SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 1 TO
FORM 10-KSB
(mark one)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-16355
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PRINCETON MEDIA GROUP, INC.
(Name of Small Business Issuer in its Charter)
Ontario, Canada 98-0082860
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
214 Brazilian Avenue, Suite 300, Palm Beach, Florida 33480
(Address of principal executive offices)
561/659-0121
(Issuer's telephone number.)
-----------------------------------------
Securities registered under Section 12(b) of the Act: None.
Securities registered under Section 12(g) of the Exchange Act as of December
31, 1996: Common Stock, no par value.
Check whether the issuer (1) 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 issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $8,542,695
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average closing bid and ask prices of such stock on April
11, 1997, was approximately $8,000,866.
The number of shares outstanding of the issuer's common stock, no par value,
as of April 14, 1997 was 2,145,108.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
PRINCETON MEDIA GROUP, INC.
FORM 10-KSB/A
For the Year Ended December 31, 1996
INDEX
HEADING PAGE
PART I
Item 1. Description of Business 1
Item 2. Description of Property 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders
5
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters 6
Item 6. Management's Discussion and Analysis or
Plan of Operation 7
Item 7. Financial Statements 11
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 11
PART III
Item 9. Directors, Executive Officers of the Registrant 11
Item 10. Executive Compensation 13
Item 11. Security Ownership of Certain Beneficial Owners
and Management 15
Item 12. Certain Relationships and Related Transactions 16
Item 13. Exhibits and Reports on Form 8-K 16
SIGNATURES 18
PART I
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY OF PRIOR BUSINESSES
Princeton Media Group, Inc. (which on October 29, 1996, changed its name from
DeNovo Corporation and herein is referred to as "PMG" or the "Company") was
incorporated under the laws of the Province of Ontario, Canada in September
1986. Through 1994, the principal focus of the Company's activities was the
development of industrial waste heat recovery systems and wastepaper recycling
projects. In July, 1994, a subsidiary of DeNovo merged with Ampac
International Inc. ("Ampac"), the parent company of TeleConcepts International
Inc. ("TeleConcepts" or "TCI"). During 1994, the Company divested itself of
all industrial waste heat recovery and wastepaper recycling projects to focus
on the development of TeleConcepts.
Through October, 1995, TCI was engaged in the design, manufacture, marketing
and distribution of telephones and telecommunications equipment. These
products were designed primarily for residential and small office use and sold
typically through mass merchandisers, catalog showrooms, department stores and
telephone operating companies. As a result of the downturn in the consumer
electronics industry during 1995, as well as TCI's inability to secure
adequate financing, management discontinued TCI's operations as of December
31, 1995. All of the stock of TCI was sold to an investor involved in
management of a party related to PMG by common directorship on August 5, 1996.
The investor received 32,500 shares of common PMG stock with a fair market
value of $269,100 at the time of the transfer in conjunction with assumption
of ownership of the subsidiary which had liabilities in excess of assets.
Simultaneously as part of the transaction a creditor of TCI was given shares
with a fair market value of $61,876 in settlement of a TCI liability resulting
in an approximate $161,000 gain upon settlement. At the time of the sale TCI
had an accumulated deficit of $763,393, and, accordingly, PMG realized a total
gain of $432,417 on the disposition of the subsidiary. After severance
agreement costs of $479,581 (detailed in Note 20 of the financial statements),
and other forgiveness of debt of $7,693, the Company had a net loss of $39,471
on discontinued operations.
CHANGE TO PUBLISHING, PRINTING, AND MEDIA INDUSTRY - 1996
In 1996 PMG changed its focus to the publishing, printing, and related media
industry by acquiring substantially all of the assets and operations of a
publishing and printing business for $7 million and substantially all of the
assets and operations of a second publishing business also for $7 million.
Each of the acquisitions was accomplished through formation of a wholly-owned
subsidiary corporation which purchased assets and operations of ongoing
publishing businesses.
PMG, through its wholly-owned subsidiaries, Princeton Publishing, Inc. and
Firestone Publishing, Inc. publishes 22 well-established lifestyle and special
interest magazines which are distributed throughout the United States and
internationally. The magazines include Oui, Fitness Plus, Karate
International, Livewire and Lady's Circle Patchwork Quilts. Each magazine
targets a niche market consisting of readers with an active interest in a
particular lifestyle or activity. This type of reader traditionally remains
loyal to particular magazine titles for several years. The magazines'
combined readership is approximately 2.4 million per month.
PMG, through a wholly-owned subsidiary of Princeton Publishing, Inc., leases
and operates a 70,000 square foot printing facility located in Sussex,
Wisconsin, just outside of Milwaukee. The plant prints the majority of PMG's
own magazines and also performs printing services for unrelated third parties.
During 1996, the Company began an equipment upgrade process designed to
increase plant utilization from 50% to 95% printing capacity within the next
12 months. The plant currently prints 9.4 million magazines, 13.8 million
catalogues, and 44.8 million brochures per year.
Princeton Publishing's editorial offices are located in New York City, and
Firestone Publishing's editorial staff operates out of Miami Lakes, Florida.
PMG's executive offices are located in Palm Beach, Florida.
Princeton Trademarks, Inc., another subsidiary of Princeton Publishing, Inc.,
owns or licenses all trademarks relating to the magazines. Applications have
been filed with the United States Patent and Trademark Office to register a
majority of the trademarks, which have been in continuous use for periods
ranging from three to over 20 years.
The Company's magazines are distributed in the United States, Canada and
internationally by major magazine distributors pursuant to distribution
agreements.
As a result of the completion of the two printing and publishing acquisitions
during 1996, the Company currently purchases in excess of one million pounds
of paper per month, thus enabling the Company to take advantage of
competitive pricing and significant savings in paper purchases.
Current Plans
During 1997, management of the Company intends to pursue a plan of
improvements and new opportunities, including achieving operational
efficiencies through synergies of editorial and productions staffs,
expanding several magazine titles into international distribution,
introducing Internet web sites for several magazine titles, increasing
the operating capacity of the printing facility to accommodate new PMG
titles as well as outside assignments, and identifying several complementary
media acquisitions. If some or all of these goals are achieved, management
anticipates that the Company will experience significant growth in total
assets and proportionate net revenue.
Several acquisitions were completed or in process as of the date of this
report as follows.
On March 17, 1997, the Company purchased a magazine for $300,000 worth of
advertising space at standard rates in the Company's publications and
$100,000 to be paid from advertising revenues received in excess of $10,000
per issue of the acquired magazine with the balance due, if any, to be paid
upon publication of the August, 1998 issue.
In March, 1997 the Company signed a letter of intent for the acquisition of
a group of magazines that would add significant revenue to the Company in
1997 and future years. Additionally, during the first quarter of 1997, the
Company is negotiating for the acquisition of certain other magazine titles.
If both acquisitions are completed at the anticipated purchase prices, the
Company would more than triple its total assets shown at December 31, 1996.
Due diligence work is in process and is being performed by an outside
consulting group which specializes only in magazine acquisitions. The
Company is currently in the process of negotiating acquisition financing.
As of December 31, 1996, the Company had approximately 100 full-time employees
of which there were approximately 25 and 15 in the editorial offices in New
York City and Miami respectively, approximately 55 in the printing plant in
Milwaukee, and 5 in the administrative offices in Palm Beach.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's executive offices are located at 214 Brazilian Avenue, Suite 300
Palm Beach, Florida 33480. This office space is approximately 800 square feet
shared with another company related by common directorship. The Company's
other leased facilities consist of editorial offices in New York City and
Miami, Florida, and a printing plant in Milwaukee, Wisconsin. The plant lease
expires August 31, 1999. The plant lease requires monthly base payments of
$20,400 with annual adjustments tied to the CPI. During 1996 the New York
City offices were rented on a month to month basis. In 1997 the Company
executed a lease extending from February 1, 1997 through January 13, 2001 on
new office space of approximately 5,000 square feet; this new lease requires
annual rent beginning at $65,000 escalating over five years up to $76,040 in
the final year. The Miami lease requires monthly payments of $5,285 through
August 31, 2000, on office space of approximately 5,000 square feet.
All leased facilities are on well-traveled streets in commercial areas and are
in good condition. No significant improvements are planned for any of the
leased facilities. The Company maintains insurance required by each lease and
considers the amounts adequate The Company is purchasing printing equipment
throughout 1997 which will increase the production capacity of the printing
plant. The Company has an option to purchase the land and building where the
plant is located for $1.8 million as adjusted for the consumer price index
increase since May, 1989.
Total rental expense for all facilities detailed above was $280,270 in 1996.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a litigation commenced in the Ontario Court
(General Division) in the amount of $2,534,002 pursuant to a share exchange
agreement between Mr. Horace Rekunyk and Petroleum Investors Management Ltd.
(PIM) and DeNovo (now PMG). During 1995, DeNovo filed a Statement of
Defense on the initial claim. The Company then filed a counter-claim
against Mr. Rekunyk and PIM for which a Statement of Defense has been filed.
There was no activity on this matter during 1996. Management, upon the
advice of counsel, continues to believe these claims to be without merit
and will continue vigorously defending its position as well as its
counter-claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual and special meeting of the shareholders was held on October 24, 1996
in Calgary, Alberta, Canada. At the meeting, shareholders approved
resolutions to:
a.) Amend the by-laws to provide for election and retiring of directors of
the Company in rotation, each for a three-year term, (13,902,527 for, 261,810
against, 150,575 abstaining)
b.) Elect three directors, James J. McNamara, George Seebach, and Joel
Leshinsky, (21,742,059 for, none against or abstaining)
c.) Amend the Articles of Incorporation to change the name of the Company to
"Princeton Media Group, Inc.," (21,152,260 for, 123,970 against, 1,410
abstaining)
d.) Amend the Articles of Incorporation so as to effectuate a consolidation
(reverse split) of the Common Shares of the Company on a one-for-twenty basis,
and (21,625,461 for, 175,080 against, 12,530 abstaining)
e.) Appoint Coopers & Lybrand as the Independent Public Accountant of the
Company for fiscal 1996 and to authorize the Directors to fix their
remuneration (21,728,239 for, 175,080 against, 12,530 abstaining).
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common shares trade on the Nasdaq SmallCap Market under the
symbol "PMGIF" (previously as DeNovo Corporation shares were traded under the
symbol "DNVOF").
The following table sets forth, for the periods indicated, the reported
high and low bid and asked price quotations for the Common Stock for the
periods indicated as reported by the Nasdaq SmallCap Market. Such quotations
reflect inter-dealer prices, but do not include retail mark-ups, mark-downs,
or commissions and may not necessarily represent actual transactions.
Common Stock
(1)
Bid
Period of Quotation High Low
1996
Fourth quarter $ 6.25 $ 1.44
Third quarter 10.00 5.00
Second quarter 26.25 8.75
First quarter 20.00 8.75
1995
Fourth quarter 30.60 8.80
Third quarter 44.40 30.00
Second quarter 38.20 18.80
First quarter 35.00 11.20
(1) Quotes have been restated to adjust for the October 29, 1996 one-for-
twenty reverse split.
As of December 31, 1996, there were 865,969 shares of common stock
outstanding. As of the same date, there were 520 holders of record and
approximately 1,925 beneficial holders of the common stock. As of March 31,
1997 there were 503 holders of record.
The Company has not declared or paid any cash dividends on its Common Stock
since its incorporation and anticipates that, for the foreseeable future,
earnings, if any, will continue to be retained for use in the Company's
business and will continue to be used to fund its operations. The receipt of
cash dividends by United States shareholders from a Canadian corporation, such
as the Company, may be subject to Canadian withholding tax.
Recent Sales of Unregistered Securities
During the third and fourth quarters of 1996, the Company sold the following
unregistered securities pursuant to Regulation S:
<TABLE>
<S> <C> <C> <C> <C>
Date Title Amount Gross Proceeds
Commissions
6/18/96
thru
10/10/96 Convertible Debentures $3,081,800 $3,081,800
$387,710
8/22/96
thru
8/27/96 Convertible Debentures $345,000 $ 345,000
$172,585
9/3/96 Series D Pref'd 1,200 Shares $1,200,000
$260,000
9/5/96 Series E Pref'd 1,800 Shares $1,800,000 $
65,000
10/11/96
thru
11/8/96 Convertible Debentures $1,580,000 $1,580,000
$783,680
</TABLE>
The sales agents for the foregoing sales were Select Capital Advisors, Select
International Securities and EuroFutura. The Registrant relied on warranties
and representations made by each purchaser in an Offshore Securities
Subscription Agreement as the basis for claiming the exemption pursuant
to Regulation S.
The Company also sold in a private placement on August 5, 1996, 32,500 shares
of its common stock to an investor in exchange for that investor's acquisition
of the all of the stock in Teleconcepts, Inc., which had a negative net worth.
There was no sales agent involved and no commissions were paid. The Registrant
relied on representations and warranties of the investor as the basis for
claiming the exemption pursuant to Section 4(2) of the Securities Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-looking Statements
Statements contained in this Form 10-KSB regarding the Company's
future prospects or profitability constitute forward-looking statements and as
such, must be considered with caution and with the understanding that various
factors could cause actual results to differ materially from those in such
forward-looking statements. Such factors include but are not limited to
changes in revenues from distribution, advertising and subscriptions and
changes in costs of materials and operations.
General
The Company, through its wholly-owned subsidiaries, Princeton and Firestone,
is engaged in the publishing, printing, and distribution of 21 periodical
consumer lifestyle magazines. The Princeton and Firestone editorial staffs
and offices are located in New York City and Miami, respectively. A
wholly-owned subsidiary of Princeton, Kingston Press, Inc., leases and
maintains a printing plant in Sussex, Wisconsin. The plant is used for the
printing of the Company's magazines and to perform printing work for third
parties on a contract basis. The Company's executive offices are located in
Palm Beach, Florida.
As of December 31, 1995 the Company discontinued the operations of its
subsidiary, TeleConcepts, Inc., which was engaged in the design, manufacture,
marketing and distribution of telephones and telecommunications equipment.
All of the stock of TeleConcepts was sold to an investor (See Item 1).
Results of Operations
During the year ended December 31, 1996, the Company has completed a
fundamental change in its course of business and now focuses entirely on
publishing, printing and related media. This has been accomplished as a
result of the Company's purchase of two major businesses with extensive and
time-proven histories in the printed media industry. These two businesses had
operating histories of twenty-two years and twenty-five years, respectively,
and included one title continually published for forty years and another for
twenty-five years.
The year ended December 31, 1996 compared to the year ended December 31, 1995
Revenues for the year ended December 31, 1996 amounted to $8,542,695 compared
to $482,847 for the year ended December 31, 1995, reflecting an increase of
$8,059,848. Revenues are almost entirely derived from magazine sales,
subscriptions, advertising, and outside printing. The increase in revenues
reflected for the year ended December 31, 1996 is a result of the Company's
acquisition of magazine publishing assets in March through September of 1996
and the Company's continuing use of those assets in the same business.
Costs and expenses of revenues for the year ended December 31, 1996 were
$8,578,541 compared to $3,440,019 for the year ended December 31, 1995,
resulting in an increase of $5,138,522. In 1996 the Company incurred large
costs for investor relationship consultants to inform the investing public and
the general public that the Company had made the acquisitions and had
established publishing and printing operations. Total expenses for investor
relations was $812,398. Of this amount $685,033 was noncash expense through
the issuance of stock. The Company does not expect such expense to recur in
1997.
Write-off of Debt Discount and Issue Costs
In March, 1997, prior to the issuance of the Company's financial statements
for the year ended December 31, 1996, the SEC clarified its position
regarding the accounting for convertible securities when the conversion
feature provides a beneficial discount to the security holder, resulting
in a write-off of all debt discount and debt issues costs associated with
convertible debentures issued for funding of the acquisitions entirely in 1996.
The total of this noncash writeoff of debt discount and issue costs is
$3,257,350. Under the Company's prior accounting method in 1996 these noncash
charges would have been amortized in 1997 and part of 1998. The change in
accounting method will result in 100% of these debt discounts and debt issue
costs being taken in 1996 and therefore 1997 and 1998 earnings will not be
reduced by these costs as originally anticipated. (See Note 19 of the
financial statements for additional detail).
Deemed Dividend
In addition to the write off of debt discount and debt issue costs, a
conversion discount related to the Company's Series D and Series E preferred
stock resulted in a "deemed" preferred stock dividend (amounting to
$1,526,000 in connection with the issuance of Series D and E preferred
shares.) This noncash "deemed dividend" increased net loss in computation
of earnings per share by $1,526,000. (See Note 19 of the financial statements
for additional detail).
Liquidity and Capital Resources
During the year ended December 31, 1996, $654,431 in interest expense was
charged to operations compared to $49,089 for the year ended December 31,
1995, reflecting an increase of $605,342. Interest expense of $579,716 was
accrued pursuant to two promissory notes delivered by Princeton and Firestone
in connection with the purchases of the magazine publishing assets in March
and September of 1996. Of the $579,716 accrued, $409,747 was paid. The
remaining portion of the interest expense is $74,715 which is a non-cash
expense related to the convertible debentures issued in 1996 to finance the
acquisitions.
Net loss for the year ended December 31, 1996 was $3,882,698 which represents
an increase of $309,209 from the net loss of $3,573,489 for the year ended
December 31, 1995. Of this loss, $3,257,350 is the noncash writeoff of debt
discount and issue costs noted above. The loss also includes nonrecurring
consulting fees as detailed above. After the debt discount and debt issue
cost writeoff and consulting fees, this decrease in loss from operations
is attributable to the operations and revenue of the Company's subsidiaries,
Princeton and Firestone as well as the discontinuation of the operations of
TeleConcepts.
Monthly interest payments of approximately $43,000 are due pursuant to a $5
million promissory note executed upon acquisition of the publishing assets
acquired March 29, 1996. Interest on the $4 million promissory note executed
upon acquisition of the publishing assets acquired on September 6, 1996 will
be accrued for one year, at which time accrued interest will be added to
principal and payments of principal and interest will be due on a
straight-line amortization schedule over forty-eight months. Accordingly, the
Company will not incur any debt service obligations on the $4 million note
prior to October, 1997. Management is currently involved in negotiation with
several lending institutions to refinance the two notes prior to October,
1997. The Company anticipates that cash flows from operations will be
sufficient to pay all debt service of the two subsidiaries.
Liquidity and capital resources are hereinafter discussed in three broad
categories: operating activities, investing activities and financing
activities.
Cash increased $616,304 to $630,163 at December 31, 1996 from $13,859 at
December 31, 1995. Net cash used for operating activities was $781,492 during
the year ended December 31, 1996 compared to cash used by operating activities
of $677,188 during the year ended December 31, 1995. The increase of $104,304
is primarily attributable to continuing operations in connection with the
change in business of the Company from telecommunications equipment sales to
magazine publishing and printing. Net loss adjusted for non-cash items
including depreciation, amortization, bad debt expense allowance, stock issued
for consulting services, and writeoff of debt discount and issue costs
produced a gain before changes in assets and liabilities of $595,187. Changes
in assets and liabilities constitute uses of working capital to fund the start
up of the new operations in the printing and publishing business. Most
prominent in this use of cash was the build up of accounts receivable of over
$2 million and inventory of approximately $650,000.
During the year ended December 31, 1996, net cash used in investing activities
was $5,179,229 compared with $15,754 used in investing activities during the
year ended December 31, 1995. The increase of $5,163,475 is due to purchase
of trademarks, copyrights and equipment for the Company's publishing
operations.
During the year ended December 31, 1996, net cash provided by financing
activities was $6,577,025 representing an increase of $5,998,113 from net cash
provided by financing activities of $578,912 during the year ended December
31, 1995. The increase is a result primarily of the net proceeds from the
sales of the Company's securities in order to fund the Princeton and Firestone
subsidiaries and the purchases of the publishing, printing, and media assets.
The Company intends to continue the operations of the businesses acquired
during 1996 and to expand these operations into new areas of distribution,
including foreign magazine versions and the establishment of Internet web
sites for several of its well-known magazine titles. The broader introduction
of brand-name magazine content is anticipated to increase substantially the
revenues from the Company's operations, compared with the results realized
during 1996. Management of the Company believes that the results of 1996
operations were consistent with the expectations established during the due
diligence investigation completed prior to the purchases of the two
businesses. Management further anticipates that the implementation of its
business plan during 1997, which includes, among other things, production
efficiencies, cost-saving measures, new market exploration, expansion of the
printing plant, and acquisition of additional businesses, will realize a
substantial growth in assets as well as increases in revenues and profits.
Several acquisitions were completed or in process as of the date of this
report as follow.
On March 17, 1997, the Company purchased a magazine for $300,000 worth of
advertising space at standards rates in the Company's publications and
$100,000 to be paid from advertising revenues received in excess of $10,000
per issue of the acquired magazine with the balance due, if any, to be paid
upon publication of the August, 1998 issue.
In March, 1997 the Company signed a letter of intent for the acquisition of a
group of magazines that would add significant revenue to the Company in 1997
and future years. Additionally, during the first quarter of the Company
is negotiating for the acquisition of certain other magazine titles. If
the two acquisitions were completed at the currently anticipated purchase
prices, the Company would more than triple total assets shown at
December 31, 1996. Due diligence work is in process and is being performed by
an outside consulting group which specializes only in magazine acquisitions.
The Company is currently in the process of negotiating acquisition financing.
Recent Accounting Pronouncements
See Summary of Significant Accounting Policies to the Company's Consolidated
Financial Statements for information relating to recent accounting
pronouncements.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and schedules are included in this Annual
Report on Form 10-KSB following Item 13:
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Consolidated Balance Sheets December 31, 1996 and 1995
Consolidated Statements of Operations
and Accumulated Deficit
For the Years Ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Information concerning the directors, executive officers and significant
employees as of March 31, 1997:
Year First Position
Elected With
Name Age Director Company
J. J. McNamara 48 1996 Chairman/Acting President & CEO/Secretary
G. Seebach 43 1994 Director
J. Leshinsky 43 1996 Director
R. Kendall 48 N/A Treas/CFO/Asst. Sec.
H. McQueeney 58 N/A President - Princeton Publishing, Inc.
W. Weidenbaum 60 N/A President - Firestone Publishing, Inc.
Set forth is a biographical description of each Director, Executive Officer
and significant employee of the Company:
James J. McNamara, Chairman of the Board, identified and secured the
acquisition of all publishing and printing assets purchased by Princeton Media
Group, Inc. He has been since June, 1993 the President and CEO of
Celebrity Entertainment, Inc., a company engaged in the development and
management of destination resorts and other related business interests. From
1991 through 1993 Mr. McNamara was the President and CEO of Production
Services International, Inc., a television and motion picture development
company which became a subsidiary of Celebrity in 1993. For over twenty-five
years Mr. McNamara has developed and produced motion pictures and several
television series. His film industry experience included maintaining a
corporate residence at Twentieth Century-Fox for five years. He produced the
major motion picture "Flipper" in 1995 for Universal Studios. Previously Mr.
McNamara owned and operated a chain of music stores and an international
concert promotion and talent representation company. He also serves as a
consultant to the chairman of Alliance Entertainment, Inc.
George Seebach joined TeleConcepts in 1993 as the Vice President, Product
Development. From 1986 through 1993 he was President of Royal Telecom, a
telecommunications equipment company, and Vice President, Sales and Marketing
of RTI Telecom, its successor. During that period he was responsible for much
of the product development and overseas sourcing for Northwestern Bell
Telephones, a subsidiary of U.S. West, their principal customer.
Joel Leshinsky is President and founder of The Production Team, Inc., a
television production and writing firm based in Fort Lauderdale, Florida.
Prior to founding the firm in 1993, Mr. Leshinsky was a self-employed
television producer and writer for approximately seven years.
Robert F. Kendall, CPA, joined PMG in December, 1995 as part of the due
diligence team on the initial publishing business acquisition. He oversees
all financial aspects of acquisitions, financial statements, audit
supervision, and the tax and compliance filings. From May, 1990 to April,
1996, Mr. Kendall served as assistant controller at MIG Companies, a group of
fifty companies managing over $1.2 billion in assets. Prior affiliations
include the international accounting firm of Laventhol & Horwath and other
regional accounting and auditing firms.
Henry McQueeney became President of Princeton Publishing, Inc. in April,
1996. Prior to that time he served for 20 years as President of the
corporations that made up Kearny Publishing Group, the entity from which
Princeton purchased its first group of publishing assets in March, 1996.
Walter Weidenbaum became President of Firestone Publishing, Inc. upon its
formation in September, 1996, at the time of purchase of the assets of Dugent
Publishing Corp. Mr. Weidenbaum previously served as President of Dugent for
over 20 years.
Directors do not receive any cash remuneration for their services as such,
although they are reimbursed in accordance with the Company policy for their
expenses in connection with attending meetings of the Board. Directors
serving on committees of the Board receive no special compensation for such
activities.
There are no family relationships between any of the Officers or Directors of
the Company.
Officers of the Company are elected by the Board of Directors at its first
meeting after each Annual Meeting of the Shareholders and serve a term of
office until the next Annual Meeting. Officers elected by the Board of
Directors at any other time serve a term of office until the next Annual
Meeting.
Section 16(a) Beneficial Ownership Reporting Compliance
During 1996, the following directors, officers or beneficial owners of more
than ten percent of any class of the Company's equity securities registered
pursuant to section 12 failed to file on a timely basis reports required by
section 16(a) of the Exchange Act:
No. of No. of Transactions Failure to File
Name Late Reports Not Reported Timely Required Form
James J. McNamara 0 0 Forms 3, 5
Robert F. Kendall 1 0 None
Celebrity Entertainment,
Inc. 0 0 Forms 3, 5
UFH Endowment, Ltd. 0 0 Forms 3, 5
ITEM 10. EXECUTIVE COMPENSATION
The following tables set forth all remuneration paid by the Company and its
subsidiaries to named executives during the years ended December 31, 1996 and
1995.<PAGE> SUMMARY COMPENSATION TABLE
<TABLE>
Long Term Compensation
Annual Compensation Awards Payouts
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Restricted All Other
Name and Annual Stock Options/ LTIP Compen-
Principal Year Salary Bonus Compensa- Awards SARs (#) Payments (#) sation
Position ($) ($) tion ($) ($)
($)
M.D. Herman 1996 $115,382(1) - - - - - -
President 1995 $ 63,750 - - - - - -
of Princeton
Media Group,
Inc.
Walter Weidenbaum 1996 $140,000 - - - - - -
President of
Firestone Publish-
ing, Inc.
Henry M. McQueeney 1996 $100,000 - - - - - -
President of
Princeton Publish-
Ing, Inc.
R. Kendall 1996 $ 46,042 (2) - - - - - -
Treas/CFO 1995 N/A - - - - - -
</TABLE>
(1) Based on an annual salary of $100,000; a portion of the amount paid in
1996 represented accrued but unpaid amounts earned in 1995.
(2) Mr. Kendall served as an officer for only a portion of 1996; he was paid a
total of $46,042 based on an annual salary of $65,000.
Mr. Herman resigned at the end of 1996. James J. McNamara, Chairman of the
Board, is acting as President and CEO of PMG without salary until a president
is elected. There are no employment contracts with any director or officer of
the Company. The Company's wholly-owned subsidiaries have entered into
employment contracts as follows:
Princeton Publishing, Inc.
Princeton Publishing, Inc. is a party to an employment contract with Henry M.
McQueeney, its President, providing for a three-year term which commenced
March 29, 1996. Mr. McQueeney's annual salary pursuant to the contract is
$100,000.
Firestone Publishing, Inc.
Firestone Publishing, Inc. is a party to an employment contract with Walter
Weidenbaum, its President, providing for a five-year term which commenced
September 6, 1996. Mr. Weidenbaum's annual salary pursuant to the contract
is $140,000.
Firestone Publishing, Inc. is a party to an employment contract with Steve
Rottenberg, its Vice President - Production, providing for a five-year term
which commenced September 6, 1996. Mr. Rottenberg's annual salary pursuant
to the contract is $75,000.
Firestone Publishing, Inc. is a party to an employment contract with Travis
Allen, its Vice President - Marketing, providing for a five-year term which
commenced September 6, 1996. Mr. Allen's annual salary pursuant to the
contract is $75,000.
OPTION GRANTS IN PAST FISCAL YEAR
No options were granted to, exercised by or held by any of the named executive
officers during the last fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning share ownership
of all persons known by the Company to own beneficially 5% or more of any
class of the Company's voting securities and all directors and officers of the
Company as a group as of March 31, 1997.
Name and
Address of Amount and Percent
Beneficial Title of Nature of Of
Holder Class Ownership Class
Celebrity Entertainment, Inc. Common Stock 459,282 (1) 17.6%
214 Brazilian Ave., Suite 300
Palm Beach, FL 33480
UFH Endowment, Ltd. Common Stock 268,457 (2) 12.2%
c/o Barry Globerman, Esq.
110 East 59th St.
23d Floor
New York, NY 10022
Antonio Buono Common Stock 182,040 (3) 8.5%
c/o Barry Globerman, Esq.
110 East 59th St.
23d Floor
New York, NY 10022
Herschel Goldberg Common Stock 179,119 (4) 8.3%
c/o Barry Globerman, Esq.
110 East 59th St.
23d Floor
New York, NY 10022
Giorgio Farina Common Stock 126,012 (3) 5.9%
c/o Barry Globerman, Esq.
110 East 59th St.
23d Floor
New York, NY 10022
(1) Beneficially owned pursuant to Convertible E Preferred Stock currently
convertible into common stock.
(2) Includes 218,457 shares beneficially owned, held of record by GEM
(Singaport) Limited, as agent; and 50,000 shares beneficially owned pursuant
to warrants currently exercisable.
(3) Beneficially owned; record holder is GEM (Singapore) Limited, as agent.
(4) Includes 155,919 shares beneficially owned, held of record by GEM
(Singapore Limited, as agent; and 23,200 shares beneficially owned pursuant
to warrants currently exercisable.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company had a short-term note due upon demand to a company related by
common directorship with interest accruing at prime (8.25% as of December 31,
1996). The note balance and related accrued interest was $6,975 and $83,
respectively, as of December 31, 1996. Interest expense on the note was $9,059
during 1996. The related company also purchased $1.4 million in Preferred
Series E shares. Cumulative unpaid dividends on these shares amounted to
$35,901 at December 31, 1996. The Company entered into an agreement with the
related company pursuant to which the companies recognized consulting services
rendered to both companies in amounts of 85% to PMG and 15% to the related
company by various consultants who had been compensated with common shares of
the Company. The related company therefore paid the Company for 15% of the
services in the amount of $101,767 through surrender of 66 shares of its
Series E preferred stock. The Company shares corporate headquarters office
space with the related company.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
2.1 Asset Purchase Agreement with Kearny Publishing Group dated March 29,
1996, filed as Exhibit 2.1 to the Company's Report on Form 8-K dated
March 29, 1996, File No. 0-16355, filed with the Securities and Exchange
Commission on April 12, 1996; incorporated herein by reference.
2.2 Asset Purchase and Sale Agreement with Dugent Publishing Corp. dated
July 18, 1996, filed as Exhibit 2.1 to the Company's Report on Form 8-K
dated July 18, 1996, File No. 0-16355, filed with the Securities and
Exchange Commission on August 1, 1996; incorporated herein by reference.
2.3 Asset Purchase Agreement with Dugent Publishing Corp. dated Sept. 6,
1996, filed as Exhibit 2.1 to the Company's Report on Form 8-K dated
Sept. 6, 1996, File No. 0-16355, filed with the Securities and Exchange
Commission on Sept. 11, 1996; incorporated herein by reference.
3.1 Articles of Incorporation, filed as Exhibit 3.1 to the Company's Form
10-KSB for fiscal year ended December 31, 1996, File No. 0-16355, filed
with the Securities and Exchange Commission on April 15, 1997; incorporated
herein by reference.
3.2 By-Law Number 1 of the Company, filed as Exhibit 3.2 to the Company's Form
10-KSB for fiscal year ended December 31, 1996, File No. 0-16355, filed
with the Securities and Exchange Commission on April 15, 1997; incorporated
herein by reference.
4.1 Designation of Series A, B, C, D and E Preferred Stock, included as part
of Exhibit 3.1, filed as Exhibit 3.1 to the Company's Form 10-KSB
for fiscal year ended December 31, 1996, File No. 0-16355, filed with the
Securities and Exchange Commission on April 15, 1997; incorporated herein
by reference.
10.1 Promissory Note payable to Kearny Publishing, Inc. dated March 29, 1996,
filed as Exhibit 10.1 to the Company's Form 10-KSB
for fiscal year ended December 31, 1996, File No. 0-16355, filed with the
Securities and Exchange Commission on April 15, 1997; incorporated herein
by reference.
10.2 Security Agreement in favor of Kearny Publishing, Inc. dated March 29,
1996, filed as Exhibit 10.2 to the Company's Form 10-KSB
for fiscal year ended December 31, 1996, File No. 0-16355, filed with the
Securities and Exchange Commission on April 15, 1997; incorporated herein
by reference.
10.3 Promissory Note payable to Dugent Publishing Corp. dated Sept. 6, 1996,
filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB
for the quarterly period ended Sept. 30, 1996, File No. 0-16355, filed
with the Securities and Exchange Commission on November 15, 1996;
incorporated herein by reference.
10.4 Security Agreement in favor of Dugent Publishing Corp. dated Sept. 6,
1996, filed as Exhibit 10.2 to the Company's Quarterly Report on Form
10-QSB for the quarterly period ended Sept. 30, 1996, File No. 0-16355,
filed with the Securities and Exchange Commission on November 15, 1996;
incorporated herein by reference.
10.5 Distribution Agreement with Curtis Circulation Company dated March 14,
1990, filed as Exhibit 10.5 to the Company's Form 10-KSB
for fiscal year ended December 31, 1996, File No. 0-16355, filed with the
Securities and Exchange Commission on April 15, 1997; incorporated herein
by reference.
10.6 Amendment to Distribution Agreement with Curtis Circulation Company
dated Nov. 20, 1990, filed as Exhibit 10.6 to the Company's Form 10-KSB
for fiscal year ended December 31, 1996, File No. 0-16355, filed with the
Securities and Exchange Commission on April 15, 1997; incorporated herein
by reference.
10.7 Amendment to Distribution Agreement with Curtis Circulation Company
dated Feb. 24, 1992, filed as Exhibit 10.7 to the Company's Form 10-KSB
for fiscal year ended December 31, 1996, File No. 0-16355, filed with the
Securities and Exchange Commission on April 15, 1997; incorporated herein
by reference.
10.8 Amendment to Distribution Agreement with Curtis Circulation Company
dated Aug. 5, 1992, filed as Exhibit 10.8 to the Company's Form 10-KSB
for fiscal year ended December 31, 1996, File No. 0-16355, filed with the
Securities and Exchange Commission on April 15, 1997; incorporated herein
by reference.
10.9 Amendment to Distribution Agreement with Curtis Circulation Company
dated Jan. 31, 1995, filed as Exhibit 10.9 to the Company's Form 10-KSB
for fiscal year ended December 31, 1996, File No. 0-16355, filed with the
Securities and Exchange Commission on April 15, 1997; incorporated herein
by reference.
10.10 Amendment to Distribution Agreement with Curtis Circulation Company
dated April 8, 1996, filed as Exhibit 10.10 to the Company's Form 10-KSB
for fiscal year ended December 31, 1996, File No. 0-16355, filed with the
Securities and Exchange Commission on April 15, 1997; incorporated herein
by reference.
10.11 Agreement with Flynt Distributing Company [now with Curtis Circulation
Company, as successor] dated Aug. 31, 1992, filed as Exhibit 10.11 to
the Company's Form 10-KSB for fiscal year ended December 31, 1996, File
No. 0-16355, filed with the Securities and Exchange Commission on April 15,
1997; incorporated herein by reference.
10.12 Loan and Security Agreement with Curtis Circulation Company dated June
28, 1996, filed as Exhibit 10.12 to the Company's Form 10-KSB
for fiscal year ended December 31, 1996, File No. 0-16355, filed with the
Securities and Exchange Commission on April 15, 1997; incorporated
herein by reference.
10.13 Licensing and Purchase Option Agreement with Michael DePasquale Jr.
Enterprises, Inc. dated July 6, 1990, filed as Exhibit 10.13 to the
Company's Form 10-KSB for fiscal year ended December 31, 1996, File No.
0-16355, filed with the Securities and Exchange Commission on April 15,
1997; incorporated herein by reference.
10.14 Lease of Wisconsin premises with Harvey Geipel, Lessor dated July 14,
1989, filed as Exhibit 10.14 to the Company's Form 10-KSB
for fiscal year ended December 31, 1996, File No. 0-16355, filed with the
Securities and Exchange Commission on April 15, 1997; incorporated herein
by reference.
10.15 Option from Harvey Geipel dated July 14, 1989, filed as Exhibit 10.15 to
the Company's Form 10-KSB for fiscal year ended December 31, 1996, File
No. 0-16355, filed with the Securities and Exchange Commission on April
15, 1997; incorporated herein by reference.
10.16 Assumption and Guarantee of Lease in favor of Harvey Geipel dated Dec.
30, 1996, filed as Exhibit 10.16 to the Company's Form 10-KSB
for fiscal year ended December 31, 1996, File No. 0-16355, filed with the
Securities and Exchange Commission on April 15, 1997; incorporated herein
by reference.
10.17 Distribution Agreement with Kable News Company, Inc. dated May 14, 1996,
filed as Exhibit 10.17 to the Company's Form 10-KSB
for fiscal year ended December 31, 1996, File No. 0-16355, filed with the
Securities and Exchange Commission on April 15, 1997; incorporated herein
by reference.
10.18 Cross-Guaranty with Dojo Publishing Inc. in favor of Kable News Company,
Inc. dated May 14, 1996, filed as Exhibit 10.18 to the Company's Form
10-KSB for fiscal year ended December 31, 1996, File No. 0-16355, filed
with the Securities and Exchange Commission on April 15, 1997; incorporated
herein by reference.
10.19 Licensing Agreement with Casey Lee Klinger d/b/a KNC, Inc. dated July
27, 1992, filed as Exhibit 10.19 to the Company's Form 10-KSB
for fiscal year ended December 31, 1996, File No. 0-16355, filed with the
Securities and Exchange Commission on April 15, 1997; incorporated
herein by reference.
10.20 Service Agreement with Clark Distribution Systems, Inc. dated April 19,
1996, filed as second Exhibit 10.19 [two consecutive exhibits were
erroneously numbered 10.19 in said filing] to the Company's Form 10-KSB
for fiscal year ended December 31, 1996, File No. 0-16355, filed with the
Securities and Exchange Commission on April 15, 1997; incorporated herein
by reference.
10.21 Assignment by Quiltco Corp. dated June 28, 1996, filed as Exhibit 10.20
to the Company's Form 10-KSB for fiscal year ended December 31, 1996, File
No. 0-16355, filed with the Securities and Exchange Commission on April
15, 1997; incorporated herein by reference.
10.22 License Agreement with Grand International Communications dated April
28, 1992, filed as Exhibit 10.21 to the Company's Form 10-KSB
for fiscal year ended December 31, 1996, File No. 0-16355, filed with the
Securities and Exchange Commission on April 15, 1997; incorporated herein
by reference.
10.23 Employment Agreement with Walter Weidenbaum dated September 6, 1996,
filed as Exhibit 10.22 to the Company's Form 10-KSB for fiscal year ended
December 31, 1996, File No. 0-16355, filed with the Securities and Exchange
Commission on April 15, 1997; incorporated herein by reference.
10.24 Employment Agreement with Steven Rottenberg dated September 6, 1996,
filed as Exhibit 10.23 to the Company's Form 10-KSB for fiscal year ended
December 31, 1996, File No. 0-16355, filed with the Securities and Exchange
Commission on April 15, 1997; incorporated herein by reference.
10.25 Employment Agreement with Travis Allen dated September 6, 1996, filed as
Exhibit 10.24 to the Company's Form 10-KSB for fiscal year ended December
31, 1996, File No. 0-16355, filed with the Securities and Exchange
Commission on April 15, 1997; incorporated herein by reference.
10.26 Severance Agreement with Michael D. Herman dated December 17, 1996, filed
as Exhibit 10.25 to the Company's Form 10-KSB for fiscal year ended
December 31, 1996, File No. 0-16355, filed with the Securities and Exchange
Commission on April 15, 1997; incorporated herein by reference.
10.27 Severance Agreement with David Critchfield dated December 17, 1996.
(b) The following report on Form 8-K was filed during the quarter ended
December 31, 1996 by the Company:
Date Date
of Report Filed Items Reported Financial Statements Filed
11/4/96 11/26/96 Regulation S sales of None
Securities
SIGNATURES
In accordance with Section 13 and 15 (d) of the Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: July 30, 1997
PRINCETON MEDIA GROUP, INC.
/s/ James J. McNamara
By: James J. McNamara,
Chairman of the Board and
Acting Chief Executive Officer
/s/ Joel Leshinsky,
By: Joel Leshinsky, Director
/s/ Robert F. Kendall, CPA
By: Robert F. Kendall,
Treasurer and Chief
Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Princeton Media Group, Inc.
We have audited the accompanying consolidated balance sheets of Princeton
Media Group, Inc. and Subsidiaries (the "Company") as of December 31, 1996
and 1995, and the related consolidated statements of operations and
accumulated deficit, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Princeton Media Group, Inc. and Subsidiaries as of December 31, 1996 and
1995, and the consolidated results of their operations and their cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
West Palm Beach, Florida
March 20, 1997
(Except for Note 20, as to
which the date is May 15, 1997)
<TABLE>
PRINCETON MEDIA GROUP, INC.
Consolidated Balance Sheets
December 31, 1996 and 1995
1996 1995
<S> <C> <C>
Assets
Current assets
Cash $ 630,163 $ 13,859
Accounts receivable, less allowance for returns
and doubtful accounts of $3,354,941 in 1996 2,535,668 -
Inventories 656,025 -
Deferred income tax benefit 271,300 -
Prepaid expenses 145,911 -
Total current assets 4,239,067 13,859
Property and equipment, net 1,756,212 -
Other assets 49,330 -
Trademarks, copyrights and other intangibles, net 12,094,863 -
Total assets $ 18,139,472 $ 13,859
Liabilities and Shareholders' Equity (Deficiency)
Current liabilities
Accounts payable $ 788,109 $ 75,784
Accrued expenses 1,413,711 29,860
Current portion of long-term debt 212,753 -
Due to related party 6,975 -
Deferred revenue 469,867 -
Accrued interest 193,562 -
Net liabilities of discontinued operations (Note 3) - 840,358
Total current liabilities 3,084,977 946,002
Long-term debt, less current portion 8,809,905 -
Convertible debentures payable 1,925,000 -
Deferred taxes 166,900 -
Commitments and contingencies (Notes 10, 11, and 18)
Shareholders' Equity (Deficiency):
Series A Preference Shares 28,923 28,923
Series C Preference Shares 739,696 739,696
Series D Preference Shares 1,005,000 -
Series E Preference Shares 1,549,484 -
Common Stock 12,197,802 4,258,755
Deficit (11,368,215) (5,959,517)
Total shareholders' equity (deficiency) 4,152,690 (932,143)
Total liabilities and shareholders' equity (deficiency) $18,139,472 $ 13,859
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
PRINCETON MEDIA GROUP, INC.
Consolidated Statements of Operations and Accumulated Deficit
For the Years Ended December 31, 1996 and 1995
1996 1995
<S> <C> <C>
Distribution, circulation, and other income $ 5,423,890 $ -
Advertising income 2,193,924
Printing income 924,881
Net revenues 8,542,695
Costs and operating expenses:
Cost of sales 4,965,804
Selling and administrative 3,612,737
Loss from operations (35,846)
Interest expense
Convertible debentures ( 74,715)
Other long-term debt (579,716)
Loss before income taxes (690,277)
Provision for income taxes (benefit) (104,400)
Loss from continuing operations before writeoff of debt discount and issue costs (585,877)
Writeoff of debt discount and issue costs (Note 19) (3,257,350)
Loss from continuing operations (3,843,227)
Discontinued operations:
Loss from discontinued operations (39,471) $ (3,573,489)
Net loss (3,882,698) (3,573,489)
Accumulated deficit - beginning of the year (5,959,517) (2,386,028)
Deemed dividend on convertible preferred stock (Note 19) (1,526,000) -
Accumulated deficit - end of the year $ (11,368,215) $ (5,959,517)
Per share:
Loss from continuing operations $ (10.09) $ -
Discontinued operations ( .07) ( 21.40)
Net loss $ (10.16) $ ( 21.40)
Fully diluted $ (10.16) $ ( 21.40)
Weighted average number of
shares outstanding 543,900 169,692
See accompanying notes to consolidated financial
statements.
</TABLE>
<TABLE>
PRINCETON MEDIA GROUP, INC.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996 and 1995
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,882,698) $(3,573,489)
Adjustments to reconcile net loss
to net cash used in
operating activities
Depreciation 203,489 43,854
Amortization 182,827 -
Interest on convertible debentures 74,715 -
Write-off of debt issue costs and debt
discount on convertible debentures (Note 19) 3,257,350 -
Bad debt expense allowance 35,000 -
Loss on sale of assets - 67,735
Loss on settlement of loan via stock issuance - 47,925
Gain on discontinued operations (440,110) -
Write down of inventory and molds - 223,948
Stock issued as payment for acquisition and
related services, and commissions - 1,937,246
Stock issued for consulting services 685,033
Net income (loss) after adjustments 115,606 (1,252,781)
Changes in assets and liabilities
exclusive of assets and liabilities acquired:
Decrease (increase)in accounts receivable (2,143,138) 640,716
Decrease (increase)in inventories (656,025) 183,915
Increase in income tax benefit (271,300) -
Increase in prepaid expenses (145,911)
Decrease in other current assets - 126,487
Decrease (increase) in other assets ( 49,330) 22,187
Increase (decrease) in accounts payable 490,142 (390,775)
Increase (decrease)in accrued expenses 1,073,727 (6,937)
Increase in due to related party 6,975 -
Increase in deferred revenue 469,867 -
Increase in accrued interest 160,995 -
Increase in long-term deferred taxes 166,900 -
Net cash used in operating
activities ( 781,492) (677,188)
Cash flows from investing activities:
Proceeds from sale of equipment - 8,200
Capital expenditures (134,841) (23,954)
Cash paid for acquisition of trademarks,
copyrights, equipment, and related
receivables and payables (5,044,388) -
Net cash used in
investing activities (5,179,229) (15,754)
Cash flows from financing activities:
Proceeds from issuance of debt - 115,000
Proceeds from loan from shareholder - 280,000
Repayment of advances from related party - ( 21,059)
Advance from related party - 56,806
Proceeds from issuance of common stock 75,000 20,000
Proceeds from issuance of preferred stock, net 2,740,000 -
Proceeds from issuance of
convertible debentures 3,762,025 128,165
Net cash provided by
financing activities 6,577,025 578,912
Net increase (decrease) in cash 616,304 (114,030)
Cash, beginning of period 13,859 127,889
Cash, end of period $ 630,163 $ 13,859
Supplemental disclosures of cash flow information:
1996 1995
Interest paid $ 409,747 $ 24,912
Noncash Financing Activities
Common stock issued upon conversion of
convertible debt $ 3,142,765 $ 128,165
Common stock issued for consulting fees $ 685,033 -
Common stock issued for settlement of debt $ - $ 162,925
Contribution from shareholder through
forgiveness of debt $ - $ 146,447
Inventory transferred in settlement of debt $ - $ 289,451
Common stock issued in disposal of subsidiary $ 330,975 $ -
</TABLE>
The Company purchased equipment appraised and valued by the parties to the
sale at $1,814,000 and trademarks and copyrights valued at $5,186,000 for
$2,000,000 in cash, of which $1,000,000 was paid at closing and $1,000,000 of
which was paid through a 90 day note, and a long-term note of $5,000,000. The
Company also purchased trademarks and copyrights valued at $107,390 for
$32,390 in cash and an installment loan payable of $75,000 of which $50,000
was paid in 1996 with a final installment of $25,000 paid in March, 1997. The
Company purchased equipment valued at $75,000, accounts receivable of
$429,170, accounts payable and accrued expenses of $439,676 and trademarks and
copyrights of $6,935,506 for $3,000,000 in cash and a long-term note of
$4,000,000. The Company entered into capital leases for equipment capitalized
at $27,263; unpaid balances on leases were $22,657 as of December 31, 1996.
The Company also issued 58,901 shares of common stock for consulting services
resulting in a non-cash charge of $685,033.
See accompanying notes to consolidated financial statements.
PRINCETON MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization
Princeton Media Group, Inc. ("the Company") operates a publishing and printing
business that owns, publishes, and prints twenty-two periodicals that have
national and international distribution. Through several subsidiaries the
Company has editorial staff in New York City and Miami Lakes, Florida, and a
printing plant in the Milwaukee, Wisconsin area. All printing and publishing
operations were acquired in 1996 through two purchases of substantially all of
the assets and operations of existing businesses.
The Company was incorporated in Ontario, Canada, in September, 1986 as DeNovo
Corporation and operated several other businesses which were discontinued in
1995 and in prior years. In October 1996 the Company changed its name to
Princeton Media Group, Inc. in order to reflect its new focus in the
publishing, printing, and related media industries. The Company's common
stock is publicly traded on the Nasdaq SmallCap market under the symbol
"PMGIF."
Summary of Significant Accounting Policies
(A) Basis of Consolidation
The consolidated financial statements include the accounts of Princeton Media
Group, Inc. ("PMG") and its wholly-owned subsidiaries, Princeton Publishing,
Inc., Firestone Publishing, Inc., and Teleconcepts, Inc.(sold in 1996, Note
3). All significant intercompany transactions and balances have been
eliminated.
(B) Cash and Cash Equivalents
Cash and cash equivalents are all cash balances and highly liquid investments
with original maturities of three months or less.
(C) Accounts Receivable
Accounts receivable are recorded net of estimated returns of periodicals,
credits and allowances. Because retail sellers of magazines retain the right
to return magazines for a number of months after the date the periodical is
"off-sale," the allowance for returns is normally a high percentage of the
gross receivables in the magazine publishing industry. The Company has
established an allowance for doubtful accounts for advertising accounts
receivable based on estimates of management. The allowance is periodically
adjusted to reflect the percentage of accounts deemed by management to be
uncollectible.
(D) Inventories
Inventories, including paper, direct art and editorial expenses related to
publications in process but not yet on sale, and other materials used in the
production of the Company's publications, are valued at the lower of cost (on
a FIFO basis) or market.
(E) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided at rates based on their estimated useful lives using
the straight-line method. Expenditures for maintenance and repairs are
charged to expense as incurred; replacements and major improvements are
capitalized.
(F) Trademarks, Copyrights, and Other Intangibles
Trademarks and copyrights acquired are recorded at their estimated fair values
as of the date of acquisition. Trademarks and copyrights are amortized using
the straight-line method over a period of 35 years. Organization costs are
amortized using the straight line method over 60 months and franchise rights
are amortized using the straight line method over 10 years.
The Company periodically evaluates whether there has been an impairment in the
carrying values of intangibles. Any impairment is recognized when the sum of
expected undiscounted cash flows derived from the acquired businesses is less
than its carrying value. If such an impairment were to occur, the amount of
the impairment would be recognized in operating results and would be based on
the fair value of the acquired business.
(G) Revenue Recognition
Revenues from commercial printing are recognized at the time the printing of a
customer order is completed. Any billings in advance of that time are
recorded as deferred revenue. The sale of magazine subscriptions are recorded
as deferred revenue at the gross subscription price at the time the order and
payment are received. Subscription revenue is then recognized over the term
of the subscription. Sales of magazines (net of estimated returns) are
recorded when each issue is placed on sale.
(H) Income Taxes
The Company uses the liability method of accounting for deferred income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of
assets and liabilities using tax rates in effect for the year in which the
differences are expected to reverse.
(I) Use of Estimates
Management of the Company has made estimates and assumptions in the
preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles that affect the
reported amounts of assets and liabilities and disclosures at the dates of the
financial statements, as well as the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
(J) Net Loss Per Share
Net loss per share is computed using the weighted average number of shares of
common stock outstanding. Common equivalent shares from stock options and
warrants, and additional shares assuming the conversion of debentures and
preferred shares, are excluded from the computation as their effect is
antidilutive.
Cumulative dividends on preferred shares and deemed dividends related to
convertible preferred shares (Note 19) have been added to net loss in the loss
per share computation.
(K) Recent Accounting Pronouncements
On October 23, 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
allows companies to retain the current approach set forth in APB Opinion No.
25, "Accounting for Stock Issued to Employees," for recognizing stock-based
expense in their financial statements in lieu of the accounting method
prescribed by SFAS No. 123 based on the estimated fair value of employee stock
options. Companies that do not follow the fair value based method are
required to provide expanded footnote disclosures. The provisions of SFAS No.
123 are effective for fiscal years beginning after December 15, 1995.
However, disclosure of the pro forma net income and earnings per share, as if
the fair value method of accounting for stock-based compensation had been
elected, is required for all awards granted in fiscal years beginning after
December 15, 1994. The Company accounts for stock related compensation using
APB Opinion No. 25 and has adopted the disclosure provisions required under
SFAS No. 123. No such disclosures were required in 1996.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
issued by the FASB, is effective for financial statements for fiscal years
beginning after December 15, 1995. This standard establishes guidelines
regarding when impairment losses on long-lived assets, which include plant and
equipment and certain identifiable intangible assets and goodwill, are
recognized and how impairment losses are measured. This statement did not
have a material effect on the Company's financial position or results of
operations in 1996.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share." This statement
is required to be adopted for financial statements for periods ending after
December 15, 1997, including interim periods. Earlier application of the
Statement is not permitted; however, once adopted all prior period earnings
per share data presented must be restated. Accordingly, the Company will
implement the Statement in the last quarter of 1997 and restate earnings per
share amounts back to January 1, 1997. The Statement will supersede APB
Opinion No. 15 and replaces the presentation of "primary earnings per share"
with "basic earnings per share," which will exclude all potentially dilutive
securities. These dilutive securities will be included in an amount to be
captioned "dilutive earnings per share." The Company has not yet determined
the impact this Statement may have on the amounts of earnings or loss per
share and related financial statement disclosures.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure." This statement is required to be adopted for financial
statements for periods ending after December 15, 1997. The Company's
disclosures in the accompanying financial statements meet all the requirements
of this Standard.
In March, 1997, at a meeting of the Emerging Issues Task Force (EITF), the SEC
expressed views on accounting for convertible debt and preferred stock, as
detailed in Note 19.
(L) Concentrations of Credit Risk and Fair Value
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and accounts receivable. The
Company maintains significant cash deposits primarily in one financial
institution. The Company performs periodic evaluations of the relative credit
rating of this institution as part of its investment strategy. Concentrations
of credit risk with respect to accounts receivable are limited due to the
Company's large customer base. At December 31, 1996 primarily all of the
Company's receivables pertain to the publishing and printing industry. The
Company currently distributes its periodicals primarily through three
distributors. In addition, the Company continues to evaluate other
distributor relationships.
2. Acquisitions
During the year the Company acquired substantially all of the assets and
operations of a publishing and printing business for $7 million and
substantially all of the assets and operations of a second publishing business
also for $7 million. Each of the acquisitions was accomplished through
formation and purchase of a wholly-owned subsidiary corporation which
purchased the assets and operations.
First Seller
On January 30, 1996, the Company formed a wholly-owned acquisition subsidiary,
Princeton Publishing, Inc.("Princeton"), with 100 shares of common stock and
capitalized with $1 million cash financed through the issuance of debt
securities of PMG. On March 29, 1996, Princeton purchased from a group of
corporations (collectively, the "First Seller") substantially all of its
assets and major contracts.
The acquired assets consisted of intellectual property, fixed assets, and
contract rights. Trademarks acquired were the titles of periodical magazines,
primarily targeted to the adult sports, entertainment, and lifestyle
marketplace. The fixed assets included furniture, fixtures and equipment,
chiefly, printing equipment. The contracts were magazine distribution
contracts and leases to real property in New York City and Sussex, Wisconsin.
The First Seller was in the business of publishing, printing and selling
periodical magazines. The Company, through its subsidiary, Princeton, is
continuing such use of the acquired assets.
Princeton paid $1 million in cash at the closing and issued two promissory
notes for the remainder of the purchase price. The first note was in the
principal amount of $1 million and was paid on June 28, 1996 with interest at
the rate of 10.25% per annum. The second note is in the principal amount of
$5 million and is collateralized by a security interest in all the purchased
assets (see Note 6).
On the date of closing, Princeton transferred all purchased intellectual
property including trademarks to Princeton Trademarks, Inc., a newly-formed
Delaware corporation, in exchange for 100 shares in Princeton Trademarks,
Inc., resulting in Princeton Trademarks becoming a wholly-owned subsidiary of
Princeton. Also on the same date, Princeton transferred all equipment and
other fixed assets located in Sussex, Wisconsin, to Kingston Press, Inc., a
newly-formed Delaware corporation, in exchange for 100 shares in Kingston
Press, Inc. resulting in that company also becoming a wholly-owned subsidiary
of Princeton.
Second Seller
On July 15, 1996, the Company formed another wholly-owned acquisition
subsidiary, Firestone Publishing, Inc.("Firestone"), with 100 shares of common
stock and capitalized with $1 million cash which was financed through the
issuance of debt securities of PMG. On July 18, 1996, Firestone paid $1
million for an option to purchase substantially all of the assets and
operations of a publishing company (the "Second Seller.")
The agreement provided for a consulting fee due to Firestone in the amount of
the net cash resulting from operations (which resulted in a fee of $11,118)
from July 18 until the closing to occur upon payment of an additional $2
million and interest at prime plus 2%. On September 6, 1996, Firestone
purchased from the Second Seller substantially all of its assets and major
contracts through payment of the $2 million and accrued interest of $23,054
and the issuance of a promissory note in the amount of $4 million, which is
collateralized by the assets acquired (see Note 6).
The acquired assets consisted of intellectual property, fixed assets,
contract rights, receivables, and payables generated from operations between
July 18th and September 6th. Trademarks acquired were the titles of
periodical magazines, primarily targeted to the lifestyle marketplace. The
fixed assets included furniture, fixtures and equipment, chiefly, computer
equipment. The contracts purchased were magazine distribution contracts and a
lease to real property in Miami, Florida.
The Second Seller was in the business of publishing and selling periodical
magazines. The Company, through its subsidiary, Firestone, is continuing such
use of the acquired assets.
The acquisitions described above have been accounted for using the purchase
method; accordingly, (1) the purchase price was allocated to net assets
acquired based on their estimated fair values, and (2) the results of
operations are included in the Company's consolidated results of operations
since the dates of acquisition.
The following unaudited information presents on a pro forma basis, the
acquisitions and the disposition as if they had occurred at the beginning of
the year ended December 31, 1996:
Net sales $18,115,354
Net loss $(2,411,537)
Net loss per common share $ (7.46)
The pro forma information is presented for comparative purposes only and is
not necessarily indicative of the operating results that would have occurred
had these acquisitions been consummated at the beginning of the periods
presented, nor is it necessarily indicative of future operating results.
3. Disposal of Subsidiary and Settlement of Related Liabilities
Effective as of December 31, 1995 the Company discontinued operations of its
wholly-owned subsidiary, Teleconcepts, Inc.("TCI"). On August 5, 1996, 100% of
the stock of TCI was sold to a third party, who is an officer in a company
whose chairman is the chairman of PMG. As part of the sale of Teleconcepts,
Inc., 32,500 shares of PMG stock having a then market value of $269,100 were
issued to the third party. At the time of the sale, Teleconcepts, Inc. had
an accumulated deficit of $763,393 and PMG realized a gain of $432,417 on the
disposition of the subsidiary.
In conjunction with the sale of Teleconcepts, Inc., the Company settled
certain of the Teleconcepts, Inc. liabilities through the issuance of 16,500
shares of PMG common stock with a fair market value of $61,876. The Company
recognized a gain of $161,012 upon the settlement, which is included in the
gain of $432,417 on the disposition of the subsidiary.
The Company's prior years operating results which were entirely from the
discontinued operations have been reclassified to reflect the discontinued
operations.
4. Inventories
Inventories at December 31, 1996, consisted of the following:
Paper $481,151
Ink 10,277
Work in process 164,597
Total inventories $656,025
5. Property and equipment
Property and equipment as of December 31, 1996 and 1995 consisted of the
following assets, all depreciated between 5 and 7 years:
1996 1995
Printing equipment $1,824,311
Computer equipment 103,106
Office furniture and equipment 32,284 $42,976
1,959,701 42,976
Less accumulated depreciation (203,489) (8,742)
Total property and equipment, net $1,756,212 $34,234
6. Trademarks, copyrights and other intangibles
Trademarks, copyrights and other intangibles at December 31, 1996, consist of
the following:
Trademarks and copyrights $12,233,302
Organizational costs 34,388
Franchise rights 10,000
12,277,690
Less accumulated amortization (182,827)
Trademarks, copyrights, and
other intangibles, net $12,094,863
7. Line of Credit
The Company has a line of credit with a distributor for working capital of up
to $500,000 which may be drawn down in multiples of $10,000. Any draw will
bear interest at prime plus 2% and will be payable with equal monthly payments
of principal and interest over a one year period. As of December 31, 1996,
the Company had not drawn funds on this line of credit. In January 1997 the
Company was advanced $420,000 on the line of credit.
8. Assignment of Accounts Receivable
During 1996, the Company has assigned $639,000 of certain accounts receivable
as collateral for its obligation to a paper vendor. After a $100,000 payment
to the vendor in December 1996, the remaining obligation of $539,000 was
reflected in accrued expenses at December 31, 1996. In January 1997, per the
agreement, the Company paid an additional $100,000 to the vendor. Payments of
assigned receivables are scheduled to begin in January 1997 and final payment
is estimated to be in June 1997. Receivables are monthly revenues on sales of
magazines and the amounts vary from month to month.
9. Long - Term Debt
The Company entered into a promissory note agreement on March 29, 1996 with an
individual and a group of corporations (collectively, the "First Seller") in
conjunction with the purchase of substantially all of the assets and
operations of the First Seller's business (see Note 2). The promissory note
is in the amount of $5 million payable over 10 years, with interest payments
only for the first three years, 30-year amortized payments for the next seven
years, with a final payment of all outstanding principal and interest due on
March 28, 2006. The interest rate on this note is prime plus 2% (10.25% at
December 31, 1996), maximum 12%, adjustable two times per year.
The Company entered into a promissory note agreement on September 6, 1996 with
a corporation (the "Second Seller") in conjunction with the purchase of
substantially all of the assets and operations of the Second Seller's business
(see Note 2). The promissory note is in the amount of $4 million with interest
at the rate of prime plus 2% per annum (10.25% at December 31, 1996). Interest
accrues with no payments due for one year at which time interest will be added
to principal and fixed payments of principal and interest are due monthly
through September 5, 2000.
These notes are collateralized by substantially all of the assets acquired in
each of the purchases (see Note 2).
Long-term debt at December 31, 1996 consists of the following:
Note payable - First Seller $5,000,000
Note payable - Second Seller 4,000,000
Capital lease obligations 22,658
9,022,658
Less current portion 212,753
Total long-term debt $8,809,905
The aggregate scheduled maturities of long-term debt in subsequent years are
as follows:
1997 $ 212,753
1998 879,001
1999 983,636
2000 1,104,564
2001 911,372
Thereafter 4,931,332
Total $9,022,658
Amounts scheduled above do not include accrued interest on the $4 million
note. As of October 6, 1997, accrued interest on the $4 million note, which
is estimated to be $410,000 at that time, will be added to principal which
principal will be amortized over the ensuing 48 months. As of December 31,
1996 accrued interest on the $4 million note of $131,425 was included in
accrued interest.
10. Convertible Debentures
During 1996, the Company initiated private placements of senior secured
convertible debentures to non-U.S. persons under Regulation S issued by the
Securities and Exchange Commission under the Securities Act of 1933, as
amended. A summary of such financings during 1996 follows:
Number of Debentures
Common Shares Outstanding
Original Issued on at
Principal Conversion December 31, 1996
Group I $3,081,800 491,271 None
Group II 444,200 19,351 $ 345,000
Group III 1,580,000 - 1,580,000
Total $5,106,000 510,622 1,925,000
The resulting proceeds from all the debentures sold were $3,762,025 net of
$1,343,975 in investment brokerage commissions, discounts and related fees.
The debentures bear interest at 8% per year and are due in two years from the
dates of issue. They are convertible at any time beginning 45 days after
issue into common shares at a conversion price equal to the lower of:
(a) 65%, 85% or 90% (for Groups I, II, and III, respectively) of the
average closing bid price of the common for the five business days immediately
preceding the conversion date, or
(b) 65%, 85%, or 90% (for Groups I, II, and III, respectively) of the
average of the closing bid price of the common stock for the five business
days immediately preceding the date of subscription to the debenture.
As of December 31, 1996, convertible debentures and preferred stock was
convertible to common shares based on the average closing bid price for the
five days prior to and including December 31, 1996, which was $2.74 computed
as follows:
Face Discount Shares
Convertible debentures - Group II $ 345,000 85% 148,268
Convertible debentures - Group III $1,580,000 90% 641,299
Preferred Stock - Series D $1,200,000 65% 674,394
Preferred Stock - Series E $1,580,000 65% 898,200
Total conversion potential 2,362,161
In March 1997 the Company reached an agreement (the "Agreement") with the
holders of all of its outstanding convertible debentures and convertible
preferred Series D and certain of its Series E stockholders to convert their
holdings to common stock. Pursuant to the Agreement, the convertible debenture
and convertible preferred Series D and E stock (collectively the "Securities"),
converted into approximately 1.1 million shares of the Company's common stock.
Had the conversion occurred pursuant to the original conversion terms of the
Securities, the Securities holders would have received approximately 887,000
shares of common stock.
Under the Agreement, the Securities holders have agreed to sell their common
stock holdings over different periods throughout 1997. Further, pursuant to
the Agreement, if at the end of the selling period the cash proceeds and
market value of any unsold shares of common stock do not equal approximately
$4,423,000, the Company has agreed to either issue additional shares of common
stock or cash to make up any short fall. To the extent such short fall occurs
or is estimated to occur, the Company will recognize either additional deemed
interest expense or dividends. In addition, the Company will incur additional
interest and related charges in 1997.
As additional inducement to the Securities holders, various warrants at
exercise prices ranging from $4.85 to 8.85 have been granted to purchase
102,510 shares of the Company's common stock.
11. Commitments
The Company leases facilities and equipment with minimum payments as follows:
Facilities Equipment Total
1997 $ 445,051 $ 3,624 $ 448,675
1998 447,411 3,624 451,035
1999 344,570 3,624 348,194
2000 115,162 3,624 118,786
2001 75,797 1,511 77,308
Thereafter 6,337 - 6,337
Total $1,434,328 $16,007 $1,450,335
The Company's leased facilities consist of editorial offices in New York City
and Miami, Florida, and a printing plant in Milwaukee, Wisconsin. The plant
lease expires August 31, 1999. The plant lease requires monthly base payments
of $20,400 with annual adjustments tied to the CPI. During 1996 the New York
City offices were rented on a month to month basis. In 1997 the Company
executed a lease extending from February 1, 1997 through January 13, 2001 on
new office space; this new lease requires annual rent beginning at $65,000
escalating over five years up to $76,040 in the final year and is included in
amounts scheduled above. The Miami lease requires monthly payments of $5,285
plus 10.47% of landlord's operating expenses through August 31, 2000.
Rental expense was $280,270 in 1996.
12. Income Taxes
The provision for income taxes (benefit) for 1996 consist of:
Deferred
U.S. Federal $ (86,600)
State and local (17,800)
Total provision for income taxes (benefit) $(104,400)
The components of deferred tax assets and liabilities in the balance sheet at
December 31, 1996 relate to the following:
Deferred tax assets:
Reserve for returns $298,400
Valuation of inventories 69,900
Allowance for doubtful accounts 13,300
Net operating loss carryforward 11,400
Valuation allowance (121,700)
Total deferred income tax benefit $271,300
Long-term deferred tax liabilities:
Depreciation of properties $ 76,400
Amortization of intangibles 90,500
Total long-term deferred tax liabilities $166,900
Deferred tax assets and liabilities in the consolidated balance sheet are
classified based on the related asset or liability creating the deferred tax.
Reconciliations of the differences between income taxes computed at Federal
statutory tax rates and consolidated provisions for income taxes are as
follows:
Loss before income taxes, writeoff of
debt discount and issue costs,
and discontinued operations: $(690,277)
Income taxes computed at statutory rates:
Federal benefit expected at 34% $(234,700)
State tax provisions, net of federal benefits ( 27,600)
Other reconciling items-
Non-deductible items 4,400
Canadian expenses 31,800
Valuation allowance 121,700
Provision (benefit) for income taxes $(104,400)
In 1995, the Company provided a full valuation allowance against the deferred
tax asset since it was more likely than not that the deferred tax asset would
not be realized. There is no net operating loss carryover for years prior to
1996 since the net operating losses pertained to the operations of the
subsidiary disposed of in 1996. At December 31, 1996, the Company had a
valuation allowance of $121,700. The Company establishes a valuation
allowance when it is more likely than not that realization of future tax
benefits are not assured.
13. Capital Stock
A summary of capital stock as of December 31, 1996 is as follows:
Convertible Preferred, Series
Common A C D E
Par value None None None $1,000 $1,000
Shares authorized Unlimited Unlimited 1,100,000 1,500 1,800
Issued and outstanding 865,969 32,500 1,100,000 1,200 1,634
Liquidation preference 5th 1st 2nd 3rd 4th
Aggregate liquidation
preference per share - $1.24 $.80* $1,350* $1,350*
Aggregate preference liquidation for Series A, C, D, and E is $43,300,
$880,000, $1,620,000, and $2,205,900 plus accrued and unpaid dividends
respectively.
(A) Preferred Stock:
The rights, privileges, restrictions and conditions of each series to be
issued are fixed from time to time by the directors.
Series A:
These shares are redeemable at the option of the Company at any time at a
price of $1.24 per share, convertible at the option of the holder at any time
into common shares of the Company at a price equivalent to $1.24 per 1/200th
of a common share.
Series B:
These shares have not been issued and management has no intention of issuing
shares in the future. 1,250,000 shares were designated as $.80 cumulative
redeemable convertible preferred.
Series C:
$.80 Series C voting preference shares are redeemable at the option of the
Company until January 31, 1998 under certain conditions pertaining to the
trading prices of the Company's common shares, and convertible at the option
of the holder at any time into common shares of the Company on the basis of
200 Series C shares for one common share. The conversion ratio is subject to
adjustment under certain conditions, including conditions relating to trading
prices and subsequent share issues. Holders of Series C preference shares are
entitled to receive a cumulative dividend of $.04 per share annually, payable
in cash or common shares of the Company. Dividends in arrears totaled
$184,000 and $140,000 at December 31, 1996 and 1995, respectively.
Series D:
Series D preferred have 4,000 votes per share at all shareholder meetings.
Cumulative dividends at 8% per annum per share (amounting to $80 per share per
year) are payable at the Company's option in cash or common shares, payable
quarterly. There is optional redemption by the Company after 145 days from
issuance at $1,350 per share. Conversion is available at the holder's option
any time 45 days after issuance into common stock at a value of $1,000 per
Series D share, based on a formula utilizing market price of the common
shares. Cumulative unpaid dividends amounted to $30,773 at December 31, 1996.
Series E:
The terms of this security are identical to Series D except preferences are
subordinate to Series A, C, and D. Cumulative unpaid dividends amounted to
$44,580 at December 31, 1996.
(B) Common Stock:
On October 24, 1996, at the annual meeting of the Company, shareholders
approved a one-for-twenty reverse split. On the same date shareholders
approved a name change from DeNovo Corporation to Princeton Media Group, Inc.
to reflect the Company's new 100% focus in the publishing, printing, and media
industry. On October 29, 1996, the reverse split took effect and common stock
commenced trading on the Nasdaq SmallCap Market under the symbol "PMGIF." All
numbers of common shares and related per share amounts have been adjusted for
the split.
(C) Options and Warrants
As of December 31, 1996 500 options granted were currently exercisable;
options granted in 1992 to purchase 250 shares at $150 per share expire June
1997 and options granted in 1993 to purchase 250 shares at $250 per share
expire in July 1998. Warrants granted in 1993 to purchase 7,188 shares at
$280 per share expire January 1998 and warrants granted in 1994 to purchase
61,001 shares at $100 per share expire July 1997. Management anticipates it is
probable that these options and warrants will expire unexercised due to the
high exercise price compared to trading price as of the date of this report.
During 1996 options to purchase 20,000 shares at various prices were granted.
Of the total options 7,500 options were granted to investor relations
consultants. The shares were exercised for $75,000. At the grant date the
fair market value of the shares was $106,875; accordingly, consulting fees
were valued at $31,875. The remaining options for 12,500 shares granted in
1996 expired. There were no options or warrants granted for employee
compensation during 1996.
(D) Changes in Equity
Changes in equity for the years ended December 31, 1996 and 1995 were as
follows:
Preferred Stock Series A and Series C:
Series A Series C
Shares Amount Shares Amount
Balance at January 1, 1995 32,500 $28,923 1,100,000 $739,696
Changes - - - -
Balance at December 31, 1995 32,500 28,923 1,100,000 739,696
Changes - - - -
Balance at December 31, 1996 32,500 $28,923 1,100,000 $739,696
Preferred Stock Series D and Series E:
Series D Series E
Shares Amount Shares Amount
Balance at January 1, 1995 - - - -
Balance at December 31, 1995 - - - -
Issuance 1,200 $1,005,000 1,800 $1,735,000
Conversion to common shares - - ( 100) ( 83,750)
Redemption of Series E ( 66) (101,766)
Balance at December 31, 1996 1,200 $1,005,000 1,634 $1,549,484
Common shares:
Shares Amount
Balance at January 1, 1995 135,977 $1,863,972
Issuance 86,494 2,394,783
Balance at December 31, 1995 222,471 4,258,755
Issuance - consulting fees 51,401 653,160
Issuance - settlement of liabilities 49,000 330,975
Exercise of options - consulting fees 7,500 106,875
Conversion of debentures to common shares including
"deemed" dividend on convertible preferred shares
of $1,526,000 (Note 18) 510,622 6,662,521
Conversion of Preferred Series E to common shares 24,975 185,516
Balance at December 31, 1996 865,969 $12,197,802
14. Related Party Loan, Investment and Transactions
The Company had a short-term note due upon demand to a company related by
common directorship with interest accruing at prime (8.25% as of December 31,
1996). The note balance and related accrued interest was $6,975 and $83,
respectively, as of December 31, 1996. Interest expense on the note was $9,059
during 1996. The related company also purchased $1.4 million of Preferred
Series E shares. Cumulative unpaid dividends on these shares amounted to
$35,901 at December 31, 1996. The Company entered into an agreement with the
related company pursuant to which the companies recognized consulting services
rendered to both companies in amounts of 85% to PMG and 15% to the related
company by various consultants who had been compensated with common shares of
the Company. The related company therefore paid the Company for 15% of the
services in the amount of $101,767 through surrender of 66 shares of its
Series E preferred stock. The Company shares corporate headquarters office
space the related company.
15. Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash,
accounts receivable, accounts payable and short-term borrowings approximate
fair value due to the short-term maturity of these financial instruments. The
carrying amount reported for long-term debt approximates fair value since the
underlying instrument bears interest at a variable rate that reprices
frequently.
16. 401(K) Plan
Firestone Publishing, Inc., has a 401(K) plan in which the Company contributes
a 5% matching contribution for employees who contribute either 5% or 10% of
their gross wages to the plan. The plan was established by the previous owner
of the operations and was continued as a requirement of the acquisition
agreement. Princeton Publishing, Inc. is establishing a noncontributory
401(K)plan in 1997.
17. Non Monetary Transaction
In 1996 the Company incurred significant costs for investor relationship
consultants to inform the investing public and the general public that the
Company had made certain acquisitions and had established publishing and
printing operations. Total expenses for investor relations was $812,398. Of
this amount $685,033 was noncash expense through the issuance of stock.
18. Contingencies
Threatened litigation in the amount of $2,534,002 pursuant to a share exchange
agreement between Mr. Horace Rekunyk and Petroleum Investors Management Ltd.
(PIM) and DeNovo (now PMG). During 1995, DeNovo filed a Statement of Defense
on the initial claim. The Company then filed a counter-claim against Mr.
Rekunyk and PIM for which a Statement of Defense has been filed. There was no
activity on this matter during 1996. Management, upon the advice of counsel,
continues to believe these claims to be without merit and will continue
vigorously defending its position as well as its counter-claim.
19. Write-off of Debt Discount and Issue Costs
In March 1997, at a meeting of the Emerging Issues Task Force (EITF), the SEC
expressed its views on the accounting for convertible debt with a
nondetachable conversion feature and convertible preferred stock where the
conversion feature is "in the money" (that is, a conversion discount) at the
date the security is issued.
The SEC believes that the conversion discount should be valued and recognized
at the date of issue as additional paid-in capital. The value being
determined is the difference between the conversion price and the quoted
market price of the common stock into which the security is convertible,
multiplied by the number of shares into which the security may be converted.
For debt securities, the value of the conversion discount and any related
issue costs should be charged to interest expense from the date of issue to
the date the security first becomes convertible. It is the SEC's view that
the stated maturity of such debt is not substantive and therefore the
conversion discount and related issue costs should be amortized over this
relatively short period. Further, if the security is converted before the
discount or issue costs are fully amortized, the unamortized portions of the
discount or costs should be charged to interest expense in the period of
conversion, rather than to additional paid-in capital as is the current
practice.
Change in Method
In 1996, upon issue of the 8% convertible debt securities, the Company had
recognized the value of the discount (in the manner now prescribed by the SEC)
and was amortizing the discount and related issue costs over the term of the
debt using the interest method. Upon conversion of the debt, the Company had
charged shareholders' equity for any remaining unamortized discount and costs.
As a consequence of the above, in April 1997, the Company revised its method
of accounting for the conversion discount and issue costs to conform with the
SEC's position and wrote off all of the remaining discount and costs to the
1996 statement of operations. Also, the Company charged to 1996 operations
the discount and cost originally charged to shareholders' equity on the
conversion of debt during 1996. This resulted in a noncash writeoff of debt
discount and debt issue costs of $3,257,350.
Deemed Dividend
For convertible preferred securities issued with a conversion discount, the
SEC believes that the fair value of the discount is equivalent to a dividend
and accordingly should be recognized as a return to the preferred shareholders
over the minimum period in which the preferred shareholders can realize that
return which in this case was the date of issuance to the first date the
securities became convertible.
In the 1996 financial statements, the Company reflected this "deemed"
preferred stock dividend (amounting to $1,526,000 in connection with the
issuance of Series D and E preferred shares.
This noncash dividend represents the discount on the conversion price of the
shares of common stock issuable on conversion of the preferred and only
affects the loss per share calculation. The dividend is based on the
difference between the conversion price and the quoted market price of the
common stock on the dates the preferred shares were issued times the number of
common shares issuable.
20. Adjustment - Discontinued Operations
On December 17, 1996, the Company entered into severance agreements with the
former Chairman and President and an officer and director of a discontinued
subsidiary calling for payments of $479,581 at December 31, 1996, payable
$300,000 in cash over a period of three years plus 70,000 common shares. The
1996 financial statements have been restated to recognize these agreements as
an expense of discontinued operations.
EXHIBIT 10.27
SEVERANCE AGREEMENT
This Severance Agreement is made effective as of the 17th day of
December, 1996, by and between Princeton Media Group, Inc., f/k/a DeNovo
Corporation, an Ontario, Canada corporation (the "Company") and David
Critchfield of Coral Springs, Florida ("Critchfield").
W I T N E S S E T H :
WHEREAS, Critchfield has previously resigned his position as an officer
and director of TeleConcepts, Inc., the former subsidiary of the Company, the
Company having agreed to provide to Critchfield the severance terms described
below in recognition of the superior services Critchfield has rendered to the
Company during his tenure as officer and director of the Company's former
subsidiary.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Resignation. Critchfield has previously resigned his positions as
officer and director of the Company's former subsidiary.
2. Severance Package. The Company shall provide Critchfield with
35,000 shares (post-reverse split) of registered common stock of the Company
as severance compensation, to be issued within 5 days of the date hereof.
3. Covenant Not to Disclose. Critchfield shall not disclose or make
accessible in any manner to or use for the benefit of any person or entity at
any time any information of a confidential or secret nature relating to the
business, products or activities of the Company (the "Confidential
Information"). Such Confidential Information shall include, but not be
limited to, information relating to inventions, products, designs, methods,
know-how, techniques, systems, processes, software programs, works of
authorship, customer lists, projects, plans and proposals). Critchfield shall
keep secret all matters entrusted to him and shall not use or attempt to use
any such information in any manner which may injure or cause loss or may be
calculated to injure or cause loss whether directly or indirectly to the
Company. Information shall be Confidential Information whether or not such
information was developed, devised or otherwise created in whole or in part by
the efforts of Critchfield, and whether or not such information is a matter of
public knowledge, unless the Company has authorized disclosure of such
information to the general public.
4. Non-Competition.
(a) For a period of three (3) years commencing on the date of this
Agreement, Critchfield will not, whether alone or as a partner, officer,
director, consultant, agent, employee or stockholder of any company or other
commercial enterprise, directly or indirectly engage in any business or other
activity in the United States or Canada which is or may be competitive with or
render services to any firm or business organization which competes with the
Company in, the products or services being manufactured, marketed,
distributed, planned in writing or developed by the Company on the date of
execution of this Agreement without the prior written consent of the Company.
(b) The ownership of securities of a public company not in excess of
two percent (2%) of any class of such securities shall not of itself be deemed
a violation of any of the provisions of this Section 4.
5. No Solicitation. For a period of three (3) years commencing on the
date of this Agreement, Critchfield will not directly or indirectly solicit,
recruit or hire or attempt to solicit, recruit or hire any employee of the
Company to work for a third party other than the Company or engage in any
activity that would cause any employee to violate any agreement with the
Company.
6. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
7. No Waiver. Any waiver by the Company of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of such provision or any other provision hereof.
8. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and all of their successors and assigns.
Specifically, but not by way of limitation, the Company's obligations under
this Agreement shall survive the death or disability of Critchfield and shall
in such case inure to the benefit of Critchfield's heirs, executors,
administrators and legal representatives.
9. Entire Agreement; Amendment. This instrument contains the entire
agreement between the parties with respect to the subject matter addressed
herein and all prior discussions, understandings, negotiations and agreements
are merged herein. This Agreement may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
10. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida.
11. Continuing Indemnification. The Company hereby acknowledges its
continuing indemnification obligations to Mr. Critchfield with respect to
actions of Mr. Critchfield while an officer or director of the Company, as set
forth in Section 20 of By-Law Number 1 of the Company. The Company further
agrees to provide, at its expense, legal representation of Mr. Critchfield and
reimbursement for costs in the event of any action or threatened action naming
Mr. Critchfield in connection with his actions while an officer or director of
the Company, which legal representation shall be of a level of quality equal
to or superior to that used by the Company.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
Princeton Media Group, Inc.
By: /s/ Robert F. Kendall /s/ David Critchfield
David Critchfield
Print Name and Title:
Robert F. Kendall, CPA, Treasurer and
CFO
Witness: Witness:
/s/ Lisa De La Pointe, Controller /s/ Lisa A. Mercado
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 630,163
<SECURITIES> 0
<RECEIVABLES> 2,535,668
<ALLOWANCES> 0
<INVENTORY> 656,025
<CURRENT-ASSETS> 4,239,067
<PP&E> 1,959,701
<DEPRECIATION> 203,489
<TOTAL-ASSETS> 18,139,672
<CURRENT-LIABILITIES> 3,084,977
<BONDS> 8,809,905
28,923
3,294,180
<COMMON> 12,197,802
<OTHER-SE> (11,368,215)
<TOTAL-LIABILITY-AND-EQUITY> 18,139,472
<SALES> 8,542,695
<TOTAL-REVENUES> 8,542,695
<CGS> 4,965,804
<TOTAL-COSTS> 8,578,541
<OTHER-EXPENSES> 35,846
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 654,431
<INCOME-PRETAX> (690,277)
<INCOME-TAX> (104,400)
<INCOME-CONTINUING> (3,843,227)
<DISCONTINUED> (39,471)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,882,698)
<EPS-PRIMARY> (10.16)
<EPS-DILUTED> (10.16)
</TABLE>
