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 June 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the Transition Period from ............... to ...............
Commission File Number 0-19407
LASER-PACIFIC MEDIA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3824617
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
809 N. Cahuenga Blvd.
Hollywood, California 90038
(323) 462-6266
(Address, including zip code and telephone number,
including area code of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares outstanding of each of the registrant's classes of common
stock, as of July 31, 2000 was 7,721,293 shares of Common Stock, $.0001 par
value.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Table of Contents
Part I. Financial Information Page
-----
Item 1. Condensed Consolidated Financial Statements 3
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk 9
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited) (Audited)
June 30, December 31,
2000 1999
--------------- ----------------
Assets
Current Assets:
Cash and cash equivalents $ 4,718,080 $ 2,398,407
Receivables net of allowance for doubtful accounts 2,348,604 5,139,663
Other current assets 1,149,149 1,211,279
--------------- ----------------
Total Current Assets 8,215,833 8,749,349
Net property and equipment 18,877,856 20,333,846
Other assets 421,509 414,115
--------------- ----------------
Total Assets $ 27,515,198 $ 29,497,310
=============== ================
Liabilities and Stockholders' Equity
Current Liabilities:
Current installments of notes payable to bank and long-term debt $ 3,585,493 $ 3,718,270
Other current liabilities 1,389,669 1,800,035
--------------- ----------------
Total Current Liabilities 4,975,162 5,518,305
Notes payable to bank and long-term debt, less current installments 8,321,258 10,303,320
Stockholders' Equity:
Common stock, $.0001 par value. Authorized 25,000,000 shares; issued
and outstanding 7,721,293 shares at June 30, 2000 and 7,654,646
at December 31, 1999. 772 765
Additional paid-in capital 19,921,159 19,919,956
Accumulated deficit (5,703,153) (6,245,036)
--------------- ----------------
Net stockholders' equity 14,218,778 13,675,685
--------------- ----------------
Total Liabilities and Stockholders' Equity $ 27,515,198 $ 29,497,310
=============== ================
See accompanying notes to the condensed consolidated financial statements.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- --------------------------------
2000 1999 2000 1999
--------------- --------------- -------------- --------------
Revenues $ 5,858,496 5,594,118 $ 15,104,235 13,535,727
Operating costs
Direct costs 4,411,294 4,212,592 9,762,725 8,935,238
Depreciation and amortization 1,009,780 713,511 1,948,892 1,407,554
--------------- --------------- -------------- --------------
Total operating costs 5,421,074 4,926,103 11,711,617 10,342,792
--------------- --------------- -------------- --------------
Gross profit 437,422 668,015 3,392,618 3,192,935
Selling, general and administrative
and other expenses 1,113,928 1,054,051 2,263,493 2,111,928
--------------- --------------- -------------- --------------
Income (loss) from operations (676,506) (386,036) 1,129,125 1,081,007
Interest expense 346,631 282,730 691,630 583,014
Other income (63,371) (34,353) (130,288) (57,829)
--------------- --------------- -------------- --------------
Income (loss) before income taxes (959,766) (634,413) 567,783 555,822
Income taxes (benefit) (50,500) (20,200) 25,900 14,700
--------------- --------------- -------------- --------------
Net income (loss) $ (909,266) (614,213) $ 541,883 541,122
=============== =============== ============== ==============
Income (loss) per share (basic) $ (0.12) (0.08) $ 0.07 0.07
--------------- --------------- -------------- --------------
Income (loss) per share (diluted) $ (0.12) (0.08) $ 0.07 0.07
--------------- --------------- -------------- --------------
Weighted average shares outstanding (basic) 7,721,193 7,414,670 7,720,093 7,344,706
=============== =============== ============== ==============
Weighted average shares outstanding (diluted) 7,721,193 7,414,670 8,107,291 7,779,453
=============== =============== ============== ==============
See accompanying notes to condensed consolidated financial statements.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
---------------------------------
2000 1999
--------------- --------------
Cash flows from operating activities
Net income $ 541,883 $ 541,122
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,948,892 1,407,554
Gain on sale of property and equipment (31,700) (2,500)
Provision for doubtful accounts receivable 112,935 134,678
Change in assets and liabilities:
Receivables 2,678,125 1,580,793
Other current assets 62,130 30,669
Other current liabilities (410,366) (12,805)
Other (6,987) (187,161)
--------------- --------------
Net cash provided by operating activities 4,894,912 3,492,350
Cash flows from investing activities:
Purchases of property and equipment (637,103) (2,064,553)
Net proceeds from disposal of property and equipment 175,493 2,500
--------------- --------------
Net cash used in investing activities (461,610) (2,062,053)
Cash flows from financing activities:
Net (repayment of) proceeds from notes payable to bank and long-term debt (2,114,839) 385,047
Proceeds from issuance of common stock 1,210 35,530
--------------- --------------
Net cash (used in) provided by financing activities (2,113,629) 420,577
Net increase in cash and cash equivalents 2,319,673 1,850,874
Cash and cash equivalents at beginning of period 2,398,407 1,159,206
--------------- --------------
Cash and cash equivalents at end of period $ 4,718,080 $ 3,010,080
=============== ==============
See accompanying notes to condensed consolidated financial statements.
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
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 June 30, 2000 and
December 31, 1999; the results of operations for the three and six month periods
ended June 30, 2000 and 1999; and the statements of cash flows for the six month
periods ended June 30, 2000 and 1999. The Company's business is subject to the
prime time television industry's typical seasonality. Historically, revenues and
income from operations have been highest during the first and fourth quarters,
when production of television programs and demand for the Company's services is
at its highest. The net income or loss of any interim quarter is seasonally
disproportionate to revenues because selling, general and administrative
expenses and certain operating expenses remain relatively constant during the
year. Therefore, interim results are not indicative of results to be expected
for the entire fiscal year.
In accordance with the 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 three and
six month periods ended June 30, 2000 and 1999. Diluted income per share
reflects the potential dilution that could occur from common shares issuable
through stock-based compensation plans including stock options, restricted stock
awards, warrants and other convertible securities using the treasury stock
method. The following summarizes the computation of basic income per share and
diluted income per share:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -------------------------------
2000 1999 2000 1999
------------- ------------ ------------- -------------
Net Income (Loss) $ (909,266) (614,213) $ 541,883 541,122
============= ============ ============= =============
Shares:
Weighted Average Common Shares 7,721,193 7,414,670 7,720,093 7,344,706
Dilutive Stock Options and Warrants --- --- 387,198 434,747
------------- ------------ ------------- -------------
Dilutive Potential Common Shares 7,721,193 7,414,670 8,107,291 7,779,453
============= ============ ============= =============
Income Per Share:
Basic $ (0.12) (0.08) $ 0.07 0.07
Diluted $ (0.12) (0.08) $ 0.07 0.07
(3) Income Taxes
For the six months ended June 30, 2000, federal income tax expense of
$9,300 and state income tax expense of $16,600 was recognized after the
application of net operating loss carry forwards. Income tax expense for the six
months ended June 30, 2000 was computed using the estimated effective tax rate
to apply for all of 2000 after considering the impact of net operating loss
carry forwards and tax credits. The rate is subject to ongoing review and
evaluation by management.
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 six months ended June 30, 2000 increased to
$15,104,000 from $13,536,000 for the same year-ago period, an increase of
$1,568,000 or 11.6%. Revenues from post-production services related to the
Company's core business on episodic television shows increased $1,682,000. The
increase in revenues from the Company's post-production services is attributable
to increased demand for the Company's services, including a significant increase
in demand for high definition services. The increase was offset by a decrease in
revenues of $412,000 in digital compression services and a decrease in revenues
of $405,000 in graphic services. The decrease in revenues from compression
services is the result of decreased demand for Divx compression and MPEG
compression for airlines. The decrease in revenues from graphic services is due
to decreased demand for certain types of graphic services and the reduction of
services provided.
Revenues for the quarter ended June 30, 2000 increased to $5,858,000
from $5,594,000 for the same year-ago period, an increase of $264,000 or 4.7%.
Revenues from post-production services related to the Company's core business on
episodic television shows increased $259,000. The increase in the Company's
post-production services is attributable to increased demand for the Company's
services, including a significant increase in demand for high definition
services. The increase was offset by decreased revenue from the following: a
decrease in revenues of $321,000 in digital compression services and a decrease
in revenues of $219,000 in graphic services.
Operating costs for the six months ended June 30, 2000 were $11,712,000
versus $10,343,000 for the year-ago period, an increase of $1,369,000 or 13.2%.
The increase in operating costs is primarily the result of an increase in labor
cost of $740,000, an increase in depreciation of $541,000 and an increase in
rawstock cost of $206,000. The increase in operating costs was partially offset
by decreases in other operating costs. Higher labor costs were the result of an
increased number of employees and more hours worked, as a result of increased
sales. The increase in depreciation is due to expansion of the Company's
capacity, especially high definition services during 1999. The higher rawstock
costs resulted from increased sales. Total operating costs, including
depreciation, as a percentage of revenues for the six months ended June 30, 2000
were 77.5% compared with 76.4% for the same year-ago period.
Operating costs for the quarter ended June 30, 2000 were $5,421,000
versus $4,926,000 for the year-ago period, an increase of $495,000 or 10.0%. The
increase in operating costs was the result of an increase in labor costs of
$215,000 and an increase in depreciation of $296,000. Higher labor costs were
the result of an increased number of employees and more hours worked, as a
result of increased sales. The increase in depreciation is due to expansion of
the Company's capacity, especially high definition services during 1999. Total
operating costs, including depreciation, as a percentage of revenues for the
three months ended June 30, 2000 were 92.5% compared with 88.1% for the same
year-ago period.
For the six months ended June 30, 2000, the Company recorded a gross
profit of $3,393,000 compared with $3,193,000 for the same year-ago period, an
increase of $200,000 or 6.3%. The increase in gross profit is the result of the
increase in revenues, discussed above.
For the quarter ended June 30, 2000 the Company recorded a gross profit
of $437,000 compared to a gross profit of $668,000 for the same year-ago period,
a decrease of $231,000 or 34.5%. The decrease in gross profit is the result of
increased operating costs, explained above.
Selling, general and administrative ("SG&A") expenses for the six
months ended June 30, 2000 was $2,263,000 compared to $2,112,000 during the same
year-ago period, an increase of $151,000 or 7.2%. The most significant increase
in SG&A was labor cost. The increase in labor cost is due to additional
employees and compensation increases.
SG&A for the quarter ended June 30, 2000 was $1,114,000 compared to
$1,054,000 during the same year-ago period, an increase of $60,000 or 5.7%. The
most significant increase in SG&A was labor cost. The increase in labor cost is
due to additional employees and compensation increases.
Interest expense for the six months ended June 30, 2000 was $692,000
compared to $583,000 for the same year-ago period, an increase of $109,000 or
18.6%. The increase in interest expense is a result of increased borrowings for
equipment purchases in prior years.
Interest expense for the quarter ended June 30, 2000 was $347,000
compared to $283,000 for the same year-ago period, an increase of $64,000 or
22.6%. The increase in interest expense is a result of increased borrowings for
equipment purchases in prior years.
Other income for the six months ended June 30, 2000 was $130,000
compared to $58,000 for the same year-ago period, an increase of $72,000 or
125.3%. Other income is primarily interest income. The increase in other income
is the result of higher cash balances and an increase in interest rates.
Other income for the quarter ended June 30, 2000 was $63,000 compared
to $34,000 for the same year-ago period, an increase of $29,000 or 84.5%. Other
income is primarily interest income. The increase in other income is the result
of higher cash balances and an increase in interest rates.
Liquidity and Capital Resources
During the quarter ended June 30, 2000 the Company entered into a joint
venture with Joe Matza, President of Las Palmas Productions, forming a new
company, Composite Image Systems, LLC. This new entity will provide digital
visual effects and graphic services to the motion picture film and television
industry. In addition to sharing equipment, personnel, technical expertise and
industry knowledge the Company has certain financial commitments to the joint
venture. The Company has agreed to provide working capital to the joint venture
as needed up to $500,000 and to either lease the entity equipment or guarantee
the financing of equipment purchases up to $865,000. The agreement also provides
that the Company will receive preferred distributions until the working capital
the Company contributed is repaid.
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 $2,265,000 at June 30,
2000. It is payable in monthly installments of $81,000 plus interest at prime
plus 1.0% amortizing through August 3, 2003. Principal payments are not required
in June, July or August. The revolving loan had an outstanding balance of $0 at
June 30, 2000. The revolving loan bears interest at prime plus 1.0%, which is
payable monthly. The loan agreement contains automatic renewal provisions for
successive terms of two years thereafter unless terminated as of August 3, 2001
or as of the end of any renewal term by either party by giving the other party
at least 60 day written notice.
During the year ended December 31, 1999, the Company entered into
capital lease obligations of approximately $7,000,000 with various lenders in
connection with the acquisition of equipment. The capital leases are for terms
of up to 60 months, at fixed interest rates ranging from 8% to 9%. The
obligations are secured by the equipment that was financed. The equipment was
acquired to expand the Company's capabilities and to support the increasing
demand for the Company's services. Projected cash flow and existing credit
arrangements are adequate to fund additional purchases and commitments.
The Company's principal source of funds is cash generated by
operations and traditional financing. On an annual basis, the Company
anticipates that existing cash balances, availability under existing loan
agreements and cash generated from operations will be sufficient to service
existing debt and to meet the Company's capital requirements for fiscal 2000.
Seasonality and Variation of Quarterly Results
The Company's business is subject to substantial quarterly variations
as a result of seasonality, which the Company believes is typical of the
television post-production industry. Historically, revenues and net income have
been highest during the first and fourth quarters, when the production of
television programs and consequently the demand for the Company's services is at
its highest. Revenues have been substantially lower during the second and third
quarters, when the Company historically has incurred operating losses.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Derivative Instruments. The Company does not invest, and during
the six months ended June 30, 2000 did not invest, in market risk sensitive
instruments.
Market Risk. The Company's market risk exposure with respect to
financial instruments is to changes in the "prime rate" in the United States.
The Company had borrowings of $2,265,000 at June 30, 2000 under a term loan
(discussed below) 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 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on June 28, 2000,
the following individuals were elected to the Board of Directors with each such
individual receiving 6,897,267 votes in favor of his election to the Board of
Directors. The number of votes withheld for each director was 20,440.
Emory M. Cohen
Thomas D. Gordon
Craig A. Jacobson
James R. Parks
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
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: August 7, 2000 /s/James R. Parks
-----------------
James R. Parks
Chief Executive Officer
Dated: August 7, 2000 /s/Robert McClain
-----------------
Robert McClain
Chief Financial Officer
(Principal Financial and Accounting Officer)