FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-10781
LANCIT MEDIA PRODUCTIONS, LTD.
(Exact Name of Registrant as Specified in its Charter)
New York 13-3019470
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
601 West 50th Street, New York, New York, 10019
(Address of Principal Executive Office) (Zip Code)
(212) 977-9100
(Registrant's telephone number including area code)
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
The number of shares of registrant's Common Stock, $.001 par value, outstanding
as of September 30, 1996 was 6,626,750 shares.
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LANCIT MEDIA PRODUCTIONS, LTD. AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION -
ITEM 1. FINANCIAL STATEMENTS -
CONSOLIDATED BALANCE SHEET - September 30, 1996 and
June 30, 1996 1
CONSOLIDATED STATEMENT OF OPERATIONS - For the three
months ended September 30, 1996 and 1995 2
CONSOLIDATED STATEMENT OF CASH FLOWS - For the three
months ended September 30, 1996 and 1995 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 5 - 7
PART II - OTHER INFORMATION -
ITEM 2. CHANGES IN SECURITIES 8
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND STOCK 8
HOLDER MATTERS
SIGNATURES 9
PART I. FINANCIAL INFORMATION
LANCIT MEDIA PRODUCTIONS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, June 30,
1996 1996
-------------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,640,707 $ 3,358,230
Accounts receivable 2,458,753 2,683,433
Film and program costs, net 5,881,447 5,527,106
Prepaid expenses 189,716 268,175
-------------- -------------
TOTAL CURRENT ASSETS 16,170,623 11,836,944
ACCOUNTS RECEIVABLE - NON-CURRENT 1,135,533 1,378,078
FIXED ASSETS, NET 738,451 832,606
GOODWILL, NET 275,641 279,754
DEPOSITS 66,911 60,784
-------------- -------------
TOTAL ASSETS $ 18,387,159 $ 14,388,166
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 965,465 $ 732,158
Participation payable 1,189,422 1,199,991
Deferred revenue 1,477,655 1,651,279
-------------- -------------
TOTAL CURRENT LIABILITIES 3,632,542 3,583,428
-------------- -------------
PARTICIPATION PAYABLE - NON-CURRENT 560,310 598,461
DEFERRED REVENUE - NON-CURRENT 669,807 828,713
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 122,140 94,056
-------------- -------------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, authorized
15,000,000 shares; issued and outstanding
6,626,750 shares at September 30, 1996 and
6,187,634 shares at June 30, 1996 6,627 6,188
Additional paid-in capital 17,279,964 12,579,402
Retained earnings (accumulated deficit) (3,884,231) (3,302,082)
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 13,402,360 9,283,508
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,387,159 $ 14,388,166
============== =============
See notes to consolidated financial statements.
- 1 -
LANCIT MEDIA PRODUCTIONS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
--------- ----------
(UNAUDITED)
REVENUES:
Production and royalties $ 566,825 $ 2,751,304
Licensing agent fees 324,000 571,844
--------- ----------
890,825 3,323,148
--------- ----------
OPERATING EXPENSES:
Production and royalties 530,614 2,348,601
Licensing agent - direct costs 233,984 304,332
General and administrative 714,416 706,120
--------- ----------
1,479,014 3,359,053
--------- ----------
INCOME (LOSS) FROM OPERATIONS (588,189) (35,905)
INTEREST INCOME (EXPENSE) - NET 34,123 97,430
--------- ----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES AND MINORITY INTEREST (554,066) 61,525
PROVISION FOR INCOME TAXES - CURRENT -- 7,200
MINORITY INTEREST 28,083 18,749
--------- ----------
NET INCOME (LOSS) $ (582,149) $ 35,576
========= ==========
NET INCOME (LOSS) PER SHARE $ (0.09) $ 0.01
========= ==========
WEIGHTED AVERAGE SHARES 6,261,153 6,392,990
========= ==========
See notes to consolidated financial statments.
- 2 -
LANCIT MEDIA PRODUCTIONS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $(582,149) $ 35,576
---------- ----------
Adjustments to reconcile net income(loss)to net
cash from operating activities:
Amortization of film and program costs 133,749 1,753,271
Depreciation and other amortization 101,694 105,595
Minority interest 28,083 18,749
Changes in operating assets and liabilities:
(Increase)decrease in accounts receivable - current 224,680 498,162
(Increase) decrease in accounts receivable - non-current 242,545 100,999
Additions to film and program costs (488,090)(2,892,246)
(Increase) decrease in prepaid expenses 79,989 (14,255)
(Increase) decrease in income taxes receivable (23,490) 434
(Increase) decrease in deposits receivable (6,127) --
Increase (decrease) in accounts payable and
accrued expenses 233,307 193,513
Increase (decrease) in participations payable - current (10,569) 115,048
Increase (decrease) in participations
payable - non-current (38,151) (65,096)
Increase (decrease) in income taxes payable 21,960 (1,358,100)
Increase (decrease) in deferred revenue - current (173,624) (286,310)
Increase (decrease) in deferred revenue - non-current (158,906) (20,124)
---------- ----------
167,050 (1,850,360)
---------- ----------
CASH PROVIDED (USED) IN OPERATING ACTIVITIES (415,099)(1,814,784)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,425) (77,641)
---------- ----------
CASH PROVIDED (USED) IN INVESTING ACTIVITIES (3,425) (77,641)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock $4,701,001 $ 200
---------- ----------
CASH PROVIDED (USED) IN FINANCING ACTIVITIES 4,701,001 200
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,282,477 (1,892,225)
CASH AND CASH EQUIVALENTS - beginning of period 3,358,230 7,395,238
---------- ----------
CASH AND CASH EQUIVALENTS - end of period 7,640,707 5,503,013
========== ==========
CASH PAID DURING THE PERIOD FOR:
Interest -- --
========== ==========
Income taxes -- --
========== ==========
See notes to consolidated financial statements.
- 3 -
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LANCIT MEDIA PRODUCTIONS, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
Reference is made to the Company's annual report on Form 10-K/A dated October
28, 1996 for the year ended June 30, 1996.
The accompanying financial statements reflect all adjustments which, in the
opinion of management, are necessary for a fair presentation of the financial
position and results of operations for the interim periods presented. All such
adjustments are of a normal and recurring nature. The results of operations for
any interim period are not necessarily indicative of the results of a full
fiscal year.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed on the basis of the weighted average
number common shares and common share equivalents outstanding for the respective
period. Common share equivalents include dilutive stock options and warrants
using the treasury stock method.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three months ended September 30, 1996 as
compared to
three months ended September 30, 1995
Production and royalty related revenues for the three month period ended
September 30, 1996 decreased to $566,825 from $2,751,304 in the comparable 1995
quarter. This decrease is primarily the result of reduced activity on The Puzzle
Place(R).
Licensing agent fee revenues for the three month period ended September 30, 1996
decreased to $324,000 from $571,844 in the comparable 1995 quarter. This
decrease is primarily the result of the extension of the license term for
several licensees on The Puzzle Place(R) and reduced royalties on the Sonic the
Hedgehog(TM) property.
Production and royalty related expenses for the three month period ended
September 30, 1996 decreased to $530,614 from $2,348,601 in the comparable 1995
quarter reflecting primarily the reduction in activity on The Puzzle Place(R).
Direct costs of licensing activities for the three month period ended September
30, 1996 decreased to $233,984 from $304,332 in the comparable 1995 quarter
primarily as a result of decreased personnel and trade show expenses.
General and administrative expenses for the three month period ended September
30, 1996 remained relatively unchanged at $714,416 compared to $706,120 in the
comparable 1995 quarter.
Interest income for the three month period ended September 30, 1996 decreased to
$34,123 from $97,430 in the comparable 1995 quarter. This decrease is primarily
due to a reduced level of cash being invested during this year's three month
period due to the Company's utilization of cash since September 30, 1995 for
production, development and corporate needs.
There was no provision for income taxes recorded for the three month period
ended September 30, 1996, as a result of a loss during that period, compared to
$7,200 recorded in the comparable 1995 quarter.
Minority interest in licensing activities for the three month period ended
September 30, 1996 was $28,083 compared to $18,749 in the comparable 1995
quarter.
Net loss for the three month period ended September 30, 1996 was $582,149 ($.09
per share) compared to net income of $35,576 ($.01 per share) in the comparable
1995 quarter, as a result of the combination of the factors discussed above.
Weighted average shares outstanding for the three month period ended September
30, 1996 decreased to 6,261,153 from 6,392,990 in the comparable 1995 quarter
primarily as a result of the exclusion of outstanding stock options and warrants
during a loss period, which was partially offset by the shares issued related to
the purchase of a 6.6% equity stake in the Company by Discovery Communications,
Inc. ("DCI") in September 1996 as well as the exercise of stock options during
the twelve month period since September 30, 1995.
Liquidity and Capital Resources
The Company's balance sheet is in extremely strong condition, as of September
30, 1996, with cash and cash equivalents of approximately $7.6 million, a
current ratio of 4.4 to 1 and no long-term debt.
Cash used in operating activities was approximately $.4 million for the three
month period ended September 30, 1996, compared to the use of approximately $1.8
million for the same period last year. During the three month period ended
September 30, 1996, net additions to film and program costs of approximately $.4
million and a decrease in deferred revenues of approximately $.3 million were
partially offset by a decrease in current accounts receivable of approximately
$.2 million.
Cash used in investing activities was $3,425, for the three month period ended
September 30, 1996, compared to the use of $77,641 for the same period last
year. The Company acquired equipment during the first quarter of fiscal 1996 as
part of its expansion of the post production capabilities.
Cash provided from financing activities was approximately $4.7 million for the
three month period ended September 30, 1996, compared to $200 for the same
period last year. In September 1996, DCI invested $5 million, which was
partially offset by costs relating to the transaction, for a 6.6% equity stake
in the Company.
As of September 30, 1996, the Company is continuing the remaining elements
associated with the outreach for the first 65 episodes of The Puzzle Place(R).
The Company estimates that its remaining funding required will be less than $.1
million. With respect to The Puzzle Place(R) licensing effort, the Company and
KCET have agreed to, and may in the future, extend the license term and payment
schedule for certain licensees in order to more closely reflect the anticipated
royalty stream generated by those particular categories.
The Company is completing production and post-production on the initial season
of 13 episodes of Backyard Safari(TM), which is being partially funded through a
major grant from the National Science Foundation. The Company is continuing to
pursue additional production funding from potential production partnerships and
broadcast license fees, as well as various sources of underwriting. Only in the
event the Company were to receive no amounts from these sources of outside
production funding (a scenario the Company considers unlikely), the Company
estimates that its remaining investment required for this project is
approximately $.5 million.
In September 1996, Discovery Communications, Inc. invested $5 million in the
Company in return for a 6.6% equity stake in Lancit. DCI may also purchase, what
currently represents, an additional 6.2% stake in the Company through the
exercise of warrants at $13 per share. Management believes that its present cash
position and strong liquidity will enable the Company to meet its current
capital requirements. In the event the Company aggressively pursues growth
opportunities which could arise over the foreseeable future, additional capital
may be required. The Company and its investment banker, Allen & Co., may pursue
additional strategic alliances which present a source of capital and attractive
business opportunities for the Company. Management does not expect inflation to
have a significant impact on the business.
<PAGE>
PART II. - OTHER INFORMATION
Item 2. Changes in Securities
On September 25, 1995, the Company entered into a Stock Purchase Agreement with
Discovery Communications, Inc. ("DCI") a Delaware corporation pursuant to which
DCI purchased 438,116 shares of the Company's common stock, par value $.001 per
share (the "Common Stock") at a purchase price of $11.41 per share for an
aggregate of $5 million. For as long as DCI owns more than 2% of the issued and
outstanding Common Stock of the Company, the Stock Purchase Agreement grants DCI
preemptive rights with regard to any public or nonpublic offering of Common
Stock or other equity security of the Company or any right to purchase any
Common Stock or other equity security of the Company, except for (i) shares
issued as consideration to induce an individual to be employed by the Company,
(ii) shares issued under an employee or director stock option plan, or (iii)
consideration for property purchased from or for a share exchange with
unaffiliated parties for a value of less than $100,000. At the closing on
September 27, 1996, the Company also issued DCI warrants to purchase an
additional 438,116 shares of Common Stock at any time through September 26, 2000
at an exercise price of $13.00 per share. The unregistered Common Stock and
warrants were sold to DCI pursuant to the exemptions available under Section 4
(2) of the Securities Act of 1933, as amended, and Regulation D promulgated
thereunder.
Item 5. Market for Company's Common Equity and Stockholder
Matters
In the quarter covered by this Report, the Company sold 438,116 unregistered
shares of Common Stock and issued warrants to purchase 438,116 shares of Common
Stock to Discovery Communications, Inc. ("DCI") pursuant to a Stock Purchase
Agreement dated September 25, 1996 by and between the Company and DCI. (See Item
2 for details of the transaction.)
<PAGE>
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.
LANCIT MEDIA PRODUCTIONS, LTD.
Date: November 13, 1996 By: /s/ Gary Appelbaum
--------------------------------------
Gary Appelbaum
Senior Vice President, Chief
Financial Officer & Treasurer
Date: November 13, 1996 By: /s/ Laurence A. Lancit
--------------------------------------
Laurence A. Lancit
President and Chief Operating
Officer
