Message-ID: <8944640.1075851523959.JavaMail.evans@thyme> Date: Fri, 26 Oct 2001 08:33:25 -0700 (PDT) From: textsf@stockfirst.com To: alewis@ect.enron.com Subject: Research Report - PDSE Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: STOCKFIRST @ENRON X-To: alewis@ect.enron.com X-cc: X-bcc: X-Folder: \ALEWIS (Non-Privileged)\Deleted Items X-Origin: LEWIS-A X-FileName: ALEWIS (Non-Privileged).pst RESEARCH REPORT from STOCKFIRST and TheInvestorOnline www.stockfirst.com www.theinvestoronline.com ____________________________________ Paradise Music & Entertainment Inc. Symbol: PDSE - OTCBB Recommended: 10/15/01 - $0.08 Price as of: 10/15/01 - $0.08 Target: $0.84 52 Wk Range: $0.07 - $1.406 ____________________________________ * Financial Summary Paradise is a music and entertainment company that is in the process of a significant restructuring effort, spearheaded by noted turnaround specialist Kelly Hickel and a new senior management team. PDSE is focused on producing and owning state-of-the art events, film, video, digital and music-related products through its three groups -Paradise Film & Television, Paradise Music, and Paradise Festivals & Events. Paradise's new strategy is to leverage its integrated creative services and global corporate relationships to create unique entertainment products which deliver corporate clients' branding messages to targeted demographic audiences. The following are a summary of Results of Operations for the Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000. In aggregate, revenues for the three months ended June 30, 2001 increased to $7,765,268 or 26% compared to revenues of $6,164,769 in the three-month period ended June 30, 2000. The net loss was $9,376,245 for the three months ended June 30, 2001 compared to $2,047,658 for the three months ended June 30, 2000. The loss for the three months ended June 30, 2001 included a provision for goodwill impairment of $7,268,586. Notwithstanding the goodwill impairment provision, the former Commercial group incurred a loss in the period of $1,003,366, almost entirely in the Straw Dogs affiliate, reflective of the severe downturn in the advertising industry. Additionally, the Company incurred $414,762 of non-recurring costs relating to the iball merger and business restructuring. Exclusive of the provision for goodwill impairment, the non-recurring costs relating to the iball merger and business restructuring and the significant loss incurred in the PDSE Commercial Group (mainly Straw Dogs), the Paradise adjusted net loss for the current three month period would have been $689,531, compared with a net loss of $1,576,406 (adjusted for the PDSE Commercial segments loss in the prior period). PDSE Commercial Group revenues increased to $5,591,439 for the three months ended June 30, 2001, from $3,464,044 for the three months ended June 30, 2000, an increase of $2,127,395 or 61%. The increase in revenues is primarily due to the negative impact of the SAG strike on last year's activity. More from Market Guide: http://yahoo.marketguide.com/mgi/signdevt.asp?rt=signdevt&rn=A1 2C2 ____________________________________ * Share-Related Items Market Capitalization - $2.2M Shares Outstanding - 22.0M Float - 7.9M Daily Volume (3-month avg) - 32.0K Daily Volume (10-day avg) - 85.0K Delayed Quote - http://quote.yahoo.com/q?s=pdse.ob&d=v1 ____________________________________ * Business Description Paradise is an award-winning entertainment company dedicated to leveraging integrated creative services and global corporate relationships to develop unique entertainment products that deliver corporate clients' branding messages to targeted demographic audiences. Paradise's premier creative talent has recently been joined by a senior management team specializing in turnarounds and maximizing shareholder value. Paradise plans to grow its existing businesses and extend into the broadcast, festival/event and online markets. Revenues are derived from: original music production for film and television, commercial music production, television special production, music video production, record sales, music royalties, tour and concert production fees, and corporate sponsorships. Paradise Music & Entertainment, Inc. (PDSE) is comprised of: PDSE Film and TV Group (Picture Vision and Rave Music), PDSE Music Group (PDSE Records Inc.) and PDSE Festival & Event Group. Visit the Company's website at www.pdse.com Expanded Business Description: http://www.theinvestoronline.com/research/pdsebusdes1F.htm ____________________________________ * Analyst Summary The entertainment industry has traditionally shown strong growth through all manner of economic downturn and periods of uncertainty. When World War II started, Major League Baseball had many of its stars go off to war and was considering canceling play until urged by President Roosevelt to continue, because it was something that America needed. During the Great Depression, people found enough money to go to Movie Theaters, because they could "get-away" for a while. We believe that PDSE represents a value and in the long run an attractive takeover candidate. Paradise has been very active in the last quarter constructing a foundation built on a renewed focus on certain high-end niches in the music and entertainment industry and moves into certain fragmented, high-margin markets. We believe these activities will sustain growth in the months to come. A renowned creative team and a new senior management team with extensive turnaround experience are keys to this success. Given its price and performance, we feel PDSE will be a solid play on the small-cap entertainment field. Paradise Found --- Since the completion of the iball Media merger, PDSE has made significant strides in focusing the Company on its strengths and expanding business. To increase operating productivity and margins the new management team has concluded an extensive restructuring program that includes the shutdown of non-core Paradise businesses, including the Digital Group, the Commercial Group, and elements of the Music Group. The net result is to reduce revenue by 77% and losses by 88%, and, we believe, to create a sustainable platform from which to grow the business profitably. PDSE has previously disclosed that it has a going concern issue and has used up its operating cash. As noted above, they have also disclosed that they have discontinued 77% of their operations because those operations were losing money and PDSE management felt those divisions had no strong growth prospects going forward. Discontinuing those operations has dramatically reduced PDSE's losses and reduced cash burn. In addition, PDSE has just disclosed that it is currently negotiating a $750,000 bridge financing and a $2 million secured subordinated convertible debenture, secured by all of the assets of PDSE and its subsidiaries, subordinate only to any other senior debt. We feel that the above investment represents the capital PDSE requires to continue to effectively launch it's new strategy. Due to economic conditions, the current markets for the Company's traditional past products and services have shrunk dramatically and or shown flat growth this year. However, that same market environment has signaled a great deal of interest in the products and services that form the focus of the Company's new strategy. PDSE will grow its remaining businesses and extend the energy, visibility and commerce opportunities further into the broadcast, festival/event and online markets. With select partners, PDSE will be presenting festivals, primetime cable and broadcast specials, digital properties, music and artist management initiatives, film & television projects and exclusive event properties for global brand partners. In addition to growing its existing businesses, PDSE is also examining a number of acquisitions in targeted markets, which, if completed, will result in more rapid growth of the Company. The Company's selection of future projects and acquisitions will be driven by ROI and strategic fit with existing business units. PDSE will produce sponsor-targeted entertainment leveraging music, media events, television commercials, television programming and filmed entertainment to facilitate global branding campaigns. Management expects this to provide a profitable, multi-platform convergence of capabilities with multiple revenue streams and higher gross profit margins. Music has become an even bigger part of getting the message across for many companies, see this recent article in the NY Times (www.theinvestoronline.com/research/PDSEMusic.htm). o Paradise is a multi-faceted entertainment company with an operating revenue platform stabilizing at $20+ million in annual revenue and a plan in place to grow quickly and profitably through internal project developments and targeted acquisitions. o The Company is uniquely positioned to provide a music-centric alternative to conventional delivery of the brand message for global brands. o The market cap of the Company is less than $5 million. Paradise consists of a strong, creative management team with proven accomplishments. o The Company has just announced that it is negotiating a $750,000 bridge financing and a $2M secured subordinated convertible debenture. o The entertainment sector is projected to be strong and high margin for the foreseeable future. o Management's strategy is to grow by acquisition both vertically and horizontally in the entertainment category, and to create a lean, edgy creative firm focused on providing premier sponsor-targeted entertainment. We estimate that PDSE will produce an EPS of $0.04 for 2002. Excluding potential acquisitions, we believe that PDSE is poised to grow by 9% in 2002 and in 2003, when all elements are in place and operating at capacity, we expect sharp revenue growth in excess of 50%. We also believe that in the short term the Company will stabilize revenues, achieving a positive EBITDA in Q1 or Q2 of 2002. If PDSE is able to achieve the necessary financing, we believe that several acquisitions will be made that build on the sound core that has been established, achieving higher revenues and net earnings then currently estimated. - Technical Opinion - 10/04/01 The stock has made a new low with the weakness in over-the-counter stocks, but is now churning on high volume. Since this low is near last year's low with management expecting good things on the horizon for the Company, the stock should find a bottom here. The record high volume with little or no movement on 10/04 also suggests a stalemate between buyers and sellers, which could be another signal of a bottom. The stock will meet overhead resistance between $0.17 and $0.20. If it can break up through $0.20, look for it to retest $0.68 before it reaches another major overhead level. Note: Although technical analysis is an important tool to determine the short-term directional movement of securities, technical analysis of stocks under $10 is many times not as reliable as higher priced, higher volume securities. - Fundamental Opinion - 10/04/01 PDSE's comparative financial analysis offers and suggests tremendous future stock price appreciation from current levels based on the Business Services industry comparative figures and even more conservatively, the Services sector. Assuming the market returns to bullish conditions and the Company meets projections provided by the Company and included in this report, at sector values, the stock could reach a 2001, 2002 and 2003 target price of $0.84, $2.04 and $6.75, respectively. This would represent a 1-year gain of almost 10 fold, a two-year gain of close to 27x and a three-year total gain of almost 75x the investment. Note: To meet the suggested target prices, the Company would have to trade at the Services sector multiples and the Company would have to achieve earnings and revenue estimates provided by management in this report. A divergence either up or down from the projections could materially affect the target prices. Financial Analysis: http://www.theinvestoronline.com/research/pdseanaly1F.htm Industry & Market Profiles: http://www.theinvestoronline.com/research/pdsemktprfl1F.htm ____________________________________ * Recent News Thursday, Oct 18, 2001 - Paradise Negotiating Bridge and Permanent Financing Thursday, Oct 11, 2001 - Paradise Unit Signs Agreement With Action Marketing Group Friday, Sep 28, 2001 - Shelter Films Discontinues Operations Thursday, Sep 20, 2001 - Straw Dogs Discontinues Operations Tuesday, Sep 11, 2001 - Paradise's Combined Management Team Wednesday, Sep 5, 2001 - Paradise Unit Receives CMA Music Video of the Year Nomination Tuesday, Aug 21, 2001 - Paradise Announces Second Quarter Results - Business Wire Monday, Aug 20, 2001 - PARADISE MUSIC & ENTERTAINMENT INC - Quarterly Report (SEC form 10QSB) Thursday, July 12, 2001 - Paradise Hires Shareholder Relations Wednesday, July 11, 2001 - Paradise Completes iball Merger Tuesday, July 10, 2001 - Rave Music Selected by 4Kids Entertainment to Produce Music for YU-GI-OH! Friday, June 22, 2001 - PARADISE MUSIC & ENTERTAINMENT INC FILES (8-K) Disclosing Acquisition or Disposition of Assets Monday, May 21, 2001 - PARADISE MUSIC & ENTERTAINMENT INC - Quarterly Report (SEC form 10QSB) Go to http://biz.yahoo.com/n/p/pdse.ob.html for complete list of releases and details. ____________________________________ * Contact Information John Lefebvre Shareholder Relations 303-457-2852 or john@shareholder-relations.net Visit the Company Website at www.pdse.com ____________________________________ Please go to http://www.theinvestoronline.com/research/PDSE101801.html to see the complete TheInvestorOnline Research Report. _____________________________________________________ IMPORTANT DISCLAIMER TheInvestorOnline is an independent electronic publication providing information on selected public companies. 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