U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
(mark one)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-16355
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PRINCETON MEDIA GROUP, INC.
(Name of Small Business Issuer in its Charter)
Ontario, Canada 98-0082860
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
214 Brazilian Avenue, Suite 300, Palm Beach, Florida 33480
(Address of principal executive offices)
561/659-0121
(Issuer's telephone number)
-----------------------------------------
Securities registered under Section 12(b) of the Act: None.
Securities registered under Section 12(g) of the Exchange Act as of March 31,
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 May 13, 1998 was 3,784,912.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE>
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 as of March 31, 1998
Consolidated Statements of Operations and Accumulated Deficit
for the Three Months Ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 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
<PAGE>
<TABLE>
PRINCETON MEDIA GROUP, INC.
Consolidated Balance Sheet
March 31, 1998
(Unaudited)
<S> <C>
Assets
Current assets
Cash $ 192,686
Accounts receivable, net 2,905,123
Marketable securities 17,080
Inventories 351,606
Prepaid expenses 30,912
Total current assets 3,497,407
Property and equipment, net 1,654,270
Deposits 27,138
Note receivable - related party 548,039
Accrued interest receivable - related party 8,272
Deferred acquisition costs 843,551
Trademarks, copyrights and other intangibles, net 12,188,249
Total assets $ 18,766,926
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 2,101,502
Accrued expenses 428,204
Current portion of long-term debt 1,022,141
Borrowing under line of credit 533,333
Deferred revenue 891,614
Accrued interest 58,659
Total current liabilities 5,035,453
Long-term debt, less current portion 7,989,595
Shareholders' equity:
Series A Preference Shares 28,923
Series C Preference Shares 739,696
Common Stock 20,336,291
Deficit (15,363,032)
Total shareholders' equity 5,741,878
Total liabilities and shareholders' equity $ 18,766,926
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
PRINCETON MEDIA GROUP, INC.
Consolidated Statements of Operations and Accumulated Deficit
For the Three Months Ended March 31, 1998 and 1997
(Unaudited)
1998 1997
<S> <C> <C>
Distribution, circulation, and other income $ 3,098,985 $ 2,637,540
Advertising income 691,451 988,428
Printing income 509,053 398,245
Net revenues 4,299,489 4,024,213
Costs and operating expenses:
Cost of sales 3,001,892 2,522,381
Selling and administrative 1,449,676 1,368,510
Income (loss) from operations ( 152,079) 133,322
Interest income (expense)
Interest income 11,681 6,489
Interest expense ( 250,492) ( 232,513)
Net loss ( 390,890) ( 92,702)
Accumulated deficit - December 31, 1997 and 1996 (14,972,142) ( 11,368,215)
Accumulated deficit - end of period $ (15,363,032) $( 11,460,917)
Basic and diluted loss per share: $ ( .11) $ ( .46)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PRINCETON MEDIA GROUP, INC.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1998 and 1997
(Unaudited)
1998 1997
<C> <C>
Cash flows from operating activities:
Net loss $( 390,890) $( 92,702)
Adjustments to reconcile net loss
to net cash used in
operating activities
Depreciation 81,543 74,121
Amortization 92,013 90,302
Stock issued for consulting services 46,371 56,376
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable ( 404,085) 64,296
Inventories 184,378 ( 359,029)
Prepaid expenses 4,102 ( 69,556)
Deferred acquisition costs ( 28,007) -
Accrued interest receivable ( 8,272) -
Deposits 9,481 -
Other assets - ( 122,771)
Increase (decrease) in:
Accounts payable 171,810 94,317
Accrued expenses 66,706 ( 441,188)
Due to related party - ( 27,416)
Deferred revenue 956 109,619
Accrued interest ( 1,672) 101,096
Net cash used in operating
activities ( 175,566) ( 522,535)
Cash flows from investing activities:
Capital expenditures ( 30,753) ( 34,087)
Advances on note receivable - related party ( 264,022) -
Net cash used in
investing activities ( 294,775) ( 34,087)
(continued)
<PAGE>
Cash flows from financing activities:
Proceeds from exercise of stock options 379,850 -
Proceeds from borrowing on line of credit - 420,000
Payments of principal on line of credit ( 85,000) ( 76,347)
Payments of principal on long-term debt ( 248,381) -
Net cash provided by
financing activities 46,469 343,653
Net increase (decrease) in cash ( 423,872) ( 212,969)
Cash, December 31, 1997 and 1996 616,558 630,163
Cash, March 31, 1998 and 1997 $ 192,686 $ 417,194
Supplemental disclosures of cash flow information:
1998 1997
Interest paid $ 252,164 $ 126,370
Noncash investing and financing Activities:
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.
<PAGE>
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 March 31, 1998, and the results of their operations and their cash flows for
the three months ended March 31, 1998 and 1997. The results of operations for
the three months ended March 31, 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 three months ended March 31, 1998, cumulative dividends of $11,000
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 March 31, 1998 and 1997:
1998 1997
Net loss $( 369,292) $( 92,702)
Preferred dividends ( 11,000) ( 349,803)
Net loss $( 401,890) $( 442,505)
Weighted average common shares outstanding 3,565,451 951,325
Basic and diluted loss per share: $( .11) $( .46)
3. Accounts Receivable
Accounts receivable at March 31, 1998 consisted of the following:
Accounts receivable, gross $6,846,962
Less: allowance for returns and miscellaneous charges (3,906,839)
Less: allowance for doubtful accounts ( 35,000)
Total accounts receivable, net $2,905,123
<PAGE>
4. Inventories
Inventories at March 31, 1998 consisted of the following:
Paper $ 96,980
Ink 27,790
Work in process 226,836
Total inventories $351,606
5. Property and equipment
Property and equipment as of March 31, 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 155,860
Office furniture and equipment 118,103
Total property and equipment, cost 2,249,483
Less accumulated depreciation ( 595,213)
Total property and equipment, net $1,654,270
6. Trademarks, copyrights and other intangibles
Trademarks, copyrights and other intangibles at March 31, 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 ( 646,870)
Trademarks, copyrights, and
other intangibles, net $12,188,249
7. Long - Term Debt
Long-term debt at March 31, 1998 consisted of the following:
Note payable - First Seller $5,000,000
Note payable - Second Seller 3,956,476
Note payable - equipment 22,555
Capital lease obligations 32,705
Total long-term debt 9,011,736
Less current portion (1,022,141)
Total long-term debt, net of current portion $7,989,595
<PAGE>
8. Change in common shares for the three months ended March 31, 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 125,000 236,900
For accrued consulting expense 1,000 1,781
In exercise of stock options by consultants 205,000 411,715
Balance at March 31, 1998 3,700,912 $20,336,291
<PAGE>
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 and offices are in New York City and
Miami, respectively. However, the Company is consolidating its entire editorial
production team in the Miami office beginning in April, 1998 and to be completed
by the end of the second quarter. Several key employees will 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.
Results of Operations
During the year ended December 31, 1996, the Company has completed a fundamental
change in its course of business and now focuses entirely on publishing,
printing and related media. This 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 quarter ended March 31, 1998 compared to the quarter ended March 31, 1997:
Revenues for the quarter ended March 31, 1998 amounted to $4,299,489 compared
to $4,024,213 for the quarter ended March 31, 1997. The increase in revenues
reflected for the quarter ended March 31, 1998 is a result of increases in
distribution and printing income offset by a decrease in advertising revenue.
Management has engaged a new advertising consultant to analyze and revamp the
Company's advertising program. The consultant currently is in the process of
negotiating new contracts that are expected to provide additional advertising
revenue sources.
Costs and expenses of revenues for the quarter ended March 31, 1998 were
$4,451,568 compared to $3,890,891 for the quarter ended March 31, 1997. The
increase of $560,677 in the first quarter of 1998 over the first quarter of 1997
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 will be completed in the second quarter of 1998.
<PAGE>
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) was
$74,104 and $367,940 for the quarters ended March 31, 1998 and 1997,
respectively. The decrease of $293,836 in the first quarter of 1998 over the
first quarter of 1997 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 and will be 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 quarter ended March 31, 1998 was $390,890 which represents an
increase of $298,188 from the net loss of $92,702 for the quarter ended March
31, 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. Management of the Company anticipates that
cash flows from operations will be sufficient to pay all debt service of the two
subsidiaries.
Liquidity and Capital Resources
During the quarter ended March 31, 1998, $250,492 in interest expense was
charged to operations compared to $232,513 in interest expense for the quarter
ended March 31, 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 $423,872 to $192,686 at March 31, 1998 from $616,558 at December
31, 1997. Net cash used in operating activities was $175,566 during the quarter
ended March 31, 1998 compared to cash used by operating activities of $522,535
during the quarter ended March 31, 1997. The decrease of $346,969 in net cash
used in operating activities in the first quarter of 1998 compared to the first
quarter of 1997 occurred primarily because the operations were still in the
start-up phase in 1997.
During the quarter ended March 31, 1998, net cash used in investing activities
was $294,775 compared with $34,087 used in investing activities during the
quarter ended March 31, 1997. The increase is primarily due to advances on a
note receivable.
<PAGE>
During the quarter ended March 31, 1998, net cash provided by financing
activities was $46,469 representing a decrease of $297,184 from net cash
provided by financing activities of $343,653 during the quarter ended March 31,
1997. In the first quarter of 1997 cash was provided from borrowing on a line
of credit. In the first quarter of 1998 cash was provided by exercise of stock
options and primary usage was for payment of principal on the second acquisition
note which began amortizing in October 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
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 and also
increases in revenues and profits.
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
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: May 13, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 192,686
<SECURITIES> 17,080
<RECEIVABLES> 6,846,962
<ALLOWANCES> 3,941,839
<INVENTORY> 351,606
<CURRENT-ASSETS> 3,497,407
<PP&E> 2,249,483
<DEPRECIATION> 595,213
<TOTAL-ASSETS> 18,766,926
<CURRENT-LIABILITIES> 5,035,453
<BONDS> 7,989,595
28,923
739,696
<COMMON> 20,336,291
<OTHER-SE> (15,363,032)
<TOTAL-LIABILITY-AND-EQUITY> 18,766,926
<SALES> 4,299,489
<TOTAL-REVENUES> 4,311,170
<CGS> 3,001,892
<TOTAL-COSTS> 4,451,568
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 250,492
<INCOME-PRETAX> (390,890)
<INCOME-TAX> 0
<INCOME-CONTINUING> (390,890)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (390,890)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
