<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 COMMISSION FILE NO. 0-23748
POSITIVE RESPONSE TELEVISION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
CALIFORNIA 95-4162208
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NUMBER)
14724 VENTURA BOULEVARD, SUITE 600
SHERMAN OAKS, CA 91403-3501
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(818) 380-6900
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
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AS OF MAY 13, 1996 THE REGISTRANT HAD 3,598,077 SHARES OF ITS COMMON STOCK,
ISSUED AND OUTSTANDING.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT: YES NO X
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
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(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 987,000 $ 725,000
Restricted cash 1,500,000 1,500,000
Royalties receivable 556,000 863,000
Accounts receivable, net of allowance for doubtful accounts 4,465,000 4,887,000
Inventories 2,022,000 2,413,000
Infomercial production costs, net of accumulated amortization 2,114,000 1,877,000
Current portion of notes receivable 371,000 381,000
Prepaid air time 1,879,000 2,024,000
Prepaid income taxes 77,000 2,000
Prepaid expenses and other current assets 803,000 628,000
Deferred air time 2,392,000 1,647,000
Due from officers 77,000 121,000
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Total current assets 17,243,000 16,868,000
NOTES RECEIVABLE, NET OF CURRENT PORTION 129,000 129,000
FURNITURE, FIXTURES AND EQUIPMENT, net 618,000 622,000
OTHER ASSETS 547,000 434,000
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TOTAL ASSETS $ 18,537,000 $ 18,053,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,329,000 $ 1,001,000
Accrued professional fees 388,000 323,000
Deferred revenues 373,000 274,000
Allowance for returns 1,307,000 1,394,000
Other accrued expenses 1,151,000 1,280,000
Note payable - bank 1,578,000 1,839,000
Current portion of long-term debt 25,000 25,000
Profit participation payable 520,000 276,000
Income taxes payable 8,000
Deferred Income taxes 20,000 20,000
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Total current liabilities 6,699,000 6,432,000
LONG-TERM DEBT 85,000 91,000
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Total liabilities 8,784,000 6,523,000
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SHAREHOLDERS' EQUITY
Preferred stock, no par value; 5,000,000 shares authorized, none
issued or outstanding
Capital stock, no par value; 15,000,000 shares authorized,
3,598,077 issued and outstanding 11,563,000 11,352,000
Retained earnings 190,000 178,000
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Total shareholders' equity 11,753,000 11,530,000
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 18,537,000 $ 18,053,000
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</TABLE>
See notes to consolidated financial statements.
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POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED MARCH 31,
-----------------------------
1996 1995
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REVENUES
Product sales $ 11,864,000 $ 20,741,000
Air time sales 2,275,000 858,000
Royalty income 403,000 1,794,000
Production income - -
Other 24,000 47,000
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Total revenues 14,566,000 23,440,000
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OPERATING COSTS AND EXPENSES
Cost of goods sold 2,968,000 5,258,000
Other direct operating costs 9,606,000 16,649,000
Profit participation 453,000 52,000
General and administrative 1,502,000 1,520,000
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Total operating costs and expenses 14,529,000 23,479,000
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INCOME (LOSS) FROM OPERATIONS 37,000 (39,000)
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OTHER INCOME (EXPENSE)
Interest income (expense), net (18,000) 40,000
Other - 1,000
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Total other income (expense) (18,000) 41,000
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INCOME BEFORE PROVISION FOR
INCOME TAXES 19,000 2,000
PROVISION FOR INCOME TAXES 8,000 1,000
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NET INCOME $ 11,000 $ 1,000
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INCOME PER COMMON SHARE
Primary $ 0.00 $ 0.00
Fully diluted $ 0.00 $ 0.00
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 3,679,037 3,778,399
Fully diluted 3,679,037 3,835,870
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
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1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 11,000 1,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 232,000 50,000
Deferred income taxes - 1,000
Changes in operating assets and liabilities
Royalties receivable 107,000 84,000
Accounts receivable 422,000 (1,999,000)
Inventories 391,000 (443,000)
Infomercial production costs (400,000) (382,000)
Prepaid air time 145,000 (41,000)
Deferred air time (746,000) 2,494,000
Prepaid income taxes (75,000)
Prepaid expenses and other current assets (176,000) (194,000)
Notes receivable 10,000 99,000
Other noncurrent assets (137,000) (105,000)
Accounts payable 328,000 100,000
Accrued professional fees 65,000 (31,000)
Deferred revenues 98,000 366,000
Allowance for returns (87,000) 667,000
Other accrued expenses (126,000) (251,000)
Profit participation payable 244,000 (384,000)
Income taxes payable 8,000
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Net cash provided by operating activities 315,000 32,000
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, fixtures and equipment (42,000) (65,000)
Due from officers 44,000 38,000
Other 1,000 8,000
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Net cash provided by (used in) investing activities 3,000 (19,000)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common shares 211,000
Payment of bank loan (261,000)
Other (6,000) (6,000)
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Net cash used in financing activities (58,000) (6,000)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 262,000 7,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 725,000 3,247,000
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 987,000 $ 3,254,000
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</TABLE>
See notes to consolidated financial statements.
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POSITIVE RESPONSE TELEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. THE COMPANY
Positive Response Television, Inc. (the "Company"), is a California
corporation based in Sherman Oaks, California. The Company produces
infomercials (television shows featuring various consumer products designed
to motivate television viewers to place telephone orders for such products)
and generates product sales through the airing of such infomercials and
through other distribution channels. The consolidated financial statements
include the Company and its wholly owned subsidiaries, Positive Response
Media, Inc. ("PRM") and Positive Response Telemarketing, Inc. ("PRTI").
Ventures in which the Company does not own a majority interest are accounted
for on the equity method. All intercompany accounts and transactions are
eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the requirements of Regulation S-B. In
the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly, the financial position,
results of operations and cash flows for all periods presented, have been
made. The results of operations for the period ended March 31, 1996 are not
necessarily indicative of the results expected for the entire year ending
December 31, 1996. Certain prior year account balances have been
reclassified to conform to current year classifications.
PRM, which buys and sells air time, became an operating unit of the
Company on January 1, 1994, the date of its acquisition, in connection with
which the Company issued 3,546 shares of its common stock. PRTI, which is
engaged in outbound telemarketing and also provides customer service, was
incorporated on May 11, 1994 and commenced operations in July 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INFOMERCIAL PRODUCTION COSTS - Production costs are capitalized when
incurred. The Company amortizes such costs based upon the ratio of current
revenues to total expected revenues. Additionally, unamortized deferred
production costs are written off when management determines that such costs
are not recoverable.
PREPAID AIR TIME - Prepaid air time represents purchased television air
time scheduled to air subsequent to the balance sheet date.
DEFERRED AIR TIME - The Company defers a portion of purchased television
air time that aired during the current period based on a pro rata share of
shipped versus unshipped orders as of the balance sheet date.
ALLOWANCE FOR RETURNS - The allowance for returns is accounted for using
the accrual method and is estimated based on historical rates and actual
returns occurring subsequent to the balance sheet date.
REVENUES - Revenues are composed of 1) product sales generated through the
airing of infomercials, 2) bulk sales to distributors for retail
distribution, 3) sale of television air time to third parties and ventures
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accounted for under the equity method, 4) royalties based on product sales
generated by companies to whom the Company has granted certain marketing and
distribution rights on its products, and 5) production income, representing
reimbursements by third parties for approved infomercial production costs.
Product sales and royalties are recognized when products are shipped. Air
time sales are recognized when aired.
OTHER DIRECT OPERATING COSTS - Other direct operating costs consist
primarily of air time costs, fulfillment costs, telemarketing service costs
and other selling costs.
INCOME TAXES - Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and income tax bases
of assets and liabilities that will result in taxable or deductible amounts
in the future. Such deferred income tax asset and liability computations are
based on enacted tax laws and rates applicable to periods in which the
differences are expected to affect taxable income. Income tax expense is the
tax payable or refundable for the period plus or minus the change during the
period in deferred income tax assets and liabilities.
EARNINGS PER SHARE - Earnings per share amounts are computed based on the
actual weighted average number of common stock and dilutive common equivalent
shares (stock options and warrants) using the treasury stock method.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates. The most significant estimates relate to inventory obsolescence,
infomercial production costs and the allowance for returns.
3. PROFIT PARTICIPATION AND INVESTMENT IN VENTURES
The Company operates certain infomercial campaigns through profit
participation arrangements which generally involve a sharing of the net
profits of the respective campaigns between the Company and its profit
participants or venture partners. The portion of the net profits due to the
profit participants or venture partners is reflected as components of
operating costs and expenses and current liabilities.
4. LINES OF CREDIT
The Company has a $1,350,000 bank line of credit (the "Line") to finance
operations and inventory purchases, pursuant to which the Company must
maintain a $1,500,000 security deposit with the bank. In addition, $200,000
of the Line is applied as a reserve against the Company's merchant card
activity for future returns and charge-backs. The Line matures on August 1,
1996 and bears interest at a rate per annum one-half percent (1/2%) below the
prime rate in effect from time to time. As of March 31, 1996, the Company's
borrowings under this Line was $328,000. Net of total open letters of credit
of $370,000, the total available on the Line at March 31, 1996 was $452,000.
The Company also has a $2,500,000 line of credit (the "Second Line") with
another institution to finance operations and inventory purchases. This line
of credit contains certain financial covenants, which provide, among other
things, for the maintenance of a minimum consolidated net worth and
restrictions on certain expenditures. The Second Line is secured by certain
of the Company's assets, including accounts receivable and inventory. The
Second Line is renewable annually on May 1st and bears interest at a rate per
annum one percent (1%) above the bank's reference rate. Effective May 1,
1996, the Second Line
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was extended to June 1, 1996. As of March 31, 1996, the Company had borrowed
$1,250,000 under this Second Line.
As of March 31, 1996, the Company was not in compliance with the minimum
net worth and liquidity requirements under the Second Line. Although the
bank has not granted a waiver for these defaults, it has elected not to
pursue any of its remedies under the Second Line at this time pending the
merger with National Media (see Note 6). In the event the merger is not
consummated, the Company plans to negotiate the agreement.
5. LITIGATION
On May 1, 1995, a purported class action suit was filed in the United
States District Court for the Central District of California (the "Court")
against the Company and its principal executive officers alleging that the
Company had made false and misleading statements in its public filings, press
releases and other public statements with respect to its business and
financial prospects. The suit was filed on behalf of all persons who
purchased common stock of the Company during the period from January 4, 1995
to April 28, 1995. The suit seeks unspecified compensatory damages and other
equitable relief. An amended complaint was filed on June 9, 1995, which
complaint added more plaintiffs and expanded the class period to November
1994 to April 28, 1995. The Company moved to dismiss the amended complaint
and the complaint was dismissed by the Court in late July 1995. The
plaintiffs were granted sixty days leave to file another amended complaint to
allow them an attempt to state valid claims against the Company.
On or about September 25, 1995, the plaintiffs filed a Second Amended
Complaint ("SAC"). The SAC added new defendants and attempts to set forth
new facts to support plaintiffs' entitlement to legal relief. On October 31,
1995, the Company again moved to dismiss plaintiffs' entire action. The
Court denied the motion on December 11, 1995. Discovery is continuing.
The Company is a defendant in a number of commercial litigation matters.
Management of the company does not believe that the disposition of any of
these matters will have a materially adverse effect on the Company's
financial condition.
6. MERGER WITH NATIONAL MEDIA
On January 17, 1996, the Company entered into an Agreement and Plan of
Merger and Reorganization (the "Merger Agreement"), by and among the Company,
National Media and a wholly-owned subsidiary of National Media ("Merger
Sub"), pursuant to which the Company will be merged with and into Merger Sub
(the "Merger"), the Company's separate corporate existence will be
extinguished, and the equity interest of the Company's shareholders in the
Company will cease. The surviving corporation will be renamed "Positive
Response Television, Inc." and it will continue as a wholly-owned subsidiary
of National Media. The Merger Agreement was subsequently amended on April 4,
1996.
Pursuant to the terms of the Merger Agreement, each outstanding share of
common stock of the Company (other than, in limited circumstances, shares as
to which dissenters' rights of appraisal have been perfected under Chapter 13
of the California Corporations code and shares held by National Media) will
be converted into the right to receive a maximum .5239 shares (the "Exchange
Ratio") of NMC's common stock, $.01 par value per share ("NMC Common Stock"),
less a pro rata portion of any Reduction Amount (as defined below). The
Reduction Amount is defined as that number of shares of NMC Common Stock
equal to (x) two, multiplied by (y) the amount, if any, by which the Minimum
Shareholders' Equity (as defined below) exceeds the Company's shareholders'
equity as of December 31, 1995 (subject to adjustment for any material
changes thereto which occur after such date and subject to reduction for
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certain agreed upon balance sheet items), divided by (z) $14.125. For
purposes of the Merger Agreement, "Minimum Shareholders' Equity" is defined
as $13,000,000, less the amount of all costs incurred by the Company directly
in connection with the Merger Agreement, the Merger and the transactions
contemplated thereby and given effect in the Company's financial statements.
The Merger Agreement also provides that, under certain circumstances, a
number of shares of NMC Common Stock equal in dollar value (based upon a
price of $14.125 per share of NMC Common Stock) to certain of the Company's
balance sheet items and otherwise issuable, on a pro rata basis, to the
shareholders of the Company (the Escrow Shares") will be held in escrow and
will be deliverable out of escrow, if at all, within approximately 18 months
after the anticipated date of closing, only upon the realization of the value
of such items and the satisfaction of certain conditions set forth in the
Merger Agreement and an Escrow Agreement to be entered into pursuant thereto.
The Merger Agreement also provides that each outstanding option to
purchase shares of the Company's stock will be assumed by National Media upon
the same terms and conditions as set forth in the Stock Option Plan and the
agreement pursuant to which each such option was issued, subject, however, to
appropriate adjustment (as to both number of shares and exercise price) to
reflect the Exchange Ratio (and the effect of the Reduction Amount thereon).
Similarly, each outstanding stock purchase right (if any) will be assumed by
National Media upon the same terms and conditions as set forth in the
agreement or instrument pursuant to which each such stock purchase right was
issued or granted, subject, however, to appropriate adjustment (as to both
number of shares and exercise or conversion price) to reflect the Exchange
Ratio (and the effect of the Reduction Amount thereon). Currently, there are
no such stock purchase rights outstanding.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 VERSUS THREE MONTHS ENDED MARCH 31, 1995
The three months ended March 31, 1996 resulted in a net income of $11,000
compared to a net income of $1,000 for the three months ended March 31, 1995.
Revenues for the three months ended March 31, 1996 decreased $8,874,000 or
38% from the three months ended March 31, 1995.
REVENUES
The decrease in revenues is primarily attributable to product sales, which
decreased by $8,877,000 or 43%, from $20,741,000 for the three months ended
March 31, 1995 to $11,864,000 for the three months ended March 31, 1996.
Additionally, royalty income decreased by $1,391,000 or 78%, from $1,794,000
for the three months ended March 31, 1995 to $403,000 for the three months
ended March 31, 1996. These decreases were partly offset by an increase in
air time sales, which increased by $1,417,000 or 165%, from $858,000 for the
three months ended March 31, 1995 to $2,275,000 for the three months ended
March 31, 1996.
PRODUCT SALES
For the three months ended March 31, 1996, product sales, net of estimated
provision for returns, primarily consisted of sales of the products "Eagle
Eyes," "Men Are From Mars," and "Memory Power," which combined, accounted for
approximately $8,203,000 or 69% of total sales of $11,864,000. For the three
months ended March 31, 1995, product sales primarily consisted of sales of
the products "Perfect Hair," "Memory Power," and "Super Slicer," which
combined, accounted for $16,534,000 or 80% of total sales of $20,741,000.
AIR TIME SALES
The decrease in product sales was partly due to a decrease in air time
sales to Company owned and consolidated venture products, and an increase in
air time sales to third parties as a percentage of total sales. The mix of
air time sales to third parties to total air time sales (before elimination
of sales to Company owned and consolidated venture products) increased from
7% ($858,000 of $13,111,000) for the three months ended March 31, 1995 to 24%
($2,275,000 of $9,480,000) for the three months ended March 31, 1996.
ROYALTY INCOME
Royalty income decreased by $1,391,000 or 78%, for the three months ended
March 31, 1996 versus the three months ended March 31, 1995. Royalty income
for the three months ended March 31, 1996 related primarily to third party
sales of the product "Super Slicer." Royalty income for three months ended
March 31, 1995 related primarily to third party sales of the products
"Perfect Hair" and "Super Slicer," which contributed royalty income totaling
$1,545,000 or 86% of total royalty income.
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COST OF GOODS SOLD
Cost of goods sold decreased $2,290,000 or 44% from $5,258,000 for the
three months ended March 31, 1995 to $2,968,000 for the three months ended
March 31, 1996. The decrease corresponds to the decrease in product sales
discussed above. Gross margin on product sales remained unchanged at 75% for
the three month periods ended March 31, 1996 and 1995.
OTHER DIRECT OPERATING EXPENSES
Other direct operating expenses, which consist of air time costs,
amortization of show production costs, telemarketing and other selling costs,
decreased $7,043,000 or 42% from $16,649,000 for the three months ended March
31, 1995 to $9,606,000 for the three months ended March 31, 1996. The
decrease is primarily attributable to air time costs, which decreased
$5,742,000 or 42%, from $13,632,000 for the three months ended March 31, 1995
to $7,890,000 for the three months ended March 31, 1996. In addition,
telemarketing expenses decreased $493,000 or 43%, from $1,158,000 for the
three months ended March 31, 1995 to $665,000 for the three months ended
March 31, 1996.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased $18,000 or 1% from
$1,520,000 for the three months ended March 31, 1995 to $1,502,000 for the
three months ended March 31, 1996. The decrease is primarily attributable to
reduced staffing at PRTI during the three months ended March 31, 1996.
PROFIT PARTICIPATION
Profit participation payable to venture partners increased by $401,000 or
771%, from $52,000 for the three months ended March 31, 1995 to $453,000 for
the three months ended March 31, 1996. The increase is primarily the result
of a higher mix of sales in venture products as opposed to Company owned
products during the three months ended March 31, 1996 as compared to the
three months ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased by $262,000 from
$725,000 at December 31, 1995 to $987,000 at March 31, 1996. Total cash
provided by operations was $315,000, primarily reflecting decreases in
accounts receivable and inventory and an increase in accounts payable, offset
by a decrease in deferred air time costs. The Company maintains a $1,350,000
Line, secured by a $1,500,000 cash deposit. $200,000 of the available line
of credit has been applied as a reserve against the Company's merchant card
activity for future returns and chargebacks. As of March 31, 1996, the
Company had $328,000 in borrowings under this Line. The Company also
maintains a Second Line with another institution, which is secured by certain
of the Company's assets, including accounts receivable and inventory. As of
March 31, 1996, the Company had $1,250,000 in borrowings under the Second
Line. The Company was not in compliance with the minimum net worth and
liquidity requirements under the Second Line as of March 31, 1996. Although
the bank has not granted a waiver for these defaults, it has
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elected not to pursue any of its remedies under the Second Line at this time
pending the merger with National Media (see Note 6). In the event the merger
is not consummated, the Company plans to negotiate the agreement.
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On May 1, 1995, a purported class action suit was filed in the
United States District Court for the Central District of California
(the "Court") against the Company and its principal executive officers
alleging that the Company had made false and misleading statements in
its public filings, press releases and other public statements with
respect to its business and financial prospects. The suit was filed on
behalf of all persons who purchased common stock of the Company during
the period from January 4, 1995 to April 28, 1995. The suit seeks
unspecified compensatory damages and other equitable relief. An
amended complaint was filed on June 9, 1995, which complaint added more
plaintiffs and expanded the class period to November 1994 to April 28,
1995. The Company moved to dismiss the amended complaint and the
complaint was dismissed by the Court in late July 1995. The plaintiffs
were granted sixty days leave to file another amended complaint to
allow them an attempt to state valid claims against the Company.
On or about September 25, 1995, the plaintiffs filed a Second
Amended Complaint ("SAC"). The SAC added new defendants and attempts
to set forth new facts to support plaintiffs' entitlement to legal
relief. On October 31, 1995, the Company again moved to dismiss
plaintiffs' entire action. The Court denied the motion on December 11,
1995. Discovery is continuing.
Item 5. OTHER INFORMATION
On January 17, 1996, the Company entered into an Agreement and
Plan of Merger and Reorganization (the "Merger Agreement"), by and
among the Company, National Media and a wholly-owned subsidiary of
National Media ("Merger Sub"), pursuant to which the Company will be
merged with and into Merger Sub (the "Merger"), the Company's separate
corporate existence will be extinguished, and the equity interest of
the Company's shareholders in the Company will cease. The surviving
corporation will be renamed "Positive Response Television, Inc." and
it will continue as a wholly-owned subsidiary of National Media. The
Merger Agreement was subsequently amended on April 4, 1996.
Pursuant to the terms of the Merger Agreement, each outstanding share
of common stock of the Company (other than, in limited circumstances,
shares as to which dissenters' rights of appraisal have been perfected
under Chapter 13 of the California Corporations code and shares held by
National Media) will be converted into the right to receive a maximum
.5239 shares (the "Exchange Ratio") of NMC's common stock, $.01 par
value per share ("NMC Common Stock"), less a pro rata portion of any
Reduction Amount (as defined below). The Reduction Amount is defined
as that number of shares of NMC Common Stock equal to (x) two,
multiplied by (y) the amount, if any, by which the Minimum
Shareholders' Equity (as defined below) exceeds the Company's
shareholders' equity as of December 31, 1995 (subject to adjustment for
any material changes thereto which occur after such date and subject to
reduction for certain agreed upon balance sheet items), divided by (z)
$14.125. For purposes of the Merger Agreement, "Minimum Shareholders'
Equity" is defined as $13,000,000, less the amount of all costs
incurred by the Company directly in connection
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with the Merger Agreement, the Merger and the transactions contemplated
thereby and given effect in the Company's financial statements. The
Merger Agreement also provides that, under certain circumstances, a
number of shares of NMC Common Stock equal in dollar value (based upon
a price of $14.125 per share of NMC Common Stock) to certain of the
Company's balance sheet items and otherwise issuable, on a pro rata
basis, to the shareholders of the Company (the Escrow Shares") will be
held in escrow and will be deliverable out of escrow, if at all, within
approximately 18 months after the anticipated date of closing, only
upon the realization of the value of such items and the satisfaction
of certain conditions set forth in the Merger Agreement and an Escrow
Agreement to be entered into pursuant thereto.
The Merger Agreement also provides that each outstanding options to
purchase shares of the Company's stock will be assumed by National
Media upon the same terms and conditions as set forth in the Stock
Option Plan and the agreement pursuant to which each such option was
issued, subject, however, to appropriate adjustment (as to both number
of shares and exercise price) to reflect the Exchange Ratio (and the
effect of the Reduction Amount thereon). Similarly, each outstanding
stock purchase right (if any) will be assumed by National Media upon
the same terms and conditions as set forth in the agreement or
instrument pursuant to which each such stock purchase right was issued
or granted, subject, however, to appropriate adjustment (as to both
number of shares and exercise or conversion price) to reflect the
Exchange Ratio (and the effect of the Reduction Amount thereon).
Currently, there are no such stock purchase rights outstanding.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
10.14 Agreement and Plan of Merger and Reorganization among
Registrant, National Media and PRT Acquisition Corporation dated as of
January 17, 1996 and amended as of April 4, 1996.
27.1 Financial Data Schedule.
(b) FORM 8-K.
On January 25, 1996, Registrant filed a Form 8-K reporting, in
Item 5 thereof, the execution of the Merger Agreement.
-13-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: May 14, 1996
POSITIVE RESPONSE TELEVISION, INC.
By /s/ Stephen A. Weber
------------------------------------
Stephen A. Weber
President and Chief Financial Officer
-14-
<PAGE>
FIRST AMENDMENT TO AGREEMENT AND
PLAN OF MERGER AND REORGANIZATION
This Amendment (the "Amendment") to that certain Agreement and Plan of
Merger and Reorganization (the "Agreement"), dated as of January 17, 1996, by
and among National Media Corporation, a Delaware corporation ("Parent"), PRT
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Merger Sub"), and Positive Response Television, Inc., a California
corporation (the "Company"), is entered into as of the 4th day of April, 1996 by
and among the parties to the Agreement. Capitalized terms used in this
Amendment and not otherwise defined herein shall have the meaning ascribed
thereto in the Agreement.
Whereas, Parent, Merger Sub and the Company desire to amend certain terms
of the Agreement;
Now, therefore, in consideration of the foregoing promises and the mutual
covenants and agreements contained herein and in the Agreement, and intending to
be legally bound hereby, Parent, Merger Sub and the Company hereby agree to
amend the Agreement as follows:
1. Section 5.10 of the Agreement is amended by deleting the third
sentence of such section and replacing it with the following:
"Each of Parent, Merger Sub and the Company shall use its best
efforts to cause the Merger to qualify, and will not (either before or
after consummation of the Merger) take any actions which could prevent
the Merger from qualifying, as a reorganization under the provisions
of Section 368 of the Code and the regulations promulgated
thereunder."
2. Section 6.04 (d) of the Agreement is amended to add a new sentence
after the third sentence of such section as follows:
"Finally, in the event that the Company is unable to obtain a tax
clearance letter from the State of California prior to Closing (as
required by Section 5.10 hereof), and such failure is waived by Parent
and Merger Sub at or prior to Closing, Parent shall be entitled to
receive, as of the first Review Date to occur following the date (the
"Tax Determination Date") on which a final determination is issued by
the State of California as to the aggregate amount of any Taxes due
the owing from the Company and its subsidiaries as of the Tax
Determination Date (the "State Tax Deficiency"), a number of Escrow
Shares equal to (x) the amount, if any, by which the State Tax
Deficiency exceeds the amount accrued with respect to such Taxes on
the Company's financial statements as of the Closing Date, divided by
(y) $14,125."
<PAGE>
3. Section 7.01(b) of Agreement is amended by deleting "April 30, 1996"
from the second line thereof and replacing it with "May 31, 1996".
4. Section 7.01(f) of the Agreement is amended by deleting "April 30,
1996" from the eighth line thereof and replacing it with "May 31, 1996".
5. The terms and provisions of the Agreement shall remain in full force
and effect, except as such terms and provisions are amended hereby.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
National Media Corporation
By:
------------------------------------
Name:
Title:
PRT Acquisition Corp.
By:
-------------------------------------
Name:
Title:
Positive Response Television, Inc.
By:
-------------------------------------
Name:
Title:
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 987,000
<SECURITIES> 0
<RECEIVABLES> 4,740,000
<ALLOWANCES> 275,000
<INVENTORY> 2,022,000
<CURRENT-ASSETS> 17,243,000
<PP&E> 1,138,000
<DEPRECIATION> 520,000
<TOTAL-ASSETS> 18,537,000
<CURRENT-LIABILITIES> 6,699,000
<BONDS> 0
0
0
<COMMON> 11,563,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,537,000
<SALES> 11,864,000
<TOTAL-REVENUES> 14,566,000
<CGS> 2,968,000
<TOTAL-COSTS> 12,574,000
<OTHER-EXPENSES> 1,955,000
<LOSS-PROVISION> 281,000
<INTEREST-EXPENSE> 18,000
<INCOME-PRETAX> 19,000
<INCOME-TAX> 8,000
<INCOME-CONTINUING> 37,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,000
<EPS-PRIMARY> 0.00
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