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 the Fiscal Quarter Ended September 30, 1997
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 ENTERTAINMENT, LTD.
(Exact Name of Registrant as Specified in its Charter)
New York 13-3019740
-------------- ----------------------
(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 Offices) (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 November 6, 1997 was 6,634,750 shares.
<PAGE>
LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS - at September 30,
1997 and June 30, 1997 1
CONSOLIDATED STATEMENTS OF OPERATIONS - For
the three months ended September 30, 1997 and
1996 2
CONSOLIDATED STATEMENTS OF CASH FLOWS - For
the three months ended September 30, 1997 and
1996 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 5
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK 7
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 8
SIGNATURES 9
<PAGE>
PART I. FINANCIAL INFORMATION
LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, June 30,
1997 1997
-------------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,887,565 $ 4,461,627
Accounts receivable 1,058,817 1,698,250
Film and program costs, net 1,813,663 1,718,526
Prepaid expenses 217,246 270,215
-------------- -------------
TOTAL CURRENT ASSETS 6,977,291 8,148,618
ACCOUNTS RECEIVABLE - NON-CURRENT 211,500 211,500
FIXED ASSETS, NET 446,918 525,530
GOODWILL, NET 259,189 263,302
DEPOSITS 50,363 50,363
-------------- -------------
TOTAL ASSETS $ 7,945,261 $ 9,199,313
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,281,435 $ 2,116,028
Participation payable 1,177,935 1,342,702
Deferred revenue 1,099,202 1,009,413
-------------- -------------
TOTAL CURRENT LIABILITIES 4,558,572 4,468,143
-------------- -------------
PARTICIPATION PAYABLE - NON-CURRENT 81,719 88,009
DEFERRED REVENUE - NON-CURRENT 200,043 317,620
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 205,926 195,360
-------------- -------------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, authorized
15,000,000 shares; issued and outstanding
6,634,750 shares at September 30, 1997 and
6,634,750 shares at June 30, 1997 6,635 6,635
Additional paid-in capital 17,604,536 17,504,536
Retained earnings (accumulated deficit) (14,712,170) (13,380,990)
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 2,899,001 4,130,181
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,945,261 $ 9,199,313
============== =============
See notes to consolidated financial statements.
- 1 -
<PAGE>
LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
--------- ----------
(UNAUDITED)
REVENUES:
Production and royalties $ 226,496 $ 566,825
Licensing agent fees 227,641 324,000
--------- ----------
454,137 890,825
--------- ----------
OPERATING EXPENSES:
Production and royalties 629,133 530,614
Licensing agent - direct costs 187,268 233,984
General and administrative 999,374 714,416
--------- ----------
1,815,775 1,479,014
--------- ----------
LOSS FROM OPERATIONS (1,361,638) (588,189)
INTEREST INCOME - NET 41,023 34,123
--------- ----------
LOSS BEFORE PROVISION FOR
INCOME TAXES AND MINORITY INTEREST (1,320,615) (554,066)
PROVISION FOR INCOME TAXES - CURRENT - -
MINORITY INTEREST 10,566 28,083
--------- ----------
NET LOSS $ (1,331,181) $ (582,149)
========= ==========
NET LOSS PER SHARE $ (0.20) $ (0.09)
========= ==========
WEIGHTED AVERAGE SHARES 6,634,750 6,261,153
========= ==========
See notes to consolidated financial statments.
- 2 -
<PAGE>
LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1996
----------- ----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(1,331,181) $(582,149)
----------- ----------
Adjustments to reconcile net loss to net cash from operating activities:
Amortization of film and program costs 224,002 133,749
Depreciation and other amortization 93,429 101,694
Minority interest 10,566 28,083
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable - current 639,435 224,680
(Increase) decrease in accounts receivable - non-current - 242,545
Additions to film and program costs (319,139) (488,090)
(Increase) decrease in prepaid expenses 52,969 79,989
(Increase) decrease in income taxes receivable - (23,490)
(Increase) decrease in deposits receivable - (6,127)
Increase (decrease) in accounts payable
and accrued expenses 165,407 233,307
Increase (decrease) in participations payable - current (164,767) (10,569)
Increase (decrease) in participations payable -
non-current (6,290) (38,151)
Increase (decrease) in income taxes payable - 21,960
Increase (decrease) in deferred revenue - current 89,789 (173,624)
Increase (decrease) in deferred revenue - non-current (117,577) (158,906)
---------- ----------
667,824 167,050
---------- ----------
CASH USED IN OPERATING ACTIVITIES (663,357) (415,099)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (10,705) (3,425)
---------- ----------
CASH USED IN INVESTING ACTIVITIES (10,705) (3,425)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 100,000 4,701,001
---------- ----------
CASH PROVIDED FROM FINANCING ACTIVITIES 100,000 4,701,001
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (574,062) 4,282,477
CASH AND CASH EQUIVALENTS - beginning of period 4,461,627 3,358,230
---------- ----------
CASH AND CASH EQUIVALENTS - end of period $3,887,565 $7,640,707
========== ==========
CASH PAID DURING THE PERIOD FOR:
Interest $ -- $ --
========== ==========
Income taxes $ -- $ --
========== ==========
See notes to consolidated financial statements.
- 3 -
<PAGE>
LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
Reference is made to the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1997.
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 for 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>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three months ended September 30, 1997 as compared to
three months ended September 30, 1996
Production and royalty related revenues for the three month period ended
September 30, 1997 decreased to $226,496 from $566,825 in the comparable 1996
quarter. This decrease is primarily the result of reduced activity on Reading
Rainbow(R) and Backyard Safari(R), partially offset by license fees for
broadcast renewal rights and outreach activities on The Puzzle Place(R).
Licensing agent fee revenues for the three month period ended September 30, 1997
decreased to $227,641 from $324,000 in the comparable 1996 quarter. This
decrease is primarily the result of the expiration of certain licensee contracts
and the extension of the license term for certain other licensees on The Puzzle
Place and reduced royalties on the Sonic the Hedgehog(TM) property.
Production and royalty related expenses for the three month period ended
September 30, 1997 increased to $629,133 from $530,614 in the comparable 1996
quarter, reflecting primarily increased development costs, increased payments
for broadcast renewal rights license fees and outreach activity on The Puzzle
Place, partially offset by decreased production activity on Reading Rainbow and
Backyard Safari.
Direct costs of licensing activities for the three month period ended September
30, 1997 decreased to $187,286 from $233,984 in the comparable 1996 quarter
primarily as a result of decreased travel, trade show and marketing material
costs.
General and administrative expenses for the three month period ended September
30, 1997 increased to $999,375 from $714,416 in the comparable 1996 quarter,
primarily as a result of initiatives involving new personnel and the Company's
restructuring, resulting in increased personnel, office related and insurance
costs as well as increased legal and other professional fees.
Interest income for the three month period ended September 30, 1997 increased to
$41,023 from $34,123 in the comparable 1996 quarter. This increase is primarily
due to an increased level of cash invested during this year's three month
period.
There was no provision for income taxes recorded for the three month period
ended September 30, 1997, or for the comparable 1996 quarter, as both periods
resulted in a loss for the period.
Minority interest in licensing activities for the three month period ended
September 30, 1997 was $10,566 compared to $28,083 in the comparable 1996
quarter. This is the result of the decreased profitability of the Company's
subsidiary, The Strategy Licensing Company, Inc., for the 1997 quarter as
compared to 1996.
Net loss for the three month period ended September 30, 1997 was $1,331,181
($.20 per share) compared to a net loss of $582,149 ($.09 per share) in the
comparable 1996 quarter, as a result of the combination of the factors discussed
above. Weighted average shares outstanding for the three month period ended
September 30, 1997 increased to 6,634,750 from 6,261,153 in the comparable 1996
quarter primarily as a result of shares issued to Discovery Communications, Inc.
("DCI") being outstanding for the full period in the current year as well as the
exercise of employee stock options during the twelve month period since
September 30, 1996.
Liquidity and Capital Resources
The Company had cash and cash equivalents as of September 30, 1997 of
approximately $3.9 million, and no long-term debt. Notwithstanding the Company's
cash position at September 30, 1997, the Company believes that additional
funding will be necessary to sustain the Company's operations through the fourth
quarter of fiscal 1998. The Company is actively seeking additional funding and
has retained an investment banking firm to assist it in this effort. Among the
alternatives being considered by the Company are a sale of an interest in the
Company, an acquisition of the Company, and/or strategic alliances with industry
partners. The Company continues to pursue marketing efforts to generate cash
from production and other licensing activities and, where appropriate, may
explore turning to account certain non-strategic assets. While there can be no
assurance that any such transactions will be available to the Company or, if
available, that they will be on terms favorable to the Company or its
shareholders, the Company is devoting considerable management and other
resources to these efforts.
The Company has also taken steps to reduce, where appropriate, its operating
expenses. These steps include relocating Strategy, its merchandising and
licensing subsidiary, from Westport, Connecticut to the Company's New York City
offices, and certain staff reductions.
Cash used in operating activities was approximately $0.7 million for the three
month period ended September 30, 1997, compared to the use of approximately $0.4
million for the same period last year. A net loss from operations of
approximately $1.3 million, reduced by adjustments for amortization of film and
program cost of $0.2 million and depreciation and other amortization of $0.1
million, and additions to film and program costs of $0.3 million, all of which
were partially offset by a decrease in accounts receivable of $0.6 million,
comprise the major components of cash used in operating activities.
Cash provided from financing activities was $0.1 million for the three month
period ended September 30, 1997, compared to $4.7 million for the comparable
1996 period. Warrants to purchase 100,000 shares of stock were issued in partial
payment as part of the final arrangement for satisfaction of fees owed for
services performed in connection with the September 1996 purchase of a 6.6%
stake in the Company by DCI.
As of September 30, 1997, the Company is continuing the remaining elements
associated with the outreach for the first 65 episodes of The Puzzle Place. All
the remaining costs and costs for the first 65 episodes of The Puzzle Place were
accrued in fiscal 1997. The Company estimates that, after it receives the
balance of monies due from the Corporation for Public Broadcasting ("CPB") and
KCET/ Southern California ("KCET"), its remaining funding required will be less
than $0.1 million. With respect to The Puzzle Place licensing effort, the
Company and KCET have agreed to adjust, and may in the future further adjust,
the licensing term for certain licensees.
The Company has completed post-production on the initial season of 13 episodes
of Backyard Safari, which was partially funded through a major grant from the
National Science Foundation. The Company estimates that its remaining funding
requirement for this project, primarily to complete outreach and promotional
activities, is approximately $0.5 million. All of these remaining costs were
accrued in fiscal 1997.
Management does not expect inflation to have a significant impact on the
business.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This report, including, without limitation, descriptions of the Company's
targets or goals and Management's views concerning the Company's pending and
proposed projects, prospects and future financial performance contained in this
discussion and analysis and elsewhere, constitute forward-looking statements
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and involve known and unknown risks and uncertainties which
may cause the Company's actual results in future periods to differ materially
from forecasts. These risks include, among others: the ability of the Company to
secure timely production funding and additional capital financing; risks
generally associated with the production of a television series, movie or other
entertainment project; network and studio acceptance of television and motion
picture projects; the ability of the Company to successfully negotiate and enter
into agreements to acquire rights, develop, produce, market and distribute
entertainment and licensing projects; difficulties or delays in the development,
production and marketing of entertainment products and/or licensed products; as
well as less than anticipated consumer acceptance of entertainment projects or
licensed products. These and other risks are described in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1997 filed with the
Securities and Exchange Commission, copies of which are available from the SEC
or may be obtained upon request from the Company.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable.
<PAGE>
PART II. - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Computation of Earnings Per Share (filed herewith)
27. Financial Data Schedule (electronic filing only)
(b) No reports on Form 8-K were filed by the Company during the fiscal quarter
ended September 30, 1997.
<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 ENTERTAINMENT, LTD.
Date: November 13, 1997 By: /s/ GARY APPELBAUM
Gary Appelbaum
Senior Vice President, Chief
Financial Officer & Treasurer
Date: November 13, 1997 By: /s/ SUSAN L. SOLOMON
Susan L. Solomon
Chief Executive Officer and
Chairman of the Board of Directors
<PAGE>
Lancit Media Entertainment, Ltd.
Exhibit 11 - Computation of Earnings Per Share
Three months ended
September 30,
1997 1996
---------- ----------
Primary
Weighted average shares outstanding 6,634,750 6,261,153
Net effect of dilutive stock options - based
on the treasury stock method using
average market price - -
---------- ----------
Total 6,634,750 6,261,153
========== ==========
Net Loss $ (1,331,181) $ (582,149)
========== ==========
Per share amount $ (0.20) $ (0.09)
========== ==========
Fully Diluted
Weighted average shares outstanding 6,634,750 6,261,153
Net effect of dilutive stock options - based
on the treasury stock method using
average market price - -
---------- ----------
Total 6,634,750 6,261,153
========== ==========
Net Loss $ (1,331,181) $ (582,149)
========== ==========
Per share amount $ (0.20) $ (0.09)
========== ==========
<PAGE>
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