UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(Mark one)
(X) Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
---------------------------------------------
( ) Transition Report under Section 13 or 15(d) of the Exchange Act.
FOR THE TRANSITION PERIOD FROM TO
---------------------------------
Commission File Number: 000-21775
THINK NEW IDEAS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 95-4578104
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
45 West 36th Street, 12th Floor, New York, New York 10018
(Address of principal executive offices)
(212) 629-6800
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE) YES NO X
Number of shares of Common Stock outstanding at May 15, 1998: 7,528,668
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THINK NEW IDEAS, INC.
INDEX
PAGE NO.
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Condensed Consolidated Statement of Shareholders'
Equity 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II Other Information
Item 1. Legal Proceedings......................................14
Item 2 Changes in Securities and Use of Proceeds..............14
Item 3. Defaults on Senior Securities..........................14
Item 4. Submission of Matters to a Vote of Security Holders....14
Item 5. Other Information......................................14
Item 6. Exhibits and Reports on Form 8-K.......................15
Item 7. Signatures.............................................16
Item 8. Index to Exhibits......................................17
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THINK NEW IDEAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000's )
MARCH 31,1998 JUNE 30, 1997
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 4,617 $3,451
Marketable securities 767 1,322
Accounts receivable, net of allowance for doubtful
accounts of $354 and $614 15,311 9,315
Unbilled receivables 2,300 2,497
Prepaid expenses and other current assets 2,067 535
----- ---
25,062 17,120
Property, plant and equipment, net 4,867 2,286
Software development costs 332 131
Goodwill, net of accumulated amortization of
$2,125 and $1,099 4,451 1,503
Other assets 663 362
----- ---
Total assets $35,375 $21,402
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $5,839 $2,648
Accrued expenses 1,588 3,337
Media payable 8,184 954
Income taxes payable 66 40
Due to related party 1,518 1,906
Current portion of obligations under capital
leases 370 157
--- ---
17,565 9,042
Obligations under capital leases 757 264
Note payable to related party 516
Other long-term liability 206
Shareholders' Equity:
Preferred stock, $.0001 par value; 5,000,000
shares authorized; none issued and none
outstanding - -
Common stock, $.0001 par value; 50,000,000
shares authorized; 7,012,650 shares issued
and outstanding 1 1
Additional paid in capital 23,535 19,050
Accumulated deficit (6,483) (7,677)
------ -------
Total shareholders' equity 17,053 11,374
Commitments
$35,375 $21,402
See accompanying notes to condensed consolidated financial statements.
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THINK NEW IDEAS, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(000's)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
(restated) (restated)
1998 1997 1998 1997
---- ---- ---- ----
Revenues $10,969 $4,211 $27,993 $12,254
Operating expenses:
Direct salaries and related expenses 4,033 2,565 11,960 6,501
Other direct expenses 2,363 1,248 6,497 3,564
Selling, general and administrative
expenses 3,221 1,737 6,683 3,695
Depreciation and amortization 706 385 1,662 1,060
Merger expenses - - - 57
--------- -------- -------- ------
Operating profit (loss) 646 (1,724) 1,191 (2,623)
Interest income (expense) and
other, net 87 63 188 (28)
-- -- --- ---
Income (loss) before provision for
income taxes 733 (1,661) 1,379 (2,651)
Provision for income taxes 73 40 185 28
--- -- --- --
Net income (loss) $660 $(1,701) $1,194 $(2,679)
=== ===== ===== =====
Per common share:
Net income (loss) - basic $0.11 $(0.30) $0.20 $(0.63)
Weighted average common shares
outstanding 6,134 5,592 5,961 4,265
Net income (loss) - diluted $0.10 $(0.30) $0.18 $(0.63)
Weighted average common shares
outstanding 6,870 5,592 6,530 4,265
See accompanying notes to condensed consolidated financial statements.
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THINK NEW IDEAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000's)
NINE MONTHS ENDED MARCH 31
--------------------------
1998 1997
(restated)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $1,194 $(2,679)
Adjustments to reconcile net income (loss)
to net cash provided by
(used in) operating activities:
Depreciation 656 190
Amortization of intangibles and deferred
financing costs 1,006 942
Deferred income taxes - (12)
Bad debt expense - 82
Changes in assets and liabilities:
Accounts receivable (5,008) (1,579)
Unbilled receivables 198 (1,015)
Accounts payable and accrued expenses 855 731
Media payable 7,230 (356)
Other assets and liabilities (2,837) (529)
----- ---
Net cash provided by (used in) operating activities 3,294 (4,225)
----- -----
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to software development costs (268) (519)
Payment for BBG New Media Inc., net of cash acquired (743) -
Sales of marketable securities, net of purchases 359 -
Purchases of property and equipment (1,976) (887)
------- -----
Net cash used in investing activities (2,628) (1,406)
------- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of promissory notes (437) (1,881)
Proceeds from issuance of common stock 485 11,973
Proceeds from private placement - 4,948
Borrowings from operating lines of credit - (36)
Due to shareholders 500 (500)
Principal payments on capital leases (48) -
-- ------
Net cash provided by financing activities 500 14,504
------ ------
Net increase in cash and cash equivalents 1,166 8,873
Cash and cash equivalents, beginning of period 3,451 430
Cash and cash equivalents, end of period $4,617 $9,303
====== =====
Cash paid during the period:
Income taxes $193 $101
Interest $77 $125
See accompanying notes to condensed consolidated financial statements.
5
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THINK NEW IDEAS, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(000's)
Total
Share-
Common Stock Paid-in Accumulated holders'
Shares Amount Capital Deficit Equity
------ ------ ------- ------- ------
Balance at June 30, 1997 6,537 $ 1 $19,050 $(7,677) $11,374
Issuance of common stock
for acquisition 303 3,602 3,602
Issuance of common stock
upon exercise of options 173 845 845
Other 38 38
Net income for the period 1,194 1,194
------- ------- ------- ------- -------
Balance at March 31, 1998 7,013 $ 1 $23,535 $(6,483) $17,053
======= ======= ======= ======= =======
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THINK NEW IDEAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Notes to Consolidated Financial
Statements contained in the Company's restated Form 10-KSB for the fiscal year
ended June 30, 1997, as filed with the Securities and Exchange Commission.
Certain items included in these statements are based on management's estimates.
In the opinion of management all material adjustments, which are of a normal
recurring nature, necessary for a fair presentation of the results for the
interim period have been included. The results for the three and nine months
ended March 31, 1998 are not necessarily indicative of the results expected for
the year.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
presentation adopted in the current period.
RESTATEMENTS
The financial statements for the three and nine months ended March 31,
1997 have been restated through the filing of an amended Form 10-QSB/A. The
restatement of the financial statements increased other direct expenses by $0.2
million, selling, general and administrative expenses by $0.3 million, and, the
net loss, and accounts payable, by $0.5 million, for costs incurred in the late
stages of the completion of contracts completed in the third quarter of fiscal
1997 which were not identified and accrued until the Company's fourth fiscal
quarter ended June 30, 1997. The Company identified these items in the
preparation of its financial statements for the year ended June 30, 1997, and
determined that the omission of their accrual in the originally issued March 31,
1997 financial statements resulted from failure of the production departments to
advise accounting and financial functions of certain late stage expenses on a
basis timely enough to allow their consideration when the contracts were closed
and billed to the client. In the first and second quarters of fiscal 1998 the
Company implemented certain new job budgeting and closing systems and procedures
to improve the control over both the amount of costs incurred in performing
client services and the timely identification and consideration of such items.
The restatements had the effect of increasing the net loss per share by $0.09
and $0.12 for the three and nine months ended March 31, 1997, respectively.
RELATED PARTY NOTE PAYABLE
The Company entered into a loan agreement with Omnicom Group Inc., a
principal shareholder of the Company, on March 17, 1998 whereby, the Company
borrowed $0.5 million at 8%. The note is payable within one month of the
effective date, April 17, 1998.
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ACQUISITIONS
On November 3, 1997, the Company entered into an agreement and plan of
merger ( the "BBG Agreement") with BBG New Media, Inc., a Massachusetts
corporation ("BBG"), which provides interactive marketing services, in exchange
for: (i) the issuance of 303,334 shares of Common Stock and $175,000 in cash;
and (ii) the subsequent issuance of shares of Common Stock based upon a
percentage of sales growth of BBG during the period from November 1, 1998
through October 31, 1999. In connection with the agreement, the Company repaid
approximately $548,000 in outstanding debt of BBG subsequent to the closing. The
acquisition has been accounted for using the purchase method of accounting and,
accordingly, the results of operations of BBG will be reflected in the Company's
financial statements from the effective date of the merger. The initial portion
of the purchase price of $4,539,000 has been allocated to the assets purchased
and the liabilities assumed based upon their estimated fair values at the date
of merger as follows:
(000'S)
Value of shares issued $ 3,602
Cash paid 175
Estimated transaction costs 762
-------
4,539
BBG stockholders' equity - November 3, 1997 (567)
Excess of cost over fair value $ 3,972
The Company is amortizing the excess of cost over fair value or goodwill
over thirty (30) years. Additional consideration is payable if BBG meets certain
sales targets, as discussed above, which would result in an increased balance of
goodwill and amortization related thereto.
On April 2, 1998, the Company acquired all the issued and outstanding
shares of capital stock of Herring/Newman, Inc., a Seattle based company, for a
cash price of $0.4 million and an aggregate of 127,799 shares of the Company's
stock. The Company issued an additional 77,220 shares of Common Stock which is
held in escrow, and shall be released from escrow on the one year anniversary of
the closing date, subject to the attainment of certain conditions and
performance objectives. This acquisition was accounted for as a purchase and the
excess of cost over net assets acquired will be amortized using the
straight-line method.
EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS No. 128"), and all prior periods presented have
been restated to conform with SFAS No. 128. SFAS No. 128 requires the
presentation of basic earnings per share and diluted earnings per share Basic
earnings per share is computed as net earnings divided by the weighted-average
number of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur from common shares issuable
through stock options and other convertible securities. Shares held in escrow
are not included in the calculation of weighted average shares outstanding for
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the periods presented as the conditions required to release escrow shares was
not fulfilled at the end of the periods presented, (See note regarding
"Subsequent Event" for further information). A reconciliation of
weighted-average common shares outstanding to weighted-average common shares
outstanding assuming dilution follows:
Three months Three months Nine Months Nine Months
ended ended Ended Ended
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
Average common
shares outstanding 6,133,948 5,591,667 5,960,831 4,265,463
Incremental common
shares issuable:
Stock options 724,916 557,144
Other convertible 11,458 11,980
securities
Average common
shares outstanding
Assuming dilution 6,870,321 5,591,667 6,529,955 4,265,463
========= ========= ========= =========
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONSOLIDATED REVENUES
Consolidated revenues for the quarter ended March 31,1998, which include
the operations and the combined results of the Company and it's acquisitions,
Fathom Advertising, and BBG New Media Inc., increased 160 percent to $11.0
million as compared with $4.2 million for the 1997 third quarter period. The
current year revenues of $11.0 million for the three months ended March 31, 1998
exceeded by 91% the proforma revenues of $5.7 million for the combined companies
for the three months ended March 31, 1997. Revenues from interactive services
increased 167 percent to $5.6 million for the three-month period ended March
31,1998 from $2.1 million for the corresponding prior year period. Of the total
$3.5 million increase, $1.9 million is a result of the inclusion of operations
from the Company's acquisition of BBG New Media, Inc, and an increase in
revenues from the operations of the Company's New York interactive division,
accounts for $1.8 million. The June 30, 1997 closure of Internet One caused a
$0.2 million decrease in revenues. Revenues from traditional strategic marketing
services increased 154 percent to $5.4 million for the current third quarter
period from $2.1 million for the prior year third quarter period. The increase
in revenues from traditional strategic marketing services is a result of the
inclusion of operations of Fathom Advertising, acquired in May 1997, and the
synergy of Fathom Advertising with the Company's other strategic marketing
services, which has significantly expanded revenues derived from Fathom's
clients. Revenues from both interactive services and traditional strategic
marketing as a percentage of total consolidated revenue for the third quarter
ended March 31,1998 and March 31, 1997 were approximately equal.
Consolidated revenues for the nine month period ended March 31,1998
increased 128 percent to $28.0 million from $12.2 million for the corresponding
prior period. Actual revenues of $28.0 million for the nine-month period ended
March 31, 1998 exceeded by 68% the proforma revenues of $16.6 million for the
combined companies for the nine-months ended March 31, 1997. Revenues from
interactive services increased 96 percent to $12.6 million for the 1998
year-to-date period as compared with $6.4 million for the comparable 1997
period. This increase is primarily a result of increased revenue generated from
existing clients and new business growth as well as the inclusion of operations
from the Company's acquisition of BBG New Media, Inc. in the second quarter of
fiscal 1998. Revenues from traditional strategic marketing operations increased
164 percent to $15.4 million as compared with $5.8 million for the year-to-date
1997 period. The increase in revenues from traditional strategic marketing
services is a result of the inclusion of operations from the acquisition in May
1997 of Fathom Advertising, and the synergies produced from that acquisition .
OPERATING RESULTS
Third quarter operating profit increased by $2.3 million to $0.6 million
for the three month period ended March 31, 1998 from an operating loss of $1.7
million for the restated prior year period, primarily as a result of increased
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revenues. Direct salaries and related expenses consist primarily of wages and
associated payroll taxes for full-time and temporary employees, as well as
recruiting fees and other personnel related costs. Direct salaries and related
expenses increased by $1.5 million to $4.0 million for the third quarter of 1998
from $2.5 million for the third quarter of 1997. The increase is the result of
increased payroll costs due to the expansion of the Company's marketing,
technology, and creative departments required to meet increased assignments and
resultant growth in revenues. As a percentage of revenue direct salaries and
related expenses decreased to 36.8 percent of revenues for the three months
ended March 31, 1998 from 60.9 percent of revenues for the third quarter of
fiscal 1997. The percentage relationship between direct salaries and related
costs and revenues improved due to higher margin projects in the third quarter
of fiscal 1998, specifically in strategic marketing consulting and media
placement. Certain specific or types of assignments may carry higher, or lower,
margins, as a result of which future periods may not reflect as favorable a
relationship between revenues and direct costs. Selling, general and
administrative expenses include corporate expenses such as; insurance, personnel
costs for finance and administration, accounting and legal fees, management
information systems, and employee benefits. The increase of $1.5 million to $3.2
million for the third quarter of 1998 compared with the restated corresponding
prior year period in selling, general and administrative expenses also
represents the effects of continued expansion of the Company's operations.
Selling, general and administrative expenses declined to 29.4 percent of
revenues for the third quarter of fiscal 1998 from 41.2 percent of revenues for
the three months ended March 31, 1997. The decrease is also a result of higher
margin projects in the third quarter of fiscal 1998 as compared with the third
quarter of fiscal 1997.
Depreciation and amortization increased by $300,000 for the third quarter
period ended March 31, 1998 as compared with the third quarter period ended
March 31, 1997. This includes the amortization of goodwill and other intangibles
relating to the purchase method of accounting for certain of the Company's
acquisitions of its subsidiaries, Fathom Advertising in May 1997 and BBG New
Media Inc., in November 1997. The amortization of goodwill recorded for these
acquisitions for the three months ended March 31, 1998 is approximately $90,000.
Depreciation expense also increased from the 1997 comparable quarter third
quarter as a result of increased assets gained through acquisitions. The
increase in depreciation and amortization for the nine-month period ended March
31, 1998 also reflects the Company's acquisitions, Fathom Advertising and BBG
New Media, including the relative amortization of goodwill and depreciation of
assets gained through these acquisitions.
Operating profit increased by $3.8 million to $1.2 million for the
nine-month period compared to an operating loss of $2.6 million for the restated
prior year period. Direct salaries and related expenses increased $5.4 million
to $11.9 million from $6.5 million in the restated prior year period. Selling,
general and administrative expenses also increased for the nine-month period by
$3.0 million to $6.7 million from $3.7 million for the restated prior year
period. These increases result from the same factors causing the similar
increase for the three months ended March 31, 1998.
INCOME TAXES
The effective tax rate for 1998 on income before income taxes is lower
than the United States Federal Statutory rate of 34%, primarily as a result of
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the Company's net operating loss carryforwards. Net operating loss carryforwards
have been applied against pre-tax profits for federal tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $3.3 million for the nine-month period
ended March 31, 1998, compared to $4.2 million used in the comparable prior-year
period. The increase in cash provided during the nine months ended March 31,
1998 reflects improved operating results.
Working capital decreased from $8.1 million at June 30, 1997 to $7.5
million at March 31, 1998, a decrease of $0.6 million, principally as the result
of the expenditure of $2.6 million for capital additions and acquisition
payments offset by $1.2 million of net income and $0.5 million received from the
issuance of common stock. The principal changes in working capital items were
increases in media payables and accounts receivable. Media payables represent
amounts payable to media providers for advertising placed by the Company's
clients, which costs are re-billed to the clients and included in accounts
receivable. Both amounts increased from June 30, 1997 to March 31, 1998,
reflecting the increase in the level of the Company's advertising assignments
for clients, which results from both the acquisition of Fathom Advertising, Inc.
and growth in the Company's other operations. At March 31, 1998 the Company has
established a reserve related to these receivables of $0.3 million, which the
Company believes is sufficient to adjust the carrying amount of its receivables
to an amount which approximates net realizable value.
Net cash used in investing activities amounted to $2.6 million for the
nine-month period ended March 31, 1998 compared with cash used investing
activities of $1.4 million during the corresponding period in 1997. The increase
in cash used in investing primarily resulted from capital expenditures of
approximately $2.0 million as well as net cash paid in connection with the
acquisition of BBG New Media Inc., of approximately $0.7 million offset, in
part, by net sales of marketable securities of $0.4 million.
Net cash provided by financing activities amounted to $0.5 million at
March 31, 1998 compared with cash provided of $14.5 million in the comparable
prior year period. During the third quarter of 1998 the Company entered into a
loan agreement with Omnicom, a shareholder in the Company. The agreement
provided for the Company to borrow $0.5 million at 8% per year.
The change in net cash provided by financing activities reflects prior
year transactions by the Company in regard to its initial public offering and
other financing activities. In March 1996, the Company raised $0.3 million in a
private offering, pursuant to which the Company issued six 10% convertible
promissory notes. The Company raised an additional $1.8 million in a second
private offering in April 1996, pursuant to which the Company issued several 12%
notes. In August 1996, the Company received net proceeds of $4.9 million through
the issuance of 938,667 shares of Common Stock to Omnicom. Proceeds from this
transaction were used by the Company to retire the nonconvertible portion of the
outstanding principal and accrued interest under the 10% and 12% notes
aggregating approximately $1.9 million.
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Also, in connection with the Company's initial public offering in November
1996, the Company issued 2,150,000 shares of Common Stock and received net
proceeds of approximately $12.0 million.
SUBSEQUENT EVENTS
In connection with the initial public offering, certain holders of the
Company's common stock placed, on a pro rata basis, 825,000 shares into escrow
(the "Escrow Shares") pursuant to an escrow agreement between such holders and
Continental Stock Transfer & Trust Company, as escrow agent. The Escrow Shares
are not transferable or assignable; however, the Escrow Shares may be voted by
the beneficial holders thereof. The Escrow Shares are to be released to these
shareholders if attainment of certain performance measures by the Company are
achieved, including, the closing price of the Company's Common Stock averaging
in excess of $20 per share for any forty consecutive business days during the
period from November 1996 through November 1999.
In the Company's fourth quarter of fiscal 1998 the condition specified
above was fulfilled and the Escrow Shares were released. The Company will
recognize a non-cash charge to earnings of approximately $20 million equal to
the fair market value of such shares on the date of their release. Management
believes that the release of these shares may have a material effect on the
Company's operations for the fiscal year end June 30, 1998.
Pursuant to the terms of a letter agreement dated 15, 1998, the Company
has reached an agreement in principal with Scott A. Mednick pursuant to which
Mr. Mednick has agreed to continue to work with the Company as a consultant
while pursuing personal business and philanthropic opportunities. It is intended
that Mr. Mednick's position as Chief Executive Officer and Chairman of the Board
of Directors will be filled by Ronald Bloom, currently the Company's President
and Chief Operating Officer. Pursuant to the terms of the agreement, Mr. Mednick
will be entitled to receive the balance of his salary under his employment
agreement over a period of twenty-four months and certain other benefits as set
forth in his existing employment agreement. Accordingly, the Company will accrue
approximately $900,000 in the fourth fiscal quarter of 1998 relating thereto.
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IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits, rather than four, to define the applicable year. Accordingly, any of
the Company's computer programs that have date sensitive software may cause
system failures or miscalculations if data entry of "00" is recognized as the
year 1900 rather than 2000. The Company is addressing this risk to the
availability and integrity of its financial systems. The Company has established
processes for evaluating and managing the risks and costs associated with this
problem. Additionally, the Company has provided it's clients with the tools
needed to perform their Year 2000 compliance initiatives. The Company estimates
the total direct amount to remediate the Year 2000 issue is not expected to be
material to the Company's results of operations or financial condition. All
costs will be expensed as incurred, unless new software is purchased which will
be capitalized.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report, including Management's Discussion and Analysis of Financial
Conditions and Results of Operations contains forward-looking statements within
the meaning of the federal securities laws. All statements, other than
statements of historical facts, which address activities, events or developments
that the Company expects or anticipates will or may occur in the future,
including such things as future capital expenditures, expansion, strategic
plans, expansion and growth of the Company's business and operations and other
such matters are forward-looking statements. These forward-looking statements
are based on many assumptions and factors including effects of timely
development and market acceptance of new products and upgrades to existing
products and pricing. Any changes in such assumptions or factors could produce
significantly different results.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any pending or ongoing litigation required
to be disclosed pursuant to this item.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
There have been no changes in the securities of the Company required to be
disclosed pursuant to this item.
ITEM 3. DEFAULT ON SENIOR SECURITIES
There have been no material defaults with respect to any indebtedness of
the Company required to be disclosed pursuant to this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no matters submitted to a vote of security holders during
the period ended March 31, 1998.
ITEM 5. OTHER INFORMATION AND SUBSEQUENT EVENTS
See Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
An index of exhibits that are required by this item, and which are furnished
in accordance with Item 601 of Regulation S-B, appear on page 17.
(b) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K dated April 2, 1998, which
reported the acquisition of all the issued and outstanding shares of capital
stock of Herring/Newman, Inc.
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SIGNATURES
Pursuant to 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.
THINK NEW IDEAS, INC. May 21, 1998
Date: MAY 21, 1998 /s/ Ron Bloom
------------ -------------
Ron Bloom
President and
Chief Operating Officer
/s/ Melvin Epstein
------------------
Melvin Epstein
Chief Financial Officer
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Exhibits filed with this Form 10-QSB:
EXHIBIT NO.
10.1 Amendment to Employment Agreement of Ron Bloom
10.2 Amendment to Employment Agreement of Susan Goodman
10.3 Amendment to Employment Agreement of Adam Curry
10.4 Letter of Agreement between the Company and Scott A.
Mednick
27 Financial Data Schedule
17
Exhibit 10.1
THINK NEW IDEAS, INC.
8000 Sunset Blvd., Penthouse East
Los Angeles, California 90046
October 23 1997
Mr. Ron Bloom
President and Chief Operating Officer
THINK New Ideas, Inc.
45 West 36th Street, 12th Floor
New York, New York 10018
Re: AMENDMENT TO EMPLOYMENT AGREEMENT DATED JUNE 30, 1996
Dear Ron:
Reference is hereby made to that certain employment agreement dated as of
June 30, 1996 (the "Employment Agreement") between THINK New Ideas, Inc. (the
"Corporation") and Ronald Bloom (the "Employee"). This letter is intended to
confirm that, notwithstanding anything else to the contrary set forth in the
Employment Agreement, the Corporation and the Employee hereby agree that Section
4(a) of the Employment Agreement be hereby amended by striking Section 4(a) of
the Employment Agreement thereof and by substituting in lieu thereof the
following new Section 4(a) to read as follows:
"4(a) COMPENSATION. The Company shall pay the Employee compensation equal
to Two Hundred Sixty Thousand Dollars ($260,000) per annum at a rate of
Twenty-One Thousand Six Hundred Sixty-Six Dollars and Sixty-Seven Cents
($21,666.67) per month (such monthly amount as the same may be increased from
time to time by virtue of the adjustments set forth hereinbelow shall be defined
as the "Monthly Compensation"). Such salary shall be payable in accordance with
the customary payroll practices of the Company."
This letter is also intended to confirm that, notwithstanding anything
else to the contrary set forth in the Employment Agreement, the Corporation and
the Employee hereby agree that Section 4 of the Employment Agreement be hereby
further amended by adding subsection (d) to read as follows:
"4(d) ANNUAL INCREASES. The Company shall increase the compensation of the
Employee on June 30, 1998 in an amount equal to five percent (5%) of the year's
prior compensation and annually increase the Employee's compensation on June 30
of each year thereafter in an amount equal to ten percent (10%) of each year's
prior compensation."
The modifications stated herein shall become effective on January 2, 1998.
Except as otherwise expressly modified hereby or required to effectuate the
modification set forth herein, the Employment Agreement shall remain unchanged
and shall continue in full force and effect pursuant to the terms thereof.
<PAGE>
This letter agreement contains the entire agreement between the
Corporation and the Employee with respect to the modification which is the
subject hereof. This letter agreement may not be amended, changed, modified, or
discharges, nor may any provision hereof be waived, except by an instrument in
writing executed by or on behalf of the party against whom enforcement of any
amendment, waiver, change, modification or discharge is sought. No course of
conduct or dealing shall be construed to modify, amend or otherwise affect any
of the provisions hereof. Please confirm that the Employee is in agreement with
the forgoing, and that the foregoing is in accordance with your understanding by
signing and returning this letter, which shall thereupon constitute a binding
agreement.
Agreed to and accepted as of this
_____ day of October, 1997 Very truly yours,
THINK New Ideas, Inc.
By: /s/ Ron Bloom By: /s/ Scott Mednick
------------- -----------------
Ron Bloom Scott Mednick
Chief Executive Officer
2
Exhibit 10.2
THINK NEW IDEAS, INC.
8000 Sunset Blvd., Penthouse East
Los Angeles, California 90046
October 23, 1997
Ms. Susan Goodman
Executive Vice President
THINK New Ideas, Inc.
45 West 36th Street, 12th Floor
New York, New York 10018
Re: AMENDMENT TO EMPLOYMENT AGREEMENT DATED JUNE 30, 1996
Dear Susan:
Reference is hereby made to that certain employment agreement dated as of
June 30, 1996 (the "Employment Agreement") between THINK New Ideas, Inc. (the
"Corporation") and Susan Goodman (the "Employee"). This letter is intended to
confirm that, notwithstanding anything else to the contrary set forth in the
Employment Agreement, the Corporation and the Employee hereby agree that Section
4(a) of the Employment Agreement be hereby amended by striking Section 4(a) of
the Employment Agreement thereof and by substituting in lieu thereof the
following new Section 4(a) to read as follows:
"4(a) COMPENSATION. The Company shall pay the Employee compensation equal
to Two Hundred Fifteen Thousand Dollars ($215,000) per annum at a rate of
Seventeen Thousand Nine Hundred Sixteen Dollars and Sixty-Seven Cents
($17,916.67) per month (such monthly amount as the same may be increased from
time to time by virtue of the adjustments set forth hereinbelow shall be defined
as the "Monthly Compensation"). Such salary shall be payable in accordance with
the customary payroll practices of the Company."
The modification stated herein shall become effective on January 2, 1998.
Except as otherwise expressly modified hereby or required to effectuate the
modification set forth herein, the Employment Agreement shall remain unchanged
and shall continue in full force and effect pursuant to the terms thereof.
This letter agreement contains the entire agreement between the
Corporation and the Employee with respect to the modification which is the
subject hereof. This letter agreement may not be amended, changed, modified, or
discharges, nor may any provision hereof be waived, except by an instrument in
writing executed by or on behalf of the party against whom enforcement of any
amendment, waiver, change, modification or discharge is sought. No course of
conduct or dealing shall be construed to modify, amend or otherwise affect any
of the provisions hereof. Please confirm that the Employee is in agreement with
the forgoing, and that the foregoing is in accordance with your understanding by
signing and returning this letter, which shall thereupon constitute a binding
agreement.
Agreed to and accepted as of this
14 day of May, 1998 Very truly yours,
THINK New Ideas, Inc.
By: /s/ Susan Goodman By: /s/ Scott Mednick
----------------- -----------------
Susan Goodman Scott Mednick
Chief Executive Officer
Exhibit 10.3
THINK NEW IDEAS, INC.
8000 Sunset Blvd., Penthouse East
Los Angeles, California 90046
October 23, 1997
Mr. Adam Curry
Chief Technology Officer
THINK New Ideas, Inc.
45 West 36th Street, 12th Floor
New York, New York 10018
Re: AMENDMENT TO EMPLOYMENT AGREEMENT DATED JUNE 30, 1996
Dear Adam:
Reference is hereby made to that certain employment agreement dated as of
June 30, 1996 (the "Employment Agreement") between THINK New Ideas, Inc. (the
"Corporation") and Adam Curry (the "Employee"). This letter is intended to
confirm that, notwithstanding anything else to the contrary set forth in the
Employment Agreement, the Corporation and the Employee hereby agree that Section
4(a) of the Employment Agreement be hereby amended by striking Section 4(a) of
the Employment Agreement thereof and by substituting in lieu thereof the
following new Section 4(a) to read as follows:
"4(a) COMPENSATION. The Company shall pay the Employee compensation equal
to Two Hundred Sixty Thousand Dollars ($260,000) per annum at a rate of
Twenty-One Thousand Six Hundred Sixty-Six Dollars and Sixty-Seven Cents
($21,666.67) per month (such monthly amount as the same may be increased from
time to time by virtue of the adjustments set forth hereinbelow shall be defined
as the "Monthly Compensation"). Such salary shall be payable in accordance with
the customary payroll practices of the Company."
This letter is also intended to confirm that, notwithstanding anything
else to the contrary set forth in the Employment Agreement, the Corporation and
the Employee hereby agree that Section 4 of the Employment Agreement be hereby
further amended by adding subsection (d) to read as follows:
"4(d) ANNUAL INCREASES. The Company shall increase the compensation of the
Employee on June 30, 1998 in an amount equal to five percent (5%) of the year's
prior compensation and annually increase the Employee's compensation on June 30
of each year thereafter in an amount equal to ten percent (10%) of each year's
prior compensation."
The modification stated herein shall become effective on January 2, 1998.
Except as otherwise expressly modified hereby or required to effectuate the
modification set forth herein, the Employment Agreement shall remain unchanged
and shall continue in full force and effect pursuant to the terms thereof.
<PAGE>
This letter agreement contains the entire agreement between the
Corporation and the Employee with respect to the modification which is the
subject hereof. This letter agreement may not be amended, changed, modified, or
discharges, nor may any provision hereof be waived, except by an instrument in
writing executed by or on behalf of the party against whom enforcement of any
amendment, waiver, change, modification or discharge is sought. No course of
conduct or dealing shall be construed to modify, amend or otherwise affect any
of the provisions hereof. Please confirm that the Employee is in agreement with
the forgoing, and that the foregoing is in accordance with your understanding by
signing and returning this letter, which shall thereupon constitute a binding
agreement.
Agreed to and accepted as of this
_____ day of October, 1997 Very truly yours,
THINK New Ideas, Inc.
By: /s/ Adam Curry By: /s/ Scott Mednick
-------------- -----------------
Adam Curry Scott Mednick
Chief Executive Officer
KIRKPATRICK & LOCKHART LLP Exhibit 10.4
1800 Massachusetts Avenue, N.W.
Second Floor
Washington, D.C. 20036
JOHN B. SPIRTOS
(202) 778-9271
[email protected]
May 15, 1998
FOR PURPOSES OF
SETTLEMENT DISCUSSIONS
VIA FACSIMILE AND U.S. MAIL
Jeffrey L. Glassman
Riordan & McKinzie
California Plaza
300 South Grand Ave.
29th Floor
Los Angeles, CA 90071
Re: DEPARTURE OF SCOTT MEDNICK
Dear Mr. Glassman:
Pursuant to Larry Kopald's conversation with Scott Mednick with regard to
Mr. Mednick's separation from service with our client, THINK New Ideas, Inc.
("THINK"), and the resolution of all disputes arising under the terms of his
employment agreement ("Employment Agreement"), we propose that the following
serve as a basis for our preparation of a definitive settlement agreement
("Settlement Agreement") between the parties:
Over a 24-month period, THINK would pay to Mr. Mednick the sum of
$936,130, which represents the aggregate of Mr. Mednick's monthly
compensation during the number of months remaining under the terms of
the Employment Agreement (exclusive of extensions and inclusive of the
agreed-upon annual salary increases as set forth in Section 4(d) of the
Employment Agreement) plus an additional 12 months of compensation.
THINK would purchase from Mr. Mednick its obligation to provide Mr.
Mednick with participation in its health insurance program.
Alternatively, Mr. Mednick may elect COBRA coverage, the premiums for
which would be paid by THINK.
THINK would compensate Mr. Mednick for the value of the number of
"vacation" days to which he is entitled for the current fiscal year
under the terms of the Employment Agreement, less any such days used by
Mr. Mednick in the current fiscal year and recorded with the
appropriate officer or administrator of THINK.
Throughout the duration of the period during which Mr. Mednick
received severance compensation payments from THINK, Mr. Mednick would
be bound by a non-competition clause of the type set forth in Section
10 of the Employment Agreement.
Ronald Bloom, Adam Curry and Mr. Mednick would enter into a private
lock-up agreement, whereby each individual would agree to sell no more
than 25,000 shares of THINK common stock ("THINK Stock") in any single
transaction and in no event more than 16.43% of his shares of THINK
Stock, including his option shares, for a period of 120 days, which
period shall commence on May 15, 1998, the effective date of the
Settlement Agreement; provided, however, that such lock-up agreement
would terminate if the average fair market value per share of THINK
Stock fell below $25 for a period of 10 business days.
<PAGE>
Jeffrey L. Glassman
Riordan & McKinzie
May 15, 1998
Page 2
THINK would pay the premiums on the $1,000,000 term life insurance
policy on the life of Mr. Mednick for a period of four months and,
thereafter, such policy would be transferred to Mr. Mednick and the
premiums paid by him.
THINK and Mr. Mednick would agree to release each other from all
future claims and settle all disputes arising under the Employment
Agreement.
Mr. Mednick would enter into a consulting agreement with THINK,
pursuant to which Mr. Mednick would provide advice and counsel to THINK
on an as-needed basis in exchange for a consultation fee of $3,000 per
day.
THINK and Mr. Mednick would prepare a jointly issued press release,
indicating the departure of Mr. Mednick and his entering into the
above-referenced consulting agreement.
THINK would include Mr. Mednick in any secondary offering of its
securities for a 24-month period commencing on the effective date of
the Settlement Agreement.
THINK would obtain all necessary approvals and take all actions to
accelerate and vest Mr. Mednick's 80,000 options to purchase shares of
THINK Stock at an exercise price of $8.88 received pursuant to THINK's
Amended and Restated 1997 Stock Option Plan.
Within 60 days of the effective date of the Settlement Agreement,
THINK would register Mr. Mednick's 20,000 options to purchase shares of
THINK Stock at an exercise price of $4.05, which were received in
connection with Mr. Mednick's service as a director of THINK.
Mr. Mednick would be allowed his normal access to the premises of
THINK and right to remove personal property for a seven (7) calendar
day transitional period, such period commencing the day after the
release of the above-referenced press release.
Mr. Mednick's current assistant would remain an employee of THINK
for at least 3 months, at her election, following the effective date
of the Settlement Agreement.
<PAGE>
Jeffrey L. Glassman
Riordan & McKinzie
May 15, 1998
Page 3
If you have any questions or comments, please feel free to call. If you
agree to these terms, please so indicate by signing this document below.
Very truly yours,
/s/ John B. Spirtos
John B. Spirtos
Agreed and Accepted
By: /s/ Scott Medwick
-----------------
Scott Mednick
Date: May 15, 1998
THINK NEW IDEAS, INC.
By: /s/ Larry Kopald
----------------
Larry Kopald, Chief Creative Officer
Date: May 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED MARCH 31, 1998 AND
THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 4,617
<SECURITIES> 767
<RECEIVABLES> 15,311
<ALLOWANCES> 353
<INVENTORY> 0
<CURRENT-ASSETS> 25,062
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 35,375
<CURRENT-LIABILITIES> 17,565
<BONDS> 757
0
0
<COMMON> 1
<OTHER-SE> 17,052
<TOTAL-LIABILITY-AND-EQUITY> 35,375
<SALES> 0
<TOTAL-REVENUES> 27,993
<CGS> 0
<TOTAL-COSTS> 18,457
<OTHER-EXPENSES> 1,662
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,379
<INCOME-TAX> 185
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,194
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.18
</TABLE>
