As filed with the Securities and Exchange Commission on July 5, 1996
Registration No. 333-_________
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
THE PRODUCERS ENTERTAINMENT GROUP LTD.
(Exact name of registrant as specified in its charter)
Delaware 7922 95-4233050
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
9150 Wilshire Boulevard
Beverly Hills, California 90212
(310) 285-0400
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Arthur Bernstein
Senior Vice President
9150 Wilshire Blvd.
Beverly Hills, California 90212
(310) 285-0400
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
Melvin Katz, Esq. Rubi Finkelstein, Esq.
Maloney, Gerra, Mehlman & Katz Orrick, Herrington & Sutcliffe
405 Lexington Avenue 666 Fifth Avenue
New York, New York 10174 New York, New York 10103
(212) 973-6900 (212) 506-5000
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |X|
-------------------------------
CALCULATION OF REGISTRATION FEE
======================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount Being Offering Price Aggregate Offering Amount of
Securities to be Registered Registered(1) Per Security(1) Price (1) Registration Fee
--------------------------- --------------- ---------------- ----------- ----------------
Units (each Unit consisting of
four shares of Common
Stock, $.01 par value
("Common Stock"), and
two Redeemable Warrants
("Redeemable
Warrants"))(2)................ 2,300,000 $4.00 $9,200,000.00 $3,172.41
Common Stock included in
Units(3)...................... -- -- -- --
Redeemable Warrants included
in Units(3)................... -- -- -- --
Common Stock underlying the
Redeemable Warrants
included in Units(7).......... 4,600,000 $1.75 $8,050,000.00 $2,775.86
Selling Securityholder
Redeemable Warrants(4)....... 500,000 $.25 $125,000.00 $43.10
Common Stock Underlying
Selling Securityholder
Redeemable
Warrants(4)(7)................ 500,000 $1.75 $875,000.00 $301.72
Representative's Warrants to
purchase Units(5)(6).......... 200,000 -- -- --
Proposed Maximum Proposed Maximum
Title of Each Class of Amount Being Offering Price Aggregate Offering Amount of
Securities to be Registered Registered(1) Per Security(1) Price (1) Registration Fee
--------------------------- --------------- ---------------- ----------- ----------------
Units issuable upon exercise of
Representative's Warrants
(each Unit consisting of
four shares of Common
Stock and two Redeemable
Warrants)(7).................. 200,000 $4.80 $960,000.00 $331.03
Common Stock included in
Units issuable upon exercise
of Representative's
Warrants(3)................... -- -- -- --
Redeemable Warrants included
in Units issuable upon
exercise of Representative's
Warrants(3)(6)................ -- -- -- --
Common Stock Underlying
Redeemable Warrants
included in Units issuable
upon exercise of
Representative's
Warrants(7)................... 400,000 $1.75 $700,000 $241.37
Total Registration Fee....................................................................................$6,865.49
===============================================================================
The Registrant hereby amends this Registration Statement on such dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
===============================================================================
- ------------------------------
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 300,000 Units which the Underwriters have the option to
purchase to cover over-allotments, if any.
(3) No separate consideration will be received for the issuance of the Common
Stock and Redeemable Warrants included in the Units.
(4) The Registration Statement also covers 500,000 Redeemable Warrants and
500,000 shares of Common Stock underlying such Redeemable Warrants, owned
by certain selling securityholders.
(5) To be issued to the Representative at Closing.
(6) No registration fee required pursuant to Rule 457(g).
(7) Also registered hereunder pursuant to Rule 416 under the Securities Act
of 1933, as amended, are an indeterminate number of securities, that may
become issuable pursuant to anti-dilution adjustments.
THE PRODUCERS ENTERTAINMENT GROUP LTD.
Cross-Reference Sheet
Pursuant to Regulation S-B
THE PRODUCERS ENTERTAINMENT GROUP LTD.
Cross-Reference Sheet
Pursuant to Regulation S-B
Form SB-2 Item Prospectus Caption
-------------- ------------------
1. Front of Registration Statement
and Outside Front Cover Page of
Prospectus....................................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus.............................. Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information and Risk
Factors.......................................... Prospectus Summary; Risk Factors
4. Use of Proceeds.................................. Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.................. Outside Front Cover Page of Prospectus; Risk
Factors; Underwriting
6. Dilution......................................... Dilution
7. Selling Security Holders......................... Selling Securityholders
8. Plan of Distribution............................. Underwriting
9. Legal Proceedings................................ Legal Proceedings
10. Directors, Executive Officers,
Promoters and Control Persons.................... Management
11. Security Ownership of Certain
Beneficial Owners................................ Principal Stockholders
12. Description of Securities........................ Description of Securities
13. Interest of Named Experts and
Counsel.......................................... Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification For Securities Act
Liabilities...................................... Management - Director Indemnification
15. Organization Within
Last Five Years.................................. Prospectus Summary; The Company; Risk
Factors; Recent Bridge Financing; Dividend
Policy; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal Stockholders;
Financials
16. Description of Business.......................... Business
17. Management's Discussion and
Analysis of Plan of Operation.................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
18. Description of Property.......................... Business
19. Certain Relationships and Related
Transactions..................................... Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters...................... Market for Common Equity and Series A
Preferred Stock
21. Executive Compensation........................... Management
22. Financial Statements............................. Financial Statements
23. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure............................. Experts
1
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED JULY 5, 1996
PROSPECTUS
THE PRODUCERS ENTERTAINMENT GROUP LTD.
2,000,000 Units
Each Unit Consisting of Four Shares of Common Stock
and
Two Redeemable Warrants
--------------------------------------------
This Prospectus relates to an offering (the "Offering") of 2,000,000 units
(the "Units"), each Unit consisting of four shares of common stock, $.001 par
value per share (the "Common Stock"), and two redeemable common stock purchase
warrants ("Redeemable Warrants") of The Producers Entertainment Group Ltd., a
Delaware corporation ("TPEG" or the "Company"). The Units, Common Stock and
Redeemable Warrants will be separately tradeable commencing upon the date of
their issuance. Each Redeemable Warrant entitles the registered holder thereof
to purchase one share of Common Stock at a price of $1.75, subject to
adjustment, at any time from issuance until _______________, 2001, [the fifth
anniversary of the date of this Prospectus,] (the "Expiration Date"). The
Redeemable Warrants are subject to redemption by the Company commencing
_______________, 1997, [12 months from the date of this Prospectus,] at a
redemption price of $0.05 per Redeemable Warrant on 30 days' prior written
notice, provided that (i) the average closing bid price (or last sales price) of
the Common Stock as reported on the National Association of Securities Dealers
Automated Quotation System (or on such exchange on which the Common Stock is
then traded), equals or exceeds 150% of the per share exercise price of the
Redeemable Warrants, subject to adjustment, for any 20 trading days within a
period of 30 consecutive trading days ending on the fifth trading day prior to
the date of notice of redemption and (ii) the Company shall have obtained
written consent from Joseph Stevens & Company, L.P. (the "Representative") to
redeem the Redeemable Warrants. See "Description of Securities."
The Company's Common Stock is publicly traded on NASDAQ's SmallCap Market
("NASDAQ") under the symbol "TPEG" and on the Boston Stock Exchange under the
symbol "PEG." On June 28, 1996, the closing bid price for the Common Stock on
NASDAQ was $1.125. See "Market for Common Equity and Series A Preferred Stock
and Related Shareholder Matters." Prior to the Offering, there has been no
public market for the Units or the Redeemable Warrants, and there can be no
assurance that markets for these securities will develop after the completion of
the Offering or, if developed, that such markets will be sustained. The initial
public offering price per Unit and the term of the Redeemable Warrants were
determined by negotiation between the Company and the Representative. For
information regarding the factors considered in determining the initial public
offering price of the Units and the terms of the Redeemable Warrants, see "Risk
Factors" and "Underwriting." Application has been made for, and it is
anticipated that upon the consummation of the Offering, the Units and the
Redeemable Warrants will be approved for quotation on NASDAQ under the symbols
"TPEGU" and "TPEGX," respectively, and listed on the Boston Stock Exchange
("BSE") under the symbols "TPGU" and "TPGX," respectively.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE [________] AND
"DILUTION."
--------------------------------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
=================================================================================================================================
Price to Public Underwriting Discounts(1) Proceeds to Company (2)
- --------------------------------------------------------------------------------------------------------------------------------
Per Unit. . . . . . . . . . .. . . . . . . . . $_________ $_________ $_________
- --------------------------------------------------------------------------------------------------------------------------------
Total (3) . . . . . . . . . .. . . . . . . . . $_________ $_________ $_________
=================================================================================================================================
(1) Does not reflect additional compensation to the Representative in the form
of a non-accountable expense allowance. In addition, see "Underwriting" for
information concerning indemnification and contribution arrangements, and
other compensation payable to the Representative.
(2) Before deducting estimated expenses of $_______________ payable by the
Company, including the Representative's non-accountable expense allowance.
(3) The Company has granted the Underwriters an option, exercisable within
45 days from the date of this Prospectus, to purchase up to 300,000
additional Units upon the same terms set forth above, solely to cover
over-allotments, if any. If such over-allotment option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to the Company will be $_______________, $_______________ and
$_______________, respectively. See "Underwriting."
JOSEPH STEVENS & COMPANY, L.P.
_______________, 1996
(continued from cover page)
The Units are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
the approval of certain legal matters by their counsel and subject to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify the Offering and to reject any order in whole or in part. It is expected
that delivery of the Units offered hereby will be made against payment therefor
at the offices of Joseph Stevens & Company, L.P., New York, New York on or about
_______________, 1996.
This Prospectus also relates to 500,000 redeemable warrants (the
"Selling Securityholder Warrants") which will be issued upon consummation of the
Offering to certain security holders (the "Selling Securityholders") upon the
automatic conversion of warrants (the "Bridge Warrants") issued to the Selling
Securityholders in a private financing in June, 1996 (the "Bridge Financing").
The terms and conditions of the Selling Securityholder Warrants are identical to
those governing the Redeemable Warrants. From and after the date of consummation
of the Offering, the Selling Securityholders may offer for resale at any time or
from time to time pursuant to this Prospectus such Selling Securityholders
Warrants and/or the 500,000 shares of Common Stock (the "Selling Securityholder
Shares") issuable upon exercise of such Selling Securityholder Warrants. Neither
the Selling Securityholder Warrants nor the Selling Securityholder Shares may be
sold for a period of 18 months from the effective date of the Registration
Statement without the prior written consent of the Representative. Furthermore,
the Company has agreed to sell to the Representative, for nominal consideration,
Representative's Warrants to purchase from the Company 200,000 Units. The
Representative's Warrants are initially exercisable at a price equal to 120% of
the initial public offering price per Unit and may be exercised at any time
during the four year period commencing on the second anniversary of the date of
issuance. The shares of Common Stock and Redeemable Warrants issuable upon
exercise of the Representative's Warrants are identical to those offered to the
public.
Neither the Selling Securityholder Warrants, the Selling Securityholder
Shares nor the Representative's Warrants are being offered or sold pursuant to
the Offering. The Company will not receive any proceeds from the issuance of the
Selling Securityholder Warrants or the Selling Securityholder Shares or the
resale of such securities or the Representative's Warrants by the holders
thereof, although the Company will receive proceeds from the exercise, if any,
of the Selling Securityholder Warrants, or the Redeemable Warrants underlying
the Representative's Warrants. See "Underwriting" and "Selling Securityholders."
The Company intends to furnish to registered holders of Units,
Redeemable Warrants and Common Stock, annual reports containing financial
statements examined by an independent accounting firm and quarterly reports for
the first three quarters of each fiscal year containing interim unaudited
financial information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE UNITS,
COMMON STOCK AND REDEEMABLE WARRANTS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON NASDAQ OR THE
BOSTON STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by the more detailed information and financial data appearing
elsewhere in this Prospectus. An investment in the securities offered hereby is
highly speculative in nature, involves a high degree of risk and should only be
made by investors who can bear the economic risk of a potential loss of their
entire investment. Prospective purchasers should carefully consider the
information set forth under "Risk Factors" before purchasing such securities.
Unless otherwise indicated, all information contained in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option, (ii) excludes
shares of Common Stock issuable upon exercise of the common stock purchase
warrants (the "Placement Agent Warrants"), issued to the Representative in
connection with the Bridge Financing, all of which will be canceled prior to
consummation of the Offering, (iii) excludes shares of Common Stock issuable
upon exercise of the Redeemable Warrants included in the Units offered hereby,
(iv) excludes shares of Common Stock issuable upon exercise of the Selling
Securityholder Warrants, (v) excludes securities issuable upon exercise of the
Representative's Warrants and (vi) gives effect to a one-for-four reverse stock
split of the Common Stock effected on May 30, 1996 (the "Reverse Stock Split").
The Company
The Producers Entertainment Group Ltd. (the "Company") is engaged in
the acquisition, development, production and distribution of dramatic, comedy,
documentary and instructional television series, movies and theatrical motion
pictures ("projects"). The Company's projects are distributed in the United
States and in international markets for exhibition on standard broadcast
television (network and syndication), basic cable and pay cable, video and
theatrical release. The Company is also engaged in the business of the personal
management of performers and writers.
The Company's completed projects include Dave's World, a comedy series
that airs on the CBS television network, Lily Dale, a movie produced for the
Showtime cable network, Future Quest, a series that originally aired on the
Public Broadcasting System ("PBS"), and What's Love Got To Do With It?, a
theatrical motion picture released by Disney's Touchstone Pictures in 1993. The
Company receives fees for providing producer and executive producer services and
is generally also entitled to a profit participation from the projects.
To produce a project, the Company first acquires the rights to a story,
book or script ("property"). The Company then typically secures a financing or
production commitment for the project from third parties, such as broadcast and
cable networks, studios, distributors, and independent investors, prior to
expending substantial funds in the development process. However, the Company
does advance its own funds to meet the interim costs of development and
production which amounts are generally repaid to the Company pursuant to the
production contracts.
The Company then "packages" the property, assembling the screenplay,
teleplay or outline of the program with the director and actors. Upon approval
of the third party that is financing or purchasing the project, the Company
commences pre-production, selecting locations, securing agreements with
performers, director and production staff, and procuring necessary sets, props
and other equipment. During the principal photography phase, the project is
produced on tape or film pursuant to a predetermined schedule and budget. The
film or tape is then transformed into a completed project during the
post-production phase, through editing, the addition of sound effects, musical
scoring and other technical processes.
Completed projects not purchased outright are distributed by
independent third parties who have the distribution rights in discrete
territories for a specific period of time. The Company typically retains certain
distribution rights after such period expires. The Company may obtain advances
against domestic and international distribution revenues in order to finance
development and production. The Company intends
1
to establish a separate international distribution division for the distribution
of its own and other producers' projects.
The Company manages the careers of 15 performers and writers, including
Julia Louis-Dreyfus ("Seinfeld"), George Newborn ("Father of the Bride"),
Rosaline Allen ("Seaquest"), and Michael Stoyanov ("Blossom"). The Company
intends to increase the staff of its personal management division in order to
attempt to expand its client roster.
2
The Offering
Securities Offered
By the Company................................. 2,000,000 Units, each consisting of four shares of Common
Stock and two Redeemable Warrants. The Common Stock and
Redeemable Warrants will be separately tradeable
immediately upon issuance. See "Description of Securities--
Units." Each Redeemable Warrant entitles the holder to
purchase one share of Common Stock for $1.75 per share,
subject to adjustment, exercisable from the date of issuance
until _______________, 2001, [the fifth anniversary of the
date of this Prospectus]. The Company may redeem the
Redeemable Warrants commencing _______________, 1997,
[12 months from the date of this Prospectus], at a redemption
price of $0.05 per Redeemable Warrant on thirty days' prior
written notice, provided that (i) the average closing bid price
(or last sales price) of the Common Stock as reported on
NASDAQ (or on such exchange on which the Common Stock
is then traded) equals or exceeds 150% of its then per share
exercise price of the Redeemable Warrants, subject to
adjustment, for any 20 trading days within a period of 30
consecutive trading days ending on the fifth trading day prior
to the date on which the notice of redemption is given and (ii)
the Company shall have obtained written consent from the
Representative to redeem the Redeemable Warrants. See
"Description of Securities."
Securities offered by Selling
Securityholders.............................. 500,000 Selling Securityholders Warrants, which will be
issued to the Selling Securityholders upon the automatic
conversion of the Bridge Warrants, and an aggregate of
500,000 shares of Common Stock issuable upon exercise of
the Selling Securityholder Warrants. The Selling
Securityholder Warrants and the shares of Common Stock
being registered for the account of the Selling Securityholders
at the Company's expense are not being underwritten in the
Offering, but may be offered for resale at any time on or after
the date hereof by the Selling Securityholders provided prior
consent is given by the Representative to the Selling
Securityholders. The Company will not receive any proceeds
from the sale of these securities, although it will receive
proceeds from the exercise, if any, of the Selling
Securityholder Warrants. See "Recent Bridge Financing,"
"Concurrent Offering" and "Selling Securityholders."
Common Stock Outstanding
Before Offering.............................. 3,305,210 shares (1)
After Offering............................... 11,305,210 shares (1)
Redeemable Warrants Outstanding
After the Offering........................... 4,500,000 Redeemable Warrants (2)
3
Use of Proceeds................................ Of the net proceeds of the Offering (1) approximately
$500,000 will be used to repay the indebtedness incurred by
the Company in the Bridge Financing and (2) an additional
$100,000 will be used to repay a short term working capital
loan. The balance of such net proceeds will be utilized by the
Company for the completion of projects in production, interim
financing of production costs during forthcoming 12 month
period, the establishment and operation of the planned
international distribution division, acquisitions by the planned
international distribution division of products, acquisition of
rights for new projects, payment of annual cash dividends in
Series A Stock, working capital and general corporate
purposes. See "Use of Proceeds."
Risk Factors................................... The securities offered hereby are highly speculative and
involve a high degree of risk. Prospective investors should
carefully review and consider the factors set forth under "Risk
Factors" and "Dilution" as well as other information contained
herein, before subscribing for any of the Units.
Proposed NASDAQ
SmallCap Symbols............................... Units: TPEGU
Common Stock: TPEG
Redeemable Warrants: TPEGX
Proposed Boston Stock
Exchange Symbols............................... Units: TPGU
Common Stock: PEG
Redeemable Warrants: TPGX
(1) Excludes (i) 357,917 shares of Common Stock issuable upon the exercise
of outstanding stock options at exercise prices ranging between $1.12
per share and $13.00 per share, (ii) 250,000 shares of Common Stock
issuable upon the exercise of the Company's Class B Warrants at an
exercise price of $8.00 per share, (iii) up to 1,250,000 shares of
Common Stock issuable upon the conversion of the Company's Series A 8
1/2% Convertible Preferred Stock, $.001 par value (the "Series A
Stock") on the basis of 1.25 shares of Common Stock for each
outstanding share of Series A Stock, (iv) 40,250 shares of Common Stock
issuable upon the exercise of warrants which were issued in connection
with the Company's 1993 bridge financing at an exercise price of $7.70
per share, (v) 150,000 shares of Common stock issuable in connection
with the option to purchase units (each unit consisting of one share of
Series A Stock and one Class B Warrant) at an exercise price of $7.00
per unit granted to the underwriters with respect to the Company's
public offering of such securities in December 1994, (vi) 41,667 shares
of Common Stock issuable in connection with the option to purchase
units (each unit consisting of two shares of Common stock) at an
exercise price of $7.20 per unit granted to the underwriter with
respect to the Company's 1993 public offering of securities, (vii) up
to 250,000 shares of Common Stock issuable pursuant to options which
may be granted under the Company's Stock Option Plan, (viii) 187,500
shares of Common Stock issuable upon the exercise of outstanding stock
options granted to an investment banking firm and its affiliate in
connection with an agreement in 1995 to render financial advisory
services to the Company at an exercise price of $4.00 per share, and
(ix) 57,500 shares of Common Stock which may become issuable pursuant
to the terms and conditions of an agreement in principle with respect
to the proposed settlement of the action DSL Entertainment, Joint
Venture, a California Joint Venture v. DSL Productions, Inc. As of the
date of this Prospectus, it is uncertain whether settlement of this
4
litigation upon the terms described above will ultimately be effected.
See "Business -- Legal Proceedings."
(2) Includes 500,000 Selling Securityholder Warrants. See "Recent Bridge
Financing," and "Concurrent Offering."
5
Summary Consolidated Financial Information
(In thousands, except share and per share data)
The summary financial information set forth below is derived from the
financial statements of the Company appearing elsewhere in this Prospectus. In
May 1994, the Company acquired DSL Productions, Inc. and its affiliates ("DSL")
for 32,500 shares of Common Stock. The acquisition was accounted for as a
pooling of interests and accordingly all of the information below has been
restated to reflect the combined results. This information should be read in
conjunction with such financial statements, including the notes thereto,
appearing elsewhere in this Prospectus.
Nine Months Ended
Year Ended June 30, March 31,
--------------------- --------------------
1995 1994 1996 1995
------ ------ ------ -----
Statement of Operations Data:
Net sales............................ $ 5,291 $ 10,783 $ 2,133 $ 4,971
(Loss) from operations............... (3,510) (5,043) (1,250) (2,435)
Net (loss)........................... (3,826) (5,490) (1,319) (2,900)
Net (loss) per share................ (1.52) (2.34) (.46) (1.17)
Average number of shares 2,513,131 2,341,500 2,898,850 2,482,694
outstanding..........................
June 30, March 31, 1996
---------------------- ----------------------------------------
Pro Forma
Pro As
1995 1994 Actual Forma(1) Adjusted(2)
------ ------ -------- ---------- -----------
Balance Sheet Data:
Total assets......................... $ 4,385 $ 7,607 $ 4,292 $ 4,792 $ 10,730
Short-term debt...................... 0 1,389 100 600 0
Long-term debt....................... 0 0 0 0 0
Total liabilities.................... 1,796 6,205 2,744 3,244 2,644
======= ======= ======= ======= =======
Total shareholders' equity........... 2,588 1,402 1,549 1,549 8,086
(1) As adjusted to reflect the consummation (a) on June 7, 1996 of a bridge
financing (the "Bridge Financing") pursuant to which the Company issued
an aggregate of (i) $500,000 principal amount of promissory notes (the
"Bridge Notes") which bear interest at the rate of 10% per annum and
will be repaid from the proceeds of the Offering and (ii) 500,000
warrants (the "Bridge Warrants"), each warrant entitling the holder to
purchase one share of Common Stock at an initial exercise price of
$1.12, which Bridge Warrants will be automatically exchanged for the
Selling Securityholder Warrants upon consummation of the Offering. As
part of the Bridge Financing, approximately $138,000 has been reflected
as deferred financing costs and original issue discount. See " Recent
Bridge Financing."
(2) As adjusted to reflect the sale of the Units offered by the Company
hereby at the assumed initial public offering price of $4.00 per Unit
and the application of the net proceeds therefrom. See "Use of
Proceeds." Upon repayment of the Bridge Notes, the Company will record
an extraordinary loss of $103,000 resulting from the early
extinguishment of the Bridge Notes. This loss arises as a result of
expensing $103,000 of unamortized deferred financing costs and original
issue discount on the Bridge Notes.
6
RISK FACTORS
The securities offered hereby are speculative in nature and involve a
high degree of risk. Each prospective investor should carefully consider, along
with the other matters discussed in this Prospectus, the following risk factors
inherent in, and affecting the business of, the Company before making an
investment decision.
In addition to the historical information contained herein, the
discussion in this Prospectus contains forward-looking statements with respect
to the Company and its operations that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed under this caption, "Management's Discussion and
Analysis of Financial Condition and Results Operations" ("MD&A"), and elsewhere
in this Prospectus.
Factors Affecting the Company's Liquidity and Capital Resources
The Company's cash commitments for the forthcoming 12 months include
aggregate minimum base compensation of approximately $825,000 to its existing
officers and key independent contractors and minimum office rent of
approximately $230,000 and a note payable of $100,000 (aggregating approximately
$1,155,000). The Company also incurs overhead and other costs such as salaries,
related benefits, office expenses, professional fees and similar expenses. For
the Company's fiscal year ended June 30, 1995, general and administrative
expenses, which includes compensation and rent, aggregated $4,696,554. For the
nine months ended March 31, 1996, general and administrative expenses, which
includes compensation and rent, aggregated approximately $2,666,000. The Company
also advances considerable funds on the production and development of projects.
Dividends on the Company's outstanding Series A Stock aggregate $425,000
annually and, at the Company's option, may be paid in shares of Common Stock or
in cash. Assuming consummation of the Offering, however, the Company has agreed
that it will not pay such dividends on the Series A Stock in shares of its
Common Stock without the consent of the Representative during the 18 month
period following the effective date of this Prospectus. Accordingly, even after
giving effect to the substantial increase in the Company's liquid resources by
reason of the Offering, the cash required to satisfy such Series A Stock
dividend requirements will not be available to meet the Company's business and
working capital requirements. Since the Company, as noted under "Use of
Proceeds" and "Business," intends to establish a new international distribution
division, expand the staff of its personal management division and hire a Chief
Financial Officer and support personnel, these working capital requirements will
increase significantly.
At March 31, 1996, the Company had cash and cash equivalents of $81,268
and accounts receivable of $714,779 (aggregating approximately $796,000). At
March 31, 1996, the Company also had accounts payable and accrued expenses
aggregating approximately $492,000. As of the date hereof, the Company has no
arrangements for external sources of financing such as bank lines of credit. If
the Company continues to report losses and expends additional funds on
development and production of projects in excess of its current resources and
future cash receipts, the Company will be required to reduce its expenses to a
level commensurate with revenues, raise additional capital and/or borrow funds
to sustain its operations.
The Company believes that the estimated net proceeds to be received by
it from the Offering, together with funds derived from its operations, will be
sufficient to meet the Company's working capital requirements for a period of at
least 12 months following the consummation of this Offering. Thereafter, if the
Company is unable to generate sufficient working capital from its operations to
meet its then prevailing business requirements, it will be required to seek
additional debt or equity financing from external sources and there can be no
assurance that such financing, if any, will then be available on terms
acceptable to the Company. If such financing becomes necessary and is not
available, the Company's business would be materially adversely affected.
7
Furthermore, if external sources of financing are not available to the
Company and future cash revenues are not sufficient to meet the Company's cash
needs, the Company plans to reduce the compensation of its officers, office
staff and other personnel and the number of development projects that it will
fund. While management has effected significant reductions in its general and
administrative expenses during the past year, the Company has not made any
specific plans or entered into any agreements to reduce the level of its
expenditures in the event that such reductions become necessary in the future.
History of Operating Losses; Uncertainty of Future Profitability;
Accumulated Deficit
For the fiscal years ended June 30, 1993, 1994 and 1995, the Company
had revenues of $7,180,569, $10,782,850 and $5,290,745, respectively, and
incurred net losses of $4,284,207, $5,489,523 and $3,593,252 (without giving
effect to dividends of $232,600 with respect to the Series A Stock which were
paid by the Company by issuing shares of Common Stock), respectively, including
the impact of the Company's acquisition of DSL Productions Inc. and its
affiliates (collectively, "DSL Productions") in May 1994 on a pooling of
interests basis. For the nine months ended March 31, 1996, the Company had
revenues of $2,132,767 and incurred a net loss of $1,000,585 (without giving
effect to dividends of $318,750 with respect to the Series A Stock which were
paid by the Company by issuing shares of its Common Stock). The Company expects
to incur a loss from operations for its fiscal year ending June 30, 1996. As the
Company increases its operating expenses to establish an International
Distribution Division and increase the staff of the personal management
division, operating losses are expected to increase in the short-term future.
There can be no assurance that the Company will become profitable in future
fiscal periods. As of March 31, 1996, the Company's operations have resulted in
an accumulated deficit of $12,735,629 and, as indicated in Note 2 of Notes to
Consolidated Financial Statements of the Company, such Financial Statements have
been prepared on a basis which contemplates the continuation of the Company as a
going concern including the realization of assets and liquidation of liabilities
in the ordinary course of business. See "Notes to Consolidated Financial
Statements."
Television and Feature Film Industry; Intense Competition
The television industry is highly competitive and involves a
substantial degree of risk. The Company competes with many other television and
motion picture producers which are significantly larger and have financial
resources which are far greater than those available to the Company now or in
the foreseeable future. The television industry is subject to technological
developments, the effects of which management is unable to predict. The
television industry is also subject to governmental regulation by the Federal
Communications Commission (the "FCC"). The networks are currently limited by the
Financial Interest and Syndication Rules of the FCC in the amount of programming
they may produce and the rights which they may retain in programs. These rules
were recently relaxed in favor of the networks. The relaxation in the Financial
Interest and Syndication Rules could adversely impact the Company as a result of
potential increased competition from the networks. The Company also expects to
derive revenues from the feature film industry. The feature film industry is
also highly competitive and involves a substantial degree of risk. The Company
competes with major film studios and other independent producers, most of which
are significantly larger and have financial resources which are far greater than
those available to the Company now or in the foreseeable future. The Company's
success depends upon its ability to produce programming for television and
theatrical release which will appeal to markets characterized by changing
popular tastes. There is no assurance that the Company will continue to acquire
and develop products which can be made into made-for-television movies,
television series or theatrical releases which will result in profits to the
Company in light of the competition confronting the Company.
Labor Relations
Many individuals associated with the Company's productions, including
actors, writers and directors, are members of guilds or unions which bargain
collectively with producers on an industry-wide basis from
8
time to time. The Company's operations are dependent on its compliance with the
provisions of collective bargaining agreements governing relationships with
these guilds and unions. Strikes or other work stoppages by members of these
unions could delay or disrupt the Company's activities but the extent to which
the existence of collective bargaining agreements may affect the Company in the
future is not currently determinable.
Broad Discretion in Application of Proceeds
A significant portion of the estimated net proceeds of this Offering
has been allocated to working capital and general corporate purposes. Management
will have broad discretion as to the application of such proceeds.
Reliance On Key Personnel
The Company is substantially dependent upon the services of a limited
number of executives, including Irwin Meyer, Chief Executive Officer, President
and Chairman, the loss of whose services would have a material adverse effect on
the Company and its operations. Currently, the Company does not have
"key-person" life insurance with respect to any of its executives; however, the
Company has agreed to apply for "key-person" life insurance on the life of Mr.
Meyer in the amount of $1,000,000. The proceeds of such policy will be payable
solely to the Company.
Dilution
Purchasers of Units offered hereby will incur an immediate and
substantial dilution in the net tangible book value of the Common Stock.
Dilution represents the difference between the price of the Common Stock sold
hereby and the pro forma net tangible book value per share of the Company after
the Offering. Additional dilution to future net tangible book value per share
may occur upon the exercise of the Redeemable Warrants, the Selling
Securityholders Warrants the Representative's Warrants and options and warrants
(currently outstanding or subsequently granted) to purchase the Company's Common
Stock. The immediate dilution per share of Common Stock, to purchasers of the
Units offered hereby is $.27 per share or 27% per share (assuming an initial
public offering price of $4.00 per Unit and assuming no value is attributable to
the Redeemable Warrants included in the Units). See "Dilution."
Effect of Outstanding Options, Warrants and Convertible Stock
For the respective terms of the outstanding options and warrants
granted by the Company and the outstanding Series A Stock, the holders thereof
are given an opportunity to profit from a rise in the market price of the
Company's Common Stock. As of the date of this Prospectus, 2,572,333 shares of
Common Stock (or an additional 25.4% of the outstanding Common Stock) are
issuable upon the exercise of outstanding options and warrants granted by the
Company and conversion of the Company's outstanding Series A Stock at prices
ranging from $1.12 to $13.00 per share. Although these options and warrants and
shares of convertible stock are exercisable or convertible at prices which
significantly exceed the currently prevailing market prices of the Company's
Common Stock, their existence could potentially limit the scope of increases in
the market value of the Company's Common Stock which might otherwise be
realized. The terms on which the Company may obtain additional financing during
the respective terms of these outstanding stock options, warrants and
convertible stock may be adversely affected by their existence. The holders of
such stock options, warrants and convertible stock may exercise or convert such
securities, as the case may be, at times when the Company might be able to
obtain additional capital through one or more new offerings of securities or
other forms of financing on terms more favorable than those provided by such
stock options, warrants and convertible stock.
9
Antitakeover Effects of Provisions of The Certificate of
Incorporation and Delaware Law
The Company's Certificate of Incorporation authorizes the issuance of
up to 10,000,000 shares of "blank check" Preferred Stock. The Company has
1,000,000 shares of Series A Stock issued and outstanding and an additional
100,000 shares of Series A Stock reserved for issuance. The balance of 8,900,000
authorized shares of Preferred Stock are available for issuance. The Board of
Directors has the authority to issue the Preferred Stock in one or more series
and to fix the relative rights, preferences and privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series of such Preferred Stock or the
designation of such series. The issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change in control of the Company without
further action by the stockholders of the Company. The issuance of Preferred
Stock with voting and conversion rights may adversely affect the voting power of
the holders of the Common Stock, including the loss of voting control to others.
See "Description of Securities."
The Company is subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by such entity or person. The foregoing
provisions could have the effect of discouraging others from making tender
offers for the Company's shares of Common Stock and, as a consequence, they also
may inhibit fluctuations in the market price of the Company's shares that could
result from actual or rumored takeover attempts. Such provisions also may have
the effect of preventing changes in the management of the Company. See
"Description of Securities."
Absence of Dividends
The Company has never paid cash dividends on its Common Stock and no
cash dividends are expected to be paid on the Common Stock in the foreseeable
future. Holders of the Company's Series A Stock are entitled to annual dividends
of 8-1/2% (aggregating $425,000 annually assuming no conversion), payable
quarterly in cash or, at the Company's option, in shares of Common Stock. The
Company has agreed that it will not pay such dividends on the Series A Stock in
shares of its Common Stock without the consent of the Representative during the
18 month period following the effective date of this Prospectus. The Company
anticipates that for the foreseeable future all of its cash resources and
earnings, if any, will be retained for the operation and expansion of the
Company's business, except to the extent required to satisfy its obligations
under the terms of the Series A Stock.
Possible Delisting from NASDAQ and Resulting Market Illiquidity
The Company's Common Stock is quoted on NASDAQ and listed on the BSE
and it is anticipated that Units and Redeemable Warrants will be quoted
initially on NASDAQ and listed on the BSE. Continued inclusion of such
securities on NASDAQ will require, among other criteria, that (i) the Company
maintain at least $2,000,000 in total assets and $1,000,000 in capital and
surplus, (ii) the minimum bid price for the Common Stock be at least $1.00 per
share, (iii) the public float consists of at least 100,000 shares of Common
Stock, valued in the aggregate at more than $200,000, (iv) the Common Stock have
at least two active market makers and (v) the Common Stock be held by at least
300 holders. Continued inclusion on the BSE will require, among other criteria,
that (i) the Company maintain at least $1,000,000 in total assets, (ii) a public
float of 150,000 shares with market value equal to at least $500,000, (iii) a
minimum of at least 250 shareholders and (iv) total stockholders' equity of
$500,000. The Company recently effected the Reverse Stock Split for the purpose,
among others, of enabling the Common Stock to qualify for continued listing on
NASDAQ. If, however, the Company is unable to satisfy such maintenance
requirements in future
10
periods, the Company's securities may be delisted from NASDAQ and/or BSE. In
such event, trading, if any, in the Units, Common Stock and Redeemable Warrants
would thereafter be conducted in the over-the-counter market in the "pink
sheets" or the NASD's "Electronic Bulletin Board." Consequently, the liquidity
of the Company's securities could be materially impaired, not only in the number
of securities that can be bought and sold at a given price, but also through
delays in the timing of transactions and reduction in security analysts' and the
media coverage of the Company, which could result in lower prices for the
Company's securities than might otherwise prevail and could also result in
larger spreads between the bid and asked prices for the Company's securities.
In addition, if the Common Stock is delisted from trading on NASDAQ and
the BSE and the trading price of the Common Stock is less than $5.00 per share,
trading in the Common Stock would also be subjected to the requirements of Rule
15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Under that Rule, broker/dealers, who recommend such low-priced
securities to persons other than established customers and accredited investors,
must satisfy special sales practice requirements, including a requirement that
they make an individualized written suitability determination for the purchaser
and receive the purchaser's written consent prior to the transaction. The
Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires
additional disclosure in connection with any trades involving a stock defined as
a penny stock (generally, according to recent regulations adopted by the
Securities and Exchange Commission, any equity security not traded on an
exchange or quoted on NASDAQ that has a market price of less than $5.00 per
share, subject to certain exceptions), including the delivery, prior to any
penny stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith. Such requirements could severely
limit the market liquidity of the Units, the Common Stock and the Redeemable
Warrants and the ability of purchasers in the Offering to sell their securities
in the secondary market. There can be no assurance that the Units, the Common
Stock and the Redeemable Warrants will not be delisted or treated as penny
stock.
Pricing of Units; Limited Markets for Securities
The initial public offering price of the Units and the terms of the
Redeemable Warrants have been determined by negotiations between the Company and
the Representative. While such price reflects currently prevailing market prices
for the Company's Common Stock, it does not necessarily bear any relationship to
the Company's assets, book value, results of operations or other established
valuation criteria. See "Underwriting." There is no public market for the Units
or the Redeemable Warrants and there can be no assurance that an active market
for either such security will develop or be sustained. In addition, while there
currently is a public trading market for the Company's publicly issued Common
Stock on NASDAQ and the BSE, there can be no assurance concerning the depth or
liquidity of that market in future periods. Furthermore, the market prices of
the Units, the Common Stock and the Redeemable Warrants may be highly volatile.
The lack of an active public trading market for such securities could have a
substantial negative effect on their value. Such volatility may be the result of
a number of factors, including without limitation, the financial performance of
the Company, general conditions of the securities markets, the number of
publicly traded securities and the securities markets' perception of the
entertainment industry in which the Company is engaged in business.
Shares Eligible for Future Sale
Of the 11,220,345 shares of Common Stock of the Company to be
outstanding upon completion of the Offering, approximately 10,576,000 shares of
Common Stock, including 8,000,000 shares underlying the Units offered hereby,
will be freely tradeable without restriction under the Securities Act except for
any shares of Common Stock purchased by an "affiliate" of the Company (as that
term is defined under the rules and regulations of the Securities Act), which
will be subject to the resale limitations of Rule 144 under the Securities Act.
These freely tradeable shares include shares of Common Stock, including shares
issuable in connection with a proposed settlement of certain litigation and an
aggregate of 137,500 shares subject to
11
currently outstanding options having exercise prices ranging from $1.12 to $2.20
per share which are the subject of a Registration Statement filed by the Company
and rendered effective under the Securities Act in March 1996. See "Business --
Legal Proceedings." Approximately 644,000 remaining outstanding shares of Common
Stock are "restricted" securities within the meaning of Rule 144 under the
Securities Act and only may be sold pursuant to the conditions of such rule,
including satisfaction of certain holding period requirements. The Company is
unable to predict the effect that sales made under Rule 144, or otherwise, may
have on the then prevailing market price of the Company's securities although
any future sales of substantial amounts of securities pursuant to Rule 144 could
adversely affect prevailing market prices. The holders of options and warrants
to acquire approximately 400,000 shares of Common Stock (including 125,000
shares of Common Stock issuable upon conversion of shares of Series A Stock
which are, in turn, issuable upon exercise of certain of such options) have
certain registration rights under the Securities Act. These securities include
100,000 units to acquire 150,000 shares of Common Stock (upon conversion of
shares of Series A Stock and exercise of Class B Warrants included in such
units) held by two investment banking firms, which acted as underwriters for the
Company's December 1994 offering of such units, who have agreed to waive their
registration rights with respect to such units and underlying securities for a
period of 18 months after the date of this Prospectus.
However, holders of options to purchase an aggregate of 233,750 shares
of Common Stock and holders of 500,000 restricted shares, including all officers
and directors of the Company have agreed that, without the consent of the
Representative they shall not, directly or indirectly, issue, offer to sell,
sell, grant an option for the sale of, assign, transfer, pledge, hypothecate or
otherwise encumber of dispose of (collectively, "Transfer") any securities of
the Company, including Common Stock or securities convertible into or
exchangeable for or evidencing any right to purchase or subscribe for any shares
of Common Stock, for a period ending upon the earlier of (i) 18 months from the
effective date of the Registration Statement, or (ii) two months after the
Representative and each broker-dealer controlled by any affiliate of the
Representative at the time the "lock-up" agreement was entered into, if any,
transfers all of the Representative's Warrants and all securities issuable upon
exercise of the Representative's Warrants.
In addition, without the consent of the Representative, the Company has
agreed not to sell or offer for sale any of its securities for a period of 18
months following the effective date of the Registration Statement, except
pursuant to outstanding options and warrants and pursuant to the Company's
existing option plans provided that no option to be granted during such 18 month
period shall have an exercise price that is less than the fair market value per
share of Common Stock on the date of grant.
The Redeemable Warrants underlying the Units offered hereby and the
shares of Common Stock underlying such Redeemable Warrants, upon exercise
thereof, will be freely tradeable without restriction under the Securities Act,
except for any Redeemable Warrants or shares of Common Stock purchased by an
"affiliate" of the Company, which will be subject to the resale limitations of
Rule 144 under the Securities Act. In addition, 500,000 Selling Securityholder
Warrants and the shares of Common Stock underlying such Selling Securityholder
Warrants are being registered in the Concurrent Offering. Holders of such
Redeemable Warrants have agreed not to Transfer such Redeemable Warrants, or the
underlying shares of Common Stock, for a period of 18 months from the effective
date of the Registration Statement, without the prior written consent of the
Representative. See "Recent Bridge Financing" and "Concurrent Offering" and
"Selling Securityholders."
No prediction can be made as to the effect, if any, that sales of the
Selling Securityholder Warrants and/or underlying Common Stock or the
availability of such securities for sale will have on the market prices
prevailing from time to time for the Units, the Redeemable Warrants and/or the
Common Stock. Nevertheless, the possibility that substantial amounts of such
securities may be sold in the public market may adversely affect prevailing
market prices for the Company's equity securities, and could impair the
Company's ability to raise capital in the future through its sale of equity
securities. See "Underwriting" and "Selling Securityholders."
12
Lack of Experience of Representative
Joseph Stevens & Company, L.P., (the "Representative") commenced
operations in May 1994 and does not have extensive experience as an underwriter
of public offerings of securities. The Underwriter has acted as the managing
underwriter for four public offerings. The Representative is a relatively small
firm and no assurance can be given that the Representative will be able to
participate as a market maker in the Units, Common Stock or Redeemable Warrants,
and no assurance can be given that any broker-dealer will make a market in the
Units, Common Stock or Redeemable Warrants. See "Underwriting."
Representative's Potential Influence in the Market
It is anticipated that a significant amount of the Units will be sold
to customers of the Representative. Although the Representative has advised the
Company that it intends to make a market in the Units, Common Stock and
Redeemable Warrants, it will have no legal obligation to do so. The prices and
the liquidity of the Units, Common Stock and Redeemable Warrants may be
significantly affected by the degree, if any, of Representative's participation
in the market. Moreover, if the Representative sells the securities issuable
upon exercise of the Representative's Warrants, it may be required under the
Exchange Act, as amended, to temporarily suspend its market-making activities.
No assurance can be given that any market activities of Representative, if
commenced, will continue for any minimum or significant period of time, and the
withdrawal of the Representative from market making activities in any of such
securities could materially adversely affect the prevailing market prices
therefor. See "Underwriting."
Potential Adverse Effect of Redemption of Redeemable Warrants
Commencing twelve months after the date of this Prospectus, and subject
to the consent of Representative, the Company will have the right to redeem all,
but not less than all, of the Redeemable Warrants under certain conditions.
Redemption of the Redeemable Warrants could encourage holders to exercise the
Redeemable Warrants and pay the exercise price at a time when it may be
disadvantageous for the holders to do so, to sell the Redeemable Warrants at the
current market price when they might otherwise wish to hold the Redeemable
Warrants, or to accept the redemption price, which may be substantially less
than the market value of the Redeemable Warrants at the time or redemption. The
holders of the Redeemable Warrants will automatically forfeit their rights to
purchase the shares of Common Stock issuable upon exercise of such Redeemable
Warrants unless the Redeemable Warrants are exercised before they are redeemed.
The holders of Redeemable Warrants will not possess any rights as stockholders
of the Company unless and until such Redeemable Warrants are exercised. See
"Description of Securities -- Redeemable Warrants."
Current Prospectus Requirement and State Blue Sky Registration in connection
with Exercise of Redeemable Warrants
Commencing upon issuance, the Redeemable Warrants constituting part of
the Units offered hereby will be separately tradeable. The Company will be able
to issue shares of its Common Stock upon exercise of the Redeemable Warrants
only if there is a then current prospectus relating to the Common Stock issuable
upon the exercise of the Redeemable Warrants under an effective registration
statement filed with the Securities and Exchange Commission (the "Commission"),
and only if such Common Stock is then qualified for sale or exempt from
qualification under applicable state securities laws of the jurisdictions in
which the various holders of Redeemable Warrants reside. Although the Company
has agreed to use its best efforts to meet such requirements, there can be no
assurance that the Company will be able to do so. The failure of the Company to
meet such requirements may deprive the Redeemable Warrants of any value and
cause the resale or other disposition of Common Stock issued upon the exercise
of the Redeemable Warrants to become unlawful. See "Description of Securities --
Redeemable Warrants."
13
THE COMPANY
The Producers Entertainment Group Ltd. (together with its subsidiaries,
the "Company") was organized under the laws of the state of Delaware on August
10, 1989 as Ventura Motion Picture Group Ltd., a wholly owned subsidiary of
Ventura Entertainment Group Ltd. ("Ventura"). In 1991, the Company changed its
name to The Producers Entertainment Group Ltd. In July, 1994, Ventura
distributed substantially all of the Company's Common Stock that it owned to
Ventura's shareholders. As a result of that distribution, no relationship
currently exists between the Company and Ventura.
The Company completed its initial public offering of securities in
December 1989 and, in January 1990, commenced operations. In April 1993 and in
December 1994, the Company completed additional offerings of its equity
securities. In May 1994, the Company acquired all of the outstanding common
stock of DSL Productions, Inc. and its affiliates ("DSL") in exchange for 32,500
shares of Common Stock. The acquisition was treated as a pooling of interests.
Unless the context indicates otherwise, the term "Company" includes The
Producers Entertainment Group Ltd. and all of its subsidiaries. The Company's
Common Stock is listed on the National Association of Securities Dealers, Inc.
Automated Quotation System and is traded on NASDAQ's SmallCap Market, under the
symbol "TPEG." The Company's Common Stock is also listed on the BSE and traded
under the symbol "PEG."
The Company's offices are located at 9150 Wilshire Boulevard, Suite
205, Beverly Hills, California 90212. Its telephone number is (310) 285-0400.
RECENT BRIDGE FINANCING
On June 7, 1996 the Company consummated a bridge financing (the "Bridge
Financing"), pursuant to which it issued an aggregate of (i) $500,000 principal
amount of promissory notes (the "Bridge Notes") which bear interest at the rate
of 10% per annum and are due and payable upon the earlier of (a) the
consummation of any financing of the Company from which the Company receives
gross proceeds of at least $1,000,000 or (b) one year from the date of issuance,
(ii) 500,000 warrants (the "Bridge Warrants"), each Bridge Warrant entitling the
holder to purchase one share of Common Stock at an initial exercise price of
$1.12 (subject to adjustment upon the occurrence of certain events) during the
three-year period commencing one year from the date of issuance. The net
proceeds of the Bridge Financing were used by the Company to complete film
projects then in production, to commence the production and development of new
projects and to meet working capital and general corporate requirements. The
Company intends to use a portion of the proceeds of this Offering to repay the
entire principal amount of, and accrued interest on, the Bridge Notes. See "Use
of Proceeds."
Upon consummation of the Offering, each Bridge Warrant shall
automatically be converted into a Redeemable Warrant (referred to herein as the
"Selling Securityholder Warrant") having terms identical to those of the
Redeemable Warrants underlying the Units offered hereby. The Selling
Securityholder Warrants and the underlying shares of Common Stock issuable upon
exercise of the Selling Securityholder Warrants are included in the Registration
Statement of which this Prospectus is a part. See "Concurrent Offering."
CONCURRENT OFFERING
The Registration Statement of which this Prospectus is a part also
includes 500,000 Redeemable Warrants (the "Selling Securityholder Warrants") and
500,000 shares of Common Stock (the "Selling Securityholder Shares") underlying
such Warrants, owned by certain selling securityholders (the "Selling
Securityholders"). The Selling Securityholder Warrants and the Selling
Securityholder Shares are not being
14
offered or sold pursuant to the Offering. Such Selling Securityholder Warrants
and the Selling Securityholder Shares may be sold in the open market, in
privately negotiated transactions or otherwise, directly by the Selling
Securityholders. The Company will not receive any proceeds from the sale of such
Selling Securityholder Warrants; however, the Company will receive proceeds from
the exercise, if any, of the Selling Securityholder Warrants. Expenses of the
Concurrent Offering, other than fees and expenses of counsel to the Selling
Securityholders and selling commissions, will be paid by the Company. Neither
the Selling Securityholder Warrants nor the Selling Securityholder Shares may be
sold for a period of 18 months from the effective date of the Registration
Statement without the prior written consent of the Representative. Sales of such
Selling Securityholder Warrants or shares of Common Stock by the Selling
Securityholders or the potential of such sales may have an adverse effect on the
market price of the securities offered hereby.
See "Risk Factors."
15
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Units offered by the Company hereby at the assumed initial public offering price
of $4.00 per Unit, after deducting underwriting discounts and expenses of the
Offering payable by the Company, are estimated to be $6,675,000 ($7,720,000 if
the Underwriters' over-allotment option is exercised in full). The Company
presently intends to devote the net proceeds of the Offering to the following
purposes:
Application of Net Approximate Percentage of
Proceeds Amount Net Proceeds
------------------ ----------- -------------
Repayment of bridge notes............................. $500,000(1) 7.5%
Repayment of working capital loan..................... $100,000(2) 1.6%
Interim Financing of estimated production costs during
forthcoming 12 month period.......................... $1,200,000(3) 18.0%
Establishment and operation of planned
international distribution division................... $650,000(4) 9.8%
Acquisition by planned international
distribution division of products from,
and distribution advance payments to,
unaffiliated producers............................. $2,000,000(4) 30.0%
Acquisition of rights for new projects................ $150,000 2.3%
Annual cash dividends on Series A Stock............... $420,000(5) 6.3%
Working capital and general corporate
purposes.......................................... $1,650,000 24.5%
---------- -----
Total................................................. $6,675,000 100%
========== =====
- -----------------
(1) The Company's repayment of the Bridge Notes will include accrued
interest thereon. See "Recent Bridge Financing."
(2) This loan was incurred by the Company for working capital purposes in
May 1996 and is due and payable, including accrued interest thereon at
the rate of 10% per annum, on July 31, 1996. This loan is secured by
the Company's adjusted gross participation in the revenues deriving
from the distribution of a television series produced by the Company.
(3) As noted under "Business", while the Company generally does not risk
its own capital to finance productions, it advances its own funds on an
interim basis to finance productions. Such advances are generally
reimbursed to the Company pursuant to production or distribution
agreements with broadcast or cable networks, studios, distributors and
independent financing sources.
(4) These amounts represent management's estimates of the cost of
operations and the cost of acquisition of products (including
distribution advances) from other producers by the Company's planned
international distribution division during the first year of its
operations.
(5) Represents annual dividends of 8 1/2% of the outstanding $5,000,000 of
Series A Stock, payable quarterly. Pursuant to the provisions governing
the Series A Stock, the Company has the option to pay dividends thereon
in cash or in shares of its Common Stock. However, the Company has
agreed that, without the consent of the Representative, it will not pay
such dividends in shares of Common Stock for the dividend periods
within the 18 month period following the date of this Prospectus.
16
Any additional net proceeds realized from the exercise of the
Underwriters' over-allotment option or the exercise of the Redeemable Warrants
included in the Units will be added to the Company's working capital.
The allocation of proceeds described in the foregoing table is subject
to change by reason of certain contingencies, including the fact that the
Company might undertake a greater or lesser number of production projects during
the forthcoming year than is anticipated by management of the Company as of this
date or may acquire rights to properties and projects in addition to those
currently planned by management. In addition, during the first year of operation
of its new International Distribution Division, the Company may not be able to
acquire productions from unaffiliated producers in the approximate aggregate
dollar amount indicated in the foregoing table. Any such changes in the
allocation of proceeds would either be met out of the Company's working capital
or result in additions to its working capital.
The Company believes that the estimated net proceeds to be received by
it from the Offering, together with funds derived from its operations, will be
sufficient to meet the Company's working capital requirements for a period of at
least 12 months following the consummation of this Offering. Thereafter, if the
Company is unable to generate sufficient working capital from its operations to
meet its then prevailing business requirements, it will be required to seek
additional debt or equity financing from external sources and there can be no
assurance that such financing, if any, will be available on terms acceptable to
the Company. If such financing becomes necessary and is not available, the
Company's business would be materially adversely affected. See "Risk Factors."
Proceeds not immediately required for the purposes described above will
be invested by the Company principally in short-term bank certificates of
deposit, highly rated short-term debt securities, United States government
obligations, money market instruments or other high grade interest-bearing
investments having maturities of less than one year.
The Company will not receive any of the proceeds from the sale of the
Selling Securityholder Warrants or the Selling Securityholder Shares; however,
the Company will receive proceeds from the exercise, if any, of the Selling
Securityholder Warrants. See "Concurrent Offering."
DILUTION
The following discussion and tables assume an initial public offering
price of $4.00 per Unit and attribute no value to the Redeemable Warrants
included in the Units.
The net tangible book value of the Common Stock as of March 31, 1996
was $1,548,782, and the net tangible book value per share as of March 31, 1996
was approximately $.48. Net tangible book value represents the amount of the
Company's total tangible assets less total liabilities. Dilution per share
represents the difference between the attributed amount per share paid by
purchasers of shares of Common Stock included in the Units sold in the Offering
and the pro forma net tangible book value per share of Common Stock immediately
after completion of the Offering. After giving effect to the sale in the
Offering of 2,000,000 Units and the application of the estimated net proceeds
therefrom, the pro forma net tangible book value of the Company as of March 31,
1996 would have been $8,223,782 and the pro forma net tangible book value per
share would have been approximately $.73. This represents an immediate increase
in net tangible book value of $.25 per share to existing stockholders and an
immediate dilution in net tangible book value of $.27 per share or 27% per share
to purchasers of Units in the Offering, as illustrated in the following table:
17
Assumed initial public offering price per share........................ $1.00
Net tangible book value
per share before the Offering................................. $.48
Increase per share attributable to new investors.............. $.25
====
Pro forma net tangible book value
per share after the Offering........................................... $.73
Dilution per share to new investors.................................... $.27
====
If the Underwriters' over-allotment option is exercised in full, the
increase in net tangible book value per share as of March 31, 1996 attributable
to new investors would have been $.27, the pro forma net tangible book value per
share of Common Stock after the Offering would be approximately $.75 and the
dilution per share to new investors would be $.25 or 25%.
The foregoing information excludes (i) 357,917 shares of Common Stock
issuable upon the exercise of outstanding stock options at exercise prices
ranging between $1.l2 per share and $13.00 per share, (ii) 250,000 shares of
Common Stock issuable upon the exercise of the Company's Class B Warrants at an
exercise price of $8.00 per share, (iii) up to 1,250,000 shares of Common Stock
issuable upon the conversion of the Company's Series A Stock on the basis of
1.25 shares of Common Stock for each outstanding share of Series A Stock, (iv)
40,250 shares of Common Stock issuable upon the exercise of warrants which were
issued in connection with the Company's 1993 bridge financing at an exercise
price of $7.70 per share, (v) 150,000 shares of Common stock issuable in
connection with the option to purchase units (each unit consisting of one share
of Series A Stock and one Class B Warrant) at an exercise price of $7.00 per
unit granted to the underwriters with respect to the Company's public offering
of such securities in December 1994, (vi) 41,667 shares of Common Stock issuable
in connection with the option to purchase units (each unit consisting of two
shares of Common stock) at an exercise price of $7.20 per unit granted to the
underwriter with respect to the Company's 1993 public offering of securities,
(vii) up to 250,000 shares of Common Stock issuable pursuant to options which
may be granted under the Company's Stock Option Plan, (viii) 187,500 shares of
Common Stock issuable upon the exercise of outstanding stock options granted to
an investment banking firm and its affiliate in connection with an agreement in
April 1995 to render financial advisory services to the Company at an exercise
price of $4.00 per share, and (ix) 32,500 shares of Common Stock which may
become issuable pursuant to the terms and conditions of an agreement in
principle with respect to the proposed settlement of the action DSL
Entertainment, Joint Venture, a California Joint Venture v. DSL Productions,
Inc.
18
CAPITALIZATION
The following table sets forth the capitalization of the Company at
March 31, 1996, actual; pro forma to give effect to the consummation of the
Bridge Financing on June 7, 1996 and application by the Company of the aggregate
net proceeds therefrom and pro forma as adjusted to give effect to the
issuance and sale of the Units offered by the Company hereby (at an assumed
initial public offering price of $4.00 per Unit) and the initial application by
the Company of the estimated net proceeds therefrom. See "Use of Proceeds" and
"Recent Bridge Financing."
March 31, 1996
------------------------------
Pro Forma
As
Actual Pro Forma (1) Adjusted(2)
-------- --------------- --------------
Short-term debt .............................. $ 100,000 $ 100,000 - 0 -
Bridge Notes, net of $137,513 of deferred
financing costs and original issue discount .. - 0 - 362,487 - 0 -
Shareholders' equity:
Preferred Stock, $.001 par value,
10,000,000 shares authorized;
1,000,000 shares of Series A Stock
issued and outstanding .............. 1,000 1,000 1,000
Common Stock, $.001 par value;
50,000,000 shares authorized;
3,500,954 shares issued and
outstanding actual and pro forma,
11,220,345 outstanding pro forma
as adjusted(3) ...................... 3,501 3,501 11,501
Additional paid-in capital .......... 16,114,102 16,114,102 22,781,102
Accumulated deficit ................. (12,735,629) (12,735,629) (12,873,142)
Treasury stock 280,609 shares at cost (1,010,192) (1,010,192) (1,010,192)
Notes receivable related parties from (824,000) (824,000) (824,000)
sale of Common Stock
Total shareholders' equity .......... 1,548,782 1,548,782 8,086,269
Total capitalization ................ $ 1,648,782 $ 2,011,269 $ 8,086,269
- ---------------
(1) As adjusted to reflect the consummation of the Bridge Financing. As
part of the Bridge Financing, approximately $137,513 has been reflected
as deferred financing costs and original issue discount incurred in
connection with the Bridge Notes. See "Recent Bridge Financing."
19
(2) As adjusted to reflect the sale of the Units offered by the Company
hereby (at an assumed initial public offering price of $4.00 per Unit)
and the initial application of the net proceeds therefrom. See "Use of
Proceeds." Upon repayment of the Bridge Notes, the Company will record
an extraordinary loss of $103,000 resulting from the early
extinguishment of the Bridge Notes. This loss arises as a result of
expensing unamortized deferred financing costs and original issue
discount on the Bridge Notes.
(3) Excludes (i) 357,917 shares of Common Stock issuable upon the exercise
of outstanding stock options at exercise prices ranging between $1.12
and $13.00 per share, (ii) 250,000 shares of Common Stock issuable upon
the exercise of the Company's Class B Warrants at an exercise price of
$8.00 per share, (iii) up to 1,250,000 shares of Common Stock issuable
upon the conversion of the Company's Series A Preferred Stock on the
basis of 1.25 shares of Common Stock for each outstanding share of
Series A Stock, and (iv) 40,250 shares of Common Stock issuable upon
the exercise of warrants which were issued in connection with the
Company's 1993 bridge financing at an exercise price of $7.70 per
share, (v) 150,000 shares of Common stock issuable in connection with
the option to purchase units (each unit consisting of one share of
Series A Stock and one Class B Warrant) at an exercise price of $7.00
per unit granted to the underwriter with respect to the Company's
public offering of securities in December 1994, (vi) 41,667 shares of
Common Stock issuable in connection with the option to purchase units
(each unit consisting of two shares of Common stock) at an exercise
price of $7.20 per unit granted to the Underwriters with respect to the
Company's 1993 public offering of securities, (vii) up to 250,000
shares of Common Stock issuable pursuant to options which may be
granted under the Company's Stock Option Plan, (viii) 187,500 shares of
Common Stock issuable upon the exercise of outstanding stock options
granted to an investment banking firm and its affiliate in connection
with an agreement in April 1995 to render financial advisory services
to the Company at an exercise price of $4.00 per share, and (ix) 57,500
shares of Common Stock which may become issuable pursuant to the terms
and conditions of the current agreement in principle with respect to
the proposed settlement of the action DSL Entertainment, Joint Venture,
a California Joint Venture v. DSL Productions, Inc. As of the date of
this Prospectus, it is uncertain whether settlement of this litigation
upon the terms described above will ultimately be effected.
20
MARKET FOR COMMON EQUITY AND SERIES A
PREFERRED STOCK AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is currently traded on NASDAQ under the
symbol "TPEG" and on the BSE under the symbol "PEG." The following table sets
forth the high and low bid prices on NASDAQ for the periods indicated, as
reported by the National Quotation Bureau, Incorporated. The quotations are
inter-dealer prices without adjustment for retail mark-ups, mark-downs or
commissions, and do not necessarily represent actual transactions. These prices
may not necessarily be indicative of any reliable market value.
Common Stock Series A Stock Series B Warrants
--------------- -------------- -----------------
High Low High Low High Low
Bid Bid Bid Bid Bid Bid
---- --- ---- --- ---- ---
Fiscal Year - 1994:
Quarter Ended
September 30, 1993 13.24 11.00
December 31, 1993 15.48 13.48
March 31, 1994 10.76 9.76 00 00
June 30, 1994 13.76 10.48 00 00
Fiscal Year - 1995:
Quarter Ended
September 30, 1994 10.00 6.48 00 00
December 31, 1994 5.24 2.76 17.00 16.00
March 31, 1995 3.00 2.00 14.48 12.00
June 30, 1995 2.88 2.00 16.00 13.24
Fiscal Year - 1996
Quarter Ended
September 30, 1995 3.00 2.64 14.00 13.00
December 31, 1995 2.64 2.24 13.48 13.00
March 31, 1996 1.24 .88 14.48 13.00
On June 28, 1996, the closing bid and asked prices of the Company's
Common Stock were $1.12 and $1.37, respectively, and the closing bid and asked
prices for the Series A Stock were $2.62 and $3.62, respectively. On such date,
there were 3,305,210 shares of the Company's Common Stock outstanding held by
165 holders of record and 1,000,000 shares of the Company's Series A Stock
outstanding held by fifteen holders of record.
Application has been made for, and it is anticipated that upon
consummation of the Offering, the Units and the Redeemable Warrants will be
approved for quotation on NASDAQ under the symbols "TPEGU" and "TPEGX,"
respectively, and for listing on the BSE under the Symbols "TPGU" and "TPGX,"
respectively.
21
DIVIDEND POLICY
The Company has never paid a cash dividend on the Common Stock and
presently intends to retain any future earnings for investment and use in its
business operations. There can be no assurance that the Company's operations
will generate the revenues and cash flow required to declare cash dividends on
the Company's outstanding Common Stock in future fiscal periods or that the
Company will have legally available funds to pay dividends on such Common Stock.
Consequently, no cash dividends are expected to be paid in the foreseeable
future except to the extent required to satisfy the Company's obligations with
respect to its outstanding Series A Stock.
Pursuant to the terms of the Company's outstanding Series A Stock,
which it issued in a public offering consummated in December 1994, the Company,
at its option, may pay dividends on such stock in cash or in shares of its
Common Stock when, as and if declared by the Company's Board of Directors out of
funds legally available therefor. The Company has agreed that it will not pay
dividends on the Series A Stock in shares of its Common Stock without the
consent of the Representative for the dividend periods within the 18 month
period following the date of this Prospectus. See "Risk Factors."
22
SELECTED FINANCIAL DATA
The selected financial data for the years ended June 30, 1995 and 1994
have been derived from the audited financial statements of the Company. The
selected financial data for the nine months ended March 31, 1996 and 1995 are
unaudited. In the opinion of management of the Company, such unaudited data
includes all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the financial position and results of
operations for such period. The results of operations for the nine months ended
March 31, 1996 are not necessarily indicative of the results to be expected for
the year ended June 30, 1996. The following table of Selected Financial Data
gives effect to the Reverse Stock Split and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements and notes thereto of the
Company which are included elsewhere herein.
Year Ended June 30, Nine Months Ended March 31,
---------------------------- ----------------------------
1995 1994 1996 1995
------------ ------------ ------------ ------------
Statement of Operations Data:
Revenue .................. $ 5,290,745 $ 10,782,850 $ 2,132,767 $ 4,971,334
Amortization of film costs 3,768,728 4,316,300 717,000 3,746,050
Costs related to revenue . -- 5,654,113 -- --
------------ ------------ ------------ ------------
3,768,728 9,970,413 717,000 3,746,050
------------ ------------ ------------ ------------
1,522,017 812,437 1,415,767 1,225,284
Write-off of projects in
development ............ 335,233 233,903 -- --
General and administrative
expense ................ 4,696,554 5,621,365 2,665,625 3,660,150
------------ ------------ ------------ ------------
Operating (loss) ......... (3,509,770) (5,042,831) (1,249,858) (2,434,866)
Other income (expense) ... (83,482) (446,692) 249,273 (338,381)
Provision for income taxes -- -- -- --
------------
Net (loss) ............... (3,593,252) (5,489,523) (1,000,585) (2,773,247)
Dividend preferred stock . (232,600) -- (318,750) (126,350)
------------ ------------ ------------ ------------
(Net loss) ............... $ 3,825,852 $ (5,489,523) $ (1,319,335) $ (2,899,697)
============ ============ ============ ============
Net loss per share ....... $ (1.52) $ (2.34) $ (0.46) $ (1.17)
============ ============ ============ ============
Average number of shares . 2,513,130 2,341,500 2,898,850 2,482,694
outstanding
June 30, March 31,
------------------- ----------
1995 1994 1996
------ ------ -----
Balance Sheet Data:
Cash and cash equivalents ........... $ 832,754 $ 964,387 $ 81,268
Accounts and notes receivable ....... 1,054,916 1,390,030 714,779
Receivables from related parties .... 116,229 458,294 14,876
Film costs, net ..................... 2,104,503 4,610,704 3,209,942
Fixed assets at cost, net ........... 76,439 93,914 58,490
Other assets ........................ 199,829 89,399 213,107
---------- ---------- ----------
Total assets .................... 4,384,670 7,606,728 4,292,462
Notes payable ....................... -- 1,388,750 100,000
Accounts payable and accrued expenses 847,595 1,348,950 491,986
Deferred revenue .................... 948,708 3,466,901 2,151,694
---------- ---------- ----------
Total liabilities ............... 1,796,303 6,204,601 2,743,680
---------- ---------- ----------
Net Stockholders' equity ............ $2,588,367 $1,402,127 $1,548,782
========== ========== ==========
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The following discussion and analysis should be read in conjunction
with the Company's consolidated Financial Statements and notes thereto appearing
elsewhere in this Prospectus.
The Company's revenues are principally derived from the production and
distribution of completed projects, producers fees and personal management fees.
The amount of revenues derived by the Company in any one period is dependent on,
among other factors, projects completed during any such period and the
distribution of completed projects. Revenues from producers and other fees are
primarily dependent on the number of projects being produced and the agreements
relating to such projects. The Company's results of operations have fluctuated
significantly from fiscal period to fiscal period primarily by reason of the
fact that the number of its projects completed and number of its projects in
production have fluctuated from period to period. In addition, results of
operations for specific periods reflect revenues derived from one project which
has accounted for a substantial or even major percentage of the Company's total
revenues during such periods, whereas that is not the case in other periods.
Accordingly, the amount of revenues in any period reported upon hereon are not
necessarily indicative of revenues to be derived by the Company in future
periods.
Amounts received as license fees for projects in production are
deferred until the project becomes available for broadcast in accordance with
the terms of the licensing agreement and are recognized as revenues at such
time. Additional licensing and distribution fees are recognized as earned in
accordance with the terms of the related agreements. Revenues from the sale of
completed projects are recognized upon their sale.
Revenues from completed projects owned by the Company are recognized
when the project becomes contractually available for telecasting or exhibition
by the licensee. Amortization of film costs are charged to operations on an
individual-film basis in a ratio that the current year's revenues bears to
management's estimate of total gross revenue (current and future years) from all
sources. This is commonly referred to as the individual-film forecast method.
The amount of distribution and licensing revenues earned by the Company in any
one period are dependent on, among other factors, projects completed during any
such period and the distribution of completed projects by others. Revenues from
producers and other fees are primarily dependent on the number of projects being
produced by the Company and the agreements relating to such projects.
Accordingly, year to year comparisons of revenues representing distribution,
producers and other fees are not necessarily indicative of further revenues from
these sources.
The amount of general and administrative expenses to be incurred in the
future is dependent on the level of the Company's operations, including projects
in production and the level of operations of its personal management subsidiary.
DSL was formed in January 1992. In May, 1994, the Company acquired DSL
in a transaction accounted for as a pooling of interests. Accordingly, the
Company's historical financial statements have been retroactively restated to
include the accounts of DSL from its inception on January 2, 1992.
Nine Months Ended March 31, 1996 as Compared to
Nine Months Ended March 31, 1995
Revenues for the nine months ended March 31, 1996 were $2,132,767
compared to $4,971,334 for the nine months ended March 31, 1995. Revenues for
the nine months ended March 31, 1996 included revenues from the distribution of
completed projects, producer fees from currently airing television series,
24
personal management fees, and producers fees from the made-for-television movie,
"Lily Dale" which was in the production phase. Revenues for the nine months
ended March 31, 1995 included production and distribution revenues, fees
received from a television series and personal management fees. Included in
revenues for the nine months ended March 31, 1995 is approximately $3,607,000
related to the completion of the television series Future Quest which aired on
PBS. Amortization of film costs for the nine months ended March 31, 1996 and
1995 were $717,000 and $3,746,050, respectively, using the individual
film-forecast method.
General and administrative expenses for the nine months ended March 31,
1996 were $2,665,625 as compared to $3,660,150 for the nine months ended March
31, 1995. The $994,525 decrease in general and administrative expenses was
primarily attributable to the termination of certain unprofitable operations of
DSL, including related compensation and other expenses, somewhat offset by legal
fees incurred in connection with lawsuits with the former president and owner of
DSL.
During the nine months ended March 31, 1996, the Company agreed to
settle various litigation relating to DSL. The Company recorded $267,663 of
income relating to these settlement agreements for that period. One of such
settlement agreements has since been consummated upon terms described under
"Business -- Legal Proceedings." During the nine months ended March 31, 1996,
the Company forgave the note receivable and accrued interest (aggregate -
$68,016) that was due from a company (owned by Alison and Patricia Meyer, who
are the adult children of Irwin Meyer, the Chief Executive Officer of the
Company) that formerly provided the Company with the services of its present
President and Chief Executive Officer and others.
During the nine months ended March 31, 1996, the Company recorded
$39,000 of interest income on notes receivable from related parties that were
received in connection with the sales of the Company's Common Stock. Exclusive
of this interest income, the decrease in interest income was primarily due to a
reduction in funds available for investment and lower interest rates. Interest
and financing expense for fiscal 1995 primarily consisted of interest paid on
the Company's 7% subordinated notes including $275,000 representing the market
value of the shares of Common Stock issued to the noteholders upon the repayment
of the notes in December 1994.
Year Ended June 30, 1995
compared to Year ended June 30, 1994
Revenues for the fiscal year ended June 30, 1995 were $5,290,745
compared to $10,782,850 for the fiscal year ended June 30, 1994. Revenues for
the year ended June 30, 1995 primarily consisted of distribution fees from
completed projects (primarily Future Quest), fees from the television series
Dave's World which is airing on CBS and personal management fees. Revenues for
the year ended June 30, 1994 included $5,486,000 received from the
made-for-television movie Against the Wall, $4,365,104 of distribution fees from
completed projects, fees from Dave's World, and personal management fees.
Amortization of film costs for fiscal 1995 and 1994 was $3,768,728 and
$4,316,300, respectively. Amortization of film costs in fiscal 1995 and 1994
included $729,000 and $1,000,000, respectively, related to revisions in
estimates of amounts to be received in the future from certain completed
projects. Costs related to revenues in fiscal 1994 consisted of amounts expended
on Against the Wall. Write-offs of projects in the development stage were
$335,233 and $233,903 for the years ended June 30, 1995 and 1994, respectively.
General and administrative expenses decreased to $4,696,554 in fiscal
1995 from $5,621,365 in fiscal 1994 or a decrease of $924,811. This decrease was
primarily attributable to the termination of certain unprofitable operations of
DSL, and related reductions of compensation and other expenses as of February
27, 1995. In connection with the restructuring of the Company's management, the
Company estimates that
25
it will reduce its general and administrative expenses from that which was
anticipated by approximately $195,000 for the year ending June 30, 1996.
The decrease in interest income was primarily due to reduced funds
available for investment and lower interest rates. Interest and financing
expense for fiscal 1995 includes interest on the Company's 7% subordinated notes
including $275,000 representing the market value of the shares of Common Stock
that were issued to the noteholders upon the repayment of the notes.
The provision for the note receivable relates to a loan made to the
then president of DSL which is secured by stock options previously granted to
this individual. Since the market price of the Company's Common Stock was
substantially below the exercise price of these options, the Company established
an allowance for the entire amount of this note. Reduction in "Deferred
participations based on estimated revenues" represents adjustments relating to
the estimated amounts payable to a third party based on certain revenues to be
derived by the Company (a portion of which is payable to such third party) from
certain completed projects based on projections of these revenues.
The amount of general and administrative expenses to be incurred in the
future is dependent on the level of the Company's operations including projects
in production. As noted under "Use of Proceeds" and "Business," the Company
plans to expand its personal management division and to form an international
distribution division as well as hire a Chief Financial Officer and support
staff. These developments are likely to result in a material increase in the
Company's general administration expenses during the forthcoming twelve months.
Liquidity and Capital Resources
As of March 31, 1996, the Company had cash of $81,268 and accounts
receivable of $714,718 (aggregate - $795,986). At such date, the Company also
had accounts payable and accrued expenses of $491,986 and a note payable of
$100,000 (aggregate - $591,986).
The Company's cash commitments for the twelve months ending March 31,
1997 include estimated base compensation to its officers and key independent
contractors of approximately $825,000, office rent of approximately $230,000 and
a note payable of $100,000 (aggregate - approximately $1,155,000). The lease for
the Company's office has been extended to September 30, 1997. The Company also
incurs other costs such as salaries, related benefits, office expenses,
professional fees and similar expenses. General and administrative expenses,
including compensation to officers and key independent contractors, aggregated
approximately $2,665,000 for the nine months ended March 31, 1996.
The Company's cash receipts are principally derived from exhibition and
distribution of its completed projects, producers fees and personal management
fees. The Company's cash receipts are affected by various factors including the
timing of the exhibition and distribution of its completed projects and the
number of projects produced for which the Company receives producers fees.
Therefore, the Company is unable to precisely predict the level or timing of its
future cash receipts.
For the nine months ended March 31, 1996, the Company's cash receipts
were primarily derived from producers fees from currently airing television
series, personal management fees, international distribution licensing revenue
and a production fee received from a made-for-television movie which aired in
June 1996. This movie was produced by the Company pursuant to an agreement which
provides for payments to the Company for production costs. Included in accounts
payable and accrued expenses at March 31, 1996 is approximately $298,000
representing the excess of payments received over amounts expended on production
of this movie. The Company expended additional funds since March 31, 1996 to
complete this movie. Cash received from the distribution of the Company's
completed projects aggregated approximately $389,000 for the nine months ended
March 31, 1996. As of March 25, 1996, the Company
26
borrowed $100,000 from related parties for working capital purposes. This loan
was subsequently repaid from the proceeds of a note issued in May 1996 to an
unrelated party. This Note bears interest at the rate of 10% per annum, is
secured by the Company's adjusted gross participation in revenues to be derived
by the Company with respect to the distribution of the Dave's World television
series and is due and payable (together with accrued interest) on the earlier of
July 31, 1996 or the effective date of the Registration Statement pertaining to
the Offering. See "Use of Proceeds." The lender has also received from the
Company $13,500 in fees pursuant to a consultation agreement.
The Company is obligated to pay dividends on the shares of Series A
Stock which were sold in its December 1994 public offering. Dividends on the
Series A Stock, which aggregate $425,000 annually, may be paid in shares of the
Company's Common Stock; however, the Company has agreed with the Representative
that the Company will not pay dividends on the Series A Stock in shares of
Common Stock during the 18-month period following the date of this Prospectus
without the consent of the Representative. During the nine months ended March
31, 1996, the Company issued an aggregate of 151,291 shares of its Common Stock
in payment of dividends on the Series A Stock accrued through December 31, 1995.
During the nine months ended March 31, 1996, the Company's cash
receipts and cash balance at June 30, 1995 were primarily used for the payment
of general and administrative expenses, including compensation to its officers
and key independent contractors.
The Company's operations have been primarily financed by the net
proceeds received from public offerings of its securities in 1993 and in 1994
which aggregated approximately $8,910,000. As of March 31, 1996, the Company's
outstanding stock options and warrants were exercisable at prices substantially
above the then prevailing market price of the Company's Common Stock and
management does not anticipate that the Company will derive significant
additional capital from the exercise of its outstanding options or warrants
unless the market price of its Common Stock increases significantly during the
remaining terms of such options and warrants as to which there can be no
assurance.
For the nine months ended March 31, 1996, the Company incurred an
operating loss of $1,249,858, a net loss of $1,000,585 (without giving effect to
dividends of $318,750 with respect to the Series A Stock which were paid by the
Company by issuing shares of Common Stock) and used $748,310 of cash in its
operations. Included in the Company's net loss is $68,016 representing the
forgiveness of a note receivable from a related party. See "Certain
Transactions."
As of the date hereof, the Company has no arrangements for external
sources of financing such as bank lines of credit. If the Company continues to
report losses and expends additional funds on development and production of
projects in excess of its current resources and future cash receipts, the
Company will be required to reduce its expenses to a level commensurate with
revenues, raise additional capital and/or borrow funds to sustain its
operations.
The Company believes that the estimated net proceeds to be received by
it from the Offering, together with funds derived from its operations, will be
sufficient to meet the Company's working capital requirements for a period of at
least 12 months following the consummation of this Offering. Thereafter, if the
Company is unable to generate sufficient working capital from its operations to
meet its then prevailing business requirements, it will be required to seek
additional debt or equity financing from external sources and there can be no
assurance that such financing, if any, will be available on terms acceptable to
the Company. If such financing becomes necessary and is not available, the
Company's business would be materially adversely affected.
Furthermore, if external sources of financing are not available to the
Company and future cash revenues are not sufficient to meet the Company's cash
needs, the Company plans to reduce the compensation of its officers, office
staff and other personnel and the number of development projects that
27
it will fund. While management has effected significant reductions in its
general and administrative expenses during the past year, the Company has not
made any specific plans or entered into any agreements to reduce the level of
its expenditures in the event that such reductions become necessary in the
future.
In June 1996, the Company consummated the Bridge Financing pursuant to
which the Company received net proceeds of approximately $362,000 and issued the
Bridge Notes in the aggregate principal amount of $500,000 and the Bridge
Warrants. The net proceeds of the Bridge Financing were used by the Company to
complete film projects then in production, to commence the production and
development of new projects and to meet working capital and general corporate
requirements. The Company intends to use a portion of the proceeds of this
Offering to repay the principal amount, together with accrued interest, of the
Bridge Notes. See "Recent Bridge Financing" and "Use of Proceeds."
For income tax reporting purposes, the Company uses an October 1
year-end. At June 30, 1995, the Company had unutilized federal and state net
operating loss carryforwards of approximately $11,100,000 which expire through
2008. Utilization of these net operating loss carryforwards may be limited in
any one year by other factors. Upon
consummation of the Offering, an "ownership change" within the meaning of
Section 382 of the Internal Revenue Code will have occurred which, in
turn, will restrict the availability of such net operating loss carryforward to
an estimated $_____________ per year in future fiscal years.
Inflation
Inflation has not had a material effect on the Company.
28
BUSINESS
The Company is engaged in the acquisition, development, production and
distribution of dramatic, comedy, documentary and instructional television
series, movies and theatrical motion pictures ("projects"). The Company's
projects are distributed in the United States and in international markets for
exhibition on standard broadcast television (network and syndication), basic
cable and pay cable, video and theatrical release. The Company is also engaged
in the business of the personal management of performers and writers.
The Company's completed projects include Dave's World, a comedy series
that airs on the CBS television network, Lily Dale, a movie produced for the
Showtime cable network, Future Quest, a series that originally aired on the
Public Broadcasting System ("PBS"), and What's Love Got To Do With It?, a
theatrical motion picture released by Disney's Touchstone Pictures. The Company
receives fees for providing producer and executive producer services and is
generally also entitled to a profit participation from the projects.
The Company manages the careers of 15 performers and writers, including
Julia Louis-Dreyfus ("Seinfeld"), George Newborn ("Father of the Bride"),
Rosaline Allen ("Seaquest"), and Michael Stoyanov ("Blossom"). The Company
intends to increase the staff of its personal management division in order to
attempt to expand its client roster.
Acquisition of Properties. Properties are usually acquired by the
Company through options for a nominal fee against a more substantial purchase
price. Options enable the Company to develop the property during the option
period before committing to its acquisition. Having an option also enables the
Company to secure a financing or production commitment including payment of the
purchase price of the property before actually purchasing such property. Option
periods customarily run for a minimum of one year and contain provisions that
enable the Company to extend the option for additional periods upon payment of
an extension fee. Terms of options vary significantly and are dependent upon,
among other factors, the professional reputation and standing of the author or
other owner of the property, the level of revenues or profits that the Company
estimates may be derived from the exploitation of the property and the estimated
cost of further development and production of the property. Various agreements
relating to these projects provide for payments to writers upon their
production. Certain options also provide for the optionee to participate in net
profits.
Development and Packaging of Projects. Projects may be developed from
true stories or original fictional material in the form of outlines or
first-draft screenplays or teleplays. The Company is continuously engaged in
acquiring and developing new properties. It is the Company's practice to secure
a financing or production commitment for a project from third parties, including
broadcast and cable networks, studios, distributors and independent financing
sources prior to expending substantial sums in the development process. However,
the Company does advance its own funds to meet the interim costs of development
and production for these projects which are then repaid to the Company pursuant
to the production contracts.
During the development phase of a project, a screenplay, teleplay or
outline of the program is written, tentative commitments are sought from buyers
or licensees, such as studios, networks, and independent financing sources and a
proposed production schedule and budget are prepared. Often these projects are
created, acquired and developed (including specifically selected talent such as
directors and actors), so that they may be offered to broadcast, financial and
distribution entities as a more attractive project. This process is known in the
entertainment business as "packaging." The Company believes that packaging a
literary property enhances its ability and opportunities to obtain favorable
production, financing and distribution commitments.
Production, Producer and Executive Producer Services. Production of a
project is divided into three phases: pre-production, principal photography and
post-production.
29
Upon receiving final approval from its buyer or financing source (such
as a television network or studio), the project is put into the pre-production
phase. During this phase, agreements with talent including performers, a
director and the production staff are completed. Locations are selected and
arrangements are made for sets, props, equipment and other production
requirements. The pre-production phase may continue for several weeks for a
made-for-television movie and up to several months for a theatrical motion
picture. After pre-production is completed, the production enters the principal
photography phase.
During the principal photography phase, the project is produced on tape
or film. Actors perform on sets, in the studio and on location in accordance
with a pre-determined schedule and budget established by the producer. Principal
photography for a made-for-television movie is usually completed in
approximately three to four weeks while principal photography for a theatrical
motion picture could require several months. Upon completion of principal
photography, the project enters the post-production phase.
During the post production phase, the film shot during principal
photography is transformed into a completed project during the post-production
phase. The post-production phase includes editing, addition of sound effects,
musical scoring and implementing other technical processes required to complete
the project.
The Company provides producer and executive producer services in
connection with the production of its projects and is involved in all phases of
their production. The Company receives fees for these services and is generally
entitled to a percentage of future profits from these projects. The Company
received producers fees for producing the theatrical motion picture What's Love
Got to Do With It and executive producer fees for each of its
movies-for-television and for the television series Dave's World and Can't Hurry
Love. The Company was not responsible for any of the production costs of these
projects, but is entitled to participate in profits from each of these projects.
Distribution of Completed Projects. Pursuant to its agreements with
third party financing sources, the Company generally retains certain rights to
distribute its projects in international and domestic markets. The Company then
distributes the projects after a certain period of time has expired or after the
project has been exhibited or released on a specific number of occasions.
Completed projects are distributed by the Company or by independent third
parties who have the right to distribute these properties in domestic and
international markets for specific periods of time. These distribution companies
retain a percentage of the revenues received from the distribution of the
projects and are entitled to recover certain expenses relating to such
distribution. Where available, the Company obtains advances against domestic and
international licensing revenues. On certain occasions, these advances may be
used to finance development and production of these projects. See "International
Sales and Distribution."
Personal Management. The Company's personal management currently
manages the careers of 15 performers and writers at various stages in their
careers. The compensation paid is based on the income generated by these
clients. Among the Company's client's are Julia Louis-Dreyfus (Seinfeld), George
Newborn (Father Of The Bride), Rosaline Allen (Seaquest), Michael Stoyanov
(Blossom), Nancy Allen, John Robert Hoffman, Douglas Sills and Linda Kozlowski.
The Company's production and development capabilities may provide a
source of projects and opportunities for the actors and writers whose careers
are managed by the personal management division of the Company. The personal
management business complements the Company's production and development
capabilities by providing sources of talent for the "packaging" of projects, an
increasingly important aspect of the entertainment industry. Personal managers
often function as producers or executive producers with respect to projects for
which their clients have been engaged, realizing a greater amount of revenue in
the form of producer or executive producer fees, in lieu of a management fee, as
well as potentially obtaining a profit participation in such projects.
30
The personal management business is a service business which is not
capital intensive; therefore, the potential revenues and profits derived from
the operation of the personal management business are usually significantly
greater than the costs of conducting such operations.
The Company is increasing the staff of its personal management division
in order to allow its principal manager to concentrate on the expansion of the
number of higher income generating clients. The remaining members of the staff
of the division will attempt to build a larger base of clients whose careers
have not yet reached the highest levels of professional achievement, but who
have demonstrated the potential for such achievement.
Markets for Company Productions
Movies-for-Television. There is a significant domestic and
international market for movies-for- television ("MFT"). The Company has
produced five movies-for-television since 1991. See "Completed Projects." The
Company has been able, and believes it will continue to be able, to develop and
produce motion pictures for television at costs which do not exceed its domestic
license fees and international advances. These license fees, whether paid to the
Company by networks, cable or pay-TV companies and international broadcasters,
generally allow the licensee to broadcast the movies-for-television a limited
number of times. In certain instances, all of the remaining rights to these MFTs
belong to the Company. Additional profits may be realized from domestic
syndication and the exploitation of the MFTs in basic cable, pay cable and video
in domestic and international markets. The Company intends actively to continue
to produce movies-for-television. The Company may also produce MFT's on a fee
basis, where the broadcaster bears all of the production risks and the Company
receives a production fee plus a percentage of profits.
Television Series. Television series represent a source of current and
future revenues for the Company. The Company has produced an aggregate of six
television series since 1991. See "Completed Projects." The cost of a television
series is financed (in whole or in part) from licensing fees and international
distribution advances. These fees are derived from domestic television networks
and/or foreign broadcasters in exchange for exclusive rights to broadcast or
distribute the series in specified markets for specified periods of time. After
the expiration of these rights, additional revenues may be derived from
relicensing these series in the same or other markets such as domestic
syndication and basic cable, pay cable and video in domestic and international
markets. For example, the Company completed production of 74 episodes of the CBS
comedy series, Dave's World, which has aired, and is currently airing, on the
CBS television network. See "Completed Projects - TV Series" under this caption.
Theatrical Motion Pictures. There are very active domestic and
international markets for theatrical films. To date, the Company has produced
one film, What's Love Got To Do With It, which was released in June 1993 by
Disney's Touchstone Pictures. To the extent that the Company produces theatrical
motion pictures in the future, it will seek to have such productions financed by
major film studios, distributors, independent financing sources or a combination
thereof.
Completed Projects
The Company has produced programming in the following categories:
Movies-For-Television. From 1991 to the present, the Company has
developed and produced five movies-for-television consisting of The Price She
Paid (CBS), The Secret Passion of Robert Clayton (USA), When A Stranger Calls .
. . Back (Showtime), Against The Wall (HBO) and Lily Dale (Showtime).
The Company's first movie-for-television, The Price She Paid, starred
Loni Anderson and Anthony John Denison and was broadcast on the CBS television
network in March 1992 and April 1993. This movie
31
was put into development by CBS, which paid all development costs, and was
packaged by Creative Artists Agency, Inc. The Company has licensed this movie to
World International Network for broadcast outside North America and Canada under
the title Plan of Attack for 25 years.
During fiscal 1992, the Company produced a movie-for-television, The
Secret Passion of Robert Clayton, starring John Mahoney and Scott Valentine,
which aired on the USA Network and was produced in association with Wilshire
Court Productions, a Paramount Communications Company. The movie is owned by
Wilshire Court Productions. The Company received executive producer fees for
this movie and a continuing profit participation.
The Company's television movie, When A Stranger Calls . . . Back,
staring Charles Durning and Carol Kane was aired on Showtime on April 4, 1993.
This project is owned by MCA Television Entertainment. For its services as
executive producer, the Company received executive producer fees and a
continuing profit participation.
The Company produced the movie-for-television, Against The Wall, which
premiered on Home Box Office on March 26, 1994, staring Kyle MacLachlan and
Samuel Jackson, Jr. The project is owned by Home Box Office. The Company
received executive producer fees and a continuing profit participation.
In June 1996, the Company's television movie Lily Dale, written by
Pulitzer Prize and two time Academy Award winning author Horton Foote, aired on
Showtime. The movie starred Mary Stuart Masterson, Sam Shepard, Stockard
Channing, Jean Stapleton and Tim Guinee. The movie is owned by Showtime. The
Company received executive producer fees and a continuing profit participation.
TV Series. The Company has produced 74 episodes of the CBS comedy
series, Dave's World, which airs on the CBS television network. The Company
recently received an additional production order for 22 new episodes of this
series for the 1996-1997 television season. The production of the new episodes
will commence the summer of 1996. By reason of this renewal order, the Company
anticipates that in the event of the syndication of the series, it will derive
revenues from the syndication of this series in future fiscal periods. The
Company also produced 19 half- hour episodes of Can't Hurry Love which began
airing on CBS in September 1995. This series has not been renewed.
Reality/Documentary Programming. The Company's reality/documentary
series consists of seven television series -- Hollywood Stuntmakers I and II,
Superstars of Action, FX Masters, Hollywood Babylon, Future Quest, Mysterious
Forces Beyond and A Day With.
Hollywood Stuntmakers I and II, a 26 half-hour episode television
series hosted by James Coburn for the Discovery Channel, features Hollywood's
best stuntmen and women in action. The series initially aired on The Learning
Channel.
Superstars of Action, a 26 half-hour episode television series hosted
by Robert Wagner, is a biography series that profiles various action stars
including Steve McQueen and Arnold Schwarzenegger. Superstars of Action is
produced for the German broadcaster Beta-Taurus and is licensed to The Learning
Channel.
FX Masters, a 13 half-hour episode television series hosted by
Christopher Reeve for The Learning Channel, takes a behind the scenes look at
how special effects and movie magic are made. FX Masters currently airs on the
Discovery Network.
Hollywood Babylon is a 26 half-hour episode television series hosted by
Tony Curtis. This series is based primarily on the original international best
selling book of the same name by Kenneth Anger.
32
Hollywood Babylon explores the hidden underside of Hollywood through live
re-creations and archival film footage and photographs.
Future Quest, is a 22 half-hour episode television series hosted by
actor Jeff Goldblum. Experts in several science disciplines compare the
futuristic visions of pop culturists with the current breakthrough advances in
science and technology. The series continues to be licensed overseas. Future
Quest aired on the Public Broadcasting System ("PBS").
Mysterious Forces Beyond is a 26 half-hour episode television series
which explores psychic phenomenon. The investigative series employs its news
gathering resources to uncover the facts behind some of the world's most
confounding mysteries, including telekinesis, psychic healing and ghosts.
Mysterious Forces Beyond aired on The Learning Channel and has also been
pre-sold to Canadian broadcaster Western International Communication, where the
series was produced.
The Company also completed production of a one-hour reality special
entitled A Day With where famous entertainment personalities, including Tom
Hanks, were interviewed. A Day With aired on the Fox Broadcasting Network in
June 1996.
"How To" Instructional Programming. The Company has produced 65
episodes of Laurie Cooks Light & Easy, a cooking show which aired on the
Learning Channel. Cookbook author Laurie Burrows Grad shows viewers how to
prepare light and easy meals. Laurie is joined in the kitchen by a series of
chefs and celebrity friends, including Wolfgang Puck, Jill St. John and Florence
Griffith Joyner. The Company has also produced ten episodes of Home Green Home,
an instructional series concerning home gardening hosted by Keely Shaye Smith.
Home Green Home is licensed to PBS.
Management of the Company is currently seeking to generate additional
revenue sources from its "How To" Instructional Programming as well as
considering the potential expansion of its business through the development of
additional programming of this type. Since "How To" Instructional Programming is
often consumer-product related and lends itself to interactive programming, the
Company is currently evaluating the advisability of establishing computer web
sites, direct video sales, endorsed product sales by the individual
personalities (hosts) of each "How To" series and tie-ins with corporations that
manufacture or sell products in the specific areas (for example, cooking and
gardening) as potential sources of additional revenue. There can be no
assurance, however, that the Company will succeed in expanding this area of its
business, or that such expansion, if implemented, will be profitable to the
Company.
Theatrical Motion Pictures. The Company produced the theatrical film
What's Love Got To Do With It for which each of its stars, Angela Bassett and
Laurence Fishburne, was nominated for an Academy Award. The film was released by
Disney's Touchstone Pictures in June 1993. Touchstone Pictures owns the
copyright for this film. The Company received executive producer fees and has a
continuing profit participation for its services as producer.
Although the Company does not, and does not currently intend to, invest
funds in the production of additional theatrical motion pictures, it continues
to develop and acquire rights to theatrical motion picture projects. If the
Company is successful in its attempts to develop these theatrical motion picture
projects, the studio, independent finance source, distributor, or a combination
of these sources, would be responsible for the financing the production of such
theatrical projects. In such event, the Company would receive a fee for its
production services as well as a profit participation in the project.
Projects in Development
The Company has projects in various stages of development on a
continuing basis. These projects consist of television series,
movies-for-television and theatrical motion pictures. The Company periodically
33
evaluates the expected use of its projects in development to determine if they
will be further developed or produced (either by itself or with others), sold or
abandoned. Decisions as to projects in development are made by management on a
case-by-case basis after considering all relevant factors.
The Company currently has agreements for the development of the
following movies-for-television projects with the following companies in various
stages of development:
The Passion of Ayn Rand - Showtime - currently casting.
Tapestry - Fox Broadcasting - teleplay being written.
Silent Cheer - ABC in association with Disney Television - teleplay
being written.
The Company has scripts, properties or projects under option which
management is now in the process of developing and renaming for submission to
networks, studios or financing sources for production for television release or
series or theatrical release. As of this date, however, there can be no
assurance that any of the specific projects identified above or any of the
scripts or other projects which the Company has under option will result in
completed projects, or if completed, that such projects will be profitable to
the Company.
International Sales and Distribution
From January 1991 to present, the Company entered into licensing
agreements with various international distributors relating to several of the
Company's productions including Hollywood Stuntmakers I and II , Superstars of
Action, Forces Beyond, Laurie Cooks Light & Easy, Future Quest, The Price She
Paid and Hollywood Babylon. Revenues received by the Company pursuant to such
licensing agreements during the fiscal years ended June 30, 1992, 1993, 1994 and
1995 were $604,800, $581,543, $550,765, and $406,060, respectively.
The Company currently intends to establish a separate international
distribution division or wholly-owned subsidiary to sell and distribute and
obtain distribution advances or guarantees for Company productions and for
productions acquired from other unaffiliated production entities. It is
management's view that the Company will benefit from the growth in international
markets for U.S. television programming, the contractual arrangements with
significant foreign broadcasters and the potential additional revenues and
profits the Company may derive from its own international distribution
operations as opposed to retaining third party distributors. To accomplish its
objectives in establishing an international distribution division, it will be
necessary for the Company to increase significantly the number of completed
projects (whether produced by the Company or acquired from others) with respect
to which it will have international distribution rights. In certain instances,
the Company may have to advance funds to procure distribution rights from
unaffiliated entities. See "Use of Proceeds." For the foregoing reasons, there
can be no assurance that the operation of an international distribution business
will be successful and profitable for the Company.
Employees
The Company employs 15 persons on a full-time basis, including two
independent contractors. Of such persons, five are executives, four are
producers and the balance are clerical and administrative employees. The Company
believes that it has satisfactory relationships with its employees.
The Company plans to employ a Chief Financial Officer and support staff
to manage the financial aspects of the Company's operations and to maintain its
books and records. The addition of its own financial personnel will enable the
Company to replace the outside service organization currently retained by the
Company to perform such functions at an annual cost of approximately $100,000.
The Company also plans
34
to establish and staff a international distribution division as well as to
expand its personal management division. It may also add personnel to the
Company's production staff. It is estimated by management that the staffing of
these new or expanded operations of the Company will require that it hire up to
nine new employees, three of whom will be at the executive level, during the
forthcoming 12 month period. See "Use of Proceeds."
In connection with certain of its activities, such as development and
production of projects, the Company has and expects to continue to utilize the
services of independent third parties. The extent of the Company's utilization
of these services will be determined on a project-by-project basis. The Company
believes that such services are available from numerous sources at competitive
rates.
The Company is a party to collective bargaining agreements with the
Directors Guild of America, the Screen Actors Guild and the Writers Guild of
America, but it is not a party to any other collective bargaining agreement. In
connection with its production and other activities, the Company may employ
personnel, such as writers, directors and performing artists, who are members of
unions that are parties to collective bargaining agreements. It is conceivable
that some of the Company's future business activities will be affected by the
existence of collective bargaining agreements relating to persons whom it may
employ who are members of unions. Strikes or other work stoppages by members of
these unions could delay or disrupt the Company's activities but the extent to
which the existence of collective bargaining agreements may affect the Company
in the future is not currently determinable.
Competition
The television and feature film industries are highly competitive and
involve a substantial degree of risk. Many companies compete to obtain the
literary properties, creative personnel, talent, production personnel and
financing which are essential to produce and market the Company's products.
The Company's principal competitors are the major motion picture
studios, U.S. cable and television networks and numerous independent production
companies. Most of the Company's principal competitors have greater financial
resources than those currently, or in the foreseeable future likely to become,
available to the Company and are in a better position than the Company to obtain
literary properties, attract talent, produce projects and effect broad market
distribution of their completed projects. There can be no assurance that the
Company will be able to continue to initiate, develop and complete projects
which will result in the production of movies-for-television, television series
or mini-series or theatrical release on a basis that will prove profitable to
the Company in light of the intense competition encountered by the Company in
all significant phases of its production and distribution activities.
The Company's ultimate success also depends, and will continue to
depend, upon its ability to produce programming for television and theatrical
release which has significant appeal in highly competitive entertainment markets
which are subject to such unpredictable factors as the preferences of the
viewing public. Preferences of the public change and a shift in demand could
cause the Company's current projects to lose their appeal. Television and
feature films also compete with many other forms of entertainment and leisure
time activities, certain of which include new areas of technology (i.e., video
games and home videos), the impact of which cannot be predicted.
Regulation of Motion Picture and Television Industry
The Code and Ratings Administration of the Motion Picture Association
of America, an industry trade association, decides ratings for age group
suitability for domestic theatrical distribution of motion pictures. U.S.
television stations and networks, as well as foreign governments, impose
restrictions on the content of television programming. To the extent that the
Company's projects do not comply with certain
35
of these regulations, they may be effectively prohibited from exhibition on
applicable television stations, networks and in foreign territories, or may be
adjusted accordingly.
The television industry is subject to governmental regulation by the
Federal Communications Commission (the "FCC"). The networks are currently
limited by the Financial Interest and Syndication Rules of the FCC in the amount
of programming they may produce and the rights which they may retain in
programs. These rules were recently relaxed in favor of the networks. The
relaxation of the Financial Interest and Syndication Rules could adversely
impact the Company as a result of potential increased competition from the
networks.
Properties
The Company leases approximately 6,350 square feet located at 9150
Wilshire Boulevard, Beverly Hills, California for its corporate offices pursuant
to a lease which expires on September 30, 1997. The current annual rent expense
is approximately $230,000. The Company believes that its current facilities are
sufficient for its current needs and its needs for the foreseeable future.
Legal Proceedings
In December 1995, the Company's Board of Directors terminated the
employment of Ronald Lightstone and removed him as the Company's Chairman of the
Board. On January 4, 1996, the Company instituted legal proceedings against Mr.
Lightstone in the Los Angeles County Superior Court (the "California Superior
Court"), seeking, among other relief, compensatory damages arising out of
alleged breaches by Mr. Lightstone of his fiduciary duties to the Company,
rescission of the stock purchase agreement and related documents executed in
connection with Mr. Lightstone's purchase in November 1995 of 375,000 shares of
the Company's Common Stock (and the cancellation of such shares), declaratory
relief with respect to the Company's rights and duties and the terms of Mr.
Lightstone's employment, and return of certain payments made by the Company to
Mr. Lightstone during the term of his employment.
In January 1996, Mr. Lightstone filed a cross-complaint in the
California Superior Court against the Company and Irwin Meyer, the Company's
President and Chief Executive Officer, seeking damages in excess of $3,000,000
for alleged breach of a written employment agreement. Mr. Lightstone contends,
among other matters, that the terms of his employment by the Company are
governed by a written agreement between him and the Company and that, pursuant
to such agreement, his employment was wrongfully terminated by the Company. The
Company has denied that a binding written employment agreement was entered into
with Mr. Lightstone, alleging instead that the agreement to which Mr. Lightstone
refers was never properly authorized and was expressly rejected by the Company's
Board of Directors. See "Management." The Company believes that Mr. Lightstone's
claims are without merit and intends to vigorously defend the claims in the
cross-complaint.
On June 28, 1996, the Company and its affiliates effected a settlement
of all disputes and pending litigation with Drew S. Levin, Joseph Cayre, DSL
Entertainment Group, Ltd. ("DSL") and Simply Style Productions, Inc.
(collectively, the "DSL Parties"). Pursuant to the terms of the settlement, the
Company received the sum of $308,000 (including $130,000 paid by DSL to the
Company in late January 1996), representing repayment of indebtedness plus late
payment charges, and also retained continuing revenue participations in several
DSL projects. Upon receipt of such repayment, the Company caused the
cancellation of a $383,000 promissory note of Drew S. Levin currently held by
DSL Productions, Inc., a subsidiary of the Company, and released shares of DSL,
which represented a 14.9% equity interest in DSL, and which had been pledged to
the Company as security for the repayment of such indebtedness. In connection
with the settlement, Mr. Levin surrendered to the Company for cancellation
options to purchase 100,000 shares of Common Stock of the Company which
constituted the remaining portion of the options that had been granted to him in
1994 (See "Management - Executive Compensation"). In addition, under the
settlement, Joseph
36
Cayre retained ownership of 31,250 shares of the Company's Common Stock which
were issued to Mr. Cayre in connection with the acquisition of DSL Productions,
Inc. by the Company in May 1994. As part of the settlement, however, Mr. Cayre
relinquished his right to a participation in revenues to be derived from
certain TV series, the value of which participation at the time of such
settlement was carried on the books of the Company at $280,000.
Simultaneously with the foregoing settlement, the Company sold its 5%
equity interest in DSL for a payment in cash of $209,500.
The Company has also agreed in principle to settle the lawsuit entitled
DSL Entertainment, Joint Venture, a California Joint Venture v. DSL Productions,
Inc. et al. pending in California Superior Court. In connection with such
settlement, the Company has agreed to pay to DSL Entertainment, Joint Venture, a
California Joint Venture ("DSLJV") $50,000 in equal monthly installments of
$5,000, to issue to DSLJV 32,500 shares of its Common Stock (the "Kagan
Shares"), and to grant to DSLJV warrants (having a term of two years) to
purchase an additional 25,000 shares of its Common Stock (the "Warrants") for an
exercise price equal to the market price of the Company's Common Stock on the
day immediately preceding the date of issuance of such Warrants. The settlement
of this action is subject to execution by the parties of a definitive settlement
agreement and related documentation and, as of the date of this Prospectus, it
is uncertain whether the settlement of this litigation upon the terms described
above will ultimately be effected.
The Company is not a party to any other material legal proceedings.
37
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Position(s) Held
---- --- ----------------
Irwin Meyer 60 President, Chief Executive Officer and
Chairman of the Board
Arthur Bernstein 33 Senior Vice President and Director
Michael D. Dempsey 53 Director
Michael Levy 55 Director
Ben Lichtenberg 41 Director
Directors are elected to an annual term that expires at the Company's
annual meeting of stockholders.
Irwin Meyer has served as a director of the Company since its inception
in 1989. From August 1989 until February 1990, he served as President and Chief
Executive Officer of the Company. In February 1990, Mr. Meyer became Co-Chairman
of the Board of the Company and, in January 1991, became Chairman of the Board,
a position he held until June 1992. From 1988 to July 1994, Mr. Meyer was a
director of Ventura Entertainment Group Ltd., the Corporation's former parent
("Ventura"), and from May 1988 to December 1990 he was President of Ventura. Mr.
Meyer was elected President and Chief Executive Officer of the Company in
February, 1995 and has served as Chairman of the Board since April, 1996. Mr.
Meyer was an Executive Producer of five of the Company's made-for-television
movies and the television series Hollywood Babylon. Mr. Meyer was nominated for
the Producer of the Year by the Producers Guild of America in 1995. In 1977, he
produced the musical Annie for which he received the Antoinette Perry ("Tony")
Award, the New York Drama Critics Circle Award, the Drama Desk Award, the Outer
Critics Circle Award and the Cue Magazine Golden Apple Award. Mr. Meyer is a
member of the Academy of Motion Picture Arts and Sciences and the Academy of
Television Arts and Sciences. He holds a B.S. from New York University.
Arthur Bernstein has served as a director of the Company since March,
1995, served as Vice President - Business and Legal Affairs of the Company from
September, 1991 to June, 1992 and has served as Senior Vice President since
June, 1992. From July, 1989 to August, 1991, Mr. Bernstein was Director of Legal
and Business Affairs for New World Entertainment Ltd. From 1987 to June, 1989,
he was Assistant General Counsel of Four Star International, Inc. Mr. Bernstein
holds a Bachelor of Science degree in finance and marketing from Philadelphia
College of Textiles and Sciences and a Juris Doctor degree from Temple
University.
Michael Levy has served as a director of the Company since February,
1995. Mr. Levy began his career as a theatrical agent in 1964. He represented
numerous actors (Angelica Huston, Debra Winger, Sophia Loren, Peter O'Toole) and
directors (Milos Forman, Sidney Sheldon, Billy Wilder and Ingmar Bergman) and
has been responsible for packaging numerous major motion pictures and television
series. Mr. Levy left the agency business in 1981 to become President and CEO of
the CBS Theatrical Film Group,
38
a division of CBS Entertainment. In 1984, Mr. Levy formed his own production
company, Michael I. Levy Enterprises. Mr. Levy has produced a number of
theatrical feature films including Francis Ford Coppola's Gardens of Stone
(Tri-Star), Masquerade (MGM), Prelude to a Kiss (Twentieth Century Fox) and Eye
for an Eye (Paramount). Since 1993 Mr. Levy has also provided personal
management services to actors, writers and directors.
Ben Lichtenberg has served as a director of the Company since May,
1996. Mr. Lichtenberg is currently a Managing Director of First Colonial
Securities Group, an investment banking and brokerage firm headquartered in New
Jersey. Prior to joining First Colonial in 1992, Mr. Lichtenberg served in
similar capacities with other investment firms, including Butcher & Singer and
Bryn Mawr Investment Group. Prior thereto, he was employed as a certified public
accountant. Mr. Lichtenberg is a graduate of the Wharton School of the
University of Pennsylvania.
Michael D. Dempsey has served as a director of the Company since May,
1996. Mr. Dempsey is a senior partner of the law firm of Dempsey & Johnson,
P.C., Los Angeles. Prior to his founding such firm, he was a partner at various
other firms, including Lillick, McHose & Charles (now merged into Pilsbury,
Madison & Sutro); Finley, Kumble, Underberg, Wagner, Heine, Manley, Myerson &
Casey; Myerson & Kuhn, and Shea & Gould. Mr. Dempsey has been a practicing
attorney for over 25 years. He graduated magna cum laude from San Fernando
Valley State College (now California State University -- Northridge) and holds a
Juris Doctor degree from the University of California Los Angeles School of Law.
Director Indemnification
The Delaware Supreme Court has held that a director's duty of care to a
corporation and its stockholders requires the exercise of an informed business
judgment. Having become informed of all material information reasonably
available to them, directors must act with requisite care in the discharge of
their duties. The Delaware General Corporation Law permits a corporation through
its Certificate of Incorporation to indemnify its directors from personal
liability to the corporation or its stockholders for monetary damages for breach
of fiduciary duty of care as a director, with certain exceptions. The exceptions
include a breach of the director's duty of loyalty, acts or omissions not in
good faith or which involve intentional misconduct or knowing violations of law,
improper declarations of dividends, and transactions from which the directors
derived an improper personal benefit. The Company's Certificate of Incorporation
indemnifies its directors, acting in such capacity, from monetary liability to
the extent permitted by this statutory provision. The limitation of liability
provision does not eliminate a stockholder's right to seek nonmonetary,
equitable remedies such as injunction or rescission to redress an action taken
by directors. However, as a practical matter, equitable remedies may not be
available in all situations and there may be instances in which no effective
remedy is available.
Employment Agreements
In October, 1995, the Company entered into agreements with Irwin Meyer,
for his services as Chief Executive Officer of the Corporation, and with
Mountaingate Productions LLC ("Mountaingate") for the services of Mr. Meyer and
others as producers and/or executive producers and to perform other duties.
Mountaingate is a California limited liability company of which Alison Meyer and
Patricia Meyer, the adult daughters of Irwin Meyer, are the sole members. The
agreement with Mountaingate provides for annual compensation to Mountaingate of
$262,000 plus a $1,500 monthly automobile allowance and the agreement with Mr.
Meyer provides for annual compensation to Mr. Meyer of $50,000. The term of each
such agreement expires on June 30, 1998. The agreements are terminable by the
Company in the event of Mr. Meyer's death or disability. In such event, the
Company shall pay Mountaingate a guaranteed fee of $262,000 for one year. The
Company may also terminate these agreements for "cause" (as defined in the
agreements). Mountaingate and Mr. Meyer may terminate their respective
agreements in the event of a material breach thereof by the Company or for "good
reason" (as defined in the agreements). In such event,
39
the Company shall be obligated to pay all amounts due thereunder for the balance
of their respective terms. In the event that the Company materially breaches
either agreement after a change in control (as defined in the agreements),
Mountaingate and Mr. Meyer, respectively, shall be entitled to a lump sum
payment equal to three times their then current total annual compensation. In
November 1995, the Company also sold 500,000 shares of its Common Stock to
Mountaingate. See "Certain Transactions." Irwin Meyer has no direct or indirect
economic interest in such securities and he expressly disclaims beneficial
ownership of any shares of Common Stock owned by Mountaingate.
Arthur Bernstein is employed as Senior Vice President of the Company
pursuant to an employment agreement, as amended, which expires on December 31,
1996. Mr. Bernstein's annual compensation is $105,000 plus a $750 monthly
automobile allowance. In connection with the amendment of his employment
agreement, Mr. Bernstein received a $12,000 bonus. The agreement is terminable
by the Company in the event of Mr. Bernstein's death or disability. In such
event, the Company is obligated to pay the aforesaid compensation of one year.
The Company may also terminate the employment agreement for "cause" (as defined
in this agreement). Mr. Bernstein may terminate this agreement in the event of a
material breach by the Company or for "good reason" (as defined in this
agreement). In such event, the Company will be obligated to pay him all amounts
due thereunder for the balance of its term and all unvested stock options held
by him shall vest. In the event of a change in control (as defined in this
agreement) of the Company, all stock options issued to Mr. Bernstein shall vest
and the Company shall, at Mr. Bernstein's option, purchase shares of Common
Stock owned by him at the then market price and shall acquire all of his stock
options for the difference between the exercise price of such options and the
greater of the price at which the new controlling entity acquired its interest
in the Company or the then market price of the Common Stock.
Compensation of Directors
No fees are paid to members of the Board of Directors of the Company
for their services as members of the Board of Directors. However, the
independent directors of the Company have been granted and currently hold
options to purchase shares of Common Stock at the following exercise prices:
Options (No. Term of
Name of Director of Shares) Date(s) Granted Exercise Price(1) Options
---------------- ---------- --------------- -------------- -------
Michael D. Dempsey 6,250 May 29, 1996 $2.00 3 years
Michael Levy 18,750 6,250 -- May 29, 1996 $2.00 3 years
12,500 -- March 1, 1995 $2.00 3 years
Ben Lichtenberg 6,250 May 29, 1996 $2.00 3 years
- ------------------------------
(1) The exercise price of each such option exceeded the market prices of
the Common Stock on date of grant.
It is the policy of the Company to reimburse directors for reasonable
travel and lodging expenses incurred in attending meetings of the Board of
Directors.
40
Executive Compensation
Summary Compensation Table
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company for the
fiscal years ended June 30, 1995, 1994 and 1993, of those persons who were (i)
at June 30, 1995 the Chief Executive Officer and (ii) each other executive
officer of the Company whose annual compensation exceeded $100,000 (the "Named
Officers") in such fiscal years:
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
NAME AND OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) (# OF SHARES) COMPENSATION ($)
- ------------------ ----- ---------- ------------- ----------------
Irwin Meyer, 1995 281,000(1) (2) 13,500 (3)
President and Chief 18,000 (4)
Executive Officer 17,250 (5)
1994 260,000(1) -- 15,113 (3)
70,000 (5)
18,000 (4)
1993 345,000(1) -- 12,000 (4)
52,000 (6)
Arthur Bernstein 1995 108,587(7) 25,000 6,625 (4)
Senior Vice President 1994 101,058 -- 6,000 (4)
1993 95,000 -- 6,000 (4)
Harvey Bibicoff (8) 1995 141,519 100,000 --
1994 225,000 -- 9,000 (4)
1993 225,000 -- 9,000 (4)
Drew Levin 1995 100,000 -- --
President of DSL 1994 131,697 325,000(10) --
Productions Ltd.(9) 1993 131,873 -- --
William Melamed, Jr. 1995 129,878 -- 8,000
Senior Vice President, 1994 153,818 -- --
TPEG Management 1993 35,962 -- --
Jonathan Axelrod 1995 345,000 -- 18,000
1994 345,000 33,333 18,000
1993 345,000 33,333 18,000
- ------------------------------
(1) Includes amounts payable to AliPat Productions Ltd. ("AliPat") or
Mountaingate Productions LLC which provided the Company with the
services of Mr. Meyer and others and, since February 1995 amounts
payable to Mr. Meyer in his capacity as President and Chief Executive
Officer of the Company.
(2) See "Certain Transactions."
(3) Represents participations in producer fees and net profits on projects
produced. These participations in producer fees and net profits on
projects produced have been discontinued.
41
(4) Automobile reimbursement.
(5) Advance against future compensation.
(6) Forgiveness of note receivable.
(7) Includes bonus payment of $12,000.
(8) In February 1995, the Company and Mr. Bibicoff agreed to terminate Mr.
Bibicoff's employment as the Company's Chairman of the Board and Chief
Executive Officer and he resigned as an officer and director of the
Company. At such time, the Company entered into a consulting agreement
with Bibicoff & Associates pursuant to which the Company is entitled to
receive consulting services from Mr. Bibicoff. The amounts shown on
this table include compensation paid to Mr. Bibicoff as an employee of
the Company prior to February, 1995 and compensation paid to Bibicoff &
Associates as a consultant to the Company subsequent to February, 1995
through the end of the Company's 1995 fiscal year. See "Certain
Transactions" for a description of the February, 1996 agreement among
Mr. Bibicoff, Bibicoff & Associates and the Company with regard, among
other matters, such options.
(9) Includes compensation paid to Mr. Levin by DSL Productions Ltd. ("DSL
Productions") prior to the acquisition of DSL Productions by the
Company in May 1994. Mr. Levin resigned as an officer and director of
the Company and DSL Productions in February, 1995. See "Legal
Proceedings."
(10) As a result of the termination of Mr. Levin's employment with the
Company in February 1995, 225,000 of these options were canceled. The
balance of such options were surrendered to the Company for
cancellation by Mr. Levin in connection with a settlement in June, 1996
of certain litigation between the Company and Mr. Levin and other
parties. See "Business -- Legal Proceedings."
42
Option/SAR Grants Table
The following table sets forth information concerning individual grants
of stock options to purchase the Company's Common Stock made to each Named
Officer during the fiscal year ended June 30, 1995.
Number of Securities % of Total Options/SARs
Underlying Options/SARs Granted to Employees in Exercise or Base Price
Name Granted (#) Fiscal Year ($/Sh) Expiration Date
---- ----------------------- ----------------------- --------------------- ---------------
(a) (b) (c) (d) (e)
Arthur Bernstein 25,000 7% $2.00 6/1/98
Harvey Bibicoff 100,000(1) -- (1) $2.00 2/27/99
- ------------------------------
(1) Options granted to Mr. Bibicoff in February, 1996 in exchange for the
cancellation of certain other options. The exercise price of these
options is $2.00 per share, which was greater than the market price of
the Company's Common Stock on the date of grant. See "Certain
Transactions" for a description of the February, 1996 agreement among
Mr. Bibicoff, Bibicoff & Associates and the Company with regard to such
options, among other matters.
43
Option Exercises in Each Fiscal Year and Fiscal
Year-end (June 30, 1995) Option Values
No stock options were exercised by the Named Officers during fiscal
1995. The following table sets forth certain information concerning the
outstanding options held by such Named Officers.
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
SHARES UNEXERCISED UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY
ON VALUE FY-END OPTIONS AT
NAME EXERCISE REALIZED($) # OF SHARES FY-END - $
- ---- -------- ----------- ------------- -----------
Irwin Meyer (1) 0 0 0 Exercisable 0
0 Unexercisable 0
Arthur Bernstein 0 0 25,000 Exercisable 0
0 Unexercisable 0
Harvey Bibicoff (2) 0 0 100,000 Exercisable 0(2)
0 Unexercisable 0
William Melamed, Jr. 0 0 12,500 Exercisable 0
0 Unexercisable
- --------------------------------------------
(1) Does not include options to purchase 75,000 shares of Common Stock
exercisable at $2.00 per share held by each of Alison Meyer and
Patricia Meyer, the adult daughters of Mr. Meyer. Mr. Meyer has no
direct or indirect economic interest in any such securities and he
expressly disclaims beneficial ownership of the options and underlying
shares of Common Stock held by Alison and Patricia Meyer.
(2) Options granted to Mr. Bibicoff in February, 1996 in exchange for the
cancellation of certain other options. The exercise price of these
options is $2.00 per share, which was greater than the market price of
the Company's Common Stock on the date of grant. See "Certain
Transactions" for a description of the February, 1996 agreement among
Mr. Bibicoff, Bibicoff & Associates and the Company with regard, among
other matters, to such options.
44
CERTAIN TRANSACTIONS
In February, 1995, the Company and Harvey Bibicoff agreed to terminate
Mr. Bibicoff's employment as the Company's Chief Executive Officer and he
resigned as an officer and director of the Company. At such time, the Company
entered into a consulting agreement with Bibicoff & Associates, Inc., which is
owned by Harvey Bibicoff, pursuant to which the Company is entitled to receive
consulting and advisory services from Mr. Bibicoff. Compensation under this
agreement, which expires on June 30, 1999, consists of annual compensation of
$80,000 and an annual bonus of not less than 2% of all qualified offerings, as
defined in the agreement, that he arranges for the Company. To date, neither Mr.
Bibicoff or Bibicoff & Associates has arranged any offerings on behalf of the
Company and such persons will not receive any fees, bonuses or compensation in
connection with the Offering. In February, 1996, the Company, Mr. Bibicoff and
Bibicoff & Associates agreed, among other matters, to terminate all of the
approximately 214,500 options to purchase Common Stock then held by Mr. Bibicoff
and Bibicoff & Associates (which options were exercisable at prices ranging from
$5.00 to $13.00 per share) and to issue to Mr. Bibicoff new options to purchase
100,000 shares of Common Stock at an exercise price of $2.00 per share. Such new
options expire on the third anniversary of the date of grant.
In November, 1995, the Company sold, subject to the vesting
requirements described below, 500,000 shares of its Common Stock, at a purchase
price of $2.00 per share, to Mountaingate Productions, LLC, a California limited
liability company of which Alison Meyer and Patricia Meyer, the adult daughters
of Irwin Meyer, are the sole members ("Mountaingate"). Irwin Meyer has no direct
or indirect economic interest in any such securities and he expressly disclaims
beneficial ownership of the shares of Common Stock purchased by Mountaingate.
The purchase price for these shares of Common Stock was paid by
Mountaingate by delivery of a promissory note (the "Note") to the Company. The
Note bears interest at the rate of 7% per annum, compounded semiannually. Twenty
five percent (25%) of the outstanding principal balance, and accrued interest
thereon, due under the Note are with recourse to the purchaser and the remaining
seventy five percent (75%) of the amounts due thereunder are without recourse
against the purchaser. The entire amount of principal and accrued interest under
the Note is secured by a pledge to the Company of the Common Stock purchased
with the proceeds of such borrowing. Twelve and one-half percent (12.5%) of the
original principal amount of the Note, together with interest thereon, is due
and payable on April 1, 1997; twelve and one-half percent (12.5%) of the
original principal amount of the Note, together with interest thereon, is due
and payable on October 1, 1998; and the balance of the principal of and interest
on the Note is due and payable on October 1, 2000.
The shares of Common Stock acquired by Mountaingate are subject to
forfeiture to the Company (with a corresponding reduction in the Note) in the
event the employment of Mr. Meyer is terminated (other than termination as a
result of his death or disability or termination by the Company without cause)
prior to the applicable vesting date of such shares. Fifty percent (50%) of the
Common Stock purchased by Mountaingate vested on April 1, 1996, 25% will vest on
June 30, 1996, and 25% will vest on June 30, 1997. Notwithstanding such vesting
schedule, Mountaingate is entitled to vote all of such shares of Common Stock.
In addition, in November, 1995 the Company issued to Ronald Lightstone,
then its Chairman, and to Charles Weber, then its Chief Operating Officer,
375,000 shares of Common Stock and 25,000 shares of Common Stock, respectively,
on substantially the same terms as those described above. None of such shares
issued to Mr. Lightstone had vested as of the date the Company terminated Mr.
Lightstone's employment and such shares were therefore forfeited to the Company
at such time. See "Business -- Legal Proceedings." In connection with Mr.
Weber's resignation from the Company in April, 1996, the Company waived the
vesting and forfeiture provisions applicable to the shares issued to Mr. Weber.
In May 1996, the Company issued to each of Alison Meyer and Patricia
Meyer options to purchase 75,000 shares of Common Stock at an exercise price of
$2.00 per share.
45
Dempsey & Johnson, P.C., a law firm of which Michael Dempsey, a
director since May 1996, is a partner, currently provides legal services to the
Company and, since January 1, 1995, received fees for such services in the
amount of approximately $217,000.
First Colonial Securities Group, an investment banking firm of which
Mr. Lichtenberg, a director since May 1996, is a managing director and a
stockholder, served as an underwriter in a public offering of securities by the
Company in December, 1994. In such transaction, First Colonial and its
affiliates received compensation in the form of underwriters' discounts and
other fees totaling approximately of $225,000 and was granted a five year option
to purchase up to 11,250 of the Units sold in such offering at a price of $28.00
per Unit, $8.00 per Unit above the public offering price thereof. Such options
have since been transferred by First Colonial to certain employees of such firm,
including Mr. Lichtenberg. First Colonial is continuing, but is under no
obligation, to act as a market maker in the Company's securities for which it
receives no compensation from the Company.
The Company has agreed to file on one occasion, at the Company's
expense, and upon the request of M.H. Meyerson & Company, Inc. ("Meyerson") and
First Colonial Securities Group, Ltd.("First Colonial"), which acted as
underwriters (the "1994 Underwriters") of the public offering of units
consisting the Series A Stock and the Class B Warrants in December 1994, a
registration statement under the Securities Act to permit the public sale of the
1994 Underwriters' Options and/or the underlying securities. The Company has
also agreed to provide "piggy-back" registration rights to the holders of the
1994 Underwriters' Options. Both Meyerson and First Colonial have agreed to
waive their rights to have the Underwriters' Options and underlying securities
included in the Registration Statement pursuant to which this Offering is being
effected or to include any of such securities in any registration statement
filed by the Company within 18 months after the date hereof.
The Company also agreed to pay the 1994 Underwriters fees for services
rendered in the event that they originate a merger, acquisition, joint venture
or other transaction to which the Company is a party during the five years
following the closing of the December, 1994 Offering. The amount of the fee will
range from 2% to 5% of the total consideration paid in any such transaction.
Neither Mr. Lichtenberg, a Director of the Company, First Colonial nor Meyerson
will receive any fees or other compensation in connection with this Offering.
The Company also granted the 1994 Underwriters the right to nominate
one person for the Company's Board of Directors for a period of three years.
Such nominee may be a director, officer, partner, employee or affiliate of the
underwriters. Mr. Lichtenberg, a Managing Director of First Colonial, was
elected a member of the Company's Board of Directors in May 1996 and as a
nominee of the 1994 Underwriters.
46
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of June 20, 1996,
adjusted to reflect the sale of the shares of Common Stock underlying the Units
offered hereby, with respect to the beneficial ownership of Common Stock by (i)
each person known by the Company to be the beneficial owner of five percent or
more of the Company's Common Stock, (ii) each of the Named Officers, (iii) each
director, and (iv) all executive officers and directors as a group:
Percent of Class Percent of Class
Name and Address of Amount of Shares Before After
Beneficial Owner(1) Beneficially Owned(2)(3) Offering Offering
-------------------- ------------------------ ---------- ---------
Mountaingate Productions, 650,000 17.2% 5.8%
LLC(4)
12610 Promontory Rd.
Los Angeles, CA 90049
Irwin Meyer(5) 0 0 0
Arthur Bernstein(6) 25,000 * *
Michael Levy(7) 18,750 * *
Ben Lichtenberg(8) 12,554 * *
Michael Dempsey(9) 6,250 * *
William Melamed, Jr.(10) 12,500 * *
Officers and directors as a 75,054 2.1% *
group (consisting of 6
persons)
- ---------------------
* less than 1%
(1) The address of each of Messrs. Meyer, Levy, Melamed and Bernstein is
9150 Wilshire Boulevard, Beverly Hills, California 90212. The address
of Mr. Dempsey is 1925 Century Park East, Ste 2350, Los Angeles,
California 90067 and the address of Mr. Lichtenberg is 401 N. Route 73,
Marlton, New Jersey 08053.
(2) See "Management -- Executive Compensation" and "Business -- Legal
Proceedings."
(3) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting and investment
power with respect to shares. Shares of Common Stock subject to options
or warrants currently exercisable or exercisable within 60 days of the
applicable measurement date are deemed outstanding for computing the
percentage ownership of the person holding such options or warrants,
but are not deemed outstanding for purposes of computing the percentage
ownership of any other person.
(4) Includes (i) 500,000 shares of Common Stock purchased by Mountaingate
Productions, LLC, a California limited liability company
("Mountaingate"), in November, 1995 and (ii) currently exercisable
options to purchase an aggregate of 150,000 shares of Common Stock at
an exercise price of $2.00 per share held by Alison Meyer and Patricia
Meyer, the sole members of Mountaingate. Alison and Patricia Meyer are
the adult children of Irwin Meyer. Irwin Meyer has
47
no direct or indirect economic interest in any such securities and he
expressly disclaims beneficial ownership of the shares of Common Stock
owned by Mountaingate and the options held by Alison Meyer and Patricia
Meyer.
(5) Does not include 500,000 shares of Common Stock owned by Mountaingate,
in which Mr. Meyer has no direct or indirect economic interest and in
which he disclaims any beneficial ownership.
(6) Consists of 25,000 shares of Common Stock which are issuable upon the
exercise of outstanding options at an exercise price of $2.00 per
share.
(7) Consists of 18,750 shares of Common Stock which are issuable upon the
exercise of outstanding options at an exercise price of $2.20
per share.
(8) Includes (i) 2,654 shares of Common Stock and Class B Warrants to
purchase 6,250 shares of Common Stock at an exercise price of $2.00 per
share, all of which are held by First Colonial Securities Profit
Sharing Plan FBO Ben Lichtenberg, (ii) 275 shares of the Company's
Preferred Stock held by such plan FBO Ben Lichtenberg and (iii) 3,375
underwriter's options held by Mr. Lichtenberg which were transferred to
him by First Colonial Securities Corp. following the public offering of
such Units by the Company in December 1994. Each such underwriter's
option entitles the holder thereof to purchase one Unit (consisting of
one share of Series A Stock and one Class B Warrant to purchase a
share of Common stock at an exercise price of $8.00) at an exercise
price of $7.00 per unit.
(9) Consists of 6,250 shares of the Common Stock issuable upon the exercise
of outstanding options at an exercise price of $2.00 per share.
(10) Consists of 12,500 shares of Common stock which are issuable upon the
exercise of outstanding options at an exercise price of $1.12 per
share.
48
SELLING SECURITYHOLDERS
An aggregate of 500,000 Redeemable Warrants which will be issued to
certain Selling Securityholders in exchange for the Bridge Warrants, together
with 500,000 shares of Common Stock issuable upon their exercise, are being
offered hereby, at the expense of the Company, for the account of such Selling
Securityholders. See "Recent Bridge Financing," "Concurrent Offering" and
"Shares Eligible for Future Sale." The Bridge Warrants were issued as part of a
private placement by the Company of Units consisting of $500,000 aggregate
principal amount of 10% promissory notes and the Bridge Warrants which was
completed in June, 1996. The $500,000 principal amount of Bridge Notes including
accrued interest thereon, are to be repaid out of the proceeds of this Offering.
See "Use of Proceeds."
Sales of the Selling Securityholder Warrants and the underlying shares
of Common Stock may depress the price of the Units and the Common Stock or
Redeemable Warrants underlying the Units in any markets for such securities.
The following table sets forth information with respect to persons for
whom the Company is registering the Selling Securityholder Warrants and the
Selling Securityholder Shares for resale to the public in the Concurrent
Offering. Beneficial ownership of Redeemable Warrants and Common Stock by such
Selling Securityholders after the Offering will depend on the number of
securities sold by each Selling Securityholder in the Concurrent Offering.
Ownership After the Offering and
Prior to Sales in the Concurrent Offering (1)
---------------------------------------------
Redeemable Warrants Common Stock
------------------- ------------
Selling Securityholder Number Percentage Number Percentage
- ---------------------- ------ ---------- ------ ----------
Kal Zeff 50,000 1.1% 50,000 *
Barry A. Saunders 50,000 1.1% 50,000 *
Harlan I. Cohen 45,000 1.0% 45,000 *
Katty N. Cohen 5,000 * 5,000 *
Stephen J. Nicholas, M.D. 50,000 1.1% 50,000 *
Bernard and Miriam 50,000 1.1% 50,000 *
Pismeny (JTWROS)
Nathaniel Silon, Revocable 50,000 1.1% 50,000 *
Trust
Daniel and 50,000 1.1% 50,000 *
Dianne Minc (JTWROS)
Dean H. Roller 50,000 1.1% 50,000 *
Daniel A. Marino 50,000 1.1% 50,000 *
Silver Limited 50,000 1.1% 50,000 *
------
Total 500,000 11.1% 500,000 4.36
======= ===== ======= ====
- ------------------------------
* Less than 1%
49
(1) Assuming no purchase by any Selling Securityholder of any Common Stock
or Redeemable Warrants in the Offering.
There are no material relationships between any of the Selling
Securityholders and the Company or any of its predecessors of affiliates. The
Securities offered by the Selling Securityholders are not being underwritten by
the Underwriters. The Selling Securityholders may sell the Selling
Securityholder Warrants and/or the Selling Securityholder Shares at any time on
or after the date hereof, provided that during the 18 month period commencing on
the date of this Prospectus prior consent is given by the Representative. In
addition, the Selling Securityholders have agreed that, during the period ending
on the second anniversary of the date of this Prospectus, the Selling
Securityholders will not sell such securities other than through the
Representative, and that the Selling Securityholders shall compensate the
Representative in accordance with its customary compensation practices. Subject
to these restrictions, sales of the Selling Securityholder Warrants and/or the
Selling Securityholder Shares may be effected from time to time in transactions
(which may include block transactions) in the over-the-counter market, in
negotiated transactions, or a combination of such methods of sale, at fixed
prices that may be changed, at market prices prevailing at the time of sale, or
at negotiated prices. The Selling Securityholders may effect such transactions
by selling the Selling Securityholder Warrants and/or the Selling Securityholder
Shares directly to purchasers or through broker-dealers that may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of the Selling Securityholder Warrants and/or the Selling
Securityholder Shares for whom such broker-dealers may act as agents or to whom
they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The Selling Securityholders and any broker-dealers that act in
connection with the sale of the Selling Securityholder Warrants and/or the
Selling Securityholder Shares as principals may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act and any commission
received by them and any profit on the resale of such securities as principals
might be deemed to be underwriting discounts and commissions under the
Securities Act. The Selling Securityholders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of
such securities against certain liabilities, including liabilities arising under
the Securities Act. The Company will not receive any proceeds from the sales of
the Selling Securityholder Warrants and/or the Selling Securityholder Shares by
the Selling Securityholders, although the Company will receive proceeds from the
exercise of the Selling Securityholder Warrants. Sales of the Selling
Securityholder Warrants and/or the Selling Securityholder Shares by the Selling
Securityholders, or even the potential of such sales, would likely have an
adverse effect on the market price of the Units, the Redeemable Warrants and
Common Stock.
At the time a particular offer of Selling Securityholder Warrants
and/or the Selling Securityholder Shares is made, except as herein contemplated,
by or on behalf of the Selling Securityholder, to the extent required, a
Prospectus will be distributed which will set forth the number of Selling
Securityholder Warrants and/or the Selling Securityholder Shares being offered
and the terms of the offering, including the name or names of any underwriters,
dealers or agents, if any, the purchase price paid by any underwriter for shares
purchased from the Selling Securityholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers.
Under the Exchange Act, and the regulations thereunder, any person
engaged in a distribution of the securities of the Company offered by this
Prospectus may not simultaneously engage in market-making activities with
respect to such securities of the Company during the applicable "cooling-off"
period (two or nine days) prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Securityholders will
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Rules 10b-6 and 10b-7, in
connection with transactions in such securities, which provisions may limit the
timing of purchases and sales of such securities by the Selling Securityholders.
50
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock, $.001 par value, and 10,000,000 shares of Preferred
Stock, $.001 par value.
Units
Upon consummation of the Offering, 2,000,000 Units will be outstanding
(2,300,000 Units if the Underwriters' over-allotment option is exercised in
full). Each Unit consists of four shares of Common Stock and two Redeemable
Warrants. The securities included in each Unit will be separately tradeable
immediately upon issuance.
Common Stock
As of June 28, 1996, there were 3,305,210 shares of Common Stock that
were held by 165 stockholders of record. There will be approximately 11,305,210
shares of Common Stock outstanding (or 12,505,210 shares if the Underwriters'
over-allotment option is exercised in full) after giving effect to the sale of
the Common Stock included in the Units.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of Preferred Stock, if any, then outstanding. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking funds provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and the
shares of Common Stock to be issued upon completion of the Offering will be
fully paid and nonassessable.
Preferred Stock
The Company's authorized capital stock includes 10,000,000 shares of
Preferred Stock $.001 par value per share. As of the date of this Prospectus,
the Company has no shares of Preferred Shares outstanding except for 1,000,000
shares of Series A 8 1/2% Convertible Preferred Stock (the "Series A Stock")
described below. The Board of Directors has the authority, without shareholder
approval, to issue the Preferred Stock in one or more series and to fix the
relative rights and preferences thereof. The terms of such Preferred Stock could
include the right to vote, separately or with any other series of Preferred
Stock, on any proposed amendment to the Company's Certificate of Incorporation
or any other proposed corporate action, including business combinations and
other transactions. Such rights could adversely affect the voting power of the
holders of Common Stock. The Board of Directors does not currently contemplate
the issuance of any shares of Preferred Stock. In addition, the ability of the
Company to issue the authorized but unissued shares of Preferred Stock could be
utilized to impede potential take-overs of the Company.
Series A Stock
As of the date hereof, 1,000,000 shares of Series A Stock are issued
and outstanding. Each share of Series A Stock is convertible at any time into
1.25 shares of the Company's Common Stock. Holders of the Series A Stock are
entitled to annual dividends of 8 1/2% payable in cash or Common Stock of the
Company, at the Company's option based on the market price of the Common Stock
on the date of declaration of the dividend. See "Dividends." The holders of the
Series A Stock are entitled to receive $5.00 per share (plus accrued dividends)
upon the liquidation, dissolution or winding up of the Company, prior to any
distributions to the holder of Common Stock. The Series A Stock is nonvoting.
51
Dividends
The Company has never paid a cash dividend on the Common Stock and
presently intends to retain any future earnings for investment and use in its
business operations. Furthermore, there can be no assurance that the Company's
operations will generate the revenues and cash flow required to declare a cash
dividend or that the Company will have legally available funds to pay dividends
on such Common Stock. Consequently, no cash dividends are expected to be paid in
the foreseeable future except to the extent required to satisfy the Company's
obligations with respect to its outstanding Series A Stock.
Pursuant to the terms of the Company's outstanding Series A Stock which
it issued in a public offering consummated in December 1994, the Company, at its
option, may pay dividends on such stock in cash or in shares of its Common
Stock. The Company has agreed that it will not pay dividends on the Series A
Stock in shares of its Common Stock without the consent of the Representative
during the 18 month period commencing on the effective date of this Prospectus.
See "Risk Factors."
Warrants
As of the date of this Prospectus, the Company has outstanding warrants
to purchase an aggregate of 315,250 shares of Common stock. The Warrants include
Class B Warrants to purchase 250,000 shares of the Company's Common Stock at
$8.00 per share which were issued as part of the units consisting of 1,000,000
Shares of the Company's Series A Stock and 1,000,000 Class B Warrants offered
and sold by the Company in December, 1994.
The Class B Warrants contain provisions that protect the holders
thereof against dilution by adjustment of the exercise price in certain events,
such as stock dividends, stock splits, mergers, and other unusual events (other
than employee benefit and stock option plans for employees or consultants to the
Company).
Holders of Class B Warrants do not possess any rights as a stockholder
of the Company unless and until they exercise the Class B Warrant.
Redeemable Warrants
The Redeemable Warrants will be issued pursuant to a warrant agreement
(the "Redeemable Warrant Agreement") between the Company and OTR Stock Transfer
Company (the "Warrant Agreement"), and will be evidenced by warrant certificates
in registered form. The following summary is qualified in its entirety by the
text of the Warrant Agreement, a copy of which has been filed as an exhibit to
the Registration Statement.
Each Redeemable Warrant entitles the registered holder thereof to
purchase one share of Common Stock at a price of $1.75 per share, subject to
adjustment, commencing on the date of issuance. The Redeemable Warrants expire
on _______________, 2001, [the fifth anniversary of the effective date], (the
"Expiration Date"). Commencing _______________, 1997, [12 months after the
effective date of the Registration Statement], the Redeemable Warrants are
subject to redemption by the Company at a redemption price of $.05 per
Redeemable Warrant on 30 days' prior written notice, provided that either (i)
the average closing bid price (or last sales price) of the Common Stock as
reported on NASDAQ (or on such exchange on which the Common Stock is then
traded), equals or exceeds 150% of the exercise price per share, subject to
adjustment, for any 20 trading days within a period of 30 consecutive trading
days ending on the fifth trading day prior to the date of notice or redemption
and (ii) the Company shall have obtained written consent from the Representative
to redeem the Redeemable Warrants. The holder of a Redeemable Warrant will lose
his right to purchase if such right is not exercised prior to redemption by the
Company on the date for redemption specified in the Company's notice of
redemption or any later date specified in a subsequent notice. Notice of
redemption by the Company shall be given by first class mail to the holders of
the Redeemable Warrants at their addresses set forth in the Company's records.
52
The exercise price of the Redeemable Warrants and the number and kind
of shares of Common Stock or other securities and property to be obtained upon
exercise of the Redeemable Warrants are subject to adjustment in certain
circumstances including a stock split of, or stock division, combination or
recapitalization of, the Common Stock. Additionally, an adjustment would be made
upon the consolidation of the Company with or the merger of the Company with or
into another corporation (other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common Stock) so as
to enable Redeemable Warrant holders to purchase the kind and number of shares
of stock or other securities or property (including cash) receivable in such
event by a holder of the number of shares of Common Stock that might otherwise
have been purchased upon exercise of such Redeemable Warrant. No adjustment for
cash dividends, if any, will be made upon exercise of the Redeemable Warrants.
The exercise price of the Redeemable Warrants bears no relation to any
objective criteria of value and should not be regarded as an indication of the
future market price of the securities offered hereby. The Redeemable Warrants do
not confer upon the holder any voting or any other rights of a stockholder of
the Company. Upon notice to the Redeemable Warrant holders, the Company has the
right to reduce the exercise price or extend the expiration date of the
Redeemable Warrants.
The Redeemable Warrants may be exercised upon surrender of the
Redeemable Warrant certificate on or prior to the expiration date (or earlier
redemption date) of such Redeemable Warrant at the offices of the Warrant Agent,
with the form of "Election to Purchase" on the reverse side of the Redeemable
Warrant certificate completed and executed as indicated, accompanied by payment
of the full exercise price (by cashier's or certified check payable to the order
of the Warrant Agent) for the number of Redeemable Warrants being exercised. The
Redeemable Warrants will become void and of no value upon the Expiration Date.
If a market for the Redeemable Warrants develops, the holder may sell the
Redeemable Warrants instead of exercising them. There can be no assurance,
however, that a market for the Redeemable Warrants will develop or continue. If
a prospectus covering the shares of Common Stock issuable upon the exercise or
Redeemable Warrants is not kept effective and current or if such shares are not
qualified for sale in certain states, holders of Redeemable Warrants desiring to
exercise the Redeemable Warrants will have no choice but either to sell such
Redeemable Warrants or let them expire. See "Risk Factors -- Potential Adverse
Effect of Redemption of Redeemable Warrants."
The Warrant Agreement provides that it may be amended at any time with
the written consent of registered holders representing at least 66 2/3% of the
Redeemable Warrants then outstanding.
Representative's Warrants
Pursuant to the terms of the Underwriting Agreement between the Company
and the Underwriters, the Representative will receive 200,000 Representative's
Warrants for nominal consideration. See "Underwriting."
Transfer Agent, Registrar and Warrant Agent
The Transfer Agent and Registrar for the Units, Common Stock and
Redeemable Warrants is OTR Stock Transfer Company, Portland, Oregon. The address
of the Transfer Agent is 1130 Southwest Morrison, #250, Portland, Oregon 92705.
OTR will also act as Warrant Agent for the Redeemable Warrants.
53
SHARES ELIGIBLE FOR FUTURE SALE
Of the 11,220,345 shares of Common Stock to be outstanding upon
completion of the Offering, approximately 10,576,000 shares of Common Stock,
including the 8,000,000 shares underlying the Units offered hereby, will be
freely tradeable without restriction under the Securities Act except for any
shares of Common Stock purchased by an "affiliate" of the Company (as that term
is defined under the rules and regulations of the Securities Act), which will be
subject to the resale limitations of Rule 144 under the Securities Act. The
remaining 644,000 shares of Common Stock outstanding are "restricted" securities
within the meaning of Rule 144 under the Securities Act and may be sold pursuant
to the conditions of such rule, including satisfaction of certain holding period
requirements. Holders of approximately 233,750 restricted shares, including all
officers and directors of the Company have agreed not to directly or indirectly,
issue, offer to sell, sell, grant an option for the sale of, assign, transfer,
pledge, hypothecate or otherwise encumber or dispose of (collectively,
"Transfer") any securities issued by the Company without the prior written
consent of the Representative for a period of ending upon the earlier of (i)
eighteen months from the date of this Prospectus, or (ii) two months after the
Representative and each broker-dealer controlled by any affiliate of the
Representative at the time the "lock-up" agreement was entered into, if any,
transfers all of the Representative's Warrants and all securities issuable upon
exercise of the Representative's Warrants. An appropriate legend shall be marked
on the face of the certificates representing such securities.
The Redeemable Warrants underlying the Units offered hereby and the
shares of Common Stock underlying such Redeemable Warrants, upon exercise
thereof, will be freely tradeable without restriction under the Securities Act,
except for any Redeemable Warrants or shares of Common Stock purchased by an
"affiliate" of the Company, which will be subject to the resale limitations of
Rule 144 under the Securities Act. In addition, 500,000 Redeemable Warrants and
the shares of Common Stock underlying such Redeemable Warrants are being
registered in the Concurrent Offering. Holders of such Redeemable Warrants have
agreed not to Transfer such Redeemable Warrants, or the underlying shares of
Common Stock, for a period of 18 months from the date of this Prospectus,
without the prior written consent of the Representative and the Company. An
appropriate legend shall be marked on the face of the certificates representing
such securities.
In addition, without the consent of the Representative, the Company has
agreed not to sell or offer for sale any of its securities for a period of 18
months following the effective date of this Prospectus, except pursuant to
outstanding options and warrants and pursuant to the Company's existing option
plans provided that no option so granted shall have an exercise price that is
less than the fair market value per share of Common Stock on the date of grant.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated), including any affiliate of the
Company, who beneficially owns "restricted shares" for a period of at least two
years is entitled to sell within any three-month period, shares equal in number
to the greater of (i) 1% of the then-outstanding shares of the Company's Common
Stock or (ii) the average weekly trading volume of the Company's Common Stock
during the four calendar weeks preceding the filing of the required notice of
sale with the Securities and Exchange Commission. The seller also must comply
with the notice and manner of sale requirements of Rule 144, and there must be
current public information available about the Company. In addition, any person
(or persons whose shares are aggregated) who is not, at the time of the sale,
nor during the preceding three months, an affiliate of the Company, and who has
beneficially owned restricted shares for at least three years, can sell such
shares under Rule 144 without regard to notice, manner of sale, public
information or the volume limitations described above.
While there has been an public market for the Company's Common Stock,
no predictions can be made concerning the effect, if any, that future sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Company's Common Stock in the public market could adversely affect the then
prevailing market price of the Common Stock.
54
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Joseph
Stevens & Company, L.P. is acting as Representative, have severally agreed,
subject to the terms and conditions contained in the Underwriting Agreement (the
"Underwriting Agreement") to purchase from the Company, and the Company has
agreed to sell to the Underwriters on a firm commitment basis, the number of
Units as set forth opposite their names:
Underwriter Number of Units
----------- ---------------
Joseph Stevens & Company, L.P....................... ______________
Total...................................... 2,000,000
The Underwriters are committed to purchase all the Units offered
hereby, if any of the Units are purchased. The Underwriting Agreement provides
that the obligations of the several Underwriters are subject to the conditions
precedent specified therein.
The Representative has advised the Company that the Underwriters
initially propose to offer the Units to the public at the public offering price
set forth on the cover page of this Prospectus and that the Underwriters may
allow to certain dealers concessions not in excess of $_____ per Unit, of which
amount a sum not in excess of $_____ per Unit may in turn be reallowed by such
dealers to other dealers. After the commencement of this Offering, the public
offering price, the concessions and the reallowances may be changed. The
Representative has informed the Company that the Underwriters do not expect
sales to discretionary accounts by the Underwriters to exceed five percent of
the securities offered by the Company hereby.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The company has
agreed to pay to the Underwriter a non-accountable expense allowanced equal to
three percent (3%) of the gross proceeds derived from the sale of the Units
underwritten, $25,000 of which has been paid to date.
Upon the exercise of any Redeemable Warrants more than one year after
the date of this Prospectus, which exercise was solicited by the Representative,
and to the extent not inconsistent with the guidelines of the NASD and the Rules
and Regulations of the Commission, the Company has agreed to pay the
Representative a commission which shall not exceed five percent of the aggregate
exercise price of such Redeemable Warrants, payable upon exercise. The
Representative may act as the Company's exclusive agent with respect to the
solicitation of Redeemable Warrants, if any. However, no compensation will be
paid to the Representative in connection with the exercise of the Redeemable
Warrants if (a) the market price of the Common Stock is lower than the exercise
price, (b) the Redeemable Warrants were held in a discretionary account, or (c)
the Redeemable Warrants are exercised in an unsolicited transaction. The
Representative will not be entitled to any warrant solicitation fee unless the
Representative provides bona fide services in connection with any warrant
solicitation, and the investor designates, in writing, that the Representative
is entitled to such fee. Unless granted an exemption by the Commission from Rule
10b-6 under the Securities Exchange Act of 1934, as amended, the Representative
will be prohibited from engaging in any market-making activities with regard to
the Company's securities for the period from nine business days (or other such
applicable periods as Rule 10b-6 may provide) prior to any solicitation of the
exercise of the Redeemable Warrants until the later of the termination of such
solicitation activity or the termination (by waiver or otherwise) of any right
the Representative may have to receive a fee. As a result, the Representative
may be unable to continue to provide a market for the Company's securities
during certain periods while the Redeemable Warrants are exercisable. If the
Representative has engaged in any of the activities prohibited by Rule 10b-6
during the periods described above, the Representative undertakes to waive
unconditionally its right to receive a commission on the exercise of such
Redeemable Warrants.
55
All officers and directors of the Company, and certain holders of
Common Stock and securities exercisable, convertible or exchangeable for shares
of Common Stock, have agreed not to, directly or indirectly, offer, sell,
transfer, pledge, assign, hypothecate or otherwise encumber any shares of Common
Stock or convertible securities, or otherwise dispose of any interest therein,
without the prior written consent of the Representative for a period ending upon
the earlier of (i) eighteen months from the date of this Prospectus, or (ii) two
months after the Representative and each broker-dealer controlled by any
affiliate of the Representative at the time the "lock-up" agreement was entered
into, if any, transfers all of the Representative's Warrants and all securities
issuable upon exercise of the Representative's Warrants. An appropriate legend
shall be marked on the face of certificates representing all such securities.
The Company has granted to the Underwriters an option, exercisable
within 45 days of the date of the Registration Statement to purchase from the
Company at the initial public offering price per Unit less underwriting
discounts and the non-accountable expense allowance, up to an aggregate of an
additional 300,000 Units for the sole purpose of covering over-allotments, if
any.
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, Representative's Warrants to purchase
from the Company 200,000 Units. The Representative's Warrants are initially
exercisable at a price equal to 120% of the initial public offering price per
Unit and may be exercised at any time during the four year period commencing on
the second anniversary of the date of issuance. The shares of Common Stock and
Redeemable Warrants issuable upon exercise of the Representative's Warrants are
identical to those offered to the public. The Representative's Warrants contain
anti-dilution provisions providing for adjustment of the number of warrants and
exercise price under certain circumstances. The Representative's Warrants grant
to the holders thereof certain rights of registration of the securities issuable
upon exercise of the Representative's Warrants.
The Company has agreed that the Representative has a right of first
refusal for a period of three years from the date of this Prospectus with
respect to any sale of securities made by the Company or any of its present or
future affiliates or subsidiaries. The Company has agreed that for five years
from the effective date of the Registration Statement, the Representative may
designate one person for election to the Company's Board of Directors and that
the Company will reasonably cooperate with the Representative in respect of such
designation. The Company has also agreed to retain the Representative as the
Company's financial consultant for a period of 24 months commencing upon the
consummation of the proposed public offering and to pay the Representative
$2,000 per month all payable in advance on the closing date set forth in the
Underwriting Agreement.
The Representative acted as Placement Agent for the Bridge Financing
and received in connection therewith a commission of $50,000, a non-accountable
expense allowance of $15,000 and 150,000 placement agent warrants (the
"Placement Agent's Warrants") to purchase 150,000 shares of Common Stock at an
exercise price of $1.12 per share. The Placement Agent's Warrants will be
canceled upon the consummation of this Offering. The Company also paid the fees
and disbursements of the Representative's legal counsel.
Joseph Stevens & Company, L.P. commenced operations in May 1994 and
therefore does not have extensive experience as an underwriter of public
offerings of securities. Joseph Stevens & Company, L.P., has acted as the
managing underwriter for four public offerings. Joseph Stevens & Company, L.P.
is a relatively small firm and no assurance can be given that it will be able to
participate as a market maker in the Units and no assurance can be given that
another broker-dealer will make a market in the Units, the Common Stock or the
Redeemable Warrants. See "Risk Factors -- Lack of Experience of Representative."
Prior to the Offering there has been a limited public market for the
Common Stock and no public market for the Units or the Redeemable Warrants. The
Common Stock is currently traded on NASDAQ. Consequently, the initial public
offering price of the Units and terms of the Redeemable Warrants were determined
by negotiation between the Company and the Representative. Among the factors
considered in determining such price and terms, in addition to prevailing market
conditions, included the history of and the prospects for the industry in which
the Company competes, the market price of the Common Stock, an
56
assessment of the Company's management, the prospects of the Company, its
capital structure and such other factors that were deemed relevant. The offering
price does not necessarily bear any relationship to the assets, results of
operations or net worth of the Company.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Dempsey & Johnson, P.C., Los Angeles, California. Maloney, Gerra,
Mehlman & Katz, New York, New York has acted as special counsel to the Company
in connection with the Offering. Orrick, Herrington & Sutcliffe, New York, New
York has acted as counsel to the Underwriters in connection with this Offering.
EXPERTS
The financial statements included in this Prospectus and the
Registration Statement of which this Prospectus is a part have been audited by
Kellogg & Andelson LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority or said firm as experts in accounting and auditing and giving said
reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form SB-2 under the
Securities Act with respect to the Units offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules to the Registration Statement. For further
information with respect to the Company and such Units offered hereby, reference
is made to the Registration Statement and the exhibits and schedules filed as a
part of the Registration Statement. Statements contained in this Prospectus
concerning the contents of any contract or any other document referred to are
not necessarily complete; reference is made in each instance to the copy of such
contract or document filed as an exhibit to the Registration Statement. Each
such statement is qualified in all respects by such reference to such exhibit.
The Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the Securities and Exchange Commission's principal
office in Washington, D.C., and copies of all or any part thereof may be
obtained from such office after payment of fees prescribed by the Securities and
Exchange Commission.
57
>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors..............................................F-1
Consolidated Balance Sheets - March 31, 1996 (unaudited)
and June 30, 1995 and 1994.........................................F-2
Consolidated Statements of Operations -
Nine months ended March 31, 1996 and 1995 (unaudited)
and Years Ended June 30, 1995, 1994 and 1993 ......................F-3
Consolidated Statement of Shareholders' Equity
Nine months ended March 31, 1996 (unaudited)
and Years Ended June 30, 1995, 1994 and 1993 ......................F-4
Consolidated Statements of Cash Flows -
Nine months ended March 31, 1996 and 1995 (unaudited)
and Years Ended June 30, 1995, 1994 and 1993 ..............F-5 and F-6
Notes to Consolidated Financial Statements.....................F-7 through F-19
58
Board of Directors
The Producers Entertainment Group Ltd.
Beverly Hills, California
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of The Producers
Entertainment Group Ltd. and Subsidiaries as of June 30, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years ended June 30, 1995, 1994 and 1993. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Producers Entertainment Group Ltd. and Subsidiaries as of June 30, 1995 and 1994
and the results of its operations and its cash flows for the years ended June
30, 1995, 1994 and 1993, in conformity with generally accepted accounting
principles.
KELLOGG & ANDELSON
ACCOUNTANCY CORPORATION
Sherman Oaks, California
September 1, 1995, except for Note 12,
as to which the date is June 20, 1996
F-1
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
--------------- -----------------------------------
1 9 9 6 1 9 9 5 1 9 9 4
--------------- --------------- ----------------
(Unaudited)
Cash and cash equivalents $ 81,268 $ 832,754 $ 964,387
Accounts receivable, less allowances
of $36,421, $36,421 and $113,165 714,779 652,074 1,390,030
Notes receivable, less allowance of $270,000 - 402,842 -
Receivables from related parties 14,876 116,229 458,294
Film costs, net 3,209,942 2,104,503 4,610,704
Fixed assets, at cost, less accumulated
depreciation and amortization of $174,459,
$149,344 and $117,738 58,490 76,439 93,914
Other assets 213,107 199,829 89,399
--------------- --------------- ----------------
$ 4,292,462 $ 4,384,670 $ 7,606,728
=============== =============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ 100,000 $ - $ 1,388,750
Accounts payable and accrued expenses 491,986 847,595 1,348,950
Deferred participations based
on estimated revenues - 350,000 -
Deferred revenue 2,151,694 598,708 3,466,901
--------------- --------------- ----------------
Total liabilities 2,743,680 1,796,303 6,204,601
--------------- --------------- ----------------
COMMITMENTS - - -
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 - 3,500,954, 2,847,192 and 2,702,208
Outstanding - 3,220,345, 2,566,583 and 2,421,599 3,501 2,847 2,702
Additional paid-in capital 16,114,102 15,329,756 10,551,409
Accumulated deficit (12,735,629) (11,735,044) (8,141,792)
--------------- --------------- ----------------
3,382,974 3,598,559 2,412,319
Treasury stock, 280,609 shares at cost (1,010,192) (1,010,192) (1,010,192)
Notes receivable from related parties from sales
of common stock, net of imputed interest discount (824,000) - -
--------------- --------------- ----------------
Net shareholders' equity 1,548,782 2,588,367 1,402,127
--------------- --------------- ----------------
$ 4,292,462 $ 4,384,670 $ 7,606,728
=============== =============== ================
The accompanying notes are an integral part
of the consolidated financial statements.
F-2
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
March 31, Years ended June 30,
--------------------------- --------------------------------------------
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4 1 9 9 3
------------ ------------ ------------- ------------- -------------
(Unaudited)
Revenues $ 2,132,767 $ 4,971,334 $ 5,290,745 $ 10,782,850 $ 7,180,569
------------ ------------ ------------- ------------- -------------
Amortization of film costs 717,000 3,746,050 3,768,728 4,316,300 3,617,778
Costs related to revenues - - - 5,654,113 -
------------ ------------ ------------- ------------- -------------
717,000 3,746,050 3,768,728 9,970,413 3,617,778
------------ ------------ ------------- ------------- -------------
1,415,767 1,225,284 1,522,017 812,437 3,562,791
Write-off of projects in development - - 335,233 233,903 2,008,731
General and administrative expenses 2,665,625 3,660,150 4,696,554 5,621,365 5,696,851
------------ ------------ ------------- ------------- -------------
Operating (loss) (1,249,858) (2,434,866) (3,509,770) (5,042,831) (4,142,791)
------------ ------------ ------------- ------------- -------------
Other income (expense):
Interest income 49,656 28,260 63,166 110,485 59,609
Interest and financing expense - (296,741) (303,908) (157,177) (99,020)
Provision for note receivable - (270,000) (270,000) - -
Settlement of lawsuit 267,633 - - (400,000) -
Reduction in deferred participations - 200,000 427,260 - -
Forgiveness of notes receivable
from related parties (68,016) - - - (102,000)
------------ ------------ ------------- ------------- -------------
Total other income (expense) 249,273 (338,481) (83,482) (446,692) (141,416)
Net (loss) (1,000,585) (2,773,347) (3,593,252) (5,489,523) (4,284,207)
Dividend requirement of
Series A Preferred Stock (318,750) (126,350) (232,600) - -
------------ ------------ ------------- ------------- -------------
Net (loss) applicable to
common shareholders $ (1,319,335) $ (2,899,697) $ (3,825,852) $ (5,489,523) $ (4,284,207)
============ ============ ============= ============= =============
Net (loss) per common share $ (.46) $ (1.17) $ (1.52) $ (2.34) $ (2.40)
============ ============ ============= ============= =============
Weighted average number of common
shares outstanding 2,898,850 2,482,694 2,513,130 2,341,500 1,789,250
============ ============ ============= ============= =============
The accompanying notes are an integral part
of the consolidated financial statements.
F-3
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1993, 1994 AND 1995 AND
NINE MONTHS ENDED MARCH 31, 1996 (Unaudited)
Preferred stock Common stock Additional Net
------------------ -------------------- Paid-in Accumulated Treasury Shareholders'
Shares Amount Shares Amount Capital Deficit Stock Equity
--------- --------- ---------- --------- ----------- ----------- ----------- -----------
Balance at June 30, 1992 - $ - 1,970,000 $ 1,970 $ 6,902,919 $(1,342,666) $(1,010,192) $ 4,552,031
Issuance of common stock
and common stock
purchase warrants for
cash consideration - - 481,66 482 4,734,342 - - 4,734,824
Issuance of common
stock by DSL for cash - - - - 21,182 - - 21,182
Net (loss) - - - - - (4,284,207) - (4,284,207)
--------- --------- ---------- --------- ----------- ----------- ----------- -----------
Balance at June 30, 1993 - - 2,451,667 2,452 11,658,443 (5,626,873) (1,010,192) 5,023,830
Exercise of stock options
and warrants - - 250,541 250 1,323,468 - - 1,323,718
Settlement of lawsuit - - - - 400,000 - - 400,000
Net loss of DSL
duplicated in
statement of operations - - - - - 144,102 - 144,102
Net loss of DSL
applicable to subchapter
S shareholders - - - - (2,830,502) 2,830,502 - -
Net loss - - - - - (5,489,523) - (5,489,523)
--------- --------- ---------- --------- ----------- ----------- ----------- -----------
Balance at June 30, 1994 - - 2,702,208 2,702 10,551,409 (8,141,792) (1,010,192) 1,402,127
Sale of preferred stock
and warrants in
public offering 1,000,000 1,000 - 4,175,467 - - 4,176,467
Issuance of
shares for interest - - 69,109 69 274,931 - - 275,000
Exercise of stock options - - 75,875 76 454,299 - - 454,375
Dividend on preferred stock - - - - (126,350) - (126,350)
Net (loss) - - - - - (3,593,252) - (3,593,252)
--------- --------- ---------- --------- ----------- ----------- ----------- -----------
Balance at June 30, 1995 1,000,000 1,000 2,847,192 2,847 15,329,756 (11,735,044) (1,010,192) 2,588,367
Unaudited:
Issuance of common stock
in payment of dividends
on preferred stock - - 128,762 129 (129) - - -
Sale of common stock
to related parties
for notes receivable - - 525,000 525 784,475 - - 785,000
Net (loss) - - - - - (1,000,585) - (1,000,585)
--------- --------- ---------- --------- ----------- ----------- ----------- -----------
Balance at March 31, 1996 1,000,000 $ 1,000 3,500,954 $ 3,501 $16,114,102 $(12,735,629) $(1,010,192) 2,372,782
========= ========= ========== ========= =========== ============ =========== ===========
Less notes receivable from related parties from sales of common stock, net of imputed interest discount (824,000)
-----------
$ 1,548,782
===========
The accompanying notes are an integral part
of the consolidated financial statements.
F-4
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
March 31, Years ended June 30,
-------------------------- ----------------------------------------
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4 1 9 9 3
------------ ------------ ------------ ------------ -----------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (1,000,585) $ (2,773,347) $ (3,593,252) $ (5,489,523) $(4,284,207)
Net loss of DSL duplicated in
statement of operations - - - 144,102 -
Adjustments to reconcile net (loss) to net
cash (used in) provided by operating activities:
Amortization of film costs 717,000 3,746,050 3,768,728 4,316,300 3,617,778
Depreciation 25,115 16,591 34,688 74,026 56,386
Write-off of projects in development - 335,233 223,903 2,008,731
Settlement of lawsuit (137,633) - - 400,000 -
Forgiveness of notes receivable 68,016 - - - 102,000
Amortization of imputed interest discount (39,000) - - - -
Provision for uncollectible notes receivable - 270,000 270,000 - -
Issuance of shares of common stock
for interest - 275,000 275,000 - -
Reduction in deferred participations - (200,000) (427,260) - -
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 115,295 334,117 720,588 (200,893) (111,225)
Decrease (increase) in other assets (13,278) (2,472) 63,700 38,690 (99,165)
(Decrease) increase in accounts payable
and accrued expenses 115,468 (484,424) (524,095) (379,902) 319,898
(Decrease) increase in deferred revenue (598,708) (3,327,901) (2,868,193) 1,640,240 1,544,268
------------ ------------ ------------ ------------ -----------
Net cash (used in) provided by
operating activities (748,310) (2,146,386) (1,944,863) 766,943 3,154,464
------------ ------------ ------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to film costs (129,347) (1,240,767) (1,771,890) (5,168,513) (5,631,411)
Purchases of equipment (7,166) (9,913) (17,213) (12,926) (42,457)
(Increase) in receivables from related
parties, net 33,337 (286,275) (43,409) (101,650) (244,639)
------------ ------------ ------------ ------------ -----------
Net cash (used in) investing activities (103,176) (1,536,955) (1,832,512) (5,283,089) (5,918,507)
------------ ------------ ------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of units in public offering - 4,176,467 4,176,467 - -
Proceeds from borrowings 100,000 - - 887,000 3,481,000
Repayments of borrowings - (588,750) (588,750) (1,504,750) (2,305,946)
Proceeds from exercise of
warrants and stock options - 454,375 454,375 1,323,718 4,734,824
Loan to former president of DSL - - (270,000) - -
Payment of dividend on preferred stock - - (126,350) - -
Sale of stock by DSL - - - - 21,182
------------ ------------ ------------ ------------ -----------
Cash provided by financing activities 100,000 4,042,092 3,645,742 705,968 5,931,060
------------ ------------ ------------ ------------ -----------
Net (decrease) increase in cash
and cash equivalents (751,486) 358,751 (131,633) (3,810,178) 3,167,017
Cash and cash equivalents:
Beginning of period 832,754 964,387 964,387 4,774,565 1,607,548
------------ ------------ ------------ ------------ -----------
End of period $ 81,268 $ 1,323,138 $ 832,754 $ 964,387 $ 4,774,565
============ ============ ============ ============ ===========
The accompanying notes are an integral part
of the consolidated financial statements.
F-5
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Nine months ended
March 31, Years ended June 30,
------------------------ -----------------------------------------
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4 1 9 9 3
--------- ---------- ---------- ----------- ---------
(Unaudited)
CASH PAID FOR:
Interest $ - $ 21,741 $ 39,000 $ 157,200 $ 54,300
========= ========== ========== =========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
As discussed in Note 1, the Company acquired all of the common stock of DSL
in exchange for 32,500 shares of the Company's common stock in a transaction
accounted for as a pooling of interests.
As discussed in Note 10, the Company agreed to settle a lawsuit, subject to
court approval, by issuing to the plaintiff stock purchase warrants with an
aggregate value of $400,000.
As discussed in Note 3, the Company transferred certain projects in
development with carrying amount of approximately $174,000 to a new
corporation (DEG) in exchange for a 19.9% ownership interest in DEG.
The accompanying notes are an integral part
of the consolidated financial statements.
F-6
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations
The Producers Entertainment Group Ltd. (the Company) was
incorporated under the laws of the State of Delaware on August
10, 1989. The Company is engaged in the acquisition, development
and production of made-for-television movies, series and
miniseries and theatrical motion pictures. The Company is also
engaged in personal management of the careers of performers,
writers and directors. Unless the context indicates otherwise,
the term "Company" includes The Producers Entertainment Group
Ltd. and all of its subsidiaries.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation. Certain reclassifications have been made to the
1994 financial statements to conform to the 1995 presentation.
Acquisition of DSL and Restatement of Financial Statements
In May 1994, the Company acquired all of the capital stock of
DSL Productions, Inc. and its affiliates (DSL) in exchange for
32,500 shares of its previously unissued common stock. This
transaction was accounted for as a pooling of interests.
Accordingly, the accompanying 1994 financial statements and
notes have been restated to include the accounts of DSL.
Revenue Recognition
Amounts received as license fees for projects in production are
deferred until the project becomes available for broadcast in
accordance with the terms of the licensing agreement and are
recognized as revenues at such time. Additional licensing and
distribution fees are recognized as earned in accordance with
the terms of the related agreements. Revenues from the sale of
completed productions are recognized upon their sale.
Cash and Cash Equivalents
Cash and cash equivalents include money market funds and
certificates of deposit with a maturity of three months or less.
F-7
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Film Costs and Amortization
Film costs include the cost of completed projects, costs of
projects in production and costs expended on projects in
development. Film costs are stated at the lower of amortized
cost or estimated net realizable value. Amortization of
completed projects is charged to operations on an individual
project basis in a ratio that the current year's revenue bears
to management's estimate of total revenues (current and future
years) from all sources. This is commonly referred to as the
individual-film-forecast method. Adjustments of amortization
resulting from changes in estimates of total revenues are
recognized in the current year's amortization. When a completed
project is fully amortized, its cost and related accumulated
amortization are removed from the accounts. If, in the opinion
of management, any property in the development stage is not
planned for use, the net carrying value of such property is
charged to current year's operations.
Costs Related to Revenues
Costs related to revenues consist of direct costs incurred in
the production of projects that are subsequently sold to third
parties. The Company does not retain any ownership interest in
these projects and, accordingly, upon their sale, all incurred
costs are charged to operations. Participations in future
profits from projects that are sold are included in revenues
when earned.
Depreciation and Amortization
Depreciation and amortization of fixed assets (consisting of
furniture, equipment and leasehold improvements) is provided on
the straight-line method over the estimated useful lives of the
related assets which range from three to five years.
Deferred Participations Based on Estimated Future Revenues
Deferred participations based on future revenues are payable
solely from a portion of revenues, as defined, received from
certain completed projects up to a maximum of $800,000 of which
approximately $93,000 has been paid or earned as of June 30,
1995. Deferred participations are adjusted based on management's
estimates of revenues to be earned from these completed
projects. Such adjustments are included in current year's
operations.
Unclassified Balance Sheet
The Company has elected to present unclassified balance sheets
in accordance with SFAS No. 53.
F-8
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Net (Loss) Per Common Share
Net (loss) per common share has been computed after deducting
(in 1995) the dividend requirement of the Company's Series A
Preferred Stock from net (loss) and is based on the weighted
average number of common shares outstanding during the periods.
The assumed conversion of the Series A Preferred Stock and the
assumed exercise of outstanding stock purchase warrants and
options have not been included because the effect would be
anti-dilutive.
NOTE 2 - LIQUIDITY AND CAPITAL RESOURCES
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting
principles which contemplates the continuation of the Company as
a going concern including the realization of assets and
liquidation of liabilities in the ordinary course of business.
For the years ended June 30, 1995 and 1994, the Company incurred
net losses of $3,593,252 and $5,489,523, respectively. At June
30, 1995, the Company had an accumulated deficit of $11,735,044.
The Company's operations have been primarily financed by public
sales of its securities and exercises of stock options and
warrants. Through June 30, 1995, proceeds from these sources
aggregated approximately $16,900,000.
The Company's cash commitments for the year ending June 30, 1996
include approximately $1,777,000 of compensation to officers and
key independent contractors (including new and revised
employment agreements) and office rent. The Company also incurs
other costs such as salaries, related benefits, professional
fees, office and other expenses. For the year ended June 30,
1995, general and administrative expenses, which include
compensation and rent, aggregated $4,696,554.
During the year ended June 30, 1995, the Company took certain
steps to substantially reduce its operating losses and increase
its cash flow. These steps included restructuring the Company's
management, terminating certain unprofitable operations of DSL
and reducing compensation and operating expenses. During the
year ended June 30, 1995, the Company also completed additional
projects and entered into other agreements that will provide
future revenues and cash flow. Management believes that these
steps, among other things, will enable the Company to continue
as a going concern.
F-9
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY TRANSACTIONS
During the year ended June 30, 1994, the Company advanced
$70,000 to a corporation that provides the Company with the
services of one of its officers and directors. This advance was
to be repaid from future compensation payable to this
corporation, bears interest at 8% per annum and was due on
December 31, 1994. The balance of this advance, including
accrued interest, at June 30, 1995 was $64,900 and is secured by
certain stock options. At June 30, 1995, the market price of the
Company's common stock was substantially less than the exercise
prices of these stock options. The Company has agreed to enter
into or amend employment agreements with certain officers and
others (see Note 7).
The Company has agreed to sell an aggregate of 900,000 shares of
its common stock to certain of its officers, directors and
others at a price of $2.00 per share. The purchase price for
these shares will be represented by promissory notes which will
bear interest at 7% per annum and will be secured by, among
other things, the purchased shares.
Prior to its acquisition by the Company, DSL made unsecured
loans to its President. These loans bear interest at 4.5% and
aggregated (including accrued interest) approximately $402,000
at June 30, 1995. The Company has filed a legal action seeking,
among other things, repayment of this amount (see Note 9).
The former owner of DSL had made advances to DSL prior to its
acquisition by the Company. These advances aggregated $2,687,000
at the date of acquisition of DSL by the Company. A total of
$1,887,000 of these advances has been repaid. This individual is
entitled to receive up to a maximum of $800,000 solely out of
revenues, as defined, received from certain completed projects.
This individual has filed a legal action against the Company and
others claiming, among other things, that he is due the amount
payable to him out of future revenues (see Note 9).
The Company had guaranteed the repayment of a $270,000 loan made
by the then President of DSL to one of the former shareholders
of DSL. During the year ended June 30, 1995, the Company loaned
this individual $270,000 for the purpose of repaying this loan.
This loan bears interest at prime plus 1%, is due on December
31, 1997 and is secured only by stock options previously granted
to this individual which entitle him to purchase an aggregate of
100,000 shares of the Company's common stock through December
31, 1997 at a price of $10.88 per share. Because the market
price of the Company's common stock is substantially below the
exercise price of such stock options, the Company has
established an allowance for the entire amount of this note.
F-10
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY TRANSACTIONS - CONTINUED
As of February 27, 1995, the Company entered into an agreement
with the former President of DSL which resulted in the
termination of the employment agreement with this individual. In
connection with this agreement, the Company transferred certain
projects in development to a new corporation (DEG) in exchange
for a 19.9% ownership interest in DEG. The remaining 80.1% of
DEG is owned by the former President of DSL. The carrying amount
of the transferred projects (approximately $174,000) is included
in other assets in the accompanying consolidated balance sheet.
The Company will receive 5% of the gross revenues, as defined,
from DEG's exploitation of these transferred projects. The
Company also agreed to transfer to DEG one of its projects in
production upon its completion in exchange for 5% of future
gross revenues, as defined, from the exploitation of this
project. In connection with the Company's legal action for
payment of loans, this individual has filed a cross-complaint
against the Company and others which claims, among other things,
recision of certain parts of this agreement and seeks damages
(see Note 9).
NOTE 4 - FILM COSTS
Film costs consists of the following:
March 31, June 30, June 30,
1 9 9 6 1 9 9 5 1 9 9 4
--------- -------- --------
(Unaudited)
Completed projects $ 8,127,225 $ 10,688,000 $ 7,475,715
Less: accumulated amortization 7,333,475 9,550,328 5,781,600
---------------- --------------- ---------------
Released, net of amortization 793,750 1,137,672 1,694,115
Productions in progress 2,151,694 775,629 2,252,784
Projects in development 264,498 191,202 663,805
---------------- --------------- ---------------
$ 3,209,942 $ 2,104,503 $ 4,610,704
================ =============== ===============
Write-offs of projects in development for the years ended June
30, 1995 and 1994 aggregated $335,233 and $233,903,
respectively. Based on management's present estimate of future
revenues at June 30, 1995, substantially all of the unamortized
costs of completed projects will be amortized by June 30, 1998.
F-11
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - BRIDGE FINANCINGS AND PUBLIC OFFERINGS
During fiscal 1993, the Company issued an aggregate of 63,000
three-year warrants in connection with a bridge financing. Each
three-year warrant is exercisable for one share of common stock
at a price of $7.70 per share. During the year ended June 30,
1994, 22,750 of these warrants were exercised for proceeds of
$175,175.
In connection with its April 1993 public offering of securities,
the Company issued an aggregate of 239,583 warrants, each of
which is exercisable for one share of common stock at a price of
$16.00 through April 1996. In connection with this offering, the
underwriter received a five-year option to purchase 20,833 units
(two shares of common stock and one warrant) at a price of
$28.80 per unit.
In October 1994, the Company completed a bridge financing
consisting of subordinated notes in the aggregate principal
amount of $1,100,000. These notes bore interest at 7% per annum
and were repaid from the proceeds of the Company's December 1994
public offering. In accordance with the terms of these notes,
upon their repayment the noteholders were issued shares of the
Company's common stock with a market value equal to 25% of the
principal amount of the notes ($275,000). This amount has been
included in the accompanying 1995 consolidated financial
statements as a charge to interest and financing expense with a
corresponding increase to common stock and additional paid-in
capital.
In December 1994, the Company completed a public offering of its
securities, selling 1,000,000 units at a price of $5.00 per unit
for net proceeds of $4,176,467. Each unit consisted of one share
of nonvoting Series A 8.5% Convertible Preferred Stock (Series A
Stock) and one Class B Warrant. In connection with this
offering, the underwriter received a five-year option to
purchase 100,000 units at a price of $7.00 per unit. Each share
of Series A Stock has a liquidating preference of $5.00
(aggregate - $5,000,000), is convertible into 1.25 shares of
common stock (aggregate - 1,250,000 shares) at any time and is
entitled to cumulative quarterly dividends at the annual rate of
$.425 Series A Stock and may be paid either in cash or in shares
of the Company's common stock valued at the then market price.
During the year ended June 30, 1995, the first dividend on the
Series A Stock ($126,350) was paid in cash and was recorded as a
charge to additional paid-in capital. The dividend on the Series
A Stock for the quarter ended June 30, 1995 in the amount of
$106,250 was subsequently paid by the Company issuing 38,665
shares of common stock. Each Class B Warrant is exercisable for
one share of common stock at a price of $8.00 through December
1997. The Company may redeem the Class B Warrants at a price of
$.01 each if the defined market price of the Company's common
stock is at least $10.40 per share.
F-12
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - STOCK OPTIONS AND WARRANTS
The Company's stock option plan authorizes the granting of stock
options to officers and key employees to purchase an aggregate
of 250,000 shares of common stock. No stock options may be
granted after August 1999. The Company may also grant other
stock options outside its stock option plan. As of June 30,
1995, an aggregate of 781,500 stock options had been granted at
prices ranging from $2.00 to $13.00 per share of which 747,750
were exercisable. During the year ended June 30, 1995, 75,875
stock options were exercised for aggregate proceeds of $454,375.
During the year ended June 30, 1994, 227,791 stock options were
exercised for aggregate proceeds of $1,148,543.
The Company has the following warrants outstanding:
Exercise Expiration
Title Number Price Date
----- ------ -------- ----------
Three-year warrants (see Note 5) 40,250 $7.70 February 1997
Warrants (see Note 5) 238,333 $16.00 April 1996
Class B Warrants (see Note 5) 250,000 $8.00 December 1997
Class C Warrants (see Note 9) 177,777 $16.00 April 1996
The Company has also granted the underwriters of its public
offerings options to purchase units (see Note 5).
NOTE 7 - EMPLOYMENT AGREEMENTS
The Company has entered into agreements for the services of
certain of its officers and others. These agreements expire
through June 30, 1999 and provide for approximate aggregate base
compensation as follows for the years ending June 30: 1996 -
$1,125,000; 1997 - $161,000; 1998 and 1999 - $80,000. Certain of
these agreements provide for additional compensation based on
future financing and certain revenues or other operating
results. These agreements also provide for payments by the
Company in the event of death, disability, termination or a
change in control of the Company.
F-13
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - EMPLOYMENT AGREEMENTS - CONTINUED
The Company has agreed to enter into or amend employment
agreement with certain of its officers and others. Although the
terms of these agreements have not been finalized, they provide
for additional annual aggregate compensation of approximately
$432,000 for the year ending June 30, 1996 and $854,000 for the
years ending June 30, 1997 and 1998.
NOTE 8 - INCOME TAXES
For income tax reporting purposes, the Company uses an October
31 year-end. At June 30, 1995, the Company had unutilized
federal and state net operating loss carryforwards of
approximately $11,100,000 which expire through 2008. Utilization
of these net operating loss carryforwards may be limited in any
one year by, among other things, alternative minimum tax rules.
Prior to its acquisition by the Company, DSL had elected to have
its income taxed under Section 1362 (Subchapter S) of the
Internal Revenue Code of 1986, and applicable state statutes.
Accordingly, no provision or liability for Federal or state
income taxes for DSL is reflected in the accompanying
consolidated financial statements. The accumulated loss of DSL
at June 30, 1994 $(2,672,338) has been eliminated from
accumulated deficit and charged to additional paid-in capital.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company's office lease provides for minimum annual base
rental payments and payment of certain defined operating
expenses. Minimum rents payable for the years ending June 30 are
approximately as follows: 1996 - $229,000; and 1997 - $57,000.
Rent expense for the years ended June 30, 1995 and 1994 was
$197,011 and $211,852, respectively.
The Company is a party to various agreements relating to its
properties that provide for payments to others upon sale,
production and/or distribution of the property. Other agreements
provide for participations by others in the net revenues and/or
profits from completed projects.
F-14
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMITMENTS AND CONTINGENCIES - CONTINUED
The Company has filed a legal action seeking, among other
things, payment of loans made to the former President of DSL
(see Note 3). This individual has filed a cross-complaint
against the Company and others which claims, among other things,
that the Company breached its agreement with this individual and
seeks recision of certain parts of this agreement and damages.
The Company believes that the ultimate outcome of these actions
will not have a material adverse effect on its consolidated
financial statements.
The former owner of DSL has filed an action against the Company
and certain of its officers and directors which claims that he
is presently due the amount payable to him solely out of
revenues, as defined, received from certain completed projects
(see Note 3). The Company has denied these allegations and
believes that the ultimate outcome of this matter will not have
a material adverse effect on its consolidated financial
statements.
In the normal course of its business, the Company is subject to
various lawsuits and claims. The Company believes that the final
outcome of these matters, either individually or in the
aggregate, will not have a material effect on its consolidated
financial statements.
NOTE 10 - SETTLEMENT OF LAWSUIT
The Company was a party to a lawsuit which claimed, among other
things, certain violations of securities laws. During the year
ended June 30, 1994, the Company agreed to settle this lawsuit,
subject to court approval, by issuing to the plaintiffs stock
purchase warrants with an aggregate value of $400,000. The
effect of this settlement has been reflected in the accompanying
June 30, 1994 consolidated financial statements as a charge to
operations and a corresponding increase to additional paid-in
capital. During the year ended June 30, 1995, the Company issued
an aggregate of 177,777 Class C Warrants in settlement of this
lawsuit. Each Class C Warrant is exercisable for one share of
common stock at a price of $16.00 through April 13, 1996. The
issuance of the Class C Warrants did not have any effect on the
Company's consolidated financial statements.
F-15
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist of cash and
trade receivables. The Company places its cash with high credit
quality financial institutions or in high quality short-term
investments. At times the cash in any one bank may exceed the
FDIC $100,000 limit. In connection with accounts receivables,
the risk is relatively limited due to most customers being
either national broadcasting networks, or large national and
foreign distributors.
NOTE 12 - SUBSEQUENT EVENTS
On May 30, 1996, the Company's shareholders approved a one for
four reverse split of the Company's common stock. The
accompanying consolidated financial statements have been
restated to give effect to this reverse stock split.
On June 7, 1996, the Company consummated a bridge financing
pursuant to which it issued (1) $500,000 of promissory notes
which bear interest at the rate of 10% per annum and are due and
payable upon the earlier of (a) consummation of any financing of
the company from which the Company receives gross proceed of at
least $1,000,000 or (b) one year from date of issuance and (2)
500,000 bridge warrants entitling the holder to purchase on
share of common stock at an initial exercise price of $1.12
(subject to adjustment upon the occurrence of certain events )
during the three year period commencing one year from the date
of issuance. As part of the bridge financing, the Company was
charged $137,513 for deferred financing costs and original issue
discount.
NOTE 13 - UNAUDITED FINANCIAL INFORMATION
The financial information included herein as of March 31, 1996
and the nine months ended March 31, 1996 and 1995 is unaudited;
however, such information reflects all adjustments consisting
solely of normal recurring accruals which are in the opinion of
management necessary to present fairly the results of operations
for the periods presented.
F-16
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - UNAUDITED FINANCIAL INFORMATION - CONTINUED
Sale of Common Stock to Related Parties for Notes
In November 1995, the Company sold 525,000 shares of its common
stock to related parties in exchange for $1,050,000 of
promissory notes. Interest is computed at an annual rate of 7%
compounded semi-annually and is payable with the principal of
the notes which are due as follows:
April 1, 1997 $ 131,250
October 1, 1998 131,250
October 1, 2000 787,500
------------
$ 1,050,000
============
The notes are secured by the purchased shares with the personal
liability of the purchaser limited to 25% of the principal
amount (aggregating $262,500) plus accrued interest thereto.
The promissory notes received by the Company were recorded at
their principal amount less an imputed interest discount in the
aggregate amount of approximately $265,000. This imputed
interest discount is being amortized over the term of the notes
using the interest method to provide an effective interest rate
of 12% per annum. During the nine months ended March 31, 1996,
the Company recorded approximately $39,000 of interest income on
these notes. The difference between this imputed interest rate
and the stated interest rate on the notes may be deemed to be
additional compensation to the purchasers of the shares.
Settlement of Litigation
During the nine months ended March 31, 1996, the Company settled
various litigation relating to DSL Productions, Inc., a
wholly-owned subsidiary of the Company ("DSL"). In pertinent
part, this settlement provided for the payment to the Company of
$308,000 (of which $130,000 has been received), elimination of
the $402,842 note receivable from the former President of DSL,
the transfer of a completed project with a carrying amount of
$222,980 to a new corporation formed by the former President of
DSL ("DEG") and the release of the Company's $350,000 obligation
to pay a portion of future revenues from completed projects to
the former owner of DSL. In connection with this settlement, the
Company reduced its accounts payable and accrued expenses by
$235,455 representing the amounts previously recorded related to
DSL and this litigation. This settlement also provided for a
reduction in the Company's ownership of DEG from 19.9% to 5%.
The effects of this settlement have been reflected in the
unaudited March 31, 1996 statements of operations as a separate
item.
F-17
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - UNAUDITED FINANCIAL INFORMATION - CONTINUED
Litigation with Former Officer and Director
As of November 14, 1995, in connection with the following
employment arrangement, the Company sold 375,000 shares of its
common stock to one of its then officers and directors in
exchange for $750,000 principal amount of promissory notes. This
sale was made on the same terms as the sale of shares as
described above. The Company also executed a purported
employment agreement (which was not approved or ratified by the
Company's Board of Directors) with this officer and director
which provided for, among other things, annual compensation of
$262,000 through June 30, 1998.
In December 1995, the Company terminated the employment of this
individual and the related purported employment agreement. As a
result of such termination, the shares of common stock sold to
this individual and the related notes received by the Company
for such shares were forfeited to the Company and cancelled. The
Company subsequently filed a legal action against this
individual claiming, among other things, breach of fiduciary
duty and return of amounts previously paid. This individual has
filed a cross-complaint against the Company and its President
and Chief Executive Officer claiming, among other things, that
his employment with the Company was improperly terminated and
his employment stock purchase agreements were improperly
cancelled. This cross-complaint seeks substantial damages.
Reduction of Film Costs
During the nine months ended March 31, 1996, the Company reduced
the carrying amount of certain of its completed projects by
$235,622 representing the amount previously recorded as accounts
payable and accrued expenses for additional estimated
expenditures relating to these projects that were not incurred.
Note Payable to Related Parties
On March 25, 1996, the Company borrowed $100,000 from related
parties pursuant to an unsecured promissory note which bears
interest at the prime rate plus 1% and is due on June 30, 1996.
This note was subsequently repaid from the proceeds of a note
issued to an unrelated party which is payable on June 24, 1996
(subject to mandatory repayment in certain events), bears
interest at the annual rate of 10% and is secured by the
Company's participation in the revenue earned from a currently
airing television series.
Issuance of Shares of Common Stock for Preferred Stock
During the nine months ended March 31, 1996, the Company issued
128,762 shares of its common stock in payment of the dividends
on its Series A Preferred Stock.
F-18
THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - UNAUDITED FINANCIAL INFORMATION - CONTINUED
Stock Options
During the nine months ended March 31, 1996 an aggregate of
403,000 stock options at exercise prices ranging from $4.00 to
$13.00 per share expired or were cancelled. During this period,
the Company granted an aggregate of 112,500 stock options at
exercise prices of $2.00 and $2.20 per share.
F-19
- ------------------------------------------------------- -------------------------------------------------------
No dealer, salesman or other person has been authorized
to give any information or to make any representations
other than those contained in this Prospectus, and, if Shares Eligible for Future Sale..............
given or made, such information or representations must Underwriting ................................
not be relied upon as having been authorized by the Legal Matters................................
Company or Underwriters. Neither the delivery of this Experts......................................
Prospectus nor any sale made hereunder shall, under any Additional Information.......................
circumstances, create any implication that the Index to Financial Statements................
information contained herein is correct as of any date -------------------------------------------------------
after the date hereof. This Prospectus does not
constitute an offer to sell or a solicitation of an
offer to buy the securities offered hereby by anyone in
any jurisdiction in which such offer or solicitation is THE PRODUCERS
not authorized or in which the person making such offer ENTERTAINMENT GROUP
or solicitation is not qualified to do so or to anyone
whom it is unlawful to make such offer or solicitation. LTD.
--------------------------- 2,000,000 Units
Each Unit Consisting of Four
Shares of Common Stock and Two
TABLE OF CONTENTS Redeemable Warrants
Page -------------------------------------------------------
PROSPECTUS
Prospectus Summary...........................
Risk Factors................................. -------------------------------------------------------
The Company..................................
Recent Bridge Financing......................
Concurrent Offering..........................
Use of Proceeds..............................
Dilution.....................................
Capitalization............................... JOSEPH STEVENS &
Market for Common Equity and COMPANY, L.P.
Series A Preferred Stock and Related
Shareholder Matters....................... _______________, 1996
Dividend Policy..............................
Selected Financial Data......................
Management's Discussion and Analysis
of Financial Condition and Results of
Operations................................
Business.....................................
Management...................................
Certain Transactions.........................
Principal Stockholders.......................
Selling Securityholders......................
Description of Securities....................
- ------------------------------------------------------- -------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 24 Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of
Delaware, under which the Company is incorporated, permits a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation), by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
A corporation also may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation. However, in such an action by or on behalf of
a corporation, no indemnification may be made in respect of any claim, issue or
matter as to which the person is adjudged liable to the corporation unless and
only to the extent that the court determines that, despite the adjudication of
liability but in view of all the circumstances, the person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
In addition, the indemnification provided by Section 145 shall not
be deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity whole holding such office.
The Company's Certificate of Incorporation provides that the
Company shall indemnify, in the manner and to the full extent permitted by law,
any person (or the estate of any person) who was or is a party to, or is
threatened to be made a party to, any threatened, pending or completed action,
suit or proceeding, whether or not by or in the right of the Company and whether
civil, criminal, administrative, investigative or otherwise, by reason of the
fact that such person is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or enterprise. The Company's Certificate of Incorporation also provides
that the indemnification provided thereunder shall not be deemed exclusive of
any other rights to which any person seeking indemnification from the Company
may be entitled under any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
II-1
The Underwriting Agreement also contains provisions under which
the Company and the Underwriters have agreed to indemnify each other (including
officers and directors of the Company and the Underwriters, and any person who
may be deemed to control any Underwriter or the Company) against certain
liabilities under the Securities Act of 1933, as amended (the "Securities Act").
Item 25 Other Expenses of Issuance and Distribution
The expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts or commissions) are estimated as follows:
SEC registration fee..................................... $6,865.49
NASD Fees 2,491.00
Blue Sky Filing Fees and Expenses........................ 40,000
Transfer Agent's Fees and Expenses....................... 5,000
Listing Fees............................................. (1)
Accounting Fees and Expenses............................. 10,000
Legal Fees and Expenses.................................. 100,000
Printing Expenses........................................ 100,000
Miscellaneous............................................ 20,643.51
Total.......................................... 285,000.00(2)
Item 26 Recent Sales of Unregistered Securities
(a) In the three years preceding the filing of this Registration Statement, the
Registrant has sold and issued the following securities which were not
registered under the Securities Act:
(1) In June 1996, the Registrant consummated a bridge financing
(the "Bridge Financing") pursuant to which it issued to
accredited investors $500,000 aggregate principal amount of
10% promissory notes and 500,000 warrants (the "Bridge
Warrants"), each Bridge Warrant entitling the holder to
purchase one share of Common Stock at an initial exercise
price of $1.12 (subject to adjustment upon the occurrence of
certain events). Joseph Stevens & Company, L.P. acted as
Placement Agent and received in connection with the Bridge
Financing 150,000 warrants (the
--------
1 To be filed by Amendment.
2 This registration statement includes 500,000 redeemable warrants and
500,000 shares of Common Stock underlying such Warrants, owned by certain
selling securityholders (the "Selling Securityholders"). Expenses in connection
with the issuance and distribution of such securities, other than fees and
expenses of counsel to the Selling Securityholders and selling commissions, will
be paid by the Registrant and are included in the total estimated expenses.
II-2
"Placement Agent's Warrants") to purchase shares of Common
Stock at an initial exercise price of $1.12 per share (subject
to adjustment upon the occurrence of certain events). The
Placement Agent's Warrants will be canceled upon closing of
the sale of securities offered pursuant to this Registration
Statement.
(2) In May, 1996 the Registrant issued to each of Alison Meyer and
Patricia Meyer, options to purchase 75,000 shares of Common
Stock at an exercise price of $2.00 per share.
(3) In February 1996, the Registrant issued to Harvey Bibicoff
options to purchase 100,000 shares of Common Stock at an
exercise price of $2.00 per share in connection with the
termination of all options to purchase shares of Common Stock
then held by Mr. Bibicoff and Bibicoff & Associates.
(4) In November 1995, the Registrant issued to Charles Weber
25,000 shares of Common Stock in connection with Mr. Weber's
employment with the Registrant.
(5) In November 1995, the Registrant sold, subject to the vesting
requirements related to Mr. Meyer's employment with the
Registrant, 500,000 shares of Common Stock at a purchase price
of $2.00 per share to Mountaingate Productions, LLC., a
California limited liability company, of which Alison Meyer
and Patricia Meyer, the adult daughters of Irwin Meyer, are
the sole members.
(6) In October 1994, the Registrant issued $1.1 million aggregate
principal amount of 7% subordinated notes (the "7% Notes") in
a private placement to accredited investors. In connection
with the repayment of the 7% Notes in December 1994, the
noteholders received shares of Common Stock having a market
value equal to 25% of the principal amount of the 7% Notes
($275,000), which were included in the Registration Statement,
No. 33-84984.
(7) In April 1995, the Registrant granted stock options to
purchase an aggregate 187,500 shares of Common Stock issuable
upon exercise of outstanding stock options granted to an
investment banking firm and its affiliate in connection with
an agreement in 1995 to render financial advisory services to
the Company at an exercise price of $4.00 per share.
(8) In May 1994, the Registrant acquired all of the capital stock
of DSL Productions, Inc. and its affiliates in exchange for
the issuance of 32,500 shares of Common Stock.
(9) During the past three years, the Registrant sold and issued
Common Stock to employees upon exercise of stock options
granted under the Registrant's Stock Option Plan.
The sale and issuance of the securities in the above transactions were exempt
from registration under the Securities Act, by virtue of Section 4(2) thereof as
transactions not involving any public offering. The recipients in each case
acquired such securities for investment only and not with a view to the
distribution thereof and appropriate legends were affixed to the stock
certificates issued in such transactions and any subsequent transfers thereof.
All recipients had full access to information about the Registrant and were
given the opportunity to verify any information furnished to them.
II-3
Item 27 Exhibits
(a) Exhibits
1.1 -- Proposed form of Underwriting Agreement.
1.2 -- Proposed form of Financial Advisory and Consulting Agreement
between the Registrant and Joseph Stevens & Company, L.P.
3.1.1 -- Restated Certificate of Incorporation, dated June 24, 1993.(7)
3.1.2 -- Certificate of Designation, as filed December 14, 1994 with the
Secretary of State of Delaware.(3)
3.1.3 -- Amendment to Certificate of Incorporation, as filed June 3, 1996
with the Secretary of State of Delaware.(9)
3.2.1 -- By-laws of Registrant.(7)
3.2.2 -- Amendment No. 1 to By-laws of Registrant.(7)
4.1 -- Proposed form of Warrant Agreement between the Registrant and OTR
Stock Transfer Company.
4.2 -- Proposed form of Representative's Warrant Agreement between the
Registrant and Joseph Stevens & Company, L.P.
5.1 -- Opinion of Dempsey & Cross, P.C. as to legality of securities
being registered.(10)
10.1.1 -- Agreement of Restructuring and Settlement dated February 27, 1995
among the Registrant, Drew Levin and DSL Productions Inc.(4)
10.1.2 -- First Amended Agreement of Restructuring and Settlement dated
February 27, 1995 among the Registrant, Drew Levin and DSL
Productions, Inc.(6)
10.1.3 -- Letter Agreement, dated December 29, 1995, with respect to
settlement of litigation involving, among others, the Registrant,
DSL Entertainment Group, Ltd., Drew S. Levin and Joseph Cayre.(8)
10.2 -- Employment Agreement, dated as of October 1, 1995, between
Registrant and Irwin Meyer.(5)
10.3 -- Stock Purchase Agreement and Promissory Note dated as of November
14, 1995 between Registrant and Mountaingate Productions LLC.(5)
10.4.1 -- Letter Agreement, dated March 29, 1996, between Registrant and
Harvey Bibicoff entered into in connection with termination of
existing stock options and grant of a new option.
II-4
10.4.2 -- Stock Option Agreement dated as of February 15, 1996 between
Registrant and Harvey Bibicoff.(7)
10.5 -- Consulting Agreement, dated February 27, 1995, between Registrant
and Bibicoff & Associates, Inc.(4)
10.6.1 -- 1991 Stock Option Plan.(6)
10.6.2 -- Amendment to Stock Option Plan.(1)
10.7.1 -- Employment Agreement, dated as of June 22, 1992, between
Registrant and Arthur Bernstein.(3)
10.7.2 -- Amendment to Employment Agreement, dated August 15, 1994, between
Registrant and Arthur Bernstein.(3)
10.7.3 -- Amendment to Employment Agreement, dated March 7, 1995, between
Registrant and Arthur Bernstein.
10.7.4 -- Amendment to Employment Agreement, dated January 25, 1996,
between Registrant and Arthur Bernstein.
10.10 -- Letter Agreement dated March 10, 1995 between the Registrant and
Jonathon Stanton Company.(6)
10.11 -- Office Lease.(1)
21. -- Subsidiaries of the Registrant.
23.1 -- Consent of Dempsey & Cross, P.C. is included in their opinion
filed as Exhibit 5.
23.2 -- Consent of Kellogg & Andelson.
24. -- Powers of Attorney (included on the signature page).
- -----------------------------
All schedules are omitted because the information is included in the
consolidated financial statements or notes thereto or is not applicable.
(1) Filed as an Exhibit to Form 10-K Annual Report (Commission
File No. 18410) for Year Ended June 30, 1991 and
incorporated herein by reference.
(2) Filed as an Exhibit to Form 8-K (Commission File No. 18410),
dated October 15, 1991, and incorporated herein by
reference.
II-5
(3) Filed as an Exhibit to Form SB-2 (Commission No. 33-84984),
dated December 12, 1994, and incorporated herein by
reference.
(4) Filed as an Exhibit to Form 8-K (Commission File No. 18410),
dated February 27, 1995, and incorporated herein by
reference.
(5) Filed s an Exhibit to Form 10-QSB Quarterly Report
(Commission File No. 18410) for Fiscal Quarter Ended
December 31, 1995 and incorporated herein by reference.
(6) Filed as an Exhibit to Form 10-QSB Quarterly Report
(Commission File No. 18410) for Fiscal Quarter Ended March
31, 1995 and incorporated herein by reference.
(7) Filed as an Exhibit to Form S-1 Registration Statement
(Commission File No. 33- 42193) and incorporated herein by
reference.
(8) Filed as an Exhibit to Form S-3 Registration Statement
(Commission File No. 33- 64595) and incorporated herein by
reference.
(9) Filed as an Exhibit to Form 8-K Current Report and
incorporated herein by reference.
(10) To be supplied by Amendment.
Item 28 Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to (i) include
any prospectus required by section 10(a)(3) of the Securities Act (ii) reflect
in the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement, and (iii) include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-6
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(5) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(6) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-7
SIGNATURES
In accordance with the requirements of the Securities Act of 1993,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filings on Form SB- 2 and authorized this
Registration Statement to be signed on its behalf by the undersigned in the City
of Beverly Hills, State of California, on June 28, 1996.
THE PRODUCERS ENTERTAINMENT
GROUP LTD.
By: /s/ Irwin Meyer
-------------------------------------
Irwin Meyer
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Irwin Meyer and Arthur Bernstein
severally as his attorney-in-fact, each with the powers of substitution, for him
in any and all capacities, to sign any amendments to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
--------- ----- ----
/s/ Irwin Meyer President, Chief Executive Officer June 28, 1996
- ------------------------------- and Chairman of the Board
Irwin Meyer (Principal Executive Officer)
/s/ Arthur Bernstein Senior Vice President and Director June 28, 1996
- ------------------------------- (Principal Financial and
Arthur Bernstein Accounting Officer)
/s/ Michael D. Dempsey Director June 28, 1996
- -------------------------------
Michael D. Dempsey
/s/ Michael Levy Director June 28, 1996
- -------------------------------
Michael Levy
Director June , 1996
- -------------------------------
Ben Lichtenberg
II-8
EXHIBIT INDEX
Document Page
1.1 -- Proposed form of Underwriting Agreement.
1.2 -- Proposed form of Financial Advisory and Consulting Agreement
between the Registrant and Joseph Stevens & Company, L.P.
3.1.1 -- Restated Certificate of Incorporation, dated June 24, 1993.(7)
3.1.2 -- Certificate of Designation, as filed December 14, 1994 with the
Secretary of State of Delaware.(3)
3.1.3 -- Amendment to Certificate of Incorporation, as filed June 3, 1996
with the Secretary of State of Delaware.(9)
3.2.1 -- By-laws of Registrant.(7)
3.2.2 -- Amendment No. 1 to By-laws of Registrant.(7)
4.1 -- Proposed form of Warrant Agreement between the Registrant and
OTR Stock Transfer Company.
4.2 -- Proposed form of Representative's Warrant Agreement between the
Registrant and Joseph Stevens & Company, L.P.
5.1 -- Opinion of Dempsey & Cross, P.C. as to legality of securities being
registered (to be supplied by Amendment).
10.1.1 -- Agreement of Restructuring and Settlement dated February 27, 1995
among the Registrant, Drew Levin and DSL Productions Inc.(4)
II-9
Document Page
10.1.2 -- First Amended Agreement of Restructuring and Settlement dated
February 27, 1995 among the Registrant, Drew Levin and DSL
Productions, Inc.(6)
10.1.3 -- Letter Agreement, dated December 29, 1995, with respect to
settlement of litigation involving, among others, the Registrant,
DSL Entertainment Group, Ltd., Drew S. Levin and Joseph Cayre.(8)
10.2 -- Employment Agreement, dated as of October 1, 1995, between
Registrant and Irwin Meyer.(5)
10.3 -- Stock Purchase Agreement and Promissory Note dated as of
November 14, 1995 between Registrant and Mountaingate
Productions LLC.(5)
10.4.1 -- Letter Agreement, dated March 29, 1996, between
Registrant and Harvey Bibicoff entered into in connection
with termination of existing stock options and grant of a
new option.
10.4.2 -- Stock Option Agreement dated as of February 15, 1996 between
Registrant and Harvey Bibicoff.(7)
10.5 -- Consulting Agreement, dated February 27, 1995, between
Registrant and Bibicoff & Associates, Inc.(4)
10.6.1 -- 1991 Stock Option Plan.(6)
10.6.2 -- Amendment to Stock Option Plan.(1)
10.7.1 -- Employment Agreement, dated as of June 22, 1992, between
Registrant and Arthur Bernstein.(3)
II-10
Document Page
10.7.2 -- Amendment to Employment Agreement, dated August 15, 1994,
between Registrant and Arthur Bernstein.(3)
10.7.3 -- Amendment to Employment Agreement, dated March 7, 1995,
between Registrant and Arthur Bernstein.
10.7.4 -- Amendment to Employment Agreement, dated January 25, 1996,
between Registrant and Arthur Bernstein.
10.10 -- Letter Agreement dated March 10, 1995 between the Registrant and
Jonathon Stanton Company.(6)
10.11 -- Office Lease.(1)
21. -- Subsidiaries of the Registrant.
23.1 -- Consent of Dempsey & Cross, P.C. is included in their opinion filed
as Exhibit 5.
23.2 -- Consent of Kellogg & Andelson.
24. -- Powers of Attorney (included on the signature page).
- -----------------------------
All schedules are omitted because the information is included in the
consolidated financial statements or notes thereto or is not applicable.
(1) Filed as an Exhibit to Form 10-K Annual Report (Commission
File No. 18410) for Year Ended June 30, 1991 and
incorporated herein by reference.
(2) Filed as an Exhibit to Form 8-K (Commission File No. 18410),
dated October 15, 1991, and incorporated herein by
reference.
(3) Filed as an Exhibit to Form SB-2 (Commission No. 33-84984),
dated December 12, 1994, and incorporated herein by
reference.
II-11
(4) Filed as an Exhibit to Form 8-K (Commission File No. 18410),
dated February 27, 1995, and incorporated herein by
reference.
(5) Filed s an Exhibit to Form 10-QSB Quarterly Report
(Commission File No. 18410) for Fiscal Quarter Ended
December 31, 1995 and incorporated herein by reference.
(6) Filed as an Exhibit to Form 10-QSB Quarterly Report
(Commission File No. 18410) for Fiscal Quarter Ended March
31, 1995 and incorporated herein by reference.
(7) Filed as an Exhibit to Form S-1 Registration Statement
(Commission File No. 33-42193) and incorporated herein by
reference.
(8) Filed as an Exhibit to Form S-3 Registration Statement
(Commission File No. 33-64595) and incorporated herein by
reference.
(9) Filed as an Exhibit to Form 8-K Current Report and
incorporated herein by reference.
II-12