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: June 30, 2001
---
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 June 30, 2001
was 2,483,193.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
TM Century, Inc.
Balance Sheets
June 30, 2001 (Unaudited) and September 30, 2000
ASSETS
June 30, 2001 September 30, 2000
---------------------- ----------------------
CURRENT ASSETS
Cash and cash equivalents $ 422,043 $ 422,339
Short-term investments 635,575 321,495
Accounts receivable less allowance for doubtful
accounts of $88,866 and $95,510 respectively 556,310 693,997
Inventories, net of allowance for obsolescence of $258,545 405,532 448,293
Prepaid expenses 67,982 44,685
---------------------- ----------------------
TOTAL CURRENT ASSETS 2,087,442 1,930,809
PROPERTY AND EQUIPMENT 2,871,231 2,730,584
Less accumulated depreciation and amortization (2,370,203) (2,263,000)
---------------------- ----------------------
NET PROPERTY AND EQUIPMENT 501,028 467,584
PRODUCT DEVELOPMENT COSTS, net of accumulated amortization
of $1,900,883 and $1,784,549 respectively 403,362 377,240
COMEDY MATERIAL RIGHTS, net of accumulated amortization
of $62,000 and $43,400 respectively 62,000 80,601
OTHER ASSETS 19,804 19,804
---------------------- ----------------------
TOTAL ASSETS $ 3,073,636 $ 2,876,038
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of note payable $ 22,667 $ 33,333
Accounts payable 18,636 48,833
Accrued expenses 100,657 113,017
Deferred revenue 95,473 100,850
Customer deposits 55,538 46,916
---------------------- ----------------------
TOTAL CURRENT LIABILITIES 292,971 342,949
NOTE PAYABLE, less current portion 18,000 32,334
CUSTOMER DEPOSITS - NON-CURRENT 141,115 138,072
---------------------- ----------------------
TOTAL LIABILITIES 452,086 513,355
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 7,500,000 shares; 29,705 29,705
2,970,481 shares issued; and 2,483,193 shares outstanding
Additional paid-in capital 2,275,272 2,275,272
Retained earnings 1,607,800 1,348,933
Treasury stock - at cost, 487,288 shares (1,291,227) (1,291,227)
---------------------- ----------------------
TOTAL STOCKHOLDERS' EQUITY 2,621,550 2,362,683
---------------------- ----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,073,636 $ 2,876,038
====================== ======================
See notes to interim finanical statements
2
TM Century, Inc.
Statements of Operations and Retained Earnings (Unaudited)
For the Three Months Ended June 30, 2001 and 2000
2001 2000
------------------------- -------------------------
REVENUES $ 1,451,013 $ 1,764,987
Less Commissions 256,502 374,617
------------------------- -------------------------
NET REVENUES 1,194,511 1,390,370
COSTS AND EXPENSES
Production, Programming, and Technical Costs 418,067 479,544
General and Administrative 475,963 514,864
Selling Costs 231,651 247,736
Depreciation 36,890 33,692
------------------------- -------------------------
TOTAL COSTS AND EXPENSES 1,162,571 1,275,836
------------------------- -------------------------
OPERATING INCOME 31,940 114,534
OTHER INCOME (EXPENSE)
Interest income 4,318 3,316
Other income (expense), net (360) 20
------------------------- -------------------------
TOTAL OTHER INCOME 3,958 3,336
------------------------- -------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 35,898 117,870
PROVISION FOR INCOME TAXES - -
------------------------- -------------------------
NET INCOME $ 35,898 $ 117,870
========================= =========================
RETAINED EARNINGS, BEGINNING OF PERIOD 1,571,902 553,475
------------------------- -------------------------
RETAINED EARNINGS, END OF PERIOD $ 1,607,800 $ 671,345
========================= =========================
BASIC NET INCOME PER COMMON SHARE $ 0.01 $ 0.05
========================= =========================
DILUTED NET INCOME PER COMMON SHARE $ 0.01 $ 0.05
========================= =========================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,483,193 2,483,193
========================= =========================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,
ASSUMING DILUTION 2,494,897 2,489,669
========================= =========================
See notes to interim finanical statements
3
TM Century, Inc.
Statements of Operations and Retained Earnings (Unaudited)
For the Nine Months Ended June 30, 2001 and 2000
2001 2000
------------------------ -------------------------
REVENUES $ 4,602,405 $ 5,051,778
Less Commissions 880,206 1,000,871
------------------------ -------------------------
NET REVENUES 3,722,199 4,050,907
COSTS AND EXPENSES
Production, Programming, and Technical Costs 1,254,556 1,436,831
General and Administrative 1,405,697 1,483,847
Selling Costs 713,794 746,487
Depreciation 107,326 121,588
------------------------ -------------------------
TOTAL COSTS AND EXPENSES 3,481,373 3,788,753
------------------------ -------------------------
OPERATING INCOME 240,826 262,154
OTHER INCOME (EXPENSE)
Interest income 18,366 4,454
Other income (expense), net (325) 1,054
------------------------ -------------------------
TOTAL OTHER INCOME 18,041 5,508
------------------------ -------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 258,867 267,662
PROVISION FOR INCOME TAXES - -
------------------------ -------------------------
NET INCOME $ 258,867 $ 267,662
======================== =========================
RETAINED EARNINGS, BEGINNING OF PERIOD 1,348,933 403,683
------------------------ -------------------------
RETAINED EARNINGS, END OF PERIOD $ 1,607,800 $ 671,345
======================== =========================
BASIC NET INCOME PER COMMON SHARE $ 0.10 $ 0.11
======================== =========================
DILUTED NET INCOME PER COMMON SHARE $ 0.10 $ 0.11
======================== =========================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,483,193 2,483,193
======================== =========================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,
ASSUMING DILUTION 2,491,969 2,490,488
======================== =========================
See notes to interim finanical statements
4
TM Century, Inc.
Statements of Cash Flows (Unaudited)
For the Nine Months Ended June 30, 2001 and 2000
2001 2000
----------------- -----------------
OPERATING ACTIVITIES
Net income $ 258,867 $ 267,662
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization of property and equipment 107,326 121,588
Amortization of product development costs and comedy material rights 134,934 142,207
Provision for doubtful accounts 12,500 22,500
Increase (decrease) from changes in operating assets and liabilities:
Accounts receivable 125,187 50,436
Inventories 42,761 (10,386)
Product development costs (142,455) (169,320)
Prepaid expenses (23,297) (16,653)
Other assets - (550)
Accounts payable and accrued expenses (42,557) (73,050)
Deferred revenue (5,377) (47,294)
Customer deposits 11,665 39,356
----------------- -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 479,554 326,496
INVESTING ACTIVITIES
Purchase of short-term investments (314,080) -
Purchases of property and equipment (140,770) (131,375)
----------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES (454,850) (131,375)
FINANCING ACTIVITIES
Principal payments on note payable (25,000) (25,000)
Principal payments on capital lease obligations - (3,202)
----------------- -----------------
NET CASH USED IN FINANCING ACTIVITIES (25,000) (28,202)
----------------- -----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (296) 166,919
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 422,339 354,332
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 422,043 $ 521,251
================= =================
See notes to interim finanical statements
5
TM CENTURY INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
June 30, 2001
1. BASIS OF PRESENTATION
The interim financial statements of TM Century, Inc. (the "Company") at June 30,
2001, and for the three and nine months ended June 30, 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 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 nine months ended June 30, 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 include common
stock equivalents, if dilutive.
The following table provides a reconciliation between basic and diluted earnings
per share:
Three Months Ended Nine months Ended
June 30 June 30
--------------------------- ---------------------------
2001 2000 2001 2000
---- ---- ---- ----
Net Income 35,898 117,870 258,867 267,662
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 11,704 6,476 8,776 7,295
------------ ------------ ------------ ------------
Diluted 2,494,897 2,489,669 2,491,969 2,490,488
Earnings Per Share:
Basic $ .01 $ .05 $ .10 $ .11
============ ============ ============ ============
Diluted $ .01 $ .05 $ .10 $ .11
============ ============ ============ ============
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 nine months ended June 30, 2001 approximately $141,000 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
$131,000 and included costs related to the upgrade of production equipment and a
new delivery van. Expenditures for product development for the nine months
ending June 30, 2001 and 2000 were approximately $142,000 and $169,000,
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
$480,000 and $326,000 during the nine months ended June 30, 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 OPERATIONS
Comparison of the Three Month Periods Ended June 30, 2001 and 2000
- ------------------------------------------------------------------
Revenues decreased approximately $314,000, or 17.8% in the three month period
ended June 30, 2001 as compared to the same period for the previous year. The
revenue decrease was due to a decrease in revenues for music services of
$93,000, production libraries of $120,000, jingles of $23,000 and comedy
services of $78,000.
The majority of the Company's clients are businesses that depend on advertising
sales for their income. The serious recession in advertising expenditures this
year has caused most, if not all, of these businesses to curtail or postpone
spending, especially in non-essential products such as those marketed by the
Company. It is management's view that the worst of the recession is past and a
return to positive growth trends for advertising is anticipated for the fourth
calendar quarter of this year, which should in turn result in increased spending
on products such as those marketed by the Company.
Revenues of weekly HitDisc services decreased $39,000, while GoldDisc revenues
fell $54,000, resulting in a net decrease in music services revenue of 14.3% 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. 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 decreased $120,000, or 22.4%. 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 Company products. Cash sales to
domestic 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 decreased $23,000, or 8.6% over the same period in 2000 due to a
$28,000 decrease in jingle production both domestically and internationally. The
decrease in jingle production revenue was offset by a $5,800 increase in
royalties.
8
Comedy network revenue decreased $78,000, or 24.8% compared to the same period
in 2000. This decrease was primarily due to the decrease in advertising revenue
generated from barter sales.
Commissions deFcreased $118,000, or 31.5%, and reflect both the decrease in
barter revenue and international revenue generated by third party
representatives. As a percentage of revenues, commissions decreased from 21.2%
to 17.7% due to changes in the revenue structure where barter revenue decreased.
Production, programming and technical costs decreased $61,000, or 12.8%, and as
a percentage of revenue increased from 27.2% to 28.8%. The decrease in costs is
due to a combination of cost reduction efforts and staff reorganization which
resulted in more efficient disc production.
General and administrative costs decreased $39,000, or 7.6%, reflecting a
decrease in legal costs, salaries and benefits and facilities expenses.
Selling costs decreased $16,000, or 6.5%, and as a percentage of revenues
increased from 14.0% to 16.0%. 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 increased $3,200, or
9.5%, reflecting the purchase of depreciable assets in the current period.
Comparison of the Nine Month Periods Ended June 30, 2001 and 2000
- -----------------------------------------------------------------
Revenues decreased approximately $449,000, or 8.9% in the nine month period
ended June 30, 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 $352,000, production libraries of $78,000, jingles of $32,000, offset by an
increase in comedy revenue of $13,000.
The majority of the Company's clients are businesses that depend on advertising
sales for their income. The serious recession in advertising expenditures this
year has caused most, if not all, of these businesses to curtail or postpone
spending, especially in non-essential products such as those marketed by the
Company. It is management's view that the worst of the recession is past and a
return to positive growth trends for advertising is anticipated in the fourth
calendar quarter of this year, which should in turn result in increased spending
on products such as those marketed by the Company.
Revenues of weekly HitDisc services decreased $87,000, while GoldDisc revenues
decreased $265,000, resulting in a decrease in music services revenue of 17.3%
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 decreased $78,000, or 5.6%. Although production
library revenue generated from cash sales increased $87,000, or 28.2%, a drop in
barter revenue of $164,000 resulted in the overall reduction in revenues for
this product. 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 the
introduction of new products and the broadening markets, both domestically and
9
internationally. 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 six 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 Company 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 $32,000, or 3.9% 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 $13,000, or 1.8%. The increase in comedy revenue was
due to an increase in advertising revenues in the first quarter of the period
generated by sales of services on barter. Both domestic and international cash
revenues increased over the same period last year at a rate of 2% and 12%,
respectively.
Commissions decreased $121,000, or 12.0%, and reflect both the decrease in
barter revenue and international revenue generated by third party
representatives.
Production, programming and technical costs decreased $182,000, or 12.7%, and as
a percentage of revenue decreased from 28.4% to 27.26%. 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 $78,000, or 5.3%, reflecting a
decrease in professional fees, travel costs and bad debt expense.
Selling costs decreased $33,000, or 4.4%, and as a percentage of revenues
increased from 14.8% to 15.5%. 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 $14,000, or
11.7% 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
The holders of approximately 69.5% or 1,725,750 shares of the outstanding common
stock of the Company, by written consent executed as of April 30, 2001 in
accordance with Delaware law, (i) re-elected all five directors of the Company,
Marjorie L. McIntyre, A. Ann Armstrong, Carol M. Long, Michael Cope and R. David
Graupner, (ii) approved the anticipated appointment of King Griffin & Adamson
P.C. as the Company's independent certified public accountants for the fiscal
year ended September 30, 2001, and (iii) ratified the TM Century, Inc. 2000
Stock Option Plan. The Company did not solicit proxies or consents in connection
therewith.
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 August 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