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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 January 31, 2004 Commission File No. 0-15284
NATIONAL LAMPOON, INC.
(Exact name of registrant as specified in its charter)
Delaware 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 [ ]
Indicate by check mark whether the registrant is an acceleration filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X ]
As of March 12, 2004 the registrant had 1,533,418 shares of its common stock
outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NATIONAL LAMPOON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS JAN 31, 2004 JULY 31, 2003
------------ -------------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 145,997 $ 140,255
Accounts receivable 172,295 18,390
Prepaid expenses and other current assets 16,454 15,636
------------ ------------
Total current assets 334,746 174,281
NON-CURRENT ASSETS
Capitalized production costs 27,000 168,044
Fixed assets, net of accumulated depreciation 56,942 42,859
Intangible assets 6,505,732 6,505,732
Accumulated amortization of intangible assets (4,169,578) (4,049,578)
Other assets 4,459 4,500
------------ ------------
Total non-current assets 2,565,599 2,530,513
------------ ------------
TOTAL ASSETS $ 2,900,345 $ 2,704,794
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 388,862 $ 183,485
Accrued expenses 824,607 781,023
Notes payable 3,931,612 1,443,856
Deferred income 100,000 161,000
------------ ------------
TOTAL CURRENT LIABILITIES 5,245,081 2,569,364
------------ ------------
MINORITY INTEREST -- --
SHAREHOLDERS' EQUITY
Series B Preferred Stock, par value $.0001 per share,
68,406 shares authorized, 63,607 shares issued 6 6
Common Stock, par value $.0001 per share, 15,000,000
shares authorized, 1,533,418 and 1,526,795 shares
issued, respectively 153 153
Additional paid in capital 17,265,984 17,110,401
Less: Note receivable on common stock (160,100) (157,220)
Deferred compensation (838,533) (1,001,066)
Accumulated deficit (18,612,246) (15,816,844)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (2,344,736) 135,430
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,900,345 $ 2,704,794
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
NATIONAL LAMPOON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED JAN. 31, ENDED JAN. 31,
--------------------------- ---------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
REVENUE
Trademark ............................................... $ 559,270 $ 115,392 $ 615,443 $ 187,665
Consumer products ....................................... 48,067 2,937 48,572 4,852
Advertising ............................................. 106,795 10,000 323,045 10,000
----------- ----------- ----------- -----------
Total revenue ........................................ 714,132 128,329 987,060 202,517
COSTS AND EXPENSES
Costs related to trademark revenue ...................... 340,893 2,280 346,607 7,712
Costs related to consumer product revenue ............... 9,593 14,873 14,014 24,410
Production costs ........................................ 347,686 192,602 726,410 356,240
Amortization of intangible assets ....................... 60,000 150,167 120,000 210,167
Selling, general & administrative expenses .............. 1,253,418 1,093,419 2,257 794 1,917,253
Stock, warrants, & options issued for services .......... 147,765 76,094 318,116 706,482
----------- ----------- ----------- -----------
Total costs and expenses ............................. 2,159,355 1,529,435 3,782,941 3,222,264
----------- ----------- ----------- -----------
OPERATING LOSS ....................................... (1,445,223) (1,401,106) (2,795,881) (3,019,747)
OTHER INCOME
Interest income ......................................... 1,440 1,451 2,881 4,148
Other income ............................................ -- 32,214 -- 32,214
----------- ----------- ----------- -----------
Total other income ................................... 1,440 33,665 2,881 36,362
----------- ----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST
AND INCOME TAXES ................................... (1,443,783) 1,367,441) (2,793,000) (2,983,385)
----------- ----------- ----------- -----------
Minority interest in loss of consolidated subsidiary ....... -- 61,718 -- 99,000
----------- ----------- ----------- -----------
Provision for state income taxes ........................... -- -- 2,400 1,623
----------- ----------- ----------- -----------
NET LOSS ............................................. $(1,443,783) $(1,305,723) $(2,795,400) $(2,886,008)
=========== =========== =========== ===========
Net loss per share-- basic and diluted ..................... $ (0.94) $ (0.90) $ (1.83) $ (2.00)
=========== =========== =========== ===========
Weighted average number of common shares-- basic and diluted 1,533,418 1,451,593 1,530,257 1,444,533
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
NATIONAL LAMPOON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JANUARY 31,
---------------------------
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income ............................................ $(2,795,400) $(2,886,007)
Adjustments to reconcile net loss/(income)
to net cash used in operating activities:
Depreciation and amortization ............................. 134,110 242,055
Stock, options, and warrants issued for services .......... 318,116 706,483
Minority interest ......................................... -- 99,000)
Other ..................................................... (2,880) (2,880)
Changes in assets and liabilities:
(Increase) in accounts receivable ......................... (153,905) (980)
(Increase)/decrease in prepaid expenses and other assets . (778) (4,698)
(Increase) in production costs ............................ (141,044) (127,975)
Increase/(decrease) in accounts payable ................... 205,378 (47,063)
Increase/(decrease) in accrued expenses ................... 43,583 (16,627)
(Decrease)/increase in deferred revenues .................. (61,000) 25,000
----------- -----------
NET CASH AND CASH EQUIVALENTS USED IN OPERATING ACTIVITIES ... (2,453,820) (2,211,692)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Burly Bear networks ........................... (200,000) --
Purchase of fixed assets ..................................... (28,194) (12,855)
----------- -----------
NET CASH AND CASH EQUIVALENTS USED IN INVESTING ACTIVITIES ... (28,194) (212,855)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Series B preferred stock issuance ............. 1,495,000 --
Exercise of stock options .................................... 35,124
Increase in notes payable .................................... 2,487,756 --
----------- -----------
NET CASH AND CASH EQUIVALENTS (USED IN)/ PROVIDED BY FINANCING
ACTIVITIES ............................................... 2,487,756 1,530,124
----------- -----------
NET INCREASE/(DECREASE) IN CASH AND AND CASH EQUIVALENTS ........ 5,742 (894,423)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................ 140,255 1,024,207
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................... $ 145,997 $ 129.784
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
Supplemental disclosure of investing and financing activities:
Stock and options issued for services of $318,116
4
NATIONAL LAMPOON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION AND GOING CONCERN
The accompanying unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC") and 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. 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 January 31, 2004, and the results of operations and cash flows for the
three and six month periods ended January 31, 2004 and 2003 have been included.
These financial statements should be read in conjunction with the financial
statements and related footnotes for the year ended July 31, 2003 included in
the National Lampoon, Inc. ("Company" or "Registrant") annual report on Form
10-K for that period.
The results of operations for the three and six month periods ended January 31,
2004 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, 2003.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. Since the consummation of the Reorganization
Transactions disclosed in detail in the Company's annual report on Form 10-K for
the year ended July 31, 2002, we have initiated a number of new business
activities, and significantly increased our overhead by the hiring of new
employees and consultants. To date, these operations have provided limited
operating revenue, and we have been relying on funding received from a group
headed by Daniel S. Laikin, Paul Skjodt and Timothy S. Durham (the "NLAG
Group"), as more fully more set forth in disclosures on the Form 10-K for the
year ended July 31, 2003, in the form of securities purchased in connections
with the Reorganization Transactions, and subsequent investment by Messrs.
Laikin and Durham (NLAG Group) in the form of a loan, to fund operations. Since
the consummation of the Reorganization Transactions, in which we received
$2,085,318, subsequent warrant exercises have provided us with $1,305,000,
although $200,000 of this amount was allocated for the Burly Bear transaction,
and an additional $3,428,00 as of January 31, 2004 from the NLAG Group in the
form of a loan. We had negotiated a series of agreements with Avalon Equity
Partners, Golden International Group, Tim Durham and Daniel Laikin, which had
been anticipated to close by the end of December 2003 (the "December Anticipated
Financing Transaction"), and would have resulted in additional investment in the
Company of approximately $5.5 million. The December Anticipated Financing
Transaction was not consummated. The Company is pursuing other investors with
the intention of utilizing similar terms and conditions as those established in
the December Anticipated Financing Transaction, however, no assurance can be
given that the Company will be able to attract other investors. Our financial
statements for the fiscal year ended July 31, 2003 contain an explanatory
paragraph as to our ability to continue as a going concern. This explanatory
paragraph may impact our ability to obtain future financing.
NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS:
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (an interpretation of Accounting Research Bulletin
(ARB) No. 51, Consolidated Financial Statements). Interpretation 46 addresses
consolidation by business enterprises of entities to which the usual condition
of consolidation described in ARB-51 does not apply. The Interpretation changes
the criteria by which one company includes another entity in its consolidated
financial statements. The general requirement to consolidate under ARB-51 is
based on the presumption that an enterprise's financial statements should
include all of the entities in which it has a controlling financial interest
(i.e., majority voting interest). Interpretation 46 requires a variable interest
entity to be consolidated by a company that does not have a majority voting
interest, but nevertheless, is subject to a majority of the risk of loss from
the variable interest entity's activities or entitled to receive a majority of
the entity's residual returns or both. A company that consolidates a variable
interest entity is called the primary beneficiary of that entity.
5
In December 2003 the FASB concluded to revise certain elements of FIN 46,
primarily to clarify the required accounting for interests in variable interest
entities. FIN-46R replaces FIN-46 that was issued in January 2003. FIN-46R
exempts certain entities from its requirements and provides for special
effective dates for entities that have fully or partially applied FIN-46 as of
December 24, 2003. In certain situations, entities have the option of applying
or continuing to apply FIN-46 for a short period of time before applying
FIN-46R. In general, for all entities that were previously considered special
purpose entities, FIN 46 should be applied in periods ending after December 15,
2003. Otherwise, FIN 46 is to be applied for registrants who file under
Regulation SX in periods ending after March 15, 2004, and for registrants who
file under Regulation SB, in periods ending after December 15, 2004. The Company
does not expect the adoption to have a material impact on the Company's
financial position or results of operations.
In December 2003, the FASB issued a revised SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" which replaces the
previously issued Statement. The revised Statement increases the existing
disclosures for defined benefit pension plans and other defined benefit
postretirement plans. However, it does not change the measurement or recognition
of those plans as required under SFAS No. 87, "Employers' Accounting for
Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
Specifically, the revised Statement requires companies to provide additional
disclosures about pension plan assets, benefit obligations, cash flows, and
benefit costs of defined benefit pension plans and other defined benefit
postretirement plans. Also, companies are required to provide a breakdown of
plan assets by category, such as debt, equity and real estate, and to provide
certain expected rates of return and target allocation percentages for these
asset categories. The Company has implemented this pronouncement and has
concluded that the adoption has no material impact to the financial statements.
NOTE C - 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. Basic and diluted earnings per share are
the same as common equivalent shares and are excluded from the computation, as
they would have an anti-dilutive effect. Options and warrants to purchase 92,557
and 37,252 common shares during the three months ended January 31, 2004 and
January 31, 2003, and 149,084 and 37,252 for the six months ended January 31,
2004 and January 31, 2003 respectively are not included in the calculation of
diluted earnings per share respectively because their inclusion would be
anti-dilutive.
NOTE D - STOCK BASED COMPENSATION EXPENSE
The Company has adopted SFAS No. 123, Accounting for Stock Based Compensation,
issued in October 1995. In accordance with SFAS No. 123, the Company has elected
to follow Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations in accounting for its employee
stock options. Under APB Opinion No. 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized. There were no
employee stock options granted during the six months ended Janaury 31, 2004, nor
is there any current period compensation expense to disclose in relation to
previously issued employee stock options, as required under SFAS 148.
NOTE E - 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 whose products are sold to
consumers, and television productions and distribution to college campuses.
Segment operating income/(loss) excludes the amortization of intangible assets,
interest income, and income taxes. Selling, general and administrative expenses
not specifically attributable to any segment have been allocated equally between
the trademark, consumer products, and television segments. Summarized financial
information for the three and six month periods ended January 31, 2004 and
January 31, 2003 concerning the Company's segments is as follows:
TRADEMARK CONSUMER TELEVISION TOTAL
----------- ----------- ----------- -----------
Three Months Ended January 31, 2004
Segment revenue ................ $ 559,000 48,000 $ 107,000 $ 714,000
Segment operating income/(loss) (127,000) (365,000) (893,000) (1,385,000)
Three Months Ended January 31, 2003
Segment revenue ................ $ 116,000 $ 2,000 $ 10,000 $ 128,000
Segment operating income ....... (348,000) (519,000) (290,000) (1,157,000)
Six Months Ended January 31, 2004
Segment revenue ................ $ 615,000 $ 49,000 $ 323,000 $ 987,000
Segment operating income/(loss) (341,000) (705,000) (1,630,000) (2,676,000)
Six Months Ended January 31, 2003
Segment revenue ................ $ 188,000 $ 4,000 $ 10,000 $ 202,000
Segment operating income/(loss) (966,000) (1,211,000) (501,000) (2,678,000)
6
A reconciliation of segment operating income/loss to net income before income
taxes for the three and six month periods ended January 31, 2004 and January 31,
2003 is as follows:
FOR THE THREE MONTHS ENDED
-------------------------------
JAN. 31, 2004 JAN. 31, 2003
------------- -------------
Total segment operating (loss)/income $(1,385,000) $(1,157,000)
Amortization of intangible assets ... 60,000 150,000
Interest income ..................... (1,000) (1,000)
----------- -----------
Net loss before income taxes ........ $(1,444,000) $(1,306,000)
=========== ===========
FOR THE SIX MONTHS ENDED
-------------------------------
JAN. 31, 2004 JAN. 31, 2003
------------- --------------
Total segment operating loss .... (2,676,000) (2,680,000)
Amortization of intangible assets 120,000 210,000
Interest income ................. (3,000) (4,000)
----------- -----------
Net loss before income taxes .... $(2,793,000) $(2,884,000)
=========== ===========
NOTE F - LITIGATION
On August 18, 2003, a lawsuit was filed against us by Duncan Murray in Los
Angeles Superior Court, case number BC300908. Mr. Murray claimed that he was
unjustly terminated and is owed severance. Mr. Murray alleged 3 causes of
action: (i) breach of his employment agreement; (ii) wrongful termination of
employment and breach of implied contract; and (iii) retaliatory termination of
employment. On September 24, 2003, we filed an answer to the lawsuit. The matter
was sent to arbitration on February 17, 2004 and was settled on that date.
According to the terms of the Settlement and General Release Agreement, the
Company is to pay to Mr. Murray and his lawyer a total of approximately $42,500.
This amount is included in accrued expenses at January 31, 2004.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
Management believes the following critical accounting policies, among others,
affect its more significant judgments and estimates used in preparation of its
consolidated financial statements.
Revenue Recognition. The Company's trademark licensing revenues are generally
recognized when received or when earned under the terms of the associated
agreement and when the collection of such revenue is reasonably assured.
Revenues from the sale of videocassettes and DVDs, net of estimated provisions
for returns (which are not material for any period presented) are recognized
when the units are shipped. Revenues from Internet operations are recognized
when earned under the terms of the associated agreement and the collection of
such revenue is reasonably assured. Revenues from advertising and promotion are
recognized when earned under the terms of the associated agreement or when the
advertisement has been broadcast and the collection of such revenues are
reasonably assured.
Production Costs. As provided by SOP 00-2, production costs are not capitalized
unless there are advertising agreements in place from which the production will
generate revenues. As a result, since there were limited advertising agreements
in place for particular programs, the production costs incurred by National
Lampoon Networks during the six months ended January 31, 2004 were capitalized
only to the extent of the revenues generated by those agreements. The balance of
the production costs was expensed during the period.
RECENT DEVELOPMENTS
The Company had negotiated a series of agreements with Avalon Equity Partners,
Golden International Group, Tim Durham and Daniel Laikin, which had been
anticipated to close by the end of December 2003 (the "December Anticipated
Financing Transaction"), and would have resulted in additional investment in the
Company of approximately $5.5 million. The December Anticipated Financing
Transaction was not consummated. The Company is pursuing other investors with
the intension of utilizing similar terms and condition as those established in
the December Anticipated Financing Transaction.
7
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED JANUARY 31, 2004 VS. THE THREE MONTHS ENDED JANUARY 31,
2003
For the three months ended January 31, 2004 trademark revenues were
$559,270 compared to $115,392 for the quarter ended January 31, 2003. This
increase of 385% resulted from recognizing approximately $198,000 in revenue
from a television pilot produced for American Movie Classics, $150,000 for four
comedy videos produced for Image Entertainment, $27,500 for the sponsorship of a
live event during the Sundance Film Festival, and approximately $180,000 from
the annual royalty payment for "Animal House". During the second fiscal quarter
of 2003, virtually the only trademark revenues were from the receipt of the
annual royalty for "Animal House". Consumer products revenues for the quarter
ended January 31, 2004 was $48,067 representing an increase of approximately
1,537% over the $2,937 recognized for consumer product revenues in the
corresponding period for the quarter ended January 31, 2003. In the three months
ended January 31, 2004, the Company earned $20,000 for a National Lampoon game
developed by Activision and $22,500 for internet advertising, in addition to the
sale of various product via the internet. In the corresponding period of the
prior fiscal year the Company recognized only internet product sales as well as
video sales of approximately $1,000. During the three months ended January 31,
2004, National Lampoon Network's revenues increased to $106,795 from $10,000 for
the quarter ended January 31, 2003, representing an increase of 968%. National
Lampoon, Inc. recorded approximately $71,000 in advertising income and $45,000
in promotional and sponsorship income during the three months ended January 31,
2004 versus just $10,000 in the corresponding period of the prior year. National
Lampoon Networks was acquired in September 2002, and therefore there were
limited revenues by January of 2003.
Costs related to trademark revenue during the quarter ended January 31,
2004 increased to $340,893 from $2,280 during the second fiscal quarter of 2003,
representing an increase of 14,851%. The increase in trademark revenues during
the quarter in 2004, specifically the costs associated with the production of
the American Movie Classic pilot program and the Image entertainment video
production, accounted for the increase in trademark costs. Costs related to
consumer products decreased from $14,873 during the quarter ended January 31,
2003 to $9,593 in the current quarter, representing a decrease of 36%. These
costs include website development and maintenance, content creation and third
party hosting of the website. An increase in web site writing costs were the
primary reason for the higher costs during the quarter ended January 31, 2004.
There were deminimus costs associated with the royalty from Activision and from
the internet advertising. Television production costs of $347,686 represented an
81% increase from the $192,602 in the corresponding period of the prior year.
National Lampoon Networks has increased its programming and distribution costs
in an effort to increase revenues. Amortization of intangible assets, the costs
of the Company's acquisition of the "National Lampoon" trademark, was $60,000
during the quarters ended January 31, 2004 and January 31, 2003. In addition the
Company had amortized $90,167 of the intangible asset associated with the
purchase of the Burly Bear network in the quarter ended January 31, 2003. The
intangible asset acquired through the acquisition of Burly Bear, Inc. has been
written off as of July 31, 2003 based upon the provisions of SFAS No. 144,
"Accounting for the Impairment for Disposal of Long Lived Assets".
Selling, general and administrative costs increased from $1,093,419 during
the quarter ended January 31, 2003 to $1,253,418 during the same period in
fiscal 2004. This increase of approximately $160,000 or 15% resulted primarily
from an increase of personnel and consulting costs of approximately $180,000,
and an increase in insurance costs of approximately $38,000. These increases
were moderated somewhat by a decrease in legal and accounting fees of
approximately $43,000 and a decrease in travel and entertainment expenses of
$25,000. During the three months ended January 31, 2004, the Company recorded
$147,765 in expense associated with the granting of options and warrants to
advisors and consultants versus $76,094 in the same period in fiscal 2003
reflecting additional grants in the second quarter of the current fiscal year.
Interest income during the quarter ended January 31, 2004 decreased to
$1,440 versus $1,451 during the quarter ended January 31, 2003. This decrease
resulted from a decrease in cash and cash equivalents held during the quarter
versus the same period last year. Other income of $32,214 in the quarter ended
January 31, 2003 resulted from the collection of monies from an insurance
company due to loss of equipment that was insured. The minority interest in
income of the consolidated subsidiary of $61,717 represents 15% of the loss of
National Lampoon Networks due to the 15% ownership of National Lampoon Networks
by a third party. Losses from National Lampoon Networks allocated to minority
interest are limited to their investment. Therefore no additional minority
interest benefit from losses is available to the Company.
8
For the three months ended January 31, 2004, the Company had a net loss of
$(1,443,783) or $(0.94) per share versus a net loss of $(1,305,723) or $(0.90)
per share for the three months ended January 31, 2003. This increase in net loss
resulted primarily from an increase in personnel costs and an increase in the
expense associated with the granting of stock warrants and options. During the
quarters ended January 31, 2004 and 2003, the Company had no significant
provision for income taxes.
THE SIX MONTHS ENDED JANUARY 31, 2004 VS. THE SIX MONTHS ENDED JANUARY 31, 2003
For the six months ended January 31, 2004, trademark revenues were
$615,443 as compared to $187,665 for the same period in 2003. This increase in
trademark revenues of approximately 228% resulted primarily from increased
revenue from the film "National Lampoon's Animal House" of approximately
$50,000, as well as approximately $198,000 from American Movie Classics for
delivery of a pilot program, $150,000 from Image Entertainment for the delivery
of four made for video programs, and $27,500 for the sponsorship of a live event
during the Sundance Film Festival. Consumer products revenues increased by
$43,720 or 901% to $48,572 in the current six month from $4,852 during the same
period of the prior year. Revenues of $20,000 from Activision for a National
Lampoon video game and $22,500 for internet advertising in the six months ended
January 31, 2004 accounted for this increase. Advertising revenues from National
Lampoon Networks were $323,045 during the six months ended January 31, 2004
versus $10,000 for the same period in the prior year. National Lampoon Networks
was acquired in September 2002, and therefore, there were very limited revenues
during the prior fiscal year.
Costs related to trademark revenues of $346,607 for the first six months
of fiscal 2004 represents a 4,394% increase from the $7,712 in trademark costs
for the first six months of fiscal year 2003. Costs associated with the American
Movie Classics of approximately $188,000, Image Entertainment video production
of $115,000 and the live event sponsorship revenue costs of approximately
$16,000 accounted for this increase. Costs related to consumer products revenues
of $14,014 decreased by 43% in the six months ended January 31, 2004 from
$24,410 in the six months ended January 31, 2003. This reflects increased video
and internet product sales in the six months ended January 31, 2004, which sales
are accompanied by its respective cost of sales. In the six months ended January
31, 2004, the majority of consumer product revenues were generated by royalties
and internet advertising for which there is no corresponding cost of sales.
Production costs of $726,410 in the six months ended January 31, 2004 represents
an increase of 104% from $356,240 in production costs from the six months ended
January 31, 2003. This reflects increased activity in the production of National
Lampoon Network programming. Amortization of intangible assets, the costs of the
Company's acquisition of the "National Lampoon" trademark, was $120,000 during
each of the six months periods ended January 31, 2004 and January 31, 2003. In
addition the Company amortized $90,167 of the intangible asset associated with
the purchase of the Burly Bear network. The Company as of the end of the second
fiscal quarter of 2003 had been amortizing the intangible asset over a two year
period. At year end of fiscal 2003 the intangible asset acquired through the
acquisition of Burly Bear, Inc. was completely written off based upon the
provisions of SFAS No. 144, "Accounting for the Impairment for Disposal of Long
Lived Assets".
Selling, general and administrative costs increased by $340,541 to
$2,257,794 during the six months ended January 31, 2004 from $1,917,253 during
the same period last year, representing an increase of 18%. This increase
resulted primarily from personnel costs including salaries and consultants,
which increased by approximately $444,000, travel and entertainment which
increased by approximately $34,000, various other overhead costs associated with
running a New York office for National Lampoon Networks of approximately
$45,000, and interest expense in the six months ended January 31, 2004 due to
the loan from the NLAG of approximately $55,000. The increase in other costs was
moderated by a decrease in professional fees and filing costs of approximately
$228,000 in the current period. In the prior year there was additional corporate
activity including the purchase of substantially all of the assets of the Burly
Bear Network, which resulted in the generation of additional professional and
filing fees.
During the six months ended January 31, 2004, the Company recorded
$318,118 in expense associated with the granting of stock, options and warrants
to advisors and consultants versus $706,482 in the six months ended January 31,
2003. The amount of stock, warrant, and option grants and the expense associated
with the vesting of those grants was lesser in the first six months of the
current fiscal year.
Interest income during the six months ended January 31, 2004 decreased to
$2,881 from $4,148 during the six months ended January 31, 2003. This decrease
of 31% resulted from a decrease in cash and cash equivalents held during the six
months ended January 31, 2004 versus the same period last year. Other income of
$32,214 in fiscal 2003 resulted from the collection of monies from an insurance
company due to the loss of equipment that was insured. The minority interest in
income of consolidated subsidiary of $99,000 represents 15% of the loss of
National Lampoon Networks reflecting the 15% ownership of National Lampoon
Networks by a third party. No additional minority interest benefit from losses
is available to the Company.
9
For the six months ended January 31, 2004, the Company had a net loss of
$2,795,400 or $1.83 per share versus a net loss of $2,886,007, or $2.00 per
share, for the six months ended January 31, 2003. Increased trademark revenues
in fiscal 2004 along with a reduction of stock, option, and warrant grants
accounted for this reduction of loss of $90,608. During the six month periods
ended January 31, 2004 and 2003, the Company had no significant provision for
income taxes due to the utilization of deferred tax valuation allowances.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of working capital during the six months
ended January 31, 2004 was trademark income and funs loaned to the Company by
the NLAG Group.
For the six months ended January 31, 2004, the Company's net cash flow
used in its operating activities was $2,453,820 versus $2,211,692 of net cash
flow used in operating activities during the six months ended January 31, 2003.
The decreased results are primarily from an increase in personnel and other
costs that occurred with the increase in activities since the start up of
National Lampoon Networks. The decrease in the current period of the expense
associated with the granting of stock, warrants, and options is not a cash
related expense and so is eliminated from the calculation of cash flow used in
operating activities. The Company had cash and cash equivalents of $145,997 at
January 31, 2004 as compared to $140,255 at July 31, 2003.
Since the consummation of the Reorganization Transactions, we have
initiated a number of new business activities, including our August 2002
acquisition of substantially all the assets of Burly Bear, and significantly
increased our overhead by the hiring of new employees and consultants. To date,
these operations have provided de minimis operating revenue and we have been
relying on capital received from the NLAG Group in connection with the Series B
Units purchased in connections with the Reorganization Transactions and in
subsequent purchases pursuant to the Purchase Agreement to fund operations, as
well as loans made by the NLAG Group. Since the consummation of the
Reorganization Transactions, in which we received $2,085,718, subsequent
purchases of Series B Units have provided us with $2,615,000 through March 31,
2003, their expiration. In addition, the Company has received loans totaling
$4,213,095 through March 12, 2004. Unless our revenues from new business
activities significantly increase in the near term, we will need to raise
additional capital to continue to fund our planned operations or, in the
alternative, significantly reduce or even eliminate certain operations. There
can be no assurance that we will be able to raise such capital on reasonable
terms, or at all.
As of March 9, 2004, we had cash on hand of $66,500, and no significant
receivables. This amount is not sufficient to fund current operations, which we
estimate to be approximately $450,000 per month. We anticipate that any
shortfall will be covered by the additional investments by NLAG and eventually
by the issuance of Series C Preferred Stock as was part of the Anticipated
December 2003 Financing Transaction (referred to in the Company's Form 10Q for
the quarter ended October 31, 2003); however, no assurance can be given that the
Company will be able to attract other investors. If NLAG declines to make
additional investments, or should we be unable to secure additional financing,
we could be forced to immediately curtail much, if not all, of our current
plans. Our financial statements for the fiscal year ended July 31, 2003 contain
an explanatory paragraph as to our ability to continue as a "going concern".
This qualification may impact our ability to obtain future financing.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NONE.
ITEM 4 - CONTROLS AND PROCEDURES
The Company maintains a system of disclosure controls and procedures that
is designed to provide reasonable assurance that information, which is required
to be disclosed by the Company in the reports that it files or submits under the
Securities and Exchange Act of 1934, as amended, is accumulated and communicated
to management in a timely manner. The Company's Chief Executive Officer and
Chief Financial Officer have evaluated this system of disclosure controls and
procedures as of the end of the period covered by this quarterly report, and
believe that the system is operating effectively to ensure appropriate
disclosure. There have been no changes in the Company's internal control over
financial reporting during the fiscal quarter that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting.
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 resolve litigation on acceptable terms, to arrange
financing, distribution and promotion for these projects on favorable terms in
various markets and to attract and retain qualified personnel.
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On August 18, 2003, a lawsuit was filed against us by Duncan Murray in Los
Angeles Superior Court, case number BC300908. Mr. Murray claimed that he was
unjustly terminated and is owed severance. Mr. Murray alleged 3 causes of
action: (i) breach of his employment agreement; (ii) wrongful termination of
employment and breach of implied contract; and (iii) retaliatory termination of
employment. On September 24, 2003, we filed an answer to the lawsuit. The matter
was sent to arbitration on February 17, 2004 and was settled on that date.
According to the terms of the Settlement and General Release Agreement, the
Company is to pay to Mr. Murray and his lawyer a total of approximately $42,500.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 10-K
(A) EXHIBITS
3.1 Company's Second Amended and Restated Articles of Incorporation (1)
3.2 Company's Amended and Restated Bylaws (1)
4.1 NLAG Registration Rights Agreement, dated May 17, 2002, among the Company,
the members of the NLAG Group, and GTH Capital, Inc. (1)
4.2 Jimirro Registration Rights Agreement, dated May 17, 2002, between the
Company and James P. Jimirro (1)
4.3 Amended and Restated 1999 Stock Option, Deferred Stock and Restricted
Stock Plan (2)
4.4 Piggyback Registration Rights Agreement, dated September 3, 2002 (5)
10.1 First Amendment to Preferred Stock and Warrant Purchase Agreement, dated
as of May 17, 2002 (1)
10.2 2002 Employment Agreement Between J2 Communications and James P. Jimirro,
dated May 17, 2002 (1)
10.3 Note Termination Agreement, dated May 17, 2002, between the Company and
James P. Jimirro (1)
10.4 Security Agreement, dated May 17, 2002, between the Company and James P.
Jimirro (1)
10.5 Absolute Assignment, dated May 17, 2002, between the Company and James P.
Jimirro (1)
10.6 Termination of Stock Appreciation Rights Agreement, dated May 17, 2002,
between the Company and James P. Jimirro (1)
10.7 Mutual Release, dated May 17, 2002, among the Company, James P. Jimirro
and the members of the NLAG Group (1)
10.8 Restated Indemnification Agreement, dated May 17, 2002, between the
Company and James P. Jimirro (1)
10.9 2002 Employment Agreement Between J2 Communications and Daniel S. Laikin,
dated May 17, 2002 (1)
10.10 Non-Qualified Stock Option Agreement, dated May 17, 2002, between the
Company and Daniel S. Laikin (1)
10.11 Indemnification Agreement, dated May 17, 2002, between the Company and
Daniel S. Laikin. (2)
10.12 Letter, dated May 17, 2002, regarding Termination of Surviving Provisions
of Letter Agreement, from the Company to Daniel S. Laikin and Paul Skjodt
(1)
10.13 Warrant Agreement, dated May 17, 2002, between the Company and GTH
Capital, Inc (1)
10.14 Voting Agreement, dated May 17, 2002, among each of the members of the
NLAG Group and James P. Jimirro (1)
10.15 Promissory Notes issued May 17, 2002, by the Company to law firms (1)
10.16 Form of Common Stock Warrant (including Schedule identifying material
terms (1)
10.17 Agreement between Registrant and Harvard Lampoon, Inc. dated October 1,
1998 (3)
10.18 First Amendment to Office Lease between Registrant and Avco Center
Corporation dated April 21, 2000 (4)
10.19 Letter Agreement between Registrant and Batchelder & Partners, Inc., dated
August 16, 2000 (4)
10.20 Amendment to Letter Agreement between Registrant and Batchelder &
Partners, Inc. dated August 16, 2000 (4)
10.21 Warrant Issued by Registrant to George Vandemann dated August 18, 2000 (4)
10.22 Asset Purchase Agreement dated August 30, 2002 between National Lampoon
Networks, Inc., Burly Bear Network, Inc., Constellation Venture Capital,
L.P. and J2 Communications (5)
10.23 Consulting Agreement with Zelnick Media and related Warrant Agreements (6)
10.24 Advisory Agreement with SBI USA and related Warrant Agreement (6)
10.25 Lease for New York Office space (7)
10.26 Employment Agreement for Doug Bennett (7)
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31.1 Certification of James P. Jimirro, Chief Executive Officer, pursuant to
Rule 13a - 14(a)-15 d 14(a) (8)
31.2 Certification of James Toll, Chief Financial Officer, pursuant to Rule 13
a-14(a)/15d-14(a) (8)
32 Certification pursuant to 18 U.S. C. Section 1350 (8)
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(1) Incorporated by reference to Form 8-K filed on May 31, 2002.
(2) Incorporated by reference to Form S-8 filed on June 26, 2002.
(3) Incorporated by reference to Form 10-Q for the period ended October 31,
1998.
(4) Incorporated by reference to Form 10-K for the fiscal year ended July 31,
1999.
(5) Incorporated by referenced to Form 8-K filed on September 9, 2002.
(6) Incorporated by reference to Form 10-K for the fiscal year ended July 31,
2002.
(7) Incorporated by reference to Form 10-K for the fiscal year ended July 31,
2003.
(8) Filed herewith.
(B) REPORTS ON FORMS 8-K
None
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: March 14, 2004 NATIONAL LAMPOON, INC.
By: /s/James Toll
-----------------------
James Toll
Chief Financial Officer
13