<PAGE>
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
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(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
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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.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
MDI Entertainment, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
August 31, May 31,
1998 1998
---------- ----------
(unaudited)
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
MDI Entertainment, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
<TABLE>
<CAPTION>
August 31, May 31,
1998 1998
------------ ------------
(unaudited)
<S> <C> <C>
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
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
MDI Entertainment, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three months ended
August 31,
1998 1997
--------- ---------
(unaudited) (unaudited)
<S> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
MDI Entertainment, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
<TABLE>
<CAPTION>
As of August 31, 1998 and May 31, 1998
- - - - - - - - - - - - - - - - - - - -
Par Additional Retained
* Value Paid-In Earnings
Shares $.001 Capital (Deficit) Total
------ ----- ------- --------- -----
<S> <C> <C> <C> <C> <C>
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)
---------- ------- ---------- --------------- ----------------
---------- ------- ---------- --------------- ----------------
</TABLE>
* 200,000,000 shares authorized
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
MDI Entertainment, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended
August 31,
1998 1997
----------------- ----------------
(unaudited) (unaudited)
<S> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Ended
August 31,
1998 1997
---- ----
<S> <C> <C>
Shares: Basic weighted average common
shares outstanding 7,776,500 N/A*
</TABLE>
*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
<PAGE>
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
<PAGE>
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
