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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, 1996
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:
Common Stock, Redeemable Warrants
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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. [ ]
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 - $5,367,498.
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 20, 1996 as reported on the National Association of Securities
Dealers Automated Quotation System was $14,305,396.
As of September 20, 1996, there were 11,399,652 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.
Form 10-QSB for the quarter ended December 31, 1995
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PART I
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. On May 30, 1996,
the Company's shareholders approved a one-for-four reverse split of the
Company's Common Stock. All share and per share amounts included herein have
been retroactively adjusted to give effect to this reverse split.
The Company completed its initial public offering of securities in
December 1989 and, in January 1990, commenced operations. In April 1993,
December 1994, and September 1996 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
32,500 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 "TPG."
The Company is engaged in the acquisition, development, production and
distribution of dramatic, comedy, documentary and instructional television
series, made-for-television movies, and mini-series and theatrical motion
pictures. The Company also engages in personal management of performers and
writers. 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 and distributes television series.
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OVERVIEW
The Company's business of developing and producing made-for-television
movies, television 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.
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.
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The Company also provides producer and executive producer services to
others in connection with the production of projects. 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 movies Against the Wall and Lily Dale 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. Options usually enable 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, including payment of the purchase price of the property, 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 upon payment of an extension fee. Terms of options vary
significantly and are dependent on, among other factors, the professional
reputation and standing of the author or other 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 production. Certain
options also provide for the optionee to participate in net profits.
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DEVELOPMENT AND PACKAGING OF PROJECTS
Projects may be developed from true stories or original fictional
material in the form of outlines or first-draft screenplays or teleplays. The
Company is continuously engaged in acquiring and developing new properties. It
is the Company's practice to secure a financing or production commitment from
third parties, including broadcast and cable networks, studios, distributors
and independent financing sources prior to expending substantial sums in the
development process. However, the Company does advance its own funds to meet
the interim costs of development and production of these projects which are
then repaid to the Company pursuant to the production contracts.
During the development phase of a project, a screenplay, teleplay or
outline of the program is written, tentative commitments are sought from buyers
or licensees, such as studios, networks and independent financing sources and a
proposed production schedule and budget are prepared. Often, these projects are
created, acquired and developed (including specifically selected talent such as
directors and actors) so that they may be offered to broadcast, financial and
distribution entities as a more attractive project. This process is known in
the entertainment business as "packaging". The Company believes that packaging
a literary property greatly its ability and opportunities to obtain favorable
production, financing and distribution commitments.
PRODUCTION, PRODUCER AND EXECUTIVE PRODUCER SERVICES
Production of a project is divided into three phases: pre-production,
principal photography and post-production. The Company is involved in all
phases of the production of projects.
Upon receiving final approval from its buyer or financing 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, and the production staff are completed. Locations are selected and
arrangements are made for sets, props, equipment and other production
requirements are obtained. The pre-production phase may continue for several
weeks for a made-for-television movie and up to several months for a theatrical
motion picture. After pre-production is completed, the production enters the
principal photography phase.
During the principal photography phase, the project is produced on
tape or film. Actors perform on sets, in the studio and on locations in
accordance with a pre-determined schedule and budget established by the
producer. Principal photography for a made-for-television movie is usually
completed in approximately three to four weeks while principal photography for
a theatrical motion picture could require several months. Upon completion of
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principal photography, the project enters the post-production phase.
During the post-production phase, the film shot during principal
photography is transformed into a completed project. The post-production phase
includes editing, addition of sound effects, a musical scoring and implementing
other technical processes required to complete the project.
The Company provides producer and executive producer services in
connection with the production of its projects and is involved in all phases of
their production. The Company receives fees for these services and is generally
entitled to a percentage of future profits from these projects. The Company
received producers fees for producing the theatrical motion picture What's Love
Got to Do With It and executive producer fees for each of its
made-for-television movies and for the television series Dave's World and Can't
Hurry Love. The Company was not responsible for any of the production costs of
these projects, but is entitled to participate in profits from each of these
projects.
DISTRIBUTION OF COMPLETED PROJECTS
Pursuant to its agreements with third party financing sources, the
Company generally retains certain rights to distribute its projects in
international and domestic markets. The Company then distributes the projects
after a certain period of time has expired or after the project has been
exhibited or released on a specific number of occasions. Completed projects are
distributed by the Company or by independent third parties who have the right
to distribute these properties in domestic and international markets 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. Where available, the Company
obtains advances against domestic and international licensing revenues. These
advances may be used to finance development and production of the related
projects.
COMPLETED PROJECTS
Through June 30, 1996, the Company has produced the following
projects:
MADE-FOR-TELEVISION MOVIES
Lily Dale - A made-for television movie produced by the Company for
Showtime, who owns this movie. This movie, which aired in June 1996, was
written by Pulitzer Prize and two time Academy Award winner author Horton Foote
and stars Mary Stuart Masterson, Sam Shepard, Jean Stapleton and Tim Guinee.
The Company received executive producer fees and a continuing profit
participation.
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Against The Wall- A made-for-television movie produced by the Company
for Home Box Office, who owns this movie. This movie, which aired in March
1994, was directed by John Frankenheimer, who received an Emmy for his
direction of this movie, and stars Kyle MacLachian and Samuel Jackson, Jr.
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 executive
producer fees and a continuing 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 in 1992 and 1993. This movie was put into development by CBS, which
paid all development costs, and was packaged by Creative Artists Agency, Inc.
The Company has licensed this movie to World International Network for
broadcast outside North America under the title Plan of Attack.
When A Stranger Calls... Back- A made-for-television movie, which
initially aired on Showtime and is owned by MCA Television Entertainment. The
stars of this movie are Carol Kane and Charles Durning. The teleplay was
written by Fred Walton who also directed this movie. The Company received a
executive producer fees and a continuing profit participation.
The Secret Passion of Robert Clayton- A made-for-television movie
which aired on the USA Network. The Company produced this movie in association
with Wilshire Court Productions, who owns this movie. The stars are John
Mahoney and Scott Valentine. The Company received an executive producer fee and
a continuing profit participation.
TELEVISION SERIES
Dave's World- The Company has produced 74 half-hour episodes of this
television series which is based on the books by Pulitzer Prize winning,
syndicated columnist Dave Barry and airs on CBS. This series stars Harry
Anderson and is directed by James Widdoes. The Company has received an
additional production order for 22 new episodes of this series for the 1996 -
1997 television season. The Company renders executive producer services for
this series and receives producers' fees and is entitled to a profit
participation.
Can't Hurry Love- The Company has produced 19 half-hour episodes of
this series that began airing on CBS in September 1995. The Company rendered
executive producer services for this series and received producers' fees and is
entitled to a profit participation. This series has not been renewed.
Simply Style- A 60 half-hour episode series about fashion and style
which is hosted by Leah Feldon. This series was transferred in connection with
the settlement of litigation.
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Future Quest- A 22 half-hour episode series which is owned by the
Company and is hosted by Jeff Goldblum. Experts in several science disciplines
compare the futuristic visions of pop culturists with the current breakthrough
advances in science and technology. This series aired on the Public
Broadcasting Station ("PBS") and continues to be licensed overseas.
Laurie Cooks Light & Easy- A 65 half-hour episode series which is
owned by the Company and 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 and is being distributed
internationally by Unipix International.
Home Green Home - A 10 half-hour series which is owned by the Company
and is hosted by Kelly Shays Smith. This instructional series focuses on home
planting and gardening and aired on PBS and is being distributed
internationally by Unipix International.
Superstars of Action - A 26 half-hour episode action series which is
owned by the Company and was produced for German broadcaster Beta-Taurus. This
biography series is hosted by Robert Wagner and profiles actions of stars
including Steve McQueen and Arnold Schwarzenegger. This series is licensed to
The Learning Channel.
Hollywood Stuntmakers I and II- A 26 half-hour episode series which
was produced for The Discovery Channel and stars James Coburn. This series
features stunts by Hollywood's best stuntmen and women in action and initially
aired on The Learning Channel.
FX Masters - A 13 episode series 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 are made and is currently licensed
to the Discovery Network.
Mysterious Forces Beyond- A 26 half-hour episode series which aired on
The Learning Channel and has been pre-sold to Canadian Broadcaster Western
International Communications. 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. The Company is entitled to
receive distribution fees from this series.
Hollywood Babylon - A 26 half-hour series which is based on the
original international best selling book of the same name by Kenneth Anger and
is hosted by Tony Curtis. This series explores the hidden underside of
Hollywood through live re-creations and archival film footage and photographs.
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A Day With - A one hour interview show which aired on the Fox
Broadcasting Network in June 1996.
The Company also owns the television series Crosstown, which consists
of 65 half-hour episodes. The Company has licensed the domestic distribution
rights to this series.
THEATRICAL MOTION PICTURE
What's Love Got To Do With It - A theatrical motion picture produced
by the Company for Disney's Touchstone Pictures. Based on the life story of
rock superstar Tina Turner, this film was released in June 1993. Stars Angela
Bassett and Larry Fishburne received Academy Awards nominations for their
roles. The director was Brian Gibson. The Company received executive producer
fees and a profit participation.
PROJECTS IN DEVELOPMENT
The Company has projects in various stages of development on a
continuing basis. 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), sold
or abandoned. Decisions as to projects in development are made by management on
a case-by-case basis after considering all relevant factors.
PERSONAL MANAGEMENT
The Company currently manages the careers of 15 performers and writers
at various stages in their careers. The Company receives compensation based on
the income generated by these clients. Among the Company's clients are Julia
Louis-Dreyfus (Seinfeld), George Newborn (Father of the Bride), Rosaline Allen
(Seaquest), Michael Stoyanov (Blossom), Nancy Allen, John Robert Hoffman,
Douglas Sills and Linda Kozlowski.
The Company's production and development capabilities may provide a
source of projects and opportunities for the actors and writers whose careers
it manages. Personal management complements the Company's production and
development capabilities by providing sources of talent for the "packaging" of
projects, an increasingly important aspect of the entertainment industry.
Personal managers often function as producers or executive producers with
respect to projects for which their clients have been engaged, realizing a
greater amount of revenue in the form of producer and executive producer fees,
in lieu of a management fee, as well as potentially obtaining a profit
participation in such projects.
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EMPLOYEES
The Company employs 16 persons on a full-time basis, including two
independent contractors. Of such persons, five are officers, four are producers
and the balance are clerical and administrative employees. The Company
estimates that its new or expanded operations will require eight new employees.
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. Strikes by members of these unions could
delay or disrupt the Company's activities, but the extent to which the
existence of collective bargaining agreements may effect the Company in the
future is not currently determinable.
COMPETITION
The Company is subject to intense competition in all phases of its
operations. The television and feature film industries are highly competitive
and involve a substantial degree of risk. The Company's competitors include
major motion picture studios, United States television and cable networks and
numerous independent production companies. Most of the Company's competitors
have greater financial and other resources than those currently or, in the
foreseeable future, likely to become available to the Company and are in a
better position than the Company to obtain literary properties, attract talent,
produce projects and effect broad market distribution of their completed
projects. The Company competes with numerous companies for available literary
properties, writers and other creative talent, production financing, and
distribution of completed projects.
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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 and television programming. 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.
The television industry is subject to governmental regulation by the
Federal Communications Commission ("FCC"). The networks are currently limited
by the Financial Interest and Syndication Rules of the FCC in the amount of
programming they may produce and the rights which they may retain in programs.
These rules were recently revised in favor of the networks, which could
adversely impact the Company as a result of potential increased competition
from the networks.
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, 1997. The annual rent is
approximately $230,000. The Company believes that its current facilities are
sufficient for its needs.
ITEM 3. LEGAL PROCEEDINGS.
The Producers Entertainment Group Ltd. vs. Ronald Lightstonewas
commenced in the Superior Court of the State of California for the County of
Los Angeles on January 3, 1996. In this action, the Company claims, among other
things, that Mr. Lightstone breached his fiduciary duty to the Company and
seeks return of amounts previously paid to him. On January 8, 1996. Mr.
Lightstone filed a cross-complaint entitled Ronald Lightstone vs. The Producers
Entertainment Group Ltd, Irwin Meyer, et. al. In his cross-complaint, Mr.
Lightstone claims, among other things, that his employment with the Company was
improperly terminated and his purported employment and stock purchase
agreements with the Company were improperly cancelled. Mr. Lightstone's cross-
complaint seeks damages in excess of $3,000,000. The Company believes that it
will not be materially adversely effected by the ultimate outcome of this
action.
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The Company has also agreed in principle to settle the lawsuit entitled
DSL Entertainment, Joint Venture, a California Joint Venture v.DSL Productions,
Inc. et. al. pending in California Superior Court. In connection with such
settlement, the Company has agreed to pay to DSL Entertainment, Joint Venture, a
California Joint Venture $50,000 in equal monthly installments of $5,000, to
issue to Cypress Entertainment - 1, L.P. ("Cypress") 32,500 shares of its Common
Stock and to grant to Cypress warrants (having a term of two years) to purchase
an additional 25,000 shares of its Common Stock on the day immediately preceding
the date of issuance of such warrants. The settlement of this action is subject
to execution by the parties of a definitive settlement agreement and related
documentation. Accordingly, it is uncertain whether the settlement of this
litigation upon the terms described above will ultimately be effected.
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.
On May 30, 1996, the Company held a special in lieu of annual meeting
of its shareholders. At this meeting, directors of the Company were elected for
a one year term and a one-for-four reverse split of the Company's Common Stock
was approved. The proposal to approve the Company's 1995 Stock Option Plan did
not receive the necessary number of votes for approval. Voting relating to such
matters (as adjusted for the one-for-four reverse common stock split) was as
follows.
<TABLE>
<CAPTION>
Votes
-------------------------------------
Against or
For Withheld Abstain
--- ---------- -------
<S> <C> <C> <C>
Election of Directors:
Irwin Meyer 2,822,615 N/A 102,611
Arthur Bernstein 2,823,204 N/A 102,022
Michael D. Dempsey 2,830,048 N/A 95,179
Michael I. Levy 2,825,798 N/A 94,429
Ben Lichtenberg 2,829,999 N/A 95,230
Reverse Split of 2,871,128 25,353 8,683
Common Stock
Approval of 1995 1,118,010 252,197 23,467
Stock Option Plan*
</TABLE>
* The approval of the Company's 1995 Stock Option Plan required the
affirmative vote of 1,610,185 shares of common stock.
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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 "TPG." 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, retroactively adjusted for the May 1996 one-for-four
reverse stock split.
<TABLE>
<CAPTION>
High Low
Bid Bid
--- ---
Fiscal Year - 1995:
<S> <C> <C>
Quarter Ended
-------------
September 30, 1994 13.00 5.25
December 31, 1994 8.00 2.75
March 31, 1995 3.25 2.00
June 30, 1995 3.25 1.50
Fiscal Year - 1996:
Quarter Ended
-------------
September 30, 1995 3.00 2.25
December 31, 1995 3.00 1.50
March 31, 1996 2.75 .88
June 30, 1996 1.37 .87
</TABLE>
On September 20, 1996, the closing prices of the Common Stock as
reported by NASDAQ were $1.28 bid and $1.34 asked. On such date there were
approximately 150 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. 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
The following discussion and analysis should be read in conjunction
with the Company's consolidated financial statements and notes thereto
appearing elsewhere herein.
The Company's revenues are principally derived from the production and
distribution of completed projects, producers fees and personal management
fees. The amount of revenues derived by the Company in any one period is
dependant on, among other factors, projects completed during any such period
and the distribution of completed projects. Revenues from producers and other
fees are primarily dependant on the number of projects being produced and the
agreements relating to such projects. Accordingly, the amount of revenues in
any period are not necessarily indicative of revenues to be derived by the
Company in future periods.
Amount 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 projects are recognized upon their sale.
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.
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1996 AS COMPARED TO YEAR ENDED JUNE 30, 1995
Revenues for the year ended June 30, 1996 were $5,387,498 compared to
$5,290,745 for the year ended June 30, 1995. Revenues for the year ended June
30, 1996 primarily consisted of revenues from the distribution of completed
projects, producers fees from currently airing television series, personal
management fees, and amounts received related to the completion of the
made-for-television movie, Lily Dale that was sold. Revenues for the year ended
June 30, 1995 primarily consisted of distribution fees from completed projects,
fees from the television series Dave's World which is airing on CBS and
personal management fees. Included in
15
<PAGE> 16
revenues for the year ended June 30, 1995 is approximately $3,650,000 related
to the completion of the television series Future Quest which aired on PBS.
Amortization of film costs for the years ended June 30, 1996 and 1995
was $857,199 and $3,076,728, respectively. Amortization of film costs in fiscal
1996 and 1995 included $112,000 and $729,000, respectively, related to
revisions in estimates of amounts to be received in the future from certain
completed projects. Costs related to revenues consist of costs incurred in the
production of a made-for-television movie that was sold. Write-offs of projects
in development were $103,404 and $335,233 for the years ended June 30, 1996 and
1995, respectively.
General and administrative expenses decreased to $3,567,611 in fiscal
1996 from $4,696,554 in fiscal 1995 or a decrease of $1,128,943. This decrease
was primarily attributable to the termination of certain unprofitable
operations of DSL, including related compensation and other expenses, somewhat
offset by legal fees incurred in connection with lawsuits with the former
President and owner of DSL.
Interest income during the year ended June 30, 1996 primarily
consisted of amortization of the imputed interest discount on notes received
from the sale of common stock by the Company to related parties. Exclusive of
this amortization of imputed interest discount, the decrease in interest income
was primarily due to reduced funds available for investment. Interest and
financing expense in fiscal 1996 represents interest on notes payable. Interest
and financing expense in fiscal 1995 primarily consisted on interest paid on
the Company's 7% subordinated notes and $275,000 representing the market value
of the shares of common stock issued to the noteholders upon repayment of these
notes.
Income from settlement of lawsuits in fiscal 1996 resulted from the
settlement of various litigation relating to DSL. The provision for note
receivable in fiscal 1995 related to a loan made to the then President of DSL
which was 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 established an allowance for the
entire amount of this note in fiscal 1995. Reduction in deferred participations
in fiscal 1995 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. The remaining balance of
deferred participations was eliminated in connection with the settlement of
various litigation relating to DSL during fiscal 1996. During the year ended
June 30, 1996, the Company forgave the advance and accrued interest thereon
(aggregate - $68,016) that was due from a company that provided the Company
with the services of one of its officers.
16
<PAGE> 17
YEAR ENDED JUNE 30, 1995 AS COMPARED TO YEAR ENDED JUNE 30, 1994
Revenues for the year ended June 30, 1995 were $5,290,745 compared to
$10,782,850 for the 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 a made-for-television movie Against
the Wall that was sold, $4,365,104 of distribution fees from completed projects
and personal management fees.
Amortization of film costs in fiscal 1995 and 1994 was $3,768,728 and
$4,316,300, respectively. Amortization of film costs in fiscal 1995 and 1994
included $729,000 and $1,000,000, respectively, 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 development 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 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 these notes.
The provision for note receivable in fiscal 1995 relates to a loan
made to the then President of DSL which was 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 established an allowance for the entire amount of this note during
fiscal 1995. 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.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had cash and cash equivalents, notes and
accounts receivable aggregating $818,615. At such date, the Company also had
notes payable, accounts payable and accrued expenses aggregating $1,033,136.
After giving pro forma effect to the Company's September 1996 public offering
of securities and application of certain of the net proceeds received
therefrom, the Company's aggregate cash and cash equivalents, notes receivable
and accounts receivable would have been approximately $6,548,000 and its total
liabilities would have been approximately $129,000.
In September 1996, the Company completed a public offering of its
securities, selling 2,000,000 units at a price of $4.00 each. Net proceeds were
approximately $6,635,000. Each unit consists of four shares of Common Stock
(aggregate - 8,000,000) and two Redeemable Warrants (aggregate - 2,000,000).
Each Redeemable Warrant is exercisable for one share of Common Stock at a price
of $1.75 through September 2001 and is subject to redemption by the Company at
a price of $.05 under certain circumstances commencing in September 1997. In
connection with the offering, the Company granted the underwriter a 45 day
option to purchase up to 300,000 additional units at a net price of $3.60 per
unit.
The Company's cash commitments for the year ending June 30, 1997
include minimum compensation to officers and key independent contractors of
approximately $1,004,000 and base office rent of approximately $235,000
(aggregate - approximately $1,239,000. The Company also incurs other costs such
as salaries, related benefits, professional fees and office and other expenses.
For the year ended June 30, 1996, general and administrative expenses, which
includes compensation and rent, aggregated $3,567,611. Dividends on the
Company's Series A Preferred Stock aggregate $425,000 annually.
The Company has no arrangements for external sources of liquidity such
as bank lines of credit and has no commitments for capital expenditures.
Although management currently anticipates that the Company will
continue to incur losses from operations through at least the first and second
quarters of the Company's current fiscal year, the Company believes that its
present resources, the net proceeds received from its September 1996 public
offering of securities and funds derived from its operations will be sufficient
to meet its cash needs for the at least the next twelve months.
INFLATION
Inflation has not had a material effect on the Company.
18
<PAGE> 19
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.
19
<PAGE> 20
PART III
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 of the Company.
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
Irwin Meyer 61 President, Chief Executive
Officer, Chairman of the
Board and Director
Arthur Bernstein 33 Senior Vice President and Director
Lenore Nelson 46 Vice President - Finance and Chief Financial Officer
William Melamed, Jr. 39 Senior Vice President -
TPEG Management, Inc.
Rhoda Bloom 43 Vice President -
Development
Michael D. Dempsey 53 Director
Michael I. Levy 55 Director
Ben Lichtenberg 41 Director
</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, President and Chief Executive Officer since February 1995 and
Chairman of the Board since April 1996. 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 May 1988
to July 1994, Mr. Meyer was a director of Ventura Entertainment Group Ltd., the
former parent of the Company, ("Ventura") and, from May 1988 to December 1990,
he was President of Ventura. Mr. Meyer was an Executive Producer of five of
the Company's made-for-television
20
<PAGE> 21
movies and the 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 Cue Magazine Golden
Apple Award. Mr. Meyer is a member of the Academy of Motion Picture Arts and
Sciences and the Academy of Television Arts and Sciences. He received a B. S.
degree from New York University.
ARTHUR BERNSTEIN has served as a director of the Company since March
1995, served as Vice President - Business and Legal Affairs of the Company from
September 1991 to June 1992, and then as Senior Vice President since June 1992.
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 and a Juris Doctorate degree from Temple University.
LENORE NELSON has served as the Company's Vice President - Finance and
Chief Financial Officer since July 1996. From 1994 until July 1996, she served
as Executive Vice President and Chief Financial Officer of The Kushner-Locke
Company, a publicly-traded diversified entertainment company. From 1990 to
1994, she served as a Senior Vice President of the Entertainment Industries
Group of Imperial Bank, a publicly traded bank. Prior thereto she was employed
as a Vice President of the Entertainment Industries Group of the Bank of
California, a subsidiary of Mitsubishi Bank of Japan, and held various
financial and other positions with companies in the entertainment industry. Ms.
Nelson received a Bachelor of Science degree in film broadcasting from Boston
University and a Masters degree in business management from California State
University - Northridge.
WILLIAM MELAMED, JR. has served as Senior Vice President of TPEG
Management, Inc., a wholly-owned subsidiary of the Company, since April 1994.
From July 1992 to April 1994, he served as Vice President of this company. In
1987, Mr. Melamed formed Bill Melamed Management, which managed the careers of
actors and writers. Mr. Melamed received a Bachelor of Science degree in Speech
from Northwestern University.
RHODA BLOOM has served as Vice President - Development of the Company
since June 1995. From 1990 to 1995, Ms. Bloom was Vice President - Development
of the Larry Thompson Organization. Ms. Bloom received a B.A. degree in Film
from Wesleyan University and
21
<PAGE> 22
a M.A. degree in Film Production from the University of Southern California.
MICHAEL D. DEMPSEY has served as a director of the Company since May
1996. Mr. Dempsey is a senior partner of the law firm of Dempsey & Johnson,
P.C., Los Angeles, California. Prior to his founding such firm, he was a
partner at various other law firms including Lillick, McHose & Charles (now
merged into Pilsbury, Madison & Sutro): Finley, Kumble, Wagner, Heine,
Underberg, Manley, Meyerson & Casey; Meyerson & Casey; Meyerson & Kuhn; and
Shea & Gould. Mr. Dempsey has been a practicing attorney for over 25 years. He
graduated magna cum laude from San Fernando Valley State College (now
California State University - Northridge) and holds a Juris Doctor degree from
the University of California Los Angeles School of Law.
MICHAEL I. LEVY has served as a director of the Company since February
1995. Mr. Levy began his career as a theatrical agent in 1964. He represented
numerous actors (Angelica Houston, Debra Winger, Sophia Loren, Peter O'Toole)
and directors (Milos Forman, Sidney Sheldon, Billy Wilder and Ingmar Bergman)
and has been responsible for packaging numerous major motion pictures and
television series. Mr. Levy left the agency business in 1981 to become
President and Chief Executive Officer of the CBS Theatrical Film Group, a
division of CBS Entertainment. In 1984, Mr. Levy formed his own production
company, Michael I. Levy Enterprises. Mr. Levy has produced a number of
theatrical feature films including Francis Ford Coppola's Gardens of Stone
(Tri-Star), Masquerade (MGM), Prelude to a Kiss (Twentieth Century Fox) and Eye
for an Eye (Paramount). Since 1993, Mr. Levy has also provided personal
management services to actors, writers and directors.
BEN LICHTENBERG has served as a director of the Company since May
1996. Mr. Lichtenberg is currently a Managing Director of First Colonial
Securities Group, an investment banking and brokerage firm headquartered in New
Jersey. Prior to joining First Colonial in 1992, Mr. Lichtenberg served in
similar capacities with other investment firms, including Butcher & Singer and
Bryn Mawr Investment Group. Prior thereto, he was employed as a certified
public accountant. Mr. Lichtenberg is a graduate of the Wharton School of the
University of Pennsylvania.
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
22
<PAGE> 23
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 fiscal years ended June 30, 1995 and June
30, 1996, 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.
23
<PAGE> 24
ITEM 10. EXECUTIVE COMPENSATION.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
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, 1996 312,000 -0- 68,016(2) (6)
President and 18,000(4)
Chief Executive 1995 281,000 -0- 13,500(3) -0-
Officer (1) 18,000(4)
17,250(5)
1994 260,000 -0- 15,113(3) -0-
70,000(5)
18,000(4)
Arthur Bernstein, 1996 109,040 -0- 9,000(4) -0-
Senior Vice 1995 96,587 12,000 6,625(4) 25,000
President 1994 101,058 -0- 6,000(4) -0-
William Melamed, 1996 325,007(7) -0- 12,000(4) 12,500
Jr., Senior Vice 1995 129,878 -0- 8,000(4) -0-
President, TPEG 1994 153,818 -0- -0- -0-
Management, Inc.
</TABLE>
___________________________
(1) Includes amounts paid to AliPat Productions Ltd.("AliPat") and
Mountaingate Productions LLC ("Mountaingate") which provided or
currently provide the Company with the services of Mr. Meyer and
others. Also includes amounts paid to Mr. Meyer directly in his
capacity as President and Chief Executive Officer of the Company.
(2) Forgiveness of note receivable due from AliPat.
(3) Participations in producer fees and net profits on projects produced.
(4) Automobile allowance.
(5) Advance against future compensation.
(6) The Company has granted options to purchase 75,000 shares of Common
Stock at $2.00 per share to each of Alison and Patricia Meyer who are
sisters and the adult children of Mr. Meyer. Mr. Meyer disclaims
beneficial ownership of the stock options and the underlying shares of
Common Stock held by Alison Meyer and Patricia Meyer. The Company has
sold 500,000 shares of Common Stock to Mountaingate in exchange for
promissory notes. See
24
<PAGE> 25
"Stock Sales" below. Alison Meyer and Patricia Meyer are the sole
members of Mountaingate. Mr. Meyer disclaims beneficial ownership of
the shares of Common Stock held by Mountaingate. The difference
between the imputed interest rate and the stated interest rate on the
notes receivable from Mountaingate may be deemed to be additional
compensation to Mountaingate. During the year ended June 30, 1996, the
Company entered into employment agreements with Mountaingate and Mr.
Meyer. See "Long-Term Incentive Awards Table - Employment Agreements"
below.
(7) Includes commissions of $194,902.
OPTION/SAR GRANTS TABLE
OPTIONS/SAR GRANTS IN FISCAL YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Individual Grants
- ---------------------------------------
(a) (b) (c) (d) (e)
% of
Total
Options
Granted
in
Options Fiscal Exercise Expiration
Name Granted Year Price Date
- ------- ------- ---- ----- ----
<S> <C> <C> <C> <C>
Irwin Meyer (1)
William Melamed (2) 12,500 4 $1.12 3/01
</TABLE>
_____________________________
(1) Alison Meyer and Patricia Meyer were each granted options to purchase
75,000 shares of common stock at an exercise price of $2.00 per share.
These options represent 53% of the options granted during the year and
expire in March 2001. Alison Meyer and Patricia Meyer are sisters, the
adult children of Irwin Meyer and the sole members of Mountaingate.
Mr. Meyer disclaims beneficial ownership of these options and the
underlying shares of Common Stock held by Alison Meyer and Patricia
Meyer. The above options were granted concurrently with the
cancellation of a aggregate of 135,834 exercisable stock options with
exercise prices ranging from $7.50 to $13.00 per share.
(2) Granted in connection with the cancellation of a aggregate of 6,875
exercisable stock options with exercise prices ranging from $9.74 to
$13.00 per share.
25
<PAGE> 26
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTIONS/SAR EXERCISES IN FISCAL YEAR ENDED JUNE 30, 1996 AND FISCAL
YEAR-END OPTION/SAR VALUE
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Value of
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Shares Value
Name Acquired Realized Exercisable (E) Unexercisable (UE)
- ---- ------------------ -----------------------------------
<S> <C> <C> <C> <C> <C>
Irwin
Meyer (1)
Arthur -0- $-0- 25,000 (E) $ -0- (E)
Bernstein
William
Melamed -0- $-0- 12,500 (E) $ -0- (E)
</TABLE>
____________________________
(1) Does not include 75,000 exercisable options held by each of Alison
Meyer and Patricia Meyer, who are sisters, and the adult children of
Irwin Meyer. Mr. Meyer disclaims beneficial ownership of the options
and the underlying shares of Common Stock held by Alison Meyer and
Patricia Meyer.
LONG-TERM INCENTIVE AWARDS TABLE
EMPLOYMENT AGREEMENTS
The Company has entered into an agreements with Irwin Meyer, for his
services as Chief Executive Officer of the Company, and with Mountaingate
Productions LLC ("Mountaingate") for the services of Mr. Meyer and others as
producers and/or executive producers and to perform other duties. Mountaingate
is a California limited liability company of which Alison Meyer and Patricia
Meyer, the adult children of Mr. Meyer are the sole members. The agreement with
Mountaingate provides for annual compensation of $262,000 plus a $1,500 monthly
automobile allowance. The agreement with Mr. Meyer provides for annual
compensation of $50,000. Both of these agreements expire on June 30, 1998. The
agreements are terminable by the Company in the event of Mr. Meyer's death or
disability. In such event, the Company shall pay Mountaingate a guarantee fee
of $262,000 for one year. The Company may also terminate these agreements "for
cause" (as defined in these agreements). Mountaingate and Mr. Meyer may
terminate their respective agreements in the event of a material breach thereof
by the Company
26
<PAGE> 27
or for "good reason" (as defined in the agreements). In such event, the Company
shall be obligated to pay all amounts due thereunder for the balance of their
respective terms. In the event that the Company materially breaches either
agreement after a "change in control" (as defined in these agreements),
Mountaingate and Mr. Meyer, respectively, shall be entitled to a lump sum
payment equal to three times their then current total annual compensation.
These agreements replaced an agreement with AliPat Productions Ltd. ("AliPat")
which provided the same services of Irwin Meyer and others. The agreement with
AliPat was to expire on June 30, 1996 and provided for an annual base guarantee
fee of $260,000 plus a $1,500 monthly automobile allowance. The Company also
sold 500,000 shares of its Common Stock to Mountaingate in exchange for
promissory notes. See "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 December 31,
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 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" (as defined in this
agreement) 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. Melamed is employed as Senior Vice President of TPEG Management,
Inc. pursuant to an employment agreement, as amended, that expires on July 30,
1997 and provides for annual compensation of $250,000. Mr. Melamed is also
entitled to receive a bonus equal to 65% of the gross commissions collected by
TPEG Management, Inc. during the period from June 1, 1996 to June 30, 1997 in
excess of $450,000.
27
<PAGE> 28
Report on Repricing of Options
In May 1996, all of the existing options to purchase an aggregate of
135,834 shares of Common Stock at prices ranging from $7.00 to $13.00 per share
held by Alison Meyer and Patricia Meyer were cancelled and the Company granted
options to purchase 75,000 shares of Common Stock at an exercise price of $2.00
per share to each of them. These granted options expire in March 2001. Alison
Meyer and Patricia Meyer are sisters and the adult children of Mr. Meyer. Mr.
Meyer disclaims beneficial interest in the stock options granted to Alison
Meyer and Patricia Meyer and the underlying shares of Common Stock.
In May 1996, all of the existing options to purchase an aggregate of
6,875 shares of Common Stock at prices of $9.75 and $13.00 per share held by
Mr. Melamed were cancelled and the Company granted him options to purchase
12,500 shares of Common Stock at an exercise price of $1.12 per share to Mr.
Melamed. These granted options expire in March 2001.
STOCK SALES
In November 1995, the Company sold 500,000 shares of Common Stock to
Mountaingate in exchange for $1,000,000 principal amount of promissory notes.
Alison Meyer and Patricia Meyer, who are sisters, and the adult children of Mr.
Meyer, are the sole members of Mountaingate. The principal amounts of the
promissory notes received by the Company from Mountaingate are payable as
follows: April 1, 1997 - $125,000; October 1, 1998 - $125,000; and October 1,
2000 - $750,000. Interest on these notes is computed at an annual rate of 7%,
compounded semi-annually, and is payable with the principal of the notes. The
notes are secured by the purchased shares with the personal liability of
Mountaingate limited to 25% of the principal amount ($250,000) plus accrued
interest thereon.
A portion of the shares purchased by Mountaingate were subject to
forfeiture and return to the Company (with a corresponding reduction in the
related promissory note) in the event of, among other things, the termination
of the employment of Mr. Meyer prior to the vesting date of such shares.
Through June 30, 1996, 375,000 of the shares vested and the 125,000 share
balance will vest on June 30, 1997.
In November 1995, the Company also sold 25,000 shares of Common Stock
to Mr. Charles Weber in exchange for $50,000 principal amount of promissory
notes on the same terms as the sale of shares to Mountaingate. At the date of
this transaction, Mr. Weber was an officer and director of the Company. In
connection with Mr. Weber's subsequent resignation from the Company, the
vesting and forfeiture provisions with respect to his shares were waived.
28
<PAGE> 29
In November 1995, the Company also sold 375,000 shares of Common Stock
to Mr. Ronald Lightstone in exchange for $750,000 principal amount of
promissory notes on the same terms as the sale of shares to Mountaingate. At
the date of this transaction, Mr. Lightstone was an officer and director of the
Company. See "Item 12. Legal Proceedings."
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 20, 1996, the Company had 11,399,652 shares of Common
Stock outstanding, including 8,000,000 shares of Common Stock that were sold in
its September 1996 public offering. 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. Except as indicated, shares beneficially owned by the persons
listed in the following table are issuable upon exercise of immediately
exercisable stock options.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS BENEFICIAL OUTSTANDING
OF BENEFICIAL OWNER (1) OWNERSHIP (2) COMMON STOCK
- ----------------------- ------------- ------------
<S> <C> <C>
Alison Meyer (3) 650,000 5.6%
Patricia Meyer (3) 650,000 5.6%
Mountaingate Productions LLP (3) 500,000 4.4%
Arthur Bernstein 18,750 *
Michael D. Dempsey 6,250 *
Michael I. Levy 18,750 *
Ben Lichtenberg (4) 30,091 *
All officers and directors
as a group (5 persons) (5) 73,841 *
</TABLE>
* Less than 1%.
_________________________________
(1) The address of Alison Meyer, Patricia Meyer and Mountaingate
Productions LLC is 12610 Promontory Road, Los Angeles, California
90049. The address of Messrs. Bernstein and Levy is
29
<PAGE> 30
9150 Wilshire Boulevard, Beverly Hills, California 90212. The address
of Mr. Dempsey is 1925 Century Park East, Suite 2350, Los Angeles,
California 90067. The address of Mr. Lichtenberg is 401 N. Route 73,
Marlton, New Jersey 08053.
(2) Beneficial owners of Common Stock possess sole voting and investment
power with respect to the shares listed opposite their names.
(3) Includes options to purchase 75,000 shares of Common Stock held by
each of Alison Meyer and Patricia Meyer by virtue of them being
sisters. Also includes 500,000 shares of Common Stock owned by
Mountaingate by virtue of Alison Meyer and Patricia Meyer being the
sole members of Mountaingate.
(4) Consists of 303 shares of Common Stock and 6,250 shares of Common
Stock issuable upon exercise of currently exercisable stock options
and owned by First Colonial Securities Profit Sharing Plan FBO Ben
Lichtenberg, 3,288 shares of Common Stock issuable upon conversion of
the Company's Series A Preferred Stock and 20,250 shares of Common
Stock issuable upon the exercise of underwriter's options held by Mr.
Lichtenberg and conversion and exercise of the securities to be
received upon such exercise.
(5) Does not include shares listed as being held by Alison Meyer, Patricia
Meyer and Mountaingate as Irwin Meyer disclaims beneficial ownership
of such options and shares of Common Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the year ended June 30, 1994, the Company acquired DSL
Productions, Inc. ("DSL") in exchange for 32,500 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 of $1,887,000
had been repaid by the Company. Mr. Cayre was also 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 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 was nonrecourse to him, bore interest at prime plus
1% and was due on December 31, 1997. This loan was secured by stock options
previously granted to Mr. Levin which entitled him to purchase an aggregate of
100,000 shares of the Company's Common Stock at a price of $10.88 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
30
<PAGE> 31
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 bore interest at 4.5%.
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 was entitled to 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 that was in production at
the time of this agreement in exchange for 5% of future gross revenues, as
defined, from this project.
On June 28, 1996, the Company effected a settlement of all disputes
and pending litigation with Messrs. Levin and Cayre relating to the above
transactions. In pertinent part, this settlement provided for the payment to
the Company of $308,000, elimination of the note receivable from Mr. Levin, the
transfer of one of the Company's projects with a carrying amount of $222,980 to
DEG, and the release of the Company's obligation to pay Mr. Cayre payments
received by the Company from certain completed projects. In connection with
this settlement, the stock options held by Mr. Levin were cancelled and the
Company sold its interest in DEG for $209,500.
In January 1994, AliPat received a payment of $70,000 as an advance
against compensation to be paid to AliPat in the future. This advance bore
interest at 8%, was due on December 31, 1994 and was secured by stock options
held by Alison Meyer and Patricia Meyer. The Company had the right to exercise
these stock options, 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. During the year ended June 30, 1995, this advance was
reduced by application of participations earned by AliPat in the amount of
$13,500. The aggregate market value of the shares of Common Stock issuable upon
the exercise of these stock options was substantially below the balance of this
advance. During the year ended June 30, 1996, the Company forgave this advance
and accrued interest thereon in the aggregate amount of $68,016. In connection
with the amendment of Mr. Bernstein's employment agreement in fiscal 1995, he
received a $12,000 bonus.
In November 1995, the Company sold 500,000 shares of Common Stock to
Mountaingate in exchange for $1,000,000 principal amount of promissory notes;
25,000 shares of Common Stock to Mr. Charles
31
<PAGE> 32
Weber in exchange for $1,000,000 principal amount of promissory notes; and
375,000 shares of Common Stock to Mr. Ronald Lightstone in exchange for
$750,000 principal amount of promissory notes. See "Item 10. Executive
Compensation - Stock Sales" and "Item 3 - Legal Proceedings."
During the year ended June 30, 1996, certain stock options were
cancelled and new stock options were granted. See "Item 10. Executive
Compensation - Report on Repricing of Options."
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.
Exhibit
Number Description
3. 1 Restated Certificate of Incorporation of Registrant, dated
June 24, 1993 (8)
3. 2 Certificate of Designation, as filed December 14, 1994 with
the Secretary of State of the State of Delaware (8) 3.
3. 3 Amendment to Certificate of Incorporation, filed June 3, 1996
with the Secretary of State of the State of Delaware (8)
3. 4 By-Laws of Registrant (9)
3. 5 Amendment No. 1 to By-Laws of Registrant (9)
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)
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)
32
<PAGE> 33
10.20 Production Agreement dated as of October 1, 1995 between The
Producers Entertainment Group Ltd. and Mountaingate
Productions LLC f/s/o/ Irwin Meyer (7)
10.21 Employment Agreement dated as of October 1, 1995 between The
Producers Entertainment Group Ltd. and Irwin Meyer (7)
10.22 Employment Agreement dated as of January 1, 1996 between The
Producers Entertainment Group Ltd. and Charles Weber (7)
10.23 Stock Purchase Agreement (including promissory note) dated as
of November 14, 1995 between The Producers Entertainment Group
Ltd. and Mountaingate Productions LLC (7)
10.24 Stock Purchase Agreement (including promissory note) dated as
of November 14, 1995 between The Producers Entertainment Group
Ltd. and Charles Weber (7)
22. Subsidiaries of the Registrant (10)
27. Financial Data Schedule (10)
________________________________
(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) Incorporated by reference to the Company's Form 10-QSB for the quarter
ended December 31, 1995.
(8) Incorporated by reference to the Company's Form 8-K dated June 18, 1996.
(9) Incorporated by reference to the Company's Registration Statement on Form
S-1. Registration Number 33-42193.
(10) Filed herewith.
(b) Reports on Form 8-K
Form 8-K dated June 16, 1996.
33
<PAGE> 34
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: September 26, 1996 By /s/ Irwin Meyer
------------------------
Irwin Meyer, President and
Chief Executive Officer
Date: September 26, 1996 By /s/ Arthur Bernstein
--------------------
Arthur Bernstein (Principal
Financial and Accounting Officer
through August 14, 1996)
Date: September 26, 1996 By /s/ Lenore Nelson
------------------------
Lenore Nelson, (Principal
Financial and Accounting
Officer from August 15, 1996)
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.
Signature Title Date
- --------- ----- ----
/s/ Irwin Meyer Director September 26, 1996
- -------------------
Irwin Meyer
/s/ Arthur Bernstein Director September 26, 1996
- -----------------------
Arthur Bernstein
Director
- --------------------
Michael D. Dempsey
/s/ Michael I. Levy Director September 26, 1996
- --------------------
Michael I. Levy
Director
- --------------------
Ben Lichtenberg
34
<PAGE> 35
THE PRODUCERS ENTERTAINMENT GROUP LTD.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1996
<PAGE> 36
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheet - June 30, 1996 . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations -
Years Ended June 30, 1995 and 1996 . . . . . . . . . . . . . . F-4
Consolidated Statements of Shareholders' Equity -
Years Ended June 30, 1995 and 1996 . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows -
Years Ended June 30, 1995 and 1996 . . . . . . . . . . . F-6 and F-7
Notes to Consolidated Financial Statements . . . . . . . . . F-8 through F-19
F-1
<PAGE> 37
[KELLOGG LOGO]
Board of Directors
The Producers Entertainment Group Ltd.
Beverly Hills, California
Independent Auditors' Report
We have audited the accompanying consolidated balance sheet of The Producers
Entertainment Group Ltd. and Subsidiaries as of June 30, 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended June 30, 1995 and 1996. 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, 1996 and the
results of its operations and its cash flows for the years ended June 30, 1995
and 1996, in conformity with generally accepted accounting principles.
KELLOGG & ANDELSON
ACCOUNTANCY CORPORATION
Sherman Oaks, California
August 6, 1996, except for Note 2
as to which the date is September 16, 1996
F-2
<PAGE> 38
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
ASSETS
<TABLE>
<CAPTION>
Actual Pro Forma
------------ -----------
(Note 2)
<S> <C> <C>
Cash and cash equivalents $ 336,415 $ 6,067,632
Accounts receivable, less allowance of $12,934 222,200 222,200
Note receivable 260,000 260,000
Receivables from related parties 18,983 18,983
Film costs, net 772,777 772,777
Right to receive revenue 291,241 291,241
Fixed assets, at cost, less accumulated
depreciation and amortization of $167,967 50,242 50,242
Other assets 154,979 17,476
------------ ------------
Total assets $ 2,106,837 $ 7,700,551
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 600,000 $ -
Accounts payable and accrued expenses 433,136 129,353
------------ ------------
Total liabilities 1,033,136 129,353
------------ ------------
COMMITMENTS - -
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value
Authorized 20,000,000 shares
Issued and outstanding 1,000,000 shares - Series A 1,000 1,000
Common stock, $.001 par value
Authorized - 50,000,000 shares
Issued - 3,585,819 and 11,585,819 (pro forma)
Outstanding - 3,305,210 and 11,305,210 (pro forma) 3,586 11,586
Additional paid-in capital 16,114,017 22,741,017
Accumulated deficit (13,182,710) (13,320,213)
------------ ------------
2,935,893 9,433,390
Treasury stock, 280,609 shares at cost (1,010,192) (1,010,192)
Notes receivable from related parties from sales
of common stock, net of imputed interest discount (852,000) (852,000)
------------ ------------
Net shareholders' equity 1,073,701 7,571,198
------------ ------------
Total liabilities and shareholders equity $ 2,106,837 $ 7,700,551
============ ============
</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
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Revenues $ 5,290,745 $ 5,367,498
----------- -----------
Costs related to revenue:
Amortization of film costs 3,768,728 857,199
Costs of projects sold - 2,579,277
----------- -----------
Total costs related to revenue 3,768,728 3,436,476
----------- -----------
Net revenues 1,522,017 1,931,022
Write-off of projects in development 335,233 103,404
General and administrative expenses 4,696,554 3,567,611
----------- -----------
Operating (loss) (3,509,770) (1,739,993)
----------- -----------
Other income (expense):
Interest income 63,166 80,260
Interest and financing expense (303,908) (22,920)
Provision for note receivable (270,000) -
Settlement of lawsuits - 303,003
Forgiveness of receivable
from related party - (68,016)
----------- -----------
Total other income (expense) (83,482) 292,327
----------- -----------
Net (loss) (3,593,252) (1,447,666)
Dividend requirement of
Series A Preferred Stock (232,600) (425,000)
----------- -----------
Net (loss) applicable to
common shareholders $(3,825,852) $(1,872,666)
=========== ===========
Net (loss) per common share $ (1.52) $ (.63)
=========== ===========
Weighted average number of common
shares outstanding 2,513,130 2,967,483
=========== ===========
</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 1996
<TABLE>
<CAPTION>
Series A
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 July 1,
1994 - $ - 2,702,208 $2,702 $10,551,409 $ (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 - - 69,109 69 274,931 - - 275,000
Exercise of stock
options - - 75,875 76 454,299 - - 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 2,847,192 2,847 15,329,756 (11,735,044) (1,010,192) 2,588,367
Issuance of common
stock in payment
of dividends on
preferred stock - - 213,627 214 (214) - - -
Sale of common stock
to related parties
for notes
receivable - - 525,000 525 784,475 - - 785,000
Net (loss) - - - - - (1,447,666) - (1,447,666)
--------- ------ --------- ------ ----------- ------------ ----------- -----------
Balance at June 30,
1996 1,000,000 $1,000 3,585,819 $3,586 $16,114,017 $(13,182,710) $(1,010,192) 1,925,701
========= ====== ========= ====== =========== ============ ===========
Less notes receivable from related parties from sales of common stock, net of imputed interest discount (852,000)
-----------
$ 1,073,701
===========
</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
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(3,593,252) $(1,447,666)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Amortization of film costs 3,768,728 857,199
Depreciation 34,688 33,364
Write-off of projects in development 335,233 103,404
(Gain) from settlement of lawsuits - (303,003)
Cash received from settlement of lawsuits - 517,500
Forgiveness of receivable - related party - 68,016
Amortization of imputed interest discount - (67,000)
Provision for 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 in accounts receivable 720,588 138,633
Increase in notes receivable - (260,000)
Decrease (increase) in other assets 63,700 (129,281)
(Decrease) increase in accounts payable
and accrued expenses (524,095) 56,618
(Decrease) in deferred revenue (2,868,193) (598,708)
----------- -----------
Net cash (used in) operating activities (1,944,863) (1,030,924)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to film costs (1,771,890) (87,479)
Purchases of equipment (17,213) (7,167)
Decrease (increase) in receivables from related parties (43,409) 29,230
----------- -----------
Net cash (used in) investing activities (1,832,512) (65,415)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of units in public offering 4,176,467 -
Proceeds from borrowings - 700,000
Repayments of borrowings (588,750) (100,000)
Proceeds from exercise of warrants and stock options 454,375 -
Loan to former president of DSL (270,000) -
Payment of dividend on preferred stock (126,350) -
----------- -----------
Cash provided by financing activities 3,645,742 600,000
----------- -----------
Net (decrease) in cash and cash equivalents (131,633) (496,339)
Cash and cash equivalents:
Beginning of period 964,387 832,754
----------- -----------
End of period $ 832,754 $ 336,415
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID FOR:
Interest $ 39,000 $ 1,700
=========== ===========
</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 NONCASH INVESTING AND FINANCING ACTIVITIES:
As discussed in Note 3, as of February 27, 1995, 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 which was subsequently sold.
As discussed in Note 3, during the year ended June 30, 1996, the Company sold
an aggregate of 525,000 shares of its common stock to related parties in
exchange for an aggregate of $1,050,000 principal amount of promissory notes.
As discussed in Note 6, during the year ended June 30, 1996, the Company
issued 213,627 shares of its common stock in payment of dividends on its
Series A preferred stock.
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, production and
distribution of dramatic, comedy, documentary and instructional
television series, made-for-television movies and theatrical motion
pictures. The Company is also engaged in personal management of the
careers of performers and writers. 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 1995
financial statements to conform to the 1996 presentation.
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 Projects Sold
Costs related to projects sold 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.
Unclassified Balance Sheet
The Company has elected to present unclassified balance sheets in
accordance with SFAS No. 53.
Net (Loss) Per Common Share
Net (loss) per common share has been computed after deducting (in 1995
and 1996) 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.
F-9
<PAGE> 45
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Reverse Stock Split
In June 1996, the Company effected a one-for-four reverse split of the
outstanding shares of common stock. This reverse stock split has been
retroactively reflected for all periods reported on in the
accompanying consolidated financial statements and notes.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
significant credit risks consist of cash and trade receivables. The
Company places its cash with high credit quality financial
institutions or in high quality short-term investments such as insured
certificates of deposit. At times, the cash in any one bank may
exceed the FDIC insured limit of $100,000. With regard to
receivables, the risk is relatively limited due to most customers
being either domestic or foreign broadcasting networks or established
domestic and foreign distributors.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 2- SUBSEQUENT EVENT - PUBLIC OFFERING OF SECURITIES
On September 16, 1996, the Company completed a public offering of its
securities, selling 2,000,000 units at a price of $4.00 each. Net
proceeds were approximately $6,635,000. Each unit consists of four
shares of common stock (aggregate - 8,000,000) and two Redeemable
Warrants (aggregate - 4,000,000). Each Redeemable Warrant is
exercisable for one share of common stock at a price of $1.75 through
September 2001 and is subject to redemption by the Company at a price
of $.05 under certain circumstances commencing in September 1997. In
connection with the offering, the Company granted the underwriter a 45
day option to purchase up to 300,000 additional units at a net price
of $3.60 per unit.
F-10
<PAGE> 46
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2- SUBSEQUENT EVENT - PUBLIC OFFERING OF SECURITIES - CONTINUED
The following condensed consolidated pro forma balance sheet as of
June 30, 1996 gives effect to this offering as if it had occurred on
June 30, 1996 and also includes the utilization of certain of the
proceeds received.
<TABLE>
<CAPTION>
ASSETS
Actual Adjustments Pro Forma
------------ ----------- ------------
<S> <C> <C> <C>
Cash $ 336,415 $6,635,000 (1) $ 6,067,632
(603,783)(2)
(300,000)(4)
Notes, accounts and
related party receivables 501,183 501,183
Film costs 772,777 772,777
Right to receive revenues 291,241 291,241
Fixed assets 50,242 50,242
Other assets 154,979 (137,503)(3) 17,476
------------ -----------
Total Assets $ 2,106,837 $ 7,700,551
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------ -----------
Notes payable $ 600,000 $ (600,000)(2) $ -
Accounts payable (3,783)(2)
and accrued expenses 433,136 (300,000)(4) 129,353
------------ -----------
Total liabilities 1,033,136 129,353
------------ -----------
Shareholders' Equity:
Series A Preferred Stock 1,000 1,000
Common stock 3,586 8,000 (1) 11,586
Additional paid-in capital 16,114,017 6,627,000 (1) 22,741,017
Accumulated deficit (13,182,710) (137,503)(3) (13,320,213)
Treasury stock (1,010,192) (1,010,192)
Notes receivable from sales
of common stock (852,000) (852,000)
------------ ------------
Net shareholders' equity 1,073,701 7,571,198
------------ ------------
Total liabilities and
shareholders' equity $ 2,106,837 $ 7,700,551
============ ============
</TABLE>
(1) Completion of offering and receipt of net proceeds therefrom.
(2) Payments of notes payable including accrued interest.
(3) Write off of deferred financing costs.
(4) Payment of accounts payable.
F-11
<PAGE> 47
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 provided the Company with the services of its present
Chief Executive Officer and others. This advance was to be repaid
from future compensation payable to this corporation, bore interest at
8% per annum, was due on December 31, 1994 and was secured by certain
stock options. The market price of the Company's common stock was
substantially less then the exercise prices of these stock options.
During the year ended June 30, 1995, this advance was reduced by
application of $13,500 of participations earned by this corporation on
certain of the Company's completed projects. During the year ended
June 30, 1996, the agreement to provide such services was terminated
and the outstanding balance of this advance, including accrued
interest, in the aggregate amount of $68,016 was forgiven by the
Company.
During the year ended June 30, 1996, the Company entered into
agreement to provide substantially similar services with a company of
which the adult children of this Chief Executive Officer are the sole
members ( the "Loan-Out Company"). This agreement provides for base
compensation and other direct payments through June 30, 1998 in the
annual amount of $280,000. The Company also entered into an
employment agreement with its Chief Executive Officer which provides
for annual compensation of $50,000 through June 30, 1998. During
fiscal 1996, the Company borrowed $100,000 from the sole members of
the Loan-Out Company. This borrowing was repaid from the proceeds of
another borrowing (see Note 7).
During the year ended June 30, 1996, the Company sold an aggregate of
525,000 shares of its common stock to related parties in exchange for
an aggregate of $1,050,000 principal amount of promissory notes. Of
these shares, 500,000 were sold to the Loan-Out Company for $1,000,000
principal amount of promissory notes and 25,000 shares were sold to a
then officer and director of the Company for $50,000 principal amount
of promissory notes. The principal amounts of the promissory notes
received by the Company are payable as follows: April 1, 1997-
$131,250; October 1, 1998 - $131,250; and October 1, 2000 - $787,500.
Interest on these notes is computed at an annual rate of 7%,
compounded semi-annually and is payable with the principal of the
notes. The notes are secured by the purchased shares with the
personal liability of the purchaser limited to 25% of the principal
amount (aggregate - $262,500) plus accrued interest thereon.
F-12
<PAGE> 48
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3- RELATED PARTY TRANSACTIONS - CONTINUED
The 500,000 shares purchased by the Loan-Out Company were subject to
forfeiture and return to the Company (together with the related
promissory note) in the event of, among other things, the termination
of the employment of the Company's Chief Executive Officer. Through
June 30, 1996, 375,000 of these shares vested and the 125,000 share
balance will vest on June 30, 1997. Similar vesting and forfeiture
provisions applicable to the 25,000 shares sold to the former officer
were waived by the Company in connection with his subsequent
resignation.
These promissory notes have been recorded at their principal amount
less an imputed interest discount of approximately $265,000. This
imputed interest discount is being amortized over the term of the
notes to provide an effective interest rate of 12% per annum. During
the year ended June 30, 1996, the Company recorded approximately
$67,000 of interest income on these notes. The difference between the
imputed interest rate and the stated interest rate of the notes may be
deemed to be compensation to the purchasers of the shares.
The Company also sold 375,000 shares of its common stock to one of its
then officers and directors for $750,000 principal amount of
promissory notes on the same terms as the above sales. These shares
were subsequently forfeited and returned to the Company for
cancellation and the related promissory notes were canceled (see Note
11).
During the year ended June 30, 1996, the stock options held by the
sole members of the Loan-Out Company, which entitled them to purchase
an aggregate of 135,834 shares of the Company's common stock at prices
ranging from $7.50 to $13.00 per share, were canceled and options to
purchase an aggregate of 150,000 shares of common stock at a price of
$2.00 per share were granted. During the year ended June 30, 1996,
stock options held by other related parties to purchase an aggregate
of 193,542 shares of common stock at prices ranging from $6.00 to
$13.00 per share were canceled and options to purchase an aggregate of
112,500 shares of common stock at prices of $1.12 and $2.00 per share
were granted.
During the year ended June 30, 1994, the Company acquired DSL
Productions, Inc. and its affiliates ("DSL") in exchange for 32,500
shares of its previously unissued common stock. Prior to its
acquisition by the Company, DSL had made unsecured loans to its
President. These loans bore interest at 4.5% and aggregated
(including accrued interest) approximately $402,000. 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 were subsequently repaid. The $800,000 balance of these
advances was payable out of revenues, as defined, received from
certain completed projects.
F-13
<PAGE> 49
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3- RELATED PARTY TRANSACTIONS - CONTINUED
The Company had guaranteed the repayment of a $270,000 loan made by
the then President of DSL due 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
bore interest at prime plus 1%, was due on December 31, 1997 and was
secured only by stock options previously granted to this individual
which entitled him to purchase an aggregate of 100,000 shares of the
Company's common stock through December 31, 1997 at a price of $10.88
per share. In 1995, due to the market price of the Company's common
stock being substantially below the exercise price of such stock
options, the Company established an allowance for the entire amount of
this note.
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 approximately $174,000 of 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. Subsequently, various claims and
cross-complaints were filed by the Company, the former president of
DSL and the former owner of DSL concerning the agreements, loans and
payment terms.
During the year ended June 30, 1996, the Company, the former President
of DSL and the former owner of DSL settled all litigation between
them. In pertinent part, this settlement provided for the payment to
the Company of $308,000, elimination of the note receivable from the
former President of DSL, the transfer of a completed project with a
carrying amount of $222,980 to DEG and the release of the Company's
obligation to pay the former owner of DSL a portion of future revenues
from certain completed projects. In connection with this settlement,
the Company reduced its accounts payable and accrued expenses by
$255,455 representing the amounts previously recorded related to DSL
and this litigation and also sold its investment in DEG for $209,500
in cash. The effect of this settlement has been reflected in the
accompanying June 30, 1996 consolidated statement of operations as a
separate item.
F-14
<PAGE> 50
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - DISTRIBUTION RIGHTS
During the year ended June 30, 1995, the Company transferred a
completed television series with a net carrying amount of $291,241 in
exchange for the right to receive a portion of the distribution
revenue from the series. During the year ended June 30, 1996, the
Company sold the domestic distribution rights to one of its fully
amortized completed projects in exchange for a $260,000 principal
amount promissory note. Required principal payments on this note are
as follows: June 14, 1997 - $100,000; June 14, 1998 - $100,000; and
June 14, 1999 - $60,000. Interest is computed at the annual rate of
12% and is payable with each principal payment. The note is secured
by the distribution rights sold and requires mandatory repayments,
both as to principal and interest, in an amount equal to 85% of the
distribution revenues received from this series.
NOTE 5 - FILM COSTS
<TABLE>
<S> <C>
Film costs consists of the following:
Completed projects $3,754,151
Less: accumulated amortization 3,105,300
----------
Released, net of amortization 648,851
Productions in progress -
Projects in development 123,926
----------
$ 772,777
==========
</TABLE>
During the year ended June 30, 1996, completed projects with a cost of
$6,698,227 were fully amortized and their cost and related amortization
were removed from the accounts. During the year ended June 30, 1996,
the carrying amount of certain completed projects were reduced by
$235,662 representing the amount previously recorded as accounts
payable and accrued expenses for additional expenditures relating to
these projects that were not incurred.
Write-offs of projects in development for the years ended June 30, 1995
and 1996 aggregated $335,233 and $103,404, respectively. Based on
management's present estimate of future revenues at June 30, 1996,
substantially all of the unamortized costs of completed projects will
be amortized by June 30, 1999.
F-15
<PAGE> 51
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - BRIDGE FINANCINGS AND PUBLIC OFFERINGS
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
note-holders 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 1.25 shares of common stock (aggregate - 1,250,000
shares) at any time and is entitled to cumulative quarterly dividends
at the annual rate of $.425 (aggregate - $425,000) and may, at the
Company's option, 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. Subsequent dividends on the Series A Stock were paid by the
Company issuing 213,627 shares of common stock in fiscal 1996 and
94,442 shares of common stock subsequent to June 30, 1996. In
connection with the September 1996 offering (see Note 2), the Company
has agreed that it will not pay dividends on the Series A Stock in
shares of Common stock without the consent of the underwriter through
March 1998. Each Class B Warrant is exercisable for .25 of a share of
common stock at a price of $8.00 per share 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 $10.40
per share.
In June 1996, the Company issued $500,000 principal amount of 10%
promissory notes ("Bridge Notes") together with 500,000 warrants
("Bridge Warrants") for gross proceeds of $500,000. In connection
with this transaction, the Company incurred expenses of $137,503
which were recorded as deferred financing costs (included in other
assets) and were charged to operations over the term of the Bridge
Notes. The Bridge Notes bore interest at the rate of 10% per annum
and were repaid from the proceeds of the Company's September 1996
offering of securities. In connection with this offering, the Bridge
Warrants were converted to redeemable warrants having terms identical
to those sold by the Company in such public offering.
F-16
<PAGE> 52
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTES PAYABLE
<TABLE>
<S> <C>
Notes payable at June 30, 1996 consist of:
Note payable bearing interest at 10% per annum, originally due July
31, 1996, secured by revenues to be derived from a currently airing
television series. $100,000
Bridge notes (see Note 6) 500,000
--------
$600,000
</TABLE>
In September 1996, all of these notes were repaid in full from the
proceeds of the Company's offering of securities.
NOTE 8 - 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
250,000 shares of common stock. No 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 781,500
stock options had been granted at prices ranging from $2.00 to $13.00
per share. During the year ended June 30, 1996, an aggregate of
131,208 stock options expired, 329,376 were cancelled and replaced by
262,500 stock options at prices of $1.12 and $2.00 per share (see Note
3) and 18,750 stock options were granted at $2.00 per share. As of
June 30, 1996, there were approximately 626,916 stock options
outstanding at exercise prices ranging from $1.12 to $13.00 per share.
As of June 30, 1996, all of these outstanding options were
exercisable. During the years ended June 30, 1995 and 1994, stock
options were exercised for aggregate proceeds of $454,375 and
$1,323,718, respectively. No stock options were exercised during the
year ended June 30, 1996. In addition, in August 1996, the Company
granted options to purchase 50,000 shares of Common Stock to its newly
hired Chief Financial Officer. One-half of such options vested on the
date of grant and one-half vest one year from the date of grant and
all such options have an exercise price of $1.12, the fair market
value of a share of Common Stock on the date of grant.
In addition to the Redeemable Warrants sold in the Company's September
1996 offering of securities (see Note 2) and the Bridge Warrants (see
Note 6), the Company has warrants outstanding to purchase an aggregate
of 331,916 shares of common stock at prices ranging from $7.70 to
$14.40 per share. In connection with its December 1994 public
offering (see Note 5) the Company issued warrants to the underwriter
to purchase 100,000 units consisting of an aggregate of 100,000 shares
of Series A Stock and 25,000 Class B Warrants at a price of $7.00 per
unit.
F-17
<PAGE> 53
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - 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 payments as follows
for the years ending June 30: 1997 - $1,004,000; 1998 - $410,000 and
1999 - $80,000. Certain of these agreements provide for payments by
the Company in the event of death, disability, termination or a change
in control of the Company.
NOTE 10 - INCOME TAXES
The Company files its income tax returns using an October 31 year-end.
At June 30, 1996 the Company has net operating loss carryforwards
which, if not used, will expire as follows:
<TABLE>
<CAPTION>
Tax Year End
October 31, Federal California
-------------- ----------- -----------
<S> <C> <C>
1997 $ 0 $ 377,569
1998 0 435,994
1999 0 1,690,608
2000 0 1,759,834
2001 0 1,533,133
2005 755,137 0
2006 871,987 0
2008 3,381,216 0
2009 3,519,668 0
2010 3,066,267 0
----------- -----------
Net operating loss carryforward $11,594,275 $ 5,797,138
=========== ===========
Deferred tax assets $ 4,449,300
Less valuation allowance (4,449,300)
-----------
$ 0
===========
</TABLE>
Utilization of the net operating loss carryforwards in any one
year may be limited by, among other things, alternative minimum
tax rules and restrictions caused by changes in the Company's
stock ownership.
F-18
<PAGE> 54
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company's office lease provides for a minimum annual base rental
and payment of certain defined operating expenses. The lease expires
September 30, 1997 and the minimum rent payable for the years ending
June 30 are as follows: 1997 - $228,780 and 1998 - $57,195. Rent
expense for the years ended June 30, 1995 and 1996 was $197,011 and
$149,607, 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
participation by others in the net revenues and/or profits from
completed projects.
As of November 14, 1995, the Company sold 375,000 shares of it common
stock to one of its then officers and directors for $750,000 principal
amount of promissory notes (see Note 3). The Company also executed a
purported employment agreement (which was not approved or ratified by
the Company's Board of Directors) with this officer and director which
provided for, among other things, annual compensation of $262,000
through June 30, 1998. In December 1995, the Company terminated the
employment of this individual and the related purported employment
agreement. As a result of such termination, the shares of common
stock sold to this individual and the related notes received by the
Company for such shares were forfeited to the Company and cancelled.
The Company subsequently filed a legal action against this individual
claiming, among other things, breach of fiduciary duty and return of
amounts previously paid. This individual has filed a cross-complaint
against the Company and its Chief Executive Officer claiming, among
other things, that his employment with the Company was improperly
terminated and his employment and stock purchase agreements were
improperly cancelled. This cross-complaint seeks substantial damages.
The Company believes that the ultimate outcome of these actions 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.
F-19
<PAGE> 1
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
State of
Incorporation
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
Light & Easy Cooking, Inc. California
Superstars of Action, Inc. California
Home Green Home, Inc. California
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 336,416
<SECURITIES> 0
<RECEIVABLES> 514,117
<ALLOWANCES> 12,934
<INVENTORY> 772,777
<CURRENT-ASSETS> 0
<PP&E> 218,209
<DEPRECIATION> 167,967
<TOTAL-ASSETS> 2,106,837
<CURRENT-LIABILITIES> 1,033,136
<BONDS> 0
0
0
<COMMON> 3,568
<OTHER-SE> 1,069,115
<TOTAL-LIABILITY-AND-EQUITY> 2,106,837
<SALES> 5,367,498
<TOTAL-REVENUES> 5,367,498
<CGS> 3,436,476
<TOTAL-COSTS> 3,436,476
<OTHER-EXPENSES> 3,671,015
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,920
<INCOME-PRETAX> (1,447,600)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,447,666)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,447,666)
<EPS-PRIMARY> (.63)
<EPS-DILUTED> (.63)
</TABLE>
