SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): March 31, 1997
Zomax Optical Media, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota
(State or Other Jurisdiction of Incorporation)
0-28426 41-1833089
(Commission File Number) (I.R.S. Employer Identification Number)
5353 Nathan Lane
Plymouth, Minnesota 55442
(Address of Principal Executive Offices) (Zip Code)
612-553-9300
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
The undersigned registrant hereby amends Item 7 of its Current Report on Form
8-K dated March 31, 1997 as set forth below:
Item 7. Financial Statements, Pro Forma Information and Exhibits.
(a) Financial statements of business acquired.
Audited financial statements of Benchmark Media Services, Inc.
for the two years ended March 31, 1996 and April 2, 1995 are
filed as part of this report:
Independent Auditors' Report dated May 9, 1996
Balance Sheets as of March 31, 1996 and April 2, 1995
Statements of Operations for Years Ended
March 31, 1996 and April 2, 1995
Statements of Stockholders' Equity as of
March 31, 1996 and April 2, 1995
Statements of Cash Flows for Years Ended
March 31, 1996 and April 2, 1995
Notes to Financial Statements
Unaudited financial statements of Benchmark Media Services,
Inc. for the nine months ended December 29, 1996 and
December 31, 1995
Balance Sheets as of December 29, 1996 and
December 31, 1995
Statements of Operations for the Nine Months
Ended December 29, 1996 and December 31, 1995
Statements of Cash Flows for the Nine Months
Ended December 29, 1996 and December 31, 1995
Notes to Unaudited Financial Statements
(b) Pro forma Unaudited Consolidated financial information.
Pro Forma Unaudited Consolidated Balance Sheet as
of December 27, 1996
<PAGE>
Pro Forma Unaudited Consolidated Statement of
Operations for the Year ended December 27, 1996
Notes to Pro Forma Unaudited Consolidated
Financial Information
(c) Exhibits.
The following Exhibits are included in this report: See
"Exhibit Index to Form 8-K" immediately following the
signature page of this report.
<PAGE>
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.
Dated: May 14, 1997
ZOMAX OPTICAL MEDIA, INC.
By /s/ James E. Flaherty
James E. Flaherty, Chief Financial Officer
and Secretary
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX TO FORM 8-K
Date of Report: Commission File No.:
March 31, 1997 0-28426
ZOMAX OPTICAL MEDIA, INC.
Exhibit
2.1* Stock Purchase Agreement dated March 31, 1997 by and among Zomax
Optical Media, Inc. and Jesse Aweida. Upon the request of the
Commission, the Company agrees to furnish a copy of the exhibits and
schedules to the Stock Purchase Agreement.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Lund Kohler Cox & Company, PLLP
* Previously filed.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Benchmark Media Services, Inc.:
We have audited the accompanying balance sheet of Benchmark Media Services, Inc.
as of March 31, 1996 and the related statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Benchmark Media Services, Inc.
as of March 31, 1996 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ LUND KOEHLER COX & COMPANY, PLLP
Minneapolis, Minnesota
May 9, 1996
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Benchmark Media Services, Inc.
We have audited the accompanying balance sheet of Benchmark Media Services, Inc.
(a Colorado corporation) as of April 2, 1995, and the related statement of
operations, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material aspects, the financial position of Benchmark Media Services, Inc.
as of April 2, 1995, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Minneapolis, Minnesota
May 10, 1995
<PAGE>
BENCHMARK MEDIA SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, April 2,
1996 1995
------------------- -------------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 193,881 $ 50,000
Accounts receivable, net of allowance for doubtful accounts of
$66,000 and $224,000 1,767,330 1,827,182
Inventories 346,017 546,446
Prepaid expenses 98,809 154,062
--------------- ---------------
Total current assets 2,406,037 2,577,690
------------------- ------------------
Property and equipment, at cost:
Production and computer equipment 4,138,962 2,366,123
Furniture and fixtures 260,715 182,693
Leasehold improvements 190,860 120,837
Less: accumulated depreciation and amortization (1,453,865) (1,018,660)
--------------- ---------------
Total property and equipment, net 3,136,672 1,650,993
------------------- -------------------
Other assets 96,767 96,717
------------------- -------------------
$ 5,639,476 $ 4,325,400
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving note payable $ 1,178,552 $ 886,469
Current maturities of long-term debt 302,322 477,624
Accounts payable 1,289,963 1,703,173
Accrued liabilities 485,142 424,227
--------------- ---------------
Total current liabilities 3,255,979 3,491,493
Long-term debt, less current maturities 386,214 343,061
Notes payable - stockholder 1,000,000 355,000
------------------- -------------------
Total liabilities 4,642,193 4,189,554
------------------- -------------------
Stockholders' equity:
Series A convertible preferred stock, 720,000 shares authorized,
720,000 shares issued and outstanding 720,000 720,000
Series B convertible preferred stock, 1,700,000 shares authorized,
1,630,250 shares issued and outstanding 652,100 652,100
Common stock, $.001 par value, 8,000,000 shares authorized,
4,926,612 and 1,405,250 shares issued and outstanding 4,926 1,405
Paid-in capital 1,680,337 165,245
Accumulated deficit (2,058,580) (1,401,404)
Less: Treasury stock at cost, 150,000 common shares (1,500) (1,500)
--------------- ---------------
Total stockholders' equity 997,283 135,846
------------------- -------------------
$ 5,639,476 $ 4,325,400
=================== ===================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
BENCHMARK MEDIA SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
March 31, April 2,
1996 1995
--------------------------------- ---------------------------------
Percent Percent
-------------- ------------
<S> <C> <C> <C> <C>
Sales $ 12,477,741 100.0 $ 13,809,004 100.0
Cost of sales 10,444,386 83.7 10,469,676 75.8
------------------- ------------ ------------------- ------------
Gross profit 2,033,355 16.3 3,339,328 24.2
------------------- ------------ ------------------- ------------
Operating expenses:
General and administrative 1,927,319 15.4 2,006,325 14.5
Selling 476,841 3.9 450,956 3.3
------------------- ------------ ------------------- ------------
Total operating expenses 2,404,160 19.3 2,457,281 17.8
------------------- ------------ ------------------- ------------
Income (loss) from operations (370,805) (3.0) 882,047 6.4
Interest expense, net 270,678 2.2 276,955 2.0
------------------- ------------ ------------------- ------------
Income (loss) before income taxes (641,483) (5.2) 605,092 4.4
Income taxes 15,693 0.1 18,000 0.1
------------------- ------------ ------------------- ------------
Net income (loss) $ (657,176) (5.3)$ 587,092 4.3
=================== ============ =================== ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
BENCHMARK MEDIA SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series A Convertible Series B Convertible
Preferred Stock Preferred Stock Common Stock
--------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
---------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
April 3, 1994 720,000 $ 720,000 -- $ 0 629,000 $ 629
Exercise of warrant to purchase shares
of common stock at $.20 per share -- -- -- -- 776,250 776
Conversion of subordinated notes
payable to stockholder to preferred stock -- -- 1,630,250 652,100 -- --
Net income -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
April 2, 1995 720,000 $ 720,000 1,630,250 $ 652,100 1,405,250 $ 1,405
Transfer of CD-ROM production
equipment with a fair market value of $1,518,613
as consideration for:
Purchase of common stock at $.45 per share -- -- -- -- 2,801,362 2,801
Exercise of warrant to purchase common
stock at $.40 per share -- -- -- -- 570,000 570
Exercise of warrant to purchase common
stock at $.20 per share -- -- -- -- 150,000 150
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------
March 31, 1996 720,000 $ 720,000 1,630,250 $ 652,100 4,926,612 $ 4,926
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Paid-in Accumulated Treasury
Capital Deficit Stock
-----------------------------------------
<S> <C> <C> <C>
April 3, 1994 $ 10,771 $(1,988,496) $ (1,500)
Exercise of warrant to purchase shares
of common stock at $.20 per share 154,474 -- --
Conversion of subordinated notes
payable to stockholder to preferred stock -- -- --
Net income -- 587,092 --
----------- ----------- -----------
April 2, 1995 $ 165,245 $(1,401,404) $ (1,500)
Transfer of CD-ROM production
equipment with a fair market value of $1,518,613
as consideration for:
Purchase of common stock at $.45 per share 1,257,812 -- --
Exercise of warrant to purchase common
stock at $.40 per share 227,430 -- --
Exercise of warrant to purchase common
stock at $.20 per share 29,850 -- --
Net loss -- (657,176) --
----------- ----------- -----------
March 31, 1996 $ 1,680,337 $(2,058,580) $ (1,500)
=========== =========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
BENCHMARK MEDIA SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
March 31, April 2,
1996 1995
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (657,176) $ 587,092
Adjustments to reconcile net income (loss) to cash flows from
operating activities -
Depreciation and amortization 449,409 395,247
Loss (gain) on sale of property and equipment 1,755 (936)
Changes in operating assets and liabilities -
Accounts receivable, net 59,852 (351,035)
Inventories 200,430 121,241
Prepaid expenses and other assets 55,203 (114,434)
Accounts payable (413,210) (313,465)
Accrued liabilities 60,915 (43,433)
------------------- -------------------
Cash flows from operating activities (242,822) 280,277
------------------- -------------------
Cash flows from investing activities:
Purchases of property and equipment (314,244) (86,136)
Proceeds from sale of property and equipment 7,518 4,401
------------------- -------------------
Cash flows from investing activities (306,726) (81,735)
------------------- -------------------
Cash flows from financing activities:
Net advances (repayments) under revolving note payable 292,084 (178,561)
Borrowings under long-term debt 102,718 585,000
Payments of long-term debt and capital lease obligations (346,373) (852,481)
Borrowings under notes payable to stockholder 645,000 355,000
Payments of notes payable to stockholders 0 (215,250)
Proceeds from exercise of warrants and options 0 155,250
------------------- -------------------
Cash flows from financing activities 693,429 (151,042)
------------------- -------------------
Increase in cash 143,881 47,500
Cash, beginning 50,000 2,500
------------------- -------------------
Cash, ending $ 193,881 $ 50,000
=================== ===================
Supplemental disclosure of cash flows information:
Cash paid for interest $ 296,076 $ 284,000
=================== ===================
Cash paid for income taxes $ 15,557 $ 16,439
=================== ===================
Supplemental disclosure of noncash activities:
Purchases of equipment under capital lease obligations $ 111,605 $ 125,472
=================== ===================
Conversion of subordinated notes payable to stockholder to preferred
stock $ 0 $ 652,100
=================== ===================
Common stock issued for equipment $ 1,518,613 $ 0
=================== ===================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
BENCHMARK MEDIA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND APRIL 2, 1995
(1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business - Benchmark Media Services Inc. (formerly known as Braun
Media Services, Inc.) (the Company) was incorporated in June 1990 to engage in
the duplication and custom packaging of computer software. During fiscal year
1996, the Company expanded the scope of its business to include replication of
Compact Discs (including CD-ROM and audio CD's), full-service screen printing
and jewel case packaging.
Fiscal year - The Company has a fiscal year ending on the closest Sunday to
March 31. Both fiscal years 1995 and 1996 were 52 week periods.
Management's 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 and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue recognition - Revenues are recognized upon shipment of the product. A
significant portion of the Company's customer base is highly dependent on the
computer software industry.
Income taxes - The Company accounts for income taxes under the liability method.
Deferred income taxes are recognized at currently enacted income tax rates to
reflect the tax effect of temporary differences between the financial reporting
and tax bases of assets and liabilities.
Inventories - Inventories are stated at the lower of cost, determined on a
first-in, first-out basis, or market, and consisted of the following:
<TABLE>
<CAPTION>
March 31, April 2,
1996 1995
-- ------------------ -- ------------------
<S> <C> <C>
Raw materials $ 324,051 $ 487,582
Work in progress 21,966 58,864
-- ------------------ -- ------------------
Total $ 346,017 $ 546,446
-- ------------------ -- ------------------
</TABLE>
Depreciation - Property and equipment are recorded at cost and are being
depreciated over their estimated useful lives of three to ten years using the
straight-line method for book purposes and accelerated methods of depreciation
for tax purposes. Total property and equipment under capital leases was $435,000
and $602,000 at March 31, 1996 and April 2, 1995.
Long-lived assets - During fiscal 1996, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" (Statement No. 121). Statement No. 121 establishes accounting
standards for the recognition and measurement of impairment of long-lived
assets, certain identifiable intangibles and goodwill either to be held or
disposed. The adoption of Statement No. 121 did not have a material impact on
the Company's financial position or results of operations.
<PAGE>
BENCHMARK MEDIA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS - continued
MARCH 31, 1996 AND APRIL 2, 1995
(2) NOTES PAYABLE
Revolving note - In October 1994, the Company entered into a loan and security
agreement (the Agreement) with a financial institution which expires in October
1997. The Agreement provides up to $3,000,000 in maximum credit, including a
revolving note, term note and letter-of-credit accommodations. Borrowings under
the revolving note were $1,178,552 and $886,469 as of March 31, 1996 and April
2, 1995, bear interest at prime plus 2.25% as of March 31, 1996 and were
collateralized by accounts receivable, inventory and equipment. The interest
rate may be reduced to prime plus 1.75% upon attaining certain levels of net
worth, as defined.
The Agreement includes covenants which, among other matters, require the Company
to maintain certain levels of net worth and restrict prepayment of subordinated
indebtedness. As of March 31, 1996, the Company was in compliance with all of
the financial covenants under the Agreement.
Subordinated notes payable to stockholder - The Company has entered into notes
payable to its majority stockholder. These notes bear interest at the annual
rate of 9.5%, payable monthly, and are due 366 days following demand. The notes
are collateralized by a secondary security interest in substantially all
tangible assets and are subordinated to other Company debt.
Long-term debt - Long-term debt consisted of the following:
<TABLE>
<CAPTION>
March 31, April 2,
1996 1995
--- ---------------- --- ------------------
<S> <C> <C>
Note payable to financial institution,
interest at prime plus 2.25%, interest
payable monthly, collateralized by certain equipment
$ 302,917 $ 417,500
Note payable to bank, interest at 10.75%, interest
payable monthly, collateralized by certain equipment
68,853 85,000
Note payable to bank, interest at 10.5%, interest
payable monthly, collateralized by certain equipment
57,484 0
Note payable to vendor, interest at 0%, collateralized
by certain equipment
17,277 0
Capital lease obligations, interest ranging
9.4% to 21.8%, principal and interest payable
monthly through January 2000, collateralized
by certain equipment
242,005 318,185
--- ---------------- --- ------------------
Total 688,536 820,685
Less: current maturities (302,322) (477,624)
--- ---------------- --- ------------------
Long-term debt, net $ 386,214 $ 343,061
--- ---------------- --- ------------------
</TABLE>
<PAGE>
BENCHMARK MEDIA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS - continued
MARCH 31, 1996 AND APRIL 2, 1995
Future maturities of long-term debt are as follows for the fiscal years ending
March 31:
1997 $ 302,322
1998 288,779
1999 71,121
2000 26,314
-- ----------------
$ 688,536
-- ----------------
(3) STOCKHOLDERS' EQUITY:
Preferred stock - In September 1994, the Articles of Incorporation of the
Company were amended to, among other matters, increase the authorized number of
preferred shares to 4,000,000 shares, establish the Series B preferred stock,
and eliminate the redemption provisions for preferred stock. In conjunction with
the amendment, $652,100 of subordinated notes payable to a stockholder were
converted into 1,630,250 shares of the newly established Series B preferred
stock.
Each share of Series A and Series B preferred stock is convertible at the option
of the holder at any time into one share of common stock, subject to certain
adjustments. In the event of a qualified public offering, Series A preferred
stock will be converted to common stock of the Company. Each preferred
stockholder is entitled to the number of votes as if the preferred stock were
converted into common stock.
The holders of Series B preferred stock are entitled to receive, at the
discretion of the board of directors, an 8% noncumulative dividend. Additional
dividends declared are shared ratably by holders of the Series A preferred
stock, Series B preferred stock and common stock. No dividends have been
declared since inception of the Company. Upon liquidation, dissolution or
winding up of the Company, preferred stockholders have preference over holders
of common stock.
Common stock / CD-ROM equipment - During fiscal 1996, the Company entered into a
lease with its majority stockholder for the use of a CD-ROM replication system
and injection molding machines (the equipment) having a cost of approximately
$1.6 million. The Company operated the equipment under terms of the lease until
March 27, 1996, at which time the stockholder contributed the equipment to the
Company as consideration for the purchase of approximately 2.8 million shares of
common stock at $.45 per share and 720,000 shares of common stock at $.20 to
$.40 per share from the exercise of outstanding stock purchase warrants. The
fair market value of the equipment was approximately $1.5 million at the date of
exchange.
<PAGE>
BENCHMARK MEDIA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS - continued
MARCH 31, 1996 AND APRIL 2, 1995
Stock warrants - The Company has issued warrants to purchase common stock to
certain stockholders as consideration for subordinated loans made to the Company
by these stockholders. Common stock warrant transactions during fiscal 1995 and
1996 were as follows:
<TABLE>
<CAPTION>
Price Per
Shares Share
-- ------------------ -- ------------------
<S> <C> <C>
Outstanding at April 3, 1994 1,220,300 $.20 - $.40
Granted 443,750 $.20
Exercised (776,250) $.20
-- ------------------ -- ------------------
Outstanding at April 2, 1995 887,800 $.20 - $.40
Granted 0
Exercised (720,000) $.20 - $.40
-- ------------------ -- ------------------
Outstanding at March 31, 1996 167,800 $.20 - $.40
-- ------------------ -- ------------------
</TABLE>
All remaining warrants expire at various dates through October 1999.
Stock options - The Company has a stock option plan whereby certain eligible
employees, as defined, may be granted options to purchase the Company's common
stock at the discretion of the board of directors. The Company has reserved
700,000 shares of common stock for issuance related to the stock option plan. In
general, options vest over a period ranging from three to four years and expire
six years from the date of grant.
Stock option transactions during fiscal 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
Price Per
Shares Share
-- ------------------ -- ------------------
<S> <C> <C>
Outstanding at April 3, 1994 301,000 $.10 - $.20
Granted 296,000 $.20
Canceled (76,000) $.20
-- ------------------ -- ------------------
Outstanding at April 2, 1995 521,000 $.10 - $.20
Granted 300,000 $.20 - $.45
Canceled (442,000) $.20 - $.40
-- ------------------ -- ------------------
Outstanding at March 31, 1996 379,000 $.10 - $.45
-- ------------------ -- ------------------
</TABLE>
At March 31, 1996, 136,420 options were exercisable. All options expire at
various dates through March 2002.
<PAGE>
BENCHMARK MEDIA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS - continued
MARCH 31, 1996 AND APRIL 2, 1995
(4) INCOME TAXES
The provision for income taxes consists of the following components for the
years ended:
<TABLE>
<CAPTION>
March 31, April 2,
1996 1995
-- ------------------ -- ------------------
<S> <C> <C>
Current:
Federal $ 0 $ 0
State 15,693 18,000
Deferred 0 0
-- ------------------ -- ------------------
Total provision $ 15,693 $ 18,000
-- ------------------ -- ------------------
</TABLE>
A reconciliation from the federal statutory rate to the Company's effective
income tax rate is as follows for the years ended:
<TABLE>
<CAPTION>
March 31, April 2,
1996 1995
-- ------------------ -- ------------------
<S> <C> <C>
Federal statutory rate 34% 34%
State income taxes, net of federal
income tax benefit
3 3
Change in valuation allowance (34) (34)
-- ------------------ -- ------------------
3% 3%
-- ------------------ -- ------------------
</TABLE>
The tax effects of temporary differences giving rise to the deferred items are
as follows for the years ended:
<TABLE>
<CAPTION>
March 31, April 2,
1996 1995
---- ------------------ -- -----------------
<S> <C> <C>
Excess depreciation $ (216,000) $ (142,000)
Allowance for doubtful accounts 25,000 85,000
Net operating loss carryforwards 814,000 527,000
Other 138,000 44,000
---- ------------------ -- -----------------
761,000 514,000
Valuation allowance (761,000) (514,000)
---- ------------------ -- -----------------
Deferred taxes $ 0 $ 0
---- ------------------ -- -----------------
</TABLE>
At March 31, 1996, the Company had tax net operating loss carryforwards of
approximately $2.1 million. These carryforwards will expire in varying amounts
through 2011. Valuation allowances have been established for the full amount of
deferred tax assets.
<PAGE>
BENCHMARK MEDIA SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS - continued
MARCH 31, 1996 AND APRIL 2, 1995
(5) SIGNIFICANT CUSTOMERS
The Company has three major customers which accounted for 26%, 16% and 14% of
net sales during fiscal 1996 and had accounts receivable balances of $534,000,
$678,000 and $105,000 at March 31, 1996. The Company had three major customers
which accounted for 21%, 18% and 14% of net sales during fiscal 1995 and had
accounts receivable balances of $492,000, $284,000 and $339,000 at April 2,
1995. No other customer accounted for more than 10% of total sales during fiscal
1996 and 1995.
(6) COMMITMENTS AND CONTINGENCIES
Operating leases - The Company is party to a number of noncancelable lease
agreements, which expire on various dates through 1999. Rent expense reflected
in the accompanying statements of operations for such leases was $834,000 in
fiscal 1996 and $646,000 in fiscal 1995.
Future minimum payments under operating leases with an initial noncancelable
term in excess of one year at March 31, 1996 were as follows:
1997 $ 834,125
1998 844,890
1999 359,505
2000 369,390
-- ----------------
Total $ 2,407,910
-- ----------------
<PAGE>
Benchmark Media Services, Inc.
Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
ASSETS December 29, 1996 December 31, 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,800 $ 2,641
Accounts receivable, net of allowance
for doubtful accounts of $82,015 and
$142,530 2,522,022 2,141,399
Inventories 205,358 460,138
Prepaid expenses 86,375 113,947
----------- -----------
Total current assets 2,815,555 2,718,125
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of 2,622,373 1,685,518
$1,992,227 and $1,342,553
OTHER ASSETS, net 83,377 105,057
----------- -----------
$ 5,521,305 $ 4,508,700
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Revolving note payable $ 1,048,718 $ 1,171,836
Current maturities of long-term debt 414,953 314,373
Accounts payable 1,234,515 1,773,982
Accrued liabilities 671,320 384,510
----------- -----------
Total current liabilities 3,369,506 3,644,701
Long-term debt, less current maturities 1,531,420 1,426,087
SHAREHOLDERS' EQUITY (DEFICIT)
Series A preferred stock 720,000 720,000
Series B preferred stock 652,100 652,100
Common stock 4,948 1,405
Paid-in capital 1,684,648 165,245
Accumulated Deficit (2,439,817) (2,099,338)
Less: treasury stock at cost (1,500) (1,500)
----------- -----------
Total shareholders' equity (deficit) 620,379 (562,088)
----------- -----------
$ 5,521,305 $ 4,508,700
=========== ===========
The accompanying notes are an integral part of these balance sheets.
</TABLE>
<PAGE>
Benchmark Media Services, Inc.
Statements of Operations
(Unaudited)
Nine Months Ended Nine Months Ended
December 29, 1996 December 31, 1995
SALES $ 7,653,109 $ 9,351,885
COST OF SALES 6,379,228 7,895,892
----------- -----------
Gross Profit 1,273,881 1,455,993
OPERATING EXPENSES:
SELLING GENERAL AND
ADMINISTRATIVE EXPENSES 1,442,553 1,965,280
----------- -----------
Income (loss) from
operations (168,672) (509,287)
INTEREST EXPENSE (212,565) (188,648)
----------- -----------
Loss before taxes (381,237) (697,935)
PROVISION FOR INCOME TAXES 0 0
----------- -----------
NET LOSS ($ 381,237) ($ 697,935)
=========== ===========
The accompanying notes are an integral part of these statements.
<PAGE>
Benchmark Media Services, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
Dec. 29, 1996 Dec. 31, 1995
------------- -------------
<S> <C> <C>
Operating Activities:
Net loss $(381,237) $(697,935)
Adjustments to reconcile net income to net
cash from operating activities--
Depreciation and amortization 552,440 319,017
Changes in operating assets and liabilities:
Trade accounts receivable (754,692) (314,217)
Inventories 140,659 86,309
Prepaid expenses 12,434 40,115
Accounts payable (51,137) 70,808
Accrued expenses 186,178 (39,717)
--------- ---------
Net cash provided by (used in)
operating activities (295,355) (535,620)
--------- ---------
Investing Activities:
Purchase of property and equipment (24,751) (361,882)
--------- ---------
Financing Activities:
Stock option exercise 22 --
Proceeds from notes payable 500,000 645,000
Repayment of notes payable (242,163) (80,224)
Bank borrowings (129,834) 285,367
--------- ---------
Net cash provided by
investing activities 128,025 850,143
--------- ---------
Net decrease in cash (192,081) (47,359)
Cash and Cash Equivalents:
Beginning period 193,881 50,000
--------- ---------
End of period $ 1,800 $ 2,641
========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
Benchmark Media Service, Inc.
Notes to the Unaudited Financial Statements
December 29, 1996 and December 31, 1995
1. Basis of Presentation
The accompanying interim financial statements of the Company are unaudited;
however, in the opinion of management, all adjustments necessary for a fair
presentation (consisting of only normal recurring adjustments) have been
reflected in the interim periods presented. Due principally to the seasonal
nature of some of the Company's business, results may not be indicative of
results for a full year.
2. Notes Payable
In October 1996, the Company revised the loan and security agreement
entered into in October 1994 with its current financial institution which
expires in October 1997. The agreement increased the existing term loan by
$500,000, but kept the maximum credit of $3,000,000 unchanged by reducing the
amount available on the revolving note.
3. Significant Customers
The company's three major customers which accounted for 34%, 27% and 10% of
net sales during the nine months ended December 29, 1996, had accounts
receivable balances of $1,277,000, $353,000 and $206,000 at December 29, 1996.
4. Subsequent Event
On March 31, 1997, Zomax Optical Media, Inc. acquired all outstanding
shares of Benchmark Media Services, Inc.
<PAGE>
Zomax Optical Media, Inc.
Pro Forma Unaudited Consolidated Statement of Operations
<TABLE>
<CAPTION>
ZOMAX
For the BENCHMARK
Year Ended For the
December 27, 1996 Year Ended Pro Forma Pro Forma
Pro Forma (4) December 29, 1996(5) Adjustments As Adjusted
------------ --------------- ----------- -------
<S> <C> <C> <C> <C>
SALES $ 18,547,796 $ 10,778,965 (68,484)(6) $ 29,258,277
COST OF SALES 13,270,046 8,932,722 (68,484)(6) 22,134,284
------------ ------------ ------------ ------------
Gross Profit 5,277,750 1,846,243 0 7,123,993
SELLING GENERAL AND
ADMINISTRATIVE EXPENSES 3,050,980 1,892,126 23,282(7) 4,966,388
------------ ------------ ------------ ------------
Operating Income 2,226,770 (45,883) (23,282) 2,157,605
INTEREST EXPENSE (357,166) (294,595) 0(9) (651,761)
INTEREST INCOME 284,624 0 0 284,624
------------ ------------ ------------ ------------
Income (loss) before taxes 2,154,228 (340,478) (23,282) 1,790,468
PROVISION FOR INCOME TAXES 863,000 0 (136,000)(8) 727,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 1,291,228 ($ 340,478) $ 112,718 $ 1,063,468
============ ============ ============ ============
EARNINGS PER SHARE $ 0.34 $ 0.28
============ ============
WEIGHTED AVERAGE NUMBER 3,799,077 3,799,077
OF SHARES OUTSTANDING ============ ============
</TABLE>
<PAGE>
Zomax Optical Media, Inc.
Pro Forma Unaudited Consolidated Balance Sheet
<TABLE>
<CAPTION>
ASSETS
Zomax Benchmark Pro Forma Pro Forma
December 27, 1996 December 29, 1996 Adjustments Adjusted
----------------- ----------------- ----------- -------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,914,899 $ 1,800 0 $ 6,916,699
Accounts receivable, net 3,944,929 2,522,022 (23,084)(1) 6,443,867
Inventories, net 1,262,665 205,358 0 1,468,023
Prepaid expenses 110,443 86,375 (12,049)(2) 184,769
----------------- ----------------- ----------- -------
Total current assets 12,232,936 2,815,555 (35,133) 15,013,358
PROPERTY AND EQUIPMENT, net 7,574,501 2,622,373 (8,898)(2) 10,187,976
RESTRICTED CASH 135,249 0 0 135,249
GOODWILL, net 0 0 232,818(3) 232,818
OTHER ASSETS, net 12,167 83,377 0 95,544
----------------- ----------------- ----------- -------
$ 19,954,853 $ 5,521,305 $ 188,787 $ 25,664,945
================= =============== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of notes payable $ 1,508,607 $ 1,463,671 0 2,972,278
Accounts payable 1,590,088 1,234,515 (23,084)(1) 2,801,519
Accrued expenses 1,510,049 671,320 218,250(2) 2,399,619
Income taxes payable 513,819 0 (136,000)(8) 377,819
----------------- ----------------- ----------- ---------
Total current liabilities 5,122,563 3,369,506 59,166 8,551,235
NOTES PAYABLE, net of current 1,714,374 1,531,420 750,000(3) 3,995,794
portion
SHAREHOLDERS' EQUITY
Series A preferred stock 0 720,000 (720,000)(3) 0
Series B preferred stock 0 652,100 (652,100)(3) 0
Common stock 12,133,585 4,948 (4,948)(3) 12,133,585
Paid-in capital 0 1,684,648 (1,684,648)(3) 0
Retained earnings (deficit) 984,331 (2,439,817) 2,439,817 (3) 984,331
Less: treasury stock at cost 0 (1,500) 1,500 (3) 0
----------------- ----------------- ----------- ---------
Total shareholders' equity 13,117,916 620,379 (620,379) 13,117,916
----------------- ----------------- ----------- ---------
$ 19,954,853 $ 5,521,305 188,787 $ 25,664,945
================= ================= =========== =========
</TABLE>
<PAGE>
Notes to Proforma Unaudited Consolidated Financial Information
(1) Reflects the effects of eliminating the accounts receivable and accounts
payable balances between the two companies.
(2) Reflects Benchmark's severance costs, duplicate plant closing costs, and
other costs incident to the acquisition.
(3) Reflects the effects of the acquisition of Benchmark for consideration
estimated at $750,000. The ultimate purchase price of Benchmark's
outstanding common stock will be based on its revenues during 1997.
(4) For comparative purposes, the results of Zomax Optical Media Limited
Partnership and Zomax Optical Media, inc. have been combined to present a
full year in accordance with Regulation S-X Rule 11-02.
(5) For comparative purposes, the results of operations of Benchmark for the
twelve months ending December 29, 1996 represent a combined period
covering two fiscal years.
(6) Reflects the elimination of inter-company sales.
(7) Reflects twelve months of amortization of goodwill incurred due to the
acquisition. Goodwill is amortized over ten years.
(8) Reflects the reduction of the provision for income taxes for the
utilization of Benchmark's net loss.
(9) The purchase agreement does not specify an interest rate implicit on this
note. The effect of imputing interest expense on this note is immaterial to
the pro forma results.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report incorporated by reference in this Form 8-K/A, into the Company's
previously filed Registration Statements on Form S-8, File Nos. 333-06145 and
333-061333.
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
May 15, 1997
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in, or made part of, this form
8-K.
/s/ LUND KOEHLER COX & COMPANY, PLLP
Minneapolis, Minnesota
May 12, 1997
