UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-K
California (State or other jurisdiction ofincorporation or organization) | 95-4272619 (I.R.S. Employer Identification No.) |
7083 Hollywood Boulevard, Suite 200, Hollywood, CA (Address of principal executive offices) | 90028 (Zip Code) |
2 | ||
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6 | ||
Location | Square Footage | |||
Hollywood, CA. | 9,500 | |||
Hollywood, CA. | 31,000 | |||
Hollywood, CA. | 7,200 | |||
Hollywood, CA. | 13,400 | |||
Hollywood, CA. | 27,000 | |||
Hollywood, CA. | 13,000 | |||
Burbank, CA. | 32,000 | |||
Burbank, CA. | 10,000 | |||
North Hollywood, CA. | 27,000 | |||
Los Angeles, CA. | 13,400 | |||
Los Angeles, CA. | 64,600 | |||
San Francisco, CA. | 9,500 | |||
Chicago, IL. | 13,200 | |||
New York, NY. | 9,000 | |||
Dallas, TX. | 11,300 |
7 | ||
Market Information
Common Stock | |||||||
Low | High | ||||||
Year Ended December 31, 2002 | |||||||
First Quarter | $ | 1.12 | $ | 2.14 | |||
Second Quarter | 1.50 | 3.00 | |||||
Third Quarter | 1.25 | 2.15 | |||||
Fourth Quarter | 0.83 | 3.25 | |||||
Year Ended December 31, 2003 | |||||||
First Quarter | $ | 1.75 | $ | 2.38 | |||
Second Quarter | 1.92 | 2.70 | |||||
Third Quarter | 2.26 | 4.15 | |||||
Fourth Quarter | 3.71 | 5.08 |
8 | ||
Year Ended December 31, | ||||||||||||||||
1999 |
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| 2000 |
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| 2001 |
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| 2002 |
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| 2003 | ||||
Statement of Income Data | ||||||||||||||||
Revenues | $ | 78,248 | $ | 74,841 | $ | 69,628 | $ | 68,419 | $ | 64,900 | ||||||
Cost of goods sold | 47,685 | 45,894 | 46,864 | 42,172 | 39,670 | |||||||||||
Gross profit | 30,563 | 28,947 | 22,764 | 26,247 | 25,230 | |||||||||||
Selling, general and administrative expense | 18,473 | 21,994 | 20,872 | 18,977 | 17,520 | |||||||||||
Write-off of deferred acquisition and financing costs (4) | - | - | - | - | 1,002 | |||||||||||
Operating income | 12,090 | 6,953 | 1,892 | 7,270 | 6,708 | |||||||||||
Interest expense, net | 2,147 | 2,889 | 3,070 | 2,528 | 2,056 | |||||||||||
Derivative fair value change (4) | - | - | 700 | (82 | ) | (611 | ) | |||||||||
Provision for (benefit from) income tax | 4,340 | 1,814 | (384 | ) | 2,007 | 2,114 | ||||||||||
Income (loss) before extraordinary item, adoption of SAB 101(2) | $ | 5,603 | $ | 2,250 | $ | (1,494 | ) | 2,817 | 3,149 | |||||||
Extraordinary item (net of tax benefit of $168) (1) | - | (232 | ) | - | - | - | ||||||||||
Cumulative effect of adopting SAB 101 (2) | - | (322 | ) | - | - | - | ||||||||||
Net income (loss) | $ | 5,603 | $ | 1,696 | $ | (1,494 | ) | $ | 2,817 | $ | 3,149 | |||||
Earnings (loss) per share: | ||||||||||||||||
Basic: | ||||||||||||||||
Income (loss) per share before extraordinary item, adoption of SAB 101 (2) | $ 0.60 | $ 0.24 | $ (0.17 | ) | $ 0.31 | $ 0.35 | ||||||||||
Extraordinary item (1) | - | (0.03 | ) | - | - | - | ||||||||||
Cumulative effect of adopting SAB 101 (2) | - | (0.03 | ) | - | - | - | ||||||||||
Net income (loss) | $ | 0.60 | $ | 0.18 | $ | (0.17 | ) | $ | 0.31 | $ | 0.35 | |||||
Diluted: | ||||||||||||||||
Income (loss) per share before extraordinary item and adoption of SAB 101 | $ 0.58 | $ 0.24 | $ (0.17 | ) | $ 0.30 | $ 0.33 | ||||||||||
Extraordinary item (1) | - | (0.03 | ) | - | - | - | ||||||||||
Cumulative effect of adopting SAB 101 (2) | - | (0.03 | ) | - | - | - | ||||||||||
Net income (loss) | $ | 0.58 | $ | 0.18 | $ | (0.17 | ) | $ | 0.30 | $ | 0.33 | |||||
Weighted average common shares outstanding | ||||||||||||||||
Basic | 9,322 | 9,216 | 9,060 | 9,013 | 9,067 | |||||||||||
Diluted | 9,599 | 9,491 | 9,060 | 9,377 | 9,555 | |||||||||||
Pro forma net income and earnings per share data for the periods shown as if SAB 101 had been adopted at the beginning of each applicable year | ||||||||||||||||
Previously reported net income | $ | 5,603 | ||||||||||||||
Adjustment | (81 | ) | ||||||||||||||
Pro forma net income | $ | 5,522 | ||||||||||||||
Pro forma earnings per share: | ||||||||||||||||
Basic - | ||||||||||||||||
Previously reported | $ | 0.60 | ||||||||||||||
Adjustment | - | |||||||||||||||
Pro forma | $ | 0.60 | ||||||||||||||
Diluted - | ||||||||||||||||
Previously reported | $ | 0.58 | ||||||||||||||
Adjustment | (0.01 | ) | ||||||||||||||
Pro forma | $ | 0.57 | ||||||||||||||
9 | ||
Year Ended December 31, | ||||||||||||||||
1999 | 2000 | 2001 | 2002 | 2003 | ||||||||||||
Other Data | ||||||||||||||||
EBITDA(3) | $ | 16,878 | $ | 12,172 | $ | 8,500 | $ | 12,690 | $ | 12,818 | ||||||
Cash flows provided by operating activities | 12,023 | 10,963 | 9,455 | 10,381 | 10,480 | |||||||||||
Cash flows used in investing activities | (11,668 | ) | (9,488 | ) | (4,069 | ) | (3,485 | ) | (1,599 | ) | ||||||
Cash flows provided by (used in) financing activities | (1,553 | ) | (1,556 | ) | (2,397 | ) | (5,282 | ) | (7,047 | ) | ||||||
Capital expenditures | 6,181 | 9,717 | 3,082 | 1,949 | 1,237 | |||||||||||
Selected Balance Sheet Data | ||||||||||||||||
Cash and cash equivalents | $ | 3,030 | $ | 769 | $ | 3,758 | $ | 5,372 | $ | 7,206 | ||||||
Working capital | 1,195 | 12,701 | (16,006) | (6) | 8,185 | 3,663 | (5) | |||||||||
Property and equipment, net | 19,564 | 25,236 | 23,232 | 19,965 | 15,751 | |||||||||||
Total assets | 72,931 | 77,375 | 70,847 | 70,080 | 64,744 | |||||||||||
Borrowings under revolving credit agreements | 5,888 | - | - | - | - | |||||||||||
Long-term debt, net of current portion | 16,501 | 31,054 | 78 | 18,065 | 6,762 | |||||||||||
Shareholders' equity | 30,941 | 32,919 | 30,778 | 34,512 | 37,368 |
(1) Amount represents the write off of deferred financing costs, net of tax benefit, related to a bank credit agreement which was terminated in Fiscal 2000.
1999 |
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| 2000 |
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| 2001 |
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| 2002 |
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| 2003 | ||||
Net income (loss) | $ | 5,603 | $ | 1,696 | $ | (1,494 | ) | $ | 2,817 | $ | 3,149 | |||||
Add back: | ||||||||||||||||
Interest | 2,147 | 2,889 | 3,070 | 2,528 | 2,056 | |||||||||||
Income taxes | 4,340 | 1,814 | (384 | ) | 2,007 | 2,114 | ||||||||||
Depreciation & Amortization | 4,788 | 5,773 | 7,308 | 5,338 | 5,499 | |||||||||||
EBITDA | $ | 16,878 | $ | 12,172 | $ | 8,500 | $ | 12,690 | $ | 12,818 | ||||||
10 | ||
- significant underperformance relative to expected historical or projected future operating results;
- significant changes in the manner of our use of the acquired assets or the strategy for our overall business;
- significant negative industry or economic trends;
- significant decline in our stock price for a sustained period; and
- our market capitalization relative to net book value.
11 | ||
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| Year ended December 31 | ||||||||||||||||
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| 2001 |
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| 2002 |
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| 2003 |
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| Amount |
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| Percent of Revenues |
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| Amount |
|
| Percent of |
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| Amount |
|
| Percent of |
|
Revenues | $ | 69,628 | 100.0 | % | $ | 68,419 | 100.0 | % | $ | 64,900 | 100.0 | % | |||||||
Costs of goods sold | 46,864 | 67.3 | 42,172 | 61.6 | 39,670 | 61.1 | |||||||||||||
Gross profit | 22,764 | 32.7 | 26,247 | 38.4 | 25,230 | 38.9 | |||||||||||||
Selling, general and administrative expense | 20,872 | 30.0 | 18,977 | 27.7 | 17,520 | 27.0 | |||||||||||||
Write-off of deferred acquisition and financing costs | - | - | - | - | 1,002 | 1.5 | |||||||||||||
Operating income | 1,892 | 2.7 | 7,270 | 10.7 | 6,708 | 10.4 | |||||||||||||
Interest expense, net | 3,070 | 4.4 | 2,528 | 3.7 | 2,056 | 3.2 | |||||||||||||
Derivative fair value change | 700 | 1.0 | (82 | ) | (0.1 | ) | (611 | ) | (1.0 | ) | |||||||||
Provision for (benefit from) income taxes | (384 | ) | (0.6 | ) | 2,007 | 2.9 | 2,114 | 3.3 | |||||||||||
Net income (loss) | $ | (1,494 | ) | (2.1) | % | $ | 2,817 | 4.2 | % | $ | 3,149 | 4.9 | % | ||||||
12 | ||
13 | ||
14 | ||
Payment due by Period | ||||||||||||||||
Contractual Obligations | Total |
|
| Less than 1 Year |
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| 1-3 Years |
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| 3-5 Years |
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| More than 5 Years | |||
Long Term Debt Obligations | $ | 8,000,000 | $ | 1,600,000 | $ | 3,200,000 | $ | 3,200,000 | $ | - | ||||||
Capital Lease Obligations | 65,000 | 61,000 | 4,000 | - | - | |||||||||||
Operating Lease Obligations | 22,622,000 | 3,658,000 | 5,917,000 | 5,118,000 | 7,929,000 | |||||||||||
Total | $ | 30,687,000 | $ | 5,319,000 | $ | 9,121,000 | $ | 8,318,000 | $ | 7,929,000 |
15 | ||
- Recent history of losses
- Prior breach of credit agreement covenants and new principal payment requirements.
- Our highly competitive marketplace.
- The risks associated with dependence upon significant customers.
- Our ability to execute our expansion strategy.
- The uncertain ability to manage growth.
- Our dependence upon and our ability to adapt to technological developments.
- Dependence on key personnel.
- Our ability to maintain and improve service quality.
- Fluctuation in quarterly operating results and seasonality in certain of our markets.
- Possible significant influence over corporate affairs by significant shareholders.
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17 | ||
18 | ||
19 | ||
Reports of Independent Accountants | 21-22 | |||
Financial Statements: | ||||
Consolidated Balance Sheets – | ||||
December 31, 2002 and 2003 | 23 | |||
Consolidated Statements of Income – | ||||
Fiscal Years Ended December 31, 2001, 2002 and 2003 | 24 | |||
Consolidated Statements of Shareholders’ Equity and Comprehensive (Loss) Income – | ||||
Fiscal Years Ended December 31, 2001, 2002 and 2003 | 25 | |||
Consolidated Statements of Cash Flows – | ||||
Fiscal Years Ended December 31, 2001, 2002 and 2003 | 26 | |||
Notes to Consolidated Financial Statements | 27-37 | |||
Financial Statement Schedule: | ||||
Schedule II – Valuation and Qualifying Accounts | 38 | |||
Consent of Independent Accountants | 41 |
20 | ||
21 | ||
22 | ||
December 31, | |||||||
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| 2002 |
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| 2003 | ||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 5,372,000 | $ | 7,206,000 | |||
Accounts receivable, net of allowances for doubtful accounts of $801,000 and | |||||||
$735,000, respectively | 12,218,000 | 9,490,000 | |||||
Income tax receivable | 398,000 | - | |||||
Inventories | 903,000 | 794,000 | |||||
Prepaid expenses and other current assets | 857,000 | 895,000 | |||||
Deferred income taxes | 1,383,000 | 1,414,000 | |||||
Total current assets | 21,131,000 | 19,799,000 | |||||
Property and equipment, net (Note 4) | 19,965,000 | 15,751,000 | |||||
Other assets, net (Note 8) | 843,000 | 1,348,000 | |||||
Goodwill and other intangibles, net (Note 3) | 27,212,000 | 27,046,000 | |||||
Investment in acquisitions | 929,000 | - | |||||
Rights to purchase property and equipment (Note 8) | - | 800,000 | |||||
$ | 70,080,000 | $ | 64,744,000 | ||||
Liabilities and Shareholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 3,974,000 | $ | 3,460,000 | |||
Accrued expenses | 3,885,000 | 3,123,000 | |||||
Income tax payable | - | 296,000 | |||||
Borrowings under revolving credit agreement (Notes 6 and 12) | 5,000,000 | 9,199,000 | |||||
Current portion of capital lease obligations (Note 6) | 87,000 | 58,000 | |||||
Total current liabilities | 12,946,000 | 16,136,000 | |||||
Deferred income taxes | 3,857,000 | 3,678,000 | |||||
Notes payable (Notes 6 and 12) | 18,000,000 | 6,667,000 | |||||
Capital lease and other obligations, less current portion (Note 6) | 65,000 | 95,000 | |||||
Derivative valuation liability | 701,000 | - | |||||
Obligation to purchase property and equipment (Note 8) | - | 800,000 | |||||
Total long-term liabilities | 22,623,000 | 11,240,000 | |||||
Total liabilities | 35,569,000 | 27,376,000 | |||||
Commitments and contingencies (Note 8) | - | - | |||||
Shareholders’ equity | |||||||
Preferred stock – no par value; 5,000,000 shares authorized; none outstanding | - | - | |||||
Common stock – no par value; 50,000,000 shares authorized; 9,014,232 and | |||||||
9,134,559 shares issued and outstanding, respectively | 17,359,000 | 17,625,000 | |||||
Additional paid-in capital | 1,272,000 | 624,000 | |||||
Accumulated other comprehensive income | (90,000 | ) | - | ||||
Retained earnings | 15,970,000 | 19,119,000 | |||||
Total shareholders’ equity | 34,511,000 | 37,368,000 | |||||
$ | 70,080,000 | $ | 64,744,000 | ||||
23 | ||
Year Ended December 31, | ||||||||||
2001 |
|
| 2002 |
|
| 2003 | ||||
Revenues | $69,628,000 | $ | 68,419,000 | $ | 64,900,000 | |||||
Cost of goods sold | 46,864,000 | 42,172,000 | 39,670,000 | |||||||
Gross profit | 22,764,000 | 26,247,000 | 25,230,000 | |||||||
Selling, general and administrative expense | 20,872,000 | 18,977,000 | 17,520,000 | |||||||
Write-off of deferred acquisition and financing costs (Note 3) | - | - | 1,002,000 | |||||||
Operating income | 1,892,000 | 7,270,000 | 6,708,000 | |||||||
Interest expense (net) | 3,070,000 | 2,528,000 | 2,056,000 | |||||||
Derivative fair value change | 700,000 | (82,000 | ) | (611,000 | ) | |||||
Income (loss) before income taxes | (1,878,000 | ) | 4,824,000 | 5,263,000 | ||||||
Provision for (benefit from) income taxes | (384,000 | ) | 2,007,000 | 2,114,000 | ||||||
Net income (loss) | $ | (1,494,000 | ) | $ | 2,817,000 | $ | 3,149,000 | |||
Earnings (loss) per share: | ||||||||||
Basic: | ||||||||||
Net income (loss) | $ | (0.17 | ) | $ | 0.31 | $ | 0.35 | |||
Weighted average number of shares | 9,060,487 | 9,013,224 | 9,067,446 | |||||||
Diluted: | ||||||||||
Net income (loss) | $ | (0.17 | ) | $ | 0.30 | $ | 0.33 | |||
Weighted average number of shares including the dilutive effect of | ||||||||||
stock options (Note 2) | 9,060,487 | 9,376,707 | 9,554,847 | |||||||
24 | ||
| Shares | Amount | Additional CapitalPaid-in | Deferred Stock-Based Compensation | Retained Earnings | Accumulated Other Compre-hensive Income | Share-holders Equity | |||||
Balance at December 31, 2000 | 9,162,670 | $17,943 | $ 329 | - | $14,647 | - | $32,919 | |||||
Net loss | - | - | - | - | (1,494) | - | (1,494) | |||||
Shares repurchased in connection with stock repurchase plan | (116,666) | (300) | - | - | - | - | (300) | |||||
Issuance of stock options to consultants | - | - | 110 | (110) | - | - | - | |||||
Stock-based compensation | - | - | - | 110 | - | - | 110 | |||||
Shares issued in settlement of a debt | 15,384 | 10 | - | - | - | - | 10 | |||||
Adjustment of shares issued for an acquisition | (68,582) | (317) | - | - | - | - | (317) | |||||
Cumulative effect of adoption of FAS 133 net of amortization and tax | - | - | - | - | - | (150) | (150) | |||||
Balance at December 31, 2001 | 8,992,806 | 17,336 | 439 | - | 13,153 | (150) | 30,778 | |||||
Net income | - | - | - | - | 2,817 | - | 2,817 | |||||
Shares issued in connection with exercise of stock option | 10,000 | 20 | - | - | - | - | 20 | |||||
Issuance of stock options to consultants | - | - | 214 | - | - | - | 214 | |||||
Issuance of stock purchase warrants | - | - | 619 | - | - | - | 619 | |||||
Shares issued in settlement of a debt | 18,518 | 20 | - | - | - | - | 20 | |||||
Adjustment of shares issued for an acquisition | (7,092) | (17) | - | - | - | - | (17) | |||||
Change in Other Comprehensive Income | - | - | - | - | - | 60 | 60 | |||||
Balance on December 31, 2002 | 9,014,232 | 17,359 | 1,272 | 0 | 15,970 | (90) | 34,511 | |||||
Net income | 3,149 | 3,149 | ||||||||||
Shares issued in connection with | ||||||||||||
exercise of stock options | 120,327 | 266 | 266 | |||||||||
Tax effect of stock options exercised | 59 | 59 | ||||||||||
Termination of stock purchase warrants | - | - | (617) | (617) | ||||||||
Termination of stock options | - | - | (90) | - | - | - | (90) | |||||
Change in other comprehensive Income | - | - | - | - | - | 90 | 90 | |||||
Balance on December 31, 2003 | 9,134,559 | 17,625 | 624 | 0 | 19,119 | - | 37,368 | |||||
Comprehensive (loss) income is as follows: | ||||||||||
2001 |
|
| 2002 |
|
| 2003 | ||||
Net (loss) income | $ | (1,494 | ) | $ | 2,817 | $ | 3,149 | |||
Cumulative effect of adoption of FAS 133 net of amortization and tax ($62) | (247 | ) | - | - | ||||||
Amortization of cumulative effectadjustment, net of tax | 97 | 60 | 90 | |||||||
Comprehensive (loss) income | $ | (1,644 | ) | $ | 2,877 | $ | 3,239 | |||
25 | ||
Consolidated Statements of Cash Flows
Year Ended December 31, | ||||||||||
2001 |
|
| 2002 |
|
| 2003 | ||||
Cash flows from operating activities: | ||||||||||
Net income (loss) | $ | (1,494,000 | ) | $ | 2,817,000 | $ | 3,149,000 | |||
Adjustments to reconcile net income (loss) to net cash and | ||||||||||
cash equivalents provided by operating activities: | ||||||||||
Depreciation and amortization | 7,308,000 | 5,338,000 | 5,499,000 | |||||||
Provision for doubtful accounts | 529,000 | 301,000 | 121,000 | |||||||
Deferred income taxes | 1,054,000 | 723,000 | (210,000 | ) | ||||||
Loss on disposal of property and equipment | - | - | 72,000 | |||||||
Derivative fair value change | 700,000 | (82,000 | ) | (611,000 | ) | |||||
Other noncash items | 158,000 | 41,000 | - | |||||||
Write-off of note receivable | - | 148,000 | - | |||||||
Write-off of acquisition costs | - | - | 1,002,000 | |||||||
Changes in operating assets and liabilities: | ||||||||||
Decrease (increase) in accounts receivable | 3,667,000 | (400,000 | ) | 2,607,000 | ||||||
Decrease (increase) in inventories | 211,000 | (83,000 | ) | 109,000 | ||||||
Decrease (increase) in prepaid expenses and other current assets | 1,229,000 | (303,000 | ) | (138,000 | ) | |||||
Decrease (increase) in other assets | 87,000 | (10,000 | ) | (826,000 | ) | |||||
(Decrease) in accounts payable | (3,889,000 | ) | (559,000 | ) | (514,000 | ) | ||||
(Decrease) increase in accrued expenses | (68,000 | ) | 1,449,000 | (533,000 | ) | |||||
(Decrease) increase in income taxes payable (receivable), net | (37,000 | ) | 1,001,000 | 753,000 | ||||||
Net cash and cash equivalents provided by operating activities | 9,455,000 | 10,381,000 | 10,480,000 | |||||||
Cash flows from investing activities: | ||||||||||
Increase in restricted cash | - | - | 800,000 | |||||||
Payment for acquisition costs subsequently written off | - | - | (369,000 | ) | ||||||
Capital expenditures | (3,082,000 | ) | (1,949,000 | ) | (1,237,000 | ) | ||||
Proceeds from sale of equipment | - | 27,000 | 15,000 | |||||||
Net cash paid for acquisitions | (987,000 | ) | (1,563,000 | ) | (8,000 | ) | ||||
Net cash and cash equivalents used in investing activities | (4,069,000 | ) | (3,485,000 | ) | (1,599,000 | ) | ||||
Cash flows from financing activities: | ||||||||||
Issuance of notes receivable | - | 780,000 | - | |||||||
Repurchase of common stock | (300,000 | ) | - | - | ||||||
Proceeds from exercise of stock options | - | 12,000 | 266,000 | |||||||
Repayment of notes payable | (2,025,000 | ) | (5,999,000 | ) | (7,134,000 | ) | ||||
Contract settlement | - | - | (90,000 | ) | ||||||
Repayment of capital lease obligations | (72,000 | ) | (75,000 | ) | (89,000 | ) | ||||
Net cash and cash equivalents used in financing activities | (2,397,000 | ) | (5,282,000 | ) | (7,047,000 | ) | ||||
Net increase in cash and cash equivalents | 2,989,000 | 1,614,000 | 1,834,000 | |||||||
Cash and cash equivalents at beginning of year | 769,000 | 3,758,000 | 5,372,000 | |||||||
Cash and cash equivalents at end of year | $ | 3,758,000 | $ | 5,372,000 | $ | 7,206,000 | ||||
26 | ||
27 | ||
28 | ||
2001 |
|
| 2002 |
|
| 2003 | ||||
Net income (loss): | ||||||||||
As reported | $ | (1,494,000 | ) | $ | 2,817,000 | $ | 3,149,000 | |||
Deduct: Total stock-based employee compensationexpense determined under fair value based methodfor all awards, net of related tax effects | (1,772,000 | ) | (516,000 | ) | (310,000 | ) | ||||
Pro forma | (3,266,000 | ) | 2,301,000 | 2,839,000 | ||||||
Earnings (loss) per share: | ||||||||||
As reported: | ||||||||||
Basic | (0.17 | ) | 0.31 | 0.35 | ||||||
Diluted | (0.17 | ) | 0.30 | 0.33 | ||||||
Pro forma: | ||||||||||
Basic | (0.36 | ) | 0.26 | 0.31 | ||||||
Diluted | (0.36 | ) | 0.25 | 0.30 |
2001 |
|
| 2002 |
|
| 2003 | ||||
Weighted average number of common shares outstanding | ||||||||||
used in computation of basic EPS | 9,060,487 | 9,013,224 | 9,067,446 | |||||||
Dilutive effect of outstanding stock options | - | 363,483 | 487,401 | |||||||
Weighted average number of common and potential | ||||||||||
common shares outstanding used in computation of diluted EPS | 9,060,487 | 9,376,707 | 9,554,847 | |||||||
Outstanding stock options excluded in the | ||||||||||
computation of diluted EPS | 3,286,628 | 2,435,086 | 1,573,277 | |||||||
29 | ||
2001 |
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| 2002 |
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| 2003 | ||||
Cash payments for income taxes | $ | 121,000 | $ | 1,364,000 | $ | 2,626,000 | ||||
Cash payments for interest | 2,830,000 | 2,453,000 | 1,852,000 | |||||||
Noncash investing and financing activities: | ||||||||||
Termination of warrants | - | - | 619,000 | |||||||
Capitalized lease obligations incurred | 145,000 | 69,000 | - | |||||||
Tax benefits related to stock options | - | 7,000 | 59,000 | |||||||
Adjustment of acquisition holdback shares | (317,000 | ) | (17,000 | ) | - | |||||
Acquisition of equipment in exchange for reduction of note receivable from shareholder | 68,000 | - | - | |||||||
Accrual for earn-out payments | 270,000 | - | - | |||||||
Termination of stock purchase warrants incurred as part of proposed acquisition | - | - | 617,000 | |||||||
Obligation to purchase tenant improvements | - | - | 800,000 | |||||||
Right to purchase tenant improvements | - | - | (800,000 | ) | ||||||
Leasehold improvements transferred from prepaid expenses | - | - | 100,000 | |||||||
Detail of acquisitions: | ||||||||||
Goodwill (1) | 1,257,000 | 1,563,000 | - |
30 | ||
Actual | |||||||
2002 |
|
| 2003 | ||||
Goodwill | $ | 32,762,000 | $ | 32,622,000 | |||
Covenant not to compete | 992,000 | 1,000,000 | |||||
33,754,000 | 33,622,000 | ||||||
Less accumulated amortization | (6,542,000 | ) | (6,576,000 | ) | |||
$ | 27,212,000 | $ | 27,046,000 | ||||
31 | ||
December 31, | |||||||
2002 |
|
| 2003 | ||||
Machinery and equipment | $ | 38,156,000 | $ | 38,945,000 | |||
Leasehold improvements | 7,673,000 | 7,773,000 | |||||
Computer equipment | 4,232,000 | 4,520,000 | |||||
Equipment under capital lease | 291,000 | 291,000 | |||||
50,352,000 | 51,529,000 | ||||||
Less accumulated depreciation and amortization | (30,387,000 | ) | (35,778,000 | ) | |||
$ | 19,965,000 | $ | 15,751,000 | ||||
Term Loans and Revolving Credit
32 | ||
Increase(Decrease) Income | ||||||||||
|
| Derivative Fair Value Change |
|
| (Provision for ) Benefitfrom Income Taxes |
|
| Net DerivativeFair Value Change | ||
For the year ended December 31, 2001: | ||||||||||
Amortization of cumulative-effect type adjustment | $ | (121,000 | ) | $ | 24,000 | $ | (97,000 | ) | ||
Difference in the derivative fair value between the beginning and end of the year | (579,000 | ) | 116,000 | (463,000 | ) | |||||
$ | (700,000 | ) | $ | 140,000 | $ | (560,000 | ) | |||
For the year ended December 31, 2002: | ||||||||||
Amortization of cumulative-effect type adjustment | $ | (104,000 | ) | $ | 44,000 | $ | (60,000 | ) | ||
Difference in the derivative fair value between the beginning and end of the year | 186,000 | (77,000 | ) | 109,000 | ||||||
$ | 82,000 | $ | (33,000 | ) | $ | 49,000 | ||||
For the year ended December 31, 2003: | ||||||||||
Amortization of cumulative-effect type adjustment | $ | (90,000 | ) | $ | 6,000 | $ | (54,000 | ) | ||
Difference in the derivative fair value between the beginning and end of the year | 701,000 | (280,000 | ) | 421,000 | ||||||
$ | 611,000 | $ | (244,000 | ) | $ | 367,000 | ||||
2004 | $ | 15,924,000 | ||
2005 | 5,000 | |||
Thereafter | - | |||
$ | 15,929,000 | |||
33 | ||
Year Ended December 31, | ||||||||||
2001 |
|
| 2002 |
|
| 2003 | ||||
Current tax (benefit) expense: | ||||||||||
Federal | $ | (1,229,000 | ) | $ | 1,280,000 | $ | 1,820,000 | |||
State | - | 333,000 | 504,000 | |||||||
Total current | (1,229,000 | ) | 1,613,000 | 2,324,000 | ||||||
Deferred tax expense: | ||||||||||
Federal | 844,000 | 281,000 | (178,000 | ) | ||||||
State | 1,000 | 113,000 | (32,000 | ) | ||||||
Total deferred | 845,000 | 394,000 | (210,000 | ) | ||||||
Total provision for (benefit from) for income taxes | $ | (384,000 | ) | $ | 2,007,000 | $ | 2,114,000 | |||
2001 |
|
| 2002 |
|
| 2003 | ||||
Provision for (benefit from) income taxes per the income statement | $ | (384,000 | ) | $ | 2,007,000 | $ | 2,114,000 | |||
Extraordinary item tax benefit | - | - | - | |||||||
Cumulative effect tax benefit of adopting SAB 101 | - | - | - | |||||||
Provision for (benefit from) income taxes | $ | (384,000 | ) | $ | 2,007,000 | $ | 2,114,000 | |||
2002 |
|
| 2003 |
| |||
Accrued liabilities | $ | 816,000 | $ | 784,000 | |||
Allowance for doubtful accounts | 343,000 | 315,000 | |||||
Other | 224,000 | 315,000 | |||||
Total current deferred tax assets | 1,383,000 | 1,414,000 | |||||
Property and equipment | (3,486,000 | ) | (2,486,000 | ) | |||
Goodwill and other intangibles | (787,000 | ) | (1,444,000 | ) | |||
State net operating loss carry forward | 125,000 | 123,000 | |||||
Other | 291,000 | 129,000 | |||||
Total non-current deferred tax liabilities | (3,857,000 | ) | (3,678,000 | ) | |||
Net deferred tax liability | $ | (2,474,000 | ) | $ | (2,264,000 | ) | |
2001 |
|
| 2002 |
|
| 2003 | ||||
Federal tax computed at statutory rate | (34) | % | 34 | % | 34 | % | ||||
State taxes, net of federal benefit and net operating loss limitation | 2 | % | 6 | % | 5 | % | ||||
Non-deductible goodwill | 9 | % | - | - | ||||||
Other | 3 | % | 2 | % | 1 | % | ||||
(20) | % | 42 | % | 40 | % | |||||
34 | ||
2004 | $ | 3,658,000 | ||
2005 | 2,998,000 | |||
2006 | 2,919,000 | |||
2007 | 2,961,000 | |||
2008 | 2,157,000 | |||
Thereafter | 7,929,000 |
35 | ||
Numberof Shares |
|
| Weighted Average Exercise Price | ||||
Balance at December 31, 2000 | 2,897,007 | $ | 5.43 | ||||
Granted during 2001 | 1,176,350 | 2.06 | |||||
Cancelled during 2001 | (786,729 | ) | 3.88 | ||||
Balance at December 31, 2001 | 3,286,628 | $ | 4.55 | ||||
Granted during 2002 | 529,100 | 1.76 | |||||
Exercised during 2002 | (10,000 | ) | 1.20 | ||||
Cancelled during 2002 | (1,007,069 | ) | 7.26 | ||||
Balance at December 31, 2002 | 2,798,569 | $ | 3.06 | ||||
Granted during 2003 | 423,000 | $ | 3.00 | ||||
Exercised during 2003 | (120,327 | ) | 2.21 | ||||
Cancelled during 2003 | (1,050,654 | ) | 3.41 | ||||
Balance at December 31, 2003 | 2,050,678 | $ | 2.91 | ||||
Options Outstanding | Options Exercisable | |||||||||||||||
Option Exercise Price Range |
|
| Number of Shares |
|
| Average RemainingContractual Life |
|
| Weighted Average Exercise Price |
|
| Number of Shares |
|
| AverageExercise Price | |
$ 1.01to5.38 | 2,031 | 5.0 | $ | 2.07 | 1,028 | $ | 2.77 | |||||||||
7.00to10.00 | 20 | 4.4 | 7.68 | 20 | 7.68 | |||||||||||
2,051 | 1,048 | |||||||||||||||
36 | ||
2002 | ||||||||||||||||
Quarter Ended | ||||||||||||||||
Year Ended | ||||||||||||||||
March 31 |
|
| June 30 |
|
| Sept 30 |
|
| Dec 31 |
|
| Dec 31 | ||||
Revenues | $ | 16,846 | $ | 16,710 | $ | 16,959 | $ | 17,904 | $ | 68,419 | ||||||
Gross profit | $ | 6,252 | $ | 6,076 | $ | 6,778 | $ | 7,140 | $ | 26,247 | ||||||
Net income | $ | 651 | $ | 449 | $ | 796 | $ | 921 | $ | 2,817 | ||||||
Income per share: | ||||||||||||||||
Basic | $ | 0.07 | $ | 0.05 | $ | 0.09 | $ | 0.10 | $ | 0.31 | ||||||
Diluted | $ | 0.07 | $ | 0.05 | $ | 0.08 | $ | 0.10 | $ | 0.30 | ||||||
2003 | ||||||||||||||||
Quarter Ended | ||||||||||||||||
Year Ended | ||||||||||||||||
March 31 |
|
| June 30 |
|
| Sept 30 |
|
| Dec 31 |
|
| Dec 31 | ||||
Revenues | $ | 17,293 | $ | 15,773 | $ | 16,709 | $ | 15,125 | $ | 64,900 | ||||||
Gross profit | $ | 6,439 | $ | 5,865 | $ | 6,993 | $ | 5,933 | $ | 25,230 | ||||||
Net income | $ | 992 | $ | 271 | $ | 1,075 | $ | 812 | $ | 3,149 | ||||||
Income per share: | ||||||||||||||||
Basic | $ | 0.11 | $ | 0.03 | $ | 0.12 | $ | 0.09 | $ | 0.35 | ||||||
Diluted | $ | 0.11 | $ | 0.03 | $ | 0.11 | $ | 0.08 | $ | 0.33 | ||||||
37 | ||
Allowance for Doubtful Accounts | Balance at Beginning of Year | Charged to Costs and Expenses | Other | Deductions/ Write-Offs | Balance at End of Year | |||||||||||
Year ended December 31, 2001 | $ | 1,473,000 | $ | 529,000 | $ | -- | $ | (1,321,000 | ) | $ | 681,000 | |||||
Year ended December 31, 2002 | $ | 681,000 | $ | 301,000 | $ | -- | $ | (181,000 | ) | $ | 801,000 | |||||
Year ended December 31, 2003 | $ | 801,000 | $ | 121,000 | $ | -- | $ | (187,000 | ) | $ | 735,000 | |||||
38 | ||
39 | ||
(3)Exhibit Number | Description | |||||||
3.1 | Restated Articles of Incorporation of the Company. (2) | |||||||
3.2 | By-laws of the Company. (2) | |||||||
10.1 | Agreement and Plan of Merger, dated as of December 24, 1999, among VDI MultiMedia, VDI MultiMedia, Inc. and VMM Merger Corp. (1) | |||||||
10.2 | 1996 Stock Incentive Plan of the Company. (2) | |||||||
10.3 | 2000 Stock Incentive Plan of the Company. (7) | |||||||
10.4 | Asset Purchase Agreement, dated as of December 28, 1996 by and among VDI Media, Woodholly Productions, Yvonne Parker, Rodger Parker, Jim Watt and Kim Watt. (3) | |||||||
10.5 | Asset Purchase Agreement, dated as of June 12, 1998 by and between VDI Media and All Post, Inc. (4) | |||||||
10.6 | Asset Purchase Agreement, dated as of November 9, 1998 by and among VDI Media, Dubs Incorporated, Vincent Lyons and Barbara Lyons. (5) | |||||||
10.7 | Asset Purchase Agreement dated November 3, 2000 by and among the Company, Creative Digital, Inc. and Larry Hester. (7) | |||||||
10.8 | Third Amendment and Restated Credit Agreement dated May 2, 2002, among the Company, Union Bank of California, N.A., United California Bank, and U.S. Bank National Association. (8) | |||||||
10.9 | Option Agreement dated July 3, 2002 between the Company and Alliance Atlantis Communications Inc. (9) | |||||||
10.10 | First Amendment to Credit Agreement dated October 2, 2002, among the Company, Union Bank of California, Bank of the West and U.S. National Bank Association. (11) | |||||||
10.11 | Resignation and General Release Agreement dated October 2, 2002 between R. Luke Stefanko and the Company. (10) | |||||||
10.12 | Consulting Agreement dated October 2, 2002 between R. Luke Stefanko and the Company. (10) | |||||||
10.13 | Non-competition Agreement dated October 2, 2002 between R. Luke Stefanko and the Company. (10) | |||||||
10.14 | Amended and Restated Option Agreement dated December 30, 2002 between the Company and Alliance Atlantis Communications Inc. (12) | |||||||
10.15 | Severance Agreement dated September 30, 2003 between the Company and Haig S. Bagerdjian. (13) | |||||||
10.16 | Severance Agreement dated September 30, 2003 between the Company and Alan R. Steel. (13) | |||||||
10.17 | Lease Agreement dated November 26, 2003 between the Company and General Electric Capital Business Asset Funding Corporation. | |||||||
10.18 | Credit Agreement dated March 12, 2004 among the Company, Union Bank of California, N.A. and U.S. National Bank Association. (14) | |||||||
23.1 | Consent of Independent Accountants. | |||||||
31.1 | Certification of Chief Executive Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||||
31.2 | Certification of Chief Financial Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||||
32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||||
32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
40 | ||
- Filed with the Securities and Exchange Commission (“SEC”) on January 11, 2000 as an exhibit to the Company’s Form 8-K and incorporated herein by reference.
- Filed with the SEC as an exhibit to the Company’s Registration Statement on Form S-1 filed with the SEC on May 17, 1996 or as an exhibit to Amendment No. 1 to the Form S-1 filed with the SEC on December 31, 1996 and incorporated herein by reference.
- Filed with the SEC on June 29, 1998 as an exhibit to the Company’s Form 8-K and incorporated herein by reference
- Filed with SEC on December 2, 1998 as an exhibit to the Company’s Form 8-K and incorporated herein by reference.
- Filed with the SEC on April 11, 2001 as an exhibit to the Company’s Form 10-K and incorporated herein by reference.
- Filed with the SEC on August 14, 2001 as an exhibit to the Company’s Form 10-Q and incorporated herein by reference.
- Filed with the SEC on September 7, 2001 as an exhibit to the Company’s Form S-8 and incorporated herein by reference.
- Filed with the Commission on May 14, 2002 as an exhibit to Form 10-Q for the period ended March 31, 2002.
- Filed as an exhibit to Form 8-K with the Commission on July 15, 2002.
- Filed as an exhibit to Form 8-K with the Commission on October 7, 2002.
- Filed with the Commission on November 14, 2002 as an exhibit to Form 10-Q for the period ended September 30, 2002.
- Filed as exhibit to Form 8-K with the Commission on January 8, 2003.
- Filed as an exhibit to Form 10-Q with the Commission on November 12, 2003.
- Filed as an exhibit to Form 8-K with the Commission on March 16, 2004.
41 | ||
Dated: March 14, 2004 | Point.360 | |
By: | /s/ Haig S. Bagerdjian Haig S. Bagerdjian Chairman of the Board of Directors, President and Chief Executive Officer |
/s/ Haig S. Bagerdjian | Chairman of the Board of Directors, | March 14, 2004 |
Haig S. Bagerdjian | President and Chief Executive Officer | |
/s/ Alan R. Steel | Executive Vice President, | March 11, 2004 |
Alan R. Steel | Finance and Administration, Chief Financial Officer (Principal Accounting and Financial Officer) | |
/s/ Robert A. Baker | Director | March 11, 2004 |
Robert A. Baker | ||
/s/ Greggory J. Hutchins | Director | March 11, 2004 |
Greggory J. Hutchins | ||
/s/ Sam P. Bell | Director | March 11, 2004 |
Sam P. Bell | ||
/s/ G. Samuel Oki | Director | March 8, 2004 |
G. Samuel Oki |
42 | ||