<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 2000
[ ] 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: 0-30227
TOTAL FILM GROUP, INC.
(Exact name of Registrant as specified in charter)
DELAWARE 13-3851302
State or other jurisdiction of I.R.S. Employer I.D. No.
incorporation or organization
9107 WILSHIRE BOULEVARD, SUITE 475, BEVERLY HILLS, CA 90210
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (310) 275-8404
Check whether the Issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such fling requirements for the past 90 days. (1) Yes [X]
No [ ] (2) Yes [X] No [ ]
State the number of shares outstanding of each of the Issuer's classes of common
equity as of the latest practicable date: At November 16, 2000, there were
13,648,899 shares of the Registrant's Common Stock outstanding.
1
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOTAL FILM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000
-------------------- ---------------------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and Cash Equivalents $ 887,126 $ 448,102
Time Certificate of Deposit 20,692 20,692
Accounts Receivable 622,137 1,181,579
Related Party Receivable 243,043 218,954
Deferred Production Costs 145,198 103,221
Prepaid Expenses 25,450 281,347
Unamortized Placement Fee 600,861 -
----------------- -----------------
TOTAL CURRENT ASSETS 2,544,507 2,253,895
OTHER ASSETS
Film Costs, Net of Amortization 10,086,624 9,495,808
Property and Equipment, Net of Amortization 172,984 200,714
Investment in MeetChina.com 3,868,956 3,745,090
Recoverable Insurance Costs 1,000,000 1,000,000
Deposits 261,640 538,483
Goodwill, Net of Amortization 276,961 282,186
Capitalized Financing Fees 196,053 196,053
----------------- -----------------
15,863,218 15,458,334
----------------- -----------------
$ 18,407,725 $ 17,712,229
TOTAL ASSETS ================= =================
LIABILITIES
CURRENT LIABILITIES
Debt Maturing within One Year $ 5,509,188 $ 4,319,291
Current Portion of Capital Lease 44,018 45,464
Accounts Payable and Accrued Expenses 2,443,407 2,273,161
Deferred Revenue 367,832 227,163
Producer's Fee Payable, Related Party 600,000 600,000
----------------- -----------------
TOTAL CURRENT LIABILITIES 8,964,445 7,465,079
----------------- -----------------
LONG-TERM LIABILITIES
Long-Term Debt, Net of Current Portion 1,022,282 1,040,931
Capital Lease, Net of Current Portion 50,087 57,905
----------------- -----------------
TOTAL LONG-TERM LIABILITIES 1,072,369 1,098,836
----------------- -----------------
TOTAL LIABILITIES 10,036,814 8,563,915
----------------- -----------------
MINORITY INTEREST IN EQUITY OF CONSOLIDATED SUBSIDIARY 829,550 829,550
----------------- -----------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
2
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TOTAL FILM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
September 30, 2000 June 30, 2000
-------------------- -----------------
(Unaudited)
<S> <C> <C>
Preferred Stock - Par Value $3 per Share; Authorized
1,080,000 Shares; Issued and Outstanding 738,600 2,215,800 2,215,800
Common Stock, $0.001 Par Value; Authorized 50,000,000
Shares; Issued and Outstanding 12,693,633 and 12,335,299
Shares Respectively 12,694 12,336
Additional Paid-in Capital 19,347,677 17,976,175
Accumulated Deficit (14,034,810) (11,885,547)
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 7,541,361 8,318,764
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 18,407,725 $ 17,712,229
EQUITY ================= =================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
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TOTAL FILM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------
2000 1999
---------------- --------------
<S> <C> <C>
REVENUE
Film Production Income $ 311,511 $ -
Advertising and Marketing Fees 249,056 556,542
--------------- --------------
560,567 556,542
--------------- --------------
COSTS AND OPERATING EXPENSES
Production and Design Costs 196,608 443,297
Selling, General & Administrative Expenses 1,323,775 472,363
Depreciation and Amortization 17,602 49,043
--------------- --------------
TOTAL COSTS AND OPERATING EXPENSES 1,537,985 964,702
--------------- --------------
LOSS BEFORE OTHER INCOME (EXPENSES) (977,418) (408,160)
--------------- --------------
OTHER INCOME (EXPENSE)
Interest Income 12,160 289
Interest Expense (362,203) (99,036)
Amortization of Placement Fee (822,866) (210,337)
Miscellaneous Income 1,063 18,344
--------------- --------------
TOTAL OTHER INCOME (EXPENSE) (1,171,846) (290,740)
--------------- --------------
NET LOSS $ (2,149,263) $ (698,900)
=============== ==============
BASIC LOSS PER SHARE $ (0.17) $ (0.08)
=============== ==============
WEIGHTED AVERAGE NUMBER OF BASIC
COMMON SHARES OUTSTANDING 12,464,285 8,780,000
=============== ==============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
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TOTAL FILM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(2,149,263) $ (698,900)
----------- -----------
Adjustments to Reconcile Net Loss to Net Cash
Provided By (Used in) Operating Activities:
Prodeeds from Production Funding Arrangements (14,051) --
Cash Used in Motion Picture Development (590,816) (153,456)
Fair Value of Equity Granted and Other Non-Cash Transactions 65,474 --
Depreciation and Amortization 17,602 49,042
Amortization of Placement Fees 822,866 210,337
Decrease (Increase) in Assets:
Accounts Receivable 559,442 (31,488)
Related Party Receivable (24,089) (76,313)
Deferred Costs (41,977) --
Prepaid Expenses 255,897 24,105
Deposits 276,843 (9,000)
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued Expenses 170,246 32,284
Deferred Revenue 140,669 -
----------- -----------
TOTAL ADJUSTMENTS 1,638,106 45,511
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (511,157) (653,389)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Proceeds from the Redemption of Certificate of Deposit - 7,561
Cash Used to Purchase Investment in MeetChina.com (253,910) -
Other Assets - 37,472
Purchase of Property and Equipment - (106,856)
----------- -----------
NET CASH (USED) BY INVESTING
ACTIVITIES (253,910) (61,823)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Loans 1,197,371 1,200,000
Proceeds from the Issuance of Stock 42,107 -
Principal Payments Made on Loans (26,123) (74,436)
Principal Payments on Capital Lease Obligations (9,264) (1,121)
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,204,091 1,124,443
----------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 439,024 409,231
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 448,102 1,130,179
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 887,126 $ 1,539,410
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
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TOTAL FILM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements of Total Film Group,
Inc. and Subsidiaries (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information
without audit. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation have been reflected in these consolidated financial statements.
Operating results for the three months ended September 30, 2000, are not
necessarily indicative of the results that may be expected for the year ending
June 30, 2001. Certain reclassifications have been made in the June 30, 2000
consolidated financial statements to conform to the September 30, 2000
presentation. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-KSB for the year ended June 30, 2000.
2. The Company has a need for additional capital in order to provide working
capital for its current business plans. Management believes it will be able to
secure sufficient financing to carry out its business plan, supported in part by
written assurance from the Company's major lender and majority stockholder that
current debt will be extended if needed to June 30, 2001 and beyond and has
given verbal assurance to management that it will enable or provide additional
funding to carry out the business plan.
The Company's continued expansion of its business will depend substantially
upon the availability of cash flow from operations or its ability to raise
additional funds. As a result, Total Film Group may be required to seek
additional financing sooner than anticipated. There is no assurance that the
Company will be able to obtain additional financing when needed, or on terms
acceptable to it. In the event the Company cannot obtain additional funds when
needed on acceptable terms, it may be forced to limit its future operations,
which could have a materially adverse impact on its business.
3. The Company obtained a convertible promissory note of $1,000,000 from its
majority shareholder. The note, convertible into Company common stock at $3 per
share has a stated rate of interest of 12%, is dated August 14, 2000 and is
redeemable nine months from the date of issuance. Under the terms of the note,
the Company transferred ownership of 30,000 shares of MeetChina.com to the
lender. The financial consultant who arranged the financing received a fee of 7%
of the convertible promissory note and 100,000 stock warrants exercisable at
$3.50 per share.
4. The Company extended a debt obligation for $2,500,000 dated April 20, 2000
originally due August 15, 2000. The note from the majority shareholder was
extended until November 13, 2000. Under the extension granted by the lender, the
Company can roll over the loan on a monthly basis. For this right the Company
agreed to issue 166,667 shares of common stock for each monthly extension.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and related notes.
6
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SEASONALITY
The Company's businesses are subject to the effects of seasonality.
Consequently, the operating results for the quarter ended September 30, 2000,
for each business segment, and for the Company as a whole, are not necessarily
indicative of results to be expected for the full year.
Movie release revenues fluctuate based upon the timing of theatrical motion
picture and home video releases and seasonal consumer purchasing behavior.
Release dates for theatrical and home video products are determined by several
factors, including timing of vacation and holiday periods and competition in the
market.
Design fees are influenced by vendor demand and the seasonal nature of the
marketing and advertising services provided by the Company and generally peak in
the spring and summer.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------------------------------
(unaudited)
2000 1999 % Change
---------------- ---------------- ------------
<S> <C> <C> <C>
REVENUE
Film Production Income $ 311,511 $ - N/A
Advertising and Marketing Fees 249,056 556,542 -55%
---------------- ----------------
560,567 556,542 1%
---------------- ----------------
OPERATING EXPENSES
Production and Design Costs 196,608 443,297 -56%
Selling, General & Administrative Expenses 1,323,775 472,363 180%
Depreciation and Amortization 17,602 49,043 -64%
---------------- ----------------
1,537,985 964,702 59%
---------------- ----------------
LOSS FROM OPERATIONS (977,418) (408,160) 139%
---------------- ----------------
OTHER INCOME (EXPENSE)
Interest Income 12,160 289 4108%
Interest Expense (362,203) (99,036) 266%
Amortization of Placement Fee (822,866) (210,337) 291%
Miscellaneous Income 1,063 18,344 -94%
---------------- ----------------
(1,171,846) (290,740) 303%
---------------- ----------------
NET LOSS $ (2,149,263) $ (698,900) 208%
================ ================
BASIC LOSS PER SHARE $ (0.17) $ (0.08) -113%
================ ================
</TABLE>
Net loss and basic loss per share for the quarter increased by 208% and
113% to ($2,149,263) and ($.17), respectively. These increases were driven by
the Company's need for additional financing and exploitation costs associated
with marketing the Company's film library. Interest expense increased due to
higher average debt balances in the current year. Amortization of placement fees
increased due to the Company's lenders requiring a supplemental fee in order to
obtain or extend our debt obligations. The Company incurred over $300,000 of
marketing and advertising costs for its motion picture DIAMONDS which was
released on video during the current quarter. The increase in film production
revenue was offset by a decrease in advertising revenues.
In early July 2000, the Company completed its joint private offering in
Total China II to raise funds for the purchase of shares in MeetChina.com. The
offering which began May 2000, raised $3,693,000 of which Total China II
realized gross proceeds of $2,215,000 and the Company realized gross proceeds of
$1,477,200. Of the total proceeds raised, the Company received $42,107 in the
current quarter with the difference received in the last quarter of the fiscal
year ended June 30, 2000. The Company's proceeds of the offering were used for
general working capital and the proceeds to Total China II were used to purchase
shares in MeetChina.com. In the current quarter Total China II used previously
received funds from the private placement to purchase $253,910 of equity
securities in MeetChina.com. In connection with this private offering, a cash
fee of $369,000 was paid in the previous year as a commission to the
administrator of the placement. In addition to the cash fee the administrator
was issued 50,000 shares of the Company's common stock in June 2000 as
compensation for their services.
BUSINESS SEGMENT RESULTS
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------------------------------
(unaudited)
2000 1999 % Change
------------------- ------------------- ------------
<S> <C> <C> <C>
REVENUE
Film Production $ 311,511 $ - N/A
Advertising and Marketing 249,056 556,542 -55%
---------------- ----------------
560,567 556,542 1%
---------------- ----------------
OPERATING EXPENSES
Film Production 883,258 135,549 552%
Advertising and Marketing 654,727 829,153 -21%
---------------- ----------------
1,537,985 964,702 59%
---------------- ----------------
LOSS FROM OPERATIONS (977,418) (408,160 139%
---------------- ----------------
OTHER INCOME (EXPENSE)
Film Production (1,167,696) (303,335) 285%
Advertising and Marketing (4,150) 12,595 -133%
---------------- ----------------
(1,171,846) (290,740) 303%
---------------- ----------------
NET LOSS $ (2,149,263) $ (698,900) 208%
================ ================
</TABLE>
FILM PRODUCTION
Revenues increased to $311,511, driven by the domestic home video release
of DIAMONDS. In the previous year the Company did not release any motion
pictures during the corresponding period.
7
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Operating expenses increased by $747,709 or 552% to $883,258, reflecting
an increase of $356,361 for the exploitation of the Company's film library.
Increased spending on professional fees of $136,207, compensation of $86,802
and travel of $26,827 was incurred as the Company aggressively pursued new
film opportunities which contributed to the increase in operating expenses
for the quarter. Overall general and administrative expenses increased as the
Company acquired an additional 1,900 square feet of office space for the
corporate headquarters and the value of warrants granted in non-cash
transactions increased by $93,761.
Other expenses increased by $864,361 or 285% to $1,167,696, reflecting an
increase of $612,259 for the amortization of placement fees. The Company's
lenders have required supplemental fees or common stock as a condition to obtain
or refinance our debt obligations. The supplemental charges will be amortized
over the duration of the refinanced or new debt. Interest expense increased
$263,705 due to the Company maintaining a higher average debt balance at higher
rates of interest in the current year.
Advertising and Marketing
Revenues decreased by $307,486 or 55% to $249,056, reflecting the closure
of the advertising and marketing's San Francisco operations effective July 6,
2000. In the previous year, the San Francisco office generated an additional
$190,435 of revenues. Revenue was further reduced by the Company deferring an
additional $140,669 of revenue due to the incomplete status on several large
projects.
Operating expenses decreased by $174,426 or 21% to $654,727, reflecting a
$246,689 or 56% decrease in production costs associated with the segment's
revenues. The decrease in production costs was offset by an increase in rent of
$56,750 for office space in San Francisco; the lease was entered into late in
the previous fiscal year on the now unoccupied space. The Company is actively
trying to sublet the property.
Other income decreased by $16,745 or 133% to ($4,150), reflecting a
decrease of $17,281 in miscellaneous income recognized from the sale of
non-capitalized equipment in the current period.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended September 30, 2000, cash used by operations
decreased by $142,232 to ($511,157) as the result of increased collection of
receivables, refunds of prepaid expenses and deposits, increased liabilities and
increased amortization costs offset the increased spending on motion picture
development.
The Company expects its film production segment to continue to enter into
production funding arrangements for developing and releasing feature length
motion pictures.
The Company has a need for additional capital in order to provide working
capital for its current business plan. Management believes it will be able to
secure sufficient financing to carry out its business plan, supported in part by
written assurance from the Company's major lender and majority stockholder that
current debt will be extended, if needed, to June 30, 2001, and beyond and has
given verbal assurance to management that it will provide additional funding to
carry out the Company's business plan.
8
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The Company's continued expansion of its business will depend substantially
upon the availability of cash flow from operations or its ability to raise
additional funds. As a result, the Company may be required to seek additional
financing sooner than anticipated. There is no assurance that the Company will
be able to obtain additional financing when needed, or on terms acceptable to
it. In the event the Company cannot obtain additional funds when needed on
acceptable terms, it may be forced to limit its future operations, which could
have a materially adverse impact on its business.
FORWARD-LOOKING STATEMENTS
This report contains statements that plan for or anticipate the future.
Forward-looking statements include statements about the future of operations
involving the film and advertising industry, statements about our future
business plans and strategies, and most other statements that are not historical
in nature. In this report forward-looking statements are generally identified by
the words "anticipate," "plan," "believe," "expect," "estimate," and the like.
Although we believe that any forward-looking statements we make in this report
are reasonable, because forward-looking statements involve future risks and
uncertainties, there are factors that could cause actual results to differ
materially from those expressed or implied. For example, a few of the
uncertainties that could affect the accuracy of forward-looking statements,
include the following:
- Films released by the Company may not be critically or financially
successful.
- Funding for producing films may not be available.
In light of the significant uncertainties inherent in the forward-looking
statements made in this report, particularly in view of our early stage of
operations, the inclusion of this information should not be regarded as a
representation by us or any other person that our objectives and plans will be
achieved.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The following unregistered sales of securities were made by the Company
during the quarter ended September 30, 2000:
From May until July 2000 the Company sold 738,600 common shares to 53
accredited investors in a private placement of the shares. The shares were sold
for an aggregate of $3,693,000. The Company also issued 50,000 common shares to
JL Devore & Associates as a consulting fee in connection with the private
offering. Such securities were issued without registration under the Act by
reason of the exemption from registration afforded by the provisions of Section
4(2) thereof, and Rule 506 promulgated thereunder, as transactions by an issuer
not involving any public offering. Such investors delivered appropriate
investment representations with respect to such transaction and consented to the
imposition of restrictive legends upon the certificates evidencing such
securities. No general solicitations were made in connection with the
transaction.
In August 2000 the Company borrowed $1,000,000 for working capital from
entities controlled by Michael Lauer, one of the Company's principal
shareholders. The loan will bear interest at 12% per annum, payable quarterly,
and will be due May 15, 2001. The Company will be obligated to repay the
9
<PAGE>
loan out of proceeds of any financing greater than $3,000,000. The loan will be
convertible at $3.00 per share, provided that the conversion price will be
reduced to $1.50 for the ninety day period following the due date, and to $1.00
per share thereafter, if the loan remains unpaid. The shares will have one
demand and piggyback registration rights. The Company also paid a consulting fee
of $70,000, and has agreed to issue five-year warrants to purchase 100,000
shares at $3.50 per share, to Capital Research Ltd. in connection with the loan.
Such securities were issued without registration under the Securities Act by
reason of the exemption from registration afforded by the provisions of Section
4(2) thereof, as transactions by an issuer not involving any public offering. No
general solicitations were used in connection with the transaction. No
underwriting discounts or commissions were paid in connection with such
issuance, except for the $70,000 and 100,000 warrants paid to Capital Research,
Ltd.
In April 2000 the Company borrowed $2,500,000 from four accredited
investors and issued a promissory note to such investors representing such loan.
In August 2000 the loan was extended until October 14, 2000, and the Company
issued 333,334 shares to such lenders for the granting of the extension. In
addition, the Company issued 25,000 shares to Capital Research, Ltd. for
consulting services in connection with the extension of the loan. Such
securities were issued without registration under the Securities Act by reason
of the exemption from registration afforded by the provisions of Section 4(2)
thereof, as transactions by an issuer not involving any public offering. No
general solicitations were used in connection with the transaction. No
underwriting discounts or commissions were paid in connection with such
issuance, except for the 25,000 share fee paid to Capital Research, Ltd.
In September 1999 the Company entered into a consulting agreement with
Capital Research Ltd. Pursuant to the terms of the consulting agreement, on
September 1, 2000, the Company issued warrants to Capital to purchase 25,000
shares of common stock. The warrants are exercisable immediately at $4.00 per
share at any time through September 1, 2005. Such securities were issued without
registration under the Act by reason of the exemption from registration afforded
by the provisions of Section 4(2) thereof as transactions by an issuer not
involving any public offering. The investor was believed to be sophisticated at
the time of the issuance and had access to the type of information contained in
a prospectus. Such investor delivered appropriate investment representations
with respect to such transaction and consented to the imposition of restrictive
legends upon the certificate evidencing such securities. No general
solicitations were made in connection with the transaction.
ITEM 5. OTHER INFORMATION
On October 13, 2000, Monique L. Jones resigned as chief financial officer
of the Company. On November 6, 2000, Peter Dattilo was appointed as chief
financial officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is attached hereto:
Exhibit No. Description
27.1 Financial Data Schedule
10
<PAGE>
(b) Reports on Form 8-K: On July 19, 2000, the Company filed a Form 8-K
dated July 10, 2000, to report an Item 4 event, Changes in Registrant's
Certifying Accountant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Total Film Group, Inc.
Date: November 17, 2000 By /s/ Gerald Green
------------------------------
Gerald Green, President
Date: November 17, 2000 By /s/ Peter Dattilo
------------------------------
Peter Dattilo, Chief Financial
Officer and Principal Accounting Officer
11
