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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 SEPTEMBER 30, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 1-6739
TEAM COMMUNICATIONS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-4519215
- - ------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
12300 WILSHIRE BOULEVARD, SUITE 400
LOS ANGELES, CALIFORNIA 90025
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 442-3500
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
On November 12, 1998, the registrant had outstanding 2,820,318 shares of
Common Stock, no par value.
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TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
September 30,
1998
-----------
Cash and cash equivalents $ 840,600
Trade receivables, less allowance for doubtful accounts of $50,000 6,347,800
Television programming costs, less accumulated amortization of $4,546,700 9,596,800
Due from officer 145,400
Fixed assets, net 18,800
Organizational costs and other assets 1,709,500
-----------
Total Assets 18,658,700
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities $ 2,796,500
Deferred revenue 772,800
Accrued participations --
Bank line of credit 790,800
Notes payable 2,387,700
Accrued interest 579,800
Shareholder loan and note payable 500,000
-----------
Total Liabilities 9,638,000
-----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 2,000,000 shares authorized; no shares
issued and outstanding --
Common stock, no par value; 18,000,000 shares authorized; 2,831,092
issued and outstanding 1,000
Paid in capital 8,949,100
Retained earnings 70,700
-----------
Total shareholders' equity 9,020,800
-----------
Total liabilities and shareholders' equity $18,658,700
===========
The accompanying notes are an integral part of these consolidated financial
statements.
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TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS FOR THE NINE MONTHS FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------- ------------------- -------------------- --------------------
Revenues $ 9,466,800 $ 5,672,000 $ 6,251,000 $ 2,198,900
Cost of Revenues 5,884,500 1,959,000 5,047,700 974,700
General and administrative expense 2,234,100 2,190,000 1,095,900 542,600
----------- ----------- ----------- -----------
Net income from operations 1,348,200 1,523,000 107,400 681,600
Interest expense 768,400 754,500 145,600 333,800
Interest income 136,000 (61,800) 44,500 (61,800)
Other income -- -- -- --
----------- ----------- ----------- -----------
Net income before income taxes 715,800 706,700 6,300 286,000
Provision for income taxes 60,500 -- (9,500) --
----------- ----------- ----------- -----------
Net income $ 655,300 $ 706,700 $ 15,800 $ 286,000
=========== =========== =========== ===========
Net income per share basic $ 0.43 $ 0.62 $ 0.01 $ 0.25
=========== =========== =========== ===========
Weighted average number of shares
outstanding basic 1,506,672 1,131,344 2,257,327 1,131,344
=========== =========== =========== ===========
Net income per share diluted $ 0.30 $ 0.39 $ 0.01 $ 0.16
=========== =========== =========== ===========
-- -- -- 0
Weighted average number of shares -- -- -- 0
outstanding diluted 2,197,128 1,821,800 2,947,783 1,821,800
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS FOR THE NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------- -------------------
OPERATING ACTIVITIES:
Net income $ 655,300 $ 706,700
Adjustments to reconcile net income to cash used
for operating activities:
Depreciation and amortization 10,200 9,900
Amortization of television programming costs 1,205,600 1,167,140
Additions to television programming costs (6,515,400) (1,952,140)
Amortization of notes payable discount 131,000 --
Changes in assets and liabilities:
Decrease (increase) in trade receivables 393,000 (3,921,300)
Increase in organizational costs and other assets (1,131,400) (125,600)
Increase (decrease) in accounts payable, accrued
expenses and other liabilities (474,100) 2,273,300
Increase in deferred revenue 197,900 341,100
Increase in accrued participations 825,600 (57,000)
Increase (decrease) in accrued interest (449,400) 450,200
----------- -----------
Net cash used for operating activities (5,151,700) (1,107,700)
----------- -----------
INVESTING ACTIVITIES:
Purchase of fixed assets -- --
Decrease (increase) in due from officer 50,100 (117,800)
----------- -----------
Net cash provided (used) for investing activities 50,100 (117,800)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from shareholder loan and notes payable -- 1,024,200
Proceeds from issuance of note payable and warrants 2,359,500 --
Principal payment on loan due to shareholder (240,000) --
Principal payment of notes payable (4,065,300) --
Issuance of common stock 7,713,500 --
----------- -----------
Net cash provided by financing activities 5,767,700 1,024,200
----------- -----------
Net change in cash 666,100 (201,300)
Cash at beginning of period 174,400 214,300
----------- -----------
Cash at end of period $ 840,500 $ 13,000
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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TEAM COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Preferred Stock Common Stock
-------------------- ---------------------
Retained
Treasury Earnings
Number Number Paid in Stock Accumulated
of Shares Par Value of Shares Par Value Capital Receivable (Deficit)
--------- --------- --------- --------- ------- ---------- ---------
Balance at December 31, 1997 -- $ -- 1,131,344 $ 1,000 $1,230,100 $ -- $ (584,600)
Net Income for the nine months
ended September 30, 1998 -- -- -- -- -- -- 655,300
Issuance of shares in connection
with the initial public offering -- -- 1,500,000 -- 7,255,500 -- --
Issuance of shares in connection
with the extinguishment of debt -- -- 188,974 -- 458,000 -- --
Issuance of warrants in connection
with the initial public offering -- -- -- -- 5,500 -- --
----- ----- ---------- ---------- ---------- ----- ----------
Balance at September 30, 1998 -- $ -- 2,820,318 $ 1,000 $8,949,100 $ -- $ 70,700
===== ===== ========== ========== ========== ===== ==========
The accompanying notes are an integral part of these consolidated financial
statements
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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 three
months ended March 31, 1998, included in the TEAM Communications Group, Inc.
("Company" ) financial report in the Company's registration statement (the
"Registration Statement") dated July 29, 1998.
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 September 30, 1998, and the results of operations for the three
and nine month periods ended September 30, 1998 and cash flows for the nine
month period ended September 30, 1998, have been included. The results of
operations for the three and nine month periods ended September 30, 1998, 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 Registration Statement.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company recognizes revenues from licensing agreements covering entertainment
product when the product is available to the licensee for telecast, exhibition
or distribution, and other conditions of the licensing agreements have been met
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 53,
"Financial Reporting by Producers and Distributors of Motion Picture Films."
The Company, as required by SFAS No. 53, values its film cost at the lower
of unamortized cost or net realizable value on an individual title basis.
Film costs represent those costs
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incurred in the development, production and distribution of television projects.
These costs have been capitalized in accordance with SFAS No. 53. Amortization
of film cost is charged 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.
NOTE 2 -- TELEVISION PROGRAM COSTS:
Television program costs consist of the following:
SEPTEMBER 30, 1998
In process and development $1,077,300
Released, less accumulated amortization 8,519,500
----------
Total television program costs $9,596,800
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NOTE 3 -- LITIGATION AND CONTINGENCIES:
In the ordinary course of business, the Company has or may become involved
in disputes or litigation. On the basis of information available to it,
management believes such contingencies will not have a materially adverse
impact on the Company's financial position or results of operations.
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NOTE 4 -- NOTE PAYABLE:
Notes payable consists of the following at September 30, 1998, carrying
value approximates fair value:
CARRYING VALUE AT
SEPTEMBER 30, 1998
------------------
Private placements:
12% secured notes $225,000
10% secured convertible notes 356,000
10% secured convertible notes 84,000
Promissory notes:
10% secured promissory note 250,000
16% secured note 315,000
11% unsecured promissory note 124,900
12% secured notes 1,032,800
----------
$2,387,700
==========
On August 5, 1998, the Company issued 188,974 shares of common stock upon
conversion of $322,000, 12% Convertible Note held by AMAE Ventures.
The Company entered into a revolving line of credit with Merchantile
National Bank. The credit line is up to $850,000. As of September 30, 1998,
the outstanding balance of the line of credit was $790,800. The line of
credit is secured by the Company's $860,000 certificate of deposit.
NOTE 5 -- STOCK OFFERING:
On July 29, 1998, the Company completed its Initial Public Offering. The
net proceeds to the Company, from the sale of 1,500,000 shares at the
initial offering price of $5.50 per share, was $6,630,500, net of
$1,619,500 in expenses related to the offering including underwriters fees
and expenses. The proceeds were used to repay debt of $5,273,600 and fund
working capital for the Company.
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NOTE 6 -- GOING CONCERN:
The Company's financial statements for the nine months ended September 30,
1998, have been prepared on a going concern basis which contemplates the
realization of assets and the settlement of liabilities and commitments in
the normal course of business. The Company expects to incur substantial
expenditures to produce television programs and/or acquire distribution
rights to television programs produced by third parties. The Company's
working capital plus limited revenue from the licensing of its current
inventory of television programs will not be sufficient to fund the
Company's ongoing operations, including maintaining the Company's current
overhead and maintaining the Company's current development and marketing
activities for the next 12 months. Further, even with the Company
successfully raising additional financing, there is no assurance the Company
will achieve profitability or positive cash flow.
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ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
For the three months ended September 30, 1998, the Company reported a net income
of approximately $15,800 on total revenues of approximately $6,251,000 compared
to net income of approximately $286,000 on total revenues of approximately
$2,198,900 for the same period ended September 30, 1997. Net income decreased by
approximately $270,200 for the three months ended September 30, 1998, versus the
three months ended September 30, 1997, primarily due to lesser margins on
higher-cost dramatic programming sold in 1998 compared with the sale of certain
library programming sold in 1997. Revenue for the period ended September 30,
1998 included approximately $2,600,000 on the delivery of the movie of the week,
"Earthquake in New York" to the Fox Family Channel and approximately $2,686,700
on the completion of seven episodes of the dramatic series "Total Recall-2077"
for Polygram Television L.L.C., Miramax Film Corp. and certain international
territories.
Cost relating to revenues was $5,047,700 for the three months ended September
30, 1998 as compared to $974,700 for the three months ended September 30, 1997.
The costs relate to amortization of production costs of television programming
for which revenue was recognized during the period. Gross profit margin on sales
of television programming for the three months end September 30, 1998 was 19
percent compared to 56 percent for the period ended September 30, 1997. The
lower gross profit margin for the three months ended September 30, 1998 was due
to the Company producing higher-cost dramatic television programming with third
party partners as opposed to distributing and producing principally
reality-based programming owned solely by the Company in the three months ended
September 30, 1997. Interest expense was $145,600 for the three months ended
September 30, 1998, as compared to $333,800 for the three months ended September
30, 1997. The decrease is due to the retirement of debt from proceeds from the
public offering of stock.
For the nine months ended September 30, 1998, the Company reported net income of
approximately $655,300 compared to net income of approximately $706,700 for the
nine months ended September 30, 1997. Revenues increased by 67 percent to
approximately $9,466,800 for the nine months ended September 30, 1998, compared
to approximately $5,672,000 for the nine months ended September 30, 1997, as a
result of the Company's sales and deliveries of the movie of the week,
"Earthquake in New York" and episodes of the series "Total Recall-2077" in 1998.
Revenue in 1997 included a library sale of eleven movies of the week for
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$900,000. Cost of revenues was $5,844,500 for the nine months ended
September 30, 1998 as compared to $1,959,000 for the nine months ended September
30, 1997. The increase in cost of revenues is attributable to the Company
deriving more of its revenues from distribution of dramatic programming produced
with third party partners, as described above. General and administrative
expenses were $2,234,100 for the nine months ended September 30, 1998, as
compared to $2,190,000 for the nine months ended September 30, 1997. Interest
expense was $768,400 for the nine months ended September 30, 1998 as compared to
$754,500 for the nine months ended September 30, 1997.
Interest income was $136,000 for the nine months ended September 30, 1998 as
compared to ($61,800) for the nine months ended September 30, 1997. The negative
amount in 1997 is due to a discount taken under the guidelines of APB 21.
Trade receivables at September 30, 1998 were $6,347,800. Included in
receivables, as of September 30, 1998, are receivables of $4,387,800 from
entities domiciled outside the United States. These international receivables
represent approximately 24% of the total assets of the Company. For further
information, refer to the financial statements and footnotes and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-General" thereto included in the Company's Registration Statement.
LIQUIDITY AND CAPITAL RESOURCES
The entertainment industry is highly capital intensive. As of September 30,
1998, the Company had a liquidity deficit, defined as cash and cash equivalents
plus accounts receivables (net), and due from officer less accounts payable,
line of credit, notes payable, accrued expenses and other liabilities, deferred
revenue, accrued participation, shareholder loans and notes payable, and accrued
interest, of negative $2,304,200.
The Company has financed its operations from its own sales and production
activities, notes payables, lines of credit and loans from its shareholders
which aggregate $3,678,500 as of September 30, 1998, and the sale of its own
securities. On July 29, 1998, the Company completed an initial public offering,
raising $7,255,500 net of offering expenses including underwriters discounts,
fees and expenses, of $994,500. These proceeds were used to repay approximately
$5,273,600 of debt. As of November 13, 1998 the Company has indebtedness, notes
payable and shareholder loan, of $2,626,000 which all matures within one year.
The Company also has $840,800 outstanding on its line of credit, which is
secured with the Company's $860,000 certificate of deposit. As of November 13,
1998, the
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Company had cash, other than the $860,000 certificate of deposit securing the
line of credit, and accounts receivable due to be collected with one year of
approximately $2,254,000.
OUTLOOK
Since the Company's filing of the Registration Statement date July 29, 1998, the
Company's sales and collections have been less than anticipated. In part, this
is due to economic conditions around the world. In connection therewith, the
Company has begun setting reserves and canceling slow paying customers and
reselling their programming to more financially stable customers. Also, the
Company has elected to use its resources to retire expensive debt with the
anticipation of acquiring other interim financing. The Company continues to
pursue financing and search for additional capital. The Company is continuing to
explore a variety of financial alternatives to increase its working capital,
including increasing the Company's line of credit with a commercial bank, or
pursuing other types of debt or equity financing. No assurance can be given that
such financing can be obtained or that it will be on reasonably attractive
terms.
The Company believes that its current resources of cash and accounts receivable
will enable it to operate at current expenditure levels through January 15,
1998. If the Company completes a sale of certain acquired programming, which is
currently contemplated, the Company will have adequate cash flow to conduct its
operations through March 31, 1999. Such belief is based upon certain
assumptions, including assumptions regarding the anticipated level of operations
and overhead for the Company, the anticipated sales of certain acquired
programming, and anticipated expenditures required by the Company for
development and production of programming. If sales do not materialize and
financing is not completed by these dates, the Company will have to limit its
development and production activities, reduce its overhead spending, restructure
debt pay outs and take other cost reduction measures. Further, even with the
Company successfully raising additional financing, there is no assurance the
Company will be profitable or maintain positive cash flow.
When the Company's current indebtedness begins to mature, the Company will be
required to repay such indebtedness out of cash flow, extend such obligations or
attempt to refinance such obligations. No assurance can be given that the
Company will be able to effectuate any of the foregoing alternatives, or that if
the Company seeks to extend such obligations or refinance the remaining debt,
that such extensions or refinancing alternatives will be on terms which are
financially advantageous to the Company.
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In the ordinary course of business, the Company has or may become involved in
disputes or litigation. On the basis of information available to it, management
believes such contingencies will not have a materially adverse impact on the
Company's financial position or results of operations.
Item 6 - Exhibits and Reports on Form 8-K
Exhibits
27 Financial Data Schedule
Form 8-K
None
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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: September 14, 1998
TEAM COMMUNICATIONS GROUP, INC.
By: /s/ DREW S. LEVIN
------------------------------
Drew S. Levin
Chairman of the Board of
Directors and Chief Executive
Officer
By: /s/ TIMOTHY A. HILL
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Timothy A. Hill
Chief Financial Officer