<PAGE> 1
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: February 22, 2000
Date of earliest event reported: December 6, 1999
ALLOY ONLINE, INC.
(Exact name of registrant as specified in its charter)
000-26023
(Commission
File Number)
Delaware 04-3310676
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
151 West 26th Street, 11th Floor
New York, NY 10001
(Address of principal executive offices) (Zip Code)
(212) 244-4307
(Registrant's telephone number, including area code)
115 West 30th Street, #201
New York, NY 10001
(Former name or former address, if changed since last report)
<PAGE> 2
The undersigned Registrant hereby amends Item 7 of its Current Report on
Form 8-K dated December 21, 1999 to read in its entirety as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
On December 6, 1999, Alloy Online, Inc. ("Alloy") through its
wholly-owned subsidiary, Alloy Acquisition Corporation, a Delaware
corporation, purchased substantially all of the assets and assumed certain
liabilities of Celebrity Sightings, LLC ("Celebrity Sightings"), a Delaware
limited liability company, pursuant to an Asset Purchase Agreement dated as
of December 1, 1999 by and among Alloy, Alloy Acquisition Corporation and
Celebrity Sightings (the "Purchase Agreement").
Celebrity Sightings operates a leading teen entertainment-based web
site destination that combines the elements of an online entertainment
magazine with an online community of popular teen stars. Alloy intends to
continue the use of the transferred assets to operate a teen
entertainment-based web site destination. The transferred assets included
cash and cash equivalents, accounts and notes receivable, inventories,
equipment, intellectual property rights, furniture and fixtures and
leasehold interests and improvements.
The consideration paid in connection with the transferred assets
consisted of $1,214,000 in cash, and 200,616 shares of Alloy's restricted
common stock, having a value of $3,837,000, or $19.125 per share upon the
closing of the Purchase Agreement. Alloy Acquisition Corporation also
assumed liabilities of Celebrity Sightings of approximately $199,000 as of
the closing date. In addition, cash expenditures related to the transaction
are estimated to be $250,000.
See Exhibit 99.5 for the audited balance sheet of Celebrity Sightings
as of December 31, 1998 and December 6, 1999, and the related statements of
loss, members' deficit and cash flows for the years ended December 31, 1997
and December 31, 1998, and for the period from January 1, 1999 through
December 6, 1999.
(b) PRO FORMA FINANCIAL INFORMATION.
The following unaudited condensed consolidated financial information
sets forth the consolidated financial position and consolidated results of
operations of Alloy and Celebrity Sightings assuming the combination was
accounted for using the purchase method of accounting and that the
combination was consummated (i) on October 31, 1999 for the unaudited pro
forma condensed consolidated balance sheet and (ii) as of the beginning of
the earliest period presented in the unaudited pro forma condensed
statements of operations. Accordingly, the assets acquired and liabilities
assumed have been recorded at their estimated fair values and useful lives,
which are subject to further adjustment based on future events and future
analysis.
The unaudited pro forma information consolidates Alloy's historical
balance sheet as of October 31, 1999 with the balance sheet of Celebrity
Sightings as of December 6, 1999, and Alloy's historical statements of
operations for the fiscal year ended January 31, 1999 and the nine months
ended October 31, 1999 with the historical statements of operations of
Celebrity Sightings for the year ended December 31, 1998 and the period
from January 1, 1999 through
<PAGE> 3
December 6, 1999, respectively. There are no material differences in the
reported amounts related to the difference in reporting periods presented
by Alloy and Celebrity Sightings.
The pro forma condensed consolidated balance sheet and statements of
operations have been prepared by the management of Alloy. The following
unaudited pro forma condensed consolidated information is presented for
illustration purposes only. It is not necessarily indicative of the
financial position or results of operations that would actually have been
reported had the combination been in effect during those periods or that
may be reported in the future. The statements should be read in conjunction
with Alloy's historical financial statements and notes thereto included in
filings with the SEC and Celebrity Sightings financial statements, which
have been attached as Exhibit 99.5 to this report.
<PAGE> 4
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1999
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
ALLOY CELEBRITY PRO FORMA
HISTORICAL SIGHTINGS ADJUSTMENTS PRO FORMA
---------- HISTORICAL ----------- ---------
ASSETS(1)
---------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10,205 $ 11 $ (1,214)(a) $ 9,002
Marketable securities 32,095 -- -- 32,095
Accounts receivable, net 558 17 -- 575
Inventories,net 4,053 6 -- 4,059
Prepaid expenses and other current
assets 4,342 9 -- 4,351
-------- -------- -------- --------
TOTAL CURRENT ASSETS 51,253 43 (1,214) 50,082
Property and equipment, net 1,041 202 -- 1,243
Intangible assets -- -- 5,255(a) 5,255
Other assets 379 0 0 379
-------- -------- -------- --------
TOTAL ASSETS $ 52,673 $ 245 $ 4,041 $ 56,959
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 10,828 $ 363 $ 86(a),(b) $ 11,277
Current portion of capital
lease obligation 66 -- -- 66
Due to affiliate -- 682 (682)(b) --
Loans payable 0 492 (492)(b) 0
-------- -------- -------- --------
TOTAL CURRENT LIABILITIES 10,894 1,537 (1,088) 11,343
Capital lease obligation, less
current portion 5 -- -- 5
Notes payable -- 345 (345)(b) --
STOCKHOLDERS' EQUITY (DEFICIT):
Alloy Common Stock 142 -- 2(a) 144
Additional paid-in capital 61,254 -- 3,835(a) 65,089
Accumulated deficit (18,857) (1,637) 1,683(b) (18,857)
(46)(a)
Deferred compensation (663) -- -- (663)
Accumulated other comprehensive loss (102) 0 0 (102)
-------- -------- -------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 41,774 (1,637) 5,474 45,611
-------- -------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 52,673 $ 245 $ 4,041 $ 56,959
======== ======== ======== ========
</TABLE>
<PAGE> 5
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1999
(amounts in thousands, except share data)
<TABLE>
CELEBRITY
ALLOY SIGHTINGS PRO FORMA
HISTORICAL HISTORICAL (2) ADJUSTMENTS PRO FORMA
---------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 15,505 $ 247 $ -- $ 15,752
Cost Of Sales 7,274 61 0 7,335
------------ ------------ ------------ ------------
Gross Profit 8,231 186 -- 8,417
Selling, General And Administrative
Expenses 19,500 1,083 -- 20,583
Goodwill Amortization 0 0 1,314(c) 1,314
------------ ------------ ------------ ------------
Loss From Operations (11,269) (897) (1,314) (13,480)
Interest Income (Expense), Net 993 (31) 31(d) 993
------------ ------------ ------------ ------------
Loss Before Income Taxes (10,276) (928) (1,283) (12,487)
Provision For Income Taxes 0 3 (3) 0
------------ ------------ ------------ ------------
Loss Before Extraordinary Item (10,276) (931) (1,280) (12,487)
Extraordinary Item:
Charge for early retirement of debt (234) 0 0 (234)
------------ ------------ ------------ ------------
Net Loss $ (10,510) $ (931) $ (1,280) $ (12,721)
============ ============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE:
Before extraordinary item $ (0.84) $ (1.01)
Extraordinary charge $ (0.02) $ (0.02)
------------ ------------
Net Loss $ (0.86) $ (1.03)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and Diluted 12,175,624 200,616(a) 12,376,240
============ ============ ============
</TABLE>
<PAGE> 6
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1999
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
CELEBRITY
ALLOY SIGHTINGS PRO FORMA
HISTORICAL HISTORICAL (3) ADJUSTMENTS PRO FORMA
---------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 10,210 $ 266 $ -- $ 10,476
Cost Of Sales 5,486 45 0 5,531
----------- ----------- ----------- -----------
Gross Profit 4,724 221 -- 4,945
Selling, General And Administrative
Expenses 10,849 1,012 -- 11,861
Goodwill Amortization 0 0 1,751(c) 1,751
----------- ----------- ----------- -----------
Loss From Operations (6,125) (791) (1,751) (8,667)
Interest Income (Expense), Net (239) (30) 30(d) (239)
----------- ----------- ----------- -----------
Loss Before Income Taxes (6,364) (821) (1,721) (8,906)
Provision For Income Taxes 0 0 0 0
----------- ----------- ----------- -----------
Net Loss $ (6,364) $ (821) $ (1,721) $ (8,906)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE:
Basic $ (0.75) $ (1.03)
=========== ===========
Diluted $ (0.72) $ (0.98)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 8,479,727 200,616(a) 8,680,343
=========== =========== ===========
Diluted 8,869,280 200,616(a) 9,069,896
=========== =========== ===========
</TABLE>
<PAGE> 7
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(amounts in thousands, except share data)
PRO FORMA ADJUSTMENTS
(a) To reflect Alloy's purchase of Celebrity Sightings for $1,214 in cash and
200,616 shares of Alloy's common stock valued at $3,837, or $19.125 per
share based upon the closing share price on December 6, 1999, and estimated
cash acquisition expenses of $250 less $46 equal to the net book value of
the assets acquired based upon a preliminary purchase price allocation. The
purchase price is subject to adjustment and, accordingly, the final
allocation may involve a revaluation of certain assets.
(b) To eliminate liabilities not assumed by Alloy
(c) To reflect the amortization over 3 years of goodwill recorded on the
purchase of Celebrity Sightings. The amount and life of the goodwill
recorded on the purchase has been presented using a preliminary purchase
price allocation, for which both the amount and amortization period are
subject to adjustment based upon the final purchase price allocation.
(d) To reflect expenses for Celebrity Sightings that would not have been
incurred if the combination was made at the beginning of the periods
presented.
OTHER NOTES
(1) The Celebrity Sightings historical information is as of December 6, 1999.
(2) The Celebrity Sightings historical information is for the period from
January 1, 1999 through December 6, 1999.
(3) The Celebrity Sightings historical information is for the year ended
December 31, 1998.
<PAGE> 8
(c) EXHIBITS.
2.1* Asset Purchase Agreement, dated as of December 1, 1999, by
and among Alloy Online, Inc., Alloy Acquisition Corporation
and Celebrity Sightings, LLC.
99.1* Investment Representation and Lockup Agreement, dated as of
December 1, 1999, by and between Alloy Online, Inc. and
Celebrity Sightings, LLC.
99.2* Escrow Agreement, dated as of December 1, 1999, by and among
Alloy Online, Inc., Alloy Acquisition Corporation, Celebrity
Sightings, LLC and State Street Bank and Trust Company, as
Escrow Agent.
99.3* Alloy's Press Release dated December 6, 1999.
99.4 Consent of Independent Auditors of Celebrity Sightings, LLC
dated as of February 22, 2000.
99.5 Audited Financial Statements of Celebrity Sightings, LLC.
-------------------------
* Previously filed.
<PAGE> 9
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 22, 2000 ALLOY ONLINE, INC.
(Registrant)
By: /s/ Matthew C. Diamond
---------------------------
Matthew C. Diamond
Chief Executive Officer
<PAGE> 10
EXHIBIT INDEX
2.1* Asset Purchase Agreement, dated as of December 1, 1999, by and among
Alloy Online, Inc., Alloy Acquisition Corporation and Celebrity
Sightings, LLC.
99.1* Investment Representation and Lockup Agreement, dated as of December 1,
1999, by and between Alloy Online, Inc. and Celebrity Sightings, LLC.
99.2* Escrow Agreement, dated as of December 1, 1999, by and among Alloy
Online, Inc., Alloy Acquisition Corporation, Celebrity Sightings, LLC
and State Street Bank and Trust Company, as Escrow Agent.
99.3* Alloy's Press Release dated December 6, 1999.
99.4 Consent of Independent Auditors of Celebrity Sightings, LLC dated as of
February 22, 2000.
99.5 Audited Financial Statements of Celebrity Sightings, LLC.
- ----------------------------
*Previously filed.
<PAGE> 1
EXHIBIT 99.4
CONSENT OF INDEPENDENT AUDITORS OF CELEBRITY SIGHTINGS, LLC
As independent public accountants, we hereby consent to the use of our report
dated February 7, 2000 (and to all references to our firm) included in or made
a part of this Form 8-K/A.
/s/ Smith Mandel & Associates L.P.
---------------------------------
Smith Mandel & Associates L.P.
Encino, California
February 22, 2000
<PAGE> 1
EXHIBIT 99.5
AUDITED FINANCIAL STATEMENTS OF CELEBRITY SIGHTINGS, LLC
<PAGE> 2
CELEBRITY SIGHTINGS, LLC
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 6, 1999
CONTENTS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Independent Auditors' Report 1
Balance Sheets 2
Statements of Loss 3
Statement of Members' Deficit 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 8
</TABLE>
<PAGE> 3
[SMITH MANDEL LOGO]
SMITH MANDEL & ASSOCIATES, LLP
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
Members
Celebrity Sightings, LLC
We have audited the accompanying balance sheet of Celebrity Sightings, LLC as of
December 31, 1998 and December 6, 1999, and the related statements of loss,
members' deficit and cash flows for the years ended December 31, 1997, December
31, 1998 and the period from January 1, 1999 through December 6, 1999. These
financial statements are the responsibility of the management of Celebrity
Sightings, LLC. 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 Celebrity Sightings, LLC as of
December 31, 1998 and December 6, 1999, and the results of its operations and
its cash flows for the years ended December 31, 1997, December 31, 1998 and the
period from January 1, 1999 through December 6, 1999 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 11 to the
financial statements, the Company incurred recurring losses from operations,
achieved a low current ratio and had working capital deficiencies, all of which,
raise substantial doubt about its capacity to continue as a going concern.
Management's plans in regards to these matters are also described in Note 11.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
SMITH MANDEL & ASSOCIATES, LLP
February 7, 2000
16000 Ventura boulevard - Suite 802 - Encino, California 91436
Tel: 818/461-0088 - Fax: 818/461-0099 - e-mail: [email protected] 1
http://www.SmithMandelCPA.com
<PAGE> 4
CELEBRITY SIGHTINGS, LLC
BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
ASSETS
December 6, December 31,
1999 1998
----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 11,400 $ 30,800
Trade accounts receivable, net of allowance for
doubtful accounts of $6,500 for 1998 17,100 14,000
Prepaid expenses 8,500 0
Inventory 6,200 9,500
----------- -----------
TOTAL CURRENT ASSETS 43,200 54,300
NET PROPERTY AND EQUIPMENT 202,100 232,900
----------- -----------
TOTAL ASSETS $ 245,300 $ 287,200
=========== ===========
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 333,200 $ 142,900
Contracts payable 29,600 0
Due to affiliate 682,200 441,900
Loan payable, other 405,000 0
Loan payable, member 87,400 63,600
----------- -----------
TOTAL CURRENT LIABILITIES 1,537,400 648,400
NOTE PAYABLE, OTHER 55,000 55,000
NOTES PAYABLE, MEMBERS 290,300 290,300
MEMBERS' DEFICIT (1,637,400) (706,500)
----------- -----------
TOTAL LIABILITIES AND
MEMBERS' DEFICIT $ 245,300 $ 287,200
=========== ===========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
2
<PAGE> 5
CELEBRITY SIGHTINGS, LLC
STATEMENT OF LOSS
================================================================================
<TABLE>
<CAPTION>
For the Period
January 1, 1999
through
December 6, Year Ended December 31,
1999 1998 1997
--------------- ----------- -----------
<S> <C> <C> <C>
REVENUES $ 247,400 $ 265,700 $ 103,200
COST OF REVENUES 60,900 44,500 10,400
----------- ----------- -----------
GROSS PROFIT 186,500 221,200 92,800
OPERATING EXPENSES 1,082,800 1,011,800 811,000
----------- ----------- -----------
LOSS FROM OPERATIONS (896,300) (790,600) (718,200)
INTEREST EXPENSE 30,800 30,000 26,500
----------- ----------- -----------
LOSS BEFORE STATE INCOME TAXES (927,100) (820,600) (744,700)
STATE INCOME TAXES 3,800 800 800
----------- ----------- -----------
NET LOSS (930,900) (821,400) (745,500)
----------- ----------- -----------
COMPREHENSIVE LOSS $ (930,900) $ (821,400) $ (745,500)
=========== =========== ===========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
3
<PAGE> 6
CELEBRITY SIGHTINGS, LLC
STATEMENT OF MEMBERS' DEFICIT
================================================================================
<TABLE>
<CAPTION>
<S> <C>
BALANCE, DECEMBER 31, 1996 $ 51,500
MEMBERS CONTRIBUTIONS 708,900
NET LOSS (745,500)
-----------
RETAINED EARNINGS, DECEMBER 31, 1997 14,900
MEMBER CONTRIBUTION 100,000
NET LOSS (821,400)
-----------
DEFICIT, DECEMBER 31, 1998 (706,500)
NET LOSS (930,900)
-----------
DEFICIT, DECEMBER 6, 1999 $(1,637,400)
===========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
4
<PAGE> 7
CELEBRITY SIGHTINGS, LLC
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
For the Period
January 1, 1999
through
December 6, Year Ended December 31,
1999 1998 1997
--------------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(930,900) $(821,400) $(745,500)
Adjustment to reconcile net loss to net cash
flows applied to operating activities:
Depreciation 76,700 75,400 71,100
(Increase) decrease in assets:
Trade accounts receivable (3,100) 38,300 (49,300)
Prepaid expenses (8,500) 0 5,800
Inventory 3,300 (3,000) (6,500)
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses 190,300 91,600 (118,700)
Contracts payable 29,600 0 0
Due to affiliate 240,300 375,000 66,900
--------- --------- ---------
528,600 577,300 (30,700)
--------- --------- ---------
NET CASH USED BY
OPERATING ACTIVITIES (402,300) (244,100) (776,200)
INVESTING ACTIVITIES:
Purchase of property and
Equipment (45,900) 0 (86,800)
--------- --------- ---------
NET CASH USED BY
INVESTING ACTIVITIES (45,900) (0) (86,800)
FINANCING ACTIVITIES:
Proceeds from loan payable, other 405,000 0 0
Proceeds from loan payable, member 23,800 0 0
Proceeds from note payable, other 0 0 100,000
Repayment of note payable, other 0 0 (45,000)
Proceeds from notes payable, members 0 146,100 122,400
Members contributions 0 100,000 708,900
--------- --------- ---------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 428,800 246,100 886,300
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH (19,400) 2,000 23,300
CASH, BEGINNING 30,800 28,800 5,500
--------- --------- ---------
CASH, ENDING $ 11,400 $ 30,800 $ 28,800
========= ========= =========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
5
<PAGE> 8
CELEBRITY SIGHTINGS, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 6, 1999
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Celebrity Sightings, LLC (the "Company") was formed in the state of Delaware in
July 1996. The Company is exclusively engaged in internet activities. The
primary activity is maintaining an internet web-site. Revenues from this
activity are the result of advertising sponsors, site membership and retail sale
of celebrity memorabilia through electronic commerce.
Income recognition: Revenues are recognized after the services have been
rendered and no significant vendor obligation remains.
Inventory: Inventory consists entirely of promotional stock and is valued at
lower of cost (first-in, first-out) or market.
Property and equipment: Property and equipment are stated at cost. Depreciation
is provided for by both the straight line and accelerated methods over the
estimated useful lives of the related assets.
Web-site: Expenses associated with the development of the web-site that were
incurred prior to the web- site launch in March 1997 were capitalized. All costs
and maintenance for the web-site have been expensed thereafter.
Advertising expenses: Advertising expenses are paid for as the services are
rendered. Therefore no capitalization of expenses is necessary.
Income taxes: The Company elected to be a limited liability company under the
Internal Revenue Code, and to be taxed substantially as a partnership rather
than as a corporation for federal and California tax purposes. Accordingly, all
taxable earnings of the Company are taxed to the individual members and the
Company incurs no federal income tax liability.
Due to the above election and its receipt based tax method, Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes" is
not applicable. There is no tax effect resulting from "temporary differences"
between assets and liabilities for financial reporting purposes and such amounts
as measured by tax law and regulations.
Accounting estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2 - MAJOR CUSTOMERS
Three of the Company's major customers account for approximately 93 percent of
the Company's receivables in 1998 and two of the Company's major customers
accounts for 100 percent of the Company's receivables in 1999. At the balance
sheet date, these receivables were deemed collectible.
See independent auditors' report.
6
<PAGE> 9
CELEBRITY SIGHTINGS, LLC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998 AND DECEMBER 6, 1999
================================================================================
NOTE 3 - TRADE ACCOUNTS RECEIVABLE
Accounts receivables are principally from trade customers. No allowance is
accounted for or necessary in 1999, as all accounts are deemed receivable.
NOTE 4 - NET PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1999 1998 Useful lives
---------------- --------------- ------------
<S> <C> <C> <C>
Equipment $ 80,000 $ 34,200 5 years
Web-site 353,800 353,800 5 years
---------------- ---------------
TOTAL, AT COST 433,800 388,000
Less accumulated depreciation 231,700 155,100
---------------- ---------------
$ 202,100 $ 232,900
================ ===============
</TABLE>
NOTE 5 - DUE TO AFFILIATE
This affiliate is a web-site maintenance and hosting company and has common
ownership with the Company. The balance represents web-site charges due to the
affiliate, as well as allocated rent, insurance, security, storage, tax,
licenses and utilities paid for by the affiliate on behalf of the Company. These
charges are believed to be consistent with what would have been changed by an
unrelated party. Amount was paid in full upon sale of the business discussed in
Note 13. The Company also sublets a portion of the operating facilities from the
affiliate. Amounts due to the affiliate for the sublet rentals are reflected in
the overhead allocation.
NOTE 6 - NOTE PAYABLE, OTHER
Note payable, other, with interest at 10 percent per annum, was due thirteen
months from demand. As of the balance sheet date there was no demand for
payment. However, the note payable, other was paid in full upon the sale of the
business as discussed in Note 13.
NOTE 7 - NOTES PAYABLE, MEMBERS
Notes payable, members, with interest at 8 percent and 10 percent per annum,
were due May 1, 2000 and thirteen months from demand, respectively. Notes
payable, due May 1, 2000, were warrants, which may have been exercised for units
in the company at 50 dollars per unit at the due date or upon public offering.
As of the balance sheet date, there was no demand for payment. However, the
notes payable, members were paid in full upon the sale of business as discussed
in Note 13.
See independent auditors' report.
7
<PAGE> 10
CELEBRITY SIGHTINGS, LLC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998 AND DECEMBER 6, 1999
================================================================================
NOTE 8 - COMMITMENTS
The Company sublets its operating facility from its affiliate on a
month-to-month basis. The Company, as lessee, is required to pay all insurance,
utilities, repairs and maintenance and any increases in real property taxes over
the base year. Rent expense for the year ended December 31, 1998 was $24,000.
Rent expense of the period January 1, 1999 through December 6, 1999 was $22,400.
The Company has an employment agreement with a key officer of the Company. The
agreement provides for a minimum annual salary of $70,000. In addition, the
officer is guaranteed a bonus for the sale of the Company.
NOTE 9 - DEFINED CONTRIBUTION PLAN
The Company maintains a defined contribution plan for the benefit of eligible
employees. This plan provides for employer contributions based primarily on
employee participation. As of the balance sheet date, the Company has elected
not to contribute funds to the plan.
NOTE 10 - SUPPLEMENTAL CASH FLOW DISCLOSURES
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
<S> <C> <C>
Cash paid during the period was as follows:
Interest $ 19,600 $ 14,600
================ ===============
Income taxes $ 3,765 $ 800
================ ===============
</TABLE>
NOTE 11 - GOING CONCERN
As shown in the accompanying financial statements, the Company has incurred
recurring losses from operations; substantial start-up expenses and lower
membership income than anticipated, which have resulted in net losses.
Management has elected to sell the Company, as discussed in Note 13.
NOTE 12 - UNIT OPTION PLANS
On August 4, 1999, several key officers were granted the option to purchase the
company's units at prices ranging from 30 to 50 dollars per unit. Generally, the
options become exercisable over a period of five to ten years from the date of
the grant. The board of directors authorized approximately 26,000 unit options.
No options were exercised nor forfeited and all outstanding options were
terminated upon the sale of the business, as discussed in Note 13. The fair
market value of these options is indeterminable in calculating the expense to
the company, therefore no pro forma net income is presented.
NOTE 13 - SUBSEQUENT EVENT
On December 6, 1999 the Company completed the sale of its business to Alloy
Acquisition Corporation. This transaction is not reflected in the financial
statements.
See independent auditors' report.
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