<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 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: 1-6739
TEAM COMMUNICATIONS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-4519215
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
12300 WILSHIRE BOULEVARD, SUITE 400
LOS ANGELES, CALIFORNIA 90025
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 442-3500
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 [ ]
On September 11, 1998, the registrant had outstanding 2,831,092 shares
of Common Stock, no par value.
<PAGE> 2
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1998
----
<S> <C>
Cash and cash equivalents ...................................... $ 2,800
Trade receivables, less allowance for doubtful accounts of $0 .. 9,111,500
Television program costs, less accumulated amortization of
$3,670,900...................................................... 6,419,300
Due from officer ............................................... 145,900
Fixed assets, net .............................................. 22,100
Organizational costs and other assets .......................... 1,103,200
----------
Total assets ......................................... 16,804,800
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities ...... $ 5,576,700
Deferred revenue ............................................... 688,700
Accrued participations ......................................... 854,000
................................................................ 6,393,000
Notes payable
Accrued interest ............................................... 1,266,300
Shareholder loan and note payable .............................. 740,000
----------
Total liabilities .................................... 15,518,700
----------
Shareholders' deficit:
Preferred stock, no par value; 2,000,000 shares authorized;
no shares issued and outstanding ......................... 0
Common stock, no par value; 18,000,000 shares authorized;
1,131,344 shares issued and outstanding .................. 1,000
Paid in capital ........................................... 1,230,100
Treasury stock receivable ................................. 0
Accumulated deficit ....................................... 55,000
----------
Total shareholders' equity (deficit) ................. 1,286,100
----------
Total liabilities and shareholders' equity (deficit).. $16,804,800
===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 3
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE THREE FOR THE THREE
ENDED ENDED MONTHS ENDED MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues ........................... $3,215,900 $3,473,100 $1,642,500 $2,764,700
Cost of revenues ................... 836,700 984,300 457,700 569,000
Bad Debt Expense ................... 0 660,000 0 660,000
General and administrative expense.. 1,138,300 987,400 596,800 385,900
---------- ---------- ---------- ----------
Net income from operations ......... 1,240,900 841,400 588,000 1,149,800
Interest expense ................... 622,800 523,400 359,800 251,600
Interest income .................... 91,500 102,700 43,500 30,700
Other income ....................... 0 0 0 0
---------- ---------- ---------- ----------
Net income before income taxes 709,600 420,700 271,700 928,900
Provision for income taxes ......... 70,000 0 70,000 0
---------- ---------- ---------- ----------
Net income ......................... $ 639,600 $ 420,700 $ 201,700 $ 928,900
========== ========== ========== ==========
Net income per share basic ......... $ 0.57 $ 0.37 $ 0.18 $ 0.82
========== ========== ========== ==========
Weighted average number of shares
outstanding basic ............. 1,131,344 1,131,344 1,131,344 1,131,344
========== ========== ========== ==========
Net income per share diluted ....... $ 0.35 $ 0.23 $ 0.11 $ 0.51
========== ========== ========== ==========
Weighted average number of shares
outstanding diluted ........... 1,821,800 1,821,800 1,821,800 1,821,800
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE> 4
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE SIX MONTHS ENDED
ENDED JUNE 30, 1998 ENDED JUNE 30, 1997
------------------- -------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 639,600 $ 420,700
Adjustments to reconcile net income to cash used for
operating activities:
Depreciation and amortization 6,900 6,700
Provision for doubtful accounts receivable
Amortization of television program costs 824,300 309,200
Additions to television program costs (2,956,600) (927,300)
Amortization of notes payable discount 131,000 0
Changes in assets and liabilities:
Increase in trade receivables (2,370,700) (2,489,700)
Increase in organization costs and other assets (525,200) (162,600)
Increase in accounts payable, accrued expense are
other liabilities 2,306,200 1,328,800
Increase (decrease) in deferred revenue 113,700 250,700
Increase in accrued participations (130,800) (4,600)
Increase in accrued interest 237,000 315,400
----------- -----------
Net cash used for operating activities (1,724,600) (952,700)
----------- -----------
INVESTING ACTIVITIES:
Purchase of fixed assets 0 0
Increase in due to officer 0 0
Increase in due from officer 49,600 (93,600)
----------- -----------
Net cash used for investing activities 49,600 (93,600)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from shareholder loan and notes payable
Proceeds from issuance of note payable and warrants 1,563,400 937,900
Principal payment on loan due to stockholder 0 0
Principal payment of notes payable (60,000) 0
Issuance of common stock 0 0
----------- -----------
Net cash provided by financing activities 1,503,400 937,900
----------- -----------
Net change in cash (171,600) (108,400)
Cash at beginning of period 174,400 214,300
----------- -----------
Cash at end of period $ 2,800 $ 105,900
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 5
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Preferred Common Stock
Stock
----------------------------
Treasury
Number Number Paid in Stock Accumulated
of Shares Amount of Shares Amount Capital Receivable Deficit
------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 27, 1995.. 0 0 0 $ 0 $ 0 $ 0 $ 0
Common Stock issued............ 1,024,059 1,000
TPEG settlement (87,000)
Net loss for period from
February 27, 1995 to
December 31, 1995............ (1,032,500)
--------- --------- ---------- ----------- ---------- ---------- ------------
Balance at December 31,
1995......................... 0 0 1,024,059 1,000 0 (87,000) (1,032,500)
Transfer of shares by
principal shareholder to
notes payable holder......... 45,700
Exchange of treasury stock
receivable with related
party for extinguishment
of TPEG settlement
payable...................... 91,000 87,000
Issuance of shares in
connection with notes
payable...................... 79,708 0 84,200
Issuance of warrants in
connection with private
placements................... 602,700
Issuance of shares in
connection with anti-
dilution provisions of
convertible promissory
note......................... 4,292
Issuance of shares in
connection with services
provided to the Company...... 23,285 24,700
Waiver of interest on
loan due to Shareholder........ 95,000
Net income for year ended
December 31, 1996............ 800
--------- --------- ---------- ----------- ---------- ---------- ------------
Balance at 12/31/96............ 1,131,344 1,000 943,300 0 (1,031,700)
Issuance of warrants in
connection with private
placement.................... 286,800
Net income for year
ended December 31, 1997...... 447,100
--------- --------- ---------- ----------- ---------- ---------- ------------
Balance at December 31, 1997 0 0 1,131,344 $ 1,000 $1,230,100 $ 0 $ (584,600)
Net income for the six months
ended June 30, 1998......... 639,600
--------- --------- ---------- ----------- ---------- ---------- ------------
0 0 $ 131,344 $ 1,000 $1,230,100 $ 55,000
========= ========= ========== =========== ========== ========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
<PAGE> 6
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PREPARATION-SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial statements.
Accordingly, they do not include all of the information and disclosures required
for annual financial statements. These financial statements should be read in
conjunction with the financial statements and related footnotes for the three
months ended March 31, 1998, included in the TEAM Communications Group, Inc.
("Company" ) financial report in the Company's registration statement (the
"Registration Statement") dated July 29, 1998.
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 June 30, 1998, and the results of operations for the three and
six month periods ended June 30, 1998 and cash flows for the six month period
ended June 30, 1998, have been included. The results of operations for the three
and six month periods ended June 30, 1998, are not necessarily indicative of the
results to be expected for the full fiscal year. For further information, refer
to the financial statements and footnotes thereto included in the Company's
Registration Statement.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company recognizes revenues from licensing agreements covering entertainment
product when the product is available to the licensee for telecast, exhibition
or distribution, and other conditions of the licensing agreements have been met
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 53
"Financial Reporting by Producers and Distributors of Motion Picture Films."
The Company, as required by SFAS No. 53, values its film cost at the lower of
unamortized cost or net realizable value on an individual title basis. Film
costs represent those costs incurred in the development, production and
distribution of television projects. These costs have been capitalized in
accordance with SFAS No. 53. Amortization of film cost is charged to expense and
third party participations are accrued using the individual film forecast
method whereby expense is recognized in the proportion that current year
revenues bear to an estimate of ultimate revenues. These estimates of revenues
are prepared and reviewed periodicaly by management.
NOTE 2 -- TELEVISION PROGRAM COSTS:
In April 1998, the Company, as licensee, acquired all television rights for
Latin America to "Water Rats" seasons three and four. The license period
commenced June 1, 1998 for a ten-year term. The license fee to be paid is
$1,512,000. In May 1998, the licensor, under substantially similar terms,
acquired the pay television/satellite rights back from the Company for "Water
Rats" seasons three and four for a negotiated fee of $882,000. The cost assigned
to pay television/satellite rights by the Company was $279,942 and was amortized
accordingly, in full, in the period ended June 30, 1998. The revenues generated
from the transaction accounted for 27 percent and 54 percent of total revenues
for the six months and the three months ended June 30, 1998, respectively.
Future monies due by the Company to the licensor will, per an additional
agreement, be netted by the amounts due from the licensor to the Company. The
Company's payment terms have also been adjusted to a payment of 10 percent of
the net balance due by January 1, 1999, with the balance payable in twelve equal
installments commencing April 1, 2000.
<PAGE> 7
Television program costs consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1998
<S> <C>
In process and development $ 2,048,200
Released, less accumulated amortization 4,371,100
------------
Total television program costs $ 6,419,300
============
</TABLE>
NOTE 3 -- LITIGATION AND CONTINGENCIES:
In the ordinary course of business, the Company has or may become involved in
disputes or litigation. On the basis of information available to it, management
believes such contingencies will not have a materially adverse impact on the
Company's financial position or results of operations.
NOTE 4 -- SUBSEQUENT EVENTS:
On July 29, 1998, the Company completed its Initial Public Offering pursuit to
the Registration Statement declared effective by the Securities and Exchange
Commission. The net proceeds to the Company, from the sale of 1,500,000 shares
at the initial offering price of $5.50 per share, was $6,630,500, net of
$1,619,500 in expenses related to the offering including underwriters fees and
expenses. The proceeds were used to repay debt of $6,133,600 and fund working
capital for the Company.
NOTE 5 -- GOING CONCERN:
The Company's financial statements for the six months ended June 30, 1998, has
been prepared on a going concern basis which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course of
business. The Company expects to incur substantial expenditures to produce
television programs and/or acquire distribution rights to television programs
produced by third parties. The Company's working capital plus limited revenue
from the licensing of its current inventory of television programs will not be
sufficient to fund the Company's ongoing operations, including completing
projects that the Company is contractually required to develop or produce.
Further, even
<PAGE> 8
with the Company successfully raising additional financing, there is no
assurance the Company will achieve profitability or positive cash flow.
ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
For the three months ended June 30, 1998, the Company reported net income of
approximately $202,000 on total revenues of approximately $1,643,000 compared to
net income of approximately $929,000 on total revenues of approximately
$2,765,000 for the same period ended June 30, 1997. Net income decreased by
approximately 78 percent and revenue decreased by approximately 40 percent for
the three months ended June 30, 1998, versus the three months ended June 30,
1997. The decrease is primarily due to a library sale of eleven 2-hour movies
in June 1997, for approximately $900,000; no similar sales were completed in the
three-month period ended June 30, 1998. Also, the Company recognized sales of
all television rights for 52 episodes in seasons one and two of the series
"Water Rats" in June 1997 for approximately $1,250,000 compared to sales in the
three month period ended June 30, 1998, of only the pay television rights for
approximately $882,000 on 63 episodes of "Water Rats" seasons three and four
(see Note 2).
Cost relating to revenues was $457,700 for the three months ended June 30, 1998
as compared to $569,000 for the three months ended June 30, 1997. The costs
relate to amortization of production costs of television programming for which
revenue was recognized during the period. Gross profit margin on sales decreased
from 79% for the six months ended June 30, 1997 to 72% for the three months
ended June 30, 1998, primarily because of the lower profit margins on sale of
pay television rights for "Water Rats" season three and four compared to the
profit margins on the sales in 1997 for "Water Rats" seasons one and two (see
Note 2). General and administrative expenses were $596,300 for the three months
ended June 30, 1998 as compared to $385,900 for the three months ended June 30,
1997. The increase was primarily due consulting and commission expenses relating
to interim and production financing. Interest expense was $359,800 for the three
months ended June 30, 1998 as compared to $251,600 for the three months ended
June 30, 1997. This increase is due to the increase in debt relating to interim
and production financing.
<PAGE> 9
For the six months ended June 30, 1998, the Company reported net income of
approximately $640,000 compared to net income of approximately $421,000 for the
six months ended June 30, 1997. Revenues decreased by 7 percent to approximately
$3,216,000 for the six months ended June 30, 1998, compared to approximately
$3,473,000 for the six months ended June 30, 1997, as a result of the Company's
sales of eleven movies in 1997, as described above, partially offset by a sale
of eleven movies of the week acquired from Beyond Entertainment for $825,000 in
the period ended March 31, 1998. Cost or revenues was $836,700 for the six
months ended June 30, 1998 as compared to $984,300 for the six months ended June
30, 1997. The decrease is attributable to the Company deriving more of its
revenue from distribution activity relating to product it owns rather than
product acquired from third parties, where up to 70 percent of gross revenue is
paid to the third party producers of the product. General and administrative
expenses were $1,138,300 for the six months ended June 30, 1998, as compared to
$987,400 for the six months ended June 30, 1997. The increase was primarily due
consulting and commission expenses relating to interim and production financing.
Interest expense was $622,800 for the six months ended June 30, 1998 as compared
to $523,400 for the six months ended June 30, 1997. Increase due to the increase
in debt relating to interim and production financing.
Interest income was $91,500 for the six months ended June 30, 1998 as compared
to $102,700 for the six months ended June 30, 1997. The decrease is due to more
interest income derived from amortization of the discount taken under the
guidelines of APB 21. Less income was taken in 1998 because a majority of
discount has already been amortized.
Trade receivables increased by $1,420,800 for the six months ended June 30,
1998, due to increased revenues. Included in receivables as of June 30, 1998,
are receivables from entities domiciled outside the United States. These
receivables represent virtually all receivables and 54% of the total assets
of the Company. For further information, refer to the financial statements and
footnotes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations-General" thereto included in the Company's Registration
Statement.
LIQUIDITY AND CAPITAL RESOURCES
The entertainment industry is highly capital intensive. As of June 30, 1998, the
Company had a liquidity deficit, defined as cash and cash equivalents plus
accounts receivables (net), and due from officer less accounts payable, notes
payable, accrued expenses and other liabilities, deferred revenue, accrued
participation, shareholder loans and notes payable, and accrued interest, of
negative $6,258,500.
<PAGE> 10
The Company has financed its operations from its own sales and production
activities, loans from its shareholders which aggregate $2,758,700 as of June
30, 1998, and the sale of its own securities. On July 29, 1998, the Company
completed an initial public offering, raising $7,255,500, net of offering
expenses including underwriters discounts, fees and expenses, of $994,500. These
proceeds were used to repay approximately $5,273,600 of debt, leaving $2,644,900
aggregate principal amount of loans outstanding as of September 1, 1998,
$2,349,900 of which matures within one year. The remaining indebtedness carries
interest ranging from 10 percent to 16 percent. As of September 1, 1998, the
Company had cash and accounts receivable due to be collected with one year of
approximately $2,240,000.
The Company continues to pursue financing and search for additional capital. The
Company is continuing to explore a variety of financial alternatives to increase
its working capital, including implementing a line of credit with a commercial
bank, or pursuing other types of debt or equity financings. No assurance can be
given that such financing can be obtained or that it will be on reasonably
attractive terms. Except for funding future production and acquisitions,
management believes that its existing cash resources and collection of
receivables will be sufficient to fund its operations for six months. Further,
even with the Company successfully raising additional financing, there is no
assurance the Company will continue to be profitable or maintain positive cash
flow.
When the Company's current indebtedness begins to mature, the Company will be
required to repay such indebtedness out of cash flow, extend such obligations
or attempt to refinance such obligations. No assurance can be given that the
Company will be able to effectuate any of the foregoing alternatives, or that
if the Company seeks to extend such obligations or refinance the remaining debt,
that such extensions or refinancing alternatives will be on terms which are
financially advantageous to the Company.
<PAGE> 11
PART II -- OTHER INFORMATION
Item 1 -- Legal Proceedings
In the ordinary course of business, the Company has or may become involved in
disputes or litigation. On the basis of information available to it, management
believes such contingencies will not have a materially adverse impact on the
Company's financial position or results of operations.
Item 6 -- Exhibits and Reports on Form 8-K
Exhibits
27 Financial Data Schedule
Form 8-K
None
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: September 14, 1998
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ DREW S. LEVIN
---------------------------------
Drew S. Levin
Chairman of the Board of
Directors and Chief Executive
Officer
By: /s/ TIMOTHY A. HILL
---------------------------------
Timothy A. Hill
Chief Financial Officer
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1998 AND FOR THE SIX
MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,800
<SECURITIES> 0
<RECEIVABLES> 9,111,500
<ALLOWANCES> 0
<INVENTORY> 6,419,300
<CURRENT-ASSETS> 9,114,300
<PP&E> 58,800
<DEPRECIATION> 36,700
<TOTAL-ASSETS> 16,804,800
<CURRENT-LIABILITIES> 15,518,700
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 1,285,100
<TOTAL-LIABILITY-AND-EQUITY> 16,804,800
<SALES> 3,215,900
<TOTAL-REVENUES> 3,215,900
<CGS> 836,700
<TOTAL-COSTS> 836,700
<OTHER-EXPENSES> 1,138,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 622,800
<INCOME-PRETAX> 709,600
<INCOME-TAX> 70,000
<INCOME-CONTINUING> 639,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 639,600
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
