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: March 31, 2000
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
March 31, 2000 was 2,483,193.
Transitional Small Business Disclosure Format (check one): Yes___ No X
<PAGE>
<TABLE>
TM Century, Inc.
Balance Sheets
As of March 31, 2000 (Unaudited) and September 30, 1999
<CAPTION>
ASSETS
March 31,2000 September 30,1999
_____________ _________________
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 1,149 $ 354,332
Accounts receivable less allowance for doubtful accounts
of $102,398 and $100,000 respectively 640,676 721,538
Inventories, net of allowance for obsolescence of $258,545 444,738 446,279
Prepaid expenses 20,093 31,277
____________ ____________
TOTAL CURRENT ASSETS 1,636,656 1,553,426
PROPERTY AND EQUIPMENT 2,647,002 2,563,220
Less accumulated depreciation and amortization (2,196,012) (2,116,116)
____________ ____________
NET PROPERTY AND EQUIPMENT 450,990 447,104
PRODUCT DEVELOPMENT COSTS, net of accumulated
amortization of $1,709,961 and $1,630,071 respectively 357,876 324,094
COMEDY MATERIAL RIGHTS, net of accumulated amortization
of $31,000 and $18,600 respectively 93,000 105,400
OTHER ASSETS 19,866 19,316
____________ ____________
TOTAL ASSETS $ 2,558,388 $ 2,449,340
============ ============
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 55,168 $ 63,508
Accrued expenses 153,960 196,978
Current portion of obligation under capital lease 0 3,202
Current portion of note payable 33,333 33,333
Deferred revenue 123,215 127,382
Customer deposits 33,307 37,623
____________ ____________
TOTAL CURRENT LIABILITIES 398,983 462,026
NOTE PAYABLE, less current portion 49,000 65,667
CUSTOMER DEPOSITS - NONCURRENT 138,080 99,114
ACCRUED SETTLEMENT FOR RIAA DISPUTE 405,100 405,100
____________ ____________
TOTAL LIABILITIES 991,163 1,031,907
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
Treasury stock - at cost, 487,288 shares (1,291,227) (1,291,227)
Retained earnings 553,475 403,683
____________ ____________
TOTAL STOCKHOLDERS' EQUITY 1,567,225 1,417,433
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,558,388 $ 2,449,340
============ ============
See notes to interim financial statements
</TABLE>
<PAGE>
<TABLE>
TM Century, Inc.
Statements of Operations and Retained Earnings (Unaudited)
For the Three Months Ended March 31, 2000 and 1999
2000 1999
___________ ___________
<S> <C> <C>
REVENUES $ 1,684,901 $ 1,532,959
Less Commissions 341,771 299,908
___________ ___________
NET REVENUES 1,343,130 1,233,051
COSTS AND EXPENSES
Production, Programming, and Technical Costs 474,965 585,316
General and Administrative Costs 499,842 569,001
Selling Costs 272,340 164,307
Depreciation and Amortization of Property and Equipment 40,161 78,030
Reduction in Carrying Value of Inventories 0 6,000
___________ ___________
TOTAL 1,287,308 1,402,654
OPERATING INCOME (LOSS) 55,822 (169,603)
OTHER INCOME (EXPENSE)
Interest income 2,526 454
Other (expense) income, net 1,081 (16,791)
___________ ___________
TOTAL 3,607 (16,337)
NET INCOME (LOSS) 59,429 (185,940)
___________ ___________
RETAINED EARNINGS, BEGINNING OF PERIOD $ 494,046 $ 281,272
___________ ___________
RETAINED EARNINGS, END OF PERIOD $ 553,475 $ 95,332
=========== ===========
BASIC INCOME (LOSS) PER COMMON SHARE $ 0.02 $ (0.07)
=========== ===========
DILUTED INCOME (LOSS) PER COMMON SHARE $ 0.02 $ (0.07)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,483,193 2,483,193
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,
ASSUMING DILUTION 2,693,446 N/A
=========== ===========
See notes to interim financial statements
</TABLE>
<PAGE>
<TABLE>
TM Century, Inc.
Statements of Operations and Retained Earnings (Unaudited)
For the Six Months Ended March 31, 2000 and 1999
2000 1999
___________ ___________
<S> <C> <C>
REVENUES $ 3,286,791 $ 3,022,727
Less Commissions 626,254 586,929
___________ ___________
NET REVENUES 2,660,537 2,435,798
COSTS AND EXPENSES
Production, Programming, and Technical Costs 957,287 1,103,577
General and Administrative Costs 968,983 1,127,651
Selling Costs 498,751 337,524
Depreciation and Amortization of Property and Equipment 87,896 159,030
Reduction in Carrying Value of Inventories 0 12,000
___________ ___________
TOTAL 2,512,917 2,739,782
OPERATING INCOME (LOSS) 147,620 (303,984)
OTHER INCOME (EXPENSE)
Interest income 1,138 2,004
Other (expense) income, net 1,034 (18,841)
___________ ___________
TOTAL 2,172 (16,837)
NET INCOME (LOSS) 149,792 (320,821)
RETAINED EARNINGS, BEGINNING OF PERIOD 403,683 416,153
___________ ___________
RETAINED EARNINGS, END OF PERIOD $ 553,475 $ 95,332
=========== ===========
BASIC INCOME(LOSS)PER COMMON SHARE $ 0.06 $ (0.13)
=========== ===========
DILUTED INCOME (LOSS) PER COMMON SHARE $ 0.06 $ (0.13)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,483,193 2,483,193
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,
ASSUMING DILUTION 2,691,431 N/A
=========== ===========
See notes to interim financial statements
</TABLE>
<PAGE>
<TABLE>
TM Century, Inc.
Statement of Cash Flows (Unaudited)
For the Six Months Ended March 31, 2000 and 1999
2000 1999
___________ ___________
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 149,792 $ (320,821)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization of property and equipment 87,896 159,030
Amortization 92,290 119,547
Provision for settlement of RIAA dispute 0 15,554
Provision for doubtful accounts 2,398 (36,150)
Reduction in carrying value of inventories 0 12,000
Increase (decrease) in cash from changes in
operating assets and liabilities:
Accounts receivable 78,463 192,231
Inventories 1,541 20,874
Product development costs (113,672) (67,825)
Prepaid expenses 11,184 3,482
Other assets (550) 0
Accounts payable and accrued expenses (51,358) (61,786)
Deferred revenue (4,167) (9,229)
Customer deposits 34,650 9,833
___________ ___________
NET CASH PROVIDED BY OPERATING ACTIVITIES 288,467 36,740
INVESTING ACTIVITIES
Purchases of property and equipment (91,782) (53,134)
___________ ___________
NET CASH USED BY INVESTING ACTIVITIES (91,782) (53,134)
FINANCING ACTIVITIES
Principal payments on note payable (16,666) (8,334)
Principal payments on capital lease obligations (3,202) (93,741)
___________ ___________
NET CASH USED BY FINANCING ACTIVITIES (19,868) (102,075)
___________ ___________
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 176,817 (118,469)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 354,332 348,957
___________ ___________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 531,149 $ 230,488
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 46 $ 3,287
=========== ===========
Non-cash investing and financing activities:
Note payable incurred to purchase Comedy Service $ 0 $ 124,000
=========== ===========
See notes to interim financial statements
</TABLE>
<PAGE>
TM CENTURY INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
1. BASIS OF PRESENTATION
The interim financial statements of TM Century, Inc. (the "Company")
at March 31, 2000, and for the three and six months ended March 31,
2000 and 1999, are unaudited, and include all adjustments (consisting
only of normal recurring adjustments) which the Company considers
necessary for a fair presentation. The September 30, 1999, 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, 1999. Certain amounts previously reported in
prior interim financial statements have been reclassified to conform
to the 2000 presentation.
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 six months
ended March 31, 2000, are not necessarily indicative of the results
which can be expected for the entire fiscal year.
2. LONG-TERM DEBT
Effective January 2, 1999, the Company purchased the remaining 50%
interest of certain comedy material that was written and produced by
an individual for broadcast by radio stations and marketed by the
Company, resulting in the Company owning 100% of such Comedy Service.
For consideration of the comedy material and the Company being able
to use the individual's name in connection with promoting the Comedy
Service for a period of five years, the Company agreed to pay to the
individual a total of $124,000, payable over five years through
December 2, 2003.
3. STOCK OPTION PLAN
On March 20, 2000 the Board of Directors approved the 2000 Stock
Option Plan (the "Plan") which provides for grants of Incentive Stock
Options to selected employees and for grants of Nonqualified Stock
Options to any persons who, in the opinion of the Board of Directors,
perform significant services on behalf of the Company. The maximum
number of shares which may be issued under the Plan was 350,000
shares.
<PAGE>
4. EARNINGS PER SHARE
Basic earnings per share are calculated on the weighted average
number of common shares outstanding during each period. Stock
options exercisable at March 31, 2000 had a dilutive effect on
Earnings Per Share for the three and six month periods of 2000. No
dilution is shown for the three and six months ended March 31, 1999
as the effect would be anti-dilutive for that period.
<TABLE>
The following table provides a reconciliation between basic and diluted earnings per share:
Three Months Ended Six Months Ended
March 31 March 31
_________________________ _________________________
2000 1999 2000 1999
____ ____ ____ ____
<S> <C> <C> <C> <C>
Net Income (Loss) $ 59,429 $ (185,940) $ 149,792 $ (320,821)
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 210,253 0 208,238 0
___________ ___________ ___________ ___________
Diluted 2,693,446 2,483,193 2,691,431 2,483,193
Earnings Per Share:
Basic Net Income (Loss) $ .02 $ (0.07) $ .06 $ (0.13)
=========== =========== =========== ===========
Diluted Net Income (Loss) $ .02 $ (0.07) $ .06 $ (0.13)
=========== =========== =========== ===========
</TABLE>
5. LEGAL PROCEEDINGS
On May 22, 1998, the Company received a letter from the Recording
Industry Association of America, Inc. (RIAA) alleging that it was
illegally duplicating sound recordings of the RIAA's member companies
in its Mobile Beat Series I and II and Mobile Beat Holiday Series.
The RIAA alleged substantial damages in the amount of $76,000,000 and
stated that it would consider a pre-complaint settlement. Settlement
discussions then ensued and are continuing. On June 30, 1998 the
Company and its counsel met with RIAA and its counsel. At this
meeting the RIAA made a demand for $3 million to settle the dispute.
In September, 1998 mediation was undertaken with no settlement
resulting.
Thus far no discovery has been undertaken. The Company believes that
it has a meritorious defense to many of the claims asserted, but it
is possible that it will not prevail if the matter is brought to
litigation. Any significant cash amount paid in settlement or
awarded in judgment would likely have an adverse effect on the
Company.
<PAGE>
The Company recorded a reserve for possible loss of $385,000 on the
terms of its latest settlement offer based on annual payments of
$50,000 over a period of eleven years. The recorded reserve reflects
a discount of the settlement offer using a discount rate of 8% per
annum. During 1999 the Company accrued interest in the amount of
$20,100 through June 30, 1999.
As the RIAA has rejected the most recent settlement offer with no
counter offer, the Company will not continue to accrue any additional
provision for settlement of the dispute, nor will it continue to
accrue legal costs related to the matter, however, it is management's
opinion that the accrual balance is a "best estimate" based on
current circumstances.
<PAGE>
TM CENTURY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
TM Century, Inc. (the "Company") is engaged primarily in the
creation, production, marketing, and worldwide distribution of
compact disc music libraries, production libraries, comedy services,
station identification jingles and commercials for broadcast media
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; numerous advertising agencies and
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, and on
third parties engaged to replicate the Company's products on compact
discs; 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.
<PAGE>
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 up to four 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 2000.
During the quarter ended March 31, 2000 approximately $43,000 was
spent for the purchase of property and equipment, primarily
associated with upgrades of computer hardware and the purchase of a
replacement vehicle for product transport. Purchases of property and
equipment for the same period in 1999 was $1,300.
Expenditures for product development for the quarter were
approximately $59,000 and $36,000 for 2000 and 1999, 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 $288,000 and $37,000 during the six
months ended March 31, 2000 and 1999, respectively. The Company's
expenditures for property, equipment, and development of new products
are discretionary. Product development expenditures are expected to
be approximately $185,000 in fiscal 2000. 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 2000. The Company has no other significant commitments for
capital expenditures in fiscal 2000.
RESULTS OF CONTINUING OPERATIONS
Comparison of the Three-Month Periods Ended March 31, 1999 and 2000
___________________________________________________________________
Revenues increased approximately $152,000 or 10.0% in the three-month
period ended March 31, 2000 as compared to the same period for the
previous year. The revenue increase was primarily due to an increase
in revenues for production libraries of $157,000, Comedy services of
$72,000 and music services of $19,000. Offsetting these increases
was a decrease in Jingle revenue of $101,000.
Revenues of weekly HitDisc services decreased $14,000, while GoldDisc
revenues rose $33,000, resulting in a net increase in music services
revenue of 2.9% 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.
<PAGE>
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 increased $157,000, or 50.1%. Increases
in production library revenue is due to the substantial increase in
advertising sales. 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 decreased $101,000 or 27% over the same period in
1999 due to a combination of circumstances including reduced sales of
both domestic and international jingles and a decrease in royalties
revenue.
Commissions increased $42,000 or 14.00%, and reflects the increase in
barter revenue. As a percentage of revenues, commissions increased
from 19.5% to 20.3% due to changes in the revenue structure where a
greater percentage of revenue is on barter.
Production, programming and technical costs decreased $110,000 or
18.8%, and as a percentage of revenue decreased from 38.2% to 28.2%.
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 $69,000 or 12.0%,
reflecting a decrease in legal costs, salaries and benefits and
facilities expenses.
Selling costs increased $108,000 or 65.8%, and as a percentage of
revenues increased from 10.7% to 16.2%. The increase in expenses was
created by an increase in the international sales staff to facilitate
direct international sales efforts, as well as the addition of sales
staff members to allow a broadening of the domestic sales market.
Depreciation and amortization of property and equipment decreased
$38,000 or 48.5% and is primarily due to more depreciable assets
nearing the end of their depreciable years.
<PAGE>
Comparison of the Six-Month Periods Ended March 31, 1999 and 2000
_________________________________________________________________
Revenues increased approximately $264,000 or 8.7% in the six-month
period ended March 31, 2000 as compared to the same period for the
previous year. The revenue increase was primarily due to an increase
in revenues for production libraries of $265,000 and Comedy service
of $110,000. Offsetting these increases were decreases in music
services revenue of $57,000 and Jingles revenue of $63,000.
Revenues of weekly HitDisc services decreased $70,000, while GoldDisc
revenues increased $13,000, a net decrease of 3.9% as compared to the
same period for 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. 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 increased $266,000, or 44.8%. Increases
in production library revenue is due to the substantial increase in
advertising sales. 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.
Revenues for Jingles decreased approximately $63,000 or 9.8%
primarily because of a decrease in international jingle sales
compared to the same six month period in fiscal 1999.
Commissions increased $39,000 or 6.7%, and is a result of the
increase in barter revenue, offset by the decrease in revenues
derived from third party international representatives. As a
percentage of revenues, commissions decreased from 19.4% to 19.0%.
<PAGE>
Production, programming and technical costs decreased $146,000 or
13.2%, reflecting cost reduction efforts and staff reorganization
which resulted in more efficient disc production.
General and administrative costs decreased $159,000 or 14.1% as a
result of the Company's continued efforts in reducing operating
expenses. These efforts include subleasing a portion of the
Company's office space, restructuring management salaries and
reducing the amount of bad debt expense by continuing an aggressive
collection policy toward accounts receivable.
Selling costs increased $161,000 or 47.8%, and as a percentage of
revenues increased from 11.2% to 15.2%. The increase in expenses is
due to an increase in sales salaries as a result of changes in sales
force and in-house commission plans.
Depreciation and amortization of property and equipment decreased
$71,000 or 44.7% and is primarily due to more depreciable assets
nearing the end of their depreciable years.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal proceedings
On May 22, 1998, the Company received a letter from the Recording
Industry Association of America, Inc. (RIAA) alleging that it was
illegally duplicating sound recordings of the RIAA's member companies
in its Mobile Beat Series I and II and Mobile Beat Holiday Series.
The RIAA alleged substantial damages in the amount of $76,000,000 and
stated that it would consider a pre-complaint settlement. Settlement
discussions then ensued and are continuing. On June 30, 1998 the
Company and its counsel met with RIAA and its counsel. At this
meeting the RIAA made a demand for $3 million to settle the dispute.
In September, 1998 mediation was undertaken with no settlement
resulting.
Thus far no discovery has been undertaken. The Company believes that
it has a meritorious defense to many of the claims asserted, but it
is possible that it will not prevail if the matter is brought to
litigation. Any significant cash amount paid in settlement or
awarded in judgment would likely have an adverse effect on the
Company.
The Company recorded a reserve for possible loss of $385,000 on the
terms of its latest settlement offer based on annual payments of
$50,000 over a period of eleven years. The recorded reserve reflects
a discount of the settlement offer using a discount rate of 8% per
annum. During 1999 the Company accrued interest in the amount of
$20,100 through June 30, 1999.
As the RIAA has rejected the most recent settlement offer with no
counter offer, the Company will not continue to accrue any additional
provision for settlement of the dispute, nor will it continue to
accrue legal costs related to the matter, however, it is management's
opinion that the accrual balance is a "best estimate" based on
current circumstances.
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 March 20, 2000 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, and
(ii) approved an amendment to the Long-Term Performance Incentive
Plan to accommodate the granting of options to a larger number of
employees. The Company did not solicit proxies or consents in
connection therewith.
<PAGE>
Item 5. Other information - Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Material Contracts:
10.1 TM Century, Inc. 2000 Stock Option Plan effective March 20, 2000.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three
month period ending March 31, 2000.
<PAGE>
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: May 10, 2000
TM CENTURY, INC.
BY:/s/Teri R.S. James
Teri R.S. James
Vice President of Finance
(Principal Accounting Officer)
BY:/s/R. David Graupner
R. David Graupner
Chief Executive Officer
(Principal Executive Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS DOCUMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEETS AND STATEMENTS OF OPERATIONS OF THE FORM 10-QSB FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 2000.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 531149
<SECURITIES> 0
<RECEIVABLES> 743074
<ALLOWANCES> 102398
<INVENTORY> 444738
<CURRENT-ASSETS> 1636656
<PP&E> 2647002
<DEPRECIATION> 2196012
<TOTAL-ASSETS> 2558388
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</TABLE>
TM CENTURY, INC.
2000 STOCK OPTION PLAN
1. Purpose. The purpose of this 2000 TM Century, Inc.
Employee Stock Option Plan (hereinafter referred to as the "Plan") is
to further the success of TM Century, Inc., a Delaware corporation
(the "Company"), and certain of its affiliates by making available
Common Stock of the Company for purchase by officers, employees,
directors and consultants of the Company or its affiliates
("Participants"), and thus to provide an additional incentive to such
Participants to continue in the service of the Company or its
affiliates and to give them a greater interest as shareholders in the
success of the Company. Accordingly, the Committee is hereby
authorized to designate those Participants who are to receive Options
under this Plan, and upon the due execution of an Option Agreement,
to grant Options to such Participants.
2. Definitions. As used in this Plan, the terms set forth
below shall have the following meanings:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended,
and the Treasury Regulations promulgated thereunder.
(c) "Committee" means the body administering the Plan described
in Paragraph 3 hereof.
(d) "Common Stock" means the Company's common stock, par value
$ .01 per share.
(e) "Company" means TM Century, Inc., a Delaware corporation,
and any successor in interest.
(f) "Date of Grant" means the date on which the Committee takes
the requisite action to grant an Option hereunder.
(g) "Effective Date" means the effective date of this Plan
specified in Paragraph 14 hereof.
(h) "Fair Market Value" means, with respect to a share of the
Common Stock, 1) if traded on the National Association of Securities
Dealers, Inc. (the "NASD") National Market System ("NMS"), the last
price of a share of Common Stock on the last trading day on any
relevant date or, if there is no trading on such date, the
immediately preceding date, as published in the NASDAQ National
Market Issues report in the Southwestern Edition of the Wall Street
Journal, 2)if listed on a national securities exchange (an
"exchange"), the mean between the highest price and the lowest price
at which the Common Stock shall have been sold "regular way" on an
exchange on the applicable date or, if there are no sales on said
date, then on the next preceding date on which there were sales of
Common Stock, 3) if the Common Stock is not traded on the NMS or
listed on an exchange, the mean between the bid and asked prices last
reported by the NASD for the over-the-counter market on the
applicable date, or, if no bid and asked prices are reported on said
<PAGE>
date, then on the next preceding date on which there were such
quotations, or 4) if the Common Stock is not traded on the NMS or
listed on an exchange and quotations for the Common Stock are not
reported by the NASD, the fair market value determined by the
Committee.
(i) "Incentive Stock Option" means an Option qualifying under
Section 422 of the Code.
(j) "Option" means an Option granted pursuant to this Plan and
may be either an Incentive Stock Option or a Non-qualified Stock
Option.
(k) "Option Agreement" means a written agreement between the
Company and a Participant pursuant to which Options are granted to a
Participant under this Plan.
(l) "Option Price" means the price per share of Common Stock,
determined under Paragraph 7(a) hereof, for which an Option may be
exercised.
(m) "Optionee" shall mean the person who is entitled to
exercise an Option.
(n) "Non-qualified Stock Option" means an Option that is not an
Incentive Stock Option.
(o) "Participants" means the employees, directors, consultants
and officers of the Company and its Subsidiaries.
(p) "Relinquished Options" means Options relinquished pursuant
to Paragraph 9 hereof.
(q) "Subsidiary" means a subsidiary corporation of the Company
as defined in Section 424(f) of the Code.
3. Administration of Plan. The Board shall administer the
Plan; provided, however, that the Board may appoint a committee (the
"Committee") composed of not less than two persons to administer the
Plan. For purposes of this Plan the term "Committee" shall refer to
the Board during all periods in which the Board has not appointed a
committee to administer the Plan. The Committee shall report all
action taken by it to the Board, which shall review and ratify or
approve those actions that are by law required to be so reviewed and
ratified or approved by the Board. The Committee shall have full and
final authority in its discretion, subject to the provisions of the
Plan, to determine the Participants to whom, and the time or times at
which, Options shall be granted and the number of shares and purchase
price of Common Stock covered by each Option; to construe and
interpret the Plan and any agreements made pursuant to the Plan; to
determine the terms and provisions (which need not be identical or
consistent with respect to each Participant) of the respective Option
Agreements and any agreements ancillary thereto, including, without
limitation, terms covering the payment of the Option Price; and to
make all other determinations and take all other actions deemed
necessary or advisable for the proper administration of this Plan.
All such actions and determinations shall be conclusively binding for
all purposes and upon all persons.
<PAGE>
4. Options Authorized. The Options granted under this Plan
may be Incentive Stock Options or Non-qualified Stock Options. The
Committee shall have the full power and authority to determine which
Options shall be Non-qualified Stock Options and which shall be
Incentive Stock Options; to grant only Incentive Stock Options or
only Non-qualified Stock Options or any combination thereof; and, in
its sole discretion, to grant to an Optionee, in exchange for the
surrender and cancellation of an Option, a new Option having a
purchase price lower than that provided in the Option so surrendered
and cancelled and containing such other terms and conditions as the
Committee may prescribe in accordance with the provisions of this
Plan. Options may be granted in tandem with stock appreciation rights
(payable in cash, common stock or a combination of the two) in
accordance with any applicable requirements of the Code. Under no
circumstances may Non-qualified Stock Options be granted where the
exercise of such Non-qualified Stock Options may affect the exercise
of Incentive Stock Options granted pursuant to the Plan. No Options
may be granted under the Plan prior to the Effective Date. In
addition to any other limitations set forth herein, the aggregate
fair market value (determined in accordance with Paragraph 7(a) of
the Plan as of the time the Option is granted) of the Common Stock
with respect to which Incentive Stock Options are exercisable for the
first time by a Participant in any calendar year (under all plans of
the Company and of any Parent or Subsidiary) shall not exceed
$100,000.
5. Common Stock Subject to Options. The aggregate number of
shares of the Company's Common Stock that may be issued upon the
exercise of Options or stock appreciation rights granted in tandem
with Options shall not exceed three hundred fifty thousand (350,000)
shares, subject to adjustment under the provisions of Paragraph 8
hereof. The shares of Common Stock to be issued upon the exercise of
Options may be authorized but unissued shares, or shares issued and
reacquired by the Company. In the event any Option shall, for any
reason, terminate or expire or be surrendered without having been
exercised in full, the shares subject to such Option shall again be
available for Options to be granted under the Plan, except that
shares for which Relinquished Options (or portions thereof) are
exercisable shall not again be available for Options under the Plan.
6. Participants. Except as hereinafter provided, Options may
be granted under the Plan to any Participant. In determining the
Participants to whom Options shall be granted and the number of
shares to be covered by such Option, the Committee may take into
account the nature of the services rendered by the respective
Participants, their present and potential contributions to the
Company's success, and such other factors as the Committee in its
discretion shall deem relevant. A Participant who has been granted an
Option under the Plan may be granted an additional Option or Options
under the Plan, in the Committee's discretion.
7. Terms and Conditions of Options. The grant of an Option
under the Plan shall be evidenced by an Option Agreement executed by
the Company and the applicable Participant and shall contain such
terms and be in such form as the Committee may from time to time
approve, subject to the following limitations and conditions:
<PAGE>
(a) Option Price. The Option Price per share with respect to
each Option shall be determined by the Committee, but shall in no
instance be less than the par value of the shares subject to the
Option. In addition and subject to Paragraph 7(g) below, the Option
Price per share with respect to Incentive Stock Options granted
hereunder shall in no instance be less than the Fair Market Value of
the shares subject to the Option as of the Date of Grant. The
Committee may permit all or a portion of the Option Price to be
payable in shares of Common Stock owned by the holder of an Option
that have an aggregate Fair Market Value of no less than the Option
Price.
(b) Period of Option. The expiration date of each Option shall
be fixed by the Committee, but, notwithstanding any provision of the
Plan to the contrary, such expiration date shall not be more than 10
years from the Date of Grant.
(c) Vesting of Shareholder Rights. Neither an Optionee nor his
successor in interest shall have any of the rights of a shareholder
of the Company solely by virtue of the ownership of such Option until
the Option is exercised and the shares relating to the Option are
properly delivered to such Optionee or successor.
(d) Exercise of Option. Each Option shall be exercisable from
time to time (but not sooner than six months after the Date of Grant)
over such period and upon such terms and conditions as the Committee
shall determine, but not at any time as to less than 25 shares unless
the remaining shares that have become so purchasable are less than 25
shares. After the death of the Optionee, an Option may be exercised
as provided in Paragraph 16 hereof.
(e) Nontransferability of Option. Except as may be otherwise
expressly permitted in an Option Agreement, no Option shall be
transferable or assignable by an Optionee, other than by will or the
laws of descent and distribution, and each Option shall be
exercisable, during the Optionee's lifetime, only by him or her or,
during periods of legal disability, by his or her legal
representative. No Option shall be subject to execution, attachment,
or similar process.
(f) Disqualifying Disposition. The Option Agreement evidencing
any Incentive Stock Options granted under this Plan shall provide
that if the Optionee makes a disposition, within the meaning of
Section 424(c) of the Code, of any share or shares of Common Stock
issued to him or her pursuant to exercise of the Option within the
two-year period commencing on the day after the Date of Grant of such
Option or within the one-year period commencing on the day after the
date of issuance of the share or shares to him or her pursuant to the
exercise of such Option, he or she shall, within 10 days of such
disposition date, notify the Company of the sales price or other
value ascribed to or used to measure the disposition of the share or
shares thereof and immediately deliver to the Company any amount of
federal income tax withholding required by law.
<PAGE>
(g) Limitation on Grants to Certain Shareholders. An Incentive
Stock Option may be granted to a Participant only if such
Participant, at the time the Option is granted, does not own, after
application of the attribution rules of Section 424(d) of the Code,
stock possessing more than 10% of the total combined voting power of
all classes of Common Stock of the Company or of its Parent or
Subsidiary. The preceding restriction shall not apply if at the time
the Option is granted the Option Price is at least 110% of the fair
market value (as defined in Paragraph 7(a) above) of the Common Stock
subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the Date of Grant.
(h) Consistency with Code. Notwithstanding any other provision
in this Plan to the contrary, the provisions of all Option Agreements
shall not violate the requirements of the Code applicable to the
Incentive Stock Options authorized hereunder.
(i) Grants to Committee Members. Members of the Committee who
are outside directors (i.e. those directors who are not employees of
or full time consultants to the Company) shall receive 2,500
Nonqualified Stock Options on the second Tuesday in December of each
year for five (5) years beginning in December, 2000, and such options
shall become exercisable in accordance with the following schedule:
Completed Years Cumulative Percentage
From Date of Grant of Shares Covered by
Nonqualified Stock
Options Which May be
Exercised
Less than 1 year ............. 20%
1 but less than 2 years ...... 50%
2 years or more .............. 100%
The term of each Nonqualified Stock Option granted to a member of the
Committee shall be ten years. The exercise price per share of Common
Stock purchasable upon exercise of the Nonqualified Stock Options
granted to the members of the Committee shall be $0.15 per share. The
provisions of this Paragraph 7(i) may not be modified or amended more
than once every six (6) months other than to comport with changes in
the Code. Except for options granted under this Paragraph 7(i),
members of the Committee who are outside directors shall not be
eligible to receive options under the Plan.
8. Adjustments.
(a) In the event the outstanding shares of the Common Stock, as
constituted from time to time, shall be changed as a result of a
change in capitalization of the Company, a combination, merger or
reorganization of the Company into or with any other corporation, or
in the event of the sale of all or substantially all assets, or any
other transaction with similar effects (a "Transaction"), then each
Option outstanding on the date of any such Transaction shall vest in
its Grantee immediately, and may be exchanged for the number and kind
of shares of Common Stock or other securities, property, or cash into
which each outstanding share of Common Stock shall be changed or for
which each such share shall be exchanged, and the Committee may make
other equitable adjustments which it deems to be warranted.
<PAGE>
(b) In the event of any change in applicable laws or any change
in circumstances which results in or would result in any dilution of
the rights granted under the Plan, or which otherwise warrants
equitable adjustment because it interferes with the intended
operation of the Plan, then, if the Committee shall, in its sole
discretion, determine that such change equitably requires an
adjustment in the number or kind of shares of stock or other
securities or other property theretofore subject, or which may become
subject, to issuance or transfer under the Plan or in the terms and
conditions of outstanding Options, such adjustment shall be made in
accordance with such determination. Any adjustment of an Incentive
Stock Option under this paragraph shall be made only to the extent
not constituting a "modification" within the meaning of
Section 425(h)(3) of the Code. The Committee shall given notice to
each Grantee, and upon notice such adjustment shall be effective and
binding for all purposes of the Plan.
9. Relinquishment of Options.
(a) The Committee, in granting Options hereunder, shall have
discretion to provide that an Optionee, or his heirs or other legal
representatives (to the extent entitled to exercise the Option under
the terms of this Plan), in lieu of purchasing the entire number of
shares subject to purchase pursuant to such Option, shall have the
right to relinquish all or any part of the unexercised portion of the
Option (such portion of the Option relinquished being hereinafter
referred to as the "Relinquished Option") for a number of whole
shares of Common Stock equal to the product of (i) the number of
shares of Common Stock subject to the Relinquished Option and (ii) a
fraction, the numerator of which is the excess of (A) the current
fair market value per share of Common Stock covered by the
Relinquished Option over (B) the Option Price of such Relinquished
Option, and the denominator of which is the then current fair market
value per share of such Common Stock. No fractional shares of Common
Stock will be issued pursuant to the exercise of Relinquished
Options. Rather, cash equal to the fractional amount of such share
multiplied by the fair market value per share will be paid to the
Optionee, subject to the federal income and other tax withholding
requirements of Paragraph 13 hereof.
(b) The Committee, in granting Options hereunder, shall have
discretion to determine the terms upon which such Options shall be
relinquishable, subject to the applicable provisions of the Plan.
Outstanding Option Agreements may be amended, if necessary, to permit
such exemption.
10. Restrictions on Issuing Shares. The exercise of each Option
shall be subject to the condition that if at any time the Company shall
determine in its discretion that the satisfaction of withholding tax or
other withholding liabilities, or that the listing, registration, or
qualification of any shares otherwise deliverable upon such exercise upon
any securities exchange or under any state or federal law, or that the
consent or approval of any regulatory body, is necessary or desirable as
a condition of, or in connection with, such exercise or the delivery or
purchase of shares pursuant thereto, then in any such event, such exercise
shall not be effective unless such withholding, listing, registration,
qualification, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Company.
<PAGE>
11. Use of Proceeds. The proceeds received by the Company from
the sale of Common Stock pursuant to the exercise of Options granted
under the Plan shall be added to the Company's general funds and used
for general corporate purposes.
12. Amendment, Suspension, and Termination of Plan. Except as
provided in Paragraph 7(i), the Board may at any time suspend or
terminate the Plan or may amend it from time to time in such respects
as the Board may deem advisable in order that the Options granted
thereunder may conform to any changes in the law or in any other
respect which the Board may deem to be in the best interests of the
Company, provided, however, that without approval by the shareholders
of the Company voting the proper percentage of its voting power, no
such amendment shall make any change in the Plan for which
shareholder approval is required of the Company by (a) the Code or
regulatory provisions dealing with Incentive Stock Options; (b) any
rules for listed companies promulgated by any national stock exchange
on which the Company's stock may be traded; or (c) any other
applicable rule or law. Unless sooner terminated hereunder, the Plan
shall terminate 10 years after the Effective Date. No Option may be
granted during any suspension or after the termination of the Plan.
Except as otherwise specifically provided herein, no amendment,
suspension, or termination of the Plan shall, without an Optionee's
consent, impair or negate any of the rights or obligations under any
Option theretofore granted to such Optionee under the Plan.
13. Tax Withholding. The Committee may, in its sole
discretion, (a) require an Optionee to remit to the Company a cash
amount sufficient to satisfy, in whole or in part, any federal,
state, and local withholding tax requirements prior to the delivery
of any certificate for shares pursuant to the exercise of an Option
hereunder; (b) grant to an Optionee the right to satisfy, in whole or
in part, any such withholding tax requirements by electing to require
that the Company, upon any exercise of the Option, withhold from the
shares of Common Stock issuable to the Optionee upon the exercise of
the Option, that number of full shares of Common Stock having a fair
market value equal to the amount or portion of the amount required to
be withheld; or (c) satisfy such withholding requirements through
another lawful method, including through additional withholdings
against the Optionee's other wages with the Company.
14. Effective Date of Plan. This Plan shall become effective
on the date (the "Effective Date") of the last to occur of (a) the
adoption of the Plan by the Board; and (b) the approval, within 12
months of such adoption, by a majority (or such other proportion as
may be required by state law or the Articles of Incorporation of the
Company) of the outstanding voting shares of stock of the Company,
voted either in person or by proxy, at a duly held stockholders
meeting, or, where permitted by law, by the consent of all or a
majority of the holders of the outstanding voting shares of the
Company.
<PAGE>
15. Termination of Employment. Except as otherwise
specifically provided in an Option Agreement, in the event of the
retirement (with the written consent of the Company) or other
termination of the employment of a Participant to whom an Option has
been granted under the Plan, other than (a) a termination that is
either (i) for cause (as "cause" or "Cause" may be defined in any
employment agreement then in existence between the Company and the
Participant, or in the absence of any such definition, as defined in
the Option Agreement) or (ii) voluntary on the part of the employee
and without the written consent of the Company; or (b) a termination
by reason of death, the employee may (unless otherwise provided in
his Option Agreement) exercise his Option at any time within three
months after such retirement or other termination of employment (or
within one year after termination of employment due to disability
within the meaning of Code Section 422(c)(6)), or within such other
time as the Committee shall authorize, but in no event after 10 years
from the date of granting thereof (or such lesser period as may be
specified in the Option Agreement), but only to the extent of the
number of shares for which his Options were exercisable by him at the
date of the termination of his employment. Except as otherwise
specifically provided in an Option Agreement, in the event of the
termination of the employment of an employee to whom an Option has
been granted under the Plan that is either (i) for cause or (ii)
voluntary on the part of the employee and without the written consent
of the Company, any Option held by him under the Plan, to the extent
not previously exercised, shall forthwith terminate on the date of
such termination of employment. Options granted under the Plan shall
not be affected by any change of employment so long as the holder
continues to be an employee of the Companyor a Subsidiary. The Option
Agreement may contain such provisions as the Committee shall approve
with respect to the effect of approved leaves of absence. Nothing in
the Plan or in any Option granted pursuant to the Plan shall confer
on any individual any right to continue in the employ of the Company
or any of its Subsidiaries or interfere in any way with the right of
the Company or any of its Subsidiaries to terminate his employment at
any time.
16. Death of Holder of Option. Except as otherwise
specifically provided in an Option Agreement, in the event a
Participant to whom an Option has been granted under the Plan dies
during, or within three months after the termination of, his
employment by the Company or a Subsidiary or Parent, such Option
(unless it shall have been previously terminated pursuant to the
provisions of the Plan or unless otherwise provided in his Option
Agreement) may be exercised (to the extent of the entire number of
shares covered by the Option whether or not purchasable by the
employee at the date of his death) by the executor or administrator
of the Optionee's estate or by the person or persons to whom the
Optionee shall have transferred such Option by will or by the laws of
descent and distribution, at any time within a period of 12 months
after his death, but not after the exercise termination date set
forth in the relevant Option Agreement.
<PAGE>
17. Loans to Assist in Exercise of Options. If approved by the
Board, the Company or any Parent or Subsidiary may lend money or
guarantee loans by third parties to an individual to finance the
exercise of any Option granted under the Plan to carry Common Stock
thereby acquired. No such loan to finance the exercise of an
Incentive Stock Option shall have an interest rate or other terms
that would cause any part of the principal amount to be characterized
as interest for purposes of the Code.
