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 SECURITIES
---- EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 2001
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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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 December 31,
2001 was 2,481,193.
Transitional Small Business Disclosure Format (check one): Yes No X
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TM Century, Inc.
Balance Sheets
December 31, 2001 (Unaudited) and September 30, 2001
ASSETS
December 31, September 30,
2001 2001
------------- -------------
Cash and cash equivalents $ 366,135 $ 464,631
Short-term investments 644,294 634,049
Accounts receivable, less allowance for doubtful accounts
of $87,296 and $84,589, respectively 501,665 540,488
Inventories, net of allowance for obsolescence of $258,545 for both periods 426,126 420,260
Prepaid expenses 94,604 66,824
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TOTAL CURRENT ASSETS 2,032,824 2,126,252
PROPERTY AND EQUIPMENT 2,900,075 2,886,485
Less accumulated depreciation and amortization (2,442,977) (2,406,438)
------------- -------------
NET PROPERTY AND EQUIPMENT 457,098 480,047
PRODUCT DEVELOPMENT COSTS, net of accumulated amortization
of $1,987,822 and $1,950,432, respectively 408,196 403,800
COMEDY MATERIAL RIGHTS, net of accumulated amortization
of $74,400 and $68,200, respectively 49,600 55,800
OTHER ASSETS 19,804 19,804
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TOTAL ASSETS $ 2,967,522 $ 3,085,703
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of note payable $ 12,000 $ 13,556
Accounts payable 74,092 11,019
Accrued expenses 55,110 110,015
Deferred revenue 59,760 80,882
Customer deposits 72,320 72,320
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TOTAL CURRENT LIABILITIES 273,282 287,792
NOTE PAYABLE, less current portion 11,000 16,000
CUSTOMER DEPOSITS - NON-CURRENT 93,369 87,517
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TOTAL LIABILITIES 377,651 391,309
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 7,500,000 shares; 2,970,481 shares issued; 29,705 29,705
2,481,193 and 2,483,193 shares outstanding, respectively
Additional paid-in capital 2,275,272 2,275,272
Retained earnings 1,577,621 1,680,644
Treasury stock - at cost, 489,288 and 487,288 shares, respectively (1,292,727) (1,291,227)
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TOTAL STOCKHOLDERS' EQUITY 2,589,871 2,694,394
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,967,522 $ 3,085,703
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See notes to interim financial statements
2
TM Century, Inc.
Statements of Operations and Retained Earnings (Unaudited)
For The Three Months Ended December 31, 2001 and 2000
2001 2000
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REVENUES $ 1,247,417 $ 1,732,936
Less Commissions 215,456 381,755
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NET REVENUES 1,031,961 1,351,181
COSTS AND EXPENSES
Production, Programming, and Technical Costs 412,576 381,515
General and Administrative 469,043 455,593
Selling Costs 227,861 234,384
Depreciation 36,539 34,837
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TOTAL COSTS AND EXPENSES 1,146,019 1,106,329
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OPERATING INCOME (LOSS) (114,058) 244,852
OTHER INCOME
Interest income 11,035 5,938
Other income -- 20
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TOTAL OTHER INCOME 11,035 5,958
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INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (103,023) 250,810
PROVISION FOR INCOME TAXES -- --
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NET INCOME (LOSS) $ (103,023) $ 250,810
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RETAINED EARNINGS, BEGINNING OF PERIOD 1,680,644 1,348,933
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RETAINED EARNINGS, END OF PERIOD $ 1,577,621 $ 1,599,743
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BASIC NET INCOME (LOSS) PER COMMON SHARE $ (0.04) $ 0.10
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DILUTED NET INCOME(LOSS) PER COMMON SHARE $ (0.04) $ 0.10
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,482,943 2,483,193
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,
ASSUMING DILUTION 2,482,943 2,485,368
=========== ===========
See notes to interim financial statements
3
TM Century, Inc.
Statements of Cash Flows (Unaudited)
For The Three Months Ended December 31, 2001 and 2000
2001 2000
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OPERATING ACTIVITIES
Net income (loss) $(103,023) $ 250,810
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities
Depreciation and amortization of property and equipment 36,539 34,837
Amortization of product development costs and comedy material rights 43,590 42,857
Provision for doubtful accounts 4,500 2,583
Increase (decrease) from changes in operating assets and liabilities:
Accounts receivable 34,323 (178,408)
Inventories (5,867) 13,210
Product development costs (41,787) (45,024)
Prepaid expenses (27,781) (63,508)
Accounts payable and accrued expenses 8,168 (18,498)
Deferred revenue (21,122) 733
Customer deposits 5,854 1,540
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (66,606) 41,132
INVESTING ACTIVITIES
Purchase of short-term investments (10,245) (5,620)
Purchases of property and equipment (13,589) (93,583)
Acquisition of treasury stock (1,500) --
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NET CASH USED IN INVESTING ACTIVITIES (25,334) (99,203)
FINANCING ACTIVITIES
Principal payments on note payable (6,556) (11,111)
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NET CASH USED IN FINANCING ACTIVITIES (6,556) (11,111)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (98,496) (69,182)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 464,631 422,339
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 366,135 $ 353,157
========= =========
See notes to interim financial statements
4
TM CENTURY INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
December 31, 2001
1. BASIS OF PRESENTATION
The interim financial statements of TM Century, Inc. (the "Company") at December
31, 2001, and for the three months ended December 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, 2001 balance sheets were 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, 2001.
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, 2001 are not necessarily indicative of
the results which can be expected for the entire fiscal year.
2. TREASURY STOCK
On October 29, 2001 the Board of Directors, by resolution, authorized the
Company to purchase up to 100,000 shares of its common stock on the open market
or through privately negotiated transactions, from time to time, dependent upon
market conditions, from November 1, 2001 through October 31, 2003. As of
December 31, 2001 the Company has made purchases of 2,000 shares at an average
price of $.75 per share. These purchases were funded by cash reserves of the
Company. Future purchases are expected to be funded from operations or cash
reserves of the Company.
3. 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
December 31
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2001 2000
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Net Income (Loss) $ (103,023) $ 250,810
Weighted Average Number of Shares Outstanding
Basic 2,482,943 2,483,193
Dilutive effect of common stock equivalents 0 2,175
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Diluted 2,482,943 2,485,368
Earnings Per Share:
Basic Net Income (Loss) $ (.04) $ .10
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Diluted Net Income (Loss) $ (.04) $ .10
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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 including, but not limited to, terrorist attacks on the United States
and the effect on the economy in general and on the Company's revenue base in
particular. 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 2002.
TM Century's cash balance decreased from $465,000 at September 30, 2001 to
$366,000 at December 31, 2001, primarily due to the timing of cash receipts from
third party representatives and purchases of property and equipment. During the
quarter ended December 31, 2001 approximately $13,000 was spent for the purchase
6
of property and equipment associated with upgrades of computer and digital
recording hardware. Purchases of property and equipment for the same period in
2000 totaled approximately $94,000 and included costs related to the upgrade of
production equipment and leasehold improvements. Expenditures for product
development for the quarter were approximately $42,000 and $45,000 for 2001 and
2000, respectively. Funds for operating needs, new product development and
capital expenditures for the period were provided from cash reserves of the
Company. The Company's expenditures for property, equipment, and development of
new products are discretionary. Product development expenditures are expected to
be approximately $240,000 in fiscal 2002. 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 2002. The Company has no
other significant commitments for capital expenditures in fiscal 2002.
RESULTS OF CONTINUING OPERATIONS
Comparison of the Three-Month Periods Ended December 31, 2000 and 2001
- ----------------------------------------------------------------------
Revenues decreased approximately $486,000 or 28% in the three-month period ended
December 31, 2001 as compared to the same period for the previous year. The
events that occurred on September 11, 2001 and the subsequent effect on the
advertising industry had a significant impact on first quarter revenues for all
product lines, which historically derived approximately 50% of revenue from
barter agreements. Barter revenues are derived from obtaining airtime from radio
stations in exchange for such weekly services and marketing such airtime to
advertisers. Barter revenue for the three-month period ended December 31, 2001
was $429,000 compared to $860,000 for the same period of 2000. The revenue
decrease was comprised of a decrease in revenues for music services of $84,000,
production libraries of $248,000 and comedy services of $160,000, offset by an
increase in revenues from jingles of $3,000 and other revenue of $3,000.
Revenues of weekly HitDisc services decreased $67,000, while GoldDisc revenues
decreased $17,000, resulting in a decrease in music services revenue of 14.6% as
compared to the same period of the previous year. The decrease in compact disc
music library revenues reflects a decrease in weekly and recurrent music sales
in both domestic and international markets. 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. Renewals and new sales growth are subject to customer acceptance of the
new products.
Production library revenues decreased $248,000, or 43.4%. The decrease in
production library revenue is primarily due to the decrease in advertising
revenue. 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 increased $3,000, or 1.4% over the same period in 2000. The
increase was the result of a $29,000 increase in domestic jingle sales, offset
by a $26,000 decline in international sales. Domestic jingle sales in the
current period included $109,000 in custom jingles compared to $17,000 in the
same period in fiscal 2000.
7
Comedy revenue decreased $160,000, or 45.8%. Decreases in Comedy revenue are
primarily due to the decrease in advertising sales, which are generated by
contracts for services through barter arrangements.
Commissions decreased $166,000 or 43.5%, and reflect the decrease in barter
revenue. As a percentage of revenues, commissions decreased from 22.0% to 17.3%
due to changes in the revenue structure where a smaller percentage of revenue is
from barter.
Production, programming and technical costs increased $31,000 or 8.1%, and as a
percentage of revenue increased from 22.0% to 33.1%. Direct costs related to the
writing, recording and production of custom jingles were responsible for an
increase of $53,000, offset by a decrease in all other product categories
totaling $22,000.
General and administrative costs increased $13,000 or 2.9%, as a result of a
reduction in sublease revenue to offset the cost of facilities.
Selling costs decreased $7,000 or 2.8%, and as a percentage of revenues
increased from 13.5% to 18.3%. The decrease in expenses was created by a
decrease in sales commissions of $34,000, offset by increased direct marketing
costs of $27,000.
Depreciation and amortization of property and equipment increased $1,700 or 4.9%
and is due to the addition of property and equipment in prior months.
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
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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 31, 2002
TM CENTURY, INC.
BY: s/Teri R.S. James
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Teri R.S. James
Chief Financial Officer
(Principal Accounting Officer)
BY: /s/R. David Graupner
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R. David Graupner
Chief Executive Officer
(Principal Executive Officer)
10