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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
____________________
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934.
____________________
For Quarter Ended March 31, 1995 Commission file number 0-18410
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THE PRODUCERS ENTERTAINMENT GROUP LTD.
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(Exact name of registrant as specified in its charter)
Delaware 95-4233050
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9150 Wilshire Boulevard, Suite 205, Beverly Hills, CA 90212
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (310) 285-0400
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the proceeding 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock - May 10, 1995 - 10,266,334
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THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1995 1994
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(unaudited)
ASSETS
Cash and cash equivalents $1,323,138 $ 964,387
Notes and accounts receivable 1,444,497 1,390,030
Receivables from related parties 85,985 458,294
Film costs, net 1,926,291 4,610,704
Fixed assets, net 87,236 93,914
Other assets 271,001 89,399
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$5,138,148 $7,606,728
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LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ - $ 588,750
Accounts payable and accrued expenses 864,526 1,348,950
Dividend payable 126,350 -
Deferred participations based on
estimated revenues 600,000 800,000
Deferred revenue 139,000 3,466,901
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Total liabilities 1,729,876 6,204,601
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Shareholders' equity:
Preferred Stock, $.001 par value.
Authorized 10,000,000 shares;
Issued 1,000,000 shares - Series A 1,000 -
Common stock, $.001 par value.
Authorized 50,000,000 shares;
issued 11,388,770 and 10,808,833
shares 11,379 10,809
Additional paid-in capital 15,321,224 10,543,302
Accumulated deficit (10,915,139) (8,141,792)
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4,418,464 2,412,319
Treasury stock 1,122,436 shares,
at cost (1,010,192) (1,010,192)
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Net shareholders' equity 3,408,272 1,402,127
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$5,138,148 $7,606,728
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See notes to condensed consolidated financial statements.
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THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine months ended March 31,
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1995 1994
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Note (2)
Revenues $ 4,971,334 $10,573,969
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Film amortization 2,808,752 2,272,723
Costs related to revenues - 5,608,000
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2,808,752 7,880,723
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2,162,582 2,693,246
Write down of film costs to net
realizable values 937,298 28,391
General and administrative
expenses 3,660,150 5,211,296
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Operating (loss) (2,434,866) (2,546,441)
Interest income 28,260 84,058
Interest and financing expense (296,741) (129,939)
Provision for note receivable (270,000) -
Reduction in deferred
participations 200,000 -
Settlement of lawsuit - (400,000)
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Net (loss) (2,773,347) (2,992,322)
Dividend requirement of Series A
Preferred Stock (126,350) -
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Net (loss) applicable to common
shareholders $(2,899,697) $(2,992,322)
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Net (loss) per common share $(.29) $(.32)
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Average common shares outstanding 9,930,777 9,272,913
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See notes to condensed consolidated financial statements.
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THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended March 31,
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1995 1994
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Note (2)
Revenues $ 322,846 $ 2,564,280
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Film amortization 502,018 1,263,806
Costs related to revenues - 130,000
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502,018 1,393,806
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(179,172) 1,170,474
Write down of film costs to net
realizable values 937,298 28,391
General and administrative expenses 1,703,368 1,998,077
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Operating (loss) (2,819,838) (855,994)
Interest income 14,820 17,612
Interest and financing expense - (94,481)
Provision for note receivable (270,000) -
Reduction in deferred participations 200,000 -
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Net (loss) (2,875,018) (932,863)
Dividend requirement of Series A
Preferred Stock (106,250) -
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Net (loss) applicable to common
shareholders $(2,981,268) $ (932,863)
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Net (loss) per share $(.29) $(.10)
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Average common shares outstanding 10,266,334 9,309,288
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See notes to condensed consolidated financial statements.
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THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
Series A
Prefer- Additional
red Common Paid-In Treasury
Stock Stock Capital Deficit Stock Net
------ ------ ---------- ----------- ---------- ---------
Balance,
June 30, 1994 $ - 10,809 10,543,302 (8,141,792) (1,010,192) 1,402,127
Sale of Units in
public offering 1,000 4,175,467 4,176,467
Issuance of shares
for interest 266 274,734 275,000
Exercise of stock
options 304 454,071 454,375
Dividend on Series
A preferred stock (126,350) (126,350)
Net (loss) (2,773,347) (2,773,347)
------ ------ ---------- ----------- ---------- ---------
Balance,
March 31, 1995 $1,000 11,379 15,321,224 (10,915,139) (1,010,192) 3,408,272
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See notes to condensed consolidated financial statements.
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THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended March 31,
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1995 1994
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Note (2)
Cash flows from operating activities:
Net (loss) $(2,773,347) $(2,992,322)
Net loss of DSL duplicated - 398,200
Adjustments to reconcile net (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization 2,825,343 2,308,780
Allowance for amounts receivable 270,000 -
Reduction in deferred participations (200,000)
Write down of film costs 937,298 -
Issuance of shares of stock for interest 275,000 -
Settlement of lawsuit - 400,000
Changes in assets and liabilities:
Decrease (increase) in receivables 334,117 (50,488)
(Increase) decrease in other assets (2,472) 75,048
(Decrease) in accounts payable and
accrued expenses (484,424) (326,756)
(Decrease) increase in deferred revenues (3,327,901) 973,150
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Net cash provided by (used in) operating
activities (2,146,386) 785,612
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Cash flows from investing activities:
Additions to film costs (1,240,767) (3,083,621)
Capital expenditures (9,913) (10,417)
Increase in due from related parties (286,275) (2,689)
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Net cash (used in) investing activities (1,536,955) (3,096,727)
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Cash flows from financing activities:
Sale of units in public offering 4,176,467 -
Borrowings (repayments), net (588,750) 157,500
Proceeds from exercise of stock options 454,375 1,323,718
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Net cash provided by financing activities 4,042,092 1,418,218
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Net increase (decrease) in cash 358,751 (829,897)
Cash at beginning of period 964,387 4,774,565
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Cash at end of period $ 1,323,138 $ 3,944,668
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See notes to condensed consolidated financial statements.
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THE PRODUCERS ENTERTAINMENT GROUP LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1995
(1) Basis of Presentation
The financial information included herein 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.
The information contained in this Form 10-QSB Should be read in conjunction
with the audited financial statements filed as part of the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994.
(2) Restatement of Prior Year
In May 1994, the Company acquired all of the capital stock of DSL
Productions, Inc. and its affiliates ("DSL") in a transaction accounted for as
a pooling of interests. Accordingly, the Company's financial statements for the
nine and three months ended March 31, 1994 have been restated to include the
accounts of DSL.
Reconciliation of amounts previously reported:
Nine months Three months
Ended March 31, 1994
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Revenues:
As previously reported $ 6,532,874 $ 316,450
Revenues of DSL 4,041,095 2,247,830
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Revenues as restated $10,573,969 $2,564,280
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Net (loss):
As previously reported $(2,064,622) $ (641,003)
Net (loss) of DSL (927,700) (291,860)
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Net (loss) as restated $(2,992,322) $ (932,863)
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(3) Agreement With Former President of DSL
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. This employment agreement was for a five year
period that commenced on May 19, 1994 and provided for annual base compensation
of $350,000, a monthly automobile allowance of $1,250 and an annual bonus based
on DSL's pre-tax earnings. The Company also transferred certain of its projects
in development to a new corporation ("DEG") in exchange for a 19.9% ownership
interest in DEG. The remaining 80.1% of DEG
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is owned by the former President of DSL. The Company will receive 5% of the
gross revenues (as defined) from DEG's exploitation of these transferred
projects. The carrying amount of these transferred projects (approximately
$179,000) is included in other assets. The Company has 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.
The Company retained all of its interest in its and DSL's completed projects.
In December 1994 the Company made a $270,000 loan to the former President of
DSL pursuant to its guarantee. The loan was made from the proceeds of the
Company's December 1994 public offering and is represented by a promissory note
which bears interest at prime plus 1% and is due on December 31, 1997. This
note is a nonrecourse obligation and is secured by stock options previously
granted to this individual which entitle him to purchase an aggregate of
400,000 shares of the Company's common stock through December 31, 1997 at a
price of $2.72 per share. Due to the market price of the Company's common
stock being substantially below the exercise price of the stock options
securing the note, the Company has established an allowance for the entire
amount of this note.
(4) Film Costs
The Company has revised its estimates of future gross revenues relating to
its completed projects and its plans to use its projects in development. The
adjustment of amortization of completed projects as a result of these revised
estimates and the reduction in the carrying amounts of the Company's completed
projects and projects in development has been reflected during the quarter
ended March 31, 1995.
(5) Deferred Participations Based on Estimated Future Revenues
The Company has agreed to pay the former owner of DSL up to a maximum of
$800,000 solely from a portion of revenues, as defined, from certain of DSL's
projects as such revenues are received. Based on estimates of revenues from
these projects, the Company has determined that the aggregate of these payments
will not exceed $600,000. Accordingly, the Company has adjusted its previously
recorded deferred liability to the amount it estimates will be paid in the
future. In the event that payments made exceed the Company's estimate, any
additional payments will be charged to operations when the related revenues are
earned.
(6) Debt Financing
In October 1994, the Company completed the sale of $1,100,000 principal
amount of 7% subordinated notes. The notes were repaid
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upon the closing of the Company's December 1994 public offering. See Note (7).
In accordance with the terms of these notes, upon repayment, the noteholders
were issued an aggregate of 276,437 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 condensed consolidated financial
statements as a charge to interest and financing expense with a corresponding
increase to common stock and additional paid-in capital.
(7) Public Offering of Securities
In December 1994, the Company completed a public offering of its securities.
The Company sold 1,000,000 Units for net proceeds (after deducting underwriting
commissions and related expenses) of approximately $4,176,000. Each Unit
consists of one share of Series A 8.5% Convertible Preferred Stock ("Class A
Stock") and one Class B Warrant. Each share of Class A Stock has a liquidating
preference of $5 (aggregate - $5,000,000), is convertible into one share of
common stock (aggregate - 5,000,000 shares) at any time and is entitled to
quarterly dividends at the annual rate of $.425 (aggregate - $425,000). At the
Company's option, dividends on the Class A Stock may be paid either in cash or
in shares of common stock valued at the then market price. On March 24, 1995,
the Company declared the first quarterly dividend on the Class A Stock.
This dividend was subsequently paid in cash and has been recorded at March 31,
1995 as a charge to additional paid-in capital.
Each Class B Warrant is exercisable for one share of common stock at a price
of $2.00 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 $2.60 per share. Of the net proceeds received from this offering,
$1,150,000 was used to repay the 7% subordinated notes including interest;
$580,000 was used to pay the obligation to the former owner of DSL; $270,000
was used to repay a loan on behalf of the former President of DSL; and the
balance was added to the Company's working capital.
(8) Exercise of Stock Options
During the nine months ended March 31, 1995, the Company issued 303,500
shares of its common stock upon the exercise of stock options and received
aggregate proceeds of $454,375.
(9) Employment Agreements
The Company has entered into a consulting agreement with its former Chairman
of the Board whereby this individual will serve as
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a consultant to the Company through June 30, 1999 for annual compensation of
$80,000 and an annual bonus of not less than 2% of qualified financings, as
defined. The Company also granted this individual a four year stock option to
purchase 300,000 shares of common stock at a price of $1.00 per share. In
connection with this agreement, the Company's then existing employment
agreement with this individual was cancelled. This agreement would have
expired on June 30, 1996 and provided for annual base compensation of $225,000,
a monthly automobile allowance of $750 and 2 1/2% of the Company's annual
pre-tax income.
(10) (Loss) Per Common Share
(Loss) per common share has been computed after deducting (in 1995) the
dividend requirement of the 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 has not been
included because the effect of such conversion would be anti-dilutive.
(11) Legal Matters
The Company was a party to an action which claimed, among other things,
certain violations of securities laws. The Company had 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 effects of this settlement
have been reflected in the accompanying 1993 condensed consolidated financial
statements. As of January 30, 1995, the Company issued an aggregate of 711,111
Class C Warrants in settlement of this lawsuit. Each Class C Warrant is
exercisable for one share of common stock at a price of $4.00 through April 13,
1996.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The amount of revenues earned by the Company in any one period is dependent
on, among other things, the number of 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. Accordingly, the amount of revenues
earned by the Company in any period are not necessarily indicative of future
revenues.
NINE MONTHS ENDED MARCH 31, 1995 AS COMPARED TO NINE MONTHS ENDED MARCH 31,
1994
Revenues for the nine months ended March 31, 1995 included approximately
$3,607,000 of revenues from Future Quest, which is airing on PBS, and fees from
the series Dave's World, which is airing on CBS, revenues from other completed
projects and personal management fees. Revenues for the nine months ended March
31, 1994 included $5,478,000 received from the Company's made-for-television
movie, Against the Wall, which aired on HBO, fees from Dave's World,
distribution fees, personal management fees and revenues from completed
projects. Amortization of film costs for the nine months ended March 31, 1995
and 1994 was $2,808,752 and $2,272,723, respectively using the individual film
forecast method. Costs related to revenues in fiscal 1993 consist of amounts
expended on Against the Wall.
The Company has revised its estimates of future gross revenues relating to
its completed projects and its plans to use its projects in development. The
reduction in the carrying amounts of the Company's completed projects and
projects in development of $937,298 has been reflected during the March 31,
1995 quarter.
General and administrative expenses for the nine months ended March 31, 1995
were $3,660,150 as compared to $5,211,296 for the nine months ended March 31,
1994. The decrease in operating expenses was primarily attributable to amounts
paid to the former owner of DSL in fiscal 1994 and reductions in expenses of
the Company's personnel management subsidiary. Pursuant to certain employment
agreements, the Company is obligated to pay additional compensation based on,
among other things, profits on projects produced and producers' fees. For the
nine months ended March 31, 1995, no additional compensation was earned based
on these provisions. The termination of certain employment agreements has
reduced the Company's annual compensation payments by approximately $519,000
per year. The full effects of such reduction will be recognized commencing with
the last quarter of fiscal 1995.
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 1994 primarily consists of interest paid on the Company's 7%
subordinated notes
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including $275,000 representing the market value of the shares of common stock
issued to the noteholders upon the repayment of the notes.
THREE MONTHS ENDED MARCH 31, 1995 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1994
Revenues for the three months ended March 31, 1995 primarily consisted of
revenues from completed projects, fees from Dave's World, and personal
management fees. Revenues for the three months ended March 31, 1994 included
$5,478,000 received from Against the Wall, fees from Dave's World, distribution
fees, personal management fees and revenues from completed projects.
Amortization of film costs for the three months ended March 31, 1995 and 1994
was $502,018 and $1,263,806, respectively using the individual film forecast
method. The adjustment in amortization of film costs resulting from revised
estimates of future gross revenues has been reflected in the March 31, 1995
quarter.
General and administrative expenses for the three months ended March 31, 1995
were $1,703,368 as compared to $1,998,077 for the three months ended March 31,
1994. The decrease in operating expenses was primarily attributable to amounts
paid to the former owner of DSL in fiscal 1994 and reductions in expenses of
the Company's personnel management subsidiary. The full effects of the
termination of certain employment agreements will be recognized commencing with
the last quarter of fiscal 1995.
The decrease in interest income was primarily due to a reduction in funds
available for investment. During the quarter ended March 31, 1995, the Company
did not have any interest bearing debt and did not incur any interest expense.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1995, the Company had cash and cash equivalents of
$1,323,138. In December 1994, the Company completed a public offering of its
securities, receiving net proceeds of $4,176,467. Of these net proceeds,
$1,150,000 was used to repay the Company's 7% subordinated loans including
interest, make the guaranteed debt repayment to one of the former owners of DSL
of $580,000; and make the payment of a loan guaranteed by the Company made by
one of the former owners of DSL to the then President of DSL in the amount of
$270,000. The balance of these net proceeds (approximately $2,176,000) was
added to working capital.
In connection with the agreement with the former President of DSL, the
Company transferred certain projects in progress to DSL Entertainment Group,
Inc. ("DEG"), a corporation formed by the former President of DSL. The Company
owns 19.9% of DEG. The Company will receive 5% of the gross revenues, as
defined, from the
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exploitation of these transferred projects by DEG. The Company will not incur
any costs in connection with the receipt of its portion of these future gross
revenues.
The Company's cash receipts are principally derived from exhibition and
distribution of its completed projects, producers fees and personal management
fees. These cash receipts are affected by various factors including the timing
of the completion, exhibition and distribution of its completed projects and
the number of projects produced. Therefore, the Company is unable to accurately
predict the level or timing of its future cash receipts.
The Company's cash commitments for the next twelve months include
compensation to its officers and others of approximately $1,542,000 and minimum
office rent of $229,000 (aggregate - approximately $1,771,000). The Company
also incurs overhead and other costs such as salaries, related benefits, office
expenses, professional fees and similar expenses. For the nine months ended
March 31, 1995, general and administrative expenses, which includes
compensation and rent, aggregated approximately $3,569,000. As a result of the
termination of certain employment agreements, the Company expects that the
level of its future general and administrative expenses will decline from prior
levels. The Company also expends funds on the production and development of
projects.
Dividends on the Company's Series A Preferred Stock, which was sold in the
December 1994 public offering, aggregate $425,000 annually and, at the
Company's option, may be paid in shares of the Company's common stock. The
first dividend on these shares was declared in March 1995 and subsequently
paid in cash. The Company has agreed to pay a maximum of $800,000 to the former
owner of DSL solely out of revenues, as defined, from certain television
programs. These payments will not have a negative effect on the Company's
future cash flow because no payments will be made in excess of the related
revenues received.
The Company has no arrangements for external sources of liquidity such as
bank lines of credit and has no material commitments for capital expenditures.
Management believes that the Company's present and future resources will be
sufficient for its needs for at least the next twelve months.
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PART II -- OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4.1 Class C Warrant Agreement dated as of January 30, 1995(1)
10.1 Agreement of Restructuring and Settlement dated February 27, 1995 among
Drew Levin, The Producers Entertainment Group Ltd. and DSL Productions
Inc.(2)
10.2 First Amended Agreement of Restructuring and Settlement dated as of
February 27, 1995 among Drew Levin, The Producers Entertainment Group
Ltd. and DSL Productions Inc.(1)
10.3 Consulting Agreement dated February 27, 1995 between Bibicoff &
Associates and The Producers Entertainment Group Ltd.(2)
10.4 Letter Agreement dated as of March 10, 1995 between The Producers
Entertainment Group Ltd. and Jonathan Stanton Company(1)
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(1) Filed herewith.
(2) Incorporated by reference to Registrant's Current Report on Form 8-K
dated February 27, 1995.
(b) Reports on Form 8-K
Report on Form 8-K dated February 27, 1995.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE PRODUCERS ENTERTAINMENT GROUP LTD.
Date: May 10, 1995 /s/ Irwin Meyer
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President
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