SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 1 ON FORM 10-QSB/A (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED August 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to - - - - - - - - - - - - - - - - Commission File Number: - - - - - - - - MDI Entertainment, Inc. - - - - - - - - - - - - - - - - - - - - - - - - - - - (Exact name of Registrant as specified in its Charter) Delaware 73-1515699 - - - - - - - - - - - (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 201 Ann Street Hartford, Connecticut 06103 - - - - - - - - - - - - - - - - - - - - (Address of principal executive offices) (860) 527-5359 - - - - - - - - - - - - - - - (Registrant's telephone number) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (Former Name, Former Address and Former Fiscal Year, if changed since last Report) Check whether the registrant (1) has 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 No X ----- ----- As of October 12, 1998, 7,776,500 shares of the issuer's common stock were outstanding. Transitional Small Business Disclosure Format (check one): Yes No X ----- ----- The Registrant hereby amends Part I, Item 1 (Financial Statements) to amend the line amounts for August 31, 1998 and May 31, 1998 in the item captioned "Total liabilities and stockholders' equity" contained in the Consolidated Balance Sheets. PART I FINANCIAL INFORMATION Item 1. Financial Statements MDI Entertainment, Inc. and Subsidiaries Consolidated Balance Sheets August 31, May 31, 1998 1998 ---------- ---------- (unaudited) ASSETS Cash and cash equivalents $334,474 $960,398 Accounts receivable 608,175 317,598 Inventory 449,695 417,651 Prepaid expenses 139,379 30,203 ---------- ---------- Total current assets 1,531,723 1,725,850 Property and equipment, net 101,044 107,852 Marketing costs, net 175,328 213,077 Other 73,811 52,643 ---------- ---------- Total other assets 249,139 265,720 Total assets $1,881,906 $2,099,422 ---------- ---------- ---------- ---------- The accompanying notes are an integral part of these consolidated financial statements. 2 MDI Entertainment, Inc. and Subsidiaries Consolidated Balance Sheets (Continued) August 31, May 31, 1998 1998 ------------ ------------ (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $355,024 $346,491 Accrued liabilities 1,269,156 1,320,165 Short-term borrowings 50,000 123,754 Deferred revenue (Note 2) 2,339,827 2,906,047 ------------ ------------ Total current liabilities $4,014,007 $4,696,457 Long-term debt 27,000 27,000 Minority interest 35,029 35,268 ------------ ------------ Total liabilities 4,076,036 4,758,725 Contingencies (Note 5) - - Common stock, $0.001 par value, 200,000,000 shares authorized 7,776,500 issued and outstanding 7,777 7,777 Additional paid-in capital 348,348 348,348 Accumulated deficit (2,550,255) (3,015,428) ------------ ------------ Total stockholders' deficit (2,194,130) (2,659,303) Total liabilities and stockholders' equity $1,881,906 $2,099,422 ------------ ------------ ------------ ------------ The accompanying notes are an integral part of these consolidated financial statements. 3 MDI Entertainment, Inc. and Subsidiaries Consolidated Statements of Operations Three months ended August 31, 1998 1997 --------- --------- (unaudited) (unaudited) Revenues $2,102,324 $291,199 Cost of revenues 1,096,139 212,737 --------- --------- Gross profit 1,006,185 78,462 Selling, general and administrative expenses 546,794 431,646 --------- --------- Operating profit (loss) 459,391 (353,184) Interest (income) expense, net (6,366) 8,016 Other income, net (192) (3,335) Minority interest (243) 368 Net income (loss) before income tax expense 466,192 (358,233) Income tax expense (Note 4) 1,019 5,650 --------- --------- Net income (loss) $465,173 $(363,883) --------- --------- --------- --------- Basic earnings (loss) per common share (Note 3) $0.06 N/A The accompanying notes are an integral part of these consolidated financial statements. 4 MDI Entertainment, Inc. and Subsidiaries Consolidated Statements of Stockholders' Deficit As of August 31, 1998 and May 31, 1998 - - - - - - - - - - - - - - - - - - - - Par Additional Retained * Value Paid-In Earnings Shares $.001 Capital (Deficit) Total ------ ----- ------- --------- ----- BALANCE, May 31, 1998 7,776,500 $ 7,777 $ 348,348 $ (3,015,428) $ (2,659,303) Net profit - - - $ 465,173 $ 465,173 ---------- ------- ---------- --------------- ---------------- BALANCE, August 31, 1998 7,776,500 $ 7,777 $ 348,348 $ (2,550,255) $ (2,194,130) ---------- ------- ---------- --------------- ---------------- ---------- ------- ---------- --------------- ---------------- * 200,000,000 shares authorized The accompanying notes are an integral part of these consolidated financial statements. 5 MDI Entertainment, Inc. and Subsidiaries Consolidated Statements of Cash Flows Three months ended August 31, 1998 1997 ----------------- ---------------- (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 465,173 $ (363,883) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Minority interest (243) (3,335) Depreciation and amortization 49,111 60,165 Change in assets and liabilities: Increase in accounts receivable (290,577) (423,300) (Increase) decrease in inventory (32,044) 35,709 (Increase) decrease in prepaid expenses (109,176) 12,756 Increase in marketing costs (3,050) (48,394) (Increase) decrease in other assets (21,168) 29,525 Increase (decrease) in accounts payable 8,553 (43,521) Increase (decrease) in accrued expenses (51,009) 98,558 Decrease in taxes payable - (44,322) (Decrease) increase in deferred revenue (566,220) 615,684 ----------------- ---------------- Net cash used for operating activities (550,670) (74,358) ----------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (1,500) - ----------------- ---------------- Net cash used for investing activities (1,500) - ----------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of financing arrangements (73,754) (92,951) Borrowings from short-term debt - 200,000 Borrowings from stockholder - 29,116 ----------------- ---------------- Net cash provided by (used for) financing activities (73,754) 136,165 ----------------- ---------------- NET INCREASE (DECREASE) IN CASH (625,924) 61,807 CASH, beginning of the period 960,398 8,190 ----------------- ---------------- CASH, end of the period $ 334,474 $ 69,997 ----------------- ---------------- ----------------- ---------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for - Interest $ 3,264 $ 40,578 Income taxes $ 181 $ 33,769 Non-cash items: Issuance of note in connection with exchange transaction to shareholders $ - $ 300,000 The accompanying notes are an integral part of these consolidated financial statements. 6 MDI ENTERTAINMENT, INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements 1. Presentation of Unaudited Interim Consolidated Financial Statements. Information in the accompanying interim consolidated financial statements and notes to the financial statements for the three-month periods ended August 31, 1998 and 1997 is unaudited. The accompanying interim unaudited consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles and Regulation S-B. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended August 31, 1998, are not necessarily indicative of the results that may be expected for the year ending May 31, 1999. The consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the audited financial statements of the Company as and for the period ended May 31, 1998. 2. Revenue Recognition Revenue is derived by the Company from contracts with the state lotteries for scratch ticket games based on licensed brand names and entertainment properties. The Company provides the lotteries with second chance prize packages consisting of grand prizes and various consolation prizes in addition to marketing support related to each of the games. Most of the lottery contracts require the lotteries to pay the Company in full upon the signing of the contract. The Company defers this revenue and recognizes the revenue when the terms of the applicable game are satisfied (i.e., the shipment of contracted merchandise). 3. Earnings per Share Basic earnings per common share are based on the average number of common shares outstanding during the fiscal year. Diluted earnings per common share include, in addition to the above, a dilutive effect of common share equivalents during the fiscal year. Common share equivalents represent dilutive stock options using the treasury method. The Company had no common share equivalents during the periods ended August 31, 1998 and 1997, respectively. The number of shares used in the earnings per common share computation for the 1998 and 1997 periods were as follows: Three Months Ended August 31, 1998 1997 ---- ---- Shares: Basic weighted average common shares outstanding 7,776,500 N/A* *Due to the fact that the Company did not issue shares associated with its reverse mergers until August 1997, an earnings per share computation is not relevant for the period ended August 31, 1997. 7 MDI ENTERTAINMENT, INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements (Continued) 4. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes," which requires that a deferred tax liability or asset be recognized for the estimated future tax effects attributable to temporary differences between the Company's financial statements and its tax return. SFAS 109 provides for recognition of a deferred tax asset for all future deductible temporary differences that, more likely than not, will provide the Company a future benefit. As of August 31, 1998 and May 31, 1998, the Company had a significant deferred tax asset, primarily as a result of net operating loss carry-forwards. The Company has established a valuation allowance for the full amount of this deferred tax asset. No provision for deferred taxes was recorded because there was no significant item which would result in a deferred tax liability. The Company has a significant net operating loss carry-forward at August 31, 1998 and May 31, 1998. Due to such carry-forward, the Company reported minimal tax expense at August 31, 1998 and May 31, 1998, respectively. 5. Contingencies The Company is involved in various lawsuits incidental to its business. The Company believes that these proceedings, in the aggregate, will not have a material adverse effect on the Company's operations or financial position. 8 SIGNATURE In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: October 16, 1998 MDI ENTERTAINMENT, INC. (Registrant) By: /s/ Steven M. Saferin --------------------------- Steven M. Saferin President and Chief Executive Officer and Director (Principal Executive Officer) By: /s/ Kenneth M. Przysiecki ------------------------------- Kenneth M. Przysiecki Chief Financial Officer and Secretary and Director (Principal Financial Officer) 9