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 September 30, 2000
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 November 1, 2000 was 7,721,293 shares of Common Stock, $.0001 par
value.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Table of Contents
Part I. Financial Information Page
---------
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 7
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
<PAGE>
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited) (Audited)
September 30, December 31,
2000 1999
--------------- ----------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 3,557,477 $ 2,398,407
Receivables net of allowance for doubtful accounts 4,135,528 5,139,663
Other current assets 1,303,793 1,211,279
--------------- ----------------
Total Current Assets 8,996,798 8,749,349
Net property and equipment 18,963,444 20,333,846
Other assets 597,422 414,115
--------------- ----------------
Total Assets $ 28,557,664 $ 29,497,310
=============== ================
Liabilities and Stockholders' Equity
Current Liabilities:
Current installments of notes payable to bank and long-term debt $ 3,479,677 $ 3,718,270
Other current liabilities 1,938,217 1,800,035
--------------- ----------------
Total Current Liabilities 5,417,894 5,518,305
Notes payable to bank and long-term debt, less current installments 8,639,519 10,303,320
Stockholders' Equity:
Common stock, $.0001 par value. Authorized 25,000,000 shares; issued
and outstanding 7,721,293 shares at September 30, 2000 and 7,654,646
shares at December 31, 1999. 772 765
Additional paid-in capital 19,921,159 19,919,956
Accumulated deficit (5,421,680) (6,245,036)
--------------- ----------------
Net Stockholders' Equity 14,500,251 13,675,685
--------------- ----------------
Total Liabilities and Stockholders' Equity $ 28,557,664 $ 29,497,310
=============== ================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
---------------------------------- --------------------------------
2000 1999 2000 1999
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 7,233,449 7,771,664 $ 22,337,684 21,307,391
Operating costs
Direct costs 4,519,822 4,793,093 14,282,547 13,728,331
Depreciation and amortization 1,046,960 841,981 2,995,852 2,249,535
--------------- --------------- -------------- --------------
Total operating costs 5,566,782 5,635,074 17,278,399 15,977,866
--------------- --------------- -------------- --------------
Gross profit 1,666,667 2,136,590 5,059,285 5,329,525
Selling, general and administrative
and other expenses 1,125,148 1,086,170 3,388,641 3,198,098
--------------- --------------- -------------- --------------
Income from operations 541,519 1,050,420 1,670,644 2,131,427
Interest expense 303,387 298,717 995,017 881,731
Other income 60,741 18,545 191,029 76,374
--------------- --------------- -------------- --------------
Income before income taxes 298,873 770,248 866,656 1,326,070
Income taxes 17,400 33,600 43,300 48,300
--------------- --------------- -------------- --------------
Net income $ 281,473 736,648 $ 823,356 1,277,770
=============== =============== ============== ==============
Income per share (basic) $ 0.04 0.10 $ 0.11 0.17
--------------- --------------- -------------- --------------
Income per share (diluted) $ 0.04 0.09 $ 0.10 0.16
--------------- --------------- -------------- --------------
Weighted average shares outstanding (basic) 7,721,293 7,620,967 7,720,493 7,436,793
=============== =============== ============== ==============
Weighted average shares outstanding (diluted) 7,949,890 7,989,887 8,071,083 7,778,019
=============== =============== ============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended September 30,
---------------------------------------
2000 1999
----------------- -----------------
Cash flows from operating activities
<S> <C> <C>
Net income $ 823,356 $ 1,277,770
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,995,852 2,249,535
Gain on sale of property and equipment (74,490) (3,500)
Provision for doubtful accounts receivable 167,186 238,394
Equity in loss of Composite Image Systems, LLC 40,645 ---
Change in assets and liabilities:
(Increase) decrease in:
Receivables 835,159 (1,607,599)
Other current assets (92,514) 49,904
Other current liabilities 138,182 516,450
Other 124,158 (154,437)
----------------- -----------------
Net cash provided by operating activities 4,957,534 2,566,517
Cash flows from investing activities:
Purchases of property and equipment (1,906,861) (7,794,578)
Net proceeds from disposal of property and equipment 355,493 3,500
Contribution to Composite Image Systems, LLC (345,912) ---
----------------- -----------------
Net cash used in investing activities (1,897,280) (7,791,078)
Cash flows from financing activities:
Net (repayment of) proceeds from notes payable to bank and long-term debt (1,902,394) 4,969,968
Proceeds from issuance of common stock 1,210 51,480
----------------- -----------------
Net cash (used in) provided by financing activities (1,901,184) 5,021,448
Net increase (decrease) in cash and cash equivalents 1,159,070 (203,113)
Cash and cash equivalents at beginning of period 2,398,407 1,159,206
----------------- -----------------
Cash and cash equivalents at end of period $ 3,557,477 $ 956,093
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
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, 2000 and December 31, 1999; the results of operations for the
three and nine month periods ended September 30, 2000 and 1999; and the
statements of cash flows for the nine month periods ended September 30, 2000 and
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.
In accordance with the regulations 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. Basic income per share is
computed as net income divided by the weighted-average number of common shares
outstanding for the period. 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 three and
nine month periods ended September 30, 2000 and 1999. Diluted income per share
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 income per share and
diluted income per share:
<TABLE>
<CAPTION>
Three Months ended September 30, Nine Months ended September 30,
-------------------------------------- --------------------------------------
2000 1999 2000 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Income $ 281,473 736,648 $ 823,356 1,277,770
================= ================= ================= =================
Shares:
Weighted Average Common Shares 7,721,293 7,620,967 7,720,493 7,436,793
Dilutive Stock Options and Warrants 228,597 368,920 350,590 341,226
----------------- ----------------- ----------------- -----------------
Dilutive Potential Common Shares 7,949,890 7,989,887 8,071,083 7,778,019
Income Per Share:
Basic $ 0.04 0.10 $ 0.11 0.17
Diluted $ 0.04 0.09 $ 0.10 0.16
</TABLE>
(3) Income Taxes
For the nine months ended September 30, 2000, federal income tax
expense of $15,600 and state income tax expense of $27,700 was recognized after
the application of net operating loss carry forwards. Income tax expense for the
nine months ended September 30, 2000 was computed using the estimated effective
tax rate to apply for all of 2000 after considering the impact of net operating
loss carry forwards and tax credits. The rate is subject to ongoing review and
evaluation by management.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Statements included within this document, other than statements of
historical facts, that address activities, events or developments that the
Company expects or anticipates will or may occur in the future, including such
things as business strategy and measures to implement strategy, competitive
strengths, goals, expansion and growth of the Company's business and operations,
plans, references to future success and other such matters, are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities and Exchange Act of 1934, as amended,
and fall under the safe harbor. The forward-looking statements are based on
certain assumptions and analyses made by the Company in light of its experience
and its perception of historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate in the
circumstances. However, actual results and financial position could differ
materially in scope and nature from those anticipated in the forward looking
statements as a result of a number of factors, including but not limited to, the
Company's ability to successfully expand capacity, general economic, market or
business conditions; the opportunities (or lack thereof) that may be presented
to and pursued by the Company; competitive actions by other companies; changes
in laws or regulations; investments in new technologies; continuation of sales
levels; the risks related to the cost and availability of capital; and other
factors, many of which are beyond the control of the Company. Consequently, all
of the forward-looking statements made in this report are qualified by these
cautionary statements and there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on the Company or its business operations. Readers are urged to
carefully review and consider various disclosures made by the Company in its
filings with the Securities and Exchange Commission to advise interested parties
of certain risks and other factors that may affect the Company's business and
operating results.
Results of Operations
Revenues for the nine months ended September 30, 2000 increased to
$22,338,000 from $21,307,000 for the same year-ago period, an increase of
$1,031,000 or 4.8%. Revenues from post-production services related to the
Company's core business on episodic television shows increased $2,127,000. The
increase in the Company's post-production services is attributable to increased
demand for the Company's services. The increase was offset by decreased revenue
from the following services: (1) a decrease in revenues of $161,000 from film
processing as the result of increased use by some customers of film formats that
require a lower volume of film processing; (2) a decrease in revenues of
$240,000 resulting from the elimination of the Company's production rental
services business in October 1999 and anticipated lower revenues from laser disc
services; (3) a decrease in digital compression revenues of $335,000 due to
decreased demand for MPEG compression for airlines and scheduling delays by the
Company's customers; and (4) a decrease in revenues from graphic services of
$504,000 as a result of lower demand for special effects by the Company's
customers and the reduction of services provided.
Revenues for the three months ended September 30, 2000 decreased to
$7,233,000 from $7,772,000 for the same year-ago period, a decrease of $539,000
or 6.9%. The decrease in revenues is essentially the result of a slower start of
the 2000-2001 prime-time television season compared to the 1999-2000 season.
Management believes the slower start is attributable to the delay in the
networks prime-time premier week, that was brought about by broadcast of the
Olympics and the presidential debates.
Operating costs for the nine months ended September 30, 2000 were
$17,278,000 versus $15,978,000 for the same year-ago period, an increase of
$1,300,000 or 8.1%. The increase in operating costs consists of an increase in
labor costs of $581,000, an increase in depreciation of $746,000 discussed below
and reductions in bad debt, equipment rental and supplies and maintenance of
equipment. Higher labor costs are attributable to salary increases. Operating
costs, including depreciation, as a percentage of revenues for the nine months
ended September 30, 2000 were 77.4% compared with 75.0% for the same year-ago
period.
Operating costs for the three months ended September 30, 2000 were
$5,567,000 versus $5,635,000 for the same year-ago period, a decrease of $68,000
or 1.2%. The decrease in operating costs consists of a reduction in most
operating costs due to the decrease in revenues for the quarter, partially
offset by an increase in depreciation of $205,000 discussed below. Operating
costs, including depreciation, as a percentage of revenues for the three months
ended September 30, 2000 were 77.0% compared with 72.5% for the same year-ago
period.
<PAGE>
Depreciation expense for the nine months ended September 30, 2000 was
$2,996,000 compared to $2,250,000 for the same year-ago period, an increase of
$746,000 or 33.2%. The increase in depreciation is the result of equipment
purchased during 1999 to expand the Company's capacity.
Depreciation expense for the three months ended September 30, 2000 was
$1,047,000 compared to $842,000 for the same year-ago period, an increase of
$205,000 or 24.3%. The increase in depreciation is the result of equipment
purchased during 1999 to expand the Company's capacity.
For the nine months ended September 30, 2000 the Company recorded a
gross profit of $5,059,000 compared with $5,330,000 for the same year-ago
period, a decrease of $271,000 or 5.1%. The decrease in gross profit is the
result of increased operating costs, primarily labor and depreciation as
discussed above partially offset by increased revenue for the period.
For the three months ended September 30, 2000 the Company recorded a
gross profit of $1,667,000 compared to a gross profit of $2,137,000 for the same
year-ago period, a decrease of $470,000 or 22.0%. The decrease in gross profit
is the result of lower revenues partially offset by decreased operating costs.
Selling, general and administrative ("SG&A") expenses for the nine
months ended September 30, 2000 was $3,389,000 compared to $3,198,000 during the
same year-ago period, an increase of $191,000 or 6.0%. The increase in SG&A is
primarily attributable to higher salaries, increased insurance expense and
increased professional service fees.
SG&A for the three months ended September 30, 2000 were $1,125,000
compared to $1,086,000 for the same year-ago period, an increase of $39,000 or
3.6%. The increase in SG&A is primarily attributable to higher property taxes
and increased professional service fees.
Interest expense for the nine months ended September 30, 2000 was
$995,000 compared to $882,000 for the same year-ago period, an increase of
$113,000 or 12.8%. The increase in interest expense is a result of increased
borrowings for equipment purchases in prior years offset by reductions in debt.
Interest expense for the three months ended September 30, 2000 was
$303,000 compared to $299,000 for the same year-ago period, an increase of
$4,000 or 1.6%. The increase in interest expense is a result of increased
borrowings for equipment purchases in prior years offset by reductions in debt.
Other income for the nine months ended September 30, 2000 was $191,000
compared to $76,000 for the same year-ago period, an increase of $115,000 or
150.1%. The increase in other income is primarily due to an increase in interest
income resulting from higher cash balances and an increase in interest rates.
Other income for the three months ended September 30, 2000 was $61,000
compared to $19,000 for the same year-ago period, an increase of $42,000 or
227.5%. The increase in other income is primarily due to an increase in interest
income resulting from higher cash balances and an increase in interest rates.
Net income for the nine months ended September 30, 2000 was $823,000
compared to $1,278,000 for the same year-ago period, a decrease of $455,000 or
35.6%. The decrease in net income is a consequence of the above factors.
Net income for the three months ended September 30, 2000 was $281,000
compared to $737,000 for the same year-ago period, a decrease of $456,000 or
61.8%. The decrease in net income is a consequence of the above factors.
Liquidity and Capital Resources
During the quarter ended June 30, 2000 the Company entered into a joint
venture with Joe Matza, President of Las Palmas Productions, forming a new
company, Composite Image Systems, LLC. This new entity will provide digital
visual effects and graphic services to the motion picture film and television
industry. In addition to sharing equipment, personnel, technical expertise and
industry knowledge the Company has certain financial commitments to the joint
venture. The Company has agreed to provide working capital to the joint venture
as needed up to $500,000 and to either lease the entity equipment or guarantee
the financing of equipment purchases up to $865,000. The agreement also provides
that the Company will receive preferred distributions until the working capital
the Company contributed is repaid.
<PAGE>
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 at 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 $2,183,000 at
September 30, 2000. It is payable in monthly installments of $81,000 plus
interest at prime plus 1.0% amortizing through August 3, 2003. Principal
payments are not required in June, July or August. The revolving loan had an
outstanding balance of $0 at September 30, 2000. The revolving loan bears
interest at prime plus 1.0%, 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.
During the year ended December 31, 1999 the Company entered into
capital lease obligations of approximately $7,000,000 with various lenders in
connection with the acquisition of equipment. The capital leases are for terms
of up to 60 months, at fixed interest rates ranging from 8% to 9%. The
obligations are secured by the equipment that was financed. The equipment was
acquired to expand the Company's capabilities and to support the increasing
demand for the Company's services. Projected cash flow and existing credit
arrangements are adequate to fund additional purchases and commitments.
The Company's principal source of funds is cash generated by
operations and traditional financing. 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 2000.
Seasonality and Variation of Quarterly Results
The Company's business is subject to substantial quarterly variations
as a result of seasonality, which the Company believes is typical of the
television post-production industry. Historically, revenues and net income have
been highest during the first and fourth quarters, when the production of
television programs and consequently the demand for the Company's services is at
its highest. Historically, revenues have been substantially lower during the
second and third quarters.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Derivative Instruments. The Company does not invest, and during the
nine and three months ended September 30, 2000 did not invest, in market risk
sensitive instruments.
Market Risk. The Company's market risk exposure with respect to
financial instruments is to changes in the "prime rate" in the United States.
The Company had borrowings of $2,183,000 at September 30, 2000 under a term loan
(discussed above) and may borrow up to $3.6 million under a revolving loan.
Amounts outstanding under the term loan and revolving credit facility bear
interest at the bank's prime rate plus 1%.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
Laser-Pacific Media Corporation has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
LASER-PACIFIC MEDIA CORPORATION
(Registrant)
Dated: November 8, 2000 /s/James R. Parks
-----------------
James R. Parks
Chief Executive Officer
Dated: November 8, 2000 /s/Robert McClain
-----------------
Robert McClain
Chief Financial Officer
(Principal Financial and Accounting Officer)
