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, 1999
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 (323) 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, 1999 was 7,360,475 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 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 8
Part II - Other Information
Signatures 11
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Audited) (Unaudited)
December 31, March 31
1998 1999
--------------- --------------
<S> <C> <C>
Assets
Current assets $
Cash 1,159,206 3,343,080
Receivables net of allowance for doubtful accounts 4,747,143 4,043,431
Other current Assets 747,886 725,493
--------------- --------------
Total Current Assets 6,654,235 8,112,004
Net property and equipment 13,219,739 12,733,442
Other assets 352,325 278,531
--------------- --------------
Total Assets $ 20,226,299 21,123,977
=============== ==============
Liabilities and Stockholders' Equity
Current liabilities
Current installments of notes payable to bank and long-term debt $ 2,462,324 2,500,225
Other current liabilities 1,423,199 1,814,762
--------------- --------------
Total Current Liabilities 3,885,523 4,314,987
Notes payable to bank and long-term debt, less current installments 7,628,588 6,918,873
Stockholders' equity:
Common stock, $.0001 par value. Authorized 25,000,000 shares; issued and
outstanding 7,222,575 shares at December 31, 1998 and 7,323,175 at March 722 732
31, 1999,
Additional paid-in capital 19,792,737 19,815,321
Accumulated deficit (11,081,271) (9,925,936)
--------------- --------------
Net stockholders' equity 8,712,188 9,890,117
--------------- --------------
Total Liabilities and Stockholders' Equity $ 20,226,299 21,123,977
=============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1998 1999
--------------- ----------------
<S> <C> <C>
Revenues $ 8,051,851 7,941,609
Operating costs 5,927,686 5,416,689
--------------- ----------------
Gross profit 2,124,165 2,524,920
Selling, general and administrative
and other expenses 1,201,341 1,057,877
--------------- ----------------
Income from operations 922,824 1,467,043
Interest expense 377,322 300,284
Other income 25,794 23,476
--------------- ----------------
Income before income taxes 571,296 1,190,235
Provision for income taxes 16,000 34,900
--------------- ----------------
Net income $ 555,296 1,155,335
=============== ================
Earning per share
Net income per basic share $ 0.08 0.16
=============== ================
Net income per diluted share 0.07 0.15
=============== ================
Weighted average shares outstanding (basic) 7,128,172 7,167,296
=============== ================
Weighted average shares outstanding (diluted) 7,510,300 7,809,066
=============== ================
</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>
<CAPTION>
Three Months Ended
March 31,
------------------------------------------
1998 1999
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 555,296 1,155,335
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,024,498 694,043
Gain on sale of Property and equipment (41,671) (1,600)
Provision for doubtful accounts receivable 66,971 78,737
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 439,604 624,975
Inventory 558 (3,983)
Prepaid expenses and other current assets 53,919 26,376
Other assets 83,278 73,793
Increase in:
Accounts payable and accrued expenses 412,051 391,564
------------------- -------------------
Net cash provided by operating activities 2,594,504 3,039,240
=================== ===================
Cash flows from investing activities:
Purchases of property and equipment (775,700) (207,746)
Net proceeds from disposal of property and equipment 46,457 1,600
------------------- -------------------
Net cash used in investing activities (729,243) (206,146)
=================== ===================
Cash flows from financing activities :
Net (repayment) borrowings of notes payable to bank and (1,638,896) (671,814)
long-term debt
Repayments of notes payable to related parties (400,000) -
Proceeds from issuance of common stock - 22,594
------------------- -------------------
Net cash used in financing activities (2,038,896) (649,220)
=================== ===================
Net increase (decrease) in cash (173,635) 2,183,874
Cash at beginning of period 367,363 1,159,206
------------------- -------------------
Cash at end of period $ 193,728 3,343,080
=================== ===================
Supplementary disclosure of cash flow information:
Cash paid during the period for interest $ 377,322 300,284
=================== ===================
</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, 1999 and December 31, 1998; the results of operations for the three month
periods ended March 31, 1998 and 1999; and the statements of cash flows for the
three month periods ended March 31, 1998 and 1999. Included in the Condensed
Consolidated Financial Statements for March 31, 1998 is the activity of the
Company's consolidated subsidiary, Pacific Video Canada, Ltd. ("PVC"). PVC's
fiscal year ends October 31, therefore, the results of operations include the
three month period ended January 31, 1998. On May 15, 1998, the Company sold all
of its investment in PVC. Accordingly, revenue and expense of PVC through March
31, 1998 are included in the results of operations for the period ended March
31, 1998, but are not included in the results of operations for the period ended
March 31, 1999. 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 average closing stock price during the quarter
ended March 31, 1998 and 1999.
(3) Income Taxes
At March 31, 1999, federal income tax expense of $24,000 and state income
tax expense of $11,000 was recognized after the application of net operating
loss carry forwards. Income tax expense for the quarter ended March 31, 1999 was
computed using the estimated effective tax rate to apply for all of 1999 after
considering the impact of net operating loss carryforwards.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
(4) Earnings per share
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:
Three Months ended
3/31/98 3/31/99
-----------------------------
Net Earnings $ 555,296 1,155,335
Shares:
Weighted Average Common Shares 7,128,172 7,167,296
Dilutive Stock Options and Warrants 383,128 641,770
Dilutive Potential Common Shares 7,511,300 7,809,066
Earnings Per Share:
Basic $ 0.08 0.16
Diluted $ 0.07 0.15
(5) Sale of Pacific Video Canada Ltd.
On May 15, 1998 the Company sold all of its investment in PVC to Command
Post and Transfer Corporation. The Company realized cash consideration of
$3,810,000 and a gain on sale of $874,000, net of applicable taxes.
The 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. as of March 31,
1998.
PACIFIC VIDEO CANADA, Ltd.
Condensed Statement of Operations
Three Months Ended
March 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
==========================
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Revenues for the quarter ended March 31, 1999 decreased to $7,942,000 from
$8,052,000 for the same period last year, a decrease of $110,000 or 1.4%. The
decline in revenues for the quarter is attributable to the elimination of the
revenue from International Operations which is the result of the sale of our
Canadian subsidiary Pacific Video Canada Ltd. (PVC) on May 15, 1998 (see
footnote 5). All of the Laser Pacific's International Operations are
attributable to PVC which represented $1,250,000 in revenues for the period
ended March 31, 1998. The revenues for the quarter ended March 31, 1999 at the
Company's U.S. facilities increased $1,140,000 or 16.8% versus the last year.
The increase in revenues at U.S. facilities is comprised of an increase of
$1,052,000 in Production Services, an increase of $125,000 in Film Production
Services and a decrease of $37,000 in Post Production Services. The Company's
Production Services business has declined over the last four years and is no
longer material to the Company's sales or operating profits. The increase in
revenues at our U.S. Facilities from Post-Production Services is attributable to
increased demand for the Company's services with significant increases in
digital compression services; including digital video discs, and revenues from
feature film mastering, a service the Company began offering in November 1997.
The increase in revenues from Digital Compression services and the additional
revenue from High-Definition services amounted to $666,000 for the period.
For the quarter ended March 31, 1999 the Company recorded a gross profit of
$2,525,000 compared to a gross profit of $2,124,000 for the same period last
year, an increase of $401,000 or 18.9%. For the period ended March 31, 1998,
gross profit from domestic operations was $1,781,000. The over all increase in
gross profit was offset by a decline in gross profit from International
Operations which is the result of the sale of PVC. The gross profit for the
three months ended March 31, 1999 at the Company's U.S. facilities increased
$744,000 or 41.8% versus the year-ago period. The increase in gross profit at
U.S. facilities is the result of increased sales volume at our U.S. facilities,
discussed above, offset by increased operating costs at our U.S. facilities, as
explained below.
Operating costs for the quarter ended March 31, 1999 were $5,417,000 versus
$5,928,000 for the same period last year, a decrease of $511,000 or 8.6%. There
was an increase in operating costs at our U.S. facilities which was offset by a
decline in operating costs from International Operations which is the result of
the sale of PVC. The operating costs for the three months ended March 31, 1999
at the Company's U.S. facilities increased $396,000 or 7.9% versus the same
period last year. The increase in operating costs from our US operations is
attributable primarily to an increase in labor costs of $499,000 which is a
result of the increased level of sales. These increases were partially offset by
a reduction in depreciation expense of $154,000. Operating costs, as a
percentage of revenues of our U.S. Operations for the three months ended March
31, 1999 were 68.2% compared with 73.8% for the same year-ago period.
Selling, General and Administrative (SG&A) expenses for the three months
ended March 31, 1999 were $1,058,000 as compared to $1,201,000 during the same
year-ago period, a decrease of $143,000 or 11.9%. There was an increase in SG&A
of $130,000 at our U.S. facilities offset by a decline of $273,000 in SG&A from
international operations, as a result of the sale of PVC. The increase in SG&A
at the U.S. facilities is attributable to increases in advertising, promotion,
repairs, maintenance and taxes, offset by lower insurance costs and professional
fees.
Interest expense for the three months ended March 31, 1999 was $300,000
compared to $377,000 for the same year-ago period, a decrease of $77,000 or
20.4%. The decrease in interest expense is the result of reduced borrowing and
lower interest rates. Interest expense decreased $43,000 in the U.S or 12.4%.
Total U.S. debt was reduced significantly after May 15, 1998 with the proceeds
from the sale of PVC.
Depreciation expense for the three months ended March 31, 1999 was $694,000
compared to $1,024,000 for the same period last year, a reduction of $330,000 or
32.2%. The depreciation expense reductions were the result of the sale of PVC
(discussed above), and the company acquiring less equipment than the amount of
equipment that became fully depreciated during the three months ended March 31,
1999. The decrease in depreciation expense in the U.S. was $154,000 for the
period.
Liquidity and Capital Resources
Improved operating results and the sale of Pacific Video Canada had a very
positive effect on the liquidity and capital resources of the company. The
improved operating results and the cash generated enabled the company to reduce
debt, borrow at better terms and increase availability under existing loan
agreements.
The Company and its subsidiaries are operating under a loan agreement with
The CIT Group/Credit Finance which has been amended and extended to August 3,
2001. 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 100% of eligible equipment appraisal value) and $3.6 million under
the revolving loan (limited to 85% of eligible accounts receivable. The
outstanding balance of the term loan was $3,160,000 at March 31, 1999. It is
payable in monthly installments of $81,000 plus interest at 10.5% through August
3, 2003. Principal payments are not required in June, July or August. The
revolving loan had an outstanding balance of $0 at March 31, 1999. The revolving
loan bears interest at prime plus 1.5%, which is payable monthly. The loan
agreement contains automatic renewal provisions for successive terms of two
years thereafter unless terminated as of August 3, 2001 or as of the end of any
renewal term by either party by giving the other party at least 60 day written
notice.
The Company's principal source of funds is cash generated by operations. On
an annual basis, the Company anticipates that existing cash balances,
availability under existing loan agreements and cash generated from operations
will be sufficient to service existing debt and to meet the Company's capital
requirements for fiscal 1999. Management is of the opinion that the Company will
be able to meet its obligations on a timely basis. There is no assurance that
management's plan will be achieved.
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 1999.
Item 2. Exhibits and Reports on Form 8-K
Signatures
LASER-PACIFIC MEDIA CORPORATION
(Registrant)
Dated: May 5, 1999 /s/ James R. Parks
James R. Parks
Chairman of the Board
and Chief Executive Officer
Dated: May 5, 1999 /s/ Robert McClain
Robert McClain
Secretary and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> Financial Data Schedule
(Replace this text with the legend)
</LEGEND>
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1.000
<CASH> 3,343,080
<SECURITIES> 0
<RECEIVABLES> 5,166,440
<ALLOWANCES> 1,123,009
<INVENTORY> 220,139
<CURRENT-ASSETS> 8,112,004
<PP&E> 30,054,718
<DEPRECIATION> 17,321,276
<TOTAL-ASSETS> 21,123,977
<CURRENT-LIABILITIES> 4,304,344
<BONDS> 0
0
0
<COMMON> 732
<OTHER-SE> 19,815,321
<TOTAL-LIABILITY-AND-EQUITY> 21,123,977
<SALES> 7,941,609
<TOTAL-REVENUES> 7,965,085
<CGS> 4,722,646
<TOTAL-COSTS> 5,416,679
<OTHER-EXPENSES> 1,057,877
<LOSS-PROVISION> 78,737
<INTEREST-EXPENSE> 300,284
<INCOME-PRETAX> 1,190,235
<INCOME-TAX> 34,900
<INCOME-CONTINUING> 1,155,335
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,155,335
<EPS-PRIMARY> .16
<EPS-DILUTED> .15
</TABLE>
