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 March 31, 1994
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 E. 40th Street, 43rd Floor
New York, New York 10016
(Address of principal executive offices)
(Zip Code)
(212) 545-1900
(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 May 12, 1994 there were 116,746,810 shares of
common stock, par value $.01 per share, of the registrant
outstanding.
PATHE COMMUNICATIONS CORPORATION
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets -
March 31, 1994 and December 31, 1993 . . . . . 3
Condensed Statements of Operations -
Quarter Ended March 31, 1994 and
March 31, 1993 . . . . . . . . . . . . . . . . 4
Condensed Statements of Cash Flows -
Three Months Ended March 31, 1994
and March 31, 1993 . . . . . . . . . . . . . . 5
Notes to Condensed Financial Statements . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . 16
Item 6. Exhibits and Reports on Form 8-K . . . . . 16
PATHE COMMUNICATIONS CORPORATION
CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
1994 1993
(unaudited)
ASSETS:
Cash and cash equivalents . . . $ 94 $ 343
Accounts and notes receivable . 75 264
Other assets . . . . . . . . . 703 749
$ 872 $ 1356
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Liabilities:
Accounts payable and accrued
liabilities . . . . . . . . . $ 51,669 $ 47,930
Bank and other debt . . . . . . 173,684 173,412
Other liabilities . . . . . . . 564 564
Subordinated debt . . . . . . . 47,351 47,156
Total liabilities . . . . . . 273,268 269,062
Stockholder's 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 1993
and 1992 . . . . . . . . . . 1,167 1,167
Additional paid-in capital . . 906,808 906,808
Accumulated deficit . . . . . . (1,180,371) (1,175,681)
Total stockholders' deficit . (272,396) (267,706)
$ 872 $ 1,356
The accompanying Notes to Condensed Financial Statements are an
integral part of these statements.
PATHE COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Quarter
Ended Ended
March 31, March 31,
1994 1993
General corporate
administration expenses . . . $ 538 $ 440
Operating loss . . . . . . . . (538) (440)
Other income (expenses):
Interest expense, net . . . . (4,152) (3,916)
Interest and other income
(expense), net . . . . . . . - 17
Loss before income taxes . . . (4,690) (4,439)
Provision for income taxes . . - -
Net loss . . . . . . . . . . . $ (4,690) $ (4,439)
Net loss per common share . . . $ (0.04) $ (0.04)
The accompanying Notes to Condensed Financial Statements are an
integral part of these statements.
PATHE COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Quarter Quarter
Ended Ended
March 31, March 31,
1994 1993
Net cash used in
operating activities . . . . $ (521) $ (4,929)
Financing activities:
Net additions to borrowed
funds . . . . . . . . . . . . 272 4,925
Cash provided by
financing activities . . . . 272 4,925
Increase (decrease) in cash from
operating and financing
activities . . . . . . . . . (249) (4)
Beginning balance -
cash and cash equivalents . . 343 44
Ending balance -
cash and cash equivalents . . $ 94 $ 40
The accompanying Notes to Condensed Financial Statements are an
integral part of these statements.
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 is currently
dependent on Credit Lyonnais Bank Nederland N.V. ("CLBN") to fund
its ongoing cash requirements. CLBN controls the voting rights
with respect to approximately 97% of the Company's common stock.
On May 7, 1992, CLBN foreclosed on 59,100,000 shares constituting
98.5% of the common stock of Metro-Goldwyn-Mayer, Inc. ("MGM"),
which shares constituted substantially all of the assets of the
Company. 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, 1993.
NOTE 2 - MARKET FOR THE COMPANY'S COMMON STOCK
On August 28, 1992, the Securities and Exchange Commission, in
response to the application by the New York Stock Exchange (the
"Exchange"), issued an order removing the Company's common stock
from listing and registration on the Exchange. At this time the
Company has no knowledge of the existence of any established
public trading market for the Company's common stock.
The Company does not have any present plans that would result in
the repurchase or redemption of its common stock or in the
admission for trading of such stock on other exchanges or
markets.
NOTE 3 - BANK AND OTHER DEBT
The Company's bank and other debt are summarized as follows (in
thousands):
March 31,
December 31,
1994 1993
(unaudited)
Credit facilities $ 23,684 $ 23,412
Bank note payable 150,000 150,000
$ 173,684 $ 173,412
Credit facilities. The Company has an arrangement with CLBN upon
which the Company's borrowings are made under the form of demand
promissory notes, with interest accruing quarterly at LIBOR plus
two percent. Any future advances are at the absolute discretion
of CLBN. CLBN provided funding to the Company to enable it to
make interest payments under the Company's subordinated debt
agreements during the period through May, 1994 on such
obligations not owned by CLBN. CLBN has made no commitment to
the Company that it will fund any future interest payments or
other obligations, and the Company currently has no other source
of funding.
Bank note payable. In November 1990, the Company borrowed
$150,000,000 from Sealion Corporation N.V. ("Sealion"), a company
affiliated with SASEA Holding, S.A. (SASEA), which is affiliated
with prior management of the Company, and lent the proceeds to
Melia International N.V. ("Melia"), the Company's major
stockholder. Sealion assigned, as collateral security, its
receivable from the Company to Credit Lyonnais S.A., the parent
of CLBN. The obligation is guaranteed by Melia and
collateralized by approximately 51 percent of the Company's
outstanding stock. The obligation bears interest at LIBOR plus 2
percent payable monthly and, as amended, calls for principal
payments of $30,000,000 a month beginning in January 1992. None
of these interest or principal payments have been made by the
Company, and this facility is currently in default.
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company has various credit arrangements with CLBN (see Note
3). Interest of approximately $316,000 and $189,000 was charged
on such facilities in the quarters ended March 31, 1994 and 1993,
respectively.
In connection with the foreclosure by CLBN on the shares of MGM
common stock owned by the Company, the Company acquired, by right
of subrogation, a claim against Melia in the amount of
$343,125,754. This claim represented the amount of Melia debt
owed to CLBN, which amount was secured by the pledge of the
Company's MGM common stock, and which was bid-in at the
foreclosure auction on May 7, 1992. On April 16, 1993, the
Company filed a bankruptcy petition against Melia with the
Bankruptcy Chamber of the Amsterdam District Court. Subsequent
to this petition, which was joined by CLBN and other creditors,
Melia was declared bankrupt on April 27, 1993 (see Note 5).
NOTE 5 - 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 ("California District Court")
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 antifraud,
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 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 is currently conducting an investigation
into certain transactions effected by prior management of the
Company. The Company is cooperating fully with the Commission in
its investigation. The Company cannot presently determine what,
if any, action the Commission might take as a result of its
investigation.
On January 22, 1991, Century West Financial Corporation
("Century West") filed a complaint in Los Angeles Superior Court
against the Company, Renta Properties 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, and the Company
has filed cross-claims. In addition, the Company is advancing
defense costs to a former employee and will indemnify him subject
to an undertaking for reimbursement under certain circumstances.
The Company intends vigorously to defend this action.
On June 18, 1991, a complaint was filed in the United
States District Court for the Central District of California
against the Company, MGM, Messrs. Parretti, Fiorini, Globus and
Aurelio Germes and Maria Cecconi (Mr. Parretti's wife) on behalf
of a purported class which acquired MGM's 13% Subordinated
Debentures due 1996. On October 10, 1991, J. Phillip Williams,
on behalf of a group of MGM bondholders, filed a complaint in the
United States District Court for the Central District of
California against the Company, MGM, CLBN and Mr. Parretti which
alleges that the defendants violated U.S. securities laws, and
conspired to deceive plaintiffs about MGM's financial condition,
markets, and business prospects, thereby artificially inflating
the price of MGM's securities. The complaint seeks unspecified
damages. The Company answered the complaint on February 3, 1992.
Limited discovery was conducted regarding class certification.
On March 23, 1992, the court heard and denied Williams' motion
for class certification. On May 18, 1992, the court denied
Williams' motion for reconsideration. On July 22, 1992, another
bondholder, Herbert Eisen, moved to intervene in the lawsuit.
After limited discovery was conducted regarding intervention, the
court granted Mr. Eisen's motion to intervene. On December 15,
1992, Mr. Eisen filed a complaint-in-intervention that mirrors
the allegations in the Williams' complaint. The Company and MGM
answered Eisen's complaint-in-intervention on December 29, 1992.
On October 26, 1993, the parties entered into a Stipulation of
Settlement which would dispose of this matter subject to Court
approval. The settlement, if approved, would create a fund of
$4,500,000 against which injured class members may make a claim.
Any unclaimed portion of the fund will be returned to the
contributing defendants. The Company and MGM have funded the
settlement.
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 Merger 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 has filed a notice of appeal of denial of its
motion to vacate. The parties have not completed the appeal
briefing and no date has been set for the hearing of the appeal.
On January 18, 1991, Andrea Kune, a stockholder of the
Company, filed a derivative lawsuit on behalf of the Company
against Messrs. Parretti, Fiorini, Globus, Valentina Parretti,
Ms. Cecconi, Antonio Pares-Neira and Lewis P. Horwitz, alleging
breach of fiduciary duty, abuse of control, waste of corporate
assets, fraud and deceit, negligent misrepresentation and
constructive fraud. Certain other individuals formerly
associated with the Company were subsequently named as
defendants. The Company was named as a nominal defendant only.
On September 16, 1991, the Company filed a Statement of Non-
Response asserting that it had no obligation to respond to the
complaint because the complaint seeks no relief from the Company.
A second amended complaint was filed on July 27, 1992 against the
same defendants in which the Company was again named as a nominal
defendant. Kune alleges claims for breach of fiduciary duty,
fraud and deceit, negligent misrepresentation and constructive
fraud against the defendants. The amended complaint seeks
unspecified damages. The Company remains a nominal defendant
only and no claims for monetary relief are asserted against it.
A tentative settlement of the case has been reached in the amount
of $4,000,000, less plaintiff's attorneys' fees, costs and
expenses to be awarded, subject to Court review and approval.
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 January 21, 1992, CLBN filed an action in the
Delaware Chancery Court in which CLBN asserted various claims
against the Company, Gestione Nuove Attivita Finanziarie S.a.r.l.
(a company controlled by Ms. Cecconi) ("GENAF"), Melia and
certain subsidiaries of Melia seeking, among other things, a
judicial declaration that: (i) a purported transfer of common
stock of the Company from Melia and certain of its subsidiaries
to GENAF (the "Subject Stock") is null, void and without effect;
and (ii) the Company should issue new stock certificates to CLBN
representing the Subject Stock or impose a constructive trust on
the Subject Stock held by GENAF. On February 4, 1992, the
Delaware Chancery Court issued an order sequestering the Subject
Stock. The Company, Melia and its subsidiaries have answered the
complaint. In addition, Melia has filed a third-party complaint
seeking damages and injunctive and declaratory relief against
GENAF, Mr. Parretti and Ms. Cecconi alleging, among other things,
fraud and conversion. On or about February 6, 1992, Mr. Parretti
and GENAF applied to the Civil Court in Rome for the appointment
of a custodian of issued shares in the Company and MGM
purportedly held by Mr. Parretti and GENAF and for precautionary
measures to protect the assets of the Company and MGM against
further alleged diminution in value being caused by CLBN. The
Court on or about February 24 and March 6, 1992 issued temporary
ex parte orders decreeing that the shares of the Company and MGM
are validly within the custody of the Court, and appointing Paolo
Picozza as custodian of the shares in dispute. With consent of
the court of March 6, 1992, Mr. Picozza purported to take action
to amend Pathe's By-Laws to increase the number of directors of
the Company to thirty and to appoint eight additional directors
of the Company. Mr. Picozza also purported to take action to
remove the current directors of MGM and to replace them with
seven new directors. On March 12, 1992, CLBN filed a special
appearance with the Court objecting to the decrees on the ground,
among other things, that the stock certificates presented to the
Court as evidence of Mr. Parretti's controlling interest in the
Company and MGM were either already sequestered by the Delaware
Chancery Court on February 12, 1992, pursuant to an order of that
court dated February 4, 1992 or previously certified lost and
replaced, as well as on various procedural and jurisdictional
grounds. A hearing was held on Friday, March 20, 1992 regarding
CLBN's special appearance. On March 18, 1992, Mr. Parretti and
GENAF filed an appeal with the Italian Supreme Court on
jurisdictional issues and CLBN filed a counter appeal (no hearing
has so far been fixed by the Supreme Court). A new temporary
order was rendered on April 28, 1992 confirming the two earlier
decisions. The April 28, 1992 order provided for an 180 day time
period during which Mr. Parretti and GENAF should bring an action
on the merits. On October 18, 1992, Mr. Parretti filed an action
for damages against CLBN and the first hearing was scheduled for
March 22, 1993. The case is, however, suspended until the
Italian Supreme Court has rendered its decision on the
jurisdictional issues.
On May 6, 1992, Robert Solomon filed a complaint in
Delaware Chancery Court against the Company, CLBN, Dennis
Stanfill, Alan Ladd, Jr., Charles Meeker, Kenneth Meyer, Jay
Kanter, William Jones, Thomas Carson, Rene Claude Jouannet,
Bahman Naraghi, Guy Etienne Dufour, G. Goirand and Jacques
Bertholier for breach of defendants' duties of fair dealing and
breach of fiduciary duties to the public stockholders of the
Company in connection with the Foreclosure and CLBN's Tender
Offer for the Company's stock at a price of $1.50 per share.
Plaintiff filed the action on his own behalf and as a class
action on behalf of a purported class of public stockholders of
the Company. On March 15, 1994, Solomon filed an amended class
action complaint against the Company, CLBN and certain of the
previously named individuals. Although the Company is still
studying the Amended Complaint, no monetary relief is sought
against the Company. The Company plans vigorously to defend the
action.
On December 7, 1992, MGM filed an action against
Tracinda Corporation, Jeffrey Barbakow, Kirk Kerkorian, Stephen
Silbert (the "Kerkorian Defendants") and Houlihan, Lokey, Howard
& Zukin, Inc. ("HLHZ") in the Superior Court. On December 22,
1992, MGM filed an amended complaint which sets forth claims for
breach of fiduciary duty, aiding and abetting breach of fiduciary
duty, breach of contract and negligence in connection with the
sale of MGM to the Company in the fall of 1990. MGM alleges,
among other things, that the Kerkorian Defendants engaged in a
scheme to induce the independent members of MGM's Board to
approve the merger to MGM's detriment. MGM seeks damages in an
amount of $750,000,000, plus punitive damages according to proof
at trial, and a declaration that the indemnity provisions of
certain agreements executed in connection with the merger do not
cover any judgment, settlement, fees or costs incurred by the
Kerkorian Defendants in a legal action. On December 17, 1992,
the Kerkorian Defendants filed an answer denying the allegations
of the complaint and a cross-complaint against MGM for breach of
contract, tortious bad faith, breach of indemnification
agreements, equitable indemnity and declaratory relief. The
cross-complaint seeks damages according to proof at trial,
exemplary damages, attorneys fees and costs. On January 27,
1993, HLHZ filed an answer denying the allegations of the
complaint and a cross-complaint against MGM, the Company and CLBN
for declaratory relief, fraud, negligent misrepresentation and
equitable indemnity. The Company answered HLHZ's cross-complaint
on March 29, 1993. HLHZ seeks, among other things,
indemnification from the Company under the terms of an engagement
letter between HLHZ and the Company and damages for fraud,
negligent misrepresentation and equitable indemnity in an amount
according to proof at trial, plus attorneys fees, costs and
expenses. Discovery in this action has been substantially
completed. On October 13, 1993, a Special Referee in this matter
recommended that the Court enter an order declaring that the
Company be required to advance to HLHZ its reasonable attorneys'
fees in this matter pursuant to the engagement letter, subject to
repayment if HLHZ were later found to have committed fraud. The
Court did enter such an order, and the Company has moved for
reconsideration of that decision. If upheld, such a declaration
or order could result in the imposition of substantial liability
and other obligations upon the Company, in an amount as yet
undetermined but likely to be beyond the Company's present
financial capabilities or otherwise materially adverse to the
Company. On May 6, 1994, the Court entered a variety of orders
that, inter alia, reduced the issues remaining to be tried, but
the HLHZ claims against the Company remain. The Court has stated
that the matter will come on for trial in June, 1994. The
Company is vigorously litigating these actions.
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 benefitting it will be forthcoming.
On June 29, 1993, Aurelio Germes, a former officer of
the Company, filed a declaratory relief action against the
Company in the United States District Court for the Central
District of California. Mr. Germes seeks a declaratory judgment
that the Company is obligated to pay Mr. Germes' legal fees in
connection with the SEC investigation and in defense of the Kune
matter. The Company filed an answer to this complaint on August
12, 1993. Subsequently, upon motion by the Company, the Court
determined that the claims relating to the SEC investigation were
not ripe, but that those relating to the Kune case were. Trial
of the action is now set for September 26, 1994, and the Company
has moved to stay the action pending the final dismissal of the
Kune action upon its settlement. The Company intends to
vigorously defend this action.
On March 30, 1984, 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 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 PCC's behalf for breach of fiduciary duty,
constructive fraud and waste of corporate assets. The Company
believes that plaintiffs' claims are largely barred because they
were previously adjudicated in a Delaware court. The Company
intends to move the court to dismiss the complaint and intends
otherwise to defend this lawsuit vigorously.
Demands for the advancement of legal fees and
indemnification in the defense of the Kune and Williams actions
have been made by Giancarlo Parretti, Maria Cecconi, and
Valentina Parretti (collectively, the "Parrettis"). In addition,
a demand for the advancement of legal fees for defense of the
Kune case has been made by Yoram Globus. The Company has
rejected these demands. A claim has also been made by the
Parrettis' former attorneys in those cases for fees already
incurred, in amounts totalling less than $100,000, and the
Company is investigating this matter to determine, what, if any,
liabilities it may have in respect of this claim. In addition,
there have been additional 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 6 - SUPPLEMENTARY CASH FLOW INFORMATION
No interest or income taxes were paid during the quarters ended
March 31, 1994 and 1993 respectively.
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 (see
"Liquidity and Capital Resources"; Note 7).
Results of Operations
The Company reported net losses for the quarters ended March 31,
1994 and 1993 of ($4,690,000) and ($4,439,000), or ($.04) and
($.04) per common share, respectively, based on 116,747,000
weighted average common shares outstanding.
General Corporate Administration Expenses
General corporate administration expenses increased by
approximately $100,000, or 25%, from the corresponding 1993
period due to an increase in legal costs associated with
litigation.
Other Income (Expense)
Net interest expense increased by approximately $217,000 during
the 1994 first quarter due primarily to an increase in the
principal amount borrowed from CLBN.
Liquidity and Capital Resources
The Company is currently dependent on CLBN for additional capital
to fund its cash requirements. CLBN may, in its absolute
discretion, decide whether to advance additional funds to the
Company. Additionally, the Company is in default on its existing
indebtedness to Sealion.
The Company's subordinated debt agreements contain cross
acceleration provisions which generally provide that if holders
of certain other debt of the Company accelerate the maturity of
such debt, such acceleration would be a default with respect to
the subordinated debt. If such event were to occur and certain
notices are given under the various agreements and indentures, a
substantial portion of the Company's subordinated debt could be
accelerated. The Company has not received any such notices.
The Company currently does not meet the minimum net worth
covenant under its 12 7/8% and 8 7/8% debenture Indentures as its
net worth has been below $37,500,000 for more than two
consecutive quarters. Upon the occurrence of such event, such
Indentures, as amended, require the Company to redeem 10 percent
of the aggregate principal amount of the debentures then
outstanding (at 100 percent of the principal amount) plus accrued
interest by the last day of the following quarterly period.
Similar payments must be made semi-annually thereafter until all
outstanding debentures are redeemed, unless the net worth is
above $37,500,000 as of the last day of any subsequent quarter.
The Company can satisfy the redemption requirement through
previously acquired and canceled debentures. Due to the
significant amount of such debentures previously acquired by the
Company, the Company will not be required to make any cash
redemptions for the foreseeable future.
Commitments and Contingencies
The Company is a party to various lawsuits (see Note 5). 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 5 regarding various material legal proceedings.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Computation of loss per common share.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the
quarter ending September 30, 1993.
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: May 15, 1993 by /s/ Fredric S. Newman
Fredric S. Newman
President
(Principal Financial
and Accounting Officer)
EXHIBIT INDEX
Exhibit Description Page
11 Computation of Loss Per Common
Share 1