<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 8-K/A No. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED
Date of Report (date of earliest event reported):
June 21, 1996
Eagle River Interactive, Inc.
-----------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-28004 84-1320277
------------------------ ---------------- -------------------
(State of Incorporation) (Commission File (IRS Employee
Number) (Identification No.)
1060 West Beaver Creek Boulevard Avon, Colorado 81620
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(970) 845-8300
---------------------------------------------------
(Registrant's telephone number, including area code)
---------------------------------------------------
(Former name or former address if changed since last report.)
<PAGE> 2
Item 7 of the Current Report on Form 8-K of Eagle River Interactive,
Inc., a Delaware corporation (the "Company" or "ERI") reporting events occuring
on June 21, 1996 is amended and restated in its entirety as set forth below.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
1. Graphic Media, Inc. ("Graphic Media") audited financial statements,
attached hereto as Appendix I.
a. Report of Independent Public Accountants dated July 12,
1996.
b. Balance Sheets as of December 31, 1995 and 1994.
c. Statements of Operations for the years ended December 31,
1995 and 1994.
d. Statements of Changes in Shareholders' Equity for the
years ended December 31, 1995 and 1994.
e. Statements of Cash Flows for the years ended December 31,
1995 and 1994.
f. Notes to Financial Statements.
2. Graphic Media unaudited condensed financial statements attached as
Appendix II.
a. Balance Sheet as of June 21, 1996.
b. Statements of Operations for the period from January 1,
1996 to June 21, 1996 and the period from January 1, 1995
to June 21, 1995
c. Statements of Cash Flows for the period from January 1,
1996 to June 21, 1996 and the period from January 1, 1995
to June 21, 1995
(b) Pro Forma Financial Information, attached hereto as Appendix III.
1. Unaudited Pro Forma Combined Condensed finanial information for the
years ended December 31, 1995 and 1994.
<PAGE> 3
APPENDIX 1
<PAGE> 4
Graphic Media
Financial Statements
December 31, 1995 and 1994
Contents
<TABLE>
<S> <C>
Report of Independent Public Accountants 1
Financial Statements
Balance Sheet 2
Statements of Operations 3
Statement of Changes in Shareholders' Equity (Deficit) 4
Statements of Cash Flows 5
Notes to Financial Statements 6
</TABLE>
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Graphic Media, Inc.:
We have audited the accompanying balance sheets of GRAPHIC MEDIA, INC. (an
Oregon corporation) as of December 31, 1995 and 1994, and the related
statements of operations, shareholders' equity (deficit) 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 financial position of Graphic Media, Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Denver, Colorado,
July 12, 1996.
<PAGE> 6
GRAPHIC MEDIA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
ASSETS 1995 1994
------ ---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 21,000 $ 17,000
Accounts receivable, net of allowance for doubtful accounts
of $30,000 855,000 600,000
Other current assets 13,000 18,000
---------- ----------
Total current assets 889,000 635,000
Equipment, furniture and fixtures; net 474,000 405,000
Other assets 14,000 128,000
---------- ----------
$1,377,000 $1,168,000
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 216,000 $ 87,000
Accrued expenses 172,000 112,000
Billings in excess of costs and estimated earnings 111,000 155,000
Current portion long-term debt 118,000 109,000
Current portion of capital lease obligations 53,000 11,000
Current portion of non-compete obligation 96,000 96,000
---------- ----------
Total current liabilities 766,000 570,000
LONG-TERM DEBT, net of current portion 290,000 409,000
CAPITAL LEASE OBLIGATIONS, net of current portion 95,000 45,000
NON-COMPETE OBLIGATION, net of current portion 272,000 368,000
---------- ----------
Total liabilities 1,423,000 1,392,000
COMMITMENTS AND CONTINGENCIES (Notes 5, 6 and 9)
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, no par value; 5,000,000 shares authorized;
2,073,300 and 1,600,000 issued and outstanding, respectively 241,000 1,000
Deferred compensation (18,000) -
Accumulated deficit (269,000) (225,000)
---------- ----------
Total shareholders' deficit (46,000) (224,000)
---------- ----------
$1,377,000 $1,168,000
========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
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<PAGE> 7
GRAPHIC MEDIA, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C>
NET SALES $5,345,000 $4,267,000
COST OF SALES 3,706,000 3,163,000
----------- ----------
Gross profit 1,639,000 1,104,000
----------- ----------
OPERATING EXPENSES:
Selling, general and administrative 1,280,000 894,000
Depreciation and amortization 340,000 581,000
----------- ----------
Total operating expenses 1,620,000 1,475,000
----------- ----------
Income (loss) from operations 19,000 (371,000)
OTHER INCOME (EXPENSES):
Interest income 9,000 2,000
Interest expense (60,000) (43,000)
Other, net (12,000) (34,000)
----------- -------------
Net loss $ (44,000) $ (446,000)
========== =============
---------- -------------
NET LOSS PER COMMON SHARE $ (.02) $ (0.09)
========== =============
WEIGHTED AVERAGE NUMBER OF ---------- -------------
COMMON SHARES AND COMMON 1,895,813 4,800,000
SHARE EQUIVALENTS OUTSTANDING ========== =============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
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<PAGE> 8
GRAPHIC MEDIA, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Retained Total
Common Stock Earnings/ Shareholders'
------------------------ Accumulated Deferred Equity/
Shares Amount Deficit Compensation (Deficit)
---------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1994 8,000,000 $ 6,000 $ 280,000 $ - $ 286,000
Repurchase of shares from
founder in June (6,400,000) (5,000) (59,000) - (64,000)
Net loss - - (446,000) - (446,000)
--------- ---- --------- ----------- ---------
BALANCES, December 31, 1994 1,600,000 1,000 (225,000) - (224,000)
Issuance of stock options
below market value - 49,000 - (49,000) -
Amortization of deferred
compensation - - - 31,000 31,000
Issuance of stock options
for technology - 49,000 - - 49,000
Issuance of stock for
technology 473,300 142,000 - - 142,000
Net loss - - (44,000) - (44,000)
--------- ------- --------- ----------- ---------
BALANCES, December 31, 1995 2,073,300 $241,000 $(269,000) $ (18,000) $ (46,000)
========= ======== ========= =========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
- 4 -
<PAGE> 9
GRAPHIC MEDIA, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1995 1994
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (44,000) $ (446,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 222,000 197,000
Write-off of product technology 241,000 -
Amortization of deferred compensation 31,000 -
Amortization of non-compete agreement 118,000 384,000
Changes in assets and liabilities:
Accounts receivable (255,000) (136,000)
Other current assets 5,000 (8,000)
Accounts payable 129,000 (167,000)
Accrued expenses 60,000 15,000
Billings in excess of costs and estimated earnings (44,000) 122,000
---------- -----------
Net cash provided by (used in) operating activities 463,000 (39,000)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment, furniture and fixtures (162,000) (71,000)
Purchase of product rights (50,000) -
Other (4,000) 25,000
---------- ----------
Net cash used in investing activities (216,000) (46,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - 250,000
Repayments of long-term debt (110,000) (103,000)
Repayments of capital lease obligations (37,000) (12,000)
Repayments of non-compete obligation (96,000) (48,000)
---------- ----------
Net cash (used in) provided by financing activities (243,000) 87,000
---------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,000 2,000
CASH AND CASH EQUIVALENTS, at beginning of year 17,000 15,000
---------- ----------
CASH AND CASH EQUIVALENTS, at end of year $ 21,000 $ 17,000
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest expense $ 61,000 $ 42,000
========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Equipment acquired through capital leases $ 129,000 $ 68,000
========== ==========
Stock and stock options issued for product rights $ 191,000 $ -
========== ==========
Note issued for product rights $ 50,000 $ -
========== ==========
Note issued for stock redemption $ - $ 64,000
========== ==========
Note issued for non-compete agreement $ - $ 512,000
========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
- 5 -
<PAGE> 10
GRAPHIC MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) ORGANIZATION AND NATURE OF BUSINESS
Graphic Media, Inc. (the "Company") is in the business of developing,
publishing, and supporting various computer based multimedia products that fall
into two broad categories: marketing communications and training. The Company
is located in Portland, Oregon and sells to wholesale customers and end users
throughout the U.S. Prior to June 21, 1996, the Company was organized as an S
Corporation for income tax purposes. On June 21, 1996, as discussed in Note
11, the Company became a wholly owned subsidiary of Eagle River Interactive,
and the Company's status as an S Corporation terminated.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Custom projects are generally completed within three to nine months. Revenue
is recognized on the percentage of completion method on an individual contract
basis. Percentage complete is determined based upon the ratio that costs
incurred bear to total estimated costs. Contract costs include all direct
labor costs and other direct costs related to contract performance, such as
freelance labor, supplies, printing, and equipment costs. The Company's use of
the percentage of
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<PAGE> 11
completion method of revenue recognition requires estimates of the degree of
project completion. To the extent these estimates prove to be inaccurate, the
revenues and gross profits, if any, reported for periods during which work on
the project is ongoing may not accurately reflect the final results of the
project, which can only be determined upon project completion. Provisions for
any estimated losses on uncompleted contracts are made in the period in which
such losses are determinable. Revenue is reported net of reimbursable
expenses.
The liability "Billings in excess of costs and estimated earnings" represents
billings in excess of revenue recognized.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all cash
and highly liquid investments with an original maturity of three months or less
to be cash equivalents.
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures is stated at cost and depreciation is
provided using the straight-line method over the estimated useful lives of the
respective assets, which is estimated to be five years. Maintenance and
repairs are charged to expense as incurred. Major additions, replacements and
improvements are capitalized. Leasehold improvements are capitalized and
amortized over the shorter of the lease term or their estimated useful life.
Product License and Product Development Costs
Product development costs incurred subsequent to establishing a product's
technological feasibility are capitalized until such product is available for
general release to customers in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed." Capitalized software costs are
amortized on a product-by-product basis. Amortization is recorded based on the
greater of (a) the
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<PAGE> 12
estimated economic life of the software (generally two years or less) or (b)
the ratio of current gross revenue for each product to the total of current and
anticipated gross revenues for each product, commencing when such product is
available for general release. All other product costs are expensed as
incurred.
Certain contracts require the Company to pay royalties on product sales.
Royalties are generally based upon a percentage of net Company revenues from
the related product and are accrued as products are sold.
Income Taxes
The Company, with the consent of its shareholders, has elected S Corporation
status under the Internal Revenue Code. Under this provision, taxable income
is generally taxed to the shareholders. Accordingly, no income tax expense or
deferred income taxes are reflected in the financial statements. It has been
management's intention and past practice each year to pay out cash dividends at
least equal to the stockholders' tax liability for S Corporation earnings.
Use of Estimates in the Preparation
of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
Such estimates and assumptions affect the reported amounts of assets and
liabilities as well as disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenue and
expense during the reporting period. Actual results could differ from those
estimates.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of credit risk
such as foreign exchange contracts, options contracts or other foreign hedging
arrangements. The Company
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<PAGE> 13
maintains the majority of its cash balances with one financial institution, in
the form of demand deposits and money market accounts. The Company's accounts
receivable balances are all domestic. See Note 10 for discussion of major
customers.
Fair Value of Financial Instruments
During the year ended December 31, 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures
about Fair Value of Financial Instruments" which requires that companies
disclose the fair value of financial instruments, where practicable, and the
method(s) and significant assumptions used to estimate those fair values. The
adoption of SFAS No. 107 resulted only in additional disclosure requirements
and had no effect on the Company's financial statements.
The Company's financial instruments consist of cash, short-term trade
receivables and payables, capital lease obligations and long-term debt. The
carrying values of cash and short-term trade receivables and payables
approximate their fair value. The carrying values of capital lease obligations
and long-term debt approximate their fair value because the stated interest
rates do not differ significantly from current market rates offered to the
Company for similar instruments.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets
to be Disposed Of." SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by the Company be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company intends to
adopt SFAS No. 121 during the first quarter of 1996; however, it is anticipated
that its adoption will not have a material impact on the Company's financial
statements when adopted.
- 9 -
<PAGE> 14
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 establishes financial
accounting and reporting standards for stock-based compensation. The statement
defines a fair value-based method of accounting for an employee stock option or
similar equity instrument. However, it also allows an entity to continue to
measure compensation costs for those plans using the intrinsic value- based
method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB Opinion No. 25"). Entities electing to remain with
the accounting in APB Opinion No. 25 must make pro forma disclosures of net
income and earnings per share, as if the fair value-based method of accounting
defined in SFAS No. 123 had been applied. The Company will be required to
adopt SFAS No. 123 during the first quarter of 1996. Management believes that
the Company will elect to make pro forma disclosure as allowed by SFAS No. 123.
Reclassifications
Certain amounts presented in prior periods have been reclassified to conform to
the current year presentation.
(3) EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures consists of the following as of December 31:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Leasehold improvements $ 151,000 $ 151,000
Computer equipment 712,000 584,000
Furniture and fixtures 238,000 233,000
Capitalized equipment leases 183,000 68,000
------------ ------------
1,284,000 1,036,000
Less accumulated depreciation
and amortization (810,000) (631,000)
------------ ------------
$ 474,000 $ 405,000
============ ============
</TABLE>
- 10 -
<PAGE> 15
Depreciation expense for the years ended December 31, 1995 and 1994 amounted to
$222,000 and $197,000, respectively.
(4) PURCHASED TECHNOLOGY
In May 1995, the Company acquired certain office training application products
in exchange for $50,000 in cash, a note payable of $50,000, a royalty
commitment, 473,300 shares of the Company's common stock, options to purchase
163,300 shares of the Company's common stock and payment of related legal costs
for a total value of $337,500. The common stock was issued at the negotiated
value of $.30 per share, or $142,000, and the stock options have an exercise
price of $.00001 per share. The difference between the fair value of the
options and their exercise price is treated as additional consideration of
$49,000. The recorded costs are being amortized pro rata over the projected
revenues to be generated from sales of the products. The Company recognized
depreciation expense associated with the training application products of
approximately $332,000 in 1995.
(5) CAPITAL LEASE OBLIGATIONS
The Company leases equipment under capital leases. Future minimum lease
payments under the capital leases as of December 31, 1995, are as follows:
<TABLE>
<S> <C>
1996 $ 74,000
1997 74,000
1998 31,000
----------
Total minimum lease payments 179,000
Less- Amount representing interest (31,000)
----------
Obligations under capital leases 148,000
Less- Current portion (53,000)
----------
$ 95,000
==========
</TABLE>
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<PAGE> 16
(6) LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
--------- -----------
<S> <C> <C>
Note payable; due $12,000 per month through
January 2000, including principal and interest;
interest calculated at prime plus 2%; secured by
receivables and certain equipment $ 362,000 $ 461,000
Stock redemption note; due $1,000 per month
through September 1999; non interest bearing;
secured by 6,400,000 shares of common stock 46,000 57,000
---------- -----------
408,000 518,000
Less current portion of long-term debt (118,000) (109,000)
--------- ----------
Long-term debt, net of current portion $ 290,000 $ 409,000
========== ===========
Long-term debt maturities due as of December 31, 1995 are as follows:
1996 $ 118,000
1997 129,000
1998 141,000
1999 20,000
-----------
$ 408,000
==========
(7) SHAREHOLDERS' EQUITY
Stock Split
In 1995, the Company declared a 100,000 to one split of common stock.
All issued and outstanding shares of common stock and options have been
retroactively restated to reflect the impact of the split.
</TABLE>
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<PAGE> 17
Redemption
In June 1994, the Company redeemed 6,400,000 shares of common stock from a
single shareholder for a non-interest bearing stock redemption note payable of
$64,000. The Company is required to make monthly payments of $1,000 on the
stock redemption note through September 1999 (see Note 6).
Stock Options
During 1995, the Company adopted a stock option plan (the "Plan") for selected
individuals. Options granted under the Plan must generally be exercised while
the individual is an employee and within ten years of the date of grant. For
less than 10% shareholders, the exercise price shall not be less than the fair
market value per share of the common stock at the time the option is granted.
For greater than 10% shareholders, the term of the option shall not exceed five
years and the exercise price shall not be less than 110% of the fair market
value of the common stock at the date of grant.
Stock option activity for the year ended December 31, 1995 was as follows:
<TABLE>
<CAPTION>
Number of Price Per
Shares Share
--------- ---------
<S> <C> <C>
Outstanding at December 31, 1994 - $ -
Options granted 145,000 .30
------- -----
Outstanding at December 31, 1995 145,000 $ .30
======= =====
</TABLE>
The right to exercise these options vests according to the discretion of the
Board of Directors, generally over four years from the date of grant. At
December 31, 1995, the Company reserved 300,000 shares of common stock for
issuance under the Plan and no options were exercisable.
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<PAGE> 18
In connection with employment of certain management personnel the Company has
granted options for the purchase of 326,000 shares of the Company's common
stock. The options vest based upon term of employment and have an exercise
price of $.0001 per share. These options are in addition to the shares of
common stock reserved under the Plan.
Buy-Sell Agreement
Shares issued by the Company and shares to be issued under options are subject
to the terms of a buy-sell agreement. The agreement provides the Company with
the first right of refusal in the event of any proposed share transfer.
(8) NON-COMPETE AGREEMENT
In connection with the June 1994, redemption of 6,400,000 shares of common
stock from a single shareholder (see Note 7), the Company entered into a
non-compete agreement with the former shareholder. Under the agreement the
former shareholder agreed not to engage in certain business activities in
exchange for a non-interest bearing note from the Company in the amount of
$512,000. The value of the non-compete agreement was originally recorded in
Other Assets on the balance sheet and is being amortized over two years. The
Company recognized amortization expense of $118,000 and $384,000 in 1995 and
1994, respectively. The Company is required to make monthly payments of $8,000
on the note through September 1999. As of December 31, 1995 and 1994, the
Company's total obligations under the agreement were $368,000 and $464,000,
respectively.
(9) COMMITMENTS AND CONTINGENCIES
The Company leases office space under a noncancelable operating lease which
expires October 2005.
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<PAGE> 19
Future minimum lease obligations as of December 31, 1995, are as follows:
<TABLE>
<S> <C>
1996 $ 336,000
1997 336,000
1998 336,000
1999 336,000
2000 336,000
Thereafter 1,618,000
-------------
Total minimum lease payments $ 3,298,000
=============
</TABLE>
Rent expense was approximately $324,000 and $322,000, for the years ended
December 31, 1995 and 1994, respectively.
Deferred Profit-Sharing Plan
Effective January 1, 1989, the Company established a deferred profit-sharing
plan for eligible employees. Participants are permitted deferrals from their
annual compensation not to exceed $9,240 in 1995. The Company may match
employee deferrals at the discretion of the Board of Directors. Contributions
of $9,000 and $0 were made to the plan in 1995 and 1994, respectively, by the
Company.
Legal Matters
The Company is exposed to asserted and unasserted legal claims encountered in
the normal course of business. Management believes that the ultimate
resolution of these matters will not have a material adverse effect on the
operating results or the financial position of the Company.
- 15 -
<PAGE> 20
(10) MAJOR CUSTOMERS
For the years ended December 31, 1995 and 1994, sales to individual customers
constituting 10% or more of total revenue were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Customer A 10% 24%
Customer B 37% 13%
Customer C - 10%
Customer D 17% -
</TABLE>
(11) SUBSEQUENT EVENTS
Debt Agreements
The Company entered into agreements with a bank as of May 1, 1996 to provide
for a $100,000 line of credit, a $300,000 line of credit and a $350,000 term
loan. All three loans bear interest at the bank's prime rate plus 1.5%,
contain certain restrictive covenants and are secured by accounts receivable
and equipment. The line of credit agreements expire May 1, 1997. The term
loan is payable in monthly installments of $8,000 plus interest beginning June
1996, with the final payment due November 1999.
Merger
On June 21, 1996, pursuant to an Agreement and Plan of Merger, the Company
completed a merger with Eagle River Interactive, Inc. ("ERI"), resulting in the
Company becoming a wholly owned subsidiary of ERI. In connection with the
merger, each outstanding share of the Company's common stock and options for
such common stock was converted into 0.27 of a share or option for a share of
ERI common stock with all the outstanding shares of the Company's common
stock being converted into approximately 550,000 shares of ERI common
stock. Prior to the conversion, a dissenting shareholder was paid $352,000 as
consideration for her approximate 3% interest in the Company. The merger will
be accounted for as a pooling of interests.
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<PAGE> 21
APPENDIX II
<PAGE> 22
GRAPHIC MEDIA, INC.
CONDENSED BALANCE SHEET
(in thousands)
ASSETS
June 21,
1996
-----------
(Unaudited)
Current Assets:
Accounts receivable, net ........................................ 748
Property and Equipment, net ........................................ 503
Other Assets, net .................................................. 221
------
Total Assets ....................................................... $1,472
======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................................ $ 414
Accrued liabilities ............................................. 169
Other current liabilities ....................................... 142
Current portion of note payable and capital lease obligation .... 524
------
Total ........................................................ 1,249
Note Payable and Capital Lease Obligation .......................... 656
------
Total Liabilities ............................................ 1,905
Shareholders' Equity:
Common stock .................................................... 103
Accumulated deficit ............................................. (536)
------
Total ........................................................ (433)
------
Total Liabilities and Shareholders' Equity ......................... $1,472
======
The accompanying notes are an integral part of this balance sheet.
<PAGE> 23
GRAPHIC MEDIA, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands except per share data)
<TABLE>
<CAPTION>
For the Period For the Period
from January 1, from January 1,
1996 to June 21, 1995 to June 21,
1996 1995
--------------- ----------------
(unaudited) (unaudited)
<S> <C> <C>
Revenue................................... $ 2,395 $ 2,594
------- -------
Operating Expenses:
Cost of Revenue ......................... 1,650 1,737
S, G & A ................................ 843 555
Depreciation ............................ 137 146
------- -------
Total Operating Expenses ................. 2,630 2,438
------- -------
Net Operating Income (Loss) .............. (235) 156
Other Income (Expenses) .................. (29) (15)
------- -------
Net Income (Loss)...... .................. $ (264) $ 141
======= =======
------- -------
Net Income (Loss) Per Common Share ....... $ (0.13) $ (0.06)
======= =======
Weighted Average Number of
Common Shares and Common --------- ---------
Share Equivalents Outstanding ........... 2,073,300 2,288,206
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 24
GRAPHIC MEDIA, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Period
from January 1 to
June 21
---------------------------
1996 1995
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................................... $(264) $ 141
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ...................................................... 137 146
Deferred compensation .............................................................. 18 --
Changes in assets and liabilities:
Accounts receivable .............................................................. 107 (46)
Other current assets ............................................................. 13 17
Other assets ..................................................................... (207) (3)
Accounts payable, accrued liabilities and other liabilities ...................... 224 197
----- ------
Net cash (used in) provided by operating activities ............................ 28 452
----- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................................................. (166) (186)
----- ------
Net cash used in investing activities........................................... (166) (186)
----- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable......................................................... 349 26
Repayment of notes payable.......................................................... (94) --
distributions to Shareholders....................................................... (138) --
----- ------
Net cash provided by financing activities ...................................... 117 26
----- ------
Net increase in cash and cash equivalents ............................................ (21) 292
----- ------
Cash and cash equivalents, beginning of period ....................................... 21 17
Cash and cash equivalents, end of period ............................................. $ 110 $ 309
----- ------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest expense ..................................................... $ 50 $ 28
===== ======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 25
GRAPHIC MEDIA INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 21, 1996
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed interim financial statements have been
prepared by Graphic Media, Inc. ("Graphic Media") without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission (the
"Commission"). Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
The accompanying condensed interim financial statements should be read in
conjunction with Graphic Media's historical financial statements and notes
thereto.
The accompanying unaudited condensed interim financial statements
reflect, in the opinion of management, all adjustments, which are of a normal
and recurring nature, necessary for a fair presentation of the financial
position and results of operations for the periods presented. The preparation
of financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions. Such
estimates and assumptions affect the reported amounts of assets and liabilities
as well as disclosure of contingent assets and liabilities at the date of the
accompanying condensed financial statements, and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates. The results of operations for the interim periods are not
necessarily indicative of the results for the entire year.
<PAGE> 26
APPENDIX III
<PAGE> 27
COMPANY AND GRAPHIC MEDIA
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements
combine the historical consolidated financial statements of the
Company and Graphic Media on the assumption that the merger had
been effective January 1, 1993. The merger is accounted for as a
pooling of interests.
The unaudited pro forma condensed combined financial statements give
effect only to the reclassifications and adjustments set forth in the
accompanying notes to unaudited pro forma condensed combined financial
statements. Unaudited pro forma information is not necessarily
indicative of the results of operations or financial position which
would have occurred had the merger been consummated at the beginning
of the earliest period presented, nor is it necessarily indicative of
the Company's future results of operations or financial position.
The unaudited pro forma condensed combined financial statements
should be read in conjunction with the historical consolidated
financial statements of the Company and the financial statements of
Graphic Media.
<PAGE> 28
Eagle River Interactive, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995 For the Year Ended December 31, 1994
--------------------------------------- --------------------------------------
Historical (a) Historical (a)
------------------------ ------------------------
Eagle River Graphic Pro Forma Eagle River Graphic Pro Forma
Interactive Media Combined Interactive Media Combined
----------- ------- --------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 5,273 $ 5,345 $ 10,618 $ 128 $4,267 $ 4,395
-------- ------- --------- ------ ----- ---------
Operating Expenses:
Cost of Revenue 4,639 3,706 8,345 - 3,163 3,163
Selling, General and Administrative 2,585 1,280 3,865 461 894 1,355
Depreciation 665 340 1,005 6 581 587
-------- ------- --------- ------ ----- ---------
Total Operating Expenses 7,889 5,326 13,215 467 4,638 5,105
-------- ------- --------- ------ ----- ---------
Net Operating Income (Loss) (2,616) 19 (2,597) (339) (371) (710)
Other Income (Expenses) (608) (63) (671) (23) (75) (98)
-------- ------- --------- ------ ----- ---------
Loss from Continuing
Operations Before Tax Benefit (3,224) (44) (3,268) (362) (446) (808)
Tax Benefit (Provision) - - - - - -
--------- ------- --------- ------ ----- ---------
Loss From Continuing Operations $ (3,224) $ (44) $ (3,268) $ (362) $(446) $ (808)
--------- ------- --------- ------ ----- ---------
Net Income Per Common Share $ (0.59) $ (0.07) $ (0.54)
========= ======= =========
Weighted Average Number of Common
Shares and Common Share
Equivalents Outstanding 5,436,599 641,978 6,078,577
========= ======= =========
</TABLE>
(a) Certain balances have been reclassified to conform to the current
period presentation
<TABLE>
<CAPTION>
For the Year Ended December 31, 1993
---------------------------------------
Historical
------------------------
Eagle River Graphic Pro Forma
Interactive Media Combined
----------- ------- ---------
<S> <C> <C> <C>
Revenue $ - $ 4,460 $ 4,460
-------- ------- ---------
Operating Expenses:
Cost of Revenue - 3,505 3,505
Selling, General and Administrative - 998 998
Depreciation - 178 178
-------- ------- ---------
Total Operating Expenses - 4,681 4,681
-------- ------- ---------
Net Operating Income (Loss) - (221) (221)
Other Income (Expenses) - (17) (17)
-------- ------- ---------
Net Loss - (238) (238)
--------- ------- ---------
</TABLE>
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Eagle River Interactive,
Date: September 6, 1996 /s/ Marc Pinto
-------------------------
Marc Pinto
Executive Vice President,
Chief Financial Officer
