<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, 2000 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.)
11818 WILSHIRE BOULEVARD, SECOND FLOOR
LOS ANGELES, CALIFORNIA 90025
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 312-4400
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 October 31, 2000, the registrant had outstanding 14,243,339 shares of
Common Stock, no par value.
<PAGE> 2
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
-------------
<S> <C>
ASSETS
Cash and cash equivalents $ 1,430,900
Short term investments 10,515,300
Trade receivables, net of allowance for doubtful accounts of $980,800 27,229,500
Television programming costs, net of accumulated amortization of $35,945,400 42,169,500
Fixed assets, net 1,951,900
Goodwill 1,039,000
Prepaid and other assets 1,070,000
------------
Total Assets $ 85,406,100
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities $ 6,187,300
Deferred taxes 3,878,700
Deferred revenue 1,006,700
Accrued participations 4,269,100
Line of credit 7,473,800
Notes payable 3,248,300
Accrued interest 106,200
------------
Total Liabilities 26,170,100
------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares authorized; none
issued and outstanding --
Common stock, no par value; 40,000,000 shares authorized; 14,141,339
issued and outstanding 1,000
Paid in capital 55,930,600
Accumulated other comprehensive income (loss) (994,400)
Retained earnings 4,298,800
------------
Total Shareholders' Equity 59,236,000
------------
Total Liabilities and Shareholders' Equity $ 85,406,100
============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE> 3
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE 9 MONTHS FOR THE 9 MONTHS FOR THE 3 MONTHS FOR THE 3 MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 34,722,600 $13,273,300 $ 15,259,000 $ 6,253,400
Cost of Revenues 25,679,800 6,056,300 11,039,200 1,920,100
General and administrative expense 4,597,100 3,771,700 2,197,800 2,732,700
----------------------------------------------------------------------------------------
Earnings from operations 4,445,700 3,445,300 2,022,000 1,600,600
Interest expense 470,000 477,900 434,800 197,800
Interest income 578,600 87,300 176,000 17,700
----------------------------------------------------------------------------------------
Earnings before income taxes 4,554,300 3,054,700 1,763,200 1,420,500
Provision for income taxes 1,867,300 1,149,900 722,900 568,200
----------------------------------------------------------------------------------------
Earnings before extraordinary item $ 2,687,000 $ 1,904,800 $ 1,040,300 $ 852,300
========================================================================================
Extraordinary loss from early
extinguishment of debt -- 431,900 -- 183,700
----------------------------------------------------------------------------------------
Net Earnings (loss) $ 2,687,000 $ 1,472,900 $ 1,040,300 $ 668,600
========================================================================================
Earnings (loss) per common share basic:
Earnings before extraordinary item $ 0.20 $ 0.45 $ 0.07 $ 0.15
Extraordinary loss -- (0.10) -- (0.03)
----------------------------------------------------------------------------------------
Net Earnings (loss) $ 0.20 $ 0.35 $ 0.07 $ 0.12
========================================================================================
Weighted average number of shares
outstanding primary 13,687,383 4,198,176 14,011,241 5,439,341
========================================================================================
Earnings (loss) per share diluted:
Earnings before extraordinary item $ 0.18 $ 0.38 $ 0.07 $ 0.14
Extraordinary loss -- (0.09) -- (0.03)
----------------------------------------------------------------------------------------
Net Earnings (loss) $ 0.18 $ 0.29 $ 0.07 $ 0.11
========================================================================================
Weighted average number of shares
outstanding diluted 14,704,412 4,986,711 14,624,955 6,321,861
========================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE> 4
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE 9 MONTHS FOR THE 9 MONTHS
ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
----------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,687,000 $ 1,472,900
Adjustments to reconcile net income to cash used
for operating activities:
Depreciation and amortization 263,300 10,200
Amortization of television programming costs 24,222,700 6,056,300
Allowance for doubtful accounts 600,000 500,000
Additions to television programming costs (38,621,600) (15,734,600)
Amortization of notes payable discount -- 30,800
Warrants issued in exchange for services 171,800 --
Changes in assets and liabilities:
Increase in trade receivables (9,398,900) (6,700,000)
Increase in other assets (304,300) (1,002,400)
Increase (decrease) in accounts payable, accrued
expenses and other liabilities (1,459,600) 6,731,500
Increase (decrease) in deferred revenue 447,300 (387,300)
Increase in accrued participations 497,600 745,700
Increase (decrease) in accrued interest 74,100 (206,700)
Foreign currency translation (968,400) --
----------------------------------------------------
Net cash used for operating activities (21,789,000) (8,483,600)
----------------------------------------------------
INVESTING ACTIVITIES:
Purchase of fixed assets (1,580,200) (49,000)
Purchase of available for sale securities (10,515,300) -
Decrease (increase) in due from officer 170,400 (25,000)
----------------------------------------------------
Net cash provided (used) for investing activities (11,925,100) (74,000)
----------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of note payable and warrants 2,966,600 7,120,100
Proceeds from (payments on) bank line of credit 7,123,800 (417,000)
Principal payment on loan due to shareholder -- (500,000)
Issuance of common stock 4,065,800 8,534,100
Sale of treasury stock -- 34,600
Extraordinary charge for early retirement of debt -- 431,900
Principal payment of notes payable (99,900) (5,500,600)
----------------------------------------------------
Net cash provided by financing activities 14,056,300 9,703,100
----------------------------------------------------
Net change in cash (19,657,800) 1,145,500
Cash at beginning of period 21,088,700 1,027,700
----------------------------------------------------
Cash at end of period $ 1,430,900 $ 2,173,200
====================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE> 5
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL SCHEDULE ON NON-CASH ACTIVITIES
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE 9 MONTHS FOR THE 9 MONTHS
ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Issuance of shares in connection
with the acquisition of film rights $ 912,000 $ --
Issuance of shares and warrants in connection
with services provided to the Company $ 171,700 $ 1,235,900
Issuance of shares in connection
with extinguishment of debt $ -- $ 1,146,300
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE> 6
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Accumulated
Stock Other
Number Paid in Comprehensive Retained
of Shares Par Value Capital Loss Earnings
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 12,895,509 $ 1,000 $ 51,693,000 $ (26,000) $ 1,611,800
Net Income for the nine months ended
September 30, 2000 - - - - 2,687,000
Issuance of stock Acquisition of Film
Rights 128,572 - 912,000 - -
Issuance of warrants - - 171,800 - -
Exercise of warrants and options 989,660 - 3,153,800 - -
Foreign currency translation adjustment - - - (968,400) -
------------ -------- -------------- ----------- -----------
Balance at September 30, 2000 14,013,741 $ 1,000 $ 55,930,600 $ (994,400) $ 4,298,800
============ ======== ============== =========== ===========
</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 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 year ended December 31, 1999,
included in the TEAM Communications Group, Inc. ("Company") financial report
in the Company's 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, 2000, and the results of operations
and cash flows for the nine-month period ended September 30, 2000 have been
included. The results of operations for the three- and nine-month periods
ended September 30, 2000, 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 10-KSB
filed for the year ended December 31, 1999.
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
period revenues bear to an estimate of ultimate revenues. These estimates of
revenues are prepared and reviewed periodically by management.
In June 2000, the FASB rescinded FASB Statement No. 53, "Financial Reporting
by Producers and Distributors of Motion Picture Films," which was replaced
by Statement of Position, SOP 00-02. An entity that previously was subject
to the requirements of SFAS No. 53 will now follow the guidance in the
Statement of Position, "Accounting by Producers and Distributors of Films."
This Statement of Position will be effective for financial statements for
fiscal years beginning after December 15, 2000 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.
Short-term investments: The Company accounts for short-term investments in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
Company's short-term investments, all of which are classified as
available-for-sale as defined by SFAS No. 115, consist primarily of
corporate bonds. Pursuant to SFAS No. 115, such investments are stated at
market value, and unrealized gains and losses on such securities are
reflected, net of tax, in shareholders' equity.
<PAGE> 8
NOTE 2 -- SHORT-TERM INVESTMENTS:
It is the Company's intent to maintain a liquid portfolio to take advantage
of investment opportunities; therefore, all securities are considered to be
available-for-sale. Short-term investments as of September 30, 2000 consist
of:
<TABLE>
Gross
Unrealized
Holding
(Losses)
Cost Gains Fair Value
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate bonds and other $10,514,600 $ 700 $10,515,300
Maturities of short-term investments at September 30, 2000 were as follows:
Cost Fair Value
-------------------------------------------------------------------------------------------------------------------
Due within one year....................................... $ 9,767,100 $ 9,765,500
Due after one year through five years..................... 747,500 749,800
-------------------------------------------------------------------------------------------------------------------
$10,514,600 $10,515,300
-------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 3 -- TELEVISION PROGRAM COSTS:
Television program costs as of September 30, 2000, consist of the following:
In process and development $ 1,654,500
Released, less accumulated amortization 40,514,500
------------
Total television program costs $ 42,169,000
============
NOTE 4 -- LITIGATION AND CONTINGENCIES:
In September 2000, the Company was served with a complaint in a matter
styled Frankfurter Film Products Inc. ("FFP") vs. TEAM Communications Group,
Inc., filed in the Federal Court in Los Angeles. The action arises out of an
April 2000 agreement pursuant to which the Company and FFP agreed, subject
to certain conditions, to form an operating entity in Germany. In August
2000, after months of further negotiations and the review of business plans
and budgets submitted by FFP to Team, Team notified FFP that the budgets
were not acceptable. As other conditions had not been met, Team issued a
press release in August indicating that it was not likely that the
transaction would close. On September 5, 2000 FFP filed suit after the press
release was disseminated, alleging, inter alia, breach of contract and
fraud. The complaint seeks unspecified damages, including the market value
of 1,500,000 shares of Team common stock. On September 11, Team filed a
countersuit against FFP, Datty Ruth, Micheal Smeaton and Winfried Hammacher
alleging, inter alia, fraud, intentional and negligent misrepresentations,
breach of contract and breach of the duty of good faith and fair dealing.
The cross complaint seeks damages in excess of $90,000,000, the exact amount
of which will be subject to proof. No discovery has taken place in the
action. Team intends to vigorously defend itself, as well as prosecute its
cross complaint.
In September 2000, the Company was served with a complaint in a matter
styled EBI Securities Corporation vs. TEAM Communications Group, Inc., filed
in the District Court of Arapahoe, Colorado. In the complaint, the
Plaintiff, a Colorado corporation seeks to enforce an alleged oral agreement
for payment owed for various consulting services. The Company denies the
existence of such an agreement, such an agreement has not been approved by
the
<PAGE> 9
Company's board of directors, and the Company denies any services were
rendered. The Company has retained local legal counsel in Colorado, file
an answer and vigorously defend itself.
The Company has further been served with a claim for worker's compensation
benefits by a former clerical employee, due to alleged repetitive motion
injuries and stress. This employee has subsequently filed the same claim
against several subsequent employers. This matter is being defended by the
Company's insurance carrier.
At this time, the outcome of the above matters cannot be determined by the
Company with any certainty.
NOTE 5 -- LINE OF CREDIT:
The Company maintains a revolving line of credit with Paine Webber. The
credit line is up to $7,500,000 and bears interest at prime plus 1%. As of
September 30, 2000, the outstanding balance of the line of credit was
$7,473,800. The line of credit is secured by the Company's investment
account at Paine Webber of approximately $10,515,300.
NOTE 6 --- NOTES PAYABLE:
In July 2000, the Company obtained a loan in the amount of $1,792,700 from
Imperial Bank. The loan carries interest at prime plus 1.0% and is secured
by all distribution rights with respect to "Call of the Wild." Pursuant to
this transaction, the Company was to defer all of its distribution fees for
distributing "Call of the Wild" until Imperial Bank's loan was repaid. This
loan was refinanced in October pursuant to a loan from Heller EMX, Inc. (see
Liquidity and Capital Resources)
In June 2000 the Company obtained a loan in the amount of $1,000,000 from
Mercantile National Bank. The loan carries interest at prime plus 0.25% or
currently at 9.75% and matures June 17, 2002. This loan is secured by
substantially all the assets of the Company.
NOTE 7 -- RELATED-PARTY TRANSACTIONS:
As a consequence of the Company's October 1999 acquisition of 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 Reknown
Pictures, Ltd., a UK company owned by Noel Cronin, formerly the owner of
Dandelion. At September 30, 2000 the receivable due from Reknown was
$725,000 and is past due.
Noel Cronin is a director of String of Pearls Plc ("SOP"). In September
1999, the Company entered into a ten-year license agreement with String of
Pearls Plc for certain European territories, including Germany, France and
Italy, for 20 made-for-television movies (MOWS). In a separate agreement in
March 2000, the Company licensed from SOP the Italian rights to 19 feature
films and paid SOP $2.5 in respect of the acquisition. SOP, in turn, paid
$2,000,000 to Team on account of the MOW license. At September 30, 2000,
the receivable due from String of Pearls Plc. was $3,085,000 of which
$829,000 was due or past due.
Noel Cronin is a director of Leisureville Ltd., doing business as DD Video.
In August 1999, the Company entered into a ten-year license agreement with
DD Video to acquire worldwide television rights excluding the United Kingdom
for certain films and documentaries. At September 30, 2000, the amount due
to DD Video was $737,500.
<PAGE> 10
NOTE 8 -- SUBSEQUENT EVENTS:
In October 2000, the Company entered into a financing transaction with Call
of the Wild Distribution, LLC, an unaffiliated third party ("CWD"), and
Heller EMX Inc. The Company sold to CWD its interest in the series "Call of
the Wild", and then leased back the series. In connection with such
agreements Team has agreed to repay to CWD the sum of $7,644,000 which
amount has been assigned to Heller. Heller provided the acquisition loan to
CWD to acquire the series. Team netted approximately $5,234,000 from the
transaction and used some of the proceeds to payoff the loan from Imperial
Bank. The Team guaranty is secured by all rights to a television series and
is due in November 2002. The amount guaranteed bears interest at 4.625% over
LIBOR.
<PAGE> 11
ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Conditions 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 10-QSB.
RESULTS OF OPERATIONS
For the three months ended September 30, 2000, the Company reported a net
income of approximately $1,040,300 on total revenues of approximately
$15,259,000 compared to net income of approximately $668,600 on total
revenues of approximately $6,253,400 for the same period ended September 30,
1999. Net income increased by approximately $371,700 for the three months
ended September 30, 2000, versus the three months ended September 30, 1999,
primarily due to the sale of certain rights of the Company's previously
acquired film libraries. Revenue for the period ended September 30, 2000
included approximately $11,550,00 from the sale of certain broadcast rights
for movies of the week included in acquired libraries, $1,274,000 from Call
of the Wild, and $1,041,000 from Mysterious Places.
Revenue for the three months ended September 30, 1999, included
approximately $5,375,000 on the sale to SOP 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 $333,000
from the completion and delivery of eight episodes of "Destination: Style"
to Discovery's Travel Channel.
Cost relating to revenues was $11,039,200 for the three months ended
September 30, 2000 as compared to $1,920,100 for the three months ended
September 30, 1999. 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, 2000 was 28 percent compared to 69
percent for the
<PAGE> 12
period ended September 30, 1999. The lower gross profit margin for the
three months ended September 30, 2000 was due to the Company selling more
expensive library product and more expensive television drama programming,
such as "Total Recall 2070" and "Call of the Wild", produced and owned by
the Company and its partners as opposed to distributing more reality based
programming and programming previously produced and acquired by the Company
in the three months ended September 30, 1999.
General and administrative expense decreased to $2,197,800 for the three
months ended September 30, 2000 from $2,732,700 for the same period in 1999.
The decrease in general and administrative expenses is primarily due to an
increase in overhead capitalized to film costs, as well as a decrease in
legal and accounting costs. In the same period in 1999, the Company was
engaged in its Neuer Markt financing. Capitalized overhead for the three
months ended September 30, 2000 increased to $1,374,100 compared to $555,301
for the same period in 1999.
The Company had incurred an extraordinary loss of $183,700 for the three
months ended September 30, 1999 related to the conversion of $1,000,000 in
debt to common stock. There were no such amounts for the three months ended
September 30, 2000.
For the three months ended September 30, 2000, the Company incurred and
expensed $434,800 in interest expense. This is compared to $197,800 incurred
and expensed for the three months ended September 30, 1999. In the first
nine months of 1999, the Company had no production in process.
For the nine months ended September 30, 2000, the Company reported a net
income of approximately $2,687,000 on total revenues of approximately
$34,772,600 compared to net income of approximately $1,472,900 on total
revenues of approximately $13,273,300 for the same period ended September
30, 1999. Net income increased by approximately $1,214,100 for the nine
months ended September 30, 2000, versus the nine months ended September 30,
1999, primarily due to the sale of certain rights of Company's library of
movie of the week titles. Revenue for the period ended September 30, 2000
included approximately $19,000,000 on the sales of certain broadcast rights
for movies of the week included in the Company's acquired library.
Cost relating to revenues was $25,679,800 for the nine months ended
September 30, 2000 as compared to $6,056,300 for the nine months ended
September 30, 1999. The costs relate to amortization of production costs of
television programming for which revenue was recognized during the period.
Gross profit margin on sales of television programming for the nine months
end September 30, 2000 was 26 percent compared to 54 percent for the period
ended September 30, 1999. The lower gross profit margin for the nine months
ended September 30, 2000 was due to the Company selling more expensive
library product and
<PAGE> 13
more expensive television drama programming, such as "Total Recall 2070"
and "Call of the Wild", produced and owned by the Company and its partners
as opposed to distributing more reality based programming and programming
previously produced and acquired by the Company in the nine months ended
September 30, 1999.
General and administrative expense is $4,597,100 for the nine months ended
September 30, 2000 compared to $3,771,700 for the same period in 1999. Such
general and administrative costs increased $825,000 primarily due to
consulting fees, the addition of the U.K. and German operations overhead.
The Company had incurred an extraordinary loss of $431,900 for the nine
months ended September 30, 1999 related to the conversion of $1,850,000 in
debt to common stock. There were no such amounts for the nine months ended
September 30, 2000.
For the nine months ended September 30, 2000, the Company incurred $574,200
in interest expense and capitalized approximately $115,000 in interest on
debt related to production. This is compared to $477,900 incurred and
expensed for the nine months ended September 30, 1999. In the first nine
months of 1999, the Company had no production in process. The reduction in
the amount of interest incurred by the Company is due to retirement of debt
in 1999.
Receivables at September 30, 2000 were approximately $27,829,500, of which
$25,200,000 is from entities domiciled outside the United States. These
international receivables represent approximately 91% of the total
receivables of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The entertainment industry is highly capital intensive. During the three and
nine months ended September 30, 2000, the Company used cash for operating
activities of $5,702,300 and $21,789,000, respectively. These operating
activities were funded primarily from the remaining cash proceeds of the
issuance of common stock in a public offering in Germany that closed during
the fourth quarter of 1999. As of September 30, 2000, the Company had
$1,430,900 of cash and cash equivalents on hand as well as $10,515,300 of
short-term investments that were pledged as collateral for a $7,500,000 line
of credit, $7,473,800 of which was outstanding.
During the third quarter, the Company closed a $1,792,700 financing
transaction with Imperial Bank with respect to the television series, "Call
of the Wild." Pursuant to this transaction, the Company was to defer all of
its distribution fees for distributing "Call of the
<PAGE> 14
Wild" until Imperial Bank's loan was repaid. The net proceeds of the loan
were approximately $1,573,000. This loan was refinanced in October pursuant
to a financing transaction with Call of the Wild Distribution LLC, an
unaffiliated third party ("CWD"), and Heller EMX Inc. The Company sold to
CWD its interest in the series "Call of the Wild", and then leased back the
series. In connection with such agreements Team has agreed to repay to CWD
the sum of $7,044,000 which amount has been assigned to Heller. Heller
provided the acquisition loan to CWD to acquire the series. Team netted
$7,644,000 from the transaction and used some of the proceeds to payoff the
loan from Imperial Bank. The Team guaranty is secured by all rights to a
television series and is due in November 2002. The amount guaranteed bears
interest at 4.625% over LIBOR. The Company continues to pursue alternative
financing for production and under the terms of such financing the Company
may defer a significant portion if not all of its distribution fees until
such financing is repaid. The Company's net production commitments
approximate $6,000,000 at September 30, 2000.
In addition to the above production financing, the Company continues to
explore 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.
RECENT ACCOUNTING PRONOUNCEMENTS
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 Statement of Position, "Accounting by Producers and
Distributors if Films." This proposed Statement of Position would be
effective for financial statements for fiscal years beginning after December
15, 1999 and could have a significant impact on the Company's results of
operations and financial position depending on its final outcome. The
Company has not concluded on its impact.
<PAGE> 15
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In September 2000, the Company was served with a complaint in a matter
styled Frankfurter Film Products Inc. ("FFP") vs. TEAM Communications Group,
Inc., filed in the Federal Court in Los Angeles. The action arises out of an
April 2000 agreement pursuant to which the Company and FFP agreed, subject
to certain conditions, to form an operating entity in Germany. In August
2000, after months of further negotiations and the review of business plans
and budgets submitted by FFP to Team, Team notified FFP that the budgets
were not acceptable. As other conditions had not been met, Team issued a
press release in August indicating that it was not likely that the
transaction would close. On September 5, 2000 FFP filed suit after the press
release was disseminated, alleging, inter alia, breach of contract and
fraud. The complaint seeks unspecified damages, including the market value
of 1,500,000 shares of Team common stock. On September 11, Team filed a
countersuit against FFP, Datty Ruth, Micheal Smeaton and Winfried Hammacher
alleging, inter alia, fraud, intentional and negligent misrepresentations,
breach of contract and breach of the duty of good faith and fair dealing.
The cross complaint seeks damages in excess of $90,000,000, the exact amount
of which will be subject to proof. No discovery has taken place in the
action. Team intends to vigorously defend itself, as well as prosecute its
cross complaint.
In September 2000, the Company was served with a complaint in a matter
styled EBI Securities Corporation vs. TEAM Communications Group, Inc., filed
in the District Court of Arapahoe, Colorado. In the complaint, the
Plaintiff, a Colorado corporation seeks to enforce an alleged oral agreement
for payment owed for various consulting services. The Company denies the
existence of such an agreement, such an agreement has not been approved by
the Company's board of directors, and the Company denies any services were
rendered. The Company has retained local legal counsel in Colorado,
file an answer and vigorously defend itself.
The Company has further been served with a claim for worker's compensation
benefits by a former clerical employee, due to alleged repetitive motion
injuries and stress. This employee has subsequently filed the same claim
against several subsequent employers. This matter is being defended by the
Company's insurance carrier.
At this time, the outcome of the above matters cannot be determined by the
Company with any certainty.
<PAGE> 16
Item 6 - Exhibits and Reports on Form 8-K
Exhibits
10.32 Purchase Agreement with Call of the Wild Distribution LLC and the
Sales Agreement and Minimum Guarantee Agreement with Call of the
Wild Distribution LLC; together with the Inter-party Agreement with
Team, Heller Fx, Call of the Wild Distribution LLC; Loan Agreement;
and Security Agreement
27 Financial Data Schedule
Form 8-K
None
<PAGE> 17
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 21, 2000
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ DREW S. LEVIN
------------------------------
Drew S. Levin
Chairman of the Board of Directors and Chief
Executive Officer
