SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 8-K/A
AMENDMENT NO. 1 TO
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 18, 1999
BIG ENTERTAINMENT, INC.
(Exact Name of Registrant as Specified in Charter)
Florida 0-22908 65-0385686
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
2255 Glades Road, Suite 237 West, Boca Raton, Florida 33431
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (561) 998-8000
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 2. Acquisition or Disposition of Assets.
1. Acquisition of Substantially All of the Assets of CinemaSource, Inc.
On May 18, 1999, Big Entertainment, Inc., a Florida corporation (the
"Company"), acquired substantially all of the assets (the
"CinemaSource Assets") of CinemaSource, Inc., a Connecticut
corporation ("CinemaSource"), pursuant to the terms of the Asset
Purchase Agreement dated as of March 29, 1999 (the "Asset Purchase
Agreement") by and among the Company, CinemaSource, Brett West (the
sole shareholder of CinemaSource) and Pamela West. At the closing of
the acquisition, the Company directed CinemaSource to transfer the
CinemaSource Assets, on the Company's behalf, to its indirect wholly
owned subsidiary, Showtimes.com, Inc. CinemaSource was engaged in the
business of compiling, reproducing and distributing movie showtimes
and related movie information through electronic means and over the
Internet to customers including Yahoo!, Excite, Microsoft, and other
Internet and traditional media companies. The CinemaSource Assets
constitute substantially all of the assets used by CinemaSource in
conducting such business and include tangible and intangible property
such as contracts, certain fixed assets, customer lists and certain
intellectual property. The Company presently intends to integrate the
CinemaSource Assets and the business of hollywood.com, Inc. acquired
by merger on May 20, 1999 (which is described hereinbelow) into its
existing operations, thereby creating a comprehensive movie Internet
web site which (i) contains movie information, movie reviews, trailers
and celebrity interviews, (ii) sells movie-related merchandise and
(iii) delivers movie showtimes listings.
The purchase price for the CinemaSource Assets consisted of (i)
$6,500,000 in cash, plus (ii) 436,191 shares of common stock, $0.01
par value, of the Company (the "Common Stock").
Funding for the cash portion of the purchase price came from the
proceeds of a private placement of approximately 570,000 shares of the
Common Stock at a price per share of $21.25 and warrants exercisable
for approximately 190,000 shares of the Common Stock at an exercise
price per share of $21.25. The total proceeds of the private placement
were approximately $12,000,000, before closing costs. The securities
sold in the private placement were sold without registration under the
Securities Act of 1933, as amended (the "1933 Act"), in reliance on an
exemption from registration under Section 4(2) of the 1933 Act and
Rule 506 of Regulation D thereunder.
The purchase price for the CinemaSource Assets was determined by
arms-length negotiations between CinemaSource and the Company.
Prior to entering into the Asset Purchase Agreement, there were no
material relationships between the Company or any of its affiliates,
directors or officers, or any associates of such directors and
officers on one hand, and CinemaSource, on the other hand.
2
<PAGE>
2. Acquisition of the Capital Stock of hollywood.com, Inc.
On May 20, 1999, the Company acquired all of the capital stock of
hollywood.com, Inc., a California corporation ("Hollywood.com"), from
The Times Mirror Company ("Times Mirror") pursuant to the merger (the
"Merger") of Hollywood.com into Big Acquisition Corp., a wholly owned
subsidiary of the Company prior to the Merger ("Merger Sub"). The
Merger occurred in accordance with the Agreement and Plan of Merger
dated as of January 10, 1999 (the "Merger Agreement") by and among the
Company, Times Mirror, Hollywood.com (formerly Hollywood Online, Inc.)
and Merger Sub. Hollywood.com owns and operates the HOLLYWOOD.COM web
site, offering viewers movie information, movie trailers, movie
soundtracks, photos and exclusive interactive games, current movie,
laserdisc and movie soundtrack information, local movie theaters'
showtimes, daily Hollywood news, celebrity interviews, listings of
movies on TV, a searchable database with over 130,000 movies and
850,000 cast and crew credits, movie reviews, box office charts,
interactive forums, a weekly e-mail dispatch and coverage of
premieres, film festivals and movie-related events. The Company
presently intends to integrate this business and the CinemaSource
Assets with its existing Internet business, thereby creating a
comprehensive movie Internet website which (i) contains movie
information, movie reviews, trailers and celebrity interviews, (ii)
sells movie-related merchandise and (iii) displays online and delivers
movie showtimes listings.
The aggregate consideration paid to Times Mirror by the Company in the
Merger consisted of (i) 2,300,075 shares of the Common Stock, plus
(ii) $1,928,137.64 by delivery of a promissory note of the Company
payable to Times Mirror. The promissory note has a maturity date of
May 20, 2000 (at which time the aggregate principal balance thereof
must be repaid in full) and bears interest at the prime rate in effect
from time to time of Citibank, N.A. plus 1%. Accrued but unpaid
interest on the then unpaid principal balance of the note is payable
on June 30, 1999, September 30, 1999, December 31, 1999, March 31,
2000 and on the maturity date. The promissory note may be prepaid in
whole or in part at any time without payment of any premiums or
penalty.
The consideration paid to Times Mirror in the Merger was determined by
arms-length negotiations between Times Mirror and the Company.
Other than an agreement between the Company and Hollywood.com pursuant
to which the Hollywood.com website was linked to the bige.com website,
prior to entering into the Merger Agreement, there were no material
relationships between the Company or its affiliates, directors or
officers, or any associates of such directors or officers, on one
hand, and Hollywood.com and/or Times Mirror, on the other hand.
3
<PAGE>
3. Press Release Regarding the Acquisitions
On May 20, 1999, the Company issued a press release regarding the
foregoing acquisitions, a copy of which is attached as Exhibit 99
hereto and is incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
(i) Financial statements of CinemaSource, Inc.
(ii) Financial statements of hollywood.com, Inc. (formerly Hollywood
Online, Inc.)
(b) Pro Forma Financial Information.
(i) Big Entertainment, Inc. and Subsidiaries Unaudited Pro Forma Combined
Condensed Financial Statements
(c) Exhibits.
*1. Asset Purchase Agreement dated as of March 29, 1999 by and among Big
Entertainment, Inc., CinemaSource, Inc., Brett West and Pamela West.
*2. Agreement and Plan of Merger dated as of January 10, 1999 by and among
The Times Mirror Company, Hollywood.com, Inc. (formerly Hollywood
Online, Inc.), Big Entertainment, Inc. and Big Acquisition Corp., as
amended by the Waiver and Consent; and Other Modifications dated as of
May 14, 1999.
*3. Press Release dated as of May 20, 1999.
- --------
* Previously filed.
4
<PAGE>
CINEMASOURCE, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31,1998 AND 1997
<PAGE>
TABLE OF CONTENTS
Page
----
Independent Auditor's Report i
Balance Sheets as of December 31, 1998 and 1997 ii
Statements of Income and Retained Earnings
for the years ended December 31, 1998 and 1997 iii
Statements of Cash Flows for the years ended
December 31, 1998 and 1997 iv
Notes to Financial Statements v-vii
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
CinemaSource, Inc.
Ridgefield, Connecticut
We have audited the accompanying balance sheets of CinemaSource, Inc. (an "S"
Corporation) as of December 31, 1998 and 1997, and the related statements of
income and retained earnings 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CinemaSource, Inc. as of
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.
Reynolds & Rowella, LLP
Ridgefield, Connecticut
April 23, 1999
-i-
<PAGE>
CINEMASOURCE, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 96,692 $ 36,813
Accounts receivable 40,282 15,100
Other receivable 115,000 --
--------- ---------
TOTAL CURRENT ASSETS 251,974 51,913
--------- ---------
PROPERTY AND EQUIPMENT
Office and computer equipment 96,998 79,081
Less: Accumulated depreciation 50,091 33,691
--------- ---------
PROPERTY AND EQUIPMENT - NET 46,907 45,390
--------- ---------
OTHER ASSETS
Deposits 3,000 3,000
--------- ---------
TOTAL ASSETS $ 301,881 $ 100,303
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Notes payable $ -- $ 30,000
Accounts payable 19,133 46,453
Note payable - stockholder loan 329 15,609
Deferred revenues 56,224 11,543
--------- ---------
TOTAL CURRENT LIABILITIES 75,686 103,605
--------- ---------
STOCKHOLDER'S EQUITY
Capital stock, no par value, 5000 shares authorized,
100 shares issued and outstanding 1,000 1,000
Retained earnings 225,195 (4,302)
--------- ---------
TOTAL STOCKHOLDER'S EQUITY 226,195 (3,302)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 301,881 $ 100,303
========= =========
</TABLE>
See accompanying notes
-ii-
<PAGE>
CINEMASOURCE, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
----------- -----------
REVENUES $ 1,282,629 $ 747,402
COST OF SERVICES 100,480 52,743
----------- -----------
GROSS PROFIT 1,182,149 694,659
----------- -----------
OPERATING EXPENSES
Salaries and benefits 795,741 496,781
Auto and travel 12,959 2,762
Advertising 2,228 386
Depreciation 16,400 12,817
Insurance 2,244 2,065
Fees and subscriptions 6,091 3,502
Professional fees 7,995 9,061
Office expenses 50,638 29,935
Rent 45,185 43,351
Utilities 37,635 37,725
Taxes 505 593
----------- -----------
TOTAL OPERATING EXPENSES 977,621 638,978
----------- -----------
INCOME FROM OPERATIONS 204,528 55,681
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 738 441
Interest expense (7,598) (2,075)
Other income(expense) 31,829 (64,725)
----------- -----------
TOTAL OTHER INCOME (EXPENSE) 24,969 (66,359)
----------- -----------
NET INCOME (LOSS) 229,497 (10,678)
RETAINED EARNINGS/(DEFICIT) - BEGINNING (4,302) 6,376
----------- -----------
RETAINED EARNINGS/(DEFICIT) - ENDING $ 225,195 $ (4,302)
=========== ===========
PRO FORMA
Net income (loss) $ 229,497 $ (10,678)
Pro forma income tax provision (Note 9) 86,000 --
----------- -----------
Pro forma Net income (loss) $ 143,497 $ (10,678)
=========== ===========
See accompanying notes
-iii-
<PAGE>
CINEMASOURCE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income(loss) $ 229,497 $ (10,678)
--------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 16,400 12,817
Increase in accounts receivable (25,182) (15,100)
Increase in other receivable (115,000) --
Increase in deferred revenues 44,681 11,543
Increase(decrease) in accounts payable (27,320) 38,842
--------- ---------
Total adjustments (106,421) 48,102
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 123,076 37,424
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (17,917) (16,562)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (17,917) (16,562)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Notes payable (30,000) 30,000
Repayment of capital lease -- (3,572)
Repayments of stockholder loans (15,280) (20,582)
--------- ---------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (45,280) 5,846
--------- ---------
NET INCREASE IN CASH 59,879 26,708
CASH AND CASH EQUIVALENTS - BEGINNING 36,813 10,105
--------- ---------
CASH AND CASH EQUIVALENTS- ENDING $ 96,692 $ 36,813
========= =========
</TABLE>
See accompanying notes
-iv-
<PAGE>
CINEMASOURCE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
CinemaSource, Inc. (the "Company") is a data service organization that collects
local movie theater information and distributes such data in customized formats
to newspapers and other media.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenues and Costs Recognition
The Company records revenues on an accrual basis, where revenues are recognized
in the accounting period in which revenues are earned regardless of when cash is
received. Cost of services and expenses are reported as expenses when incurred.
Equipment
Equipment is recorded at cost and depreciated over its estimated useful lives of
seven to ten years, using the straight-line method. Repairs and maintenance
expenditures which do not increase the useful lives of the assets are charged to
operations as incurred. Depreciation expense for the years ended December 31,
1998 and 1997 was $16,400 and $12,817 respectively.
Statement of Cash Flows
The Company uses cash and cash equivalents as its basis for measuring changes in
this statement. Interest paid for the years ended December 31, 1998 and 1997 was
$7,598 and $2,075 respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
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 tax on the taxable income. Instead, the shareholder
reports the taxable income on his personal tax return. However, the Company is
liable for State of Connecticut corporate income taxes. No provision has been
made for state corporate income taxes due to operating losses carried forward
from prior years.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents for purposes of the
statement of cash flows.
-v-
<PAGE>
CINEMASOURCE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentration of Risk
Financial instruments that potentially subject the Company to credit risk
include cash balances at banks which exceed the Federal deposit insurance of
$100,000.
NOTE 3 - OTHER RECEIVABLE
During 1998 and 1997 CinemaSource, Inc. was engaged in litigation. As of
December 31, 1998, all actions were dismissed. CinemaSource, Inc. collected
$115,000 subsequent to December 31, 1998, in settlement, which is reflected in
other income in the accompanying statement of income and retained earnings for
1998.
NOTE 4 - NOTE PAYABLE
The Company has a $50,000 unsecured operating line of credit with Ridgefield
Bank, which provides for working capital financing. Borrowings bear interest at
11%. The balance outstanding at December 31, 1998 and 1997 was $0 and $30,000
respectively.
NOTE 5 - RELATED PARTY
The Company has an unsecured note payable to its officer/stockholder. The
borrowings have no formal repayment schedule. The balance outstanding as of
December 31, 1998 and 1997 was $329 and $15,609 respectively.
NOTE 6 - DEFERRED REVENUES
Some customers from time to time prepay the next month's billings. These
prepayments are recorded as deferred revenues. The Deferred Revenues as of
December 31, 1998 and 1997 were $56,224 and $11,543 respectively.
NOTE 7 - OPERATING LEASE
The Company leases its office space in Ridgefield, Connecticut under a
non-renewable operating lease. The current lease, for 1998 and 1997 has a
monthly payment of $3,500 and $3,250,respectively, expires in October 1999. The
Company currently leases a vehicle under an operating lease agreement. Under
this agreement the Company is required to pay $500 a month for 24 months ending
June 1999.
-vi-
<PAGE>
CINEMASOURCE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - CONTINGENCIES
There are existing disputes, which have arisen between CinemaSource, Inc,. and
certain other companies in relation to CinemaSource, Inc.'s use, and of its
acquisition of show time information, and in relation to an alleged breach by
CinemaSource, Inc., of certain agreements which were entered into in the
ordinary course of business. As of the date of these financial statements,
litigation has not been commenced with respect to any of these matters. However,
there can be no assurance that litigation will not be commenced against the
Company. Management has indicated its plan to vigorously contest any suit which
may arise and believes the loss, if any, resulting from any such suit should not
have a material impact on the Company's financial position, results of
operations, or cash flows.
NOTE 9 - SUBSEQUENT EVENT
On March 29, 1999, the stockholder of the Company (the "Stockholder") entered
into an asset purchase agreement, to sell substantially all assets, which
transaction does not include a transfer or assumption of liabilities, of the
business to an unrelated third party (the "Purchaser"). In consideration for the
sale, the Stockholder will receive a combination of cash and stock of the
Purchaser.
Since the Purchaser is a C Corporation for federal and state income tax
purposes, the operations of the Company will also become taxable as a C
Corporation effective at the date of purchase. Accordingly, the accompanying
statement of income for the year ended December 31, 1998 presents an unaudited
proforma income tax provision and proforma net income as they would have been
reported had the Company been subject to federal and state income taxes. The
proforma effective income tax rate of 37.5% exceeds the federal statutory rate
due to the impact of state income taxes.
-vii-
<PAGE>
CINEMASOURCE, INC.
FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31,1999 AND 1998
TABLE OF CONTENTS
Page
----
Accountant's Compilation Report i
Balance Sheets as of March 31, 1999 ii
Statements of Income and Retained Earnings
for the Three Months ended March 31, 1999 and 1998 iii
Statements of Cash Flows for the Three Months ended
March 31, 1999 and 1998 iv
Notes to Financial Statements v-vii
<PAGE>
To the Board of Directors
CinemaSource,Inc.
Ridgefield, Connecticut
We have compiled the accompanying balance sheet of CinemaSource,Inc. (an "S"
Corporation), as of March 31, 1999 and the related statements of income and
retained earnings and cash flows for the three months ended March 31, 1999 and
1998, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statement
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements, supplementary information and,
accordingly, do not express an opinion or any other form of assurance on them.
Reynolds & Rowella, LLP
Ridgefield, Connecticut
May 7, 1999
-i-
<PAGE>
CINEMASOURCE, INC.
BALANCE SHEET
MARCH 31, 1999
ASSETS
1999
--------
CURRENT ASSETS
Cash and cash equivalents $141,948
Accounts receivable 78,134
--------
TOTAL CURRENT ASSETS 220,082
--------
PROPERTY AND EQUIPMENT
Office and computer equipment 99,116
Less: Accumulated depreciation 54,218
--------
PROPERTY AND EQUIPMENT - NET 44,898
--------
OTHER ASSETS
Deposits 3,000
--------
TOTAL ASSETS $267,980
========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 22,011
Deferred revenues 16,179
--------
TOTAL CURRENT LIABILITIES 38,190
--------
STOCKHOLDER'S EQUITY
Capital stock, no par value, 5000 shares authorized,
100 shares issued and outstanding 1,000
Retained earnings 228,790
--------
TOTAL STOCKHOLDER'S EQUITY 229,790
--------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $267,980
========
See accountant's compilation report and accompanying notes
-ii-
<PAGE>
CINEMASOURCE, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
1999 1998
--------- ---------
REVENUES $ 434,386 $ 277,353
COST OF SERVICES 30,215 19,907
--------- ---------
GROSS PROFIT 404,171 257,446
--------- ---------
OPERATING EXPENSES
Salaries and benefits 319,031 178,637
Auto and travel 3,160 4,761
Advertising 730 76
Depreciation 4,127 3,257
Insurance 12,087 5,209
Fees and subscriptions 715 711
Professional fees 19,131 3,390
Office expenses 6,694 6,754
Rent 10,500 9,750
Utilities 9,462 8,747
Taxes 2,608 250
--------- ---------
TOTAL OPERATING EXPENSES 388,245 221,542
--------- ---------
INCOME FROM OPERATIONS 15,926 35,904
--------- ---------
OTHER INCOME (EXPENSE)
Interest income 473 141
Interest expense -- (780)
Other expenses (8,911) (94,665)
--------- ---------
TOTAL OTHER INCOME (EXPENSE) (8,438) (95,304)
--------- ---------
NET INCOME (LOSS) 7,488 (59,400)
RETAINED EARNINGS (DEFICIT) - BEGINNING 225,195 (4,302)
Stockholder distributions, net (3,893) --
--------- ---------
RETAINED EARNINGS (DEFICIT) - ENDING $ 228,790 $ (63,702)
========= =========
PRO FORMA
Net income $ 7,488 $ (59,400)
Pro forma income taxes (Note 8) 1,816 --
--------- ---------
Pro forma net income $ 5,672 $ (59,400)
========= =========
See accountant's compilation report and accompanying notes
-iii-
<PAGE>
CINEMASOURCE, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,1999 AND 1998
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 7,488 $ (59,400)
--------- ---------
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation 4,127 3,257
Increase in accounts receivable (37,852) (24,141)
Decrease in other receivables 115,000 --
Decrease in deferred revenues (40,045) (11,027)
Increase in accounts payable 2,878 82,772
--------- ---------
Total adjustments 44,108 50,861
--------- ---------
NET CASH PROVIDED BY/ (USED IN)
OPERATING ACTIVITIES 51,596 (8,539)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (2,118) --
Stockholder distributions, net (3,893) --
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (6,011) --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of note payable -- (7,000)
Repayments of stockholder loans (329) (2,330)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (329) (9,330)
--------- ---------
NET INCREASE/(DECREASE) IN CASH 45,256 (17,869)
CASH AND CASH EQUIVALENTS - BEGINNING 96,692 36,813
--------- ---------
CASH AND CASH EQUIVALENTS - ENDING $ 141,948 $ 18,944
========= =========
See accountant's compilation report and accompanying notes
-iv-
<PAGE>
CINEMASOURCE, INC
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
CinemaSource, Inc. (the "Company") is a data service organization that collects
local movie theater information and distributes such data in customized formats
to newspapers and other media.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In the opinion of management, the accompanying interim financial statements have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to those rules and regulations. However, the company believes that the
disclosures contained herein are adequate to make the information presented not
misleading.
The financial statements reflect, in the opinion of management, all material
adjustments (which include only normal recurring adjustments) necessary to
present fairly the Company's financial position and results of operations.
The results of operations and cash flows for the three months ended March 31,
1999 and 1998 are not necessarily indicative of the results of operations or
cash flows which may be recorded for the remainder of 1999 or 1998.
The accompanying financial statements should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto for the
year ended December 31, 1998.
Revenues and Costs Recognition
The Company records revenues on an accrual basis, where revenues are recognized
in the accounting period in which revenues are earned regardless of when cash is
received. Cost of services and expenses are reported as expenses when incurred.
Equipment
Equipment is recorded at cost and depreciated over its estimated useful lives of
seven to ten years, using the straight-line method. Repairs and maintenance,
charges which do not increase the useful lives of the assets, are charged to
operations as incurred.
Statement of Cash Flows
The Company uses cash and cash equivalents as its basis for measuring changes in
this statement. Interest paid for the periods ended March 31, 1999 and 1998 was
$0 and $780, respectively.
-v-
<PAGE>
CINEMASOURCE, INC
NOTE TO FINANCIAL STATEMENTS
NOTE 2- SUMMARY OF ACCOUNTING POLICIES (Continued)
Use of Estimates
The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents for purposes of the
statement of cash flows.
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 tax on the taxable income. Instead, the shareholder
reports the taxable income on his personal tax return. However, the Company is
liable for State of Connecticut corporate income taxes. No provision has been
made for state corporate income taxes due to operating losses carried forward
from prior years.
Concentration of Risk
Financial instruments that potentially subject the Company to credit risk
include cash balances at banks, which exceed the federal deposit insurance of
$100,000.
NOTE 3 - NOTE PAYABLE
The Company has a $50,000 unsecured operating line of credit with Ridgefield
Bank, which provides for working capital financing. Borrowings bear interest at
11%. The balance outstanding at March 31, 1999 and 1998 was $0 and $23,000,
respectively.
NOTE 4 - OPERATING LEASE
The Company leases its office space in Ridgefield, Connecticut under a
non-renewable operating lease. The current lease for 1999 and 1998 has a monthly
payment of $3,250 and $3,500, respectively, expires in October 1999.
NOTE 5- RELATED PARTY
Stockholder loan represents an unsecured demand loan with no formal repayment
schedule. The balance as of March 31, 1999 and 1998 was $0 and $13,279,
respectively.
-vi-
<PAGE>
CINEMASOURCE, INC
NOTES TO FINANCIAL STATEMENTS
NOTE 6- DEFERRED REVENUES
Some customers from time to time prepay the next month's billings. These
prepayments are recorded as deferred revenues.
NOTE 7- CONTINGENCIES
There are existing disputes, which have arisen between CinemaSource, Inc,. and
certain other companies in relation to CinemaSource, Inc.'s use, and of its
acquisition of show time information, and in relation to an alleged breach by
CinemaSource, Inc., of certain agreements which were entered into in the
ordinary course of business. As of the date of these financial statements,
litigation has not been commenced with respect to any of these matters. However,
there can be no assurance that litigation will not be commenced against the
Company. Management has indicated its plan to vigorously contest any suit which
may arise and believes the loss, if any, resulting from any such suit should not
have a material impact on the Company's financial position, results of
operations, or cash flows.
NOTE 8- SUBSEQUENT EVENT
On March 29, 1999 the stockholder of the Company (the "Stockholder") entered
into an asset purchase agreement, to sell substantially all assets, which
transaction does not include a transfer or assumption of liabilities of the
business, .to an unrelated third party (the "Purchaser"). In consideration for
the sale, the Stockholder will receive a combination of cash and stock of the
Purchaser.
Since the purchaser is a C Corporation for federal and state income tax
purposes, the operations of the Company will also become taxable as a C
Corporation effective at the date of purchase. Accordingly, the accompanying
statements of income for the periods ended March 31, 1999 and 1998 presents a
pro forma income tax provision and pro forma net income as they would have been
reported had the Company been subject to federal and state income taxes. The pro
forma effective income tax rate of 24.25% exceeds the federal statutory tiered
rate due to the impact of state income taxes.
-vii-
<PAGE>
Audited Financial Statements
Hollywood Online Inc.
Years ended December 31, 1996, 1997 and 1998
with Report of Independent Auditors
<PAGE>
Hollywood Online Inc.
Audited Financial Statements
Years ended December 31, 1996, 1997 and 1998
Contents
Report of Independent Auditors.................................................1
Audited Financial Statements
Statements of Operations.......................................................2
Balance Sheets.................................................................3
Statements of Shareholder's Equity (Deficit)...................................4
Statements of Cash Flows.......................................................5
Notes to Financial Statements..................................................6
<PAGE>
Report of Independent Auditors
Board of Directors
Hollywood Online Inc.
We have audited the accompanying balance sheets of Hollywood Online Inc., a
wholly owned subsidiary of The Times Mirror Company, as of December 31, 1996,
1997 and 1998, and the related statements of operations, shareholder's equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1998. 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 Hollywood Online Inc. at
December 31, 1996, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Los Angeles, California
March 9, 1999
1
<PAGE>
Hollywood Online Inc.
Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31 Three months ended March 31
1996 1997 1998 1998 1999
-----------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenue $ 1,159,000 $ 963,000 $ 1,622,000 $ 218,000 $ 460,000
Costs and expenses:
Cost of revenues 839,000 1,371,000 1,517,000 368,000 388,000
Selling, general and administrative 910,000 1,304,000 2,127,000 290,000 752,000
Salaries and benefits 774,000 1,436,000 3,945,000 409,000 2,267,000
Amortization of goodwill 355,000 355,000 355,000 89,000 89,000
-----------------------------------------------------------------------
2,878,000 4,466,000 7,944,000 1,156,000 3,496,000
-----------------------------------------------------------------------
Operating loss (1,719,000) (3,503,000) (6,322,000) (938,000) (3,036,000)
Interest income 3,000 -- -- -- --
-----------------------------------------------------------------------
Loss before taxes (1,716,000) (3,503,000) (6,322,000) (938,000) (3,036,000)
Income tax expense (benefit) 19,000 11,000 (30,000) (8,000) --
-----------------------------------------------------------------------
Net loss $(1,735,000) $(3,514,000) $(6,292,000) $ (930,000) $(3,036,000)
=======================================================================
</TABLE>
See accompanying notes.
2
<PAGE>
Hollywood Online Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31 March 31
1996 1997 1998 1999
------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash $ 9,000 $ 13,000 $ 13,000 $ 13,000
Accounts receivable (net of allowance for
doubtful accounts of $0, $7,000, $23,000 and
$23,000 respectively) 36,000 277,000 593,000 575,000
Prepaid and other 31,000 76,000 27,000 89,000
------------------------------------------------------------
Total current assets 76,000 366,000 633,000 677,000
Net property and equipment 721,000 860,000 1,286,000 1,318,000
Goodwill, net of accumulated amortization 1,419,000 1,064,000 710,000 621,000
Other 4,000 2,000 31,000 31,000
------------------------------------------------------------
Total assets $ 2,220,000 $ 2,292,000 $ 2,660,000 $ 2,647,000
============================================================
Liabilities and shareholder's equity (deficit)
Current liabilities:
Accounts payable $ 19,000 $ 359,000 $ 939,000 $ 292,000
Accrued payroll and related liabilities 34,000 114,000 134,000 76,000
Accrued liabilities -- -- 125,000 320,000
Deferred compensation - current -- -- -- 1,415,000
Amount payable to Times Mirror, net 1,869,000 4,988,000 8,705,000 10,508,000
------------------------------------------------------------
Total current liabilities 1,922,000 5,461,000 9,903,000 12,611,000
Deferred tax liabilities 33,000 80,000 -- --
Deferred compensation -- -- 2,298,000 2,613,000
Commitments and contingencies
Shareholder's equity (deficit):
Common stock, no par value:
Authorized shares - 1,000
Issued and outstanding shares - 133 2,000,000 2,000,000 2,000,000 2,000,000
Accumulated (deficit) (1,735,000) (5,249,000) (11,541,000) (14,577,000)
------------------------------------------------------------
Total shareholder's equity (deficit) 265,000 (3,249,000) (9,541,000) (12,577,000)
------------------------------------------------------------
Total liabilities and shareholder's
equity (deficit) $ 2,220,000 $ 2,292,000 $ 2,660,000 $ 2,647,000
============================================================
</TABLE>
See accompanying notes.
3
<PAGE>
Hollywood Online Inc.
Statements of Shareholder's Equity (Deficit)
<TABLE>
<CAPTION>
Common Accumulated
Stock Deficit Total
-------------------------------------------
<S> <C> <C> <C>
Balance at January 16, 1996 $ -- $ -- $ --
Initial contribution 2,000,000 -- 2,000,000
Net loss -- (1,735,000) (1,735,000)
-------------------------------------------
Balance at December 31, 1996 2,000,000 (1,735,000) 265,000
Net loss -- (3,514,000) (3,514,000)
-------------------------------------------
Balance at December 31, 1997 2,000,000 (5,249,000) (3,249,000)
Net loss -- (6,292,000) (6,292,000)
-------------------------------------------
Balance at December 31, 1998 2,000,000 (11,541,000) (9,541,000)
Net loss (unaudited) -- (3,036,000) (3,036,000)
-------------------------------------------
Balance at March 31, 1999 (unaudited) $ 2,000,000 $(14,577,000) $(12,577,000)
===========================================
</TABLE>
See accompanying notes.
4
<PAGE>
Hollywood Online Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended
Year ended December 31 March 31
1996 1997 1998 1998 1999
-----------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss $(1,735,000) $(3,514,000) $(6,292,000) $ (930,000) $(3,036,000)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 410,000 533,000 622,000 146,000 184,000
Changes in other operating
assets and liabilities:
Accounts receivable 29,000 (241,000) (316,000) (11,000) 18,000
Accounts payable and accrued
liabilities 5,000 341,000 705,000 61,000 (452,000)
Deferred tax liability 33,000 47,000 (80,000) (8,000) --
Accrued payroll and related 24,000 80,000 20,000 -- (58,000)
Deferred compensation -- -- 2,298,000 -- 1,730,000
Other (21,000) (43,000) 20,000 8,000 (62,000)
-----------------------------------------------------------------------
Net cash used in operating activities (1,255,000) (2,797,000) (3,023,000) (734,000) (1,676,000)
Investing activities
Capital expenditures (683,000) (318,000) (694,000) (62,000) (127,000)
-----------------------------------------------------------------------
Net cash used in investing activities (683,000) (318,000) (694,000) (62,000) (127,000)
Financing activities
Net change in payable to Times Mirror 1,869,000 3,119,000 3,717,000 796,000 1,803,000
-----------------------------------------------------------------------
Net cash provided by financing
activities 1,869,000 3,119,000 3,717,000 796,000 1,803,000
-----------------------------------------------------------------------
Net increase (decrease) in cash (69,000) 4,000 -- -- --
Cash at beginning of period 78,000 9,000 13,000 13,000 13,000
-----------------------------------------------------------------------
Cash at end of period $ 9,000 $ 13,000 $ 13,000 $ 13,000 $ 13,000
=======================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
Hollywood Online Inc.
Notes to Financial Statements
December 31, 1998
(Information at March 31, 1999 and for the three months ended
March 31, 1998 and March 31, 1999 is unaudited)
1. Summary of Significant Accounting Policies
Nature of Business
Hollywood Online Inc. (the Company) owns and operates a Web site for movies and
the motion picture industry. The Company's Web site (hollywood.com) features a
large collection of movie and celebrity-related multimedia, including digitized
video and audio clips, trailers, soundtrack music, photographs, and interactive
games. Hollywood Online's broad range of movie information includes
current-release movie and video information, daily motion picture industry news,
celebrity interviews, coverage of major movie premieres and film festivals, a
movie database, movie reviews, interactive forums and box-office charts.
Hollywood Online also provides a proprietary movie theater listing service that
covers over 18,000 U.S. movie screens. Hollywood Online commenced its operations
in California in May 1993, and was incorporated in California in September 1993.
On January 16, 1996, The Times Mirror Company (Times Mirror) purchased 100% of
the capital stock of Hollywood Online. The acquisition was accounted for as a
purchase with the excess of the purchase price over the fair value of the net
assets acquired allocated to goodwill (see Note 2). The accompanying financial
statements reflect the acquisition by Times Mirror with the purchase price as an
initial contribution to the capital of the Company. The 1996 statement of
operations reflect the Company's operations from January 1, 1996 through
December 31, 1996. The results of operations from January 1, 1996 through
January 15, 1996, were not significant. Hollywood Online is a wholly owned
subsidiary of Times Mirror and significant accounts and transactions between
Times Mirror and the Company are disclosed as related party transactions in Note
8.
Basis of Presentation
The historical financial statements do not necessarily reflect the results of
operations or financial position that would have existed had the Company been an
independent company. Times Mirror provides certain legal services, tax
compliance and various other corporate services to the Company. The incremental
cost of these services is not believed to be significant and is not included in
the financial statements. The Los Angeles Times, a division of Times Mirror,
provides certain selling promotion and marketing services to the Company in
connection with its normal sales and marketing activities. The incremental cost
of these services is not determinable nor is it believed to be significant and
therefore is not included in the financial statements.
6
<PAGE>
Hollywood Online Inc.
Notes to Financial Statements (continued)
(Information at March 31, 1999 and for the three months ended
March 31, 1998 and March 31, 1999 is unaudited)
1. Summary of Significant Accounting Policies (continued)
Interim Financial Statements
The accompanying balance sheet as of March 31, 1999, and the statements of
operations and cash flows for the three months ended March 31, 1998 and 1999,
and the statement of shareholders' (deficit) for the three months ended March
31, 1999, are unaudited. In the opinion of management, the unaudited financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial position,
results of operations, and cash flows for the interim periods. The results of
operations for the three months ended March 31, 1999, are not necessarily
indicative of operating results to be expected for the full fiscal year.
Economic Reliance on Parent Company
The Company has incurred operating losses since 1995 and has an accumulated
deficit of $11,541,000 and $14,577,000 as of December 31, 1998 and March 31,
1999, respectively. The Company is heavily dependent upon its Parent, Times
Mirror, to provide adequate funding to support its operations. On May 20, 1999,
Times Mirror completed the sale of the Company and the rights to its Web site,
hollywood.com (see Note 9).
Significant Customers and Concentration of Credit Risk
The Company's customers are not concentrated in any geographic region. During
the three years ended December 31, 1998, the Company had various significant
customers (different customers for each year). The two largest customers
accounted for 44% and 17%, 16% and 13%, and 12% and 8% of net revenues in 1996,
1997 and 1998, respectively. At December 31, 1996, 1997 and 1998, one customer
accounted for 60%, 54% and 20% of accounts receivable in each year,
respectively. The Company routinely assesses the financial strength of
significant customers but generally does not require collateral. The Company
establishes an allowance for potential credit losses based on the credit risk
for specific customers, historical trends and other information; such losses
have been within management's expectations.
7
<PAGE>
Hollywood Online Inc.
Notes to Financial Statements (continued)
(Information at March 31, 1999 and for the three months ended
March 31, 1998 and March 31, 1999 is unaudited)
1. Summary of Significant Accounting Policies (continued)
Revenue Recognition
The Company's revenues are derived principally from the sale of advertisements
on its Web site under short-term agreements; advertising rates are dependent on
whether the "impressions" (the number of times an advertisement appears in pages
viewed by users of the Company's online properties) are for general rotation
throughout the Company's Web site or premier areas of the Company's Web site. To
date, the Company's advertising commitments generally have averaged one or two
months in length. The Company also offers a combination of sponsorship and
banner advertising campaign contracts to select premier partners. In general,
these premier partner contracts have longer terms than standard banner
advertising contracts (generally up to one year) and involve some integration
with the Company's Web site. Advertising revenues on both banner and premier
partner contracts are recognized ratably over the period in which the
advertisement is displayed, provided that no significant Company obligations
remain and collection of the resulting receivable is probable. Company
obligations typically include the guarantee of a minimum number of impressions.
Revenue is deferred if the Company is unable to provide the level of impressions
guaranteed. To date, no deferral has been required.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided for by the
straight-line method over the estimated useful lives ranging from 3-10 years.
Leasehold improvements are amortized using the straight-line method over the
shorter of their estimated useful lives or the lease term.
Impairment of Long-Lived Assets
The Company assesses on an ongoing basis the recoverability of long-lived
assets, based on estimates of future undiscounted cash flows compared to net
book value. If the future undiscounted cash flow estimates were less than net
book value, net book value would then be reduced to fair value based on an
estimate of discounted cash flow. The Company also evaluates the amortization
periods of assets, including goodwill and other intangible assets, to determine
whether events or circumstances warrant revised estimates of useful lives.
8
<PAGE>
Hollywood Online Inc.
Notes to Financial Statements (continued)
(Information at March 31, 1999 and for the three months ended
March 31, 1998 and March 31, 1999 is unaudited)
1. Summary of Significant Accounting Policies (continued)
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. As discussed in Note 4, the
Company has recorded deferred compensation to certain executives based on an
estimate of the Company's market value. At December 31, 1998 and March 31, 1999,
the Company estimated its market value based on the relevant terms of the
definitive agreement discussed in Note 9.
Barter Transactions
A portion of the advertising on the Company's Web site is exchanged for
advertisements on the Web sites or publications of other companies. These
revenues and marketing expenses are recorded at the fair value of services
provided or received, whichever is more determinable in the circumstances.
Revenue from barter transactions is recognized as income when advertisements are
delivered on the Company's Web site, and expense from barter transactions is
recognized when advertisements are delivered on the other companies' Web sites.
Barter revenues and expenses in 1996 were not significant. Barter revenues and
expenses were approximately $59,000 and $280,000 for the years ended December
31, 1997 and 1998, respectively, and $41,000 and $0 for the quarters ended March
31, 1998 and 1999, respectively.
The Company also has an agreement with the National Association of Theatre
Owners, Inc. (NATO) which provides access to member theaters nationwide. As part
of this agreement, the company provides certain movie information and related
showtimes via its online/internet network in exchange for certain advertising
and the airing of promotional trailers on the screens of the member theaters.
While the Company believes such exclusive advertising rights are of significant
value, there is no independent basis to assess such value; accordingly, no
amount has been recorded in the financial statement to reflect this arrangement.
Web Site Development Costs
Web site developments costs are expensed as incurred.
9
<PAGE>
Hollywood Online Inc.
Notes to Financial Statements (continued)
(Information at March 31, 1999 and for the three months ended
March 31, 1998 and March 31, 1999 is unaudited)
1. Summary of Significant Accounting Policies (continued)
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs for the years
ended December 31, 1996, 1997 and 1998, amounted to $88,000, $113,000 and
$563,000, respectively.
2. Goodwill
Goodwill represents the excess of the purchase price of the Company over the
fair value of the net assets acquired. Goodwill of $1,774,000 is being amortized
on a straight-line basis over five years and is reported net of accumulated
amortization of $355,000, $710,000 and $1,064,000, at December 31, 1996, 1997
and 1998, respectively.
3. Net Property and Equipment
Property and equipment at December 31 consists of the following:
1996 1997 1998
-----------------------------------------
Office furniture and equipment $ 266,000 $ 277,000 $ 303,000
Computer equipment and software 511,000 801,000 1,469,000
Leasehold improvements 24,000 40,000 40,000
-----------------------------------------
801,000 1,118,000 1,812,000
Less accumulated depreciation and
amortization (80,000) (258,000) (526,000)
-----------------------------------------
$ 721,000 $ 860,000 $ 1,286,000
=========================================
4. Executive Employment and Noncompetition Agreements
The Company maintains executive employment and noncompetition agreements with
certain executives of the Company. The agreements provide for minimum salary
levels, incentive compensation, and deferred compensation. The deferred
compensation vests over a predetermined schedule and unless accelerated at the
option of certain of the executives, will be determined on December 31, 2000,
and paid within two to six months thereafter. The amount to be paid under the
deferred compensation arrangement will be equivalent to 10% to 16% of the market
value of the Company on December 31, 2000.
10
<PAGE>
Hollywood Online Inc.
Notes to Financial Statements (continued)
(Information at March 31, 1999 and for the three months ended
March 31, 1998 and March 31, 1999 is unaudited)
4. Executive Employment and Noncompetition Agreements (continued)
Additionally, in the event of a transaction involving the Company or a
significant portion of its assets, the agreements contain certain accelerated
payment rights and indicate that if any portion of the proceeds from such a
transaction includes any item other than cash, such item shall be valued at its
fair market value as determined under the provisions and subject to the terms of
the agreement.
As of December 31, 1996 and 1997, a reasonable basis for measuring the market
value of the Company was not available and therefore, no amounts have been
accrued as compensation in those periods. As of December 31, 1998, the Company's
executives were 70% vested and the Company recorded compensation of $2,298,000
under the terms of the agreements. This amount reflects Times Mirror's estimate
of fair value, based on the terms of the definitive agreement discussed in Note
9. During the quarter ended March 31, 1999, the Company accrued additional
compensation of $1,730,000 based on subsequent payments under these agreements
and other indicators of fair value. As of March 31, 1999, no amounts have been
paid out under any of the deferred compensation agreements. Under the terms of
the definitive agreement discussed in Note 9, the remaining obligation under the
deferred compensation agreements will not be funded by the buyer.
5. Income Taxes
Hollywood Online is included in Times Mirror's consolidated federal and combined
California tax returns. The Company does not have a tax sharing agreement with
Times Mirror and, as a result, Times Mirror has utilized the Company's taxable
net operating losses without providing a current income tax benefit to the
Company. The Company does however record a deferred tax expense or benefit based
on the tax effects of temporary differences.
11
<PAGE>
Hollywood Online Inc.
Notes to Financial Statements (continued)
(Information at March 31, 1999 and for the three months ended
March 31, 1998 and March 31, 1999 is unaudited)
5. Income Taxes (continued)
The income tax expense (benefit) for the year, which was computed as if the
Company filed a separate income tax return, consisted of the following:
Year ended December 31
1996 1997 1998
-------------------------------------------
Deferred:
Federal $ 15,000 $ 9,000 $(24,000)
State 4,000 2,000 (6,000)
-------------------------------------------
$ 19,000 $ 11,000 $(30,000)
===========================================
The difference between the actual income tax benefit and the U.S. federal
statutory income tax expense (benefit) is reconciled as follows:
<TABLE>
<CAPTION>
Year ended December 31
1996 1997 1998
-------------------------------------------
<S> <C> <C> <C>
Loss before taxes $(1,716,000) $(3,503,000) $(6,322,000)
Federal statutory income tax rate 35% 35% 35%
-------------------------------------------
Federal statutory income tax benefit (601,000) (1,226,000) (2,213,000)
Increase/(decrease) in income taxes
resulting from:
State and local income tax benefit,
net of federal effect (77,000) (180,000) (342,000)
Goodwill amortization not deductible
for tax purposes 124,000 124,000 124,000
Net operating loss utilized by Times
Mirror 569,000 1,286,000 1,454,000
Other 4,000 7,000 6,000
Increase in valuation allowance -- -- 941,000
-------------------------------------------
$ 19,000 $ 11,000 $ (30,000)
===========================================
</TABLE>
12
<PAGE>
Hollywood Online Inc.
Notes to Financial Statements (continued)
(Information at March 31, 1999 and for the three months ended
March 31, 1998 and March 31, 1999 is unaudited)
5. Income Taxes (continued)
The tax effect of temporary differences results in deferred income tax assets
(liabilities) and balance sheet classifications at December 31 as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-----------------------------------------
<S> <C> <C> <C>
Temporary differences:
Depreciation and other property differences $ (36,000) $ (85,000) $ (136,000)
Valuation and other reserves -- 3,000 10,000
Compensation related liabilities 16,000 50,000 1,067,000
State and local income taxes 1,000 2,000 --
-----------------------------------------
(19,000) (30,000) 941,000
Valuation allowance -- -- (941,000)
-----------------------------------------
$ (19,000) $ (30,000) $ --
=========================================
Balance sheet classification:
Current deferred tax asset $ 14,000 $ 50,000 $ 64,000
Noncurrent deferred tax asset (liability) (33,000) (80,000) 877,000
-----------------------------------------
(19,000) (30,000) 941,000
Valuation allowance -- -- (941,000)
-----------------------------------------
$ (19,000) $ (30,000) $ --
=========================================
</TABLE>
6. Commitments and Contingencies
The Company leases office space under an agreement expiring in various years
through 2003. The office lease requires payment of real estate taxes and
maintenance in addition to the minimum rental payments.
Minimum future rental payments under the noncancelable operating lease for each
of the next five years and in the aggregate are as follows:
1999 $ 324,000
2000 345,000
2001 345,000
2002 345,000
2003 345,000
Thereafter --
---------------
$ 1,704,000
===============
13
<PAGE>
Hollywood Online Inc.
Notes to Financial Statements (continued)
(Information at March 31, 1999 and for the three months ended
March 31, 1998 and March 31, 1999 is unaudited)
6. Commitments and Contingencies (continued)
Total rent expense was $141,000, $255,000 and $249,000 in 1996, 1997 and 1998,
respectively.
The Company is a defendant in a legal matter involving a trademark dispute. The
Company does not believe that this legal matter will have a material adverse
effect on its financial position, cash flows or results of operations.
7. Profit Sharing Plan
In July 1997, the Company began participating in a Times Mirror subsidiary
401(k) profit sharing plan for employees meeting the eligibility requirements.
Employees may contribute from 1% to 20% of their annual compensation up to
$10,000. The Company may make contributions at the discretion of the board of
directors. No Company contribution was made for the year ended December 31,
1997. The Company contributed $20,000 for the year ended December 31, 1998.
8. Related Party Transactions
The amount payable to Times Mirror represents the net result of various
transactions between the Company, Times Mirror and the Los Angeles Times. The
balance is generally due on demand and no interest is charged on outstanding
amounts payable. The Company participates in Times Mirror's central cash
management program, wherein all the Company's receipts are remitted to Times
Mirror and all cash disbursements are funded by Times Mirror. Intercompany
charges reflect miscellaneous other administrative
14
<PAGE>
Hollywood Online Inc.
Notes to Financial Statements (continued)
(Information at March 31, 1999 and for the three months ended
March 31, 1998 and March 31, 1999 is unaudited)
8. Related Party Transactions (continued)
expenses incurred by Times Mirror or the Los Angeles Times on behalf of the
Company. The intercompany payable balance also includes revenues billed and
collected by the Los Angeles Times on the Company's behalf.
<TABLE>
<CAPTION>
Three months ended
Year ended December 31 March 31
1996 1997 1998 1998 1999
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning
of period $ -- $ (1,869,000) $ (4,988,000) $ (4,988,000) $ (8,705,000)
Revenues 173,000 344,000 233,000 71,000 --
Expenses (42,000) (191,000) (177,000) (44,000) (176,000)
Cash management, net (2,000,000) (3,272,000) (3,773,000) (824,000) (1,627,000)
----------------------------------------------------------------------------
$ (1,869,000) $ (4,988,000) $ (8,705,000) $ (5,785,000) $(10,508,000)
============================================================================
Average balance
during the period $ (948,000) $ (3,365,000) $ (6,462,000) $ (5,223,000) $ (9,221,000)
============================================================================
</TABLE>
Under the terms of the definitive agreement discussed in Note 9, the
intercompany payable to Times Mirror will not be assumed by the buyer.
9. Subsequent Events
On January 10, 1999, Times Mirror signed a definitive agreement to sell the
stock of Hollywood Online Inc., and the rights to its Web site, hollywood.com.
On May 20, 1999, Times Mirror completed the sale.
On April 9, 1999, the Board of Directors of the Company approved a resolution to
change the name of Hollywood Online, Inc. to hollywood.com, Inc.
10. Year 2000 Issue (Unaudited)
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. As a result, computer
programs having time-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations resulting in the disruption of operations.
15
<PAGE>
Hollywood Online Inc.
Notes to Financial Statements (continued)
(Information at March 31, 1999 and for the three months ended
March 31, 1998 and March 31, 1999 is unaudited)
10. Year 2000 Issue (Unaudited) (continued)
The Company's existing hardware and software systems are substantially compliant
with Year 2000 requirements. However, the Company has not yet performed an
assessment of computer systems belonging to customers, vendors, and other
outside parties with whom it does business. Such an assessment is expected to be
completed during 1999. It is not anticipated that such an assessment will reveal
significant potential problems nor incur significant costs.
No significant amounts have been expensed related to these matters for the years
ended December 31, 1996, 1997 and 1998.
16
<PAGE>
BIG ENTERTAINMENT, INC.
INTRODUCTION TO PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(Unaudited)
The following unaudited pro forma combined condensed financial statements
present the pro forma combined condensed balance sheet at March 31, 1999 and the
pro forma combined statements of operations for the fiscal year ended December
31, 1998 and the three months ended March 31, 1999. The pro forma combined
condensed financial statements:
(1) give effect to the acquisition of hollywood.com, Inc.
("Hollywood.com"),
(2) give effect to the acquisition of substantially all of the assets of
CinemaSource, Inc. ("CinemaSource"), and
(3) give effect to the issuance of 569,820 shares of common stock and
warrants to acquire 189,947 shares of Big Entertainment, Inc. (the
"Company") common stock for $21.25 per share in a private placement to
raise funds for the cash portion of the CinemaSource purchase
consideration, to pay transaction costs of the CinemaSource and
Hollywood.com acquisitions, and for other general purposes.
The pro forma combined condensed balance sheet at March 31, 1999 presents the
pro forma financial position as if the acquisitions of Hollywood.com and
CinemaSource made by the Company and the private placement had been consummated
on March 31, 1999. The pro forma combined statements of operations for the year
ended December 31, 1998 and the three months ended March 31, 1999 present the
pro forma results of operations as if the acquisitions of Hollywood.com and
CinemaSource and the private placement had been consummated as of January 1,
1998.
The pro forma combined condensed financial statements are based upon available
information and certain assumptions considered reasonable by management.
The pro forma combined condensed financial statements were prepared utilizing
each entity's historical financial statements and should be read in conjunction
with the historical financial statements included herein.
- 1 -
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
Big
Entertainment, Hollywood.com, Cinema-
Inc. Inc Source, Inc. Pro Forma Pro Forma
Historical Historical Historical Adjustments Combined
------------ ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 332,178 $ 13,000 $ 141,948 $ (6,500,000)(a) $ 5,167,684
(175,000)(a)
(141,948)(a)
(559,169)(b)
12,108,675 (c)
(52,000)(d)
Receivables, net 883,159 575,000 78,134 1,536,293
Merchandise inventories 875,753 875,753
Prepaid expenses 459,272 89,000 548,272
Other current assets 266,111 266,111
------------ ------------ ---------- ------------- ------------
Total current assets 2,816,473 677,000 220,082 4,680,558 8,394,113
PROPERTY AND EQUIPMENT, net 3,004,118 1,318,000 44,898 4,367,016
INVESTMENT IN NETCO PARTNERS 2,080,813 2,080,813
INTANGIBLE ASSETS, net 148,408 4,567,513 (b) 4,715,921
GOODWILL, net 301,517 621,000 12,551,132 (a) 39,985,141
27,132,492 (b)
(621,000)(b)
OTHER ASSETS 430,783 31,000 3,000 464,783
------------ ------------ ---------- ------------- ------------
TOTAL ASSETS $ 8,782,112 $ 2,647,000 $ 267,980 $ 48,310,695 $ 60,007,787
============ ============ ========== ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 783,507 $ 292,000 $ 22,011 $ (292,000)(b) $ 805,518
Revolving line of credit 202,711 202,711
Accrued expenses 1,311,361 396,000 (320,000)(b) 1,387,361
Deferred revenue 93,556 16,179 109,735
Note payable 1,928,138 (b) 1,928,138
Deferred compensation - current 1,415,000 (1,415,000)(b) --
Due to parent 10,508,000 (10,508,000)(b) --
Current portion of capital lease obligations 763,713 763,713
------------ ------------ ---------- ------------- ------------
Total current liabilities 3,154,848 12,611,000 38,190 (10,606,862) 5,197,176
------------ ------------ ---------- ------------- ------------
CAPITAL LEASE OBLIGATIONS, less current portion 1,626,264 1,626,264
------------ ------------ ---------- ------------- ------------
DEFERRED COMPENSATION 2,613,000 (2,613,000)(b) --
------------ ------------ ---------- ------------- ------------
DEFERRED REVENUE 376,860 376,860
------------ ------------ ---------- ------------- ------------
MINORITY INTEREST 250,905 250,905
------------ ------------ ---------- ------------- ------------
SHAREHOLDERS' EQUITY:
Preferred stock 4,152,261 4,152,261
Common stock 89,981 2,000,000 1,000 4,362 (a) 124,003
(1,000)(a)
23,001 (b)
535 (b)
(2,000,000)(b)
5,698 (c)
426 (d)
Warrants outstanding 834,583 2,866,071 (c) 3,700,654
Deferred compensation (459,300) (459,300)
Additional paid-in capital 35,996,835 5,448,025 (a) 82,280,089
511,587 (a)
29,048,866 (b)
2,090,296 (b)
9,236,906 (c)
(52,000)(d)
(426)(d)
Retained earnings (accumulated deficit) (37,241,125) (14,577,000) 228,790 (228,790)(a) (37,241,125)
14,577,000 (b)
------------ ------------ ---------- ------------- ------------
Total shareholders' equity 3,373,235 (12,577,000) 229,790 61,530,557 52,556,582
------------ ------------ ---------- ------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,782,112 $ 2,647,000 $ 267,980 $ 48,310,695 $ 60,007,787
============ ============ ========== ============= ============
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
- 2 -
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Big
Entertainment, Hollywood.com, Cinema-
Inc. Inc Source, Inc. Pro Forma Pro Forma
Historical Historical Historical Adjustments Combined
----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES $ 1,315,774 $ 460,000 $ 434,386 $ (18,024)(e) $ 2,192,136
COST OF SALES 660,272 388,000 30,215 (18,024)(f) 1,060,463
----------- ----------- ---------- ----------- ------------
Gross profit 655,502 72,000 404,171 -- 1,131,673
----------- ----------- ---------- ----------- ------------
OPERATING EXPENSES:
Selling, general and administrative 1,544,178 752,000 69,214 2,365,392
Salaries and benefits 698,808 2,267,000 319,031 (1,730,000)(g) 1,554,839
Amortization of goodwill and intangibles 7,857 89,000 -- 1,315,877 (h) 1,412,734
----------- ----------- ---------- ----------- ------------
Total operating expenses 2,250,843 3,108,000 388,245 (414,123) 5,332,965
----------- ----------- ---------- ----------- ------------
Operating income (loss) (1,595,341) (3,036,000) 15,926 414,123 (4,201,292)
EQUITY IN EARNINGS OF NETCO PARTNERS 1,094,190 -- -- 1,094,190
OTHER:
Interest, net (190,776) -- 473 (41,600)(i) (231,903)
Other, net (129,903) -- (8,911) (138,814)
----------- ----------- ---------- ----------- ------------
Income (loss) before minority
interest and taxes (821,830) (3,036,000) 7,488 372,523 (3,477,819)
MINORITY INTEREST (152,808) -- -- (152,808)
----------- ----------- ---------- ----------- ------------
Income (loss) before taxes (974,638) (3,036,000) 7,488 372,523 (3,630,627)
INCOME TAX BENEFIT (EXPENSE) -- -- (1,816) 1,816 (k) --
----------- ----------- ---------- ----------- ------------
Net income (loss) $ (974,638) $(3,036,000) $ 5,672 $ 374,339 $ (3,630,627)
=========== =========== ========== =========== ============
Basic and diluted earnings (loss) per common share $ (0.12) $ (0.31)
=========== ============
Weighted average number of shares outstanding 8,565,528 3,402,138 (l) 11,967,666
=========== =========== ============
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
- 3 -
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Big
Entertainment, Hollywood.com, Cinema-
Inc. Inc Source, Inc. Pro Forma Pro Forma
Historical Historical Historical Adjustments Combined
------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES $ 11,126,516 $ 1,622,000 $ 1,282,629 $ (49,757)(e) $ 13,981,388
COST OF SALES 5,987,383 1,517,000 100,480 (49,757)(f) 7,555,106
------------ ------------ ----------- ----------- ------------
Gross profit 5,139,133 105,000 1,182,149 -- 6,426,282
------------ ------------ ----------- ----------- ------------
OPERATING EXPENSES:
Selling, general and administrative 8,840,049 2,127,000 181,880 11,148,929
Salaries and benefits 4,151,725 3,945,000 795,741 (2,298,000)(g) 6,594,466
Amortization of goodwill and intangibles 31,428 355,000 -- 5,264,506 (h) 5,650,934
Reserve for closed stores and
lease termination costs 1,121,028 -- -- 1,121,028
------------ ------------ ----------- ----------- ------------
Total operating expenses 14,144,230 6,427,000 977,621 2,966,506 24,515,357
------------ ------------ ----------- ----------- ------------
Operating income (loss) (9,005,097) (6,322,000) 204,528 (2,966,506) (18,089,075)
EQUITY IN EARNINGS OF NETCO PARTNERS 877,549 -- -- 877,549
OTHER:
Interest, net (818,849) -- (6,860) (180,373)(i) (1,006,082)
Other, net 42,989 -- 31,829 74,818
------------ ------------ ----------- ----------- ------------
Income (loss) before minority
interest and taxes (8,903,408) (6,322,000) 229,497 (3,146,879) (18,142,790)
MINORITY INTEREST (347,081) -- -- (347,081)
------------ ------------ ----------- ----------- ------------
Income (loss) before taxes (9,250,489) (6,322,000) 229,497 (3,146,879) (18,489,871)
INCOME TAX BENEFIT (EXPENSE) (1,407,600) 30,000 (86,000) 56,000 (j)(k) (1,407,600)
------------ ------------ ----------- ----------- ------------
Net income (loss) $(10,658,089) $ (6,292,000) $ 143,497 $(3,090,879) $(19,897,471)
============ ============ =========== =========== ============
Basic and diluted earnings (loss) per common share $ (1.47) $ (1.86)
============ ============
Weighted average number of shares outstanding 7,456,651 3,402,138 (l) 10,858,789
============ =========== ============
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
- 4 -
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(a) Represents preliminary adjustments to record the acquisition of
substantially all of the assets of CinemaSource including:
o Payment of $6.5 million in cash and issuance of 436,191 shares of
common stock valued at $12.50 per share, which was the market value of
the Company's common stock at the time that the Company and the seller
of CinemaSource agreed to the transaction, as consideration for the
acquisition of substantially all the assets of CinemaSource;
o Elimination of the historical cash balance for CinemaSource, as cash
was not one of the assets acquired from the seller;
o Payment of $175,000 in cash and issuance of warrants to acquire 50,000
shares of the Company's common stock valued at $511,587 to an
investment banker representing the estimated total transaction costs
incurred in connection with the CinemaSource acquisition;
o Elimination of the historical shareholder's equity account balances of
CinemaSource; and
o Allocation of the excess purchase price over individual assigned
balances to goodwill.
(b) Represents preliminary adjustments to record the acquisition of
substantially all of the assets of Hollywood.com including:
o Issuance by the Company of 2,300,075 shares of common stock valued at
$12.63953 per share and a one-year unsecured note in the amount of
$1,928,138 payable to The Times Mirror Company ("Times Mirror")
representing $31.0 million of consideration for the acquisition of
Hollywood.com. The value of the Company's common stock of $12.63953
per share represents an average of the per share closing bid price for
the Company's common stock for the 15 trading days ending on the third
trading immediately preceding and the 15 trading days beginning on the
third trading day immediately following the date that the Company and
Times Mirror publicly announced that they had agreed to Hollywood.com
merger transaction, as stipulated in the merger agreement;
o Payment of $559,169 in cash and issuance of 53,452 shares of common
stock valued at $675,608 ($12.63953 per share) and warrants to acquire
175,000 shares of the Company's common stock valued at $1,415,223 to
investment bankers representing the estimated total transaction costs
incurred in connection with the Hollywood.com acquisition;
o Recording the fair value of the projected net benefit to be derived
from the exclusive contract between Hollywood.com and the National
Association of Theatre Owners, Inc. ("NATO") as an intangible asset;
o Elimination of the historical accounts payable balance and certain
other accrued liabilities for Hollywood.com as these liabilities
remain the obligation of Times Mirror;
o Elimination of the historical deferred compensation liability on the
books of Hollywood.com related to employment agreements between Times
Mirror and certain employees of Hollywood.com. The liability payable
under these
- 5 -
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements (Continued)
agreements became measurable as a result of the Company's agreement to
acquire Hollywood.com. These employment agreements are obligations of
Times Mirror and are not being assumed by the Company.
o Elimination of the historical payable from Hollywood.com to Times
Mirror, which was cancelled effective with the closing of the
acquisition of Hollywood.com from Times Mirror.
o Elimination of the historical shareholder's equity account balances of
Hollywood.com; and
o Allocation of the excess purchase price over individual assigned
balances to goodwill.
(c) Represents proceeds from the private placement of 569,820 shares of common
stock and warrants valued at $2,866,071 to acquire 189,947 shares of common
stock of the Company for $21.25 per share.
(d) Represents the estimated issuance costs for the private placement
consisting of $52,000 in cash plus 42,600 shares of common stock and
warrants to acquire 14,200 shares of common stock at $21.25 per share
issued to the placement agent.
(e) Represents elimination of revenues generated by CinemaSource for services
provided to Hollywood.com.
(f) Represents elimination of Hollywood.com's expense for showtimes data
provided by CinemaSource.
(g) Represents elimination of deferred compensation costs attributable to
employment contracts between Times Mirror and certain individuals at
Hollywood.com. These contracts are obligations of Times Mirror and are not
being assumed by the Company.
(h) Represents elimination of historical goodwill amortization on the books of
Hollywood.com, amortization, on a straight-line basis, of goodwill totaling
$28,048,487 associated with the acquisition of Hollywood.com and goodwill
totaling $12,663,480 associated with the acquisition of CinemaSource over a
period of ten (10) years, and amortization, on a straight-line basis, of
the intangible asset representing the value of Hollywood.com's exclusive
contract with NATO estimated at $4,567,513 over a period of approximately
three (3) years.
(i) Represents interest at prime plus 1% on the $1,928,138 note payable to
Times Mirror issued as partial consideration in the acquisition of
Hollywood.com.
(j) Represents elimination of the income tax benefit recorded by Hollywood.com
as such amount would not be recorded by the Company because the Company has
established a valuation allowance equal to 100% of its deferred tax asset.
(k) Represents elimination of the pro forma income tax expense for CinemaSource
as no tax would be payable based on the pro forma combined loss before
income taxes.
- 6 -
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements (Continued)
(l) Includes 2,300,075 shares of Big Entertainment, Inc. common stock issued to
Times Mirror as partial consideration in the acquisition of Hollywood.com,
436,191 shares of common stock issued to the seller of the assets of
CinemaSource as partial consideration therefor, and 569,820 shares of
common stock issued in a private placement (the net proceeds from which
were used to pay the cash portion of the purchase price for the assets of
CinemaSource, transaction costs related to the two acquisitions and other
general purposes), 42,600 shares of common stock issued to the placement
agent as fees for the private placement, and 53,452 shares of common stock
issued to an investment banking firm for services provided in connection
with the Hollywood.com acquisition.
- 7 -
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
*2.1 Asset Purchase Agreement dated as of March 29, 1999 by and among
Big Entertainment, Inc., CinemaSource, Inc., Brett West and
Pamela West (previously filed on March 17, 1999 with the
Company's Annual Report on Form 10-KSB as Exhibit 10.33 thereto).
*2.2 Agreement and Plan of Merger dated as of January 10, 1999, as
amended May 14, 1999, by and among The Times Mirror Company,
Hollywood.com, Inc. (formerly Hollywood Online, Inc.), Big
Entertainment, Inc. and Big Acquisition Corp. (previously filed
on January 19, 1999 with the Company's Current Report on Form 8-K
dated such date as Exhibit 2.1 thereto), as amended by the Waiver
and Consent and Other Modifications dated as of May 14, 1999.
23.1 Consent of Reynolds & Rowella LLP, Independent Auditors
23.2 Consent of Ernst & Young LLP, Independent Auditors
*99 Press Release dated as of May 20, 1999.
- --------
* Previously filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BIG ENTERTAINMENT, INC.
By: /s/ Mitchell Rubenstein
------------------------------
Mitchell Rubenstein
Chairman of the Board and
Chief Executive Officer
Date: June 23, 1999
EXHIBIT 23.1
CONSENT OF REYNOLDS & ROWELLA, LLP, INDEPENDENT AUDITORS
We consent to use of our report dated April 23, 1999 with respect to the
financial statements of CinemaSource, Inc. for the years ended December 31, 1997
and 1998, and our compilation report dated May 7, 1999 with respect to the
balance sheet as of March 31, 1999 and the statements of income and retained
earnings and cash flows for the three months ended March 31, 1999 and 1998 of
CinemaSource, Inc., included in the Big Entertainment, Inc. Form 8-K/A dated
June 18, 1999, and to the incorporation by reference of such report in the Big
Entertainment, Inc. Registration Statements (Form S-3 No. 333-21173) for the
registration of 559,130 shares of common stock, (Form S-3 No. 333-38219) for the
registration of 1,307,502 shares of common stock (Form S-3 No. 333-57855) for
the registration of 821,618 shares of common stock, (Form S-3 No. 333-68209) for
the registration of 1,264,872 shares of common stock, and (Form S-8 No.
333-14659) pertaining to the 1993 Stock Option Plan, as amended, and Directors
Stock Option Plan.
Reynolds & Rowella, LLP
Ridgefield, Connecticut
June 21, 1999
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to use of our report dated March 9, 1999 with respect to the
financial statements of Hollywood Online Inc. for the years ended December 31,
1996, 1997 and 1998, included in the Big Entertainment, Inc. Form 8-K/A dated
June 18, 1999, and to the incorporation by reference of such report in the Big
Entertainment, Inc. Registration Statements (Form S-3 No. 333-21173) for the
registration of 559,130 shares of common stock, (Form S-3 No. 333-38219) for the
registration of 1,307,502 shares of common stock (Form S-3 No. 333-57855) for
the registration of 821,618 shares of common stock, (Form S-3 No. 333-68209) for
the registration of 1,264,872 shares of common stock, and (Form S-8 No.
333-14659) pertaining to the 1993 Stock Option Plan, as amended, and Directors
Stock Option Plan.
Ernst & Young LLP
Los Angeles, California
June 18, 1999
