<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: April 7, 2000
Date of earliest event reported: January 24, 2000
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)
(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 February 7, 2000 to read in its entirety as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
On January 24, 2000, Alloy's newly created and wholly-owned subsidiary,
Alloy Acquisition Sub, Inc., a New York corporation ("Acquisition Sub"), was
merged with and into 17th Street Acquisition Corp. ("17th Street"), a New York
corporation, pursuant to an Agreement and Plan of Reorganization dated as of
January 21, 2000 (the "Purchase Agreement"), by and between Alloy, Acquisition
Sub, 17th Street and Leslie N. Morgenstein and Ann Brashares, the sole
stockholders of 17th Street (the "Stockholders").
17th Street is a leading developer and producer of media properties for
teens. 17th Street has produced approximately 150 books per year, including the
Sweet Valley series, Roswell High, Fearless and Real Teens: Diary of a Junior
Year. In addition to editorial, design and production, and licensing its
properties to television and film, software, and foreign territories, 17th
Street Productions markets and promotes its properties in conjunction with other
teen brands such as Atlantic Records and Union Bay.
The consideration paid in connection with the transferred assets consisted
of $200,000 in cash, and 215,178 shares of Alloy's restricted common stock,
having a value of $3,846,000, or $17.875 per share upon the closing of the
Purchase Agreement. In addition, in connection with the Purchase Agreement,
Alloy made payments of $2,104,000 to the former sole stockholder of Daniel Weiss
Associates, Inc., a subsidiary of 17th Street, all of the outstanding capital
stock of which was acquired by 17th Street in October 1999. Alloy has estimated
that cash expenditures related to the acquisition of $326,000 will be incurred.
See Exhibit 99.5 for the audited balance sheet of 17th Street Acquisition
Corp. and Subsidiary and 17th Street Productions, Inc. (formerly Daniel Weiss
Associates, Inc.) for years ending December 31, 1999, 1998, and 1997 and the
related statements of operations, stockholders' deficiency and cash flows for
the years then ended.
(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 17th Street 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 condensed consolidated balance sheet includes
Alloy's historical balance sheet as of October 31, 1999 combined with the
balance sheet of 17th Street as of December 31, 1999. The unaudited pro forma
consolidated statements of operations include Alloy's historical statements of
operations for the fiscal year ended January 31, 1999 and the nine months ended
October 31, 1999 combined with the historical statements of operations of 17th
Street for the year ended December 31, 1998 and the year ended December 31,
1999, respectively. The results of operations for 17th Street for the months of
January, November and December 1999 were not material to the pro forma results
of operations.
<PAGE> 3
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 17th
Street financial statements, which have been included as Exhibit 99.5 of this
report.
<PAGE> 4
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ALLOY 17th STREET PRO FORMA
HISTORICAL HISTORICAL(1) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
ASSETS
------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10,205 $ 149 $ (2,304) (a),(b) $ 8,050
Marketable securities 32,095 126 -- 32,221
Accounts receivable, net 558 702 -- 1,260
Inventories, net 4,053 -- -- 4,053
Prepaid expenses and other current
assets 4,342 69 -- 4,411
-------- -------- -------- --------
TOTAL CURRENT ASSETS 51,253 1,046 (2,304) 49,995
Property and equipment, net 1,041 95 -- 1,136
Intangible assets -- 2,891 4,564 (a) 7,455
Other assets 379 14 -- 393
-------- -------- -------- --------
TOTAL ASSETS $ 52,673 $ 4,046 $ 2,260 $ 58,979
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 10,828 $ 623 $ 326 (a) $ 11,777
Current portion of capital
lease obligation 66 -- -- 66
Advances from publishers, net -- 1,511 -- 1,511
Loan payable -- 2,104 (2,104) (b) --
-------- -------- -------- --------
TOTAL CURRENT LIABILITIES 10,894 4,238 (1,778) 13,354
Capital lease obligation, less
current portion 5 -- -- 5
STOCKHOLDERS' EQUITY (DEFICIT):
Alloy Common Stock 142 300 (298) (a) 144
Additional paid-in capital 61,254 -- 3,844 (a) 65,098
Accumulated deficit (18,857) (523) 523 (a) (18,857)
Deferred compensation (663) -- -- (663)
Accumulated other comprehensive loss (102) 31 (31) (a) (102)
-------- -------- -------- --------
TOTAL STOCKHOLDERS'
EQUITY (DEFICIT) 41,774 (192) 4,038 45,620
-------- -------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT) $ 52,673 $ 4,046 $ 2,260 $ 58,979
======== ======== ======== ========
</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>
<CAPTION>
ALLOY 17th STREET PRO FORMA
HISTORICAL HISTORICAL(2) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 15,505 $ 3,249 $ -- $ 18,754
Cost Of Sales 7,273 1,115 -- 8,388
------------ ------------ ------------ ------------
Gross Profit 8,232 2,134 -- 10,366
Selling, General And Administrative
Expenses 19,500 2,779 -- 22,279
Goodwill Amortization -- -- 1,118 (c) 1,118
------------ ------------ ------------ ------------
Loss From Operations (11,268) (645) (1,118) (13,031)
Interest Income (Expense), Net 993 1 -- 994
------------ ------------ ------------ ------------
Loss Before Income Taxes (10,275) (644) (1,118) (12,037)
Provision For Income Taxes -- 7 (7) (d) --
------------ ------------ ------------ ------------
Loss Before Extraordinary Item (10,275) (651) (1,111) (12,037)
Extraordinary Item:
Charge for early retirement of debt (235) -- -- (235)
------------ ------------ ------------ ------------
Net Loss $ (10,510) $ (651) $ (1,111) $ (12,272)
============ ============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE:
Before extraordinary item $ (0.84) $ (0.97)
Extraordinary charge $ (0.02) $ (0.02)
------------ ------------
Net Loss $ (0.86) $ (0.99)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and Diluted 12,175,624 215,178 (a) 12,390,802
============ ============ ============
</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>
ALLOY 17th STREET PRO FORMA
HISTORICAL HISTORICAL(3) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 10,210 $ 3,453 $ -- $ 13,663
Cost Of Sales 5,486 1,306 -- 6,792
----------- ----------- ----------- -----------
Gross Profit 4,724 2,147 -- 6,871
Selling, General And Administrative
Expenses 10,849 2,209 -- 13,058
Goodwill Amortization -- -- 1,491 (c) 1,491
----------- ----------- ----------- -----------
Loss From Operations (6,125) (62) (1,491) (7,678)
Interest Income (Expense), Net (239) 24 -- (215)
----------- ----------- ----------- -----------
Loss Before Income Taxes (6,364) (38) (1,491) (7,893)
Provision For Income Taxes -- 8 (8) (d) --
----------- ----------- ----------- -----------
Net Loss $ (6,364) $ (46) $ (1,483) $ (7,893)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE:
Basic $ (0.75) $ (0.91)
=========== ===========
Diluted $ (0.71) $ (0.86)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 8,479,727 215,178 (a) 8,694,905
=========== =========== ===========
Diluted 8,953,880 215,178 (a) 9,169,058
=========== =========== ===========
</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 17th Street for $200 in cash and 215,178
shares of Alloy's common stock valued at $3,846, or $17.875 per share based
upon the closing share price on January 24, 2000, and estimated cash
acquisition expenses of $326, plus $3,083 equal to the negative net book
value at December 31, 1999 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) Represents payments by Alloy of 17th Street liabilities to a former
stockholder of a subsidiary of 17th Street, in accordance with the Purchase
Agreement.
(c) To reflect the amortization over five years of goodwill recorded on the
purchase of 17th Street.
(d) To reflect expenses for 17th Street that would not have been incurred if
the combination was made at the beginning of the periods presented.
OTHER NOTES
(1) The 17th Street historical information is as of December 31, 1999.
(2) The 17th Street historical information is for the year ended December 31,
1999.
(3) The 17th Street historical information is for the year ended December 31,
1998.
(c) EXHIBITS.
2.1* Agreement and Plan of Reorganization dated as of January 21,
2000, by and between Alloy Online, Inc., Alloy Acquisition
Sub, Inc., 17th Street Acquisition Corp. and Leslie N.
Morgenstein and Ann Brashares.
99.1* Investment Representation and Lockup Agreement, dated as
January 21, 2000, by and between Alloy Online, Inc. and
Leslie N. Morgenstein.
99.2* Investment Representation and Lockup Agreement, dated as of
January 21, 2000, by and between Alloy Online, Inc. and Ann
Brashares.
99.3* Escrow Agreement, dated as of January 21, 2000, by and among
Alloy Online, Inc., Alloy Acquisition Sub, Inc., Leslie N.
Morgenstein, Ann Brashares and State Street Bank and Trust
Company, as Escrow Agent.
99.4* Alloy's Press Release dated January 11, 2000.
99.5 17th Street Acquisition Corp. and Subsidiary and 17th Street
Productions, Inc. (formerly Daniel Weiss Associates, Inc.)
Report on Audits of Financial Statements for years ending
December 31, 1999, 1998, and 1997.
99.6 Consent of Independent Auditors of 17th Street Acquisition
Corp. and Subsidiary and 17th Street Productions, Inc.
(formerly Daniel Weiss Associates, Inc.).
- -------------------------
* Previously filed.
<PAGE> 8
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: April 7, 2000 ALLOY ONLINE, INC.
(Registrant)
By: /s/ Matthew C. Diamond
------------------------------------
Matthew C. Diamond
Chief Executive Officer
<PAGE> 9
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
2.1* Agreement and Plan of Reorganization dated as of January 21, 2000, by and between Alloy Online, Inc.,
Alloy Acquisition Sub, Inc., 17th Street Acquisition Corp. and Leslie N. Morgenstein and Ann Brashares
99.1* Investment Representation and Lockup Agreement, dated as January 21, 2000, by and between Alloy Online,
Inc. and Leslie N. Morgenstein.
99.2* Investment Representation and Lockup Agreement, dated as of January 21, 2000, by and between Alloy
Online, Inc. and Ann Brashares.
99.3* Escrow Agreement, dated as of January 21, 2000, by and among Alloy Online, Inc., Alloy Acquisition Sub,
Inc., Leslie N. Morgenstein, Ann Brashares and State Street Bank and Trust Company, as Escrow Agent.
99.4* Alloy's Press Release dated January 11, 2000.
99.5 17th Street Acquisition Corp. and Subsidiary and 17th Street Productions, Inc. (formerly Daniel Weiss
Associates, Inc.) Report on Audits of Financial Statements for years ending December 31, 1999, 1998, and
1997.
99.6 Consent of Independent Auditors of 17th Street Acquisition Corp. and Subsidiary and 17th Street
Productions, Inc. (formerly Daniel Weiss Associates, Inc.).
</TABLE>
- ----------------------------
* Previously filed.
<PAGE> 1
EXHIBIT 99.5
17TH STREET ACQUISITION CORP. AND SUBSIDIARY AND 17TH STREET PRODUCTIONS, INC.
(FORMERLY DANIEL WEISS ASSOCIATES, INC.)
REPORT ON AUDITS OF FINANCIAL STATEMENTS FOR YEARS ENDING DECEMBER 31, 1999,
1998, AND 1997
CONTENTS
FINANCIAL STATEMENTS:
Independent auditors' report
Balance sheets
Statements of operations
Statements of stockholders' deficiency
Statements of cash flows
Notes to financial statements
<PAGE> 2
HOLTZ RUBENSTEIN & CO., LLP
Certified Public Accountants
Independent Auditors' Report
Stockholders
17th Street Acquisition Corp. and Subsidiary
and 17th Street Productions, Inc.
(Formerly Daniel Weiss Associates, Inc.)
New York, New York
We have audited the balance sheets of 17th Street Acquisition Corp. and
Subsidiary and 17th Street Productions, Inc. (formerly Daniel Weiss Associates,
Inc.) as of December 31, 1999, 1998 and 1997, and the related statements of
operations, stockholders' deficiency and cash flows for the years 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 audits.
We conducted our audits 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 audits provide 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 17th Street Acquisition Corp and
Subsidiary and 17th Street Productions, Inc. (formerly Daniel Weiss Associates,
Inc.) as of December 31, 1999, 1998 and 1997, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
Holtz Rubenstein & Co., LLP
Melville, NY
March 9, 2000
Main Office: 125 Baylis Road Melville, NY 11747-3823
1120 Avenue of the Americas New York, NY 10036-6773 (212) 398-7600
Tel: (631) 752-7400 - Fax: (631) 752-1742 - www.hrcpa.com
<PAGE> 3
17TH STREET ACQUISITION CORP. AND SUBSIDIARY
AND 17TH STREET PRODUCTIONS, INC.
(FORMERLY DANIEL WEISS ASSOCIATES, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 148,795 $ 176,692 $ 144,396
Investment in marketable securities (Note 3) 126,541 131,228 920,635
Accounts receivable, net of allowance
for doubtful accounts of approximately
$0, $19,000 and $0, respectively 701,651 383,026 380,741
Prepaid expenses and other current assets 69,310 68,783 32,458
----------- ----------- -----------
Total current assets 1,046,297 759,729 1,478,230
----------- ----------- -----------
FIXED ASSETS, net (Note 4) 94,698 123,674 130,927
----------- ----------- -----------
OTHER ASSETS:
Security deposits 13,610 12,015 12,015
Goodwill, net (Note 5) 2,890,902 -- --
----------- ----------- -----------
Total other assets 2,904,512 12,015 12,015
----------- ----------- -----------
$ 4,045,507 $ 895,418 $ 1,621,172
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 148,010 $ 194,237 $ 119,949
Advances from publishers, net
of disbursements (Note 6) 1,511,059 718,866 1,438,963
Accrued expenses and taxes 474,782 258,492 383,642
Loan payable - former stockholder (Note 7) 2,104,358 71,802 --
----------- ----------- -----------
Total current liabilities 4,238,209 1,243,397 1,942,554
----------- ----------- -----------
COMMITMENTS (Note 8)
STOCKHOLDERS' DEFICIENCY:
Common stock 300,000 50,000 50,000
Deficit (523,371) (417,647) (371,382)
----------- ----------- -----------
(223,371) (367,647) (321,382)
Accumulated other comprehensive income 30,669 19,668 --
----------- ----------- -----------
Total stockholders' deficiency (192,702) (347,979) (321,382)
----------- ----------- -----------
$ 4,045,507 $ 895,418 $ 1,621,172
=========== =========== ===========
</TABLE>
See notes to financial statements
<PAGE> 4
17TH STREET ACQUISITION CORP. AND SUBSIDIARY
AND 17TH STREET PRODUCTIONS, INC.
(FORMERLY DANIEL WEISS ASSOCIATES, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
PUBLISHING INCOME $ 3,249,362 $ 3,453,209 $ 3,244,784
PUBLISHING COSTS 1,115,000 1,305,863 1,048,871
----------- ----------- -----------
GROSS PROFIT 2,134,362 2,147,346 2,195,913
ADMINISTRATIVE EXPENSES (Notes 7, 8,
and 9) 2,778,893 2,208,948 2,159,932
----------- ----------- -----------
(LOSS) INCOME FROM OPERATIONS (644,531) (61,602) 35,981
REALIZED GAIN ON MARKETABLE
SECURITIES -- -- 3,836
INTEREST AND DIVIDEND INCOME 1,055 23,690 53,013
----------- ----------- -----------
(LOSS) INCOME BEFORE PROVISION
FOR INCOME TAXES (643,476) (37,912) 92,830
PROVISION FOR INCOME TAXES (Note 11) 7,640 8,353 18,126
----------- ----------- -----------
NET (LOSS) INCOME $ (651,116) $ (46,265) $ 74,704
=========== =========== ===========
(LOSS) INCOME PER SHARE:
Basic $ (65,112) $ (4,627) $ 7,470
=========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 10 10 10
=========== =========== ===========
</TABLE>
See notes to financial statements
<PAGE> 5
17TH STREET ACQUISITION CORP. AND SUBSIDIARY
AND 17TH STREET PRODUCTIONS, INC.
(FORMERLY DANIEL WEISS ASSOCIATES, INC.)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
17th Street Acquisition Corp. 17th Street Productions, Inc.
Common Stock, No Par Value Common Stock, No Par Value
--------------------------------------- ----------------------------------------
Issued and Issued and
Authorized Outstanding Stated At Authorized Outstanding Stated At
---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 -- -- $ -- 200 10 $ 50,000
Comprehensive income:
Net earnings/comprehensive income -- -- -- -- -- --
Distributions -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1997 -- -- -- 200 10 50,000
--------- --------- --------- --------- --------- ---------
Comprehensive (loss) income:
Net loss -- -- -- -- -- --
Unrealized gain on available
for sale securities -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Comprehensive loss
Balance, December 31, 1998 -- -- -- 200 10 50,000
--------- --------- --------- --------- --------- ---------
Comprehensive (loss) income:
Net loss -- -- -- -- -- --
Unrealized gain on available
for sale securities -- -- -- -- -- --
Comprehensive loss
--------- --------- --------- --------- --------- ---------
Balance, September 30, 1999 -- -- -- 200 10 50,000
Comprehensive (loss) income:
Net loss -- -- -- -- -- --
Unrealized gain on available
for sale securities -- -- -- -- -- --
Total comprehensive loss
Capital Contribution 200 10 300,000 -- -- --
Effect of purchase of common stock
of Daniel Weiss Associates, Inc.
by 17th Street Acquisition Corp. -- -- -- (200) (10) (50,000)
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1999 200 10 $ 300,000 -- -- $ --
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Deficit Income Total
------- ------------- -----
<S> <C> <C> <C>
Balance, January 1, 1997 $(269,070) $ -- $(219,070)
Comprehensive income:
Net earnings/comprehensive income 74,704 -- 74,704
Distributions (177,016) (177,016)
--------- --------- ---------
Balance, December 31, 1997 (371,382) -- (321,382)
--------- --------- ---------
Comprehensive (loss) income:
Net loss (46,265) -- (46,265)
Unrealized gain on available
for sale securities -- 19,668 19,668
--------- --------- ---------
Comprehensive loss (26,597)
---------
Balance, December 31, 1998 (417,647) 19,668 (347,979)
--------- --------- ---------
Comprehensive (loss) income:
Net loss (127,745) -- (127,745)
Unrealized gain on available
for sale securities -- 11,749 11,749
---------
Comprehensive loss (115,996)
--------- --------- ---------
Balance, September 30, 1999 (545,392) 31,417 (463,975)
---------
Comprehensive (loss) income:
Net loss (523,371) -- (523,371)
Unrealized gain on available
for sale securities -- 30,669 30,669
---------
Total comprehensive loss (492,702)
---------
Capital Contribution -- -- 300,000
---------
Effect of purchase of common stock
of Daniel Weiss Associates, Inc.
by 17th Street Acquisition Corp. 545,392 (31,417) 463,975
--------- --------- ---------
Balance, December 31, 1999 $(523,371) $ 30,669 $(192,702)
========= ========= =========
</TABLE>
See notes to financial statements
<PAGE> 6
17TH STREET ACQUISITION CORP. AND SUBSIDIARY
AND 17TH STREET PRODUCTIONS, INC.
(FORMERLY DANIEL WEISS ASSOCIATES, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(651,116) $ (46,265) $ 74,704
--------- --------- ---------
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization 195,519 54,871 71,117
Gain on sale of marketable securities -- -- (3,836)
Bad debts -- 19,109 --
(Increase) decrease in operating assets:
Accounts receivable (318,625) (40,503) 91,385
Prepaid expenses and other current assets (527) (36,325) (32,438)
Security deposits (1,595) -- --
Increase (decrease) in operating liabilities:
Accounts payable (46,227) 74,288 43,321
Accrued expenses and taxes 792,193 (125,150) 26,179
Advances from publisher, net 216,290 (720,097) (215,284)
--------- --------- ---------
Total adjustments 837,028 (773,807) (19,556)
--------- --------- ---------
Net cash provided by (used in) operating activities 185,912 (820,072) 55,148
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of acquisition (388,444) -- --
Proceeds from sale of marketable securities 75,358 809,075 294,255
Acquisition of fixed assets (5,262) (28,509) (74,201)
(Purchase) sale of available for sale securities (28,017) -- --
--------- --------- ---------
Net cash (used in) provided by investing activities (346,365) 780,566 220,054
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 300,000 -- --
Loans from former stockholder (167,444) 71,802 (50,000)
Distributions to stockholder -- -- (177,016)
--------- --------- ---------
Net cash (used in) provided by
financing activities (132,556) 71,802 (227,016)
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (27,897) 32,296 48,186
CASH AND CASH EQUIVALENTS,
beginning of year 176,692 144,396 96,210
--------- --------- ---------
CASH AND CASH EQUIVALENTS,
end of year $ 148,795 $ 176,692 $ 144,396
========= ========= =========
</TABLE>
See notes to financial statements
<PAGE> 7
17TH STREET ACQUISITION CORP. AND SUBSIDIARY
AND 17TH STREET PRODUCTIONS, INC.
(FORMERLY DANIEL WEISS ASSOCIATES, INC.)
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. ORGANIZATION AND NATURE OF OPERATIONS:
17th Street Acquisition Corp. and Subsidiary ("17th Street") engage
primarily in the authorship of books for the publishing trade. 17th Street
creates and edits manuscripts, provides designs, illustrates and performs
various other publishing functions.
On October 1, 1999, 17th Street purchased the common stock of Daniel Weiss
Associates, Inc. ("DWA"), becoming the parent company of the entity (see Note
5). DWA changed its name to 17th Street Productions, Inc. on October 21, 1999.
The financial statements reflect the operations of both companies for the year
ended December 31, 1999 since no fundamental changes in operating procedures
occurred. The principles of purchase accounting were applied with the necessary
eliminations having been recorded. The audited financial statements for the
years ended December 31, 1998 and 1997 are those of DWA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. RECOGNITION OF INCOME AND RELATED EXPENSES
The Company receives monies and incurs expenses to produce books. The
income and related expenses incurred in connection with each book is recognized
upon publication of that property. Any amounts received or paid prior to
publication are advances, and classified as a current liability (see Note 6).
b. INVESTMENT IN MARKETABLE SECURITIEs
Equity securities having readily determinable fair values and all
investments in debt securities are classified and accounted for in three
categories. Debt securities that management has the positive intent and ability
to hold to maturity are classified as "held-to-maturity securities" and reported
at amortized cost. Debt and equity securities that are bought and principally
held for the purpose of selling them in the near term are classified as "trading
securities" and reported at fair value, with unrealized gains and losses
included in operating results. Debt and equity securities not classified as
either held-to-maturity securities or trading securities are classified as
"available-for-sale securities" and reported at fair value, with the unrealized
gains and losses excluded from operating results and reported as a separate
component of stockholders' equity. A decline in the market value of any
available-for-sale security below cost that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost basis for the
security.
Gains and losses on the sale of securities available-for-sale are computed
on the basis of specific identification of the adjusted cost of each security.
<PAGE> 8
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Cont'd)
c. DEPRECIATION AND AMORTIZATION
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Amortization of leasehold improvements is
computed using the straight-line method over the estimated useful lives of the
related assets or the remaining term of the lease, whichever is shorter.
Maintenance and repairs of property and equipment are charged to operations and
major improvements are capitalized. Upon retirement, sale or other disposition
of property and equipment, the cost and accumulated depreciation are eliminated
from the accounts and gain or loss is included in operations.
d. INCOME TAXES
The Companies have elected to be taxed as "Small Business Corporations" for
federal and state income tax purposes. As a result of this election, the income
of the Companies will be taxed directly to the individual stockholder(s).
Accordingly, no provision for income taxes is included in the financial
statements of the Company. New York State imposes a tax on "Small Business
Corporation" whose income exceeds certain levels which represents the
incremental difference between corporate and individual tax rates and is
reflected in the earnings statement. Local taxes have been provided in
accordance with statutory rates.
e. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures 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 amounts could differ from these estimates.
f. COMPREHENSIVE INCOME
Other comprehensive income refers to revenues, expenses, gains and losses
that under generally accepted accounting principles are included in
comprehensive income but are excluded from net income as these amounts are
recorded directly as an adjustment to stockholders' equity. The Company's other
comprehensive income is comprised of unrealized gains and/or losses on available
for sale securities adjustments. The tax benefit or expense, as well as any
reclassifications related to the components of other comprehensive income were
not significant.
g. STATEMENT OF CASH FLOWS
For financial statement purposes, the Company considers all highly liquid
temporary cash investments with maturities of three months or less to be cash
equivalents.
<PAGE> 9
3. INVESTMENT IN MARKETABLE SECURITIES:
Marketable equity securities, which are classified as available-for-sale
securities, are valued at the fair value of the securities and the unrealized
gain on the securities is reflected in stockholders' equity. At December 31,
1999 and 1998, the net change in the valuation adjustment on marketable
securities classified as available-for-sale approximated $31,000 and $20,000,
respectively.
The carrying amounts of investment securities as shown in the balance sheet
of the Company and their approximate value were as follows:
<TABLE>
<CAPTION>
Gross
Unrealized
Cost Gains Fair Value
---- ---------- ----------
<S> <C> <C> <C>
December 31, 1999
-----------------
Securities available-for-sale
equity investments $ 96,000 $ 31,000 $127,000
======== ======== ========
December 31, 1998
-----------------
Securities available-for-sale
equity investments $111,000 $ 20,000 $131,000
======== ======== ========
December 31, 1997
-----------------
Securities available-for-sale
equity investments $110,000 $ -- $110,000
U.S. Government securities 811,000 -- 811,000
-------- -------- --------
$921,000 $ -- $921,000
======== ======== ========
</TABLE>
4. FIXED ASSETS:
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Furniture and equipment $204,724 $199,464 $174,024
Leasehold improvements 677,574 677,574 674,502
-------- -------- --------
882,298 877,038 848,526
Less accumulated depreciation 787,600 753,364 717,599
-------- -------- --------
$ 94,698 $123,674 $130,927
======== ======== ========
</TABLE>
<PAGE> 10
5. BUSINESS COMBINATION:
On October 1, 1999, 17th Street acquired the common stock of DWA in a
transaction that was accounted for as a purchase business combination. The
aggregate purchase price was $2,553,000 consisting of cash of $353,000, and a
note payable to the former shareholder of $900,000 and a contingent payment of
$1,300,000 (see Note 7).
The historical carrying amounts of the tangible assets and liabilities
approximated their fair market values on the date of acquisition. Approximately
$3,052,000 was allocated to goodwill, which consisted of a net deficit equity
position in DWA at September 30, 1999 of $464,000. A contingency payment to the
former shareholder of $1,300,000 upon sale of 17th Street to an unrelated third
party (see Note 13), and the related purchase price and incidental closing costs
of $1,288,000. Goodwill is being amortized over its estimated useful life of
five years.
Amortization expense for the year ended December 31, 1999 approximated
$161,000.
6. ADVANCES FROM PUBLISHERS:
As of December 31, 1999, 1998 and 1997, advances from publishers were
approximately $2,466,000, $1,533,000 and $2,480,000, with related disbursements
of approximately $955,000, $814,000 and $1,041,000, respectively.
7. LOAN PAYABLE - FORMER STOCKHOLDER:
Loans payable - former stockholder consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Installment obligations, payable in
monthly installments approximating
$27,600 including interest at 7%
(see Note 13) $ 804,358 $ -- $ --
Contingent payment, payable in one
balloon payment upon the sale of
17th Street (see Note 13) 1,300,000 -- --
Loan payable, non-interest bearing,
due upon demand -- 71,802 --
---------- ---------- ----------
$2,104,358 $ 71,802 $ --
========== ========== ==========
</TABLE>
Interest expense for the years ended December 31, 1999, 1998 and 1997
approximated $15,600, $0 and $0, respectively.
For the year ended December 31, 1999 the former stockholder also received
consulting fees approximating $142,000.
<PAGE> 11
8. COMMITMENTS:
The Company entered into a lease in May 1996 for office space that runs for
seven years. In 1993, the Company entered into long-term operating leases for
certain transportation and office equipment. As of September 30, 1999, the
transportation lease is no longer an obligation of 17th Street.
Future minimum rentals under operating leases are as follows:
<TABLE>
<CAPTION>
Year Ending Office Office
December 31, Rent Equipment Total
------------ ------ --------- -----
<S> <C> <C> <C>
2000 $ 98,400 $ 7,350 $ 105,750
2001 100,800 7,350 108,150
2002 105,600 7,350 112,950
2003 44,000 1,225 45,225
----------- ---------- -----------
$ 348,800 $ 23,275 $ 372,075
=========== ========== ===========
</TABLE>
Rent expense for the years ended December 31, 1999, 1998 and 1997 was
approximately $107,000, $88,000 and $83,000, respectively.
9. RETIREMENT PLANS:
The Company maintains a non-contributory pension plan that covers
substantially all full-time employees who have met certain age and employment
requirements. The pension plan, a defined contribution plan, obligates the
Company to make a contribution in the amount of 3.46% of total eligible
compensation (as defined). Contributions approximated $31,000, $30,000 and
$26,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
The Company also maintains a profit sharing plan that covers substantially
all full-time employees who have met certain age and employment requirements.
Contributions to the plan are at the discretion of the Board of Directors which
approximated $121,000, $113,000 and $107,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
10. SUPPLEMENTAL INFORMATION STATEMENT OF CASH FLOWS:
Cash paid during the years for:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest $15,634 $ -- $ --
======= ======= =======
Taxes $ 5,200 $18,114 $16,590
======= ======= =======
</TABLE>
During 1999, 17th Street recorded goodwill approximating $2,664,000 in
exchange for notes payable to a former shareholder and the deficit position in
DWA.
<PAGE> 12
11. INCOME TAXES:
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
State and Local $ 7,640 $ 8,353 $18,126
========== ========== =======
</TABLE>
12. OFF BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentrations of credit risk consists principally of temporary cash investments
and accounts receivable from sales. The Company places its temporary cash
investments with high credit quality financial institutions. The Company
performs on going credit evaluations of its accounts receivable which are due
within 30 days. Credit losses have historically been insignificant and
consistently within management's expectations.
13. SUBSEQUENT EVENT:
In January 2000, 17th Street was acquired by Alloy Online, Inc. ("Alloy")
for cash and stock in a transaction that will be accounted for under purchase
accounting. Coinciding with this sale, Alloy paid off the existing loans payable
- - former shareholder inclusive of the contingent payment and any accrued
interest.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The methods and assumptions used to estimate the fair value of the
following classes of financial instruments were:
Current Assets and Current Liabilities: The carrying amount of
cash, current receivables and payables and certain other
short-term financial instruments approximate their fair value.
Long-Term Debt: The fair value of the Company's long-term debt,
including the current portion, was estimated using a discounted
cash flow analysis, based on the Company's assumed incremental
borrowing rates for similar types of borrowing arrangements. The
carrying amount of variable and fixed rate debt at December 31,
1999, 1998 and 1997 approximates fair value.
<PAGE> 1
EXHIBIT 99.6
CONSENT OF INDEPENDENT AUDITORS OF 17TH STREET ACQUISITION CORP. AND SUBSIDIARY
AND 17TH STREET PRODUCTIONS, INC. (FORMERLY DANIEL WEISS ASSOCIATES, INC.)
As independent public accountants, we hereby consent to the use of our
report dated March 9, 2000 (and to all references to our firm) included in or
made a part of this Form 8-K/A
/s/ HOLTZ RUBENSTEIN & CO., LLP
---------------------------------------
Holtz Rubenstein & Co., LLP
Melville, New York
April 7, 2000
