<PAGE>
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, 1998 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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (323) 634-8634
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___________________________________________________________________________
(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--8,081,647 SHARES AS OF NOVEMBER 18, 1998
- -----------------------------------------------------------------------
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 JUNE 30, 1998
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents ($27,398) $ 73,751
Short term investments 0 0
Accounts receivable, net trade 2,770,441 938,130
Note Receivable 200,000 0
Receivable from related parties 59,855 47,778
Prepaid expenses 40,428 0
Film costs, net 1,363,171 1,189,392
Fixed assets, net 178,898 182,473
Covenant not to compete 46,750 115,000
Acquisition Costs 115,340 0
Goodwill 790,785 0
Other assets 10,035 179,167
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TOTAL ASSETS $ 5,548,305 $ 2,725,691
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LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $2,037,820 $ 335,712
Obligations under capital leases 56,842 70,905
Dividends payable 106,250 106,250
Deferred income 131,543 0
Notes payable 384,889 84,346
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TOTAL LIABILITIES $2,717,344 $ 597,213
Shareholders' equity:
Preferred Stock, $.001 par value, authorized 20,000,000 shares
Series A Preferred Stock, $.001 par value, authorized
1,000,000 shares; issued and outstanding 1,000,000 shares 1,000 1,000
Series B Preferred Stock, $.001 par value, authorized 1,375,662
shares; none issued and outstanding 0 0
Series D Preferred Stock, $.001 par value, authorized 50,000
shares; issued and outstanding 50,000 shares 50 0
Series E Preferred Stock, $.001 par value, authorized 500,000
shares; issued and outstanding 25,000 shares 25 0
Series F Preferred Stock, $.001 par value, authorized 500,000
shares; issued and outstanding 75,000 shares 75 0
Common Stock, $.001 par value, authorized 50,000,000 shares;
issued and outstanding 7,876,647 and 6,672,943 shares 7,877 6,673
Additional paid-in capital 24,987,781 23,411,349
Accumulated deficit and dividends (21,155,654) (20,280,352)
Treasury stock, 93,536 shares at cost (1,010,192) (1,010,192)
------------ ------------
Net shareholders' equity $2,830,962 $ 2,128,478
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,548,305 $ 2,725,691
------------ ------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1998 1997
<S> <C> <C>
Revenues $ 304,100 $ 4,388,592
Costs related to revenues:
Amortization of film costs 0 2,775,101
Costs of projects sold 1,347 71,418
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Net Revenues 302,753 1,542,073
General and administrative expenses 1,173,934 1,063,660
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Operating income (loss) (871,181) 479,413
Other income (expenses):
Acquisition expense 6,695 0
Interest income 0 10,430
Amortization of Goodwill 34,000 0
Amortization of Acquisition Costs 5,320 0
Settlements expense 69,000 69,000
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Net other income (expense) (115,015) (58,570)
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Net income (loss) (986,196) 419,843
Provision for income taxes 5,304 0
--------------- ---------------
Net income (loss) (991,500) 419,843
Dividend requirement on Series A Preferred Stock (106,250) (106,250)
--------------- ---------------
Net income (loss) applicable to common
shareholders ($1,097,750) $ 313,593
--------------- ---------------
Net income (loss) per share (basic and diluted) ($.15) $.02
Average common shares
outstanding (basic and diluted) 7,228,027 18,773,818
--------------- ---------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SERIES SERIES SERIES SERIES ADDITIONAL
PREFERRED D D E E COMMON STOCK PAID-IN ACCUMULATED
STOCK SHARES AMT SHARES AMT SHARES AMOUNT CAPITAL DEFICIT
---------- ------- -------- -------- -------- ---------- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
June 30, 1998 $1,000 6,672,943 $6,672 $23,513,101 ($20,057,905)$3,462,869
Issuance of common
shares in payment of
dividends on Series A
Preferred Stock 0 0
Issuance of common
shares in connection
with the acquisition of 1,203,704 $824,785 $824,785
MWI
Issuance of Series D 50,000 220,000 220,000
Preferred Stock
Issuance of Series E
Preferred Stock 25,000 431,250 431,250
Net loss (991,500) (991,500)
Dividends on Series
A Preferred Stock (106,250) (106,250)
- -------------------------- ---------- ------- -------- -------- -------- ---------- --------- ----------- ------------ ----------
Balance,
September 30, 1998 $1,000 50,000 220,000 25,000 431,250 7,876,647 $831,457 $23,406,851 ($21,049,405)$3,841,154
Less:
Treasury Stock (93,536) (1,010,192)
NET SHAREHOLDERS' EQUITY 7,783,111 $2,830,962
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (991,500) $ 419,843
ADJUSTMENTS TO RECONCILE NET (LOSS) TO
NET CASH (USED IN) OPERATING ACTIVITIES:
Depreciation of fixed assets 24,298 18,673
Amortization of film costs 0 2,775,101
Write off of projects in development 0 0
Amortization of Goodwill 34,000 0
Amortization of Acquisition Costs 5,320 0
Amortization of non-competition agreement 69,000 69,000
Decrease deferred tax asset 51,300 0
Issuance of Common Stock in Settlement 0 0
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(Increase) decrease in accounts receivable 1,576,644 (671,569)
(Increase) decrease in other assets 169,837 (91,191)
(Increase) decrease in notes receivable (200,000) 0
Increase (decrease) in accounts payable
and accrued expenses 1,163,514 152,771
Increase in prepaid expenses 40,428 0
Decrease (increase) in deferred revenues (4,974,759) (163,567)
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Net cash (used in) operating activities (3,031,918) 2,509,061
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Additions) to film costs, net 4,848,411 (4,573,448)
Capital (expenditures) on equipment (84,081) (55,294)
(Increase) in short term investments 0 2,698,568
(Decrease) in Right to Receive Revenue (196,105) 0
(Increase) decrease in receivables from related parties (9,224) 35,000
Increase in Acquisition Costs (120,660) 0
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Net cash (used in) investing activities 4,438,341 (1,895,174)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Obligations Under Capital Leases 56,842 0
Proceeds from preferred stock issues 651,250 0
Proceeds from borrowings 0 416,000
(Repayment) of borrowings (31,111) 0
Increase in dividends payable --- 0
(Payment) of cash dividends on Preferred Stock 212,500 (106,250)
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Net cash provided by financing activities 889,481 309,750
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Net increase (decrease) in cash 2,295,904 923,637
Cash and cash equivalents at beginning of period 2,268,506 1,344,870
---------- -----------
Cash and cash equivalents at end of period. $ (27,398) $2,268,507
---------- -----------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1998
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of The
Producers Entertainment Group Ltd. ("TPEG" or the "Company") have been
prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with the instructions to Form
10-QSB. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all material adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended September 30, 1998 are not necessarily indicative of the results that
may be expected for the year ended June 30, 1999. 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, 1998.
On October 20, 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 sole shareholders of
the Grosso Jacobson Companies pursuant to the merger was paid through the
issuance of 2,222,222 shares of the Company's Common Stock valued at an issue
price of $3.60 per share.
The mergers of the Company's wholly-owned subsidiaries into the
Grosso Jacobson Companies for Common Stock of the Company has been recorded,
for financial statement reporting purposes, as a pooling of interests, and
accordingly, the accompanying financial statements reflect the combined
results of the pooled businesses for the respective periods presented.
On July 15, 1998, the Company acquired 100% of the outstanding
capital stock of MWI Distribution, Inc., a California corporation ("MWI"),
which is engaged in the international co-production and licensing of
television and video programming, as well as merchandising. The acquisition
was accomplished by merger. The consideration paid by the Company to the sole
shareholders of MWI pursuant to the merger was paid through the issuance of
763,889 shares of the Company's Common Stock valued at an issue price of
$1.75 per share. In addition, the Company may have to pay additional
consideration, in the form of Common Stock, to the stockholders of MWI, which
payments are contingent upon the performance of MWI over a period of time.
The stockholders of MWI also shall receive up to an additional 109,428 shares
of Common Stock if the Common Stock Average Price, as defined in the Merger
Agreement, does not equal or exceed $3.80 per share between July 15, 1998 and
June 30, 1999.
Certain figures for the three months ended September 30, 1997 have been
restated to conform with current presentation.
(2) GOODWILL
Goodwill related to the acquisition of MWI is being amortized over a
period of five years.
(3) DIVIDEND ON SERIES A PREFERRED STOCK
For the three months ended September 30, 1998, the Company will
issue shares of its Common Stock at a market value equivalent to $106,250,
representing the $106,250 quarterly dividend required to be paid on the
Series A Preferred Stock for the quarter ended September 30, 1998.
(4) LOSS PER SHARE
Loss per share for the three month period ended September 30, 1998
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, 1998.
6
<PAGE>
(5) STOCK OPTIONS AND WARRANTS
The Company uses 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.
Accordingly, the Company makes no adjustments to its compensation expense or
equity accounts for the grant of options. The Company has made no grant of
options for the period ended September 30, 1998. At September 30, 1998 there
were options to acquire 287,028 shares outstanding at exercise prices ranging
from $3.36 per share to $39.00 per share of Common Stock.
In addition to the Redeemable Warrants to purchase an aggregate of
1,700,000 shares of Common Stock at $5.25 per share issued in connection with
the September 1996 public offering, the Company has other existing warrants
outstanding to purchase an aggregate of 142,518 shares of Common Stock at
prices ranging from $23.10 to $43.20 per share. There were a total of
approximately 1,842,518 warrants outstanding as of September 30, 1998.
(6) RELATED PARTY TRANSACTIONS
As of the period ended September 30, 1998, the Company issued a
promissory note to Mountaingate Productions, LLC, an affiliate of Irwin
Meyer, Chief Executive Officer and Co-Chairman of the Board of Directors of
the Company, for the sum of $79,760, which represents amounts owed to
Mountaingate Productions, LLC under its production agreement with the
Company. The promissory note bears interest at the rate of ten percent (10%)
per annum.
As of the period ended September 30, 1998, the Company issued a
promissory note to S.A.G. Productions, Inc., an affiliate of Salvatore
Grosso, Chief Operating Officer and Co-Chairman of the Board of Directors of
the Company, for the sum of $145,923, which represents amounts owed to S.A.G.
Productions, Inc. under its production agreement with the Company. The
Promissory note bears interest at the rate of ten percent (10%) per annum.
As of the period ended September 30, 1998, the Company issued a
promissory note to Lawrence Jacobson Associates, Inc., an affiliate of
Lawrence Jacobson, President and Co-Chairman of the Board of Directors of the
Company, for the sum of $145,923, which represents amounts owed to Lawrence
Jacobson Associates, Inc. under its production agreement with the Company.
The Promissory note bears interest at the rate of ten percent (10%) per
annum.
Item 2.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
FORWARD LOOKING STATEMENTS. This report contains statements that
constitute "forward-looking statements" within the meaning of Section 21E of
the Securities Exchange Act of 1934 and Section 27A of the Securities Act of
1933 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. The words "expect," "estimate," "anticipate,"
"predict, "believe" and similar expressions and variations thereof are
intended to identify forward-looking statements. These statements appear in a
number of places in this filing and include statements regarding the intent,
belief or current expectations of the Company with respect to, among other
things, the integration of the acquisition of MWI, trends affecting the
Company's financial condition and the Company's business and strategies. The
stockholders of TPEG are cautioned not to put undue reliance on such
forward-looking statements. Such forward-looking statements involve risks and
uncertainties, including the number of the Company's projects in development
that result in completed productions that yield revenues during specific
fiscal periods, the lapse in time between the expenditures made by the
Company and the receipt of cash and the timing of such production
expenditures and related revenues. Other risk factors include the intensity
of competition from other television and motion picture producers and
distributors, the status of the Company's liquidity in future fiscal periods,
the Company's ability to integrate the acquisition of MWI and 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
readers of this filing are cautioned that any such forward-looking statement
are not guarantees of future performance and involve risks and uncertainties,
and that actual results may differ materially from those projected in this
filing, including, without limitation, those risks and uncertainties
discussed under the headings "Factors That Could Impact Future Results" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1998 as well as the information set forth below. The Company
does not ordinarily make projections of its future operating results and
undertakes no obligation to publicly update or revise any forward looking
statements, whether as a result of new information, future events or
otherwise.
The Company's revenues in connection with its television activities
are primarily derived from the production and distribution of television
projects, and producer fees. In June 1998, the Company ceased providing
personal management services. The amount of revenues derived by the Company
from its television production activities in any one period is dependent
upon, among other factors, projects completed during any such period and the
distribution of completed 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 are
recognized as earned in accordance with the terms of the related agreements.
Revenues received by MWI are primarily derived from the licensing of
rights of family television programming, as well as the sale of home video
programming.
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>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Revenues for the three months ended September 30, 1998 were
$304,100, a 93% decrease from $4,388,592 for the three months ended September
30, 1997. Revenues for the three months ended September 30, 1998 consisted of
income from the continuing international distribution of completed projects.
Revenues of $4,388,592 for the three months ended September 30, 1997
consisted of revenues from the delivery of completed programming to the
Family Channel and $60,748 from personal management fees. The decrease in
revenues was due primarily to decreased production and the termination of the
Company's personal management business.
Amortization of film costs for the three months ended September 30,
1998 and September 30, 1997 was $0 and $2,775,101, respectively, and was
computed using the Individual Film Forecast Method. The difference in
amortization as a percentage of total revenues related to the amortization of
projects and 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.
Cost of sales for the three months ended September 30, 1998 and
September 30, 1997, was $1,347 and $71,418, respectively. Cost of sales as a
percentage of total revenues decreased from 16% for the three months ended
September 30, 1997 to .4% for the three months ended September 30, 1998.
General and administrative expenses for the three months ended
September 30, 1998 were $1,173,934 compared to $996,541 for the three months
ended September 30, 1997. The $177,393, or 15% increase in general and
administrative expenses was due to the completion of the Grosso Jacobson
merger, and therefore adjustments to staffing levels and the addition of the
New York office, the expansion of staff in the television departments,
salaries and related benefits for personnel of MWI, and the addition of
professional consultants.
During the three months ended September 30, 1998, the Company
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, 1998, TPEG recorded $0
interest income on temporary cash investments. During the three months ended
September 30, 1997, interest income of $40,963 consisted of $24,000 imputed
interest discount on related party notes, $7,864 of imputed interest related
to a trade note receivable and $9,099 earned on temporary cash investments.
TPEG reported a loss of $1,097,500 or $.15 per share in the three
months ended September 30, 1998 compared to a profit of $313,593 or $.02 per
share in the three months ended September 30, 1997. 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 to 7,228,027 as of the
three months ended September 30, 1998 from 6,257,939 as of the three months
ended September 30, 1997 due primarily to the issuance of new shares and the
payment of dividends with respect to the Series A Preferred Stock. The
calculation of weighted average common shares for both periods reflects the
effect of the one-for-three stock split completed during the fourth quarter
1998.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, TPEG had decreased liquidity from the
comparable period ended September 30, 1997 primarily as a result of a
decrease in revenue. Cash and cash equivalents as of September 30, 1998 were
($27,398) and trade accounts receivable increased to $2,770,441. As of
September 30, 1998, the Company had recorded accounts payable and accrued
expenses of $2,144,070. In the comparable period ending September 30, 1997,
the Company had $2,268,506 in cash and cash equivalents and $1,193,797 in
trade accounts receivable to cover $980,556 of current liabilities.
Management estimates that, as of September 30, 1998, the Company's
cash commitments for the next twelve months will aggregate approximately
$3,000,000. The figure includes (a) base compensation to its key officers,
key independent contractors and key consultants of approximately $2,087,000
and (b) office rent of approximately $372,000.
9
<PAGE>
The Company also incurs other general and administrative 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, 1998, total
cash general and administrative expenses, for all categories except legal
expenses, aggregated approximately $1,300,000. 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 costs of operation will require funding of
overhead costs in order to continue its operations and to establish other
activities related to its core business. The Company anticipates that funds
raised in the course of the year 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, to acquire the copyrights and distribution rights to third party
product and to finance accounts receivable. The actual utilization of excess
working capital is subject to change based on the then present circumstances
and management's evaluation of alternative projects. An inability to raise
additional capital could prevent the Company from achieving its objectives
and have a material adverse effect on the Company's business, results of
operations and financial condition.
The timing differences among the Company's financings 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.
In July 1998, the Company secured access to a $5,500,000 equity-based line of
credit with an institutional investor. The Company's ability to draw on this
equity-based line of credit is subject to certain trading requirements. To
date, the Company has received $750,000 from the investor in exchange for the
sale by the Company of Series D and Series E convertible preferred stock to
the investor. The Company is committed to use $2,000,000 of the equity-based
line of credit, which is available to the Company, subject to certain
restrictions, through August 2000. The holders of the Series D Preferred
Stock are entitled to annual dividends of 6% (aggregating $30,000 annually
assuming no conversion) and holders of the Company's Series E Preferred Stock
are entitled to annual dividends of 6% (aggregating $15,000 annually assuming
no conversion), all of which are payable quarterly in cash, or at the
Company's option, in shares of Common Stock.
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. 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.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits instead of four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software or facilities
or equipment containing embedded micro-controllers may recognize a date using
"00" as the year 1900 rather than the Year 2000. This could cause a system
failure or miscalculations resulting in potential disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
The Company has assessed its hardware and software systems, which
are comprised solely of an internal personal computer network and
commercially available software products. Based on this assessment, the
Company believes that its hardware and software systems are Year 2000
compliant. The Company has begun to assess the embedded system contained in
its leased equipment and expects to finish this assessment by the end of
March 1999. At this time, the Company is uncertain whether the embedded
systems contained in its leased equipment are ready for the Year 2000.
In addition, the Company is contacting its key vendors and customers
to determine if there are any significant Year 2000 exposures which would
have a material effect on the Company. The Company is not yet aware of any
Year 2000 issues relating to third parties with which the Company has a
material relationship. There can be no assurance, however, that the systems
of third parties on which the Company or its systems rely will not present
Year 2000 problems that could have a material adverse effect on the Company.
The Year 2000 issue presents a number of other risks and uncertainties that
could impact the Company, such as
10
<PAGE>
disruptions of service from third parties providing electricity, water or
telephone service. If such critical third party providers experience
difficulties resulting in disruption of service to the Company, a shutdown of
the Company's operations at individual facilities could occur for the
duration of the disruption.
The Year 2000 project cost has not been material to date and, based
on preliminary information, is not currently anticipated to have a material
adverse effect on the Company's financial condition, results of operations or
cash flow in future periods. However, if the Company, its customers or
vendors are unable to resolve any Year 2000 compliance problems in a timely
manner, there could result a material financial impact on the Company.
Accordingly, management plans to devote the resources it considers
appropriate to resolve all significant Year 2000 problems in a timely manner.
The project is estimated to be completed not later than mid-1999.
After completion of its Year 2000 assessment, the Company will develop
contingency plans to reduce its Year 2000 exposure and expects to have such
contingency plans in place by January 1999.
Readers are cautioned that forward-looking statements contained in
this Year 2000 disclosure should be read in conjunction with the Company's
disclosures under the heading, "Forward-looking Statements," beginning on
page 8 above. Readers should understand that the dates on which the Company
believes the Year 2000 project will be completed are based upon Management's
best estimates, which were derived utilizing numerous assumptions of future
events, including the availability of certain resources, third-party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, or that there will not be a delay in, or
increased costs associated with, the implementation of the Company's Year
2000 compliance project. A delay in specific factors that might cause
differences between estimates and actual results include, but are not limited
to, the availability and costs of personnel trained in these areas, the
ability of locating and correcting all relevant computer code, timely
responses to and corrections by third parties and suppliers, the ability
implement interfaces between the new systems and the systems not being
replaced, and similar uncertainties. Due to the general uncertainty inherent
in the Year 2000 problem, resulting in part from the uncertainty of the Year
2000 readiness of third parties and the interconnection of national and
international businesses, the Company cannot ensure that its ability to
timely and cost effectively resolve problems associated with the Year 2000
issue will not affect its operations and business, or expose it to third
party liability.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The Company has received a letter from NASDAQ stating that if the
trading value of the Company's Common Stock does not reach $1.00, and
maintain at least a closing bid price of $1.00 for at least ten consecutive
trading days, by January 11, 1999, the Company's shares of Common Stock may
be delisted from the NASDAQ Small Cap Market.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K AND FORM 8-K/A
(a) EXHIBITS
27.1 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K/A on September
29, 1998. Item 7 was reported.
The Company filed a Current Report on Form 8-K on July 31,
1998. Item 2 was reported.
12
<PAGE>
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 19, 1998 /S/ IRWIN MEYER
---------------------- ---------------------------
Irwin Meyer,
Chief Executive Officer
Dated: November 19, 1998 /S/ ARTHUR H. BERNSTEIN
---------------------- ---------------------------
Arthur H. Bernstein,
Executive Vice President,
Principal Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PRODUCER
ENTERTAINMENT GROUP LTD'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> (27,398)
<SECURITIES> 0
<RECEIVABLES> 2,770,441
<ALLOWANCES> 0
<INVENTORY> 1,363,171
<CURRENT-ASSETS> 0<F1>
<PP&E> 178,898
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,548,305
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
652,250
<COMMON> 831,457
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,548,305
<SALES> 304,100
<TOTAL-REVENUES> 304,100
<CGS> (1,347)
<TOTAL-COSTS> (1,476,687)
<OTHER-EXPENSES> (115,015)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (986,196)
<INCOME-TAX> (5,304)
<INCOME-CONTINUING> (991,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,097,758)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
<FN>
<F1>THE COMPANY HAS ELECTED TO PRESENT AN UNCLASSIFIED BALANCE SHEET
</FN>
</TABLE>
