SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
X of the Securities Exchange Act of 1934
for the Quarterly Period Ended March 31, 1997
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 May 6, 1997 was 7,128,172 shares of Common Stock, $.0001
par value.
<PAGE>
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
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
December 31, March 31,
1996 1997
---------------- ---------------
Assets
Current assets . . . . . . . . . . . . . $5,278,786 $5,222,478
Net property and equipment . . . . . . 17,233,085 16,399,312
Other assets . . . . . . . . . . . . . . 650,580 661,042
================ ================
$23,162,451 $22,282,832
================ ================
Liabilities and Stockholders' Equity
Current liabilities. . . . . . . . . . . $ 7,777,226 $ 7,579,981
Notes payable to bank and long-term debt,
less current installments . . . . . . . 7,958,554 7,262,752
Minority interest in consolidated
subsidiary . . . . . . . . . . . . . . . 1,325,893 1,299,820
Stockholders' equity:
Common stock, $.0001 par value. Authorized
25,000,000 shares; issued and outstanding
7,128,172 shares. . . . . . . . . . . . 713 713
Additional paid-in capital. . . . . . . 19,753,690 19,753,690
Accumulated deficit. . . . . . . . . . . (13,653,625) (13,614,124)
---------------- ----------------
Net stockholders' equity. . . . . . . 6,100,778 6,140,279
---------------- ----------------
$23,162,451 $22,282,832
================ ================
See accompanying notes to condensed consolidated financial statements.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended
March 31,
------------------------------------
--------------- ----------------
1996 1997
Revenues . . . . . . . . . . . . . . . . $7,522,904 $7,661,547
Operating costs. . . . . . . . . . . . . 6,157,017 6,041,660
--------------- ----------------
Gross profit. . . . . . . . . . . . 1,365,887 1,619,886
Selling, general and administrative
and other expenses . . . . . . . . . . 1,304,496 1,221,572
--------------- ----------------
Income from operations. . . . . . . 61,391 398,315
Interest expense . . . . . . . . . . . . 396,768 380,069
Other Income . . . . . . . . . . . . . . (84,551) (21,255)
=============== ================
Net income (loss) . . . . . . . . . ($250,826) $ 39,501
=============== ================
Net income (loss) per common and common
equivalent shares. . . . . . . . . . . ($.04) $.01
--------------- ----------------
Weighted average common and common
equivalent shares outstanding. . . . . 7,068,172 7,128,172
=============== ================
See accompanying notes to condensed consolidated financial statements.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
March 31,
---------------- --- -----------------
---------------- -----------------
1996 1997
Cash flows from operating activities
Net income (loss) . . . . . . . . . . . ($250,826) $ 39,501
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization . . . . 1,276,549 1,069,313
Write-off of obsolete property and
equipment. . . . . . . . . . . . . . 198,093 ---
Provision for doubtful accounts
receivable . . . . . . . . . . . . . 91,840 74,549
Other . . . . . . . . . . . . . . . . (93,377) (26,074)
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable . . . . . . . . 3,129,615 85,591
Inventory . . . . . . . . . . . . . (616) (5,241)
Prepaid expenses and other current
assets . . . . . . . . . . . . . . (69,469) (106,988)
Other assets. . . . . . . . . . . . (69,911) (10,462)
Increase (decrease) in:
Accounts payable and accrued
expenses. . . . . . . . . . . . . . (2,697,559) 107,520
---------------- -----------------
Net cash provided by operating activities 1,514,339 1,227,709
---------------- -----------------
Cash flows from investing activities:
Purchases of property and equipment . . (188,593) (260,115)
Net proceeds from disposal of property
and equipment. . . . . . . . . . . . . --- 24,575
---------------- -----------------
Net cash used by investing activities . . (188,953) (235,540)
---------------- -----------------
Cash flows from financing activities :
Proceeds borrowed under notes payable
to bank and long-term debt . . . . . . --- 51,747
Repayment of notes payable to bank and
long-term debt . . . . . . . . . . . (2,267,971) (1,052,314)
Proceeds from issuance of common stock. 426,789 ---
---------------- -----------------
Net cash used by financing activities (1,841,182) (1,000,567)
---------------- -----------------
Net increase (decrease) in cash. . . . (515,796) (8,398)
Cash at beginning of period . . . . . . . 812,989 283,082
---------------- -----------------
Cash at end of period . . . . . . . . . .$ 297,193 $ 274,684
================ =================
Supplementary disclosure of cash flow
information:
Cash paid during the period for interest $393,495 $379,682
================ =================
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 March
31, 1997 and December 31, 1996, the consolidated results of operations for the
three months ended March 31, 1996 and 1997, and the consolidated statements of
cash flows for the three month periods ended March 31, 1996 and 1997. 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.
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 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 quarter ending
March 31, 1997 due to the operating losses incurred in prior years.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Revenues for the quarter ended March 31, 1997 increased to $7,662,000
from $7,523,000 for the same year-ago period, an increase of $139,000 or 1.8%.
This increase in revenue is comprised of an increase of $82,000 in Post
Production Services, an increase in Film Production Services of $187,000 and a
decrease of $130,000 in Production Services. The revenues for both US and
International operations increased during the period. The continued decline in
spectra system rentals was offset by increased film and post production services
and revenues from special effects and graphics.
For the quarter ended March 31, 1997 the Company recorded a gross
profit of $1,620,000 compared to a gross profit of $1,366,000 for the same
year-ago period, an increase of $254,000 or 18.6%. The increased gross profit
is primarily the result of higher sales levels during the quarter and
lower depreciation expense. Operating costs for the quarter ended March 31,
1997 were $6,042,000 versus $6,157,000 for the year ago period. Operating
costs, as a precentage of revenues for the quarter ended March 31, 1997, were
78.9% compared with 81.9% for the year ago period.
Selling, general and administrative (S, G & A), and other expenses for
the quarter ended March 31, 1997 were $1,222,000 as compared to $1,304,000
during the same year-ago period, a decrease of $82,000 or 6.3%.
Interest expense for the quarter ended March 31, 1997 was $380,000
compared to $397,000 for the same year-ago period, a decrease of $17,000 or
4.3%.
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 amended loan agreement
provides for borrowings of 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). At March 31, 1997,
$450,000 was available under the loan agreement. The outstanding balance of the
term loan was $4,001,000 at March 31, 1997. It is payable in monthly
installments of $106,000 plus interest at prime plus 2% through August 3, 2000.
Principal payments are not required in June, July or August. The principal
payments may be increased to compensate for a significant reduction in the
appraised value of the assets which secure the loan. The revolving loan had an
outstanding balance of $1,529,000 at March 31, 1997. It bears interest at prime
plus 2% which is payable monthly. The loan contains automatic renewal provisions
for successive terms of two years after maturity unless terminated as of August
3, 2000 or as of the end of any renewal term by either party upon at least 60
days written notice.
The Company has an outstanding real estate loan with Bank of America
which was amended February 29, 1996. The loan is secured by the building where
the Company provides film processing and sound services. The loan agreement
matures December 31, 1998 with an option to extend the maturity an additional
year upon payment to Bank of America of a $25,000 loan extension fee prior
to December 31, 1998. The outstanding balance as of March 31, 1997 was
$1,427,000.
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. Due to seasonal
variations the Company anticipates a cash shortfall in the second and third
quarters of 1997.
As of March 31, 1997, the Company had a working capital deficiency of
approximately $2,350,000 and an accumulated deficit of approximately $
13,600,000, respectively. In addition the Company sustained a net loss of
approximately $1,850,000 for the year ended December 31, 1996. These factors,
among others, indicate that the Company may be unable to continue as a going
concern. The financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern The
Company's continuation as a going concern is dependent upon its ability to
obtain additional financing, generate sufficient cash flow to meet its
obligations on a timely basis and ultimately to attain profitable operations.
The Company is currently in negotiations with its principal lender to
restructure its term loan to provide additional financing. Additionally, the
Company is attempting to secure other sources of financing. Management is
of the opinion that the Company will be able to meet its obligations on a
timely basis and sustain operations by obtaining such additional financing
and eventually achieving profitable operations. There is no assurance that these
uncertainties will be settled or that management's plan will be achieved.
<PAGE>
Signatures
LASER-PACIFIC MEDIA CORPORATION
(Registrant)
Dated: May 14, 1997 /s/James R. Parks
-----------------
James R. Parks
Chairman of the Board
and Chief Executive Officer
Dated: May 14, 1997 /s/Robert McClain
-----------------
Robert McClain
Secretary and
Chief Financial Officer
(Principal Financial and Accounting Officer)
