U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------------------
FORM 10-QSB
(mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-16355
----------------------------------
PRINCETON MEDIA GROUP, INC.
(Exact name of small business issuer as specified 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
-----------------------------------------
Securities registered under Section 12(b) of the Act: None.
Securities registered under Section 12(g) of the Exchange Act as of June 30,
1998: 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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
The number of shares outstanding of the issuer's common stock, no par value,
as of August 14, 1998 was 4,143,722.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
PRINCETON MEDIA GROUP, INC.
FORM 10-QSB
For the Quarterly Period Ended June 30, 1998
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
All financial information is expressed in United States dollars.
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheet June 30, 1998
Consolidated Statements of Operations and Accumulated Deficit
for the Six Months Ended June 30, 1998 and 1997
and for the Three Months Ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
PRINCETON MEDIA GROUP, INC.
Consolidated Balance Sheet
June 30, 1998
(Unaudited)
<TABLE>
<S> <C>
Assets
Current assets
Cash $ 155,761
Accounts receivable, net 2,939,527
Marketable securities 17,080
Inventories 582,655
Prepaid expenses 45,936
Total current assets 3,740,959
Property and equipment, net 1,592,813
Deposits 27,138
Investment in joint venture 25,306
Note receivable - related party 887,003
Accrued interest receivable - related party 23,565
Deferred acquisition costs 1,072,515
Trademarks, copyrights and other intangibles, net 12,094,332
Total assets $ 19,463,631
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 2,511,274
Accrued expenses 676,373
Note payable 643,024
Borrowing under line of credit 500,000
Deferred revenue 837,612
Accrued interest 64,000
Current portion of long-term debt 1,147,575
Total current liabilities 6,379,858
Long-term debt, less current portion 7,911,176
Shareholders' equity:
Series A Preference Shares 28,923
Series C Preference Shares 739,696
Common Stock 21,016,932
Deficit (16,612,954)
Total shareholders' equity 5,172,597
Total liabilities and shareholders' equity $ 19,463,631
</TABLE>
See accompanying notes to consolidated financial statements.
PRINCETON MEDIA GROUP, INC.
Consolidated Statements of Operations and Accumulated Deficit
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Distribution, circulation, and
other income $ 2,829,210 $1,945,739 $ 5,928,195 $ 4,589,768
Advertising income 717,284 418,615 1,408,735 1,407,043
Printing income 327,933 181,593 836,986 579,838
Net revenues 3,874,427 2,545,947 8,173,916 6,576,649
Cost of sales 3,113,313 2,380,851 6,115,205 4,903,232
Gross profit 761,114 165,096 2,058,711 1,673,417
Operating expenses 1,753,818 1,319,419 3,203,494 2,687,929
Income (loss) from operations ( 992,704) (1,154,323) ( 1,144,783) (1,014,512)
Interest and other income 18,794 9,347 30,475 9,347
Interest and other expense (276,012) (240,375) (526,504) (472,888)
Net loss (1,249,922) (1,385,351) ( 1,640,812) (1,478,053)
Accumulated deficit, beginning of period (15,363,032) (11,743,817) (14,972,142) ( 11,368,215)
Preferred stock dividend (Note 10) - - - ( 282,900)
Accumulated deficit, end of period ($16,612,954) ($13,129,168) ($16,612,954) ($13,129,168)
Basic and diluted loss per share ($ 0.33) ($ 0.65) ($ 0.45) ($ 1.16)
See accompanying notes to consolidated financial statements.
</TABLE>
PRINCETON MEDIA GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
Six months ended June 30,
<S> <C> <C>
1998 1997
Cash flows from operating activities:
Net loss $(1,640,812) $(1,478,053)
Adjustments to reconcile net loss
to net cash used in
operating activities
Depreciation 165,614 150,194
Amortization 185,930 183,136
Loss on disposition of asset 302 -
Stock issued as payment for acquisition
and related services 316,523 903,344
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable (438,489) 664,865
Inventories ( 46,671) (235,769)
Deferred costs - acquisitions (117,357) -
Prepaid expenses and deposits ( 1,441) (230,705)
Accrued interest receivable ( 23,565) -
Other assets - (355,073)
Increase (decrease) in:
Accounts payable 581,582 331,303
Accrued expenses 314,875 (952,160)
Due to related party - ( 6,975)
Deferred revenue ( 53,046) 375,530
Accrued interest 3,669 201,827
Net cash used in operating
activities ( 752,886) (448,536)
Cash flows from investing activities:
Capital expenditures ( 57,669) ( 78,133)
Proceeds from sale of asset 4,000 -
Investment in joint venture ( 25,306) -
Advances on note receivable - related party ( 602,986) -
Net cash used in
investing activities ( 681,961) ( 78,133) <PAGE>
Cash flows from financing activities:
Proceeds from exercise of stock options 650,725 -
Proceeds from note payable 1,300,000 620,000
Payments of long-term debt ( 858,342) (207,797)
Payments on borrowings on line of credit ( 118,333) -
Proceeds from issuance of common stock - 150,000
Redemption of Series E preferred - (274,298)
Net cash provided by
financing activities 974,050 287,905
Net decrease in cash ( 460,797) (238,764)
Cash, December 31, 1997 and 1996 616,558 630,163
Cash, June 30, 1998 and 1997 $ 155,761 $ 391,399
Supplemental disclosures of cash flow information:
1998 1997
Interest paid $ 522,533 $ 257,914
Noncash investing and financing activities:
Common stock issued for consulting
and acquisition fees $ 678,531 $ 862,111
Employee stock option plan $ 14,506 $ 16,233
Common stock issued for accrued expenses $ 1,781 $ -
Common stock issued upon conversion of
convertible debt $ - $ 3,213,817
Common stock issued for franchise rights $ - $ 25,000
Printing equipment acquired for note $ - $ 77,000
Trademarks acquired for advertising credits in
1998 of $100,000 and in 1997 of $300,000
and accrued expense of $100,000 $ 100,000 $ 400,000
</TABLE>
See accompanying notes to consolidated financial statements.
PRINCETON MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis for Presentation
The accompanying unaudited interim financial statements consolidate the accounts
of Princeton Media Group, Inc. ("Princeton") and its wholly owned subsidiaries.
All significant intercompany transactions and balances have been eliminated in
consolidation. In the opinion of management, the accompanying unaudited interim
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the financial position as
of June 30, 1998 and the results of their operations and their cash flows for
the quarters ended June 30, 1998 and 1997 and for the six month periods ended
June 30, 1998 and 1997. The results of operations for the quarter ended June 30,
1998 and for the six months ended June 30, 1998 are not necessarily indicative
of the results to be expected for the full year. These statements should be
read in conjunction with the Company's annual report on Form 10-KSB for the year
ended December 31, 1997.
2. Basic and Dilutive Loss Per Share
Net loss per share is computed using the weighted average number of shares of
common stock outstanding. Common equivalent shares from stock options and
warrants, and additional shares assuming the conversion of debentures and
preferred shares, are excluded from the computation as their effect is
antidilutive.
For the quarter and for the six months ended June 30, 1998, cumulative dividends
of $11,000 and $22,000, respectively, related to preferred Series C have been
added to net loss in the loss per share computation.
The following table sets forth the computation of basic and diluted loss per
share as of June 30, 1998 and 1997:
1998 1997
Net loss $(1,640,812) $(1,478,053)
Preferred dividends - Series C ( 22,000) ( 22,000)
Preferred dividends - Series E - ( 51,503)
Deemed dividends - ( 282,900)
Net loss for computation of earnings $(1,662,812) $(1,834,456)
Weighted average common shares outstanding 3,689,207 1,584,941
Basic and diluted loss per share: $( .45) $( 1.16)
3. Accounts Receivable
Accounts receivable at June 30, 1998 consisted of the following:
Accounts receivable, gross $7,014,901
Less: allowance for returns and miscellaneous charges (4,040,374)
Less: allowance for doubtful accounts ( 35,000)
Total accounts receivable, net $2,939,527
4. Inventories
Inventories at June 30, 1998 consisted of the following:
Paper $194,958
Ink 28,101
Work in process 359,596
Total inventories $582,655
5. Property and equipment
Property and equipment as of June 30, 1998 consisted of the following assets,
all depreciated using the straight-line method over the estimated useful lives
of the assets which range from five to seven years:
Printing equipment $1,975,520
Computer equipment 173,651
Office furniture and equipment 122,265
Total property and equipment, cost 2,271,436
Less accumulated depreciation ( 678,623)
Total property and equipment, net $1,592,813
6. Trademarks, copyrights and other intangibles
Trademarks, copyrights and other intangibles at June 30, 1998, consist of
the following:
Trademarks and copyrights $12,743,592
Organizational costs 34,387
Franchise rights 57,140
Total intangibles, cost 12,835,119
Less accumulated amortization ( 740,787)
Trademarks, copyrights, and
other intangibles, net $12,094,332
7. Long - term debt
Long-term debt at June 30, 1998 consisted of the following:
Note payable - First Seller $5,000,000
Note payable - Second Seller 3,720,037
Note payable 300,000
Note payable - equipment 9,135
Capital lease obligations 29,579
Total long-term debt 9,058,751
Less current portion (1,147,575)
Total long-term debt, net of current portion $7,911,176
8. Change in common shares for the six months ended June 30, 1998 was as
follows:
Shares Amount
Balance at December 31, 1997 3,361,623 $19,671,389
Common shares issued -
In employee stock option plan 8,289 14,506
To consultants in capital acquisitions 285,810 678,531
For accrued consulting expense 1,000 1,781
In exercise of stock options by consultants 345,000 650,725
Balance at June 30, 1998 4,001,722 $21,016,932
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-looking Statements
Statements contained in this Form 10-QSB 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 Publishing, Inc.
and Firestone Publishing, Inc. is engaged in the publishing, printing, and
distribution of approximately 25 periodical consumer lifestyle magazines. The
Princeton and Firestone editorial staffs are in Miami. Previously the Princeton
editorial staff was in New York City. The Company consolidated its entire
editorial production team in the Miami office beginning in April, 1998 and
completed the transition by the end of the second quarter. Several key
employees continue to operate in the New York office in the areas of
circulation, promotion, and development. Kingston Press, Inc., a wholly-owned
subsidiary of Princeton, leases and maintains a printing plant in Sussex,
Wisconsin. The plant is used for the printing of the Company's magazines and to
do printing work for third parties on a contract basis. The Company's executive
offices are located in Palm Beach, Florida.
On August 4, 1998, the SEC issued expanded requirements for disclosure regarding
the international computer programming problems whereby certain computer
programs will not be able to properly recognize the date in the year 2000.
Management believes the Company has no material exposure from the year 2000
problem. The Company s management information systems department reports that
because the Company s system was originally designed to be unaffected by year
2000 problem, the Company has no exposure to the problem within its own system.
The Company has consulted major vendors and suppliers whose non-compliance with
correction of the problem could cause material damage to the Company and has
determined that such vendors and suppliers have plans in place that will
circumvent year 2000 problems that could affect the Company.
Results of Operations
During the year ended December 31, 1996, the Company completed a fundamental
change in its course of business and now focuses entirely on publishing,
printing and related media. This refocus was accomplished by management by the
purchase of two major businesses with extensive and time-proven histories in the
printed media industry. These two businesses had operating histories of
twenty-two years and twenty-five years, respectively, and included one title
continually published for forty years and another for twenty-five years.
The six month period ended June 30, 1998 compared to the six month period ended
June 30, 1997:
Revenues for the six month period ended June 30, 1998 amounted to $8,173,916
compared to $6,576,649 for the six month period ended June 30, 1997. The
increase of $1,597,267 is due to an increase in distribution and circulation
income of $1,338,427 and an increase in printing income of $257,148 over the
same period in the prior year. The distribution increase is partly due to
several new successful magazines and partly due to improved performance of
existing publications. The printing income increase is due to additional
printing contracts to increase the utilization of the printing plant to nearly
100%.
Costs and expenses of revenues for the six month period ended June 30, 1998 were
$9,318,699 compared to $7,591,161 for the six month period ended June 30, 1997.
The increase of $1,727,538 was primarily due to increase in paper costs,
increased cost for outsourcing color separations to improve quality of
publications, increase in payroll cost for additional and higher level
personnel, and one-time costs associated with consolidation of editorial
operations in the Company's Miami office. The consolidation of the editorial
production to the Miami office began in the first quarter of 1998 and was
completed in the second quarter of 1998.
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) was
$(475,530) and $(429,250)for the six month periods ended June 30, 1998 and 1997,
respectively. The decrease of $46,280 was primarily due to increase in paper
costs, increased cost for outsourcing color separations to improve quality of
publications, increase in payroll cost for additional and higher level
personnel, and one-time costs associated with consolidation of editorial
operations in the Company's Miami office. The consolidation of the editorial
production to the Miami office began at the end of the first quarter and was
completed in the second quarter of 1998.
Financial analysts generally consider EBITDA an important measure for comparing
operating performance of a company, debt levels or the coverage of interest
expense, and 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. EBITDA removes the effects of
the significant amounts of amortization of intangible assets and debt incurred
in the two acquisitions completed during 1996. The Company issues 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 and acquisitions in process.
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.
Net loss for the six months ended June 30, 1998 was $1,640,812 which represents
an increase of $162,759 from the net loss of $1,478,053 for the six month period
ended June 30, 1997. Monthly interest payments of approximately $43,000 are due
under a $5 million promissory note executed upon acquisition of the publishing
assets acquired March 29, 1996 and monthly payments of approximately $113,000
are due under a $4.4 million promissory note executed upon acquisition of the
publishing assets acquired September 6, 1996.
Liquidity and Capital Resources
During the six month period ended June 30, 1998, $526,504 in interest expense
was charged to operations compared to $472,888 in interest expense for the six
month period ended June 30, 1997. The interest expense was accrued primarily
pursuant to two promissory notes delivered by Princeton and Firestone in
connection with the purchases of the magazine publishing assets in March and
September of 1996.
Liquidity and capital resources are discussed in three broad categories:
operating activities, investing activities and financing activities.
Cash decreased $460,797 to $155,761 at June 30, 1998 from $616,558 at December
31, 1997. Net cash used in operating activities was $752,884 during the six
month period ended June 30, 1998 compared to cash used by operating activities
of $448,536 during the six month period ended June 30, 1997. The increase of
$304,348 in net cash used in operating activities in the six month period of
1998 compared to the same period of 1997 occurred primarily due to increase in
paper costs, increased cost for outsourcing color separations to improve quality
of publications, increase in payroll cost for additional and higher level
personnel, and one-time costs associated with consolidation of editorial
operations in the Company's Miami office.
During the six month period ended June 30, 1998, net cash used in investing
activities was $681,963 compared with $78,133 used in investing activities
during the six month period ended June 30, 1997. The increase is primarily due
to advances on a note receivable.
During the six month period ended June 30, 1998, net cash provided by financing
activities was $974,050 representing an increase of $686,145 from net cash
provided by financing activities of $287,905 during the six month period ended
June 30, 1997. In the first six months of 1997 cash was provided from borrowing
on a line of credit. In the six months of 1998 cash was provided by proceeds
from notes payable and by exercise of stock options and primary usage was for
payment of principal on the second acquisition note which began amortizing in
October 1997 and on the line of credit.
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 broader introduction of brand-name magazine content is anticipated
to increase substantially the revenues from the Company's operations, compared
with the results realized during 1997. Management anticipates that the
implementation of its business plan during 1998 which includes, among other
things, production efficiencies to be achieved primarily by consolidating all
editorial production in the Company's Miami office, 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.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
Jennifer Fain filed suit against the Company and its subsidiary, Firestone
Publishing, Inc., on April 17, 1998 in the Superior Court of Cobb County,
Georgia seeking compensatory damages in the amount of $2,500,000, exemplary
damages in the amount of $2,500,000, costs, and other unspecified relief for
alleged publication of material without consent. The Company is vigorously
defending itself in this litigation, and management anticipates that if any
damages are awarded to the plaintiff, the amount of such damages will be
substantially lower than the amount sought.
Item 5: Other Information.
The Company named Norman Raben as Chief Operating Officer and Executive Vice
President - Director of Sales and Marketing in May, 1998. Mr. Raben has 25
years experience in magazine publishing, printing and direct marketing. He was
Co-Founder, President and Chief Operating Officer of Inc. Magazine, Co-Founder
and Publisher of Bicycle Guide Magazine, and Founder and Publisher of The
Walking Magazine. From 1993 to 1998, Mr. Raben was CEO of various printing,
mailing and direct marketing companies which operated under the name Direct
Marketing Services.
Item 6: Exhibits and Reports on Form 8-K.
Exhibit 27.1 Financial Data Schedule.
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: August 14, 1998
PRINCETON MEDIA GROUP, INC.
/s/ James J. McNamara
By: James J. McNamara,
Chairman of the Board and
Acting Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS INCLUDED IN FORM 10-QSB AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 155,761
<SECURITIES> 17,080
<RECEIVABLES> 7,014,901
<ALLOWANCES> 4,075,374
<INVENTORY> 582,655
<CURRENT-ASSETS> 3,740,959
<PP&E> 2,271,436
<DEPRECIATION> 678,623
<TOTAL-ASSETS> 19,463,631
<CURRENT-LIABILITIES> 6,379,858
<BONDS> 7,911,176
28,923
739,696
<COMMON> 21,016,932
<OTHER-SE> (16,612,954)
<TOTAL-LIABILITY-AND-EQUITY> 19,463,631
<SALES> 8,173,916
<TOTAL-REVENUES> 8,204,391
<CGS> 6,115,205
<TOTAL-COSTS> 9,318,699
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 526,504
<INCOME-PRETAX> (1,640,812)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,640,812)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,640,812)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
