- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-QSB
-----------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File Number 0-25982
METRO DISPLAY ADVERTISING, INC.
(exact name of small business issuer as specified in its charter)
CALIFORNIA 33-0093323
(State of Incorporation) (IRS Employer Identification No.)
SUITE 100
15265 ALTON PARKWAY
IRVINE, CA 92618
(address of principal executive offices)
(714) 727-3333
(issuer's telephone number, including area code)
-------------------------------------------------------
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for each such shorter period that the
registrant was required to file such report), and (2) has been filing such
requirements for the past 90 days.
YES _X_ NO ___
Number of shares outstanding of each issuer's classes of common stock, as
of September 30, 1996: 906,364
- -----------------------------------------------------------------
This report contains 9 sequentially numbered pages.
METRO DISPLAY ADVERTISING, INC.
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995
Condensed Consolidated Statement of Operations
for the Three Months Ended September 30, 1996 and 1995
Condensed Consolidated Statement of Operations
for the Nine Months Ended September 30, 1996 and 1995
Condensed Consolidated Statement of Cash Flows
for the Nine Months Ended September 30, 1996 and 1995
Notes to the Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
PART I
FINANCIAL INFORMATION
Item 1, Financial Statements
METRO DISPLAY ADVERTISING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, Sept. 30,
1995 1996
------------ ------------
(unaudited)
CURRENT ASSETS
Cash ...................................................................... 225,524 134,200
Accounts receivable, net of allowance ..................................... 1,377,859 1,625,986
Prepaid expenses and other assets ......................................... 39,330 11,723
Deferred taxes - current portion .......................................... 235,000 235,000
------------ ------------
TOTAL CURRENT ASSETS .................................................. 1,877,713 2,006,909
PROPERTY AND EQUIPMENT, net ............................................... 6,766,441 6,427,195
OTHER ASSETS
Performance bond deposits ................................................. 694,722 731,222
Deferred taxes - less current portion ..................................... 2,924,000 2,924,000
Other assets .............................................................. 102,033 142,603
------------ ------------
TOTAL OTHER ASSETS .................................................... 3,720,755 3,797,825
------------ ------------
$ 12,364,909 $ 12,231,929
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt ......................................... 751,622 740,074
Accounts payable & accrued expenses ....................................... 1,187,760 1,507,108
Advanced payments ......................................................... 214,118 214,118
------------ ------------
TOTAL CURRENT LIABILITIES ............................................. 2,153,500 2,461,300
LONG-TERM DEBT, net of current portion .................................... 1,320,848 958,986
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock, 1,000,000 shares authorized, no par value,
no shares issued
Common stock, 5,000,000 shares authorized, no par value ................... 9,504,532 9,504,532
Accumulated Deficit ....................................................... (613,971) (692,889)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY ............................................ 8,890,561 8,811,643
------------ ------------
$ 12,364,909 $ 12,231,929
============ ============
See accompanying Notes to Condensed Financial Statements.
METRO DISPLAY ADVERTISING INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
Sept. 30,
----------------------------
1995 1996
----------- -----------
SALES ................................................................... $ 1,744,825 $ 2,786,539
COST OF SALES
City fees ........................................................... 387,238 710,397
Advertising commissions and expenses ............................... 412,710 745,418
Other costs ......................................................... 395,468 389,247
----------- -----------
TOTAL COST OF SALES ........................................... 1,195,416 1,845,062
GROSS PROFIT ........................................................ 549,409 941,477
----------- -----------
OPERATING EXPENSES
Sales and administrative ............................................. 313,204 382,232
Depreciation ......................................................... 235,329 240,447
Interest expense ..................................................... 64,539 34,352
Other expense (Income) .............................................. 1,276 (52,954)
----------- -----------
TOTAL OPERATING EXPENSES ....................................... 614,348 604,077
----------- -----------
NET INCOME (LOSS) BEFORE MINORITY INTEREST & TAX TAX BENEFIT ............ (64,939) 337,400
MINORITY INTEREST ....................................................... 8,747 -0-
NET INCOME (LOSS) BEFORE INCOME TAX ..................................... (56,192) 337,400
INCOME TAX .............................................................. (19,000) -0-
----------- -----------
NET INCOME (LOSS) ...................................................... $ (75,192) $ 337,400
=========== ===========
COMMON SHARES OUTSTANDING ............................................... 820,570 906,364
=========== ===========
NET INCOME (LOSS) PER SHARE ............................................. (.09) .37
=========== ===========
See accompanying Notes to Condensed Financial Statements.
METRO DISPLAY ADVERTISING INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Nine Months Ended
Sept. 30,
----------------------------
1995 1996
----------- -----------
SALES ................................................................... $ 5,437,504 $ 5,819,975
COST OF SALES
City fees .......................................................... 1,163,295 1,566,425
Advertising commissions & expenses ................................. 1,232,897 1,489,241
Other costs ........................................................ 1,076,231 1,152,817
----------- -----------
TOTAL COST OF SALES ......................................... 3,472,423 4,208,483
----------- -----------
GROSS PROFIT ............................................................ 1,965,081 1,611,492
----------- -----------
OPERATING EXPENSES
Sales and administrative ............................................. 892,609 1,014,621
Depreciation ......................................................... 706,047 714,840
Interest expense ..................................................... 122,963 105,223
Other expense (Income) .............................................. (45,083) (144,274)
----------- -----------
TOTAL OPERATING EXPENSES ....................................... 1,676,536 1,690,410
----------- -----------
NET INCOME (LOSS) BEFORE MINORITY INTEREST & TAX ........................ 288,545 (78,918)
MINORITY INTEREST ....................................................... (1,923) -0-
NET INCOME (LOSS) BEFORE INCOME TAX .................................... 286,622 (78,918)
INCOME TAX .............................................................. (135,000) -0-
----------- -----------
NET INCOME (LOSS) ...................................................... $ 151,622 $ (78,918)
=========== ===========
COMMON SHARES OUTSTANDING .............................................. 820,570 906,364
=========== ===========
NET INCOME (LOSS) PER SHARE ............................................. .18 (.09)
=========== ===========
See accompanying Notes to Condensed Financial Statements.
METRO DISPLAY ADVERTISING INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
Sept. 30
------------------------
1995 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) ................................................ $ 151,622 (78,918)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization ..................................... 705,662 714,840
Changes in operating assets and liabilities;
Accounts receivable ............................................. (262,859) (248,127)
Prepaid expenses ................................................ 6,263 27,607
Deposits and other .............................................. 9,816 -0-
Deferred income tax ............................................. (130,000) -0-
Accounts payable and accrued expenses ........................... (138,396) 344,348
Advanced payments ............................................... (59,868) -0-
Income tax payable .............................................. 265,000 -0-
Minority interest ............................................... 1,923 -0-
Loss on sale of assets .......................................... -0- (20,916)
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES ................................................ 549,163 738,834
CASH FLOWS FROM INVESTING ACTIVITIES
Other long term assets ............................................ (668) (40,570)
Purchase of property and equipment ................................ (199,114) (354,678)
Performance bond deposits ......................................... (43,500) (36,500)
--------- ---------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES ..................................... (243,282) (431,748)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal reductions of long-term debt ............................ (770,175) (398,410)
Issuance of long term debt ........................................ 360,000 -0-
--------- ---------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES .................................... (410,175) (398,410)
NET INCREASE (DECREASE) IN CASH ........................................ (104,294) (91,324)
Beginning of period .............................................. 121,268 225,524
--------- ---------
CASH, End of period .................................................... $ 16,974 $ 134,200
========= =========
See accompanying Notes to Condensed Financial Statements.
METRO DISPLAY ADVERTISING, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Introduction
The accompanying condensed consolidated financial statements of Metro
Display Advertising, Inc. (the "Company") have been prepared without audit
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the consolidated financial statements and related footnotes
included in the Company's latest Annual Report on Form 10-SB. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company as of
September 30, 1996, and the statements of its operation and its cash flows for
the nine month periods ended September 30, 1996 and 1995 have been included. The
results of operation for interim periods are not necessarily indicative of the
results which may be realized for the full year.
Item 2. Management's Discussion and Analysis of Plan of Operations
GENERAL
From January 22, 1992 until January 7, 1994, Metro Display Advertising,
Inc., a California Corporation (the "Company"), was in bankruptcy. Since its
bankruptcy proceedings, the Company has primarily been in the business of
leasing advertising space on panels located in its bus stop shelters. The
Company's shelters are located in both Northern and Southern California. In
addition, the Company operates in Clark County, Nevada, and the City of Las
Vegas, Nevada through Bustop Shelters of Nevada (BSON), a Nevada Corporation and
a fully owned subsidiary.
During the fiscal years ended December 31,1994 and 1995, the Company made
the transition from a company operating under the bankruptcy court in prior
years, to a company operating under a revised business plan. The Company's
primary focus was on increasing sales and occupancy rates, reducing overhead,
and continuing scheduled payments to pre-bankruptcy creditors in conformance
with the bankruptcy Plan of Reorganization. The Company's objectives for fiscal
year 1996 remain dedicated to this business plan in the belief that this course,
in the long term, will increase our geographic markets and related revenues and
profits.
Comparison of nine-months ended September 30, 1995 and September 30, 1996.
Sales for the nine month period ended September 30, 1996 (the "Current
Period") increased by $382,471, or 7%, over sales from the nine month period
ended September 30, 1995 (the "Prior Period). The increase in sales is
attributable to the intensive marketing campaign instituted in the latter part
of the first quarter to offset the negative affect the ongoing litigation with
the City of Victorville has had on the advertising market. The company is
hopeful of continued improvement in sales for the remaining quarter of the year
due to this intensive marketing campaign.
Cost of sales for the current period increased by $736,060, or 21.2% over
the prior period. The increase is primarily due to increases in City fees,
representing a varying distribution of sales,increases in sales commissions and
expenses, and increases in other costs. Other costs include the cost of
installing and maintaining shelters (including repairs, license fees and
property taxes), and higher costs related to the intensive marketing campaign.
The company continues to upgrade its shelters in conjunction with its ongoing
efforts to raise shelter occupancy and advertising rates.
7
The company's gross margin percentages have decreased from 36.1% in the
prior period to 27.7% in the current period. The principal reason for this
decrease is the 34.7% increase in city fees and commission costs for the current
period as compared to the same period last year.
Operating expenses increased modestly in the current period by $13,874, or
.82%, from the prior period. The increases in sales and administrative expenses
and depreciation of $130,805 were partially offset by a decrease in interest
expense of $17,740 and an increase in other income of $99,191. Other income
consisted primarily of shelter sales to a competitor and the sale and leasing of
shelters to the movie industry. Increases in sales and administrative expenses
is attributed to the intensive marketing campaign and attorney's fees associated
with the ongoing Victorville litigation regarding the First Amendment issue.
As a result, the company is reporting a net loss before taxes of $78,918
for the current period compared to a net income before taxes of $288,545 in the
prior period. The company is increasing its emphasis on increased sales and
reducing costs in an effort to make up the shortfall incurred during the nine
month period ended September 30, 1996.
Comparison of three-months ended September 30,1995 and September 30, 1996.
Sales for the three-month quarter ended September 30, 1996, (the "Current
Quarter"), increased $1,041,714, or 59.7% over sales for the three-month period
ended September 30, 1995 (the "Prior Quarter"). The increase in sales is
attributable to the intensive marketing campaign initiated to offset the
negative affect that the Victorville litigation has stimulated in the
advertising market.
Cost of sales increased by $649,646 or 54.3% in the current quarter, in
comparison to the prior quarter. This is attributable to higher city fees and
commissions directly proportionate to sales. City fees have increased as a
percentage of sales from 22.2% in the prior quarter to 25.5% in the current
quarter due to the fixed costs associated with the additional municipal
contracts obtained through the current quarter.
The company's gross margin percentage increased from 31.5% in the prior
quarter to 33.8% in the current quarter. The increase in gross margin over the
prior quarter is primarily the result of the 59.7% increase in sales.
Operating expenses declined in the current quarter by $10,271, or 1.7%, in
comparison to the prior quarter. This decline is due to an increase in other
income by $54,230. Operating expenses are expected to remain flat during the
remaining quarter of the year in an effort to minimize expenses to offset any
seasonal decline in year end sales.
8
Net Income percentage before taxes increased from -3.2% in the prior
quarter to 13.5% in the current quarter; an increase of $433,592, or 771.6% in
comparison to the prior quarter. Increasing sales is the main reason for the
improvement in earnings before taxes.
Liquidity and Capital Resources
As of September 30, 1996, the Company's current liabilities exceeded its
current assets by $465,939. The Company's current ratio increased by 30.6% as
compared to the prior quarter. The increase is directly attributable to an
increase in sales of $382,471 during the nine months ended September 30, 1996.
The Company believes that it will be able to fund its current working capital
requirements from cash generated from operating activities and/or draws against
the credit line facility. The company reported a net cash provided from
operations of $673,234 for the nine months ended September 30, 1996. This is
primarily due to an increase in accounts payable by $319,318 during the period.
PART II
other information
Item 2. Legal Proceedings
On June 27, 1996, via an order issued by the United States District Court
of Northern California, Metro Display Advertising, Inc. became a 25% Shareholder
in a newly formed corporation, Bay Area Transit Shelters, with operations in
Northern California. The 25% ownership was in exchange for debt obligations to
Metro Display for cash and services rendered, as delineated in a Settlement Plan
approved by the court on June 20, 1996.
Metro Display, through an agreement with Bay Area Transit Shelters, will
operate and manage the affairs of the new corporation, expanding its operations
into this newly acquired advertising market .
Signature
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
METRO DISPLAY ADVERTISING, INC.
Dated November 8, 1996
/s/ Scott A. Kraft
----------------------------
Scott A. Kraft, President
and Chief Financial Officer
9