<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 SEPTEMBER 30, 1999 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 November 10, 1999, the registrant had outstanding 6,979,138 shares of
Common Stock, no par value.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
Company or group of companies for which report is filed:
TEAM COMMUNICATIONS GROUP, INC.
ITEM 1-Financial Statements
Consolidated Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30,
ASSETS 1999
-----------
<S> <C>
Cash and cash equivalents $ 2,173,200
Trade receivables, including $8,275,000 due from related parties less
allowance for doubtful accounts of $837,000 10,936,700
Television programming costs, less accumulated amortization of $14,043,500 20,697,100
Due from officer 170,400
Fixed assets, net 55,200
Prepaid and other assets 1,085,100
-----------
Total Assets $35,117,700
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities $ 8,410,900
Deferred revenue 85,600
Accrued participations 3,771,500
Bank line of credit 697,000
Notes payable 4,387,200
Accrued interest 324,200
-----------
Total Liabilities 17,676,400
-----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares authorized; no shares
issued and outstanding --
Common stock, no par value; 40,000,000 shares authorized; 5,983,757
issued and outstanding 1,000
Paid in capital 16,146,800
Retained earnings 1,293,500
-----------
Total shareholders' equity 17,441,300
-----------
Total liabilities and shareholders' equity $35,117,700
===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 3
TEAM COMMUNICATIONS GROUP, INC.
Consolidated Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues, including $8,675,000 for
the nine months ended September 30,
1999 from, as a result of the
Dandelion acquisition, related
parties, see Note 9 $ 13,273,300 $ 9,466,800 $ 6,253,400 $ 6,251,000
Cost of Revenues, including
$2,170,000 for the nine months ended
September 30, 1999 attributable to
sales to related parties, see Note 9 6,056,300 5,884,500 1,920,100 5,047,700
General and administrative expense 3,771,700 2,234,100 2,732,700 1,095,900
--------------------------------------------------------------------
Earnings from operations 3,445,300 1,348,200 1,600,600 107,400
Interest expense 477,900 768,400 197,800 145,600
Interest income 87,300 136,000 17,700 44,500
--------------------------------------------------------------------
Earnings before income taxes 3,054,700 715,800 1,420,500 6,300
Provision for income taxes 1,149,900 60,500 568,200 (9,500)
--------------------------------------------------------------------
Earnings before extraordinary item 1,904,800 655,300 852,300 15,800
Extraordinary loss from early
extinguishment of debt 431,900 -- 183,700 --
--------------------------------------------------------------------
Net Earnings $ 1,472,900 $ 655,300 $ 668,600 $ 15,800
====================================================================
Basic earnings per common share
Earnings before extraordinary item $ 0.45 $ 0.43 $ 0.15 $ 0.01
Extraordinary loss (0.10) -- (0.03) --
--------------------------------------------------------------------
Net earnings per share - basic $ 0.35 $ 0.43 $ 0.12 $ 0.01
====================================================================
Weighted average number of shares
outstanding - basic 4,198,176 1,506,672 5,439,341 2,257,327
====================================================================
Diluted earnings per common share
Earnings before extraordinary item $ 0.38 $ 0.30 $ 0.14 $ 0.01
Extraordinary loss (0.09) -- (0.03) --
--------------------------------------------------------------------
Net earnings per share - diluted $ 0.29 $ 0.30 $ 0.11 $ 0.01
====================================================================
Weighted average number of shares
outstanding - diluted 4,986,711 2,197,128 6,321,861 2,947,783
====================================================================
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,472,900 $ 655,300
Adjustments to reconcile net income to cash used
for operating activities:
Depreciation and amortization 10,200 10,200
Amortization of television programming costs 6,056,300 1,205,600
Allowance for doubtful accounts 500,000 --
Additions to television programming costs (15,734,600) (6,515,400)
Amortization of notes payable discount 30,800 131,000
Changes in assets and liabilities:
(Increase) decrease in trade receivables (6,700,000) 393,000
Increase in prepaid and other assets (1,002,400) (1,131,400)
Increase (decrease) in accounts payable, accrued
expenses and other liabilities 6,731,500 (474,100)
Increase (decrease) in deferred revenue (387,300) 197,900
Increase in accrued participations 745,700 825,600
Decrease in accrued interest (206,700) (449,400)
-------------------------------
Net cash used for operating activities (8,483,600) (5,151,700)
-------------------------------
INVESTING ACTIVITIES:
Purchase of fixed assets (49,000) --
Decrease (increase) in due from officer (25,000) 50,100
-------------------------------
Net cash (used for) provided by investing activities (74,000) 50,100
-------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable and warrants 7,120,100 2,359,500
Change in bank line of credit (417,000) --
Principal payment on loan due to shareholder (500,000) (240,000)
Issuance of common stock 8,534,100 7,713,500
Sale treasury stock 34,600 --
Extraordinary charge for early retirement of debt 431,900 --
Principal payment of notes payable (5,500,600) (4,065,300)
-------------------------------
Net cash provided by financing activities 9,703,100 5,767,700
-------------------------------
Net change in cash 1,145,500 666,100
Cash at beginning of year 1,027,700 174,400
-------------------------------
Cash at end of period $ 2,173,200 $ 840,500
===============================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 5
TEAM COMMUNICATIONS GROUP, INC.
Consolidated Statement of Cash Flows
Supplemental Schedule of Non-cash Activities
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
-------------------------
<S> <C> <C>
Issuance of shares and warrants in connection
with services provided to the Company 1,435,900 --
Issuance of shares in connection with
extinguishment of debt 2,299,600 --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 6
TEAM ENTERTAINMENT GROUP, INC.
Consolidated Statement of Shareholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Common Stock
-----------------------------
Retained
Earnings
Number Paid in Treasury Accumulated
of Shares Par Value Capital Stock (Deficit)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 2,816,135 $ 1,000 $ 7,612,700 $ (34,600) $ (179,400)
Net Income for the nine months
ended September 30, 1999 -- -- -- -- 1,472,900
Sale of Treasury Stock 17,000 -- -- 34,600 --
Issuance of common stock in connection
with conversion of debt 1,219,974 -- 2,299,600 -- --
Issuance of common stock for services 464,000 -- 1,032,400 -- --
Issuance of warrants for services -- -- 403,500 -- --
Issuance of warrants for debt -- -- 240,000 -- --
Issuance of debt with beneficial
conversion feature -- -- 730,000 -- --
Private placement of common stock 1,013,334 -- 3,465,300 -- --
Exercise of warrants 453,314 -- 363,300 -- --
----------- ----------- ----------- ----------- -----------
Balance at September 30, 1999 5,983,757 $ 1,000 $16,146,800 $ -- $ 1,293,500
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE> 7
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PREPARATION-SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited consolidated financial statements have been prepared
by TEAM Communications Group, Inc. ("Company") 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 consolidated financial statements and related footnotes for the year
ended December 31, 1998, included in the Company's Annual Report to Stockholders
on Form 10-KSB.
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 September 30, 1999, and the results of operations for the three
and nine month periods ended September 30, 1999 and cash flows for the nine
month period ended September 30, 1999, have been included. The results of
operations for the three and nine month periods ended September 30, 1999, 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 Form 10-KSB filed for the year ended December
31, 1998.
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."
<PAGE> 8
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 period revenues
bear to an estimate of ultimate revenues. These estimates of revenues are
prepared and reviewed periodically by management.
During the nine months ended September 30, 1999, as the Company increased its
activities related to film cost production, overhead was capitalized in
accordance with SFAS No. 53 based upon estimates of production related
activities as a percentage of anticipated film cost expenditures during 1999.
Management reviews the overhead rate throughout the year and will adjust the
overhead rate on a quarterly basis, if necessary. During the three months and
nine months ended September 30, 1999, overhead in the amount of approximately
$555,300 and $1,740,700 was capitalized to film production costs, respectively.
NOTE 2 -- ACCOUNTS RECEIVABLE:
Included in accounts receivable is $900,000 which is held as security by a
third-party for certain programming rights acquired by the Company. Upon
collection of this receivable the amounts will be placed in escrow and recorded
as cash, although the cash will be restricted as to withdrawal.
NOTE 3 -- TELEVISION PROGRAM COSTS:
Television program costs consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
<S> <C>
In process and development $ 2,242,000
Released, less accumulated amortization 18,455,100
-----------
Total television program costs $20,697,100
===========
</TABLE>
<PAGE> 9
NOTE 4 -- 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 material adverse impact on the
Company's financial position or results of operations.
NOTE 5 -- LINE OF CREDIT:
The Company maintains an $850,000 revolving line of credit with Mercantile
National Bank. As of September 30, 1999, the outstanding balance of the line of
credit was $697,000. The line of credit is secured by an $860,000 certificate of
deposit (included in cash and cash equivalents) which is restricted as to
withdrawal.
NOTE 6 -- NOTES PAYABLE:
Notes payable consists of the following at September 30, 1999, carrying value
approximates fair value:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
<S> <C>
Promissory notes:
12% convertible note, net discount due November 2002 $3,262,300
10% secured promissory note due August 1999 125,000
12% secured promissory note due March 1999 150,000
11% unsecured promissory note 124,900
12% secured promissory notes due January 2000 100,000
12% secured notes due May 2000 350,000
10% secured note due November 1999 200,000
Private placements:
12% secured notes due August 1999 75,000
----------
$4,387,200
==========
</TABLE>
<PAGE> 10
On August 5, 1999, the Company sold $4,000,000 principal amount of 12%
convertible debentures due November 30, 2002. The note is subordinate to any of
the Company's bank financing or senior debt. The unpaid balance on this note as
of November 30, 1999 may be converted into common shares at the holders' option.
The conversion price is the lesser of 120% of the average per share market price
for five consecutive trading days prior to August 5, 1999 or 88% of the per
share market price for the three days with the lowest per share market price
during the twenty-five days prior to conversion. Connected with this financing,
the Company issued 340,000 warrants to purchase the Company's common stock at
105% of the five-day average price per share prior to the closing of the
financing ($7.00). Pursuant to an amendment dated November 1, 1999, the exercise
price was reduced to $6.50.
NOTE 7 -- SUBSEQUENT EVENTS:
On October 1, 1999, the Company completed the purchase of Dandelion Distribution
Ltd., a 20 year old United Kingdom based television production and distribution
company, for $2,500,000 in cash and 386,847 shares of the Company's common stock
for an aggregate value of $5,000,000. The Company may also be required to pay an
additional $250,000 if the shares of common stock delivered as part of the
purchase price do not have a market value of at least $3,000,000 on October 1,
2001.
On October 29, 1998, the Company filed a Registration Statement on Form SB-2
relating to the sale of up to $30,000,000 aggregate value of its common stock in
an underwritten offering on the German Neuer Market (the "German Offering").
Pursuant to the underwriting agreement with Gontard & MetallBank AG, the Company
sold 500,000 shares of its common stock and borrowed $4,000,000 as a bridge loan
which matures on the earlier of completion of the German Offering or December
31, 1999 and accrues interest at 10% per year.
NOTE 8 -- GOING CONCERN:
The Company's financial statements for the three months and nine months ended
September 30, 1999, have 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
<PAGE> 11
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 maintaining the Company's current overhead and
maintaining the Company's current development and marketing activities for the
next 12 months. Further, even with the Company successfully raising additional
financing, there is no assurance the Company will achieve profitability or
positive cash flow.
NOTE 9 -- RELATED PARTY TRANSACTIONS
As a consequence of the Company's October 1999 acquisition of Dandelion
Distribution Ltd. (Dandelion), certain receivables resulting from sales made
prior to the acquisition are now considered due from related parties for
financial reporting purposes. In June 1999 the Company entered into a five year
license agreement for certain territories including the UK of 20
made-for-television movies with Renown Pictures, Ltd., a UK company owned by
Noel Cronin, formerly the owner of Dandelion. At September 30, 1999 the
receivable due from Renown was $2,900,000. Subsequent to such date the Company
received a payment of $725,000 per the terms of the agreement. Noel Cronin is
also a director of String of Pearls Plc. In September 1999, the Company entered
into a 10 year license agreement for certain European territories including
Germany, France and Italy, of 20 made-for-television movies with String of
Pearls Plc. At September 30, 1999, the receivable due from String of Pearls Plc
was $5,375,000. Mr. Cronin has personally guaranteed the obligation to pay the
license fee from String of Pearls to us. Subsequent to such date the Company
received a payment of $290,000 per the terms of agreement.
<PAGE> 12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. Such statements relating to
future events and financial performance are forward-looking statements involving
risks and uncertainties that are detailed from time to time in our various
Securities and Exchange Commission filings. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of uncontrollable factors. The following discussion should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Form 10-QSB.
RESULTS OF OPERATIONS
For the three months ended September 30, 1999, the Company reported a net income
of approximately $668,600 on total revenues of approximately $6,253,400 compared
to net income of approximately $15,800 on total revenues of approximately
$6,251,000 for the same period ended September 30, 1998. Revenue for the period
ended September 30, 1999 includes approximately $5,375,000 on the sale of
certain broadcast rights of a library of twenty movie-of-the-week titles and
approximately $450,000 on the sale of certain broadcast rights of a library of
military documentaries. In addition, revenue for the 1999 third quarter includes
approximately $332,750 from the completion and delivery of eight episodes of
"Destination: Style" to Discovery's Travel Channel. Revenue for the period ended
September 30, 1998 included $2,600,000 on the Company's completion and delivery
of the made-for-television movie "Earthquake in New York" and $2,686,700 on the
completion and delivery of seven episodes of the dramatic series "Total Recall
2070."
Cost relating to revenues was $1,920,100 for the three months ended September
30, 1999 as compared to $5,047,700 for the three months ended September 30,
1998. The costs relate to amortization of production or acquisition costs of
television programming for which revenue was recognized during the period. Gross
profit margin on sales of television programming for the three months end
September 30, 1999 was 69 percent compared to 19 percent for the period ended
September 30, 1998. The higher gross profit margin for the three months ended
<PAGE> 13
September 30, 1999 was due to the Company selling television programming
acquired by the Company at attractive rates as opposed to selling programming
owned and produced by the Company in the three months ended September 30, 1998.
General and administrative expense increased to $2,732,700 for the three months
ended September 30, 1999 from $1,095,900 for the same period in 1998. Due to the
Company's increased activities related to film production, the 1999 amount
excludes approximately $555,300 in general and administrative expense that was
capitalized to television programming costs, as an allocation of costs related
to production, in accordance with SFAS No. 53. The increase in general and
administrative expenses, prior to capitalizing certain expenses, are a result of
an increase in expenses for staff, primarily for the Company's increased
activities in production and development, an increase in the accounts receivable
allowance for doubtful accounts and certain litigation costs. Also included is
such costs are expenses associated with the issuance of securities to outside
consultants as payment for their services.
The Company also incurred an extraordinary loss of $183,700 related to the
conversion of $1,000,000 in debt to common stock.
Interest expense was $197,800 for the three months ended September 30, 1999, as
compared to $145,600 for the three months ended September 30, 1998.
For the nine months ended September 30, 1999, the Company reported net income of
approximately $1,472,900 on total revenues of approximately $13,273,300 compared
to net income of approximately $655,300 on total revenues of approximately
$9,466,800 for the same period ended September 30, 1998. Revenue increased by 40
percent or $3,806,500 for the nine months ended September 30, 1999 compared to
1998, primarily due to the sales of certain broadcast rights of a library of
twenty movie-of-the-week titles which the Company acquired in June 1999.
Cost relating to revenues was $6,056,300 for the nine months ended September 30,
1999 as compared to $5,884,500 for the nine months ended September 30, 1998. The
costs relate to amortization of production or acquisition costs of television
programming for which revenue was recognized during the period. Gross profit
margin on sales of television programming for the nine months ended September
30, 1999 was 54 percent compared to 38 percent for the same period in 1998.
Included in cost of sales for 1999 is a charge of approximately $450,000 as the
Company wrote off development costs incurred on a project which has been in
development since 1995. The higher gross profit margin for the nine months
<PAGE> 14
ended September 30, 1999 was due to the Company selling television programming
acquired by the Company at attractive rates as opposed to selling programming
owned and produced by the Company in the nine months ended September 30, 1998.
General and administrative expenses were $3,771,700 for the nine months ended
September 30, 1999, as compared to $2,234,100 for the nine months ended
September 30, 1998. The 1999 amount excludes approximately $1,740,700 in general
and administrative expense that was capitalized to television programming costs,
as an allocation of costs related to production, in accordance with SFAS No. 53.
The increase in general and administrative expenses, prior to capitalizing
certain expenses, are a result of an increase in expenses for staff, primarily
for the Company's increased activities in production and development, an
increase in the accounts receivable allowance for doubtful accounts and certain
litigation costs. Also included is such costs are expenses associated with the
issuance of securities to financial consultants as payment for their services.
Interest expense was $477,900 for the nine months ended September 30, 1999 as
compared to $768,400 for the nine months ended September 30, 1998. The decrease
is due to the retirement of debt.
Receivables at September 30, 1999 were $10,936,700, all of which are from
entities domiciled outside the United States. These receivables represent
approximately 31% of the total assets of the Company. As a consequence of the
Company's October 1999 acquisition of Dandelion Distribution Ltd. (Dandelion),
certain receivables resulting from sales made prior to the acquisition are now
considered due from related parties for financial reporting purposes. In June
1999 the Company entered into a five year license agreement for certain
territories including the UK of 20 made-for-television movies with Renown
Pictures, Ltd., a UK company owned by Noel Cronin, formerly the owner of
Dandelion. At September 30, 1999 the receivable due from Renown was $2,900,000.
Subsequent to such date the Company received a payment of $725,000 per the terms
of the agreement. Noel Cronin is also a director of String of Pearls Plc. In
September 1999, the Company entered into a 10 year license agreement for
certain European territories including Germany, France and Italy, of 20
made-for-television movies with String of Pearls Plc. At September 30, 1999, the
receivable due from String of Pearls Plc was $5,375,000. Mr. Cronin has
personally guaranteed the obligation to pay the license fee from String of
Pearls to us. Subsequent to such date the Company received a payment of $290,000
per the terms of agreement. We have established $837,000 as an allowance for
doubtful accounts as of September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The entertainment industry is highly capital intensive. As of September 30,
1999, the Company had a liquidity deficit of $1,137,500. Liquidity deficit is
defined as cash and cash equivalents plus accounts receivables (net), and due
from officer less accounts payable, accrued expenses and other liabilities,
deferred revenue, accrued participations, notes payable (due within one year),
line of credit and accrued interest.
The Company continues to finance its operations from its own sales and
production activities, notes payables and line of credit. Despite our public
offering on July 29, 1998, our operations have been hurt by ongoing capital
shortages caused by a slowness in collecting receivables and the inability to
complete a long term banking relationship. We continue to address our capital
requirements by (i) completing in January and February 1999 a placement of
$1,850,000 convertible debt, all of which is now converted into
<PAGE> 15
common stock, (ii) entering into a letter of intent to complete an offering of
our common stock on the Neuer Market in Germany, (iii) completing the issuance
of $4,550,000 of net proceeds in additional convertible debt in July and August
1999 and (iv) entering into an agreement with an investment banking firm to
provide $6,000,000 of additional financing ($2,000,000 by the sale of 500,000
shares of common stock at $4.00 in August 1999 and $4,000,000 in debt securities
in October 1999 that matures on the earlier of completion of the German Offering
or December 31, 1999 and accrues interest at 10% per year). No assurance can be
given that the German Offering will be completed.
As of November 15, 1999, the Company had cash and accounts receivable due to be
collected within one year of approximately $12,243,000. Also as of November 15,
1999, the Company had indebtedness and related accrued interest of $9,361,000,
including notes payable of $8,191,000, net of discount of $740,000, of which
$4,929,000 matures within one year, accrued interest of $330,000, and $840,000
outstanding on a revolving line of credit.
As we continue to pursue the German Offering, we also continue to explore a
variety of other financial alternatives to increase our working capital,
including increasing the Company's line of credit with a commercial bank, or
pursuing other types of debt or equity financing. No assurance can be given that
such financing can ultimately be obtained or that it will be on reasonably
attractive terms.
We believe that without the German Offering but solely with our current
resources of cash, accounts receivable and available line of credit we will be
able to operate at current expenditure levels through March 31, 2000. We further
believe that our projected cash flow from operations, with contemplated sales of
certain acquired programming and collections from those sales, will be
sufficient to permit the Company to conduct its operations as contemplated
through June 30, 2000. Our belief is based upon certain assumptions, including
assumptions regarding the anticipated level of operations and overhead, the
anticipated sales of certain acquired programming, and anticipated expenditures
required for development and production of programming. If sales do not
materialize and financing is not completed by these dates, the Company will have
to limit its development and production activities, reduce its overhead
spending, restructure debt pay outs and take other cost reduction measures.
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.
<PAGE> 16
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") was issued. SOP 98-5 provides guidance on the financial
reporting of start-up costs and organization costs. We have adopted this SOP and
the adoption of this statement did not materially effect our financial
statements.
In June 1998, the FASB issue SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal years beginning after
June 15, 1999. We anticipate that due to our limited use of derivative
instruments, the adoption of SFAS No. 133 will not have a material effect on our
financial statements.
In October 1998, the FASB released an exposure draft of the proposed statement
on "Rescission of FASB Statement No. 53, Financial Reporting by Producers and
Distributors of Motion Picture Films." An entity that previously was subject to
the requirements of SFAS No. 53 would follow the guidance in a proposed SOP,
"Accounting by Producers and Distributors of Films." This proposed SOP would be
effective for financial statements for fiscal years beginning after December 15,
1999 and could have a significant impact on our results of operations and
financial position depending on its final outcome. We have not concluded on its
impact given the preliminary stages of the proposed SOP.
YEAR 2000 COMPLIANCE
As has been widely reported, many computer systems process dates based on two
digits for the year of a transaction and are unable to process dates in the year
2000 and beyond. Since our formation in 1995, we have installed new information
systems which are year 2000 compliant. Although we do not expect year 2000 to
have a material adverse effect on our internal operations, it is possible that
year 2000 problems could have a significant adverse effect on our suppliers and
their ability to service us and to accurately process payments received.
<PAGE> 17
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 material 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> 18
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: November 19, 1999
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,173,200
<SECURITIES> 0
<RECEIVABLES> 11,773,700
<ALLOWANCES> 837,000
<INVENTORY> 20,697,100
<CURRENT-ASSETS> 1,255,500
<PP&E> 110,700
<DEPRECIATION> 55,500
<TOTAL-ASSETS> 35,117,700
<CURRENT-LIABILITIES> 13,289,200
<BONDS> 4,387,200
0
0
<COMMON> 1,000
<OTHER-SE> 17,440,300
<TOTAL-LIABILITY-AND-EQUITY> 35,117,700
<SALES> 13,273,300
<TOTAL-REVENUES> 13,273,300
<CGS> 6,056,300
<TOTAL-COSTS> 9,328,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 500,000
<INTEREST-EXPENSE> 477,900
<INCOME-PRETAX> 3,054,700
<INCOME-TAX> 1,149,900
<INCOME-CONTINUING> 1,904,800
<DISCONTINUED> 0
<EXTRAORDINARY> 431,900
<CHANGES> 0
<NET-INCOME> 1,472,900
<EPS-BASIC> .35
<EPS-DILUTED> .29
</TABLE>
