<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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)
DECEMBER 10, 1996 (SEPTEMBER 27, 1996)
PREMIERE RADIO NETWORKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-20065 95-4083971
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) Number)
15260 Ventura Boulevard, Suite 500, Los Angeles, California 91403-5339
-----------------------------------------------------------------------
(Address of principal executive offices, including ZIP code)
Registrant's telephone number, including area code: (818)377-5300
-------------
<PAGE>
ITEM 2. ACQUISITION(S) OR DISPOSITION(S) OF ASSETS
ACQUISITION OF THE ASSETS OF PHILADELPHIA MUSIC WORKS
On September 27, 1996 the Company acquired substantially all of the assets
of Philadelphia Music Works, Inc. (herein, "PMW") from Andrew Mark, President of
the Company's BRG/Music Works Division, for total consideration of $635,000,
consisting of $435,000 in cash and $200,000 in a 6.5% interest, two-year
promissory note. Further, additional consideration of up to $700,000 may be
payable depending upon the audience levels delivered by PMW in the future. The
purchase price was determined by arms length negotiations.
Based in Philadelphia, Pennsylvania, PMW is in the business of producing
and distributing custom jingles to third party radio station affiliates in
exchange for commercial broadcast time, and directly to advertisers for cash.
The assets of PMW acquired by the Company consist principally of intellectual
properties and other intangibles, including a library of over 6,000 jingles,
third-party radio station affiliate broadcast contracts, and copyrights. The
Company did not assume any pre-acquisition accounts payable or other obligations
of PMW, except for certain commitments under real property and equipment leases.
The acquisition of PMW will be accounted for by the Company as a purchase,
and was financed entirely through existing working capital of the Company.
On September 27, 1996 the Company amended and restated an August 29, 1995
agreement pursuant to which it had entered into future commitments to acquire
licenses to three (3) production music libraries from Canary Productions, Inc.
("Canary"), which is wholly-owned by Mr. Mark. Under the amended and restated
agreement, the Company has entered into future commitments to acquire one (1)
additional production music library, four (4) production music libraries in
total, from Canary. The licenses to the production music libraries will be
acquired by the Company, one each year during the next four years, for a
purchase price that will be based upon a formula of a multiple of earnings of
each such library.
ACQUISITION OF THE ASSETS OF CUTLER PRODUCTIONS, INC. AND SJM PRODUCTIONS, INC.
On October 1, 1996, the Company consummated an agreement which became
effective as of September 30, 1996, pursuant to which it acquired substantially
all of the assets of Cutler Productions, Inc. and SJM Productions, Inc.
(collectively, "Cutler") for consideration consisting of $8,500,000 cash. The
purchase price was determined by arms length negotiations.
Based in Tarzana, California, Cutler is an independent creator, producer
and distributor of comedy, entertainment and music related radio programs and
services. Cutler distributes its programs and services to third party radio
station affiliates in exchange for commercial broadcast time. The assets of
Cutler acquired by the Company consist principally of intellectual properties
and other intangibles, including third-party radio station affiliate broadcast
contracts, a library of programs and program rights,
2
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and copyrights. The Company did not assume any pre-acquisition accounts payable
or other obligations of Cutler, except for certain commitments under real
property and equipment leases. The acquisition of Cutler will be accounted for
by the Company as a purchase, and was financed entirely through existing working
capital of the Company. Also, Ronald Cutler, a 100% shareholder of Cutler prior
to the above transaction, will be employed by the Company as President of the
Company's Cutler Productions Division under a three (3) year employment
contract.
ITEM 5. OTHER EVENTS
ACQUISITION OF MINORITY INTEREST IN NEWSTRACK JOINT VENTURE
On March 20, 1995, Premiere Radio Networks, Inc. (the "Company") entered
into a joint venture agreement with Marketing Research Partners, Inc. ("MRPI")
to nationally syndicate Newstrack, a research service jointly developed by the
Company and MRPI (the "Newstrack Joint Venture"). The Newstrack Joint Venture
commenced operations on or about September 1, 1995 with the Company holding a
75% interest and MRPI holding a 25% interest.
Effective September 3, 1996, the Company acquired the remaining 25%
minority interest from MRPI for $303,188. The purchase price was determined by
arms length negotiations. The acquisition of the 25% minority interest in the
Newstrack Joint Venture will be accounted for by the Company as a purchase, and
was financed entirely through existing working capital of the Company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS(ES) ACQUIRED
Audited and/or unaudited financial information, as required for this Item,
is included on pages F-1 through F-11 of this filing and is incorporated herein
by reference. With respect to the acquisition of the assets of Cutler, the
Company has provided audited financial statements with respect to Cutler's most
recently completed fiscal year ending December 31, 1995 and unaudited financial
statements for its fiscal year ending December 31, 1994. With respect to the
acquisitions of the minority interest in the Newstrack Joint Venture and the
assets of PMW, the Company has not provided audited financial statements as
these transactions are individually and in the aggregate insignificant.
(b) PRO FORMA FINANCIAL INFORMATION
Set forth below is the Company's unaudited pro forma condensed balance
sheet at September 30, 1996, and its pro forma condensed income statement for
the year ended December 31, 1995 and unaudited pro forma condensed income
statement for the nine-month interim period ended September 30, 1996. The
historical condensed statement of operations of the Company for the year ended
December 31, 1995 has been derived from the Company's audited financial
statements from that date. The historical condensed statement of operations of
Cutler for the year ended December 31, 1995 has been derived from Cutler's
audited financial statements from that date. The pro forma condensed balance
sheet at September 30, 1996 gives effect to the acquisition of Cutler on October
1, 1996 as if
3
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this transaction had occurred at the end of the respective period, and the
statements of operations for the year ended December 31, 1995 and for the nine-
month interim period ended September 30, 1996 give effect to the acquisitions of
PMW and Cutler as if these transactions had occurred at the beginning of each of
the respective periods contained in the pro forma financial statements by
utilizing the assumptions and adjustments described in the accompanying notes
thereto. The Company's historical balance sheet at September 30, 1996 includes
the acquisition of PMW as that transaction occurred on September 27, 1996.
The pro forma condensed financial statements may not be indicative of the
Company's actual financial position and results of operations had the
acquisitions of PMW and Cutler occurred at the beginning of each of the periods
presented above, nor are the pro forma statements of operations indicative of
the results of operations that may be obtained in future periods. In the
opinion of the Company's management, all adjustments necessary for a fair
presentation of the pro forma condensed financial information have been made.
On March 13, 1996 the Company declared a one-for-two stock dividend,
effected in the form of a three-for-two stock split, of Class A Common Stock
which was paid on April 1, 1996 to all holders of record of the Company's Common
Stock and Class A Common Stock on the March 22, 1996 record date for such
dividend (the "Class A Dividend"). Historical and pro forma per share earnings
in each of the foregoing periods has been adjusted to reflect the Class A
Dividend.
It is suggested that the accompanying pro forma condensed financial
statements be read in conjunction with audited financial statements and
accompanying notes contained in the Company's annual report on Form 10-KSB for
the year ended December 31, 1995, and unaudited condensed financial statements
and accompanying notes contained in the Company's report on Form 10-QSB for the
nine-month period ended September 30, 1996, and in conjunction with the audited
financial statements and notes thereto of Cutler for the year ended December 31,
1995 appearing elsewhere in this filing.
The unaudited pro forma condensed balance sheet at September 30, 1996, and
the statements of operations for the year ended December 31, 1995 and the nine-
month period ended September 30, 1996 follows.
4
<PAGE>
PREMIERE RADIO NETWORKS, INC.
Unaudited Pro Forma Condensed Statement of Operations
For the Year Ended December 31, 1995
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma Adjustment(s)
-----------------------------------
Combined Cutler Acquisition of Acquisition of
Premiere Productions and Philadelphia Cutler Produc- Philadelphia
Radio SJM Productions Music Works tions and Music Adjusted
Historical Historical Historical SJM Productions Works Pro forma
---------- ---------- ---------- --------------- ----- ---------
Increase (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Gross revenue $20,757 $4,811 $288 $25,856
Less: agency commissions (2,438) (729) (3,167)
-------- -------- ------ ------- --------- --------
Net operating revenue 18,319 4,082 288 -- -- 22,689
Operating expenses:
Production, programming and
promotion 5,661 863 306 6,830
Selling, general and
administrative 8,904 3,115 $869(e) $68(e) 12,155
(800)(f)
-------- -------- ------ ------- --------- --------
Total operating expenses 14,565 3,978 306 69 68 18,985
-------- -------- ------ ------- --------- --------
Operating income (loss) 3,754 104 (18) (69) (68) 3,704
Other income and expenses:
Interest income (expense),
net 17 12 (7)(e) 23
Gain on sale of radio station
assets 453 453
Other 53 53
-------- -------- ------ ------- --------- --------
523 12 -- 0 (7) 529
-------- -------- ------ ------- --------- --------
Income (loss) before income taxes 4,277 116 (18) (69) (74) 4,232
Provision (benefit) for income taxes 1,721 (38) -- 57(g) (37)(g) 1,703
-------- -------- ------ ------- --------- --------
Net income (loss) $2,556 $154 ($18) ($126) ($37) $2,529
-------- -------- ------ ------- --------- --------
-------- -------- ------ ------- --------- --------
Earnings per share $0.46 $0.45
Weighted average number of shares
outstanding 6,105,494 6,105,494
</TABLE>
See accompanying notes to unaudited pro forma condensed historical financial
information.
5
<PAGE>
PREMIERE RADIO NETWORKS, INC.
Unaudited Pro Forma Condensed Balance Sheet
At September 30, 1996
(Dollar Amounts In Thousands)
<TABLE>
<CAPTION>
Pro Forma Adjustment(s)
-----------------------------------
Combined Cutler Acquisition of Acquisition of
Premiere Productions and Philadelphia Cutler Produc- Philadelphia
Radio SJM Productions Music Works tions and Music Adjusted
Historical Historical Historical SJM Productions Works Pro forma
---------- ---------- ---------- --------------- ----- ---------
Increase (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $27,965 $243 -- ($8,500)(a) -- $19,465
(243)(b)
Accounts receivable, net 5,609 897 (697)(a) 5,809
Deferred income taxes 549 549
Prepaid expenses and other
assets 961 5 (5)(b) 961
-------- -------- ------ ------- --------- -------
Total current assets 35,084 1,145 -- (9,445) -- 26,784
Note receivable from
officer/employees 657 657
Property and equipment, net 2,091 128 -- (a) 2,219
Acquired program library and
program networks,
less accumulated amortization 1,451 1,451
Intellectual property, net 5,512 8,672(a) 14,184
Debt issuance costs, net 2,098 2,098
Other assets 682 0(b) 682
-------- -------- ------ ------- --------- -------
Total assets $47,575 $1,273 -- ($773) -- $48,075
-------- -------- ------ ------- --------- -------
-------- -------- ------ ------- --------- -------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and
accrued expenses $893 $87 ($87)(b) $1,393
$500(a)
Accrued payroll, bonuses,
deferred compensation
and profit sharing
contribution 574 574
Income taxes payable 543 71 (71)(b) 543
Current portion of notes
payable 496 496
-------- -------- ------ ------- --------- -------
2,506 158 -- 342 -- 3,006
Note payable, less current portion 100 100
Due to related party 120 120
Other liabilities -- 0
Stockholders' equity:
Preferred stock -- --
Common stock 36 15 (15)(b) 36
Class A common stock 40 40
Additional paid-in capital 34,228 34,228
Retained earnings 10,545 1,100 (1,100)(b) 10,545
-------- -------- ------ ------- --------- -------
Total stockholders' equity 44,849 1,115 -- (1,115) -- 44,849
-------- -------- ------ ------- --------- -------
Total liabilities and shareholders'
equity $47,575 $1,273 -- ($773) -- $48,075
-------- -------- ------ ------- --------- -------
-------- -------- ------ ------- --------- -------
</TABLE>
See accompanying notes to unaudited pro forma condensed historical financial
information.
6
<PAGE>
PREMIERE RADIO NETWORKS, INC.
Unaudited Pro Forma Condensed Statement of Operations
For The Nine Months Ended September 30, 1996
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma Adjustment(s)
-----------------------------------
Combined Cutler Acquisition of Acquisition of
Premiere Productions and Philadelphia Cutler Produc- Philadelphia
Radio SJM Productions Music Works tions and Music Adjusted
Historical Historical Historical SJM Productions Works Pro forma
---------- ---------- ---------- --------------- ----- ---------
Increase (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Gross revenue $19,143 $5,404 $235 $24,782
Less: agency commissions (2,357) (811) (3,168)
-------- -------- ------ ------- --------- --------
Net operating revenue 16,786 4,594 235 -- -- 21,615
Operating expenses:
Production, programming and
promotion 5,055 951 206 6,212
Selling, general and
administrative 7,616 2,257 $578(e) $51(e) 10,377
(124)(f)
-------- -------- ------ ------- --------- --------
Total operating expenses 12,671 3,208 206 454 51 16,589
-------- -------- ------ ------- --------- --------
Operating income (loss) 4,115 1,386 29 (454) (51) 5,025
Other income and expenses:
Interest income (expense), net 958 7 (10)(e) 955
Other (3) (3)
-------- -------- ------ ------- --------- --------
955 7 -- 0 (10) 952
-------- -------- ------ ------- --------- --------
Income (loss) before income taxes 5,070 1,393 29 (454) (60) 5,978
Provision (benefit) for income taxes 2,039 18 360(g) (13)(g) 2,404
-------- -------- ------ ------- --------- --------
Net income (loss) $3,031 $1,375 $29 ($814) ($48) $3,574
-------- -------- ------ ------- --------- --------
-------- -------- ------ ------- --------- --------
Earnings per share $0.34 $0.40
Weighted average number of shares
outstanding 9,413,755 9,413,755
</TABLE>
See accompanying notes to unaudited pro forma condensed historical financial
information.
7
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following are the pro forma adjustments which reflect the acquisitions
of PMW and Cutler at December 31, 1995, and for the year then ended as if these
transactions had occurred at January 1, 1995; and at September 30, 1996, and for
the nine-month period then ended as if these transactions had occurred at
January 1, 1996:
(a) To record the acquisition of certain assets of Cutler under the purchase
method of accounting for $8,500,000 in cash plus estimated accrued transaction
costs, and the preliminary allocation of the Cutler purchase price.
(b) To record the elimination of assets not acquired and liabilities not
assumed in connection with the acquisition of Cutler, and the elimination of the
Cutler shareholder's equity accounts.
(c) To record the purchase of certain assets of PMW under the purchase method
of accounting for cash of $435,000 and a 6.5% interest bearing note payable
having a face amount of $200,000 plus estimated accrued transaction costs, and
the preliminary allocation of the PMW purchase price.
(d) To record the elimination of assets not acquired and liabilities not
assumed in connection with the acquisition of PMW, and the elimination of the
PMW's shareholder equity accounts.
(e) To record depreciation and amortization, and interest expense related to
the acquisition of the Cutler and PMW assets.
(f) To record the reduction of Cutler's shareholder compensation in accordance
with the shareholder's post acquisition employment contract.
(g) To record the tax effects of the pro forma adjustments resulting from the
acquisitions of Cutler and PMW by utilizing the Company's estimated effective
tax rate of 40.2%.
8
<PAGE>
(c) Exhibits Page
-------- ----
10.18 Agreement Re: Purchase of interest
in Newstrack Joint Venture and Revision of Prior
Call-Out Research Agreements for Newstrack
and Mediabase dated September 3, 1996 *
10.19 Purchase and Sale Agreement by and
between Premiere Radio Networks, Inc. as Buyer
and Philadelphia Music Works, Inc. as Seller as
of September 27, 1996 *
10.20 Amended and Restated Agree-
ment Re: Acquisition of Licenses of the Four
Music Libraries from Canary Productions, Inc.
dated September 27, 1996 *
10.21 Purchase and Sale Agreement by and
between Premiere Radio Networks, Inc. as Buyer
and Cutler Productions, Inc. and SJM Productions,
Inc. as Sellers as of September 30, 1996 *
_____________
* Filed previously.
9
<PAGE>
SIGNATURE
Pursuant to the rules of Section 12 of the Securities Exchange Act of 1934,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereto duly authorized.
PREMIERE RADIO NETWORKS, INC.
By: /s/ Daniel M. Yukelson
----------------------------------------
Daniel M. Yukelson, Vice President
/Finance and Chief Financial Officer,
and Secretary
Date: December 10, 1996
---------------------------------------
10
<PAGE>
Combined Financial Statements
Cutler Productions, Inc. and
SJM Productions, Inc.
YEAR ENDED DECEMBER 31, 1995 AND
YEAR ENDED DECEMBER 31, 1994 (UNAUDITED)
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
Index to Combined Financial Statements
Page
Reference
---------
Report of Independent Auditors .......................................... F-2
Combined Balance Sheets at December 31, 1995 and 1994 (unaudited) ....... F-3
Combined Statements of Income for the years ended
December 31, 1995 and 1994 (unaudited) ................................ F-4
Combined Statements of Shareholder's Equity for the years
ended December 31, 1995 and 1994 (unaudited) .......................... F-5
Combined Statements of Cash Flows for the years ended
December 31, 1995 and 1994 (unaudited) .................................. F-6
Notes to Combined Financial Statements .................................. F-7
<PAGE>
Report of Independent Auditors
Stockholders and Board of Directors
Cutler Productions, Inc. and
SJM Productions, Inc.
We have audited the accompanying combined balance sheet of Cutler Productions,
Inc. and SJM Productions, Inc. as of December 31, 1995, and the related
combined statements of income, shareholder's equity and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Cutler Productions,
Inc. and SJM Productions, Inc. at December 31, 1995, and the combined results
of their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
The accompanying financial statements for 1994 were not audited by us and,
accordingly, we do not express an opinion on them.
ERNST & YOUNG LLP
Los Angeles, California
September 20, 1996
F-2
<PAGE>
Cutler Productions Inc. and
SJM Productions, Inc.
Combined Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,583 $ 8,408
Accounts receivable 1,264,351 1,087,316
Prepaid expenses and other assets (NOTES 11 AND 12) 8,070 27,558
------------------------
Total current assets 1,281,004 1,123,282
Property and equipment, at cost, less accumulated
depreciation and amortization (NOTE 2) 110,272 127,833
Other assets 3,918 1,494
------------------------
Total assets $ 1,395,194 $ 1,252,609
------------------------
------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 104,518 $ 70,861
Accounts payable 47,769 42,440
Accrued profit sharing plan (NOTE 5) 25,681 37,870
Deferred income taxes 53,597 91,830
------------------------
Total current liabilities 231,565 243,001
Commitments and contingencies (NOTE 3)
Shareholder's equity:
SJM Productions, Inc. common stock, no par value,
1,000 shares authorized, issued and outstanding 1,000 1,000
Cutler Productions, Inc. common stock, no par value,
100,000 shares authorized, 15,000 shares issued and
outstanding 15,000 15,000
Retained earnings 1,148,629 994,608
Less shareholder note receivable (1,000) (1,000)
------------------------
Total shareholder's equity 1,163,629 1,009,608
------------------------
Total liabilities and shareholder's equity $ 1,395,194 $ 1,252,609
------------------------
------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Cutler Productions, Inc. and
SJM Productions, Inc.
Combined Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
--------------------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Gross revenue $ 4,811,439 $ 4,297,605
Less: agency commissions (729,180) (644,641)
--------------------------
Net operating revenue 4,082,259 3,652,965
Operating expenses:
Sales representation 702,443 621,004
Production and programming 863,062 806,149
General and administrative 2,412,393 1,985,573
--------------------------
Total operating expenses 3,977,898 3,412,726
--------------------------
Operating income 104,361 240,239
Other income and expenses:
Interest income 11,427 -
Other - 38,190
--------------------------
11,427 38,190
--------------------------
Income before income taxes 115,788 278,429
Provision (benefit) for deferred state income taxes
(NOTE 4) (38,233) 92,239
--------------------------
Net income $ 154,021 $ 186,190
--------------------------
--------------------------
Earnings per share $ 9.63 $ 11.64
--------------------------
--------------------------
Weighted average common shares outstanding 16,000 16,000
--------------------------
--------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
Cutler Productions, Inc. and
SJM Productions, Inc.
Combined Statements of Shareholder's Equity
<TABLE>
<CAPTION>
Cutler Productions, Inc. SJM Productions, Inc.
Common Stock Common Stock
-----------------------------------------------
Less
Shares Shares Shareholder
Issued and Issued and Note Retained
Outstanding Amount Outstanding Amount Receivable Earnings Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 (unaudited) 15,000 $ 15,000 1,000 $ 1,000 $ (1,000) $ 808,418 $ 823,418
Net income for 1994 - - - - - 186,190 186,190
----------------------------------------------------------------------------------------
Balance at December 31, 1994 (unaudited) 15,000 15,000 1,000 1,000 (1,000) 994,608 1,009,608
Net income for 1995 - - - - - 154,021 154,021
----------------------------------------------------------------------------------------
Balance at December 31, 1995 15,000 $ 15,000 1,000 $ 1,000 $ (1,000) $ 1,148,629 $ 1,163,629
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
Cutler Productions, Inc. and
SJM Productions, Inc.
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
-----------------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 154,021 $ 186,190
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 41,705 32,987
(Benefit) provision for deferred taxes (38,233) 91,830
Changes in operating assets and liabilities:
Accounts receivable (177,085) (355,980)
Prepaid expenses and other current assets 19,488 6,798
Other assets (2,424) (1,494)
Accounts payable and accrued liabilities 5,329 24,870
Other liabilities (12,189) (14,709)
----------------------
Net cash used in operating activities (9,338) (30,008)
INVESTING ACTIVITIES
Acquisition of property and equipment (24,144) (30,599)
----------------------
Net cash used in investing activities (24,144) (30,599)
FINANCING ACTIVITIES
Proceeds from notes receivable - 191,368
----------------------
Net cash provided by financing activities - 191,368
----------------------
(Decrease) increase in cash and cash equivalents (33,482) 130,761
Cash and cash equivalents at beginning of year 8,408 100
Change in bank overdraft 33,657 (122,453)
----------------------
Cash and cash equivalents at end of year $ 8,583 $ 8,408
----------------------
----------------------
Cash paid for:
Interest $ - $ -
----------------------
----------------------
Income taxes $ 2,452 $ 409
----------------------
----------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
Cutler Productions, Inc. and
SJM Productions, Inc.
Notes to Combined Financial Statements
December 31, 1995 and 1994
(The financial information for the year ended
December 31, 1994 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Cutler Productions, Inc. (Cutler) is an independent creator, producer and
distributor of comedy, entertainment and music-related network radio
programming, and other services. SJM Productions, Inc. (SJM) is an independent
producer of a network radio program. Cutler and SJM are each wholly-owned by
the same individual. Collectively, Cutler and SJM are referred to as the
"Company." The Company derives a substantial portion of its revenues from the
sale of commercial radio broadcast time to advertisers. The Company obtains
commercial radio broadcast time from third party radio station affiliates in
exchange for network radio programs and services.
The combined financial statements include the accounts of Cutler and SJM. All
material intercompany transactions and accounts have been eliminated.
REVENUE RECOGNITION AND SALES REPRESENTATION
Revenue from the sale to advertisers of commercial broadcast time obtained in
exchange for produced radio programs or services is recognized when the
commercials are broadcast.
The Company has an agreement with a network radio advertising sales
representative company, Global Network Media, Inc. (Global), pursuant to which
Global acts as the Company's exclusive sales agent with respect to the sale of
its commercial broadcast time and the billing and collection thereof. Under the
agreement, Global is paid a sales representation fee equal to 17% of net
collected revenues. Substantially all of the Company's accounts receivable are
from Global, and are payable to the Company upon the collection by Global of
accounts receivable from advertising agencies that purchase the Company's
commercial broadcast time on behalf of national advertisers.
F-7
<PAGE>
Cutler Productions, Inc. and
SJM Productions, Inc.
Notes to Combined Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRODUCTION AND PROGRAMMING COSTS
Production and programming costs are expensed in the period in which they
occur. Costs related to programs not broadcast as of the balance sheet date are
insignificant. The Company does not capitalize costs associated with production
and distribution of internally developed programming, as the estimated future
revenues from this programming is considered immaterial.
ADVERTISING COSTS
Advertising costs are expensed in the period in which they occur. General and
administrative expenses include advertising costs of $185,617 in 1995 and
$397,114 in 1994.
CASH AND CASH EQUIVALENTS, AND BOOK OVERDRAFT
The Company considers all highly liquid investments with a maturity of three
months or less, when purchased, to be cash equivalents.
Under the Company's cash management system, checks issued but not presented to
banks frequently result in overdraft balances for accounting purposes and are
classified as bank overdrafts in the accompanying combined balance sheets.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization is
computed by the straight-line method over five years representing the estimated
useful lives of the related assets.
INCOME TAXES
Cutler has elected to be treated for federal and certain state income tax
purposes as an S Corporation under the Internal Revenue Code (IRC) and under
comparable state laws. As a result, the earnings of Cutler have been included
in the taxable income of Cutler's shareholder for federal and certain state
income tax purposes, and Cutler has generally not been subject to income tax on
such earnings, other than California franchise taxes.
F-8
<PAGE>
Cutler Productions, Inc. and
SJM Productions, Inc.
Notes to Combined Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SJM is treated for federal and certain state income tax purposes as a regular
corporation.
The Company accounts for taxes using Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). Under SFAS No.
109, the liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
EARNINGS PER SHARE
The computation of earnings per share is based upon the weighted average number
of common shares outstanding during the period. During each of the years ended
December 31, 1995 and 1994, there were no common equivalent shares outstanding.
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 amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1994, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
----------------------
(UNAUDITED)
<S> <C> <C>
Furniture and equipment $ 348,933 $ 324,789
Vehicles 51,256 51,256
Leasehold improvements 25,407 25,407
----------------------
425,596 401,452
Less accumulated depreciation and
amortization (315,324) (273,619)
----------------------
$ 110,272 $ 127,833
----------------------
----------------------
</TABLE>
F-9
<PAGE>
Cutler Productions, Inc. and
SJM Productions, Inc.
Notes to Combined Financial Statements (continued)
3. COMMITMENTS AND CONTINGENCIES
The Company leases space for its office and studio facilities under operating
leases expiring at various dates through 1998. Renewal options are available on
certain of these leases. Future minimum lease payments under noncancelable
operating leases at December 31, 1995, are as follows:
<TABLE>
<S> <C>
1996 $ 132,610
1997 76,160
1998 4,746
---------
$ 213,516
---------
---------
</TABLE>
Rental expense under operating leases was $85,128 in 1995 and $71,483 in 1994.
4. INCOME TAXES
Deferred state income taxes result primarily from the Company reporting its
financial results on the accrual basis of accounting and reporting its results
for income tax purposes on the cash basis of accounting.
Significant components of the Company's current deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
----------------------
(UNAUDITED)
<S> <C> <C>
Accounts receivable $ 60,254 $ 103,028
Prepaid expenses 109 347
Accounts payable (6,766) (11,545)
----------------------
Net deferred tax liabilities $ 53,597 $ 91,830
----------------------
----------------------
</TABLE>
F-10
<PAGE>
Cutler Productions, Inc. and
SJM Productions, Inc.
Notes to Combined Financial Statements (continued)
4. Income Taxes (continued)
A reconciliation of the statutory federal income tax provision to the reported
tax provision on income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
-----------------------
(UNAUDITED)
<S> <C> <C>
Income tax based on federal statutory rate (34%) $ 39,368 $ 94,666
State income tax (benefit) provision (2,447) 19,255
Effect of "S" Corp. status (76,752) (28,248)
Meals and entertainment disallowance 1,261 2,736
Other 337 3,830
----------------------
$ (38,233) $ 92,239
----------------------
----------------------
</TABLE>
5. RETIREMENT PLANS
The Company provides for retirement through a profit-sharing plan. The
Company's profit-sharing plan covers all eligible employees. Contributions are
determined by the Board of Directors subject to maximum limitations as provided
in the Internal Revenue Code. Contributions made under the profit sharing plan
and included in selling, general and administrative expenses were $25,681 in
1995 and $37,870 in 1994.
All employees who have completed one year of service or 1,000 hours of service
in that year with the Company are eligible to join the profit sharing plan.
Contributions made by the Company vest 20% per year beginning with the
employee's first date of eligibility and participation in the profit sharing
plan.
6. SALE OF ASSETS
Effective on September 30, 1996, the Company sold substantially all of its
assets, excluding certain accounts receivable, to Premiere Radio Networks, Inc.
for $8,500,000 cash.
F-11
