<PAGE>
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, 1995
/ / 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 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: (214) 247-8850
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 August 4,
1995 was 2,537,193.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
TM CENTURY, INC.
BALANCE SHEETS
JUNE 30, 1995 (UNAUDITED) AND SEPTEMBER 30, 1994
ASSETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1995 1994
---------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 90,127 $ 746,912
Accounts and notes receivable
less allowances of $102,000 and $97,000 respectively 716,224 660,524
Inventories, net 1,891,464 1,538,480
Federal income taxes receivable 147,000 99,594
Deferred federal income taxes 77,793 34,704
Prepaid expenses 37,947 54,949
----------- -----------
TOTAL CURRENT ASSETS 2,960,555 3,135,163
PROPERTY AND EQUIPMENT 1,902,131 1,691,367
Less accumulated depreciation (969,031) (817,441)
----------- -----------
NET PROPERTY AND EQUIPMENT 933,100 873,926
INVENTORIES - NONCURRENT, net 857,225 1,034,290
OTHER ASSETS 18,888 44,182
----------- -----------
TOTAL $ 4,769,768 $ 5,087,561
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 274,413 $ 109,594
Accrued expenses 209,734 170,798
Customer deposits 75,551 199,016
----------- -----------
TOTAL CURRENT LIABILITIES 559,698 479,408
CUSTOMER DEPOSITS - noncurrent 198,106 194,875
DEFERRED FEDERAL INCOME TAXES 71,515 61,071
----------- -----------
TOTAL LIABILITIES 829,319 735,354
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 7,500,000 shares;
2,970,481 shares issued 29,705 29,705
Paid-in capital 2,275,272 2,275,273
Treasury stock - at cost, 433,288 shares (1,250,316) (1,250,316)
Retained earnings 2,885,788 3,297,545
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,940,449 4,352,207
----------- -----------
TOTAL $ 4,769,768 $ 5,087,561
=========== ===========
</TABLE>
See notes to interim financial statements.
2
<PAGE>
TM CENTURY, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
REVENUES $1,665,915 $1,955,663
Less Commissions 129,461 133,066
---------- ----------
NET REVENUES 1,536,454 1,822,597
---------- ----------
COSTS AND EXPENSES:
Production, programming and technical costs 946,311 907,487
General and administrative 672,830 612,771
Selling 112,742 219,407
Depreciation 50,831 45,903
---------- ----------
TOTAL 1,782,714 1,785,568
---------- ----------
OPERATING (LOSS) INCOME (246,260) 37,029
OTHER INCOME (EXPENSES):
Interest income 6,713 3,885
Interest expense - -
Other (9,000) -
---------- ----------
TOTAL (2,287) 3,885
---------- ----------
(LOSS) INCOME BEFORE INCOME TAXES (248,547) 40,914
INCOME TAX (BENEFIT) PROVISION: (Note 3)
Current (73,450) 20,160
Deferred 10,205 (5,822)
---------- ----------
TOTAL (63,245) 14,338
---------- ----------
NET (LOSS) INCOME $ (185,302) $ 26,576
RETAINED EARNINGS, BEGINNING OF PERIOD 3,071,090 3,270,877
---------- ----------
RETAINED EARNINGS, END OF PERIOD $2,885,788 $3,297,453
========== ==========
NET (LOSS) INCOME PER COMMON SHARE $ (0.07) $ 0.01
========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,537,193 2,537,193
========== ==========
</TABLE>
See notes to interim financial statements
3
<PAGE>
TM CENTURY, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
REVENUES $5,699,356 $6,007,858
Less Commissions 459,667 407,157
---------- ----------
NET REVENUES 5,239,689 5,600,701
---------- ----------
COSTS AND EXPENSES:
Production, programming and technical costs 3,106,971 2,732,437
General and administrative 2,079,658 1,895,180
Selling 468,867 583,020
Depreciation 151,590 147,372
---------- ----------
TOTAL 5,807,086 5,358,009
---------- ----------
OPERATING (LOSS) INCOME (567,397) 242,692
OTHER INCOME (EXPENSES):
Interest income 14,567 9,511
Interest expense - (505)
Other (32,922) 6,208
---------- ----------
TOTAL (18,355) 15,214
---------- ----------
(LOSS) INCOME BEFORE INCOME TAXES (585,752) 257,906
INCOME TAX (BENEFIT) PROVISION: (Note 3)
Current (182,915) 81,958
Deferred 8,920 6,746
---------- ----------
TOTAL (173,995) 88,704
---------- ----------
NET (LOSS) INCOME $ (411,757) $ 169,202
RETAINED EARNINGS, BEGINNING OF PERIOD 3,297,545 3,128,251
---------- ----------
RETAINED EARNINGS, END OF PERIOD $2,885,788 $3,297,453
========== ==========
NET (LOSS) INCOME PER COMMON SHARE $(0.16) $0.07
========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,537,193 2,537,193
========== ==========
</TABLE>
See notes to interim financial statements
4
<PAGE>
TM CENTURY, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (Loss) Income $(411,757) $ 169,202
Adjustments to reconcile net income
to net cash (used in) provided by operations:
Depreciation 151,590 147,372
Amortization 372,705 328,812
Deferred income taxes (32,645) 6,745
Provision for doubtful accounts 35,000 125,930
Loss on disposition of property and equipment - (6,209)
Accretion of discounts - (6,397)
Payments received on installment receivables 12,600 56,453
Changes in operating assets and liabilities:
Accounts receivable (116,253) 16,577
Inventories (526,124) (252,505)
Prepaid expenses 17,002 (53,417)
Accounts payable and accrued expenses 203,755 (258,087)
Federal income taxes receivable/payable (47,406) 151,146
Customer deposits (120,234) (26,547)
--------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (461,767) 399,075
--------- ---------
INVESTING ACTIVITIES:
Purchase of U.S. Treasury Securities (294,423) -
Proceeds from sale of U.S. Treasury Securities 294,423 -
(Decrease) in long-term liabilities - (1,234)
(Increase) decrease in other assets 2,794 10,360
Purchases of property and equipment (210,764) (257,874)
Principal payments received on notes receivable 12,953 12,113
Principal payments received from lease of
property and equipment - 12,046
Proceeds from sale of net assets under lease - 150,000
Proceeds from sale of property and equipment - 31,857
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (195,017) (42,732)
--------- ---------
FINANCING ACTIVITIES:
Fractional shares paid to stockholders (1) (3)
Principal payments on long-term debt
and capital lease obligations - (50,000)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (1) (50,003)
--------- ---------
(DECREASE) INCREASE IN CASH (656,785) 306,340
CASH AT BEGINNING OF PERIOD 746,912 201,747
--------- ---------
CASH AT END OF PERIOD $90,127 $508,087
========= =========
</TABLE>
See notes to interim financial statements
5
<PAGE>
TM CENTURY INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
1. BASIS OF PRESENTATION
The interim financial statements of TM Century, Inc. (the "Company") at
June 30, 1995, and for the three and nine months ended June 30, 1995 and
1994, are unaudited, but include all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
presentation. The September 30, 1994 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, 1994.
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 nine months ended June 30, 1995 are not
necessarily indicative of the results which can be expected for the entire
fiscal year.
2. STOCK OPTION PLAN
The option price of Incentive Stock Options is not less than the fair market
value of the common stock at the date of grant. All outstanding Incentive
Stock Options vest over a period of five years from the date of grant.
The option price of outstanding Nonqualified Stock Options is $1.20 per
share. All outstanding Nonqualified Stock Options are 20% vested upon grant,
50% vested after year one, and 100% vested after two years.
Option information for the quarter ended June 30, 1995:
<TABLE>
<CAPTION>
At June 30, 1995 Option Price per Share Number of Shares
---------------- ---------------------- ----------------
<S> <C> <C>
Options outstanding:
Incentive $1.125 - $2.50 190,000
Nonqualified $1.20 20,000
Options exercisable:
Incentive $1.125 - $2.50 65,000
Nonqualified $1.20 13,500
Options granted during the quarter: None
Options exercised during the quarter: None
</TABLE>
6
<PAGE>
3. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109) effective October 1, 1993, and there
was no material impact on income as a result of adoption of the new standard.
Prior years' financial statements have not been restated to apply SFAS 109.
Deferred income taxes are provided, when applicable, for all significant
temporary differences between the recognition of income and expense for tax
and for financial accounting purposes by the liability method. Deferred tax
assets and liabilities are determined by the tax laws and statutory rates in
effect at the balance sheet date. Temporary differences which give rise to
deferred taxes include basis differences of property and equipment,
accelerated tax depreciation in excess of book depreciation, and valuation
allowances provided in excess of amounts deductible for tax purposes. Under
the provisions of SFAS 109, recognition of deferred tax assets is permitted
for such amounts which can be recognized currently or carried back to prior
years. For the three and nine months ended June 30, 1995, the Company
recognized deferred tax assets relating to net operating losses eligible for
carryback and carryforward.
4. RENEWAL OF LINE OF CREDIT
Effective February 28, 1995, the Company renewed its $300,000 revolving line
of credit for a one-year term. Borrowings under the line of credit bear a
fluctuating interest rate of prime plus 1%, payable monthly, and the Company
provides a negative pledge on all accounts, contract rights, and inventory of
the Company. The line of credit, which bears a commitment fee of .5% per
annum, is renewable annually, subject to the consent of both parties. No
borrowings were drawn under the line of credit during the quarter.
5. APPOINTMENT OF CHIEF EXECUTIVE OFFICER
In March, 1995, the Company appointed Neil Sargent to the positions of
President, Chief Executive Officer, and Director. The Company entered into a
three-year employment contract effective April 17, 1995 with Mr. Sargent
which provides for a base annual salary of $180,000 and eligibility to
participate in the Company's Bonus Plan.
6. NET INCOME (LOSS) PER SHARE
Net income (loss) per common share is based on the weighted average number of
common shares outstanding and common stock equivalents, if dilutive,
outstanding during the periods.
7
<PAGE>
TM CENTURY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
TM Century, Inc. is primarily engaged in the creation, production, marketing,
and worldwide distribution of compact disc music libraries, production
libraries, station identification jingles, computer software used in music
scheduling, specialized computer equipment and software, and compact disc
players for radio stations.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies upon current sales of music libraries, jingles, and
specialized computer equipment and software on terms of cash upon delivery
for operating liquidity. Liquidity is also provided by monthly revenues under
three-year contracts for production libraries, for which the Company is
obligated to provide music updates throughout the contract term. As of June
30, 1995, the Company had future production library contract billings of
approximately $1,214,000 which will be recognized within three years. As
contracts for production libraries are sold, the cost per contract to deliver
such libraries diminishes, as only reproduction costs, which are minimal, are
incurred for each additional contract. Sales of music libraries, jingles,
and specialized computer equipment and software and the payments under
production library contracts will provide, in the opinion of management,
adequate liquidity to meet operating requirements for the foreseeable future.
Cash balances were utilized to fund operations, capital expenditures, and
product development during the nine month period ended June 30, 1995. The
Company made capital expenditures of $211,000 for the purchase of property
and equipment and incurred product development costs of $239,000 for software
development, new music libraries, and music library updates during the nine
month period ended June 30, 1995. The Company's expenditures for property,
equipment, and development of new products are discretionary. Funds for new
product development and capital expenditures are provided from operations and
from cash reserves, and management anticipates cash flow from operations,
cash reserves, and funds available under the Company's line of credit will be
sufficient to meet these capital requirements for the foreseeable future.
Effective February 28, 1995, the Company renewed its $300,000 revolving line
of credit for a one-year term. Borrowings under the line of credit bear a
fluctuating interest rate of prime plus 1%, payable monthly and the Company
provides a negative pledge on all accounts, contract rights, and inventory of
the Company. The line of credit, which bears a commitment fee of .5% per
annum, is renewable annually, subject to the consent of both parties. No
borrowings were drawn under the line of credit during the quarter.
Pursuant to an Agreement entered into on November 30, 1994 between the
Company and its former Chief Executive Officer, the Company agreed to pay
such former officer $60,000 on December 1, 1994 and $25,000 on December 1,
1995 in consideration for his one-year limited non-compete agreement and
general release. Funds for the December, 1994 payment were provided by cash
reserves of the Company.
RESULTS OF CONTINUING OPERATIONS
COMPARISON OF THE THREE MONTH PERIODS ENDED JUNE 30, 1995 AND 1994
Revenues declined approximately 15% in the three month period ended June 30,
1995 as compared to the same period for the previous year. The decrease was
due primarily to a decline in compact disc music library sales prices and
declines in production library, and specialized computer equipment and
software sales volume.
8
<PAGE>
Music library revenues decreased approximately 18% compared to the prior
year. Although music library sales volume increased, this increase was more
than offset by a decrease in sales prices.
The decrease in production library revenue resulted primarily from the
expiration of three-year contracts entered into by the Company with customers
in prior years. The decrease in such revenues resulted from a reduced demand
for new contracts and the nonrenewal of expired contracts. Although
production library revenues may continue to decline as additional three-year
contracts expire, management believes that production libraries will continue
to generate a significant portion of overall revenues from sales of new
products as well as existing products. Renewals and new sales growth are
subject to customer acceptance of the new products.
The decrease in specialized computer equipment and software sales was due to
the Company's efforts to restrict sales for a period of thirty days during
the quarter while significant enhancements and modifications were provided
for prospective and existing customers.
Commissions as a percentage of revenue increased primarily due to increases
in contracts written in the third quarter for weekly music services.
Commissions are paid upon execution of the weekly service contract, while
revenue for weekly music services is recognized as such services are provided
in the future. Increases in commissions as a percentage of revenue are also
due to changes in the product mix of new contracts entered into during the
quarter as compared with the prior year.
Production, programming and technical costs increased due to increases in
technical salaries costs for support of specialized computer equipment and
costs related to a new weekly compact disc music service for international
markets which was introduced in July, 1994. These increases were partially
offset by a decline in costs of radio station commercials produced for
television broadcast, which were discontinued during the quarter.
General and administrative costs increased due to (1) relocation costs for
executive and sales employees hired during the quarter and (2) increased
facilities and occupancy costs.
Selling costs declined due primarily to decreases in advertising and
promotion expenditures and selling costs associated with radio station
commercials produced for television broadcast, which were discontinued during
the quarter.
COMPARISON OF THE NINE MONTH PERIODS ENDED JUNE 30, 1995 AND 1994
Revenues decreased approximately 5% in the nine month period ended June 30,
1995 as compared to the same period for the previous year. This overall
decline was due primarily to a decrease in production library sales volume.
Refer to discussion above for the three-month period ended June 30, 1995.
Commissions as a percentage of revenue increased due to changes in the
product mix of new contracts entered into during the nine month period ended
June 30, 1995 as compared with the prior year.
Production, programming and technical costs increased due to (1) an increase
in production costs related to the increase in specialized computer equipment
sales, (2) an increase in technical salaries costs for support of specialized
computer equipment, and, (3) costs related to a new weekly compact disc music
service for international markets which was introduced in July, 1994.
General and administrative costs increased as a result of (1) increased
compensation, legal and other professional fees associated with the
resignation of a director and officer of the Company in November, 1994, (2)
relocation costs for executive and sales employees, and, (3) increased
facilities and occupancy costs.
9
<PAGE>
Selling costs declined due primarily to decreases in advertising and
promotion expenditures and selling costs associated with radio station
commercials produced for television broadcast, which were discontinued during
the third quarter.
Other expenses increased as a result of one-time costs associated with the
resignation of a director and officer of the Company in November, 1994 and
provisions for loss on the sale of certain production equipment. Interest
income increased as a result of increased levels of cash and investments
balances.
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 - Not applicable.
Item 5. Other information - Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
MATERIAL CONTRACTS:
None.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the period April 1,
1995 through June 30, 1995.
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 14, 1995
TM CENTURY, INC.
BY:/s/Lynne L. Mabry
-------------------
Lynne L. Mabry
Chief Financial Officer
(Principal Accounting Officer)
BY:/s/Neil W. Sargent
-------------------
Neil W. Sargent
Chief Executive Officer
(Principal Executive Officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 2 AND 4 OF THE COMPANY'S FORM
10-QSB FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 90,127
<SECURITIES> 0
<RECEIVABLES> 813,224
<ALLOWANCES> 97,000
<INVENTORY> 1,891,464
<CURRENT-ASSETS> 2,960,555
<PP&E> 1,902,131
<DEPRECIATION> 969,031
<TOTAL-ASSETS> 4,769,768
<CURRENT-LIABILITIES> 559,698
<BONDS> 0
<COMMON> 29,705
0
0
<OTHER-SE> 3,910,744
<TOTAL-LIABILITY-AND-EQUITY> 4,769,768
<SALES> 5,699,356
<TOTAL-REVENUES> 5,699,356
<CGS> 3,106,971
<TOTAL-COSTS> 3,106,971
<OTHER-EXPENSES> 2,700,115
<LOSS-PROVISION> 35,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (585,752)
<INCOME-TAX> (173,995)
<INCOME-CONTINUING> (411,757)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (411,757)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
