SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _______________
Commission File Number 1-11976
UNAPIX ENTERTAINMENT, INC.
(Exact name of small business issuer as
specified in charter)
Delaware 95-4404537
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification number)
500 Fifth Avenue
New York, NY 10110
(Address of principal executive offices)
212-575-7070
(Issuer's Telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 May 9, 1996 there were 5,222,000 shares of the Company's common stock
outstanding.
No Exhibits
UNAPIX ENTERTAINMENT, INC.
Consolidated Balance Sheet
(In thousands, except per share amounts)
March 31,
1996
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ASSETS
Cash and equivalents $ 1,216
Accounts receivable- trade, net of allowances of $893, including
related party receivables of $215 7,801
Film costs, net 13,166
Property and equipment, net 315
Deferred income taxes 78
Other assets 1,284
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Total Assets $ 23,860
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities :
Accounts payable and accrued expenses, including related party
payables of $59 $ 4,843
Film acquisition and royalty payable 3,573
Variable rate notes 2,794
Acquisition fund payable 827
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Total Liabilities $ 12,037
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Stockholders' Equity :
Common stock $.01 par value per share; 20,000 authorized; 4,973
shares issued and outstanding 49
Cumulative convertible series A 8% preferred stock, $.01 par
value per share; 3,000 authorized; 613 issued and
outstanding (aggregate liquidation preference of $1,875) 7
Additional paid-in capital 14,390
Notes receivable from equity sales (2,088)
Accumulated deficit (535)
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Total Stockholders' Equity $ 11,823
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Total Liabilities and Stockholders' Equity $ 23,860
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See accompanying notes to consolidated financial statements
2
UNAPIX ENTERTAINMENT, INC.
Consolidated Statements of Operations
(In thousands, except per share amounts)
For the Three Months Ended March 31
1996 1995
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Revenues:
Licensing and distribution $ 1,194 $ 1,293
Home video 4,038 2,903
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5,232 4,196
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Operating costs:
Licensing and distribution 760 772
Home video 2,560 2,083
General and administrative expenses 1,507 1,007
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4,827 3,862
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Income from operations 405 334
Interest income (expense) and financing expense, net (14) (12)
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Income before taxes $ 391 $ 322
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Income taxes:
Provision for income taxes 162 130
Benefit from net operating loss utilization -- (400)
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Total 162 (270)
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Net income $ 229 $ 592
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Net income per share (Note 5) $ .04 $ .12
======= =======
Average number of common shares and common equivalent
shares outstanding (Note 5) 4,971 6,561
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See accompanying notes to consolidated financial statements
3
UNAPIX ENTERTAINMENT, INC.
Consolidated Statements of Cash Flows
(In thousands)
For the Three Months Ended March 31
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 229 $ 592
Adjustments to reconcile net income to net cash used by operating
activities:
Amortization and depreciation 1,845 1,766
Deferred income taxes 152 (282)
Accretion of debentures discount 9 --
Loss on disposal of assets 2 --
Decrease (increase) in accounts receivable, net 587 (721)
Film cost expenditures (4,049) (1,264)
Increase in other assets (151) (169)
Increase (decrease) in accounts payable and
accrued expenses 91 (960)
Increase (decrease) in film acquisition and
royalties payable 553 (320)
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Total cash flows used by operating activities (732) (1,358)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (56) (18)
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Total cash flows used by investing activities (56) (18)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from warrant and option exercises -- 274
Private placement expenditures (24) (2)
Preferred stock dividend -- (32)
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Total cash flows used by financing activities $ (24) $ 240
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See accompanying notes to consolidated financial statements
4
UNAPIX ENTERTAINMENT, INC.
Consolidated Statements of Cash Flows (continued)
(In thousands)
For the Three Months Ended March 31
1996 1995
------- -------
NET DECREASE IN CASH AND EQUIVALENTS $ (812) $(1,136)
CASH AND EQUIVALENTS AT BEGINNING OF
PERIOD 2,028 2,270
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CASH AND EQUIVALENTS AT END OF PERIOD $ 1,216 $ 1,134
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SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Conversion of accrued liability to
acquisition fund payable 77 --
Conversion of debt to equity -- 17
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$ 77 $ 17
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 151 $ 18
======= =======
Cash paid for taxes $ 9 $ 11
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See accompanying notes to consolidated financial statements
5
UNAPIX ENTERTAINMENT, INC.
Notes to Consolidated Financial Statements
March 31, 1996
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Unapix
Entertainment, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month period
ended March 31, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Form 10-KSB for the year ended December 31, 1995.
2. Stock Dividend
In April 1996, the Company declared a special 5 percent stock dividend, payable
on May 6, 1996 to stockholders of record of its common stock on April 22, 1996.
The company issued 249,000 shares of common stock pursuant to the declared stock
dividend.
3. Film costs
The Company's film costs include:
March 31,
1996
------------
(In thousands)
Films released $ 26,863
Films completed but not released 2,137
Films in process 1,947
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30,947
Accumulated amortization (17,781)
--------
$ 13,166
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UNAPIX ENTERTAINMENT, INC.
Notes to Consolidated Financial Statements
March 31, 1996
4. Deferred income taxes
In the first quarter of 1996 there is a full provision for taxes on income. The
provision for income taxes of $270,000 for the first three months of 1995
reflects a deferred tax benefit of $400,000, attributable to the reduction of
the deferred tax allowance.
5. Net income (loss) per common share
Net income (loss) per common share ("EPS") is based upon the weighted average
number of common shares and common share equivalents outstanding during each
period.
For the quarter ended March 31, 1996, the weighted average shares consist of
common shares outstanding. This amount does not include the assumed conversion
of any warrants, options or other convertible securities as the impact of such
conversions on the EPS calculation would be immaterial.
For the quarter ended March 31, 1995, the earnings per share calculation is
based on the weighted average number of outstanding shares of common stock
during the period, including common equivalent shares applicable to the assumed
exercise of dilutive stock options and warrants.
Earnings per share was determined by dividing net income, as adjusted below, by
applicable shares outstanding (in thousands):
Three Months Ended March 31,
1996 1995
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Net income as reported $ 229 $ 592
Preferred stock dividends (37) (39)
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192 553
Interest, after taxes, accrued on proceeds from
assumed exercise of options and warrants -- 236
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Total income used for earnings per share $ 192 $ 789
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Weighted average number of common and
common equivalent shares 4,971 6,561
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UNAPIX ENTERTAINMENT, INC.
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Three Months Ended March 31, 1996 Compared with Three Months Ended
--------------
March 31, 1995
- --------------
Revenues for the three months ended March 31, 1996 increased by $1,036,000 or
25%, to $5,232,000 as compared to the same three month period in 1995. This
increase in revenues is primarily a result of the increase in home video
revenues of $1,135,000 or 39% to $4,038,000 due to the distribution of higher
quality films and the release of 6 films in the first quarter of 1996 as
compared to 5 films in the same period of 1995. In addition, the increase in
home video revenues is attributable to the 1995 start up of operations whereby
the Company markets sell-through products to retailers, mail-order companies,
mass merchants and distributors worldwide. In 1996, the revenues from these
sell-through operations totaled $787,000 as compared to $223,000 in 1995.
Management is expecting that improvements in revenues will continue throughout
1996.
Home video costs for the three months ended March 31,1996 increased by $477,000,
or 23%, to $2,560,000 as compared to the corresponding period in 1995. This
increase reflects increased royalty, amortization and other film expenses
associated with the higher levels of revenues described above.
General and administrative costs were $1,507,000 for the three months ended
March 31, 1996, as compared to $1,007,000 in the same period in 1995. This
increase is chiefly attributable to costs related to the infrastructure required
to support the Company's expansion and diversification. Included in these costs
are start-up costs related to the Company's new video sell-through operation,
which was started in the first quarter of 1995. These costs mainly consisted of
increased staffing and office costs to support the increased sales activity
described above.
The Company had income before taxes of $391,000 for the three months ended March
31, 1996 as compared to income before taxes of $322,000 for the corresponding
three month period in 1995. This $69,000 improvement in results is due to the
implementation of the Company's plan of expansion and diversification as well as
the acquisition of higher quality product. Management anticipates that as the
number of higher quality releases to the video rental market and the licensing
and distribution markets increases in 1996, the impact on operations should
continue to be favorable.
In the 1996 quarter there is a full provision for taxes on income. In 1995 there
was a net income tax benefit, as the $400,000 net operating loss benefit
recognized more than offset the quarterly tax provision of $130,000.
Liquidity and Capital Resources
For the three months ended March 31, 1996, the Company utilized cash for
operating activities of $732,000, primarily as a result of the $4,049,000
incurred in acquiring and promoting new properties for the home video rental and
the licensing and distribution markets. Net operating cash requirements were
primarily met by cash inflows from operations and cash on hand.
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UNAPIX ENTERTAINMENT, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources (continued):
In the normal course of business the Company makes certain guarantees to
producers and other third parties as to the minimum amount such parties will
receive from the Company's distribution of their products. The Company has
committed to pay film acquisition advances and guarantees of approximately
$1,800,000 as of March 31, 1996, which amounts are payable upon delivery of the
films. The Company also expects to incur significant additional costs relating
to its continued expansion. In order to meet its future funding needs the
Company will utilize cash on-hand, operating cash flows, its line of credit and
other financings, including the financing described below.
In May 1996, the Company commenced a private offering of Units, each consisting
of: (i) a $250,000 principal amount 10% Convertible Subordinated Note due June
30, 2003 convertible into the Company's common stock, par value $.01 per share
("Common Stock") at a price of $4.50 per share (a "Note"); and (ii) Warrants to
purchase 25,000 shares of the Common Stock, at an exercise price of $6.00 per
share ("Warrant"), expiring June 30, 2003. The Warrants and Notes are redeemable
by the Company under certain circumstances. The offering is for up to 12 Units
having an aggregate price of $3,000,000, however, the Company reserves the right
to sell 18 Units for a total offering of up to $4,500,000, in its sole
discretion. The Units and the securities comprising the Units are being offered
in a private placement and have not been registered under the Securities Act of
1933 and may not be offered or sold in the United States absent registration or
an applicable exemption from registration requirements. The shares of Common
Stock issuable upon exercise and conversion of the Notes and Warrants will have
certain registration rights. As of May 10, 1996, the Company had indication of
intent to purchase Units in excess of $1,500,000. There is no assurance that the
Company will be able to successfully complete the offering or the sale of such
Units.
The Company's credit facility with Atlantic Bank of New York (the "Bank")
provides for borrowings of up to $2,500,000. Loans are extended and required to
be repaid based upon the Company's outstanding accounts receivable and other
contractual rights to payment. Interest on the outstanding loan balance accrues
at a rate of 1.5% per annum in excess of the Bank's publicly announced benchmark
rate. The term of the facility expires on May 31, 1996, and may be terminated by
either party upon 60 days notice after such date. The Company is currently
negotiating an extention of the credit facility, which is expected to be
completed in the second quarter of 1996. The Bank may also terminate the
facility upon 60 days notice at any time throughout the term. Outsanding amounts
under the facility are secured by substantially all of the Company's assets. The
facility contains restrictive covenants that require minimum (i) tangible net
worth, (ii) liquidity and (iii) earnings to interest expense ratios. The
covenants prohibit the payment of cash dividends on common stock or a change in
control of the Company. The covenants also, among other things, limit the
Company's ratio of debt to net worth and the amount of loan proceeds which can
be utilized to acquire film rights or finance film productions. The Company has
not utilized the facility since its inception. The Company anticipates utilizing
the facility during the second quarter of 1996.
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UNAPIX ENTERTAINMENT, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources (continued):
The feature film and television licensing and distribution industries require
significant expenditures of funds to establish and expand a library of films and
programs from which revenues may be generated. The Company could be dependent
upon future financing to continue its long term plans of expansion and growth.
The Company anticipates that as its asset base grows it will secure an increased
working capital line of credit as well as explore other film acquisition
financing arrangements. It is also possible that the Company may have additional
debt or equity financing.
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UNAPIX ENTERTAINMENT, INC.
PART II - OTHER INFORMATION
Items 1 through 4 are not applicable.
Item 5. Other Information
In April 1996 the Company declared a 5% stock dividend on its outstanding shares
of common stock, $.01 par value per share ("Common Stock"). The record date for
the dividend was Monday, April 22, 1996 (the "Record Date"), and the payment
date was Monday, May 6, 1996. As a result of such dividend, each of the
Company's Common Stock purchase options and warrants that were outstanding on
the record date entitles the holder to purchase 1.05 shares of Common Stock for
the same exercise price that prior to the dividend entitled the holder to
purchase one share.
Among such adjustments to all of the Company's options and warrants, each Class
B Redeemable Common Stock Purchase Warrant, expiring June 22, 1998 (a "Class B
Warrant"), entitles the holder to purchase 1.05 shares of Common Stock for the
pre-dividend exercise price of $4.50 (effectively reducing the exercise price
per share to $4.28). If as a result of the adjustment a holder upon exercise is
entitled to receive a fractional interest in a share, the Company will purchase
such fractional share for a purchase price based upon the current value of the
Common Stock at the time of exercise.
In connection with the dividend, the market price that the Common Stock must
exceed in order for the Company to redeem the Class B Warrants has also been
proportionately reduced. Prior to the dividend, in order for the Company to
redeem the Class B Warrants, the closing high bid price of the Common Stock on
each of twenty (20) consecutive trading days (or such lesser number of days with
the consent of the underwriter from the Company's initial public offering, but
not less than ten (10) consecutive trading days) ending on the third business
day prior to the date on which notice of redemption is given must have been at
least $6.00 per share (the "Threshold Price"). Effective as of the date hereof,
the Threshold Price has been reduced to $5.71 per share.
In addition to the adjustment to the Company's Common Stock purchase options and
warrants on the Record Date each share of the Company's Series A 8% Cumulative
Convertible Preferred Stock that was outstanding on such date now entitles the
holder to receive 1.05 shares of Common Stock upon conversion, rather than one
share, which was the pre-dividend conversion rate.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
None.
b) Reports on Form 8-K
None.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Unapix Entertainment, Inc.
/s/ Daniel T. Murphy Chief Financial Officer May 13, 1996
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Daniel T. Murphy
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