SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------------------
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, 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.
(Name of Small Business Issuer in its Charter)
Ontario, Canada 98-0082860
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
214 Brazilian Avenue, Suite 300, Palm Beach, Florida 33480
(Address of principal executive offices)
561/659-0121
(Issuer's telephone number.)
-----------------------------------------
Securities registered under Section 12(b) of the Act: None.
Securities registered under Section 12(g) of the Exchange Act as of December
31, 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 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: $11,443,984.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average closing bid and ask prices of such stock on April
15, 1999, was $-0-.
The number of shares outstanding of the issuer's common stock, no par value,
as of April 15, 1999, was 4,178,722.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE> PRINCETON MEDIA GROUP, INC.
FORM 10-KSB
For the Year Ended December 31, 1998
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
<R/>
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. published approximately 25 well-established
lifestyle and special interest magazines which are distributed throughout the
United States and internationally. The magazines included "Oui," "Fitness
Plus," "Karate International," and "Lady's Circle Patchwork Quilts." Each
magazine targeted 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 was approximately 2.4 million per month.
PMG, through Kingston Press, Inc., a wholly-owned subsidiary of Princeton
Publishing, Inc., leased and operated a 70,000 square foot printing facility
located in Sussex, Wisconsin, just outside of Milwaukee. The plant printed
all of PMG's own magazines and also performed printing services for unrelated
third parties.
The two wholly-owned subsidiaries of PMG and a wholly-owned subsidiary of one
of the subsidiaries were unable to meet current obligations as they became
due. Management of the Company has made extensive efforts over the last
several months to obtain sufficient financing to fund a plan of restructuring
that would improve cash flows and maintain operations of these subsidiaries.
Management determined that such financing was not obtainable in the time
necessary for operations to remain viable.
The Company was engaged in niche magazine publishing. This segment of the
magazine publishing industry relies heavily on rack sales for circulation and
on impulse buyers that purchase product through rack sales. Management has
been aware of a large decrease in rack sales outlets over the last several
years. The decline in rack distribution has perpetuated a related decline in
advertising revenue in these rack-sales-dependent publications. Management
had attempted to offset declines in this area of revenue through acquisitions
in other related and complementary segments of the media industry including
the Internet and other electronic media areas. Management felt investment in
electronic media entities would also produce advertising revenue for the
publishing segment of the business. Management was unable to effectuate such
acquisitions rapidly enough to offset the declines in the printing and
publishing segments of operations.
On October 27, 1998, Princeton Publishing, Inc. and Firestone Publishing,
Inc., wholly-owned subsidiaries of Princeton Media Group, Inc., and Kingston
Press, Inc., a wholly-owned subsidiary of Princeton Publishing, Inc., each
filed an Assignment for the Benefit of Creditors (The Assignment(s)), a
proceeding governed under the laws of the State of Florida. The Assignments
were filed with the Court of the 11th Judicial Circuit in and for Miami-Dade
County, Florida on October 27, 1998. The Assignment proceeding gives
creditors the opportunity to file proofs of claims. The Assignments were
filed in order to expedite an orderly sale and disposition of the assets of
the entities and pay claims in order of priority.
Year 2000 Reporting
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. Because the Company has discontinued operations, the Company has no
vendors and suppliers whose non-compliance with correction of the problem
could cause material damage to the Company.
CURRENT PLANS
During 1999, management of the Company intends to pursue a plan of attempting
to locate an acquisition that could provide stable operations that would
restore shareholder value.
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 leased facility is on a well-traveled street in a commercial area and is
in good condition. No significant improvements are planned for the
leased facility. The Company maintains insurance required by each lease and
considers the amounts adequate.
Total rental expense for the facility detailed above was paid by a related
entity and offset by other intercompany office charges.
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 previously traded on the Nasdaq SmallCap Market
under the
symbol "PMGIF" and now trade on the Bulletin Board under the same symbol
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
1998
Fourth quarter $ .72 $ 0.63*
Third quarter 1.54 .66
Second quarter 2.54 1.38
First quarter 2.47 1.75
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
* The Company's stock ceased to be traded on the Nasdaq SmallCap Market in
November, 1998 and became a Bulletin Board stock under the same symbol, PMGIF.
As of December 31, 1998, there were 4,178,722 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 April 15,
1999 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
failure of pending or anticipated acquisitions to be consummated.
The year ended December 31, 1998, compared to the year ended December 31,
1997:
Revenues for the year ended December 31, 1998 amounted to $11,443,984 compared
to $15,572,990 for the year ended December 31, 1997, reflecting a decrease of
$4,129,006. Revenues are almost entirely derived from magazine sales,
subscriptions, advertising, and outside printing. The decrease in revenues
reflected for the year ended December 31, 1998 is a result of the Company's
assignment of its operating subsidiaries on October 27, 1998.
Costs and operating expenses for the year ended December 31, 1998 were
$14,202,513 compared to $17,061,813 for the year ended December 31, 1997,
resulting in a decrease of $2,859,300. The decline is due to the assignment of
the Company's operating subsidiaries on October 27, 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1998, $746,065 in interest expense, net of
interest income was charged to operations, compared to $968,826 for the year
ended December 31, 1997, reflecting a decrease of $222,761. 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 $798,944 in 1998, $691,444 was paid.
Net loss for the year ended December 31, 1998 was $7,766,167 which represents
an increase of $5,308,518 from the net loss of $2,570,032 for the year ended
December 31, 1997. The increase in loss from operations is attributable to
the discontinuation of operations of the Company's subsidiaries, Princeton and
Firestone.
Liquidity and capital resources are hereinafter discussed in three broad
categories: operating activities, investing activities and financing
activities.
Cash decreased $616,558 to $-0- at December 31, 1998 from $616,558 at
December 31, 1997.
During the year ended December 31, 1998, net cash used in investing activities
was $772,996 compared with $190,395 used in investing activities during the
year ended December 31, 1997.
During the year ended December 31, 1998, net cash provided by financing
activities was $1,182,543, representing a decrease of $5,394,482 from net cash
provided by financing activities of $6,577,025 during the year ended December
31, 1997.
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, 1998 and 1997
Consolidated Statements of Operations and Accumulated Deficit
For the Years Ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in and disagreement with accountants on accounting and
financial disclosure.
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 50 1996 Chairman, Director, Chief Executive
Officer,
Acting President, and Secretary
J. Leshinsky 45 1996 Director
R. Perkins 47 1998 Director
R. Kendall 50 N/A Senior Vice President - Finance, Treasurer,
and Assistant Secretary
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.
Romero Perkins is a financial and investment banking advisor who specialize in
municipal and tax-advantaged investment equities and bonds. For the past five
years he has worked with private capital funds. He formerly managed the bond
placement department for the Secretary of Commerce of the State of Florida.
Mr. Perkins resides in Tallahassee, Florida.
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 $1.2 billion in assets. Prior affiliations
include the international accounting firm of Laventhol & Horwath and other
regional accounting and auditing firms.
Directors do not receive any cash remuneration for their services as such,
although they are reimbursed in accordance with the Company policy for their
expenses in connection with attending meetings of the Board. Directors
serving on committees of the Board receive no special compensation for such
activities.
There are no family relationships between any of the Officers or Directors of
the Company.
Officers of the Company are elected by the Board of Directors at its first
meeting after each Annual Meeting of the Shareholders and serve a term of
office until the next Annual Meeting. Officers elected by the Board of
Directors at any other time serve a term of office until the next Annual
Meeting.
Section 16(a) Beneficial Ownership Reporting Compliance
During 1998, the following directors, officers or beneficial owners of more
than ten percent of any class of the Company's equity securities registered
pursuant to section 12 failed to file on a timely basis reports required by
section 16(a) of the Exchange Act:
No. of No. of Transactions Failure to File
Name Late Reports Not Reported Timely Required Form
Russel Leventhal 0 0 0
James J. McNamara 0 0 0
ITEM 10. EXECUTIVE COMPENSATION
The following tables set forth all compensation awarded to, earned by or paid
to the executive officers indicated during the years ended December 31, 1998
and 1997.
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C> <C>
<C> <C>
Long Term Compensation
Annual Compensation
Awards Payouts
(a) (b) (c) (d) (e)
(f) (g) (h) (i)
Securities
Under-
Other
Restricted Lying All Other
Name and Annual
Stock Options/ LTIP Compen-
Principal Year Salary Bonus Compensation
Awards SARs Payouts sation
Position ($) ($) ($)
($) (#) ($) ($)
James McNamara 1998 $ 88,846(1) - - -
1,200,000 - -
Chairman of Board 1997 $150,000 - - -
1,200,000 - -
Hugo Barreca 1998 $ 86,538(1) - -
- - - - -
Chief Financial 1997 $ 43,750(1) - -
- - - - -
Officer of PMG
</TABLE>
(1) Based on an annual salary of $150,000; Mr. Barreca's term commenced 9/97
and ceased October 27, 1998. Mr. McNamara's salary ceased in October, 1998,
but he continues to serve as Chairman of the Board without compensation.
<PAGE>
<TABLE>
Option/SAR Grants in Last Fiscal Year
Individual Grants
<S> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
James McNamara 1,200,000(1) 100% $3.00/Share(2) 1/15/08
(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 $2.00 per share in January, 1998 per vote
of the Board of Directors.
</TABLE>
<TABLE>
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Values
<S> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
Name Shares Number of Securities Value of
Acquired On Value Underlying Unexercised in the
exercise (#) Realized Options/SAR's at FY- Money
Options/SAR's
End (#) at
FY-End ($)
Exercisable/Unexercisable
Exercisable/Unexercisable
James
McNamara 0 0 400,000/800,000
0/0
Hugo Barreca - - -
- -
</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. Mr. McNamara has continued to serve without compensation since
October 1998. The contract provides for certain stock options, none of which
have been exercised.
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
Joel Leshinsky Common Stock 22,000(1) Less than
1%
3409 Heather Terrace
Lauder Hill, FL 33319
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(3) 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 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
The Company loaned a total of $685,971 and $284,017 in 1998 and 1997,
respectively, to Celebrity Entertainment, Inc. ("Celebrity"), whose President
and a director is James J. McNamara, Chairman of the Company. The loan to
Celebrity accrued interest at prime rate, which was 8.5% as of December 31,
1998, and is payable on demand. The loan was unsecured as of December 31,
1998. Celebrity's financial condition is such that there is a substantial
question whether Celebrity would be able to repay the loan. As of the date
hereof, the loan has been guaranteed by Mr. McNamara to the extent of amounts
owing by Mr.McNamara to Celebrity. The Company has accrued an allowance for
doubtful account and related bad debt expense in the amount of $1,014,235 for
all of the principal and accrued interest related to the note.
Celebrity loaned $472,501 during 1997 and an additional $218,021 during 1998
to Mr. McNamara. The loan from Celebrity to Mr. McNamara accrued interest at
prime rate and was payable on demand. The loan to Mr. McNamara was settled
in 1998.
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 1998 and 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, 1998 by the Company:
Date Date
of Report Filed Items Reported Financial Statements
Filed
10/27/98 11/03/98 Assignment of the Company's None
three wholly-owned subsidiaries
which constituted all of the
Company's operations.
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: April 15, 1999
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
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Princeton Media Group, Inc.
We have audited the accompanying consolidated balance sheet of Princeton Media
Group, Inc. and Subsidiaries (the "Company") as of December 31, 1998
and the related consolidated statements of operations and accumulated deficit,
and cash flows for the years ended December 31, 1998 and 1997. 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, 1998 and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1998 and 1997 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 2 to the
financial statements, the Company has experienced significant operating
losses, has placed all of its operating subsidiaries in assignment for the
benefit of creditors, has an accumulated deficit and has negative working
capital at December 31,
1998. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Holyfield Associates, P.A.
Certified Public Accountants
West Palm Beach, Florida
April 15, 1999
<PAGE>
<TABLE>
PRINCETON MEDIA GROUP, INC.
Consolidated Balance Sheet
December 31, 1998
<S>
<C>
Assets
Current assets
Marketable securities $
7,850
Total current assets
7,850
Property and equipment - furniture and office equipment
43,408
Less accumulated depreciation (
9,935)
Property and equipment, net
33,473
Total assets $
41,323
Liabilities and Shareholders' Equity (Deficit)
Current liabilities
Accounts payable $
259,862
Accrued expenses
50,000
Note payable on demand
153,581
Note payable on demand
250,000
Total current liabilities
713,443
Shareholders' equity (deficit):
Series A Preference Shares
28,923
Series C Preference Shares
739,696
Common Stock
21,297,570
Deficit
(22,738,309)
Total shareholders' equity (deficit) (
672,120)
Total liabilities and shareholders' equity $
41,323
</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, 1998 and
1997
1998 1997
<S>
<C> <C>
Revenues:
Distribution, circulation, and other
income $ 8,196,277 $
11,398,054
Advertising
income
2,050,753 3,000,838
Printing
income
1,196,954 1,174,098
Net
revenues
11,443,984 15,572,990
Costs and operating expenses:
Cost of
sales
9,345,876 10,999,454
Selling and
administrative
4,856,637 6,062,359
Loss from
operations (
2,758,529) (1,488,823)
Other income (expense):
Interest
income
52,879 22,407
Interest
expense
(798,944) ( 991,233)
Bad debt
expense
(1,554,610) -
Write off of deferred acquisition
costs (1,323,132)
Loss on disposition of
assets (
9,532) -
Loss on assignment of
subsidiaries
(1,374,299) -
Total other
income,(expense)
(5,007,638) ( 968,826)
Loss before income
taxes
(7,766,167) (2,457,649)
Provision for income
taxes
- - 112,383
Net loss
(7,766,167) (2,570,032)
Accumulated deficit - beginning of the
year (14,972,142)
(11,368,215)
Deemed dividend on convertible preferred stock (Note
18) - (1,033,895)
Accumulated deficit - end of the
year $ (22,738,309)
$(14,972,142)
Basic and diluted loss per share:
Net loss per
share $
( 1.99) $ ( 1.67)
See accompanying notes to consolidated financial
statements.
</TABLE>
<TABLE>
PRINCETON MEDIA GROUP, INC.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $(7,766,167)
$(2,570,032)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 277,395
310,182
Amortization 318,999
372,030
Loss on assignment of assets 9,532
- -
Bad debt expense 1,554,610
- -
Writeoff of deferred acquisition costs 1,323,132
- -
Loss on disposition of subsidiaries 1,374,299
- -
Stock issued and options and warrants granted
for consulting services 426,579
912,848
Changes in assets and liabilities
exclusive of assets and liabilities acquired:
(Increase) decrease in:
Accounts receivable ( 309,415)
34,630
Marketable securities - (
17,080)
Inventories 80,559
120,041
Due from related party -
(606,452)
Deferred costs, acquisitions ( 286,792)
(236,800)
Income tax benefit -
271,300
Prepaid expenses 12,593
110,897
Deposits ( 77,089)
12,711
Accrued interest receivable ( 44,247)
- -
Increase (decrease) in:
Accounts payable 2,069,896
1,141,583
Accrued expenses ( 129,290) (
771,588)
Deferred revenue 31,801
20,791
Accrued interest 107,500
313,802
PRINCETON MEDIA GROUP, INC.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
1998 1997
<S> <C> <C>
Long-term deferred taxes - (
166,900)
Net cash used in operating activities (1,026,105) (
748,037)
Cash flows from investing activities:
Capital expenditures ( 65,159) (
190,395)
Proceeds on sale of assets 4,000
- -
Investment in joint venture ( 25,866)
- -
Advances on note receivable - related party ( 685,971)
- -
Net cash used in investing activities ( 772,996) (
190,395)
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 740,125
584,565
Proceeds from notes payable 1,750,000
1,120,000
Payments on notes payable (1,183,557) (
779,738)
Payments on line of credit ( 118,333)
- -
Cash assigned in assignment of subsidiaries ( 5,692)
- -
Net cash provided by financing activities 1,182,543
6,577,025
Net increase (decrease) in cash ( 616,558) (
13,605)
Cash, beginning of period 616,558
630,163
PRINCETON MEDIA GROUP, INC.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
1998 1997
<S> <C> <C>
Cash, end of period $ - $
616,558
Supplemental cash flow information:
Interest paid $ 691,444 $ 673,812
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
Fair value of common stock issued
and options and warrants granted -
Upon conversion of convertible debt $ -
$4,723,474
For capital acquisitions $ 457,696 $
341,844
For franchise rights $ - $
25,000
Additionally, the Company issued stock in payment of accrued severance expense
of $380,635 in 1997.
</TABLE>
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") 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 operated a publishing and printing business that owned, published,
and printed approximately twenty-five periodicals that have national and
international distribution. Through several subsidiaries the Company had
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.
As disclosed in a report filed on Form 8-K filed with the SEC on November 3,
1998, the two wholly-owned subsidiaries of PMG and a wholly-owned subsidiary
of one of the subsidiaries were unable to meet current obligations as they
became due. Management of the Company had made extensive efforts over a
period of several months during 1998 to obtain sufficient financing to fund a
plan of
restructuring that would improve cash flows and maintain operations of these
subsidiaries. At the end of October management determined that such financing
was not obtainable in the time necessary for operations to remain viable.
On October 27, 1998, Princeton Publishing, Inc. and Firestone Publishing,
Inc.,
wholly-owned subsidiaries of Princeton Media Group, Inc., and Kingston Press,
Inc., a wholly-owned subsidiary of Princeton Publishing, Inc., each filed an
Assignment for the Benefit of Creditors (the Assignment(s)), a proceeding
governed under the laws of the State of Florida. The Assignments were filed
with the Court of the 11th Judicial Circuit in and for Miami-Dade County,
Florida. The Assignment proceeding gives creditors the opportunity to file
proofs of claims. The Assignments were filed in order to expedite an orderly
sale and disposition of the assets of the entities and pay claims in order of
priority.
The three companies filing the Assignments were in the publishing and printing
business. Their operations constituted all of the operations of the Company.
The Company's common stock was publicly traded on the Nasdaq SmallCap market
under the symbol "PMGIF" until November, 1998 at which time the Company
voluntarily became a bulletin board stock traded on the OTC under the same
symbol.
Management is currently investigating several acquisitions with operations
sufficient to restore some or all value to shareholders.
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. and Firestone Publishing, Inc., until the assignment for the benefit of
creditors on October 27, 1998. All significant intercompany transactions and
balances have been eliminated.
(B) 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.
(C) 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.
(D) 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.
(E) 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.
(F) 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 years showing losses.
The following table sets forth the computation of basic and diluted loss per
share:
Loss from continuing operations $(7,766,167)
Less: preferred stock dividends ( 44,000)
Loss to common stockholders (7,810,167)
Weighted average common shares outstanding 3,921,116
Basic and diluted (loss) per share from
continuing operations $( 1.99)
(G) 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.
2. Going Concern and Management's Plans
As shown in the accompanying financial statements, the Company has experienced
significant operating losses and negative cash flow from operations in recent
years and has an accumulated deficit of $672,120 at December 31, 1998. As
detailed in Note 1, the Company placed all of its operating subsidiaries in
assignment on October 27, 1998. Management is attempting to locate an
acquisition that would provide stable operations, but there are no agreements
to do so as of the date of filing of this report. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
3. Deferred Acquisition Costs
Since inception of the publishing and printing operations of the Company with
two acquisitions in 1996, management has attempted to negotiate additional
acquisitions of businesses in publishing and related electronic media that
would
enhance the printing and publishing operations. In early 1997, the Company
engaged an investment banking firm and received assurances the firm would be
able to locate financing for a group of acquisitions totaling up to $40
million. Extensive due diligence and negotiations proceeded with several
potential business acquisitions for over a year and a half. Costs included
but
were not limited to legal expense, consultants for financing strategy and due
diligence, and related travel. The associated costs for the various projects
were recorded as deferred acquisition costs. As of the end of 1998 these
deferred costs totaled $1,228,309. The group of acquisitions was to be
financed at one time in a single financing package and deferred costs were to
be amortized over the appropriate life upon closing of the group purchase. In
the third quarter of 1998, the investment banking firm indicated it no longer
would be able to obtain financing. Management attempted to
negotiate but was unable to obtain alternative financing. At the end of 1998,
management determined it was unlikely acquisitions would occur and the full
amount of $1,323,132 which was capitalized over a period exceeding a year was
written off to expense.
4. Income Taxes
In 1997, the Company provided a full valuation allowance against the deferred
tax assets established in 1997 since it was more likely than not that
the deferred tax asset would not be realized. The provision for income taxes
(benefit) for 1997 consists of:
1997
Current:
Alternative minimum tax and franchise taxes $ 7,983
Deferred:
U.S. Federal
86,600 State and local
17,800
Total deferred 104,400
Total provision for income taxes (benefit) $ 112,383
There was no provision for income taxes for the year ended December 31, 1998
due to the disposition of the operating subsidiaries.
Current taxes in 1997 were amounts actually paid and the provision for
deferred is the reversal of the prior year estimated benefit.
There were no deferred tax assets and liabilities at December 31, 1998 due to
the disposition of the operating subsidiaries.
Reconciliations of the differences between income taxes computed at Federal
statutory tax rates and consolidated provisions for income taxes are as
follows:
1997
Loss before income taxes, writeoff of
debt discount and issue costs
and discontinued operations: $(
2,457,649)
Income taxes computed at statutory rates:
Federal benefit expected at 34% $
(835,600)
State tax provisions, net of federal benefits (
98,300)
Other reconciling items-
Non-deductible items
12,700
Canadian expenses
514,700
Alternative minimum tax and franchise taxes
7,983
Valuation allowance
510,900
Provision (benefit) for income taxes $ 112,38
3
There was no provision for income taxes for the year ended December 31, 1998
due to the loss from the disposition of subsidiaries in 1998.
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.
There are no loss carryforwards for the year ended December 31, 1998 due to
the disposition of the operating subsidiaries in 1998.
5. Capital Stock
A summary of capital stock as of December 31, 1998 and 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 - 12/31/98 4,178,122 32,500 1,100,000
Issued and outstanding - 12/31/97 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 $260,333 at
December 31, 1998.
Series D and E:
These were entirely converted or redeemed in 1997. Management does not plan
any
further issuances.
(B) Options and Warrants
Options and warrants issued during 1998 and 1997 were as follows:
1998 1997
Exercise Exercise
Shares Price* Shares Price*
Outstanding at
Beginning of year 388,638 $ 10.37 68,689 $119.56
Granted
Consultants 468,000 $ 1.59 462,500 $ 2.77
Settlements - - 183,700 $ 6.85
Total granted 468,000 $ 1.59 646,200 $ 3.93
Exercised (468,000) $ 1.59 (265,000) $ 2.21
Expired ( 39,938) $ 54.53 ( 61,251) $100.20
Outstanding and
exercisable at year end 357,700 $ 4.77 388,638 $ 10.37
* Weighted average
In 1998 total fair value of options and warrants granted as consulting fees
was
$740,125. At December 31, 1998, 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 Company's stock was not actively trading at year end and the Company had
no operations. Stock options are considered to have no value at year end.
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 1998 or 1997
except as detailed in Item D below.
(D) Employee Stock Grants and Options
In 1998 employees were granted compensation awards of stock valued at $14,506.
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 was to 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.
(E) Changes in Equity
Changes in equity for the years ended December 31, 1998 and 1997 were as
follows:
Preferred Stock Series A and Series C:
Series A Series C
Shares Amount Shares Amount
Balance at January 1, 1997 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
Changes - none - - - -
Balance at December 31, 1998 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, 1997 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, 1997 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
Shares issued for:
Consulting fees and employee compensation 107,589 426,579
Consulting for capital acquisitions 240,510 457,696
Options exercised 468,000 740,125
Accrued expenses - consulting fees 1,000 1,781
Balance at December 31, 1998 4,178,722 $21,297,570
6. Related Party Loan - Allowance for Doubtful Account
The Company made a loan to a company related by common directorship (see Item
5,
Other Information - Certain Relationships and Related Transactions). As of
the
end of the third quarter of 1998 the loan totaled $969,988 with accrued
interest
of $44,247. Due to the uncertainty of collection (as detailed in Item 5), the
entire loan amount and accrued interest in the total amount of $1,014,235 was
expensed as bad debt and a related allowance for doubtful account was
recorded
in 1998.
The Company shares corporate headquarters office space with the related
company.
7. 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.
8. 401(K) Plan
Firestone Publishing, Inc., had 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 $21,298 in
1998 and $33,357 in 1997.
9. 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 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.
10. Contingent Liabilities.
The Company is contingently liable on notes payable to distributors of
magazines published by the subsidiaries in assignment. The notes are
collateralized by accounts receivable of the subsidiaries and contain the
right of offset of amounts owed to the subsidiaries for magazines sold under
distribution agreements. Management is of the opinion that the collateral and
right of offset are sufficient to collect the remainder of this indebtedness.
At April 15, 1999 there remains approximately $580,000 owing on these notes.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 7,850
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,850
<PP&E> 43,408
<DEPRECIATION> 9,935
<TOTAL-ASSETS> 41,323
<CURRENT-LIABILITIES> 713,443
<BONDS> 0
0
768,619
<COMMON> 21,297,570
<OTHER-SE> (672,120)
<TOTAL-LIABILITY-AND-EQUITY> 41,323
<SALES> 11,443,984
<TOTAL-REVENUES> 11,443,984
<CGS> 9,345,876
<TOTAL-COSTS> 14,202,513
<OTHER-EXPENSES> 5,007,638
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 798,944
<INCOME-PRETAX> (7,766,167)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,766,167)
<EPS-PRIMARY> (1.99)
<EPS-DILUTED> (1.99)
</TABLE>
