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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission File Number 0-25982
METRO DISPLAY ADVERTISING, INC.
(exact name of small business issuer as specified in its charter)
California 33-0093323
(State of Incorporation) (I.R.S. Employer Identification No.)
SUITE 100
15265 ALTON PARKWAY
IRVINE, CA 92618
(address of principal executive offices)
(714) 727-3333
(issuer's telephone number, including area code)
--------------------------------
Indicate by check mark whether the issuer (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 report), and (2) has been filing such
requirements for the past 90 days.
YES [X] NO [ ]
Number of shares outstanding of each issuer's classes of common stock, as
of June 30, 1997: 943,030
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This report contains 9 sequentially numbered pages.
<PAGE>
METRO DISPLAY ADVERTISING, INC.
INDEX
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 2
Condensed Consolidated Statement of Operations
for the Three Months Ended June 30, 1997 and 1996 3
Condensed Consolidated Statement of Operations
for the Six Months Ended June 30, 1997 and 1996 4
Condensed Consolidated Statement of Cash Flows
for the Three Months Ended June 30, 1997 and 1996 5
Notes to the Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 7-8
and Results of Operations
PART II - OTHER INFORMATION
Item 5. Other Information 9
<PAGE>
Part 1
Financial Information
Item 1, Financial Statements
METRO DISPLAY ADVERTISING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31, June 30,
1996 1997
(unaudited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 74,947 $ 85,296
Accounts Recievable, net of allowance 989,804 824,191
Prepaid expenses 226,844 20,124
Deferred taxes-current portion 196,000 196,000
------------ ------------
TOTAL CURRENT ASSETS 1,487,595 1,125,611
PROPERTY AND EQUIPMENT, net 6,172,659 5,892,419
OTHER ASSETS
Performance bond deposits 734,722 735,722
Deferred taxes - less current portion 3,052,000 3,052,000
Other assets 186,528 252,958
------------ ------------
TOTAL OTHER ASSETS 3,973,250 4,040,680
------------ ------------
$ 11,633,504 $ 11,058,710
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current porton of long term debt $ 693,065 $ 620,327
Accounts payable and accured liabilities 1,031,117 1,139,389
Advance payments 226,067 150,000
------------ ------------
TOTAL CURRENT LIABILITIES 1,950,249 1,909,716
LONG-TERM DEBT, net of current portion 833,785 823,221
SHAREHOLDERS' EQUITY
Preferred stock, 1,000,000 shares authorized,
no par value, no shares issued -- --
Common stock, 5,000,000 shares authorized,
no par value, 943,030 shares issued 9,504,532 9,504,832
Accumulated deficit (655,062) (1,179,059)
------------ ------------
TOTAL SHAREHOLERS' EQUITY 8,849,470 8,325,773
------------ ------------
$ 11,633,504 $ 11,058,710
============ ============
</TABLE>
See accompanying Notes to Condensed Financial Statements.
2
<PAGE>
METRO DISPLAY ADVERTISING, INC. AND SUBSIDIARY
CONDENDSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
1996 1997
----------- -----------
SALES $ 1,756,000 $ 1,763,882
COST OF SALES
City fees 485,317 602,080
Advertising commissions and expenses 442,592 450,304
Installation and maintenance 328,311 438,466
Other costs 28,451 22,655
----------- -----------
TOTAL COST OF SALES 1,284,671 1,513,505
GROSS PROFIT 471,329 250,377
----------- -----------
OPERATING EXPENSES
Sales and administrative 316,307 765,320
Depreciation 237,750 235,143
Interest expense 35,998 31,167
Other expense(income) (65,261) (19,552)
----------- -----------
TOTAL OPERATING EXPENSES 524,794 1,012,078
----------- -----------
NET INCOME (LOSS) $ (53,465) $ (761,701)
=========== ===========
COMMON SHARES OUTSTANDING 906,364 943,030
NET INCOME (LOSS) PER SHARE (0.06) (0.81)
=========== ===========
See accompanying Notes to Condensed Financial Statements.
3
<PAGE>
METRO DISPLAY ADVERTISING, INC. AND SUBSIDIARY
CONDENDSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Six Months Ended
June 30,
1996 1997
----------- -----------
SALES $ 3,033,436 $ 3,840,752
COST OF SALES
City fees 856,028 929,923
Advertising commissions and expenses 743,823 986,614
Installation and maintenance 689,743 722,360
Other costs 73,827 68,587
----------- -----------
TOTAL COST OF SALES 2,363,421 2,707,484
GROSS PROFIT 670,015 1,133,268
----------- -----------
OPERATING EXPENSES
Sales and administrative 632,389 1,163,085
Depreciation 474,393 470,514
Interest expense 70,871 63,372
Other expense(income) (91,320) (39,706)
----------- -----------
TOTAL OPERATING EXPENSES 1,086,333 1,657,265
----------- -----------
NET INCOME (LOSS) $ (416,318) $ (523,997)
=========== ===========
COMMON SHARES OUTSTANDING 906,364 943,030
NET INCOME (LOSS) PER SHARE (0.46) (0.56)
=========== ===========
See accompanying Notes to Condensed Financial Statements.
4
<PAGE>
METRO DISPLAY ADVERTISING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) (416,318) (523,997)
Adjustments ot reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization $ 474,393 $ 470,514
Changes in operating assets and liabilities:
Accounts receivable 514,891 165,613
Prepaid expenses and other 31,947 206,720
Deposits and other (1,664) (66,430)
Accounts payable and accrued expenses (89,998) 32,205
Loss on sale of assets (6,967) --
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 506,284 284,625
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (252,554) (190,274)
Advances to joint venture 0 0
Performance bond deposits (18,500) (1,000)
--------- ---------
NET CASH PROVIDED FROM INVESTING ACTIVITIES (271,054) (191,274)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal reductions of long term debt (285,077) (83,302)
Proceeds from stock options granted -- 300
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (285,077) (83,002)
NET INCREASE (DECREASE) IN CASH (49,847) 10,349
Beginning of period 225,524 74,947
--------- ---------
CASH, End of period $ 175,677 $ 85,296
========= =========
</TABLE>
See accompanying Notes to Condensed Financial Statements.
5
<PAGE>
METRO DISPLAY ADVERTISING, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Introduction
The accompanying condensed consolidated financial statements of Metro
Display Advertising, Inc. (the "Company") have been prepared without audit
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the consolidated financial statements and related footnotes
included in the Company's latest Annual Report on Form 10-KSB. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company as of June 30,
1997, and the statements of its operation and its cash flows for the three month
periods ended June 30, 1997 and 1996 have been included. The results of
operation for interim periods are not necessarily indicative of the results,
which may be realized for the full year.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Plan of Operations
General
From January 22, 1992 until January 7, 1994, Metro Display Advertising,
Inc., a California Corporation (the "Company"), was in bankruptcy. Since its
bankruptcy proceedings, the Company has primarily been in the business of
leasing advertising space on panels located in its bus stop shelters. The
Company's shelters are located in both Northern and Southern California. In
addition, the Company operates in Clark County, Nevada, and the City of Las
Vegas, Nevada through Bustop Shelter of Nevada, (BSON), a Nevada Corporation and
fully owned subsidiary.
During the fiscal years ended December 31, 1994 and 1995, the Company made
the transition from a company operating under the bankruptcy court in prior
years, to a company operating under a revised business plan. The Company's
primary focus was on increasing sales and occupancy rates, reducing overhead,
and continuing scheduled payments to pre-bankruptcy Plan of Reorganization. The
Company's objectives for fiscal year 1997 remain dedicated to this business
plan.
Comparisons of three-months ended June 30, 1997 and June 30, 1996
Sales for the three-month quarter ended June 30, 1997 (the "Current
Quarter") increased slightly in comparison to the three-month period ended June
30, 1996 (the "Prior Quarter"). The company continues with its intensive
marketing and public relations campaign that has been staged to offset the
on-going litigation with the City of Victorville. The on-going litigation
involves the Company's First Amendment Rights. In general, the Company believes
that its rights to freely advertise were violated when the City prevented the
Company from displaying paid advertising for a local labor union. While the
Current Quarter results have been flat compared to prior year, it is expected
that this litigation will continue to impact sales growth in the remaining two
quarters of 1997. Current litigation concerning the marketing agreement with Van
Wagner is also expected to impact sales negatively during the remaining two
quarters of the 1997.
Cost of sales increased by $228,834 or 18% over the prior quarter primarily
due to increases in City fees of $116,763 or 24% and increases in Installation
and maintenance cost of $110,155, or 34%. The increases in City fees are
primarily due to an increase in the amount accrued for City fees in the Current
Quarter. The increases in Installation and maintenance are the result of the
Company contracting out its poster installation to an outside vendor, where
previously, this was handled by internal maintenance staff. In addition,
continued expansion and enhancements in shelters have caused installation and
maintenance to rise.
The Company's gross profit percentage declined from 26.8% in the Prior
Quarter to 14.2% in the Current Quarter, primarily resulting from an increase in
cost of sales as a percentage of sales from 73.2% in the Prior Quarter to 85.6%
in the Current Quarter.
An increase of $487,284 was incurred in operating expenses during the
current quarter principally due to increases in office expenses due to office
expansion in Nevada, an increase in bad debts, and legal expenses necessary to
deal with the Victorville litigation. In addition, the Company has incurred
professional fees relating to sale/merger agreement pending.
7
<PAGE>
Due to the significant increase in operating expenses relating to the
sale/merger and litigation expenses, the Company posted a $761,701 net loss,
before income taxes, during the Current Quarter compared to a $53,465 net loss
before taxes during the Prior Quarter. The Company has maintained its primary
focus on increasing sales and occupancy rates, and reducing overhead.
Comparisons of six-months ended June 30, 1997 and June 30, 1996
Sales for the six-month period ended June 30, 1997 (the "Current Period")
increased by $807,316, or 27%, in comparison to the six-month period ended June
30, 1996 (the "Prior Period"). This increase in sales in the Current Period is
attributable to a strong first quarter results which represented most of the
increase during the Current Period. As previously reported in the first quarter
results, the increase in the first quarter was attributable to intensive
marketing and public relations campaign that been staged to offset the ongoing
litigation with the City of Victorville. In addition, an overall increase in
national account sales rose during the first quarter as well.
Cost of sales increased by $344,063 or 14.6% over the Prior Period
primarily due to increases of $242,791 in advertising commissions and expenses
resulting from sales growth occurring during the first quarter of 1997. In
addition, City fees rose by $73,895 and installation and maintenance costs rose
$32,617 over the Prior Period, primarily from expansion and enhancements to
shelters. The Company's gross profit percentage increased from 22.1% in the
Prior Period to 29.5% in the Current Period, primarily resulting from first
quarter sales growth.
An increase of $570,932 was incurred in operating expenses during the
Current Period principally due to increases in Professional fees of $160,200, an
increase in bad debts of $139,668 written off during the Current Period, and a
general increase in other operating expenses of $112,764.
Due to the significant increase in operating expenses during the Current
Period, the Company posted a $523,997 net loss, before income taxes, during the
Current Period compared to a $416,318 net loss before taxes during the Prior
Period.
Liquidity and Capital Resources
As of June 30, 1997, the Company's current liabilities exceeded its current
assets by $784,105. Approximately $325,000 of the current liabilities consists
of the current portion of indebtedness owed to Dr. Allan Ross, a Director of the
Company. The Company's working capital position worsened by $321,451 during the
Current Period, primarily the result of an increase in operating expenses of
$570,932 and cost of sales of $344,063. Cash flows from operating activities
decreased by $221,659 over the Prior Period, principally due to the changes in
accounts receivable for the Current Period. The amount available under the
credit facility is approximately $700,000. The Company believes that it will be
able to fund its current working capital needs from (1) cash generated from
operating activities and (2) draws against the credit line facility.
8
<PAGE>
PART II
OTHER INFORMATION
Item 5, Other Information
Subsequent to year-end December 31, 1996, the Company signed a memorandum of
understanding with a buyer for the sale of all 100% of Metro Display
Advertising, Inc. common stock. The transaction is subject to stockholder
ratification and completion of due diligence procedures to be performed by the
buyer. The Company continues to negotiate the terms and conditions of the sale,
given its pending litigation with OSI/Van Wagner concerning contractual and
fiduciary relationships between the Company and Van Wagner Communications, Inc.
On May 20, 1997, a board member exercised 120,000 stock options.
Signature
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
METRO DISPLAY ADVERTISING, INC.
/s/ Scott Kraft
Dated June 14, 1997 ------------------------------------
9
Scott A. Kraft, President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Jun-30-1997
<CASH> 85,296
<SECURITIES> 0
<RECEIVABLES> 997,730
<ALLOWANCES> (173,539)
<INVENTORY> 0
<CURRENT-ASSETS> 1,125,611
<PP&E> 8,996,867
<DEPRECIATION> (3,104,448)
<TOTAL-ASSETS> 11,058,710
<CURRENT-LIABILITIES> 1,909,716
<BONDS> 0
0
0
<COMMON> 9,504,833
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,058,710
<SALES> 3,840,752
<TOTAL-REVENUES> 3,840,752
<CGS> 2,707,484
<TOTAL-COSTS> 2,707,484
<OTHER-EXPENSES> 1,593,893
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,372
<INCOME-PRETAX> (523,997)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (523,997)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> 0
</TABLE>
