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 June 30, 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)
200 Madison Avenue
New York, NY 10016
------------------
(Address of principal executive offices)
212-252-7600
------------
(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 August 7, 1996 there were 5,306,000 shares of the Company's common stock
outstanding.
Exhibits begin on page 16
UNAPIX ENTERTAINMENT, INC.
Consolidated Balance Sheet
(In thousands, except per share amounts)
June 30,
1996
--------
ASSETS
Cash and equivalents $ 531
Accounts receivable- trade, net of allowances of $762, including
related party receivables of $217 7,938
Film costs, net 17,561
Property and equipment, net 391
Deferred income taxes 66
Other assets 1,577
--------
Total Assets $ 28,064
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities :
Accounts payable and accrued expenses, including related party
payables of $18 $ 7,565
Film acquisition and royalty payable 4,347
Bank line of credit 100
Variable rate notes 3,365
Acquisition fund payable 897
--------
Total Liabilities $ 16,274
--------
Stockholders' Equity :
Common stock $.01 par value per share; 20,000 authorized; 5,283
shares issued and outstanding 53
Cumulative convertible series A 8% preferred stock, $.01 par
value per share; 3,000 authorized; 546 issued and
outstanding (aggregate liquidation preference of $1,838) 5
Additional paid-in capital 15,657
Notes receivable from equity sales (2,016)
Accumulated deficit (1,909)
--------
Total Stockholders' Equity $ 11,790
--------
Total Liabilities and Stockholders' Equity $ 28,064
========
See accompanying notes to consolidated financial statements
Page 2
UNAPIX ENTERTAINMENT, INC.
Consolidated Statements of Operations
(In thousands, except per share amounts)
For the Three Months Ended June 30
1996 1995
------- -------
Revenues:
Licensing and distribution $ 2,304 $ 1,498
Home video 3,049 3,004
------- -------
5,353 4,502
------- -------
Operating costs:
Licensing and distribution 1,610 915
Home video 2,121 2,070
General and administrative expenses 1,583 1,231
------- -------
5,314 4,216
------- -------
Income from operations 39 286
Interest expense and financing expense, net (9) (61)
------- -------
Income before taxes $ 30 $ 225
------- -------
Provision for income taxes 12 84
------- -------
Net income $ 18 $ 141
======= =======
Net income per share (Note 6) $ -- $ .04
======= =======
Average number of common shares and common
equivalent shares outstanding (Note 6) 5,227 2,893
======= =======
See accompanying notes to consolidated financial statements
Page 3
UNAPIX ENTERTAINMENT, INC.
Consolidated Statements of Operations
(In thousands, except per share amounts)
For the Six Months Ended June 30
1996 1995
-------- --------
Revenues:
Licensing and distribution $ 3,498 $ 2,792
Home video 7,087 5,907
-------- --------
10,585 8,699
-------- --------
Operating costs:
Licensing and distribution 2,322 1,687
Home video 4,663 4,153
General and administrative expenses 3,156 2,239
-------- --------
10,141 8,079
-------- --------
Income from operations 444 620
Interest expense and financing expense, net (23) (73)
-------- --------
Income before taxes $ 421 $ 547
-------- --------
Income taxes:
Provision for income taxes 174 214
Benefit from net operating loss utilization -- (400)
-------- --------
Total 174 (186)
-------- --------
Net income $ 247 $ 733
======== ========
Net income per share (Note 6) $ .03 $ .14
======== ========
Average number of common shares and common
equivalent shares outstanding (Note 6) 5,224 7,048
======== ========
See accompanying notes to consolidated financial statements
Page 4
UNAPIX ENTERTAINMENT, INC.
Consolidated Statements of Cash Flows
(In thousands)
For the Six Months Ended June 30,
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 247 $ 733
Adjustments to reconcile net income to net cash used by operating
activities:
Amortization and depreciation 4,102 4,031
Deferred income taxes 164 (207)
Accretion of debentures discount 18 --
Loss on disposal of assets 2 --
Decrease (increase) in accounts receivable, net 450 (1,207)
Film cost expenditures (8,080) (8,163)
Increase in other assets (530) (236)
Increase in accounts payable and
accrued expenses 317 2,694
Increase in film acquisition and
royalties payable 1,327 510
------- -------
Total cash flows used by operating activities (1,983) (1,845)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (153) (79)
------- -------
Total cash flows used by investing activities (153) (79)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from employee notes receivable 49 --
Proceeds from warrant and option exercises -- 475
Private placement expenditures (50) (17)
Proceeds from variable rate notes private placement -- 400
Proceeds from 10% convertible notes private placement 563 --
Borrowings under bank line of credit 100 --
Preferred stock dividend (23) (17)
------- -------
Total cash flows used by financing activities $ 639 $ 841
------- -------
See accompanying notes to consolidated financial statements
Page 5
UNAPIX ENTERTAINMENT, INC.
Consolidated Statements of Cash Flows (continued)
(In thousands)
For the Six Months Ended June 30
1996 1995
------- -------
NET DECREASE IN CASH AND EQUIVALENTS $(1,497) $(1,083)
CASH AND EQUIVALENTS AT BEGINNING OF
PERIOD 2,028 2,270
------- -------
CASH AND EQUIVALENTS AT END OF PERIOD $ 531 $ 1,187
======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of accrued liability to acquisition fund payable 143 --
Preferred stock dividend paid in common stock 51 62
Warrants issued -- 61
Conversion of debt to equity -- 17
------- -------
$ 194 $ 140
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 303 $ 18
======= =======
Cash paid for taxes $ 17 $ 22
======= =======
See accompanying notes to consolidated financial statements
Page 6
UNAPIX ENTERTAINMENT, INC.
Notes to Consolidated Financial Statements
June 30, 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 six-month period
ended June 30, 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. FINANCING
In August 1996, the Company completed 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 Units and the
securities comprising the Units were 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 have certain registration rights. As of
June 30, 1996, the Company had received $563,000 in connection with such
offering. In July the Company received an additional $1,000,000 bringing the
debentures issued to a total of $1,563,000. A total of 158,750 Warrants were
issued in this offering.
3. EQUITY
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.
In June 1996, the Company entered into an agreement with an investor relations
firm, pursuant to which the Company issued 300,000 common stock purchase
options. Each option entitles the holder to purchase one share of Common Stock
at a price of $3.875, which was the market price as of the date of the
Agreement. The options have a term of five years. The Company is also obligated
to issue an additional 100,000 options which will expire within one year unless
all of the Company's Class B Warrants have been exercised prior to that time. If
all the Class B Warrants are exercised during the one year period, the 100,000
options will have the same term as the other 300,000 options.
Page 7
UNAPIX ENTERTAINMENT, INC.
Notes to Consolidated Financial Statements
June 30, 1996
4. FILM COSTS
The Company's film costs include:
June 30,
1996
--------
(In thousands)
Films released $ 29,727
Films completed but not released 2,821
Films in process 4,944
--------
37,492
Accumulated amortization (19,931)
--------
$ 17,561
========
5. DEFERRED INCOME TAXES
There is a full provision for taxes on income for the first six months of 1996.
The provision for income taxes of $186,000 for the first six months of 1995
reflects a deferred tax benefit of $400,000, attributable to the reduction of
the deferred tax allowance.
6. 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 quarters ended June 30, 1996 and 1995 and for the six months ended June
30, 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 six months ended June 30, 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.
The number of shares and net income per share for the quarter and six months
ended June 30, 1995 have been restated to reflect the 5% stock dividend paid in
the second quarter of 1996.
Page 8
UNAPIX ENTERTAINMENT, INC.
Notes to Consolidated Financial Statements
June 30, 1996
6. NET INCOME (LOSS) PER COMMON SHARE (CONTINUED)
Earnings per share was determined by dividing net income, as adjusted below, by
applicable shares outstanding (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
Net income as reported $ 18 $ 141 $ 247 $ 733
Preferred stock dividends (37) (39) (74) (78)
----- ----- ----- -----
(19) 102 173 655
Interest, after taxes, accrued on proceeds from assumed
exercise of options and warrants -- -- -- 330
----- ----- ----- -----
Total income used for earnings per share $ (19) $ 102 $ 173 $ 985
===== ===== ===== =====
Weighted average number of common and common equivalent
shares 5,227 2,893 5,224 7,048
===== ===== ===== =====
Page 9
UNAPIX ENTERTAINMENT, INC.
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1995
------------- -------------
Revenues for the three months ended June 30, 1996 increased by $851,000 or 19%,
to $5,353,000 as compared to the same three month period in 1995. This increase
in revenues is primarily a result of the increase in licensing revenues of
$806,000 or 54% to $2,304,000. This increase reflects the Company's increased
emphasis on the licensing business. Management is expecting that improvements in
revenues will continue throughout 1996.
Licensing and distribution costs for the three months ended June 30, 1996
increased by $695,000, or 76%, to $1,610,000 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 $1,583,000 for the three months ended June
30, 1996, as compared to $1,231,000 in the same period in 1995. This increase is
chiefly attributable to costs related to the infrastructure required to support
the Company's continued expansion and diversification. Included in these costs
are start-up costs related to the Company's new direct marketing operations,
which began in the second quarter of 1996 as well as efforts to market niche
product overseas. These costs mainly consisted of increased staffing and office
costs to support the increased sales activity described above, as well as the
start up operations.
The Company had income before taxes of $30,000 for the three months ended June
30, 1996 as compared to income before taxes of $225,000 for the corresponding
three month period in 1995. This $195,000 decrease in results is due to the
costs of the implementation of the Company's plan of expansion and
diversification which the Company expects to affect results positively in
future. Management anticipates that as the expansion into new niches, such as
the "Direct Marketing" niche, and 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 be favorable.
In the 1996 and 1995 quarters there is a full provision for taxes on income.
Page 10
UNAPIX ENTERTAINMENT, INC.
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995
------------- -------------
Revenues for the six months ended June 30, 1996 increased by $1,886,000 or 22%,
to $10,585,000 as compared to the same six month period in 1995. This increase
in revenues is primarily a result of the increase in home video revenue of
$1,180,000 or 20% to $7,087,000 due to the success of the Company's sell-through
operations which generated revenues of $1,614,000 in the second quarter of 1996
as compared to $516,000 in the same period of 1995 during which the sell-through
operations were in their start up stage. Licensing and distribution revenues
also showed a strong increase of $706,000 or 25% to $3,498,000 for the six
months ended June 30, 1996. The improvement is attributable to the increased
emphasis on the Company's licensing business. Management is expecting that
improvements in revenues will continue throughout 1996.
Licensing and distribution costs for the six months ended June 30, 1996
increased by $635,000, or 38%, to $2,322,000 as compared to the corresponding
period in 1995. In addition, home video costs for the six month period ended
June 30, 1996 increased by $510,000, or 12%, to $4,663,000 as compared to the
corresponding period in 1995. These increases reflect increased royalty,
amortization and other film expenses associated with the higher levels of
revenues described above.
General and administrative costs were $3,156,000 for the six months ended June
30, 1996, as compared to $2,239,000 in the same period in 1995. This increase is
chiefly attributable to costs related to the infrastructure required to support
the Company's continued expansion and diversification. Included in these costs
are start-up costs related to the Company's new direct marketing operations
which began in the second quarter of 1996. These costs mainly consisted of
increased staffing and office costs to support the increased sales activity
described above, as well as the start up operations.
The Company had income before taxes of $421,000 for the six months ended June
30, 1996 as compared to income before taxes of $547,000 for the corresponding
six month period in 1995. This $126,000 decrease in results is due to the costs
of the implementation of the Company's plan of expansion and diversification,
which the Company expects to benefit future periods. Management anticipates that
as the expansion into new niches, such as the "Direct Marketing" niche, and 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 be favorable.
For the six months ended June 30, 1996 there is a full provision for taxes on
income. In 1996 there was a net income tax benefit, as a $400,000 net operating
loss benefit recognized more than offset the six month tax provision of
$214,000.
Page 11
UNAPIX ENTERTAINMENT, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1996, the Company utilized net cash for
operating activities of $1,983,000, primarily as a result of the $8,080,000
incurred in acquiring and promoting new properties for the home video rental and
the licensing and distribution markets. Operating cash requirements were
primarily met by cash inflows from operations, cash on hand and the utilization
of the Company's credit facility.
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
$1,217,000 as of June 30, 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 July 1996, the Company completed 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 offering generated proceeds of
$1,563,000, of which $563,000 was received in the second quarter of 1996, and
the remainder in July 1996 (for further details concerning this private
placement see footnote 2).
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, 1997, and may be terminated by
either party upon 60 days notice after such date. The Bank may also terminate
the facility upon 60 days notice at any time throughout the term. Outstanding
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. As of
June 30, 1996 the Company had borrowed $100,000 and had remaining availability
of $1,456,000.
Page 12
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. The Company may also have additional debt or equity
financing.
Page 13
UNAPIX ENTERTAINMENT, INC.
PART II - OTHER INFORMATION
ITEMS 1 THROUGH 4 ARE NOT APPLICABLE.
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit
Number Description
4.1 Form of 10% Convertible Subordinated Note due June 30, 2003
4.2 Form of Common Stock Purchase Warrant Certificate, entitling the
holder to purchase shares of Common Stock at $6.00 per share and
expiring on June 30, 2003
10.1 Agreement under which Strategic Growth International will serve as
Investor Relations Consultant to the Company
27 Financial Data Schedule
b) Reports on Form 8-K
None.
Page 14
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 August 12, 1996
- ----------------------
Daniel T. Murphy
Page 15
EXHIBITS
Page 16