SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NUMBER 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, 1997
[ ] 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.)
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Securities registered under Section 12(b) of the Act: None.
Securities registered under Section 12(g) of the Exchange Act as of December
31, 1997: 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: $15,572,990.
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 March
27, 1998, was approximately $7,864,000.
The number of shares outstanding of the issuer's common stock, no par value,
as of March 30, 1998, was 3,700,912.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
PRINCETON MEDIA GROUP, INC.
FORM 10-KSB
For the Year Ended December 31, 1997
INDEX
HEADING PAGE
PART I
Item 1. Description of Business 3
Item 2. Description of Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters 8
Item 6. Management's Discussion and Analysis 8
Item 7. Financial Statements 12
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 13
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) 14
Item 10. Executive Compensation 16
Item 11. Security Ownership of Certain Beneficial Owners
and Management 18
Item 12. Certain Relationships and Related Transactions 20
Item 13. Exhibits and Reports on Form 8-K 21
SIGNATURES 26
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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 concentrate
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.
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 of ongoing publishing businesses.
PMG, through its wholly-owned subsidiaries, Princeton Publishing, Inc. and
Firestone Publishing, Inc. publishes approximately 25 well-established lifestyle
and special interest magazines which are distributed throughout the United
States and internationally. The magazines include "Oui," "Fitness Plus,"
"Karate International," 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 Kingston Press, Inc., 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 all
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 nearly 100% printing capacity. In 1997
PMG completed the transition of moving all the Firestone titles, which were
previously printed by an outside company, to in-house printing at an annual
savings of approximately $535,000. The Company began to realize the benefit of
this transition in the fourth quarter of 1997. 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. Some of the
trademarks are registered with the United States Patent and Trademark Office,
and applications have been filed to register the remainder. The trademarks 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.
CURRENT PLANS
During 1998, management of the Company intends to pursue a plan of improvements
and new opportunities, including achieving operational efficiencies through
synergies of editorial and production staffs, 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
pursuing 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.
SETTLEMENT OF CONVERTIBLE DEBT AND EQUITY SECURITIES
As detailed in Note 10 of the financial statements, in March 1997, the Company
finalized the settlement with holders of convertible securities issued to fund
the initial acquisitions of publishing operations in 1996. All of the debt and
equity securities, consisting of convertible debentures with a face value of
$1,925,000 and Series D and E preferred stock with original face values of $1.2
and $1.8 million, respectively, were retired in the second quarter upon transfer
of 1.1 million shares into an escrow account for purposes of the settlement. At
the end of the third quarter the settlement was finalized, and substantially all
cash and shares of common stock have been distributed. Although substantially
all distributions were made prior to the end of the third quarter, about 100,000
shares were distributed in early 1998.
Management believes that the final settlement of the conversion of the
securities into common stock has brought significant benefit to the Company
through improvement of the debt to equity ratio and through elimination of the
uncertainty of potential dilution related to the conversion that existed before
the settlement.
MANAGEMENT ENHANCEMENT
Since inception of publishing operations, the Board of Directors has sought to
identify and recruit management personnel with employment backgrounds in larger
publishing companies to establish a management team consistent with the
company's expansion goals.
In September, 1997, the Company hired Hugo Barreca as the new Chief Financial
Officer. Mr. Barreca is responsible for the company's overall financial
planning and management. He also directs the company-wide consolidation of
current operations and implements the company's expansion program through
continued acquisitions of related business operations in publishing,
advertising, websites, and other related media.
CURRENT EVENTS AND STRATEGIC PLANNING
The Company intends to continue the operations of the businesses acquired during
1996 and to expand these operations into new areas of distribution, including
the establishment of Internet web sites for several of its well-known magazine
titles. The expansion of distribution channels for the Company's brand-name
magazine titles, combined with the Company's continuing program of cost
reduction through consolidation of its operations, is anticipated to
substantially increase the net revenues from the Company's operations.
Management of the Company believes that, with the exception of advertising
revenue as detailed below, the results of operations for 1996 and 1997 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 1998,
which includes, among other things, production efficiencies, cost-saving
measures, new market exploration, increasing production capacity in the
printing plant, and acquisition of additional businesses, will realize a
substantial growth in assets as well as increases in revenues and profits.
Consolidation of Editorial Production
In March, 1998, the Company announced that in April, 1998, the entire editorial
staff and editorial production of the Company's magazines will begin operating
out of its Miami location. The consolidation of editorial staff, which should
be completed by the end of May, will eliminate duplicate functions and related
overhead, with additional savings expected from the centralization of editorial
staff, equipment, and production materials in a single facility. The
consolidation of editorial operations is expected to result in savings of
approximately $500,000 over a twelve-month period. Certain key officers and
employees will remain in the New York offices and will continue to manage the
marketing and expansion of the Company's trademarks and intellectual property in
new media applications, as well as the development of acquisitions for the
Company's corporate growth program.
Printing Plant
In February, 1998, the Company announced several agreements which had been
completed for printing during 1998 that would increase the production volume in
the Company's printing plant to 100% capacity. The Company completed the
contracts and agreements with five different third party publishers who own and
distribute reader response materials as well as lifestyle and niche market
periodicals, including "Hockey," "Italian Food & Wine," and "Girlfriends." The
printing agreements represent an annual total of over 15 million monthly and bi-
monthly magazine units together with approximately 600 million reader-response
units. Anticipated additional net revenues to the company are expected to be
approximately $1.5 million per year.
Advertising
During third quarter of 1997, the Company executed an agreement with a major
advertiser that should result in an increase in the Company's advertising
revenues by $1 million during the eighteen months which began September 15,
1997. Due to the delay between order date and on-sale-date of advertising, the
Company realized a partial benefit of the contract in the fourth quarter of 1997
and expects to commence full realization of this benefit in the first quarter of
1998. Additionally, the Company is pursuing other long-term advertising
contracts with other advertisers and anticipates the introduction of several new
accounts in early 1998.
Internet Websites
The Company has established Internet websites related to several of the
Company's existing publications. The Company is evaluating the expansion of the
existing web sites, and the introduction of new sites which would utilize the
text, graphics, advertisers, products and services of most of its approximately
25 publications, which together represent one of the largest individually-owned
groups of well-known, name brand leisure and special interest titles. Revenues
obtained from the web sites are derived from monthly memberships, subscriptions,
advertising pages, and mail order products. The Company intends to proceed
diligently with Internet development to ensure that websites produce a near-term
financial benefit to the Company.
Acquisitions
The Company has been and is currently in active negotiations for the acquisition
of several different businesses, including a group of magazine titles and
various media businesses which would complement the Company's current
operations.
In conjunction with the acquisition process, Princeton Media Group, Inc., has
executed an agreement with an investment banking firm which has expressed a
commitment to the Company to arrange up to $40 million in financing for such
acquisitions, including the financial restructuring of the Company. On behalf
of other unrelated clients, the California-based investment banking firm has
participated in capital transactions of more than $3 billion over the past seven
years. The firm is presently advising the Company regarding due diligence
matters, valuation, and negotiation of purchase agreements. It is expected that
financing will be accomplished principally through an offering of corporate
debt.
Offices and Employees
As of December 31, 1997, 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. As noted above,
in 1998 editorial production will be moved to the Miami office, reducing the New
York office personnel to several key officers and employees with a corresponding
increase in the staff located in Miami.
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 printing 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 New York office is located in the heart of the revitalized Flatiron District
and the Company anticipates subletting excess space in light of its reduced
staff. As of December 31, 1997, the Miami lease required monthly payments of
$5,285 through August 31, 2000, on office space of approximately 5,000 square
feet. Additional leasing expense in the Miami office will be $1,317 per month
beginning April 1, 1998 for an additional 960 square feet to accommodate the
additional staff.
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 purchased printing equipment
throughout 1997 which has increased 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 $494,861 and $280,270
in 1997 and 1996 respectively.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other than routine
litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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."
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
Sale
Period of Quotation High Low
1997
Fourth quarter $ 3.62 $ 1.62
Third quarter 4.56 2.62
Second quarter 6.44 2.93
First quarter 6.06 2.00
1996
Fourth quarter $ 6.88 $ 1.44
Third quarter 10.62 5.00
Second quarter 27.50 8.75
First quarter 22.50 8.75
Quotes in 1996 have been restated to adjust for the October 29, 1996 one-for-
twenty reverse split.
As of December 31, 1997, there were 3,361,623 shares of common stock
outstanding. As of the same date, there were 559 holders of record and
approximately 750 beneficial holders of the common stock. As of March 30, 1998
there were 581 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
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,
changes in costs of materials and operations, and failure of pending or
anticipated acquisitions to be consummated.
GENERAL
The Company, through its wholly-owned subsidiaries, Princeton and Firestone,
is engaged in the publishing, printing, and distribution of approximately 25
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.
USE OF EBITDA
The following comparative discussion of the results of operations and financial
condition of Princeton Media Group, Inc. includes, among other factors, an
analysis of changes in the Earnings Before Interest, Taxes, Depreciation and
Amortization ("EBITDA") in order to help determine the operating performance of
the individual business units and of the company as a whole. EBITDA also
removes the effects of the significant amounts of amortization of intangible
assets and debt incurred in the two acquisitions completed during 1996 which now
total in excess of $18 million in assets.
In 1996 and 1997 the Company issued stock, options, and warrants in exchange for
the services of business consultants and investor relations professionals to
assist in informing the investing public of the establishment of the new
publishing operations as well as to assist in the settlement of convertible
securities issued to finance the acquisitions. The Company considers these
issuances of stock, which are non-cash payments for services unrelated to
evaluation of normal operations, to be charges to earnings after EBITDA.
Additionally, in 1996 the Company recognized a loss of $39,471 related to the
disposition of a wholly-owned subsidiary. This non-cash transaction unrelated
to normal operations has also been added to net loss after EBITDA in discussions
herein.
Financial analysts generally consider EBITDA to be an important measure of
comparative operating performance for the business of Princeton Media Group and,
when used in comparison to debt levels or the coverage of interest expense, as a
measure of liquidity. However, EBITDA should be considered in addition to, not
as a substitute for, operating income, net income, cash flow, and other measures
of financial performance and liquidity reported in accordance with generally
accepted accounting principles.
TRANSACTIONS AFFECTING COMPARABILITY OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The Company discontinued operations of its prior business as of December 31,
1995. Operations for the Company's new business of publishing and printing began
in the second quarter of 1996.
In comparing the year ended December 31, 1997 to the year ended December 31,
1996, it should be noted that the first of the two major publishing businesses
acquired in 1996 was purchased in March, 1996, and the second was purchased in
September, 1996, whereas both businesses have had operations for the entire year
of 1997. Increases in revenues, cost of goods sold, and operating expenses are
primarily due to the partial periods of operations during 1996 compared to
operations during the entire year of 1997, described as follows.
The first acquisition of a publishing and printing business (through Princeton
Publishing, Inc., a wholly-owned subsidiary) was on March 29, 1996. Results of
operations for the year ended December 31, 1997, included only three quarters in
1996 whereas there was a full year of operations in the year ended December 31,
1997. The second publishing business (through Firestone Publishing, Inc., a
wholly-owned subsidiary) was acquired on September 6, 1996. Results of
operations for the year ended December 31, 1996, included less than four months
in the 1996 amounts whereas there was a full year of operations in the year
ended December 31, 1997.
RESULTS OF OPERATIONS
During the year ended December 31, 1996, the Company completed a fundamental
change in its course of business through the purchase of two established
businesses in the publishing and printing industry and now focuses entirely on
publishing, printing and related media. In 1997 the Company concentrated on
establishing a base for expansion in the media industry by stabilizing its
equity structure through the settlement of the convertible securities used to
fund the purchases and by implementing a management consolidation plan including
bringing all printing of its own publications in-house to the Company's printing
plant and establishing a plan for centrally locating the editorial production
group. The two publishing groups which 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, are expected to
work with greater efficiency as a single, larger editorial group.
The year ended December 31, 1997, compared to the year ended December 31, 1996:
Revenues for the year ended December 31, 1997 amounted to $15,572,990 compared
to $8,542,695 for the year ended December 31, 1996, reflecting an increase of
$7,030,295. Revenues are almost entirely derived from magazine sales,
subscriptions, advertising, and outside printing. The increase in revenues
reflected for the year ended December 31, 1997 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, 1997 were
$17,061,813 compared to $8,578,541 for the year ended December 31, 1996,
resulting in an increase of $8,483,272. In 1996 and 1997 the Company incurred
large costs for investor relations consultants to inform the investing public
and the general public that the Company had completed the acquisitions and had
established publishing and printing operations. Total expenses for investor
relations were $1,031,445 and $812,398 in 1997 and 1996 respectively. Of these
amounts $894,522 and $685,033 for 1997 and 1996 respectively were noncash
expense through the issuance of stock, options, and warrants.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1997, $968,826 in interest expense was
charged to operations, compared to $654,431 for the year ended December 31,
1996, reflecting an increase of $314,395. Interest expense is primarily related
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.
According to the terms of the Firestone note, accrued interest from September 6,
1996, through September 6, 1997, in the amount of $414,466 was added to
principal on September 6, 1997. Of the total interest expense of $968,826 in
1997, $673,812 was paid.
For the year ended December 31, 1997, EBITDA, as defined above, was $106,238.
For the year ended December 31, 1996, the Company reported an EBITDA of
$1,035,503. The Company attributes the changes in EBITDA to a number of factors.
Previous declines in revenue from advertising, due primarily to financial
difficulties experienced by existing advertisers, is being remedied by new
advertising contracts, now in place and being negotiated, to replace previous
advertisers. Declines in circulation are affecting many newsstand-based titles
as consolidation in the traditional newsstand wholesaler distribution network
occurs on a large scale.
The Company believes that its best current strategy is to continue to improve
its products so as to increase its market share, so that when the newsstand
distribution network regains vitality, the Company will be in a strong position
to benefit from the increased sales in the industry. In keeping with that
strategy, expenses have increased as the Company has invested in a
superstructure that will accommodate a more modern company of larger size.
Examples of these expenditures include the inauguration of an employee benefits
package which provides basic health and dental coverage, research costs
associated with due diligence analysis of potential acquisition targets,
investments in new computer equipment for editorial production, reorganized
management with certain higher wage opportunities in order to attract superior
professional staff, and consulting arrangements associated with investor
relations and potential acquisitions. The Board of Directors expects these
investments to generate positive results as the Company streamlines its
operations in 1998.
Net loss for the year ended December 31, 1997 was $2,570,032 which represents a
decrease of $1,312,666 from the net loss of $3,882,698 for the year ended
December 31, 1996. These losses also include nonrecurring consulting fees as
detailed above. The decrease in loss from operations is attributable to the
operations and revenue of the Company's subsidiaries, Princeton and Firestone.
Primarily, interest expense was accrued pursuant to two promissory notes
executed by Princeton Publishing, Inc., in the amount of $5 million and
Firestone Publishing, Inc., in the amount of $4 million, respectively, in
connection with the purchases of the magazine publishing assets.
Monthly interest payments of approximately $43,000 are due pursuant to the $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 was accrued for one year and on
September 6, 1997, accrued interest was added to principal in the amount of
$414,166. Monthly payments of approximately $113,000 of principal and interest
are due on a straight-line amortization schedule over forty-eight months with
the first payment paid on October 6, 1997. The Company anticipates that cash
flows from operations will be sufficient to pay all debt service obligations of
the two subsidiaries throughout the life of the loans.
Liquidity and capital resources are hereinafter discussed in three broad
categories: operating activities, investing activities and financing
activities.
Cash decreased $13,605 to $616,558 at December 31, 1997 from $630,163 at
December 31, 1996. Net cash used for operating activities was $748,037 during
the year ended December 31, 1997, compared to cash used by operating activities
of $781,492 during the year ended December 31, 1996. The decrease of $33,455 is
primarily attributable to establishment of continuing operations in connection
with the change in business of the Company in 1996 from telecommunications
equipment sales to magazine publishing and printing with only a partial year of
new operations in 1996.
During the year ended December 31, 1997, net cash used in investing activities
was $190,395 compared with $5,179,229 used in investing activities during the
year ended December 31, 1996. The decrease of $4,988,834 is due to purchase of
trademarks, copyrights and equipment for the Company's publishing operations in
1996, whereas in 1997 the Company had normalized capital expenditures for
computer and printing equipment.
During the year ended December 31, 1997, net cash provided by financing
activities was $924,827, representing a decrease of $5,652,198 from net cash
provided by financing activities of $6,577,025 during the year ended December
31, 1996. The decrease is a result primarily of the 1996 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,
whereas in 1997 the Company did not have extraordinary financing needs.
Additionally, in 1997 the Company received proceeds from sale of common stock of
$2,454,996 which, combined with distributions of common stock, was paid in
settlement of the convertible securities consisting of convertible debentures
and preferred stock. The convertible securities were issued in 1996 to fund
acquisitions of current assets and operations of the Company and final
settlement of the conversion occurred in September, 1997.
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. Broader marketing and sales of
brand-name magazine content is anticipated to increase substantially the
revenues from the Company's operations, compared with the results realized
during 1996 and 1997. Management of the Company believes that the results of
1996 and 1997 operations were consistent with the expectations established
during the due diligence investigation completed prior to the purchases of the
two businesses. Management anticipates that the further implementation
of its business plan during 1998, 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.
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
The following financial statements are included in this Annual Report following
Item 13:
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Consolidated Balance Sheets December 31, 1997 and 1996
Consolidated Statements of Operations and Accumulated Deficit
For the Years Ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997 and 1996
Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On October 31, 1997, Coopers & Lybrand, LLP, ("C&L"), the independent auditors
of the Registrant, notified the Registrant that C&L declined to stand for
re-election.
The accountants' report of C&L on the financial statements of the Registrant for
the years ended December 31, 1996 and December 31, 1995 did not contain any
adverse opinion or disclaimer of opinion, and was not qualified or modified as
to uncertainty (other than a going concern modification relating to the report
for the year ended December 31, 1995), audit scope, or accounting principles.
C&L's decision not to stand for re-election was not approved or recommended by
the Registrant's Board of Directors, audit committee or similar committee of the
Board of Directors.
During the two years ended December 31, 1996 and the subsequent period through
October 31, 1997, (a) there were no disagreements with C&L on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements if not resolved to C&L's satisfaction
would have caused C&L to make reference in connection with its report to the
subject matter of the disagreement, and (b) C&L had not advised the Registrant
of any reportable events as defined in paragraphs (1) through (3)of Regulation
S-B Item 304(a)(1)(iv)(B).
Engagement of New Accountants
On November 7, 1997, the Registrant engaged the firm of Holyfield Associates,
P.A. ("Holyfield") as its new independent accountants. Holyfield was not
consulted regarding the application of accounting principles to a specific
completed or contemplated transaction; or the type of audit opinion to be
rendered with regard to the Registrant's financial statements; or any
disagreements or reportable events as such terms are used in Regulation S-B,
Item 304(a)(2).
The change in accountants from C&L to Holyfield was the subject of a report on
Form 8 - K dated October 31, 1997.
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 20, 1998:
Year First Position
Elected With
Name Age Director Company
PRINCETON MEDIA GROUP, INC.
J. McNamara 49 1996 Chairman, Director, Chief Executive Officer,
Acting President, and Secretary
J. Leshinsky 44 1996 Director
R. Kendall 49 N/A Senior Vice President - Finance, Treasurer,
and Assistant Secretary
H. Barreca 46 N/A Chief Financial Officer
WHOLLY-OWNED SUBSIDIARIES OF PRINCETON MEDIA GROUP, INC.
H. McQueeney 59 N/A President - Princeton Publishing, Inc.
W. Weidenbaum 61 N/A President - Firestone Publishing, Inc.
Set forth is a biographical description of each director, executive officer
and significant employee of the Company and its wholly-owned subsidiaries:
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 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.
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.
Hugo Barreca, Esq., joined the Company as Chief Financial Officer in September
1997. His twenty years of experience in the publishing industry includes senior
positions with Time Inc., the New York Times Magazine Group, and Gruner + Jahr
USA Publishing. His responsibilities have included strategic business planning,
financial planning and management, contract negotiations and purchasing, and
computer systems development including inventory database systems, financial
management systems, logistic models and telecommunications systems. Mr. Barreca
received an M.B.A. from New York University and a J. D. from Fordham School of
Law.
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 1997, 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
UFH Endowment, Ltd. 0 0 1 (Form 3)
Russel Leventhal 1 0 0
James J. McNamara 1 1 0
Hugo Barreca 1 1 0
Joel Leshinsky 1 1 0
ITEM 10. EXECUTIVE COMPENSATION
The following tables set forth all compensation awarded to, earned by or paid to
the executive officers indicated during the years ended December 31, 1997 and
1996. None of such persons served the Company in any capacity during 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Under-
Other Restricted Lying All Other
Name and Annual Stock Options/ LTIP Compen-
Principal Year Salary Bonus Compensation Awards SARs Payouts sation
Position ($) ($) ($) ($) (#) ($) ($)
James McNamara 1997 $150,000 - - - 1,200,000 - -
Chairman of Board 1996 - - - - - - -
Hugo Barreca 1997 $ 43,750(1) - - - - - -
Chief Financial 1996 - - - - - - -
Officer of PMG
Walter Weidenbaum 1997 $140,000 - - - - - -
President of 1996 $105,000(2) - - - - - -
Firestone Publish-
ing, Inc.
Henry M. McQueeney 1997 $100,000 $6,000 - - - - -
President of 1996 $ 75,000(3) - - - - - -
Princeton Publish-
ing, Inc.
</TABLE>
(1) Based on an annual salary of $150,000; term commenced 9/97.
(2) Based on an annual salary of $140,000; term commenced 4/96.
(3) Based on an annual salary of $100,000; term commenced 4/96.
<TABLE>
Option/SAR Grants in Last Fiscal Year
Individual Grants
<S> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
James McNamara 1,200,000(1) 100% $3.00/Share(2) 1/15/08
Hugo Barreca - - - -
Walter
Weidenbaum - - - -
Henry
McQueeney - - - -
</TABLE>
(1) Options were granted pursuant to Employment Agreement with Mr. McNamara.
Options vest and become exercisable in ten equal increments over 10 years,
commencing January 16, 1998, subject to acceleration under certain conditions.
The first accelerating condition, namely, that the Company's adjusted net
income for four consecutive quarterly periods equal or exceed $1,000,000, or
the Company's net revenues for four consecutive quarterly periods exceed
$10,000,000, was met on March 31, 1997, thus accelerating the vesting and
exercisability of 400,000 of the options. The remaining 800,000 are subject
to accelerated vesting, to the extent not already vested, if and when the
Company's adjusted net income exceeds $2,000,000 for four consecutive
quarters, or the Company's net revenues for four consecutive quarterly periods
exceeds $17,000,000. Vesting and exercisability are also subject to
acceleration in the event of termination or non-renewal of employment by the
Company without cause, or termination by the Employee in certain events
including breach by the Company of the Employment Agreement and change in
control of the Company.
(2) Exercise price was reduced to $2.00 per share in January, 1998 per vote
of the Board of Directors.
<TABLE>
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Values
<S> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
Name Shares Number of Securities Value of
Acquired On Value Underlying Unexercised in the
exercise (#) Realized Options/SAR's at FY- Money Options/SAR's
End (#) at FY-End ($)
Exercisable/Unexercisable Exercisable/Unexercisable
James
McNamara 0 0 400,000/800,000 0/0
Hugo Barreca - - - -
Walter
Weidenbaum - - - -
Henry
McQueeney - - - -
</TABLE>
PRINCETON MEDIA GROUP, INC.
James J. McNamara, Chairman of the Board, is acting as President and CEO of PMG
until a president is elected. Mr. McNamara has an employment contract as
detailed in Form 10-Q, March 31, 1996 incorporated herein by reference
providing an annual salary of $150,000 and reimbursement of certain corporate
expenses. The contract provides for certain stock options, none of which have
been exercised.
Princeton Media Group, Inc. is a party to an employment contract with Hugo
Barreca, its Chief Financial Officer, providing for a one-year term which
commenced September 15, 1997. Mr. Barreca's annual salary pursuant to the
contract is $150,000.
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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of the date hereof, certain information
with respect to the beneficial ownership of outstanding shares of the Company's
common stock by: (i) each person known by the Company to be the beneficial
owner of five percent or more of its outstanding common stock, (ii) each
director and named executive officer of the Company individually and (iii) all
executive officers and directors of the Company as a group.
Name and
Address of Amount and Percent
Beneficial Title of Nature of Of
Holder Class Ownership Class
James J. McNamara Common Stock 400,000(1) 9.9%
214 Brazilian Ave.
Suite 300
Palm Beach FL 33480
Hugo Barreca Common Stock 5,000(2) Less than 1%
12 West 27th St.
14th Fl.
New York NY 10001
Walter Weidenbaum Common Stock 1,390(2) Less than 1%
14411 Commerce Way
Suite 420
Miami Lakes, FL 33016
Henry M. McQueeney Common Stock 2,900(3) Less than 1%
12 West 27th St.
14th Fl.
New York NY 10001
Joel Leshinsky Common Stock 22,000(1) Less than 1%
3409 Heather Terrace
Lauder Hill, FL 33319
All Officers and Common Stock 439,290(4) 10.1%
Directors as a Group
(5 persons)
Allstate Communications, Inc. Common Stock 25,000(2) Less than 1%
9000 Sunset Blvd.
Suite 606
Los Angeles, CA 90069
Allstate Communications, Inc. Common Stock 31,000(2) 1%
Profit Sharing Plan
9000 Sunset Blvd.
Suite 606
Los Angeles, CA 90069
Russel Leventhal Common Stock 256,500(5) 7.0%
Profit Sharing Plan
9000 Sunset Blvd.
Suite 606
Los Angeles, CA 90069
(1) Beneficially owned pursuant to currently exercisable stock options.
(2) Directly owned.
(3) Includes 2,650 shares directly owned and 250 shares beneficially owned, the
holder of record of which is an Individual Retirement Account f/b/o
Mr. McQueeney's spouse.
(4) Includes 9,290 shares directly owned and 430,000 shares beneficially owned
pursuant to currently exercisable stock options.
(5) Includes 200,500 shares directly owned; 25,000 shares beneficially owned, of
which the direct owner is Allstate Communications, Inc. (these shares also
listed above); and 31,000 shares beneficially owned, of which the direct owner
is Allstate Communications, Inc. Profit Sharing Plan (these shares also listed
above).
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1997, the Company loaned a total of $284,017 to Celebrity Entertainment, Inc.
("Celebrity"), whose President and a director is James J. McNamara,
Chairman of the Company. The loan to Celebrity accrues interest at prime rate,
which was 8.5% as of December 31, 1997, and is payable on demand. The loan
was unsecured as of December 31, 1997. As of the date of the filing of this
Amendment No. 1, Celebrity has agreed to secure the repayment of the loan
by a mortgage on an oil and gas lease owned by Celebrity in Texas with a book
value of approximately $1,200,000. The mortgage would be subordinate to prior
obligations of approximately $300,000 payable over the next 18 months.
Celebrity's financial condition is such that there is a substantial question
whether Celebrity would be able to repay the loan. Moreover, there is no
assurance that a foreclosure proceeding on the oil and gas lease would render
sufficient proceeds to repay the loan in full. In addition, in order for
Celebrity to maintain its ownership of the oil and gas lease, it is required
to undertake continuous drilling efforts. There is no assurance that its
financial condition will allow it to do so, and thus no assurance that its
ownership of the oil and gas lease will continue. As of the date hereof, the
loan has been guaranteed by Mr. McNamara to the extent of amounts owing by Mr.
McNamara to Celebrity.
Celebrity loaned all of those funds, as well as an additional $188,483, for
a total of $472,500, to Mr. McNamara during 1997. The loan from Celebrity to
Mr. McNamara accrues interest at prime rate, which was 8.5% as of December 31,
1997, and is payable on demand. The loan to Mr. McNamara is unsecured.
The funds used by the Company to make the above-described loan were the
proceeds from the exercise of stock options issued by the Company to an entity
wholly controlled by J. William Metzger, the other director of Celebrity, as
compensation for consulting services rendered to the Company by Mr. Metzger
during 1997.
In 1996, the Company had a short-term note with Celebrity due upon demand
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. The note was paid off in 1997. Interest expense on the note
was $9,059 during 1996.
In 1996 Celebrity purchased $1.4 million in Preferred Series E shares.
All of these shares were redeemed during 1997. Cumulative dividends paid on
these shares in conjunction with a conversion settlement amounted to $490,000
for the year ended December 31, 1997.
The Company shares corporate headquarters office space with Celebrity.
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, filed
as Exhibit 10.27 to the Company's Form 10-KSB/A for fiscal year ended
December 31, 1997, File No. 0-16355, filed with the Securities and Exchange
Commission on July 31, 1997; incorporated herein by reference.
10.28 Employment Agreement between the Company and James J. McNamara dated
January 1, 1997; filed as Exhibit 10.1 to the Company's Form 10-QSB for
the quarterly period ended March 31, 1997, File No. 0-16355, filed with the
Securities and Exchange Commission on May 20, 1997; incorporated herein by
reference.
10.29 Common Stock Purchase Option granted by the Company to James J. McNamara
dated January 16, 1997; filed as Exhibit 10.2 to the Company's Form 10-QSB
for the quarterly period ended March 31, 1997, File No. 0-16355, filed with
the Securities and Exchange Commission on May 20, 1997; incorporated herein
by reference.
10.30 Service Agreement with Clark Distribution Systems, Inc. dated May 23,
1997; filed as Exhibit 10.1 to the Company's Form 10-QSB for the quarterly
period ended June 30, 1997, File No. 0-16355, filed with the Securities
and Exchange Commission on August 15, 1997; incorporated herein by
reference.
10.31 Properties Purchase Agreement with Paradise Magazine, Inc. dated
March 17, 1997; filed as Exhibit 10.2 to the Company's Form 10-QSB for the
quarterly period ended June 30, 1997, File No. 0-16355, filed with the
Securities and Exchange Commission on August 15, 1997; incorporated herein
by reference.
10.32 Letter Agreement with Kable Distribution Services dated April 10,
1997; filed as Exhibit 10.3 to the Company's Form 10-QSB for the quarterly
period ended June 30, 1997, File No. 0-16355, filed with the Securities
and Exchange Commission on August 15, 1997; incorporated herein by
reference.
10.33 Lease with 12 West 27th Street Associates dated January 23, 1997;
filed as Exhibit 10.4 to the Company's Form 10-QSB for the quarterly
period ended June 30, 1997, File No. 0-16355, filed with the Securities
and Exchange Commission on August 15, 1997; incorporated herein by
reference.
10.34 Guaranty in favor of 12 West 27th Street Associates dated January
23, 1997; filed as Exhibit 10.5 to the Company's Form 10-QSB for the
quarterly period ended June 30, 1997, File No. 0-16355, filed with the
Securities and Exchange Commission on August 15, 1997; incorporated herein
by reference.
10.35 Employment Agreement with Hugo Barreca dated September 15, 1997; filed as
Exhibit 10.1 to the Company's Form 10-QSB for the quarterly period ended
September 30, 1997, File No. 0-16355, filed with the Securities and
Exchange Commission on November 14, 1997; incorporated herein by
reference.
10.36 Distribution Agreement with Curtis Circulation Company dated April 22,
1983; filed as Exhibit 10.36 to the Company's Form 10-KSB for the fiscal
year ended December 31, 1997, File No. 0-16355, filed with the Securities
and Exchange Commission on March 30, 1998; incorporated herein by
reference.
10.37 Amendment to Distribution Agreement with Curtis Circulation Company dated
March 6, 1989; filed as Exhibit 10.37 to the Company's Form 10-KSB for the
fiscal year ended December 31, 1997, File No. 0-16355, filed with the
Securities and Exchange Commission on March 30, 1998; incorporated herein
by reference.
10.38 Amendment to Distribution Agreement with Curtis Circulation Company dated
February 3, 1994; filed as Exhibit 10.38 to the Company's Form 10-KSB for
the fiscal year ended December 31, 1997, File No. 0-16355, filed with the
Securities and Exchange Commission on March 30, 1998; incorporated herein
by reference.
10.39 Lease Agreement with Dolphin Lakes Partnership [now with Nationalwide
Finance Corporation, as successor] dated July 20, 1995; filed as Exhibit
10.39 to the Company's Form 10-KSB for the fiscal year ended December 31,
1997, File No. 0-16355, filed with the Securities and Exchange Commission
on March 30, 1998; incorporated herein by reference.
10.40 Addendum to Lease with Nationalwide Finance Corporation dated February 10,
1998; filed as Exhibit 10.40 to the Company's Form 10-KSB for the fiscal
year ended December 31, 1997, File No. 0-16355, filed with the Securities
and Exchange Commission on March 30, 1998; incorporated herein by
reference.
27.1 Financial Data Schedule, filed as Exhibit 27.1 to the Company's Form 10-KSB
for the fiscal year ended December 31, 1997, File No. 0-16355, filed with
the Securities and Exchange Commission on March 30, 1998; incorporated
herein by reference.
(b) The following report on Form 8-K was filed during the quarter ended
December 31, 1997 by the Company:
Date Date
of Report Filed Items Reported Financial Statements Filed
10/31/97 11/7/97 Accountant's Decision Not None
to Stand for Re-Election;
Engagement of New Accountants
(Item 4)
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: Sept. 4, 1998
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
By: Robert F. Kendall, CPA
Senior Vice President - Finance/
Treasurer
/s/ Hugo Barreca
By: Hugo Barreca,
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, 1997, and 1996
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, 1997, and 1996
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Holyfield Associates, P.A.
Certified Public Accountants
West Palm Beach, Florida
March 27, 1998
<TABLE>
PRINCETON MEDIA GROUP, INC.
Consolidated Balance Sheets
December 31, 1997 and 1996
1997 1996
<S> <C> <C>
Assets
Current assets
Cash $ 616,558 $ 630,163
Accounts receivable, net 2,501,038 2,535,668
Marketable securities 17,080 -
Inventories 535,984 656,025
Deferred income tax benefit - 271,300
Prepaid expenses 35,014 145,911
Total current assets 3,705,674 4,239,067
Property and equipment, net 1,705,060 1,756,212
Deposits 36,619 49,330
Due from related party 284,017 -
Deferred acquisition costs 578,644 -
Trademarks, copyrights and other intangibles, net 12,180,262 12,094,863
Total assets $ 18,490,276 $ 18,139,472
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 1,929,692 $ 788,109
Accrued expenses 363,279 1,413,711
Current portion of long-term debt 1,010,110 212,753
Borrowing under line of credit 618,333 -
Due to related party - 6,975
Deferred revenue 790,658 469,867
Accrued interest 60,331 193,562
Total current liabilities 4,772,403 3,084,977
Long-term debt, less current portion 8,250,007 8,809,905
Convertible debentures payable - 1,925,000
Deferred taxes - 166,900
Shareholders' equity:
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 19,671,389 12,197,802
Deficit (14,972,142) (11,368,215)
Total shareholders' equity 5,467,866 4,152,690
Total liabilities and shareholders' equity $18,490,276 $ 18,139,472
</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, 1997 and 1996
1997 1996
<S> <C> <C>
Revenues:
Distribution, circulation, and other income $ 11,398,054 $ 5,423,890
Advertising income 3,000,838 2,193,924
Printing income 1,174,098 924,881
Net revenues 15,572,990 8,542,695
Costs and operating expenses:
Cost of sales 10,999,454 4,965,804
Selling and administrative 6,062,359 3,612,737
Loss from operations ( 1,488,823) ( 35,846)
Interest income (expense)
Interest income 22,407 -
Convertible debentures - ( 74,715)
Other long-term debt (991,233) ( 579,716)
Total interest income (expense) (968,826) ( 654,431)
Loss before income taxes (2,457,649) ( 690,277)
Provision for income taxes 112,383 ( 104,400)
Loss from continuing operations before writeoff of debt discount and issue costs (2,570,032) ( 585,877)
Writeoff of debt discount and issue costs (Note 18) - (3,257,350)
Loss from continuing operations (2,570,032) (3,843,227)
Loss from discontinued operations - ( 39,471)
Net loss (2,570,032) (3,882,698)
Accumulated deficit - beginning of the year (11,368,215) (5,959,517)
Deemed dividend on convertible preferred stock (Note 18) (1,033,895) (1,526,000)
Accumulated deficit - end of the year $ (14,972,142) $(11,368,215)
Basic and diluted loss per share:
Continuing operations $ ( 1.67) $ ( 10.09)
Discontinued operations $ - $ ( .07)
Net loss per share $ ( 1.67) $ ( 10.16)
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
PRINCETON MEDIA GROUP, INC.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997 and 1996
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,570,032) $(3,882,698)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 310,182 203,489
Amortization 372,030 182,827
Interest on convertible debentures - 74,715
Write-off of debt issue costs and debt
discount on convertible debentures (Note 18) - 3,257,350
Bad debt expense allowance - 35,000
Gain on discontinued operations - ( 440,110)
Stock issued and options and warrants granted
for consulting services 912,848 685,033
Net income (loss) after adjustments ( 974,972) 115,606
Changes in assets and liabilities
exclusive of assets and liabilities acquired:
(Increase) decrease in:
Accounts receivable 34,630 (2,143,138)
Marketable securities ( 17,080) -
Inventories 120,041 ( 656,025)
Due from related party ( 606,452) -
Deferred costs, acquisitions ( 236,800) -
Income tax benefit 271,300 ( 271,300)
Prepaid expenses 110,897 ( 145,911)
Deposits 12,711 ( 49,330)
Increase (decrease) in:
Accounts payable 1,141,583 490,142
Accrued expenses ( 771,588) 1,073,727
Due to related party - 6,975
Deferred revenue 20,791 469,867
Accrued interest 313,802 160,995
Long-term deferred taxes ( 166,900) 166,900
Net cash used in operating activities ( 748,037) ( 781,492)
Cash flows from investing activities:
Capital expenditures ( 190,395) ( 134,841)
Cash paid for acquisition of trademarks,
copyrights, equipment, and related
receivables and payables - (5,044,388)
Net cash used in investing activities ( 190,395) (5,179,229)
Cash flows from financing activities:
Proceeds from issuance of common stock 2,454,996 -
Payments in settlement of convertible securities (2,454,996) -
Proceeds from exercise of stock options 584,565 75,000
Proceeds from notes payable 1,120,000 -
Payments on notes payable ( 779,738) -
Proceeds from issuance of preferred stock, net - 2,740,000
Proceeds from issuance of
convertible debentures - 3,762,025
Net cash provided by financing activities 924,827 6,577,025
Net increase (decrease) in cash ( 13,605) 616,304
Cash, beginning of period 630,163 13,859
Cash, end of period $ 616,558 $ 630,163
Supplemental cash flow information:
Interest paid $ 673,812 $ 409,747
Income taxes paid $ 7,983 -
Noncash Investing and Financing Activities:
Printing equipment acquired for note $ 77,000 $ -
Trademark acquired for advertising credit
of $300,000 and accrued expense of $100,000 $ 400,000 $ -
Accrued interest on note reclassed as principal $ 414,466 $ -
Equipment acquired for capital leases $ 24,064 $ 27,263
Fair value of common stock issued
and options and warrants granted -
Upon conversion of convertible debt $ 4,723,474 $3,142,765
For capital acquisitions $ 341,844 -
For franchise rights $ 25,000 -
On disposal of subsidiary $ - $ 330,975
</TABLE>
In addition to the above, in 1997, the Company paid accrued severance expense
with stock valued at $380,635.
In 1996, the Company (a) 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 and a long-term note of $5,000,000; (b) purchased trademarks
and copyrights valued at $107,390 for $32,390 in cash and an installment loan
payable of $75,000; and (c) 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.
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 approximately twenty-five 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 the estimated useful lives of the
assets using the straight-line method. Expenditures for maintenance and repairs
are charged to expense as incurred; additions, 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
excess of the unamortized trademarks and copyrights over 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
periods. Actual results could differ from these estimates.
(J) Net Loss Per Share
In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (SFAS 128), "Earnings per Share." This statement
requires the presentation of basic and diluted earnings per share and replaced
the presentation of primary and fully diluted earnings per share prescribed by
APB Opinion 15. The Company has computed basic and diluted (loss) per share
using the weighted average number of common shares outstanding, since common
stock options and warrants, and the effect of assuming the conversion of the
outstanding convertible securities were antidilutive in both years.
The following table sets forth the computation of basic and diluted loss per
share:
1997 1996
Loss from continuing operations $(2,570,032) $(3,843,227)
Less: preferred stock dividends (1,077,897) (1,645,354)
Loss to common stockholders (3,647,929) (5,488,581)
Weighted average common shares outstanding 2,186,595 543,900
Basic and diluted (loss) per share from
continuing operations $( 1.67) $( 10.09)
(K) Recent Accounting Pronouncements
In 1997, the FASB issued Statements No. 130, "Reporting Comprehensive Income,"
and No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which are effective for fiscal years beginning after December 15,
1997. These Statements will have no effect on the Company's financial position
or results of operations.
(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. The Company has no significant
concentration of credit risk as accounts receivable are due from a large number
of customers. The Company currently distributes its periodicals primarily
through three distributors. In addition, the Company continues to evaluate
other distributor relationships.
2. Acquisitions
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.
During 1996 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 a wholly-owned subsidiary
corporation which purchased the assets and operations.
First Publishing Acquisition
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 Publishing Acquisition
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 18 and
September 6, 1996. 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 (Note 3) 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 also 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 and $7,693 on related forgiveness of debt.
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 above noted gain
on the disposition of the subsidiary. Combined with severance costs associated
with the disposition of $479,581 and miscellaneous items, the Company had a net
loss on disposition of the discontinued operations of $39,471.
4. Accounts Receivable
Accounts receivable at December 31, 1997 and 1996 consisted of the following:
1997 1996
Accounts receivable, gross $7,796,879 $5,890,609
Less: allowance for returns and
distribution expenses 5,260,841 3,319,941
Less: allowance for doubtful accounts 35,000 35,000
Total accounts receivable, net $2,501,038 $2,535,668
5. Inventories
Inventories at December 31, 1997, and 1996 consisted of the following:
1997 1996
Paper $ 214,081 $ 481,151
Ink 18,911 10,277
Work in process 302,992 164,597
Total inventories $ 535,984 $ 656,025
6. Property and equipment
Property and equipment as of December 31, 1997 and 1996 consisted of the
following assets, all depreciated between 5 and 7 years:
1997 1996
Printing equipment $1,973,202 $1,824,311
Computer equipment 134,725 103,106
Office furniture and equipment 110,804 32,284
Total property and equipment, cost 2,218,731 1,959,701
Less accumulated depreciation (513,671) ( 203,489)
Total property and equipment, net $1,705,060 $1,756,212
7. Trademarks, copyrights and other intangibles
Trademarks, copyrights and other intangibles at December 31, 1997, and 1996
consisted of the following:
1997 1996
Trademarks and copyrights $12,643,592 $12,233,303
Organizational costs 34,387 34,387
Franchise rights 57,140 10,000
Total intangible assets, cost 12,735,119 12,277,690
Less accumulated amortization ( 554,857) (182,827)
Trademarks, copyrights, and
other intangibles, net $12,180,262 $12,094,863
8. Line of Credit
The Company has a line of credit with a distributor for working capital of up to
$500,000 which could be drawn down in multiples of $10,000 from June 28, 1996
for a one year period. Any draws bear interest at prime plus 2% and are payable
with equal monthly payments of principal and interest over a one year period for
each new draw. The line of credit was amended with a provision for a one-time
draw of $500,000 with monthly payments of interest only due on or before October
1, 1998. As of December 31, 1997, the balance was $118,333 on the original line
and $500,000 on the amendment portion.
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% (10.50% at December 31, 1997),
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 (10.50% at December 31, 1997). Interest
accrued with no payment due until September 6, 1997, at which time accrued
interest of $414,466 was added to principal and fixed payments of principal and
interest became 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, 1997, and 1996 consists of the following:
1997 1996
Note payable - First Seller $5,000,000 $5,000,000
Note payable - Second Seller 4,188,996 4,000,000
Note payable - equipment 35,645 -
Capital lease obligations 35,476 22,658
Total debt 9,260,117 9,022,658
Less current portion (1,010,110) ( 212,753)
Total long-term debt $8,250,007 $8,809,905
The aggregate scheduled maturities of long-term debt in subsequent years are
as follows:
1998 $1,010,110
1999 1,091,140
2000 1,221,550
2001 1,005,985
2002 33,756
Thereafter 4,897,576
Total debt $9,260,117
10. 8% 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 December 31,
Principal Conversion 1996 1997
Group I $3,081,800 491,271 None None
Group II 444,200 19,351 $ 345,000 None
Group III 1,580,000 - 1,580,000 None
Total $5,106,000 510,622 1,925,000 None
The 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
were due in two years from the dates of issue, and they were 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 stock 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.
In March 1997, the Company reached an agreement (the "Agreement") with the
holders of all of its outstanding convertible debentures, convertible preferred
Series D and preferred Series E stockholders (Note 13) to convert their holdings
to common stock. In April the Company issued 1,105,700 shares into escrow per
the Agreement. A portion of the shares were sold in the second and third
quarters and funds were paid to the securities holders. In the third quarter of
1997, a final settlement agreement was reached in which convertible securities
holders accepted shares of common stock in settlement of the conversion of the
securities.
The Agreement granted preferred shareholders warrants at exercise prices ranging
from $4.85 to $8.85 to purchase 183,710 shares of the Company's common stock.
The estimated value of these warrants of $507,012 was accounted for as a
dividend to these shareholders in 1997.
11. Commitments
The Company leases facilities and equipment with minimum payments as of December
31, 1997, as follows:
Facilities Equipment Total
1998 $ 488,239 $ 11,028 $ 499,267
1999 347,989 9,124 357,113
2000 115,162 7,219 122,381
2001 75,797 5,105 80,902
2002 6,337 1,498 7,835
Thereafter - - -
Total $1,033,524 $33,974 $1,067,498
The Company's leased facilities consist of editorial offices in New York City
and Miami, Florida, and a printing plant in Milwaukee, Wisconsin, and a
corporate apartment in New York City. 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 the 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 $494,861 and $280,270 in 1997 and 1996 respectively.
12. Income Taxes
In 1997, the Company provided a full valuation allowance against the deferred
tax assets established in 1997 and 1996 since it was more likely than not that
the deferred tax asset would not be realized. The provision for income taxes
(benefit) for 1997 and 1996 consist of:
1997 1996
Current:
Alternative minimum tax and franchise taxes $ 7,983 $ -
Deferred:
U.S. Federal 86,600 (86,600)
State and local 17,800 (17,800)
Total deferred 104,400 (104,400)
Total provision for income taxes (benefit) $ 112,383 $(104,400)
Current taxes in 1997 were amounts actually paid and the provision for deferred
is the reversal of the prior year estimated benefit.
The components of deferred tax assets and liabilities in the balance sheet at
December 31, 1997 and 1996 relate to the following:
1997 1996
Deferred tax assets:
Reserve for returns $ 743,100 $298,400
Valuation of inventories 114,600 69,900
Allowance for doubtful accounts 13,300 13,300
Net operating loss carryforward 200,500 11,400
Valuation allowance (632,600) (121,700)
Total deferred income tax benefit 438,900 271,300
Long-term deferred tax liabilities:
Depreciation of properties 167,600 76,400
Amortization of intangibles 271,300 90,500
Total long-term deferred tax liabilities 438,900 166,900
Tax assets and liabilities, net $ - $104,400
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:
1997 1996
Loss before income taxes, writeoff of
debt discount and issue costs
and discontinued operations: $(2,457,649) $(690,277)
Income taxes computed at statutory rates:
Federal benefit expected at 34% $( 835,600) $(234,700)
State tax provisions, net of federal benefits ( 98,300) ( 27,600)
Other reconciling items-
Non-deductible items 12,700 4,400
Canadian expenses 514,700 31,800
Alternative minimum tax and franchise taxes 7,983 -
Valuation allowance 510,900 121,700
Provision (benefit) for income taxes $ 112,383 $(104,400)
At December 31, 1997, the Company has available a net operating loss
carryforward of approximately $83,000, expiring in the year 2012. 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.
13. Capital Stock
A summary of capital stock as of December 31, 1997 is as follows:
Convertible Preferred
Common Series A Series C
Par value None None None
Shares authorized Unlimited Unlimited 1,100,000
Issued and outstanding 3,480,787 32,500 1,100,000
Liquidation preference 3rd 1st 2nd
Liquidation preference per share - $1.24 $.80
Total liquidation value - $40,300 $880,000
Total cumulative dividends in arrears - $ - $216,333
Per share arrearage $ - $ .20
(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 ($40,300 in total) and 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, (the 32,500 Series A shares are convertible
to 163 shares of common stock).
Series B:
No shares have been issued and management does not intend to issue shares in the
future.
Series C:
These preference shares were 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 (5,500 shares). 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 $216,333 and
$172,333 at December 31, 1997 and 1996, respectively.
Series D and E:
These were entirely converted or redeemed in 1997. Management does not plan any
further issuances.
(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
Options and warrants issued during 1997 and 1996 are as follows:
1997 1996
Exercise Exercise
Shares Price* Shares Price*
Outstanding at
Beginning of year 68,689 $119.56 68,689 $119.56
Granted
Consultants 462,500 $ 2.77 20,000 $ 10.00
Settlement of convertible securities 183,700 $ 6.85 - -
Total granted 646,200 $ 3.93 20,000 $ 10.00
Exercised (265,000) $ 2.21 ( 7,500) $ 10.00
Expired ( 61,251) $100.20 (12,500) $ 10.00
Outstanding and
exercisable at year end 388,638 $ 10.37 68,689 $119.56
* Weighted average
In 1997, total fair value of options and warrants granted as consulting fees was
$315,325. At December 31, 1997, the exercise prices of outstanding options and
warrants ranged from $2.00 to $5.00 except warrants granted in conjunction with
the settlement of convertible debentures (Note 10) which ranged from $4.85 to
$8.85. The weighted average remaining contractual life of options and warrants
outstanding and exercisable at year end in 1997 was 1.6 years.
Black-Scholes option-pricing model assumptions used in determining fair
value - 1997:
Risk-free interest rate 6.00% -
Dividend yield 0% -
Stock volatility 100.00% -
Expected option life 1 to 2 years Less than 1 year
There were no stock options or warrants granted to employees in 1997 or 1996
except as detailed in Item D below.
(D) Employee Stock Grants and Options
In 1997 employees were granted compensation awards of stock valued at $16,233.
During 1997 in conjunction with an employment contract the Company granted stock
options to the Chairman of the Board and CEO to purchase 1,200,000 shares at
$3.00 with 120,000 shares vesting every year for ten years beginning January 16,
1998. The vesting will be accelerated based upon the Company achieving certain
revenue goals. The first level was achieved in 1997 whereby the first 400,000
options became vested.
The Company accounts for its stock-based compensation in accordance with APB
Opinion No. 25. Had the Company's stock-based compensation been determined by
the fair value method of SFAS 123, "Accounting for Stock-Based Compensation,"
the Company's net loss and loss per share would have been the following pro
forma amounts:
Pro forma net loss - 1997 $( 3,390,032)
Pro forma loss per share - 1997 $( 2.04)
Black-Scholes option-pricing model assumptions used in determining fair value:
Risk-free interest rate 5.50%
Dividend yield 0%
Stock volatility 100.00%
Expected option life 5 years
Fair value $ 2.05
(E) Changes in Equity
Changes in equity for the years ended December 31, 1997 and 1996 were as
follows:
Preferred Stock Series A and Series C:
Series A Series C
Shares Amount Shares Amount
Balance at January 1, 1996 32,500 $28,923 1,100,000 $739,696
Changes - none - - - -
Balance at December 31, 1996 32,500 28,923 1,100,000 739,696
Changes - none - - - -
Balance at December 31, 1997 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, 1996 - - - -
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
Settlement (1,200) ( 1,005,000) (1,634) (1,549,484)
Balance at December 31, 1997 - $ - - $ -
Common shares:
Shares Amount
Balance at January 1, 1996 222,471 $ 4,258,755
Common shares issued -
To consultants 51,401 653,160
To settle liabilities (Note 3) 49,000 330,975
On exercise of options 7,500 106,875
On conversion of debentures including
"deemed" dividend on convertible preferred
shares of $1,526,000 (Note 18) 510,622 6,662,521
On conversion of Preferred Series E 24,975 185,516
Balance at December 31, 1996 865,969 12,197,802
Common shares issued -
To consultants, in legal settlement,
and in employee stock option plan 132,325 911,067
To consultants in capital acquisitions 103,500 341,844
For accrued severance 120,000 380,625
For franchise rights 5,000 25,000
On settlement of convertible preferred stock
and conversion of debentures 1,869,829 4,723,474
Proceeds on exercise of stock options 265,000 584,565
Dividend - warrants (Note 10) - 507,012
Balance at December 31, 1997 3,361,623 $19,671,389
14. Related Party Loans, Investment and Transactions
At December 31, 1997, the Company had a note receivable due from a company
related by common directorship in the amount of $284,017 due upon demand with
interest accruing at prime beginning January 1, 1998 (prime was 8.5% as of
December 31, 1997).
In 1996, the Company had a short-term note due upon demand to 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. The
note was paid off in 1997. Interest expense on the note was $9,059 during 1996.
In 1996 the related company purchased $1.4 million of Preferred Series E shares.
All of these shares were redeemed during 1997. Cumulative dividends paid on
these shares in conjunction with a conversion settlement amounted to $490,000
for the year ended December 31, 1997.
The Company shares corporate headquarters office space with 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. In
connection with the required match, the Company's contribution was $33,357 in
1997 and $11,027 in 1996.
17. Nonmonetary Transactions
In 1997 and 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 and to facilitate the Company's settlement of
convertible securities. Total expenses for investor relations was $1,031,445
and $812,398 in 1997 and 1996, respectively. Of these amounts $912,848
(including $1,781 accrued for stock issued in 1998) and $685,033 in 1997 and
1996, respectively, were noncash expenses through the issuance of stock,
options, and warrants.
18. 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 (EITF Topic D-60).
The SEC stated that the conversion discount should be valued and recognized at
the date of issue as additional paid-in capital. The value is to be determined
by 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. If the stated maturity of such debt is
not substantive, 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 was generally accepted accounting 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 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 in 1996.
Deemed Dividend
For convertible preferred securities issued with a conversion discount, the SEC
stated 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 the Company's 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.
These noncash dividends represent 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.
In 1997 the Company recognized total deemed dividends in conjunction with the
settlement in the amount of $1,033,895 consisting of the valuations on warrants
of $507,012 detailed in Note 10 and $526,883 in additional dividends in the
final settlement of Series D and Series E shareholders.
