<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended April 30, 2000 Commission File No. 0-15284
J2 COMMUNICATIONS
(Exact name of registrant as specified in its charter)
California 95-4053296
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
10850 Wilshire Blvd., Suite 1000
Los Angeles, California 90024
(Address of principal executive offices)
Registrant's telephone number: (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 (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 ___
As of June 9, 2000 the registrant had 1,311,392 shares of its common stock
outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
J2 COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
APR. 30, 2000 JUL. 31, 1999
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $1,862,000 $1,858,000
Accounts Receivable 7,000 0
Prepaid Expenses 27,000 23,000
Fixed Assets, net of accumulated depreciation
of $15,000 and $8,000, respectively 22,000 19,000
Intangible Assets, net of amortization of
$2,729,000 and $2,549,000, respectively 3,236,000 3,416,000
Other Assets 49,000 34,000
----------- -----------
TOTAL ASSETS $5,203,000 $5,350,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts Payable $316,000 $197,000
Accrued Expenses 343,000 432,000
Accrued Income Taxes 0 25,000
Settlement Payable 203,000 203,000
Minority Interest in Consolidated Subsidiary 274,000 186,000
Stock Appreciation Rights Payable 550,000 1,717,000
----------- -----------
TOTAL LIABILITIES 1,686,000 2,760,000
STOCKHOLDERS' EQUITY
Preferred Stock, no par value, 2,000,000 shares
authorized, no shares issued and outstanding 0 0
Common Stock, no par value, 15,000,000 shares
authorized, 1,311,392 and 1,233,712 shares
issued and outstanding, respectively 8,937,000 8,755,000
Less: Note Receivable for Common Stock (138,000) (134,000)
Less: Treasury Stock, at cost, 1,166 shares (2,000) (2,000)
Accumulated Deficit (5,280,000) (6,029,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,517,000 2,590,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,203,000 $5,350,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE> 3
J2 COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED APR. 30, ENDED APR. 30,
2000 1999 2000 1999
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUE
Trademark $406,000 $205,000 $945,000 $982,000
Video 4,000 3,000 11,000 9,000
Internet 10,000 0 10,000 0
---------- ---------- ---------- ----------
Total Revenue 420,000 208,000 966,000 991,000
COSTS AND EXPENSES
Costs Related to Trademark Revenue 41,000 0 52,000 125,000
Costs Related to Video Revenue 1,000 1,000 3,000 7,000
Costs Related to Internet Revenue 92,000 0 285,000 0
Amortization of Intangible Assets 60,000 60,000 180,000 180,000
Selling, General & Administrative Expenses 268,000 176,000 836,000 536,000
Stock Appreciation Rights Benefit (584,000) 0 (1,167,000) 0
---------- ---------- ---------- ----------
Total Costs and Expenses (122,000) 237,000 189,000 848,000
---------- ---------- ---------- ----------
OPERATING INCOME/(LOSS) 542,000 (29,000) 777,000 143,000
OTHER INCOME/(EXPENSE)
Interest Income 23,000 35,000 61,000 73,000
Minority Interest in Income of
Consolidated Subsidiary (3,000) 0 (88,000) (64,000)
---------- ---------- ---------- ----------
Total Other Income/(Expense) 20,000 35,000 (27,000) 9,000
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 562,000 6,000 750,000 152,000
Provision for Income Taxes 0 0 1,000 11,000
---------- ---------- ---------- ----------
NET INCOME $562,000 $6,000 $749,000 $141,000
========== ========== ========== ==========
Net Income Per Share - Basic $0.43 $0.01 $0.59 $0.12
========== ========== ========== ==========
Weighted Average Number of Common
Shares - Basic 1,310,759 1,217,000 1,275,374 1,209,000
========== ========== ========== ==========
Net Income Per Share - Diluted $0.41 $0.01 $0.54 $0.12
========== ========== ========== ==========
Weighted Average Number of Common and
Common Equivalent Shares - Diluted 1,382,618 1,217,000 1,377,378 1,209,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
J2 COMMUNICATIONS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED APR. 30,
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $749,000 $141,000
Adjustments to Reconcile Net Income to Net Cash
Used in Operating Activities:
Depreciation and Amortization 187,000 180,000
Minority Interest in Income of Consolidated Subsidiary 88,000 64,000
Stock Appreciation Rights Benefit (1,167,000) 0
Interest on Note Receivable for Common Stock (4,000) 0
Changes in Assets and Liabilities:
Increase in Accounts Receivable (7,000) (27,000)
Increase in Prepaid Expenses (4,000) 0
(Increase)/Decrease in Other Assets (15,000) 8,000
Increase/(Decrease) in Accounts Payable 119,000 (55,000)
Decrease in Accrued Expenses (89,000) (39,000)
Decrease in Income Taxes Payable (25,000) 0
Decrease in Deferred Revenue 0 (633,000)
----------- -----------
NET CASH AND CASH EQUIVALENTS
USED IN OPERATING ACTIVITIES (168,000) (361,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (10,000) 0
Sale of Short-term Investments 0 1,161,000
----------- -----------
NET CASH AND CASH EQUIVALENTS (USED IN)/
PROVIDED BY INVESTING ACTIVITIES (10,000) 1,161,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of Stock Options 182,000 0
----------- -----------
NET CASH AND CASH EQUIVALENTS PROVIDED
BY FINANCING ACTIVITIES 182,000 0
----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 4,000 800,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,858,000 879,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,862,000 $1,679,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
J2 COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements. Accordingly, they do not include all of the information
and disclosures required for annual financial statements. These financial
statements should be read in conjunction with the financial statements and
related footnotes for the year ended July 31, 1999 included in the J2
Communications ("Company" or "Registrant") annual report on Form 10-K for that
period.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's financial
position as of April 30, 2000, the results of operations for the three and nine
month periods ended April 30, 2000 and 1999 and cash flows for the nine month
periods ended April 30, 2000 and 1999 have been included.
The results of operations for the three and nine month periods ended April 30,
2000 are not necessarily indicative of the results to be expected for the full
fiscal year. For further information, refer to the financial statements and
related footnotes included in the Company's annual report on Form 10-K for the
year ended July 31, 1999.
Certain amounts for the three and nine month periods ended April 30, 1999 have
been reclassified to conform to the presentation of the April 30, 2000 amounts.
NOTE B - EARNINGS PER SHARE
Diluted earnings per share amounts are calculated using the treasury method and
are based upon the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares are excluded from
the computation in periods in which they would have an anti-dilutive effect. The
difference between basic and diluted earnings per share is solely attributable
to stock options, which are considered anti-dilutive when option exercise prices
exceed the weighted average market price per share of common stock during the
period. The following table shows the weighted average number of common and
common equivalent shares used in the calculation of basic and fully diluted
earnings per share:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
APR. 30, 2000 APR. 30, 1999
-------------- ---------------
<S> <C> <C>
Weighted Average Number of Common Shares Outstanding 1,275,374 1,209,000
Weighted Average Number of Common Shares Assuming
Exercise of Dilutive Stock Options 102,004 0
----------- -----------
Fully Diluted Weighted Average Number of Common Shares 1,377,378 1,209,000
=========== ===========
</TABLE>
5
<PAGE> 6
J2 COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - JOINT VENTURE
The Company is the successor to a 75% interest in a joint venture ("Joint
Venture") established in 1975 for the development and production of the film
"National Lampoon's Animal House" ("Film"). The current operations of the Joint
Venture consist solely of collecting certain proceeds from the distribution and
exploitation of the Film by the copyright owner. For financial statement
purposes, the Joint Venture has been consolidated and a liability recognized
corresponding to the minority partner's interest in the proceeds from the Joint
Venture. The revenue received by the joint venture was approximately $327,000
and $251,000 for the nine month periods ended April 30, 2000 and 1999,
respectively.
NOTE D - SEGMENT INFORMATION
The Company operates in three business segments: licensing and exploitation of
the "National Lampoon" trademark and related properties, operation of the
NATIONALLAMPOON.COM website and video distribution. Segment operating
income/(loss) excludes the amortization of intangible assets, stock appreciation
rights costs, interest income and income taxes. Selling, general and
administrative expenses not specifically attributable to any segment have been
allocated equally between the trademark and internet segments. Summarized
financial information for the three and nine month periods ended April 30, 2000
and 1999 concerning the Company's segments is as follows:
<TABLE>
<CAPTION>
Trademark Internet Video Total
--------- --------- -------- ----------
<S> <C> <C> <C> <C>
Three Months Ended April 30, 2000
Segment revenue $406,000 $10,000 $4,000 $420,000
Segment operating income/(loss) 271,000 (259,000) 3,000 15,000
Three Months Ended April 30, 1999
Segment revenue $205,000 $0 $3,000 $208,000
Segment operating income 29,000 0 2,000 31,000
Nine Months Ended April 30, 2000
Segment revenue $945,000 $10,000 $11,000 $966,000
Segment operating income/(loss) 476,000 (782,000) 8,000 (298,000)
Nine Months Ended April 30, 1999
Segment revenue $982,000 $0 $9,000 $991,000
Segment operating income/(loss) 257,000 0 2,000 259,000
</TABLE>
6
<PAGE> 7
J2 COMMUNICATIONS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - SEGMENT INFORMATION (CONTINUED)
A reconciliation of segment operating income/(loss) to net income before income
taxes for the three and nine month periods ended April 30, 2000 and 1999 is as
follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
APR. 30, 2000 APR. 30, 1999
------------- --------------
<S> <C> <C>
Total segment operating income $15,000 $31,000
Amortization of intangible assets 60,000 60,000
Stock appreciation rights benefit (584,000) 0
Interest income (23,000) (35,000)
----------- -----------
Net income before income taxes $562,000 $6,000
=========== ===========
FOR THE NINE MONTHS ENDED
APR. 30, 2000 APR. 30, 1999
------------- --------------
Total segment operating (loss)/income ($298,000) $259,000
Amortization of intangible assets 180,000 180,000
Stock appreciation rights benefit (1,167,000) 0
Interest income (61,000) (73,000)
----------- -----------
Net income before income taxes $750,000 $152,000
=========== ===========
</TABLE>
7
<PAGE> 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED APRIL 30, 2000 VS. THE THREE MONTHS ENDED APRIL 30, 1999
For the quarter ended April 30, 2000 trademark revenues were approximately
$406,000 as compared to approximately $205,000 for the quarter ended April 30,
1999. The increase in trademark revenues of 98% resulted primarily from
increased revenue from the film "National Lampoon's Vacation." The Company's
internet operations (primarily its website, NATIONALLAMPOON.COM, launched in
October 1999) generated approximately $10,000 of revenue during the quarter
ended April 30, 2000 from advertising and merchandising. No revenue was
generated from internet operations during the quarter ended April 30, 1999.
Costs related to trademark revenue for the quarter ended April 30, 2000
increased to approximately $41,000 primarily due to commissions associated with
certain trademark revenues. Costs related to internet operations (excluding
selling, general and administrative expenses related to internet operations)
were approximately $92,000 during the quarter ended April 30, 2000. These costs
include website development and maintenance, content creation and third party
hosting of the website. There were no costs related to internet operations
during the same period last year as the Company's internet operations, which
commenced in late April 1999, did not incur significant costs until May 1999.
Amortization of intangible assets, the costs of the Company's acquisition of the
"National Lampoon" trademark, was $60,000 during each of the quarters ended
April 30, 2000 and 1999.
Selling, general and administrative costs increased by approximately 52% to
approximately $268,000 during the quarter ended April 30, 2000 versus
approximately $176,000 during the same period last year. This increase resulted
from increased salaries and related expenses primarily associated with the
Company's internet operations.
During the quarter ended April 30, 2000, the Company recorded a benefit of
approximately $584,000 related to stock appreciation rights ("SAR") granted to
the Company's chief executive officer. This benefit resulted from a decrease in
the Company's stock price during the quarter that decreased the amount payable
by the Company to the chief executive officer upon exercise of the outstanding
SAR.
Interest income during the quarter ended April 30, 2000 decreased to
approximately $23,000 versus approximately $35,000 during the quarter ended
April 30, 1999. This decrease resulted from a decrease in cash and cash
equivalents held during the quarter versus the same period last year.
For the three months ended April 30, 2000, the Company had net income of
approximately $562,000, or $0.43 per share, versus net income of approximately
$6,000, or $0.01 per share, for the three months ended April 30, 1999. This
increase resulted primarily from the benefit recorded by the Company relating to
the outstanding SAR that was partially offset by the expenses incurred related
to the Company's internet operations. During the quarters ended April 30, 2000
and 1999, the Company had no significant provision for income taxes due to the
utilization of deferred tax valuation allowances.
8
<PAGE> 9
THE NINE MONTHS ENDED APRIL 30, 2000 VS. THE NINE MONTHS ENDED APRIL 30, 1999
For the nine months ended April 30, 2000 trademark revenues decreased by 4%
to approximately $945,000 as compared to approximately $982,000 for the nine
months ended April 30, 1999. The Company's internet operations (primarily its
website, NATIONALLAMPOON.COM, launched in October 1999) generated approximately
$10,000 of revenue during the nine months ended April 30, 2000 from advertising
and merchandising. No revenue was generated from internet operations during the
nine months ended April 30, 1999.
Costs related to trademark and video revenue for the nine months ended
April 30, 2000 decreased to approximately $55,000 versus approximately $132,000
for the nine months ended April 30, 1999. This decrease resulted primarily from
(i) no magazine being published during the nine months ended April 30, 2000
versus costs of approximately $45,000 for magazine publishing during the nine
months ended April 30, 1999 and (ii) decreased royalties payable to third
parties that are based upon certain revenues received by the Company. Costs
related to internet operations (excluding selling, general and administrative
expenses related to internet operations) were approximately $285,000 during the
nine months ended April 30, 2000. There were no costs related to internet
operations during the same period last year as the Company's internet
operations, which commenced in late April 1999, did not incur significant costs
until May 1999. Amortization of intangible assets, the costs of the Company's
acquisition of the "National Lampoon" trademark, was $180,000 during each of the
nine month periods ended April 30, 2000 and 1999.
Selling, general and administrative costs increased by approximately 56% to
approximately $836,000 during the nine month period ended April 30, 2000 versus
approximately $536,000 during the same nine month period last year. This
increase resulted from increased salaries and related expenses associated with
the Company's internet operations and increased expenses related to preparation
of the Company's proxy statement for its annual meeting in January 2000.
During the nine months ended April 30, 2000, the Company recorded a benefit
of approximately $1,167,000 related to the SAR granted to the Company's chief
executive officer. This benefit resulted from a decrease in the Company's stock
price during the nine months ended April 30, 2000 that decreased the amount of
compensation payable by the Company to the chief executive officer upon exercise
of the outstanding SAR.
Interest income during the nine month period ended April 30, 2000 decreased
to approximately $61,000 versus approximately $73,000 during the nine month
period ended April 30, 1999. This decrease resulted from a decrease in cash and
cash equivalents held during the quarter versus the same period last year.
For the nine months ended April 30, 2000, the Company had net income of
approximately $749,000, or $0.59 per share, versus net income of approximately
$141,000, or $0.12 per share, for the nine months ended April 30, 1999. This
increase resulted primarily from the benefit recorded by the Company relating to
the SAR partially offset by costs associated with the Company's internet
operations (including associated increased selling, general and administrative
expenses). During the nine month periods ended April 30, 2000 and 1999, the
Company had no significant provision for income taxes due to the utilization of
deferred tax valuation allowances.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of working capital during the three and nine
month periods ended April 30, 2000 was trademark and related income. The
Company's management believes that its existing cash resources will be
sufficient to fund its ongoing operations for the next twelve months.
For the nine months ended April 30, 2000, the Company's net cash flow used
in its operating activities was approximately $168,000, a decrease of
approximately $193,000 versus approximately $361,000 of net cash flow used in
operating activities during the nine months ended April 30, 1999. This decrease
resulted primarily from the fact that a significant portion of the Company's
revenue during the nine months ended April 30, 1999 came from the recognition of
deferred revenue for which the Company had actually received payment during the
prior fiscal year. As of April 30, 2000, the Company had cash and cash
equivalents of approximately $1,862,000 as compared to approximately $1,858,000
at July 31, 1999.
FUTURE COMMITMENTS
The Company does not have any material future commitments for capital
expenditures. However, the Company has and will continue to use its working
capital to fund its internet operations that, during the nine months ended April
30, 2000, have generated approximately $10,000 of revenue and have resulted in
segment operating losses of approximately $782,000 (SEE NOTE D - SEGMENT
INFORMATION). Due to substantial competition among companies with internet-based
business strategies and the developing economics of the internet in general, it
is uncertain when, and if, the Company will be able to generate revenues from
its internet operations sufficient to offset the significant costs incurred to
date and the ongoing costs that the Company expects to incur in the future to
support its internet operations.
The Company has entered into an agreement with Phase 2 Media, an internet
advertising sales agency, for the sale of banner, sponsorship and product
placement advertising on the Company's website. Advertising began appearing on
the Company's website beginning in November 1999. Advertising revenue is
dependent upon many factors including, among others, the number of website
users, the length of time each user spends on the website and the advertising
sales agency's ability to sell advertising space based upon these and other
factors. The Company also expects to generate revenue by syndicating the
original programming it creates for its own website to third parties for use on
other websites and from the sale of "National Lampoon" branded merchandise in
its on-line store.
FORWARD-LOOKING STATEMENTS
The foregoing discussion, as well as the other sections of this Quarterly
Report on Form 10-Q, contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 that reflect the Company's
current views with respect to future events and financial results.
Forward-looking statements usually include the verbs "anticipates," "believes,"
"estimates," "expects," "intends," "plans," "projects," "understands" and other
verbs suggesting uncertainty. The Company reminds shareholders that
forward-looking statements are merely predictions and therefore inherently
subject to uncertainties and other factors which could cause the actual results
to differ materially from the forward-looking statements. Potential factors that
could affect forward-looking statements include, among other things, the
Company's ability to identify, produce and complete projects that are successful
in the marketplace, to arrange financing, distribution and promotion for these
projects on favorable terms in various markets and to attract and retain
qualified personnel.
10
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In the ordinary course of business, the Company has or may become involved
in disputes or litigation. On the basis of information available to it,
management believes any such contingencies will not have a materially adverse
impact on the Company's financial position or results of operations.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)
3.1 Restated Articles of Incorporation of Registrant. (1)
3.2 Bylaws of Registrant. (1)
27 Financial Data Schedule. (2)
---------------
(1) Incorporated by reference to Form S-1 as filed with the
Securities and Exchange Commission on July 28, 1986 as amended
September 22, 1986 and October 2, 1986.
(2) Filed electronically with Securities and Exchange Commission,
omitted in copies distributed to shareholders or other persons.
(B) FORMS 8-K
None.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: June 9, 2000 J2 COMMUNICATIONS
By: /s/Christopher M. Trunkey
-------------------------
Christopher M. Trunkey,
Chief Financial Officer
12
