<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934.
-------------------
For Quarter Ended September 30, 1997 Commission file number 0-18410
THE PRODUCERS ENTERTAINMENT GROUP LTD.
(Exact name of registrant as specified in its charter)
Delaware 95-4233050
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5757 Wilshire Blvd., PH1, Los Angeles, CA 90036
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 634-8634
--------------
9150 Wilshire Blvd., Suite 205, Beverly Hills, CA 90212
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 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 [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
COMMON STOCK , $.001 PAR VALUE-- 12,387,761 SHARES AS OF SEPTEMBER 30, 1997
<PAGE> 2
Part 1. Financial Information
Item 1. Financial statements
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
AND PRO FORMA PRESENTATION OF POOLED INTEREST WITH THE GROSSO JACOBSON COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
THE PRODUCERS ENTERTAINMENT GROUP LTD.
----------------------------------------
September 30, 1997 June 30, 1997
(unaudited) (see note below)
----------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,096,665 $ 1,037,130
Short term investments - 2,698,568
Accounts receivable, net trade 104,493 106,909
Due from related parties 50,631 50,631
Prepaid expenses - 24,895
Film costs, net 3,367,605 2,144,459
Right to receive revenue 196,105 196,105
Fixed assets, net 119,115 80,636
Covenant not to compete 322,000 391,000
Deferred tax asset - -
Other assets 177,472 61,386
------------ ------------
TOTAL ASSETS $ 6,434,086 $ 6,791,719
------------ ------------
LIABILITIES AND SHAREHOLDERS EQUITY
Accounts payable and accrued expenses $ 139,358 $ 227,325
Dividends payable 212,500 212,500
Deferred income 2,641,666 2,641,666
Loans payable 416,000 -
Other (14) -
------------ ------------
TOTAL LIABILITIES $ 3,409,510 $ 3,081,491
Stockholders equity:
Preferred Stock, $.001 par value, authorized 10,000,000 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 and outstanding 12,387,761 and 12,387,761 shares
(PRO FORMA COMBINED WITH THE GROSSO JACOBSON COMPANIES
COMMON STOCK, $.001 PAR VALUE, AUTHORIZED 50,000,000 SHARES
ISSUED AND OUTSTANDING 19,054,427 AND 19,054,027) 12,387 12,387
Additional paid in capital 22,531,786 22,531,786
Accumulated deficit and dividends (18,510,405) (17,824,753)
------------ ------------
4,034,768 4,720,420
Treasury stock, 280,609 shares at cost (1,010,192) (1,010,192)
------------ ------------
Net shareholders' equity $ 3,024,576 $ 3,710,228
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,434,086 $ 6,791,719
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS (NOTE 6)
--------------------------------------
September 30, 1997 June 30, 1997
(unaudited) (note)
--------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 171,841 $ 307,740
Short term investments - -
Accounts receivable, net trade 1,089,304 415,319
Due from related parties - -
Prepaid expenses - -
Film costs, net 2,848,451 2,273,250
Right to receive revenue - -
Fixed assets, net - 1,858
Covenant not to compete - -
Deferred tax asset 51,300 51,300
Other assets 2,400 2,400
------------ ------------
TOTAL ASSETS $ 4,163,296 $ 3,051,867
------------ ------------
LIABILITIES AND SHAREHOLDERS EQUITY
Accounts payable and accrued expenses $ 841,198 $ 565,447
Dividends payable - -
Deferred income 2,464,636 2,628,203
Loans payable - -
Other - -
------------ ------------
TOTAL LIABILITIES $ 3,305,834 $ 3,193,650
Stockholders equity:
Preferred Stock, $.001 par value, authorized 10,000,000 shares,
issued and outstanding 1,000,000 shares - Series A - -
Common Stock, $.001 par value, authorized 50,000,000 shares
issued and outstanding 12,387,761 and 12,387,761 shares
(PRO FORMA COMBINED WITH THE GROSSO JACOBSON COMPANIES
COMMON STOCK, $.001 PAR VALUE, AUTHORIZED 50,000,000 SHARES
ISSUED AND OUTSTANDING 19,054,427 AND 19,054,027) 6,667 6,667
Additional paid in capital (6,067) (6,067)
Accumulated deficit and dividends 856,862 (142,383)
------------ ------------
857,462 (141,783)
Treasury stock, 280,609 shares at cost - -
------------ ------------
Net shareholders' equity $ 857,462 $ (141,783)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,163,296 $ 3,051,867
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED (NOTE 6)
----------------------------------------
The Producers Entertainment Group Ltd.
and The Grosso Jacobson Companies
----------------------------------------
September 30, 1997 June 30, 1997
(unaudited) (unaudited)
----------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,268,506 $ 1,344,870
Short term investments - 2,698,568
Accounts receivable, net trade 1,193,797 522,228
Due from related parties 50,631 50,631
Prepaid expenses - 24,895
Film costs, net 6,216,056 4,417,709
Right to receive revenue 196,105 196,105
Fixed assets, net 119,115 82,494
Covenant not to compete 322,000 391,000
Deferred tax asset 51,300 51,300
Other assets 179,872 63,786
------------ ------------
TOTAL ASSETS $ 10,597,382 $ 9,843,586
------------ ------------
LIABILITIES AND SHAREHOLDERS EQUITY
Accounts payable and accrued expenses $ 980,556 $ 792,772
Dividends payable 212,500 212,500
Deferred income 5,106,302 5,269,869
Loans payable 416,000 -
Other (14) -
------------ ------------
TOTAL LIABILITIES $ 6,715,344 $ 6,275,141
Stockholders equity:
Preferred Stock, $.001 par value, authorized 10,000,000 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 and outstanding 12,387,761 and 12,387,761 shares
(PRO FORMA COMBINED WITH THE GROSSO JACOBSON COMPANIES
COMMON STOCK, $.001 PAR VALUE, AUTHORIZED 50,000,000 SHARES
ISSUED AND OUTSTANDING 19,054,427 AND 19,054,027) 19,054 19,054
Additional paid in capital 22,525,719 22,525,719
Accumulated deficit and dividends (17,653,543) (17,967,136)
------------ ------------
4,892,230 4,578,637
Treasury stock, 280,609 shares at cost (1,010,192) (1,010,192)
------------ ------------
Net shareholders' equity $ 3,882,038 $ 3,568,445
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,597,382 $ 9,843,586
------------ ------------
Note: the balance sheet at June 30, 1997 has been derived from the audited financial statements at that date but does not include
all the information and footnotes required by generally accepted accounting principles for complete financial statements.
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE> 3
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
AND PRO FORMA PRESENTATION OF POOLED INTEREST WITH THE GROSSO JACOBSON COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THE PRODUCERS ENTERTAINMENT GROUP LTD.
--------------------------------------
Three months ended September 30,
1997 1996
------------ ------------
<S> <C> <C>
Revenues $ 403,569 316,859
Costs related to revenues:
Amortization of film costs - 63,000
Costs of projects sold - -
------------ ------------
Net Revenues 403,569 253,859
General and administration expenses 993,251 838,163
------------ ------------
Operating profit (loss) (589,682) (584,304)
Other income (expense):
Interest income 10,280 40,905
Interest and financing expense - (156,975)
------------ ------------
Net other income (expense) 10,280 (116,070)
Net income (loss) (579,402) (700,374)
Provision for income taxes - -
Net income (loss) (579,402) (700,374)
Dividend requirement on Series A
Preferred Stock at $.31875 per share (106,250) (106,250)
------------ -------------
Net profit (loss) applicable to
common shareholders $ (685,652) $ (806,624)
------------ ------------
Net income (loss) per share $ (.06) $ (.13)
Average common shares outstanding 12,107,152 6,329,182
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS (NOTE 6)
-----------------------------------
Three months ended September 30,
1997 1996
------------ ------------
<S> <C> <C>
Revenues 3,985,023 816,269
Costs related to revenues:
Amortization of film costs 2,775,101 0
Costs of projects sold 71,418 177,934
------------ ------------
Net Revenues 1,138,504 638,335
General and administration expenses 139,409 158,378
------------ ------------
Operating profit (loss) 999,095 479,957
Other income (expense):
Interest income 150 57
Interest and financing expense 0 0
------------ ------------
Net other income (expense) 150 57
Net income (loss) 999,245 480,014
Provision for income taxes 0 55
Net income (loss) 999,245 479,959
Dividend requirement on Series A
Preferred Stock at $.31875 per share (106,250) (106,250)
------------ ------------
Net profit (loss) applicable to
common shareholders $ 892,995 $ 373,709
------------ ------------
Net income (loss) per share
Average common shares outstanding
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED (NOTE 6)
---------------------------------------
The Producers Entertainment Group Ltd.
and The Grosso Jacobson Companies
---------------------------------------
Three months ended September 30,
1997 1996
------------ ------------
<S> <C> <C>
Revenues 4,388,592 1,133,128
Costs related to revenues:
Amortization of film costs 2,775,101 63,000
Costs of projects sold 71,418 177,934
------------ ------------
Net Revenues 1,542,073 892,194
General and administration expenses 1,132,660 996,541
------------ ------------
Operating profit (loss) 409,413 (104,347)
Other income (expense):
Interest income 10,430 40,962
Interest and financing expense - (156,975)
------------ ------------
Net other income (expense) 10,430 (116,013)
Net income (loss) 419,843 (220,360)
Provision for income taxes - 55
Net income (loss) 419,843 (220,415)
Dividend requirement on Series A
Preferred Stock at $.31875 per share (106,250) (106,250)
------------ -------------
Net profit (loss) applicable to
common shareholders $ 313,593 $ (326,665)
------------ ------------
Net income (loss) per share $ .02 $ (.03)
Average common shares outstanding 18,773,818 12,995,848
------------ ------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
AND PRO FORMA PRESENTATION OF POOLED INTEREST WITH THE GROSSO JACOBSON COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THE PRODUCERS ENTERTAINMENT GROUP LTD.
--------------------------------------
Preferred Common Stock
Stock Shares Amount
----------------------------------------------------
<S> <C> <C> <C>
Balance,
June 30, 1997 1,000 12,387,761 12,387
Net profit (loss)
Dividends paid on Series A
Preferred Stock
----------------------------------------------------
Balance,
September 30, 1997 1,000 12,387,761 12,387
Less:
Treasury Stock (280,609)
----------------------------------------------------
NET SHAREHOLDERS EQUITY 12,107,152
PRO FORMA ADJUSTMENTS (NOTE 6)
------------------------------
Preferred Common Stock
Stock Shares Amount
----------------------------------------------------
Balance,
June 30, 1997 - 6,666,666 6,667
Net profit (loss)
Dividends paid on Series A
Preferred Stock
----------------------------------------------------
Balance,
September 30, 1997 0 6,666,666 6,667
Less:
Treasury Stock -
----------------------------------------------------
NET SHAREHOLDERS EQUITY 6,666,666
PRO FORMA COMBINED (NOTE 6)
---------------------------
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND THE GROSSO JACOBSON COMPANIES
------------------------------------------------------------------------
Preferred Common Stock
Stock Shares Amount
----------------------------------------------------
Balance,
June 30, 1997 1,000 19,054,427 19,054
Net profit (loss)
Dividends paid on Series A
Preferred Stock
----------------------------------------------------
Balance,
September 30, 1997 1,000 19,054,427 19,054
Less:
Treasury Stock (280,609)
----------------------------------------------------
NET SHAREHOLDERS EQUITY 18,773,818
</TABLE>
<TABLE>
<CAPTION>
THE PRODUCERS ENTERTAINMENT GROUP LTD.
--------------------------------------
Additional Accumulated
Paid-In Capital Deficit Net
----------------------------------------------------------
<S> <C> <C> <C>
Balance,
June 30, 1997 22,531,786 (17,824,753) 4,720,420
Net profit (loss) (579,402) (579,402)
Dividends paid on Series A
Preferred Stock (106,250) (106,250)
----------------------------------------------------------
Balance,
September 30, 1997 22,531,786 (18,510,405) 4,034,768
Less:
Treasury Stock (1,010,192)
----------------------------------------------------------
NET SHAREHOLDERS EQUITY 3,024,576
PRO FORMA ADJUSTMENTS (NOTE 6)
------------------------------
Additional Accumulated
Paid-In Capital Deficit Net
----------------------------------------------------------
Balance,
June 30, 1997 (6,067) (142,383) (141,783)
Net profit (loss) 999,245 999,245
Dividends paid on Series A
Preferred Stock - 0
----------------------------------------------------------
Balance,
September 30, 1997 (6,067) 856,862 857,462
Less:
Treasury Stock -
----------------------------------------------------------
NET SHAREHOLDERS EQUITY 857,462
PRO FORMA COMBINED (NOTE 6)
---------------------------
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND THE GROSSO JACOBSON COMPANIES
------------------------------------------------------------------------
Additional Accumulated
Paid-In Capital Deficit Net
-----------------------------------------------------------
Balance,
June 30, 1997 22,525,719 (17,967,136) 4,578,637
Net profit (loss) 419,843 419,843
Dividends paid on Series A
Preferred Stock (106,250) (106,250)
-----------------------------------------------------------
Balance,
September 30, 1997 22,525,719 (17,653,543) 4,892,230
Less:
Treasury Stock (1,010,192)
-----------------------------------------------------------
NET SHAREHOLDERS EQUITY 3,882,038
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
AND PRO FORMA PRESENTATION OF POOLED INTEREST WITH THE GROSSO JACOBSON COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
The Producers Entertainment
Group Ltd.
Three months ended September 30,
1997 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net profit (loss) $ (579,402) $ (700,374)
Adjustments to reconcile net profit (loss) to
net cash derived from (used in) operating activities
Depreciation of fixed assets 16,815 5,428
Amortization of film costs - 63,000
Amortization of deferred compensation expense - 3,900
Amortization of legal settlement 69,000 -
Amortization of imputed interest (discount) - (24,000)
(Accrued) interest income - (24,631)
Provision for accounts receivable - 4,890
Issuance of Common Stock in settlement - 36,563
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 2,416 (141,380)
Decrease (increase) in other assets (91,191) (68,834)
(Decrease) increase in accounts payable
and accrued expenses (132,981) (211,755)
(Decrease) in deferred revenues - -
--------------- ---------------
Net cash (used in) operating activities (715,343) (1,057,193)
--------------- ---------------
Cash flows from investing activities:
Decrease in short term investments 2,698,568 -
(Additions) to film costs, net (1,223,146) (15,434)
Capital (expenditures) on equipment (55,294) (24,324)
(Increase) decrease in receivables from related parties 45,000 (9,240)
--------------- ---------------
Net cash (used in) investing activities 1,465,128 (48,998)
--------------- ---------------
Cash flows from financing activities:
Sale of 2,300,000 Units in public offering - 7,936,840
Capitalized (cost) of public offering - (336,832)
Decrease in deferred financing costs - 137,503
Interest (paid) on bridge notes - (14,167)
Proceeds from borrowings 416,000 275,000
(Repayments) from borrowings - (875,000)
(Payment of preferred dividend) (106,250) -
--------------- ---------------
Net cash provided by financing activities 309,750 7,123,344
--------------- ---------------
Net increase in cash 1,059,535 6,017,153
Cash and cash equivalents at beginning of period 1,037,130 336,415
--------------- ---------------
Cash and cash equivalents at end of period $ 2,096,665 $ 6,353,568
--------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
(NOTE 6)
Three months ended September 30,
1997 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net profit (loss) $ 999,245 $ 479,959
Adjustments to reconcile net profit (loss) to
net cash derived from (used in) operating activities
Depreciation of fixed assets 1,858 -
Amortization of film costs 2,775,101 -
Amortization of deferred compensation expense - -
Amortization of legal settlement - -
Amortization of imputed interest (discount) - -
(Accrued) interest income - -
Provision for accounts receivable - -
Issuance of Common Stock in settlement - -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (673,985) (25,400)
Decrease (increase) in other assets - -
(Decrease) increase in accounts payable
and accrued expenses 285,752 (100,000)
(Decrease) in deferred revenues (163,567) -
--------------- ---------------
Net cash (used in) operating activities 3,224,404 354,559
--------------- ---------------
Cash flows from investing activities:
Decrease in short term investments - -
(Additions) to film costs, net (3,350,302) -
Capital (expenditures) on equipment - -
(Increase) decrease in receivables from related parties (10,000) -
--------------- ---------------
Net cash (used in) investing activities (3,360,302) 0
--------------- ---------------
Cash flows from financing activities:
Sale of 2,300,000 Units in public offering - -
Capitalized (cost) of public offering - -
Decrease in deferred financing costs - -
Interest (paid) on bridge notes - -
Proceeds from borrowings - -
(Repayments) from borrowings - -
(Payment of preferred dividend) - -
--------------- ---------------
Net cash provided by financing activities 0 0
--------------- ---------------
Net increase in cash (135,898) 354,559
Cash and cash equivalents at beginning of period 307,740 69,987
--------------- ---------------
Cash and cash equivalents at end of period $ 171,842 $ 424,546
--------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED (NOTE 6)
The Producers Entertainment Group
and The Grosso Jacobson Companies
Three months ended September 30,
1997 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net profit (loss) $ 419,843 $ (220,415)
Adjustments to reconcile net profit (loss) to
net cash derived from (used in) operating activities
Depreciation of fixed assets 18,673 5,428
Amortization of film costs 2,775,101 63,000
Amortization of deferred compensation expense - 3,900
Amortization of legal settlement 69,000 -
Amortization of imputed interest (discount) - (24,000)
(Accrued) interest income - (24,631)
Provision for accounts receivable - 4,890
Issuance of Common Stock in settlement - 36,563
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (671,569) (166,780)
Decrease (increase) in other assets (91,191) (68,834)
(Decrease) increase in accounts payable
and accrued expenses 152,771 (311,755)
(Decrease) in deferred revenues (163,567) -
--------------- ---------------
Net cash (used in) operating activities 2,509,061 (702,634)
--------------- ---------------
Cash flows from investing activities:
Decrease in short term investments 2,698,568 -
(Additions) to film costs, net (4,573,448) (15,434)
Capital (expenditures) on equipment (55,294) (24,324)
(Increase) decrease in receivables from related parties 35,000 (9,240)
--------------- ---------------
Net cash (used in) investing activities (1,895,174) (48,998)
--------------- ---------------
Cash flows from financing activities:
Sale of 2,300,000 Units in public offering - 7,936,840
Capitalized (cost) of public offering - (336,832)
Decrease in deferred financing costs - 137,503
Interest (paid) on bridge notes - (14,167)
Proceeds from borrowings 416,000 275,000
(Repayments) from borrowings - (875,000)
(Payment of preferred dividend) (106,250) -
--------------- ---------------
Net cash provided by financing activities 309,750 7,123,344
--------------- ---------------
Net increase in cash 923,637 6,371,712
Cash and cash equivalents at beginning of period 1,344,870 406,402
--------------- ---------------
Cash and cash equivalents at end of period $ 2,268,507 $ 6,778,114
--------------- ---------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1997
(1) Basis of Presentation
The financial information of the Company included herein is unaudited;
however, such information reflects all adjustments (consisting of normal
recurring accruals) which are, in the opinion of management, necessary to
present fairly the results of operations for the periods presented. The
information contained in this Form 10-QSB should be read in conjunction with the
audited financial statements filed as part of the Company's Form 10-KSB for the
fiscal year ended June 30, 1997.
In addition to the financial information of the Company presented, this
Form 10-QSB includes pro forma combined financial information for the pooled
interests of the Company and the Grosso Jacobson Companies as further explained
in Note (6).
(2) Dividend on Series A Preferred Stock
During the three months ended September 30, 1997, the Company paid
$106,250 in cash for the dividend required to be paid on the Series A Preferred
Stock for the quarter ended March 31, 1997. As of the date of this Report, the
Company has paid the $106,250 dividend for the quarter ended June 30, 1997 in
cash.
Under the terms of the agreement with the Underwriter as revised, the
Board of Directors of the Company may elect to issue the quarterly dividends in
cash or in shares of its Common Stock. As of the date of this report, the Board
of Directors of the Company has not stated its intentions regarding the method
of payment to be used for the dividend due for the quarter ended September 30,
1997.
(3) Income Per Share
Income per share for the three month period has been computed after
deducting the dividend requirements of the Series A Preferred Stock. It is based
on the weighted average number of common and common equivalent shares reported
outstanding during the entire period ending on September 30, 1997.
(4) Stock Options and Warrants
The Company is using APB Opinion No. 25 "Accounting for Stock Issued to
Employees" to calculate the compensation expense related to the grant of options
to purchase Common Stock under the intrinsic value method. The Company made no
grant of options for the period ended September 30, 1997. There were a total of
approximately 914,417 options outstanding as of September 30, 1997 at exercise
prices ranging from $1.12 to $13.00 per share of Common Stock.
In addition to the 4,600,000 Redeemable Warrants exercisable at $1.75
per share of Common Stock issued in connection with the September 1996 public
offering, there are approximately 927,554 other outstanding warrants. As part of
a June 1996 private placement of $500,000 aggregate principal amount of 10%
promissory notes ("Bridge Notes"), 500,000 "Bridge Warrants" were issued. Upon
repayment of the Bridge Notes in September 1996, the Bridge Warrants were
automatically exchanged for 500,000 Redeemable Warrants exercisable at $1.75 per
share. The Company has other existing warrants outstanding to purchase an
aggregate of 427,554 shares of Common Stock at prices ranging from $7.70 to
$14.40 per share. There were a total of approximately 5,527,554 warrants
outstanding as of September 30, 1997.
(5) Related Party Transactions
In November 1995, the Company sold an aggregate of 525,000 shares of its
Common Stock to related parties, at a purchase price of $2.00 per share, in
exchange for an aggregate of $1,050,000 principal amount of promissory notes.
500,000 of these shares were sold to Mountaingate Productions, LLC.
("Mountaingate"), a California company that provides the Company with producer
6
<PAGE> 7
services of its Chief Executive Officer and others. The remaining 25,000 shares
were sold to a former officer and Director of the Company.
As of June 30, 1997 the agreement with Mountaingate was terminated and the stock
returned to the Company. Mountaingate has agreed to pay the Company the 25%
maximum recourse liability ($50,631) accrued interest at June 30, 1997, and the
balance of $129,142 was written off as of June 30, 1997.
At June 30, 1997, the Company foreclosed on the 25,000 shares of common stock
issued to the former officer and Director due to nonpayment of principal and
interest. The note balance including $4,000 of interest has been written as of
June 30, 1997 and the 25,000 shares of common stock have been cancelled.
(6) Subsequent Event-- Acquisition of Another Company
As disclosed in Form 8-K filed November 3, 1997, the Company acquired
100% of the outstanding capital stock of three entities comprising the "Grosso
Jacobson Companies" (including Grosso Jacobson Productions, Inc., Grosso
Jacobson Entertainment Corporation, and Grosso Jacobson Music Company, Inc)
through the merger of three wholly-owned subsidiaries of the Company into the
Grosso Jacobson Companies. The Grosso Jacobson Companies are engaged in the
business of developing and producing entertainment products including television
movies and series. The consideration paid by the Company to the two shareholders
of the Grosso Jacobson Companies pursuant to the merger consisted of the
issuance of 6,666,666 shares of the Company's Common Stock, valued at an issue
price of $1.20 per share, to such shareholders
The mergers of the Company's wholly-owned subsidiaries into the Grosso Jacobson
Companies for Common Stock of the Company has been treated, for financial
statement reporting purposes, as a pooling of interests.
The pro forma adjustments made in the Condensed Consolidated Financial
Statements to reflect the combined results of the mergers consist of the Grosso
Jacobson Companies' results for the periods reported, and the following
adjustment:
<TABLE>
<CAPTION>
The Producers Entertainment The Grosso Jacobson Pro forma
Group Ltd. Companies Adjustment Consolidated
<S> <C> <C> <C> <C>
Common Stock $ 12,387 $ 600 (A)$6,067 $ 19,054
Additional paid in capital $ 22,531,786 -- (A)$(6,067) $ 22,525,719
</TABLE>
(A) This adjustment is made to show on the pro forma condensed balance sheets of
the combined companies the effect of 6,666,666 shares, $.001 par value, common
stock of the Company issued to the stockholders of the Grosso Jacobson Companies
in exchange for their 600 shares of no par value common stock of the three
Grosso Jacobson Companies stated at $600.
(7) Material non-recurring charge not reflected in the pro forma results
presented
A material non-recurring charge resulting from the transaction described
in Note (6) which will be included in the income statement of the registrant
within the twelve months succeeding the transaction is the payment of a success
fee to a private consultant. That fee was paid by the Company $150,000 in cash
and 84,333 shares of common stock valued at an issue price of $1.20 per share
upon the closing of the acquisition by the Company of the Grosso Jacobson
Companies.
7
<PAGE> 8
Part 1. Financial Information
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL - HISTORICAL FINANCIAL INFORMATION
The following discussion and analysis should be read in conjunction with
the Company's accompanying condensed consolidated financial statements and
Notes.
The Notes to the Condensed Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" set forth herein contain certain forward-looking statements with
respect to the Company and its operations that are subject to certain risks and
factors which could cause the Company's future actual results of operations and
future financial condition to differ materially from those described herein.
These risk factors include, but are not limited to, the number of the Company's
projects in development that result in completed productions that yield revenues
during specific fiscal periods, the timing of such production expenditures and
related revenues, the intensity of competition from other television and motion
picture producers and distributors, the status of the Company's liquidity in
future fiscal periods and other factors that generally affect the entertainment
industry such as changes in management at the major studios, broadcast and
distribution companies, as well as economic, political, regulatory,
technological and public taste environments.
The Company's revenues are primarily derived from the production and
distribution of completed television projects, producer fees and personal
management fees. The amount of revenues derived by the Company in any one period
is dependent upon, among other factors, projects completed during any such
period and the distribution of completed projects. Revenues from producer fees
are primarily dependent on the number of projects being produced by the Company,
and the agreements relating to such projects. Accordingly, the amount of
revenues recognized in any period are not necessarily indicative of revenues to
be recognized by the Company in future periods.
Revenues received from license fees for distribution rights to
projects-in-process constitute deferred income until the project becomes
available for broadcast in accordance with the terms of its licensing agreements
and are recognized as revenue at such time. The portion of the license fees
which equals the amount allowed within the project's budget for the Company's
producer fees is recognized as revenue during the production phase. Revenues
from completed projects where distribution rights are owned by the Company are
recognized when the project becomes contractually available for broadcasting or
exhibition in certain media and geographical territories by the licensee.
Revenues from the sale of projects completed under straight producer
arrangements are recognized during the production phase. Additional licensing,
distribution fees or profit participation's are recognized as earned in
accordance with the terms of the related agreements.
Amortization of film costs is charged to operations on a project by
project basis. The cost charged per period is determined by multiplying the
remaining unamortized costs of the project by a fraction, whose numerator is the
income generated by the project during the period and whose denominator is
management's estimate of the total gross revenue to be derived by the project
over its useful life from all sources. This is commonly referred to as the
Individual Film Forecast Method under FASB 53. The effects on the amortization
of completed projects resulting from revision of management's estimates of total
gross revenue on certain projects are reflected in the year in which such
revisions are made.
8
<PAGE> 9
HISTORICAL RESULTS OF OPERATIONS FOR THE PRODUCERS ENTERTAINMENT GROUP LTD.
THREE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
TPEG revenues for the three months ended September 30, 1997 consisted of
$74,038 from the continuing international distribution of completed projects,
$75,000 from producer fees on current projects, $10,072 from reimbursements and
$244,459 from personal management fees for total revenues of $403,569, a 78%
increase from the three months ended September 30, 1996. Revenues of $316,859
for the three months ended September 30, 1996 consisted of $123,103 from the
continuing distribution of completed projects and $193,756 from personal
management fees.
Amortization of film costs for the three months ended September 30, 1997
and September 30, 1996 was $0 and $63,000, respectively, and was computed using
the Individual Film Forecast Method. The difference in amortization as a
percentage of total revenues related to the distribution of projects of 0% and
20%, respectively, reflects the mix of projects in which TPEG has no expectation
of additional revenues that are amortized at 100% of cost and projects in which
TPEG has retained distribution rights held for future sale that are amortized
according to the Individual Film Forecast Method.
During April 1997, TPEG commenced pre-production on a television movie
for Fox Broadcasting Company entitled "Marabunta," a story about South American,
flesh eating ants that arrive in Alaska, terrorizing all life forms. A license
agreement was concluded with World International Network for distribution rights
in certain foreign territories. The project commenced principal photography in
June 1997 with delivery to the US broadcast network anticipated by November
1997. Revenue from executed license agreements will be recognized during the
fiscal quarter when the "Marabunta" project has been completed and delivered.
General and administrative expenses for the three months ended September
30, 1997 were $993,251 compared to $838,163 for the nine months ended September
30, 1996. The $155,088 increase in general and administrative expenses was
primarily attributable to non-recurring legal expenses incurred in connection
with the acquisition of the Grosso Jacobson Companies (see Note 6) , the
addition of professional consultants and timing of the MIPCOM sales market which
took place in September in 1997 and in October in 1996.
During the three months ended September 30, 1997, TPEG recorded
($69,000) of amortization related to a November 4, 1996 non-competition
agreement with a former officer and director, which cost is being amortized over
the life of the non-competition agreement at ($23,000) per month.
During the three months ended September 30, 1997, TPEG recorded $10,280
of interest income on temporary cash investments. During the three months ended
September 30, 1996, interest income of $40,905 consisted of $24,000 imputed
interest discount on related party notes described in Note (5), $7,864 of
imputed interest related to a trade note receivable and $9,041 earned on
temporary cash investments.
There was no interest and financing expense for the three months ended
September 30, 1997. Interest and financing expense of $156,975 for the three
months ended September 30, 1996 included $137,503 of deferred financing charges
which were expensed to operations upon repayment of a $500,000 aggregate
principal amount of 10% promissory notes. The one-time charge represented
complete amortization of the deferred financing costs over the term of the notes
which were repaid in September 1996.
TPEG reported a loss of ($685,652) or ($.06 per share) in the first
quarter of fiscal 1998 compared to a loss of ($806,624) or ($.13 per share) in
the first quarter of fiscal 1997. The loss for both compared periods included
required dividend payments of $106,250 to holders of the Company's outstanding
Series A Preferred Stock. The number of weighted average common shares
outstanding decreased to 12,107,152 in the first quarter of 1998 from 12,632,152
in the first quarter of fiscal 1997 due to the effect of the terminated
agreements referred to in Note (5) of Notes to Condensed Consolidated Financial
Statements.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES - THE PRODUCERS ENTERTAINMENT GROUP LTD.
As of September 30, 1997, TPEG had decreased liquidity from the
comparable period ended September 30, 1996 primarily as a result of the costs
incurred in continuing operations. Cash and cash equivalents as of September 30,
1997 were $2,096,665 and trade accounts receivable were $104,493. As of
September 30, 1997, the Company had recorded accounts payable and accrued
expenses of $139,358. In the comparable period ending September 30, 1996, the
Company had $6,353,568 in cash and cash equivalents and $358,690 in trade
accounts receivable to cover $221,381 of current liabilities. The substantially
larger amount of cash available to the Company as of September 30, 1996
reflected in large part the proceeds derived by the Company from a public
offering of its Common Stock completed in mid-September, 1996. As of October 31,
1997, the Company's cash, cash equivalents and marketable securities were
approximately $1,446,519.
Management estimates that, as of September 30, 1997, the Company's cash
commitments for the next twelve months will aggregate approximately $1,081,000
($2,297,000 including The Grosso Jacobson Companies). The figure includes (a)
base compensation to its key officers, key independent contractors and key
consultants of approximately $877,000 ($1,925,000 including The Grosso Jacobson
Companies) and (b) office rent of approximately $204,000 ($372,000 including The
Grosso Jacobson Companies). The Company also incurs other costs such as staff
salaries, employee benefits, employer taxes, premiums on insurance policies,
marketing costs, office expenses, professional fees, consulting fees and other
expenses. For the three months ended September 30, 1997, cash general and
administrative expenses, including compensation and rent, but excluding legal
expenses, aggregated approximately $851,813. In addition to general and
administrative expenses, the required dividends on the shares of Series A
Preferred Stock are $425,000 annually. The dividends on the Series A Preferred
Stock may be paid either in shares of the Company's Common Stock or in cash.
The Company's projected business plan is to use a substantial portion of
its liquid resources to expand its operations and to establish other activities
related to its core business. The Company anticipates that cash and cash
equivalents will be used to obtain options on literary properties for new
projects, to develop properties into finished scripts, to finance timing
differences between production costs and collection of license fees, and to
acquire the copyrights and distribution rights to third party product. The
actual utilization of excess working capital is subject to change based on the
then present circumstances and management's evaluation of alternative projects.
The financing of production or acquisition timing differences of certain
projects may require the Company to obtain additional external financing or
capital. The Company's ability to rely on external sources of funds, rather than
its own liquid resources, will be significant in determining the extent to which
the Company will expand and diversify its production and distribution
activities. There is no assurance that such external sources of funds will be
available to the Company or that, if available, the terms thereof will be at
reasonable cost to the Company. No agreements have been entered into for any
such external financing as of the date of this Report..
The Company's ability to satisfy selling, general and administrative
costs with cash flow from operations depends on the product mix, number of
projects and timing of delivery of projects in each quarter, which are subject
to uncertainties. Projects made under producer arrangements provide a lower
contribution margin to the Company's costs of operations than projects in which
the Company holds distribution rights. The Company believes that its present
level of liquidity and capital resources will be sufficient to meet its cash
needs for the next twelve months.
INFLATION
Inflation has not had a material effect on the Company's operations to
date.
10
<PAGE> 11
PRO FORMA COMBINED RESULTS OF OPERATIONS OF THE PRODUCERS ENTERTAINMENT GROUP
LTD. AND THE GROSSO JACOBSON COMPANIES
The following pro forma presentation of the combined results of
operations of the Company and the Grosso Jacobson Companies is based on the
treatment of the mergers of the Company's wholly owned subsidiaries into the
Grosso Jacobson Companies referred to in Note (6) of Notes to Condensed
Consolidated Financial Statements as a pooling of interests.
THREE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Pro forma combined revenues for the three months ended September 30,
1997 consisted of $3,496,743 from the delivery to the Family Channel network of
the television movie "Let Me Call You Sweetheart", $78,352 from the continuing
international distribution of completed projects, $495,000 from producer fees on
current projects, $10,072 in reimbursements and $244,459 in personal management
fees, reflecting a 387% increase from the first quarter of 1996 resulting
primarily from the timing of the delivery of the television movie in September
1997 and increased revenues from continuing distribution of completed product.
Pro forma combined revenues of $1,133,128 for the three months ended September
30, 1996 were comprised of $193,756 in personal management fees, $489,372 from
the continued international distribution of completed projects and $450,000 in
producer fees on current projects.
Pro forma combined amortization of film costs for the three months ended
September 30, 1997 was $2,775,101, a 44-fold increase from the first quarter of
1996 due primarily to the delivery of "Let Me Call You Sweetheart" in September,
1997. Pro forma combined amortization of film costs for the three months ended
September 30, 1996 was $63,000. No new projects were completed during the three
months ended September 30, 1996; therefore, the rate of amortization was based
on distribution rights retained to completed projects in the film library.
Pro forma combined general and administrative expenses for the three
months ended September 30, 1997 were $1,132,660 compared to $996,541 for the
three months ended September 30, 1996. The $136,119 increase in general and
administrative expenses was primarily attributable to non-recurring expenses
incurred in connection with the acquisition of the Grosso Jacobson Companies,
the addition of professional consultants and the timing of expenses incurred for
the MIPCOM sales market which took place in September in 1997, as compared to
taking place in October in 1996.
During the three months ended September 30, 1997, the Company and the
Grosso Jacobson Companies on a pro forma basis recorded ($69,000) of
amortization related to a November 4, 1996 non-competition agreement with a
former officer and director, the cost of which is being amortized over the life
of the con-competition agreement at ($23,000) per month.
During the three months ended September 30, 1997, the Company and the
Grosso Jacobson companies recorded pro forma interest income on temporary cash
investments of $10,430. During the three months ended on September 30, 1996, pro
forma combined interest income of $40,963 consisted of $24,000 imputed interest
discount on related party notes described in Note (7), $7,864 of imputed
interest related to a trade note receivable and $9,099 earned on temporary cash
investments.
There was no interest expense for the three months ended September 30,
1997. Interest and financing expense of $156,975 for the three months ended
September 30, 1996 included $137,503 of deferred financing charges which were
expensed to operations upon repayment of a $500,000 aggregate principal amount
of 10% promissory notes. The one-time charge represented complete amortization
of the deferred financing costs over the term of the notes which were repaid in
September 1996.
The Company and the Grosso Jacobson Companies reported pro forma
combined income of $313,593 or $.02 per share for the three months ended
September 30, 1997 compared to a pro forma combined loss ($326,665) or ($.16)
per share for the three months ended September 30, 1996. The income/(loss) for
both compared periods included required dividend payments of $106,250 to holders
of the Company's outstanding Series A Preferred Stock. The number of weighted
average common shares outstanding increased on a pro forma basis to 18,773,818
from 12,995,848 for the three months ended September 30, 1997 and 1996,
respectively.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None.
(b) Reports on Form 8-K - The Company filed a Current Report on Form 8-K on
November 3, 1997 with respect to the Grosso Jacobson mergers described
elsewhere in this Report.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE PRODUCERS ENTERTAINMENT GROUP LTD.
(Registrant)
Dated: November 10, 1997 /s/ IRWIN MEYER
----------------------- -------------------------------------
Irwin Meyer,
President and Chief Executive Officer
Dated: November 10, 1997 /s/ ALFRED HAFERKAMP
----------------------- -------------------------------------
Alfred Haferkamp,
Controller
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR QUARTER ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-QSB FOR QUARTER ENDED SEPTEMBER 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,096,665
<SECURITIES> 0
<RECEIVABLES> 351,229
<ALLOWANCES> 0
<INVENTORY> 3,367,605
<CURRENT-ASSETS> 0
<PP&E> 286,539
<DEPRECIATION> 167,424
<TOTAL-ASSETS> 6,434,086
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
1,000
<COMMON> 12,387
<OTHER-SE> 3,011,189
<TOTAL-LIABILITY-AND-EQUITY> 6,434,086
<SALES> 0
<TOTAL-REVENUES> 413,849
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (685,652)
<INCOME-TAX> 0
<INCOME-CONTINUING> (685,652)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (685,652)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
