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, 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 April 30, 2000 was 7,720,993 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 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk 8
Part II.Other Information
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
<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)
March 31, December 31,
2000 1999
---------------- --------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 4,037,652 $ 2,398,407
Receivables net of allowance for doubtful accounts 4,928,801 5,139,663
Other current assets 1,202,847 1,211,279
---------------- --------------
Total Current Assets 10,169,300 8,749,349
Net property and equipment 18,888,140 20,333,846
Other assets 356,693 414,115
---------------- --------------
Total Assets $ 29,414,133 $ 29,497,310
================ ==============
Liabilities and Stockholders' Equity
Current liabilities
Current installments of notes payable to bank and long-term debt $ 3,668,247 $ 3,718,270
Other current liabilities 1,997,621 1,800,035
---------------- --------------
Total Current Liabilities 5,665,868 5,518,305
Notes payable to bank and long-term debt, less current installments 8,620,463 10,303,320
Stockholders' equity:
Common stock, $.0001 par value. Authorized 25,000,000 shares; issued and
outstanding 7,720,193 shares at March 31, 2000 and 7,654,646 at December 31,
1999. 772 765
Additional paid-in capital 19,920,917 19,919,956
Accumulated deficit (4,793,887) (6,245,036)
---------------- --------------
Net stockholders' equity 15,127,802 13,675,685
---------------- --------------
Total Liabilities and Stockholders' Equity $ 29,414,133 $ 29,497,310
================ ==============
</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,
-----------------------------------
2000 1999
--------------- ----------------
<S> <C> <C>
Revenues $ 9,245,739 $ 7,941,609
Operating costs
Direct costs 5,351,431 4,722,646
Depreciation 939,112 694,043
--------------- ----------------
Total operating costs 6,290,543 5,416,689
--------------- ----------------
Gross profit 2,955,196 2,524,920
Selling, general and administrative
and other expenses 1,149,565 1,057,877
--------------- ----------------
Income from operations 1,805,631 1,467,043
Interest expense 344,999 300,284
Other income 66,917 23,476
--------------- ----------------
Income before income taxes 1,527,549 1,190,235
Provision for income taxes 76,400 34,900
--------------- ----------------
Net income $ 1,451,149 $ 1,155,335
=============== ================
Income per share
Net income per basic share $ 0.19 $ 0.16
=============== ================
Net income per diluted share $ 0.18 $ 0.15
=============== ================
Weighted average shares outstanding (basic) 7,718,993 7,274,742
=============== ================
Weighted average shares outstanding (diluted) 8,031,703 7,833,859
=============== ================
</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,
------------------------------------------
2000 1999
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,451,149 $ 1,155,335
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 939,112 694,043
Gain on sale of property and equipment (31,700) (1,600)
Provision for doubtful accounts receivable 104,350 78,737
Change in assets and liabilities:
(Increase) decrease in:
Receivables 106,512 624,975
Inventory (20,752) (3,983)
Other current assets 29,184 26,376
Other assets 57,422 73,793
Increase in:
Other current liabilities 197,586 391,564
------------------- -------------------
Net cash provided by operating activities 2,832,863 3,039,240
=================== ===================
Cash flows from investing activities:
Purchases of property and equipment (479,444) (207,746)
Net proceeds from disposal of property and equipment 31,700 1,600
------------------- -------------------
Net cash used in investing activities (447,744) (206,146)
=================== ===================
Cash flows from financing activities:
Net repayment of notes payable to bank and long-term debt (746,842) (671,814)
Proceeds from issuance of common stock 968 22,594
------------------- -------------------
Net cash used in financing activities (745,874) (649,220)
=================== ===================
Net increase in cash 1,639,245 2,183,874
Cash and cash equivalents at beginning of period 2,398,407 1,159,206
------------------- -------------------
Cash and cash equivalents at end of period $ 4,037,652 $ 3,343,080
=================== ===================
Supplementary disclosure of cash flow information:
Cash paid during the period for interest $ 344,999 $ 300,284
=================== ===================
</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 March
31, 2000 and December 31, 1999; the results of operations and cash flows for the
three month periods ended March 31, 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 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. 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 quarters
ended March 31, 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 March 31,
------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Net Income $ 1,451,149 $ 1,155,335
Shares:
Weighted Average Common Shares 7,718,993 7,274,742
Dilutive Stock Options and Warrants 312,710 559,117
---------------- ----------------
Dilutive Potential Common Shares 8,031,703 7,833,859
Income Per Share:
Basic $ 0.19 $ 0.16
Diluted $ 0.18 $ 0.15
</TABLE>
(3) Income Taxes
At March 31, 2000, federal income tax expense of $28,000 and state
income tax expense of $48,000 was recognized after the application of net
operating loss carry forwards. Income tax expense for the quarter ended March
31, 2000 was computed using the estimated effective tax rate to apply for all of
2000 after considering the impact of net operating loss carryforwards 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 quarter ended March 31, 2000 increased to $9,246,000
from $7,942,000 for the same period last year, an increase of $1,304,000 or
16.4%. Revenues from post-production services related to the Company's core
business on episodic television shows increased $1,793,000. The increase in the
Company's post-production services is attributable to an increased demand for
the Company's services with a significant increase in demand for high definition
services. The increase was offset by decreased revenue from the following
services: (1) a decrease in revenues of $51,000 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 $161,000 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 $91,000 due to scheduling delays by the
Company's customers; and (4) a decrease in revenues from graphic services of
$186,000 as a result of lower demand for special effects by the Company's
customers.
Operating costs for the quarter ended March 31, 2000 were $6,291,000
versus $5,417,000 for the same period last year, an increase of $874,000 or
16.1%. The increase in operating costs is primarily the result of an increase in
depreciation expense of $245,000 and an increase in labor cost of $525,000. The
increase in depreciation expense is the result of significant capital
expenditures in the second half of 1999. The increase in labor cost is the
result of an increased number of employees and compensation increases. Total
operating costs, including depreciation and amortization, as a percentage of
revenues for the three months ended March 31, 2000 were 68.0% compared with
68.2% for the same year-ago period.
For the quarter ended March 31, 2000 the Company recorded a gross
profit of $2,955,000 compared to a gross profit of $2,525,000 for the same
period last year, an increase of $430,000 or 17.0%. The increase in gross profit
is the result of increased sales volume. Gross profit for the quarter ended
March 31, 2000, as a percentage of revenue was 32.0% compared to 31.8% for the
quarter ended March 31, 1999.
Selling, General and Administrative ("SG&A") expenses for the three
months ended March 31, 2000 were $1,150,000 as compared to $1,058,000 during the
same year-ago period, an increase of $92,000 or 8.7%. The increase in SG&A is
primarily attributable to an increase in labor cost which is the result of an
increased number of employees and compensation increases.
<PAGE>
Interest expense for the three months ended March 31, 2000 was $345,000
compared to $300,000 for the same year-ago period, an increase of $45,000 or
15.0%. The increase in interest expense is a result of additional borrowings for
equipment acquisitions made in 1999.
Liquidity and Capital Resources
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 $2,428,000 at March
31, 2000. It is payable in monthly installments of $81,000 plus interest at
prime plus 1% 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 March 31, 2000. The revolving loan bears interest at prime plus 1%,
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 days written notice.
During the year ended December 31, 1999, the Company entered into capital
lease obligations amounting to $8,060,000 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.
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
quarter ended March 31, 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 $2,428,000 at March 31, 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
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LASER-PACIFIC MEDIA CORPORATION
(Registrant)
Dated: May 4, 2000 /s/ James R. Parks
-------------------
James R. Parks
Chief Executive Officer
Dated: May 4, 2000 /s/ Robert McClain
------------------
Robert McClain
Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 4,037,652
<SECURITIES> 0
<RECEIVABLES> 6,404,888
<ALLOWANCES> 1,476,087
<INVENTORY> 247,564
<CURRENT-ASSETS> 10,169,300
<PP&E> 38,831,518
<DEPRECIATION> 19,943,378
<TOTAL-ASSETS> 29,414,133
<CURRENT-LIABILITIES> 5,665,868
<BONDS> 0
0
0
<COMMON> 7,720,193
<OTHER-SE> 15,127,802
<TOTAL-LIABILITY-AND-EQUITY> 29,414,133
<SALES> 9,245,739
<TOTAL-REVENUES> 9,312,656
<CGS> 6,290,543
<TOTAL-COSTS> 6,290,543
<OTHER-EXPENSES> 1,149,565
<LOSS-PROVISION> 104,350
<INTEREST-EXPENSE> 344,999
<INCOME-PRETAX> 1,527,549
<INCOME-TAX> 76,400
<INCOME-CONTINUING> 1,451,149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,451,149
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.18
</TABLE>
