<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-28004
EAGLE RIVER INTERACTIVE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 84-1320277
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1060 WEST BEAVER CREEK BOULEVARD
AVON, COLORADO 81620
(Address of principal executive offices) (zip code)
(970) 845-2100
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 9, 1997
----- --------------------------
Common Stock, $.001 par value 13,508,143 shares
<PAGE> 2
EAGLE RIVER INTERACTIVE, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of March 31,
1997 and December 31, 1996 3
Consolidated Condensed Statements of Operations for the Three
Months Ended March 31, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows for the Three
Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits 14
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EAGLE RIVER INTERACTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 33,748 $ 33,995
Accounts receivable, net 6,659 6,262
Other current assets 5,269 5,139
-------- --------
Total Current Assets 45,676 45,396
-------- --------
Property and Equipment, net 8,688 7,761
Other Assets, net 4,915 5,113
-------- --------
Total Assets $ 59,279 $ 58,270
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,228 $ 1,656
Accrued liabilities 2,730 3,151
Other current liabilities 1,816 2,414
Current portion of note payable and capital lease obligations 336 331
-------- --------
Total Current Liabilities 7,110 7,552
Note Payable and Capital Lease Obligations 751 804
-------- --------
Total Liabilities 7,861 8,356
-------- --------
Stockholders' Equity:
Common stock, $0.001 par value, 30,000,000 shares
authorized; 13,470,497 and 13,356,990 shares issued and
outstanding as of March 31, 1997 and December 31, 1996,
respectively 14 13
Additional Paid-In Capital 55,434 54,938
Accumulated Deficit (4,030) (5,037)
-------- --------
Total Stockholders' Equity 51,418 49,914
-------- --------
Total Liabilities and Stockholders' Equity $ 59,279 $ 58,270
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets
3
<PAGE> 4
EAGLE RIVER INTERACTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1997 1996
------------ -----------
<S> <C> <C>
Revenue $ 15,663 $ 7,793
Operating Expenses:
Cost of revenue 6,788 4,036
Marketing and selling 4,375 2,184
General and administrative 2,592 1,376
Depreciation and amortization 782 357
------------ -----------
Total Operating Expenses 14,537 7,953
------------ -----------
Net Operating Income (Loss) 1,126 (160)
Other Income, net 420 59
------------ -----------
Income (Loss) before tax provision 1,546 (101)
Tax provision (539) --
------------ -----------
Net Income (Loss) $ 1,007 $ (101)
============ ===========
Net Income (Loss) Per Common
and Common Equivalent Share $ 0.07 $ (0.01)
============ ===========
Shares used in Computing Net
Income (Loss) per Common and
Common Equivalent Share 15,014,252 9,319,348
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
EAGLE RIVER INTERACTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 1,007 $ (101)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 782 357
Reserve for bad debts 92 2
Deferred compensation -- 18
Tax provision 539 --
Changes in assets and liabilities:
Accounts receivable (489) 378
Other current assets (330) (301)
Other assets (324) (11)
Accounts payable, accrued liabilities and other liabilities (447) (202)
-------- --------
Net cash provided by operating activities 830 140
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,400) (992)
Advances to affiliates -- (53)
-------- --------
Net cash used in investing activities (1,400) (1,045)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit -- 750
Repayment of lines of credit -- (295)
Repayment of notes payable (84) --
Repayment of capital leases (90) (189)
Distributions to shareholder -- (182)
Proceeds from issuance of common stock, net 497 47,410
-------- --------
Net cash provided by financing activities 323 47,494
-------- --------
Net (decrease) increase in cash and cash equivalents (247) 46,589
-------- --------
Cash and cash equivalents, beginning of period 33,995 2,595
-------- --------
Cash and cash equivalents, end of period $ 33,748 $ 49,184
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 12 $ 103
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
EAGLE RIVER INTERACTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Eagle River Interactive, Inc. (the "Company") creates and develops interactive
solutions that assist United States and international companies in sales,
marketing, training and corporate communications. The Company develops these
business solutions through the use of product and custom solutions. Product
solutions consist of corporate training primarily for IT professionals,
including leader-led Windows NT, Windows 95 and TCP/IP operating system
training seminars as well as Microsoft Certified Professional preparation
courses and on-site workshops, computer-based training media, interactive
software, videos and newsletters. Custom solutions are developed by the Company
generally under three to nine month contracts and are delivered using the
Internet and World Wide Web, proprietary intranets, informational and
transactional kiosks, CD-ROMs and other interactive medium. The Company also
offers traditional outdoor media advertising at ski resorts in the United
States. The Company's primary locations are in Avon, Colorado and Scottsdale,
Arizona. The Company also has offices in Mountain View, California; Portland,
Oregon; New York, New York; Dallas, Texas; Los Angeles, California; Chicago,
Illinois; and Paris, France.
Basis of Presentation
The accompanying consolidated condensed interim financial statements have been
prepared by the Company, 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 consolidated
condensed interim financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K for
the fiscal year ended December 31, 1996.
The accompanying unaudited consolidated 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 consolidated 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.
Certain prior year balances have been reclassified to conform to the current
period presentation.
6
<PAGE> 7
2. INITIAL PUBLIC OFFERING
In March 1996 the Company completed an initial public offering of 4,000,000
shares of its common stock at a price of $13.00 per share. After underwriting
discounts, commissions and other offering expenses, net proceeds to the Company
from the offering were $46,727,000. Upon the closing of the offering, all
1,342,000 shares of Mandatorily Redeemable Convertible Series A Preferred Stock
outstanding were converted into 4,026,000 shares of common stock.
In April 1996, the underwriters of the Company's initial public offering
exercised their over-allotment option and purchased an additional 309,000
shares of common stock at $13.00 per share from the Company, with net proceeds
to the Company aggregating $3,736,000.
3. CONTINGENT NOTE RECEIVABLE
In connection with the September 1995 Series A Preferred Stock offering, a
stockholder of the Company issued a contingent note (the "Contingent Note") to
the Company. This note transfers to the Company future gains arising from the
sale of the stockholder's 10.5% equity interest in SeaVision, Inc.
("SeaVision"), a predecessor entity to Allin Communications Corporation
("ACC"). The terms of the Contingent Note require the stockholder to pay the
Company any net proceeds in excess of $500,000 if and when he sells his
holdings in SeaVision.
In November 1996, ACC completed an initial public offering of its common stock.
The SeaVision stock owned by the stockholder was converted into 241,200 shares
of ACC Common Stock, all of which are subject to the terms of the Contingent
Note. As of March 31, 1997, the stockholder had not sold any of his shares in
ACC. Those shares are subject to an underwriter-imposed lock-up and therefore
cannot be sold until November 1997.
During the second quarter of 1997 the Contingent Note was amended. The amendment
defines procedures by which the Company can request the sale of the ACC shares
and defines procedures by which the stockholder may segregate and retain a
portion of the ACC shares having a market value of approximately $500,000.
7
<PAGE> 8
4. INCOME TAXES
During 1996, the Company recorded an income tax benefit created by 1996
operating losses and as of December 31, 1996 had recorded a tax asset of
approximately $2.3 million. During the first quarter of 1997, the Company
recorded an approximate $.5 million tax provision. At March 31, 1997, in
accordance with the provisions of SFAS 109, management has determined that it
is more likely than not that the tax asset of approximately $1.8 million as of
March 31, 1997 will be realized in the foreseeable future based on taxable
income generated by future years operations.
The Company bases its determination on the significant growth that has occurred
in its business during 1996 and the first quarter of 1997. The Company's
revenue increased from $20.8 million in 1995 to $39.3 million in 1996,
representing an 89% increase in revenue. In addition, such revenue increased
from $7.8 million in the first quarter of 1996 to $15.7 million in the first
quarter of 1997, representing a 101% increase in revenue. In 1995, and the
first half of 1996, the Company incurred significant losses due to expenditures
related to developing and expanding capacity for the delivery of its custom and
product solutions and services. The Company realized, as a result of such
expenditures, positive operating results for the fourth quarter of 1996 and
first quarter of 1997, which generated taxable income for those quarters.
Further, the Company's management continues to believe that the increases in
margins achieved by its outdoor media business in 1996 over 1995 will continue.
Based on its projections, the Company's management believes that profitable
operations will be sustained in future periods and that the losses incurred by
the Company in establishing and growing its infrastructure will not recur.
Based on the above operating results and management's expectations relating to
its current business model and forecasts, it is management's belief that it is
more likely than not that the net deferred tax asset at March 31, 1997 will be
realized through the generation of future taxable income.
Historically, the Company's net loss before taxes has approximated its taxable
loss. The Company's deferred income taxes result primarily from net operating
loss carryforwards ("NOLs"), the use of accelerated depreciation methods for
income tax purposes, amortization differences relating to certain intangible
assets, and certain amounts accrued for book purposes which are not deductible
for income tax purposes until paid. The Company has tax NOLs totaling
approximately $3.5 million, which expire in 2011.
Management believes that taxable income during the carryforward period will be
sufficient to utilize fully the NOLs before they expire. Management anticipates
that increases in taxable income during the carryforward period will arise
primarily as a result of the Company's continued growth in its custom and
product solutions services and operating efficiencies which may be gained under
the Company's current strategies.
5. RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128 "Earnings per Share". The
purpose of SFAS No. 128 is to simplify the computation of earnings per share
("EPS") and to make the U.S. standard for computing EPS more compatible with
the EPS standards of other countries and with that of the International
Accounting Standards Committee. The effective date for the application of SFAS
No. 128 for both interim and annual periods is after December 15, 1997. Earlier
application is not permitted. The Company does not expect the application of
SFAS No. 128 to have a material impact on its EPS calculation.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following presentation of management's discussion and analysis of Eagle
River Interactive's (the "Company's") financial condition and results of
operations should be read in conjunction with the Company's Consolidated
Condensed Financial Statements and notes thereto.
Overview
The Company is a business services company that provides corporate training
products for IT professionals and creates and develops interactive marketing,
training, and communications solutions. The Company develops both product and
custom solutions. Mastering Computers, a wholly owned subsidiary of the
Company, develops and markets product solutions. These solutions consist of
corporate training primarily for IT professionals, including leader-led Windows
NT, Windows 95 and TCP/IP operating system training seminars as well as
Microsoft Certified Professional preparation courses and on-site workshops,
computer-based training media, interactive software, videos and newsletters.
Custom solutions are delivered using the Internet and World Wide Web,
proprietary intranets, informational and transactional kiosks, CD-ROMs, and
other interactive medium. The Company also sells traditional outdoor media
advertising at ski resorts in the United States through its SkiView subsidiary.
The Company's operations are subject to certain risks and uncertainties
including, among others, a limited operating history, substantial operating
losses, management's plan for rapid growth, rapidly changing technology, and
potential competitors with greater technical and marketing resources. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Future Results" included in the Company's Form 10-K for the year
ended December 31, 1996.
9
<PAGE> 10
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1997
General
The Company has three revenue sources - product solutions, custom solutions and
outdoor media advertising.
The Company generates revenue from sales of product solutions services, which
consist primarily of Windows NT, Windows 95 and TCP/IP operating systems
training seminars as well as Microsoft Certified Professional preparation
courses and on-site workshops, computer-based training media, interactive
software and videos and newsletters. Product solution revenue from seminars is
generally collected in advance and is recognized upon commencement of a
seminar or of a series of seminars in a given city. Subscription revenues are
deferred and recognized over the term of the related subscription, while other
product revenue is recognized when the products are shipped.
The Company generates revenue from custom solution services, which have
historically been provided primarily through fixed-fee contracts. The Company
anticipates an increasing number of contracts to be billed on a
time-and-materials basis during 1997. The Company's custom solution customers
generally retain the Company on a project-by-project basis. The Company has no
material contract that commits any customer to use the Company's services on a
long-term basis. Custom solution service contracts are generally completed
within three to nine months. Custom solution revenue is recognized using the
percentage of completion method on an individual contract basis. Percentage
complete is determined based upon the ratio of costs (primarily direct labor)
incurred to total estimated costs. The Company's use of the percentage of
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.
The Company sells outdoor media at ski areas to advertisers for a specific
period of time, generally November through March, which approximates the ski
season. The Company recognizes this revenue ratably over that period. In some
cases, the Company produces the advertising content in addition to selling the
media to its customers. In such cases, the production revenue is recognized
when the production work is completed. In addition, the Company provides
promotional services related to events sponsored by various advertisers
throughout the ski season. Promotion revenue is recognized as the events are
held, primarily in January through March.
Costs related to product solutions consist primarily of labor and related
benefits for speakers and seminar personnel, rental of seminar facilities and
the cost of materials provided to seminar participants, some of which is
deferred until seminar commencement. Costs related to custom solution services
consist primarily of labor and occupancy expenses for creative design, account
management and sales personnel. Costs related to the Company's outdoor media
sales include primarily sales and operating expenses, sign installation ad
maintenance costs (which are recognized as incurred on an accrual basis) and
tower and transit rental costs (which are recognized ratably over the November
to March ski season to coincide with the period over which related revenue is
recognized). Failure to expand any of the foregoing areas in an efficient
manner could have a material adverse effect on the Company's business,
operating results and financial condition. In addition,
10
<PAGE> 11
there can be no assurance that the Company's revenues will continue to grow at
a rate that will support its increasing expense levels.
Revenue
Revenue for the three months ended March 31, 1996 (the "1996 Quarter") was
approximately $7.8 million, which consisted of approximately $2.8 million of
product solutions revenue, approximately $2.9 million of custom solutions
revenue and approximately $2.1 million of outdoor media advertising revenue.
Revenue for the three months ended March 31, 1997 (the "1997 Quarter") was
approximately $15.7 million, or a 101% increase over the 1996 Quarter. The 1997
Quarter revenue consisted of approximately $8.9 million of product solution
revenue, approximately $4.7 million of custom solution revenue and
approximately $2.1 million of outdoor media advertising revenue. The growth in
product solutions revenue from the 1996 Quarter to the 1997 Quarter was a
result of the increase in the number and types of seminars provided, the
average number of attendees per seminar and the average price charged for the
seminars. The growth in custom solution revenue from the 1996 Quarter to the
1997 Quarter was a result of the increase in the number of projects from both
new and existing customers. The growth in revenue is also the result of the
Company's substantial investments in labor force, operating infrastructure,
equipment and marketing made in the last quarter of 1995 and the first, second
and third quarters of 1996.
Cost of Revenue
The Company's cost of revenue for the 1996 Quarter was approximately $4.0
million, which consisted of approximately $0.8 million related to product
solutions, approximately $2.3 million related to custom solution services and
approximately $0.9 million of outdoor media advertising. The Company's cost of
revenue for the 1997 Quarter was approximately $6.8 million, which consisted of
approximately $2.5 million related to product solutions, approximately $3.6
million related to custom solution services and approximately $0.7 million of
outdoor media advertising.
During 1996, costs increased in all areas of the product and custom solution
segments, particularly in labor and related benefits and occupancy costs. The
Company has made substantial investments in its labor force and operating
infrastructure and anticipates increased capacity and production in future
periods through higher utilization of its labor force, some of which has
already been realized by the Company.
Marketing and Selling
Marketing and selling costs are primarily comprised of salaries, commissions
and benefits, travel and marketing program costs. Marketing and selling
expenses of approximately $2.2 million for the 1996 Quarter were primarily
related to the continued development of the Company. For the 1997 Quarter
marketing and selling expenses were approximately $4.4 million. The increase
from 1996 to 1997 was primarily due to the continued growth of the Company's
business and the corresponding increase in personnel.
General and Administrative Expenses
General and administrative expenses include costs for the accounting, legal,
information systems and human resource functions, as well as costs related to
some senior executives of the Company. These costs are primarily comprised of
salaries and benefits, travel and occupancy costs. General and administrative
expenses of approximately $1.4 million during the 1996 Quarter were primarily
related to the continued early development of the Company.
11
<PAGE> 12
During the 1997 Quarter, general and administrative expenses were approximately
$2.6 million. The increase in general and administrative expenses from the 1996
Quarter to the 1997 Quarter were primarily due to the growth of the Company's
business and the corresponding increase in the number of executive and
administrative personnel and the number of offices. These costs, as a
percentage of revenue, should continue to decrease.
Depreciation and Amortization
Depreciation and amortization expense of approximately $0.4 million during the
1996 Quarter consisted of approximately $0.3 million of depreciation of
equipment and approximately $0.1 million of amortization of organization costs
and goodwill related to acquisitions. For the 1997 Quarter, depreciation and
amortization expense of approximately $0.8 million consisted of approximately
$0.7 million of depreciation and approximately $0.1 million of amortization.
The increase in depreciation expense reflects the significant investment the
Company has made in its computer equipment, leasehold improvements and office
equipment over the past year.
Other Income (Expense)
Interest income and expense are included in other income. Other income of
approximately $0.1 million for the 1996 Quarter and approximately $0.4 million
for the 1997 Quarter primarily represents interest income which was the result
of investing the proceeds from the Company's initial public offering.
Income Taxes
During 1996, the Company recorded an income tax benefit for the deferred income
tax asset created by 1996 operating losses and as of December 31, 1996 had
recorded a tax asset of approximately $2.3 million. During the 1997 Quarter the
Company recorded an approximate $.5 million tax provision. At March 31, 1997,
in accordance with the provisions of SFAS 109, management has determined that
it is more likely than not that the tax asset of approximately $1.8 million as
of March 31, 1997 will be realized in the foreseeable future based on taxable
income generated by future operations.
The Company bases its determination on the significant growth that has occurred
in its business during 1996 and the first quarter of 1997. The Company's
revenue increased from $20.8 million in 1995 to $39.3 million in 1996,
representing an 89% increase in revenue. In addition, such revenue increased
from $7.8 million in the first quarter of 1996 to $15.7 million in the first
quarter of 1997, representing a 101% increase in revenue. In 1995, and the
first half of 1996, the Company incurred significant losses due to expenditures
related to developing and expanding capacity for the delivery of its custom and
product solutions and services. The Company realized, as a result of such
expenditures, positive operating results for the fourth quarter of 1996 and
first quarter of 1997, which generated taxable income for those quarters.
Further, the Company's management continues to believe that the increases in
margins achieved by its outdoor media business in 1996 over 1995 will continue.
Based on its projections, the Company's management believes that profitable
operations will be sustained in future periods and that the losses incurred by
the Company in establishing and growing its infrastructure will not recur.
Based on the above operating results and management's expectations relating to
its current business model and forecasts, it is management's belief that it is
more likely than not that the net deferred tax asset at March 31, 1997 will be
realized through the generation of future taxable income.
12
<PAGE> 13
Historically, the Company's net loss before taxes has approximated its taxable
loss. The Company's deferred income taxes result primarily from net operating
loss carryforwards ("NOLs"), the use of accelerated depreciation methods for
income tax purposes, amortization differences relating to certain intangible
assets, and certain amounts accrued for book purposes which are not deductible
for income tax purposes until paid. The Company has tax NOLs totaling
approximately $3.5 million, which expire in 2011.
Management believes that taxable income during the carryforward period will be
sufficient to utilize fully the NOLs before they expire. Management anticipates
that increases in taxable income during the carryforward period will arise
primarily as a result of the Company's continued growth in its custom and
product solutions services and operating efficiencies which may be gained under
the Company's current strategies.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by the Company's operating activities was approximately $.1
million for the 1996 Quarter. For the 1997 Quarter, approximately $0.8 million
of cash was provided by operations. Cash used in investment activities was
approximately $1.0 million and $1.4 million for the 1996 Quarter and 1997
Quarter, respectively, related primarily to purchases of property and equipment
in both years and to the staffing growth and office space expansion. Cash flows
from financing activities were approximately $47.5 million and $.3 million in
the 1996 Quarter and 1997 Quarter, respectively. The cash inflow from financing
activities for the 1996 Quarter reflects the completion of the initial public
offering of common stock.
As of March 31, 1997, the Company had approximately $33.7 million of cash and
cash equivalents which the Company believes will be sufficient to meet its
currently anticipated cash needs for working capital, capital expenditures and
funds required to make acquisitions, if any, for the next twelve months and the
foreseeable future.
FUTURE RESULTS
This report may be deemed to contain forward-looking statements which are
subject to risks and uncertainties that could cause actual results to differ
materially from those anticipated, including, but not limited to, the Company's
limited operating history and substantial operating losses, risks associated
with the expansion of the Company's business and the management of growth,
dependence on key personnel, potential fluctuations in quarterly operating
results, absence of long-term contracts, the rapidly evolving market for
interactive services, uncertain demand and market acceptance for interactive
solutions, rapidly changing technology and the competitive environment. These
risks and uncertainties are described more fully under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Future Results" in the Company's Form 10-K for the year ended
December 31, 1996.
The Company's product solutions business is subject to certain additional risks
and uncertainties, including the need to anticipate changes in technology to
create product solutions on a timely basis, competition from other companies
with substantially greater financial, technical and other resources, relatively
low barriers to entry, the growth in CBT courses offered by others, the need to
restrict unauthorized use of the Company's product solutions and protect the
Company's proprietary rights, and the risk that states may seek to regulate the
Company's product solutions as educational programs.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
(A) Exhibits
11 -- Statement Regarding Computation of Per Share Earnings
27 -- Financial Data Schedule
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE RIVER INTERACTIVE, INC.
Date: May 15, 1997
/s/ TERENCE M. GRAUNKE
Terence M. Graunke
Chairman, President and Chief
Executive Officer
Date: May 15, 1997
/s/ MARC PINTO
Marc Pinto
Executive Vice President,
Chief Financial Officer
15
<PAGE> 16
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
11 Statement regarding computation of per share earnings
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
STATEMENT OF COMPUTATION OF PRO FORMA
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE
<TABLE>
<CAPTION>
Average Shares Outstanding
As of December 31,
Shares --------------------------
Issued Issue Date 1996
--------- ----------- -----------
<S> <C> <C> <C>
Common Stock 3,122,448 (a) 3,122,448
Common Stock 15,000 10/3/95 15,000
Common Stock 3,600,000 9/29/95 (b) 3,600,000
Common Stock 426,000 12/12/95 (b) 426,000
Common Stock 4,000,000 3/22/96 (c) 4,000,000
Common Stock 309,000 3/22/96 (d) 309,000
Common Stock 251,970 (e) 194,575
Common Stock 22,679 (f) 22,679
Common Stock 424,444 (g) 424,444
Common Stock 125,556 (g) 125,556
Common Stock 1,175,000 (g) 1,175,000
Options N/A (h) 1,599,550
-----------
15,014,252
===========
</TABLE>
Method Used For Calculation
(a) Represents Common Stock issued in connection with the recapitalization of
Eagle River Interactive, Inc. in 1995.
(b) Originally issued as Series A Preferred Stock and converted to Common Stock
in 1996. Calculation assumes conversion on the date of issuance.
(c) Shares issued in conjunction with the Company's initial public offering.
(d) Shares issued to the underwriters in conjunction with the Company's initial
public offering.
(e) Shares issued upon exercise of stock options at various dates throughout
1996 and 1997.
(f) Shares issued pursuant to the Employee Stock Purchase Plan at various dates
throughout 1996 and 1997.
(g) Shares issued in connection with the Graphic Media, Inc. and Mastering
Computers, Inc. mergers.
(h) Common stock equivalent shares calculated using the treasury stock method.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 33,748,000
<SECURITIES> 0
<RECEIVABLES> 7,058,000
<ALLOWANCES> 399,000
<INVENTORY> 0
<CURRENT-ASSETS> 45,676,000
<PP&E> 12,416,000
<DEPRECIATION> 3,728,000
<TOTAL-ASSETS> 59,279,000
<CURRENT-LIABILITIES> 751,000
<BONDS> 0
0
0
<COMMON> 14,000
<OTHER-SE> 51,404,000
<TOTAL-LIABILITY-AND-EQUITY> 59,279,000
<SALES> 0
<TOTAL-REVENUES> 15,663,000
<CGS> 0
<TOTAL-COSTS> 14,537,000
<OTHER-EXPENSES> 12,000
<LOSS-PROVISION> 92,000
<INTEREST-EXPENSE> 12,000
<INCOME-PRETAX> 1,546,000
<INCOME-TAX> 539,000
<INCOME-CONTINUING> 1,007,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,007,000
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
