U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 2000 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: (972) 406-6800
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.01 Par Value
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
--- ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [ ]
The issuer's revenue for its most recent fiscal year was $6,904,492.
The aggregate market value of the voting stock held by non-affiliates of the
issuer on September 30, 2000 based upon the average bid and asked prices of such
stock on that date was $486,970. The number of issuer's shares of Common Stock
outstanding as of September 30, 2000 was 2,483,193.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Company's 2001 Information Statement is
incorporated by reference in Part III.
Transitional Small Business Disclosure Format (check one): Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
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TM Century, Inc. (the "Company") is engaged primarily in the creation,
production, marketing, and worldwide distribution of music libraries, production
libraries, comedy services, station identification and commercials for broadcast
multimedia use.
TM Century's clients include radio and television stations; radio, television,
satellite and Internet networks; web sites and portals; the American Forces
Radio Network; advertising agencies; post production studios; cable facilities;
and a wide variety of commercial businesses.
The Company was incorporated as a Delaware corporation on May 2, 1984. In
October 1990, the Company changed its name from TM Communications, Inc. to TM
Century, Inc. following an August 1990 business combination transaction with
Century 21 Programming, Inc. The Company's principal offices are located at 2002
Academy, Dallas, Texas 75234, and its telephone number is (972) 406-6800.
Products
--------
The Company creates, produces, markets, and distributes musical goods and
services for multimedia clients worldwide. Products include special compilations
of popular music on compact discs and CD ROM, instrumental backgrounds for
commercials and sound effects, station identification jingles, commercial
jingles and comedy services.
Production libraries are sold on compact discs and include original recordings
of background music and sound effects written and produced by the Company as
sources of production material for radio/TV stations, post production houses,
web sites and commercial businesses. Production libraries are available in a
variety of musical styles and are used as background music for contests,
promotional announcements, commercials, film or audio video presentations and
web sites.
The Company also provides a weekly service of new record releases on compact
disc to radio stations. Other music libraries include compilations of
copyrighted music of original artists marketed in a variety of music formats.
Products provided to clients on compact disc are mastered by the Company and
replicated in house on compact discs available from a number of suppliers.
Management believes that the loss of the current sources of supply would not
cause any significant interruption of the Company's operations, as there are
several alternative sources of compact discs available.
Due to the wide variety of music services in multiple formats offered by the
Company on compact disc, a significant number of compact discs are maintained on
the premises. The implementation of in-house disc replication for all products
during 2000 has allowed greater control over inventory levels necessary to
satisfy shipping requirements on a timely basis, however, certain inventory
levels must be maintained for products produced in prior periods.
Radio jingles provide short identity songs for radio stations that promote name
recognition for the station. These are written and produced in the Company's
studios and are provided to customers on digital audio tape or compact disc.
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Set forth in the following tables are the Company's gross revenues (in
thousands) by significant product category for the years ended September 30,
2000 and 1999.
(Dollar Amounts in Thousands)
2000 1999
----------- -----------
Broadcast Services
Music Libraries $ 5,714 $ 5,032
Radio Jingles 1,142 1,181
Software and Compact Disc Equipment 0 2
Other 48 22
----------- -----------
Total $ 6,904 $ 6,237
=========== ===========
Marketing and Distribution
--------------------------
The Company currently sells and supplies its products and services to customers
in the United States, Canada, Mexico and other parts of the world through its
sales staff in Dallas, Texas. Sales are made through telephone solicitation,
advertising in trade magazines, trade convention displays, and the Internet.
The Company also sells its products through distribution arrangements with
independent sales agents worldwide. Other than fees paid to independent sales
agents, no other significant costs are incurred by the Company in conjunction
with its international sales activities. Products are shipped from the Company's
headquarters via mail and express delivery services.
Sales of music libraries are made primarily on an individual order basis.
Contractual agreements for the sale of production libraries generally call for
equal monthly payments by the customer over terms of up to 36 months. Weekly
music services are sold under contracts of one month to three-year terms. The
Company's other products are generally sold pursuant to individual orders. Both
commercial and station identification jingles are sold on a cash basis.
Customers
---------
The Company's business is largely dependent upon the broadcasting industry.
Revenues are generated from sales to customers in the United States and
worldwide. According to industry publications, approximately 12,000 radio
stations were licensed by the Federal Communications Commission (FCC) for public
broadcasting in the United States. Management believes that approximately 10,000
stations in the U. S. may require products and services of the type provided by
the Company. No single customer has accounted for more than 10% of the Company's
revenues in any of the past two years. In fiscal 2000 the Company saw a
significant increase in its sales outside the traditional broadcast industry,
particularly to Internet based businesses.
Gross revenues from foreign sales totaled $1,200,000, and $1,600,000 for the
years ended 2000 and 1999, respectively.
Competition
-----------
The Company competes with several other music syndicators that provide either
music libraries or radio jingle packages to the broadcast industry. Management
believes the Company offers a broader array of broadcast products and services
than any of its competitors. Competing radio program syndicators generally
provide either jingles, production libraries, or music on tape, records, compact
disc, or via satellite. Management believes the Company is one of the leading
suppliers of radio music services and the largest supplier of radio music
services on compact disc. The Company competes with several hundred jingle
producers; however, management believes only a few specialize in radio station
identification materials. Management believes the Company is one of the larger
suppliers of radio station identification jingles in the industry. Several dozen
providers of production libraries compete with the Company. Management believes
it is one of the major suppliers of production libraries to the radio industry.
While certain competing products may be considered to be equal in price or
technical performance, management believes the Company also competes effectively
on the basis of quality and creativity within each product line.
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Seasonality
-----------
The Company is not subject to strong seasonal fluctuations. However, quarterly
results are affected by the introduction of new products and timing of customer
orders. Because profit margins on the Company's many products vary, the results
for any quarter are not necessarily indicative of the results that may be
achieved for a full fiscal year.
Trademarks and Copyrights
-------------------------
The Company markets products under various names and trademarks which management
believes provide the Company's products with international industry recognition.
The Company holds hundreds of registered copyrights on sound recordings of
original music and radio station jingles. Management believes its copyrights
have significant value, as the Company derives a significant portion of its
income from the licensed use of its sound recordings and additional performance
royalties (ASCAP) earned as a result.
Employees
---------
As of December 1, 2000, the Company had approximately 53 full-time employees.
The Company also contracts with other personnel and subcontractors who provide
creative talent for various projects on an as-needed basis.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal operations are conducted from a leased 46,645 square
foot office and production facility located at 2002 Academy, Dallas, Texas. The
facility is comprised of sales and administrative offices and recording studios.
The facility is leased from unaffiliated third parties under a lease that
expires on July 15, 2003. The lease may be extended at the Company's option for
two additional five-year terms. The first five year term rental rate is based on
a fixed amount per square foot which is approximately a 6.3% increase over the
2003 year rental rate. The second five year term is subject to rental
adjustments based on a formula related to fair market rental. Effective July 1,
1999 the Company entered into an agreement with an unrelated third party to
sublease approximately 16,000 square feet of space for a term of approximately
50 months. Management believes that the facility currently occupied is
sufficient for its existing activities and potential growth for the foreseeable
future.
ITEM 3. 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. Settlement discussions then ensued and 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 all of the claims asserted, and, as no actual litigation
has been initiated by the RIAA and no correspondence has been received regarding
this matter since February 1999, it is the opinion of management that, based on
these facts, the accrued legal settlement for the RIAA dispute should be
removed, as any ultimate liability resulting from this action is unlikely.
Accordingly, the accompanying Statement of Operations for the year ended
September 30, 2000 includes a $440,523 increase in income resulting from the
reversal of the liability previously recorded.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended September 30, 2000.
4
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is thinly traded in the over-the-counter market under
the symbol "TMCI". The following table sets forth, for the periods shown, the
range of the high and low bid quotations for the Company's common stock in the
over-the-counter market as reported by NASDAQ. The Company was de-listed from
NASDAQ in February 1997 for not meeting the minimum NASDAQ SmallCap market
requirements. Since that time the stock continues to be traded on the OTC market
with quotations obtained from the OTC bulletin board. Quotations are
inter-dealer quotations, without retail markups, markdowns or commissions, and
do not necessarily represent actual transactions.
Common Stock Bid
----------------
High Low
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Fiscal 2000:
1st Quarter $ .81 $ .63
2nd Quarter .81 .53
3rd Quarter .78 .50
4th Quarter .69 .44
Fiscal 1999:
1st Quarter $ .72 $ .28
2nd Quarter 1.12 .28
3rd Quarter 1.03 .44
4th Quarter 1.12 .47
As of September 30, 2000 the Company had approximately 200 record owners and 265
beneficial owners of its common stock. The Company has not paid dividends on the
common stock and does not anticipate paying dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
--------------------------
This Annual Report contains forward-looking statements about the business,
financial condition and prospects of the Company that reflect assumptions made
by management and management's beliefs based on information currently available
to it. The Company can give no assurance that the expectations indicated by such
forward-looking statements will be realized. If any of management's assumptions
should prove incorrect, or if any of the risks and uncertainties underlying such
expectations should materialize, the Company's actual results may differ
materially from those indicated by the forward-looking statements.
The key factors that are not within the Company's control and that may have a
direct bearing on operating results include, but are not limited to, continued
maturation of the domestic and international markets for compact disc
technology; acceptance by the customers of the Company's existing and any new
products and formats; the development by competitors of products using improved
or alternative technologies and the potential obsolescence of technologies used
by the Company; the continued availability of software, hardware and other
products obtained by the Company from third parties; dependence on distributors,
particularly in the international market; the retention of employees; the
success of the Company's current and future efforts to reduce operating
expenses; the effectiveness of new marketing strategies; and general economic
conditions. 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.
5
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When used in this Annual 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 Commission Act of 1934.
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 one month to three years. The Company is
obligated to provide music updates throughout the contract terms for both
production library and weekly music service contracts. Sales of music libraries
and 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 2001.
During fiscal 2000, the Company made approximately $175,000 in capital
expenditures for the purchase of property and equipment which compares to
capital expenditures of approximately $96,000 in 1999. Capital expenditures in
2000 were primarily associated with upgrades of production equipment and
purchases of replicating equipment necessary to implement in-house production of
compact discs for distribution. Product development costs of $221,000 were
incurred during fiscal 2000 for new music libraries and music library updates,
which compares to product development expenditures of $155,000 in 1999. Funds
for operating needs, new product development, and capital expenditures for the
year ended September 30, 2000 were provided from operations and cash reserves.
The Company generated cash flows from operations of approximately $602,000 and
$253,000 during the years ended September 30, 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 $260,000 in fiscal 2001. The Company has no other significant
commitments for capital expenditures in fiscal 2001. Management anticipates that
cash flow from operations and cash reserves will be sufficient to meet capital
requirements.
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 the Company agreed to pay to the individual a
total of $124,000, payable over five years through December 2, 2003.
Customer deposits increased to $185,000 as of September 30, 2000, from $136,700
as of September 30, 1999, for deposits received from customers ordering
products. The balance in customer deposits is dependent upon the timing of
customer orders for compact disc libraries, jingles, and production libraries.
The Company has net operating loss carryforwards of approximately $867,000
available to offset future taxable income expiring in 2011 through 2013. A
valuation allowance of approximately $473,000 has been provided to reduce the
net deferred tax asset to zero because it is likely that the tax assets will not
be realized. Realization is dependent upon generating sufficient taxable income
prior to the expiration of the loss carryforwards.
Results of Operations
----------------------
Fiscal 2000 Compared to Fiscal 1999
-----------------------------------
The Company experienced a 10.7% increase in revenues from $6.2 million in 1999
to $6.9 million in 2000. The overall increase was primarily due to an increase
in advertising revenues which increased to $2.8 million from $1.8 million in the
previous year. Music libraries revenue generated from HitDisc and GoldDisc sales
decreased $246,000 or 8.4%, largely due to a decrease in international sales.
Revenues generated from production libraries increased $621,000, or 46.7% which
is attributable to an increase in the percentage of barter revenue. Barter
revenues are derived from obtaining airtime from radio stations in exchange for
such weekly services and marketing such airtime to advertisers. Revenues from
radio jingles decreased by $39,000, or 3.3%, primarily due to a decrease in the
sales volume of custom and syndicated jingles packages being sold
internationally. Weekly comedy service revenue increased from $770,000 in 1999
to $1,079,000 in 2000, or 40%. The overall increase in advertising revenue is
primarily responsible for this increase, as barter contracts make up a
significant percentage of the total comedy service.
6
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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 rather than from conversions to compact disc music library 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. However, the
advent of computer-based music storage has opened a new market to the Company;
delivering music in a form (.wav file format and MPEG format) which is more
conducive, convenient and cost efficient for operators to load onto their
computer-based broadcast systems. 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 that revenues from weekly music services will
either remain relatively unchanged or continue to grow by introducing new music
libraries to the market. Management believes the international markets have not
reached maturity for compact disc technology. Renewals and new sales growth are
subject to customer acceptance of the new products.
Music library revenues may also be adversely affected as radio stations convert
to new music delivery systems technology offered by competitors, such as
computer hard drives which store music in a digital compression form. The
Company began providing music libraries on hard drive to the radio industry in
1997. An increasing number of radio stations are converting to or adding systems
using digital technology. Although music libraries on compact disc can be
transferred to hard drive systems, some of the equipment manufacturer's are
offering hard drives with pre-loaded music libraries.
Commissions as a percentage of revenues increased to 19.9% of revenue in fiscal
2000 from 19.2% of revenue in fiscal 1999. This increase is due to changes in
the revenue structure where a greater percentage of revenue is on a barter
basis.
Production, programming and technical costs decreased 5.7% to $1.9 million in
2000 from $2 million in 1999. The decrease is primarily due to lower direct
costs which resulted from the conversion to in-house compact disc replication.
As a percentage of revenue these costs decreased from 33% in 1999 to 28% in
2000.
General and administrative costs decreased $30,800 or 1.5%. A reduction in
professional fees was primarily responsible for this decrease.
Selling costs reflected an increase of $286,000, or 40.5% over 1999. The
increase reflects changes in the commission structure as well as the addition of
personnel for domestic and direct international sales.
Depreciation and amortization expense decreased $122,000, or 44%, primarily as a
result of more assets being fully depreciated compared to the prior year.
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. Settlement discussions then ensued and 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 all of the claims asserted, and, as no actual litigation
has been initiated by the RIAA and no correspondence has been received regarding
this matter since February 1999, it is the opinion of management that, based on
these facts, the accrued legal settlement for the RIAA dispute should be
removed, as any ultimate liability resulting from this action is unlikely.
Accordingly, the accompanying Statement of Operations for the year ended
September 30, 2000 includes a $440,523 increase in income resulting from the
reversal of the liability previously recorded.
7
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Accounting Matters
------------------
The Financial Accounting Standards Board ("FASB") periodically issues accounting
standards which may affect the financial accounting or disclosures of the
Company. There are no accounting standards that have been issued, but not yet
adopted by the Company, which would have a material effect on the financial
position or results of operations of the Company.
Inflation and Foreign Currency Fluctuations
-------------------------------------------
To date, inflation and foreign currency fluctuations have not had a material
impact on the Company's operations. There can be no assurance, however, that
future inflation or foreign currently fluctuations will not have a material
adverse effect on the Company, or that the Company will be able to pass on
resulting cost increases without experiencing a reduction in demand for its
products.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and notes thereto, together with the report thereon of
King Griffin & Adamson P.C. dated November 17, 2000, included elsewhere in this
report are incorporated by reference in answer to this Item 7.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On May 17, 1999, the Company dismissed its former independent accountants
Deloitte & Touche LLP ("D&T") and engaged King, Griffin & Adamson P.C. to audit
the Company's financial statements. The decision to change independent
accountants was recommended and approved by the Company's Board of Directors.
D&T served as independent auditors of the Registrant for the years ended
September 30, 1997 and 1998. The reports of D&T on the Registrant's financial
statements for the years ended September 30, 1997 and 1998 contained no adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principle. In connection with its audits
for the years ended September 30, 1997 and 1998, and during the fiscal year 1999
prior to D&T's dismissal, the Company had no disagreements with D&T on matters
of accounting principles or practices, financial statement disclosures, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of D&T would have caused them to make reference thereto in their
report on the financial statements for such years.
8
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information required by this item is contained under the heading
"Information Concerning the Directors and Executive Officers" in the Company's
2001 Information Statement and is incorporated herein by reference pursuant to
General Instruction E(3).
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is contained under the heading "Executive
Compensation" in the Company's 2001 Information Statement and is incorporated
herein by reference pursuant to General Instruction E(3).
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained under the heading "Voting
Securities and Principal Stockholders" in the Company's 2001 Information
Statement and is incorporated herein by reference pursuant to General
Instruction E(3).
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained under the heading "Executive
Compensation" in the Company's 2001 Information Statement and is incorporated
herein by reference pursuant to General Instruction E(3).
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3 (a) Certificate of Incorporation and By-Laws (1)
(b) Certificate of Merger: Video Image Inc. and TM Communications, Inc.
(1)
(c) Certificate of Amendment of Certificate of Incorporation of TM
Century, Inc. effective March 27, 1992. (Exhibit 1) (2) (March 31,
1992)
10 Material Contracts:
(a) *Long Term Performance Incentive Plan of TM Century, Inc. dated
December 3, 1991. (Exhibit 10(bb))(3)
(b) *TM Century, Inc. Bonus Plan for Executive Management dated October
1, 1992 (Exhibit 10(j)) (4)
(c) Lease Agreement, dated as of April 23, 1993 by and between
NationsBank of Texas, N.A., Trustee and TM Century, Inc. (Exhibit
1)(March 31, 1993)(2)
(d) First Amendment of Lease, dated as of August 22, 1994 by and between
NationsBank of Texas, N.A., Trustee and TM Century, Inc. (Exhibit
10(m)) (5)
(e) *Employment Agreement between TM Century, Inc. and R. David Graupner
dated May 31, 1999. (Exhibit 10.2) (June 30, 1999)(2)
(f) *Consulting Agreement between TM Century, Inc. and Neil W. Sargent
dated June 28, 1999. (Exhibit 10.3) (June 30, 1999)(2)
(g) *Amended and Restated 1991 Long Term Performance Incentive Plan of TM
Century dated July 2, 1999 (Exhibit 10h)(6)
(h) *TM Century, Inc. 2000 Stock Option Plan effective March 20, 2000.
(Exhibit 10.1) (March 31, 2000)(2)
27 Financial Data Schedule
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Notes to Exhibits:
(1) Incorporated by reference to the similarly-numbered exhibit to the
Registration Statement on Form S-18 (No. 2- 93588-FW), filed October
2, 1984, as amended.
(2) Incorporated by reference to the indicated exhibit to the Quarterly
Report on Form 10-Q for the indicated period, of the Registrant.
(3) Incorporated by reference to the indicated exhibit to the Annual
Report on Form 10-K for the fiscal year ended September 30, 1991.
(4) Incorporated by reference to the indicated exhibit to the Annual
Report on Form 10-K for the fiscal year ended September 30, 1992, of
the Registrant.
(5) Incorporated by reference to the indicated exhibit to the Annual
Report on Form 10-KSB for the fiscal year ended September 30, 1994.
(6) Incorporated by reference to the indicated exhibit to the Annual
Report on Form 10-KSB for the fiscal year ended September 30, 1999.
* The documents filed or incorporated by reference as Exhibits 10(a), (b), (e),
(f), (g) and (h) hereto constitute management contracts or compensatory plans or
arrangements.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the fiscal year
ended September 30, 2000.
10
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: December 19, 2000
TM CENTURY, INC.
BY:/s/Teri R.S. James
-----------------------
Teri R.S. James
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
DATE:
/s/Teri R.S. James December 19, 2000
------------------
TERI R.S. JAMES, Chief Financial Officer
(Principal financial and accounting officer)
/s/R.David Graupner December 19, 2000
-------------------
R. DAVID GRAUPNER, President and Chief Executive Officer
(Principal executive officer)
/s/Marjorie L. McIntyre December 19, 2000
-----------------------
MARJORIE L. MCINTYRE, Chairman of the Board of Directors
/s/A. Ann Armstrong December 19, 2000
---------------------------
A. ANN ARMSTRONG, Director
/s/Carol M. Long December 19, 2000
----------------
CAROL LONG, Director
/s/Michael Cope December 19, 2000
------------------
MICHAEL COPE, Director
11
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TM CENTURY, INC.
INDEX TO FINANCIAL STATEMENTS
Financial Statements:
Report of Independent Certified Public Accountants 13
Balance Sheets at September 30, 2000 and 1999 14
Statements of Operations for the Years Ended
September 30, 2000 and 1999 15
Statement of Stockholders' Equity for the Years Ended
September 30, 2000 and 1999 16
Statements of Cash Flows for the Years Ended
September 30, 2000 and 1999 17
Notes to Financial Statements 18
12
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To The Board of Directors
TM Century, Inc.
We have audited the accompanying balance sheets of TM Century, Inc. as of
September 30, 2000 and 1999, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TM Century, Inc. as of
September 30, 2000 and 1999, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
November 17, 2000
13
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<TABLE>
<CAPTION>
TM Century, Inc.
Balance Sheets
September 30, 2000 and 1999
ASSETS
2000 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 422,339 $ 354,332
Short-term investments 321,495 --
Accounts receivable, less allowance for doubtful accounts
of $95,510 and $100,000 respectively 693,997 721,538
Inventories, net of allowance for obsolescence of $258,545 448,293 446,279
Prepaid expenses 44,685 31,277
----------- -----------
TOTAL CURRENT ASSETS 1,930,809 1,553,426
PROPERTY AND EQUIPMENT 2,730,584 2,563,220
Less accumulated depreciation and amortization (2,263,000) (2,116,116)
----------- -----------
NET PROPERTY AND EQUIPMENT 467,584 447,104
PRODUCT DEVELOPMENT COSTS, net of accumulated amortization
of $1,784,549 and $1,630,071 respectively 377,240 324,094
COMEDY MATERIAL RIGHTS, net of accumulated amortization
of $43,400 and $18,600 respectively 80,601 105,400
OTHER ASSETS 19,804 19,316
----------- -----------
TOTAL ASSETS $ 2,876,038 $ 2,449,340
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of obligation under capital lease $ -- $ 3,202
Current portion of note payable 33,333 33,333
Accounts payable 48,833 63,508
Accrued expenses 113,017 196,978
Deferred revenue 100,850 127,382
Customer deposits 46,916 37,623
----------- -----------
TOTAL CURRENT LIABILITIES 342,949 462,026
NOTE PAYABLE, less current portion 32,334 65,667
CUSTOMER DEPOSITS - NONCURRENT 138,072 99,114
ACCRUED LEGAL SETTLEMENT FOR RIAA DISPUTE -- 405,100
----------- -----------
TOTAL LIABILITIES 513,355 1,031,907
COMMITMENTS AND CONTINGENCIES (NOTE 7) -- --
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 7,500,000 shares; 29,705 29,705
2,970,481 shares issued; 2,483,193 shares outstanding
Additional paid-in capital 2,275,272 2,275,272
Retained earnings 1,348,933 403,683
Treasury stock - at cost, 487,288 shares (1,291,227) (1,291,227)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,362,683 1,417,433
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,876,038 $ 2,449,340
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
<TABLE>
<CAPTION>
TM Century, Inc.
Statements of Operations
Years Ended September 30, 2000 and 1999
2000 1999
----------- -----------
<S> <C> <C>
REVENUES $ 6,904,492 $ 6,237,102
Less Commissions 1,372,902 1,198,184
----------- -----------
NET REVENUES 5,531,590 5,038,918
COSTS AND EXPENSES
Production, Programming, and Technical Costs 1,918,907 2,035,462
General and Administrative 1,969,368 2,000,183
Selling Costs 992,130 706,059
Depreciation and Amortization of Property and Equipment 154,884 277,451
Reduction in Carrying Value of Inventories -- 12,000
----------- -----------
TOTAL COSTS AND EXPENSES 5,035,289 5,031,155
----------- -----------
OPERATING INCOME 496,301 7,763
OTHER INCOME (EXPENSE)
Interest income 7,372 3,838
Other income (expense), net 1,054 (3,971)
----------- -----------
TOTAL INCOME (EXPENSE) 8,426 (133)
CHANGE IN ESTIMATE OF LEGAL SETTLEMENT FOR RIAA DISPUTE 440,523 (20,100)
----------- -----------
NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 945,250 (12,470)
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET INCOME (LOSS) $ 945,250 $ (12,470)
=========== ===========
BASIC NET INCOME (LOSS) PER COMMON SHARE $ 0.38 $ (0.01)
=========== ===========
DILUTED NET INCOME (LOSS) PER COMMON SHARE $ 0.38 $ (0.01)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,483,193 2,483,193
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,
ASSUMING DILUTION 2,487,486 2,483,193
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
<TABLE>
<CAPTION>
TM Century, Inc.
Statement of Stockholders' Equity
Years Ended September 30, 2000 and 1999
Common Stock Treasury Stock
------------------------- Additional ------------------------- Total
Number of Paid-In Retained Number of Amount Stockholders'
Shares Amount Capital Earnings Shares (at cost) Equity
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1998 2,970,481 $ 29,705 $ 2,275,272 $ 416,153 487,288 $(1,291,227) $ 1,429,903
Net Loss -- -- -- (12,470) -- -- (12,470)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1999 2,970,481 29,705 2,275,272 403,683 487,288 (1,291,227) 1,417,433
Net Income -- -- -- 945,250 -- -- 945,250
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 2000 2,970,481 $ 29,705 $ 2,275,272 $ 1,348,933 487,288 $(1,291,227) $ 2,362,683
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
TM Century, Inc.
Statements of Cash Flows
Years Ended September 30, 2000 and 1999
2000 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 945,250 $ (12,470)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization of property and equipment 154,884 277,451
Amortization of product development costs and comedy material rights 192,925 170,320
Provision for legal settlement of RIAA dispute (440,523) 20,100
Provision for doubtful accounts (4,490) (130,000)
Reduction in carrying value of inventories -- 12,000
Increase (decrease) from changes in operating assets and liabilities:
Accounts receivable 32,031 172,115
Inventories (2,014) 12,484
Product development costs (221,272) (155,188)
Prepaid expenses (13,408) (1,440)
Other assets (488) (1,056)
Accounts payable and accrued expenses (63,213) (73,400)
Deferred revenue (26,532) 18,688
Customer deposits 48,251 (58,064)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 601,401 251,540
INVESTING ACTIVITIES
Purchase of short-term investments (321,495) --
Purchases of property and equipment (175,364) (95,748)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (496,859) (95,748)
FINANCING ACTIVITIES
Principal payments on note payable (33,333) (25,000)
Principal payments on capital lease obligations (3,202) (125,417)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (36,535) (150,417)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 68,007 5,375
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 354,332 348,957
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 422,339 $ 354,332
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
TM CENTURY, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
TM Century, Inc. (the "Company") is primarily engaged in the creation,
production, marketing, and distribution of goods and services for radio and
television stations; radio, television, satellite and Internet networks; web
sites and portals; post production houses; and corporate users, worldwide.
Products include special compilations of popular music on compact discs, sound
effects, comedy services, station identification and commercial jingles.
2. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents of the Company are composed of demand deposits with
banks and other highly liquid debt instruments with maturity terms of three
months or less when purchased.
Short-term Investments
Short-term investments are comprised of mutual funds.
Accounts Receivable
The Company extends unsecured credit in the normal course of business to
virtually all of its customers. Management has provided an allowance for
doubtful accounts which reflects its opinion of amounts which may ultimately
become uncollectible. In the event of non-performance of accounts receivable,
the maximum exposure to the Company is the recorded amount shown on the balance
sheet.
Inventories and Product Development Costs
Inventories created by the Company are carried at the lower of average cost on a
first-in, first-out ("FIFO") basis or market, and charged to expense as follows:
Music libraries - The Company produces music compilations and
background music libraries which are provided to clients under one to
three year lease contracts or under buyout arrangements. Current music
update services are charged to expense in the period in which incurred.
Identification Jingles - Jingles provide short identity songs to
clients in order to promote name recognition. The costs to produce
jingles are expensed upon delivery of the product.
Product development costs (the costs to develop new libraries and updates) are
carried at actual cost and are amortized on a straight-line basis over the
economic life of the product (typically, three to five years).
The provision for obsolete and slow-moving inventory is adjusted based on
current inventory levels, historical and expected future sales levels.
Comedy Material Rights
Comedy Material Rights are recorded at cost and are amortized on a straight-line
basis over the economic life of the product (5 years).
18
<PAGE>
TM CENTURY, INC.
NOTES TO FINANCIAL STATEMENTS
Property and Equipment
Expenditures for additions, renewals, and betterments are recorded at cost.
Expenditures for maintenance and repairs are charged to expense as incurred.
Property leased under capital leases is included in property and equipment.
Depreciation and amortization of property and equipment are computed on the
straight-line method based upon the estimated useful lives of the assets or the
applicable minimum lease term if shorter, as follows:
Office furniture 3 to 7 years
Computer software & equipment 3 to 7 years
Production equipment 5 to 7 years
Leasehold improvements the shorter of the estimated useful
life or the term of the lease
Vehicle 5 years
Capital lease the shorter of the estimated useful
life or the term of the lease
Revenue Recognition
Revenues are recognized according to contract terms as follows:
Library Lease Contracts - Monthly upon delivery of the product in
accordance with the terms of the lease contracts.
Library Buyouts - Upon delivery of the product.
Identification Jingles - Upon delivery of the product.
Music Scheduling Software - Monthly in accordance with the terms of the
lease contracts.
Software and Compact Disc Equipment - Upon delivery of the product.
Barter Contracts - Monthly, as advertising revenues are generated by
third party agents, in accordance with the terms of the lease
contracts.
Income Taxes
The Company provides for income taxes under the asset and liability approach.
This method requires that deferred tax assets and liabilities be recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Net Income (Loss) Per Share
Basic and diluted net income (loss) per common share is based on the weighted
average number of common shares and common stock equivalents, if dilutive,
outstanding during the respective periods. Diluted earnings per share of common
stock includes the impact of outstanding dilutive stock options for the year
ended September 30, 2000. In 1999 the impact of outstanding stock options was
antidilutive. The Company had 332,500 and 339,000 stock options outstanding as
of September 30, 2000 and 1999, respectively.
19
<PAGE>
TM CENTURY, INC.
NOTES TO FINANCIAL STATEMENTS
Stock Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principals Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of SFAS No. 123, "Accounting for Stock Based Compensation." Under APB
Opinion No. 25, compensation expense for employees is based on the excess, if
any, on the date of grant, between the fair value of the Company's stock over
the exercise price.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of certain assets, liabilities, revenues, and expenses.
Actual results may differ from such estimates.
Concentrations
The Company maintains cash balances at banks, which may, at times, exceed
federally insured limits. However, management monitors these balances and does
not believe excess risk is present.
Reclassifications
Certain amounts in the 1999 financial statements have been reclassified to
conform with the classifications used in the 2000 financial statements with no
effect on previously reported net loss or stockholders' equity.
3. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Supplemental disclosures as of September 30:
2000 1999
---------- ----------
Cash paid for interest $ 46 $ 3,971
Noncash investing and financing activities:
Issuance of note payable for comedy
material rights $ -- $ 124,000
4. INVENTORIES
Inventories include raw materials for in-house production and replication of
compact discs as well as compact discs completed and ready to ship as follows:
September 30
----------------------
2000 1999
--------- ---------
Raw materials $ 42,272 $ 15,317
Finished goods 664,566 689,507
Allowance for obsolescence (258,545) (258,545)
--------- ---------
Total $ 448,293 $ 446,279
========= =========
During 1999, the Company recorded a provision of $12,000 to reduce the carrying
value of its music and production libraries to the lower of cost or market.
20
<PAGE>
TM CENTURY, INC.
NOTES TO FINANCIAL STATEMENTS
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at September 30, 2000 and 1999:
2000 1999
------------- -------------
Office furniture $ 544,616 $ 528,753
Computer software & equipment 202,053 173,951
Production equipment 1,044,612 950,962
Leasehold improvements 391,434 380,827
Vehicle 19,142 -
Capital lease 528,727 528,727
------------- -------------
Total $ 2,730,584 $ 2,563,220
============= =============
The capital lease is for computer software and equipment acquired in fiscal 1997
and 1996. Amortization of approximately $8,500 and $131,000 is included in
depreciation and amortization of property and equipment expense for the fiscal
years ended September 30, 2000 and 1999, respectively.
6. NOTE PAYABLE
During 1999, the Company issued a $124,000 non-interest bearing,
uncollateralized note payable in exchange for comedy material rights. This note
requires monthly payments of $2,778 through December 2, 2001 and monthly
payments of $1,000 thereafter through December 2, 2003.
Future minimum payments associated with this note payable as of September 30,
2000 are as follows:
2001 $ 33,333
2002 17,334
2003 12,000
2004 3,000
-----------
Future minimum note payments $ 65,667
===========
7. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its facilities under a ten year lease which began July 15,
1993. The lease may be extended at the Company's option for two additional
five-year terms. The Company has subleased a portion of its facility through
July, 2003. Future minimum rental revenue from the sublease agreement is
$455,000.
Future minimum lease payments under operating leases (excluding sublease rental
income) with initial lease terms in excess of one year are as follows:
2001 $ 326,508
2002 326,508
2003 299,299
-----------
Future minimum lease payments $ 952,315
===========
Rent expense under operating leases was $220,565 and $285,345 for 2000 and 1999,
respectively.
Employment Agreements
Effective May 31, 1999, the Company entered into a thirty-eight month employment
contract with an executive officer and director of the Company which provides
for a base annual salary of $150,000 and eligibility to participate in the
Company's Bonus Plan. The Compensation Committee voted to amend the agreement
effective October 1, 2000 to provide for a base salary of $180,000. The
amendment does not affect the agreement term.
21
<PAGE>
TM CENTURY, INC.
NOTES TO FINANCIAL STATEMENTS
The Company has consulting agreements with certain members and a former member
of the Board of Directors. A twelve month consulting agreement was entered into
with a former officer of the Company on June 1, 2000 which provides for
compensation totaling $60,938 over the term of the agreement. Total compensation
expensed in connection with these consulting agreements was $118,163 and $86,900
in 2000 and 1999 respectively.
Commitments for future salaries under employment agreements and consulting
agreements are as follows:
2001 $ 285,975
2002 216,600
2003 21,600
2004 16,200
-------------
Total employment & consulting commitments $ 540,375
=============
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. Settlement discussions then ensued and 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 all of the claims asserted, and, as no actual litigation
has been initiated by the RIAA and no correspondence has been received regarding
this matter since February 1999, it is the opinion of management that, based on
these facts, the accrued legal settlement for the RIAA dispute should be
removed, as any ultimate liability resulting from this action is unlikely.
Accordingly, the accompanying Statement of Operations for the year ended
September 30, 2000 includes a $440,523 increase in income resulting from the
reversal of the liability previously recorded.
22
<PAGE>
TM CENTURY, INC.
NOTES TO FINANCIAL STATEMENTS
8. INCOME TAXES
Differences between the statutory federal income tax rate and the effective rate
for the years ended September 30, 2000 and 1999 are as follows:
2000 1999
--------- ---------
Income tax provision at statutory rate 35.00% (35.00%)
Effect of graduated tax rates (1.00) 1.00
Change in valuation allowance (28.21) 32.50
Change in prior year estimate (7.04) .00
Other 1.25 1.50
--------- ---------
0.00% 0.00%
========= =========
At September 30, 2000, the Company has net operating loss carryforwards of
approximately $867,000 available to offset future taxable income expiring in
2011 through 2013. A valuation allowance of approximately $473,000 has been
provided to reduce the net deferred tax asset to zero because of the uncertainty
of generating future taxable income. The valuation allowance decreased by
$266,636 during the year ended September 30, 2000. Certain provisions of the tax
law may limit the net operating loss, capital loss and credit carryforwards
available for use in any given tax year in the event of a significant change in
ownership interest.
The components of the net deferred income tax asset at September 30, 2000 and
1999 are as follows:
2000 1999
---------- ----------
Allowance for doubtful accounts $ 33,429 $ 35,000
Property and equipment 45,493 5,950
Inventory allowance for obsolescence 90,491 90,491
Net operating loss carryforwards 303,550 466,373
Accrued legal settlement for RIAA dispute -- 141,785
---------- ----------
Total deferred tax asset 472,963 739,599
Valuation allowance (472,963) (739,599)
---------- ----------
Net deferred tax asset $ -- $ --
========== ==========
9. EARNINGS (LOSS) PER SHARE
The following table provides a reconciliation between basic and diluted net
income or (loss) per share:
Year Ended
September 30
------------------------
2000 1999
---------- ----------
Net Income (Loss) $ 945,250 $ (12,470)
Weighted Average Number of Shares Outstanding
Basic 2,483,193 2,483,193
Dilutive effect of common stock equivalents 4,293 0
---------- ----------
Diluted 2,487,486 2,483,193
Earnings (Loss) Per Share:
Basic Net Income (Loss) $ 0.38 $ (0.01)
========== ==========
Diluted Net Income (Loss) $ 0.38 $ (0.01)
========== ==========
23
<PAGE>
TM CENTURY, INC.
NOTES TO FINANCIAL STATEMENTS
10. STOCK OPTIONS
On December 3, 1991, the Board of Directors approved a Long Term Incentive 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. Each member of the Compensation Committee who was not an employee
or full-time consultant of the Company was automatically granted in December of
each year, commencing in 1991, for five years (but only for so long as he or she
remained a member of the Compensation Committee), a Nonqualified Stock Option
for 2,500 shares. The maximum number of shares which may be issued pursuant to
the exercise of options under the Plan was 187,500 shares. Effective October 28,
1993, the Board of Directors approved an amendment to the Plan which increased
the total number of shares which may be issued to 250,000 shares of common
stock. The Board of Directors approved an amendment to the Plan, effective July
2, 1999, which increased the total number of shares which may be issued to
350,000 shares of common stock and provided for Employee Incentive Options based
upon an employee's length of employment.
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 at a rate of 20%
upon grant, 35% after year one, 50% after year two, 65% after year three, 80%
after year four and 100% after year five.
The option prices of outstanding Nonqualified Stock Options issued to members of
the Company's Board of Directors range from $.75 to $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.
Employee Incentive Stock Options are granted based on the employee's length of
employment at an option price not less than the fair market value of the common
stock at the date of grant. All Employee Incentive Stock Options are 100% vested
upon grant.
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 is
350,000 shares. No shares have been granted under this Plan as of September 30,
2000.
Option information for the fiscal years ended September 30, 2000 and 1999 is as
follows:
Weighted
Avg.
Number of Price Price Per
Shares Per Share Share
--------- ------------- ---------
Options outstanding at October 1, 1998 205,000 $.355 - $2.50 1.1690
Granted 146,500 $.515-$.75 .7199
Exercised -- -- --
Forfeited (12,500) $1.20 1.2000
---------
Options outstanding at September 30, 1999 339,000 $.355 - $2.50 .9335
Granted 21,000 $.560 - $.910 .7602
Exercised -- -- --
Forfeited (27,500) $.515 - $.810 .6367
---------
Options outstanding at September 30, 2000 332,500 $.355 - $2.50 .9475
=========
Options exercisable at September 30, 2000 250,000 $.355 - $2.50 1.0163
=========
The weighted average remaining contractual life of the stock options outstanding
at September 30, 2000 is 7.42 years.
At September 30, 2000 the Company has reserved a total of 700,000 shares of
common stock for exercise of stock options.
24
<PAGE>
TM CENTURY, INC.
NOTES TO FINANCIAL STATEMENTS
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" in accounting for its stock option and award plans. During the years
ended September 30, 2000 and 1999 the exercise price of each option granted was
greater than or equal to the market price of the Company's stock on the date of
grant. Accordingly, no compensation expense has been recognized. For the fiscal
years 2000 and 1999, the net income (loss) on a proforma basis as if the Company
had utilized the accounting methodology prescribed by SFAS No. 123, "Accounting
for Stock-Based Compensation," would have been $944,021 and ($22,244),
respectively and would have resulted in no difference in reported net income or
loss per share.
The estimated weighted average grant date fair value of options granted during
fiscal years 2000 and 1999 using the Black-Scholes Model were $.4214 and $.3949
per share, respectively. For purposes of determining the fair value of each
option, the Company used the following assumptions:
2000 1999
---------- ----------
Risk-free interest rate 6 % 6 %
Volatility 75 % 187 %
Expected life (years) 10 10
25
