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 December 31, 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 13-3019470
(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 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 February 5, 1998 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 December 31,
1997 and June 30, 1997 1
CONSOLIDATED STATEMENTS OF OPERATIONS - For
the six and three months ended December 31,
1997 and 1996 2
CONSOLIDATED STATEMENTS OF CASH FLOWS - For
the six months ended December 31, 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 8
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 10
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1997 1997
------------ ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,219,462 $ 4,461,627
Accounts receivable, net 510,291 1,698,250
Film and program costs, net 2,010,625 1,718,526
Prepaid expenses 96,944 270,215
------------ ------------
TOTAL CURRENT ASSETS 5,837,322 8,148,618
ACCOUNTS RECEIVABLE - NON-CURRENT 171,500 211,500
FIXED ASSETS, NET 378,627 525,530
GOODWILL, NET 255,076 263,302
DEPOSITS 50,363 50,363
------------ ------------
TOTAL ASSETS $ 6,692,888 $ 9,199,313
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,977,267 $ 2,116,028
Participation payable 1,151,243 1,342,702
Deferred revenue 1,646,396 1,009,413
------------ ------------
TOTAL CURRENT LIABILITIES 4,774,906 4,468,143
PARTICIPATION PAYABLE - NON-CURRENT 59,644 88,009
DEFERRED REVENUE - NON-CURRENT 24,832 317,620
MINORITY INTEREST 239,078 195,360
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, authorized
15,000,000 shares; issued and outstanding
6,634,750 shares at December 31, 1997 and
June 30, 1997 6,635 6,635
Additional paid-in capital 17,604,536 17,504,536
Retained earnings (accumulated deficit) (16,016,743) (13,380,990)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,594,428 4,130,181
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$ 6,692,888 $ 9,199,313
============ ============
See notes to consolidated financial statements.
- 1 -
</TABLE>
<PAGE>
<TABLE>
LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------- ------------------
1997 1996 1997 1996
--------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Production and royalties ..... $ 155,236 $ 179,183 $ 381,732 $ 746,008
Licensing agent fees ......... 223,147 319,875 450,788 643,875
----------- ----------- ----------- ------------
378,383 499,058 832,520 1,389,883
----------- ----------- ----------- ------------
OPERATING EXPENSES:
Production and royalties ..... 491,187 448,377 1,120,320 978,991
Licensing agent - direct costs 88,009 206,264 275,277 440,248
General and administrative ... 1,112,026 786,354 2,111,400 1,500,770
----------- ----------- ----------- ------------
1,691,222 1,440,995 3,506,997 2,920,009
----------- ----------- ----------- ------------
LOSS FROM OPERATIONS ........... (1,312,839) (941,937) (2,674,477) (1,530,126)
INTEREST INCOME - NET .......... 41,418 79,690 82,441 113,813
----------- ----------- ----------- ------------
LOSS BEFORE MINORITY INTEREST .. (1,271,421) (862,247) (2,592,036) (1,416,313)
MINORITY INTEREST .............. 33,151 23,518 43,717 51,601
----------- ----------- ------------ ------------
NET LOSS ....................... $(1,304,572) $ (885,765) $ (2,635,753) $(1,467,914)
=========== =========== ============ ============
NET LOSS PER SHARE ............. $ (0.20) $ (0.13) $ (0.40) $ (0.23)
=========== =========== ============ ============
WEIGHTED AVERAGE SHARES ........ 6,634,750 6,626,750 6,634,750 6,443,952
=========== =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
- 2 -
<PAGE>
<TABLE>
LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
DECEMBER 31,
--------------------
1997 1996
---------- ---------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (2,635,753) $ (1,467,914)
----------- -----------
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of film and program costs 320,833 207,231
Depreciation and other amortization 178,691 197,644
Minority interest 43,717 51,601
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, net - current 1,187,959 596,728
(Increase) decrease in accounts receivable - non-current 40,000 478,661
Additions to film and program costs (612,932) (1,053,943)
(Increase) decrease in prepaid expenses 173,271 77,465
(Increase) decrease in deposits receivable -- 12,421
Increase (decrease) in accounts payable and accrued expenses (138,761) 296,015
Increase (decrease) in participations payable - current (191,459) (55,528)
Increase (decrease) in participations payable - non-current (28,365) (59,320)
Increase (decrease) in deferred revenue - current 636,983 (349,436)
Increase (decrease) in deferred revenue - non-current (292,788) (269,088)
----------- -----------
CASH USED IN OPERATING ACTIVITIES (1,318,604) (1,337,463)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (23,561) (8,409)
----------- -----------
CASH USED IN INVESTING ACTIVITIES (23,561) (8,409)
----------- -----------
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 (1,242,165) 3,355,129
CASH AND CASH EQUIVALENTS - beginning of period 4,461,627 3,358,230
----------- -----------
CASH AND CASH EQUIVALENTS - end of period $3,219,462 $6,713,359
=========== ===========
CASH PAID DURING THE PERIOD FOR:
Interest $ -- $ --
=========== ===========
Income taxes $ -- $ --
=========== ===========
See notes to consolidated financial statements.
- 3 -
</TABLE>
<PAGE>
LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
Reference is made to the Company's Annual Report on Form 10-K/A 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
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings per Share (Statement 128). Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements.
3. STRATEGY LICENSING COMPANY MINORITY INTEREST
In October 1997, the Company entered into an agreement with Arlene J. Scanlan,
pursuant to which the Company acquired the remaining 15% of the outstanding
shares of the capital stock of Strategy held by her. Additionally, Ms. Scanlan's
employment with Strategy and the Company was terminated. In consideration of the
foregoing, the Company paid Ms. Scanlan an aggregate of approximately $31,000
and has released Ms. Scanlan from certain restrictions contained in a covenant
not to compete with respect to specified properties and entities.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three months ended December 31, 1997 as compared to
three months ended December 31, 1996
Production and royalty revenues for the three month period ended December 31,
1997 decreased to $155,236 from $179,183 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 royalties on The Puzzle Place(R) and final production activity on No
Really.
Licensing agent fee revenues for the three month period ended December 31, 1997
decreased to $223,147 from $319,875 in the comparable 1996 quarter. This
decrease is primarily the result of the expiration of certain licensee contracts
on The Puzzle Place and reduced royalties on the Sonic the Hedgehog(TM)
property.
Production and royalty expenses for the three month period ended December 31,
1997 increased to $491,187 from $448,377 in the comparable 1996 quarter,
reflecting primarily increased development costs, final production costs on No
Really and payments for broadcast renewal rights license fees on The Puzzle
Place, all which was partially offset by decreased production activity on
Reading Rainbow and Backyard Safari.
Direct costs of licensing activities for the three month period ended December
31, 1997 decreased to $88,009 from $206,264 in the comparable 1996 quarter
primarily as a result of decreased personnel, travel and trade show expenses,
all of which was directly related to the restructuring of the licensing agent
operation.
General and administrative expenses for the three month period ended December
31, 1997 increased to $1,112,026 from $786,354 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 - net for the three month period ended December 31, 1997
decreased to $41,418 from $79,690 in the comparable 1996 quarter. This decrease
is primarily due to a decreased 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 December 31, 1997, or for the comparable 1996 quarter, as both periods
resulted in a loss.
Minority interest in licensing activities for the three month period ended
December 31, 1997 was $33,151 compared to $23,518 in the comparable 1996
quarter. This is primarily the result of increased profitability at a subsidiary
where there is a minority owner.
Net loss for the three month period ended December 31, 1997 was $1,304,572 ($.20
per share) compared to a net loss of $885,765 ($.13 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 December
31, 1997 increased to 6,634,750 from 6,626,750 in the comparable 1996 quarter
primarily as a result of the exercise of employee stock options during the
twelve month period since December 31, 1996.
<PAGE>
Results of Operations - Six months ended December 31, 1997 as compared to six
months ended December 31, 1996
Production and royalty revenues for the six month period ended December 31, 1997
decreased to $381,732 from $746,008 in the comparable 1996 six month period.
This decrease is primarily the result of significantly reduced production
activity on Reading Rainbow and Backyard Safari, which was partially offset by
final production activity on No Really and broadcast renewal fees on The Puzzle
Place.
Licensing agent fee revenues for the six month period ended December 31, 1997
decreased to $450,788 from $643,875 in the comparable 1996 six month period.
This decrease is primarily the result of the expiration of certain license
contracts on The Puzzle Place and reduced royalties on the Sonic the Hedgehog
property.
Production and royalty expenses for the six month period ended December 31, 1997
increased to $1,120,320 from $978,991 in the comparable 1996 six month period
reflecting primarily increased payments for broadcast renewal rights license
fees on The Puzzle Place, increased development costs and final production
activity on No Really, all of which was partially offset by reduced production
activity on Reading Rainbow and Backyard Safari.
Direct costs of licensing agent activities for the six month period ended
December 31, 1997 decreased to $275,277 from $440,248 in the comparable 1996 six
month period primarily as a result of reduced personnel, travel and trade show
expenses, all of which was directly related to the restructuring of the
licensing agent operation.
General and administrative expenses for the six month period ended December 31,
1997 rose to $2,111,400 from $1,500,770 in the comparable 1996 six month period,
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 - net for the six month period ended December 31, 1997 decreased
to $82,441 from $113,813 in the comparable 1996 six month period. This decrease
is primarily due to a reduced level of cash invested in 1997 compared to 1996.
There was no provision for income taxes recorded for the six month period ended
December 31, 1997 or in the comparable 1996 six month period, as both periods
resulted in a loss for the period.
Minority interest in licensing activities for the six month period ended
December 31, 1997 was $43,717 compared to $51,601 in the comparable 1996 six
month period. This is primarily the result of increased profitability at a
subsidiary where there is a minority owner.
Net loss for the six month period ended December 31, 1997 was $2,635,753 ($.40
per share) compared to net loss of $1,467,914 ($.23 per share) in the comparable
1996 six month period primarily as a result of the combination of all factors
discussed above. Weighted average shares outstanding for the six month period
ended December 31, 1997 increased to 6,634,750 from 6,443,952 in the comparable
1996 six month period primarily as a result of the inclusion for the full six
months of shares issued to DCI related to its purchase of a 6.6% equity stake in
the Company as well as the exercise of stock options during the twelve month
period since December 31, 1996.
<PAGE>
Liquidity and Capital Resources
The Company had cash and cash equivalents as of December 31, 1997 of
approximately $3.2 million, and no long-term debt. Notwithstanding the Company's
cash position at December 31, 1997, additional funding will be required to
enable the Company to continue to meet its obligations and to sustain the
Company's operations through the fourth quarter of the current fiscal year. The
Company is continuing to actively seek strategic partners, a business
combination, a sale of an interest in the Company or other sources of additional
funding, through an investment banking firm previously retained for such
purpose. The Company also 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 the Company has
not been successful to date in achieving such a transaction, and 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 continues to devote considerable management time 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 $1.3 million for the six
month period ended December 31, 1997, compared to the use of approximately the
same amount for the same period last year. A net loss of approximately $2.6
million and additions to film and program costs of approximately $0.6 million
were partially offset by a decrease in accounts receivable of approximately $1.2
million and an increase in deferred revenue - current of $0.6 million,
comprising the major components of cash used in operating activities.
Cash provided from financing activities was $0.1 million for the six month
period ended December 31, 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 December 31, 1997, the Company is completing the remaining elements
associated with the outreach for the first 65 episodes of The Puzzle Place. All
the remaining 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"), it will have no remaining funding obligation on
the first 65 episodes of this project.
The Company's 13 episodes of Backyard Safari, which was partially funded through
a major grant from the National Science Foundation, began airing on PBS stations
in November of 1997. The Company estimates that its remaining funding
requirement for this project, primarily to complete outreach and promotional
activities, is approximately $0.4 million. All of these remaining costs were
accrued in fiscal 1997.
Management does not expect inflation to have a significant impact on the
business.
<PAGE>
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 December 31, 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: February 23, 1998 By: /s/ GARY APPELBAUM
Gary Appelbaum
Senior Vice President, Chief
Financial Officer &
Treasurer
Date: February 23, 1998 By: /s/ SUSAN L. SOLOMON
Susan L. Solomon
Chief Executive Officer and
Chairman of the
Board of Directors
<TABLE>
Lancit Media Entertainment, Ltd.
Exhibit 11 - Computation of Earnings Per Share
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Basic
Weighted average shares outstanding 6,634,750 6,626,750 6,634,750 6,443,952
Net effect of dilutive stock options - based
on the treasury stock method using
average market price .................... -- -- -- --
------------ ------------ ------------ ------------
Total ....................................... 6,634,750 6,626,750 6,634,750 6,443,952
============ ============ ============ ============
Net Loss .................................... $ (1,304,572) $(885,765) $ (2,635,753) $(1,467,914)
============ ============ ============ ============
Per share amount ............................ $ (0.20) $ (0.13) $ (0.40) $ (0.23)
============ ============ ============ ============
Diluted
Weighted average shares outstanding 6,634,750 6,626,750 6,634,750 6,443,952
Net effect of dilutive stock options - based
on the treasury stock method using
average market price .................... -- -- -- --
------------ ------------ ------------ ------------
Total ....................................... 6,634,750 6,626,750 6,634,750 6,443,952
============ ============ ============ ============
Net Loss .................................... $ (1,304,572) $(885,765) $ (2,635,753) $(1,467,914)
============ ============ ============ ============
Per share amount ............................ $ (0.20) $ (0.13) $ (0.40) $ (0.23)
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000868796
<NAME> Lancit Media Entertainment, Ltd.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Jun-30-1998
<PERIOD-START> Jul-01-1997
<PERIOD-END> Dec-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 3,219,462
<SECURITIES> 0
<RECEIVABLES> 681,791
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,837,322
<PP&E> 378,627
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,692,888
<CURRENT-LIABILITIES> 4,774,906
<BONDS> 0
0
0
<COMMON> 6,635
<OTHER-SE> 1,587,793
<TOTAL-LIABILITY-AND-EQUITY> 6,692,888
<SALES> 0
<TOTAL-REVENUES> 378,383
<CGS> 0
<TOTAL-COSTS> 1,691,222
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,304,572)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,304,572)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,304,572)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
