<PAGE>
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 March 31, 1998
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 1, 1998 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 3
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II - Other Information
Signatures 11
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<S> <C> <C> <C>
(Audited) (Unaudited)
December 31, March 31
1997 1998
--------------- --------------
Assets
Current assets $
Cash 367,363 193,728
Receivables net of Allowance for Doubtful Accounts 4,598,927 3,760,545
Other current Assets 756,531 702,420
--------------- --------------
Total Current Assets 5,772,821 4,656,693
Net property and equipment 16,194,498 16,254,649
Other assets 570,472 524,088
=============== ==============
=============== ==============
Total Assets $ 22,487,791 21,435,430
=============== ==============
Liabilities and Stockholders' Equity
Current liabilities
Current installments of notes payable to bank and long-term debt 4,994,308 4,659,424
Other current liabilities 3,060,662 2,557,942
--------------- --------------
Total Current Liabilities 8,054,970 7,217,366
Notes payable to bank and long-term debt, less current installments 8,139,042 7,353,634
Minority interest in consolidated subsidiary 521,440 536,795
Stockholders' equity:
Common stock, $.0001 par value. Authorized 25,000,000 shares; issued and
outstanding 7,128,172 shares at December 31, 1997 and March 31, 1998, 713 713
Additional paid-in capital 19,772,440 19,772,440
Accumulated deficit (14,000,814) (13,445,518)
--------------- --------------
--------------- --------------
Net stockholders' equity 5,772,339 6,327,635
--------------- --------------
$ 22,487,791 21,435,430
=============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
<TABLE>
<S> <C> <C>
Three Months Ended
March 31,
------------------------------------
1997 1998
--------------- -----------------
Revenues $ 7,661,547 8,051,851
Operating costs 6,041,660 5,927,686
=============== =================
Gross profit 1,619,887 2,124,165
Selling, general and administrative
and other expenses 1,221,572 1,201,341
=============== =================
Income from operations 398,315 922,824
Interest expense 380,069 377,322
Other Income (21,255) (9,794)
=============== =================
=============== =================
Net income $ 39,501 555,296
=============== =================
Earning Per Share
Net Income per basic share $ 0.01 0.08
=============== =================
Net Income per diluted share 0.01 0.07
=============== =================
Weighted average shares outstanding (basic) 7,128,172 7,128,172
=============== =================
Weighted average shares outstanding (diluted) 7,145,301 7,411,229
=============== =================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<S> <C> <C>
Three Months Ended
March 31,
------------------------------------------
1997 1998
------------------- -------------------
Cash flows from operating activities
Net income $ 39,501 555,296
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,069,313 1,024,498
Gain on sale of Property and equipment (26,074) (41,671)
Provision for doubtful accounts receivable 74,549 66,971
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 85,591 439,604
Inventory (5,241) 558
Prepaid expenses and other current assets (106,988) 53,919
Other assets (10,462) 83,278
Increase (decrease) in:
Accounts payable and accrued expenses 107,520 412,051
=================== ===================
Net cash provided by operating activities 1,227,709 2,594,504
=================== ===================
Cash flows from investing activities:
Purchases of property and equipment (260,115) (775,700)
Net proceeds from disposal of property and equipment 24,575 46,457
=================== ===================
Net cash used in investing activities (235,540) (729,243)
=================== ===================
Cash flows from financing activities :
Net (repayment) proceeds of notes payable to bank and (1,000,567) (1,638,896)
long- term debt
(Repayments) borrowing of notes payable to related parties (400,000)
=================== ===================
Net cash used in financing activities (1,000,567) (2,038,896)
=================== ===================
Net (decrease) in cash (8,398) (173,635)
Cash at beginning of period 283,082 367,363
------------------- -------------------
Cash at end of period $ 274,684 193,728
=================== ===================
Supplementary disclosure of cash flow information:
Cash paid during the period for interest $ 379,682 377,322
=================== ===================
</TABLE>
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, 1998 and December 31, 1997; the results of operations for the three month
periods ended March 31, 1997 and 1998; and the statements of cash flows for the
three month periods ended March 31, 1997 and 1998. Included in the Condensed
Consolidated Financial Statements is the activity of the Company's consolidated
subsidiary, Pacific Video Canada, Ltd. ("PVC"). PVC's fiscal year ends October
31, therefore, the amounts included in the consolidated balance sheets are as of
January 31, 1998 and October 31, 1997, and the results of operations include the
three month periods ended January 31, 1998 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 because 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.
Certain prior year balances have 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 per Share
Net income per basic and diluted shares are based upon the weighted average
number of common shares outstanding. Diluted shares outstanding represents the
total of common shares outstanding as well as those options and warrants where
the exercise price was below the closing stock price on March 31, 1998.
(3) Income Taxes
At March 31, 1998, federal income tax expense of $10,000 and state income
tax expense of $6,000 was recognized after the application of net operating loss
carry forwards. Income tax expense for the quarter ended March 31, 1998 was
computed using the estimated effective tax rate to apply for 1998 after
considering the impact of net operating loss carryforwards. Also included was
foreign income tax expense of US$ 16,227 relating to Canadian income.
(4) Earnings per share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No 128, "Earnings per Share" (SFAS 128). SFAS
128 requires dual presentation of basic earnings per share ("EPS") and diluted
EPS on the face of all statements of earnings for all entities with complex
capital structures. Basic EPS is computed as net earnings divided by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur from common shares issuable
through stock-based compensation plans including stock options, restricted stock
awards, warrants and other convertible securities using the treasury stock
method. The following summarizes the computation of Basic EPS and Diluted EPS:
<TABLE>
<S> <C> <C>
Three Months ended
3/31/97 3/31/98
Net Earnings $ 39,501 555,296
Shares:
Weighted Average Common Shares 7,128,172 7,128,172
Dilutive Stock Options and Warrants 130,000 489,400
Dilutive Potential Common Shares 7,145,301 7,411,229
Earnings Per Share:
Basic $ 0.01 0.08
Diluted 0.01 0.07
</TABLE>
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
Notes to Condensed Consolidated Financial Statements (cont.)
(Unaudited)
(5) Subsequent Events
On April 9, 1998, the Company entered into a Lock-Up Agreement with Command
Post and Transfer Corporation to sell its 2,424,488 shares of Pacific Video
Canada, Ltd. (PVC). The Company expects to realize cash consideration of
approximately $3,800,000. The Company anticipates the sale will be concluded
on May 15, 1998.
The balance sheet and statement of operations of Pacific Video Canada, Ltd.
presented below reflect the amounts attributable to PVC which are included in
the condensed consolidated financial statements of Laser-Pacific Media Corp.
PACIFIC VIDEO CANADA, Ltd.
Condensed Balance Sheets
<TABLE>
<S> <C>
January 31, 1998
---------------------------
Assets
Current Assets $ 1,096,862
Capital Assets 4,098,687
===========================
Total Assets 5,195,549
===========================
Liabilities
Current Liabilities 1,273,118
Long Term Debt and other liabilities 1,618,588
Equity
Share Capital 1,735,126
Retained Earnings 568,717
===========================
Total Liabilities & Equity $ 5,195,549
===========================
</TABLE>
LASER-PACIFIC MEDIA CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
(5) Subsequent Events (cont.)
PACIFIC VIDEO CANADA, Ltd.
Condensed Statement of Operations
<TABLE>
<S> <C>
Three Months Ended
January 31, 1998
---------------------------
Sales $ 1,249,905
Direct expenses 906,982
===========================
Gross Profit 342,923
SG&A expenses 273,111
===========================
Earnings from Operations 69,812
Interest and Other expenses 34,538
===========================
Earnings before income taxes 35,274
Income taxes 16,226
===========================
Net earnings $ 19,048
===========================
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Revenues for the quarter ended March 31, 1998 increased to $8,052,000 from
$7,662,000 for the same year-ago period, an increase of $390,000 or 5.1%. This
increase in revenue is comprised of an increase in Post Production Services of
$507,000, offset by a decrease in Film Production Services of $112,000 and a
decrease in Production Services of $5,000. The increase in revenues from Post
Production Services is attributable to increased demand for the Company's
Digital Compression Services including DVD, and revenues from Feature Film
Mastering business, a service the Company began offering in November 1997. The
decrease in revenues from Film Production Services is the result of the
elimination of our positive film services in 1997.
Operating costs in the first quarter of 1998 declined $114,000 or 1.89%,
from $6,042,000 in the first quarter of 1997 to $5,928,000 in the first quarter
of 1998. Operating costs as a percentage of revenues for the quarter ended March
31, 1998 were 73.6% compared with 78.9% for the year ago-period. The decline in
operating cost is primarily the result of lower depreciation expense and a
decrease in processing costs.
For the quarter ended March 31, 1998, the Company recorded a gross profit
of $2,124,000 compared to a gross profit of $1,620,000 for the same year-ago
period, an increase of $504,000 or 31.1%. The increased profit is attributable
to the increase in revenues and the decline in operating expenses as explained
above.
Selling, general and administrative (SG&A) and other expenses for the
quarter ended March 31, 1998 were $1,201,000 compared to $1,222,000 during the
same year-ago period, a decrease of $21,000 or 1.7%.
Interest expense for the quarter ended March 31, 1998 was unchanged at
$377,000 compared to $380,000 for the same year-ago period.
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 up to $5.4 million under the term loan (limited to 85% of the
eligible equipment appraisal value) and $3.6 million under the revolving loan
(limited to 85% of eligible accounts receivable). At March 31, 1998 $1,016,122
was available under the revolving loan agreement. The outstanding balance of the
term loan was $2,876,882 at March 31, 1998. The term loan 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. Future 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 $1,266,000 at March 31, 1998. 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 period by either party upon
at least 60 day written notice.
The Company has an outstanding real estate loan with Bank of America. 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, 1998 was $1,187,486.
In July 1997, the Company issued $1,000,000 of short-term Installment (Fixed
Rate) Line of Credit Notes, Series 1997 to 35 Lake Avenue, a California limited
partnership. James R. Parks, the Company's, Chief Executive Officer, is a
partner in 35 Lake Avenue. The principal balance of the Notes bears interest at
the rate of fourteen percent (14%) per annum. The accrued interest on the
outstanding principal was payable on September 30, 1997, December 31, 1997,
January 30, 1998, February 28, 1998 and March 30, 1998. The outstanding
principal balance was to be paid in three equal installments on January 30,
1998, February 28, 1998 and March 31, 1998. The Company granted 35 Lake Avenue
warrants to purchase one (1) share of the Company's common stock at the exercise
price of $1.00 per share, for each $4.00 of original principal amount of debt
loaned. 250,000 warrants were issued. The warrants originally expired two years
from the date of grant. The Company's obligations under the Notes are secured by
a pledge of 2,424,488 shares of the Common Stock of Pacific Video Canada Ltd.
and a third deed of trust against the building where the Company provides film
processing and sound services. In January, 1998 35 Lake Avenue agreed to amend
the terms of the short-term Installment Line of Credit Notes from March 30, 1998
until November 30, 1998. Under the amendment, principal payments reflect
approximately $400,000 due in the first quarter of 1998, $200,000 due at the end
of the third quarter of 1998 and remaining payments of $300,000 due throughout
the fourth quarter of 1998. In consideration for the extension of the principal
payments, the expiration date of the warrants originally issued was extended for
two additional years. At March 31, 1998, the outstanding principal balance on
the notes was $500,000.
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. Additionally, the Company will
receive approximately 3,800,000 in additional funding in the 2nd Quarter of 1998
from the sale of the Company's stock ownership of Pacific Video Canada Ltd. This
additional funding will be used to retire debt and to fund the upgrading of the
Company's plant and equipment.
Forward looking statements and comments in this document relating to, among
other things, the prospects for the Company to achieve growth in sales, the
ability to reduce overhead, and ability to achieve positive operating results,
are necessarily subject to risks and uncertainties. These risks and
uncertainties are significant in scope and nature, including risks related to
competition, continuation of sales levels and in particular the risks related to
the cost and availability of capital.
Item 1. Submissions of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the first
quarter of 1998.
Item 2. Exhibits and Reports on Form 8-K
None
<PAGE>
Signatures
LASER-PACIFIC MEDIA CORPORATION
(Registrant)
Dated: May 15, 1998 /s/James R. Parks
James R. Parks
Chairman of the Board
and Chief Executive Officer
Dated: May 15, 1998 /s/Robert McClain
Robert McClain
Secretary and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 194
<SECURITIES> 0
<RECEIVABLES> 4,698
<ALLOWANCES> 937
<INVENTORY> 301
<CURRENT-ASSETS> 402
<PP&E> 40,454
<DEPRECIATION> 24,200
<TOTAL-ASSETS> 21,435
<CURRENT-LIABILITIES> 7,217
<BONDS> 0
0
0
<COMMON> 19,773
<OTHER-SE> 6,864
<TOTAL-LIABILITY-AND-EQUITY> 21,435
<SALES> 8,052
<TOTAL-REVENUES> 8,052
<CGS> 4,903
<TOTAL-COSTS> 5,927
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 377
<INCOME-PRETAX> 587
<INCOME-TAX> 32
<INCOME-CONTINUING> 587
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 587
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.07
</TABLE>
