U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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: December 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
Commission file No. 0-13167
TM CENTURY, INC.
(Name of small business issuer as specified in its charter)
Delaware 73-1220394
(State of incorporation) (IRS Employer Identification No.)
2002 Academy, Dallas, Texas 75234
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (972) 406-6800
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
--- ---
The number of issuer's shares of Common Stock outstanding as of December 31,
2000 was 2,483,193.
Transitional Small Business Disclosure Format (check one): Yes No X
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TM Century, Inc.
Balance Sheets
December 31, 2000 (Unaudited) and September 30, 2000
ASSETS
December 31, 2000 September 30, 2000
----------------- ------------------
CURRENT ASSETS
Cash and cash equivalents $ 353,157 $ 422,339
Short-term investments 327,115 321,495
Accounts receivable less allowance for doubtful
accounts of $98,093 and $95,510 respectively 869,822 693,997
Inventories, net of allowance for obsolescence of $258,545 435,083 448,293
Prepaid expenses 108,193 44,685
----------------- -----------------
TOTAL CURRENT ASSETS 2,093,370 1,930,809
PROPERTY AND EQUIPMENT 2,824,167 2,730,584
Less accumulated depreciation and amortization (2,297,837) (2,263,000)
----------------- -----------------
NET PROPERTY AND EQUIPMENT 526,330 467,584
PRODUCT DEVELOPMENT COSTS, net of accumulated amortization
of $1,821,208 and $1,784,549 respectively 385,607 377,240
COMEDY MATERIAL RIGHTS, net of accumulated amortization
of $49,600 and $43,400 respectively 74,401 80,601
OTHER ASSETS 19,804 19,804
----------------- -----------------
TOTAL ASSETS $ 3,099,512 $ 2,876,038
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of note payable $ 33,333 $ 33,333
Accounts payable 48,787 48,833
Accrued expenses 94,565 113,017
Deferred revenue 101,583 100,850
Customer deposits 50,786 46,916
----------------- -----------------
TOTAL CURRENT LIABILITIES 329,054 342,949
NOTE PAYABLE, less current portion 21,223 32,334
CUSTOMER DEPOSITS - NONCURRENT 135,742 138,072
----------------- -----------------
TOTAL LIABILITIES 486,019 513,355
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 7,500,000 shares; 29,705 29,705
2,970,481 shares issued; 2,483,193 shares outstanding
Additional paid-in capital 2,275,272 2,275,272
Retained earnings 1,599,743 1,348,933
Treasury stock - at cost, 487,288 shares (1,291,227) (1,291,227)
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 2,613,493 2,362,683
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,099,512 $ 2,876,038
================= =================
See notes to interim financial statements
2
TM Century, Inc.
Statements of Operations and Retained Earnings (Unaudited)
For the Three Months Ended December 31, 2000 and 1999
2000 1999
----------- -----------
REVENUES $ 1,732,936 $ 1,601,890
Less Commissions 381,755 284,483
----------- -----------
NET REVENUES 1,351,181 1,317,407
COSTS AND EXPENSES
Production, Programming, and Technical Costs 381,515 482,322
General and Administrative 455,593 469,142
Selling Costs 234,384 226,411
Depreciation 34,837 47,735
----------- -----------
TOTAL COSTS AND EXPENSES 1,106,329 1,225,610
----------- -----------
OPERATING INCOME 244,852 91,797
OTHER INCOME (EXPENSE)
Interest income 5,938 (1,388)
Other income (expense), net 20 (46)
----------- -----------
TOTAL OTHER INCOME (EXPENSE) 5,958 (1,434)
----------- -----------
NET INCOME BEFORE PROVISION FOR INCOME TAXES 250,810 90,363
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET INCOME $ 250,810 $ 90,363
=========== ===========
RETAINED EARNINGS, BEGINNING OF PERIOD 1,348,933 403,683
----------- -----------
RETAINED EARNINGS, END OF PERIOD $ 1,599,743 $ 494,046
=========== ===========
BASIC NET INCOME PER COMMON SHARE $ 0.10 $ 0.04
=========== ===========
DILUTED NET INCOME PER COMMON SHARE $ 0.10 $ 0.04
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,483,193 2,483,193
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,
ASSUMING DILUTION 2,485,368 2,486,433
=========== ===========
See notes to interim financial statements
3
TM Century, Inc.
Statements of Cash Flows (Unaudited)
For the Three Months Ended December 31, 2000 and 1999
2000 1999
--------- ---------
OPERATING ACTIVITIES
Net income $ 250,810 $ 90,363
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization of property and equipment 34,837 47,735
Amortization of product development costs and comedy material rights 42,857 45,104
Provision for doubtful accounts 2,583 3,693
Increase (decrease) from changes in operating assets
and liabilities:
Accounts receivable (178,408) 62,734
Inventories 13,210 (3,242)
Product development costs (45,024) (54,757)
Prepaid expenses (63,508) (10,760)
Other assets -- (550)
Accounts payable and accrued expenses (18,498) (8,937)
Deferred revenue 733 (24,335)
Customer deposits 1,540 22,905
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 41,132 169,953
INVESTING ACTIVITIES
Purchase of short-term investments (5,620) --
Purchases of property and equipment (93,583) (49,154)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (99,203) (49,154)
FINANCING ACTIVITIES
Principal payments on note payable (11,111) (8,333)
Principal payments on capital lease obligations -- (3,202)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (11,111) (11,535)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (69,182) 109,264
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 422,339 354,332
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 353,157 $ 463,596
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest $ -- $ 46
========= =========
See notes to interim financial statements
4
TM CENTURY INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 2000
1. BASIS OF PRESENTATION
The interim financial statements of TM Century, Inc. (the "Company") at December
31, 2000, and for the three months ended December 31, 2000 and 1999, are
unaudited, and include all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for a fair presentation. The
September 30, 2000, balance sheet was derived from the balance sheet included in
the Company's audited financial statements as filed on Form 10-KSB for the year
ended September 30, 2000. Certain amounts previously reported in prior interim
financial statements have been reclassified to conform to the 2001 presentation.
The accompanying unaudited interim financial statements are for interim periods
and do not include all disclosures normally provided in annual financial
statements, and should be read in conjunction with the Company's audited
financial statements. The accompanying unaudited interim financial statements
for the three months ended December 31, 2000 are not necessarily indicative of
the results which can be expected for the entire fiscal year.
2. LONG-TERM DEBT
Effective January 2, 1999, the Company purchased the remaining 50% interest of
certain comedy material that was written and produced by an individual for
broadcast by radio stations and marketed by the Company, resulting in the
Company owning 100% of such Comedy Service. For consideration of the comedy
material and the Company being able to use the individual's name in connection
with promoting the Comedy Service for a period of five years, the Company agreed
to pay to the individual a total of $124,000, payable over five years through
December 2, 2003.
3. EARNINGS PER SHARE
Basic earnings per share are calculated on the weighted average number of common
shares outstanding during each period. Stock options exercisable at December 31,
2000 and 1999 had a dilutive effect on Earnings Per Share for the three month
period ending December 31, 2000 and 1999.
The following table provides a reconciliation between basic and diluted earnings
per share:
Three Months Ended
December 31
-----------------------
2000 1999
---- ----
Net Income $ 250,810 $ 90,363
Weighted Average Number of Shares Outstanding
Basic 2,483,193 2,483,193
Dilutive effect of common stock equivalents 2,175 3,240
---------- ----------
Diluted 2,485,368 2,486,433
Earnings Per Share:
Basic Net Income $ .10 $ .04
========== ==========
Diluted Net Income $ .10 $ .04
========== ==========
5
TM CENTURY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
TM Century, Inc. (the "Company") is engaged primarily in the creation,
production, marketing, and worldwide distribution of music libraries, production
libraries, comedy services, station identification and commercials for broadcast
multimedia use.
TM Century's clients include radio and television stations; radio, television,
satellite and Internet networks; web sites and portals; the American Forces
Radio Network; advertising agencies; post production studios; cable facilities;
and a wide variety of commercial businesses.
Forward-Looking Statements
- --------------------------
This Quarterly Report contains forward-looking statements about the business,
financial condition and prospects of the Company that reflect assumptions made
by management and management's beliefs based on information currently available
to it. The Company can give no assurance that the expectations indicated by such
forward-looking statements will be realized. If any of management's assumptions
should prove incorrect, or if any of the risks and uncertainties underlying such
expectations should materialize, the Company's actual results may differ
materially from those indicated by the forward-looking statements.
The key factors that are not within the Company's control and that may have a
direct bearing on operating results include, but are not limited to, continued
maturation of the domestic and international markets for compact disc
technology; acceptance by the customers of the Company's existing and any new
products and formats; the development by competitors of products using improved
or alternative technologies and the potential obsolescence of technologies used
by the Company; the continued availability of software, hardware and other
products obtained by the Company from third parties; dependence on distributors,
particularly in the international market; the retention of employees; the
success of the Company's current and future efforts to reduce operating
expenses; the effectiveness of new marketing strategies; and general economic
conditions. Additionally, the Company may not have the ability to develop new
products cost-effectively. There may be other risks and uncertainties that
management is not able to predict.
When used in this Quarterly Report, words such as "believes," "expects,",
"intends," "plans," "anticipates," "estimates" and similar expressions are
intended to identify forward-looking statements, although there may be certain
forward-looking statements not accompanied by such expressions. All
forward-looking statements are intended to be covered by the safe harbor created
by Section 21E of the Securities Exchange Act of 1934.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies upon current sales of music libraries and jingles sold with
terms of cash upon delivery for operating liquidity. Liquidity is also provided
by cash receipts from customers under contracts for production libraries and
weekly music service contracts having terms of one month to three years. The
Company is obligated to provide music updates throughout the contract terms for
both production library and weekly music service contracts. Sales of music
libraries, jingles, and the payments under production library and weekly music
service contracts will provide, in the opinion of management, adequate liquidity
to meet operating requirements at least through the end of fiscal 2001.
TM Century's cash balance decreased from $422,000 at September 30, 2000 to
$353,000 at December 31, 2000, primarily due to the timing of cash receipts from
third party representatives and purchases of property and equipment. During the
quarter ended December 31, 2000 approximately $94,000 was spent for the purchase
of property and equipment associated with upgrades of computer and digital
recording hardware and the conversion of warehouse space into offices. Purchases
of property and equipment for the same period in 1999 was $49,000 and included
costs related to the upgrade of production equipment. Expenditures for product
development for the quarter were approximately $45,000 and $55,000 for 2000 and
1999, respectively. Funds for operating needs, new product development and
capital expenditures for the period were provided from cash reserves and
operations of the Company. The Company generated cash flows from operations of
approximately $41,000 and $170,000 during the three months ended December 31,
2000 and 1999, respectively. The Company's expenditures for property, equipment,
and development of new products are discretionary. Product development
expenditures are expected to be approximately $260,000 in fiscal 2001.
Management anticipates that cash flow from operations and cash reserves will be
sufficient to meet these capital requirements at least through the end of fiscal
year 2001. The Company has no other significant commitments for capital
expenditures in fiscal 2001.
6
RESULTS OF CONTINUING OPERATIONS
Comparison of the Three-Month Periods Ended December 31, 1999 and 2000
- ----------------------------------------------------------------------
Revenues increased approximately $131,000 or 8.2% in the three-month period
ended December 31, 2000 as compared to the same period for the previous year.
The revenue increase was primarily due to an increase in revenues for production
libraries of $182,000 and Comedy services of $141,000, offset by decreases in
revenues from music services of $116,000, Jingles of $70,000 and other revenue
of $6,500.
Revenues of weekly HitDisc services decreased $22,000, while GoldDisc revenues
decreased $94,000, resulting in a decrease in music services revenue of 16.8% as
compared to the same period of the previous year. The decrease in compact disc
music library revenues was primarily due to a decrease in weekly and recurrent
music sales for international customers. As the compact disc music library
market matures, sales of compact discs are generated primarily from changes in
music formats or sales of new music libraries or formats rather than from
conversions to compact disc music delivery technology. The market for compact
disc music libraries to broadcast customers has reached a substantial level of
maturity in the United States, which is the market from which the Company
derives most of its music library revenues. The Company has engaged in the
development of additional delivery media for music services as a method of
increasing product sales. A decline in revenues from music library sales may
result in a proportionately greater decline in operating income because music
libraries provide higher margins than the Company's other products. However,
management believes the introduction of new products will counteract the
declines in revenues from existing music libraries. In addition, the Company
contracts with third party sales representatives for sales in certain foreign
markets. Changes in representatives and the terms of ongoing agreements are
expected to favorably impact future revenues from international sales. Renewals
and new sales growth are subject to customer acceptance of the new products.
Production library revenues increased $182,000, or 46.9%. Increases in
production library revenue is due to the continuing increase in advertising
sales. Even though production library revenues may decline due to the expiration
of three-year contracts, management believes that production libraries will
continue to generate a significant portion of overall revenues from sales of
existing products through advertising/barter arrangements and sales of new
products. The Company continues to concentrate on new product development in
this category and has broadened the target market beyond the radio broadcast
industry to include television, post production houses, web sites and commercial
businesses. Sales and new sales growth are subject to customer acceptance of the
new products.
Jingles revenue decreased $70,000 or 22.8% over the same period in 1999 due to a
combination of circumstances including decreased sales of both domestic and
international jingles.
Comedy revenue increased $141,000, or 67.9%. Increases in Comedy revenue are
primarily due to the increase in advertising sales which are generated by
contracts for services through barter arrangements. Both domestic and
international cash revenues increased approximately 31% over the same period
last year.
Commissions increased $97,000 or 34.0%, and reflect the increase in barter
revenue. As a percentage of revenues, commissions increased from 17.8% to 22.0%
due to changes in the revenue structure where a greater percentage of revenue is
from barter.
7
Production, programming and technical costs decreased $101,000 or 20.9%, and as
a percentage of revenue decreased from 30.1% to 22.0%. Costs related to
production and shipping of products decreased 27% over the same quarter last
year due to the conversion to in-house disc production which allows the Company
to control costs through lower inventory levels and more efficient use of
personnel. These savings were offset by a 36% increase in royalty expenses which
are driven by sales of production libraries and syndicated jingles.
General and administrative costs decreased $13,000 or 2.9%, reflecting a
decrease in professional fees.
Selling costs increased $8,000 or 3.5%, and as a percentage of revenues
decreased from 14.0% to 13.5%. The increase in expenses was created by an
increase in the international sales staff to facilitate direct international
sales efforts, as well as the addition of sales staff members to allow a
broadening of the domestic sales market.
Depreciation and amortization of property and equipment decreased $13,000 or
27.0% and is primarily due to more depreciable assets nearing the end of their
depreciable years.
8
PART II. OTHER INFORMATION
Item 1. Legal proceedings - Not applicable.
Item 2. Changes in securities - Not applicable.
Item 3. Defaults upon senior securities - Not applicable.
Item 4. Submission of matters to a vote of security holders - None
Item 5. Other information - None
Item 6. Exhibits and Reports on Form 8-K - None
9
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: January 26, 2001
TM CENTURY, INC.
BY:/s/Teri R.S. James
------------------
Teri R.S. James
Chief Financial Officer
(Principal Accounting Officer)
BY:/s/R. David Graupner
--------------------
R. David Graupner
Chief Executive Officer
(Principal Executive Officer)
10