SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended October 31, 1997 Commission File #0-15284
J2 COMMUNICATIONS
(Exact name of registrant as specified in its charter)
California 95-4053296
(State or other jurisdiction (IRS Employer Identification
incorporation or organization) Number)
10850 Wilshire Blvd., Ste. 1000, Los Angeles, CA 90024
(Address of principal executive office)
Registrant's telephone number, including area code: 310-474-5252
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares outstanding of each of the issuers classes of common stock as
of the latest practicable date: 3,599,990
common shares, no par value were outstanding as of December 1, 1997.
J2 COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
10/31/97 7/31/97
Unaudited
Assets
Cash and cash equivalents $ 732,000 $ 641,000
Short term investments 765,000 861,000
Accounts receivable - net 32,000 43,000
Inventories - net 13,000 12,000
Intangible assets, less accumulated
amortization of $2,129,000 and
$2,069,000 as of 10/31/97 and
7/31/97, respectively 3,836,000 3,896,000
Other assets 32,000 20,000
Total assets $5,410,000 $5,473,000
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable $ 133,000 $ 130,000
Accrued expenses 650,000 629,000
Accrued royalties 388,000 499,000
Accrued income taxes 38,000 38,000
Deferred income 163,000 208,000
Common stock payable 203,000 203,000
Minority Interest 115,000 84,000
Total liabilities 1,690,000 1,791,000
Shareholders' Equity:
Preferred stock, no par value;
authorized 2,000,000 shares;
none issued and outstanding - -
Common stock, no par value;
authorized 8,000,000 shares;
issued and outstanding, 3,600,000
as of 10/31/97 and 7/31/97 8,656,000 8,654,000
Less: notes receivable on common stock (123,000) (121,000)
Accumulated deficit (4,813,000) (4,851,000)
Total shareholders' equity 3,720,000 3,682,000
Total liabilities and shareholders'
equity $5,410,000 $5,473,000
</TABLE>
The accompany notes are an integral part of these consolidated balance sheets.
J2 COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED OCTOBER 31, 1997 AND 1996
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<S> <C> <C>
1997 1996
Revenues:
Movies, television, and theatrical $ 149,000 $ 432,000
Video sales, net of returns 1,000 26,000
Royalty income 49,000 26,000
Magazine - 1,000
Other 112,000 15,000
Total revenues 311,000 500,000
Costs and expenses:
Cost of videocassettes sold 3,000 15,000
Royalty expense 10,000 12,000
Selling, general and administrative 180,000 175,000
Amortization of intangible assets 60,000 60,000
Total expenses 253,000 262,000
Income from operations 58,000 238,000
Other Income (Expense)
Interest income 17,000 12,000
Minority Interest in income of
consolidated subsidiary (31,000) (82,000)
Income before income taxes 44,000 168,000
Provision for income taxes 6,000 7,000
Net income $ 38,000 $ 161,000
Income per common share:
Net income per share $0.01 $0.04
Weighted average number of shares
of common stock outstanding 3,600,000 3,600,000
</TABLE>
The accompany notes are an integral part of these consolidated financial
statements.
J2 COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED OCTOBER 31, 1997 AND 1996
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<S> <C> <C>
1997 1996
Cash flows from operating activities:
Net income $ 38,000 $161,000
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Amortization of intangible assets 60,000 60,000
Minority interest in income
of consolidated subsidiary 31,000 82,000
Changes in assets and liabilities:
Accounts receivable, net 11,000 (1,000)
Inventory (1,000) 1,000
Other Assets (12,000) -
Accounts payable 3,000 15,000
Accrued expenses 21,000 (35,000)
Accrued royalties (111,000) 6,000
Deferred revenues (45,000) 2,000
Net cash provided by (used in)
operating activities (5,000) 291,000
Cash flows from investing activities:
Purchase of short-term investments (192,000) (192,000)
Sale of short-term investments 288,000 290,000
Net cash provided by investing
activities 96,000 98,000
Cash flows from financing activities:
Net cash used in financing
activities - -
Net increase in cash
and cash equivalents 91,000 389,000
Cash and cash equivalents,
beginning of quarter 641,000 120,000
Cash and cash equivalents,
end of quarter $ 732,000 $ 509,000
</TABLE>
The accompany notes are an integral part of these consolidated financial
statements.
J2 COMMUNICATIONS
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED OCTOBER 31, 1997
Item 1
Basis of Financial Statement Presentation
The consolidated financial statements of J2 Communications and subsidiaries
(collectively the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information. Interim
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete year-end
financial statements. The accompanying financial statements should be read in
conjunction with the more detailed financial statements and related footnotes
for the fiscal year ended July 31, 1997, as included in the Company's 1997
Annual Report on Form 10-K (the "Annual Report") filed with the Securities and
Exchange Commission. A signed independent accountant's report relating to the
July 31, 1997 balance sheet is included in the Annual Report. Significant
accounting policies used by the Company are summarized in Note 1 to the
financial statements included in the Annual Report.
In the opinion of management, all adjustments (which include only recurring
normal adjustments) required for a fair presentation of the financial position
of the Company as of October 31, 1997, and the results of its operations and
cash flows for the periods ended October 31, 1997 and 1996 respectively, have
been made. Operating results for the three-month period ended October 31,
1997, are not necessarily indicative of the operating results for the entire
fiscal year.
Earnings Per Share
Earnings per share are calculated using the weighted average number of common
shares outstanding during the period. The inclusion of outstanding warrants
and stock options in the earnings per share calculation would have no dilutive
effect on the earnings per share in 1997 or 1996.
Shareholders Equity
The increase in common stock during the period relates to accrued interest on
notes receivable on common stock.
Joint Venture
As part of the acquisition of NLI, the Company acquired a 75 percent interest
in a joint venture of which the only operations consist of revenues received
from the licensing of a certain "National Lampoon" motion picture. The
minority interest's share in the joint venture's revenue is deducted from
movies, television and theatrical revenue. Total revenues received by the
joint venture related to this motion picture were $123,000 and $287,000 for
the periods ended October 31, 1997 and 1996. Of this the minority interest's
share totaled $31,000 and $82,000 respectively.
Item 2. Management's Discussions and Analysis of Financial Condition and
Results of Operations
Special Note Regarding Forward Looking Statements
Certain statements in this Quarterly Report on Form 10-Q, particularly
under Item 2, may constitute "forward-looking statements" within the meaning
of Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors which may cause the actual results, performance or achievements
of the company to be materially different from any future results, performance
or achievements, expressed or implied by such forward-looking statements.
Results of Operations
Quarter Ended October 31, 1997 Versus October 31, 1996
Total revenues for the period were $311,000 compared with $500,000 in the
prior year quarter. Movies, television and theatrical revenues were $149,000
compared with $432,000 in the prior year period. The reduction was due
primarily to a decrease of $164,000 in the profit participation from the film
"National Lampoon's Animal House" that was originally released in 1978.
"National Lampoon's Loaded Weapon I", originally released in 1993, produced
income of $17,000 in the current quarter compared with $102,000 in the prior
year quarter. Video sales of $1,000 were down $25,000 from the corresponding
1996 quarter. The Company has de-emphasized this segment of its business due
to declining profitability.
Royalty income increased $23,000 to $49,000 from $26,000 from the prior year
quarter, primarily due to the taking into income of the balance of an advance
license fee upon expiration of the license agreement. Other income increased
$97,000 to $112,000 from $15,000 from the prior year quarter, primarily due
the reversal of previous accruals related to potential royalties which were
extinguished at a reduced amount.
Cost of videocassettes sold represent duplication, shipping, and other costs
which were higher than sales, due to the reduced volume of sales net of
returns for this quarter.
Royalty expense decreased $2,000 to $10,000 compared to $12,000 in the prior
year quarter.
Selling, general and administrative expenses were $180,000 in the current
quarter, compared with $175,000 in the corresponding prior period. There was
no major change in any individual category of expense.
There was no significant provision for income taxes in either quarter because
of the utilization of tax loss carryforwards.
Net income for the current quarter was $38,000 equal to $0.01 per share
compared with a net income of $161,000 in the corresponding prior year
quarter, equal to $0.04 per share. The reduction is primarily due to the
decrease in revenues from movies.
Liquidity and Capital Resources
Cash and short term investments at October 31, 1997 totaled $1,497,000, a
decrease of $5,000 from the July 31, 1997 fiscal year end.
The Company has no current plans for any significant capital expenditures in
its current line of business and believes that its current level of cash and
cash equivalents, augmented by internally generated funds, will provide
sufficient cash resources through fiscal 1998.
The Company is considering establishing a restaurant chain to be called
"National Lampoon Cafe". Should it enter this new line of business,
significant capital would be required.
Cash Flows
Three months ended October 31, 1997 compared to three months ended October 31,
1996.
Net cash provided by operating activities decreased $296,000 primarily due to
a decrease in net income, accrued royalties, deferred revenues and minority
interest in income of consolidated subsidiary, partially offset by an increase
in accrued expenses and reduction of net accounts receivable. Net cash
provided by investing activities decreased by $2,000 from the prior year
quarter due to reduced cash flow from sales of short-term investments. The
Company had no cash flows from financing activities in either quarter.
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission Of Matters For A Vote Of Security Holders
None
Item 5 - Other Events
The Registrant has given notice that pursuant to the terms of that
certain Warrant Agreement (the "Warrant Agreement"), dated October 5, 1990,
between J2 Communications and U.S. Stock Transfer & Trust Co. (the "Warrant
Agent"), as amended through the date hereof, the Registrant and the Warrant
Agent have extended the period under which the Warrants may be exercised at
$2.00 per share through June 30, 1998.
On August 22, 1997, the Securities and Exchange Commission
approved new standards for listing on the Nasdaq SmallCap Market. The changes
increase the quantitative criteria necessary to maintain a listing on Nasdaq,
and, for the first time, apply corporate governance requirements to the
SmallCap Market. Among the changes introduced by Nasdaq are a $1 minimum bid
price for Common and Preferred Stock; an increase in certain quantitative
requirements, such as the size and market value of public float, the number of
market makers and shareholders, and the amount of tangible assets; the
adoption of a peer review requirement for all independent auditors of Nasdaq
listed companies, and the adoption of various corporate governance
requirements.
Companies on The Nasdaq SmallCap Market have until February 23,
1998 to comply with the new requirements. If a Company is unable to comply
with one or more of the new requirements, Nasdaq provides a cure period prior
to a final determination being made to delist a companies stock from the
Nasdaq SmallCap Market.
The Company, believes that at the present time, it can comply with
the new requirements on a going-forward basis, but no assurance can be given
that the Company will be able to meet and then maintain the new requirements.
Item 6 - Exhibits And Reports On Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None filed during the Quarter
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by its duly
authorized officers.
J2 COMMUNICATIONS
Date_________________ By:____________________________
JAMES P. JIMIRRO
Chairman of the Board
President
(Principal Executive Officer)
Date_________________ By:____________________________
RUDY R. PATINO
Chief Financial Officer
(Principal Financial Officer)
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