<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):
July 31, 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)
N/A
---------------------------------------------------
(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 July 31, 1996 is amended and restated in its entirety as set forth below.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
1. Mastering Computers, Inc. ("Mastering Computers") audited financial
statements, attached hereto as Appendix I.
a. Report of Independent Public Accountants dated September 6,
1996.
b. Balance Sheets as of December 31, 1994 and 1995.
c. Statements of Operations for the years ended December 31,
1993, 1994 and 1995.
d. Statements of Shareholders' Equity for the years ended
December 31, 1993, 1994 and 1995.
e. Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995.
f. Notes to Financial Statements.
2. Mastering Computers unaudited condensed financial statements attached as
Appendix II.
a. Balance Sheets as of June 30, 1996.
b. Statements of Operations for the six months ended June 30,
1995 and 1996.
c. Statements of Cash Flows for the six months ended June 30,
1995 and 1996.
(b) Pro Forma Financial Information, attached hereto as Appendix III.
1. Unaudited Pro Forma Combined Condensed financial information for the
six months ended June 30, 1995 and 1996, and for the years ended December 31,
1995, 1994 and 1993.
(c) Exhibits.
27 Financial Data Schedule
<PAGE> 3
APPENDIX I
<PAGE> 4
Mastering Computers
Financial Statements
December 31, 1993, 1994 and 1995
Contents
<TABLE>
<S> <C>
Report of Independent Public Accountants 1
Financial Statements
Balance Sheets 2
Statements of Operations 3
Statement of Shareholder's Equity (Deficit) 4
Statements of Cash Flows 5
Notes to Financial Statements 6
</TABLE>
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Mastering Computers, Inc.:
We have audited the accompanying balance sheets of MASTERING COMPUTERS, INC.
(an Arizona S corporation) as of December 31, 1994 and 1995, and the related
statements of operations, shareholder's equity, and cash flows for each of the
three years in the period ended December 31, 1995. 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 audits 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 Mastering Computers, Inc. as
of December 31, 1994 and 1995, and the results of their operations and cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
September 6, 1996.
<PAGE> 6
MASTERING COMPUTERS, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1995
ASSETS
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 622,930 $1,450,556
Accounts receivable, less allowance
for doubtful accounts of $30,000 118,548 167,640
Deferred expenses and other 443,228 677,665
---------- ----------
Total current assets 1,184,706 2,295,861
PROPERTY AND EQUIPMENT, net (Note 2) 224,870 279,636
---------- ----------
Total assets $1,409,576 $2,575,497
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 209,407 $ 519,161
Accrued expenses 252,070 867,560
Deferred revenue 1,066,549 738,213
---------- ----------
Total current liabilities 1,528,026 2,124,934
---------- ----------
COMMITMENTS AND CONTINGENCIES
(Notes 3 and 5)
SHAREHOLDER'S (DEFICIT) EQUITY:
Common Stock, no par value, 1,000
shares authorized, 100 shares issued
and outstanding (Notes 3 and 6) 16,000 216,000
Retained (deficit) earnings (134,450) 234,563
---------- ----------
Total shareholder's (deficit) equity (118,450) 450,563
---------- ----------
Total liabilities and shareholder's
(deficit) equity $1,409,576 $2,575,497
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 7
MASTERING COMPUTERS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- -----------
<S> <C> <C> <C>
REVENUE $3,894,998 $6,787,373 $10,167,219
---------- ---------- -----------
OPERATING EXPENSES:
Cost of revenue 2,320,803 3,097,650 3,304,814
Selling, general and administrative 1,815,639 3,350,867 6,243,853
Depreciation 19,960 62,179 50,716
---------- ---------- -----------
Total operating expenses 4,156,402 6,510,696 9,599,383
---------- ---------- -----------
NET OPERATING (LOSS) PROFIT (261,404) 276,677 567,836
OTHER (EXPENSE) INCOME, net (2,551) (16,849) 70,478
---------- ---------- -----------
NET (LOSS) INCOME $ (263,955) $ 259,828 $ 638,314
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
MASTERING COMPUTERS, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
Retained
Common Earnings
Stock (Deficit) Total
-------- --------- ---------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 $ 16,000 $ (4,519) $ 11,481
Net loss - (263,955) (263,955)
Shareholder distributions - (38,514) (38,514)
-------- --------- ---------
BALANCE AT DECEMBER 31, 1993 16,000 (306,988) (290,988)
Net income - 259,828 259,828
Shareholder distributions - (87,290) (87,290)
-------- --------- ---------
BALANCE AT DECEMBER 31, 1994 16,000 (134,450) (118,450)
Net income - 638,314 638,314
Shareholder distributions - (269,301) (269,301)
Issuance of stock options (Note 3) 200,000 - 200,000
-------- --------- ---------
BALANCE AT DECEMBER 31, 1995 $216,000 $ 234,563 $ 450,563
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
MASTERING COMPUTERS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
------------- ------------ ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (263,955) $ 259,828 $ 638,314
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation 19,960 62,179 50,716
Loss on disposal of property and equipment - 15,101 23,120
Compensation from issuance of stock options
(Note 3) - - 200,000
Changes in certain assets and liabilities-
(Increase) decrease in accounts receivable (217,584) 138,642 (49,092)
Increase in deferred expenses and other (346,501) (45,449) (234,437)
Increase (decrease) in accounts payable 464,296 (322,153) 309,754
Increase in accrued expenses 121,661 130,309 615,490
Increase (decrease) in deferred revenue 799,160 102,663 (328,336)
------------- ------------ ----------
Net cash provided by operating activities 577,037 341,120 1,225,529
------------- ------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (79,686) (171,388) (128,602)
Proceeds from disposition of property and equipment - 24,526 -
------------- ------------ ----------
Net cash used in investing activities (79,686) (146,862) (128,602)
------------- ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit and long-term debt 250,000 300,000 250,000
Payments on line of credit and long-term debt (13,575) (576,159) (250,000)
Distributions to shareholder (38,514) (87,290) (269,301)
------------- ------------ ----------
Net cash provided by (used in)
financing activities 197,911 (363,449) (269,301)
------------- ------------ ----------
Net increase (decrease) in cash 695,262 (169,191) 827,626
------------- ------------ ----------
CASH AND CASH EQUIVALENTS, beginning of year 96,859 792,121 622,930
------------- ------------ ----------
CASH AND CASH EQUIVALENTS, end of year $ 792,121 $ 622,930 $1,450,556
============= ============ ==========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid $ 972 $ 5,554 $ 6,193
============= ============ ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Compensation expense associated with issuance
of stock options (Note 3) $ - $ - $ 150,000
============= ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 10
MASTERING COMPUTERS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS
Mastering Computers, Inc. (Mastering Computers), an Arizona S corporation, is
primarily engaged in the presentation of technical computer software seminars
across the continental United States. Mastering Computers also produces, sells
and distributes a technical computer newsletter.
REVENUE RECOGNITION
Seminar revenues received and related direct costs incurred prior to seminar
presentation are deferred. Upon seminar completion, all related revenues and
expenses are recognized. Newsletter subscription revenues are deferred and
recognized over the term of the subscription, and related subscription
fulfillment costs are expensed as incurred. Deferred seminar expenses were
approximately $361,000 and $564,000 as of December 31, 1994 and 1995,
respectively, and are included in deferred expenses and other on the
accompanying balance sheets.
INCOME TAXES
Mastering Computers is an S corporation under the Internal Revenue Code. As a
result, Mastering Computers is not required to pay federal income taxes.
Instead, the shareholder includes in his personal tax return the income or loss,
as adjusted to reflect the effects of certain transactions which are accorded
different accounting treatment for income tax purposes.
CASH AND CASH EQUIVALENTS
All highly liquid investments with original maturities of three months or less
are considered to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and the line of credit approximate fair value because of the
short-term maturity of these financial instruments.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), is required to be adopted by Mastering Computers in
fiscal 1996. Pursuant to the provisions of SFAS No. 123, Mastering Computers
will continue to account for transactions with its employees pursuant to
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. Therefore, this statement is not expected to have a material effect
on Mastering Computers' financial position or its results of operations when
adopted.
<PAGE> 11
- 2 -
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 of assets and liabilities, disclosures 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.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Mastering Computers to
concentrations of credit risk consist of cash and accounts receivable.
Mastering Computers places its cash with high quality financial institutions.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers comprising Mastering Computers' customer
base. Mastering Computers performs ongoing credit evaluations of its customers,
but does not require collateral to support customer receivables. Mastering
Computers established an allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical trends, and other
information.
(2) PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation of property and
equipment is provided using the straight-line method. The following estimated
useful lives are used for depreciation:
Leasehold improvements 5 years
Computer equipment 3-5 years
Furniture and fixtures 7 years
Office equipment 5-7 years
Maintenance and repairs are charged directly to expense as incurred.
Expenditures of major renewals and betterments to property and equipment are
capitalized.
For the years ended December 31, 1993, 1994 and 1995, maintenance and repair
expenses were approximately $4,000, $10,000 and $11,000, respectively. When
assets are disposed of, the related cost and accumulated depreciation thereon
are removed from the accounts and any resulting gain or loss is included in
operations.
<PAGE> 12
- 3 -
Property and equipment consist of the following at:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Leasehold improvements $11,515 $28,912
Computer equipment 155,430 212,658
Furniture and fixtures 47,546 55,096
Office equipment 99,064 100,519
-------- --------
313,555 397,185
Less- accumulated depreciation (88,685) (117,549)
-------- --------
$224,870 $279,636
======== ========
</TABLE>
(3) COMMITMENTS AND CONTINGENCIES:
LEASE OBLIGATIONS
Mastering Computers leases various property and equipment under operating
leases. Rent expense was approximately $31,000, $102,000 and $140,000 for
the years ended December 31, 1993, 1994 and 1995, respectively. As of
December 31, 1995, approximate future minimum lease payments under
noncancelable operating leases are as follows:
Year Ending
December 31,
------------
1996 $166,000
1997 153,000
1998 58,000
--------
$377,000
========
LINES OF CREDIT
Mastering Computers had a revolving line of credit of $500,000 with a bank that
expired in April 1996, guaranteed by the shareholder of Mastering Computers.
This line of credit bore interest at prime. In addition, subsequent to December
31, 1995, Mastering Computers entered into a $1,000,000 line of credit with a
commercial lending institution. The new line of credit bears interest at prime,
interest due monthly and principal due at maturity, February 1997, and is
collateralized by a personal guarantee of the shareholder and substantially all
assets of Mastering Computers.
<PAGE> 13
- 4 -
STOCK OPTIONS
Mastering Computers has granted to certain key employees options to purchase
shares of common stock of Mastering Computers which vest immediately at the
grant date. The difference between the option price per share and the fair
value of the underlying stock has been recorded as compensation expense at the
grant date in the accompanying statements of operations and recorded in common
stock.
<TABLE>
<CAPTION>
Option
Number Price
of Shares Per Share
--------- ---------
<S> <C> <C>
Outstanding, December 31, 1994 - $ -
Options granted 13.95 17,200
----- ---------
Outstanding, December 31, 1995 13.95 $ 17,200
===== =========
</TABLE>
(4) RELATED PARTY TRANSACTIONS:
Mastering Computers paid approximately $529,000, $962,000 and $861,000 for the
years ended December 31, 1993, 1994 and 1995, respectively, for printing,
mailing, marketing and other creative services to companies owned by certain
members of Mastering Computers Board of Advisors or family members of Mastering
Computers' shareholder.
During 1995, Mastering Computers entered into an agreement to expand certain
products available to seminar customers with a company owned by a family member
and a member of Mastering Computers Board of Advisors. Mastering Computers had
approximately $41,000 payable to the Company included in accrued expenses at
December 31, 1995 relating to the agreement.
(5) PROFIT SHARING PLAN:
Mastering Computers has a profit sharing plan for substantially all employees.
All employees who have completed one year of service and reached the age of 21
are eligible to participate in the plan.
Mastering Computers contributions consist of an annual discretionary
contribution. Mastering Computers' 1993 and 1994 annual contributions were
$40,913 and $71,344, respectively. Mastering Computers made no 1995 annual
contribution. The discretionary contribution is allocated to participants
eligible to share in the contribution for the Plan year. The contribution is
allocated based on a ratio of each participant's earnings to total compensation
received by all eligible participants.
(6) SUBSEQUENT EVENTS:
In February 1996, Mastering Computers granted 2.33 additional options to a key
employee at an option price of $17,200 per share scheduled to vest ratably over
a period of five years subject to immediate acceleration upon the occurrence of
a change in control of Mastering Computers. The difference between the option
price per share and the fair value per share of the underlying stock will be
amortized as compensation expense over the vesting period.
Effective August 1, 1996, Mastering Computers merged with ERI, a publicly held
entity whose chairman, president, and chief executive officer is a family member
of Mastering Computers' shareholder. In connection with the merger, ERI issued
1,175,000 shares of stock for all the outstanding common stock of Mastering
Computers in a transaction to be accounted for as a pooling of interests. As a
result of the merger, Mastering Computers became a wholly owned subsidiary of
ERI.
<PAGE> 14
APPENDIX II
MASTERING COMPUTERS, INC.
CONDENSED BALANCE SHEET
AS OF JUNE 30, 1996
UNAUDITED
ASSETS
<TABLE>
<CAPTION>
June 30,
1996
----------
(Unaudited)
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,222,007
Accounts receivable, less allowance for doubtful accounts of $75,000 390,140
Deferred expenses and other 728,534
----------
Total current assets 2,340,681
PROPERTY AND EQUIPMENT, net 834,520
----------
Total assets $3,175,201
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 242,793
Accrued expenses 1,701,017
Deferred revenue 1,137,581
Line of credit 1,000,000
----------
Total current liabilities 4,081,391
----------
CAPITAL LEASE OBLIGATION, net of current portion 213,254
----------
SHAREHOLDER'S DEFICIT:
Common Stock, no par value, 1,000 shares authorized, 100
shares issued and outstanding (Note 3) 366,000
Deferred compensation (Note 3) (150,000)
Retained deficit (1,335,444)
----------
Total shareholder's deficit (1,119,444)
----------
Total liabilities and shareholder's deficit $3,175,201
==========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
<PAGE> 15
MASTERING COMPUTERS, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
UNAUDITED
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
REVENUE $5,233,384 $6,753,716
---------- ----------
OPERATING EXPENSES:
Cost of revenue (Note 2) 1,718,444 1,691,397
Selling, general and administrative 3,053,350 5,530,869
Depreciation 42,042 72,291
---------- ----------
Total operating expenses 4,813,836 7,294,557
---------- ----------
NET OPERATING PROFIT (LOSS) 419,548 (540,841)
OTHER INCOME (EXPENSE), net 20,028 (27,725)
---------- ----------
NET INCOME (LOSS) $ 439,576 $ (568,566)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 16
MASTERING COMPUTERS, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
UNAUDITED
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 439,576 $ (568,566)
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation 42,042 72,291
Loss on disposal of property and equipment - 55,134
Compensation from issuance of stock options (Note 3) 200,000 -
Changes in certain assets and liabilities-
Increase in accounts receivable (34,058) (222,500)
Increase in deferred expenses and other (17,285) (50,869)
Increase (decrease) in accounts payable 49,071 (276,368)
Increase in accrued expenses 414,044 833,457
(Decrease) increase in deferred revenue (207,355) 399,368
---------- -----------
Net cash provided by operating activities 886,035 241,947
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (105,731) (486,255)
Proceeds from disposition of property and equipment - 17,200
---------- -----------
Net cash used in investing activities (105,731) (469,055)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 26,754 1,000,000
Distributions to shareholder (79,620) (1,001,441)
---------- -----------
Net cash (used in) provided by
financing activities (52,866) (1,441)
---------- -----------
Net increase (decrease) in cash 727,438 (228,549)
---------- -----------
CASH AND CASH EQUIVALENTS, beginning of period 622,930 1,450,556
CASH AND CASH EQUIVALENTS, end of period $1,350,368 $1,222,007
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 707 $ 25,828
========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Deferred compensation associated with issuance of
stock options (Note 3) $ - $ 150,000
========== ===========
Equipment acquired under capital lease $ - $ 213,254
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 17
MASTERING COMPUTERS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
The accompanying condensed interim financial statements have been prepared by
Mastering Computers without audit, pursuant to the rules and regulations of the
Securities and Exchange 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 Mastering Computers' historical financial
statements and notes.
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 the 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.
(2) CONSULTING ARRANGEMENT:
In the second quarter of 1996, pursuant to a contract entered into in May 1996
between Mastering Computers and ERI, Mastering Computers incurred expenses of
approximately $600,000 for consulting services which were performed by ERI and
are included in selling, general and administrative in the accompanying
statements of operations.
(3) STOCK OPTIONS:
In January 1996, Mastering Computers granted options for 2.33 shares of common
stock to a key employee at an exercise price of $17,200 per share scheduled to
vest ratably over a period of five years, subject to immediate acceleration upon
the occurrence of a change in control of Mastering Computers (See Note 4). The
difference between the exercise price per share and the fair value per share of
the underlying stock will be amortized as compensation expense over the vesting
period and is included as deferred compensation at June 30, 1996 in the
accompanying condensed balance sheet.
(4) MERGER WITH EAGLE RIVER INTERACTIVE, INC.:
Effective August 1, 1996, Mastering Computers merged with ERI, a publicly held
entity whose chairman, president, and chief executive officer is a family member
of the Mastering Computers shareholder. In connection with the merger, ERI
issued 1,175,000 shares of stock for all the outstanding common stock of the
Company in a transaction to be accounted for as a pooling of interests. As a
result of the merger, Mastering Computers became a wholly owned subsidiary of
ERI.
<PAGE> 18
APPENDIX III
<PAGE> 19
COMPANY AND MASTERING COMPUTERS
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements assume
a business combination between ERI and Mastering Computers accounted
for on a pooling-of-interests basis. The pro forma condensed combined
balance sheet combines ERI's consolidated condensed consolidated
balance sheet as of June 30, 1996 with Mastering Computers' condensed
balance sheet as of June 30, 1996 giving effect to the merger as if it
had occurred on June 30, 1996. The unaudited pro forma condensed
combined statements of operations combine ERI's and Mastering
Computers' historical results for the six months ended June 30, 1995
and 1996 and the years ended December 31, 1993, 1994 and 1995 giving
effect to the merger as if it had occurred at the beginning of the
earliest period presented. The pro forma condensed combined financial
statements are based on the historical financial statements and the
notes thereto of ERI included in the Registration Statement on Form S-1
as restated in ERI's amended Form 8-k filed on September 6, 1996 and
the historical financial statements of Mastering Computers included
herein.
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
ERI's future results of operations or financial position. The
unaudited pro forma condensed combined financial statements do not
incorporate any benefits from cost savings or synergies of operations
of the combined company.
The unaudited pro forma condensed combined financial statements
should be read in conjunction with the historical consolidated
financial statements of ERI and the financial statements of
Mastering Computers included herein.
<PAGE> 20
Eagle River Interactive, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
As of June 30, 1996
------------------------------------------------
Historical
----------------------------------
Eagle River Mastering Pro Forma Pro Forma
Interactive Computers Adjustments Combined
ASSETS --------------------- ----------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash . . . . . . . . . . . . . . . . . . . . . $ 42,783 $ 1,222 - $ 44,005
Accounts receivable, net . . . . . . . . . . . 2,532 390 (600)(b) 2,322
Other current assets . . . . . . . . . . . . . 2,254 729 - 2,983
--------------------- ----------- --------
Total . . . . . . . . . . . . . . . . . . . . 47,569 2,341 (600) 49,310
Property and Equipment, net . . . . . . . . . . . 4,739 835 - 5,574
Other Assets, net . . . . . . . . . . . . . . . . 4,553 - - 4,553
--------------------- ----------- --------
Total assets. . . . . . . . . . . . . . . . . . . $ 56,861 $ 3,176 (600) $ 59,437
===================== =========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . $ 540 $ 243 - 783
Accrued liabilities. . . . . . . . . . . . . . 1,478 1,701 (600)(b) 2,579
Other current liabilities. . . . . . . . . . . 261 1,138 - 1,399
Current portion of note payable and
capital lease obligation . . . . . . . . . . 589 1,000 - 1,589
--------------------- ----------- --------
Total . . . . . . . . . . . . . . . . . . . . 2,868 4,082 (600) 6,350
Note payable and capital lease obligation . . . . 919 213 - 1,132
--------------------- ----------- --------
Total liabilities . . . . . . . . . . . . . . 3,787 4,295 (600) 7,482
Stockholders' Equity:
Common Stock . . . . . . . . . . . . . . . . . 11 366 (365)(a) 12
Deferred Compensation . . . . . . . . . . . . - (150) - (150)
Additional paid-in capital . . . . . . . . . . 54,602 - 365 (a) 54,967
Accumulated deficit. . . . . . . . . . . . . . (1,539) (1,335) - (2,874)
--------------------- ----------- --------
Total . . . . . . . . . . . . . . . . . . . . 53,074 (1,119) - 51,955
--------------------- ----------- --------
Total Liabilities and Stockholders' Equity. . . . $ 56,861 $ 3,176 (600) $ 59,437
===================== =========== ========
</TABLE>
(a) Pro forma adjustment to common stock and additional paid-in capital to
reflect the issuance of 1,175,000 shares of ERI common stock for all 100
shares of outstanding Mastering Computers common stock.
(b) Pro forma adjustment to eliminate a receivable recorded by ERI and payable
recorded by Mastering Computers for consulting services provided to
Mastering Computers by ERI under a contract entered into in May 1996.
<PAGE> 21
Eagle River Interactive, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1996
--------------------------------------------------
Historical
------------------------
Eagle River Mastering Pro Forma Pro Forma
Interactive Computers Adjustments Combined
------------------------- ------------ ----------
<S> <C> <C> <C> <C>
Revenue $ 9,490 $ 6,754 $ (600)(a) $ 15,644
------------------------- ---------- ----------
Operating Expenses:
Cost of Revenue 6,761 1,691 8,452
Selling, General and Administrative 3,772 5,531 (600)(a) 8,703
Depreciation 739 72 811
------------------------- ---------- ----------
Total Operating Expenses 11,272 7,294 (600) 17,966
------------------------- ---------- ----------
Net Operating Income (Loss) (1,782) (540) - (2,322)
Other Income (Expenses) 665 (28) - 637
------------------------- ---------- ----------
Income (loss) from Continuing Operations
Before Tax Benefit (1,117) (568) - (1,685)
Tax Benefit (Provision) 755 - - 755
------------------------- ---------- ----------
Loss From Continuing Operations (362) (568) - (930)
------------------------- ---------- ----------
Loss From Continuing Operations Per Common Share $ (0.04) $ (0.08)
=========== ==========
Weighted Average Number of Common
Shares and Common Share Equivalents ------------ ---------- ----------
Outstanding 10,128,211 1,175,000 11,303,211
============ ========== ==========
</TABLE>
(a) Pro forma adjustment to eliminate revenue recorded by ERI and general and
administrative expenses recorded by Mastering Computers for consulting
services provided to Mastering Computers by ERI under a contract entered into
in May 1996.
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1995
------------------------------------------------------
Historical
--------------------------
Eagle River Mastering Pro Forma Pro Forma
Interactive Computers Adjustments Combined
-------------------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue $ 5,547 5,233 10,780
-------------------------- ----------
Operating Expenses:
Cost of Revenue 4,051 1,718 5,769
Selling, General and Administrative 1,427 3,053 4,480
Depreciation 426 42 468
-------------------------- ----------
Total Operating Expenses 5,904 4,813 10,717
Net Operating Income (Loss) (357) 420 63
Other Income (Expenses) (317) 20 (297)
-------------------------- ----------
Income (loss) from Continuing Operations
Before Tax Benefit (674) 440 (234)
Tax Benefit (Provision) - - -
-------------------------- ----------
Income (loss) From Continuing Operations (674) 440 (234)
-------------------------- ----------
Income (loss) From Continuing Operations
Per Common Share $ (0.13) $ (0.04)
========= ==========
Weighted Average Number of Common
Shares and Common Share Equivalents --------- ---------- ---------
Outstanding 5,254,471 1,198,968 6,453,439
========= ========================
</TABLE>
<PAGE> 22
Eagle River Interactive, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995 For the Year Ended December 31, 1994
----------------------------------------------- -------------------------------------
Historical Historical
---------------------- ----------------------
Eagle River Mastering Pro Forma Pro Forma Eagle River Mastering Pro Forma
Interactive Computers Adjustments Combined Interactive Computers Combined
----------- --------- ----------- --------- ---------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 10,618 $ 10,167 $ 20,785 $ 4,395 $ 6,787 $ 11,182
---------------------- --------- ---------------------- --------
Operating Expenses:
Cost of Revenue 8,345 3,305 11,650 3,163 3,098 6,261
Selling, General and Administrative 3,865 6,244 10,109 1,355 3,351 4,706
Depreciation 1,005 51 1,056 587 62 649
---------------------- --------- ---------------------- --------
Total Operating Expenses 13,215 9,600 22,815 5,105 6,511 11,616
---------------------- --------- ---------------------- --------
Net Operating Income (Loss) (2,597) 567 (2,030) (710) 276 (434)
Other Income (Expenses) (671) 70 (601) (98) (16) (114)
---------------------- --------- ---------------------- --------
Income (loss) from Continuing Operations
Before Tax Benefit (3,268) 637 (2,631) (808) 260 (548)
Tax Benefit (Provision) - - - - - -
---------------------- --------- ---------------------- --------
Income (loss) From Continuing Operations (3,268) 637 (2,631) (808) 260 (548)
---------------------- --------- ---------------------- --------
Income (loss) From Continuing
Operations Per Common Share $ (0.54) $ (0.36)
=========== =========
Weighted Average Number of Common
Shares and Common Share Equivalents ---------- --------- ---------
Outstanding 6,078,577 1,198,968 7,277,545
========== =====================
</TABLE>
<PAGE> 23
Eagle River Interactive, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1993
-------------------------------------
Historical
------------------------
Eagle River Mastering Pro Forma
Interactive Computers Combined
------------------------ ---------
<S> <C> <C> <C>
Revenue 4,460 3,895 8,355
------------------- -----
Operating Expenses:
Cost of Revenue 3,505 2,321 5,826
Selling, General and Administrative 998 1,816 2,814
Depreciation 178 20 198
------------------- -----
Total Operating Expenses 4,681 4,157 8,838
------------------- -----
Net Operating Income (Loss) (221) (262) (483)
Other Income (Expenses) (17) (2) (19)
------------------- -----
Income (loss) from Continuing Operations
Before Tax Benefit (238) (264) (502)
Tax Benefit (Provision) - - -
------------------- -----
Income (loss) From Continuing Operations (238) (264) (502)
------------------- -----
</TABLE>
<PAGE> 24
NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
Pro Forma Basis of Presentation
The pro forma condensed combined financial statements reflect the issuance of
1,175,000 shares of ERI Common Stock for all 100 shares of outstanding Mastering
Computers' Common Stock in connection with the Merger.
Merger Transaction Costs
ERI and Mastering Computers estimate direct transaction costs of approximately
$.75 million associated with the Merger, consisting of transaction fees for
investment bankers, attorneys, accountants and other related charges. The
nonrecurring costs will be charged to operations in future fiscal quarters and
have not been reflected in the pro forma condensed combined statements of
operations.
PRO FORMA INCOME (LOSS) PER COMMON SHARE
The pro forma combined income (loss) per share is based on the combined weighted
average number of common and dilutive common equivalent shares of ERI Common
Stock and Mastering Computers Common Stock outstanding for each period, using
the exchange ratio based on the issuance of 1,175,000 shares of ERI Common Stock
for all of the outstanding shares of Mastering Computers Common Stock. Pursuant
to the Securities and Exchange Commission Staff Accounting Bulletins and Staff
Policy, such computations include all common and common equivalent shares issued
within 12 months of ERI's Initial Public Offering date as if they were
outstanding for all periods presented using the treasury stock method. Pro forma
income (loss) per share for periods prior to the year ended December 31, 1995
have not been presented as they are not considered to be meaningful given the
changes in ERI's capital structure upon ERI's Initial Public Offering.
COMFORMING AND PRO FORMA ADJUSTMENTS
There were no adjustments required to conform the accounting policies of ERI and
Mastering Computers. Certain amounts for Mastering Computers have been
reclassified to conform with ERI's financial statement presentation.
<PAGE> 25
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: October 15, 1996
/s/ Marc Pinto
-------------------------
Marc Pinto
Executive Vice President,
Chief Financial Officer
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- - ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 8-K/A
FOR THE SIX MONTHS ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 44,005,000
<SECURITIES> 0
<RECEIVABLES> 3,097,000
<ALLOWANCES> 175,000
<INVENTORY> 0
<CURRENT-ASSETS> 49,910,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 60,037,000
<CURRENT-LIABILITIES> 6,820,000
<BONDS> 1,132,000
<COMMON> 12,000
0
0
<OTHER-SE> 52,074,000
<TOTAL-LIABILITY-AND-EQUITY> 60,037,000
<SALES> 0
<TOTAL-REVENUES> 15,644,000
<CGS> 0
<TOTAL-COSTS> 17,806,000
<OTHER-EXPENSES> 50,000
<LOSS-PROVISION> (30,000)
<INTEREST-EXPENSE> 45,000
<INCOME-PRETAX> (1,525,000)
<INCOME-TAX> 755,000
<INCOME-CONTINUING> (770,000)
<DISCONTINUED> 198,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (572,000)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
