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, 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 July 31, 2001 was 7,178,595 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)
June 30, December 31,
2001 2000
--------------- ----------------
Assets
Current Assets:
Cash and cash equivalents $ 6,832,365 $ 4,527,042
Receivables net of allowance for doubtful accounts 2,599,616 5,339,830
Other current assets 1,252,041 1,274,546
--------------- ----------------
Total Current Assets 10,684,022 11,141,418
Net property and equipment 17,819,071 18,457,816
Other assets 654,484 824,082
--------------- ----------------
Total Assets $ 29,157,577 $ 30,423,316
=============== ================
Liabilities and Stockholders' Equity
Current Liabilities:
Current installments of notes payable to bank and long-term debt $ 3,287,882 $ 3,489,618
Other current liabilities 1,846,121 1,797,369
--------------- ----------------
Total Current Liabilities 5,134,003 5,286,987
Notes payable to bank and long-term debt, less current installments 7,411,934 7,934,387
Stockholders' Equity:
Preferred stock, $.0001 par value. Authorized 3,500,000 shares; none issued
Common stock, $.0001 par value. Authorized 25,000,000 shares; issued and
outstanding 7,753,295 shares at June 30, 2001 and 7,751,295
at December 31, 2000. 775 775
Additional paid-in capital 19,936,596 19,936,156
Accumulated deficit (1,262,731) (2,734,989)
Treasury stock, at cost: 825,200 shares at June 30, 2001 (2,063,000) ---
--------------- ----------------
Net stockholders' equity 16,611,640 17,201,942
--------------- ----------------
Total Liabilities and Stockholders' Equity $ 29,157,577 $ 30,423,316
=============== ================
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,
---------------------------------- --------------------------------
2001 2000 2001 2000
--------------- --------------- -------------- --------------
Revenues $ 7,580,568 5,858,496 $ 17,507,758 15,104,235
Operating costs
Direct costs 4,855,102 4,411,294 10,654,412 9,762,725
Depreciation and amortization 1,105,222 1,009,780 2,103,455 1,948,892
--------------- --------------- -------------- --------------
Total operating costs 5,960,324 5,421,074 12,757,867 11,711,617
--------------- --------------- -------------- --------------
Gross profit 1,620,244 437,422 4,749,891 3,392,618
Selling, general and administrative
and other expenses 1,163,397 1,113,928 2,369,012 2,263,493
--------------- --------------- -------------- --------------
Income (loss) from operations 456,847 (676,506) 2,380,879 1,129,125
Interest expense 276,872 346,631 544,790 691,630
Other income 104,496 63,371 181,287 130,288
--------------- --------------- -------------- --------------
Income (loss) before income taxes 284,471 (959,766) 2,017,376 567,783
Income taxes (benefit) 183,709 (50,500) 545,118 25,900
--------------- --------------- -------------- --------------
Net income (loss) $ 100,762 (909,266) $ 1,472,258 541,883
=============== =============== ============== ==============
Income (loss) per share (basic) $ 0.01 (0.12) $ 0.19 0.07
--------------- --------------- -------------- --------------
Income (loss) per share (diluted) $ 0.01 (0.12) $ 0.19 0.07
--------------- --------------- -------------- --------------
Weighted average shares outstanding (basic) 7,476,895 7,721,193 7,614,095 7,720,093
=============== =============== ============== ==============
Weighted average shares outstanding (diluted) 7,666,804 7,721,193 7,791,593 8,107,291
=============== =============== ============== ==============
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,
---------------------------------
2001 2000
--------------- --------------
Cash flows from operating activities
Net income $ 1,472,258 $ 541,883
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,103,455 1,948,892
Gain on sale of property and equipment (24,800) (31,700)
Provision for doubtful accounts receivable 99,272 112,935
Change in assets and liabilities:
Receivables 2,640,941 2,678,125
Other current assets 192,103 62,130
Other current liabilities 48,752 (410,366)
Other -- (6,987)
--------------- --------------
Net cash provided by operating activities 6,531,981 4,894,912
Cash flows from investing activities:
Purchases of property and equipment (1,534,398) (637,103)
Proceeds from disposal of property and equipment 94,489 175,493
--------------- --------------
Net cash used in investing activities (1,439,909) (461,610)
Cash flows from financing activities:
Proceeds borrowed under notes payable to bank and long-term debt 2,600,599 806,825
Repayment of notes payable to bank and long-term debt (3,324,788) (2,921,664)
Proceeds from issuance of common stock 440 1,210
Purchase of treasury stock (2,063,000) --
--------------- --------------
Net cash used in financing activities (2,786,749) (2,113,629)
Net increase in cash and cash equivalents 2,305,323 2,319,673
Cash and cash equivalents at beginning of period 4,527,042 2,398,407
--------------- --------------
Cash and cash equivalents at end of period $ 6,832,365 $ 4,718,080
=============== ==============
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
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 June
30, 2001 and December 31, 2000; the results of operations for the three and six
month periods ended June 30, 2001 and 2000; and the statements of cash flows for
the six month periods ended June 30, 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 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) Net Income per Share
Net income per basic and diluted shares is based upon the weighted average
number of common shares outstanding. Basic net 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, 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 net income per share and diluted income per
share:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -------------------------------
2001 2000 2001 2000
------------- ------------ ------------- -------------
Net Income (Loss) $ 100,762 (909,266) $ 1,472,258 541,883
============= ============ ============= =============
Shares:
Weighted Average Common Shares 7,476,895 7,721,193 7,614,095 7,720,093
Dilutive Stock Options and Warrants 189,909 --- 177,498 387,198
------------- ------------ ------------- -------------
Dilutive Potential Common Shares 7,666,804 7,721,193 7,791,593 8,107,291
============= ============ ============= =============
Net Income Per Share:
Basic $ 0.01 (0.12) $ 0.19 0.07
Diluted $ 0.01 (0.12) $ 0.19 0.07
(3) Income Taxes
For the six months ended June 30, 2001, federal income tax expense of
$363,000 and state income tax expense of $182,000 was recognized after the
application of net operating loss carry forwards. Income tax expense for the six
months ended June 30, 2001 was computed using the estimated effective tax rate
to apply for all of 2001 after considering the impact of net operating loss
carry forwards and tax credits. The rate is subject to ongoing review and
evaluation by management. The Company may change the estimated effective tax
rate in the third quarter of 2001.
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, 2001 increased to $17,508,000
from $15,104,000 for the same year-ago period, an increase of $2,404,000 or
15.9%. The increase in revenues is attributable to increased demand for the
Company's services with a significant increase in demand for digital compression
services. The increase in revenues was partially offset by a decrease in
revenues of $140,000 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 $104,000 from laser disc services.
Revenues for the quarter ended June 30, 2001 increased to $7,581,000 from
$5,858,000 for the same year-ago period, an increase of $1,723,000 or 29.4%. The
increase in revenues is attributable to increased demand for the Company's
services. The increase in revenues was partially offset by a decrease in
revenues of $54,000 from laser disc services.
Operating costs for the six months ended June 30, 2001 were $12,758,000
versus $11,712,000 for the year-ago period, an increase of $1,046,000 or 8.9%.
The increase in operating costs is primarily the result of an increase in labor
cost of $438,000, an increase in depreciation of $155,000, an increase in
rawstock cost of $138,000 and an increase in outside services of $112,000. The
increase in operating costs was partially offset by a decrease in bad debt
expense. Higher labor costs were the result of compensation increases and
increased hours worked, as a result of increased sales. The increase in
depreciation is due to equipment purchases in prior years for business
expansion. Tape stock increased as the result of increased sales. The increase
in outside services is primarily due to the cost of digital transmission of work
performed for customers located in remote locations. Total operating costs,
including depreciation, as a percentage of revenues for the six months ended
June 30, 2001 were 72.9% compared with 77.5% for the same year-ago period.
Operating costs for the quarter ended June 30, 2001 were $5,960,000 versus
$5,421,000 for the year-ago period, an increase of $539,000 or 9.9%. The
increase in operating costs was primarily the result of an increase in labor
costs of $267,000 and an increase in depreciation of $95,000. Operating costs
increased in most areas due to higher revenues. Higher labor costs were the
result of more hours worked, as a result of increased sales. The increase in
depreciation is due to equipment purchases in prior years for business
expansion. Total operating costs, including depreciation, as a percentage of
revenues for the three months ended June 30, 2001 were 78.6% compared with 92.5%
for the same year-ago period.
For the six months ended June 30, 2001, the Company recorded a gross profit
of $4,750,000 compared with $3,393,000 for the same year-ago period, an increase
of $1,357,000 or 40.0%. The increase in gross profit is the result of fixed cost
leveraged over the increase in revenues, discussed above.
For the quarter ended June 30, 2001 the Company recorded a gross profit of
$1,620,000 compared to a gross profit of $437,000 for the same year-ago period,
an increase of $1,183,000 or 270.4%. The increase in gross profit is the result
of the significant increase in revenues, explained above without a proportionate
increase in operating costs. Revenues increased 29.4% while operating costs
increased 9.9% as compared to the same year-ago period.
Selling, general and administrative ("SG&A") expenses for the six months
ended June 30, 2001 was $2,369,000 compared to $2,263,000 during the same
year-ago period, an increase of $106,000 or 4.7%. The most significant increase
in SG&A was in professional services. The increase was partially offset by
reductions in tax and licenses and other expenses. The increase in professional
services is due to an increase in investor advisory services, legal fees and
consulting fees for Internet application.
SG&A for the quarter ended June 30, 2001 was $1,163,000 compared to
$1,114,000 during the same year-ago period, an increase of $49,000 or 4.4%. The
increase in SG&A was primarily due to an increase in professional services of
$114,000 and an increase in labor cost of $33,000. The increase was partially
offset by reductions in tax and licenses and other expenses. The increase in
professional services is due to investor advisory services, legal fees and
consulting fees for Internet application. The increase in labor cost is due to
compensation increases.
Interest expense for the six months ended June 30, 2001 was $545,000
compared to $692,000 for the same year-ago period, a decrease of $147,000 or
21.2%. The decrease in interest expense is a result of lower interest rates and
a reduction of long-term debt.
Interest expense for the quarter ended June 30, 2001 was $277,000 compared
to $347,000 for the same year-ago period, a decrease of $70,000 or 20.1%. The
decrease in interest expense is a result of lower interest rates and a reduction
of long-term debt.
Other income for the six months ended June 30, 2001 was $181,000 compared
to $130,000 for the same year-ago period, an increase of $51,000 or 39.1%. Other
income is primarily interest income. The increase in other income is the result
of higher cash balances, which earned greater interest income.
Other income for the quarter ended June 30, 2001 was $104,000 compared to
$63,000 for the same year-ago period, an increase of $41,000 or 64.9%. Other
income is primarily interest income. The increase in other income is the result
of higher cash balances, which earned greater interest income.
Liquidity and Capital Resources
During the quarter ended June 30, 2001, the Company and its subsidiaries
entered into a non-asset based credit facility with Merrill Lynch Business
Financial Services. The maximum credit under the agreement is $8 million. The
loan agreement provides for borrowings of up to $6.0 million under a revolving
loan and a $2.0 million equipment term loan. There was no outstanding balance of
the revolving loan at June 30, 2001. The equipment loan had an outstanding
balance of $1,601,000 at June 30, 2001. Borrowings under the equipment term loan
were used to pay off debt under a loan agreement with The CIT Group. The
revolving loan and the equipment term loan are payable monthly and bear interest
at the 30-day dealer commercial paper rate plus 2.2%. The revolving loan is for
a one-year term and can be renewed annually. The equipment term loan is for a
five-year term.
As of June 30, 2001 the Company had outstanding equipment loans and capital
lease obligations of approximately $10.7 million with various lenders (including
the equipment term loan discussed above) 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 12.75% and one equipment term loan with a
variable interest rate discussed above. 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.
During the quarter ended June 30, 2001, the Company purchased 825,200
shares of its common stock in a private transaction for $2,063,000.
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.
Other Matters
On July 9, 2001, the Company entered into an agreement with its joint
venture partner in Composite Image Systems, LLC ("CIS"), to sell its interest in
CIS to its joint venture partner. Under the terms of the agreement, the Company
transferred to its joint venture partner the Company's 50% interest in CIS and
certain equipment previously leased to CIS in exchange for a cash payment of
$575,000. CIS will remain obligated on certain equipment leases, which currently
have a principal obligation of approximately $400,000. The Company has given
corporate guarantees regarding those leases, and CIS and its joint venture
partner have agreed to indemnify the Company up to the amount of the principal
obligation for any claims that might arise under the guarantees should CIS
default on the equipment leases. The transaction net of related cost and
expenses should yield a pre-tax gain of approximately $90,000 in the quarter
ending September 30, 2001.
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. The Company historically has incurred operating losses during the
second quarter.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Derivative Instruments. The Company does not invest, and during the six
months ended June 30, 2001 did not invest, in market risk sensitive instruments.
Market Risk. The Company's market risk exposure with respect to financial
instruments is subject to changes in the "30-day dealer commercial paper" rate
in the United States. The Company had borrowings of $1,601,000 at June 30, 2001
under a term loan (discussed above) and may borrow up to $6.0 million under a
revolving loan. Amounts outstanding under the term loan and revolving credit
facility bear interest at the 30-day dealer commercial paper rate plus 2.2%.
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 15, 2001,
the following individuals were elected to the Company's Board of Directors:
Votes For Votes Withheld
Emory M. Cohen 7,132,465 11,091
Thomas D. Gordon 7,127,615 15,941
Craig A. Jacobson 7,129,515 14,081
David C. Merritt 7,130,515 13,041
James R. Parks 7,121,428 22,128
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.9 Merrill Lynch Business Financial Services Credit Agreements
dated June 5, 2001.
(b) Reports on Form 8-K
Filed June 22, 2001 reporting the repurchase of shares of the
Company's common stock held by Digital Creative Development
Corporation.
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, 2001 /s/ James R. Parks
James R.Parks
Chief Executive Officer
Dated: August 7, 2001 /s/Robert McClain
Robert McClain
Chief Financial Officer
(Principal Financial
and Accounting Officer)