<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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) FEBRUARY 10, 2000
----------------
MODEM MEDIA . POPPE TYSON, INC.
(Exact name of Registrant as Specified in Charter)
Delaware 0-21935 06-1464807
(State or Other (Commission File Number) (IRS Employer
Jurisdiction o Identification No.)
Incorporation)
----------------
230 East Avenue, Norwalk, Connecticut 06855
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number,
including area code:
(203) 299-7000
Former Name or Former Address, if Changed Since Last Report)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On February 10, 2000, Modem Media . Poppe Tyson, Inc. ("Modem Media")
acquired Vivid Holdings, Inc., ("Vivid") a Delaware corporation, through a
merger of a wholly owned subsidiary of Modem Media into Vivid pursuant to an
Agreement and Plan of Merger (the "Merger Agreement") dated as of December 17,
1999, among Modem Media, Modem Media . Poppe Tyson Merger Corp., Vivid
Holdings, Inc., Vivid Publishing, Inc., and the stockholders of Vivid. In
connection with the merger, Modem Media simultaneously acquired all of the
outstanding shares of common stock of Vivid Publishing, Inc. that were not
owned by its parent, Vivid. The consideration for the acquisition, after giving
effect to a two-for-one split of Modem Media's common stock effective March 1,
2000, consisted of (1) 446,010 shares of Class A common stock of Modem Media,
(2) the conversion of options to purchase the common stock of Vivid into
options to purchase 1,211,648 shares of Class A common stock of Modem Media and
(3) $10.2 million in cash. Modem Media paid the cash portion of the
consideration from cash on hand.
The foregoing description is qualified in its entirety by reference to the
Merger Agreement, a copy of which is attached hereto as Exhibit 2.1 and the
Stock Purchase Agreement among Vivid, Vivid Publishing, Inc., Computer
Associates International, Inc. and Modem Media dated as of December 17, 1999, a
copy of which is attached hereto as Exhibit 2.2.
2
<PAGE>
Item 7. Financial Statements and Exhibits.
(a)Financial statements of business acquired
Independent Auditors' Report
The Board of Directors
Vivid Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Vivid
Holdings, Inc. and subsidiary as of December 31, 1999, and Vivid Publishing,
Inc. (predecessor) as of December 31, 1998, and the related consolidated
statements of operations, cash flows and stockholders' equity (deficit) for the
six-month period ended December 31, 1999, the six-month period ended June 30,
1999 (predecessor) and the year ended December 31, 1998 (predecessor). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As more fully described in note 2, the Company operated as a wholly owned
subsidiary of Platinum Technology, Inc. from May 29, 1998 to June 30, 1999.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Vivid
Holdings, Inc. and subsidiary as of December 31, 1999 and the predecessor as of
December 31, 1998, and the results of their operations and their cash flows for
the six-months ended December 31, 1999, and the six-months ended June 30, 1999
(predecessor) and for the year ended December 31, 1998 (predecessor), in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 8 to the
financial statements, the Company has suffered recurring losses from
operations, has a net capital deficiency and significant current debt that
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 8. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
KPMG LLP
February 4, 2000
3
<PAGE>
VIVID HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(Predecessor)
1999 1998
----------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 26,843 $ --
Trade accounts receivable, less allowance for
doubtful accounts of
$15,000 and $0, respectively..................... 1,278,636 1,206,047
Unbilled receivable............................... 43,231 614,517
Deferred expense.................................. 174,415 --
Notes receivable.................................. -- 65,000
----------- -----------
Total current assets............................ 1,523,125 1,885,564
Investment in non-marketable security, at cost...... 716,000 --
Plant and equipment, net of accumulated depreciation
of $88,444 and
$5,044, respectively............................... 325,587 2,522
Goodwill, less accumulated amortization of
$1,108,428......................................... 9,960,787 --
----------- -----------
$12,525,499 $ 1,888,086
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Notes payable and accrued interest, net of
discount of $281,680............................. $14,007,983 $ --
Trade accounts payable............................ 820,924 --
Due to Parent..................................... -- 5,509,853
Accrued expenses.................................. 350,179 30,884
Billings in excess of revenue earned.............. 175,222 89,583
----------- -----------
Total liabilities............................... 15,354,308 5,630,320
----------- -----------
Stockholders' equity (deficit):
Common stock, par value, $0.001 per share;
authorized 30,000,000 shares as of December 31,
1999; issued and outstanding 1,400 shares; as of
December 31, 1998, authorized 10,000,000 shares;
issued and outstanding 2,960,917 shares.......... 248 35,028
Additional paid-in capital:
Stock options and warrants....................... 2,335,445 --
Unearned compensation............................ (1,641,942) --
Accumulated deficit............................... (3,522,560) (3,777,262)
----------- -----------
Total stockholders' deficit..................... (2,828,809) (3,742,234)
----------- -----------
Commitments and contingencies.......................
$12,525,499 $ 1,888,086
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
VIVID HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Predecessor)
Period from Period from (Predecessor)
July 1, 1999 January 1, Year ended
to December 31, 1999 to June 30, December 31,
1999 1999 1998
--------------- ---------------- -------------
<S> <C> <C> <C>
Revenue........................ $ 3,724,921 $3,306,042 $4,610,421
Direct cost of revenue......... 3,217,580 2,393,529 2,769,440
----------- ---------- ----------
Excess of revenues over direct
costs of revenue.............. 507,341 912,513 1,840,981
General and administrative..... 1,256,112 798,699 1,121,563
Professional fees.............. 575,710 92,397 65,614
Space and facilities........... 391,503 138,942 351,609
Depreciation and amortization.. 1,196,872 2,521 5,040
Parent company overhead
allocations................... -- 287,599 169,203
----------- ---------- ----------
3,420,197 1,320,158 1,713,029
----------- ---------- ----------
Other income (expense):
Merger costs................. -- -- (354,444)
Interest expense............. (609,704) -- (124,120)
Other (expense) income....... -- -- 65,000
----------- ---------- ----------
(609,704) -- (413,564)
----------- ---------- ----------
Net loss................... $(3,522,560) $ (407,645) $ (285,612)
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
VIVID HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from (Predecessor)
July 1, Period from (Predecessor)
1999 to January 1, 1999 Year ended
December 31, to June 30, December 31,
1999 1999 1998
------------ --------------- -------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss.......................... $ (3,522,560) $ (407,645) $ (285,612)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Amortization and depreciation.... 1,339,057 2,521 5,040
Allowance for doubtful accounts.. 15,000 -- --
Stock-based compensation......... 181,103 -- --
Expense for warrants issued...... 89,880 -- --
Changes in operating assets and
liabilities:
Accounts receivable............. (2,009,655) 1,206,047 (946,106)
Unbilled receivable............. 43,231 614,517 (614,517)
Deferred credits................ (174,415) -- --
Other assets.................... -- -- 11,974
Accounts payable................ 820,924 -- (651,571)
Deferred revenue................ 175,222 (89,583) (65,504)
Accrued interest................ 469,366 -- (89,601)
Accrued liabilities............. 224,849 -- (790,689)
Due to parent................... -- (1,325,857) 1,801,383
------------ ----------- -----------
Net cash used in operating
activities.................... (2,347,998) -- (1,625,203)
------------ ----------- -----------
Cash flows used in investing
activities:
Payments for plant and
equipment....................... (110,860) -- --
Purchase of business............. (3,030,513) -- --
------------ ----------- -----------
Net cash used in investing
activities.................... (3,141,373) -- --
------------ ----------- -----------
Cash flows from financing
activities:
Proceeds from issuance of notes
payable......................... 5,708,966 -- --
Repayment of note payable........ (193,000) -- (2,113,557)
Proceeds from issuance of capital
stock........................... 248 -- 4,931
Increase in due to Parent........ -- -- 3,708,469
------------ ----------- -----------
Net cash provided by financial
activities........................ 5,516,214 -- 1,599,843
------------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents.................. 26,843 -- (25,360)
Cash and cash equivalents at
beginning of period............... -- -- 25,360
------------ ----------- -----------
Cash and cash equivalents at end of
period............................ $ 26,843 $ -- $ --
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
VIVID HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Period from January 1, 1998 to December 31, 1999
<TABLE>
<CAPTION>
Common stock Additional
----------------- paid-in Unearned Accumulated
Predecessor Shares Amount capital compensation deficit Total
----------- --------- ------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1997................... 2,908,501 $30,097 $ -- $ -- $(3,491,650) $(3,461,553)
Issuance of common
stock.................. 52,416 4,931 -- -- -- 4,931
Net loss................ -- -- -- -- (285,612) (285,612)
--------- ------- ---------- ----------- ----------- -----------
Balances, December 31,
1998................... 2,960,917 35,028 -- -- (3,777,262) (3,742,234)
Net loss................ -- -- -- -- (407,645) (407,645)
--------- ------- ---------- ----------- ----------- -----------
Balances, June 30,
1999................... 2,960,917 $35,028 -- -- (4,184,907) (4,149,879)
========= ======= ========== =========== =========== ===========
The Company
-----------
Issuance of common
stock.................. 100 $ -- $ -- $ -- $ -- $ --
Unearned compensation
for options granted.... -- -- 1,823,045 (1,823,045) -- --
Exercise of stock
options................ 1,300 248 -- -- -- 248
Amortization of unearned
compensation........... -- -- -- 181,103 -- 181,103
Warrants issued for debt
and services........... -- -- 512,400 -- -- 512,400
Net loss................ -- -- -- -- (3,522,560) (3,522,560)
--------- ------- ---------- ----------- ----------- -----------
Balances, December 31,
1999................... 1,400 $ 248 $2,335,445 $(1,641,942) $(3,522,560) $(2,828,809)
========= ======= ========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
VIVID HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(1) Summary of Significant Accounting Policies and Practices
(a) Description of Business
Vivid Holdings, Inc. and its subsidiary (collectively, the Company) operate
as a professional services company. The Company renders consulting and strategy
services related to website development to a range of companies.
(b) Principles of Consolidation
The consolidated financial statements include the financial statements of
Vivid Holdings, Inc. (VHI) and its wholly owned subsidiary, Vivid Publishing,
Inc. from July 1, 1999 through December 31, 1999. VHI was formed exclusively to
acquire a 90% interest in Vivid Publishing, Inc. (Predecessor). The
accompanying financial statements comprise those of Predecessor through June
30, 1999, and those of the Company through December 31, 1999. Predecessor
financial statements include the financial statements of its wholly owned
subsidiary, Vivid Travel Network, Inc., through May 13, 1998, the date of sale.
All significant intercompany balances and transactions have been eliminated in
consolidation.
Vivid Travel Network, Inc. was sold to other investors on May 13, 1998. The
predecessor realized a gain of $65,000, which is reflected as other income in
the 1998 statement of operations.
(c) Cash Equivalents
Cash equivalents consist of cash held in checking accounts. For purposes of
the statements of cash flows, the Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents. There were no highly liquid debt instruments held by the Company
as of December 31, 1999 and 1998.
(d) Investment in Non-Marketable Securities
The investment in non-marketable securities as of December 31, 1999 consists
of non-marketable equity securities. This investment is recorded at cost as the
market value is not readily determinable. Management believes the fair value of
this investment exceeds its carrying amount.
(e) Plant and Equipment
Plant and equipment are stated at cost and consist mainly of computer
equipment and office furniture.
Depreciation on plant and equipment is calculated on the straight-line
method over the estimated useful lives of the assets ranging from 2 to 5 years.
(f) Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the estimated
useful life of 5 years. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
8
<PAGE>
VIVID HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
(g) Revenue Recognition
The Company enters into fixed-price and time and material type contracts.
Revenues from fixed-price contracts are recognized using the percentage-of-
completion method of accounting based upon milestones that are defined using
management's estimates of costs incurred at various stages of the project as
compared to total estimated project costs. Revenues from time and material
contracts are recognized as the Company incurs the time or uses the material
and is based on specified rates per individual customer contract.
Revenues determined by the percentage-of-completion method in excess of
contract billings are recorded as unbilled receivable. Such amounts are
generally billable upon reaching certain performance milestones that are
defined by the individual contracts. Deposits billed and received in advance of
performance under contracts are recorded as billings in excess of earned
revenues.
Also included in revenue is the exchange by the Company of services for
advertising space on websites or receipt of services. Revenue from these
transactions is recognized during the period in which the services are
performed and are recorded at the lower of estimated fair value of the service
received or the estimated fair value of the services given. Revenues from these
transactions represented 6% and 4% of total revenues from the period from July
1, 1999 to December 31, 1999 and from January 1, 1999 to June 30, 1999,
respectively. Revenues for barter transactions were immaterial for the year
ended December 31, 1998. These barter transactions have terms similar to other
revenue transactions in which the Company receives cash. Amounts not utilized
under these barter transactions are recorded as a deferred expense and amounted
to $174,415 as of December 31, 1999.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(i) Stock Option Plan and Warrants
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations, in accounting for its
fixed plan stock options as allowed under Statement of Financial Accountant
Standards No. 123 (SFAS 123). As such, compensation expense is measured on the
date of grant to the extent that current fair value of the underlying stock
exceeds the exercise price. Total compensation cost is amortized over the
vesting period, and unearned compensation is reflected as a reduction of
stockholders' equity.
The Company also issues warrants for the purchase of common stock to
nonemployees. The cost to the Company is based on the fair value of the
warrants on the date in which the warrant is both granted and earned, as
prescribed by SFAS 123.
9
<PAGE>
VIVID HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
(j) Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties, and other sources are recorded when it is
probable that a liability has been incurred and the amount of the assessment
and/or remediation can be reasonably estimated.
(k) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(l) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company accounts for long-lived assets in accordance with the provisions
of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
(m) Comprehensive Income
The Company has adopted SFAS No. 130, Reporting Comprehensive Income. SFAS
No. 130 establishes standards for reporting and presentation of comprehensive
income and its components in a full set of financial statements. As there are
no additional items of comprehensive income (loss), the reported net loss
equals comprehensive income (loss) for the year and periods presented.
(2) Organization
Vivid Publishing, Inc. (Predecessor) was a privately-held company. On May
29, 1998, Predecessor was acquired by Platinum Technologies, Inc. (Platinum) in
a transaction that was accounted for as a pooling-of-interests. As a result,
Predecessor's basis of accounting carried over at its previous basis. At the
time of this transaction, Platinum infused $3.7 million into the company to
settle certain liabilities. Vivid Publishing, Inc. incurred $354,444 in merger-
related costs related to this transaction. These costs were expensed during the
year ended December 31, 1998.
Subsequent to the Platinum transaction, Predecessor was treated effectively
as a division of Platinum. Predecessor did not maintain separate corporate,
treasury, legal, tax and other similar corporate functions. In addition,
capital purchasing and facilities management were handled by Platinum. As a
result, Platinum allocated to Predecessor certain costs for facilities and
equipment usage, as well as other costs for employee benefits, on a
proportional or headcount basis. These allocations and estimates are based on
assumptions and methodologies that Vivid Holdings, Inc. management believes are
reasonable. No costs were allocated separately for treasury or legal functions.
It is impracticable to determine whether such allocated costs are comparable to
those which would have been incurred on a stand-alone basis. Long-term debt or
income taxes were not allocated by Platinum.
10
<PAGE>
VIVID HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
All payroll, capital and other expenditures were funded through
Predecessor's intercompany account with Platinum. Remittances from clients for
services rendered were collected by Platinum and accounted for through the
intercompany account. Accordingly, Predecessor had no cash on a stand-alone
basis. Trade receivables, unbilled receivables, and deferred revenue represent
amounts due from or to customers at the dates shown. Accrued expenses as of
December 31, 1998 represents primarily accrued vacation expenses.
On May 28, 1999, Platinum was acquired by Computer Associates (CA) in a
transaction accounted for as a purchase; no purchase allocation adjustments
were added to the books of Predecessor or pushed down. Subsequent to that
purchase, management of Predecessor negotiated with CA to acquire a controlling
interest in Predecessor. On June 30, 1999, Vivid Holdings, Inc. acquired a 90%
interest in Predecessor for $11.5 million, including liabilities assumed for
$0.1 million, which was financed by a note payable to CA for $8.3 million and
notes payable to officers employees and other third parties of $3.1 million. CA
retained its interest in the cash, receivables and certain liabilities of
Predecessor. The purchase price was allocated as fixed assets of $0.3 million,
goodwill of $11.1 million and liabilities of $0.1 million. Goodwill is being
amortized over a five-year period on a straight-line basis. The seller's basis
in the fixed assets and liabilities was carried over, which resulted in no
minority interest at the transaction date as the historical carrying value of
the net assets was a deficit.
(3) Fair Value of Financial Instruments
Because of the nature of all financial instruments, recorded amounts
approximate fair value.
(4) Current Debt
Current debt as of December 31, 1999 consists of the following:
<TABLE>
<S> <C>
Note payable to related party (CA), principal and accrued
interest due on
February 15, 2000, bearing interest at 8.0% per annum........ $ 8,300,000
Notes payable to officers of the Company, principal and
accrued interest due over 12-month terms ranging from June
28, 2000 to September 1, 2000, or upon receipt by the Company
of proceeds from any other debt or equity financing of the
Company, bearing interest at 6.0% per annum, net of discount
of $252,000.................................................. 3,596,966
Notes payable to employees, principal and accrued interest due
over 12-month terms ranging from September 1, 2000 to
September 14, 2000, or upon receipt by the Company of
proceeds from any other debt or equity financing of the
Company, bearing interest at 6.0% per annum, net of discount
of $7,504.................................................... 114,496
Notes payable to outside third parties, principal and accrued
interest due over 4-to 12-month terms ranging from January
12, 2000 to September 1, 2000, or upon receipt by the Company
of proceeds from any other debt or equity financing of the
Company, bearing interest at rates between 6.0% and 8.0% per
annum, net of discount of $22,176............................ 1,527,155
------------
13,538,617
Accrued interest.............................................. 469,366
------------
$ 14,007,983
============
</TABLE>
11
<PAGE>
VIVID HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
In conjunction with the issuance of the above notes, the Company issued
warrants to acquire shares of common stock. A total of 1,345,000 warrants were
issued. As a result, the Company recorded an initial discount of $422,520.
This discount is being amortized over the term of the notes. Total
amortization was $140,840 for the six-month period ended December 31, 1999.
(5) Income Tax
The Company recognized no tax benefit or expense for any of the reporting
periods. The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at December
31, 1999 are presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating losses...................................... $ 2,487,000
Valuation allowance....................................... (2,366,000)
-----------
121,000
Deferred tax liability:
Depreciation.............................................. 121,000
-----------
Net deferred tax asset................................ $ --
===========
</TABLE>
The valuation allowance increased approximately $830,000 since the
acquisition date of June 30, 1999.
A valuation allowance has been provided for the entire amount of the net
deferred tax asset, as management does not consider that the realization of
the deferred tax assets is more likely than not. This determination has been
made on the basis of (1) the Company's history of operating losses and (2) the
expectation that losses will continue for the foreseeable future.
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $6,300,000, which are available to offset future taxable income,
if any, through 2019.
Federal and California tax laws impose substantial restrictions on the
utilization of net operating loss carryforwards in the event of an ownership
change as defined in Section 382 of the Internal Revenue Code. Due to the
ownership changes during the periods presented, management believes that
utilization of the net operating loss carryforwards will be limited under the
Code.
(6) Stockholders' Equity; Stock Option Plan
In July 1999, the Company adopted a stock option plan (the Plan) pursuant
to which the Company's Board of Directors may grant stock options to officers
and key employees. Subject to certain limitations, the Plan authorizes grants
of options to purchase up to 12,000,000 shares of authorized but unissued
common stock. Stock options granted generally have ten-year terms (except
those granted to shareholders with a 10% or greater ownership interest, which
have five-year terms) and vest and become fully exercisable after 2 to 3 years
from the date of grant, or upon change of control, as defined. No options were
granted under five-year terms.
12
<PAGE>
VIVID HOLDINGS, INC. AND SUSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
As of December 31, 1999, there were 2,411,213 additional shares available
for grant under the Plan.
Stock option activity during the period indicated is as follows:
<TABLE>
<CAPTION>
Weighted-
Number of average
options exercise price
--------- --------------
<S> <C> <C>
Balance as of July 1, 1999...................... -- --
Granted....................................... 9,588,787 $0.295
Exercised..................................... (1,300) 0.190
Forfeited..................................... (58,277) 0.110
Expired....................................... -- --
--------- ------
Balance as of December 31, 1999................. 9,529,210 $0.295
========= ======
</TABLE>
In the six-month period ended December 31, 1999, the Company issued
1,517,961 options on which the Company recorded unearned compensation expense
totaling $1,823,045. Amortization of the unearned compensation amounted to
$181,103.
As of December 31, 1999, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $0.19 to $1.62 and 9.6
years, respectively.
As of December 31, 1999, the number of options exercisable was 1,023,817 and
the weighted-average exercise price of those options was $.19.
Pursuant to SFAS 123, the Company is required to disclose the pro forma
effects on net income as if the Company had elected to use the fair value
method to account for all of its employee stock-based compensation plans. Using
an expected dividend yield of 0%, expected volatility of 0%, a risk-free
interest rate of 5.75%, and expected life of two years, the fair value method
would have increased the Company's net loss in the six-month period ended
December 31, 1999 to the pro forma amounts indicated below:
<TABLE>
<S> <C>
Pro forma net loss:
As reported.............................................. $(3,507,519)
As adjusted.............................................. (3,705,390)
</TABLE>
The Company issued 53,500 warrants to acquire stock at a nominal exercise
price in exchange for services rendered. The warrants are currently exercisable
and expire on December 31, 2002.
(7) Noncash Financing and Investing Activities
On May 13, 1998, the Company sold its interest in Vivid Travel Networks,
Inc. Total consideration received was $65,000 in notes receivable. Such
receivable was retained by CA in the June 30, 1999 transaction.
During the period from July 1, 1999 to December 31, 1999, the Company
received $716,000 in non-marketable equity securities in satisfaction of
accounts receivable in the amount of $716,000.
13
<PAGE>
VIVID HOLDINGS, INC. AND SUSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999 and 1998
In connection with the purchase of 90% of Vivid Publishing, Inc. (described
in note 2) on June 30, 1999, the Company issued a note payable in the amount of
$8,300,000.
(8) Liquidity; Pending Sale of Business
On December 17, 1999, the Company signed an agreement to merge with Modem
Media . Poppe Tyson, Inc. (MMPT). As part of a stock purchase agreement of the
same date, MMPT has agreed to pay in cash all notes and accrued interest
payable to CA and certain other indebtedness totaling approximately $9.3
million. Other holders of the short-term debt have agreed as part of the merger
to exchange such indebtedness for shares of MMPT stock. As a result of such
exchanges, management believes that the Company's short-term obligations will
be discharged, alleviating any concern that the Company will continue as going
concern. The transaction is expected to close in February 2000.
14
<PAGE>
(b)Pro forma financial information
MODEM MEDIA . POPPE TYSON, INC., VIVID HOLDINGS, INC.
AND VIVID PUBLISHING, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction
The following unaudited pro forma combined financial statements give effect
to the acquisition by Modem Media . Poppe Tyson, Inc. ("Modem Media") of 100%
of the outstanding capital stock of Vivid Holdings, Inc. and its majority-owned
subsidiary, Vivid Publishing, Inc. (collectively hereinafter referred to as
"Vivid") in a transaction accounted for under the purchase method of accounting
(the "Acquisition"). The consideration was comprised of approximately
$10,200,000 in cash, approximately $14,400,000 in Modem Media Class A common
stock (446,010 shares) and approximately $39,000,000 in value related to
employee stock options that were converted to Modem Media stock options.
The unaudited pro forma combined balance sheet of Modem Media and Vivid as
of December 31, 1999 presents the combined financial position of such entities
assuming that the Acquisition occurred on December 31, 1999. The unaudited pro
forma combined statement of operations of Modem Media and Vivid for the year
ended December 31, 1999 presents the combined results of operations of such
entities assuming that the Acquisition occurred on January 1, 1999. The pro
forma combined financial information does not purport to be indicative of the
results which would have actually occurred had the Acquisition been completed
as of the dates assumed or which may be obtained in the future. The pro forma
adjustments described in the notes to the unaudited pro forma combined
financial statements reflect the preliminary allocation of the purchase price
to the net assets acquired and is subject to final determination.
15
<PAGE>
MODEM MEDIA . POPPE TYSON, INC., VIVID HOLDINGS, INC.
AND VIVID PUBLISHING,INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
Modem Pro Forma
Media Vivid Adjustments Combined
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 30,265,000 $ 27,000 $(10,200,000)(a) $ 20,092,000
Short-term
investments........... 16,859,000 -- 16,859,000
Accounts receivable,
net................... 18,090,000 1,279,000 19,369,000
Unbilled revenues...... 2,066,000 43,000 2,109,000
Unbilled charges....... 642,000 -- 642,000
Deferred income
taxes................. 1,004,000 -- 1,004,000
Prepaid expenses and
other current
assets................ 2,325,000 174,000 2,499,000
------------ ----------- ------------
Total current
assets.............. 71,251,000 1,523,000 62,574,000
Total property and
equipment, net......... 14,192,000 325,000 14,517,000
Other assets:
Goodwill, net.......... 55,742,000 9,961,000 53,319,000 (b) 119,022,000
Deferred income
taxes................. 602,000 -- 602,000
Other assets........... 3,945,000 716,000 (350,000)(c) 4,161,000
(150,000)(d)
------------ ----------- ------------
Total other assets... 60,289,000 10,677,000 123,785,000
------------ ----------- ------------
Total assets......... $145,732,000 $12,525,000 $200,876,000
============ =========== ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable....... $ 5,346,000 $ 821,000 $ 6,167,000
Notes payable.......... -- 14,008,000 (13,658,000)(e) --
(350,000)(c)
Pre-billed media....... 6,639,000 -- 6,639,000
Advance billings....... 2,736,000 -- 2,736,000
Deferred revenues...... 4,125,000 175,000 4,300,000
Accrued expenses and
other current
liabilities........... 14,718,000 350,000 398,000 (f) 15,466,000
------------ ----------- ------------
Total current
liabilities......... 33,564,000 15,354,000 35,308,000
Noncurrent liabilities:
Capital lease
obligations, less
current portion....... 471,000 -- 471,000
Other liabilities...... 221,000 -- 221,000
Stockholders' equity:
Class A common stock... 12,000 -- 12,000
Class B common stock... 11,000 -- 11,000
Preferred stock........ -- -- --
Paid-in capital........ 121,151,000 694,000 53,400,000 (g) 174,551,000
(694,000)(h)
Accumulated deficit.... (8,604,000) (3,523,000) 3,523,000 (h) (8,604,000)
Treasury stock, at
cost.................. (1,118,000) -- (1,118,000)
Accumulated other
comprehensive
income................ 24,000 -- 24,000
------------ ----------- ------------
Total stockholders'
equity (deficit).... 111,476,000 (2,829,000) 164,876,000
------------ ----------- ------------
Total liabilities and
stockholders' equity
(deficit)........... $145,732,000 $12,525,000 $200,876,000
============ =========== ============
</TABLE>
See notes to unaudited pro forma combined financial statements.
16
<PAGE>
MODEM MEDIA . POPPE TYSON, INC., VIVID HOLDINGS, INC.
AND VIVID PUBLISHING,INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Modem Pro Forma
Media Vivid Adjustments Combined
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues................ $74,036,000 $ 7,031,000 $ 81,067,000
Cost of revenues........ 32,991,000 5,611,000 38,602,000
----------- ----------- ------------
Gross margin............ 41,045,000 1,420,000 42,465,000
Operating expenses:
Sales and marketing... 1,658,000 311,000 1,969,000
General and
administrative....... 29,683,000 3,321,000 33,004,000
Amortization of
goodwill............. 2,959,000 1,108,000 $12,656,000 (i) 15,615,000
(1,108,000)(j)
----------- ----------- ------------
Total operating
expenses........... 34,300,000 4,740,000 50,588,000
----------- ----------- ------------
Operating income
(loss)................. 6,745,000 (3,320,000) (8,123,000)
Interest income
(expense), net......... 1,975,000 (610,000) 610,000 (k) 1,630,000
(345,000)(l)
----------- ----------- ------------
Income (loss) before
taxes.................. 8,720,000 (3,930,000) (6,493,000)
Provision (benefit) for
income taxes........... 5,703,000 -- (1,100,000)(m) 4,603,000
----------- ----------- ------------
Net income (loss)....... $ 3,017,000 $(3,930,000) $(11,096,000)
=========== =========== ============
Net income (loss) per
share:
Basic................. $ 0.14 $ (0.50)
=========== ============
Diluted............... $ 0.13 $ (0.50)
=========== ============
Weighted-average number
of common shares
outstanding:
Basic................. 21,563,000 22,009,000(n)
=========== ============
Diluted............... 22,958,000 22,009,000(n)
=========== ============
</TABLE>
See notes to unaudited pro forma combined financial statements.
17
<PAGE>
MODEM MEDIA . POPPE TYSON, INC., VIVID HOLDINGS, INC.
AND VIVID PUBLISHING, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Basis of Presentation
The unaudited pro forma combined balance sheet combines the balance sheets
of Modem Media and Vivid as of December 31, 1999, and is presented as if the
Acquisition occurred on December 31, 1999. The unaudited pro forma combined
statement of operations combines the statements of operations of Modem Media
and Vivid for the year ended December 31, 1999, and is presented as if the
Acquisition occurred on January 1, 1999.
The historical balance sheets and statements of operations as of and for the
year ended December 31, 1999, used in the preparation of the unaudited pro
forma combined financial statements, have been derived from the respective
audited financial statements of Modem Media and Vivid.
Unaudited Pro Forma Adjustments
Descriptions of the adjustments included in the unaudited pro forma combined
financial statements are as follows:
Balance Sheet Adjustments
- -------------------------
(a)Represents cash paid in connection with the Acquisition.
(b) Represents the net excess of acquisition cost over the fair value of net
assets acquired in connection with the Acquisition, calculated as follows:
<TABLE>
<S> <C>
Purchase price............................................... $63,600,000
Acquisition costs............................................ 398,000
-----------
Total purchase price....................................... 63,998,000
Less: Fair value of net assets acquired...................... 718,000
-----------
Excess of total purchase price over the fair value of
net assets acquired......................................... 63,280,000
Less: Existing net goodwill of Vivid......................... 9,961,000
-----------
Incremental goodwill......................................... $53,319,000
===========
</TABLE>
(c) Represents the elimination of intercompany balances between Modem Media and
Vivid.
(d) Represents the elimination of Modem Media's investment in Vivid as of
December 31, 1999.
(e) Represents the settlement of certain indebtedness of Vivid upon the closing
of the Acquisition, settled with cash of $10,200,000 and the remainder with
Modem Media's Class A common stock.
(f) Represents estimated liabilities associated with the Acquisition.
(g) Represents equity issued in the Acquisition.
(h) Represents the elimination of the equity accounts of Vivid.
Statement of Operations Adjustments
- -----------------------------------
(i) Represents the amortization of $63,280,000 of goodwill, resulting from the
Acquisition, on a straight-line basis over five years.
(j) Represents the elimination of goodwill amortization on the books of Vivid
for the year ended December 31, 1999.
18
<PAGE>
MODEM MEDIA . POPPE TYSON, INC., VIVID HOLDINGS, INC.
AND VIVID PUBLISHING, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(continued)
(k) Represents the elimination of interest expense related to certain
indebtedness of Vivid settled upon the closing of the Acquisition.
(l) Represents the reduction of Modem Media's interest income that was earned
on cash used to settle certain indebtedness of Vivid upon the closing of
the Acquisition.
(m) Represents tax benefits related to the losses of Vivid that would have been
used to offset Modem Media's taxable income, as well as the income tax
effects of the foregoing adjustments. The pro forma combined effective tax
rate differs from the statutory rate primarily due to the effect of non-
deductible goodwill amortization and the losses of certain foreign
subsidiaries on which Modem Media currently does not recognize tax
benefits.
(n) Represents the weighted-average number of common shares outstanding for the
period presented, after giving effect to the Acquisition, calculated as
Modem Media's historical basic weighted-average number of common shares
outstanding during such period, plus the Class A common shares issued in
connection with the Acquisition.
(c) Exhibits
<TABLE>
<C> <S>
2.1* Agreement and Plan of Merger dated as of December 17, 1999 among the
Registrant, Modem Media . Poppe Tyson Merger Corp., Vivid Holdings,
Inc., Vivid Publishing, Inc. and the stockholders of Vivid Holdings,
Inc.
2.2* Stock Purchase Agreement among Vivid Holdings, Inc., Vivid Publishing,
Inc., Computer Associates International, Inc. and Modem Media . Poppe
Tyson, Inc. dated as of December 17, 1999.
23.1 Consent of KPMG LLP, Independent Accountants
99.1* Press Release issued by the Registrant on December 20, 1999.
99.2* Press Release issued by the Registrant on February 10, 2000.
</TABLE>
- --------
*Previously filed.
19
<PAGE>
SIGNATURE
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 thereunto duly authorized.
MODEM MEDIA . POPPE TYSON, INC.
By: /s/ Steven C. Roberts
----------------------------------
Steven C. Roberts
Chief Financial Officer
March 15, 2000
20
<PAGE>
Exhibit 23.1
CONSENT OF KPMG LLP, INDEPENDENT ACCOUNTANTS
The Board of Directors
Vivid Holdings, Inc.
We consent to the incorporation by reference in the registration statement
(Form S-8 No. 333-73227) pertaining to the Modem Media Advertising Limited
Partnership 1996 Option Plan, Amended and Restated 1997 Stock Option Plan, and
1999 Employee Stock Purchase Plan; the registration statement (Form S-8 No.
333-30096) pertaining to the Modem Media . Poppe Tyson, Inc. Vivid Holdings,
Inc. 1999 Stock Incentive Plan; and the registration statement (Form S-8 No.
333-96483) pertaining to the Modem Media . Poppe Tyson, Inc. 1999 Stock
Incentive Plan and Modem Media Advertising Limited Partnership 1996 Option
Plan, and in the related prospectuses, of our report dated February 4, 2000,
with respect to the consolidated balance sheet of Vivid Holdings, Inc. and
subsidiary as of December 31, 1999, and the consolidated balance sheet of Vivid
Publishing, Inc. and subsidiary (predecessor) as of December 31, 1998, and the
related consolidated statements of operations, cash flows, and stockholders'
equity of Vivid Holdings, Inc. for the six-month period ended December 31,
1999, the six-month period ended June 30, 1999 (predecessor) and the year ended
December 31, 1998 (predecessor), which report appears in the Form 8-K/A of
Modem Media . Poppe Tyson, Inc. dated March 15, 1999.
/s/ KPMG LLP
San Francisco, California
March 14, 2000
