SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the Quarterly Period Ended March 31, 2001
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the Transition Period from ............... to ...............
Commission File Number 0-19407
LASER-PACIFIC MEDIA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3824617
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
809 N. Cahuenga Blvd.
Hollywood, California 90038
(323) 462-6266
(Address, including zip code and telephone number, including area code of
principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares outstanding of each of the registrant's classes of common
stock, as of April 30, 2001 was 7,751,295 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 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)
March 31, December 31,
2001 2000
---------------- --------------
Assets
Current Assets:
Cash and cash equivalents $ 7,005,929 $ 4,527,042
Receivables net of allowance for doubtful accounts 5,016,030 5,339,830
Other current assets 1,342,350 1,274,546
---------------- --------------
Total Current Assets 13,364,309 11,141,418
Property and equipment, net 18,076,083 18,457,816
Other assets 840,745 824,082
---------------- --------------
Total Assets $ 32,281,137 $ 30,423,316
================ ==============
Liabilities and Stockholders' Equity
Current Liabilities:
Current installments of notes payable to bank and long-term debt $ 3,630,368 $ 3,489,618
Other current liabilities 2,488,309 1,797,369
---------------- --------------
Total Current Liabilities 6,118,677 5,286,987
Notes payable to bank and long-term debt, less current installments 7,589,023 7,934,387
Stockholders' equity:
Common stock, $.0001 par value. Authorized 25,000,000 shares;
issued and outstanding 7,751,295 shares at March 31, 2001 and
December 31, 2000. 775 775
Additional paid-in capital 19,936,156 19,936,156
Accumulated deficit (1,363,494) (2,734,989)
---------------- --------------
---------------- --------------
Net stockholders' equity 18,573,437 17,201,942
---------------- --------------
Total Liabilities and Stockholders' Equity $ 32,281,137 $ 30,423,316
================ ==============
See accompanying notes to condensed consolidated financial statements.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
-----------------------------------
2001 2000
--------------- ----------------
Revenues $ 9,927,190 $ 9,245,739
Operating costs
Direct costs 5,799,310 5,351,431
Depreciation 998,233 939,112
--------------- ----------------
Total operating costs 6,797,543 6,290,543
--------------- ----------------
Gross profit 3,129,647 2,955,196
Selling, general and administrative
and other expenses 1,205,615 1,149,565
--------------- ----------------
Income from operations 1,924,032 1,805,631
Interest expense 267,918 344,999
Other income 76,791 66,917
--------------- ----------------
Income before income taxes 1,732,905 1,527,549
Provision for income taxes 361,409 76,400
--------------- ----------------
Net income $ 1,371,496 $ 1,451,149
=============== ================
Net income per share (basic) $ 0.18 $ 0.19
=============== ================
Net income per share (diluted) $ 0.17 $ 0.18
=============== ================
Weighted average shares outstanding (basic) 7,751,295 7,718,993
=============== ================
Weighted average shares outstanding (diluted) 7,915,693 8,031,704
=============== ================
See accompanying notes to the condensed consolidated financial statements.
LASER-PACIFIC MEDIA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
------------------------------------------
2001 2000
------------------- -------------------
Cash flows from operating activities
Net income $ 1,371,496 $ 1,451,149
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 998,233 939,112
Gain on sale of property and equipment (4,800) (31,700)
Provision for doubtful accounts receivable 99,272 104,350
Change in assets and liabilities:
(Increase) decrease in:
Receivables 224,527 106,512
Other current assets (67,804) 8,432
Other assets (16,663) 57,422
Other current liabilities 690,940 197,586
------------------- -------------------
Net cash provided by operating activities 3,295,201 2,832,863
=================== ===================
Cash flows from investing activities:
Purchases of property and equipment (684,800) (479,444)
Net proceeds from disposal of property and equipment 73,100 31,700
------------------- -------------------
Net cash used in investing activities (611,700) (447,744)
=================== ===================
Cash flows from financing activities:
Net repayment of notes payable to bank and long-term debt (204,614) (746,842)
Proceeds from issuance of common stock --- 968
------------------- -------------------
Net cash used in financing activities (204,614) (745,874)
=================== ===================
Net increase in cash and cash equivalents 2,478,887 1,639,245
Cash and cash equivalents at beginning of period 4,527,042 2,398,407
------------------- -------------------
Cash and cash equivalents at end of period $ 7,005,929 $ 4,037,652
=================== ===================
Supplementary disclosure of cash flow information:
Cash paid during the period for interest $ 267,918 $ 344,999
=================== ===================
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
consolidated financial statements contain all adjustments (consisting of normal
recurring items) necessary to present fairly the financial position of
Laser-Pacific Media Corporation ("the Company") and its subsidiaries as of March
31, 2001 and December 31, 2000 and the results of operations and cash flows for
the three month periods ended March 31, 2001 and 2000. 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 are at their 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 share is based upon the weighted average
number of common shares outstanding. Basic income per share is computed as net
income divided by the weighted-average number of common shares outstanding for
the period. Diluted shares outstanding represents the total of common shares
outstanding as well as those options and warrants where the exercise price was
below the average closing stock price during the quarters ended March 31, 2001
and 2000. 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 March 31,
------------------------------------
2001 2000
---------------- ----------------
Net Income $ 1,371,496 $ 1,451,149
---------------- ----------------
Shares:
Weighted Average Common Shares 7,751,295 7,718,993
Impact of Dilutive Stock Options and Warrants 164,398 312,711
---------------- ----------------
Dilutive Weighted Average Common Shares 7,915,693 8,031,704
================ ================
Income Per Share:
Basic $ 0.18 $ 0.19
Diluted $ 0.17 $ 0.18
(3) Income Taxes
At March 31, 2001, federal income tax expense of $257,000 and state income
tax expense of $104,000 was recognized after the application of net operating
loss carry forwards. Income tax expense for the quarter ended March 31, 2001 was
computed using the estimated effective tax rate to apply for all of 2001 after
considering the impact of net operating loss carryforwards 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 quarter ended March 31, 2001 increased to $9,927,000 from
$9,246,000 for the same period last year, an increase of $681,000 or 7.4%. The
increase in revenues is attributable to an increased demand for the Company's
services with a significant increase in demand for digital compression services.
The increase in demand was partially offset by decreased revenue of $165,000
from film processing resulting from increased use by some customers of film
formats that require a lower volume of film processing and a decrease in
revenues of $50,000 from laser disc services.
Operating costs for the quarter ended March 31, 2001 were $6,798,000 versus
$6,291,000 for the same period last year, an increase of $507,000 or 8.1%. The
majority of operating costs increased in proportion to the increase in revenues.
There were significant increases in the following costs: labor costs $171,000,
outside services $90,000, tape stock $69,000, equipment rental $62,000 and
depreciation expense $59,000. The increase in labor cost is the result of
compensation increases and increased hours worked. The increase in outside
services is primarily the cost of digital transmission of work performed for
customers located in remote locations. Tape stock increased as the result of
price increases and the utilization of more expensive formats. The increase in
both depreciation and equipment rental are the result of non-recurring
adjustments made during the three months ended March 31, 2000 which
significantly reduced the cost in the prior year. Total operating costs,
including depreciation and amortization, as a percentage of revenues for the
three months ended March 31, 2001 were 68.5% compared with 68.0% for the same
year-ago period.
For the quarter ended March 31, 2001 the Company recorded a gross profit of
$3,130,000 compared to a gross profit of $2,955,000 for the same period last
year, an increase of $175,000 or 5.9%. The increase in gross profit is the
result of increased sales volume partially offset by increased operating costs,
which are discussed above. Gross profit for the quarter ended March 31, 2001, as
a percentage of revenues was 31.5% compared to 32.0% for the quarter ended March
31, 2000.
Selling, General and Administrative ("SG&A") expenses for the three months
ended March 31, 2001 were $1,206,000 as compared to $1,150,000 during the same
period last year, an increase of $56,000 or 4.9%. The increase in SG&A is
primarily attributable to an increase in advertising and promotion costs of
$30,000 and an increased legal and professional fees of $20,000 associated with
SEC filings and the shareholders rights plan.
Interest expense for the quarter ended March 31, 2001 was $268,000 compared
to $345,000 for the same period last year, a decrease of $77,000 or 22.3%. The
reduction in interest expense is a result of lower interest rates and a
reduction of long-term debt.
Income tax expense for the three months ended March 31, 2001 was $361,000
compared to $76,000 for the same period last year, an increase of $285,000 or
373.0%. The increase in income tax expense is due to a higher effective tax rate
resulting from the utilization of deferred tax benefits in prior years. Income
tax expense for the current year and future years will increase if the Company
remains profitable.
Liquidity and Capital Resources
The collective bargaining agreement between the Writers Guild of America
and the Alliance of Motion Picture and Television Producers (a multi-employer
bargaining group) expired on or about May 1, 2001. To date, a tentative
agreement has been reached by the Writers Guild and the Producers. The
three-year agreement must still be ratified by the members. If the agreement is
not ratified and a strike occurs, depending on the length of time, the Company's
cash flow and revenues could be adversely affected.
The collective bargaining agreement between the Screen Actors Guild and the
Alliance of Motion Picture and Television Producers is due to expire on or about
June 30, 2001. Negotiations to renew the agreement are underway as of May 2001.
There have been a number of public reports indicating that a strike by the
Screen Actors Guild is a possibility in 2001. A strike by the unions that
provide personnel essential to the production of motion pictures or television
programs could delay or halt the Company's ongoing post-production services to
those productions. Such a halt or delay, depending on the length of time, could
adversely affect the Company's cash flow and revenues.
The Company and its subsidiaries are operating under a loan agreement with
The CIT Group/Credit Finance that expires August 3, 2001. The maximum credit
under the agreement is $9 million. The loan agreement contains automatic renewal
provisions for successive terms of two years thereafter unless terminated as of
August 3, 2001 or as of the end of any renewal term by either party by giving
the other party at least 60 days written notice. The outstanding balance of all
borrowings under this agreement was $1,695,000 at March 31, 2001.
The Company has had discussions and received financing proposals from The
CIT Group/Credit Finance and other qualified lenders regarding increasing the
loan commitments available to the Company. The Company believes it will obtain
acceptable additional financing prior to the expiration of the current CIT
Group/Credit Finance loan agreement.
During the years ended December 31, 2000 and December 31, 1999 the Company
entered into capital lease obligations of approximately $2.1 million and $8.0
million respectively 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 7.5% to 9.75%. 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.
The Company's principal source of funds is cash generated by operations.
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 2001.
The possibility of the strikes discussed above may impact the Company's cash
flow.
Seasonality and Variation of Quarterly Results
The Company's business is subject to substantial quarterly variations as a
result of seasonality, which the Company believes is typical of the television
post-production industry. Historically, revenues and net income have been
highest during the first and fourth quarters, when the production of television
programs and consequently the demand for the Company's services is at its
highest. Historically, revenues have been substantially lower during the second
and third quarters.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Derivative Instruments. The Company does not invest, and during the quarter
ended March 31, 2001 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 $1,695,000 at March 31, 2001 under a term loan (discussed
above) and may borrow up to $3.6 million under a revolving loan. Amounts
outstanding under the term loan and revolving credit facility bear interest at
the bank's prime rate plus 1%.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(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: May 14, 2001 /s/ James R. Parks
--------------------
James R. Parks
Chief Executive Officer
Dated: May 14, 2001 /s/ Robert McClain
------------------
Robert McClain
Chief Financial Officer
(Principal Financial and Accounting Officer)