UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 0-12252
PATHE COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-2624802
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o The Law Offices of Fredric S. Newman
10 East 40th Street
New York, New York 10016
(Address of principal executive offices)
(Zip Code)
(212) 689-8808
(Registrant's telephone number, including area code)
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
As of November 11, 1996 there were 116,746,810 shares of common stock, par
value $.01 per share, of the registrant outstanding.
Page 1 of 17 Pages
Exhibit Index on Page 15
PATHE COMMUNICATIONS CORPORATION
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets.............................. 3
Condensed Statements of Operations.................... 4
Condensed Statements of Cash Flows.................... 6
Notes to Condensed Financial Statements............... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................... 14
Item 6. Exhibits and Reports on Form 8-K................ 14
-2-
PATHE COMMUNICATIONS CORPORATION
CONDENSED BALANCE SHEETS
(in thousands)
September 30, December 31,
1996 1995
(unaudited)
ASSETS:
Cash and cash equivalents.......... $ 288 $ 831
Accounts and notes receivable...... - 118
Other assets....................... 388 489
$ 676 $ 1,438
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Liabilities:
Accounts payable and accrued
liabilities...................... $ 94,138 $ 80,823
Matured debt payable............... 15,895 14,599
Bank and other debt................ 179,206 179,206
Other liabilities.................. 558 559
Subordinated debt.................. 30,587 31,234
Total liabilities.................. 320,384 306,421
Stockholders' Deficit:
Preferred stock - $.01 par value,
authorized 200,000,000 shares,
none outstanding................. - -
Common stock - $.01 par value,
authorized, 200,000,000 shares;
issued and outstanding,
116,746,810 shares
in 1996 and 1995................. 1,167 1,167
Additional paid-in capital......... 906,808 906,808
Accumulated deficit................ (1,227,683) (1,212,958)
Total stockholders' deficit........ (319,708) (304,983)
$ 676 $ 1,438
The accompanying Notes to Condensed Financial Statements are an integral part of
these statements.
-3-
PATHE COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended
September 30,
1996 1995
General corporate administration
expenses......................... $ 107 $ 135
Operating loss..................... (107) (135)
Other income (expenses):
Interest expense, net............ (4,827) (4,860)
Loss before income taxes........... (4,934) (4,995)
Provision for income taxes......... - -
Net loss........................... $ (4,934) $ (4,995)
Net loss per common share.......... $ (0.04) $ (0.04)
The accompanying Notes to Condensed Financial Statements are an integral part of
these statements.
-4-
PATHE COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Nine Months Ended
September 30,
1996 1995
General corporate administration
expenses......................... $ 360 $ 819
Operating loss..................... (360) (819)
Other income (expenses):
Interest expense, net............ (14,365) (14,645)
Loss before income taxes........... (14,725) (15,464)
Provision for income taxes......... - -
Net loss........................... $(14,725) $(15,464)
Net loss per common share.......... $ (0.13) $ (0.13)
The accompanying Notes to Condensed Financial Statements are an integral part of
these statements.
-5-
PATHE COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
1996 1995
Net cash provided by (used in)
operating activities............. $ (543) $ 1,268
Financing activities:
Net additions to borrowed funds.. - -
Cash provided by financing
activities....................... - -
Increase (decrease) in cash from
operating and financing
activities....................... (543) 1,268
Beginning balance - cash and cash
equivalents...................... 831 44
Ending balance - cash and cash
equivalents...................... $ 288 $ 1,312
The accompanying Notes to Condensed Financial Statements are an integral part of
these statements.
-6-
PATHE COMMUNICATIONS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Pathe Communications Corporation ("Pathe" or the "Company") has no operating
assets or sources of income and insufficient cash on hand to meet operating
expenses and interest payments coming due in April 1997. In addition, all of
the Company's bank indebtedness (See Note 2.) is currently due and payable and
enforcement of payment of such bank debt would constitute an event of default
under the Company's subordinated debt indentures, which could accelerate the
maturity of the Company's subordinated debt at face value.
The Company has been dependent on the day-to-day financial support and
forbearance of Credit Lyonnais Bank Nederland N.V. ("CLBN"), which also controls
the voting rights with respect to approximately 97% of the Company's common
stock. The Company has recently been informed that the stock of CLBN has been
sold by CLBN's parent, Credit Lyonnais, S.A., to Generale Bank N.V. As
previously reported, in May of 1992 CLBN acquired the stock of Metro-Goldwyn-
Mayer Inc., the Company's former operating subsidiary, in a foreclosure
proceeding. The Company has recently been informed that CLBN has sold that
stock to an unrelated third party.
CLBN has provided no commitment to the Company to continue making funds
available to the Company. All of the conditions mentioned above raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
The Company is a defendant in lawsuits claiming significant compensatory and
punitive damages (See Note 4.). The ultimate outcome of this litigation cannot
presently be determined. Accordingly, provision for the ultimate liability that
may result upon adjudication has not been recognized in the accompanying
financial statements.
The accompanying unaudited condensed financial statements should be read in
conjunction with the audited financial statements included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
NOTE 2 - BANK AND OTHER DEBT
The Company's bank and other debt, all of which is currently payable, is
summarized as follows (in thousands):
September 30, December 31,
1996 1995
(unaudited)
CLBN credit........................ $ 29,206 $ 29,206
Sealion note payable............... 150,000 150,000
$179,206 $179,206
-7-
CLBN Credit. Under a credit arrangement the Company has had with CLBN, the
Company has in the past borrowed funds from CLBN as needed to meet operating
expenses. The last such borrowing was in November of 1994. All such borrowings
were made under form of demand promissory notes bearing interest at two
percentage points above LIBOR. CLBN has made no commitment to advance any funds
to the Company in the future and, as noted above, the ownership and control of
CLBN has changed since the last such advance.
Sealion Note Payable. The Company is currently in default on a loan of
$150,000,000 borrowed from Sealion Corporation N.V. ("Sealion"), a company
affiliated with SASEA Holding S.A. ("SASEA") and with prior management of the
Company, the proceeds of which were lent to Melia International N.V. ("Melia"),
the Company's major stockholder. Sealion has assigned, as collateral security,
its receivable from the Company to Credit Lyonnais S.A., the parent of CLBN.
The Company's obligation is guaranteed by Melia and collateralized by
approximately 51% of the Company's outstanding stock. The obligation, which has
been due and payable as to principal since 1992, bears interest at two
percentage points above LIBOR.
NOTE 3 - RELATED PARTY TRANSACTIONS
CLBN has provided the Company with a credit facility and holds as collateral
security the Sealion note payable (See Note 2.). Interest in the aggregate
amount of approximately $3,573,000 and $10,461,000 was charged on these two
borrowings during the quarter and nine months ended September 30, 1996,
respectively.
In addition, as of September 30, 1996, CLBN was the holder of $29,595,000 in
principal amount of subordinated debentures issued by the Company. As the
Company has no operating assets or significant sources of income, CLBN has in
the past agreed to forgo its receipt of interest on the debentures it holds (See
Note 2.).
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Litigation. The Company is subject to a consent decree (the "Consent Decree")
entered in the United States District Court for the Central District of
California in a Securities and Exchange Commission civil action commenced
against the Company on November 19, 1987, entitled Securities and Exchange
Commission v. The Cannon Group. Inc. et al., Case No. 87-07590. This proceeding
against the Company and certain of its former directors and officers alleged,
among other things, violations or aiding and abetting of violations of the anti-
fraud, reporting, proxy, record keeping and internal controls provisions of the
federal securities laws. Without admitting or denying the allegations in the
Commission's complaint, the Company and certain individuals settled the action
and consented to the entry of a final judgment enjoining them from violating the
aforementioned provisions of the federal securities laws.
The Consent Decree required the Company to appoint an independent person to
examine transactions between the Company and related parties for the period
January 1, 1984 through December 31, 1986. The independent person is required
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to deliver a report to the Company's Board of Directors regarding such
transactions together with recommendations regarding what action the Board
should take as a result of the examination. The Company appointed a law firm as
the independent person. In November 1991, the independent person resigned
without having delivered a report to the Board of Directors. In its resignation
letter, the independent person stated it had been unable to complete their
examination because of the Company's failure to pay the independent person's
fees and because certain members of the former management of the Company had
failed to cooperate in the examination.
Current management also believes that the Company under prior management may
have violated other provisions of the Consent Decree. Violations of the Consent
Decree could result in further proceedings by the Commission. If the Company
were found to have violated the Consent Decree, the Company could be held in
contempt of court and could be subjected to substantial penalties. The Company
has informed the Commission of its concerns regarding compliance with the
Consent Decree and is cooperating with the Commission in its review of this
matter. While no assurances can be given, management believes that any punitive
measures which may be imposed as a result of violations of the Consent Decree
would be imposed upon those persons responsible for such violations (as opposed
to the Company's current management) and would not have a material adverse
effect upon the Company.
The Commission concluded an investigation into certain transactions effected by
prior management of the Company, and the Commission has advised the Company that
it will not take action against the Company or its present management. The
Company cooperated fully with the Commission in its investigation. Finally, the
Consent Decree imposed upon the Company certain current disclosure requirements,
including an updated report of transactions with Video Medien Pool Productions
and Vertriebs GmbH. The Company's current management has no knowledge of these
transactions and, to the extent that current reporting is still required, the
Company may be in default of its obligations under the Consent Decree. This
matter has been discussed with the Commission staff.
On January 22, 1991, Century West Financial Corporation ("Century West") filed a
complaint in Los Angeles Superior Court against the Company, Renta Properties,
Inc. and others for breach of contract, breach of third party beneficiary
contract, bad faith denial of contract, breach of the implied covenant of good
faith and fair dealing, and tortious interference with prospective economic
advantage. Century West alleges that it acted as broker for the sale of 6420
Wilshire Boulevard and is owed a commission. Century West seeks compensatory
damages in the amount of $470,000, interest thereon and punitive damages. A
Third Amended Complaint was filed in this action on January 14, 1994. Cross-
complaints have been filed against the Company seeking damages in excess of
$1,000,000 plus unspecified punitive damages. The Company has entered into a
settlement of all claims with the original plaintiffs in this action at a cost
to the Company of approximately $13,000. The Court sustained a demurrer by the
Company to all causes of action against it in relation to the cross-complaint,
without leave to amend. In September, 1995, the Court entered a judgment in
favor of the defendants, including the Company, and in January, 1996, the
Company and MGM were awarded attorneys' fees and costs in the amount of
$416,727. The cross-complainants are appealing this action. The Company intends
vigorously to oppose the appeal and to attempt to collect the attorneys' fees,
but there can be no assurance it will be able to do so or, if so, when.
-9-
On September 25, 1991, Century Insurance Ltd. ("Century") filed a complaint in
Superior Court against the Company, MGM, Melia, Comfinance S.A. ("Comfinance"),
CLBN and Mr. Parretti alleging, among other things, breach of contract, fraud,
constructive fraud, conversion and conspiracy. The claims arise out of certain
defendants' failure to pay a purported $1.75 million premium in connection with
plaintiff's purported issuance of a completion guarantee bond in connection with
the financing of the acquisition of MGM by the Company in 1990 and alleged
unpaid premiums in connection therewith. The plaintiff seeks $34,200,000 in
alleged management fees on three purported insurance investment bonds and
declaratory relief. MGM was voluntarily dismissed from the action on January 3,
1992. The plaintiff served a second amended complaint on February 3, 1992. In
addition, on December 6, 1991, this case was consolidated with an earlier
declaratory relief suit filed by CLBN against Century. The Company was not a
party to this earlier suit. On February 3, 1993, the court dismissed with
prejudice Century's complaint against the Company and all of the other
defendants, for failure to comply with discovery orders. On July 14, 1993,
Century moved to vacate the judgment in the Company's and other defendants'
favor, which motion was denied. Century filed a notice of appeal of denial of
its motion to vacate. On August 8, 1996 the orders denying Century's motion to
vacate the judgment were affirmed.
On January 27, 1992, Linda Carter filed an application for award for employer
violation of Section 132(a) of the Labor Code before the Workers' Compensation
Appeals Board of the State of California against the Company and MGM seeking
reinstatement of employment, back wages at approximately $21,000 per year plus
benefits, and costs of suit. The application alleges Ms. Carter was laid off on
March 4, 1991, in retaliation for filing a workers' compensation claim. The
Company is vigorously defending this action.
On April 16, 1993, the Company filed a bankruptcy petition against Melia with
the Bankruptcy Chamber of the Amsterdam District Court. This petition was
joined by the Dutch tax authorities, Scotti International N.V., Cannon Cinema
B.V. and CLBN. At a hearing on April 27, 1993, the Court found that Melia had
ceased to pay its debts and declared Melia officially bankrupt. The Court
appointed Mr. R.W. De Ruuk as official receiver in the bankruptcy. The appeal
period under the governing Dutch Bankruptcy Code has lapsed. Mr. De Ruuk has
deposited three public reports with the Dutch authorities. It appears to the
Company from such reports that no material recovery benefiting it will be
forthcoming.
On March 30, 1994, Giancarlo Parretti, Valentina Parretti, Maria Cecconi and
Comfinance, S.A. filed suit in Los Angeles Superior Court against the Company
and numerous other defendants, including CLBN, CLBN's then parent company Credit
Lyonnais S.A., MGM and former officers and directors of the Company and of MGM.
Plaintiffs' complaint arises from alleged acts in connection with the Company's
merger with MGM in November 1990 and subsequent events by which plaintiffs lost
ownership and control of MGM and the Company. Plaintiffs assert causes of
action for violation of the Racketeer Influenced and Corrupt Organizations Act,
fraud, conspiracy to defraud, rescission, injunctive relief, spoliation of
evidence, malicious prosecution, breach of employment contract, intentional
interference with contract, intentional interference with prospective economic
advantage and indemnification. Plaintiffs also purport to bring derivative
claims on the Company's behalf for breach of fiduciary duty, constructive fraud
-10-
and waste of corporate assets. The Company believes that plaintiffs' claims are
largely barred because they were previously adjudicated in a Delaware court, but
the trial court denied defendants' motion for summary judgment. A trial date
had been set for May 13, 1996, but it has been adjourned until March 3, 1997.
The Company intends to defend this lawsuit vigorously.
On June 24, 1994, Ovidio Assonitis, a former employee of Cannon Pictures, Inc.,
together with a related corporation, filed a complaint against Cannon and the
Company arising out of the termination of his employment by Cannon and
challenging a settlement agreement he entered into. The Company was not served
with the complaint until November, 1994, and an answer was filed on December 8,
1994, in which the Company has denied plaintiffs' allegations. The parties have
reached a preliminary agreement to settle this case for $3,000 plus other non-
monetary consideration.
Demands for the advancement of legal fees and indemnification in the defense of
certain legal actions have been made by Giancarlo Parretti, Maria Cecconi and
Valentina Parretti and by Yoram Globus. The Company has rejected these demands.
In addition, there have been other claims for indemnification and/or the
advancement of expenses and legal fees which have been asserted from time to
time by former officers, directors and/or employees of the Company, and the
Company reviews each demand on a case by case basis.
NOTE 5 - SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid was approximately $254,000 and $388,000 during the nine-month
periods ended September 30, 1996 and 1995, respectively.
-11-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Company's
Condensed Financial Statements and the related notes thereto. References to
Notes refer to the notes to such statements.
General
The Company has no operating assets or sources of income. As of November 1,
1996, the Company had approximately $34,000 in cash, which amount is
insufficient to meet operating expenses as they become due and to make further
interest payments on the Company's subordinated debt (See Note 1 and "Liquidity
and Capital Resources".).
Results of Operations
The Company reported net losses for the quarters ended September 30, 1996 and
1995 of ($4,934,000) and ($4,995,000), or ($.04) and ($.04) per common share,
respectively, based on 116,747,000 weighted average common shares outstanding.
For the nine-month periods ended September 30, 1996 and 1995, the Company
reported net losses of ($14,725,000) and ($15,464,000), or ($.13) and ($.13) per
share, respectively.
General Corporate Administration Expenses
The decrease in general corporate administration expenses by approximately
$28,000, or 21%, for the quarter and $459,000, or 56%, for the nine-month period
arose primarily from a reduction in legal fees associated with pending
litigation during the respective periods.
Other Income (Expense)
The decrease in the net interest expense by approximately $33,000 for the
quarter and $280,000 for the nine-month period is due primarily to a decrease in
the applicable interest rates with respect to bank and other debt.
Liquidity and Capital Resources
The Company has since before May of 1993 been dependent on CLBN for the
advances needed to meet its on-going expenses. The last advance by CLBN to the
Company under its credit arrangement was in November of 1994 and the Company has
no information as to whether CLBN will provide any additional funds to the
Company in the future. In addition, the Company has no information as to the
effect of the sale of the stock of CLBN to Generale Bank, N.V. on the Company's
access to additional funds.
On October 15, 1996, the Company paid $254,000 in interest on the
subordinated debentures not owned by CLBN in the aggregate principal amount of
$3,994,000. In order to meet an accelerated redemption obligation under the
indentures governing the Company's subordinated debentures, the Company asked
-12-
CLBN to provide the Company with $1,374,000 in principal amount of one of such
debentures. If CLBN is unwilling to provide the Company with the debentures or
cash to meet its obligation, the Company will be in default with respect to the
indentures and the debentureholders will have the right to accelerate payment of
principal in the amount of $32,215,000 with respect to all debentures
outstanding. The indentures call for further redemption of a portion of such
debentures in April of 1997.
The credit extended by CLBN to date, the accrued interest on that credit
and the principal and interest otherwise payable on the subordinated debt held
by CLBN, all of which are currently due and payable, exceed $66,000,000.
Furthermore, principal and accrued interest on the Sealion loan, all of which
are currently due and payable, exceed $210,000,000. The Company has no
operating assets or other sources of income to provide payment for such amounts.
Furthermore, if either CLBN or Sealion were to enforce payment, such enforcement
would give rise to acceleration of the $32,215,000 in principal amount
outstanding with respect to the subordinated debentures.
As of November 1, 1996, the Company had approximately $34,000 in cash.
This amount, together with reasonably anticipated receipts, is insufficient to
meet operating expenses as they become due and to make interest payments due in
April 1997 on its subordinated debt. Whether the Company is able to meet such
operating expenses and interest payments will depend on the willingness of CLBN
to advance the funds to meet such obligations, and to forbear from enforcing
payment of amounts already due and payable. CLBN is under no obligation to the
Company and has not indicated any intention to advance additional funds to the
Company.
Commitments and Contingencies
The Company is a party to various lawsuits (See Note 4.). A significant adverse
judgment in one or more of the cases could have a material impact on the
Company's liquidity.
Impact of Interest Rates
Any significant increase in interest rates would have a substantial adverse
effect on the Company's financial position.
-13-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 4 regarding various material legal proceedings. Because of the
Company's financial condition and lack of operating income, a significant
adverse judgment in one or more of the cases described therein could have a
material effect on the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Computation of loss per common share.
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended
September 30, 1996.
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.
PATHE COMMUNICATIONS CORPORATION
Date: November 11, 1996 by /s/ Fredric S. Newman
Fredric S. Newman
President
(Principal Financial
and Accounting Officer)
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EXHIBIT INDEX
Exhibit Description Page No.
11 Computation of Loss per Common Share 16
27 Financial Data Schedule 17
-15-
Exhibit 11
PATHE COMMUNICATIONS CORPORATION
COMPUTATION OF LOSS PER COMMON SHARE
(in thousands, except per share data)
Quarter Ended
September 30,
1996 1995
Net loss........................... $ (4,934) $ (4,995)
Weighted average common shares
outstanding...................... 116,747 116,747
Net loss per common share.......... $ (0.04) $ (0.04)
Nine Months Ended
September 30,
1996 1995
Net loss........................... $(14,725) $(15,464)
Weighted average common shares
outstanding...................... 116,747 116,747
Net loss per common share.......... $ (0.13) $ (0.13)
-16-
[ARTICLE] 5
[LEGEND]
This Schedule contains summary financial information extracted from the
Condensed Financial Statements of Pathe Communications Corporation at
September 30, 1996 and from the period then ended and is qualified in its
entirety by reference to such Condensed Financial Statements.
[MULTIPLIER] 1,000
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-START] JAN-01-1996
[PERIOD-END] SEP-30-1996
[CASH] 288
[SECURITIES] 0
[RECEIVABLES] 0
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 288
[PP&E] 0
[DEPRECIATION] 0
[TOTAL-ASSETS] 676
[CURRENT-LIABILITIES] 289,797
[BONDS] 30,587
[COMMON] 1,167
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 0
[TOTAL-LIABILITY-AND-EQUITY] 676
[SALES] 0
[TOTAL-REVENUES] 0
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 360
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 14,365
[INCOME-PRETAX] (14,725)
[INCOME-TAX] 0
[INCOME-CONTINUING] (14,725)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (14,725)
[EPS-PRIMARY] (.13)
[EPS-DILUTED] (.13)