SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): December 14, 1998
AUDIO BOOK CLUB, INC.
(Exact name of registrant as specified in its charter)
Florida 1-13469 65-0429858
(State or other jurisdiction (Commission File (I.R.S. Employer
jurisdiction of incorporation) Number) Identification No.)
2295 Corporate Blvd., N.W., Boca Raton, FL 33431
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (561) 241-1426
Not Applicable
Former name or former address, if changed since last report
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO-FORMA FINANCIAL INFORMATION AND EXHIBITS
On its Form 8-K filed December 24, 1998, Audio Book Club, Inc. advised the
Securities and Exchange Commission ("the Commission") that it would file audited
financial statements relating to the acquisition described therein. Attached
hereto are the required financial statements.
INDEX:
(a) HISTORICAL FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED (RADIO SPIRITS,
INC.)
September 30, 1998
Balance Sheet 4 - 5
Statement of Income 6
Statement of Cash Flows 7
Notes to Financial Statements 8 - 11
December 31, 1997
Independent Auditor's Report 14
Balance Sheet 15 - 16
Statement of Income 17
Statement of Cash Flows 18
Statement of Stockholder's Equity 19
Notes to Financial Statements 20 - 24
December 31, 1996
Independent Auditor's Report 30
Balance Sheet 31 - 32
Statement of Income 33
Statement of Cash Flows 34
Statement of Stockholder's Equity 35
Notes to Financial Statements 36 - 40
(b) PRO-FORMA COMBINED FINANCIAL INFORMATION
Introduction 44
Pro Forma Combined Balance Sheet at
September 30, 1998 45
Notes to Pro Forma Combined Balance Sheet at September 30, 1998 46
Pro Forma Combined Statement of Operations
for the Nine Months Ended September 30, 1998 47
<PAGE>
Pro Forma Combined Statement of Operations
for the Twelve Months Ended December 31, 1997 48
Pro Forma Combined Statement of Operations
for the Twelve Months Ended December 31, 1996 49
Notes to Pro Forma Combined Statements of Operations 50
<PAGE>
RADIO SPIRITS, INC. Page 2
BALANCE SHEET
SEPTEMBER 30,1998
Unaudited
ASSETS
CURRENT ASSETS
Cash $ 40,848
Accounts receivable, net of allowance of $173,500 1,071,602
Other receivables 143
Inventory (Note 1) 1,161,220
Loans to shareholder (Note 6) 60,891
Prepaid expenses 36,595
-----------
Total Current Assets 2,371,299
PROPERTY AND EQUIPMENT (Note 2)
Leasehold improvements $ 538,587
Equipment 607,381
Furniture and fixtures 83,206
Vehicles 23,225
Old time radio collection 173,766
-----------
Total Property and Equipment 1,426,165
Less: accumulated depreciation (518,225)
-----------
Property and Equipment - net 907,940
OTHER ASSETS
Due from affiliates (Note 6) $ 220,023
Deposits 40
Goodwill, net of amortization
of $74,810 (Note 3) 374,051
-----------
Total Other Assets 594,114
-----------
$ 3,873,353
===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
RADIO SPIRITS, INC. Page 3
BALANCE SHEET
SEPTEMBER 30,1998
Unaudited
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Line of credit (Note 4) $ 601,833
Current portion of long term debt (Note 5) 159,697
Accounts payable 611,040
Accrued expenses 196,006
Accrued profit sharing (Note 8) 85,529
Deferred income taxes payable (Note 1) 108,328
----------
Total Current Liabilities 1,762,433
LONG TERM DEBT (Note 5) 740,608
STOCKHOLDER'S EQUITY
Common stock, No par value
Authorized 1,000 shares
Issued 1000 shares $ 1,000
Retained earnings 1,369,312
----------
Total Stockholder's Equity 1,370,312
----------
$3,873,353
==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
RADIO SPIRITS, INC. Page 4
STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30,1998
Unaudited
STATEMENT OF INCOME
Amount
-----------
SALES $ 4,815,483
DIRECT COST OF GOODS SOLD 2,110,283
-----------
GROSS PROFIT 2,705,200
INDIRECT COST OF GOODS SOLD 526,321
-----------
NET INCOME BEFORE OPERATING EXPENSES 2,178,879
-----------
OPERATING EXPENSES
Selling 118,370
Administrative 1,128,591
-----------
Total Operating Expenses 1,246,961
-----------
INCOME FROM OPERATIONS 931,918
-----------
OTHER INCOME (EXPENSE)
Penalties (2,767)
Interest expense (100,118)
-----------
Total Other Expense (102,885)
-----------
NET INCOME $ 829,033
-----------
The accompanying notes are an integral part of the financial statements.
<PAGE>
RADIO SPIRITS, INC.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
Cash flows from operating activities:
Net income $ 829,033
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation 91,225
Amortization 22,443
Decrease in accounts receivable 193,760
Increase in inventory (201,864)
Decrease in prepaid expenses 25,337
Decrease in other receivables 21,568
Increase in due from affiliates (140,947)
Decrease in accounts payable (251,279)
Decrease in accrued expenses (68,120)
Decrease in accrued profit sharing (3,814)
Decrease in accrued corporation taxes (32,270)
Decrease in accrued payroll taxes (6,095)
---------
Total adjustments (350,056)
---------
Net cash provided by operating activities 478,977
---------
Cash flows from investing activities:
Purchases of fixed assets (106,732)
---------
Net cash used in investing activities (106,732)
---------
Cash flows from financing activities:
Loans to shareholder (60,891)
Net decrease in line of credit (180,000)
Net decrease in debt (167,676)
---------
Net cash used in financing activities (408,567)
---------
Net decrease in cash (36,322)
Cash at beginning of period 77,170
---------
Cash at end of period $ 40,848
=========
The accompanying notes are an integral part of the financial statements.
<PAGE>
RADIO SPIRITS, INC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Radio Spirits, Inc. (the
Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management who are responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation
of the financial statements.
Nature of Business
The Company specializes in the syndication, sales and licensing of popular
radio programs originally aired from the early 1930s through the late
1950s. The Company has an in-house mail order service in which it
distributes audio cassettes and compact discs of vintage comedy, mystery,
detective, adventure and suspense programs to customers worldwide.
Inventory
Inventory consists of packaging materials for the cassettes and compact
discs, and cassettes and compact discs ready for sale. Inventory is carried
at cost and is reviewed at year end for slow moving items, which are
written off as obsolete.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of equipment is
computed using accelerated methods and amortization of leasehold
improvements is computed using the straight-line method. Depreciation and
amortization amounted to $91,225 for the nine months ended September 30,
1998.
3. GOODWILL
Goodwill resulted from the purchase of stock from a former shareholder and
is being amortized using the straight-line method over 15 years.
Amortization expense amounted to $22,443 for the nine months ended
September 30, 1998.
<PAGE>
RADIO SPIRITS, INC. Page 6
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. LINE OF CREDIT
The Company has a line of credit with a bank in the amount of $850,000
expiring September 4, 1999. The line of credit is collateralized by
substantially all of the assets of the Company and the personal guarantee
of the shareholder of the Company. Interest only is payable monthly at 1%
over the prime rate. The outstanding balance was $601,833 at September 30,
1998.
5. NOTES PAYABLE
Notes payable consists of the following:
Note payable dated March 7, 1996 to former
shareholder for purchase of stock, payable $6,747
per month including interest at 6.5%, due March
2006. Secured by a second position of
substantially all assets and the guarantee of the
shareholder of the Company $ 475,462
Note payable to West Suburban Bank, payable in monthly
installments of $1,365 including interest at
9.5%, due September 2002, secured by equipment 54,337
Note payable to West Suburban Bank, payable in monthly
installments of $9,509 including interest at
9.75%, due May 2002, secured by substantially all assets 350,426
Note payable to Honda, payable in monthly installments
of $444 including interest at 7.75%, due June
2001, secured by a vehicle 13,164
Note payable to West Suburban Bank, payable in monthly
installments of $892 including interest at
8%, due February 2000, secured by equipment 6,916
---------
900,305
Less current portion (159,697)
---------
$ 740,608
=========
<PAGE>
RADIO SPIRITS, INC. Page 7
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. NOTES PAYABLE (continued)
Maturities of long-term debt are as follows:
Year Ending,
September 30,
-------------
1999 $159,967
2000 164,884
2001 178,293
2002 151,357
2003 66,849
Thereafter 179,225
--------
$900,305
========
6. RELATED PARTY TRANSACTIONS
The Company is owed $60,891 from the shareholder at September 30, 1998. The
amount is a short-term loan and no interest is being accrued.
The Company is also owed $214,966 from affiliated companies owned by the
shareholder. The amounts are short-term loans and no interest is being
accrued.
On December 1, 1996 the Company entered into a lease agreement for its current
facilities with its shareholder. Monthly base rent is $3,667 plus insurance and
real estate taxes, and the lease expires November 30, 2001. Rent expense
amounted to $33,003 for the nine months ended September 30, 1998. Future minimum
rental payments are as follows:
Year ending,
September 30,
-------------
1999 $ 44,004
2000 44,004
2001 44,004
2002 7,334
--------
$139,346
========
<PAGE>
RADIO SPIRITS, INC. Page 8
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. COMMITMENTS
Licensing Agreements
The Company has entered into various agreements for the use of the original
programs it broadcasts and sells. Rights expense under these agreements
amounted to $239,626 for the nine months ended September 30, 1998.
Consulting Agreement
The Company has a consulting agreement with Dennis Levin & Associates. The
agreement expires December 31, 1999. The Company pays a monthly fee of
$6,924 plus a year end amount based on net income before taxes as adjusted
for items in the agreement. Consulting expense for this agreement amounted
to $62,316 for the nine months ended September 30, 1998.
Sales Agreement
The Company has agreements with various independent sales representatives
for the Company's products, to certain customers and markets per the
agreement. The agreement may be terminated at any time by either party with
60 days written notice. Commissions of 5% are paid monthly in the following
month based on net cash receipts from the customers. Commissions expense
amounted to $44,575 for the nine ended September 30, 1998.
8. PROFIT SHARING PLAN
The Company has a profit sharing plan covering all employees who have met
the eligibility requirements. The plan is noncontributory for the employees
and discretionary for the employer. No contribution was made for the nine
months ended September 30, 1998.
9. SALE OF BUSINESS
During July 1998, the Company's shareholder agreed to a letter intent to
sell the stock of the Company to a publicly traded company. The letter of
intent is subject to acceptable results of due diligence by both parties.
<PAGE>
RADIO SPIRITS, INC.
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance sheet 2-3
Statement of income 4
Statement of cash flows 5
Statement of retained earnings 6
Notes to financial statements 7-11
SUPPLEMENTARY INFORMATION
Schedules of direct and indirect
cost of goods sold 13
Schedules of selling and administrative expenses 14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Radio Spirits, Inc.
Schaumburg, Illinois
We have audited the accompanying balance sheet of Radio Spirits, Inc. as of
December 31, 1997 and the related statements of income and retained earnings and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Radio Spirits, Inc. as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplementary information presented on pages 10
and 11 is presented for purposes of additional analysis and is not a required
part of the basic financial statements. Such information has been subjected to
the procedures applied in the audit of the basic financial statements and, in
our opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ B D & A Certified Public Accountants, Ltd.
November 24, 1998
<PAGE>
RADIO SPIRITS, INC. Page 2
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
CURRENT ASSETS
Cash $ 77,175
Accounts receivable, net of allowance of $140,000 1,273,317
Other receivables 25,200
Inventory (Note 1) 1,103,274
Loans to shareholder (Note 6) 1,667
Prepaid expenses 49,098
-----------
Total Current Assets 2,529,731
PROPERTY AND EQUIPMENT (Note 2)
Leasehold improvements $ 533,989
Equipment 567,259
Furniture and fixtures 81,193
Vehicles 23,226
Old time radio collection 113,375
-----------
Total Property and Equipment 1,319,042
Less: accumulated depreciation (426,610)
-----------
Property and Equipment - net 892,432
OTHER ASSETS
Due from affiliates (Note 6) $ 75,587
Deposits 40
Goodwill, net of amortization
of $52,367 (Note 3) 396,494
-----------
Total Other Assets 472,121
-----------
$ 3,894,284
===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
RADIO SPIRITS, INC. Page 3
BALANCE SHEET
DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Line of credit (Note 4) $ 781,833
Current portion of long term debt (Note 5) 201,411
Accounts payable 1,010,604
Accrued expenses 184,261
Accrued profit sharing (Note 8) 89,343
Accrued payroll taxes 5,416
Income taxes payable (Note 9) 18,720
Deferred income taxes payable (Note 1) 185,000
----------
Total Current Liabilities 2,476,588
LONG TERM DEBT (Note 5) 876,417
STOCKHOLDER'S EQUITY
Common stock, No par value
Authorized 1,000 shares
Issued 1000 shares $ 1,000
Retained earnings 540,279
----------
Total Stockholder's Equity 541,279
----------
$3,894,284
==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
RADIO SPIRITS, INC. Page 3
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
STATEMENT OF INCOME
Amount %
----------- ------
SALES $ 5,184,906 100.00
DIRECT COST OF GOODS SOLD 2,409,119 46.46
----------- ------
GROSS PROFIT 2,775,787 53.54
INDIRECT COST OF GOODS SOLD 763,395 14.72
----------- ------
NET INCOME BEFORE OPERATING EXPENSES 2,012,392 38.81
----------- ------
OPERATING EXPENSES
Selling 199,947 3.86
Administrative 1,452,023 28.00
----------- ------
Total Operating Expenses 1,651,970 31.86
----------- ------
INCOME FROM OPERATIONS 360,422 6.95
----------- ------
OTHER INCOME (EXPENSE)
Penalties (3,386) (0.07)
Interest expense (153,188) (2.95)
Miscellaneous income 1,000 0.02
Loss on sale of assets (31,790) (0.61)
----------- ------
Total Other Expense (187,364) (3.61)
----------- ------
INCOME BEFORE INCOME TAX 173,058 3.34
INCOME TAXES (Note 9) 64,139 1.24
----------- ------
NET INCOME $ 108,919 2.10
=========== ======
The accompanying notes are an integral part of the financial statements.
<PAGE>
RADIO SPIRITS, INC. Page 2
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 108,919
Adjustments to reconcile net income to net
cash provided by operating activities 137,506
Depreciation and amortization 31,790
Loss on sale of fixed assets 47,000
Deferred income taxes
(Increase) decrease in:
Accounts receivable (716,429)
Other receivables (25,200)
Inventory (151,031)
Prepaid expenses (33,323)
Deposits 1,639
Increase (decrease) in:
Accounts payable 519,595
Accrued expenses 59,828
Accrued profit sharing 30,000
Accrued payroll taxes 3,556
Income taxes payable (18,692)
----------
NET CASH USED IN OPERATING ACTIVITIES (4,842)
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 20,000
Purchase of fixed assets (771,255)
----------
NET CASH USED INVESTING ACTIVITIES (751,255)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in shareholder loan 5,333
Increase in due from affiliates (45,885)
Increase in line of credit 416,833
Proceeds from long-term debt 583,226
Payments on long-term debt (152,106)
----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 807,401
----------
NET INCREASE IN CASH 51,304
CASH AT BEGINNING OF YEAR 25,871
----------
CASH AT END OF YEAR $ 77,175
==========
SUPPLEMENTAL DISCLOSURES
Interest paid 150,234
Income taxes paid 37,412
The accompanying notes are an integral part of the financial statements
<PAGE>
RADIO SPIRITS, INC.
STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1997
BALANCE - BEGINNING OF PERIOD $ 431,360
NET INCOME 108,919
-----------
BALANCE - END OF PERIOD $ 540,279
===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
RADIO SPIRITS, INC. Page 5
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Radio Spirits, Inc. (the
Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management who is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation
of the financial statements.
Nature of Business
The Company specializes in the syndication, sales and licensing of popular
radio programs originally aired from the early 1930s through the late
1950s. The Company has an in-house mail order service in which it
distributes audio cassettes and compact discs of vintage comedy, mystery,
detective, adventure and suspense programs to customers worldwide.
Inventory
Inventory consists of packaging materials for the cassettes and compact
discs, and cassettes and compact discs ready for sale. Inventory is carried
at cost and is reviewed at year end for slow moving items, which are
written off as obsolete.
Deferred Income Taxes
For income tax reporting, the Company uses accounting methods that
recognize expenses sooner than for financial statement reporting. As a
result, the basis of inventory and property and equipment for financial
reporting exceeds its tax basis. Deferred income taxes have been recorded
for the excess, which will be taxable in future periods.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of equipment is
computed using accelerated methods and amortization of leasehold
improvements is computed using the straight-line method. Depreciation and
amortization amounted to $107,582 for the year ended December 31, 1997.
<PAGE>
RADIO SPIRITS, INC. Page 6
NOTES TO FINANCIAL STATEMENTS
3. GOODWILL
Goodwill resulted from the purchase of stock from a former shareholder and
is being amortized using the straight-line method over 15 years.
Amortization expense amounted to $29,924 for the year ended December 31,
1997.
4. LINE OF CREDIT
The Company has a line of credit with a bank in the amount of $850,000
expiring September 4, 1998. The line was subsequently renewed until
September 4, 1999. The line of credit is collateralized by substantially
all of the assets of the Company and the personal guarantee of the
shareholder of the Company. Interest only is payable monthly at 1% over the
prime rate. The outstanding balance was $781,833 at December 31, 1997.
5. NOTES PAYABLE
Notes payable consists of the following:
Note payable dated March 7, 1996 to former
shareholder for purchase of stock, payable $6,747
per month including interest at 6.5%, due March
2006. Secured by a second position of
substantially all assets and the guarantee of the
shareholder of the Company $512,012
Note payable to West Suburban Bank, payable in monthly
installments of $1,136 including interest at
8%, due October 1998, secured by equipment 10,943
Note payable to Beverly Bank, payable in monthly
installments of $1,300 including interest at 7.5%,
due July 1999, secured by a vehicle 23,214
Note payable to West Suburban Bank, payable in monthly
installments of $1,365 including interest at
9.5%, due September 2002, secured by equipment 61,557
Note payable to West Suburban Bank, payable in monthly
installments of $9,509 including interest at
9.75%, due May 2002, secured by substantially all assets 408,018
<PAGE>
RADIO SPIRITS, INC. Page 7
NOTES TO FINANCIAL STATEMENTS
5. NOTES PAYABLE (continued)
Note payable to Honda, payable in monthly installments
of $444 including interest at 7.75%, due June
2001, secured by a vehicle 16,295
Note payable to Peter Tararo, interest only is payable
monthly at 8.5%, principal and unpaid interest
due January 1998 25,000
Note payable to West Suburban Bank, payable in monthly
installments of $892 including interest at
8%, due February 2000, secured by equipment 20,789
-----------
1,077,828
Less current portion (201,411)
-----------
$ 876,417
===========
Maturities of long-term debt are as follows:
Year Ending,
December 31,
1998 $ 201,411
1999 173,596
2000 170,329
2001 180,935
2002 120,391
Thereafter 231,166
----------
$1,077,828
==========
6. RELATED PARTY TRANSACTIONS
The Company is owed $1,666 from the shareholder at December 31, 1997. The
amount is a short-term loan and no interest is being accrued.
The Company is also owed $75,587 from affiliated companies owned by the
shareholder. The amounts are short-term loans and no interest is being
accrued.
<PAGE>
RADIO SPIRITS, INC. Page 8
NOTES TO FINANCIAL STATEMENTS
6. RELATED PARTY TRANSACTIONS (continued)
On December 1, 1996 the Company entered into a lease agreement for its
current facilities with its shareholder. Monthly base rent is $3,667 plus
insurance and real estate taxes, and the lease expires November 30, 2001.
Rent expense amounted to $58,422 for the year ended December 31, 1997.
Future minimum rental payments are as follows:
Year ending,
December 31,
1998 $ 44,004
1999 44,004
2000 44,004
2001 40,337
--------
$172,349
========
7. COMMITMENTS
Licensing Agreements
The Company has entered into various agreements for the use of the original
programs it broadcasts and sells. Rights expense under these agreements
amounted to $180,455 for the year ended December 31, 1997.
Consulting Agreement
The Company has a consulting agreement with Dennis Levin & Associates. The
agreement expires December 31, 1997. The Company pays a monthly fee of
$5,630 plus a year end amount based on net income before taxes as adjusted
for items in the agreement. Consulting expense amounted to $95,965 for the
year ended December 31, 1997.
Sales Agreement
The Company has agreements with various independent sales representatives
for the Company's products, to certain customers and markets per the
agreement. The agreement may be terminated at any time by either party with
60 days written notice. Commissions of 7% or 10%, depending on the
customer, are paid monthly in the following month based on net cash
receipts from the customers. Commissions expense amounted to $104,650 for
the year ended December 31, 1997.
<PAGE>
RADIO SPIRITS, INC. Page 9
NOTES TO FINANCIAL STATEMENTS
8. PROFIT SHARING PLAN
The Company has a profit sharing plan covering all employees who have met
the eligibility requirements. The plan is noncontributory for the employees
and discretionary for the employer. A contribution of $30,000 was made for
the year ended December 31, 1997.
9. INCOME TAXES
The provisions for income tax consist of the following components:
Current $ 17,139
Deferred 47,000
----------
$ 64,139
=========
10. SUBSEQUENT EVENTS
Sale of Business
During July, 1998, the Company's shareholder agreed to a letter intent to
sell the stock of the Company to a publicly traded company. The letter of
intent is subject to acceptable results of due diligence by both parties.
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
RADIO SPIRITS, INC. Page 10
SCHEDULES OF DIRECT AND INDIRECT
COST OF GOODS SOLD
FOR THE YEAR ENDED DECEMBER 31, 1997
Amount %
---------- -----
Direct Cost of Goods Sold
Tapes $ 21,768 0.42
Production materials 523 0.01
Finished product 1,479,074 28.53
Printing 4,399 0.08
Outside services 110,659 2.13
Rights 180,455 3.48
Shipping supplies 16,603 0.32
Purchases 22,614 0.44
Artwork and design 7,780 0.15
Artwork and design-product 45,784 0.88
Printing-product 311,157 6.00
Warehouse labor 64,070 1.24
Engineering 144,233 2.78
---------- -----
Total Direct Cost of Goods Sold $2,409,119 46.46
========== =====
Indirect Cost of Goods Sold
Artwork and design-catalog $ 38,297 0.74
Printing-catalog 111,697 2.15
Printing-promo mailings 8,290 0.16
Freight and delivery 64,166 1.24
Postage-catalog mailings 282,313 5.44
Postage-promo mailings 22,610 0.44
Postage-orders delivery 236,022 4.55
---------- -----
Total Indirect Cost of Goods Sold $ 763,395 14.72
========== =====
<PAGE>
RADIO SPIRITS, INC. Page 11
SCHEDULES OF SELLING AND
ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
Amount %
---------- -----
Selling Expenses
Commissions $ 104,650 2.02
Advertising 58,891 1.14
Mailing lists-names 23,978 0.46
Mailing services 12,428 0.24
---------- -----
Total Selling Expenses $ 199,947 3.86
========== =====
Administrative Expenses
Salaries and wages $ 192,890 3.72
Officer's salaries 293,428 5.66
Consulting 95,965 1.85
Computer consulting 16,941 0.33
Auto expense 5,175 0.10
Auto lease 19,146 0.37
Bank service charges 53,849 1.04
Contributions 25 0.00
Depreciation expense 107,582 2.07
Amortization 29,924 0.58
Dues and subscriptions 2,496 0.05
Equipment rental 5,576 0.11
Utilities 20,012 0.39
Insurance-group 16,629 0.32
Insurance-general 11,721 0.23
Insurance-officer's life 7,560 0.15
Legal and accounting 76,095 1.47
Office expense 17,127 0.33
Office supplies 10,989 0.21
Outside services 10,260 0.20
Postage expense 18,861 0.36
Profit sharing expense 30,000 0.58
Rent expense 58,422 1.13
Repairs and maintenance 37,287 0.72
Supplies expense 7,738 0.15
Taxes-payroll 46,473 0.90
Taxes-other 10,501 0.20
Telephone 61,330 1.18
Answering service 79,234 1.53
Travel and entertainment 26,360 0.51
Bad debts 81,719 1.58
Moving expense 708 0.01
---------- -----
Total Administrative Expenses $1,452,023 28.00
========== =====
<PAGE>
RADIO SPIRITS, INC.
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance sheet 2-3
Statement of income 4
Statement of cash flows 5
Statement of retained earnings 6
Notes to financial statements 7-11
SUPPLEMENTARY INFORMATION
Schedules of direct and indirect
cost of goods sold 13
Schedules of selling and administrative expenses 14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Radio Spirits, Inc.
Schaumburg, Illinois
We have audited the accompanying balance sheet of Radio Spirits, Inc. as of
December 31, 1996 and the related statements of income and retained earnings and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
Except as discussed in the following paragraph, we conducted our audit in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
We did not observe the physical inventory (stated at $424,638) taken as of
December 31, 1995, since that date was prior to our initial engagement as
auditors for the Company, and the Company's records do not permit adequate
retroactive tests of inventory quantities.
In our opinion, the balance sheet referred to in the first paragraph presents
fairly, in all material respects, the financial position of Radio Spirits, Inc.
as of December 31, 1996, and except for the effects of such adjustments, if any,
as might have been determined to be necessary had we been able to observe the
physical inventory taken as of December 31, 1995, the statements of income and
retained earnings and cash flows referred to in the first paragraph present
fairly, in all material respects, the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplementary information presented on pages 10
and 11 is presented for purposes of additional analysis and is not a required
part of the basic financial statements. Such information has been subjected to
the procedures applied in the audit of the basic financial statements and, in
our opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ B D & A Certified Public Accountants, Ltd.
November 20, 1998
<PAGE>
RADIO SPIRITS, INC. Page 2
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS
Cash $ 25,871
Accounts receivable, net of allowance of $89,000 556,888
Inventory (Note 1) 952,243
Loans to shareholder (Note 6) 7,000
Prepaid expenses 15,775
-----------
Total Current Assets 1,557,777
PROPERTY AND EQUIPMENT (Note 2)
Leasehold improvements $ 38,309
Equipment 421,460
Furniture and fixtures 28,105
Vehicles 60,793
Old time radio collection 63,375
-----------
Total Property and Equipment 612,042
Less: accumulated depreciation (331,493)
-----------
Property and Equipment - net 280,549
OTHER ASSETS
Due from affiliates (Note 6) $ 29,702
Deposits 1,679
Goodwill, net of amortization
of $22,443 (Note 3) 426,418
-----------
Total Other Assets 457,799
-----------
$ 2,296,125
===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
RADIO SPIRITS, INC. Page 3
BALANCE SHEET
DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Line of credit (Note 4) $ 365,000
Current portion of long term debt (Note 5) 79,750
Accounts payable 491,009
Accrued expenses 124,433
Accrued profit sharing (Note 9) 59,343
Accrued payroll taxes 1,860
Income taxes payable (Note 10) 37,412
Deferred income taxes payable (Note 1) 138,000
----------
Total Current Liabilities 1,296,807
LONG TERM DEBT (Note 5) 566,958
STOCKHOLDER'S EQUITY
Common stock, No par value
Authorized 1,000 shares
Issued 1000 shares $ 1,000
Retained earnings 431,360
----------
Total Stockholder's Equity 432,360
----------
$2,296,125
==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
RADIO SPIRITS, INC. Page 3
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
STATEMENT OF INCOME
SALES $ 4,362,188
DIRECT COST OF GOODS SOLD 1,591,941
-----------
GROSS PROFIT 2,770,247
INDIRECT COST OF GOODS SOLD 812,039
-----------
NET INCOME BEFORE OPERATING EXPENSES 1,958,208
-----------
OPERATING EXPENSES
Selling 169,506
Administrative 1,206,980
-----------
Total Operating Expenses 1,376,486
-----------
INCOME FROM OPERATIONS 581,722
-----------
OTHER INCOME (EXPENSE)
Penalties (1,237)
Interest expense (79,242)
Loss on sale of assets (23,015)
-----------
Total Other Expense (103,494)
-----------
INCOME BEFORE INCOME TAXES 478,228
INCOME TAXES (Note 10) 136,412
-----------
NET INCOME $ 341,816
===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
RADIO SPIRITS, INC. Page 4
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 341,816
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 99,972
Deferred income taxes 99,000
Loss on sale of fixed assets 23,015
(Increase) decrease in:
Accounts receivable (254,574)
Inventory (527,605)
Prepaid expenses (15,775)
Increase (decrease) in:
Accounts payable 270,910
Accrued expenses (12,623)
Accrued payroll taxes (16,772)
Income taxes payable 19,273
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 26,637
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 16,139
Purchase of fixed assets (129,995)
---------
NET CASH USED INVESTING ACTIVITIES (113,856)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in shareholder loan 14,500
Increase in due from affiliates (29,702)
Purchase of stock from shareholder (600,000)
Increase in line of credit 165,000
Increase in long-term debt 508,840
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 58,638
---------
NET DECREASE IN CASH (28,581)
CASH AT BEGINNING OF YEAR 54,452
---------
CASH AT END OF YEAR $ 25,871
=========
SUPPLEMENTAL DISCLOSURES
Interest paid 76,209
Income taxes paid 17,467
The accompanying notes are an integral part of the financial statements
<PAGE>
RADIO SPIRITS, INC.
STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
BALANCE - BEGINNING OF YEAR $ 240,683
NET INCOME 341,816
TREASURY STOCK (Note 7) (151,139)
---------
BALANCE - END OF YEAR $ 431,360
=========
The accompanying notes are an integral part of the financial statements.
<PAGE>
RADIO SPIRITS, INC. Page 5
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Radio Spirits, Inc. (the
Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management who is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation
of the financial statements.
Nature of Business
The Company specializes in the syndication, sales and licensing of popular
radio programs originally aired from the early 1930s through the late
1950s. The Company has an in-house mail order service in which it
distributes audio cassettes and compact discs of vintage comedy, mystery,
detective, adventure and suspense programs to customers worldwide.
Inventory
Inventory consists of packaging materials for the cassettes and compact
discs, and cassettes and compact discs ready for sale. Inventory is carried
at cost and is reviewed at year end for slow moving items, which are
written off as obsolete.
Deferred Income Taxes
For income tax reporting, the Company uses accounting methods that
recognize expenses sooner than for financial statement reporting. As a
result, the basis of inventory and property and equipment for financial
reporting exceeds its tax basis. Deferred income taxes have been recorded
for the excess, which will be taxable in future periods.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of equipment is
computed using accelerated methods and amortization of leasehold
improvements is computed using the straight-line method. Depreciation and
amortization amounted to $77,529 for the year ended December 31, 1996.
<PAGE>
RADIO SPIRITS, INC. Page 6
NOTES TO FINANCIAL STATEMENTS
3. GOODWILL
Goodwill resulted from the purchase of stock from a former shareholder (See
Note 7), and is being amortized using the straight-line method over 15
years. Amortization expense amounted to $22,443 for the year ended December
31, 1996.
4. LINE OF CREDIT
The Company has a line of credit with a bank in the amount of $400,000
expiring October 4, 1997. The line of credit is collateralized by
substantially all of the assets of the Company and the personal guarantee
of the shareholder of the company. Interest only is payable monthly at 1%
over the prime rate. The outstanding balance was $365,000 at December 31,
1996.
5. NOTES PAYABLE
Notes payable consists of the following:
Note payable dated March 7, 1996 to former
shareholder for purchase of stock, payable $6,747
per month including interest at 6.5%, due March
2006. Secured by a second position of
substantially all assets and the guarantee of the
shareholder of the company $ 558,060
Note payable to West Suburban Bank, payable in
monthly installments of $1,136 including interest at
8%, due October 1998, secured by equipment 23,159
Note payable to Beverly Bank, payable in monthly
installments of $1,300 including interest at 7.5%,
due July 1999, secured by a vehicle 36,522
Note payable to West Suburban Bank, payable in
monthly installments of $ 892 including interest at
8%, due February 2000, secured by equipment 28,967
---------
646,708
Less current portion (79,750)
---------
$ 566,958
=========
<PAGE>
RADIO SPIRITS, INC. Page 7
NOTES TO FINANCIAL STATEMENTS
5. NOTES PAYABLE (continued)
Maturities of long-term debt are as follows:
Year Ending,
December 31,
------------
1997 $ 79,750
1998 83,451
1999 71,277
2000 57,708
2001 59,680
Thereafter 294,842
---------
$ 646,708
=========
6. RELATED PARTY TRANSACTIONS
The Company is owed $7,000 from the shareholder at December 31, 1996. The
amount is a short-term loan and no interest is being accrued.
The Company is also owed $29,702 from an affiliated company owned by the
shareholder. The amount is a short-term loan and no interest is being accrued.
On December 1, 1996 the Company entered into a lease agreement for its
current facilities with its shareholder. Monthly base rent is $3,667 and
the lease expires November 30, 2001. Rent expense under this lease
amounted to $3,667 for the year ended December 31, 1996. Future minimum
rental payments are as follows:
Year ending,
December 31,
------------
1997 $ 44,004
1998 44,004
1999 44,004
2000 44,004
2001 40,337
---------
$ 216,653
=========
<PAGE>
RADIO SPIRITS, INC. Page 8
NOTES TO FINANCIAL STATEMENTS
7. PURCHASE OF STOCK
On March 7, 1996 the Company entered into an agreement to purchase the
stock of one of its shareholders for $600,000. The purchase price of the
shares was $151,139. The remaining amount of $448,861 was recorded as
goodwill as there was no buy-sell agreement in place and the shareholder
agreed to enter into a note payable with the Company and take a second
position to the bank debt to avoid litigation. The terms of the note
payable are described in Note 5.
8. COMMITMENTS
Facilities Leases
The Company leased its facilities under a lease agreement expiring in
February, 1997. The Company entered a new lease with its shareholder as
described in Note 6. Monthly rental including real estate taxes and
operating costs was $3,934. Rent expense under these leases amounted to
$51,670 for the year ended December 31, 1996.
Operating Leases
The Company leases a vehicle under a long-term operating lease of four
years. Monthly lease payments are $1,548 with a final payment due March
2000. Lease expense amounted to $21,307 for the year ended December 31,
1996.
Future lease payments are as follows:
Year Ending,
December 31,
------------
1997 $ 18,576
1998 18,576
1999 18,576
2000 4,644
---------
$ 60,372
=========
Licensing Agreements
The Company has entered into various agreements for the use of the original
programs it broadcasts and sells. Rights expense under these agreements
amounted to $196,187 for the year ended December 31, 1996.
<PAGE>
RADIO SPIRITS, INC. Page 9
NOTES TO FINANCIAL STATEMENTS
8. COMMITMENTS (continued)
Consulting Agreement
The Company has a consulting agreement with Dennis Levin & Associates. The
agreement expires December 31, 1997. The Company pays a monthly fee of
$5,000 plus a year end amount based on net income before taxes as adjusted
for items in the agreement. Consulting expense amounted to $94,677 for the
year ended December 31, 1996.
Sales Agreement
The Company has agreements with various independent sales representatives
for the Company's products, to certain customers and markets per the
agreement. The agreement may be terminated at any time by either party with
60 days written notice. Commissions of 7% or 10%, depending on the
customer, are paid monthly in the following month based on net cash
receipts from the customers. Commissions expense amounted to $97,506 for
the year ended December 31, 1996.
9. PROFIT SHARING PLAN
The Company has a profit sharing plan covering all employees who have met
the eligibility requirements. The plan is noncontributory for the employees
and discretionary for the employer. No contribution was made for the year
ended December 31, 1996.
10. INCOME TAXES
The provisions for income tax consist of the following components:
Current $ 37,412
Deferred 99,000
--------
$136,412
========
11. SUBSEQUENT EVENTS
Sale of Business
During July, 1998, the Company's shareholder agreed to a letter of intent
to sell the stock of the Company to a publicly traded company. The letter
of intent is subject to acceptable results of due diligence by both
parties.
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
RADIO SPIRITS, INC. Page 10
SCHEDULES OF DIRECT AND INDIRECT
COST OF GOODS SOLD
FOR THE YEAR ENDED DECEMBER 31, 1996
Direct Cost of Goods Sold
Tapes $ 33,614
Production materials 13,547
Finished product 929,429
Printing 921
Outside services 81,042
Rights 196,237
Shipping supplies 21,811
Artwork and design-product 22,459
Printing-product 132,839
Warehouse labor 65,846
Engineering 94,196
----------
Total Direct Cost of Goods Sold $1,591,941
==========
Indirect Cost of Goods Sold
Artwork and design-catalog $ 58,396
Artwork and design-promo mail 5,230
Printing-catalog 275,521
Printing-promo mailings 34,966
Freight and delivery 121,174
Postage-catalog mailings 123,655
Postage-promo mailings 66,081
Postage-orders delivery 127,016
----------
Total Indirect Cost of Goods Sold $ 812,039
==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
RADIO SPIRITS, INC. Page 11
SCHEDULES OF SELLING AND
ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996
Selling Expenses
Samples $ 194
Commissions 97,506
Advertising 28,311
Travel 1,117
Mailing lists-names 16,529
Mailing services 24,234
Trade shows 1,615
----------
Total Selling Expenses $ 169,506
==========
Administrative Expenses
Salaries and wages $ 158,242
Officer's salaries 243,436
Consulting 102,103
Computer consulting 18,815
Auto expense 5,282
Auto lease 21,307
Bank service charges 59,594
Contributions 1,000
Depreciation expense 77,529
Amortization 22,443
Dues and subscriptions 770
Equipment rental 5,748
Utilities 10,358
Insurance-group 9,680
Insurance-general 21,175
Insurance-officer's life 450
Legal and accounting 90,140
Meetings and conferences 1,222
Miscellaneous expense 1,270
Office expense 7,552
Office supplies 12,673
Outside services 21,092
Postage expense 407
Rent expense 51,670
Repairs and maintenance 12,334
Supplies expense 1,551
Taxes-real estate 5,568
Taxes-payroll 34,652
Taxes-other 565
Telephone 71,798
Answering service 95,922
Travel and entertainment 38,129
Moving expense 2,503
----------
Total Administrative Expenses $1,206,980
==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
PRO FORMA COMBINED FINANCIAL STATEMENTS
INTRODUCTION
(Unaudited)
The unaudited pro forma combined financial information presented herein gives
effect to the purchase of all outstanding shares of Radio Spirits, Inc. by Audio
Book Club, Inc. ("the Registrant") on December 14, 1998. Radio Spirits, Inc.'s
and Audio Book Club, Inc.'s fiscal years end on December 31. The Registrant also
acquired all of the assets of Buffalo Productions, Inc., an affiliate of Radio
Spirits, Inc., and from the Stockholder of Radio Spirits, Inc., his 50% interest
in a joint venture that is engaged in the business of producing, broadcasting,
marketing and distributing a series of old-time radio programs.
The unaudited pro forma combined balance sheet data at September 30, 1998
combines the historical balance sheets of Audio Book Club, Inc. and its
subsidiary and Radio Spirits, Inc, including the assets of Buffalo Productions
and the 50% interest in the joint venture. The pro forma adjustments to the
balance sheet assume that the acquisition was consummated at the end of the
period being presented.
The unaudited pro forma combined statement of operations data being presented
for the nine month period ended September 30, 1998 combines Audio Book Club,
Inc. nine months of operations ended September 30, 1998 with Radio Spirits,
Inc., Buffalo Productions and the 50% interest in the joint venture for the nine
months of operations ended September 30, 1998. The unaudited pro forma combined
statements of operations data being presented for the twelve month periods ended
December 31, 1997 and 1996 combine Audio Book Club, Inc. twelve months of
operations ended December 31, 1997 and 1996 with the operations of Radio
Spirits, Inc., Buffalo Productions and Radio Spirits' interest in the joint
venture, for the twelve months ended December 31, 1997 and 1996. The pro forma
adjustments to the statements of operations assume that the acquisition was
consummated at the beginning of the earliest period being presented.
Audio Book Club, Inc. expects to achieve certain reductions in costs subsequent
to the purchase of Radio Spirits, Inc. as a result of the elimination of
duplicative ownership efforts. To comply with the Commission's pro forma
reporting rules, the cost reductions reflected in the accompanying Unaudited Pro
Forma Combined Statement of Operations have been limited to specific expenses
that are directly attributable to the acquisition and which are factually
supportable.
The unaudited pro forma combined financial statements are intended for
informational purposes only and are not necessarily indicative of the future
financial position or future results of operations of the combined company, or
of the financial position or results of operations of the combined company that
would have actually occurred had the acquisition taken place as of the date or
for the periods presented. These unaudited pro forma combined financial
statements and the accompanying notes should be read in conjunction with the
consolidated financial statements, including the accompanying notes, of Radio
Spirits, Inc. which are attached and of Audio Book Club, Inc. which are included
in the Company's annual report on Form 10-K for the fiscal year ended December
31, 1997.
In the opinion of management, all adjustments have been made that are necessary
to present fairly the pro forma data.
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
September 30, 1998
(Unaudited)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Pro-Forma Notes Pro-Forma
ASSETS RSI ABC Adjustments (1) Combined
<S> <C> <C> <C> <C> <C>
Cash and short-term investments $ 41 $ 2,770 $2,811
Accounts receivable 1,066 3,157 4,223
Inventory 1,161 1,942 3,103
Royalty advances 674 674
Other current assets 42 656 698
------------------------- -----------------
Total Current Assets 2,310 9,199 11,509
Property, equipment, software and
Internet development - net 908 616 1,524
Other assets 281 190 471
Goodwill and other identifiable intangibles 374 $ (374) (2) 7,674
7,674 (3)
------------------------------------------------------------------------
Total assets $ 3,873 $ 10,005 $ 7,300 $ 21,178
========================================================================
LIABILITIES
Line of credit $ 602 $ (602) (4) $ --
Current portion long-term debt 160 (160) (4) --
Accounts payable and accrued expenses 892 $ 4,066 (200) (4) 4,758
-------------------------------------------- -----------------
Total Current Liabilities 1,654 4,066 (962) 4,758
Long term debt 740 (740) (4) 4,939
4,939 (5)
EQUITY
Common stock 650 26,406 4,892 (6)(7) 31,948
Retained earnings 829 (20,467) (829) (7) (20,467)
------------------------------------------------------------------------
Total equity 1,479 5,939 4,063 11,481
------------------------------------------------------------------------
Liabilities and equity $ 3,873 $ 10,005 $ 7,300 $ 21,178
========================================================================
</TABLE>
See notes to pro forma combined financial statements
<PAGE>
NOTES TO PRO FORMA COMBINED BALANCE SHEET
September 30, 1998
(Unaudited)
(1) Reflects the acquisition by Audio Book Club, Inc. at the end of the period
being presented.
(2) Reflects the reduction in goodwill from a previous acquisition by RSI.
(3) Reflects additional goodwill arising from the acquisition.
(4) Reflects the payment of debt and certain liabilities of Radio Spirits at
closing per agreement.
(5) Reflects debt incurred by Audio Book Club, Inc. in consummating the
acquisition.
(6) Reflects stock and options paid to Radio Spirits, Inc. Stockholder and his
designees in the acquisition.
(7) To eliminate Radio Spirits, Inc. common stock and retained earnings.
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(Unaudited)
(in Thousands of Dollars, Except Per Share Amounts)
For the Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
Pro-Forma Notes Pro-Forma
RSI ABC Adjustments (1) Combined
<S> <C> <C> <C> <C> <C>
Net Sales $ 4,815 $ 11,535 $ 16,350
Cost of sales 2,110 7,558 9,668
------------------------------- --------------
Gross profit 2,705 3,977 6,682
Advertising 644 6,108 6,752
General and administrative expenses 1,132 2,111 $ (29) (a)(b) 3,731
517 (c)
Interest expenses (income) 100 (249) (100) (d) 84
333 (e)
------------------------------------------------ --------------
Income before taxes 829 (3,993) (721) (3,885)
Income taxes -- -- --
------------------------------------------------------------------------
Net income (loss) $ 829 $ (3,993) $ (721) $ (3,885)
========================================================================
Earnings (loss) per share $ (0.65) $ (0.61)
Number of shares used in computation of per share
information: 6,153,920 6,378,920
========================================================================
</TABLE>
See notes to pro forma combined financial statements
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(Unaudited)
(in Thousands of Dollars, Except Per Share Amounts)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Pro-Forma Notes Pro-Forma
RSI ABC Adjustments (1) Combined
<S> <C> <C> <C> <C> <C>
Net Sales $ 5,185 $ 10,078 $ 15,263
Cost of sales 2,409 5,495 7,904
------------------------ --------------
Gross profit 2,776 4,583 7,359
Advertising 963 6,843 7,806
General and administrative expenses 1,486 2,225 $ (240) (a)(b) 4,159
688 (c)
Interest expenses 153 435 (153) (d) 880
445 (e)
------------------------------------------ --------------
Income before taxes 174 (4,920) (640) (5,486)
Income taxes 64 64
-----------------------------------------------------------------
Net income $ 110 $ (4,920) $ (740) $ (5,550)
======= ========= ======== ========
Earnings (loss) per share $ (1.29) $ (1.37)
======== ========
Number of shares used in computation of per share
information: 3,820,027 4,045,027
========= =========
</TABLE>
See notes to pro forma combined financial statements
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(Unaudited)
(in Thousands of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
Pro-Forma Notes Pro-Forma
RSI ABC Adjustments (1) Combined
<S> <C> <C> <C> <C> <C>
Net Sales $ 4,362 $ 5,600 $ 9,962
Cost of sales 1,592 4,327 5,919
------------------------------- --------------
Gross profit 2,770 1,273 4,043
Advertising 982 5,470 6,452
General and administrative expenses 1,231 2,053 $ (216) (a)(b) 3,757
689 (c)
Interest expenses 79 211 (79) (d) 656
445 (e)
------------------------------------------------ --------------
Income before taxes 478 (6,461) (838) (6,821)
Income taxes 136 -- 136
Net income (loss) $ 342 $ (6,461) $ (838) $(6,957)
=======================================================================
Earnings (loss) per share $ (1.95) $ (2.00)
======= =======
Number of shares used in computation of per share
information: 3,256,400 3,481,400
========= =========
</TABLE>
See notes to pro forma combined financial statements
<PAGE>
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30. 1998
For the Twelve Months Ended December 31,1997
For the Twelve Months Ended December 31,1996
(Unaudited)
(1) Reflects the acquisition by Audio Book Club, Inc. at January 1, 1996.
(a) Reflects the reduction in expenses including salaries and other costs
contracturally committed to in the acquisitions.
(b) Reflects reduction of amortization expense on the intangibles acquired by
Radio Spirits, Inc. in its prior acquisitions.
(c) Reflects amortization of goodwill and other intangibles, assuming the
acquisition occurred as of the beginning of the earliest period presented.
(d) Reflects the reduction of interest expense for the debt paid at closing.
(e) Reflects interest expense for the period presented on the long-term debt
incurred in the acquisition.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: February 25, 1999
Audio Book Club, Inc.
/s/ John F. Levy
----------------------------
Executive Vice President and
Chief Financial Officer
