UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 1-6739
TEAM COMMUNICATIONS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-4519215
-------------------------------------------- --------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
11818 WILSHIRE BOULEVARD, SUITE 200
LOS ANGELES, CALIFORNIA 90025
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 312-4400
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
On May 15, 2001, the registrant had outstanding 14,401,339 shares of Common
Stock, no par value.
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEET
($ amounts in 000's)
March 31, 2000 December 31, 2000
ASSETS (Unaudited) (Audited)
---------------------- ----------------------
Cash $ 478.4 $ 2,610.8
Trade receivables, less allowance for doubtful 1,959.0 1,376.1
accounts of $14,155.5 and $14,155.5 respectively
Television programming costs, less accumulated 23,697.1 24,080.4
amortization of $30,442 and $29,600.0
respectively
Fixed assets, net 1,767.7 1,878.8
Other assets 596.6 668.9
---------- ----------
Total Assets $ 28,498.8 $ 30,615.0
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued expenses and other $ 8,086.0 $ 7,128.7
liabilities
Deferred revenue 3,307.5 3,327.0
Accrued participations 1,160.7 1,120.7
Notes payable 8,594.2 8,688.0
Accrued interest 303.0 230.4
---------- ----------
Total Liabilities 21,846.9 20,494.8
---------- ----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 2,000,000 shares - -
authorized; no shares issued and outstanding
Common stock, no par value; 50,000,000 shares 1.0 1.0
authorized; 14,401,339 and 13,831,541 issued and
outstanding, respectively
Paid in capital 58,219.7 57,566.4
Accumulated other comprehensive income (584.6) (352.2)
Accumulated deficit (50,588.7) (47,095.0)
---------- ----------
Total shareholders' equity 7,047.4 10,120.2
---------- ----------
Total liabilities and shareholders' equity $ 28,498.8 $ 30,615.0
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
2
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(Amounts in 000's)
For the 3
For the 3 Months Ended
Months Ended March 31, 2000
March 31, 2001 (RESTATED)
---------------------- ----------------------
Revenues $ 1,426.4 $ 6,566.3
Cost of revenues (1,443.9) (5,943.0)
--------- ---------
Gross profit (loss) (17.5) 623.3
Professional and consulting fees (1,165.2) (376.6)
General and administrative (1,962.2) (396.3)
--------- ---------
Loss from operations (3,144.9) (149.6)
Interest expense 348.8 24.2
Interest income - 211.2
--------- ---------
Earnings / (loss) before income taxes (3,493.7) 85.8
Provision for income taxes - -
--------- ---------
Net earnings / (loss) before cumulative effect $(3,493.7) $ 85.8
of change in accounting principle ========= =========
Cumulative effect of change in accounting - (742.9)
principle --------- ---------
Net Loss $(3,493.7) $ (657.1)
========= =========
Basic earnings per common share
Earnings before cumulative effect of change in $ ( 0.24) $ 0.01
accounting principle
Cumulative effect of change in accounting - ( 0.06)
principle --------- ---------
Net Loss $ ( 0.24) $ ( 0.05)
========= =========
Weighted average number of shares outstanding - 14,401.3 13,363.5
========= =========
Basic and Diluted
The accompanying notes are an integral part of these consolidated financial
statements.
3
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
3 Months Ended
(Amounts in 000's) 3 Months Ended March 31, 2000
March 31, 2001 ----------------------
---------------------- (RESTATED)
----------------------
OPERATING ACTIVITIES:
Net income $(3,493.7) $ (657.1)
Adjustments to reconcile net income to cash used
for operating activities:
Cumulative effect of change in accounting - 742.9
principle
Depreciation and amortization 101.9 5.4
Amortization of television programming costs 742.7 5,325.8
Additions to television programming costs (359.4) (1,4362.7)
Stocks and warrants issued in exchange for 653.3 171.7
services
Changes in assets and liabilities:
Decrease (increase) in trade receivables (582.9) 5,738.2
Decrease (increase) in other assets 72.3 (443.8)
Increase (decrease) in accounts payable, 957.3 (3,727.1)
deferred taxes, accrued expenses and other
liabilities
Increase in accrued participations and deferred 20.5 -
revenues
Increase (decrease) in accrued interest 72.6 -
Foreign currency translation (232.4) (42.4)
--------- ----------
Net cash used for operating activities (2,047.8) (7,249.1)
--------- ==========
INVESTING ACTIVITIES:
Purchase of fixed assets 9.2 (1,377.6)
Decrease (increase) in due from officer 170.4
--------- ----------
Net cash provided (used) for investing activities 9.2 (1,207.2)
--------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of note payable 1,000.0 36.0
Change in line of credit - 7,072.2
Issuance of common stock - 2,716.1
Principal payment of notes payable (1,093.8) -
--------- ----------
Net cash provided by financing activities (93.8) 9,824.3
--------- ----------
Net change in cash (2,132.4) 1,368.0
Cash at beginning of period 2,610.8 21,088.7
--------- ----------
Cash at end of period $ 478.4 $ 22,456.7
========= ==========
4
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES
(Amounts in 000's) 3 Months Ended March 3 Months Ended March
31, 2001 31, 2000
Interest paid 276.6 -
===== =====
Issuance of stock and warrants in connection 653.3 171.7
with services provided to the Company ===== =====
The accompanying notes are an integral part of these consolidated financial
statements.
5
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
Common Stock
------------
Number of Paid in Comprehensive Retained
Shares Par Value Capital Loss Earnings
---------- ------------- ---------- ------------- --------
Balance at December 14,246.3 $1.0 $57,566.4 $(352.2) $(47,095.0)
31, 2000
Net Income for the (3,493.7)
three months ended
March 31, 2001
Issuance of warrants 188.3
in conjunction with
services rendered
Issuance of shares 155.0 465.0
in conjunction with
services rendered
Foreign currency (232.4)
translation -------- ---- --------- ------- ----------
adjustment
Balance at March 31, 14,401.3 $1.0 $58,219.7 $(584.6) $(50,588.7)
2001 ======== ==== ========= ======= ==========
The accompanying notes are an integral part of these consolidated financial
statements
6
TEAM COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PREPARATION-SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial statements.
Accordingly, they do not include all of the information and disclosures required
for annual financial statements. These financial statements should be read in
conjunction with the financial statements and related footnotes for the year
ended December 31, 2000, included in the TEAM Communications Group, Inc.
("Company") financial report in the Company's 10-KSB.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's financial
position as of March 31, 2001, and the results of operations and cash flows for
the three month period ended March 31, 2001 have been included. The results of
operations for the three month period ended March 31, 2001 are not necessarily
indicative of the results to be expected for the full fiscal year. For further
information, refer to the financial statements and footnotes thereto included in
the Company's 10-KSB filed for the year ended December 31, 2000.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
An entity that had previously been subject to the requirements of SFAS No. 53
should follow the guidance in a Statement of Position 00-02, "Accounting by
Producers and Distributors of Films" and SFAS No. 139, which rescinded SFAS No.
53. The Company elected to adopt this Statement of Position early and such
pronouncement has approximately a $4.0 million ($742,900 in the first quarter of
2000) negative impact on the Company's results of operations and financial
position as of and for the year ended December 31, 2000 and is reflected on
these financial statements as cumulative effect of change in accounting
principle.
The Company recognizes revenues from licensing agreements covering entertainment
product when the product is available to the licensee for telecast, exhibition
or distribution, and other conditions of the licensing agreements have been met
and values its film cost at the lower of unamortized cost or net realizable
value on an individual title basis in accordance with generally accepted
accounting principles. Film costs represent those costs incurred in the
development, production and distribution of television projects. These costs
have been capitalized. Amortization of film cost is charged to expense and third
party participation are accrued using the individual film forecast method
whereby expense is recognized in the proportion that current period revenues
bear to an estimate of ultimate revenues. These estimates of revenues are
prepared and reviewed periodically by management.
7
NOTE 2 -- TELEVISION PROGRAM COSTS:
Television program costs as of March 31, 2001, consist of the following (amounts
in 000's):
Development $ 479.0
In Process 4,676.6
Released, less accumulated amortization 18,541.5
---------
Total television program costs $23,697.1
=========
NOTE 3 -- LITIGATION AND CONTINGENCIES:
On or after March 9, 2001, a number of securities class action complaints were
filed against us, our former chief executive officer and a former chief
financial officer in the United States District Court for the Central District
of California on behalf of purchasers of our publicly traded securities during
the period between November 23, 1999 and February 12, 2001. These class action
complaints were brought pursuant to the Securities Exchange Act of 1934, as
amended, and allege violation of Section 10(b) and Rule 10b-5 thereunder, and
Section 20(a) of that Act. These actions were a result of our February 13, 2001
public announcement concerning the substantial losses and financial adjustments
we expected to incur in fiscal 2000. The plaintiffs seek unspecified damages.
We are currently evaluating the merits of such claims. The Company maintains
director and officer liability insurance coverage for such claims.
The Securities and Exchange Commission is currently conducting an investigation
into the matters discussed in this Note 3.
NOTE 4 - RESTATEMENT:
As a result of a special investigation by the Company's Board of Directors (the
"Board") and the conclusion that various transactions entered into by the U.K.
subsidiary lacked economic substance, the Company requested the resignation of
the former chief executive officer and the managing director of the U.K.
subsidiary. Accordingly, new management appointed by the Board on February 12,
2001 determined that the following transactions representing revenues previously
recorded in the quarterly financial statements during 2000, and additional
write-offs and reserves should be recorded in the fourth quarter of fiscal 2000:
Amount
(in 000's)
-------------
1) Write-off of accounts receivable $13,000.0
2) Write-down of film inventory 20,000.0
3) Write-off of U.K. investment 2,500.0
4) Reserve for closedown of European offices 1,000.0
5) Reserve for amounts due the Company from former Chief Executive 1,000.0
Officer
-------------
Total $37,500.0
=============
Management believes the effect of the above on the quarter ended March 31, 2000,
is an increase in cost of revenue of approximately $400,000 and reversal of
previously accrued tax provision of $245,900.
8
NOTE 5 - FIXED ASSETS:
Amount (000's)
----------------------
Equipment $ 327.7
Furniture & other 557.0
UK office building 308.9
Leasehold improvements 1,247.8
--------
Total cost 2,441.4
Accumulated depreciation (673.7)
--------
Total, net of accumulated depreciation $1,767.7
========
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Conditions and Results of
Operations contains certain "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. Such statements relating to
future events and financial performance are forward-looking statements involving
risks and uncertainties that are detailed from time to time in our various
Securities and Exchange Commission filings. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of uncontrollable factors. The following discussion should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this 10-QSB.
RESULTS OF OPERATIONS
For the three months ended March 31, 2001, the Company reported a net loss of
approximately $3,493,700 on total revenues of approximately $1,426,400 compared
to a net loss of approximately $657,100 on total revenues of approximately
$6,566,300 for the same period ended March 31, 2000. Net loss decreased as a
percentage of revenue for the three months ended March 31, 2001, versus the
three months ended March 31, 2000, primarily due to lesser margins on
programming sold in 2001 compared with 2000 and professional and consulting fees
of $1,165,200 associated with the Company's internal investigation, restatement
and discharge of old management. Revenue for the period ended March 31, 2001
included approximately $365,700 in sales of programming owned by the UK
subsidiary Team Dandelion, approximately $605,000 from the sale of "Live through
This", and approximately $267,000 from the sale of "Call of the Wild". Revenue
for the period ended March 31, 2000 included approximately $3,700,000 in sales
of programming owned by the UK subsidiary Team Dandelion, $1,200,000 on the
airing in syndication of six episodes of "Total Recall 2070: The Series" and
approximately $1,050,000 on the delivery of five episodes of "Call of the Wild".
Gross profit margin on sales of television programming for the three months end
March 31, 2000 was 9% compared to no margin for the period ended March 31, 2001.
This situation was due to the Company not having sufficient sales volume in the
first quarter ended March 31, 2001 to cover amortization, distribution, and
selling costs.
9
The operations for the quarter ended March 31, 2001 included increased
professional and consulting costs of $788,00 related to the special
investigation and replacement of senior management and no capitalization of
overhead to film inventory due to a lack of film production. The Company had
$1.388,800 of capitalized overhead for the quarter ended March 31, 2000.
Interest expense was $348,800 for the three months ended March 31, 2001, as
compared to $24,200 for the three months ended March 31, 2000. The increase is
due to the additional $1 million of debt incurred by the Company during February
2001. Interest income for the three months ended March 31, 2000 was $211,200
versus $0 for 2001.
Receivables at March 31, 2001 were $1,959,000 and approximately 70% of these
receivables are from entities domiciled outside the United States. Receivables
represent approximately 6.9% of the total assets of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash balances of $478,400 as of March 31, 2001.
In March 2001, the Company received $1 million in proceeds from an increase in
its credit facility with a bank, pursuant to a term loan due within one year.
The Company is in need of short-term working capital and received a "going
concern" qualification in the auditor's opinion attached to the Company's annual
report filed on Form 10-KSB. Since the filing of our Form 10-KSB in April 2001,
management has been generating capital and liquidity from recently consummated
arrangements with third parties for the sale and distribution of its television
film library of approximately 2,000 titles. The Company is also seeking to
increase its existing bank line of credit and is in active discussions with
sources for various types of equity and equity related financings. No assurance
can be given that any such financing arrangements will ultimately be obtained or
that they will be on reasonably acceptable terms. In addition to seeking
external financing and increasing its worldwide sales efforts, management has
recently effected significant reductions in the Company's operating expenses.
Even if the Company is able to solve its short-term liquidity and capital needs,
the distribution of television products generally requires distributors such as
the Company to be able to provide deficit financing to producers (representing
the difference between the cost of production and amounts advanced by United
States television networks). Accordingly, in order to expand our business and
obtain new television products for distribution, the Company will be required to
obtain a source for deficit financing for future television projects. In
December 2000, we received a commitment from a bank for a $45 million debt
facility to enable us to produce and finance film products for television.
However, in light of our recent adverse developments, such contemplated
financing was suspended pending the results of our 2001 operations. Although we
will continue to explore the possibility of obtaining a significant production
line of credit with a commercial bank, there is no assurance that we will be
able to consummate such financing on commercially acceptable terms, if at all.
10
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Securities and Exchange Commission is currently conducting an investigation
into the matters discussed in this Item 1.
On or after March 9, 2001, a number of securities class action complaints were
filed against us, our former chief executive officer and a former chief
financial officer in the United States District Court for the Central District
of California on behalf of purchasers of our publicly traded securities during
the period between November 23, 1999 and February 12, 2001. These class action
complaints were brought pursuant to the Securities Exchange Act of 1934, as
amended, and allege violation of Section 10(b) and Rule 10b-5 thereunder, and
Section 20(a) of that Act. These actions were a result of our February 13, 2001
public announcement concerning the substantial losses and financial adjustments
we expected to incur in fiscal 2000. The plaintiffs seek unspecified damages.
We are currently evaluating the merits of such claims.
Item 2 - None
Item 3 - None
Item 4 - None
Item 5 - None
Item 6 - Exhibits and Reports on Form 8-K
Exhibits
a) Financial data schedule
Form 8-K
a) February 15, 2000 - Press release regarding the termination of Drew Levin as
Chairman and Chief Executive Officer and the appointment of new management.
11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Dated: May 21, 2001
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ MICHAEL JAY SOLOMON
-----------------------------------
Michael Jay Solomon
Chairman of the Board of
Directors and Chief Executive
Officer
By: /s/ JAY J. SHAPIRO
-----------------------------------
Jay J. Shapiro
Acting Chief Financial Officer
12