-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L8GJArpOENOL+WNXWBlvhYJvWjtUH7ewTInCMk1AfSvGEb93xfGzB4/dzq2zjXUR GNyifGnpHKUUwm+xZN2Pjg== 0000950148-99-001358.txt : 19990615 0000950148-99-001358.hdr.sgml : 19990615 ACCESSION NUMBER: 0000950148-99-001358 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990608 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEAM COMMUNICATION GROUP INC CENTRAL INDEX KEY: 0001035700 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE DISTRIBUTION [7822] IRS NUMBER: 954519215 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: SEC FILE NUMBER: 333-26307 FILM NUMBER: 99641787 BUSINESS ADDRESS: STREET 1: 12300 WILSHIRE BLVD STREET 2: SE 400 CITY: LOS ANGELES STATE: CA ZIP: 90025 BUSINESS PHONE: 3104423500 MAIL ADDRESS: STREET 1: 12300 WILSHIRE BLVD STREET 2: #400 CITY: LOS ANGELES STATE: CA ZIP: 90025 10QSB/A 1 FORM 10SB/A (03/31/1999) 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ COMMISSION FILE NUMBER: 1-6739 TEAM COMMUNICATIONS GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-4519215 ------------------------------- ------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 12300 WILSHIRE BOULEVARD, SUITE 400 LOS ANGELES, CALIFORNIA 90025 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 442-3500 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 [ ] On May 24, 1999, the registrant had outstanding 3,657,833 shares of Common Stock, no par value. 2 TEAM COMMUNICATIONS GROUP, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED) ASSETS
March 31 1999 ----------- Cash and cash equivalents $ 1,137,800 Trade receivables, less allowance for doubtful accounts of $337,000 4,295,000 Television programming costs, less accumulated amortization of $10,587,000 13,800,700 Due from officer 170,400 Fixed assets, net 19,900 Other assets 555,400 ----------- Total Assets 19,979,200 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable, accrued expenses and other liabilities $ 1,897,500 Deferred revenue 85,600 Accrued participations 4,070,600 Bank line of credit 850,000 Notes payable 3,227,500 Accrued interest 619,900 Shareholder loan and note payable 450,000 ----------- Total Liabilities 11,201,100 ----------- Commitments and contingencies Shareholders' equity: Preferred stock, no par value; 2,000,000 shares authorized; no shares issued and outstanding -- Common stock, no par value; 18,000,000 shares authorized; 3,316,135 issued and outstanding 1,000 Paid in capital 8,607,600 Treasury Stock -- Retained earnings 169,500 ----------- Total shareholders' equity 8,778,100 ----------- Total liabilities and shareholders' equity $19,979,200 ===========
The accompanying notes are an integral part of these consolidated financial statements. 2 3 TEAM COMMUNICATIONS GROUP, INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE 3 MONTHS FOR THE 3 MONTHS ENDED ENDED MARCH 31, 1999 MARCH 31, 1998 ------------------------------------ Revenues $3,502,000 $1,573,400 Cost of Revenues 2,561,200 379,000 General and administrative expense 385,600 541,500 ------------------------------------ Earnings from operations 555,300 652,900 Interest expense 151,300 263,000 Interest income 31,900 48,000 ------------------------------------ Earnings before income taxes 435,900 437,900 Provision for income taxes 87,000 -- ------------------------------------ Net earnings $ 348,900 $ 437,900 ==================================== Basic earnings per common share $ 0.11 $ 0.39 ==================================== Weighted average number of shares outstanding basic 3,149,468 1,131,344 ==================================== Diluted earnings (loss) per share $ 0.09 $ 0.24 ==================================== Weighted average number of shares outstanding diluted 3,835,335 1,821,800 ====================================
The accompanying notes are an integral part of these consolidated financial statements. 3 4 TEAM COMMUNICATIONS GROUP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE 3 MONTH FOR THE 3 MONTH ENDED ENDED MARCH 31, 1999 MARCH 31, 1998 ------------------------------------- OPERATING ACTIVITIES: Net income $ 348,900 $ 437,900 Adjustments to reconcile net income to cash used for operating activities: Depreciation and amortization (3,500) 3,600 Amortization of television programming costs 1,497,700 409,300 Allowance for doubtful accounts -- -- Additions to television programming costs (4,279,700) (994,600) Amortization of notes payable discount 23,600 93,000 Changes in assets and liabilities: Decrease (increase) in trade receivables 441,700 (949,900) Increase in organizational costs and other assets (472,700) (150,300) Increase (decrease) in accounts payable, accrued expenses and other liabilities 218,000 383,900 Increase (decrease) in deferred revenue (387,300) 49,000 Increase in accrued participations 1,044,800 (16,500) Increase (decrease) in accrued interest 89,000 70,400 ------------------------------------- Net cash used for operating activities (1,479,500) (664,200) ------------------------------------- INVESTING ACTIVITIES: Purchase of fixed assets -- -- Decrease (increase) in due from officer (25,000) (18,900) ------------------------------------- Net cash provided (used) for investing activities (25,000) (18,900) ------------------------------------- FINANCING ACTIVITIES: Proceeds from issuance of note payable and warrants 1,290,300 658,100 Payments on bank line of credit (264,000) -- Principal payment on loan due to shareholder (50,000) -- Issuance of common stock 603,700 -- Sale treasury stocks 34,600 -- Principal payment of notes payable -- (60,000) ------------------------------------- Net cash provided by financing activities 1,614,600 598,100 ------------------------------------- Net change in cash 110,100 (85,000) Cash at beginning of period 1,027,700 174,400 ------------------------------------- Cash at end of period $ 1,137,800 $ 89,400 =====================================
The accompanying notes are an integral part of these consolidated financial statements. 4 5 TEAM COMMUNICATIONS GROUP, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
Common Stock Retained ---------------------------- Earnings Number Paid in Treasury Accumulated of Shares Par Value Capital Stock (Deficit) ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1998 2,816,135 $ 1,000 $7,612,700 $ (34,600) $ (179,400) Net Income for the three months ended March 31, 1999 -- -- -- -- 348,900 Sale of Treasury Stock 17,000 -- -- 34,600 -- Issuance of shares in connection with extinguishment of debt 150,000 107,700 Issuance of stock for services 333,000 -- 603,700 -- -- Issuance of warrants -- -- 148,500 -- -- Issuance of debt with beneficial conversion feature 135,000 ---------- ---------- ---------- ---------- ---------- Balance at March 31, 1999 3,316,135 $ 1,000 $8,607,600 $ -- $ 169,500 ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements 5 6 TEAM COMMUNICATIONS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- BASIS OF PREPARATION-SIGNIFICANT ACCOUNTING POLICIES: The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements. Accordingly, they do not include all of the information and disclosures required for annual financial statements. These financial statements should be read in conjunction with the financial statements and related footnotes for the year ended December 31, 1998, included in the TEAM Communications Group, Inc. ("Company") financial report in the Company's 10-KSB. In the opinion of the Company's management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position as of March 31, 1999, and the results of operations and cash flows for the three month period ended March 31, 1999 have been included. The results of operations for the three period ended March 31, 1999, are not necessarily indicative of the results to be expected for the full fiscal year. For further information, refer to the financial statements and footnotes thereto included in the Company's 10-KSB filed for the year ended December 31, 1998. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company recognizes revenues from licensing agreements covering entertainment product when the product is available to the licensee for telecast, exhibition or distribution, and other conditions of the licensing agreements have been met in accordance with Statement of Financial Accounting Standards ("SFAS") No. 53, "Financial Reporting by Producers and Distributors of Motion Picture Films." The Company, as required by SFAS No. 53, values its film cost at the lower of unamortized cost or net realizable value on an individual title basis. Film costs represent those costs incurred in the development, production and distribution of television projects. These costs have been capitalized in accordance with SFAS No. 53. Amortization of film cost is charged 6 7 to expense and third party participations are accrued using the individual film forecast method whereby expense is recognized in the proportion that current period revenues bear to an estimate of ultimate revenues. These estimates of revenues are prepared and reviewed periodically by management. During the three months ended March 31, 1999, as the Company increased its activities related to film cost production, overhead was capitalized in accordance with SFAS No. 53 based upon estimates of production related activities as a percentage of anticipated film cost expenditures during 1999. Management reviews the overhead rate throughout the year and will adjust the overhead rate on a quarterly basis, if necessary. During the first quarter, overhead in the amount of approximately $670,000 was capitalized to film production costs. NOTE 2 -- TELEVISION PROGRAM COSTS: Television program costs as of March 31, 1999, consist of the following: In process and development $ 668,900 Released, less accumulated amortization 13,131,800 ----------- Total television program costs $13,800,700 ===========
NOTE 3 -- LITIGATION AND CONTINGENCIES: In the ordinary course of business, the Company has or may become involved in disputes or litigation. On the basis of information available to it, management believes such contingencies will not have a materially adverse impact on the Company's financial position or results of operations. 7 8 NOTE 4 -- LINE OF CREDIT --BANK: The Company maintains a revolving line of credit with Mercantile National Bank. The credit line is up to $850,000. As of March 31, 1999, the outstanding balance of the line of credit was $850,000. The line of credit is secured by an $860,000 certificate of deposit (included in cash and cash equivalents) which is restricted as to withdrawal. NOTE 5 -- NOTE PAYABLE: Notes payable consists of the following at March 31, 1999, carrying value approximates fair value: Debentures: 8% secured convertible debentures, net of discounts due 2002 $1,093,900 Private placements: 12% secured notes due August 1999 225,000 10% secured convertible notes due August 1999 283,700 10% secured convertible notes due August 1999 80,000 Promissory notes: 10% secured promissory note due August 1999 250,000 12% secured promissory note due April 1999, past due 150,000 12% secured promissory note due March 1999, past due 150,000 11% unsecured promissory note past due 124,900 12% secured promissory note due April 1999, past due 350,000 18% secured note past due 115,000 12% secured promissory notes due January 2000 175,000 16% secured note due August 1999 30,000 10% secured note due March 1999, past due 200,000 ---------- $3,227,500 ==========
8 9 On January 30, 1999, the Company sold $850,000 principal amount of 8% convertible debentures and 85,000 warrants. On March 16, 1999, the Company sold $500,000 principal amount of 8% convertible debentures and 50,000 warrants. These convertible debentures have the same terms for conversion. The conversion price for each debenture will be the lesser of a) 90% of the average per share market value for five consecutive days prior to the Initial Closing date or b) 85% of the per share market value for the trading day having the lowest per share market value during the five trading days prior to the conversion date. If not otherwise converted, the debentures mature on January 27, 2002, and March 15, 2002, respectively. On March 31, 1999, the Company sold an additional $500,000 principal amount of 8% convertible debentures and 50,000 warrants. These debentures have the same terms as described above and mature, unless converted prior, on March 30, 2002. The Company finalized the sale of these debentures and received the proceeds on April 7, 1999. NOTE 6 -- GOING CONCERN: The Company's financial statements for the three months ended March 31, 1999, have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company expects to incur substantial expenditures to produce television programs and/or acquire distribution rights to television programs produced by third parties. The Company's working capital plus limited revenue from the licensing of its current inventory of television programs will not be sufficient to fund the Company's ongoing operations, including maintaining the Company's current overhead and maintaining the Company's current development and marketing activities for the next 12 months. Further, even with the Company successfully raising additional financing, there is no assurance the Company will achieve profitability or positive cash flow. 9 10 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Conditions and Results of Operations contains certain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Such statements relating to future events and financial performance are forward-looking statements involving risks and uncertainties that are detailed from time to time in our various Securities and Exchange Commission filings. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of uncontrollable factors. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this 10-QSB. RESULTS OF OPERATIONS For the three months ended March 31, 1999, the Company reported a net income of approximately $348,900 on total revenues of approximately $3,502,000 compared to net income of approximately $437,900 on total revenues of approximately $1,573,400 for the same period ended March 31, 1998. Net income decreased by approximately $270,200 for the three months ended March 31, 1999, versus the three months ended March 31, 1998, primarily due to lesser margins on programming sold in 1999 compared with 1998. Revenue for the period ended March 31, 1999 included approximately $3,100,000 on the completion of seven episodes of "Total Recall 2070: The Series" and approximately $400,000 on the recognition of the sale of video rights for "Amazing Tails". Revenue for the period ended March 31, 1998, included $825,000 from a sale of Latin American rights to an acquired library of eleven movies of the week and approximately $750,000 from the recognition of revenue on sales of the second season of the Company's production "Amazing Tails". Cost relating to revenues was $2,561,200 for the three months ended March 31, 1999 as compared to $379,000 for the three months ended March 31, 1999. The costs relate to amortization of production costs of television programming for which revenue was recognized during the period. Gross profit margin on sales of television programming for the three months end March 31, 1999 was 27 percent compared to 76 percent for the period ended March 31, 1998. The lower gross profit margin for the three months ended March 31, 1999 was due to the Company selling more expensive, higher profile television drama programming produced and owned by the Company and its partners as opposed to distributing reality based programming and programming previously produced and acquired by the Company in the three months ended March 31, 1998. General and administrative expense decreased to $385,600 for the three months ended March 31, 1999 from $541,500 for the same period in 1998. The decrease is due to the Company's increased activities related to film cost production and the related approximately $670,000 overhead was capitalized to film product costs in accordance with SFAS No. 53. The amount of capitalized overhead was partially offset by increases in salaries primarily due to hiring employees for development and production of television programming. 10 11 Interest expense was $151,300 for the three months ended March 31, 1999, as compared to $263,000 for the three months ended March 31, 1998. The decrease is due to the retirement of debt. Receivables at March 31, 1999 were $4,295,000. All the receivables as of March 31, 1999, are receivables from entities domiciled outside the United States. These receivables represent approximately 21% of the total assets of the Company. In May 1999, in order to accelerate collections on a receivable arising from a sale of Latin American film rights to library product, the Company conveyed these rights to a new distributor. Payments in the aggregate amount of $250,000 were received in May 1999, with an additional four equal quarterly installments of $502,250 payable June 15, 1999, September 15, 1999, December 15, 1999 and March 15, 2000. In as much as the original receivable amount was, in management's opinion, collectible there was no impact on operating results for the quarter ended March 31, 1999. Management will continue to monitor the collection experience of the new contract and if the installment payments due in June are not received, will then provide reserves for the remaining contract balance. LIQUIDITY AND CAPITAL RESOURCES The entertainment industry is highly capital intensive. As of March 31, 1999, we had a liquidity deficit of ($5,597,000). Liquidity deficit is defined as cash and cash equivalents plus accounts receivables (net), and due from officer less accounts payable, line of credit, notes payable, accrued expenses and other liabilities, deferred revenue, accrued participation, shareholder loans and notes payable, and accrued interest. We continue to finance our operations from our own sales and production activities, notes payables, lines of credit and loans from our shareholders. Despite our public offering on July 29, 1998, our operations have been hurt by ongoing capital shortages caused by a slowness in collecting receivables and the inability to complete a long term banking relationship. We continue to address our capital requirements by (i) selling up to $3,000,000 in convertible debt, $1,850,00 of which has been subscribed for, (ii) entering into a letter of intent to complete an offering of our common stock on the German Bourse market, and (iii) entering into an agreement with an investment banking firm to provide up to $5,000,000 of additional debt as a bridge to the German Offering. As of May 10, 1999, we had cash and accounts receivable due to be collected with one year of approximately $3,170,000. As of May 10, 1999 we has indebtedness and related accrued interest of $5,213,500 including notes payable of $3,325,800 of which all matures within one year, accrued interest of $587,700, $850,000 outstanding on a revolving line of credit and $450,000 outstanding on a shareholder loan. Included in such sums are amounts which have already started to mature. We have approximately $2,655,000 principal amount of notes which mature over the next 6 months, including $1,090,000 of notes which have matured and are 11 12 currently in default. We are currently negotiating with these noteholders and have not yet received any written action regarding the defaults under these notes. We believe, however, that we will be able to cure these defaults by either converting the notes to equity or raising additional financings to repay them. Of the remaining debt, approximately $1,815,000 matures by September 30, 1999. No assurances can be given that we will be able to effectuate any of the foregoing alternatives, or that if we seek to extend such obligations or refinance them, that such extensions or refinancing alternatives will be on terms which are financially advantageous to us. As we continue to pursue financing alternatives and search for additional capital as described above, we continue to explore a variety of other financial alternatives to increase its working capital, including increasing the Company's line of credit with a commercial bank, or pursuing other types of debt or equity financing. No assurance can be given that such financing can be obtained or that it will be on reasonably attractive terms. Assuming the foregoing defaults are cured, we believe that our current resources of cash, accounts receivable and available credit line will enable it to operate at current expenditure levels through July 31, 1999. We further believe that our projected cash flow from operations, with contemplated sales of certain acquired programming and collections from those sales, will be sufficient to permit the Company to conduct its operations as contemplated for only the next 6 months, through October 30, 1999. Our belief is based upon certain assumptions, including assumptions regarding the anticipated level of operations and overhead, the anticipated sales of certain acquired programming, and anticipated expenditures required for development and production of programming. If sales do not materialize and financing is not completed by these dates, we will have to limit our development and production activities, reduce our overhead spending, restructure debt pay outs and take other cost reduction measures. Further, even with if we successfully raising additional financing, there is no assurance that we will be profitable or maintain positive cash flow. RECENT ACCOUNTING PRONOUNCEMENTS In April 1998, Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities" ("SOP 98-5") was issued. SOP 98-5 provides guidance on the financial reporting of start-up costs and organization costs. We have adopted this SOP and the adoption of this statement did not materially effect our financial statements. 12 13 In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", effective for fiscal year beginning after June 15, 1999. WE anticipate that due to our limited use derivative instruments, the adoption of SFAS No. 133 will not have a material effect on our financial statements. In October 1998, the FASB released an exposure draft of the proposed statement on "Rescission of FASB Statement No. 53, Financial Reporting by Producers and Distributors of Motion Picture Films." An entity that previously was subject to the requirements of SFAS No. 53 would follow the guidance in a proposed Statement of Position, "Accounting by Producers and Distributors if Films." This proposed Statement of Position would be effective financial statements for fiscal years beginning after December 15, 1999 and could have a significant impact on our results of operations and financial position depending on its final outcome. We have not concluded on its impact given the preliminary stages of the proposed Statement of Position. YEAR 2000 COMPLIANCE As has been widely reported, many computer systems process dates based on two digits for the year of a transaction and are unable to process dates in the year 2000 and beyond. Since our formation in 1995, we have installed new information systems which are year 2000 compliant. Although we do not expect year 2000 to have a material adverse effect on our internal operations, it is possible that year 2000 problems could have a significant adverse effect on our suppliers and their ability to service us and to accurately process payments received. 13 14 PART II - OTHER INFORMATION Item 1 - Legal Proceedings In the ordinary course of business, the Company has or may become involved in disputes or litigation. On the basis of information available to it, management believes such contingencies will not have a materially adverse impact on the Company's financial position or results of operations. Item 6 - Exhibits and Reports on Form 8-K Exhibits 27 Financial Data Schedule Form 8-K None 14 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: June 7, 1999 TEAM COMMUNICATIONS GROUP, INC. By: /s/ DREW S. LEVIN ------------------------------ Drew S. Levin Chairman of the Board of Directors and Chief Executive Officer By: /s/ TIMOTHY A. HILL ------------------------------ Timothy A. Hill Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----