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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-KSB
/X/ Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 [Fee required]
For the fiscal year ended June 30, 1995
Commission File No. 0-18410
THE PRODUCERS ENTERTAINMENT GROUP LTD.
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(Name of Small Business Issuer in Its Charter)
Delaware 95-4233050
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
9150 Wilshire Blvd., Beverly Hills, California 90212
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(Address of Principal Executive Offices) (Zip Code)
(310) 285-0400
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Issuer's Telephone Number, Including Area Code
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Act:
Series A Convertible Preferred Stock, Common Stock, Warrants, Class B Warrants
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(Title of Class)
Check whether the issuer: (1) has 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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained 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. /X/
Number of Pages:
Exhibit Index Page:
[Cover page 1 of 2 pages]
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Issuer's revenues for its most recent fiscal year - $5,290,745.
The aggregate market value of the voting stock held by non-affiliates based
upon the average of the closing bid and asked prices of such stock as of
September 19, 1995 as reported on the National Association of Securities
Dealers Automated Quotation System was $7,490,091.
As of September 19, 1995, there were 10,420,996 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following are incorporated by reference into Part III of this Annual Report
on Form 10-KSB:
Registration Statement on Form S-1 declared effective on December 5, 1989.
Form 10-K for the fiscal year ended June 30, 1991.
Form 10-K for the fiscal year ended June 30, 1992.
Form 8-K dated May 20, 1994.
Registration Statement on Form 8-A dated November 21, 1994.
Registration Statement on Form SB-2 declared effective on December 14, 1994.
Form 8-K dated February 27, 1995.
Form 10-QSB for the quarter ended March 31, 1995.
PART I
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ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The Producers Entertainment Group Ltd. (the "Company") was organized
under the laws of the State of Delaware on August 10, 1989 as a wholly owned
subsidiary of Ventura Entertainment Group Ltd. ("Ventura"). In July 1994,
Ventura distributed substantially all of the Company's Common Stock that it
owned to Ventura's shareholders. As a result of this distribution, no present
relationship exists between the Company and Ventura.
The Company completed its initial public offering of securities in
December 1989 and, in January 1990, commenced operations. In April 1993 and
December 1994, the Company completed secondary offerings of its securities. In
May 1994, the Company acquired all of the outstanding common stock of DSL
Productions, Inc. and its affiliates ("DSL") in exchange for 130,000 shares of
Common Stock. The Company's Common Stock is listed on the National Association
of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") and is traded
in the NASDAQ's Small Cap Market under the symbol "TPEG". The Company's Common
Stock is also listed on the Boston Stock Exchange and traded under the symbol
"PEG.".
The Company is engaged in the acquisition, development and production
of made-for-television movies, series and mini-series and theatrical motion
pictures. The Company also engages in personal management of the careers of
performers, writers and directors. Unless the context indicates otherwise, the
term "Company" includes The Producers Entertainment Group Ltd. and all of its
subsidiaries.
The Company's offices are located at 9150 Wilshire Boulevard, Suite
205, Beverly Hills, California 90212. Its telephone number is (310) 285-0400.
HISTORY
Prior to fiscal 1992, the Company's activities were limited to
acquiring rights to literary properties, engaging writers to write or rewrite
screenplays or teleplays, and submitting these screenplays and teleplays to
various studios, production companies and television and cable networks for
development as theatrical motion pictures or made-for-television movies.
Commencing with the year ended June 30, 1992, the Company's activities expanded
to produce made-for-television movies, a theatrical motion picture, television
series and providing personal management services. DSL was formed in January
1992 and produces television series.
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OVERVIEW
The Company's business of developing and producing made-for-television
movies, series and mini-series and theatrical motion pictures (collectively and
individually referred to as "projects") is conducted in various manners. There
are certain activities that the Company must perform to have a project
developed and produced. These activities include the acquisition of the
literary property, the development of the property into a saleable project, the
financing and sale of the project to broadcasters, studios and/or other
investors and, finally, the production of the project.
The market for projects includes theatrical, video, pay television,
cable television and standard non-pay television release, including both
network and syndication. Projects are generally exploitable throughout the
world. Typically, distribution rights are granted in various media for limited
periods of time and in specified geographical areas in exchange for financial
guarantees which may be used to finance the cost of the related project. These
projects become part of a company's library and may be relicensed when the
initial distribution licenses have expired. These libraries have generally
increased in value due to the increased international need for programming.
The market for made-for-television movies exists in a meaningful way.
The Company has found that the production of these features is profitable. The
primary reason for this profitability is that the Company has been able (and
believes it will continue to be able) to develop and produce
made-for-television movies for an amount which does not significantly exceed
the initial television license fee. This license fee, whether it be from a
network or a cable company, generally enables the licensee to broadcast the
made-for-television movie a limited number of times during a specific time
period. After the licensee has broadcast the made-for-television movie in
accordance with this arrangement, all of the remaining rights belong to the
producer. Additional profits may be realized from the exploitation of
made-for-television movies in other markets.
Television series represent a major source of current and future
revenue for the Company. As with made-for-television movies, the cost of a
television series is financed (in whole or in part) from licensing fees. These
fees are derived from domestic television networks and/or foreign distribution
companies in exchange for exclusive rights to broadcast or distribute the
series in specified markets for specified periods of time. After the expiration
of these rights, additional revenues may be derived from relicensing these
series in the same or other markets such as domestic and foreign syndication
and home video.
The Company also provides producer and executive producer services to
others in connection with the production of projects.
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The Company receives fees for these services and is generally entitled to
participate in future profits from these projects. Any such profit
participations received will represent a profit to the Company as there are no
costs relating thereto. The Company received fees for producing the theatrical
motion picture What's Love Got to Do With It and the made-for-television movie
Against the Wall and is receiving fees for the television series Dave's World.
The Company was not required to pay any of the production costs of these
projects and is entitled to participate in profits from each of these projects.
The Company may finance the production of a project using its own
resources or by entering into arrangements with third parties for financing
part or all of the production costs. To the extent that the Company utilizes
its own resources to finance a production, in whole or in part, it endeavors to
enter into arrangements whereby it receives funds in exchange for exhibition,
distribution and/or other rights. Entering into such agreements reduces the
Company's financial risk with regard to any particular production. However,
entering into such agreements also reduces the Company's potential revenues
from such productions. Determinations as to financing any production, either
in whole or in part, and arrangements relating thereto are made by management
on an individual project basis.
ACQUISITION OF EXISTING PROPERTIES
Properties are usually acquired by options for a nominal fee against a
more substantial purchase price. This option usually enables the Company to
develop the property during the option period before committing to its
acquisition. Having an option also enables the Company to secure a financing or
production commitment before actually acquiring the property. Option periods
customarily run for a minimum of one year and contain provisions that enable
the Company to extend the option for additional periods. Terms of options vary
significantly and are dependent on, among other factors, the credibility and
prior success of the writer/owner of the property, the level of revenues or
profits that the Company estimates can be received from the exploitation of the
property and the estimated costs of further development and production of the
property. Various agreements relating to these projects may provide for
additional payments to writers upon their sale, production and/or distribution.
Certain agreements also may provide for participations, at various percentage
levels, in revenues and/or profits from these projects.
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DEVELOPMENT OF NEW PROPERTIES
Properties may be developed from original material which may be
treatments or first-draft screenplays or teleplays. It is not the practice of
the Company to expend substantial sums in the development of a project unless
it believes that there is a strong likelihood of a financing, production and/or
distribution commitment from third parties.
PACKAGING OF PROPERTIES
During the development phase of a project, a screenplay or outline of
the program is written, tentative commitments are sought from the creative
personnel and financiers such as studios, networks, production and distribution
companies and a proposed production schedule and budget are prepared. Often,
these properties are created, acquired and developed with specific talent such
as directors and actors involved so that they may be offered to financial and
distribution entities as a more attractive project. This process is commonly
known as "packaging". Frequently, a "package" will include not only actors,
directors, producers and writers, but also, if appropriate, music, special
effects and/or specific locations and related items. The Company believes that
packaging a literary property greatly enhances its ability and opportunities to
obtain favorable production, financing and distribution commitments.
PRODUCTION
Production of a project is divided into three phases: pre-production,
principal photography and post-production. The Company is involved in all
phases of production.
Upon receiving final approval from its financing/distribution source
(such as a television network or studio), the project is put into the
pre-production phase. During this phase, agreements with talent including
performers, a director, cinematographers and art directors are completed.
Locations are selected and sets, props, equipment and other production
requirements are obtained. The pre-production phase may last for several weeks
for a made-for-television movie up to several months for a theatrical motion
picture. After pre-production is completed, the production enters the principal
photography phase.
Principal photography is the phase where the project is recorded on
film. Actors perform on sets, in the studio and on locations in accordance with
a pre-determined schedule established by the producer. Principal photography
for a made-for-television movie is usually completed in approximately three
weeks while principal photography for a theatrical motion picture could require
up to several months. Upon completion of principal photography, the project
enters the final post-production phase.
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Post-production is the phase where the film shot during principal
photography is transformed into a completed project. The post-production phase
includes editing, addition of sound effects, a musical score and other
technical processes required to complete the project.
DISTRIBUTION OF COMPLETED PROJECTS
Distribution of certain completed projects are conducted by
independent third parties who have the right to distribute these properties in
designated areas of the world for specific periods of time. These distribution
companies retain a percentage of the revenues received from the distribution of
the projects and are entitled to recover expenses relating to such
distribution. Generally, the Company will not incur any direct expenses from
the distribution of its completed projects.
COMPLETED PROJECTS
Through June 30, 1995, the Company has produced the following
projects:
TELEVISION SERIES
Dave's World - A television series based on the books by Pulitzer
Prize winning, syndicated columnist Dave Barry. This series stars Harry Anderson
(Night Court) and is directed by James Widdoes (Delta and Empty Nest). Dave's
World airs on CBS and continues to rate in the top 20 hit network series. The
Company has produced 48 episodes of Dave's World and has received a renewal for
22 new episodes for the Fall 1995 television season. The Company renders
executive producer services for this series and receives producers' fees and is
entitled to a profit participation.
Future Quest - A television series consisting of 22 half-hour
episodes. Hosted by Jeff Goldblum, this series combines science and technology
with pop culture. This series was produced under an agreement with the Public
Broadcasting Station ("PBS") who provided production financing in exchange for
certain exclusive rights to broadcast this series.
Laurie Cooks Light & Easy - A television series consisting of 65
half-hour episodes which is hosted by cookbook author Laurie Burrows Grad. This
series features celebrities such as Wolfgang Puck, Jill St. John and Florence
Griffith Joyner who prepare meals in the light and easy way. This series
initially aired on the Learning Channel.
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Home Green Home - A television series consisting of 10 half-hour
episodes. Hosted by Kelly Shays Smith, this series focuses on home planting and
gardening and is scheduled to air on PBS in the Fall of 1995.
Superstars of Action - An action television series consisting of 26
half-hour episodes which was produced for German broadcaster Beta-Taurus. The
series is hosted by Robert Wagner and profiles actions of stars from Steve
McQueen to Arnold Schwarzenegger. This series is currently being licensed to
Discovery Communication's Learning Channel for its initial U.S. cable run. U.S
home video rights have been licensed to ABC Video.
Hollywood Stuntmakers I - A television series consisting of 13
half-hour episodes which was produced for The Discovery Channel. Starring James
Coburn, this series features stunts by Hollywood's best stuntmen and women in
action. This series initially aired on The Learning Channel. The U.S. home video
rights have been licensed to Hearst/Popular Mechanics.
FX Masters - A television series consisting of 26 episodes which was
produced for The Learning Channel. Hosted by Christopher Reeve, this series
takes a behind the scenes look at how special effects and movie magic is made
and currently airs on The Discovery Channel.
Forces Beyond- a 26 half-hour investigative series with The Learning
Channel. This series employs its news gathering resources to uncover the facts
behind some of the world's most confounding mysteries, including telekinesis,
psychic healing and ghosts. This series has been sold to Western International
Communications in Canada for a portion of the licensing fees.
Can't Hurry Love - A situation comedy television series which is
being produced for the CBS television network and will air in the Fall 1995
television season. The initial order for this series is for 13 half-hour
episodes.
A Day With - A one hour interview show which aired on the Fox network
in May 1995.
The Company also owns two completed television series; Hollywood
Babylon which consists of 26 half-hour episodes and Crosstown which consists of
65 half-hour episodes.
MADE FOR TELEVISION MOVIES
Against The Wall - A made-for-television movie produced by the
Company for Home Box Office. This movie, which aired in March 1994, focuses on
the true story of a 23 year-old prison guard who was taken hostage during the
infamous riot at Attica State Prison. Award winning John Frankenheimer (The
Manchurian Candidate and
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Birdman of Alcatraz) was the director and received an Emmy for his direction of
this movie. Irwin Meyer, the President and Chief Executive Officer of the
Company was nominated for the Producer of the Year by The Producers Guild of
America for being the executive producer of this movie. The Company received an
executive producer fee and a profit participation.
The Price She Paid - A made-for-television movie starring Loni
Anderson and Anthony John Denison which was broadcast on the CBS television
network. The Company has licensed this movie for broadcast outside North
America under the title Plan of Attack. The Company has retained the rights to
this movie in other ancillary markets such as domestic syndication and domestic
home video.
When A Stranger Calls... Back - A made-for-television movie, which
initially aired on Showtime. The stars of the movie are Carol Kane and Charles
Durning. The teleplay was written by Fred Walton who also directed this movie.
The Company received an executive producer fee and a profit participation.
The Secret Passion of Robert Clayton - A made-for-television movie
which aired on the USA network. This movie stars John Mahoney and Scott
Valentine. The Company received an executive producer fee and a profit
participation.
THEATRICAL MOTION PICTURE
What's Love Got To Do With It - A theatrical motion picture based on
the life story of rock superstar Tina Turner which was released in June 1993.
Stars Angela Bassett and Larry Fishburne received Academy Awards nominations
for their roles in this film. The director was Brian Gibson. The Company
received a producer fee and a profit participation.
PROJECTS IN PRODUCTION
The Company is in production of Simply Style, a series of 60 half-hour
episodes about fashion and style. Hosted by Leah Feldon, this series is
scheduled to air on The Learning Channel in the Fall of 1995.
PROJECTS IN DEVELOPMENT
On a continuing basis, the Company has projects in various stages of
development. These projects consist of television series, made-for-television
movies and theatrical motion pictures. The Company periodically evaluates the
expected use of its projects in development to determine if they will be
further developed or produced (either by itself or with others), developed by
others, sold or abandoned. Decisions as to projects in development are made by
management on a case-by-case basis after considering all relevant factors.
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PERSONAL MANAGEMENT
The Company's manages the careers of performers, writers and
directors. Among the Company's clients are Julia Louis-Dreyfus (Seinfeld),
George Newborn (The Boys are Back), Rosalind Allen (Seaquest), Michael Stoyanov
(Blossom), Nancy Allen, Mark Durbin, John Robert Hoffman, Douglas Sills and
Constance McCashin.
EMPLOYEES
The Company employs 14 persons on a full-time basis, including 3
independent contractors. Of such persons, 5 are officers, 3 are producers. The
balance are clerical and administrative employees. The Company does not
anticipate any material change in the number of its employees in the near
future. None of the Company's employees are represented by a labor union and
the Company believes that it has good relationships with its employees.
In connection with certain of its activities, such as development and
production of projects, the Company has and expects to continue to utilize the
services of independent third parties. The extent of the Company's utilization
of these services will be determined on a project-by-project basis. The Company
believes that such services are available from numerous sources at competitive
rates.
The Company is a party to collective bargaining agreements with the
Directors Guild of America, the Screen Actors Guild and the Writers Guild of
America. The Company is not a party to any other collective bargaining
agreement. In connection with its production and other activities, the Company
may employ personnel, such as writers, directors and performing artists who are
members of unions that are parties to collective bargaining agreements. The
Company has never experienced any labor difficulties. However, it is possible
that some of the Company's future business activities will be affected by the
existence of collective bargaining agreements relating to persons whom it may
employ who are members of unions. The extent to which the existence of
collective bargaining agreements may affect the Company in the future is not
accurately determinable. Strikes by members of these unions could delay or
disrupt the Company's activities.
COMPETITION
The Company is subject to intense competition in all phases of its
operations. The Company's competitors include motion picture studios, United
States television and cable networks and other companies who are engaged in
similar operations. Most of the Company's competitors have greater financial
and other resources than the Company and are in a better position than the
Company to
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obtain literary properties, attract talent, produce projects and distribute
completed projects. The Company competes with numerous companies for available
literary properties, writers and other creative talent, production financing,
and distribution of completed projects.
REGULATION OF MOTION PICTURE AND TELEVISION INDUSTRY
The Code and Ratings Administration of the Motion Picture Association
of America, an industry trade association, decides ratings for age group
suitability for domestic theatrical distribution of motion pictures. United
States television stations and networks, as well as foreign governments, impose
restrictions on the content of motion pictures. To the extent that the
Company's projects do not comply with certain of these regulations, they may be
effectively prohibited from exhibition on applicable television stations,
networks and in foreign territories.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases approximately 6,350 square feet located at 9150
Wilshire Boulevard, Beverly Hills, California for its corporate offices
pursuant to a lease which expires on September 30, 1996. The annual rent is
$229,000. The Company believes that its current facilities are sufficient for
its needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
The Producers Entertainment Group Ltd. and DSL Productions, Inc. v.
Drew S. Levin, et. al. was commenced in the Superior Court of the State of
California for the County of Los Angeles on June 28, 1995. This action, among
other things, seeks payment of loans made by DSL to Mr. Levin prior to the
acquisition of DSL by the Company in the aggregate principal amount of
approximately $388,000 and accrued interest thereon. The defendants have filed
a cross-complaint against the Company and others which claims, among other
things, that the Company breached its agreement with Mr. Levin and seeks
recision of certain parts of that agreement and damages. The Company believes
that it will not be materially adversely effected by the ultimate outcome of
these actions.
Joseph Cayre v. The Producers Entertainment Group Ltd., et. al. was
commenced in the Superior Court of the State of California for the County of Los
Angeles on July 7, 1995. This action claims, among other things, that Mr. Cayre
(the former owner of DSL) is presently due the amount payable to him from
revenues, as defined, received from certain television series and other damages.
The Company has denied these allegations and believes that it will not be
materially adversely effected by the ultimate outcome of this action.
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In the normal course of its business, the Company is subject to
various claims and legal actions. The Company believes that it will not be
materially adversely effected by the ultimate outcome of any of these matters
either individually or in the aggregate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the NASDAQ Small Cap Market
under the symbol "TPEG" and is also traded on the Boston Stock Exchange under
the symbol "PEG." The following table sets forth the high and low bid price per
share of the Common Stock as reported by NASDAQ for each quarter within the
last two fiscal years.
<TABLE>
<CAPTION>
High Low
Bid Bid
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<S> <C> <C>
Fiscal Year - 1994:
Quarter Ended
September 30, 1993 3.3125 2.3125
December 31, 1993 3.875 3.125
March 31, 1994 3.50 2.50
June 30, 1994 3.375 2.438
Fiscal Year - 1995:
Quarter Ended
September 30, 1994 2.9375 1.125
December 31, 1994 2.00 .6875
March 31, 1995 .8125 .50
June 30, 1995 .8125 .375
</TABLE>
On September 19, 1995, the closing prices of the Common Stock as
reported by NASDAQ were $.6875 bid and $.75 asked. On such date there were 156
holders of record of the Common Stock. The number of shareholders does not take
into account shareholders for whom shares are being held in the name of
brokerage firms or clearing agencies.
The Company has never declared or paid cash dividends on its Common
Stock. The Company has outstanding 1,000,000 shares of Series A Preferred Stock
which is entitled to annual dividends aggregating $425,000. At the option of
the Company, dividends on the Series A Preferred Stock may be paid either in
cash or in shares of Common Stock valued at the then market price, as defined.
The dividend on the Series A Stock for the quarter ended June 30, 1995 in the
aggregate amount of $106,250 was paid by the Company issuing 154,662 shares of
Common Stock. No dividends may be paid on the Common Stock unless all dividends
on the Series A Preferred Stock have been paid or provision has been made for
such payment. No cash dividends are expected to be paid on the Common Stock in
the foreseeable future.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Revenues from completed projects owned by the Company are recognized
when the project becomes contractually available for telecasting or exhibition
by the licensee. Amortization of film costs are charged to operations on an
individual-film basis in a ratio that the current year's revenues bears to
management's estimate of total gross revenue (current and future years) from
all sources. This is commonly referred to as the individual-film-forecast
method. The effects on amortization of completed projects resulting from
revisions of estimates of total gross revenues are reflected in the year when
such revisions are made. The amount of distribution and licensing revenues
earned by the Company in any one period are dependent on, among other things,
projects completed during any such period and the distribution of completed
projects by others. Revenues from producers and other fees are primarily
dependent on the number of projects being produced by the Company and the
agreements relating to such projects. Accordingly, year to year comparisons of
revenues representing distribution, producers and other fees are not
necessarily indicative of future revenues from these sources.
RESULTS OF OPERATIONS
Year Ended June 30, 1995 as compared to Year Ended June 30, 1994
Revenues for the year ended June 30, 1995 primarily consisted of
distribution fees from completed projects (primarily Future Quest), fees from
the television series Dave's World which is airing on CBS and personal
management fees. Revenues for the year ended June 30, 1994 included $5,486,000
received from the made-for-television movie Against the Wall, $4,365,104 of
distribution fees from completed projects, fees from Dave's World, and personal
management fees.
Amortization of film costs in fiscal 1995 and 1994 included $729,000
and $1,000,000 related to revisions in estimates of amounts to be received in
the future from certain completed projects. Costs related to revenues in fiscal
1994 consist of amounts expended on Against the Wall. Write-offs of projects in
the development stage were $335,233 and $233,903 for the years ended June 30,
1995 and 1994, respectively.
General and administrative expenses decreased to $4,696,554 in fiscal
1995 from $5,621,365 in fiscal 1994 or a decrease of $924,811. This decrease
was primarily attributable to the termination of certain unprofitable
operations of DSL, and related compensation and other expenses as of February
27, 1995. The effects of these actions will continue in subsequent periods. In
connection with the restructuring of the Company's management, the
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Company has agreed to enter into and amend employment agreements with certain
of its officers and others. Although the terms of these agreements have not
been finalized, they provide for additional aggregate compensation of
approximately $432,000 for the year ending June 30, 1996 and $854,000 for the
years ending June 30, 1997 and 1998.
The decrease in interest income was primarily due to reduced funds
available for investment and lower interest rates. Interest and financing
expense for fiscal 1995 includes interest on the Company's 7% subordinated
notes including $275,000 representing the market value of the shares of common
stock that were issued to the noteholders upon the repayment of the notes.
The provision for note receivable relates to a loan made to the then
President of DSL which is secured by stock options previously granted to this
individual. Due to the market price of the Company's common stock being
substantially below the exercise price of these options, the Company has
established an allowance for the entire amount of this note. Reduction in
deferred participations represents the adjustment relating to the estimated
amount payable based on certain revenues to be received from certain completed
projects based on projections of these revenues.
Year Ended June 30, 1994 as compared to Year Ended June 30, 1993
Revenues for the year ended June 30, 1994 included $5,486,000 received
from Against the Wall, $4,365,104 from completed projects, fees from the
television series Dave's World and personal management fees. Revenues for the
year ended June 30, 1993 included $1,206,000 of fees from completed projects,
an executive producers fee of $299,000 from Hollywood Babylon, $747,500 of
producers and other fees earned on other projects, personal management fees and
production and distribution fees from projects owned by DSL. Revenues of DSL
duplicated in the Statements of Operations for the years ended June 30, 1994
and 1993 were $2,308,230.
During the years ended June 30, 1994 and 1995, the Company revised its
estimates of amounts to be received in the future from certain completed
projects. As a result, the Company adjusted the amortization of these project
by $1,000,000 during fiscal 1994 and $1,800,000 in fiscal 1993. Costs related
to revenues consists of amounts expended on the production of Against the Wall.
Write-offs of projects in the development stage were $233,903 and $169,823 for
the years ended June 30, 1994 and 1993, respectively.
General and administrative expenses decreased by $75,486 to $5,621,365
for the year ended June 30, 1994 as compared to $5,696,851 for the year ended
June 30, 1993. In fiscal 1993, the Company capitalized as film costs
approximately $425,000 of officers' and other compensation and approximately
$28,000 of office rent and other expenses aggregating approximately $453,000.
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No such costs were capitalized in fiscal 1994. General and administrative
expenses in fiscal 1993 included amounts paid by DSL to its former shareholder
prior to its acquisition by the Company.
The increase in interest income was principally due to interest earned
on proceeds received from the Company's secondary offering of securities which
was completed in April 1993. Interest expense primarily relates to DSL and is
based on the level of borrowings in each year. In fiscal 1994, the Company
agreed to settle a lawsuit by issuing to the plaintiffs, subject to court
approval, warrants to purchase its Common Stock with an aggregate value of
$400,000. This agreement has been reflected in fiscal 1994 by a $400,000 charge
to operations and a corresponding increase to additional paid-in capital.
During the year ended June 30, 1995, the Company issued an aggregate of 711,111
Class C Warrants in settlement of this lawsuit. The issuance of these Class C
Warrants did not have any effect on the Company's consolidated financial
statements. During fiscal 1993, an aggregate of $102,000 principal amount of
notes due from related parties were forgiven.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, the Company had cash and cash equivalents of
$832,754 and accounts receivable of $652,075 (aggregate - $1,484,829). At such
date, the Company also had accounts payable and accrued expenses of $847,595.
The Company's operations have been primarily financed by the net proceeds
received from public offerings of its securities and proceeds received from
exercises of stock options and warrants. Through June 30, 1995, these proceeds
aggregated approximately $16,900,000. For the years ended June 30, 1995 and
1994, the Company incurred net losses of $3,593,252 and $5,489,523,
respectively. At June 30, 1995, the Company had an accumulated deficit of
$11,735,044.
At the date of acquisition of DSL by the Company, DSL had received
advances from one of its former shareholders of $2,687,000. An aggregate of
$1,887,000 of these advances has been repaid. This individual is entitled to
receive up to a maximum of $800,000 solely out of revenues, as defined,
received from certain completed projects. These payments will not be made until
the related revenues are received.
A substantial portion of the Company's working capital has been and
will continue to be used to finance the development and production of projects.
All or a substantial portion of the production costs of a project are received
by the Company from licensing fees received during the production stage of a
project and upon its completion. Licensing and distribution fees received
subsequent to completion of a project represent a current cash profit to the
Company for no significant expenses are incurred in connection with the receipt
of such amounts. The Company's working capital has also been used to pay
operating expenses, including compensation of its officers and key independent
contractors.
16
<PAGE> 17
The Company's cash commitments for the year ending June 30, 1996
include minimum compensation to officers and key independent contractors of
approximately $1,125,000 and office rent of approximately $220,000 (aggregate -
approximately $1,345,000. The Company has agreed to enter into and amend
employment agreements with certain of its officers and others. Although the
terms of these agreements have not been finalized, they provide for additional
aggregate compensation of approximately $432,000 for the year ending June 30,
1996 and $854,000 for the years ending June 30, 1997 and 1998. The Company also
incurs other costs such as salaries, related benefits, professional fees and
office and other expenses. For the year ended June 30, 1995, general and
administrative expenses, which includes compensation and rent, aggregated
$4,696,554. During the year ended June 30, 1995, the Company terminated certain
unprofitable operations of DSL, terminated and revised certain employment
agreements, made reductions in personnel and related expenses, and reduced
other operating costs. As a result of these actions, the Company believes that
the level of its general and administrative expenses in the future will be
substantially below that of prior years.
Dividends on the Company's Series A Preferred Stock aggregate $425,000
annually. At the Company's option, these dividends may be paid in shares of the
Company's common stock. The Company has no borrowings.
The Company's cash receipts are principally derived from the
exhibition and distribution of its completed projects, producers fees and
personal management fees. The Company's revenues are affected by the licensing
and distribution of its completed projects and the number of projects produced
for which the Company receives producers fees. Therefore, the Company is unable
to accurately predict the level or timing of its future cash receipts.
The Company has no arrangements for external sources of liquidity such
as bank lines of credit and has no material commitments for capital
expenditures. The Company believes that its future revenues and anticipated
cash flow, combined with its cash, cash equivalents and accounts receivable as
of June 30, 1995, will be sufficient for its needs for at least the next twelve
months.
ACCOUNTING STANDARDS
The Company has adopted Financial Accounting Standards Board Statement
of Financial Standards ("SFAS") No. 109 "Accounting for Income Taxes". This
standard changed the method of accounting and reporting for income taxes. The
adoption of SFAS No. 109 did not have a material impact on the Company's
financial statements.
INFLATION
Inflation has not had a material effect on the Company.
17
<PAGE> 18
ITEM 7. FINANCIAL STATEMENTS.
The Company's consolidated financial statements are included elsewhere herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the last two fiscal years, there were no changes in or
disagreements with the Company's accountants on any matter of accounting or
financial disclosure.
PART III
MANAGEMENT
18
<PAGE> 19
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table sets forth certain information with respect to
each of the directors and executive officers and key independent contractors of
the Company.
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
Irwin Meyer 60 President, Chief Executive
Officer and Director
Ronald Lightstone 56 Chairman of the Board and
Director
Charles J. Weber 52 Chief Operating Officer and
Director
Arthur Bernstein 32 Senior Vice President and
Director
Michael I. Levy 55 Director
Jonathan Axelrod 45 Independent Contractor
</TABLE>
Directors are elected to an annual term that expires at the Company's
annual meeting of stockholders. There are no family relationships between any
of the officers, directors and key independent contractors of the Company.
Officers and Directors
IRWIN MEYER has served as a director of the Company since its
inception and as President and Chief Executive Officer of the Company since
February 1995. In February 1990, Mr. Meyer became Co-Chairman of the Board of
the Company and, in January 1991, became Chairman of the Board of the Company,
a position he held until June 1992. From 1988 to July 1994, Mr. Meyer was a
director of Ventura and, from May 1988 to December 1990, he was President of
Ventura. Mr. Meyer was an Executive Producer of the Company's made-
for-television movies The Price She Paid and The Secret Passion of Robert
Clayton and its television series, Hollywood Babylon. He was also executive
producer of the made-for-television movie Against the Wall which was produced
by the Company for Home Box Office. Mr. Meyer was nominated for the Producer
of the Year by the Producers Guild of America for being the executive producer
of this movie. In 1977, he co-produced the musical Annie for which he received
the Antoinette Perry ("Tony") Award, the New York Drama Critics Circle Award,
the Drama Desk Award, the Outer Critics Circle Award and the
19
<PAGE> 20
Cue Magazine Golden Apple Award. Mr. Meyer received a B. S. degree from New
York University.
RONALD LIGHTSTONE has served as Chairman of the Board and a Director
of the Company since June 1995. From 1988 to 1994, Mr. Lightstone was
affiliated with Spelling Entertainment Group, most recently as Chief Operating
Officer. This company is a producer and distributor of television series,
mini-series, made-for-television movies and theatrical motion pictures.
Previously, he was Senior Vice President of Viacom International Inc. Mr.
Lightstone holds a an A.B. in Literature from Columbia University and a J.D.
from New York University School of Law.
CHARLES J. WEBER has served as Chief Operating Officer of the Company
since June 1995 and has been a Director of the Company since February 1995. Mr.
Weber has been the Chairman and Chief Executive Officer of Weber
Communications, Inc., an international consulting firm specializing in
professional management, consulting, business development and strategic
alliances in the multimedia, entertainment and communications fields Mr. Weber
has served as President and Chief Executive Officer of Lucasfilm, Ltd.,
President and Chief Operating Officer of Embassy Communications and President
and Chief Executive Officer of CanWest International Corporation. Mr. Weber
holds a B.B.A. from Manhattan College and an M.B.A. from Hofstra University.
ARTHUR BERNSTEIN has served as Vice President - Business and Legal
Affairs of the Company since September 1991 and then as Senior Vice President
since June 1992. Mr. Bernstein has been a director of the Company since
February 1995. From July 1989 to August 1991, Mr. Bernstein was Director of
Legal and Business Affairs for New World Entertainment Ltd. Previously, he was
Assistant General Counsel of Four Star International, Inc. Mr. Bernstein
received a Bachelor of Science degree in finance and marketing from
Philadelphia College of Textiles and Sciences in 1984 and a Juris Doctorate
degree from Temple University in 1987.
MICHAEL I. LEVY has served as a director of the Company since February
1995. Mr. Levy has been engaged in various aspects of the entertainment
industry since 1964 including production, packaging and personal management.
Key Independent Contractor
JONATHAN AXELROD was an executive officer of the Company from February
1990 to May 1993 and was a director of the Company from February 1990 to
February 1995. Mr. Axelrod presently provides executive producer and other
services to the Company. Mr. Axelrod was the co-owner of Camden Artists, Ltd.,
a talent agency specializing in packaging motion picture and television
projects. Prior to his association with Camden Artists, Ltd., Mr. Axelrod was
President - Motion Picture and Television Production of New World
20
<PAGE> 21
Pictures, held several executive positions at Columbia Pictures Television
including Executive Vice President - In Charge of World Wide Productions and
was Vice President/ Senior Executive, Prime Time Development, Vice President
Dramatic Development and Executive Producer, Motion Pictures for Television of
ABC Television Network. Until July 1994, Mr. Axelrod was a director of Ventura.
The Delaware Supreme Court has held that directors' duty of care to a
corporation and its stockholders requires the exercise of an informed business
judgment. Having become informed of all material information reasonably
available to them, directors must act with requisite care in the discharge of
their duties. The Delaware General Corporation Law permits a corporation
through its Certificate of Incorporation to exonerate its directors from
personal liability to the corporation or its stockholders for monetary damages
for breach of fiduciary duty of care as a director, with certain exceptions.
The exceptions include a breach of the director's duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or knowing
violations of law, improper declarations of dividends, and transactions from
which the directors derived an improper personal benefit. The Company's
Certificate of Incorporation exonerates its directors, acting in such capacity,
from monetary liability to the extent permitted by this statutory provision.
The limitation of liability provision does not eliminate a stockholder's right
to seek non-monetary, equitable remedies such as injunction or rescission to
redress an action taken by directors. However, as a practical matter, equitable
remedies may not be available in all situations and there may be instances in
which no effective remedy is available.
The Company believes that it is the position of the Securities and
Exchange Commission that insofar as the foregoing provisions may be invoked to
disclaim liability for damages arising under the Securities Act of 1933, the
provision is against public policy as expressed in the Act and is therefore
unenforceable.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulations to furnish the Company with copies of Section 16(a)
forms they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no other
reports were required during the two
21
<PAGE> 22
fiscal years ended June 30, 1994 and June 30, 1995, all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten percent
beneficial owners were satisfied, except that Messrs. Lightstone and Weber did
not file on a timely basis one Form 3 upon becoming officers and directors of
the Company and Mr. Bernstein did not timely file two Form 4 reports during the
year ended June 30, 1995 and four Form 4 reports in prior years.
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
-------------------------------------------- ------------
(a) (b) (c) (d) (e) (g)
Name and Fiscal Options/
Principal Year Salary Bonus Other SARs
Position Ended $ $ $ #
- -------- ----- ------ ----- ----- -------
<S> <C> <C> <C> <C> <C>
Irwin Meyer, 1995 281,000 -0 13,500(5) (8)
President and 18,000(6)
Chief Executive 17,250(7)
Officer (1) 1994 260,000 -0- 15,113(5) -0-
70,000(7)
18,000(6)
1993 345,000 -0- 12,000(6) 185,000
52,000(9)
Arthur Bernstein, 1995 96,587 12,000 6,625(6) 100,000
Senior Vice 1994 101,058 -0- 6,000(6)
President 1993 95,000 -0- 6,000(6)
Drew Levin, 1995 278,590 -0- -0- -0-
President of 1994 180,000 -0- -0- 1,300,000(10)
DSL (2) 1993 250,000 -0- -0- -0-
Jonathan 1995 345,000 -0- 18,000(6) -0-
Axelrod (3) 13,962(7)
1994 345,000 -0- 18,000(6) -0-
1993 331,500 -0- 12,000(6) -0-
50,000(9)
Harvey 1995 141,519 -0- -0- 300,000
Bibicoff (4) 1994 225,000 -0- 9,000(6) -0-
1993 225,000 -0- 9,000(6) -0-
</TABLE>
_________________________
(1) Paid to AliPat Productions Ltd. "AliPat"), which provides the Company
with the services of Mr. Meyer and others.
22
<PAGE> 23
(2) Includes compensation paid to Mr. Levin by DSL prior to the
acquisition of DSL by the Company on May 19, 1994. Mr. Levin resigned
as an officer and director of the Company and DSL in February 1995.
(3) Paid to Jonathan Stanton Company which provides the Company with the
services of Mr. Axelrod.
(4) Includes compensation paid subsequent to February 1995 as a consultant
to the Company.
(5) Participations in producer fees and net profits on projects produced.
(6) Automobile allowance.
(7) Advance against future compensation.
(8) The Company has agreed to sell both Alison Meyer and Patricia Meyer
1,000,000 shares of Common Stock each in exchange for promissory
notes. See "Stock Purchases" below and "Item 12. Certain Relationships
and Related Transactions." Alison Meyer and Patricia Meyer, who are
sisters, are the President and Vice President, respectively, of AliPat
and are the adult children of Irwin Meyer. Mr. Meyer disclaims
beneficial ownership of the shares of Common Stock to be sold to
Alison Meyer and Patricia Meyer.
(9) Forgiveness of note receivable.
(10) As a result of the termination of Mr. Levin's employment with the
Company, 900,000 of these options were cancelled. The remaining
400,000 options are pledged to secure a note held by the Company. See
"Item 12. Certain Relationships and Related Transactions."
23
<PAGE> 24
OPTION/SAR GRANTS TABLE
OPTIONS/SAR GRANTS IN FISCAL YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
Potential
Realizable
Value at Assumed
Annual Rates
of Stock Price
Appreciation for
Individual Grants Option Term
- ----------------------------------------------------- -----------------------
(a) (b) (c) (d) (e) (f) (g)
% of
Total
Options
Granted
in
Options Fiscal Exercise Expiration
Name Granted Year Price Date 5% 10%
- ---------- ------- -- ----- ---- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Arthur 100,000 7% $ .50 5/31/00 $13,810 $ 30,530
Bernstein
Harvey 300,000 22% $ 1.00 2/27/99 $82,885 $183,153
Bibicoff
</TABLE>
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTIONS/SAR EXERCISES IN FISCAL YEAR ENDED JUNE 30, 1995
AND FISCAL YEAR-END OPTION/SAR VALUE
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Value of
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Shares Value
Name Acquired Realized Exercisable (E) Unexercisable (UE)
- ---- -------- -------- ------------------------------------
<S> <C> <C> <C> <C>
Irwin -0- $ -0- 635,000 (E) $ -0- (E)
Meyer (1)
Arthur 3,500 $4,594 54,000 (E) $ -0- (E)
Bernstein 100,000(UE) $ 18,750 (UE)
Drew -0- $-0- 400,000 (E) $ -0- (E)
Levin (2)
Jonathan -0- $-0- 400,000 (E) $ -0- (E)
Axelrod (3)
Harvey -0- $-0- 880,000 (E) $ -0- (E)
</TABLE>
24
<PAGE> 25
Bibicoff
_____________________________________
(1) Owned by Alison Meyer and Patricia Meyer, who are sisters, and are the
President and Vice President, respectively, of AliPat and are the adult
children of Irwin Meyer. All of these options are pledged to secure an
advance made by the Company to AliPat. See "Item 12. Certain
Relationships and Related Transactions." Mr. Meyer disclaims beneficial
ownership of the options and the underlying shares of Common Stock held
by Alison Meyer and Patricia Meyer.
(2) Pledged to secure a note receivable held by the Company. See
"Item 12. Certain Relationships and Related Transactions."
(3) Owned by Jonathan Stanton Company which provides the Company
with the services of Jonathan Axelrod.
LONG-TERM INCENTIVE AWARDS TABLE
The Company has agreed to enter into employment agreements with Messrs.
Meyer, Lightstone and Weber and to amend its existing employment with AliPat.
Although the terms of these agreements have not been finalized, they provide for
additional aggregate compensation of approximately $432,000 for the year ending
June 30, 1996 and $854,000 for the years ending June 30, 1997 and 1998. See
"Employment Agreements" below. The Company has also agreed to sell Messrs.
Lightstone and Weber and Alison Meyer and Patricia Meyer an aggregate of
4,500,000 shares of its Common Stock at a price of $.50 per share. The purchase
price of these shares will be represented by promissory notes which will bear
interest at the rate of 7% per annum and will be secured by, among other things,
the purchased shares. See "Stock Purchases" below. There were no other long-term
incentive awards granted during the year ended June 30, 1995.
EMPLOYMENT AGREEMENTS
The Company has entered into an agreement with AliPat to provide the
exclusive full-time services of Irwin Meyer and the part-time services of others
as producers and/or executive producers and to perform other duties. This
agreement expires on June 30, 1996. AliPat is entitled to an annual base
guarantee fee of $260,000 plus a $1,500 monthly automobile allowance. During the
year ended June 30, 1994, the Company advanced AliPat $70,000 against future
guarantee fees. During the year ended June 30, 1995, AliPat earned $13,500 of
guarantees which were applied against this advance. See "Item 12. Certain
Relationships and Related Transactions". AliPat was also entitled to 30% of all
producer fees and/or profit participations received by the Company on certain
projects. In February 1995 the Company and AliPat agreed to eliminate AliPat's
percentage of all producer fees and profit participations earned on future
projects in return for AliPat
25
<PAGE> 26
receiving an additional $1,000 per week. The agreement is terminable by the
Company in the event of Mr. Meyer's death or disability. In such event, the
Company shall pay the guarantee fee of $260,000 for one year. The Company may
also terminate this agreement "for cause" as defined in this agreement. AliPat
may terminate this agreement in the event of a material breach by the Company or
for "good reason" as defined in this agreement. In such event, the Company shall
be obligated to pay all amounts due thereunder for the balance of its term. In
the event that the Company materially breaches the agreement after a change in
control, AliPat shall be entitled to a lump sum payment equal to three times its
then current total compensation. The Company has agreed to amend the agreement
with AliPat and enter into an employment agreement with Mr. Meyer. Although the
terms of these agreements have not been finalized, they provide for annual
compensation to AliPat of $262,000 plus a $1,500 monthly automobile allowance
and annual compensation to Mr. Meyer of $50,000. The terms of these agreements
will commence on October 1, 1995 and terminate on June 30, 1998. The Company has
also agreed to sell both Alison Meyer and Patricia Meyer each 1,000,000 shares
of its common stock at a price of $.50 per share. The purchase price of these
shares will be represented by promissory notes. See "Stock Purchases" below and
"Item 12. Certain Relationships and Related Transactions".
Mr. Lightstone and the Company have agreed to enter into an employment
agreement. Although the terms of this employment agreement have not been
finalized, it provides for annual compensation of $250,000 plus a $1,000 monthly
automobile allowance. The term of this agreement will commence on October 1,
1995 and terminate on June 30, 1998. The Company has also agreed to sell Mr.
Lightstone 1,500,000 shares of its common stock at a price of $.50 per share.
The purchase price of these shares will be represented by promissory notes. See
"Stock Purchases" below and "Item 12. Certain Relationships and Related
Transactions".
Mr. Weber and the Company have agreed to enter into an employment
agreement. Although the terms of this employment agreement have not been
finalized, it provides for annual compensation of $250,000 plus a $1,000 monthly
automobile allowance. The term of this agreement will commence on October 1,
1995 and terminate on June 30, 1998. The Company has also agreed to sell Mr.
Weber 1,000,000 shares of its common stock at a price of $.50 per share. The
purchase price of these shares will be represented by promissory notes. See
"Stock Purchases" below and "Item 12. Certain Relationships and Related
Transactions".
Mr. Bernstein is employed as Senior Vice President of the Company
pursuant to an employment agreement, as amended, which expires on June 30, 1996.
Mr. Bernstein's annual compensation is $105,000 plus a $750 monthly automobile
allowance. In connection with the amendment of his employment agreement, Mr.
Bernstein
26
<PAGE> 27
received a $12,000 bonus. The agreement is terminable by the Company in the
event of Mr. Bernstein's death or disability. In such event, the Company is
obligated to pay the aforesaid compensation for one year. The Company may also
terminate the employment agreement "for cause" as defined in this agreement. Mr.
Bernstein may terminate this agreement in the event of a material breach by the
Company or for "good reason" as defined in this agreement. In such event, the
Company will be obligated to pay him all amounts due thereunder for the balance
of its term and all unvested stock options held by him shall vest. In the event
of a change in control of the Company, all stock options issued to Mr. Bernstein
shall vest and the Company shall, at Mr. Bernstein's option, purchase shares of
Common Stock owned by him at the then market price and shall acquire all of his
stock options for the difference between the exercise price of such options and
the greater of the price at which the new controlling entity acquired its
interest in the Company or the then market price of the Common Stock.
Mr. Axelrod is employed by the Company pursuant to an employment
agreement, as amended, with Jonathan Stanton Company, his loan-out company
("JSC"). This agreement expires on June 30, 1996 and provides for annual base
compensation of $345,000 plus a $1,500 monthly automobile allowance. JSC is also
entitled to receive a portion of the Company's profit participation from a
television series. The agreement is terminable by the Company in the event of
Mr. Axelrod's death or disability. In such event the Company is obligated to pay
the base compensation and automobile allowance for one year. The Company may
also terminate this agreement "for cause" as defined in this agreement. JSC may
terminate this agreement in the event of a material breach by the Company or for
"good reason" as defined in this agreement. In such event, the Company will be
obligated to pay JSC all amounts due thereunder for the balance of its term. In
the event that the Company materially breaches the agreement after a change in
control, JSC shall be entitled to a lump sum payment equal to three times its
then current total compensation.
STOCK OPTION PLANS
The Company's Stock Option Plan (the "Option Plan") provides that a
total of 1,000,000 shares of Common Stock may be issued under the Option Plan.
In June 1995, the Company's 1995 Stock Option Plan (the "1995 Option Plan") was
adopted by the Board of Directors and is subject to shareholder approval. The
1995 Option Plan provides that a total of 3,000,000 shares of Common Stock may
be issued under the 1995 Option Plan. No options have been granted under the
1995 Option Plan. The Option Plan and the 1995 Option Plan are collectively
referred to as the "Option Plans."
27
<PAGE> 28
Pursuant to the Option Plans, the Company may grant "incentive stock
options" within the meaning of Section 422A of the Internal Revenue Code of
1986, as amended ("incentive stock options") as well as non-incentive stock
options to salaried employees. The Option Plans provide for administration by
the Board of Directors of the Company or by a Committee of the Board of
Directors which selects the optionees, authorizes the grant of options and
determines the exercise price of the options. Currently, the Board of Directors
administers the Option Plans.
The exercise price of each incentive stock option granted under the
Option Plans must be at least 100% of the fair market value per share of the
Common Stock as determined by the Board of Directors on the date of the grant.
Each incentive stock option may be exercisable for a period, as determined by
the Board of Directors, but not in excess of ten years from the date of grant.
The exercise price of all options granted under the Option Plans to stockholders
possessing more than 10% of the total combined voting power of all classes of
stock of the Company must be not less than 110% of the fair market value of the
Common Stock on the date of grant and such options may be exercisable for a
period not in excess of five years from the date of grant.
Incentive stock options granted under the Option Plans are
non-transferrable, except upon death, by will or by operation of the laws of
descent and distribution, and may by exercised during the employee's lifetime
only by the optionee. There is no limit on the number of shares with respect to
which options may be granted under the Option Plans to any participating
employee. However, under the terms of the Option Plans, the aggregate fair
market value of the stock with respect to which incentive stock options are
exercisable for the first time by an employee during any calendar year (under
all such plans of the Company and any parent and subsidiary corporations) may
not exceed $100,000.
Options granted under the Option Plans may be exercised within twelve
months after the date of an optionee's termination of employment by reason of
his death or disability, or within six months after the date of termination by
reason of retirement or voluntary termination approved by the Board of
Directors, but only to the extent the option was otherwise exercisable at the
date of termination. In the event an optionee's employment is terminated for any
reason other than death or disability, or retirement or voluntary termination
approved by the Board of Directors, such option shall terminate thirty days
thereafter.
The Option Plan expires on August 31, 1999 and the 1995 Option Plan
expires on May 31, 2005, unless terminated earlier by the
Board of Directors. The Option Plans are subject to amendment by the Board of
Directors without stockholder approval, except that no amendment which increases
the maximum aggregate number of shares which may be issued under the Option
Plans or changes the class of
28
<PAGE> 29
employees who are eligible to participate in the Option Plans would be allowed
without the approval of the stockholders of the Company. The Company may also
grant stock options outside the Option Plans.
Set forth below is a list of outstanding stock options of the Company
held by its executive officers, directors and key independent contractors as of
June 30, 1995. Unless otherwise indicated, all of the outstanding options are
currently exercisable and the holders thereof have registration rights with
respect to the underlying shares.
<TABLE>
<CAPTION>
NUMBER PRICE EXPIRATION
NAME OF SHARES PER SHARE DATE
- ---- --------- --------- ----------
<S> <C> <C> <C>
Alison Meyer 37,500 $2.00 June 1996 (1)
50,000 $1.875 December 1997 (1)
137,500 $3.25 (2)
92,500 $2.625 May 1996
Patricia Meyer 37,500 $2.00 June 1996 (1)
50,000 $1.875 December 1997 (1)
137,500 $3.25 (2)
92,500 $2.625 May 1996
Arthur Bernstein 9,000 $1.25 September 1996 (1)
20,000 $3.25 September 1995 (1)
25,000 $3.00 July 1995
100,000 $ .50 May 2000
Drew Levin 400,000 (3) $2.72 December 1997
Jonathan Axelrod 400,000 $3.25 (4)
</TABLE>
_______________________________
(1) Issued under the Option Plan.
(2) Of these options, 45,833 expire on December 31, 1995, 45,833 expire on
December 31, 1996 and 45,933 expire on December 31, 1997.
(3) Pledged to secure a note receivable held by the Company. See
"Item 12. Certain Relationships and Related Transactions."
(4) Granted to JSC. Of these options, 133,333 expire on December 31, 1995,
133,333 expire on December 31, 1996 and 133,334 expire on December 31,
1997.
STOCK PURCHASES
The Company has agreed to sell shares of its Common Stock to certain
officers, directors and others. The purchase price of these
29
<PAGE> 30
shares will be represented by promissory notes which bear interest at the rate
of 7% per annum and will be secured by, among other things, the purchased
shares. The Company has agreed to sell an aggregate of 4,500,000 shares of
Common Stock at a price of $.50 per share to the following:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ------
<S> <C>
Alison Meyer 1,000,000
Patricia Meyer 1,000,000
Ronald Lightstone 1,500,000
Charles J. Weber 1,000,000
</TABLE>
COMPENSATION OF DIRECTORS
No fees are paid to members of the Board of Directors of the Company
for their services as members of the Board of Directors. It is the policy of the
Company to reimburse directors for reasonable travel and lodging expenses
incurred in attending meetings of the Board of Directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
As of September 19, 1995, the Company had 10,420,996 shares of Common
Stock outstanding. The following table sets forth the number of shares of Common
Stock of the Company beneficially owned as of such date by: (i) each person
known to the Company to be the beneficial owner of more than five percent of the
Company's Common Stock; (ii) each of the officers and directors of the Company;
and (iii) all officers and directors of the Company as a group. Shares
beneficially owned by the persons listed in the following table are issuable
upon exercise of immediately exercisable stock options.
30
<PAGE> 31
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS BENEFICIAL OUTSTANDING
OF BENEFICIAL OWNER (1) OWNERSHIP (2) COMMON STOCK
- ----------------------- ------------- ------------
<TABLE>
<S> <C> <C>
Alison Meyer (3) (4) 635,000 5.7%
Patricia Meyer (3) (4) 635,000 5.7%
Ronald Lightstone (4) -0- -0-
Charles J. Weber (4) -0- -0-
Michael I. Levy 25,000 *
Arthur Bernstein (5) 54,000 *
Drew Levin (6) 400,000 3.7%
Jonathan Axelrod 400,000 3.7%
Harvey Bibicoff (7) 880,000 7.8%
All officers and directors
as a group (5 persons) (8) 79,000 *
</TABLE>
_________________________________
(1) The address of Alison Meyer and Patricia Meyer is 12610 Promontory
Road, Los Angeles, California 90049. The address of Messrs. Lightstone,
Weber, Bernstein and Axelrod is 9150 Wilshire Boulevard, Beverly Hills,
California 90212. The address of Mr. Levin is 12300 Wilshire Boulevard,
Los Angeles, California 90025. The address of Mr. Bibicoff and Bibicoff
& Associates, Inc. is 1990 Westwood Boulevard, Los Angeles, California
90025.
(2) Beneficial owners of Common Stock possess sole voting and investment
power with respect to the shares listed opposite their names.
(3) Includes shares of Common Stock owned by both Alison Meyer and Patricia
Meyer by virtue of them being sisters.
(4) Does not include shares of Common Stock to be sold by the
Company. See "Stock Purchases" above.
(5) Does not include options to purchase 100,000 shares of Common Stock
that are not exercisable within the next 60 days.
(6) Pledged to secure a note receivable held by the Company. See
"Item 12. Certain Relationships and Related Transactions."
(7) Includes options owned by Bibicoff & Associates, Inc.
(8) Does not include options held by Alison Meyer and Patricia Meyer as
Irwin Meyer disclaims beneficial ownership of such options and the
underlying shares of Common Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On May 12, 1994, the Company acquired DSL in exchange for
130,000 shares of its Common Stock. At the date of acquisition, DSL
owed Mr. Joseph Cayre, one of its former shareholders, an aggregate
of $2,687,000 of which an aggregate
31
<PAGE> 32
of $1,887,000 has been repaid by the Company. Mr. Cayre is entitled to receive
payments (up to an aggregate of $800,000) solely out of revenues, as defined,
received by the Company from certain completed projects. The payment of this
amount is the subject of a legal action brought by Mr. Cayre against the
Company. See "Item 3. Legal Proceedings."
The Company had guaranteed the repayment of a $270,000 loan due Mr.
Cayre from Mr. Drew Levin, the former President of DSL. In December 1994, the
Company loaned Mr. Levin $270,000 for the purpose of repaying this loan. The
Company's loan to Mr. Levin is nonrecourse to him, bears interest at prime plus
1% and is due on December 31, 1997. This loan is secured by stock options
previously granted to Mr. Levin which entitle him to purchase an aggregate of
400,000 shares of the Company's Common Stock at a price of $2.72 per share
through December 31, 1997. Due to the market price of the Common Stock being
substantially below the exercise price of these stock options, the Company
established an allowance for the entire of amount of this note during the year
ended June 30, 1995.
Prior to its acquisition by the Company, DSL made loans to Mr. Levin in
the aggregate amount of approximately $388,000 which bear interest at 4.5%. The
Company has filed a lawsuit against Mr. Levin for, among other things, repayment
of these loans and interest thereon. See "Item 3. Legal Proceedings."
In January 1994, AliPat received a payment of $70,000 as an advance
against compensation to be paid to AliPat in the future pursuant to a services
agreement. This advance bears interest at 8% and was due on December 31, 1994.
During the year ended June 30, 1995, this advance was reduced by application of
the participations earned by AliPat in the amount of $13,500. The Company may
exercise the stock options held by the officers of AliPat, sell the underlying
shares and apply the proceeds received in excess of the exercise price of the
options to repayment of this advance and accrued interest thereon. At June 30,
1995, the aggregate market value of the shares of Common Stock issuable upon the
exercise of these stock options was substantially below the $64,900 balance
(including accrued interest) of this advance. In connection with the amendment
of Mr. Bernstein's employment agreement in fiscal 1995, he received a $12,000
bonus.
In February 1995, the Company and Mr. Levin entered into an agreement
which, among other things, resulted in the termination of Mr. Levin's employment
agreement and his resignation as an officer and director of the Company. In
connection with this agreement, the Company transferred certain of its projects
in development to a new corporation formed by Mr. Levin ("DEG") in
exchange for a 19.9% interest in DEG. Mr. Levin owns the remaining
80.1% of DEG. The carrying amount of the projects transferred to
DEG was approximately $174,000. The Company will receive 5% of the
gross revenues, as defined, from DEG's exploitation of these
transferred
32
<PAGE> 33
projects. The Company also agreed to transfer to DEG one of its projects that
was in production at the time of this agreement in exchange for 5% of future
gross revenues, as defined, from this project. This agreement is the subject of
a legal action brought by Mr. Levin against the Company. See "Item 3. Legal
Proceedings."
The Company has agreed to enter into employment agreements with Messrs.
Meyer, Lightstone and Weber and to amend its existing employment with AliPat.
Although the terms of these agreements have not been finalized, they provide for
additional aggregate compensation of approximately $432,000 for the year ending
June 30, 1996 and $854,000 for the years ending June 30, 1997 and 1998. See
"Item 10. Executive Compensation - Employment Agreements". The Company has also
agreed to sell Messrs. Lightstone and Weber and Alison Meyer and Patricia Meyer
an aggregate of 4,500,000 shares of its Common Stock at a price of $.50 per
share. The purchase price of these shares will be represented by promissory
notes which bear interest at the rate of 7% per annum and will be secured by,
among other things, the purchased shares. See "Item 10. Executive Compensation -
Stock Purchases".
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits - The following documents required by Item 601 of
Regulation S-B are filed as exhibits or are incorporated by reference herein.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3. 1 Restated Certificate of Incorporation of Registrant,
dated April __, 1993 (4)
3. 3 By-Laws of Registrant (1)
10. 1 Stock Option Plan (1)
10. 1 (a) Amendment to Stock Option Plan (3)
10. 2 Agreement dated as of January 1, 1991 between Registrant
and AliPat Productions Ltd. (2)
10. 2(a) Production Services Agreement dated February 21, 1994
between Registrant and AliPat Productions Ltd. (5)
10.13 Stock Acquisition Agreement dated May 19, 1994 among the
Registrant, Drew Levin and others (4)
10.14 Employment Agreement dated May 19, 1994 among Drew Levin,
the Registrant and DSL Productions, Inc. (4)
10.15 Form of Amendment dated June 2, 1994 to Employment
Agreement dated May 19, 1994 among Drew Levin, the
Registrant and DSL Productions, Inc. (4)
10.16 Agreement of Restructuring and Settlement dated February
27, 1995 among Drew Levin, The Producers Entertainment
Group Ltd. and DSL Productions Inc. (5)
10.17 First Amended Agreement of Restructuring and Settlement
dated February 27, 1995 among Drew Levin, The Producers
Entertainment Group Ltd. and DSL Productions Inc. (6)
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C>
10.18 Consulting Agreement dated February 27, 1995 between The
Producers Entertainment Group Ltd. and Bibicoff &
Associates, Inc. (5)
10.19 Letter Agreement dated as of March 10, 1995 between The
Producers Entertainment Group Ltd. and Jonathan Stanton
Company (6)
22. Subsidiaries of the Registrant (7)
</TABLE>
______________________________
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1. Registration Number 33-30925.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1991.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1992.
(4) Incorporated by reference to the Company's Form 8-K dated May 20, 1994.
(5) Incorporated by reference to the Company's Form 8-K dated February 27,
1995.
(6) Incorporated by reference to the Company's Form 10-QSB for the quarter
ended March 31, 1995.
(7) Filed herewith.
(b) Reports on Form 8-K
There were no Reports on Form 8-K filed during the last quarter of the
period covered by this report.
34
<PAGE> 35
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE PRODUCERS ENTERTAINMENT GROUP LTD.
Date: October 10, 1995 By /s/ Irwin Meyer
--------------------------
Irwin Meyer, President and
Chief Executive Officer
Date: October 10, 1995 By /s/ Charles J. Weber
--------------------------
Charles J. Weber, (Principal
Financial and Accounting
Officer)
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Irwin Meyer Director October 10, 1995
- ------------------------------
Irwin Meyer
/s/ Ronald Lightstone Director October 10, 1995
- ------------------------------
Ronald Lightstone
/s/ Charles J. Weber Director October 10, 1995
- ------------------------------
Charles J. Weber
/s/ Arthur Bernstein Director October 10, 1995
- ------------------------------
Arthur Bernstein
Director
- ------------------------------
Michael I. Levy
</TABLE>
35
<PAGE> 36
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors ............................... F-2
Consolidated Balance Sheet - June 30, 1995 ................... F-3
Consolidated Statements of Operations -
Years Ended June 30, 1995 and 1994 .................. F-4
Consolidated Statement of Shareholders' Equity -
Years Ended June 30, 1995 and 1994 .................. F-5
Consolidated Statements of Cash Flows -
Years Ended June 30, 1995 and 1994 .................. F-6 and F-7
Notes to Consolidated Financial Statements ................... F-8 through F-16
</TABLE>
F-1
<PAGE> 37
Board of Directors
The Producers Entertainment Group Ltd.
Beverly Hills, California
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of The Producers
Entertainment Group Ltd. and Subsidiaries as of June 30, 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended June 30, 1995 and 1994. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 The
Producers Entertainment Group Ltd. and Subsidiaries as of June 30, 1995 and the
results of its operations and its cash flows for the years ended June 30, 1995
and 1994, in conformity with generally accepted accounting principles.
KELLOGG & ANDELSON
ACCOUNTANCY CORPORATION
Sherman Oaks, California
September 1, 1995
F-2
<PAGE> 38
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and cash equivalents $ 832,754
Accounts receivable, less allowance of $36,421 652,074
Notes receivable, less allowance of $270,000 402,842
Receivables from related parties 116,229
Film costs, net 2,104,503
Fixed assets, at cost, less accumulated depreciation and
amortization of $149,344 76,439
Other assets 199,829
------------
$ 4,384,670
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 847,595
Deferred participations based on estimated revenues 350,000
Deferred revenue 598,708
------------
Total liabilities 1,796,303
------------
COMMITMENTS --
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value
Authorized 10,000,000 shares
Issued and outstanding 1,000,000 shares - Series A 1,000
Common stock, $.001 par value
Authorized - 50,000,000 shares
Issued - 11,388,770
Outstanding - 10,266,334 11,389
Additional paid-in capital 15,321,214
Accumulated deficit (11,735,044)
------------
3,598,559
Treasury stock, 1,122,436 shares at cost (1,010,192)
------------
Net shareholders' equity 2,588,367
------------
$ 4,384,670
============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-3
<PAGE> 39
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------
1 9 9 5 1 9 9 4
----------- -----------
<S> <C> <C>
Revenues $ 5,290,745 $10,782,850
----------- -----------
Amortization of film costs 3,768,728 4,316,300
Costs related to revenues -- 5,654,113
----------- -----------
3,768,728 9,970,413
----------- -----------
1,522,017 812,437
Write-off of projects in development 335,233 233,903
General and administrative expenses 4,696,554 5,621,365
----------- -----------
Operating (loss) (3,509,770) (5,042,831)
----------- -----------
Other income (expense):
Interest income 63,166 110,485
Interest and financing expense (303,908) (157,177)
Provision for note receivable (270,000) --
Settlement of lawsuit -- (400,000)
Reduction in deferred participations 427,260 --
----------- -----------
Total other income (expense) (83,482) (446,692)
----------- -----------
Net (loss) (3,593,252) (5,489,523)
Dividend requirement of Series A Preferred Stock (232,600) --
----------- -----------
Net (loss) applicable to common shareholders $(3,825,852) $(5,489,523)
=========== ===========
Net (loss) per common share $ (.38) $ (.59)
=========== ===========
Weighted average number of common
shares outstanding 10,052,523 9,366,000
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-4
<PAGE> 40
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
Preferred stock Common stock Additional Net
----------------- ------------------- Paid-in Accumulated Treasury Shareholders'
Shares Amount Shares Amount Capital Deficit Stock Equity
--------- ------ ---------- ------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 -- $ -- 9,806,666 $ 9,807 $ 11,651,088 $ (5,626,873) $(1,010,192) $ 5,023,830
Exercise of stock options
and warrants 1,002,167 1,002 1,322,716 -- -- 1,323,718
Settlement of lawsuit -- -- 400,000 -- -- 400,000
Net loss of DSL duplicated in
statement of operations -- -- -- 144,102 -- 144,102
Net loss of DSL applicable to
subchapter S shareholders -- -- (2,830,502) 2,830,502 -- --
Net loss -- -- -- (5,489,523) -- (5,489,523)
--------- ------ ---------- ------- ------------ ------------ ----------- -----------
Balance at June 30, 1994 -- -- 10,808,833 10,809 10,543,302 (8,141,792) (1,010,192) 1,402,127
Sale of preferred stock and
warrants in public offering 1,000,000 1,000 -- 4,175,467 -- -- 4,176,467
Issuance of shares for interest -- -- 276,437 276 274,724 -- -- 275,000
Exercise of stock options -- -- 303,500 304 454,071 -- -- 454,375
Dividend on preferred stock -- -- -- -- (126,350) -- -- (126,350)
Net (loss) -- -- -- -- -- (3,593,252) -- (3,593,252)
--------- ------ ---------- ------- ------------ ------------ ----------- -----------
Balance at June 30, 1995 1,000,000 $1,000 11,388,770 $11,389 $ 15,321,214 $(11,735,044) $(1,010,192) $ 2,588,367
========= ====== ========== ======= ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-5
<PAGE> 41
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended June 30,
-----------------------------
1 9 9 5 1 9 9 4
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(3,593,252) $(5,489,523)
Net loss of DSL duplicated in statement of operations -- 144,102
Adjustments to reconcile net (loss) to net cash (used in)
provided by operating activities:
Amortization of film costs 3,768,728 4,316,300
Depreciation 34,688 74,026
Write-off of projects in development 335,233 223,903
Settlement of lawsuit -- 400,000
Provision for uncollectible notes receivable 270,000 --
Issuance of shares of common stock for interest 275,000 --
Reduction in deferred participations (427,260) --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 720,588 (200,893)
Decrease in other assets 63,700 38,690
(Decrease) in accounts payable and accrued expenses (524,095) (379,902)
(Decrease) increase in deferred revenue (2,868,193) 1,640,240
----------- -----------
Net cash (used in) provided by operating activities (1,944,863) 766,943
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to film costs (1,771,890) (5,168,513)
Purchases of equipment (17,213) (12,926)
(Increase) in receivables from related parties, net (43,409) (101,650)
----------- -----------
Net cash (used in) investing activities (1,832,512) (5,283,089)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of units in public offering 4,176,467 --
Proceeds from borrowings -- 887,000
Repayments of borrowings (588,750) (1,504,750)
Proceeds from exercise of warrants and stock options 454,375 1,323,718
Loan to former president of DSL (270,000) --
Payment of dividend on preferred stock (126,350) --
----------- -----------
Cash provided by financing activities 3,645,742 705,968
----------- -----------
Net (decrease) in cash and cash equivalents (131,633) (3,810,178)
Cash and cash equivalents:
Beginning of year 964,387 4,774,565
----------- -----------
End of year $ 832,754 $ 964,387
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-6
<PAGE> 42
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Year ended June 30,
---------------------
1 9 9 5 1 9 9 4
------- --------
CASH PAID FOR:
<S> <C> <C>
Interest $39,000 $157,200
======= ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
As discussed in Note 1, the Company acquired all of the common stock of DSL in
exchange for 130,000 shares of the Company's common stock in a transaction
accounted for as a pooling of interests.
As discussed in Note 10, the Company agreed to settle a lawsuit, subject to
court approval, by issuing to the plaintiff stock purchase warrants with an
aggregate value of $400,000.
As discussed in Note 3, the Company transferred certain projects in
development with carrying amount of approximately $174,000 to a new
corporation (DEG) in exchange for a 19.9% ownership interest in DEG.
The accompanying notes are an integral part
of the consolidated financial statements.
F-7
<PAGE> 43
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations
The Producers Entertainment Group Ltd. (the Company) was
incorporated under the laws of the State of Delaware on August
10, 1989. The Company is engaged in the acquisition,
development and production of made-for-television movies, series
and mini-series and theatrical motion pictures. The Company is
also engaged in personal management of the careers of
performers, writers and directors. Unless the context indicates
otherwise, the term "Company" includes The Producers
Entertainment Group Ltd. and all of its subsidiaries.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation. Certain reclassifications have been made to the
1994 financial statements to conform to the 1995 presentation.
Acquisition of DSL and Restatement of Financial Statements
In May 1994, the Company acquired all of the capital stock of
DSL Productions, Inc. and its affiliates (DSL) in exchange for
130,000 shares of its previously unissued common stock. This
transaction was accounted for as a pooling of interests.
Accordingly, the accompanying 1994 financial statements and
notes have been restated to include the accounts of DSL.
Revenue Recognition
Amounts received as license fees for projects in production are
deferred until the project becomes available for broadcast in
accordance with the terms of the licensing agreement and are
recognized as revenues at such time. Additional licensing and
distribution fees are recognized as earned in accordance with
the terms of the related agreements. Revenues from the sale of
completed productions are recognized upon their sale.
Cash and Cash Equivalents
Cash and cash equivalents include money market funds and
certificates of deposit with a maturity of three months or less.
F-8
<PAGE> 44
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Film Costs and Amortization
Film costs include the cost of completed projects, costs of
projects in production and costs expended on projects in
development. Film costs are stated at the lower of amortized
cost or estimated net realizable value. Amortization of
completed projects is charged to operations on an individual
project basis in a ratio that the current year's revenue bears
to management's estimate of total revenues (current and future
years) from all sources. This is commonly referred to as the
individual-film-forecast method. Adjustments of amortization
resulting from changes in estimates of total revenues are
recognized in the current year's amortization. When a completed
project is fully amortized, its cost and related accumulated
amortization are removed from the accounts. If, in the opinion
of management, any property in the development stage is not
planned for use, the net carrying value of such property is
charged to current year's operations.
Costs Related to Revenues
Costs related to revenues consist of direct costs incurred in
the production of projects that are subsequently sold to third
parties. The Company does not retain any ownership interest in
these projects and, accordingly, upon their sale, all incurred
costs are charged to operations. Participations in future
profits from projects that are sold are included in revenues
when earned.
Depreciation and Amortization
Depreciation and amortization of fixed assets (consisting of
furniture, equipment and leasehold improvements) is provided on
the straight-line method over the estimated useful lives of the
related assets which range from three to five years.
Deferred Participations Based on Estimated Future Revenues
Deferred participations based on future revenues are payable
solely from a portion of revenues, as defined, received from
certain completed projects up to a maximum of $800,000 of which
approximately $93,000 has been paid or earned as of June 30,
1995. Deferred participations are adjusted based on
management's estimates of revenues to be earned from these
completed projects. Such adjustments are included in current
year's operations.
Unclassified Balance Sheet
The Company has elected to present unclassified balance sheets
in accordance with SFAS No. 53.
F-9
<PAGE> 45
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Net (Loss) Per Common Share
Net (loss) per common share has been computed after deducting
(in 1995) the dividend requirement of the Company's Series A
Preferred Stock from net (loss) and is based on the weighted
average number of common shares outstanding during the periods.
The assumed conversion of the Series A Preferred Stock and the
assumed exercise of outstanding stock purchase warrants and
options have not been included because the effect would be
anti-dilutive.
NOTE 2 - LIQUIDITY AND CAPITAL RESOURCES
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles which contemplates the continuation of the Company as
a going concern including the realization of assets and
liquidation of liabilities in the ordinary course of business.
For the years ended June 30, 1995 and 1994, the Company incurred
net losses of $3,593,252 and $5,489,523, respectively. At June
30, 1995, the Company had an accumulated deficit of $11,735,044.
The Company's operations have been primarily financed by public
sales of its securities and exercises of stock options and
warrants. Through June 30, 1995, proceeds from these sources
aggregated approximately $16,900,000.
The Company's cash commitments for the year ending June 30, 1996
include approximately $1,777,000 of compensation to officers and
key independent contractors (including new and revised
employment agreements) and office rent. The Company also incurs
other costs such as salaries, related benefits, professional
fees, office and other expenses. For the year ended June 30,
1995, general and administrative expenses, which include
compensation and rent, aggregated $4,696,554.
During the year ended June 30, 1995, the Company took certain
steps to substantially reduce its operating losses and increase
its cash flow. These steps included restructuring the Company's
management, terminating certain unprofitable operations of DSL
and reducing compensation and operating expenses. During the
year ended June 30, 1995, the Company also completed additional
projects and entered into other agreements that will provide
future revenues and cash flow. Management believes that these
steps, among other things, will enable the Company to continue
as a going concern.
F-10
<PAGE> 46
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY TRANSACTIONS
During the year ended June 30, 1994, the Company advanced
$70,000 to a corporation that provides the Company with the
services of one of its officers and directors. This advance was
to be repaid from future compensation payable to this
corporation, bears interest at 8% per annum and was due on
December 31, 1994. The balance of this advance, including
accrued interest, at June 30, 1995 was $64,900 and is secured by
certain stock options. At June 30, 1995, the market price of
the Company's common stock was substantially less than the
exercise prices of these stock options. The Company has agreed
to enter into or amend employment agreements with certain
officers and others (see Note 7).
The Company has agreed to sell an aggregate of 4,500,000 shares
of its common stock to certain of its officers, directors and
others at a price of $.50 per share. The purchase price for
these shares will be represented by promissory notes which will
bear interest at 7% per annum and will be secured by, among
other things, the purchased shares.
Prior to its acquisition by the Company, DSL made unsecured
loans to its President. These loans bear interest at 4.5% and
aggregated (including accrued interest) approximately $402,000
at June 30, 1995. The Company has filed a legal action seeking,
among other things, repayment of this amount (see Note 9).
The former owner of DSL had made advances to DSL prior to its
acquisition by the Company. These advances aggregated
$2,687,000 at the date of acquisition of DSL by the Company. A
total of $1,887,000 of these advances has been repaid. This
individual is entitled to receive up to a maximum of $800,000
solely out of revenues, as defined, received from certain
completed projects. This individual has filed a legal action
against the Company and others claiming, among other things,
that he is due the amount payable to him out of future revenues
(see Note 9).
The Company had guaranteed the repayment of a $270,000 loan made
by the then President of DSL to one of the former shareholders
of DSL. During the year ended June 30, 1995, the Company loaned
this individual $270,000 for the purpose of repaying this loan.
This loan bears interest at prime plus 1%, is due on December
31, 1997 and is secured only by stock options previously granted
to this individual which entitle him to purchase an aggregate of
400,000 shares of the Company's common stock through December
31, 1997 at a price of $2.72 per share. Because the market
price of the Company's common stock is substantially below the
exercise price of such stock options, the Company has
established an allowance for the entire amount of this note.
F-11
<PAGE> 47
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY TRANSACTIONS - CONTINUED
As of February 27, 1995, the Company entered into an agreement
with the former President of DSL which resulted in the
termination of the employment agreement with this individual.
In connection with this agreement, the Company transferred
certain projects in development to a new corporation (DEG) in
exchange for a 19.9% ownership interest in DEG. The remaining
80.1% of DEG is owned by the former President of DSL. The
carrying amount of the transferred projects (approximately
$174,000) is included in other assets in the accompanying
consolidated balance sheet. The Company will receive 5% of the
gross revenues, as defined, from DEG's exploitation of these
transferred projects. The Company also agreed to transfer to
DEG one of its projects in production upon its completion in
exchange for 5% of future gross revenues, as defined, from the
exploitation of this project. In connection with the Company's
legal action for payment of loans, this individual has filed a
cross-complaint against the Company and others which claims,
among other things, recision of certain parts of this agreement
and seeks damages (see Note 9).
NOTE 4 - FILM COSTS
Film costs consists of the following:
<TABLE>
<S> <C>
Completed projects $10,688,000
Less: accumulated amortization 9,550,328
-----------
Released, net of amortization 1,137,672
Productions in progress 775,629
Projects in development 191,202
-----------
$ 2,104,503
===========
</TABLE>
Write-offs of projects in development for the years ended June
30, 1995 and 1994 aggregated $335,233 and $233,903,
respectively. Based on management's present estimate of future
revenues at June 30, 1995, substantially all of the unamortized
costs of completed projects will be amortized by June 30, 1998.
F-12
<PAGE> 48
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - BRIDGE FINANCINGS AND PUBLIC OFFERINGS
During fiscal 1993, the Company issued an aggregate of 252,000
three-year warrants in connection with a bridge financing. Each
three-year warrant is exercisable for one share of common stock
at a price of $1.925 per share. During the year ended June 30,
1994, 91,000 of these warrants were exercised for proceeds of
$175,175.
In connection with its April 1993 public offering of securities,
the Company issued an aggregate of 958,333 warrants, each of
which is exercisable for one share of common stock at a price of
$4.00 through April 1996. In connection with this offering, the
underwriter received a five-year option to purchase 83,333 units
(two shares of common stock and one warrant) at a price of $7.20
per unit.
In October 1994, the Company completed a bridge financing
consisting of subordinated notes in the aggregate principal
amount of $1,100,000. These notes bore interest at 7% per annum
and were repaid from the proceeds of the Company's December 1994
public offering. In accordance with the terms of these notes,
upon their repayment the noteholders were issued shares of the
Company's common stock with a market value equal to 25% of the
principal amount of the notes ($275,000). This amount has been
included in the accompanying 1995 consolidated financial
statements as a charge to interest and financing expense with a
corresponding increase to common stock and additional paid-in
capital.
In December 1994, the Company completed a public offering of its
securities, selling 1,000,000 units at a price of $5.00 per unit
for net proceeds of $4,176,467. Each unit consisted of one
share of nonvoting Series A 8.5% Convertible Preferred Stock
(Series A Stock) and one Class B Warrant. In connection with
this offering, the underwriter received a five-year option to
purchase 100,000 units at a price of $7.00 per unit. Each share
of Series A Stock has a liquidating preference of $5.00
(aggregate - $5,000,000), is convertible into 5 shares of common
stock (aggregate - 5,000,000 shares) at any time and is entitled
to cumulative quarterly dividends at the annual rate of $.425
Series A Stock and may be paid either in cash or in shares of
the Company's common stock valued at the then market price.
During the year ended June 30, 1995, the first dividend on the
Series A Stock ($126,350) was paid in cash and was recorded as a
charge to additional paid-in capital. The dividend on the
Series A Stock for the quarter ended June 30, 1995 in the amount
of $106,250 was subsequently paid by the Company issuing 154,662
shares of common stock. Each Class B Warrant is exercisable for
one share of common stock at a price of $2.00 through December
1997. The Company may redeem the Class B Warrants at a price of
$.01 each if the defined market price of the Company's common
stock is at least $2.60 per share.
F-13
<PAGE> 49
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - STOCK OPTIONS AND WARRANTS
The Company's stock option plan authorizes the granting of stock
options to officers and key employees to purchase an aggregate
of 1,000,000 shares of common stock. No stock options may be
granted after August 1999. The Company may also grant other
stock options outside its stock option plan. As of June 30,
1995, an aggregate of 3,126,000 stock options had been granted
at prices ranging from $0.50 to $3.25 per share of which
2,991,000 were exercisable. During the year ended June 30,
1995, the Company adopted its 1995 Stock Option Plan, subject to
shareholder approval, which provides for the granting of options
to purchase an aggregate of 3,000,000 shares of common stock.
No options have been granted under the 1995 Stock Option Plan.
During the year ended June 30, 1995, 303,500 stock options were
exercised for aggregate proceeds of $454,375. During the year
ended June 30, 1994, 911,167 stock options were exercised for
aggregate proceeds of $1,148,543.
The Company has the following warrants outstanding:
<TABLE>
<CAPTION>
Exercise Expiration
Title Number Price Date
-------------- ---------- ----------- -----------------
<S> <C> <C> <C>
Three-year warrants (see Note 5) 161,000 $1.925 February 1997
Warrants (see Note 5) 953,333 $4.00 April 1996
Class B Warrants (see Note 5) 1,000,000 $2.00 December 1997
Class C Warrants (see Note 9) 711,111 $4.00 April 1996
</TABLE>
The Company has also granted the underwriters of its public
offerings (see Note 5) options to purchase units.
NOTE 7 - EMPLOYMENT AGREEMENTS
The Company has entered into agreements for the services of
certain of its officers and others. These agreements expire
through June 30, 1999 and provide for approximate aggregate base
compensation as follows for the years ending June 30: 1996 -
$1,125,000; 1997 - $161,000; 1998 and 1999 - $80,000. Certain
of these agreements provide for additional compensation based on
future financing and certain revenues or other operating
results. These agreements also provide for payments by the
Company in the event of death, disability, termination or a
change in control of the Company.
F-14
<PAGE> 50
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - EMPLOYMENT AGREEMENTS - CONTINUED
The Company has agreed to enter into or amend employment
agreement with certain of its officers and others. Although the
terms of these agreements have not been finalized, they provide
for additional annual aggregate compensation of approximately
$432,000 for the year ending June 30, 1996 and $854,000 for the
years ending June 30, 1997 and 1998.
NOTE 8 - INCOME TAXES
For income tax reporting purposes, the Company uses an October
31 year-end. At June 30, 1995, the Company had unutilized
federal and state net operating loss carryforwards of
approximately $11,100,000 which expire through 2008.
Utilization of these net operating loss carryforwards may be
limited in any one year by, among other things, alternative
minimum tax rules.
Prior to its acquisition by the Company, DSL had elected to have
its income taxed under Section 1362 (Subchapter S) of the
Internal Revenue Code of 1986, and applicable state statutes.
Accordingly, no provision or liability for Federal or state
income taxes for DSL is reflected in the accompanying
consolidated financial statements. The accumulated loss of DSL
at June 30, 1994 $(2,672,338) has been eliminated from
accumulated deficit and charged to additional paid-in capital.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company's office lease provides for minimum annual base
rental payments and payment of certain defined operating
expenses. Minimum rents payable for the years ending June 30
are approximately as follows: 1996 - $229,000; and 1997 -
$57,000. Rent expense for the years ended June 30, 1995 and
1994 was $197,011 and $211,852, respectively.
The Company is a party to various agreements relating to its
properties that provide for payments to others upon sale,
production and/or distribution of the property. Other
agreements provide for participations by others in the net
revenues and/or profits from completed projects.
F-15
<PAGE> 51
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMITMENTS AND CONTINGENCIES - CONTINUED
The Company has filed a legal action seeking, among other
things, payment of loans made to the former President of DSL
(see Note 3). This individual has filed a cross-complaint
against the Company and others which claims, among other things,
that the Company breached its agreement with this individual and
seeks recision of certain parts of this agreement and damages.
The Company believes that the ultimate outcome of these actions
will not have a material adverse effect on its consolidated
financial statements.
The former owner of DSL has filed an action against the Company
and certain of its officers and directors which claims that he
is presently due the amount payable to him solely out of
revenues, as defined, received form certain completed projects
(see Note 3). The Company has denied these allegations and
believes that the ultimate outcome of this matter will not have
a material adverse effect on its consolidated financial
statements.
In the normal course of its business, the Company is subject to
various lawsuits and claims. The Company believes that the
final outcome of these matters, either individually or in the
aggregate, will not have a material effect on its consolidated
financial statements.
NOTE 10 - SETTLEMENT OF LAWSUIT
The Company was a party to a lawsuit which claimed, among other
things, certain violations of securities laws. During the year
ended June 30, 1994, the Company agreed to settle this lawsuit,
subject to court approval, by issuing to the plaintiffs stock
purchase warrants with an aggregate value of $400,000. The
effect of this settlement has been reflected in the accompanying
June 30, 1994 consolidated financial statements as a charge to
operations and a corresponding increase to additional paid-in
capital. During the year ended June 30, 1995, the Company
issued an aggregate of 711,111 Class C Warrants in settlement of
this lawsuit. Each Class C Warrant is exercisable for one share
of common stock at a price of $4.00 through April 13, 1996. The
issuance of the Class C Warrants did not have any effect on the
Company's consolidated financial statements.
F-16
<PAGE> 52
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist of cash and
trade receivables. The Company places its cash with high credit
quality financial institutions or in high quality short-term
investments. At times the cash in any one bank may exceed the
FDIC $100,000 limit. In connection with accounts receivables,
the risk is relatively limited due to most customers being
either national broadcasting networks, or large national and
foreign distributors.
F-17
<PAGE> 1
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of
Incorporation
-------------
<S> <C>
TPEG Management, Inc. Delaware
Out of Pocket Pictures, Inc. California
Plan of Attack Productions, Inc. California
In For Life, Inc. California
Tales of Midnight Productions, Inc. California
DSL Productions, Inc. Delaware
DSL Ventura I, DBA Future Quest, Inc. California
Light & Easy Cooking, Inc. California
Superstars of Action, Inc. California
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-KSB FOR THE YEAR ENDED
JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-KSB FOR THE YEAR ENDED JUNE 30, 1995.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 832,754
<SECURITIES> 0
<RECEIVABLES> 1,171,145
<ALLOWANCES> 0
<INVENTORY> 2,104,503
<CURRENT-ASSETS> 0
<PP&E> 76,439
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,384,670
<CURRENT-LIABILITIES> 847,595
<BONDS> 0
<COMMON> 11,379
0
1,000
<OTHER-SE> 2,575,988
<TOTAL-LIABILITY-AND-EQUITY> 4,384,670
<SALES> 5,290,745
<TOTAL-REVENUES> 5,290,745
<CGS> 3,768,728
<TOTAL-COSTS> 3,768,728
<OTHER-EXPENSES> 5,031,787
<LOSS-PROVISION> (270,000)
<INTEREST-EXPENSE> (303,908)
<INCOME-PRETAX> (3,593,252)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,593,252)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,593,252)
<EPS-PRIMARY> (.38)
<EPS-DILUTED> (.38)
</TABLE>
