<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 14, 1999
INTERVISUAL BOOKS, INC.
-----------------------
(Exact name of registrant as specified in its charter)
California 1-10916 95-2929217
- ---------- ------- ----------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2716 Ocean Park Boulevard, Santa Monica, California 90405
- --------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 396-8708
Not Applicable
--------------
(Former name or former address, if changed since last report)
<PAGE> 2
The undersigned registrant hereby amends, to the extent set forth
herein, the registrant's Current Report on Form 8-K dated May 14, 1999, and
filed with the Securities and Exchange Commission on May 27, 1999.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
1. Financial Statements of Fast Forward Marketing, Inc.
Independent Auditors' Report
Balance Sheets at December 31, 1998 and 1997
Statements of Operations for the years ended December 31, 1998
and 1997
Statements of Stockholder's Deficit for the years ended December
31, 1998 and 1997
Statements of Cash Flows for the years ended December 31, 1998
and 1997
Notes to Financial Statements
Balance Sheet at March 31, 1999
Statements of Operations for the three months ended March 31,
1998 and 1999
Statements of Stockholder's Deficit for the three months ended
March 31, 1999
Statements of Cash Flows for the three months ended March 31,
1998 and 1999
(b) Unaudited Proforma Financial Information
Proforma Balance Sheet at March 31, 1999
Proforma Statement of Operations for the three months ended
March 31, 1999
Proforma Statement of Operations for the year ended December 31,
1998
(c) Exhibits
99.1 Audited balance sheet of Fast Forward Marketing, Inc. at
December 31, 1998 and 1997 and statement of operations and cash
flows for the years ended December 31, 1998 and 1997, and the
related Independent Auditors' Report.
99.2 Unaudited balance sheet of Fast Forward Marketing, Inc. at March
31, 1999 and statement of operations and cash flows for the
three months ended March 31, 1999 and 1998.
99.3 Unaudited proforma balance sheet of Intervisual Books, Inc. as
of March 31, 1999 and the unaudited proforma statement of
operations for the year ended December 31, 1998 and the three
months ended March 31, 1999 reflecting the acquisition of Fast
Forward Marketing, Inc.
<PAGE> 3
SIGNATURES
Pursuant to the requirement 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.
INTERVISUAL BOOKS, INC.,
a California corporation
(Registrant)
Date: July 23, 1999 By: /s/ Waldo H. Hunt
Chairman of the Board and
Chief Executive Officer
<PAGE> 4
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
99.1 Audited balance sheet of Fast Forward Marketing, Inc. at
December 31, 1998 and 1997 and statement of operations and cash
flows for the years ended December 31, 1998 and 1997, and the
related Independent Auditors' Report.
99.2 Unaudited balance sheet of Fast Forward Marketing, Inc. at March
31, 1999 and statement of operations and cash flows for the
three months ended March 31, 1999 and 1998.
99.3 Unaudited proforma balance sheet of Intervisual Books, Inc. as
of March 31, 1999 and the unaudited proforma statement of
operations for the year ended December 31, 1998 and the three
months ended March 31, 1999 reflecting the acquisition of Fast
Forward Marketing, Inc.
<PAGE> 1
EXHIBIT 99.1
FAST FORWARD
MARKETING, INC.
--------------------------------------------------------------------
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
F-1
<PAGE> 2
FAST FORWARD MARKETING, INC.
CONTENTS
================================================================================
INDEPENDENT AUDITORS' REPORT F-3
FINANCIAL STATEMENTS
Balance sheets F4-F-5
Statements of operations F-6
Statements of stockholder's deficit F-7
Statements of cash flows F-8
SUMMARY OF ACCOUNTING POLICIES F-9-F10
NOTES TO FINANCIAL STATEMENTS F11-15
F-2
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Fast Forward Marketing, Inc.
Marina Del Rey, California
We have audited the accompanying balance sheets of Fast Forward Marketing, Inc.
as of December 31, 1998 and 1997 and the related statements of operations,
stockholder's deficit, 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. 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 Fast Forward Marketing, Inc. at
December 31, 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.
BDO Seidman, LLP
Los Angeles, California
March 19, 1999, except for Note 11,
as to which the date is May 14, 1999
F-3
<PAGE> 4
FAST FORWARD MARKETING, INC.
BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
December 31, 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Notes 4 and 11)
CURRENT ASSETS
Cash $ 20,837 $ 24,461
Restricted cash (Note 3) 150,000 150,000
Marketable securities (Notes 1 and 4) 100,624 99,690
Accounts receivable, net of allowance for doubtful
accounts of $84,000 and $63,000 2,425,673 1,728,192
Commissions receivable 82,007 75,790
Royalty advances (Note 8) 114,296 44,333
Prepaid expenses and other 19,108 101,480
- ---------------------------------------------------------------------------------------------
Total current assets 2,912,545 2,223,946
- ---------------------------------------------------------------------------------------------
PRODUCTION COSTS, net of accumulated amortization of
$10,946 and $8,640 81,609 36,359
PROPERTY AND EQUIPMENT, net (Note 2) 212,413 328,383
OTHER ASSETS 12,796 12,796
- ---------------------------------------------------------------------------------------------
Total assets $ 3,219,363 $ 2,601,484
=============================================================================================
</TABLE>
F-4
<PAGE> 5
FAST FORWARD MARKETING, INC.
BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
December 31, 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES
Checks issued against future deposits $ 415,641 $ 445,850
Accounts payable 3,325,272 2,108,666
Accrued expenses 116,886 134,765
Accrued profit sharing contribution (Note 5) 21,200 13,500
- ---------------------------------------------------------------------------------------------
Total current liabilities 3,878,999 2,702,781
- ---------------------------------------------------------------------------------------------
COMMITMENTS (Notes 4, 5, 8 and 9)
STOCKHOLDER'S DEFICIT:
Common stock, no par value; 75,000 shares authorized,
1,000 shares issued and outstanding 15,000 15,000
Accumulated deficit (674,636) (116,297)
- ---------------------------------------------------------------------------------------------
Total stockholder's deficit (659,636) (101,297)
- ---------------------------------------------------------------------------------------------
Total liabilities and stockholder's deficit $ 3,219,363 $ 2,601,484
=============================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-5
<PAGE> 6
FAST FORWARD MARKETING, INC.
STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES (Note 6) $ 16,817,184 $ 21,538,276
COST OF SALES 14,387,481 18,287,624
- ---------------------------------------------------------------------------------------------
GROSS PROFIT 2,429,703 3,250,652
OPERATING EXPENSES 2,966,383 3,775,409
- ---------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (536,680) (524,757)
INTEREST EXPENSE (26,639) (4,543)
INTEREST INCOME 23,148 28,010
- ---------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (540,171) (501,290)
INCOME TAXES (Note 7) 4,804 2,616
- ---------------------------------------------------------------------------------------------
NET LOSS $ (544,975) $ (503,906)
=============================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-6
<PAGE> 7
FAST FORWARD MARKETING, INC.
STATEMENTS OF STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
Retained Total
Common Stock Earnings Stockholder's
------------------- (Accumulated Equity
Shares Amount Deficit) (Deficit)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, at January 1, 1997 1,000 $ 15,000 $ 397,094 $ 412,094
Distributions to stockholder - - (9,485) (9,485)
Net loss - - (503,906) (503,906)
- ----------------------------------------------------------------------------------------------
BALANCE, at December 31, 1997 1,000 15,000 (116,297) (101,297)
Distributions to stockholder - - (13,364) (13,364)
Net loss - - (544,975) (544,975)
- ----------------------------------------------------------------------------------------------
BALANCE, at December 31, 1998 1,000 $ 15,000 $ (674,636) $ (659,636)
==============================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-7
<PAGE> 8
FAST FORWARD MARKETING, INC.
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
Years ended December 31, 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (544,975) $ (503,906)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 162,762 135,334
Reserve for doubtful accounts and returns (15,976) (23,204)
Change in operating assets and liabilities:
Accounts receivable 182,680 1,967,009
Commissions receivable (6,217) (62,290)
Royalty advances (69,963) (44,333)
Production costs (45,250) (36,359)
Prepaid expenses and other 82,372 (82,243)
Other assets - 13,255
Accounts payable 352,411 (988,657)
Accrued expenses (17,869) (200,508)
Accrued profit sharing contribution 7,700 (46,500)
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 87,675 127,598
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of marketable securities 99,690 99,665
Purchases of marketable securities (100,624) (99,690)
Purchases of property and equipment (46,792) (252,746)
Payments received on notes receivable - 675
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (47,726) (252,096)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Checks issued against future deposits (30,209) (373,029)
Distributions to stockholder (13,364) (9,485)
- -------------------------------------------------------------------------------------------------------
Net cash used in financing activities (43,573) (382,514)
- -------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH (3,624) (507,012)
CASH, beginning of year 24,461 531,473
- -------------------------------------------------------------------------------------------------------
CASH, end of year $ 20,837 $ 24,461
=======================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 4,804 $ 2,616
Interest $ 26,639 $ 4,543
=======================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-8
<PAGE> 9
FAST FORWARD MARKETING, INC.
SUMMARY OF ACCOUNTING POLICIES
================================================================================
BUSINESS Fast Forward Marketing, Inc. (the "Company")
provides sales and marketing services in the video,
audio and book publishing industries throughout the
United States. The Company purchases its product
from major motion picture studios and/or
independent video producers and sells directly to
video retailers including children's educational
stores, gift shops, museum stores, educational
distributors, and direct mail catalogs. The Company
was incorporated on October 7, 1988 as a California
Subchapter "S" Corporation.
REVENUE RECOGNITION The Company recognizes revenue upon shipment of
product. The Company records a provision for
estimated future returns.
CASH AND CASH For the purposes of the statements of cash flows,
EQUIVALENTS the Company considers all highly liquid investments
with a maturity at the date of purchase of three
months or less to be cash equivalents.
PRODUCTION COSTS Production costs include amounts incurred for
duplication, editing, and packaging. The costs are
stated at the lower of cost or net realizable value
and are amortized over the greater of the number of
units sold divided by total units estimated to be
sold or straight line over the life of the product.
PROPERTY AND Property and equipment are stated at cost.
EQUIPMENT Depreciation is calculated using the straight-line
and accelerated methods over the estimated useful
lives of the assets. The Company periodically
reviews such assets for possible impairments and
expected losses, if any, are recorded currently.
ACCOUNTS RECEIVABLE The Company has an agreement with its customers and
AND PAYABLE suppliers that allows for returns of merchandise.
Accordingly, a reserve for accounts receivable and
payable has been provided. The reserve accounts
require the use of significant estimates. The
Company believes the techniques and assumptions
used in establishing the reserve accounts are
appropriate. At December 31, 1998 and 1997, the
Company recorded a reserve for accounts receivable
of $764,000 and $1,665,375, and a reserve for
accounts payable of $653,000 and $1,517,590,
respectively.
F-9
<PAGE> 10
FAST FORWARD MARKETING, INC.
SUMMARY OF ACCOUNTING POLICIES
================================================================================
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.
INVESTMENTS The Company accounts for the investments in
marketable securities in accordance with Statement
of Financial Accounting Standards (SFAS 115),
"Accounting for Certain Investments in Debt and
Equity Securities." The Company's investments are
classified as held to maturity and are stated at
amortized cost, which approximates market.
FAIR VALUE OF Investments, receivables, accounts payable and
FINANCIAL accrued expenses are recorded at carrying amounts
INSTRUMENTS which approximate fair value due to the short
maturity of these instruments.
COMPREHENSIVE During the year ended December 31, 1998, the
INCOME Company adopted Statement of Financial Accounting
Standard No. 130, "Reporting Comprehensive Income,"
("SFAS 130"). SFAS 130 establishes standards for
reporting and display of comprehensive income and
its components in a full set of general-purpose
financial statements. Comprehensive income is
comprised of net income and all changes to
stockholders' equity except those due to
investments by owners and distribution to owners.
Adoption of SFAS 130 did not have an impact on the
Company's financial position, results of operations
and cash flows.
F-10
<PAGE> 11
FAST FORWARD MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. MARKETABLE Marketable securities are carried at amortized cost
SECURITIES and classified as held to maturity. The investment
consists of a U.S. Treasury Bill with a maturity
value of $105,000 maturing on November 12, 1999.
The amortized cost at December 31, 1998 and 1997
was $100,624 and $99,690, which approximates fair
value. The treasury bill is also being held as
collateral for the line of credit (Note 4).
2. PROPERTY AND At December 31, 1998 and 1997, property and
EQUIPMENT equipment consist of the following:
<TABLE>
<CAPTION>
December 31, 1998 1997
----------------------------------------------------------------------
<S> <C> <C>
Furniture and fixtures $ 85,395 $ 84,937
Computer equipment 277,192 269,416
Computer software 389,292 351,316
Video equipment 5,762 5,762
Leasehold improvements 2,986 2,986
----------------------------------------------------------------------
760,627 714,417
Less accumulated depreciation (548,214) (386,034)
----------------------------------------------------------------------
$ 212,413 $ 328,383
======================================================================
</TABLE>
Depreciation expense for property and equipment
charged to operations for the years ended December
31, 1998, and 1997 was $162,762 and $135,334,
respectively.
3. RESTRICTED CASH On December 31, 1998 and 1997, $150,000 of cash was
pledged as collateral related to the line of credit
(Note 4) and was classified as restricted cash in
the accompanying balance sheets.
4. LINE OF CREDIT The Company has a revolving line of credit with a
bank. The maximum borrowing limit is $800,000,
which is due on March 31, 1999, of which $600,000
was extended to June 1, 1999. Borrowings on the
line beared interest at the bank's prime rate
(prime rate at December 31, 1998 is 7 3/4%) plus
1%. The line of credit was secured by the Company's
assets, including a $105,000 treasury bill, and a
$150,000 certificate of deposit. The Company did
not have any borrowings outstanding on the line of
credit as of December 31, 1998 and 1997 (Note 11).
F-11
<PAGE> 12
FAST FORWARD MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
5. ACCRUED PROFIT The Company has a 401(k) profit sharing plan
SHARING covering all employees who are age 21 years or
CONTRIBUTION older and have completed one year of service.
Employees can make voluntary contributions to the
plan and are fully vested in these contributions.
The Company can make contributions to the plan at
its discretion, with employees vesting over a
period of six years. The Company's contribution to
the plan was $21,200 and $13,500 for the years
ended December 31, 1998 and 1997.
6. BUSINESS AND The Company had two customers who accounted for
CREDIT approximately 12% and 11% of net sales in 1998 and
CONCENTRATIONS one customer who accounted for approximately 23% of
net sales in 1997.
The Company had three customers who accounted for
approximately 22%, 15%, and 12% of accounts
receivable in 1998 and two customers who accounted
for approximately 30% and 17% of accounts
receivable in 1997.
The Company had two vendors who accounted for
approximately 34% of net purchases for the year
ended December 31, 1998 and four vendors who
accounted for approximately 57% of net purchases
for the year ended December 31, 1997.
7. INCOME TAXES The Company has elected to be taxed under the
provisions of Subchapter "S" of the Internal
Revenue Code. Under these provisions, the Company
does not pay federal corporate income taxes, but is
subject to a 1.5% California corporate income tax.
The stockholder of the Company reports the
Company's taxable income on his individual tax
return. The Company recognizes income and expense
items under the cash method for income tax
purposes. Income tax expense as of December 31,
1998 and 1997 is comprised of California state
franchise taxes of $4,804 and $2,616, respectively.
F-12
<PAGE> 13
FAST FORWARD MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
8. COMMITMENTS LEASES
The Company leases its office under a
non-cancelable operating lease expiring February
2002 with an option to extend for a period of five
years. In addition, the Company will sublet a
portion of its premises to an unaffiliated Company
commencing on March 1, 1999 through February 28,
2000.
As of December 31, 1998, minimum lease requirements
under the operating lease and sub-lease are as
follows:
<TABLE>
<CAPTION>
Years ending Operating Net
December 31, Lease Sub-lease Amount
------------------------------------------------------------------
<S> <C> <C> <C>
1999 $ 131,988 $ (12,750) $ 119,238
2000 140,796 (2,550) 138,246
2001 149,592 - 149,592
2002 24,932 - 24,932
------------------------------------------------------------------
$ 447,308 $ (15,300) $ 432,008
==================================================================
</TABLE>
Rent expense totaled $130,266 and $122,223 for the
years ended December 31, 1998 and 1997,
respectively.
ROYALTIES
The Company entered into certain royalty agreements
for the years ended December 31, 1998 and 1997. The
Company has agreed to pay royalties for the
exclusive duplication and distribution of various
video products, based on the number of units sold.
For the years ended December 31, 1998 and 1997, the
Company recognized royalty expense of approximately
$109,438 and $48,300, respectively, which is
included in cost of sales.
F-13
<PAGE> 14
FAST FORWARD MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
9. STOCK RIGHTS The Company has issued stock equivalent rights to
two employers and two officers under an incentive
compensation plan. At December 31, 1998, 139 stock
equivalent rights have been issued based on the
fair market value of the stock determined by a
qualified independent business appraiser. These
stock equivalent rights will mature upon the
occurrence of death, termination or dissolution,
liquidation, merger or sale of stock.
10. YEAR 2000 Like other companies, the Company could be
ISSUES adversely affected if the computer systems it and
(UNAUDITED) its suppliers or customers use do not properly
process and calculate date-related information and
data from the period surrounding and including
January 1, 2000. This is commonly known as the
"Year 2000" issue. Additionally, this issue could
also impact non-accounting systems.
The Company has implemented a plan to modify its
business technologies to be compliant for the year
2000 and is in the process of converting critical
data processing systems and process control systems
associated with its accounting equipment. These
projects are expected to be substantially complete
by mid-1999 and the cost is estimated to be
minimal. The Company does not expect this effort to
have a significant effect on operations.
11. SUBSEQUENT On May 12, 1999, the revolving line of credit was
EVENTS replaced with a new line of credit with the same
bank. The new line of credit for $2,000,000 was
entered into by Intervisual Books, Inc. ("IBI") and
expires on May 1, 2000. Advances are made up to 75%
of eligible accounts receivable. Borrowings on the
line bear interest at prime plus 2 1/2%. The
agreement also requires IBI to meet certain
financial covenants on a quarterly basis.
F-14
<PAGE> 15
FAST FORWARD MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
11. SUBSEQUENT Also on May 13, 1999, a second loan agreement was
EVENTS signed by IBI and a private party which provides
(CONTINUED) for a revolving line of credit of up to $2,300,000,
which is subordinated by the $2,000,000 line as
discussed above. This line expires on May 1, 2000
and bears an interest rate of 5% above the LIBOR
rate. At IBI's option, this line can be extended
for an additional year under the same terms and
conditions. If IBI decides to extend this line, the
agreement provides for the issuance of warrants to
purchase up to 150,000 shares of IBI's common
stock. The warrants shall be exercisable for up to
two years after issuance at a price equal to the
fair market value of IBI's common stock at the date
of grant. The combined credit lines with
Intervisual Books, Inc. totals $4,300,000,
$2,000,000 line with a bank and $2,300,000 with a
private party. A portion of the $4,300,000 obtained
by Intervisual Books, Inc. is expected to be used
to fund the Company's operations for the next
twelve months.
In both credit agreements, IBI granted to the
lenders a security interest in all of its assets.
On May 14, 1999, the Company signed a Plan of
Merger with IBI. In accordance with the Plan of
Merger, the Company exchanged all issued and
outstanding securities of the Company in exchange
for 670,000 shares of IBI's common stock and
certain additional cash rights. The additional cash
rights consisted of (i) a contingent payment of up
to $200,000 payable on or before May 1, 2000,
depending upon the gross margins of the Company
during 1999 and (ii) an additional payment of up to
$150,000 plus interest thereon payable on or before
May 1, 2001, in accordance with the settlement of
certain compensation plan arrangements of the
Company.
F-15
<PAGE> 1
EXHIBIT 99.2
FAST FORWARD MARKETING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS 3/31/99 12/31/98
- ------ ----------- -----------
<S> <C> <C>
(unaudited)
Current Assets:
Cash and cash equivalents $ 170,864 $ 170,837
Marketable securities 100,624 100,624
Accounts receivable, less allowances
of $74,000 and $84,000 1,526,626 2,425,673
Prepaid expenses 11,031 19,108
Royalty advances 144,771 114,296
Commission advances 92,007 82,007
----------- -----------
Total current assets 2,045,923 2,912,545
Production costs, net of accumulated
amortization of $15,481 and $10,946 54,200 81,609
Property and equipment, net of accumulated
depreciation of $579,000 and $549,000 197,304 212,413
Other assets 12,796 12,796
----------- -----------
$ 2,310,223 $ 3,219,363
=========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
- -------------------------------------
Current Liabilities:
Accounts payable $ 2,510,547 $ 3,325,272
Bank line of credit 350,000 0
Checks issued against future deposits 229,999 415,641
Accrued royalties 35,923 59,454
Accrued expenses 84,372 78,632
----------- -----------
Total current liabilities 3,210,841 3,878,999
Stockholder's Deficit:
Common stock, no par value; 75,000 shares
authorized, 1,000 shares issued and
outstanding 15,000 15,000
Accumulated deficit (915,618) (674,636)
----------- -----------
TOTAL STOCKHOLDER'S DEFICIT (900,618) (659,636)
----------- -----------
$ 2,310,223 $ 3,219,363
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 2
FAST FORWARD MARKETING, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
----------- -----------
<S> <C> <C>
Net sales $ 2,295,960 $ 3,978,309
Cost of sales 1,925,425 3,381,848
----------- -----------
Gross profit 370,535 596,461
Selling, general and administrative expenses 597,864 753,988
Interest expense (6,782) (6,389)
Other income 38 1,170
----------- -----------
Loss before income taxes (234,073) (162,746)
Income taxes 0 0
----------- -----------
Net loss $ (234,073) $ (162,746)
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 3
FAST FORWARD MARKETING, INC.
STATEMENTS OF STOCKHOLDER'S DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Total
------------------------------ Accumulated Stockholder's
Shares Amount Deficit Deficit
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, at December 31, 1998 1,000 $ 15,000 $ (674,636) $ (659,636)
Distributions to stockholder - - (6,909) (6,909)
Net loss - - (234,073) (234,073)
----------- ----------- ----------- -----------
Balance, at March 31,1999 1,000 $ 15,000 $ (915,618) $ (900,618)
=========== =========== =========== ===========
</TABLE>
<PAGE> 4
FAST FORWARD MARKETING, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (234,073) $ (162,746)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 57,809 36,553
Reserve for doubtful accounts (88,994) (93,153)
Increase (decrease) from changes in:
Accounts receivable 1,456,874 969,007
Prepaid expenses 8,077 12,853
Royalty advances (30,475) (44,334)
Commission advances (10,000) 26,398
Accounts payable (1,283,558) (756,901)
Accrued royalties (23,531) (77,483)
Accrued expenses 5,740 23,982
----------- -----------
Net cash used in operating activities (142,131) (65,824)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (15,291) (10,371)
Additions to production costs - (25,704)
----------- -----------
Net cash used in investing activities (15,291) (36,075)
----------- -----------
Cash flows from financing activities:
Checks issued against future deposits (185,642) (145,415)
Proceeds from bank line of credit 350,000 250,000
Distribution to shareholder (6,909) (2,515)
----------- -----------
Net cash provided by financing activities 157,449 102,070
----------- -----------
Net increase in cash and cash equivalents 27 171
Cash and cash equivalents, beginning of period 170,837 174,461
----------- -----------
Cash and cash equivalents, end of period $ 170,864 $ 174,632
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ - $ -
Interest expense 6,782 6,389
</TABLE>
See notes to financial statements.
<PAGE> 5
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
(unaudited)
Note 1 - Statement of Information Furnished
In the opinion of management the accompanying unaudited financial statements of
Fast Forward Marketing, Inc. ("Fast Forward") contain all adjustments
(consisting only of normal and recurring accruals) necessary to present fairly
the financial position as of March 31, 1999, and the results of operations and
cash flows for the three month periods ended March 31, 1999 and 1998. These
results have been determined on the basis of generally accepted accounting
principles and practices applied consistently with those used in the preparation
of the Company's audited financial statements for the years ended December 31,
1998 and 1997.
The results of operations for the three month period ended March 31, 1999, are
not necessarily indicative of the results to be expected for any other period or
for the entire year.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted. The accompanying financial statements should be
read in conjunction with the Company's audited financial statements and notes
thereto included in the Company's audited financial statements for the years
ended December 31, 1998 and 1997.
Note 2 - Accounts Receivable and Payable
Fast Forward has an agreement with its customers and suppliers that allows for
returns of merchandise. Accordingly, a reserve for accounts receivable and
payable has been provided. The reserve accounts require the use of significant
estimates. Fast Forward believes the techniques and assumptions used in
establishing the reserve accounts are appropriate. At March 31, 1999 and
December 31, 1998 Fast Forward recorded a reserve for accounts receivable of
$216,700 and $764,000 and a reserve for accounts payable of $184,600 and
$653,000.
Note 3 - Fast Forward Marketing Acquired by Intervisual Books, Inc.
On May 14, 1999, Fast Forward was acquired by Intervisual Books, Inc. ("IBI").
The transaction was completed under the terms and conditions of a definitive
agreement signed March 29, 1999. Under this agreement, all the outstanding
shares of Fast Forward was acquired for 670,000 shares of its common stock, a
contingent cash payment of up to $200,000 due May 1, 2000, and a cash payment of
$150,000 due May 1, 2001 subject to reduction for the payment of certain tax
withholdings. The contingent cash payment of up to $200,000 or a lesser prorated
amount is due if Fast Forward achieves between 70% and 90% of its 1999 projected
gross margin, provided a minimum gross margin requirement is met. Of the 670,000
shares to be issued 594,940 are restricted for three years so that no more than
10% can be sold in any one year. The remaining 75,060 shares will be issued to
certain employees under a pre-existing Fast Forward Phantom Stock Plan. The
transferability of these shares is restricted for the period the employee
remains with IBI or three years whichever is less. In connection with the
acquisition between Fast Forward and IBI, The Hunt Family Trust agreed to vote
its shares in favor of the election to IBI's Board of Directors of Steven Ades
and a second nominee, mutually acceptable to IBI and Mr. Ades, as long as Mr.
Ades is employed by IBI. This transaction will be accounted for as a purchase.
Note 4 - Lines of Credit
<PAGE> 6
IBI signed an agreement on May 12, 1999 with its bank that provides for
borrowings up to a maximum of $2,000,000 depending on availability. This
agreement which expires on May 1, 2000 has an interest rate of 2.5% over prime.
Also on May 12, 1999 IBI signed a loan agreement with a private party that
provided a revolving line of credit of up to $2,300,000. This agreement is for
one year and has an interest rate of 5% above the 3-month LIBOR rate. At IBI's
option, this agreement can be extended for an additional year under the same
terms and conditions. If IBI decides to extend this line of credit, the
agreement requires that warrants for up to 150,000 shares of IBI's common stock
to be issued. These warrants are exercisable for up to two years after the issue
date at a price equal to the average trading price of IBI's stock for the 20 day
period prior to IBI's notice to extend the loan agreement. In both credit
agreements, IBI makes affirmative and negative covenants and the agreement with
IBI's bank contains certain financial covenants. In connection with both
agreements, IBI granted to the lenders a security interest in all of its assets.
The outstanding balance on Fast Forward's line with its bank was paid in full on
May 18, 1999. The combined credit lines with IBI totals $4,300,000. A portion of
the $4,300,000 obtained by IBI is expected to be used to fund Fast Forward's
operations.
<PAGE> 1
EXHIBIT 99.3
PROFORMA FINANCIAL INFORMATION
On May 14, 1999, IBI signed a Plan of Merger with Fast Forward Marketing, Inc.
("Acquisition Transaction"). In accordance with the Plan of Merger, IBI issued
670,000 shares of common stock and certain additional cash rights in exchange
for all issued and outstanding securities of Fast Forward. The additional cash
rights consisted of (1) a contingent payment of up to $200,000 payable on or
before May 1, 2000, depending upon the gross margins of Fast Forward during 1999
and (2) an additional payment of up to $150,000 plus interest thereon payable on
or before May 1, 2001, in accordance with the settlement of certain compensation
plan arrangements.
The accompanying proforma combined financial statements illustrate the effect of
the Acquisition Transaction on IBI's financial position and results of
operations. The proforma combined balance sheet as of March 31, 1999 is based on
the historical balance sheet of IBI giving effect to the acquisition, assuming
it took place on that date. The proforma combined statement of operations for
the three months ended March 31, 1999 and the year ended December 31, 1998,
giving effect to the acquisition by IBI as if it occurred on the first day of
each such period presented.
The proforma combined financial statements may not be indicative of the actual
results of the acquisition and there can be no assurance that the foregoing
results will be obtained, nor are they indicative of future operations.
The accompanying proforma combined financial statements should be read in
connection with the historical financial statements of IBI and notes thereto
included in IBI's Annual Report on Form 10K for the year ended December 31, 1998
and the Quarterly Report on Form 10Q for the three months ended March 31, 1999,
which are hereby incorporated by this reference and the historical financial
statements of Fast Forward and notes thereto included elsewhere in this report.
<PAGE> 2
INTERVISUAL BOOKS, INC.
UNAUDITED PROFORMA COMBINED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
IBI FFM PROFORMA COMBINED
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash & equivalents $ 772,495 $ 170,864 $ 943,359
Marketable securities 0 100,624 100,624
Accounts receivable 1,301,990 1,600,522 2,902,512
Allowance for bad debt (177,631) (73,896) (251,527)
Inventories, net 1,931,548 0 1,931,548
Prepaid expense 231,058 11,031 242,089
Royalty advances 332,656 144,771 477,427
Commission advances 15,000 92,007 107,007
Income taxes receivable 117,281 0 117,281
Other current assets 175,176 0 175,176
-------------------------------------------------------------------------
TOTAL CURRENT ASSETS 4,699,573 2,045,923 6,745,496
Production costs 3,535,014 54,200 3,589,214
Goodwill 0 0 1,666,348(1) 1,666,348
Other assets 0 12,796 12,796
-------------------------------------------------------------------------
NET OTHER ASSETS 3,535,014 66,996 1,666,348 5,268,358
Property & equipment 1,141,401 776,500 1,917,901
Accumulated depreciation (970,768) (579,196) (1,549,964)
-------------------------------------------------------------------------
NET PROPERTY & EQUIPMENT 170,633 197,304 367,937
DEFERRED INCOME TAX 511,948 0 511,948
-------------------------------------------------------------------------
TOTAL ASSETS $ 8,917,168 $ 2,310,223 $ 1,666,348 $ 12,893,739
=========================================================================
Liabilities
Accounts payable 1,963,290 2,510,547 150,000(1) 4,623,837
Checks issued against
future deposits 0 229,999 229,999
Accrued royalties 98,143 35,923 134,066
Accrued expenses 203,673 84,372 288,045
Bank loan 1,900,000 350,000 2,250,000
Customer deposit 70,580 0 70,580
-------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,235,686 3,210,841 150,000 7,596,527
Other liability-long term 72,010 0 72,010
-------------------------------------------------------------------------
Total Liabilities 4,307,696 3,210,841 150,000 7,668,537
STOCKHOLDERS' EQUITY
Common stock 4,800,582 15,000 600,730(1,2) 5,416,312
Additional paid in capital 329,912 0 329,912
Retained deficit (521,022) (915,618) 915,618(1,2) (521,022)
-------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 4,609,472 (900,618) 1,516,348 5,225,202
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 8,917,168 $ 2,310,223 $ 1,666,348 $ 12,893,739
=========================================================================
</TABLE>
(1) Adjustment to record purchase of Fast Forward Marketing which includes
670,000 shares of IBI stock and a cash payment of $150,000 due in May
2001.
(2) Adjustment to eliminate stockholder's deficit of Fast Forward Marketing.
<PAGE> 3
INTERVISUAL BOOKS, INC.
UNAUDITED PROFORMA COMBINED STATEMENTS OF OPERATIONS
MARCH 31, 1999
<TABLE>
<CAPTION>
Proforma
IBI FFM Entries Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 1,519,054 $ 2,295,960 $ $ 3,815,014
Rights income 2,359 0 2,359
----------- ----------- ----------- -----------
Total revenue 1,521,413 2,295,960 3,817,373
Cost of sales 1,069,690 1,925,425 2,995,115
----------- ----------- ----------- -----------
Gross profit 451,723 370,535 822,258
Selling, general and
administrative expenses 875,103 597,864 27,628(1) 1,500,595
----------- ----------- ----------- -----------
Loss from operations (423,380) (227,329) (678,337)
Interest expense (39,028) (6,782) (45,810)
Other income 9,031 38 9,069
----------- ----------- ----------- -----------
Loss before income taxes (453,377) (234,073) (715,078)
Income tax benefit (70,000) 0 (70,000)
----------- ----------- ----------- -----------
Net loss (383,377) (234,073) (27,628) (645,078)
=========== =========== =========== ===========
Loss per share
Basic $ (0.07) $ (0.11)
=========== ===========
Diluted $ (0.07) $ (0.11)
=========== ===========
Weighted average number of shares
and equivalents outstanding
Basic 5,191,491 5,861,491
=========== ===========
Diluted 5,191,491 5,861,491
=========== ===========
</TABLE>
Proforma Entry:
(1) Adjustment to reflect amortization of goodwill assuming a 20 year life
and acquisition costs assuming a 10 year life related to the
transaction.
<PAGE> 4
INTERVISUAL BOOKS, INC.
UNAUDITED PROFORMA COMBINED STATEMENTS OF OPERATIONS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Proforma
IBI FFM Entries Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 11,191,681 $ 16,817,184 $ $ 28,008,865
Rights income 205,844 0 205,844
------------ ------------ ------------ ------------
Total revenue 11,397,525 16,817,184 28,214,709
Cost of sales 9,592,013 14,387,481 23,979,494
------------ ------------ ------------ ------------
Gross profit 1,805,512 2,429,703 4,235,215
Selling, general and
administrative expenses 4,797,460 2,966,383 94,077(1) 7,857,920
------------ ------------ ------------ ------------
Loss from operations (2,991,948) (536,680) (3,622,705)
Interest expense (63,820) (26,639) (90,459)
Other income 70,956 23,148 94,104
------------ ------------ ------------ ------------
Loss before income taxes (2,984,812) (540,171) (3,619,060)
Income tax expense (benefit) (700,000) 4,804 (695,196)
------------ ------------ ------------ ------------
Net loss $ (2,284,812) $ (544,975) (94,077) $ (2,923,864)
============ ============ ============ ============
Loss per share
Basic $ (0.45) $ (0.51)
============ ============
Diluted $ (0.45) $ (0.51)
============ ============
Weighted average number of shares
and equivalents outstanding
Basic 5,110,317 5,780,317
============ ============
Diluted 5,110,317 5,780,317
============ ============
</TABLE>
Proforma entry:
(1) Adjustment to reflect amortization of goodwill assuming a 20 year life
and acquisition costs assuming a 10 year life related to the
transaction.
