U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
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X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2001
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X TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
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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
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The number of issuer's shares of Common Stock outstanding as of March 31, 2001
was 2,483,193.
Transitional Small Business Disclosure Format (check one): Yes No X
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TM Century, Inc.
Balance Sheets
March 31, 2001 (Unaudited) and September 30, 2000
ASSETS
March 31, 2001 September 30, 2000
--------------------- ---------------------
CURRENT ASSETS
Cash and cash equivalents $ 405,786 $ 422,339
Short-term investments 633,799 321,495
Accounts and notes receivable less allowance for doubtful
accounts of $94,716 and $95,510 respectively 488,797 693,997
Inventories, net of allowance for obsolescence of $258,545 429,286 448,293
Prepaid expenses 102,516 44,685
--------------------- ---------------------
TOTAL CURRENT ASSETS 2,060,184 1,930,809
PROPERTY AND EQUIPMENT 2,846,520 2,730,584
Less accumulated depreciation and amortization (2,333,313) (2,263,000)
--------------------- ---------------------
NET PROPERTY AND EQUIPMENT 513,207 467,584
PRODUCT DEVELOPMENT COSTS, net of accumulated amortization
of $1,860,009 and $1,784,549 respectively 401,272 377,240
COMEDY MATERIAL RIGHTS, net of accumulated amortization
of $55,800 and $43,400 respectively 68,200 80,601
OTHER ASSETS 19,804 19,804
--------------------- ---------------------
TOTAL ASSETS $ 3,062,667 $ 2,876,038
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of note payable $ 28,000 $ 33,333
Accounts payable 16,200 48,833
Accrued expenses 123,151 113,017
Deferred revenue 99,727 100,850
Customer deposits 50,786 46,916
--------------------- ---------------------
TOTAL CURRENT LIABILITIES 317,864 342,949
NOTE PAYABLE, less current portion 21,000 32,334
CUSTOMER DEPOSITS - NONCURRENT 138,151 138,072
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TOTAL LIABILITIES 477,015 513,355
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 1,571,902 1,348,933
Treasury stock - at cost, 487,288 shares (1,291,227) (1,291,227)
--------------------- ---------------------
TOTAL STOCKHOLDERS' EQUITY 2,585,652 2,362,683
--------------------- ---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,062,667 $ 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 March 31, 2001 and 2000
2001 2000
-------------- --------------
REVENUES $ 1,418,456 $ 1,684,901
Less Commissions 241,949 341,771
-------------- --------------
NET REVENUES 1,176,507 1,343,130
COSTS AND EXPENSES
Production, Programming, and Technical Costs 454,973 474,965
General and Administrative 474,141 499,842
Selling Costs 247,758 272,340
Depreciation 35,600 40,161
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TOTAL COSTS AND EXPENSES 1,212,472 1,287,308
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OPERATING INCOME (LOSS) (35,965) 55,822
OTHER INCOME
Interest income 8,110 2,526
Other income 14 1,081
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TOTAL OTHER INCOME 8,124 3,607
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NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (27,841) 59,429
PROVISION FOR INCOME TAXES - -
-------------- --------------
NET INCOME (LOSS) $ (27,841) $ 59,429
============== ==============
RETAINED EARNINGS, BEGINNING OF PERIOD 1,599,743 494,046
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RETAINED EARNINGS, END OF PERIOD $ 1,571,902 $ 553,475
============== ==============
BASIC NET INCOME (LOSS) PER COMMON SHARE $ (0.01) $ 0.02
============== ==============
DILUTED NET INCOME (LOSS) PER COMMON SHARE $ (0.01) $ 0.02
============== ==============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,483,193 2,483,193
============== ==============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,
ASSUMING DILUTION N/A 2,495,039
============== ==============
See notes to interim financial statements
3
TM Century, Inc.
Statements of Operations and Retained Earnings (Unaudited)
For the Six Months Ended March 31, 2001 and 2000
2001 2000
-------------- --------------
REVENUES $ 3,151,392 $ 3,286,791
Less Commissions 623,704 626,254
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NET REVENUES 2,527,688 2,660,537
COSTS AND EXPENSES
Production, Programming, and Technical Costs 836,489 957,287
General and Administrative 929,734 968,983
Selling Costs 482,142 498,751
Depreciation 70,436 87,896
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TOTAL COSTS AND EXPENSES 2,318,801 2,512,917
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OPERATING INCOME 208,887 147,620
OTHER INCOME
Interest income 14,047 1,138
Other income 35 1,034
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TOTAL OTHER INCOME 14,082 2,172
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NET INCOME BEFORE PROVISION FOR INCOME TAXES 222,969 149,792
PROVISION FOR INCOME TAXES -- --
-------------- --------------
NET INCOME $ 222,969 $ 149,792
============== ==============
RETAINED EARNINGS, BEGINNING OF PERIOD 1,348,933 403,683
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RETAINED EARNINGS, END OF PERIOD $ 1,571,902 $ 553,475
============== ==============
BASIC NET INCOME PER COMMON SHARE $ 0.09 $ 0.06
============== ==============
DILUTED NET INCOME PER COMMON SHARE $ 0.09 $ 0.06
============== ==============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,483,193 2,483,193
============== ==============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,
ASSUMING DILUTION 2,486,666 2,491,150
============== ==============
See notes to interim financial statements
4
TM Century, Inc.
Statements of Cash Flows (Unaudited)
For the Six Months Ended March 31, 2001 and 2000
2001 2000
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OPERATING ACTIVITIES
Net income $ 222,969 $ 149,792
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization of property and equipment 70,436 87,896
Amortization of product development costs and comedy material rights 87,858 92,290
Provision for doubtful accounts 8,750 2,398
Increase (decrease) from changes in operating assets and liabilities:
Accounts receivable 196,450 78,463
Inventories 19,007 1,541
Product development costs (99,490) (113,672)
Prepaid expenses (57,831) 11,184
Other assets -- (550)
Accounts payable and accrued expenses (22,499) (51,358)
Deferred revenue (1,123) (4,167)
Customer deposits 3,950 34,650
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NET CASH PROVIDED BY OPERATING ACTIVITIES 428,477 288,467
INVESTING ACTIVITIES
Purchase of short-term investments (312,304) --
Purchases of property and equipment (116,059) (91,782)
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NET CASH USED BY INVESTING ACTIVITIES (428,363) (91,782)
FINANCING ACTIVITIES
Principal payments on note payable (16,667) (16,666)
Principal payments on capital lease obligations -- (3,202)
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NET CASH USED BY FINANCING ACTIVITIES (16,667) (19,868)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (16,553) 176,817
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 422,339 354,332
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 405,786 $ 531,149
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest $ -- $ 46
========= =========
See notes to interim financial statements
5
TM CENTURY INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
March 31, 2001
1. BASIS OF PRESENTATION
The interim financial statements of TM Century, Inc. (the "Company") at March
31, 2001, and for the three and six months ended March 31, 2001 and 2000, 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 and six months ended March 31, 2001 are not necessarily indicative
of the results which can be expected for the entire fiscal year.
2. EARNINGS PER SHARE
Basic earnings per share are calculated on the weighted average number of common
shares outstanding during each period. Diluted earnings per share includes
common stock equivalents, if dilutive.
The following table provides a reconciliation between basic and diluted earnings
per share:
Three Months Ended Six Months Ended
March 31 March 31
------------------------ -----------------------
2001 2000 2001 2000
---- ---- ---- ----
Net Income (Loss) $ (27,841) $ 59,429 $ 222,969 $ 149,792
Weighted Average Number of Shares Outstanding
Basic 2,483,193 2,483,193 2,483,193 2,483,193
Dilutive effect of common stock equivalents 0 11,846 3,473 7,957
---------- ---------- ---------- ----------
Diluted 2,483,193 2,495,039 2,486,666 2,491,150
Earnings Per Share:
Basic Net Income (Loss) $ (.01) $ .02 $ .09 $ .06
========== ========== ========== ==========
Diluted Net Income (Loss) $ (.01) $ .02 $ .09 $ .06
========== ========== ========== ==========
6
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 on 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.
During the six months ended March 31, 2001 approximately $116,000 was spent for
the purchase of property and equipment, primarily associated with upgrades of
network hardware and software and the conversion of warehouse space into
offices. Purchases of property and equipment for the same period in 2000 was
$92,000 and included costs related to the upgrade of production equipment and a
new delivery van. Expenditures for product development for the quarter were
approximately $54,000 and $59,000 for 2001 and 2000, 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 $428,000 and $288,000
during the six months ended March 31, 2001 and 2000, 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.
7
RESULTS OF CONTINUING OPERATIONS
Comparison of the Three Month Periods Ended March 31, 2001 and 2000
- -------------------------------------------------------------------
Revenues decreased approximately $266,000 or 15.8% in the three month period
ended March 31, 2001 as compared to the same period for the previous year. The
revenue decrease was primarily due to a decrease in revenues for music services
of $142,000, production libraries of $140,000 and comedy services of $50,000.
Offsetting these decreases was an increase in jingle revenue of $60,000 and
other revenue of $6,000.
Revenues of weekly HitDisc services decreased $25,000, while GoldDisc revenues
fell $117,000, resulting in a net decrease in music services revenue of 20.5% as
compared to the same period of the previous year. 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. 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 decreased $140,000, or 29.8%. Decreases in
production library revenue is largely due to a decrease in advertising revenue
generated from barter sales. The softening of the advertising market brought on
by the downturn in the economy in the current fiscal quarter resulted in reduced
rates for advertising spots used to generate a substantial portion of the
revenue for production libraries and other TM Century products. Cash sales to
both domestic and international clients saw an increase in the current quarter
compared to the same period last year. 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 increased $60,000, or 22.2% over the same period in 2000 due to
an increase in custom jingle production domestically and an increase in
royalties revenue.
Comedy network revenue decreased $50,000, or 19.9% compared to the same period
in 2000. This decrease was primarily due to the decrease in advertising revenue
generated from barter sales.
Commissions decreased $100,000 or 29.00%, and reflects the decrease in barter
revenue. As a percentage of revenues, commissions decreased from 20.3% to 17.0%
due to changes in the revenue structure where barter revenue decreased.
Production, programming and technical costs decreased $20,000 or 4.2%, and as a
percentage of revenue increased from 28.2% to 32.1%. The decrease in costs is
due to a combination of cost reduction efforts and staff reorganization which
resulted in more efficient disc production.
8
General and administrative costs decreased $26,000, or 5.1%, reflecting a
decrease in legal costs, salaries and benefits and facilities expenses.
Selling costs decreased $25,000 or 9.0%, and as a percentage of revenues
increased from 16.2% to 17.5%. The decrease in expenses was created by a
decrease in the commission expense reflective of the decreased revenues.
Depreciation and amortization of property and equipment decreased $4,600 or
11.4% and is primarily due to more depreciable assets nearing the end of their
depreciable lives.
Comparison of the Six Month Periods Ended March 31, 2001 and 2000
- -----------------------------------------------------------------
Revenues decreased approximately $135,000 or 4.1% in the six month period ended
March 31, 2001 as compared to the same period for the previous year. The revenue
decrease was primarily due to a decrease in revenues for music services of
$258,000 and jingles of $10,000, offset by increases in revenues from production
libraries of $42,000, and comedy of $91,000.
Revenues of weekly HitDisc services decreased $48,000, while GoldDisc revenues
decreased $210,000, resulting in a decrease in music services revenue of 18.6%
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 $42,000, or 4.9%. Increases in production
library revenue is due to the introduction of new products and the broadening
markets, both domestically and internationally. 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. Although advertising
revenue for the first three months of the period was strong, the softening of
the advertising market brought on by the downturn in the economy in the last
three months of the period resulted in reduced rates for advertising spots used
to generate a substantial portion of the revenue for production libraries and
other TM Century 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 $10,000 or 1.7% over the same period in 2000. Domestic
jingles revenue reflected an increase, primarily due to increased custom jingle
production, while international jingle production showed a decline when compared
to the same period in the prior year.
Comedy revenue increased $91,000, or 19.9%. 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 over the same period last year at a rate
of 8% and 20%, respectively.
Commissions decreased $3,000 or 0.4%, and reflect the decrease in commissions
paid to third party international representatives.
9
Production, programming and technical costs decreased $121,000 or 12.6%, and as
a percentage of revenue decreased from 29.1% to 26.5%. These reduced costs,
related to the production and shipping of products, resulted from the conversion
to in-house disc production which allows the Company to control costs through
lower inventory levels and more efficient use of personnel.
General and administrative costs decreased $39,000 or 4.0%, reflecting a
decrease in professional fees, travel costs and bad debt expense.
Selling costs decreased $17,000 or 3.3%, and as a percentage of revenues
increased from 15.2% to 15.3%. The decrease in selling expenses reflects a
decrease in sales commissions indicative of the overall decrease in revenues.
Depreciation and amortization of property and equipment decreased $17,000 or
19.8% and is primarily due to more depreciable assets nearing the end of their
depreciable lives.
10
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
11
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: May 10, 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)
12