters to a Vote of Securityholders . . . . . . . . 6
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 6
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 31, September 30,
1995 1996
--------------------- ---------------------
(Unaudited)
Assets
Current assets $9,312,212 $5,333,979
Net property and equipment 18,260,971 18,045,033
Other assets 599,036 797,332
--------------------- ---------------------
$28,172,219 $24,176,344
===================== =====================
Liabilities and Stockholders' Equity
Current liabilities $11,411,304 $8,390,165
Notes payable to bank and long-term debt,
less current installments 7,892,905 9,051,066
Deferred revenue 160,123 160,123
Minority interest in consolidated subsidiary 1,249,559 1,155,861
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 at
September 30, 1996 657 707
Additional paid-in capital 19,258,746 19,633,696
Accumulated deficit (11,801,075) (14,215,274)
--------------------- ---------------------
Net stockholders' equity 7,458,328 5,419,129
--------------------- ---------------------
$28,172,219 $24,176,344
===================== =====================
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
-------- -------- -------- ---------
1995 1996 1995 1996
Revenues $6,384,831 $7,275,799 $20,101,998 $19,738,519
Operating costs 5,695,822 5,910,922 16,909,259 17,676,955
------------- ---------------- ------------- -----------
Gross profit 689,009 1,364,877 3,192,739 2,061,564
Selling, general and
administrative
and other expenses 1,449,920 947,253 3,610,119 3,350,666
------------- ---------------- ------------- -----------
Income (loss) from
operations (760,911) 417,624 (417,380) (1,289,102)
Interest expense 395,171 393,872 1,310,814 1,148,093
Other income (expense) 1,177,187 (72,512) 1,212,490 22,997
------------- ---------------- ------------- -----------
Net income (loss) $21,105 $(48,760) $(515,704) $(2,414,198)
============= ================ ============= ===========
Net income (loss)
per common and common
equivalent shares $.00 $(.01) $(.08) $(.34)
------------- ---------------- ------------- -----------
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)
Nine Months Ended
September 30
-----------------
------------- --------------
1995 1996
Cash flows from operating activities
Net loss ($515,704) ($2,414,198)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 3,652,587 3,790,769
Write-off of obsolete property and equipment --- 226,681
Provision for doubtful accounts receivable 226,191 208,319
Other 72,806 (93,699)
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable (95,602) 2,925,584
Inventory 40,538 54,778
Prepaid expenses and other current assets 63,555 14,869
Other assets 300,620 (198,295)
Increase (decrease) in:
Accounts payable and accrued expenses (898,023) (2,366,293)
Deferred revenue 2,000 ---
------------- --------------
Net cash provided by operating activities 2,848,968 2,148,515
------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (3,144,071) (3,801,516)
Other 297,173 ---
------------- --------------
Net cash used by investing activities (2,846,898) (3,801,516)
------------- --------------
Cash flows from financing activities :
Proceeds borrowed under notes payable to bank
and long-term debt 2,804,698 3,834,171
Repayment of notes payable to
bank and long-term debt (2,226,113) (3,382,643)
Other (297,173) ---
Redemption of preferred shares
issued by subsidiary (11,119) ---
Proceeds from issuance of common stock --- 426,789
------------- --------------
Net cash provided by financing activities 270,293 878,317
------------- --------------
Net increase (decrease) in cash 272,363 (774,684)
Cash at beginning of period 283,480 812,989
------------- --------------
Cash at end of period $555,843 $38,305
============= ==============
Supplementary disclosure of cash flow information:
Cash paid during the period for interest $1,341,155 $1,148,098
============= ==============
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
September 30, 1996 and December 31, 1995, the consolidated results of
operations for the three and nine month periods ended September 30, 1995 and
1996, and the consolidated statements of cash flows for the nine month periods
ended September 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) Income (loss) per Share
Net income (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 for loss periods 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 nine month period
ending September 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 nine months ended September 30, 1996 decreased to
$19,739,000 from $20,102,000 for the same year-ago period, a decrease of
$363,000 or 1.8%. The decrease in revenues is comprised of a decrease of
$412,000 in Post Production Services and a decrease of $66,000 in Production
Services, partially offset by an increase of $115,000 in Film Production
Services. Revenues at the Company's U.S. facilities decreased $85,000 from the
prior year, while revenues from International Operations decreased $278,000.
The continued decline in Spectra System rentals was offset by increases in film
production services and revenues from special effects and graphics.
Revenues for the quarter ended September 30, 1996 increased to
$7,276,000 from $6,385,000 for the same year-ago period, an increase of
$891,000 or 14.0%. The increase in revenues was comprised of an increase in
Post Production Services of $607,000, an increase in Production Services of
$20,000, and an increase in Film Production Services of $264,000. Revenues at
the Company's U.S. facilities increased $975,000 from the same year-ago period,
while revenues from International Operations decreased $84,000. The increase in
revenues resulted from technologically improved equipment and services coming
online for the start of the 1996-1997 television season.
For the nine months ended September 30, 1996 the Company recorded a
gross profit of $2,062,000 compared with $3,193,000 for the same year-ago
period. Operating costs for nine months ended September 30, 1996 were
$17,677,000 versus $16,909,000 for the year-ago period, an increase of
$768,000 or 4.5%. 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.
Operating costs, as a percentage of revenues for the nine months ended
September 30, 1996 were 89.6% compared with 84.1% for the same year-ago period.
For the quarter ended September 30, 1996 the Company recorded a gross
profit of $1,365,000 compared to a gross profit of $689,000 for the same
year-ago period. The increased gross profit for the quarter were achieved as
the result of higher sales levels described above. Operating costs for the
quarter ended September 30, 1996 were $5,911,000 versus $5,696,000 for the year
ago period, an increase of $215,000 or 3.8%. This increase in operating costs
was primarily due to increased labor costs associated with higher levels of
activity. Operating costs, as a percentage of revenues for the quarter ended
September 30, 1996 were 81.2% compared with 89.2% for the year ago period.
Selling, general and administrative (S, G & A), and other expenses for
the nine months ended September 30, 1996 were $3,351,000 as compared to
$3,610,000 during the same year-ago period, a decrease of $259,000 or 7.2%
which resulted primarily from lower costs for administrative salaries and
professional services.
S, G & A, and other expenses for the three months ended September 30,
1996 were $947,000 as compared to $1,450,000 during the same year-ago period,
a decrease of $503,000 or 34.6% which resulted primarily from reductions in
the areas of administrative salaries, professional services, the minority
interest in Pacific Video Canada, and lower levels of expense for the
Company's International Operations.
Other income for the nine months ended September 30, 1996 was $23,000,
compared to $1,212,000 for the same year-ago period, a reductions of $1,189,000
or 98.1%. Other income for the three months ended September 30, 1996 was a net
loss of $73,000, compared with other income of $1,177,000 for the same year-ago
period, a decrease of $1,250,000 or 106.2%. During the three months ended
September 30, 1995 the Company included proceeds of $978,000 resulting from
the settlement of a lawsuit.
Interest expense for the nine months ended September 30, 1996 was
$1,148,000 compared to $1,311,000 for the same year-ago period, a decrease of
$163,000 or 12.4%. Interest expense for the three months ended September 30,
1996 was $394,000 compared to $395,000 for the same year-ago period, a
reduction of $1,000 or 0.3%.
<PAGE>
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
($4.7 million at September 30, 1996) is payable in monthly installments of
$106,000 plus interest at prime plus 2% through May 15, 2001. The revolving
loan ($1,998,000 at September 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 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 of a $25,000 loan extension
fee prior to December 31, 1998.
The Company's principal source of funds is cash generated by operations.
As a result of the seasonality of the business, the Company may experience a
cash shortage during the summer months. To the extent that existing cash
balances, availability under existing loan agreements or cash generated from
operations is not sufficient to service existing debt, support operations or
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. There is no assurance that
funding will be available on terms acceptable to the Company or at all, to
cover a cash shortfall, if any, or for capital expenditures.
Item 1. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
third quarter of 1996.
Item 6. Exhibits and Reports on Form 8-K
No reports on From 8-K were filed during the third quarter covered
by this report.
<PAGE>
Signatures
LASER-PACIFIC MEDIA CORPORATION
(Registrant)
Dated: November 12, 1996 /s/ James R. Parks
--------------------
James R. Parks
Dated: November 12, 1996 /s/ Robert McClain
------------------
Robert McClain
