<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 3, 1997
Caribiner International, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
1-14234 13-3466655
- ---------------------------------------- ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
16 West 61st Street, New York, NY 10023
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 541-5300
---------------
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(Former name or former address, if changed since last report)
<PAGE>
The Current Report on Form 8-K of Caribiner International, Inc. (the "Company"),
initially filed with the Securities and Exchange Commission (the "Commission")
on July 18, 1997, is hereby amended by this Form 8-K/A so as to comply with the
provisions of Rule 3-05 of Regulation S-X. The financial statements for the most
recent fiscal year and latest interim period preceding the acquisition of
Blumberg Communications Inc. and Subsidiary, D&D Enterprises, Inc. D/B/A Show
Solutions, WCT Live Communication Limited and Bauer Audio Visual, Inc. have been
included in this Form 8-K/A. The pro forma effects of the acquisition of each of
the aforementioned companies, as well as the acquisitions of SCH International
Limited and Total Audio Visual Services, on the Company's financial position at
June 30, 1997 and on its results of operations for the nine months ended June
30, 1997 and its year ended September 30, 1996 are also presented in this Form
8-K/A.
Item 7 is hereby amended in its entirety to read as follows:
Item 7. Financial Statements and Exhibits
The following financial statements and pro forma financial information are filed
in this report.
(a) Financial Statements of the Businesses Acquired
Audited Consolidated Financial Statements of Blumberg Communications
Inc. and Subsidiary
(1) Independent Auditor's Report
(2) Consolidated Balance Sheets as of May 31, 1996 and 1995
(3) Statements of Consolidated Operations for the Years Ended May 31,
1996 and 1995
(4) Statements of Consolidated Stockholders' Equity for the Years Ended
May 31, 1996 and 1995
(5) Statements of Consolidated Cash Flows for the Years Ended May 31,
1996 and 1995
(6) Notes to Consolidated Financial Statements
Unaudited Interim Financial Statements of Blumberg Communications Inc.
and Subsidiary
(1) Balance Sheet as of November 30, 1996
(2) Statements of Operations for the Six Months Ended November 30,
1995 and 1996
(3) Statements of Cash Flows for the Six Months Ended November 30,
1995 and 1996
(4) Note to Unaudited Consolidated Financial Statements
Financial Statements of D&D Enterprises, Inc. D/B/A Show Solutions
(1) Report of Independent Auditors
(2) Balance Sheet as of December 31, 1996
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<PAGE>
(3) Statement of Operations for the Year Ended December 31, 1996
(4) Statement of Cash Flows for the Year Ended December 31, 1996
(5) Notes to Audited Financial Statements
Unaudited Interim Financial Statements of D&D Enterprises, Inc. D/B/A
Show Solutions
(1) Balance Sheet as of March 31, 1997
(2) Statements of Operations for the Three Months Ended March 31, 1996
and 1997
(3) Statements of Cash Flows for the Three Months Ended March 31, 1996
and 1997
(4) Note to Unaudited Financial Statements
Audited Financial Statements of WCT Live Communication Limited
(1) Auditors Report to the Shareholders of WCT Live Communication
Limited
(2) Consolidated Profit and Loss Accounts for the Years Ended May 31,
1997 and 1996
(3) Consolidated Balance Sheets as of May 31, 1997 and 1996
(4) Consolidated Cash Flow Statements for the Years Ended May 31, 1997
and 1996
(5) Notes to the Consolidated Financial Statements
Audited Financial Statements of Bauer Audio Visual, Inc. for the Year
Ended December 31, 1996
(1) Report of Independent Auditors
(2) Consolidated Balance Sheets as of December 31, 1996 and 1995
(3) Consolidated Statements of Income for the Years Ended December 31,
1996 and 1995
(4) Consolidated Statements of Shareholders' Equity for the Two Years
Ended December 31, 1996
(5) Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995
(6) Notes to Consolidated Financial Statements
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<PAGE>
Unaudited Interim Financial Statements of Bauer Audio Visual, Inc. for
the Six Months Ended June 30, 1996 and 1997
(1) Balance Sheet as of June 30, 1997
(2) Consolidated Statements of Income for the Six Months Ended June 30,
1996 and 1997
(3) Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1996 and 1997
(4) Note to Unaudited Financial Statements
(b) Unaudited pro forma financial information:
Unaudited Pro Forma Consolidated Financial Statements of Caribiner
International, Inc.
(1) Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1997
(2) Unaudited Pro Forma Consolidated Statement of Operations for the
Nine Months Ended June 30, 1997
(3) Unaudited Pro Forma Consolidated Statement of Operations for the
Year Ended September 30, 1996
(4) Notes to Unaudited Pro Forma Consolidated Financial Statements
(c) Exhibits:
2.1 Agreement of Purchase and Sale of Stock, dated as of May 29, 1997,
as amended by the First Amendment thereto, dated June 27, 1997, by
and among the Company, Bauer Audio Visual, Inc. and each of the
stockholders listed on Schedule A thereto (schedules omitted -- the
Company agrees to furnish a copy of any schedule to the Commission
upon request).
99.1 Press release, dated May 30, 1997.
99.2 Press release, dated July 7, 1997.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, Caribiner International, Inc. has caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Dated: August 25, 1997 CARIBINER INTERNATIONAL, INC.
By: /s/ Arthur F. Dignam
-------------------------------------------------
Name: Arthur F. Dignam
Title: Executive Vice President,
Chief Financial and Administrative Officer
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<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Stockholders and Board of Directors
Blumberg Communications Inc. and Subsidiary
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of Blumberg
Communications Inc. and Subsidiary as of May 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Blumberg Communications Inc. and Subsidiary as of May 31, 1996 and 1995, and the
results of its consolidated operations and its consolidated cash flows for the
years then ended in conformity with generally accepted accounting principles.
Minneapolis, Minnesota /s/ Charles Bailly & Company P.L.L.P.
August 9, 1996
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<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 469,226 $ 89,849
Receivables
Trade - less allowance for doubtful accounts of
$165,000 in 1996 and $141,000 in 1995 - Note 6 7,276,411 5,979,049
Employees 12,434 59,434
Other 2,073 22,559
Inventories - Notes 4 and 6 4,367,114 3,817,504
Deferred income tax benefit - Note 9 195,000 147,000
Prepaid expenses 225,812 201,275
------------ ------------
Total current assets 12,548,070 10,316,670
------------ ------------
INVESTMENTS AND OTHER ASSETS
Note receivable - related party - Note 2 98,000 98,000
Cash value of life insurance 50,579 46,181
Goodwill 61,074 73,710
Land 29,000 29,000
Deposits 78,871 73,473
Deferred income tax benefit - Note 9 237,800 56,000
------------ ------------
555,324 376,364
------------ ------------
PROPERTY AND EQUIPMENT - Notes 5 and 6
Depreciable property and equipment 5,202,314 4,203,885
Less accumulated depreciation (2,722,966) (2,046,429)
------------ ------------
2,479,348 2,157,456
------------ ------------
$ 15,582,742 $ 12,850,490
============ ============
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable - bank - Note 6 $ 1,901,000 $ 646,200
Current maturities of long-term debt - Note 6 519,498 493,669
Current maturities of ESOP debt - Note 7 192,864 192,864
Accounts payable 1,628,813 1,279,481
Accrued expenses
Compensation 736,806 572,017
Taxes, other than income taxes 83,810 79,172
Warranty 47,855 30,195
ESOP contribution - Note 7 112,500 112,500
Interest and other 107,876 129,288
Customer deposits 17,637 --
Income taxes 379,189 361,083
Deferred revenue -- 55,475
------------ ------------
Total current liabilities 5,727,848 3,951,944
------------ ------------
LONG-TERM DEBT - Note 6 1,575,183 1,875,502
------------ ------------
LONG-TERM ESOP DEBT - Note 7 112,456 305,320
------------ ------------
DEFERRED COMPENSATION - Note 8 707,153 260,530
------------ ------------
COMMITMENTS AND CONTINGENCIES - Notes 10 and 11
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share
Authorized, 2,500,000 shares
Issued, 91,133 shares in 1996 and 92,000
shares in 1995 911 920
Retained earnings 7,764,511 6,954,458
------------ ------------
7,765,422 6,955,378
Less employee stock ownership plan
indebtedness - Note 7 (305,320) (498,184)
------------ ------------
7,460,102 6,457,194
------------ ------------
$ 15,582,742 $ 12,850,490
============ ============
</TABLE>
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<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED OPERATIONS
YEARS ENDED MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
Percentage
of Revenue
Increase -----------------
1996 1995 (Decrease) 1996 1995
------------ ------------ ------------ ------ ------
<S> <C> <C> <C> <C> <C>
REVENUE
Equipment sales $ 13,103,335 $ 12,249,417 $ 853,918 31.00% 35.95%
Equipment rental 21,728,829 13,881,936 7,846,893 51.40 40.74
Repair service 2,251,689 1,388,502 863,187 5.33 4.08
Creative services 648,564 307,248 341,316 1.53 .90
Installation revenue 4,538,421 6,245,513 (1,707,092) 10.74 18.33
------------ ------------ ------------ ------ ------
42,270,838 34,072,616 8,198,222 100.00 100.00
COST OF REVENUE 19,734,845 17,388,454 2,346,391 46.69 51.03
------------ ------------ ------------ ------ ------
TOTAL NET REVENUE 22,535,993 16,684,162 5,851,831 53.31 48.97
------------ ------------ ------------ ------ ------
OPERATING EXPENSES
Departmental expenses
Equipment sales 1,567,495 1,169,309 398,186 3.71 3.43
Equipment rental 11,838,389 7,290,330 4,548,059 28.01 21.40
Repair service 1,048,017 728,687 319,330 2.48 2.14
Creative services 398,993 169,007 229,986 .94 .50
Installation 1,528,013 1,466,587 61,426 3.61 4.30
General and
administrative 4,337,657 3,131,772 1,205,885 10.26 9.19
------------ ------------ ------------ ------ ------
20,718,564 13,955,692 6,762,872 49.01 40.96
------------ ------------ ------------ ------ ------
INCOME FROM OPERATIONS 1,817,429 2,728,470 (911,041) 4.30 8.01
------------ ------------ ------------ ------ ------
OTHER INCOME (EXPENSE)
Interest income 39,605 10,965 28,640 .09 .03
Interest expense (292,931) (162,585) (130,346) (.69) (.48)
Other 83,068 34,817 48,251 .20 .11
------------ ------------ ------------ ------ ------
(170,258) (116,803) (53,455) (.40) (.34)
------------ ------------ ------------ ------ ------
INCOME BEFORE INCOME TAXES 1,647,171 2,611,667 (964,496) 3.90 7.67
INCOME TAXES - Note 9 (653,201) (1,034,386) (381,185) (1.55) (3.04)
------------ ------------ ------------ ------ ------
NET INCOME $ 993,970 $ 1,577,281 $ (583,311) 2.35% 4.63%
============ ============ ============ ====== ======
</TABLE>
See notes to consolidated financial statements.
-8-
<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock Employee Stock
-------------------------- Retained Ownership Plan
Shares Amount Earnings Indebtedness Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, MAY 31, 1994 94,000 $ 940 $ 5,464,017 $ (691,048) $ 4,773,909
Reduction of employee
stock ownership plan
indebtedness -- -- -- 192,864 192,864
Common stock redeemed (2,000) (20) (86,840) -- (86,860)
Net income -- -- 1,577,281 -- 1,577,281
----------- ----------- ----------- ----------- -----------
BALANCE, MAY 31, 1995 92,000 920 6,954,458 (498,184) 6,457,194
Reduction of employee
stock ownership plan
indebtedness -- -- -- 192,864 192,864
Common stock redeemed 867 (9) (183,917) -- (183,926)
Net income -- -- 993,970 -- 993,970
----------- ----------- ----------- ----------- -----------
BALANCE, MAY 31, 1996 91,133 $ 911 $ 7,764,511 $ (305,320) $ 7,460,102
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
YEARS ENDED MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 993,970 $ 1,577,281
Charges and credits to net income not affecting cash
Depreciation and amortization 760,989 493,676
Loss (gain) on sale of property and equipment (5,652) 8,592
Deferred income taxes (229,800) (117,000)
Deferred compensation 446,623 260,530
Changes in assets and liabilities, net of effects
from purchase of IVS Media, Inc.
Receivables (1,281,325) (2,014,876)
Inventories (549,610) (880,638)
Prepaid expenses (24,537) (158,688)
Deposits 12,239 (20,907)
Accounts payable 400,947 493,417
Accrued expenses 165,509 335,220
Deferred revenue (55,475) 32,654
Income taxes 18,106 185,165
----------- -----------
NET CASH FROM OPERATING ACTIVITIES 651,984 194,426
----------- -----------
INVESTING ACTIVITIES
Capital expenditures (1,088,303) (1,100,943)
Proceeds from sale of property and equipment 23,710 13,253
Increase in cash value of life insurance (4,398) (2,810)
Payments on note receivable -- 10,000
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES (1,068,991) (1,080,500)
----------- -----------
FINANCING ACTIVITIES
Principal payments under loan obligations (792,652) (247,944)
Proceeds from issuance of long-term debt 1,120,089 1,375,526
Net borrowings (payments) on notes payable - bank 604,800 (265,800)
Treasury stock acquired (135,853) --
----------- -----------
NET CASH FROM FINANCING ACTIVITIES 796,384 861,782
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 379,377 (24,292)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 89,849 114,141
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 469,226 $ 89,849
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year
Interest $313,667 $205,689
Income taxes 864,895 966,221
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND
INVESTING ACTIVITIES
Common stock redeemed by issuance of note payable $ 48,073 $ 86,860
======== ========
</TABLE>
Also, see Note 10 regarding business acquisitions.
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<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
1. BUSINESS ACTIVITY, SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES
Principal Business Activity
Blumberg Communications Inc. and its subsidiary are involved in
contributing a variety of services to approximately 8,000 of its customers
and accounts. These services include the sale of industrial audio-visual
and video related equipment, rental and repair of audio-visual and video
equipment and providing staging and production services. The companies
enter into short-term rentals of inventories on a daily, weekly and monthly
basis until such time the units are sold. The Companies also are involved
in the installation of boardrooms, presentation rooms, conference centers,
distance learning and teleconferencing systems. These installation jobs are
normally billed on progress payments.
Basis of Consolidation
The consolidated financial statements include the accounts of Blumberg
Communications Inc. and its wholly-owned subsidiary, Blumberg
Communications of Florida Inc. Material intercompany accounts and
transactions have been eliminated in consolidation.
Concentration of Credit Risk
The Company performs periodic evaluations of its customers' financial
condition and generally does not require collateral. At May 31, 1996 and
1995, accounts receivable from the resort, hotel and convention industries
in the southeastern United States approximated $951,000 and $852,000,
respectively. Other receivables of Blumberg Communications Inc. are from
customers located primarily in the upper Midwest and the Southeast and are
generally not concentrated in a particular industry.
Estimates
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 revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Inventories
Inventories are valued at the lower of cost or market, which includes a
systematic method of valuing rental units to approximate market value. The
specific identification method of valuing inventory is used for the sales
and rental units which have serial numbers. All other inventories are
valued using the first-in, first-out method.
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<PAGE>
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and
equipment is computed on the straight-line method over the useful lives of
the assets.
Goodwill
Goodwill is amortized over a six-year period using the straight-line
method. Amortization for 1996 and 1995 amounted to $12,636 and $2,106,
respectively.
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<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
1. BUSINESS ACTIVITY, SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES
(Continued)
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the basis of inventory,
property and equipment, accrued expenses, deferred compensation and the
allowance for doubtful accounts for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Change in Presentation
Certain 1995 amounts have been reclassified to conform with the 1996
presentation.
2. NOTE RECEIVABLE - RELATED PARTY
Note receivable - related party consists of a mortgage note to a family
member of the Company's majority stockholder. The note is secured by real
property and matures February 1, 1997.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions are used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and cash equivalents:
The carrying amount approximates fair value because of the short
maturity of these instruments.
Notes receivable and long-term debt:
The fair value of notes receivable and long-term debt is estimated
based on borrowing rates currently available to the Company for bank
loans with similar items and average maturities. Based on these rates,
the carrying amount approximates fair value.
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<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
4. INVENTORIES
Inventories used in the calculation of cost of revenue for the years ended
May 31, 1996 and 1995 consist of the following:
1996 1995
---------- ----------
Blumberg Communications Inc.
Equipment sales department $1,387,485 $1,168,617
Equipment rental department 775,210 874,107
---------- ----------
2,162,695 2,042,724
---------- ----------
Blumberg Communications of Florida Inc.
Equipment sales department 516,209 246,321
Equipment rental department 1,688,210 1,528,459
---------- ----------
2,204,419 1,774,780
---------- ----------
$4,367,114 $3,817,504
========== ==========
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<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
5. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
Estimated
1996 1995 Useful Lives
----------- ----------- ------------
<S> <C> <C> <C>
Blumberg Communications Inc.
Office equipment $ 337,463 $ 285,012 5 - 7 years
Computers 534,304 424,071 5 years
Vehicles 525,509 459,826 3 - 5 years
Sales equipment 31,767 29,757 5 - 7 years
Rental equipment 220,082 159,579 5 years
Repair shop equipment 78,019 74,106 5 - 7 years
Installation equipment 90,561 86,686 5 - 7 years
Engineering equipment 38,753 38,753 5 years
Marketing equipment 7,296 3,443 5 years
Creative services equipment 4,316 -- 5 years
Leasehold improvements - office 497,481 419,361 7 - 15 years
Leasehold improvements - rental 9,966 9,966 5 - 10 years
----------- -----------
2,375,517 1,990,560
Less accumulated depreciation (1,414,800) (1,112,341)
----------- -----------
960,717 878,219
----------- -----------
</TABLE>
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<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
5. PROPERTY AND EQUIPMENT (Continued)
Property and equipment consists of: (Continued)
<TABLE>
<CAPTION>
Estimated
1996 1995 Useful Lives
----------- ----------- ------------
<S> <C> <C> <C>
Blumberg Communications of Florida Inc.
Office equipment $ 701,055 $ 595,221 5 years
Computers 624,407 450,843 5 years
Vehicles 1,400,649 1,112,850 5 years
Repair equipment 31,516 27,658 5 years
Leasehold improvements 69,170 26,753 15 years
----------- -----------
2,826,797 2,213,325
Less accumulated depreciation (1,308,166) (934,088)
----------- -----------
1,518,631 1,279,237
----------- -----------
Net depreciated value $ 2,479,348 $ 2,157,456
=========== ===========
</TABLE>
For the years ended May 31, 1996 and 1995, depreciation charged to
operations was as follows:
1996 1995
-------- --------
Blumberg Communications Inc. $312,475 $248,073
Blumberg Communications of Florida Inc. 435,878 243,497
-------- --------
$748,353 $491,570
======== ========
Equipment is pledged as collateral on notes payable as described in Note 6.
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<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
6. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable consist of:
<TABLE>
<CAPTION>
Due Date Rate Amount Security
------------- ------ ---------- ----------
<S> <C> <C> <C> <C>
Blumberg Communications Inc.
----------------------------
Norwest Bank Midland N.A. Demand - credit LIBOR Accounts
line maximum plus receivable,
of $1,500,000 2% $1,250,000 inventories
and
equipment
Blumberg Communications of
Florida Inc.
--------------------------
First Union National Bank Demand - credit LIBOR Accounts
of Florida line maximum plus receivable
of $1,000,000 2% and
651,000 inventories
----------
$1,901,000
==========
</TABLE>
-18-
<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
6. NOTES PAYABLE AND LONG-TERM DEBT (Continued)
The LIBOR rate of interest at May 31, 1996 was 5.4375%.
At May 31, 1995, Blumberg Communications Inc. had borrowed $645,200 on a
line of credit with a maximum of $1,500,000, and Blumberg Communications of
Florida Inc. had borrowed $1,000 on a line of credit with a maximum of
$1,000,000.
Long-term debt consists of:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Blumberg Communications Inc.
----------------------------
8% note payable to Christen Hoy, amended January 1, 1996, due in eight
annual installments of principal and interest of
$21,600 and a final installment of $21,685, to January 2, 2005 $134,933 $ 86,860
Term note to Norwest Bank Minnesota, due in 48 consecutive monthly
installments of $1,378, including interest at the bank's base rate to
April 2000, secured by motor vehicles.
This note is drawn on an available credit line of $250,000 64,768 --
Term note to Norwest Bank Minnesota, due in quarterly installments of
$31,250 with the balance due May 31, 2000. Interest is calculated
using the lower of the Bank's Prime Rate or the LIBOR Rate plus 2% 500,000 625,000
-------- --------
699,701 711,860
-------- --------
</TABLE>
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<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
6. NOTES PAYABLE AND LONG-TERM DEBT (Continued)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Blumberg Communications of Florida Inc.
---------------------------------------
Term note to First Union National Bank of Florida, due in monthly
installments of $16,667 to May 31, 2000. Interest is calculated using
the lower of the Bank's Prime Rate or
the LIBOR Rate plus 2% 800,000 1,000,000
7.67% note payable to IVS Media, Inc., due in annual installments
of $38,013, including interest, to April 1, 2005 240,757 258,912
7.25% - 11.14% notes payable to First Union National Bank of Florida,
due in monthly installments ranging from $304 to $1,000, including
interest, with due dates ranging from December 1997 to February 1999,
secured by automotive equipment 153,233 211,690
Note payable to Dennis Hutchins, due in annual installments
of $33,334 to May 31, 1998 $ 66,667 $ 100,001
6.25% note payable to First Union National Bank of Florida, due in
monthly installments of $898, including interest, to November 1998,
secured by vehicle 24,868 33,777
5.9% notes payable to General Motors
Acceptance Corporation, due in monthly
installments of $416, including interest, with due dates
to December 1996, secured by automotive equipment 8,204 36,866
11.28% note payable to the Associates, due
in monthly installments of $531, including
interest, to December 1996, secured by equipment 3,600 9,300
10% term note to A.F. Brown, Jr. - Video Doctor 2,410 6,765
</TABLE>
-20-
<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
6. NOTES PAYABLE AND LONG-TERM DEBT (Continued)
Long-term debt consists of: (Continued)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Term note to Norwest Bank Minnesota due in 48 consecutive monthly
installments of $1,155, including interest at the bank's base rate to
April 2000, secured by motor vehicles. This note
is drawn on an available credit line of $500,000 55,440 --
9.505% note payable, due in monthly installments of principal and
interest of $806, to June 1999 26,387 --
8.426% note payable, due in monthly installments of principal and
interest of $403, to August 1999 13,414 --
----------- -----------
1,394,980 1,657,311
----------- -----------
Total consolidated long-term debt 2,094,681 2,369,171
Less current maturities (519,498) (493,669)
----------- -----------
$ 1,575,183 $ 1,875,502
=========== ===========
</TABLE>
-21-
<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
6. NOTES PAYABLE AND LONG-TERM DEBT (Continued)
Long-term debt maturities are as follows:
Years Ending May 31,
--------------------
1997 $ 519,498
1998 508,724
1999 434,208
2000 392,866
2001 40,949
Thereafter 198,436
----------
$2,094,681
The banks' prime rate and base rate at May 31, 1996 were 8.25%.
7. RETIREMENT PLANS
The Company has a combined profit-sharing/401K retirement plan which covers
all employees of Blumberg Communications Inc. and its Subsidiary who meet
eligibility requirements as set forth in the plan. The amount of
profit-sharing contribution is at the discretion of the Company's Board of
Directors. The Company made no contributions to the plan for 1996 or 1995.
In 1991, the Company established an Employee Stock Ownership Plan (ESOP)
for the benefit of all eligible employees of the Company. In connection
with the establishment of the ESOP, the Company entered into a term loan
with a bank, the proceeds of which were used as a loan to the related stock
ownership trust for the acquisition of 282 shares (28,200 shares after
stock split) of common stock of the Company from the majority shareholder.
The term loan bears interest at the lower of the Bank's Prime Rate or the
LIBOR Rate plus 2%. The outstanding principal balance as of May 31, 1996
and 1995 is presented in the balance sheets under the following captions:
1996 1995
------- -------
Current maturities of ESOP debt $192,864 $192,864
Long-term ESOP debt 112,456 305,320
------- -------
$305,320 $498,184
======= =======
-22-
<PAGE>
Long-term ESOP debt maturities are as follows:
Years Ending May 31,
--------------------
1997 $192,864
1998 112,456
--------
$305,320
========
Under the terms of the Plan and Trust agreement, the Company may make
discretionary contributions to the Plan. The Company contributed
approximately $225,000 and $249,000 to the Plan in 1996 and 1995,
respectively. Of these amounts, $32,275 and $55,935, respectively,
represents interest on the ESOP indebtedness.
The ESOP shares are pledged as collateral for its debt. As the debt is
repaid, shares are released from collateral and allocated to active
employees.
-23-
<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
7. RETIREMENT PLANS (Continued)
Shares of the Company held by the ESOP at May 31, 1996 and 1995 are as
follows:
1996 1995
--------- ---------
Allocated shares 23,303.85 20,142.63
Unallocated shares 4,028.68 8,057.37
--------- ---------
27,332.53 28,200.00
========= =========
8. DEFERRED COMPENSATION AGREEMENT
The Company entered into an executive deferred compensation agreement with
Donald D. Blumberg which provides for benefits payable commencing January
1, 1997, or the first day of the month following his actual retirement or
termination, if later. The benefits payable total $120,000 per year for a
period of five years, payable monthly. In addition, the agreement provides
for annual retirement income for his life of $50,000 per year, payable
monthly beginning January 1, 1997, or the first day of the month following
his actual retirement or termination, if later. In the event of death, the
deferred compensation benefits payable shall terminate and the retirement
payments shall be paid for a period of twelve months to the surviving
spouse.
The present value of the estimated liability under the agreement using a
discount rate of 8% is accrued ratably for the period to January 1, 1997.
The deferred compensation charged to expense for the years ended May 31,
1996 and 1995 amounted to $446,623 and $260,530, respectively. The expense
is recorded equally by the parent company and subsidiary. The total
liability at May 31, 1996 and 1995 was $707,153 and $260,530, respectively.
-24-
<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
9. INCOME TAXES
The Company and its subsidiary file a consolidated federal income tax
return and separate returns in various states. The federal income taxes are
allocated based upon the respective pre-tax incomes of the parent and
subsidiary.
Deferred tax assets and liabilities consist of the following components as
of May 31, 1996 and 1995:
<TABLE>
<CAPTION>
Blumberg Blumberg
Communications Communications
Inc. of Florida Inc. Total
------------------- ------------------- -----
1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Allowance for
doubtful accounts $ 22,000 $ 17,000 $ 42,000 $ 15,000 $ 64,000 $ 32,000
Accrued vacation 33,000 29,000 22,000 18,000 55,000 47,000
Accrued health
insurance 15,000 26,000 20,000 19,000 35,000 45,000
Inventory 12,000 10,000 3,000 1,000 15,000 11,000
Warranty reserve 20,000 12,000 -- -- 20,000 12,000
Deferred finance
charges 9,000 -- -- -- 9,000 --
Deferred compensation 173,000 53,000 164,000 49,000 337,000 102,000
Goodwill -- -- 3,000 -- 3,000 --
-------- -------- -------- -------- -------- --------
$284,000 $147,000 $254,000 $102,000 $538,000 $249,000
======== ======== ======== ======== ======== ========
Deferred tax liabilities:
Property and
equipment $ 7,200 $ 11,000 $ 95,000 $ 35,000 $102,200 $ 46,000
ESOP interest 1,000 -- 2,000 -- 3,000 --
------- -------- -------- -------- -------- --------
$ 8,200 $ 11,000 $ 97,000 $ 35,000 $105,200 $ 46,000
======== ======== ======== ======== ======== ========
</TABLE>
The components giving rise to the net deferred tax assets described above
have been included in the accompanying balance sheets as of May 31, 1996
and 1995 as follows:
<TABLE>
<CAPTION>
Blumberg Blumberg
Communications Communications
Inc. of Florida Inc. Total
------------------- ------------------- -----
1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Current assets $110,000 $ 94,000 $ 85,000 $ 53,000 $195,000 $147,000
Noncurrent assets 165,800 42,000 72,000 14,000 237,800 56,000
-------- -------- -------- -------- -------- --------
$275,800 $136,000 $157,000 $ 67,000 $432,800 $203,000
======== ======== ======== ======== ======== ========
</TABLE>
-25-
<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
9. INCOME TAXES (Continued)
The provision for income taxes charged to income for the years ended May
31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
Blumberg Blumberg
Communications Communications
Inc. of Florida Inc. Total
-------------------------- -------------------------- -----
1996 1995 1996 1995 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current
expense $ 444,176 $ 635,102 $ 438,825 $ 516,284 $ 883,001 $ 1,151,386
Deferred tax
(benefit) (139,800) (67,000) (90,000) (50,000) (229,800) (117,000)
----------- ----------- ----------- ----------- ----------- -----------
$ 304,376 $ 568,102 $ 348,825 $ 466,284 $ 653,201 $ 1,034,386
=========== =========== =========== =========== =========== ===========
</TABLE>
10. BUSINESS ACQUISITIONS
During fiscal 1995, the Company acquired various assets and liabilities of
other business entities through its subsidiary, Blumberg Communications of
Florida Inc. The acquisitions were accounted for at cost by the purchase
method using estimated fair values for the assets acquired and liabilities
assumed. The acquisitions are described below.
Effective August 11, 1994, Blumberg Communications of Florida Inc. entered
into an asset purchase agreement with Media Magic, Inc., Production
Associates Support Services, Inc. and Dennis S. Hutchins, the sole
shareholder of both companies. Under terms of the agreement, the Company
acquired accounts receivable, inventories and equipment for a purchase
price of $250,000. The purchase price is payable by $150,000 at closing
plus $100,000 over three years by equal annual payments with no interest.
In connection with the acquisition of business assets, the Company entered
into an employment agreement with Hutchins for a four-year period. The
agreement provides for certain guaranteed payments totaling $37,500 a year,
plus a base salary and a commission arrangement. These payments were to be
ratably expensed over the four-year period and as earned by Hutchins for
services rendered. Effective May 31, 1996, the employment of Dennis S.
Hutchins was terminated. Accordingly, the guaranteed payments for the
remainder of the four-year period in the amount of $81,250 have been
expensed in the current year.
Effective March 31, 1995, Blumberg Communications of Florida Inc. entered
into an asset purchase agreement with IVS Media, Inc. (IVS), a South
Carolina corporation, and the three principal shareholders of IVS. Under
terms of the agreement, the Company acquired substantially all of the
assets and assumed certain liabilities of IVS for a net purchase price of
$771,350 as follows:
Cash $ 1
Accounts receivable - net 502,218
Sales and rental inventories 540,479
Other current assets 30,768
Other assets 10,800
Land 29,000
Depreciable equipment 455,135
Goodwill 75,816
-----------
1,644,217
Liabilities assumed - notes payable (872,867)
-----------
Net assets acquired $ 771,350
===========
-26-
<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996 AND 1995
10. BUSINESS ACQUISITIONS (Continued)
The purchase price was paid by $512,438 in cash and a note payable for
$258,912 with interest at 7.67% payable in ten annual installments of
$38,013, beginning April 1, 1996.
In connection with the asset purchase agreement, the Company entered into
certain employment agreements with two key employees of IVS for a period of
approximately six years. In addition to a base salary, the agreements
provide for an achievement incentive program for fiscal periods 1996
through 2001.
In addition, the Company entered into a consulting agreement with IVS
Video, Inc., a related company to IVS Media, Inc., for a period of ten
years at $10,230 a month. The agreement covers consulting regarding video
services, including technical support and equipment maintenance and
repairs. Also, lease agreements were entered into effective April 1, 1995
for space rental at various locations used by IVS. Certain of these lease
agreements are with the individual shareholders of IVS or their related
companies.
11. LEASE COMMITMENTS
Blumberg Communications Inc.'s main warehouse and office facilities are
occupied under a month-to-month lease with the principal stockholder. The
Company is also liable for real estate taxes on the building which are
approximately $21,000 per year. The Company also leases branch facilities
from unrelated lessors under long-term lease agreements. These leases are
operating leases which expire in various years through 2005. Generally, the
Company is required to pay executory costs such as property taxes,
maintenance and insurance.
Blumberg Communications of Florida Inc. leases various facilities from
unrelated lessors as operating leases which expire in various years through
2005. Generally, the Company is required to pay executory costs such as
property taxes, maintenance, and insurance.
Minimum lease payments for operating leases (excluding the month-to-month
lease) in future years are as follows:
<TABLE>
<CAPTION>
Blumberg Blumberg
Communications Communications
Years Ending May 31, Inc. of Florida Inc. Total
-------------------- -------------- --------------- ------
<S> <C> <C> <C>
1997 $127,064 $ 535,407 $ 662,471
1998 115,556 400,189 515,745
1999 113,381 288,389 401,770
2000 19,090 225,968 245,058
2001 19,662 168,600 188,262
Thereafter 11,668 381,800 393,468
-------- ---------- ----------
Total minimum lease payments $406,421 $2,000,353 $2,406,774
======== ========== ==========
</TABLE>
Rent expense for 1996 and 1995 was $850,636 and $535,329, respectively.
-27-
<PAGE>
BLUMBERG COMMUNICATIONS INC. AND SUBSIDIARY
SUPPLEMENTARY INFORMATION
-28-
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION
The Stockholders and Board of Directors
Blumberg Communications Inc. and Subsidiary
Minneapolis, Minnesota
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplementary
information is presented for purposes of additional analysis and is not a
required part of the basic consolidated financial statements. Such information
has been subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic consolidated financial statements
taken as a whole.
Minneapolis, Minnesota
August 9, 1996
-29-
<PAGE>
BLUMBERG COMMUNICATIONS INC.
SUPPLEMENTARY INFORMATION
-30-
<PAGE>
BLUMBERG COMMUNICATIONS INC.
BALANCE SHEETS
MAY 31, 1996 AND 1995
ASSETS 1996 1995
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 6,109 $ 30,412
Receivables
Trade, less allowance for doubtful accounts
of $54,000 in 1996 and $41,000 in 1995 3,805,077 2,953,462
Subsidiary 233,595 99,756
Note - subsidiary 125,000 125,000
Employees 6,956 23,501
Inventories 2,162,695 2,042,724
Deferred income tax benefit 110,000 94,000
Prepaid expenses 84,121 126,313
------------ ------------
Total current assets 6,533,553 5,495,168
------------ ------------
INVESTMENTS AND OTHER ASSETS
Investment in subsidiary - at equity 3,569,929 2,982,606
Note receivable - subsidiary 375,000 500,000
Note receivable - related party 98,000 98,000
Cash value of life insurance 50,579 46,181
Deposits 15,140 15,140
Deferred income tax benefit 165,800 42,000
------------ ------------
4,274,448 3,683,927
------------ ------------
PROPERTY AND EQUIPMENT
Depreciable property and equipment 2,375,517 1,990,560
Less accumulated depreciation (1,414,800) (1,112,341)
------------ ------------
960,717 878,219
------------ ------------
$ 11,768,718 $ 10,057,314
============ ============
-31-
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------ ------------
CURRENT LIABILITIES
Notes payable - bank $ 1,250,000 $ 645,200
Current maturities of long-term debt 152,312 133,686
Current maturities of ESOP debt 192,864 192,864
Accounts payable 1,097,847 887,778
Accrued expenses
Compensation 340,775 291,395
Taxes, other than income taxes 54,624 49,270
Warranty 47,855 30,195
ESOP contribution 73,687 73,687
Interest and other 51,233 73,468
Customer deposits 17,637 --
Income taxes 369,937 339,083
------------ ------------
Total current liabilities 3,648,771 2,716,626
------------ ------------
LONG-TERM DEBT 547,389 578,174
------------ ------------
LONG-TERM ESOP DEBT 112,456 305,320
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share
Authorized, 2,500,000 shares
Issued, 91,133 shares in 1996 and 92,000
shares in 1995 911 920
Retained earnings 7,764,511 6,954,458
------------ ------------
7,765,422 6,955,378
Less employee stock ownership plan indebtedness (305,320) (498,184)
------------ ------------
7,460,102 6,457,194
------------ ------------
$ 11,768,718 $ 10,057,314
============ ============
-32-
<PAGE>
BLUMBERG COMMUNICATIONS INC.
STATEMENTS OF OPERATIONS
YEARS ENDED MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
Percentage
of Revenue
Increase ----------
1996 1995 (Decrease) 1996 1995
------------ ------------ ------------ ------ ------
<S> <C> <C> <C> <C> <C>
REVENUE
Equipment sales $ 9,577,914 $ 9,418,609 $ 159,305 48.10% 46.41%
Equipment rental 5,204,887 4,215,189 989,698 26.14 20.77
Repair service 483,441 415,885 67,556 2.43 2.05
Creative services 104,942 -- 104,942 .53 --
Installation 4,538,421 6,245,513 (1,707,092) 22.80 30.77
------------ ------------ ------------ ------ ------
19,909,605 20,295,196 (385,591) 100.00 100.00
COST OF REVENUE 11,865,492 12,510,124 (644,632) 59.60 61.64
------------ ------------ ------------ ------ ------
TOTAL NET REVENUE 8,044,113 7,785,072 259,041 40.40 38.36
------------ ------------ ------------ ------ ------
OPERATING EXPENSES
Departmental expenses
Equipment sales 965,203 780,923 184,280 4.85 3.85
Equipment rental 2,695,075 2,116,598 578,477 13.54 10.43
Repair service 255,096 260,785 (5,689) 1.28 1.28
Creative services 69,803 -- 69,803 .35
Installation 1,528,013 1,466,587 61,426 7.67 7.23
General and
administrative 1,841,791 1,678,704 163,087 9.25 8.27
------------ ------------ ------------ ------ ------
7,354,981 6,303,597 1,051,384 36.94 31.06
------------ ------------ ------------ ------ ------
INCOME FROM OPERATIONS 689,132 1,481,475 (792,343) 3.46 7.30
------------ ------------ ------------ ------ ------
OTHER INCOME (EXPENSE)
Interest income 64,137 21,378 42,759 .32 .11
Interest expense (104,159) (98,412) (5,747) (.52) (.49)
Other 61,913 (3,846) 65,759 .31 (.02)
------------ ------------ ------------ ------ ------
21,891 (80,880) 102,771 .11 (.40)
------------ ------------ ------------ ------ ------
INCOME BEFORE INCOME TAXES
AND NET INCOME OF
SUBSIDIARY 711,023 1,400,595 (689,572) 3.57 6.90
INCOME TAXES (304,376) (568,102) 263,726 (1.53) 2.80
------------ ------------ ------------ ------ ------
INCOME BEFORE NET INCOME
OF SUBSIDIARY 406,647 832,493 (425,846) 2.04 4.10
NET INCOME OF SUBSIDIARY 587,323 744,788 (157,465) 2.95 3.67
------------ ------------ ------------ ------ ------
NET INCOME $ 993,970 $ 1,577,281 $ (583,311) 4.99% 7.77%
============ ============ ============ ====== ======
</TABLE>
-33-
<PAGE>
BLUMBERG COMMUNICATIONS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock Employee Stock
-------------------------- Retained Ownership Plan
Shares Amount Earnings Indebtedness Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, MAY 31, 1994 94,000 $ 940 $ 5,464,017 $ (691,048) $ 4,773,909
Reduction of employee
stock ownership plan
indebtedness -- -- -- 192,864 192,864
Common stock redeemed (2,000) (20) (86,840) -- (86,860)
Net income -- -- 1,577,281 -- 1,577,281
----------- ----------- ----------- ----------- -----------
BALANCE, MAY 31, 1995 92,000 920 6,954,458 (498,184) 6,457,194
Reduction of employee
stock ownership plan
indebtedness -- -- -- 192,864 192,864
Common stock redeemed 867 (9) (183,917) -- (183,926)
Net income -- -- 993,970 -- 993,970
----------- ----------- ----------- ----------- -----------
BALANCE, MAY 31, 1996 91,133 $ 911 $ 7,764,511 $ (305,320) $ 7,460,102
=========== =========== =========== =========== ===========
</TABLE>
-34-
<PAGE>
BLUMBERG COMMUNICATIONS INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 993,970 $ 1,577,281
Charges and credits to net income not affecting cash
Depreciation 312,475 248,073
Loss (gain) on sale of property and equipment (7,538) 1,382
Net income of subsidiary (587,323) (744,788)
Deferred income taxes (139,800) (67,000)
Changes in assets and liabilities
Receivables (968,909) (752,968)
Inventories (119,971) (429,760)
Prepaid expenses 42,192 (98,653)
Deposits 17,637 1,200
Accounts payable 210,069 79,946
Accrued expenses 50,159 116,165
Income taxes 30,854 182,165
----------- -----------
NET CASH FROM (USED FOR) OPERATING ACTIVITIES (166,185) 113,043
----------- -----------
INVESTING ACTIVITIES
Capital expenditures (403,935) (518,543)
Proceeds from sale of property and equipment 16,500 6,553
Increase in cash value of life insurance (4,398) (2,810)
Payments on note receivable 125,000 10,000
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES (266,833) (504,800)
----------- -----------
FINANCING ACTIVITIES
Principal payments under loan obligations (126,378) --
Proceeds from issuance of long-term debt 66,146 625,000
Net borrowings (payments) on line of credit 604,800 (265,800)
Treasury stock acquired (135,853) --
----------- -----------
NET CASH FROM FINANCING ACTIVITIES 408,715 359,200
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (24,303) (32,557)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 30,412 62,969
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,109 $ 30,412
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year
Interest $ 100,029 $ 95,506
Income taxes 413,322 554,187
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Common stock redeemed by issuance of note payable $ 48,073 $ 86,860
=========== ===========
</TABLE>
-35-
<PAGE>
BLUMBERG COMMUNICATIONS INC.
SCHEDULES OF COST OF REVENUE
YEARS ENDED MAY 31, 1996 AND 1995
Increase
1996 1995 (Decrease)
------------ ------------ ------------
INVENTORY - BEGINNING OF YEAR $ 2,042,724 $ 1,612,964 $ 429,760
PURCHASES 12,057,330 13,033,542 (976,212)
FREIGHT - NET 109,901 135,406 (25,505)
------------ ------------ ------------
14,209,955 14,781,912 (571,957)
------------ ------------ ------------
LESS
Discounts received 181,768 229,064 (47,296)
Inventory - end of year 2,162,695 2,042,724 119,971
------------ ------------ ------------
2,344,463 2,271,788 72,675
------------ ------------ ------------
COST OF REVENUE $ 11,865,492 $ 12,510,124 $ (644,632)
============ ============ ============
-36-
<PAGE>
BLUMBERG COMMUNICATIONS INC.
SCHEDULES OF DEPARTMENTAL EXPENSES
YEARS ENDED MAY 31, 1996 AND 1995
Increase
1996 1995 (Decrease)
----------- ----------- -----------
EQUIPMENT SALES EXPENSES
Salaries, commissions and bonuses $ 581,973 $ 484,530 $ 97,443
Payroll taxes and benefits 64,626 44,264 20,362
Employee stock ownership plan 6,692 8,222 (1,530)
Equipment repair and maintenance 11,838 19,274 (7,436)
Travel and entertainment 26,186 17,284 8,902
Depreciation 13,742 8,386 5,356
Automobile expenses 39,800 32,250 7,550
Marketing 98,186 60,688 37,498
Rent 37,008 36,174 834
Utilities 6,260 4,947 1,313
Communications 30,488 23,532 6,956
Outside services 10,449 15,808 (5,359)
Office supplies and postage 24,485 9,506 14,979
Other equipment sales expenses 13,470 16,058 (2,588)
----------- ----------- -----------
$ 965,203 $ 780,923 $ 184,280
=========== =========== ===========
EQUIPMENT RENTAL EXPENSES
Salaries, commissions and bonuses $ 1,575,140 $ 1,318,370 $ 256,770
Payroll taxes and benefits 189,103 142,806 46,297
Employee stock ownership plan 28,500 35,016 (6,516)
Repair and maintenance
Equipment 53,676 54,857 (1,181)
Building 18,301 9,840 8,461
Travel and entertainment 29,370 23,342 6,028
Depreciation 151,665 120,992 30,673
Automobile expense 120,323 100,682 19,641
Marketing 104,564 47,246 57,318
Rent 131,825 111,743 20,082
Utilities 13,566 11,463 2,103
Communications 65,732 47,818 17,914
Shop supplies 24,585 8,983 15,602
Outside services 4,411 5,176 (765)
Office supplies and postage 120,376 41,963 78,413
Other equipment rental expenses 63,938 36,301 27,637
----------- ----------- -----------
$ 2,695,075 $ 2,116,598 $ 578,477
=========== =========== ===========
-37-
<PAGE>
BLUMBERG COMMUNICATIONS INC.
SCHEDULES OF DEPARTMENTAL EXPENSES
YEARS ENDED MAY 31, 1996 AND 1995
Increase
1996 1995 (Decrease)
--------- --------- ---------
REPAIR SERVICE EXPENSES
Salaries, commissions and bonuses $ 163,910 $ 159,077 $ 4,833
Payroll taxes and benefits 16,513 12,299 4,214
Employee stock ownership plan 6,879 8,452 (1,573)
Equipment repair and maintenance -- 1,723 (1,723)
Travel and entertainment (765) 2,537 (3,302)
Depreciation 13,025 11,624 1,401
Automobile expenses 7,127 5,932 1,195
Marketing 7,230 8,063 (833)
Rent 12,285 12,657 (372)
Utilities 2,319 1,832 487
Communications 6,977 4,400 2,577
Shop supplies 14,040 27,397 (13,357)
Outside services (865) -- (865)
Office supplies and postage 1,160 1,052 108
Other repair service expenses 5,261 3,740 1,521
--------- --------- ---------
$ 255,096 $ 260,785 $ (5,689)
========= ========= =========
CREATIVE SERVICES EXPENSES
Salaries, commissions and bonuses $ 48,525 $ 48,525
Payroll taxes and benefits 5,040 5,040
Travel and entertainment 2,982 2,982
Depreciation 1,286 1,286
Automobile expense 1,369 1,369
Marketing 2,857 2,857
Rent 70 70
Communications 328 328
Shop supplies 164 164
Outside services 5,340 5,340
Office supplies and postage 1,236 1,236
Other creative services expenses 606 606
--------- --------- ---------
$ 69,803 $ -- $ 69,803
========= ========= =========
-38-
<PAGE>
BLUMBERG COMMUNICATIONS INC.
SCHEDULES OF DEPARTMENTAL EXPENSES
YEARS ENDED MAY 31, 1996 AND 1995
Increase
1996 1995 (Decrease)
---------- ---------- ----------
INSTALLATION EXPENSES
Salaries, commissions and bonuses $ 971,518 $1,009,942 $ (38,424)
Payroll taxes and benefits 118,437 94,430 24,007
Employee stock ownership plan 35,586 43,724 (8,138)
Travel and entertainment 55,059 48,418 6,641
Depreciation 55,173 38,699 16,474
Automobile expenses 45,580 38,690 6,890
Marketing 44,522 19,197 25,325
Rent 47,270 48,097 (827)
Utilities 8,811 6,963 1,848
Communications 44,597 44,075 522
Outside services 39,020 43,734 (4,714)
Shop supplies 2,410 6,254 (3,844)
Office supplies and postage 38,132 18,203 19,929
Other installation expenses 21,898 6,161 15,737
---------- ---------- ----------
$1,528,013 $1,466,587 $ 61,426
========== ========== ==========
-39-
<PAGE>
BLUMBERG COMMUNICATIONS INC.
SCHEDULES OF GENERAL AND ADMINISTRATIVE EXPENSES
YEARS ENDED MAY 31, 1996 AND 1995
Increase
1996 1995 (Decrease)
----------- ----------- -----------
Salaries, commissions and bonuses $ 612,316 $ 587,923 $ 24,393
Deferred compensation 83,651 -- 83,651
Payroll taxes and benefits 89,418 85,842 3,576
Employee stock ownership plan 24,085 29,592 (5,507)
Administrative 313,311 220,265 93,046
Office supplies and postage 87,001 105,062 (18,061)
Maintenance
Equipment 38,757 43,326 (4,569)
Building 52,192 165,562 (113,370)
Insurance 40,009 43,706 (3,697)
Depreciation 71,240 64,689 6,551
Automobile expenses 13,408 12,558 850
Rent 30,816 31,643 (827)
Communications 56,047 27,623 28,424
Utilities 6,143 5,347 796
Outside services 20,680 23,174 (2,494)
Contributions 3,875 3,630 245
Marketing 62,655 44,979 17,676
Professional fees 128,833 81,428 47,405
Travel and entertainment 34,336 30,036 4,300
Officer's life insurance (4,398) (2,810) (1,588)
Bad debts 12,781 16,683 (3,902)
Miscellaneous 64,635 58,446 6,189
----------- ----------- -----------
$ 1,841,791 $ 1,678,704 $ 163,087
=========== =========== ===========
SCHEDULES OF OTHER INCOME AND EXPENSE
YEARS ENDED MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
Increase
1996 1995 (Decrease)
-------- -------- --------
<S> <C> <C> <C>
OTHER INCOME
Gain (loss) on sale of property and equipment $ 7,538 $ (1,382) $ 8,920
Miscellaneous 58,150 (32) 58,182
-------- -------- --------
65,688 (1,414) 67,102
OTHER EXPENSE
Miscellaneous 3,775 2,432 1,343
-------- -------- --------
OTHER INCOME (EXPENSE) - NET $ 61,913 $ (3,846) $ 65,759
======== ======== ========
</TABLE>
-40-
<PAGE>
BLUMBERG COMMUNICATIONS OF FLORIDA INC.
SUPPLEMENTARY INFORMATION
-41-
<PAGE>
BLUMBERG COMMUNICATIONS OF FLORIDA INC.
BALANCE SHEETS
MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 463,117 $ 59,437
Receivables
Trade - less allowance for doubtful accounts of
$111,000 in 1996 and $100,000 in 1995 3,695,832 3,198,469
Employees 5,478 35,933
Other 2,073 22,559
Inventories 2,204,419 1,774,780
Prepaid expenses 141,691 74,962
Deferred tax benefit 85,000 53,000
----------- -----------
Total current assets 6,597,610 5,219,140
----------- -----------
OTHER ASSETS
Goodwill 61,074 73,710
Land 29,000 29,000
Deposits 63,731 58,333
Deferred tax benefit 72,000 14,000
----------- -----------
225,805 175,043
----------- -----------
PROPERTY AND EQUIPMENT
Depreciable property and equipment 2,826,797 2,213,325
Less accumulated depreciation (1,308,166) (934,088)
----------- -----------
1,518,631 1,279,237
----------- -----------
$ 8,342,046 $ 6,673,420
=========== ===========
</TABLE>
-42-
<PAGE>
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1995
---------- ----------
CURRENT LIABILITIES
Note payable - bank $ 651,000 $ 1,000
Current maturities of long-term debt 492,186 484,983
Accounts payable 755,464 564,586
Payable to parent company 233,595 99,589
Accrued expenses
Compensation 396,031 280,622
Taxes, other than income taxes 29,186 29,902
ESOP contribution 38,813 38,813
Interest and other 56,643 55,986
Income taxes 9,252 22,000
Deferred revenue -- 55,475
---------- ----------
Total current liabilities 2,662,170 1,632,956
---------- ----------
LONG-TERM DEBT
Long-term debt 1,027,794 1,297,328
Payable to parent company 375,000 500,000
---------- ----------
1,402,794 1,797,328
---------- ----------
DEFERRED COMPENSATION 707,153 260,530
---------- ----------
STOCKHOLDER'S EQUITY
Common stock, par value $1 per share
Authorized, 1,000 shares
Issued, 1,000 shares 1,000 1,000
Additional paid-in capital 28,901 28,901
Retained earnings 3,540,028 2,952,705
---------- ----------
3,569,929 2,982,606
---------- ----------
$8,342,046 $6,673,420
========== ==========
-43-
<PAGE>
BLUMBERG COMMUNICATIONS OF FLORIDA INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
YEARS ENDED MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
Percentage
of Revenue
Increase -----------------
1996 1995 (Decrease) 1996 1995
------------ ------------ ------------ ------ ------
<S> <C> <C> <C> <C> <C>
REVENUE
Equipment sales $ 3,564,573 $ 2,922,408 $ 642,165 15.91% 21.07
Equipment rental 16,523,942 9,666,747 6,857,195 73.77 69.70
Installation and repair 1,768,248 972,617 795,631 7.89 7.01
Creative services 543,622 307,248 236,374 2.43 2.22
------------ ------------ ------------ ------ ------
22,400,385 13,869,020 8,531,365 100.00 100.00
COST OF REVENUE 7,908,505 4,969,930 2,938,575 35.30 35.84
------------ ------------ ------------ ------ ------
TOTAL NET REVENUE 14,491,880 8,899,090 5,592,790 64.70 64.16
------------ ------------ ------------ ------ ------
OPERATING EXPENSES
Departmental expenses
Equipment sales 602,292 388,386 213,906 2.69 2.80
Equipment rental 9,143,314 5,173,732 3,969,582 40.82 37.30
Installation and repair 792,921 467,902 325,019 3.54 3.37
Creative services 329,190 169,007 160,183 1.47 1.22
General and administrative 2,585,866 1,543,068 1,042,798 11.54 11.13
------------ ------------ ------------ ------ ------
13,453,583 7,742,095 5,711,488 60.06 55.82
------------ ------------ ------------ ------ ------
INCOME FROM OPERATIONS 1,038,297 1,156,995 (118,698) 4.64 8.34
------------ ------------ ------------ ------ ------
OTHER INCOME (EXPENSE)
Interest (213,304) (74,586) (138,718) (.95) (.54)
Other income 111,155 128,663 (17,508) .49 .93
------------ ------------ ------------ ------ ------
(102,149) 54,077 (156,226) (.46) .39
------------ ------------ ------------ ------ ------
INCOME BEFORE INCOME TAXES 936,148 1,211,072 (274,924) 4.18 8.73
INCOME TAXES (348,825) (466,284) (117,459) 1.56 (3.36)
------------ ------------ ------------ ------ ------
NET INCOME 587,323 744,788 $ (157,465) 2.62% 5.37
============ ====== ======
RETAINED EARNINGS - BEGINNING
OF YEAR 2,952,705 2,207,917
------------ ------------
RETAINED EARNINGS - END OF
YEAR $ 3,540,028 $ 2,952,705
============ ============
</TABLE>
-44-
<PAGE>
BLUMBERG COMMUNICATIONS OF FLORIDA INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 587,323 $ 744,788
Charges and credits to net income not affecting cash
Depreciation and amortization 448,514 245,603
Loss on sale of equipment 1,886 7,210
Deferred income taxes (90,000) (50,000)
Deferred compensation 446,623 260,530
Changes in assets and liabilities, net of effects
from purchase of IVS Media, Inc.
Receivables (446,422) (1,101,062)
Inventories (429,639) (450,878)
Prepaid expenses (66,729) (60,035)
Deposits (5,398) (22,107)
Accounts payable 190,878 413,471
Due to parent company 134,006 (160,846)
Accrued expenses 115,350 219,055
Income taxes (12,748) 3,000
Deferred revenue (55,475) 32,654
----------- -----------
NET CASH FROM OPERATING ACTIVITIES 818,169 81,383
----------- -----------
INVESTING ACTIVITIES
Capital expenditures (684,368) (582,400)
Proceeds from sale of equipment 7,210 6,700
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES (677,158) (575,700)
----------- -----------
FINANCING ACTIVITIES
Principal payments under loan obligations (791,274) (247,944)
Proceeds from issuance of long-term debt 1,053,943 750,526
----------- -----------
NET CASH FROM FINANCING ACTIVITIES 262,669 502,582
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 403,680 8,265
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 59,437 51,172
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 463,117 $ 59,437
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year
Interest $ 213,638 $ 110,183
Income taxes 451,573 412,034
=========== ===========
</TABLE>
-45-
<PAGE>
BLUMBERG COMMUNICATIONS OF FLORIDA INC.
SCHEDULES OF COST OF REVENUE
YEARS ENDED MAY 31, 1996 AND 1995
Increase
1996 1995 (Decrease)
----------- ----------- -----------
INVENTORY - BEGINNING OF YEAR $ 1,774,780 $ 783,423 $ 991,357
PURCHASES 8,214,865 5,915,484 2,299,381
FREIGHT IN - NET 177,099 86,308 90,791
----------- ----------- -----------
10,166,744 6,785,215 3,381,529
----------- ----------- -----------
LESS
Discounts received 53,820 40,505 13,315
Inventory - end of year 2,204,419 1,774,780 429,639
----------- ----------- -----------
2,258,239 1,815,285 442,954
----------- ----------- -----------
COST OF REVENUE $ 7,908,505 $ 4,969,930 $ 2,938,575
=========== =========== ===========
-46-
<PAGE>
BLUMBERG COMMUNICATIONS OF FLORIDA INC.
SCHEDULES OF DEPARTMENTAL EXPENSES
YEARS ENDED MAY 31, 1996 AND 1995
Increase
1996 1995 (Decrease)
----------- ----------- -----------
EQUIPMENT SALES EXPENSES
Salaries, commissions and bonuses $ 340,948 $ 269,939 $ 71,009
Payroll taxes and benefits ...... 47,975 26,121 21,854
Employee stock ownership plan ... 4,460 4,215 245
Repair and maintenance
Equipment .................... 11,112 12,224 (1,112)
Building ..................... 4,578 2,548 2,030
Travel and entertainment ........ 31,295 4,306 26,989
Depreciation .................... 8,494 1,676 6,818
Automobile expenses ............. 22,282 8,195 14,087
Marketing ....................... 19,522 15,227 4,295
Rent ............................ 47,047 20,202 26,845
Utilities ....................... 7,848 3,710 4,138
Communications .................. 23,138 10,046 13,092
Outside services ................ 1,696 453 1,243
Office supplies and postage ..... 8,335 5,737 2,598
Shop supplies ................... 800 -- 800
Other equipment sales expenses .. 22,762 3,787 18,975
----------- ----------- -----------
$ 602,292 $ 388,386 $ 213,906
=========== =========== ===========
EQUIPMENT RENTAL EXPENSES
Salaries, commissions and bonuses $ 5,910,503 $ 3,336,930 $ 2,573,573
Payroll taxes and benefits ...... 812,185 498,259 313,926
Employee stock ownership plan ... 90,432 91,815 (1,383)
Repair and maintenance
Equipment .................... 215,136 142,524 72,612
Building ..................... 44,180 22,392 21,788
Travel and entertainment ........ 124,334 28,481 95,853
Depreciation .................... 304,011 173,583 130,428
Automobile expenses ............. 381,488 235,120 146,368
Marketing ....................... 151,470 80,584 70,886
Rent ............................ 406,143 237,558 168,585
Utilities ....................... 67,844 27,976 39,868
Communications .................. 293,142 151,420 141,722
Shop supplies ................... 12,537 5,799 6,738
Outside services ................ 5,176 367 4,809
Legal and accounting ............ 20,031 6,837 13,194
Office supplies and postage ..... 203,235 90,484 112,751
Conventions / trade shows ....... 376 -- 376
Other equipment rental expenses . 101,091 43,603 57,488
----------- ----------- -----------
$ 9,143,314 $ 5,173,732 $ 3,969,582
=========== =========== ===========
-47-
<PAGE>
BLUMBERG COMMUNICATIONS OF FLORIDA INC.
SCHEDULES OF DEPARTMENTAL EXPENSES
YEARS ENDED MAY 31, 1996 AND 1995
Increase
1996 1995 (Decrease)
--------- --------- ---------
INSTALLATION AND REPAIR EXPENSES
Salaries, commissions and bonuses $ 557,163 $ 309,219 $ 247,944
Payroll taxes and benefits ...... 81,809 42,338 39,471
Employee stock ownership plan ... 8,714 8,591 123
Repair and maintenance
Equipment .................... 11,002 3,452 7,550
Building ..................... 6,103 2,569 3,534
Travel and entertainment ........ 17,756 25,678 (7,922)
Depreciation .................... 18,615 10,818 7,797
Automobile expenses ............. 22,149 24,933 (2,784)
Marketing ....................... 5,000 3,911 1,089
Rent ............................ 27,679 7,265 20,414
Utilities ....................... 5,816 1,349 4,467
Communications .................. 9,148 7,179 1,969
Shop supplies ................... 9,840 4,652 5,188
Outside services ................ 2,381 -- 2,381
Office supplies and postage ..... 6,465 12,449 (5,984)
Other repair service expenses ... 3,281 3,499 (218)
--------- --------- ---------
$ 792,921 $ 467,902 $ 325,019
========= ========= =========
CREATIVE SERVICES EXPENSES
Salaries, commissions and bonuses $ 229,590 $ 119,248 $ 110,342
Payroll taxes and benefits ...... 35,462 23,583 11,879
Employee stock ownership plan ... 4,332 3,610 722
Repair and maintenance
Equipment..................... 884 -- 884
Travel and entertainment ........ 10,315 4,521 5,794
Depreciation .................... 14,916 3,738 11,178
Automobile expenses ............. 11,190 7,073 4,117
Marketing ....................... -- 95 (95)
Rent ............................ 10,637 -- 10,637
Communications .................. 6,118 1,934 4,184
Office supplies and postage ..... 5,455 5,020 435
Other creative services expenses 291 185 106
--------- --------- ---------
$ 329,190 $ 169,007 $ 160,183
========= ========= =========
-48-
<PAGE>
BLUMBERG COMMUNICATIONS OF FLORIDA INC.
SCHEDULES OF GENERAL AND ADMINISTRATIVE EXPENSES
YEARS ENDED MAY 31, 1996 AND 1995
Increase
1996 1995 (Decrease)
----------- ----------- -----------
Salaries, commissions and bonuses $ 1,072,920 $ 788,362 $ 284,558
Deferred compensation expense ... 223,311 130,265 93,046
Payroll taxes and benefits ...... 93,618 78,983 14,635
Employee stock ownership plan ... 13,730 13,436 294
Repair and maintenance
Equipment .................... 23,936 11,649 12,287
Building ..................... 6,265 4,132 2,133
Insurance ....................... 135,021 31,416 103,605
Travel and entertainment ........ 40,299 26,568 13,731
Depreciation and amortization ... 103,552 55,788 47,764
Automobile expense .............. 17,002 10,094 6,908
Marketing ....................... 227,165 55,215 171,950
Rent ............................ 99,858 29,990 69,868
Utilities ....................... 7,015 4,973 2,042
Communications .................. 46,065 24,505 21,560
Outside services ................ 134,234 3,185 131,049
Legal and accounting ............ 71,130 66,973 4,157
Bad debts ....................... 94,463 68,006 26,457
Office supplies and postage ..... 105,389 57,109 48,280
Convention / trade shows ........ (126) -- (126)
Miscellaneous ................... 71,019 82,419 (11,400)
----------- ----------- -----------
$ 2,585,866 $ 1,543,068 $ 1,042,798
=========== =========== ===========
SCHEDULES OF OTHER INCOME AND EXPENSE
YEARS ENDED MAY 31, 1996 AND 1995
Increase
1996 1995 (Decrease)
-------- -------- --------
OTHER INCOME
Administrative fees ............ $ 90,000 $ 90,000 $ --
Miscellaneous .................. 83,042 70,557 12,485
-------- -------- --------
173,042 160,557 12,485
-------- -------- --------
OTHER EXPENSE
Miscellaneous taxes ............ 60,001 24,684 35,317
Loss on disposal of fixed assets 1,886 7,210 (5,324)
-------- -------- --------
61,887 31,894 29,993
-------- -------- --------
OTHER INCOME - NET ................ $111,155 $128,663 $(17,508)
======== ======== ========
-49-
<PAGE>
BLUMBERG COMMUNICATIONS INC.
AND SUBSIDIARY
BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
November 30,
1996
------------
<S> <C>
ASSETS
- ------
Current assets:
Cash .......................................... $ 222,740
Trade accounts receivable, net ................ 7,685,938
Inventory ..................................... 4,897,790
Prepaid expenses and other current assets ..... 982,351
------------
Total Current Assets ................ 13,788,819
Property and equipment, net ................... 2,481,374
Other assets .................................. 109,124
------------
TOTAL ASSETS ........................ $ 16,379,317
============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current portion of long-term debt ............. $ 712,362
Trade accounts payable ........................ 1,693,415
Accrued expenses and other current liabilities 2,136,474
Notes Payable ................................. 2,280,894
------------
Total Current Liabilities ........... 6,823,145
Long-term debt ................................ 1,492,690
------------
TOTAL LIABILITIES ................... 8,315,835
Stockholders' equity:
Common stock .................................. 902
Retained earnings ............................. 8,271,468
Less employee stock ownership plan indebtedness (208,888)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .... $ 16,379,317
============
</TABLE>
See accompanying note to the unaudited financial statements.
-50-
<PAGE>
BLUMBERG COMMUNICATIONS INC.
AND SUBSIDIARY
STATEMENTS OF OPERATIONS
for the Six Months Ended
(unaudited)
<TABLE>
<CAPTION>
November 30,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Revenue ......................................... $21,611,291 $26,267,538
Cost of revenue ................................. 13,565,528 16,638,781
----------- -----------
Gross profit .................................... 8,045,763 9,628,757
Operating expenses:
Selling, general and administrative expenses 6,956,901 7,954,513
Depreciation and amortization expense ...... 332,257 431,006
----------- -----------
Total operating expenses ........................ 7,289,158 8,385,519
----------- -----------
Operating income ................................ 756,605 1,243,238
Other expense, net .............................. 84,733 201,417
----------- -----------
Income before taxes ............................. 671,872 1,041,821
Income tax expense .............................. 266,061 416,728
----------- -----------
Net income ................................. $ 405,811 $ 625,093
=========== ===========
</TABLE>
See accompanying note to the unaudited financial statements.
-51-
<PAGE>
BLUMBERG COMMUNICATIONS INC.
AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
for the Six Months Ended
(unaudited)
<TABLE>
<CAPTION>
November 30,
===========--------=======
1995 1996
=========== ===========
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 405,811 $ 625,093
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization expense ......................... 332,257 431,006
Change in assets and liabilities:
(Increase) in accounts receivable ............................... (249,168) (218,149)
(Increase) in inventory ......................................... (592,561) (530,676)
(Increase) in prepaid expenses and other assets ................. (109,106) (323,739)
(Increase) in accounts payable .................................. 10,702 64,875
Decrease (increase) in accrued expenses and other liabilities ... 28,279 (56,625)
----------- -----------
Net cash used in operating activities ........................... (173,786) (8,215)
Cash flow used in provided by investing activities:
Purchase of property and equipment .............................. (575,194) (401,503)
Cash Flow (used in) provided by financing activities:
Proceeds from bank debt ......................................... 1,107,668 379,894
Principal payments under loan obligations ....................... (145,849) (98,517)
Treasury stock acquired ......................................... (87) (118,145)
----------- -----------
Net cash provided by financing activities ....................... 961,732 163,232
----------- -----------
Net increase (decrease) in cash ...................................... 212,752 (246,486)
Cash, beginning of period ............................................ 89,849 469,226
----------- -----------
Cash, end of period .................................................. $ 302,601 $ 222,740
=========== ===========
</TABLE>
See accompanying note to the unaudited financial statements.
-52-
<PAGE>
BLUMBERG COMMUNICATIONS INC.
AND SUBSIDIARY
NOTE TO UNAUDITED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles from interim financial
information and should be read in conjunction with Blumberg Communications and
Subsidiary's audited financial information. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Such adjustments are of a normal recurring nature. Operating results for the six
months ended November 30, 1995 and 1996 are not necessarily indicative of the
results that may be expected for any other period or for a full fiscal year.
-53-
<PAGE>
Report of Independent Auditors
The Shareholders of D & D Enterprises, Inc.
D/B/A Show Solutions
We have audited the balance sheet of D & D Enterprises, Inc. (D/B/A Show
Solutions) as of December 31, 1996, and the related statements of income,
shareholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of D & D Enterprises, Inc. (D/B/A
Show Solutions) at December 31, 1996, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Atlanta, Georgia
July 18, 1997
1
<PAGE>
D & D Enterprises, Inc.
(D/B/A Show Solutions)
Balance Sheet
December 31, 1996
Assets
Current assets:
Cash $ 150,633
Investments 395,000
Accounts receivable, less allowance for doubtful
accounts of $6,117 1,314,646
Inventory 8,380
Prepaid expenses 84,862
----------
Total current assets 1,953,521
Property and equipment, net 1,643,275
Deposits 3,935
----------
Total assets $3,600,731
==========
Liabilities and shareholders' equity
Current liabilities:
Accrued expenses $ 192,240
Deposits on contracts 21,330
Notes payable 694,010
Current portion of capital lease obligation 11,788
----------
Total current liabilities 919,368
Capital lease obligation, less current portion 53,259
Shareholders' equity:
Common stock, $0.01 par value, authorized 10,000
shares; 2,500 issued and outstanding 25
Additional paid-in capital 199,995
Retained earnings 2,428,084
----------
Total shareholders' equity 2,628,104
----------
Total liabilities and shareholders' equity $3,600,731
==========
See accompanying notes to financial statements.
2
<PAGE>
D & D Enterprises, Inc.
(D/B/A Show Solutions)
Statement of Income
For the year ended December 31, 1996
Total revenue $ 8,725,046
Cost of revenue 3,645,806
-----------
Gross profit 5,079,240
Selling, general and administrative expenses 2,056,165
Depreciation and amortization expense 632,965
---------
Operating income 2,390,110
Other income (expense):
Interest income 60,885
Interest expense (80,261)
Other income, net 1,534
Net income $ 2,372,268
===========
Supplemental unaudited pro forma information:
Net income, as above $ 2,372,268
Pro forma provision for income tax expense 901,400
-----------
Pro forma net income $ 1,470,868
===========
See accompanying notes to financial statements.
3
<PAGE>
D & D Enterprises, Inc.
(D/B/A Show Solutions)
Statement of Shareholders' Equity
For the year ended December 31, 1996
<TABLE>
<CAPTION>
Additional
Common Paid-in- Retained
Stock Capital Earnings Total
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 $25 $199,995 $ 2,104,942 $ 2,304,962
Net income - - 2,372,268 2,372,268
Distribution to shareholders - - (2,049,126) (2,049,126)
---------------------------------------------------------------
Balance, December 31, 1996 $25 $199,995 $ 2,428,084 $ 2,628,104
===============================================================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
D & D Enterprises, Inc.
(D/B/A Show Solutions)
Statement of Cash Flows
For the year ended December 31, 1996
Cash flows from operating activities
Net income $ 2,372,268
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 632,965
Changes in current assets and liabilities:
Accounts receivable (434,955)
Prepaid expenses (3,318)
Inventory 776
Accounts payable (1,101)
Accrued expenses 17,319
Deposits on contracts (163,536)
-----------
Net cash provided by operating activities 2,420,418
Cash flows from investing activities
Purchases of investments (395,000)
Purchases of property and equipment (506,529)
-----------
Net cash used in investing activities (901,529)
Cash flows from financing activities
Proceeds from notes payable 503,151
Principal payments on notes payable (325,222)
Payment of note due to shareholder (73,603)
Principal payments on capital leases (12,649)
Distribution to shareholders (2,049,126)
-----------
Net cash used in financing activities (1,957,449)
Net decrease in cash (438,560)
Cash at beginning of year 589,193
-----------
Cash at end of year $ 150,633
===========
See accompanying notes to financial statements.
5
<PAGE>
D & D Enterprises, Inc.
(D/B/A Show Solutions)
Notes to Financial Statements
Year ended December 31, 1996
1. Description of Business
D & D Enterprises, Inc. ("Show Solutions" or the "Company") was organized in
1992 to provide audio-visual equipment rentals and staging services within the
United States. Show Solutions enters into short-term rentals of equipment on a
daily, weekly and monthly basis. The Company contracts labor and production
specialists to perform the services.
2. Summary of Significant Accounting Policies
Revenue Recognition
The duration of contracts to present programs and shows is generally one month
or less. The Company recognizes revenue using the percentage-of-completion
method, measured pro-rata over the duration of each contract.
Inventory
Inventory consists of video tapes used to execute contracts and are valued at
cost on a first-in, first-out basis.
Property and Equipment
Property and equipment are recorded at cost, net of accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of related assets, generally 5 years.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk
consist primarily of cash, investments and accounts receivable. Concentrations
of credit risk with respect to accounts receivable are limited due to the large
number of entities comprising the Company's customer base. However, as of
December 31, 1996, the Company's receivables are unsecured. The Company
performs periodic evaluations of its customers' financial condition and
generally does not require collateral.
6
<PAGE>
D & D Enterprises, Inc.
(D/B/A Show Solutions)
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Concentration of Credit Risk
The Company has two customers that account for 55% of the Company's revenue for
the year ended December 31, 1996.
Investments consist of highly-rated tax-exempt bonds issued by various
government entities in the State of Georgia. The Company regularly monitors the
market value and credit rating of these securities. Investments are stated at
cost which approximates fair value.
The carrying amounts reported in the balance sheet for cash, accounts
receivable, and notes payable approximate their fair values.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Statement of Cash Flows
Interest paid in 1996 totaled $80,261.
Advertising
Advertising costs are expensed as incurred and totaled approximately $14,000
for the year ended December 31, 1996.
7
<PAGE>
D & D Enterprises, Inc.
(D/B/A Show Solutions)
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of
In March 1995, the FASB issued Statement of Financial Accounting Standards No.
121 ("SFAS No. 121"), Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
Company adopted SFAS No. 121 in 1996; however, the adoption did not have a
significant impact on the Company.
3. Property and Equipment
Property and equipment as of December 31, 1996, consists of:
Equipment leased to others $3,223,603
Furniture and fixtures 53,847
Leased vehicles 77,696
Data processing equipment 34,391
Leasehold improvements 7,500
----------
3,397,037
Less accumulated depreciation and amortization 1,753,762
----------
$1,643,275
==========
8
<PAGE>
D & D Enterprises, Inc.
(D/B/A Show Solutions)
Notes to Financial Statements (continued)
4. Notes Payable
Notes payable at December 31, 1996 are summarized as follows:
Note payable to bank due in monthly installments of
$17,959, including interest at 10.30% through
September 1998, secured by equipment and personal
guarantees by shareholders. Paid in May 1997. $344,588
Note payable to bank due in monthly installments of
$15,851, including interest at 8.30% through January
1999, secured by equipment and personal guarantees by
shareholders. Paid in May 1997. 349,422
--------
$694,010
========
The Company was in default on the notes payable due to the sale of the business
in April 1997 as detailed in Note 10. The notes were paid in full on April
30,1997, subsequent to the sale transaction.
5. Capital Lease Obligations
The Company leases vehicles under agreements which are classified as capital
leases. The cost and accumulated depreciation of such assets totaled $77,696
and $12,649, respectively, at December 31, 1996.
9
<PAGE>
D & D Enterprises, Inc.
(D/B/A Show Solutions)
Notes to Financial Statements (continued)
5. Capital Lease Obligations (continued)
Future minimum lease payments under capital leases are as follows:
1997 $ 19,713
1998 19,713
1999 19,713
2000 16,694
2001 and Thereafter 13,813
--------
89,645
Less amount representing interest 24,598
--------
Present value of net minimum capital lease payments 65,047
Less current portion of capital lease obligation 11,788
--------
Long-term portion $ 53,259
========
6. Operating Lease
The Company occupies facilities under a noncancelable operating lease agreement
expiring in December, 1999. Future minimum lease payments under the lease at
December 31, 1996 are as follows:
1997 $ 70,296
1998 73,104
1999 76,032
--------
$219,432
========
Rental expense for the year ended December 31, 1996 was $67,592.
7. Profit Sharing Plan
The Company has a profit sharing plan covering all employees. Contributions to
the Plan are at the discretion of Company management and can range from -0- to
15% of employees' annual compensation. The total contribution for the year
ended December 31, 1996 was $147,752.
10
<PAGE>
D & D Enterprises, Inc.
(D/B/A Show Solutions)
Notes to Financial Statements (continued)
8. Related Party Transactions
At December 31, 1995 the Company had a balance of $73,603 due to a shareholder
related to a note payable dated December 31, 1994 of $134,057. The final
payment was made in December 1996. Interest payments related to the note
totaled approximately $4,700 in 1996.
In August 1994 the shareholders of the Company entered into an asset management
contract with a third party whereby the shareholders agreed to operate and
manage the assets of the third party. These assets include rental equipment,
similar to Show Solutions assets. Pursuant to this agreement the shareholders
received 30 % of the rental income plus 50% of the remaining income ("gross
sales") up to $67,625 after which these payments were made to Show Solutions.
In December 1996, when gross sales of this business totaled $180,000 the
shareholders exercised an option to purchase the managed assets for one dollar.
These assets, which did not have a significant market value, were contributed
to Show Solutions by the shareholders.
9. Federal Income Taxes
Pursuant to applicable provisions of the Internal Revenue Code, the Company has
received permission to be treated as an "S Corporation" for income tax
purposes. Under such provisions, the Company is not responsible for the federal
income tax liability attributable to its taxable income. The Company's taxable
income will be reported on its shareholders' individual income tax returns and
the related liability, if any, will be the responsibility of the shareholder.
The pro forma provision for income taxes represents a provision for income
taxes as if the Company had operated as a subchapter C Corporation. The
difference between pro forma income taxes shown on the statement of income and
income taxes computed by applying the statutory federal income tax rate of 34%
is due to state income taxes.
11
<PAGE>
D & D Enterprises, Inc.
(D/B/A Show Solutions)
Notes to Financial Statements (continued)
10. Subsequent Event
On April 30, 1997, the shareholders signed an agreement to sell certain assets
and liabilities of the Company to Caribiner International, Inc. ("Caribiner")
for total consideration of approximately $13 million, paid partially in cash
and partially in Caribiner stock. The accompanying financial statements do not
include any adjustments as a result of this transaction.
12
<PAGE>
D&D ENTERPRISES, INC.
(D/B/A SHOW SOLUTIONS)
BALANCE SHEET
(unaudited)
March 31,
1997
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 712,762
Trade accounts receivable, net .................................. 1,100,999
Prepaid expenses and other current assets ....................... 83,439
----------
Total Current Assets .................................. 1,897,200
Property and equipment, net ..................................... 1,499,799
Other assets .................................................... 400,437
==========
TOTAL ASSETS .......................................... $3,797,436
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ............................... $ 648,484
Trade accounts payable .......................................... 234,515
Accrued expenses and other current liabilities .................. 498,614
Deferred income ................................................. 53,943
----------
Total Current Liabilities ............................. 1,435,556
Long-term portion of capital lease obligations .................. 49,442
----------
TOTAL LIABILITIES ..................................... 1,484,998
Stockholders' equity:
Common stock
$0.01 par value; authorized 10,000 shares; 2,500 shares
issued and outstanding ................................ 25
Additional paid-in capital ...................................... 199,995
Retained earnings ............................................... 2,112,418
----------
TOTAL STOCKHOLDERS' EQUITY ...................................... 2,312,438
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................... $3,797,436
==========
See accompanying note to the unaudited financial statements.
-54-
<PAGE>
D&D ENTERPRISES, INC.
(D/B/A SHOW SOLUTIONS)
STATEMENTS OF OPERATIONS
for the Three Months Ended
(unaudited)
<TABLE>
<CAPTION>
March 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenue ......................................... $ 2,968,139 $ 2,643,282
Cost of revenue ................................. 1,344,013 1,305,571
----------- -----------
Gross profit .................................... 1,624,126 1,337,711
Operating expenses:
Selling, general and administrative expenses 531,380 477,040
Depreciation expense ....................... 146,663 160,220
----------- -----------
Total operating expenses ........................ 678,043 637,260
----------- -----------
Operating income ................................ 946,083 700,451
Interest (expense) income, net .................. (1,641) 88
----------- -----------
Income before taxes ............................. 944,442 700,539
Income tax expense .............................. 358,889 266,205
----------- -----------
Net income ................................. $ 585,553 $ 434,334
=========== ===========
</TABLE>
See accompanying note to the unaudited financial statements.
-55-
<PAGE>
D&D ENTERPRISES, INC.
(D/B/A/ SHOW SOLUTIONS)
STATEMENTS OF CASH FLOWS
for the Three Months Ended
(unaudited)
<TABLE>
<CAPTION>
March 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................... $ 585,553 $ 434,334
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation expense .............................................. 146,663 160,220
Change in assets and liabilities:
Increase (decrease) in accounts receivable .......................... (622,427) 213,647
Decrease in prepaid expenses and other assets ....................... 17,592 9,803
Increase in accounts payable ........................................ 379,290 234,515
(Decrease) increase in deferred income .............................. (93,694) 32,613
Increase in accrued expenses and other liabilities .................. 454,070 290,448
----------- -----------
Net cash provided by operating activities ........................... 867,047 1,375,580
Cash flow used in investing activities:
Purchase of property and equipment .................................. (97,593) (2,320)
Cash Flow (used in) provided by financing activities:
Payment of dividends ................................................ (362,500) (750,000)
Proceeds from long-term debt ........................................ 503,151 --
Repayments of long-term debt ........................................ (73,811) (61,131)
----------- -----------
Net cash provided by (used in) financing activities ................. 66,840 (811,131)
----------- -----------
Net increase in cash ..................................................... 836,294 562,129
Cash, beginning of period ................................................ 589,193 150,633
----------- -----------
Cash, end of period ...................................................... $ 1,425,487 $ 712,762
=========== ===========
</TABLE>
See accompanying note to the unaudited financial statements.
-56-
<PAGE>
D&D ENTERPRISES, INC.
(D/B/A/ SHOW SOLUTIONS)
NOTE TO UNAUDITED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles from interim financial
information and should be read in conjunction with D&D Enterprises, Inc.'s
(D/B/A Show Solutions) audited financial information. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. Such adjustments are of a normal recurring nature. Operating
results for the three months ended March 31, 1996 and 1997 are not necessarily
indicative of the results that may be expected for any other period or for a
full fiscal year.
-57-
<PAGE>
WCT LIVE COMMUNICATION LIMITED
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company Law requires the Directors to prepare Financial Statements for each
financial year which give a true and fair view of the state of affairs of the
Company and Group and of the profit or loss of the Company and Group for that
period. In preparing those Financial Statements, the Directors are required to:
1. Select suitable accounting policies and then apply them consistently.
2. Make judgements and estimates that are reasonable and prudent.
3. Prepare the Financial Statements on the going concern basis unless it
is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and Group and to enable them to ensure that the Financial Statements
comply with the Companies Act 1985. They are also responsible for safeguarding
the assets of the Company and Group and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
-3-
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS OF
WCT LIVE COMMUNICATION LIMITED
We have audited the Financial Statements on pages 5 to 18 which have been
prepared under the historical cost convention and the accounting policies set
out on pages 10 and 11.
Respective Responsibilities of Directors and Auditors
As described on page 3, the Company's Directors are responsible for the
preparation of Financial Statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
Basis of Opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the Financial Statements. It
also includes an assessment of the significant estimates and judgements made by
the Directors in the preparation of the Financial Statements, and of whether the
accounting policies are appropriate to the Company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the Financial Statements
are free from material mis-statement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the Financial Statements.
Opinion
In our opinion the Financial Statements give a true and fair view of the state
of affairs of the Company and Group as at 31 May 1997 and of the loss for the
year then ended and have been properly prepared in accordance with the Companies
Act 1985.
Mary Street House /s/ Albert Goodman
Mary Street
Taunton Chartered Accountants
and Registered Auditors.
-4-
<PAGE>
WCT LIVE COMMUNICATION LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MAY 1997
<TABLE>
<CAPTION>
Note 1997 1996
---- ---- ----
(pound) (pound)
<S> <C> <C> <C>
Turnover 2 14113303 14040735
Cost of Sales (9244468) (10037645)
--------- --------
Gross Profit 4868835 4003090
Administrative Expenses (4948868) (3871925)
Other Operating Income - 27300
--------- --------
Operating (Loss)/Profit (80033) 158465
Interest Receivable 5 94641 100726
(Loss)/Profit on Disposal of Investments (20) 17980
Interest Payable and Similar Charges 6 - (4982)
--------- --------
Profit on Ordinary Activities Before Taxation 7 14588 272189
Tax on Profit on Ordinary Activities 8 (36880) (95576)
--------- --------
(Loss)/Profit on Ordinary Activities After
Taxation (22292) 176613
Minority Interests 16 - 35609
--------- --------
Profit Attributable to Members of the
Parent Undertaking 15 (22292) 212222
========= ========
Divided:
Parent Undertaking (19391) 177258
Subsidiary Undertakings (2901) 34964
--------- --------
(22292) 212222
========= ========
</TABLE>
There are no other recognised gains or losses other than the profit for the
year.
There are no acquisitions or discontinued operations in either the current or
preceding year. The trade of one wholly owned subsidiary was taken over by WCT
Live Communication on 1 June 1997. This reorganisation did not result in any
discontinued or acquired operations..
-5-
<PAGE>
WCT LIVE COMMUNICATION LIMITED
CONSOLIDATED BALANCE SHEET
AS AT 31 MAY 1997
<TABLE>
<CAPTION>
Note 1997 1996
---- ---- ----
(pound) (pound)
<S> <C> <C> <C> <C> <C>
Fixed Assets
Tangible Assets 9 207361 249400
Current Assets
Debtors 12 1228053 1820340
Cash at Bank and in Hand 3001645 1493528
--------- ---------
4229698 3313868
Creditors
Amounts Falling Due Within One Year 13 (3926960) (3030877)
--------- ---------
Net Current Assets 302738 282991
-------- --------
Total Assets Less Current Liabilities 510099 532391
======== ========
Capital and Reserves
Called Up Share Capital 14 100000 100000
Profit and Loss Account 15 410099 432391
-------- --------
Shareholders' Funds 15 510099 532391
======== ========
</TABLE>
These Financial Statements were approved by the Board of Directors on
..........................................
..........................................
Directors
..........................................
..........................................
-6-
<PAGE>
WCT LIVE COMMUNICATION LIMITED
COMPANY BALANCE SHEET
AS AT 31 MAY 1997
<TABLE>
<CAPTION>
Note 1997 1996
---- ---- ----
(pound) (pound)
<S> <C> <C> <C> <C> <C>
Fixed Assets
Tangible Assets 10 187292 217605
Investments 11 - -
-------- --------
187292 217605
Current Assets
Debtors 12 1122117 1207909
Cash at Bank and in Hand 2271740 1341498
--------- ---------
3393857 2549407
Creditors
Amounts Falling Due Within One Year 13 (3071071) (2237543)
--------- ---------
Net Current Assets 322786 311864
-------- --------
Total Assets Less Current Liabilities 510078 529469
======== ========
Capital and Reserves
Called Up Share Capital 14 100000 100000
Profit and Loss Account 15 410078 429469
-------- --------
Shareholders' Funds 15 510078 529469
======== ========
</TABLE>
The Company loss for the year after tax but before dividends is (pound)19391.
The Financial Statements were approved by the Board of Directors on
...........................................
Directors
............................................
-7-
<PAGE>
WCT LIVE COMMUNICATION LIMITED
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MAY 1997
<TABLE>
<CAPTION>
Notes 1997 1996
----- ---- ----
(pound) (pound)
<S> <C> <C> <C> <C> <C>
Net Cash Inflow/(Outflow) from
Operating Activities A 1561450 (453219)
Returns on Investments and
Servicing of Finance
Interest Received 90196 100726
Interest Paid - (4982)
------- -------
Net Cash Inflow from Returns on
Investments and Servicing of Finance 90196 95744
Taxation
Corporation Tax Paid (87499) (91828)
Investing Activities
Receipts from Disposal of Tangible Fixed
Assets 1000 14000
Net Cash Movement on Disposal of
Subsidiary Undertakings - (80862)
Payments to Acquire Tangible Fixed
Assets (57030) (254690)
------- -------
Net Cash Outflow from Investing
Activities (56030) (321552)
--------- ---------
Net Cash Inflow/(Outflow) Before Financing 1508117 (770855)
Financing B - -
--------- ---------
Increase/(Decrease) in Cash C 1508117 (770855)
========= =========
</TABLE>
-8-
<PAGE>
WCT LIVE COMMUNICATION LIMITED
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MAY 1997
<TABLE>
<CAPTION>
A Reconciliation of Operating Profit to Net Cash Inflow/
------------------------------------------------------ 1997 1995
(Outflow) from Operating Activities Group Group
----------------------------------- ----- -----
(pound) (pound)
<S> <C> <C>
Operating (Loss)/Profit (80033) 158465
Depreciation 98114 110161
Decrease in Debtors 599705 183935
Increase/(Decrease) in Creditors 943709 (911320)
(Profit)/Loss on Disposal of Fixed Assets (45) 5540
--------- ---------
Net Cash Inflow/(Outflow) from Operating Activities 1561450 (453219)
--------- ---------
B Analysis of Changes in Financing During the Year 1997 1996
------------------------------------------------ Share Share
Capital Capital
-------- --------
(pound) (pound)
Financing as at 31 May 1997 and 1 June 1996 100000 100000
------ ------
C Analysis of the Changes in Net Debt During the Year 1997 1996
--------------------------------------------------- Group Group
-------- --------
(pound) (pound)
Balance at 1 June 1996 1493528 2264383
Net Cash Flow 1508117 (770855)
--------- ---------
Balance at 31 May 1997 3001645 1493528
--------- ---------
<CAPTION>
D Analysis of Net Debt Change
1997 1996 in Year
Group Group Group
--------- --------- ---------
(pound) (pound) (pound)
<S> <C> <C> <C>
Bank Deposit Account 2872612 949309 1923303
Bank Current Account 109743 521549 (411806)
Foreign Currency Accounts 19290 22670 (3380)
--------- --------- ---------
3001645 1493528 1508117
--------- --------- ---------
</TABLE>
There were no amounts relating to loans or current asset investment
requiring inclusion in the figures for net debt.
-9-
<PAGE>
WCT LIVE COMMUNICATION LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 1997
1 Accounting Policies
The Financial Statements have been prepared under the historical cost
convention. The following accounting policies have been consistently
applied in relation to items which are considered material to the
Group's Financial Statements. The Financial Statements comply with
applicable Accounting and Financial Reporting Standards.
Associated Undertakings
Associated undertakings are included using the equity method of
accounting in accordance with Financial Reporting Standard 2.
Associated companies with a net deficit of shareholders funds are not
included in the group results, the group having no legal obligation to
guarantee their share of such shortfalls.
In the event of a part disposal of a holding in a subsidiary
undertaking resulting in an equity investment in an associated
undertaking, if the subsidiary undertaking in question has a deficit of
net assets then the resultant group share of the deficit of net assets
of the associate is written off in accordance with the above policy.
Consolidation
The consolidated Financial Statements have been prepared on the
acquisition basis and include the results of WCT Live Communication
Limited and its subsidiary undertakings, made up to 31 May 1997. No
significant changes in accounting policies have been necessary to
achieve consistent accounting policies throughout the group. The
results of the group companies have been consolidated using a time
proportioned basis on the results for the year to 31 May 1997. Goodwill
occurring on acquisition of subsidiaries is fully written off in the
year of acquisition.
A separate Profit and Loss Account with the results of the Company only
has not been presented, the Company relying on the exemption conferred
by s230 (4), Companies Act 1985.
Deferred Taxation
The charge for taxation is based on the profit for the year and takes
into account taxation deferred because of timing differences between
the treatment of certain items for taxation and accounting purposes. No
provision is made for deferred taxation if there is reasonable evidence
that such deferred taxation will not be payable in the foreseeable
future.
Depreciation
Depreciation is calculated to write down the cost of assets over their
expected useful lives by reference to the following rates:
Office Furniture 100% on straight line basis
Motor Vehicles 25% on written down value up to a maximum
of(pound)3000 p.a.
Office Equipment 25% on straight line basis
Foreign Currency Translation
Foreign currency transactions are translated at the rate ruling on the
date the transaction is made. Exchange differences on subsequent
settlement of transactions are reflected in the operating results at
the date payment is made. Balances denominated in foreign currency at
the Balance Sheet date are translated at the rate ruling at the Balance
Sheet date.
Operating Leases
Payments made in respect of operating leases are charged to the Profit
and Loss Account in the period to which they relate.
-10-
<PAGE>
WCT LIVE COMMUNICATION LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 1997
1 Accounting Policies (Continued)
Pensions
During the year the defined contribution pension scheme of the Company
was wound up and replaced by a Group personal pension scheme. The
premiums due are charged to the profit and loss account over the period
to which they relate. The scheme contains 27 eligible employees. The
Accounts include an accrual of (pound)15731 in relation to
contributions due to the scheme that have not yet been collected.
The Company also makes contributions to pension schemes of certain
employees on an individual basis. The payments are charged to the
profit and loss account as they are incurred.
Profit Recognition
Profit is taken on the completion of all conferences/events. Income
received and expenditure incurred in respect of conferences not
executed at the year end are treated as receipts in advance and
payments on account respectively.
2 Turnover
Turnover is the total amount, excluding VAT, receivable by the
Company/Group for services provided and expenses recharged.
Where expenses are paid directly by the customer the turnover is
included at the amount receivable for services provided plus expenses
paid by the customer.
The whole of the Company's/Group's turnover and pre-tax profit relates
exclusively to its principal activities carried on from its premises in
London. The Services are provided worldwide.
3 Staff Numbers and Costs
(Including Directors) 1997 1996
--------------------- ---- ----
(pound) (pound)
Gross Pay and Employers NIC 3127412 2289996
Pension Contributions 540272 15662
--------- ---------
3667684 2305658
--------- ---------
Number Number
------ ------
Conference Organisation/Production
- Ongoing 67 60
Conference Organisation/Production
- Subsidiaries Ceasing 31.05.96 - 23
---- ----
67 83
---- ----
-11-
<PAGE>
WCT LIVE COMMUNICATION LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 1997
<TABLE>
<CAPTION>
4 Directors' Emoluments 1997 1996
--------------------- ---- ----
(pound) (pound)
<S> <C> <C>
Paid by Group to Directors of Parent Undertaking:
Services as Directors 1437679 441585
Ex Gratia Payment 30000 -
Directors other Emoluments - 411121
Pension Contributions 516765 10637
--------- ---------
1984444 863343
--------- ---------
Chairman's Remuneration (and Highest
Paid Director) 973200 546195
--------- ---------
The number of other Directors whose
emoluments, excluding pension
contributions, were within the ranges:
1997 1996
Number Number
------ ------
(pound)5000 -(pound)10000 1 -
(pound)10000 -(pound)15000 1 -
(pound)40001 -(pound)45000 - 1
(pound)45001 -(pound)50000 2 1
(pound)50001 -(pound)55000 1 1
(pound)55001 -(pound)60000 - 1
(pound)75001 -(pound)80000 1 -
(pound)80001 -(pound)85000 1 -
(pound)105001 -(pound)110000 - 1
(pound)165001 -(pound)170000 1 -
5 Interest Receivable 1997 1996
------------------- ---- ----
(pound) (pound)
Bank Deposit Interest 94641 100726
-------- --------
6 Interest Payable and Similar Charges 1997 1996
------------------------------------ ---- ----
(pound) (pound)
On Amounts Wholly Repayable
Within 5 Years:
Bank Overdraft Interest - 2226
Royalties - 2756
------ ------
- 4982
------ ------
</TABLE>
-12-
<PAGE>
WCT LIVE COMMUNICATION LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 1997
<TABLE>
<CAPTION>
7 Profit on Ordinary Activities Before Taxation 1997 1996
--------------------------------------------- ---- ----
(pound) (pound)
<S> <C> <C>
After Charging or (Crediting):
Depreciation of Tangible Assets 98114 110161
Auditors' Remuneration - For Audit Services 15100 14450
- Other Services 40876 15965
Foreign Exchange Gain (5908) -
(Profit)/Loss on Sale of Tangible Assets (45) 5540
Operating Lease Payments - Property 198003 208161
-------- --------
8 Tax on Profit on Ordinary Activities 1997 1996
------------------------------------ ---- ----
(pound) (pound)
Corporation Tax on Profit for the Year @ 33% (1996 33.5%) 41577 92197
(Over)/Underprovision in Previous Year (4697) 3379
------- -------
36880 95576
------- -------
9 Tangible Assets - Group Office
----------------------- Equipment Vehicles Total
--------- -------- -----
(pound) (pound) (pound)
Cost
At 1 June 1996 335144 112405 447549
Additions 57030 - 57030
Disposals - (12725) (12725)
-------- -------- --------
At 31 May 1997 392174 99680 491854
-------- -------- --------
Depreciation
At 1 June 1996 175948 22201 198149
Charge for Year 82845 15269 98114
Disposals - (11770) (11770)
-------- -------- --------
At 31 May 1997 258793 25700 284493
-------- -------- --------
Net Book Value
At 31 May 1997 133381 73980 207361
======== ======== ========
At 1 June 1996 159196 90204 249400
-------- -------- --------
</TABLE>
-13-
<PAGE>
WCT LIVE COMMUNICATION LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 1997
10 Tangible Assets - Company Office
------------------------- Equipment Vehicles Total
--------- -------- -----
(pound) (pound) (pound)
Cost
At 1 June 1996 284487 112405 396892
Additions 55779 - 55779
Disposals - (12725) (12725)
-------- -------- --------
At 31 May 1997 340266 99680 439946
-------- -------- --------
Depreciation
At 1 June 1996 157086 22201 179287
Charge for Year 69868 15269 85137
Disposals - (11770) (11770)
-------- -------- --------
At 31 May 1997 226954 25700 252654
-------- -------- --------
Net Book Value
At 31 May 1997 113312 73980 187292
======== ======== ========
At 1 June 1996 127401 90204 217605
-------- -------- --------
<TABLE>
<CAPTION>
11 Investments 1997 1996
----------- ---- ----
Group Company Group Company
----- ------- ----- -------
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Shares Held in Group Undertakings
At 1 June 1996 - - - -
Additions at Cost - - - 202
Written Off in year - - - (202)
----- ----- ----- -----
At 31 May 1997 - - - -
----- ----- ----- -----
</TABLE>
-14-
<PAGE>
WCT LIVE COMMUNICATION LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 1997
11 Investments (Continued)
<TABLE>
<CAPTION>
Proportion
Country of Class of of Nominal
Registration Shares Held Value Held
------------ ----------- ----------
%
<S> <C> <C> <C>
Subsidiary Undertakings
-----------------------
CCO Conferences Limited England Ordinary 100
(Conference Organisation Company)
Event Connections Limited England Ordinary 100
(Dormant Company)
WCT Creative Production Limited
(Dormant Company) England Ordinary 100
Global Conferences Limited England Ordinary 100
(Dormant Company)
</TABLE>
The subsidiaries Event Connections Limited and CCO Conferences Limited
have been included in the Consolidated Accounts on an acquisition
basis. Event Connections Limited was a holding company but is now
obsolete and will be struck from the Register of Companies in due
course.
The subsidiaries Global Conferences Limited and WCT Creative Production
Limited have been dormant throughout the year. The trade of Global
Conferences Limited was transferred to WCT Live Communication Limited
on 31 May 1996. The trade of WCT Creative Production ceased on 31 May
1996 and an 'in-house' production department with WCT Live
Communication Limited was initiated fulfilling the same role. A result
of this and the fact that there were minimal third party sales by WCT
Creative Production Limited has resulted in no disclosure relating to
discontinued operations. Both companies will be struck off the Register
of Companies shortly.
The share capital and reserves of Global Conferences Limited and WCT
Creative Production Limited were as follows:
<TABLE>
<CAPTION>
WCT
Global Creative
Conferences Production
Limited Limited
------- -------
(pound) (pound)
<S> <C> <C>
Share Capital and Reserves at 1 June 1996 *(10529) *(1527)
Results for the Year - -
------- -------
Share Capital and Reserves at 31 May 1997 (10529) (1527)
------- -------
* All reserves were post acquisition in both cases.
</TABLE>
The deficit of net assets in both companies relate to inter-company
balances with WCT Live Communication Limited. These balances had been
written off the individual company accounts of WCT Live Communication
Limited at 31 May 1996 and the subsidiaries have not been included in
the Consolidated Accounts.
Tiger Tiger Limited ceased trading on 31 December 1996 and has been
dormant since that date and will continue to be so. On cessation of
trade the associated company had a deficit of net assets. As no value
could be attached to Tiger Tiger Limited the 20% investment in this
company consisting of 20 ordinary (pound)1 shares was disposed of on 31
December 1996 for nil consideration.
-15-
<PAGE>
WCT LIVE COMMUNICATION LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 1997
<TABLE>
<CAPTION>
12 Debtors 1997 1996
------- ---- ----
Group Company Group Company
----- ------- ----- -------
(pound) (pound) (pound) (pound)
<S> <C> <C> <C>
Trade Debtors 925312 671391 1011436 552629
Payments on Account 161932 158322 315085 308711
Amounts Owed by Group
Undertakings - 153235 - 56757
Amounts Owed by Associated
Undertaking - - 83918 83918
Other Debtors 6853 6853 216810 82750
Prepayments 130982 129342 193091 123144
Taxation 2974 2974 - -
--------- --------- --------- ---------
1228053 1122117 1820340 1207909
--------- --------- --------- ---------
<CAPTION>
13 Creditors - Amounts Falling Due Within One Year
-----------------------------------------------
1997 1996
---- ----
Group Company Group Company
----- ------- ----- -------
(pound) (pound) (pound) (pound)
<S> <C> <C> <C>
Receipts in Advance 839368 402460 1367425 881260
Trade Creditors 1902328 1811013 954740 816834
Amounts Owed to Group
Undertakings - 10047 - 6046
Amounts Owed to Associated
Undertaking - - 163460 163460
Taxation and Social Security 499369 409621 268986 235305
Other Creditors and Accruals 641344 437930 184069 42443
Corporation Tax 44551 - 92197 92195
--------- --------- --------- ---------
3926960 3071071 3030877 2237543
--------- --------- --------- ---------
<CAPTION>
14 Called Up Share Capital 1997 1996
----------------------- ---- ----
(pound) (pound)
<S> <C> <C>
Authorised
Ordinary Shares of(pound)1 Each 100000 100000
-------- --------
Allotted, Called Up and Fully Paid
Ordinary Shares of(pound)1 Each 100000 100000
-------- --------
</TABLE>
-16-
<PAGE>
WCT LIVE COMMUNICATION LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 1997
<TABLE>
<CAPTION>
15 Shareholders' Funds - Group Called Up Profit and Total Total
--------------------------- Share Capital Loss Account 1997 1996
------------- ------------ ---- ----
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
As at 1 June 1996 as Previously Stated 100000 446688 546688 308914
Prior Year Adjustment (Note 18) - (14297) (14297) -
-------- -------- -------- --------
As at 1 June 1996 as Restated 100000 432391 532391 308914
Retained Group (Loss)/Profit for Year - (22292) (22292) 212222
Goodwill Written Back - - - 11255
-------- -------- -------- --------
As at 31 May 1997 100000 410099 510099 532391
-------- -------- -------- --------
Shareholders' Funds - Company
-----------------------------
As at 1 June 1996 100000 429469 529469 352211
Retained (Loss)/Profit for Year - (19391) (19391) 177258
-------- -------- -------- --------
As at 31 May 1997 100000 410078 510078 529469
-------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
16 Minority Interests Total Total
------------------ 1997 1996
---- ----
(pound) (pound)
<S> <C> <C>
Balance Sheet
Minority Share of Net Assets of Subsidiaries:
Equity Interests - -
------- -------
Profit and Loss
Minority Share of Post Taxation Results of Subsidiaries Prior to Disposal:
Equity Interests - 35609
------- -------
</TABLE>
All remaining subsidiaries are now wholly owned by WCT Live
Communication Limited.
17 Operating Lease Commitments
---------------------------
At 31 May 1997 the Company had annual commitments under non-cancellable
operating leases as set out below:-
<TABLE>
<CAPTION>
1997 1996
---- ----
Group Company Group Company
----- ------- ----- -------
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Property
--------
Operating Leases Which Expire:
More Than Five Years 202870 202870 150000 150000
-------- -------- -------- --------
Other
-----
Within One Year 3356 3356 9992 -
Between Two and Five Years 38025 28851 20959 15464
-------- -------- -------- --------
244251 235077 180951 165464
-------- -------- -------- --------
</TABLE>
-17-
<PAGE>
WCT LIVE COMMUNICATION LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 1997
18 Prior Year Adjustment
A final adjustment was made to the CCO Conferences Limited Accounts on
settlement of a dispute before these Accounts were finalised. Due to a
reporting deadline the consolidated figures were approved prior to the
final adjustment in CCO Conferences Limited on the basis that the final
adjustment would not significantly affect the results of the
Consolidated Accounts. The prior year adjustment has been performed to
restate the previous years figures in line with the finalised CCO
Conferences Limited Accounts.
19 Controlling Entity and Ultimate Parent Undertaking
On 12 June 1997 the Controlling Entity and Ultimate Parent Undertaking
became Caribiner International Incorporated, for details refer to note
20.
20 Post Balance Sheet Events
On 1 June 1997 the Company authorised the creation of 10 million 'A'
Ordinary Shares of (pound)0.001 each via a stock dividend. The shares
were authorised to permit the Directors to offer the members a choice
between receiving additional shares or a cash dividend.
On 10 June 1997 the Company allotted 10 million 'A' Ordinary
(pound)0.001 shares at par to satisfy the choice of the members.
Also on 10 June 1997 the Company increased its authorised share capital
by (pound)12222.11 to (pound)122,222.11 through the creation of 11,111
Ordinary (pound)1 Shares and 1,111,110 'A@ Ordinary (pound)0.001
Shares. These shares were allotted on 12 June 1997 to satisfy an
existing share option.
On 12 June 1997 Caribiner International Inc. acquired a 100% holding
via a subsidiary in the share capital of WCT Live Communication
Limited and as such became the ultimate parent undertaking and
controlling entity. Caribiner International Inc. is listed on the New
York Stock Exchange.
In June 1997 CCO Conferences Limited gave the Conservative Unionist
Central Office the required 3 years notice that it wishes to cancel the
trading agreement between the two parties as it stands in its present
form. CCO Conferences Limited and the Conservative Unionist Central
Office are now engaged in re negotiating this agreement.
21 Related Party Transactions
All inter-company trading and inter-company balances between WCT Live
Communication Limited and its subsidiary CCO Conferences Limited has
been removed in the process of consolidating these Accounts and as such
no disclosure of these transactions is required.
The related party transaction between the Company and the Directors
were as follows:
Consultancy fees of (pound)100286 were paid by WCT Live Communication
Limited and (pound)29767 by the subsidiary CCO Conferences Limited, to
the Company Agency Limited. At the time of these transactions the three
companies were controlled by the Director M V Lockett. The terms of
this transaction was that no credit was effectively taken and the
amounts were settled by immediate cash payment and as a consequence
there was no balance outstanding at the year end.
A consultancy fee of (pound)22265 was paid by WCT Live Communication
Limited to the member of the household of the Director S Stotter OBE.
The terms of this transaction was that no credit was taken and the
amount was settled by immediate cash payment and as a consequence there
was no balance outstanding at the year end. In all other respects this
transaction was considered to be on an arms length basis.
-18-
<PAGE>
Report of Independent Auditors
The Board of Directors
Bauer Audio Visual, Inc.
We have audited the accompanying consolidated balance sheets of Bauer Audio
Visual, Inc. (the Company) as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bauer Audio
Visual, Inc. at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Dallas, Texas
April 1, 1997 /s/ Ernst & Young LLP
-59-
<PAGE>
Bauer Audio Visual, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1996 1995
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,225,323 $ 153,890
Accounts receivable, less allowance for doubtful accounts of
$231,766 and $214,509 (Note 4) 6,736,593 5,540,403
Income taxes receivable 261,070 --
Inventory (Note 4) 462,258 318,278
Deferred income taxes (Note 2) 134,925 141,522
Note receivable from officer 140,014 145,284
Other current assets 318,956 234,013
-------------------- ---------------------
Total current assets 9,279,139 6,533,390
Rental equipment, net of accumulated depreciation of $4,586,421
and $3,459,545 (Note 4) 8,093,707 6,518,579
Property and equipment (Notes 3 and 4) 1,046,638 1,188,601
Goodwill, net of accumulated amortization of $293,340
and $41,191 (Note 8) 1,092,402 1,194,551
Other assets 217,913 207,262
-------------------- ---------------------
Total assets $ 19,729,799 $ 15,642,383
-------------------- ---------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,648,249 $ 1,084,218
Accrued expenses and other payables 1,380,207 1,788,311
Income taxes payable -- 608,285
Current portion of notes payable and line of credit (Note 4) 6,214,549 2,929,009
Current obligations under capital leases (Note 6) -- 55,931
-------------------- ---------------------
Total current liabilities 9,243,005 6,465,754
Notes payable (Note 4) 5,216,863 5,493,708
Deferred income taxes (Note 2) 1,390,190 1,142,122
Shareholders' equity:
Common stock, $.001219512 par value:
Authorized shares -- 1,000,000
Issued shares-- 820,000 1,000 1,000
Paid-in capital 2,415,886 2,415,886
Retained earnings 1,463,833 124,891
Less treasury stock at cost-- 740,000 shares (978) (978)
-------------------- ---------------------
Total shareholders' equity 3,879,741 2,540,799
-------------------- ---------------------
Total liabilities and shareholders' equity $ 19,729,799 $ 15,642,383
==================== =====================
</TABLE>
See accompanying notes.
-60-
<PAGE>
Bauer Audio Visual, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
<S> <C> <C>
Rental income $ 38,012,626 $ 21,244,481
Sales income 4,436,862 1,374,712
-------------------- --------------------
42,449,488 22,619,193
Cost of sales 29,277,962 14,901,272
-------------------- --------------------
13,171,526 7,717,921
Operating expenses 3,725,591 2,346,123
General and administrative expenses 4,033,324 2,915,491
Depreciation and amortization 2,518,813 1,123,331
Interest expense 884,480 299,236
Other income (Note 7) (372,413) (37,285)
Translation loss 13,238 9,954
-------------------- --------------------
Income before income taxes 2,368,493 1,061,071
Income tax expense (Note 2) 1,029,551 259,152
==================== ====================
Net income $ 1,338,942 $ 801,919
==================== ====================
</TABLE>
See accompanying notes.
-61-
<PAGE>
Bauer Audio Visual, Inc.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Retained
Common Stock Paid-in Capital Earnings/ Treasury Stock
(Deficit) Total
------------------ ------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 1,000 $ 2,415,886 $ (677,028) $ (978) $ 1,738,880
Net income -- -- 801,919 -- 801,919
Balance at December 31, 1995 1,000 2,415,886 124,891 (978) 2,540,799
Net income -- -- 1,338,942 -- 1,338,942
================== =================== ================== ================== ==================
Balance at December 31, 1996 $ 1,000 $ 2,415,886 $ 1,463,833 $(978) $ 3,879,741
================== =================== ================== ================== ==================
</TABLE>
See accompanying notes.
-62-
<PAGE>
Bauer Audio Visual, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
<S> <C> <C>
Operating Activities
Net income $ 1,338,942 $ 801,919
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,518,813 1,123,331
(Gain) loss on sale or disposal of assets (190,626) 38,583
Provision for doubtful accounts 17,257 79,101
Deferred income taxes 254,665 (5,907)
Changes in operating assets and liabilities:
Accounts receivable (853,563) (1,346,320)
Income taxes receivable (261,070) 26,106
Inventory (143,980) 22,943
Other current assets (84,943) (43,115)
Other assets (57,215) (102,399)
Accounts payable 564,031 (260,815)
Accrued expenses and other payables (408,104) 270,019
Income taxes payable (608,285) 153,061
-------------------- ---------------------
Net cash provided by operating activities 2,085,922 756,507
Investing Activities
Purchase of Video Visuals, Inc. assets (250,000) --
Purchase of Flip, Inc. -- (4,457,000)
Purchases of rental equipment and property and equipment (3,515,223) (1,858,586)
Proceeds from sale of assets 42,700 --
-------------------- ---------------------
Net cash used in investing activities (3,722,523) (6,315,586)
Financing Activities
Net increase in line of credit 2,515,089 808,682
Proceeds from long-term borrowings 1,771,070 7,215,194
Principal payments on capital leases and long-term borrowings (1,583,395) (2,385,669)
Note receivable from officer 5,270 37,111
-------------------- ---------------------
Net cash provided by financing activities 2,708,034 5,675,318
-------------------- ---------------------
Increase in cash 1,071,433 116,239
Cash and cash equivalents at beginning of year 153,890 37,651
-------------------- ---------------------
Cash and cash equivalents at end of year $ 1,225,323 $ 153,890
==================== =====================
Supplemental Cash Flow Information
Interest paid $ 858,543 $ 256,596
==================== =====================
Income taxes paid $ 949,879 $ 89,292
==================== =====================
Noncash Investing and Financing Activities
Exchange of note payable for Video Visuals, Inc. assets $ 250,000 $ --
==================== =====================
</TABLE>
See accompanying notes.
-63-
<PAGE>
Bauer Audio Visual, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Bauer Audio Visual, Inc. (the Company) rents audio and video equipment generally
on a short-term basis to business and professional organizations through hotels,
convention centers, and warehouse operations throughout the United States and in
Mexico. The Company also sells audio and video equipment to the general public.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned Mexican subsidiary. All significant intercompany transactions
and balances have been eliminated.
Cash Equivalents
The Company considers all highly liquid investments with an initial maturity of
three months or less when purchased to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Inventory
Audio and video equipment inventory held for sale is valued at the lower of cost
or market, based on specific identification.
Foreign Currency Translation
The Company accounts for translation of foreign currency in accordance with
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation." The Company's Mexican operations use the U.S. dollar as the
functional currency. Therefore, certain assets of this entity are translated at
historical exchange rates and all translation adjustments are reflected in the
consolidated statements of income.
<PAGE>
Bauer Audio Visual, Inc.
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Summary of Significant Accounting Policies
(continued)
Rental Equipment
Rental equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated five-year useful lives of the assets.
Property and Equipment
Furniture and fixtures, equipment, and leasehold improvements are recorded at
cost. Expenditures for maintenance and repairs are charged to expense as
incurred. Depreciation is computed using the straight-line method over the
assets' estimated useful lives of three to five years. Amortization of leasehold
improvements is computed using the straight-line method over the lesser of the
lease term or the useful life. Amortization of assets under capital leases is
computed over the lease term and included in depreciation expense. These assets
were fully amortized at December 31, 1996.
Goodwill
Goodwill is amortized using the straight line method over a five year period.
Risk Concentrations
Financial instruments that potentially subject the Company to concentrations of
credit risk are accounts receivable. The Company generally rents and sells audio
and video equipment to customers throughout the United States and in Mexico who
are associated with the hospitality and convention industry. The Company
continuously evaluates the creditworthiness of its customers' financial
condition and generally does not require collateral. The Company's allowance for
doubtful accounts is based on current market conditions and losses on
uncollectible accounts have been consistently within management's expectations.
Advertising Expense
The Company expenses all advertising costs as incurred. Advertising expense was
$209,337 and $135,048 for 1996 and 1995, respectively.
Reclassifications
Certain 1995 amounts have been reclassified to conform to the current year
presentation.
-65-
<PAGE>
Bauer Audio Visual, Inc.
Notes to Consolidated Financial Statements (continued)
2. Income Taxes
Deferred federal income taxes are provided for temporary differences in the
recognition of revenues and expenses for financial and tax reporting purposes.
The significant components of deferred income taxes are as follows at December
31:
1996 1995
---------------------------------
Total deferred tax liabilities $ (1,395,777) $ (1,284,431)
Total deferred tax assets 140,512 311,634
Valuation reserve for deferred tax assets -- (27,803)
----------------------------------
Net deferred tax assets 140,512 283,831
----------------------------------
Net deferred tax liability $ (1,255,265) $ (1,000,600)
==================================
The valuation reserve for deferred tax assets was decreased by
approximately $28,000 and $234,000 during 1996 and 1995, respectively.
The types of temporary differences that give rise to deferred tax assets and
liabilities generally include differences in property and equipment, allowance
for doubtful accounts, and various accruals.
Significant components of the provision (benefit) for income taxes are as
follows:
1996 1995
------------------------------------------
Current:
Federal $ 571,844 $ 213,146
State 203,042 51,913
------------------------------------------
Total current 774,886 265,059
Deferred:
Federal 234,318 (38,781)
State 20,347 32,874
------------------------------------------
Total deferred 254,665 (5,907)
------------------------------------------
Total $ 1,029,551 $ 259,152
==========================================
-66-
<PAGE>
Bauer Audio Visual, Inc.
Notes to Consolidated Financial Statements (continued)
2. Income Taxes (continued)
The income tax expense that would result from applying the statutory federal
rate to pretax income differs from the actual tax provided primarily because of
the inclusion of state income taxes, various permanent differences, including
meals and entertainment and goodwill amortization, and the reduction in the
deferred tax asset valuation reserve (principally reflecting the benefit derived
from the 1995 utilization of net operating loss carryforwards).
3. Property and Equipment
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION> 1996 1995
----------------------------------------
<S> <S> <C>
Furniture and fixtures $ 769,455 $ 596,943
Equipment 836,958 919,587
Leasehold improvements 151,015 201,660
----------------------------------------
1,757,428 1,718,190
Accumulated depreciation and
amortization (710,790) (529,589)
----------------------------------------
$ 1,046,638 $ 1,188,601
========================================
</TABLE>
4. Notes Payable and Line of Credit
Notes payable and line of credit consists of the following at December 31:
1996 1995
-----------------------------------------
Borrowings under line of credit $ 3,940,000 $ 1,424,911
Acquisition Loan 4,306,664 5,500,000
Equipment Notes 2,287,897 708,413
Subordinated Notes 896,851 789,393
-----------------------------------------
11,431,412 8,422,717
Less current portion 6,214,549 2,929,009
-----------------------------------------
Long-term portion of notes payable $ 5,216,863 $ 5,493,708
=========================================
-67-
<PAGE>
Bauer Audio Visual, Inc.
Notes to Consolidated Financial Statements (continued)
4. Notes Payable and Line of Credit (continued)
Borrowings under Line of Credit
In December 1992, the Company entered into a line of credit agreement with a
bank in the amount of $1,500,000. In November 1995, the line of credit was
increased to $3,500,000 and in November 1996, the line of credit was increased
to $4,000,000. Amounts borrowed pursuant to the line of credit agreement are
secured by all accounts receivable, inventory, and equipment (excluding the
equipment which is collateralized against the Subordinated Notes described
below) of the Company and are personally guaranteed by the two shareholders of
the Company, limited to $600,000 each. Borrowings under the line of credit
agreement cannot exceed the borrowing base, as defined in the line of credit
agreement, at any time.
At December 31, 1996, the Company had an additional $60,000 available under the
terms of the line of credit agreement. (The outstanding balance on the line of
credit was reduced by $640,000 on January 2, 1997.) The line of credit bears
interest at a margin over the bank's prime rate or the bank's adjusted London
Inter-Bank Offer Rate (LIBOR). The interest rate on this loan at December 31,
1996 was 9.25%. The line of credit matures on July 1, 1997.
Acquisition Loan
As more fully described in Note 8, the Company purchased all of the outstanding
stock of Flip, Inc. (Flip) effective November 9, 1995. As part of this
transaction, the Company issued a note to the seller in the amount of
$3,250,000. In addition, the Company obtained the Acquisition Loan from the bank
in the amount of $2,250,000, proceeds of which were used to pay down the
Company's existing debt and the debt acquired in the transaction. The seller
note bears no interest rate and is payable in full on January 2, 1996. The
seller note is secured by an irrevocable standby letter of credit issued by the
Company's bank. After payment of the seller note, the outstanding balance of the
Acquisition Loan was increased to $5,500,000. The Acquisition Loan was executed
under the terms of the line of credit agreement and bears interest at a margin
over the bank's prime rate or the bank's adjusted LIBOR rate, (9.06% at December
31, 1996). Payments on this note are due in monthly installments of $60,000 plus
interest and $126,667 plus interest with the final unpaid balance due on October
1, 1999.
-68-
<PAGE>
Bauer Audio Visual, Inc.
Notes to Consolidated Financial Statements (continued)
4. Notes Payable and Line of Credit (continued)
Equipment Notes
The Company borrowed $391,587 during 1996 and $708,413 during 1995 from the same
bank for the financing of equipment purchases under the terms of a $1,100,000
term note executed under the terms of the line of credit agreement. The note
bears interest at a margin over the bank's prime rate. The interest rate on this
loan at December 31, 1996 was 9.75%. Payments on this note are due in monthly
installments of $19,678 plus interest with the final unpaid balance due on March
1, 1999.
During 1996, the Company borrowed an additional $1,365,000 from the same bank
for the financing of equipment purchases and the asset purchase of Video
Visuals, Inc. (see Note 8) under the terms of a $1,500,000 term note executed
under the terms of the line of credit agreement. The note allows for total
borrowings of $1,500,000. The note bears interest at a margin over the bank's
prime rate. The interest rate on this loan at December 31, 1996 was 9.75%.
Monthly principal installments of $37,917 begin July 1, 1997, with the final
unpaid balance due June 1, 2000.
In November 1996, the Company obtained an additional note in the amount of
$1,500,000 from the same bank to be used primarily for equipment purchases and
acquisitions. There were no borrowings against this note at December 31, 1996.
Subordinated Notes
In November 1995, the Company executed a $800,000 Subordinated Note to the
seller of Flip. The note is secured by a portion of the Company's equipment but
is subordinated to all bank debt. The note bears interest at 9% and is due in
monthly installments of $16,607 including interest. The final unpaid balance is
due on November 9, 2000.
As more fully described in Note 8, the Company purchased certain assets of Video
Visuals, Inc., in October 1996. As part of this transaction, the Company
executed a $100,000 and a $150,000 Subordinated Note to the seller of Video
Visuals, Inc. The notes are secured by a portion of the Company's equipment but
is subordinated to all bank debt. The notes bear interest at 9%. The $100,000
note is due in monthly installments of $8,745, with the final payment due
December 1997. The $150,000 note is due in monthly installments of $4,770 with
the final payment due December 1999.
-69-
<PAGE>
Bauer Audio Visual, Inc.
Notes to Consolidated Financial Statements (continued)
4. Notes Payable and Line of Credit (continued)
Under the terms of the notes payable and line of credit agreement with the bank,
the Company is subject to compliance with certain covenants including minimum
levels of working capital, tangible net worth, cash flow coverage, and leverage
ratios. As of December 31, 1996, the Company was in compliance with all
covenants.
Maturities of the notes payable are as follows at December 31:
1997 $ 6,214,549
1998 2,421,670
1999 2,392,979
2000 402,214
--------------------
$ 11,431,412
====================
5. Employee Benefit Plan
The Company has a defined contribution 401(k) savings plan, a contributory plan
that covers substantially all of the Company's employees. Flip employees, who
were previously covered under a separate plan, began participation in this plan
effective July 1, 1996. During the year, the Company matched 100% of employees'
contributions up to 3% of the employees' eligible earnings. Employees become
fully vested after three years of service. Retirement expense for the Company
was $182,072 and $106,304 for the years ended December 31, 1996 and 1995,
respectively.
Through July 1, 1996, the Company sponsored a defined contribution 401(k)
savings plan covering substantially all of Flip's employees and matched 100% of
employees' contributions up to 3% of employees' eligible earnings. Retirement
expense related to this plan for the Company was $36,049 through July 1, 1996.
-70-
<PAGE>
Bauer Audio Visual, Inc.
Notes to Consolidated Financial Statements (continued)
6. Leases
The Company leases various facilities, vehicles, and equipment under
noncancelable operating leases. Rental expense was $949,355 and $452,257 for
1996 and 1995, respectively. Future minimum lease payments under these leases
for the year ended December 31 are as follows:
1997 $ 697,124
1998 524,738
1999 345,161
2000 189,641
2001 186,206
Thereafter 316,350
--------------------
$ 2,259,220
====================
At December 31, 1995, the Company also leased audio and video equipment under
the terms of several capital leases. The lease terms provided for equal monthly
payments over a 36-month period, with final payments due in July and September
1996. Interest was charged at rates ranging from 8.111% to 8.138%. There were no
remaining payments on the capital lease obligations at December 31, 1996.
7. Other Income
Other income consists of the following at December 31:
1996 1995
-----------------------------------------
Gain on insured casualty loss $ 305,043 $ --
Interest income 11,035 12,770
Other 56,335 24,515
-----------------------------------------
$ 372,413 $ 37,285
=========================================
-71-
<PAGE>
Bauer Audio Visual, Inc.
Notes to Consolidated Financial Statements (continued)
8. Acquisitions
In October 1996, the Company acquired the audio visual related operating assets
of Video Visuals, Inc., a Company located in Boston, Massachusetts. Total
purchase price of the assets was approximately $500,000, of which $350,000 was
allocated to rental equipment and $150,000 was allocated to goodwill. The
purchase price was paid with a $250,000 cash payment and the execution of two
notes payable totaling $250,000. In conjunction with the purchase agreement, the
owner of Video Visuals, Inc. agreed to provide consulting services to the
Company for a period of one year in return for monthly payments of $8,333, or a
total of $100,000. The monthly payments began in November 1996. The Company is
expensing these payments when made.
Effective November 9, 1995, the Company purchased all of the outstanding stock
of Flip, an audio visual company headquartered in Phoenix, Arizona, for
$4,300,000 including $3,751,000 in assets and the assumption of $2,666,000 of
Flip's financial liabilities. The purchase price was paid, in part, by using the
proceeds of the seller note and the Subordinated Note described in Note 4. The
excess purchase price of $3,200,000 was allocated primarily to the rental
equipment of Flip. Due to differences in the book and tax basis of the acquired
assets, a net deferred tax liability of approximately $1,110,000 was recorded in
conjunction with the acquisition.
In conjunction with the purchase agreement, the former owner of Flip agreed to
provide consulting services to the Company for a period of three years in return
for monthly payments of $27,778, or a total of $1,000,000. The monthly payments
began in November 1995. The Company is expensing these payments when made.
9. Subsequent Event
Subsequent to December 31, 1996, the Company acquired 20% of the outstanding
stock of VideoLinx Communications, Inc., a video teleconferencing company, for
$500,000. A majority of the purchase price was paid through borrowings against
the Company's $1,500,000 equipment note obtained in November 1996.
-72-
<PAGE>
BAUER AUDIO VISUAL, INC.
BALANCE SHEET
(unaudited)
June 30,
1997
ASSETS
Current assets:
Cash and cash equivalents $ 298,841
Trade accounts receivable, net 7,730,821
Inventory 686,139
Deferred tax asset 134,925
Prepaid expenses and other current assets 532,430
Note receivable 144,814
-------------------
Total Current Assets 9,527,970
Property and equipment, net 9,722,119
Goodwill, net 953,828
Other assets 688,414
-------------------
TOTAL ASSETS $ 20,892,331
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 6,214,449
Trade accounts payable 1,998,701
Accrued expenses and other current liabilities 1,761,414
-------------------
Total Current Liabilities 9,974,564
Long-term debt 5,020,238
Deferred tax liability 1,390,190
-------------------
TOTAL LIABILITIES 16,384,992
Stockholders' equity:
Common stock 1,000
Treasury stock (978)
Additional paid-in capital 2,415,886
Retained earnings 2,091,431
-------------------
TOTAL STOCKHOLDERS' EQUITY 4,507,339
-------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,892,331
===================
See accompanying note to the unaudited financial statements.
-73-
<PAGE>
BAUER AUDIO VISUAL, INC.
STATEMENTS OF OPERATIONS
for the Six Months Ended
(unaudited)
<TABLE>
<CAPTION>
June 30,
----------------------------------------
1996 1997
------------------- -------------------
<S> <C> <C>
Revenue $27,350,807 $32,348,812
Cost of revenue 19,222,180 24,127,472
------------------- -------------------
Gross profit 8,128,627 8,221,340
Operating expenses:
Selling, general and administrative expenses 4,356,679 5,130,455
Depreciation and amortization 1,113,101 1,600,546
------------------- -------------------
Total operating expenses 5,469,780 6,732,614
------------------- -------------------
Operating income 2,658,847 1,490,339
Interest expense, net (458,970) (531,799)
Other income, net 218,324 6,813
------------------- -------------------
Income before taxes 2,418,201 965,353
Income tax expense 822,188 337,755
=================== ===================
Net income $1,596,013 $627,598
=================== ===================
</TABLE>
See accompanying note to the unaudited financial statements.
-74-
<PAGE>
BAUER AUDIO VISUAL, INC.
STATEMENTS OF CASH FLOWS
for the Six Months Ended
(unaudited)
<TABLE>
<CAPTION>
June 30,
---------------------------------------
1996 1997
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,596,013 $627,598
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation expense 1,113,101 1,600,546
Loss on sale of equipment -- 70,811
Provision for doubtful accounts -- 41,559
Change in assets and liabilities:
(Increase) in accounts receivable (2,896,916) (1,035,787)
(Increase) in inventory (221,597) (223,881)
(Increase) in prepaid expenses and other assets (406,313) (195,110)
(Decrease) in accounts payable 1,182,734 876,688
Increase in deferred tax asset -- (265,166)
(Decrease) increase in accrued expenses and other liabilities (108,782) 415,598
------------------- -------------------
Net cash used in (provided by) operating activities 258,240 1,912,856
Cash flow used in provided by investing activities:
Purchase of rental equipment and property and equipment 1,563,106 (2,137,813)
Purchase of investment -- (500,000)
------------------- -------------------
Net cash used in investing activities (1,563,106) (2,637,813)
------------------- -------------------
Cash Flow (used in) provided by financing activities:
Repayments of bank loan (600,018) (1,023,865)
Proceeds from bank loan 391,587 763,140
Proceeds from bank line of credit 1,147,256 64,000
Note receivable from officer (4,655) (4,800)
Net cash provided by (used in) financing activities 934,170 (201,525)
------------------- -------------------
Net decrease in cash (370,696) (926,482)
Cash, beginning of period 153,890 1,225,323
=================== ===================
Cash, end of period ($216,806) $298,841
=================== ===================
</TABLE>
See accompanying note to the unaudited financial statements.
-75-
<PAGE>
BAUER AUDIO VISUAL, INC.
NOTE TO UNAUDITED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles from interim financial
information and should be read in conjunction with Bauer Audio Visual, Inc.'s
audited financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Such
adjustments are of a normal recurring nature. Operating results for the six
months ended June 30, 1996 and 1997 are not necessarily indicative of the
results that may be expected for any other period or for a full fiscal year.
-76-
<PAGE>
CARIBINER INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information of
Caribiner International, Inc. (the "Company") gives effect to (i) the
acquisition of all of the outstanding ordinary shares of SCH International
Limited ("Spectrum") (acquired in June, 1996); (ii) the acquisition of certain
of the assets of Total Audio Visual Services ("TAVS") (acquired in September,
1996), an operating division of General Electric Capital Computer Leasing
Corporation (together with the acquisition of Spectrum, the "Prior
Acquisition"); (iii) the acquisition of substantially all of the outstanding
capital stock of Blumberg Communications Inc. and Subsidiary ("Blumberg")
(acquired in January, 1997); (iv) the acquisition of substantially all of the
assets and assumption of certain of the liabilities of D&D Enterprises, Inc.
d/b/a Show Solutions ("Show Solutions") (acquired in April, 1997); (v) the
acquisition of all of the outstanding capital stock of WCT Live Communication
Limited ("WCT") (acquired in June, 1997); (vi) the acquisition of substantially
all of the outstanding capital stock of Bauer Audio Visual, Inc. ("Bauer")
(acquired in July, 1997); (vii) descreased interest expense and preferred stock
dividends resulting from the repayment of substantially all outstanding bank
borrowings and other long-term indebtedness of the Company from proceeds of the
initial public offering of common stock, which was consummated in March, 1996;
and (viii) the repayment with the proceeds of the initial public offering and
the offering of common stock completed in March, 1997 of the bank borrowings
that would have been incurred in connection with the acquisitions of Spectrum,
TAVS and Blumberg.
The Company believes that the accompanying unaudited consolidated pro forma
financial information contains all adjustments necessary to fairly present its
financial position as of June 30, 1997, and the results of its operations for
the nine months ended June 30, 1997 and the year ended September 30, 1996 as if,
in the case of the Unaudited Pro Forma Consolidated Balance Sheet, the
acquisition of Bauer had occurred on June 30, 1997, and, in the case of the
Unaudited Pro Forma Consolidated Statements of Operations for the nine months
ended June 30, 1997 and the year ended September 30, 1996, the transactions
described above had occurred on October 1, 1995.
The unaudited pro forma consolidated financial information has been included as
required by the rules of the Commission and is provided for comparative purposes
only. The unaudited pro forma consolidated financial information presented
herein is based upon the historical consolidated financial statements of each of
the Company, Blumberg, Show Solutions, WCT and Bauer, and should be read in
conjunction with such financial statements and the related notes thereto, all of
which are included elsewhere in this Form 8-K/A or in the Company's other
filings with the Commission.
The Unaudited Pro Forma Consolidated Statement of Operations for the year ended
September 30, 1996 includes Spectrum's historical results of operations for the
eight months ended May 31, 1996 and TAVS' historical results of operations for
the twelve months ended September 27, 1996. The Company's historical results of
operations for the year ended September 30, 1996 include the results of
operations of Spectrum since June 1, 1996, its effective date of acquisition.
The results of operations of each of Spectrum and TAVS are included in the
column, "Prior Acquisitions" in the accompanying Unaudited Pro Forma
Consolidated Statement of Operations for the year ended September 30, 1996.
The Unaudited Pro Forma Consolidated Statements of Operations for the nine
months ended June 30, 1997 and the year ended September 30, 1996 include
Blumberg's results of operations for the four months ended January 31, 1997 and
twelve months ended September 30, 1996, respectively. The results of operations
of Blumberg since February 1, 1997, its date of acquisition, are included in the
Company's historical results of operations for the nine months ended June 30,
1997.
The fiscal year end of Show Solutions (December 31) differed from the Company's
fiscal year end (September 30). The unaudited Pro Forma Consolidated Statements
of Operations for the nine months ended June 30, 1997 and the year ended
September 30, 1996 include Show Solutions' results of operations for the seven
months ended April 30, 1997 and its year ended December 31, 1996 respectively.
The results of operations of Show Solutions since April 30, 1997, its date of
acquisition, are included in the Company's historical results of operations for
the nine months ended June 30, 1997.
The unaudited Pro Forma Consolidated Statements of Operations for the nine
months ended June 30, 1997 and the year ended September 30, 1996 include WCT's
results of operations for WCT's eight months ended May 31, 1997 and twelve
months ended September 30, 1996, respectively. The results of operations of WCT
since June 12, 1997, its date of acquisition, are included in the Company's
historical results of operations for the nine months ended June 30, 1997. The
historical financial information of WCT referred to above has been adjusted to
conform to the generally accepted accounting principles of
-77-
<PAGE>
the United States and has been translated into United States dollars based upon
the appropriate exchange rates.
Bauer's fiscal year end (December 31) differs from the Company's fiscal year end
(September 30). The unaudited Pro Forma Consolidated Statements of Operations
for the nine months ended June 30, 1997 and the year ended September 30, 1996
include Bauer's results of operations for Bauer's nine months ended June 30,
1997 and its year ended December 31, 1996, respectively. As a result of the
differing year ends of the Company and of Bauer, the results of operations of
Bauer for the three months ended December 31, 1996 are included in both periods.
The pro forma financial information presented does not purport to be indicative
of the financial position of operating results which would have been achieved
had the transactions described above taken place at the dates indicated and
should not be construed as representative of the Company's financial position or
results of operations for any future date or period.
-78-
<PAGE>
CARIBINER INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1997
(all amounts, except per share data, in thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
Historical Pro Forma
---------------------------------------------------------------------------------
Caribiner Pro Form Adjustments Caribiner
International, Bauer, Inc. Bauer International,
Inc. Inc.
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $22,869 $ 299 $ 26,000 (a) $ 22,509
(26,659)(b)
Trade accounts receivable, net 73,883 7,731 -- 81,614
Deferred charges 11,218 -- -- 11,218
Prepaid expenses and other current assets 10,980 1,498 -- 12,478
-------------------------------------------------------------------------------
Total Current Assets 118,950 9,528 (659) 127,819
Property and equipment-net 33,815 9,722 (2,236)(c) 41,301
Intangible assets-net 123,181 954 19,051 (d) 143,186
Other assets 3,257 688 -- 3,945
===============================================================================
Total Assets $279,203 20,892 16,156 $316,251
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank line of credit 4,000 -- -- 4,000
Current portion of long-term debt 1,310 6,214 (6,214)(e) 1,310
Trade accounts payable 12,803 1,999 -- 14,802
Accrued expenses and other current
liabilities 36,948 1,762 701 (f) 39,322
(89)(e)
Accrued production costs 13,005 -- -- 13,005
Deferred income 18,138 -- -- 18,138
-------------------------------------------------------------------------------
Total Current Liabilities 86,204 9,975 (5,602) 90,577
Long-term debt 24,720 5,020 26,000 (a) 50,720
(5,020)(e)
Deferred income 7,341 -- -- 7,341
Other liabilities 1,479 1,390 -- 2,869
-------------------------------------------------------------------------------
Total Liabilities 119,744 16,385 15,378 151,507
Common stock 232 1 (1)(g) 234
2 (h)
Treasury stock -- (1) 1 (g)
Additional paid-in capital 153,074 2,416 (2,416)(g) --
5,283 (h) 158,357
Translation adjustment 430 -- -- 430
Retained earnings 5,723 2,091 (2,091)(g) 5,723
-------------------------------------------------------------------------------
Total stockholders' equity 159,459 4,507 778 164,744
===============================================================================
Total liabilities and stockholders' equity $279,203 $20,892 $16,156 $316,251
===============================================================================
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet.
-78-
<PAGE>
CARIBINER INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended September 30, 1996
(all amounts, except per share data, in thousands)
<TABLE>
<CAPTION>
Historical
------------------------------------------------------------------------------------
Caribiner
International, Prior Show
Inc. Aquisitions Blumberg Solutions WCT Live Bauer
---------------- ------------- --------- --------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Service revenue $ 148,330 $ 26,730 $ -- $ -- $ 15,732 $ --
Rental revenue -- 52,003 48,099 8,725 -- 42,449
---------- -------- -------- ------- -------- --------
Total revenue 148,330 78,733 48,099 8,725 15,732 42,449
Cost of service revenue 99,797 20,661 -- -- 11,141 --
Cost of rental revenue -- 38,601 29,439 3,645 -- 29,278
---------- -------- -------- ------- -------- --------
Total cost of revenue 99,797 59,262 29,439 3,645 11,141 29,278
Gross Profit 48,533 19,471 18,660 5,080 4,591 13,171
Operating expenses:
Selling, general and
administrative expenses 31,514 12,303 15,857 2,056 5,154 7,756
Depreciation and
amortization 3,142 3,550 794 633 69 2,519
---------- -------- -------- ------- -------- --------
Total operating expenses 34,656 15,853 16,651 2,689 5,223 10,275
---------- -------- -------- ------- -------- --------
Operating income (loss) 13,877 3,618 2,009 2,391 (632) 2,896
Interest expense with
related parties 1,199 -- -- -- -- --
Other interest expense
(income), net 386 1,616 278 18 (126) 883
Other (income)
expense, net -- (250) 230 -- -- (359)
---------- -------- -------- ------- -------- --------
Income (loss) before
taxes 12,292 2,252 1,501 2,373 (506) 2,372
Income tax expense
(benefit) 4,302 854 600 901 (150) 1,030
---------- -------- -------- ------- -------- --------
Net income (loss) $ 7,990 1,398 901 1,472 (356) 1,342
========== ======== ======== ======= ========= ==========
Earnings per share $ 0.53 -- -- -- -- --
========== ======== ======== ======= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
-----------------------------
Caribiner
Pro Forma International,
Adjustments(i) Inc.
----------- --------------
<S> <C> <C>
Service revenue $ -- $ 190,792
Rental revenue -- 151,276
-------- ----------
Total revenue -- 342,068
Cost of service revenue -- 131,599
Cost of rental revenue -- 100,963
-------- ----------
Total cost of revenue -- 232,562
Gross Profit -- 109,506
Operating expenses:
Selling, general and
administrative expense -- 74,640
Depreciation and
amortization 2,452(j) 13,159
-------- ----------
Total operating expenses 2,452(j) 87,799
-------- ----------
Operating income (loss) (2,452) 21,707
Interest expense with
related parties (1,199)(k) --
Other interest expense
(income), net (719)(k) 3,439
1,103 (l)
Other (income)
expense, net -- (379)
-------- ----------
Income (loss) before
taxes (1,637) 18,647
Income tax expense
(benefit) (358)(m) 7,179
-------- ----------
Net income (loss) (1,279) $ 11,468
======== ===========
Earnings per share -- $ 0.54(n)
======== ===========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Operations.
-80-
<PAGE>
CARIBINER INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended June, 1997
(all amounts, except per share data, in thousands)
<TABLE>
------------------------------------------------------------------------------------------------------
Pro Forma
Historical Adjustments (i) Pro Forma
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Caribiner Caribiner
International, Show International,
Inc. Blumberg Solutions WCT Live Bauer Acquisitions Inc.
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenue $151,448 $ -- $ -- $19,886 $-- $ -- $171,334
Rental revenue 81,845 18,770 5,322 -- 46,981 -- 152,918
----------------------------------------------------------------------------------------------------
Total revenue 233,293 18,770 5,322 19,886 46,981 -- 324,252
Cost of service revenue 102,362 -- -- 14,096 -- -- 116,458
Cost of rental revenue 51,639 14,014 2,383 -- 34,425 -- 102,461
----------------------------------------------------------------------------------------------------
Total cost of revenue 154,001 14,014 2,383 14,096 34,425 -- 218,919
Gross Profit 79,292 4,756 2,939 5,790 12,556 -- 105,333
Operating expenses:
Selling, general and
administrative expenses 50,079 4,475 1,322 4,537 7,878 -- 68,291
Depreciation and
amortization 6,870 146 447 87 2,861 812(j) 11,223
-----------------------------------------------------------------------------------------------------
Total operating expenses 56,949 4,621 1,769 4,624 10,739 812 79,514
-----------------------------------------------------------------------------------------------------
Operating income (loss) 22,343 135 1,170 1,166 1,817 (812) 25,819
Interest expense (income), net 1,206 108 (49) (88) 727 594 (l) 2,498
-----------------------------------------------------------------------------------------------------
Income (loss) before taxes 21,137 27 1,219 1,254 1,090 (1,406) 23,321
Income tax expense (benefit) 8,666 11 488 502 529 (634)(m) 9,562
-----------------------------------------------------------------------------------------------------
Net income $12,471 $ 16 $ 731 $ 752 $ 561 $ (772) $ 13,759
=====================================================================================================
Earnings per share $0.59 -- -- -- -- -- $0.61(n)
=====================================================================================================
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Operations.
-79-
<PAGE>
CARIBINER INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
(a) Adjustment to increase cash resulting from bank borrowings of $26,000
incurred to finance the acquisition of Bauer.
(b) To reflect aggregate consideration granted at closing consisting of
$26,659 in cash and the issuance of 167,762 shares of the Company's
common stock having a fair market value of $5,285 for (i) the
acquisition of substantially all of the outstanding capital stock of
Bauer, (ii) the repayment at closing of outstanding indebtedness of
Bauer, and (iii) the payment of certain transaction-related costs.
(c) To adjust the net carrying value of certain fixed assets to fair value.
(d) Adjustment to record the goodwill of $19,051 resulting from the
acquisition of Bauer after allocation of the purchase price to the net
tangible assets.
(e) To reflect repayment at closing of the outstanding indebtedness,
including accrued interest, of Bauer.
(f) Adjustment to accrue for transaction costs which include professional
fees, severance and certain other costs incurred or to be incurred in
connection with the acquisition of Bauer.
(g) Adjustment to eliminate the stockholders' equity accounts of Bauer upon
acquisition.
(h) To record additional paid-in capital resulting from the issuance of
167,762 shares of the Company's common stock in connection with the
acquisition of Bauer.
(i) Pro forma adjustments to the Unaudited Pro Forma Consolidated Statements
of Operations give effect to the Prior Acquisitions and the acquisitions
of Blumberg, Show Solutions, WCT and Bauer, and the issuance and sale of
only that number of shares of the Company's common stock as would
generate net proceeds sufficient to repay substantially all outstanding
indebtedness of the Company, and to finance the acquisitions, as if such
transactions had occurred at the beginning of each period presented.
(j) Net adjustment to increase depreciation and amortization expense
resulting from the respective acquisitions based upon the Company's
estimated period of benefit, assuming the acquisitions had occurred as of
October 1, 1995.
(k) Adjustment to decrease interest expense relating to the repayment of
substantially all of the outstanding debt, including accrued interest,
upon consummation of the Company's initial public offering in March,
1996, as if such amounts were repaid on October 1, 1995.
(l) Adjustment to increase interest expense as a result of increased debt
incurred to finance the acquisitions of Bauer and WCT, assuming the
acquisitions occurred on October 1, 1995.
(m) To reflect the tax effect of the pro forma adjustments.
(n) Pro forma net income per common share has been calculated using the
weighted average number of shares of common stock outstanding during each
of the periods presented, assuming the initial public offering occurred
as of October 1, 1995. The calculation also assumes the issuance and sale
of only that number of shares as would generate net proceeds sufficient
(i) to repay indebtedness, including that incurred in connection with the
TAVS acquisition and that required to fund TAVS working capital
indebtedness and (ii) to finance the acquisitions of Blumberg and Show
Solutions, and the application of such proceeds to make such payments as
of the beginning of the period presented.
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