<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d) of the
Securities Exchange Act of 1934.
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For Quarter Ended March 31, 1998 Commission file number 0-18410
THE PRODUCERS ENTERTAINMENT GROUP LTD.
--------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-4233050
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(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)
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Registrant's telephone number, including area code (213) 634-8634
________________________________________________________________________________
(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 -- 6,475,494 SHARES AS OF MARCH 31, 1998
<PAGE> 2
Part 1. Financial Information
Item 1. Financial Statements
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1998 JUNE 30, 1997
(UNAUDITED) (UNAUDITED)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 933,555 $ 1,344,870
Short term investments 207,007 2,698,568
Accounts receivable, net trade 2,373,039 522,228
Receivable from related parties 68,776 50,631
Prepaid expenses 4,229 24,895
Right to receive revenue 196,105 196,105
Film costs, net 1,845,474 4,417,709
Fixed assets, net 112,183 82,494
Covenant not to compete 184,000 391,000
Covenant not to compete 51,300 51,300
Other assets 18,508 63,786
------------ ------------
TOTAL ASSETS $ 5,994,176 $ 9,843,586
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 674,624 $ 792,772
Dividends payable 106,250 212,500
Deferred Income 160,000 5,269,869
Loans payable 496,000 --
Due to related parties 262,528 --
Other (8,255) --
------------ ------------
TOTAL LIABILITIES $ 1,691,147 $ 6,275,141
Shareholders' 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 6,475,494 and 6,351,476 shares 6,475 6,351
Additional paid-in capital 22,472,048 22,538,422
Accumulated deficit and dividends (17,166,302) (17,967,136)
5,313,221 4,578,637
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Treasury stock, 93,536 shares at cost (1,010,192) (1,010,192)
------------ ------------
Net shareholders' equity $ 4,303,029 $ 3,568,445
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,994,176 $ 9,843,586
============ ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE> 3
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
---------------------------
1998 1997
<S> <C> <C>
Revenues $ 18,276,403 $ 5,170,833
Costs related to revenues:
Amortization of film costs 12,422,090 --
Costs of projects sold 604,218 3,551,450
------------ ------------
Net Revenues 5,250,095 1,619,383
General and administrative expenses 3,997,429 3,347,898
------------ ------------
Operating income (loss) 1,252,666 (1,728,515)
Other income (expenses):
Acquisition expense (299,380) 0
Interest income 58,522 236,603
Interest and financing expense (3,974) (163,375)
Settlements expense (207,000) (236,916)
------------ ------------
Net other income (expense) (451,832) (163,688)
------------ ------------
Net income (loss) 800,834 (1,892,203)
Provision for income taxes 0 (90,705)
------------ ------------
Net income (loss) 800,834 (1,982,908)
Dividend requirement on Series A
Preferred Stock at $.31875 per share (318,750) (318,750)
------------ ------------
Net income (loss) applicable to common
shareholders $ 482,084 $ (2,301,658)
============ ============
Net income (loss) per share (basic and diluted) $ .08 $ (.40)
Average common shares
outstanding (basic and diluted) 6,290,871 5,727,458
------------ ------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
<S> <C> <C>
Revenues $ 6,196,754 $ 3,471,227
Costs related to revenues:
Amortization of film costs 3,980,910
Costs of projects sold 532,800 3,317,609
----------- -----------
Net Revenues 1,683,044 153,618
General and administrative expenses 1,370,219 1,048,351
----------- -----------
Operating income (loss) 312,825 (894,733)
Other income (expenses):
Acquisition expense (12,700) 0
Interest income 11,092 76,527
Interest and financing expense (3,974) 0
Settlements expense (69,000) (70,875)
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Net other income (expense) (74,582) 5,652
Net income (loss) 238,243 (889,081)
Provision for income taxes 0 (4,933)
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Net income (loss) 238,243 (894,014)
Dividend requirement on Series A Preferred Stock (106,250) (106,250)
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at $.31875 per share
Net income (loss) applicable to common
shareholders $ 131,993 $(1,000,264)
=========== ===========
Net income (loss) per share (basic and diluted) $ .02 $ (.16)
Average common shares
outstanding (basic and diluted) 6,335,976 6,432,939
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</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON STOCK PAID-IN ACCUMULATED
STOCK SHARES AMOUNT CAPITAL DEFICIT NET
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
June 30, 1997 $ 1,000 6,351,476 $ 6,351 $ 22,538,422 $(17,967,136) $ 4,578,637
Issuance of common
shares in payment
of dividends on
Series A
Preferred Stock 96,240 96 (96) 0
Issuance of common
shares in payment
of consulting fees 27,778 28 39,972 40,000
Adjustment to sale
of Common Stock to
related parties
Net income 800,834 800,834
Dividends on Series
A Preferred Stock (106,250) (106,250)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance,
March 31, 1998 $ 1,000 6,475,494 $ 6,475 $ 22,472,048 $(17,166,302) $ 5,313,221
Less:
Treasury Stock (93,536) (1,010,192)
NET SHAREHOLDERS' EQUITY 6,381,958 $ 4,303,029
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
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THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
---------------------------
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 800,834 $ (2,301,658)
ADJUSTMENTS TO RECONCILE NET (LOSS) TO
NET CASH (USED IN) OPERATING ACTIVITIES:
Depreciation of fixed assets 43,871 22,653
Amortization of film costs 12,422,090 22,574
Amortization of non-competition agreement 207,000 --
Write off of projects in development -- 30,779
Amortization of right to receive revenue -- 63,424
(Accrued) interest income on note receivable -- (24,381)
(Accrued) interest income on investments -- (68,200)
Amortization of imputed interest (discount) -- (83,410)
Issuance of shares of Common Stock to Cypress -- 36,563
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(Increase) decrease in accounts receivable (1,850,811) (94,207)
(Increase) decrease in other assets 65,944 8,232
Increase (decrease) in accounts payable
and accrued expenses (216,143) (363,309)
Increase in accrued pension/profit sharing 262,528 --
Increase (decrease) in deferred revenues (5,109,869) 50,000
------------ ------------
Net cash (used in) operating activities 6,625,444 (2,700,940)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Additions) to film costs, net (9,826,365)
(476,020)
Capital (expenditures) on equipment (73,560) (58,497)
(Increase) in short term investments 2,491,561 (2,869,020)
(Increase) in investment for distribution subsidiary -- (140,493)
(Increase) decrease in receivables from related parties (18,145) 17,039
(Increase) in related party covenant not to compete -- (460,000)
Increase in accrued legal settlement payable -- --
------------ ------------
Net cash (used in) investing activities (7,426,509) (48,998)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of 766,667 Units in public offering, net -- 7,585,841
Decrease in deferred financing costs -- 137,503
Proceeds from borrowings 496,000 275,000
(Repayment) of borrowings -- (875,000)
Increase in dividends payable -- 106,250
(Payment) of cash dividends on Preferred Stock (106,250) (318,750)
------------ ------------
Net cash provided by financing activities 315,000 6,910,844
------------ ------------
Net increase (decrease) in cash (411,315)
247,463
Cash and cash equivalents at beginning of period 1,344,870 336,415
------------ ------------
Cash and cash equivalents at end of period $ 933,555 $ 583,878
============ ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1998
(1) Basis of Presentation
During the nine months ended March 31, 1998, the Company's Board of
Directors announced a one-for-three reverse split of the outstanding shares of
Common Stock. The reverse split was approved at the Annual Stockholders Meeting
on April 28, 1998. This reverse stock split has been retroactively reflected for
all periods reported in the accompanying condensed consolidated financial
statements and notes.
As disclosed in the Form 8-K filed November 3, 1997 and Form 8-KA filed
December 29, 1997, 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. The financial data below
reflects the historical results of The Producers Entertainment Group ("TPEG")
and the historical results of the Grosso Jacobson Companies ("GJ") on a pro
forma basis.
<TABLE>
<CAPTION>
(In thousands)
For the Nine Months For the Nine Months
Ended March 31, 1998 Ended March 31, 1997
TPEG GJ Combined TPEG GJ Combined
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 14,185 $ 4,091 $ 18,276 $ 812 $ 4,359 $ 5,171
Operating income (loss) 189 1,064 1,253 (2,193) 465 (1,728)
Net income (loss) (582) 1,064 482 (2,353) 370 (1,983)
</TABLE>
The financial information 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.
The Company's Form 10-KSB for fiscal year ended June 30, 1997 does not include
the effect of the merger with the Grosso-Jacobson Companies on October 20, 1997.
`
(2) Dividend on Series A Preferred Stock
During the nine months ended March 31, 1998, the Company paid $106,250
in cash for the dividend required to be paid on the Series A Preferred Stock for
the quarter ended June 30, 1997. The Company issued 96,240 shares of its Common
Stock at a market value of $2.21 per share, or the equivalent of $212,500,
representing the $106,250 quarterly dividend required to be paid on the Series A
Preferred Stock for the each of the quarters ended September 30, 1997 and
December 31, 1997. The Board of Directors has not stated its intentions
regarding the method of payment to be used for the dividend due for the quarter
ended March 31, 1998.
(3) Income Per Share
Income per share for the three and nine month periods 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 March 31, 1998.
7
<PAGE> 8
(4) 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 March 31, 1998. At March 31, 1998 there were options to acquire 1,100,750
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 March 31, 1998.
(5) Letter of Intent to Acquire MediaWorks International
During the three months ended March 31, 1998, the Company signed a
letter of intent to acquire 100% of the stock of MediaWorks International, a
California-based international distribution/licensing company, specializing in
children's and family programming, located in Manhattan Beach, California. The
Company will pay up to $6.5 million to purchase all of the outstanding shares of
MediaWorks International. The contemplated acquisition by the Company of
MediaWorks International is subject to completion of due diligence by the
parties, execution by the parties of definitive legal documents and approval by
the Company's Board of Directors.
8
<PAGE> 9
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 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 Media Works 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 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.
On October 20, 1997, the Company completed the merger with the
Grosso-Jacobson Companies for 2,222,222 shares of the Company's Common Stock.
The acquisition was accounted for as a pooling of interests and therefore the
accompanying financial information for all periods presented has been restated
to reflect the effects of the combination.
9
<PAGE> 10
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1998, COMPARED TO NINE MONTHS ENDED MARCH 31, 1997
Revenues for the nine months ended March 31, 1998 were $18,276,403, a
254% increase from $5,170,833 for the nine months ended March 31, 1997. Revenues
for the nine months ended March 31, 1998 consisted of $3,930,000 from the
delivery to the Showtime Network of the television movie "Sorrow Floats",
$3,450,000 from the delivery to the Fox Network of the television movie
"Marabunta", $3,322,996 from the delivery to the Family Channel of the
television movie "Moonlight Becomes You", $3,470,255 from the delivery to the
Family Channel of the television movie "Let Me Call You Sweetheart, $832,403
from the continuing international distribution of completed projects, $1,130,873
from joint venture revenue participation, $896,589 from producer fees on current
projects, $126,208 from reimbursements and $1,117,079 from personal management
fees. Revenues of $5,170,833 for the nine months ended March 31, 1997 consisted
of $3,189,380 from the delivery to the Family Channel of the television movie
"While My Pretty One Sleeps", $650,356 from producer fees on current projects,
$617,478 from the continuing distribution of completed projects and $713,619
from personal management fees. The increase in revenues was due primarily to an
increase in the number of television movies released to four in the nine months
ended March 31, 1998 from one in the nine months ended March 31, 1997, to the
effect of the creation of a joint venture with MediaWorks International
resulting in new revenues of $1,130,873 and to a $403,460 increase in personal
management fees due to an expanded talent pool in the management subsidiary.
Amortization of film costs for the nine months ended March 31, 1998 and
March 31, 1997 was $13,026,308 and $3,551,450, 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 71% and
69%, 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.
General and administrative expenses for the nine months ended March 31,
1998 were $3,997,429 compared to $3,347,898 for the nine months ended March 31,
1997. The $649,531, or 19% increase in general and administrative expenses was
primarily attributable to increases in executive and administrative salaries and
other location overhead related to the Grosso Jacobson Companies, the addition
of professional consultants and the expansion of personnel in the finance and
business affairs departments.
During the nine months ended March 31, 1998, non-recurring acquisition
expenses of ($299,380) related to the acquisition of the Grosso Jacobson
Companies referred to in Note (1) of Notes to Condensed Consolidated Financial
Statements. This amount includes a success fee paid to a private consultant,
$150,000 in cash, and 27,778 shares of the Company's Common Stock valued at
$1.44 per share.
During the nine months ended March 31, 1998, the Company recorded
($207,000) 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
nine months ended March 31, 1997, the Company recorded ($184,000) of
amortization related to this settlement.
During the nine months ended March 31, 1998, the Company recorded
$58,522 of interest income on temporary cash investments. During the nine months
ended March 31, 1997, interest income of $236,603 consisted of $83,410 imputed
interest discount on related party notes and $153,193 earned on temporary cash
investments.
During the nine months ended March 31, 1998, the Company recorded
($3,974) of interest and financing expense . Interest and financing expense of
$163,375 for the nine months ended March 31, 1997 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 income of $482,084 or $.08 per share for the nine months
ended March 31, 1998 compared to a loss of ($2,301,658) or ($.40 per share) for
the nine months ended March 31, 1997. The income (loss) for both compared
periods includes required dividend payments of $318,750 to holders of the
Company's outstanding Series A Preferred Stock. The number of weighted average
common shares outstanding increased to 6,290,871 for the nine months ended March
31, 1998 from 5,727,458 for the nine months ended March 31, 1997 due to the
ongoing effect of the public offering which commenced September 12, 1996, the
issuance of 27,778 shares of the Company's Common Stock as part of a
consultant's success fee, and the issuance of 96,240 shares of the Company's
Common Stock in payment of Series A Preferred Stock dividends for the quarters
ended September 30, 1997 and
10
<PAGE> 11
December 31, 1997 Note (2) of the Notes to Condensed Consolidated Financial
Statements. The calculation of the number of weighted average common shares
reflects the retroactive effect of the one-for-three reverse stock split
announced during the third quarter 1998.
THREE MONTHS ENDED MARCH 31, 1998, COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
TPEG revenues for the three months ended March 31, 1998 totalled
$6,196,142, a 79% increase from $3,471,227 for the three months ended March
31,1997. Revenues for the three months ended March 31, 1998 consisted of
$3,930,000 from the delivery to the Showtime Network of the television movie
"Sorrow Floats", $1,130,873 from joint venture participation, $560,449 from the
continuing international distribution of completed projects, $200,000 from
producer fees on current projects, $22,209 from reimbursements and $353,223 from
personal management fees. Revenues of $3,471,227 for the three months ended
March 31, 1997 consisted of $3,189,380 from the delivery to the Family Channel
Network of the television movie "While My Pretty One Sleeps", $91,112 from the
continuing distribution of completed projects, $129,987 from producer fees on
current projects and $60,748 from personal management fees. The increase in
revenues was due primarily to an increase in the number of television movies
released from one in the three months ended March 31, 1997 to two in the three
months ended March 31, 1998, to the effect of the creation of a joint venture
with MediaWorks resulting in new revenues of $1,130,873 and to a $292,475
increase in personal management fees due to an expanded talent pool in the
management subsidiary.
Amortization of film costs for the three months ended March 31, 1998 and
March 31, 1997 was $4,513,710 and $3,317,609, 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 72% and
96%, 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.
General and administrative expenses for the three months ended March 31,
1998 were $1,370,219 compared to $1,048,351 for the three months ended March 31,
1997. The $321,868, or 31% increase in general and administrative expenses was
primarily attributable to increases in executive and administrative salaries and
other location overhead related to the Grosso Jacobson Companies, the addition
of professional consultants and the expansion of personnel in the finance and
business affairs departments.
During the three months ended March 31, 1998, non-recurring acquisition
expenses of ($12,700) related to the acquisition of the Grosso Jacobson
Companies referred to in Note (1) of Notes to Condensed Consolidated Financial
Statements.
During the three months ended March 31, 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 March 31, 1997, the Company recorded ($69,000) of
amortization related to this settlement.
During the three months ended March 31, 1998, TPEG recorded $11,092 of
interest income on temporary cash investments. During the three months ended
March 31, 1997, interest income of $76,527 consisted of $32,410 imputed interest
discount on related party notes, $7,694 of imputed interest related to a trade
note receivable and $36,393 earned on temporary cash investments.
TPEG reported income of $131,993 or $.02 per share in the three months
ended March 31, 1998 compared to a loss of ($1,000,264) or ($.16 per share) in
the three months ended March 31, 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 decreased to 6,335,976 for the three months ended
March 31, 1998 from 6,432,939 for the three months ended March 31, 1997 due
primarily to the effect of the return of 500,000 shares of Common Stock at June
30, 1997 on termination by the Company of a related party promissory note. The
calculation of weighted average common shares for both periods reflects the
effect of the one-for-three stock split announced during the third quarter 1998.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES - THE PRODUCERS ENTERTAINMENT GROUP LTD.
("TPEG")
As of March 31, 1998, TPEG had decreased liquidity from the comparable
period ended March 31, 1997 primarily as a result of the costs incurred in
continuing operations. Cash and cash equivalents as of March 31, 1998 were
$1,140,562 and trade accounts receivable increased to $2,373,039. As of March
31, 1998, the Company had recorded accounts payable and accrued expenses of
$674,624. In the comparable period ending March 31, 1997, the Company had
$4,043,438 in cash and cash equivalents and $522,228 in trade accounts
receivable to cover $792,772 of current liabilities. As of May 13, 1998, the
Company's cash, cash equivalents and marketable securities were approximately
$396,658.
Management estimates that, as of March 31, 1998, the Company's cash
commitments for the next twelve months will aggregate approximately $2,290,000.
The figure includes (a) base compensation to its key officers, key independent
contractors and key consultants of approximately $1,918,000 and (b) office rent
of approximately $372,000.
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 nine months ended March 31, 1998, total cash general
and administrative expenses, for all categories except legal expenses,
aggregated approximately $3,871,876. 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.
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 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. 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 based on its developing financing sources that its future
levels 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.
12
<PAGE> 13
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
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K AND FORM 8-KA
(a) Exhibits
10.1 - Joint Venture Agreement dated January 8, 1998, between The
Producers Entertainment Group Ltd. and MediaWorks
International.
27.1 - Financial Data Schedule
13
<PAGE> 14
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: May 15, 1998 /S/ IRWIN MEYER
------------------ ---------------------------------------
Irwin Meyer,
President and Chief Executive Officer
Dated: May 15, 1998 /S/ ARTHUR BERNSTEIN
------------------ ---------------------------------------
Arthur Bernstein,
Executive Vice President, Principal
Financial Officer
14
<PAGE> 1
EXHIBIT 10.1
As of January 9, 1998
Messrs. Tom Daniels and Craig Sussman
MediaWorks International
1219 Morningside Drive
Los Angeles, CA 90266
Dear Tom and Craig,
Further to our discussions regarding finalizing the terms of the joint
venture between The Producers Entertainment Group Ltd. ("TPEG") and MediaWorks
International ("MWI"), this letter will set out the agreed upon terms and
conditions. Please sign below indicating your concurrence with this structure:
1) The joint venture has been established effective November 16,
1997 to assist MWI with its growth and financing requirements;
2) MWI will be primarily responsible for securing the programming.
TPEG will endeavor to bring some programming to the joint
venture. Projects to be included will be identified by the
parties and agreed upon regularly. See attached initial program
list:
3) MWI will handle all international distribution. TPEG will handle
any domestic distribution for projects which have a domestic
rights option associated with them;
4) TPEG provides standby financing for TPEG approved co-production
projects and acquisitions to a cumulative maximum of US$1 million
in the first year. TPEG also arranges, or assist in arranging,
co-production financing when required for such programming;
5) Any monies advanced by MWI or TPEG will be recoupable, in first
position, out of first revenues. In the case of co-productions,
it will be an item of the budget;
6) TPEG will be responsible for arranging bank lines of credit, as
required, to finance approved contracts generated by the joint
venture;
7) On all approved projects, TPEG receives the first 15% of the net
revenues from the joint venture. In consideration of its standby
commitment. TPEG then receives an additional 50% of the net
revenues. MWI receives the balance of the net revenues, with net
revenue being defined as MWI's commission on the project less
direct third party costs associated therewith;
<PAGE> 2
8) MWI agrees to maintain the records for the joint venture and
provide financial statements to TPEG on a quarterly basis, with
the first financial statement to be for the initial ended March
31, 1998. TPEG shall have access to all records related to the
joint venture for review by its accounting personnel on five
business days notice;
9) MWI will be responsible for all invoicing and collection
associated with the joint venture;
10) The parties agree that any projects within the joint venture may
be pledged for financing purposes upon the reasonable agreement
of both parties;
11) The parties agree that the first payment related to this joint
venture shall be made within 60 days after June 30, 1998;
12) This joint venture agreement may be terminated by either party on
three months notice;
13) In the event that the discussion between TPEG and MWI should
result in an acquisition agreement on the part of TPEG, the joint
venture would be terminated on the date of closing of the
purchase;
14) The parties agree that they both have the corporate power to
enter into this joint venture agreement.
Yours truly,
THE PRODUCERS ENTERTAINMENT GROUP LTD.
/s/Irwin Meyer
Irwin Meyer
CEO
I/we understand with the terms and conditions set out above.
Dated this 18th day of February, 1998.
/s/ Craig Sussman
/s/ Tom Daniels
- -----------------------------------
MWI Distribution, Inc.
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FORM 10-QSB FOR QUARTER ENDED MARCH 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 933,555
<SECURITIES> 207,007
<RECEIVABLES> 2,637,920
<ALLOWANCES> 0
<INVENTORY> 1,845,474
<CURRENT-ASSETS> 0
<PP&E> 386,246
<DEPRECIATION> 274,063
<TOTAL-ASSETS> 5,994,176
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
1,000
<COMMON> 6,475
<OTHER-SE> 4,295,554
<TOTAL-LIABILITY-AND-EQUITY> 5,994,176
<SALES> 0
<TOTAL-REVENUES> 6,207,846
<CGS> 4,513,710
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 131,993
<INCOME-TAX> 0
<INCOME-CONTINUING> 131,993
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 131,993
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
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