UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (AMENDED) FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 August 15, 2001, the registrant had outstanding 14,401,339 shares of
its common stock, no par value.
Transitional Small Business Disclosure Format (check one): YES [ ] NO |X|
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2001 and December 31, 2000 ............................ 3
Consolidated Statements of Operations for the three and six months
ended June 30, 2001 and June 30, 2000 ......................................................... 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 2001 and June 30, 2000 ............................................................... 5
Consolidated Statements of Shareholders' Equity ............................................... 7
Notes to Consolidated Financial Statements .................................................... 8
Item 2. Management's Discussion and Analysis or Plan of Operation ................................. 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ......................................................................... 14
Item 2. Changes in Securities ..................................................................... 14
Item 3. Defaults Upon Senior Securities ........................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders ....................................... 14
Item 5. Other Information ......................................................................... 14
Item 6. Exhibits and Reports on Form 8-K .......................................................... 14
Signatures ......................................................................................... 15
2
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEET
($ amounts in 000's)
Item 1. Financial Statements
June 30, 2001 December 31, 2000
------------- -----------------
(Unaudited)
ASSETS
Cash $ 705.6 $ 2,610.8
Trade receivables 801.8 1,376.1
Television programming costs, less accumulated amortization of
$30,442 and $29,600.0 respectively 21,270.5 24,080.4
Fixed assets, net 1,268.7 1,878.8
Other assets 577.9 668.9
----------- -----------
Total Assets $ 24,624.5 $ 30,615.0
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities $ 7,631.8 $ 7,128.7
Deferred revenue 265.6 3,327.0
Accrued participations 1,160.7 1,120.7
Notes payable 8,525.9 8,688.0
Convertible notes, net of discount of $957.9 87.1 --
Accrued interest 205.6 230.4
----------- -----------
Total Liabilities 17,876.7 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 authorized; 14,401,339
and 14,226,339 issued and outstanding, respectively 1.0 1.0
Paid in capital 59,264.7 57,566.4
Accumulated other comprehensive loss -- (352.2)
Accumulated deficit (52,517.9) (47,095.0)
----------- -----------
Total shareholders' equity 6,747.8 10,120.2
----------- -----------
Total liabilities and shareholders' equity $ 24,624.5 $ 30,615.0
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(Amounts in 000's)
For the 3 Months Ended June 30 For the 6 Months Ended June 30
------------------------------ ------------------------------
2001 2000 2001 2000
------------- -------------- -------------- -------------
(restated) (restated)
Revenues $ 3,995.4 $ 6,207.3 $ 5,421.8 $ 12,773.6
Cost of revenues (2,904.7) (4,980.1) (4,348,6) (10,874.7)
------------ ------------- ------------- -------------
Gross profit 1,090.7 1,227.2 1,073.2 1,898.9
Professional and consulting fees (572.3) (596.5) (1,737.5) (983.0)
General and administrative (985.1) (1,132.5) (2,947.3) (1,518.9)
------------ ------------- ------------- -------------
Loss from operations (466.7) (501.8) (3,611.6) (603.0)
Interest expense 409.2 11.0 758.5 35.2
Interest income -- 191.4 0.5 402.6
Other loss (1,053.3) -- (1,053.3) --
------------ ------------- ------------- -------------
Loss before income taxes (1,929.2) (321.4) (5,422.9) (235.6)
Provision for income taxes -- -- -- --
------------ ------------- ------------- -------------
Net loss before cumulative effect of
change in accounting principle $ (1,929.2) $ (321.4) $ (5,422.9) $ (235.6)
------------ ------------- ------------- -------------
Cumulative effect of change in
accounting principle -- -- -- (4,000.0)
------------ ------------- ------------- -------------
Net Loss $ (1,929.2) $ (321.4) $ (5,422.9) $ (4,235.6)
============ ============= ============= =============
Basic and diluted loss per common share:
Loss before cumulative effect of
change in accounting principle $ (0.14) $ (0.02) $ (0.38) $ (0.02)
Cumulative effect of change in
accounting principle -- -- -- (0.29)
------------ ------------- ------------- -------------
Net Loss $ (0.14) $ (0.02) $ (0.38) $ (0.31)
============ ============= ============= =============
Weighted average number of shares
outstanding - Basic and Diluted 14,401.3 13,920.1 14,401.3 13,578.6
============ ============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
4
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Amounts in 000's)
6 Months Ended 6 Months Ended
June 30, 2001 June 30, 2000
-------------- --------------
(restated)
OPERATING ACTIVITIES:
Net loss $ (5,422.9) $ (4,235.6)
Adjustments to reconcile net income to cash used for operating
activities:
Cumulative effect of change in accounting principle -- 4,000.0
Depreciation and amortization 202.6 143.0
Amortization of television programming costs 4,005.1 10,939.7
Additions to television programming costs (1,195.2) (25,402.7)
Provision for doubtful accounts -- 164.2
Amortization of discount on convertible notes 87.1 --
Stocks and warrants issued in exchange for services 653.3 171.8
Gain on the sale of U.K. office building (206.1) --
Changes in assets and liabilities:
Decrease (increase) in trade receivables 574.3 34.2
Decrease (increase) in other assets 91.0 (736.6)
Increase (decrease) in accounts payable, deferred taxes,
accrued expenses and other liabilities 503.1 (2,025.2)
Increase in accrued participations and deferred revenues (3,021.4) 961.4
Increase (decrease) in accrued interest (24.8) 48.1
Foreign currency translation 352.2 (149.1)
---------- -----------
Net cash used for operating activities (3,401.7) (16,086.8)
---------- -----------
INVESTING ACTIVITIES:
Purchase of fixed assets (13.9) (1,535.4)
Proceeds from the sale of U.K. office building 468.5 --
Disposition of fixed assets 159.0 --
Purchase of available for sale securities -- (10,327.3)
Decrease (increase) in due from officer -- 170.4
---------- -----------
Net cash provided (used) for investing activities 613.6 (11,692.3)
---------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of note payable 2,045.0 1,037.3
Change in line of credit -- 3,172.0
Issuance of common stock -- 4,065.8
Principal payment of notes payable (1,162.1) --
---------- -----------
Net cash provided by financing activities 882.9 8,275.1
---------- -----------
Net change in cash (1,905.2) (19,504.0)
Cash at beginning of period 2,610.8 21,088.7
---------- -----------
Cash at end of period $ 705.6 $ 1,584.7
========== ===========
5
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES
(Amounts in 000's)
6 Months Ended 6 Months Ended
June 30, 2001 June 30, 2000
-------------- --------------
Interest paid 550.6 --
============= =============
Issuance of stock and warrants in connection with services provided to
the Company 653.3 171.8
============= =============
Issuance of stock and warrants in connection with sale of convertible
notes 1,045.0 --
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
6
TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(Amounts in 000's)
Common Stock Accumulated
---------------------- Other
Number of Paid in Comprehensive Accumulated
Shares Par Value Capital Loss Deficit
--------- --------- ---------- ------------- -----------
Balance at December 31, 2000 14,246.3 $ 1.0 $ 57,566.4 $ (352.2) $ (47,095.0)
Net Loss for the six months ended
June 30, 2001 (5,422.9)
Issuance of warrants in conjunction
with services rendered 188.3
Issuance of shares in conjunction
with services rendered 155.0 465.0
Issuance of warrants in conjunction
with sale of convertible notes 1,045.0
Foreign currency translation
adjustment 352.2
-------- ------ ---------- ---------- -----------
Balance at June 30, 2001 14,401.3 $ 1.0 $ 59,264.7 $ (0) $ (52,517.9)
======== ====== ========== ========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
7
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 which were reported on by
independent auditors who expressed an uncertainty regarding the Company's
ability to continue as a going concern.
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 June 30, 2001, and the results of operations and cash flows for
the three and six month periods ended June 30, 2001 have been included. The
results of operations for the three and six month periods ended June 30, 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 has elected early adoption of Statement of Position 00-02.
Consequently, such change in accounting principle has had roughly a $4.0 million
negative impact on the Company's results of operations and financial condition
as of and for the year ended December 31, 2000. The effects of such negative
impact on the Company is reflected in the Company's financial statements as the
cumulative effect of change in accounting principle.
The Company recognizes revenues from licensing agreements for telecast,
exhibition or distribution for its entertainment products. The Company 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. Such 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. The Company modified its 2000 Statement of
Operations to ensure conformity with the Company's presentation of 2001
information.
The Company received a "going concern" qualification in the auditor's opinion
attached to the Company's annual report filed on Form 10-KSB. In addition, the
Company's costs of operations are approximately $400,000 per month. Current
revenues from sales are approximately $100,000 per month. The Company has
recently adopted the restructuring plan described under Note 8-Subsequent Events
and hopes to generate additional cash from sales activities and third party
investments. There can be no assurances that the Company will be successful in
either compromising its current obligations or generating the required
additional cash. If the Company is not successful, the Company may not be able
to continue as a going concern and may be required to seek protection from
creditors under the federal bankruptcy laws.
NOTE 2 -- TELEVISION PROGRAM COSTS
Television program costs as of June 30, 2001, consist of the following:
Amount
(in 000's)
-----------
Development $ 563.3
In Process 311.0
Released, less accumulated amortization 20,396.2
-----------
Total television program costs $ 21,270.5
===========
8
NOTE 3 -- LITIGATION AND CONTINGENCIES
Commencing on March 9, 2001, a series of class action securities complaints were
filed against the Company, its 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 the Company's 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 (the "Act"). The claims seek unspecified damages and
generally allege that the Company violated Section 10(b) and Rule 10b-5
thereunder, and Section 20(a) of the Act. These actions were a result of the
Company's February 13, 2001 public announcement concerning the substantial
losses and financial adjustments the Company expected to incur in fiscal 2000.
These claims have been consolidated and the plaintiff class expanded. The
Company is currently evaluating the merits of these claims.
The United States 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
Company's U.K. subsidiary Team Dandelion lacked economic substance, the Company
requested the resignation of the former chief executive officer and the managing
director of Team Dandelion. 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 Officer 1,000.0
-----------
Total $ 37,500.0
The Company's management believes the effect of the above on the six months
ended June 30, 2000, is a decrease in revenues of approximately $6,690,000, a
related decrease in amortization expense of approximately $3,300,000 and a
decrease in net income of approximately $5,882,000. In addition, the above
adjustments decreased accounts receivable by approximately $6,530,000 and
decreased film costs by approximately $9,537,000.
NOTE 5 - FIXED ASSETS
Amount
(in 000's)
-----------
Equipment $ 272.8
Furniture & other 443.9
UK office building --
Leasehold improvements 1,247.8
-----------
Total cost 1,964.5
Accumulated depreciation (695.7)
-----------
Total, net of accumulated depreciation $ 1,268.8
===========
The Company sold its UK office building during the six months ended June 30,
2001, which resulted in a $206,000 gain reflected in the results of operations.
9
NOTE 6 - CONVERTIBLE NOTES
In June 2001, the Company completed a private offering of its securities
comprised of:
o $1,045,000 in 8% convertible notes due May 30, 2002, which notes are
convertible into shares of the Company's common stock at a conversion
price equal to the lower of $1.00 or 80% of the average of the three
lowest closing bid prices for the Company's common stock for the 15
trading days prior to the date of conversion;
o Warrants, exercisable until May 30, 2006, entitling the holder to
purchase an aggregate of 1,314,664 shares of the Company's common stock
at an exercise price per share of $1.56;
o 275,000 shares of the Company's common stock to be issued as finder's fees;
and
o $72,500 cash finders fee.
The notes are secured by a lien and security interest in the Company's film
library and substantially all of its other assets and properties. The lien and
security interest securing the notes are subordinated only to a prior first lien
granted to a bank under the Company's existing $2.0 million credit facility and
a prior lien granted to a lender secured by the Company's "Call of the Wild"
televisions series.
The discount attributable to the value of the warrants as calculated using the
Black-Scholes model and the value of the equity conversion features of the notes
exceed the face value of the convertible notes. As a result, the notes were
fully discounted and the discount was recorded as additional paid in capital.
The discount will be amortized on a straight-line basis over one year giving an
effective interest rate in excess of 100%.
NOTE 7 - EQUITY LINE OF CREDIT
On June 20, 2001, the Company entered into an equity line of credit agreement
with Refco Capital Markets Ltd. ("Refco") pursuant to which the Company has the
right (but not the obligation) under certain conditions to sell a minimum of
$100,000 per month of the Company's common stock at a price per share based on
85% of the prevailing average per share trading price of the Company's common
stock. The Company intends to file a registration statement to register
6,000,000 shares of its common stock for future issuance to satisfy certain of
its obligations under the terms of the Refco agreement. The Company can sell up
to $20,000,000 of its securities for a period of 24 months after the effective
date of the registration statement that it files to register the securities sold
to Refco. In view of the currently low price levels at which the Company's
common stock trades, the Company does not presently intend to use the equity
line of credit. However, the Company's liquidity and capital requirements may
necessitate the use of such facility.
In consideration for its purchase commitment under the equity line of credit
agreement, on June 20, 2001, the Company agreed to issue Refco warrants,
exercisable until June 20, 2006, to purchase an aggregate of 750,000 shares of
the Company's common stock at an exercise price per share of $1.56.
NOTE 8 - SUBSEQUENT EVENTS
On August 17, 2001, the Company received notice from Nasdaq that the Company did
not meet the minimum bid price requirements to continue to be listed on the
Nasdaq National Market Quotation System. The Company has 90 has from the date of
the notice to satisfy this requirement or risk being de-listed from the Nasdaq
National Market Quotation System.
On August 20, 2001, the Company agreed to issue to certain of the holders of the
8% convertible notes warrants to purchase 1,261,750 shares of our common stock
at an exercise price of $0.50 per share, in consideration of their agreement to
permit the Company to immediately proceed with additional equity and equity-type
financing of up to $5,000,000. In addition, the Company agreed to reduce the
exercise price on all of the warrants previously issued to the holders of the 8%
notes and to Refco from $1.56 per share to $0.50 per share, and committed to pay
to Refco an additional fee of up to $100,000, payable at the rate of 5% of all
additional proceeds received in connection with any additional equity or
equity-type financing.
The Company continues to face severe working capital and cash liquidity
shortages. As of July 31, 2001 the Company's monthly operating expenses of
approximately $400,000 exceeded by approximately $300,000 per month, its
monthly cash revenues from distribution of the existing film library.
On August 20, 2001, in an effort to achieve a positive cash flow from operations
and attract additional financing, the board of directors adopted a restructuring
plan. The purpose of the restructuring plan is to significantly reduce monthly
operating expenses while negotiating deferred payment arrangements and
compromises with the Company's secured and trade creditors. Under the terms of
such restructuring plan:
o the Company reduced its paid staff to only three persons, whose
primary function over the next 60 to 90 days will be to seek to
negotiate arrangements with its creditors;
o the Company intends to terminate, effective as of August 20, 2001 the
employment agreements with all senior executive officers of the
Company; and
o the Company will seek to make arrangements with certain of its
existing executive officers, including Michael Jay Solomon, our
Chairman and Chief Executive Officer, to continue to provide, without
further cash compensation ongoing services, as requested by the board
of directors, for the next 60 to 90 days.
Mr. Solomon has agreed to these arrangements and the other executive
officers are considering their options. There can be no assurance at this time
that the proposed restructuring plan will be successful, that the Company will
be able to attract any additional external financing, or otherwise successfully
overcome these significant obstacles.
10
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
Forward-looking Statements
The following is an analysis of the Company's results of operations and
liquidity and capital resources. The Company cautions readers that certain
important factors may affect the Company's actual results and could cause such
results to differ materially from any forward-looking statements that may be
deemed to have been made in this Report or that are otherwise made by or on
behalf of the Company. For this purpose, any statements contained in this Report
that are not statements of historical fact may be deemed to be forward-looking
statements which involve risks and uncertainties. Without limiting the
generality of the foregoing, words such as "may," "expect," "believe,"
"anticipate," "intend," "could," "estimate," or "continue" or the negative or
other variations thereof or comparable terminology are intended to identify
forward-looking statements. These risks include: risks of increases in the costs
of the Company's merchandise and the continued availability of suitable
merchandise; the Company's relationship with its suppliers, licensors and
contributors; changes in preferences of customers; competitive and general
economic factors in the markets in which the Company competes; the impact of and
changes in government regulations such as restrictions or prohibitions relating
to the contribution of charitable goods; competitive products, services and
pricing; delays in production schedules; product life cycles; sale terms and
conditions; financial market volatility affecting our stock price; litigation;
and other factors discussed herein or from time to time in the Company's other
filings with the Securities and Exchange Commission.
Additionally, these statements are based on certain assumptions that may prove
to be erroneous and are subject to certain risks including, but not limited to,
the Company's dependence on limited cash resources, and its dependence on
certain key personnel within the Company. Accordingly, actual results may
differ, possibly materially, from the predictions contained herein.
Results of Operations
Three Months Ended June 30, 2001 Compared With Three Months Ended June 30, 2000
Revenues. For the three months ended June 30, 2001, the Company reported a net
loss of approximately $1,929,200 on total revenues of approximately $3,995,400
compared to a net loss of approximately $321,400 on total revenues of
approximately $6,207,300 for the same period ended June 30, 2000. Net loss
increased as a percentage of revenue for the three months ended June 30, 2001,
versus the three months ended June 30, 2000, primarily due to professional and
consulting fees of $572,300 associated with the Company's internal
investigation, restatement and discharge of old management and foreign exchange
loss of $1,259,000 associated with the closing of our U.K. operations offset by
higher margins on programming sold in 2001 compared with 2000. Revenue for the
period ended June 30, 2001 included approximately $224,000 in sales of
programming owned by the UK subsidiary Team Dandelion, approximately $3,564,000
from the network sale of "Final Jeopardy" and approximately $195,000 from the
sale of "Live through This". Revenue for the period ended June 30, 2000 included
approximately $1,400,000 in sales of programming owned by Team Dandelion and
$3,950,000 on the airing in syndication of "Total Recall 2070: The Series".
Gross profit margin. Gross profit margin on sales of television programming for
the three months ended June 30, 2001 was 27% as compared to 20% for the three
months ended June 30, 2000.
Operations. The operations for the quarter ended June 30, 2001 included
increased professional and consulting costs of $572,300 related to pending
litigation, a special investigation by the Securities and Exchange Commission
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 June 30, 2000. Other loss reflects a
$206,000 gain on the sale of our U.K. office building offset against $1,259,000
in foreign currency translation losses reclassified to the statement of
operations due to termination of our U.K. operations.
Interest expense. Interest expense was $409,300 for the three months ended June
30, 2001, as compared to $11,000 for the three months ended June 30, 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 was $0 for June
30, 2001 as compared to $191,400 for June 30, 2000.
11
Six Months Ended June 30, 2001 Compared With Six Months Ended June 30, 2000
Revenues. For the six months ended June 30, 2001, the Company reported
a net loss of approximately $5,422,900 on total revenues of approximately
$5,421,800 compared to a net loss of approximately $4,235,600 on total revenues
of approximately $12,773,600 for the same period ended June 30, 2000. Net loss
decreased as a percentage of revenue for the six months ended June 30, 2001,
versus the six months ended June 30, 2000, primarily due to professional and
consulting fees of $1,737,500 associated with the Company's litigation expenses,
internal investigation, restatement and discharge of old management and foreign
exchange loss of $1,259,000 associated with the closing of our U.K. operations.
Revenue for the period ended June 30, 2001 included approximately $589,700 in
sales of programming owned by Team Dandelion, approximately $3,563,800 from the
sale of "Final Jeopardy", approximately $799,800 from the sale of "Live through
This", and approximately $273,500 from the sale of "Call of the Wild". Revenue
for the period ended June 30, 2000 included approximately $5,089,400 in sales of
programming owned by Team Dandelion, $5,150,000 on the airing in syndication of
"Total Recall 2070: The Series" and approximately $1,470,000 on the delivery of
seven episodes of "Call of the Wild".
Gross profit margin. Gross profit margin on sales of television programming for
the six months ended June 30, 2001 was 20% compared to 15% for the period ended
June 30, 2000. The increase was due to the sale of Final Jeopardy at a higher
gross margin than prior year products.
Operations. The operations for the six months ended June 30, 2001
included increased professional and consulting costs of $1,737,500 related to
pending litigation expenses, a special investigation by the Securities and
Exchange Commission 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 six months ended June 30, 2000. Other
loss reflects a $206,000 gain on the sale of our U.K. office building offset
against $1,259,000 in foreign currency translation losses reclassified to the
Statement of Operations due to termination of our U.K. operations.
Interest expense. Interest expense was $758,500 for the six months ended June
30, 2001, as compared to $35,200 for the six months ended June 30, 2000. The
increase is due to the additional $1 million of debt incurred by the Company
during February 2001. Interest income for the six months ended June 30, 2000 was
$402,600 versus nil for 2001. The decrease in interest income is due to lower
cash balances in the Company's accounts during the six-month period ended June
30, 2001.
Receivables. Receivables at June 30, 2001 were $801,800 and approximately 13.5%
of these receivables are from entities domiciled outside the United States.
Receivables represent approximately 3.3% of the total assets of the Company.
Liquidity and Capital Resources
The Company had cash balances of $705,600 as of June 30, 2001.
In March 2001, the Company received one million dollars in proceeds from an
increase in its credit facility with a bank, pursuant to a term loan due within
one year.
Convertible Notes - Effective as of May 30, 2001, we completed a private
offering of our securities comprised of:
o $1,045,000 in 8% convertible notes due May 30, 2002, which notes are
convertible into shares of the Company's common stock at a conversion
price equal to the lower of $1.00 or 80% of the average of the three
lowest closing bid prices for the Company's common stock for the 15
trading days prior to the date of conversion;
o Warrants, exercisable until May 30, 2006, entitling the holder to
purchase an aggregate of 1,314,664 shares of the Company's common stock
at an exercise price per share of $1.56;
o 275,000 shares of the Company's common stock to be issued to certain
finders; and
o $72,500 cash finders fee to certain finders.
The notes are secured by a lien and security interest in the Company's film
library and substantially all of its other assets and properties. The lien and
security interest securing the notes are subordinated only to a prior first lien
granted to a bank under the Company's existing $2.0 million credit facility and
a prior lien granted to a lender secured by the Company's "Call of the Wild"
televisions series.
12
The discount attributable to value of the warrants as calculated using the
Black-Scholes model and the value of the equity conversion features exceeded the
face value of the convertible notes. As a result, the notes were fully
discounted and the discount was recorded as additional paid in capital. The
discount will be amortized on a straight-line basis over one year giving an
effective interest rate in excess of 100%.
Equity Line of Credit - On June 20, 2001, the Company entered into an equity
line of credit agreement with Refco Capital Markets Ltd. under which we have the
right (but not the obligation) under certain conditions to sell a minimum of
$100,000 per month of the Company's common stock at a price per share based on
85% of the prevailing average per share trading price of the Company's common
stock. The Company intends to file a registration statement to register
6,000,000 shares of its common stock for future issuance to satisfy certain of
its obligations under the equity line of credit agreement. The Company may sell
up to $20,000,000 of its Securities for a period of 24 months after the
effective date of the registration statement that it files to register the
securities sold to Refco. In view of the currently low price levels at which the
Company's common stock trades, the Company does not presently intend to use the
equity line of credit. However, the Company's liquidity and capital requirements
may necessitate the use of such facility. In consideration for its purchase
commitment under the equity line of credit agreement, on June 20, 2001 the
Company agreed to issue to Refco Capital Markets Ltd. warrants, exercisable
until June 20, 2006, to purchase an aggregate of 750,000 shares of the Company's
common stock at an exercise price per share of $1.56.
On August 20, 2001, the Company agreed to issue to certain of the holders of the
8% convertible notes warrants to purchase 1,261,750 shares of our common stock
at an exercise price of $0.50 per share, in consideration of Refco's agreement
to permit the Company to immediately proceed with additional equity and
equity-type financing of up to $5,000,000. In addition, the Company agreed to
reduce the exercise price on all of the warrants previously issued to the
holders of the 8% notes from $1.56 per share to $0.50 per share, and committed
to pay to Refco an additional fee of up to $100,000, payable at the rate of 5%
of all additional proceeds received in connection with any additional equity
or equity-type financing.
Defaults on Credit Lines- The Company is presently in default of its payment
obligations under a $6.5 million term loan secured by all the company's title
and interest in Call of the Wild. The balance outstanding is approximately
$6,500,000 as of June 30, 2001. The Company is attempting to negotiate a
restructuring of the loan terms. There can be no assurance that the Company will
be successful in renegotiating the loan.
Capital Needs. The Company's operations require approximately $400,000 per
month. Current revenues from sales are approximately $100,000 per month. The
Company has recently adopted the restructuring plan described above under
Subsequent Events, and hopes to generate additional cash from sales activities
and third party investments. There can be no assurances that the Company will be
successful in either compromising its current obligations or generating the
required additional cash. If the Company is not successful, the Company may not
be able to continue as a going concern and may be required to seek protection
from creditors under the federal bankruptcy laws.
The Company 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 the Company's Form 10-KSB in April 2001, the Company has entered into
agreements with sub-distributors to market its film library titles. As a result
of these agreements, the Company's marketing and sales activities have been
curtailed to minimize use of capital. There is no assurance that such revenues
will be sufficient to sustain operations in the future. The Company is also
active in discussions with sources for various types of equity and debt 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.
Even if the Company is able to solve its short-term liquidity and capital needs,
the distribution of television products generally requires 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). To expand the Company's business and obtain new television products
for distribution, the Company will be required to obtain a source for deficit
financing for future television projects and library acquisitions. Although the
Company intends to continue to explore the possibility of obtaining a
significant production line of credit with a commercial bank, there is no
assurance that the Company will be able to consummate such financing on
commercially acceptable terms, if at all.
13
TEAM COMMUNICATIONS GROUP, INC.
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.
Commencing on March 9, 2001, a series of class action securities complaints were
filed against the Company, its 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 the Company's 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 (the "Act"). The claims seek unspecified damages and
generally allege that the Company violated Section 10(b) and Rule 10b-5
thereunder, and Section 20(a) of the Act. These actions were a result of the
Company's February 13, 2001 public announcement concerning the substantial
losses and financial adjustments the Company expected to incur in fiscal 2000.
These claims have been consolidated and the plaintiff class expanded. The
Company is currently evaluating the merits of these claims.
Item 2. Changes in Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
Item 3. Defaults Upon Senior Securities
The Company is currently in default of its payment obligations under a $6.5
million term loan secured by all the Company's title and interest in Call of the
Wild. The Company is attempting to negotiate a restructuring of the loan terms
to cure this default, however, there can be no assurance that the Company will
be successful in renegotiating the loan.
Item 4. Submissions of Matters to Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
On August 8, 2001, the Company filed a report on Form 8-K to disclose,
pursuant to Regulation FD, the terms of its June 2001 private placement and the
equity line of credit agreement with Refco Capital Markets, Ltd.
14
TEAM COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
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: August 27, 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
President, Chief Operating Officer
and Acting Chief Financial Officer
15