<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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): FEBRUARY 16, 1999
---------------------
7TH LEVEL, INC.
(Exact name of registrant as specified in its charter)
------------------------
<TABLE>
<CAPTION>
DELAWARE 0-24936 75-2480669
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
(State or other jurisdiction (Commission File Number) (IRS Employer Identification
of incorporation) Number)
</TABLE>
<TABLE>
<CAPTION>
925 WESTCHESTER AVENUE
WHITE PLAINS, NEW YORK 10604
- --------------------------------------- ---------------------------------------
<S> <C>
(Address of principal executive (Zip Code)
offices)
</TABLE>
Registrant's telephone number, including area code: (914) 682-4300
1201 RICHARDSON DRIVE, SUITE 277
RICHARDSON, TEXAS 75080
(Former name or former address, if changed since last report.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
This Form 8-K/A is filed as an amendment to the Current Report on Form 8-K
filed by 7(th) Level, Inc. (the "Company") on February 25, 1999 in connection
with the Company's acquisition of all of the common stock and preferred stock of
Street Technologies, Inc. ("Street").
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to the terms of the Agreement and Plan of Merger, dated as of
February 16, 1999, 7(th) Level Merger Corporation, a wholly owned subsidiary of
the Company, merged with and into Street in exchange for (i) 677,954 shares of
the Company's common stock, $.01 par value per share (the "Common Stock"), and
21,643.97 shares of the Company's Series D Preferred Stock (the "Series D
Stock") for all the outstanding shares of Street common stock, $.0005 par value
per share, and (ii) 4,276,300 shares of the Common Stock for all the outstanding
shares of Street preferred stock, $.0005 par value per share. The Series D Stock
has a liquidation preference of $1,000.00 per share and, upon approval by the
Company's stockholders will automatically be converted into shares of the Common
Stock at a conversion price of $3.00 per share. The exchange of shares was based
on arm's length negotiations. Effective as of the date of the merger, Street
changed its name to 7(th)Street.com, Inc. ("7(th) Street.com").
The common and preferred stock of Street was acquired from Stephen Gott;
Charterhouse Equity Partners II, L.P.; Safa Alai; Scott Near; and Chef Nominees
Limited, none of whom had a material relationship with the Company, or an
affiliate of the Company, director or officer.
Street is an Internet-based provider of multimedia on-line learning and
training products that incorporate audio, video and graphics using its own
proprietary streaming technology. 7(th)Street.com markets its products to
individuals, corporations and governmental organizations. 7(th)Street.com
products include, among other features, testing, results feedback, and
monitoring for group administrators. The technologies of the Company and
7(th)Street.com will be integrated to enhance the effectiveness of the resulting
content.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a) Financial statements of businesses acquired
The following Audited Financial Statements of 7(th) Street.com are filed
on the pages listed below:
<TABLE>
<S> <C>
Report of Independent Public Accountants-1998................................. F-1
Report of Independent Public Accountants-1997................................. F-2
Balance Sheets as of December 31, 1998 and 1997............................... F-3
Statements of Operations for the years ended December 31, 1998 and 1997....... F-4
Statements of Stockholders' Equity for the years ended December 31, 1998 and
1997........................................................................ F-5
Statements of Cash Flows for the years ended December 31, 1998 and 1997....... F-6
Notes to Financial Statements................................................. F-7
</TABLE>
b) Pro Forma financial information
The following required pro forma financial information of the Company and
7(th) Street.com is filed on the pages listed below:
<TABLE>
<S> <C>
Pro Forma Condensed Balance Sheets as of December 31, 1998................... F-17
Pro Forma Condensed Statements of Operations for the year ended December 31,
1998....................................................................... F-18
</TABLE>
c) Exhibits
23.1 Consent of KPMG LLP
23.2 Consent of Arthur Andersen LLP
2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of 7thStreet.com, Inc.
(formerly known as Street Technologies, Inc.):
We have audited the accompanying balance sheet of 7thStreet.com, Inc. (a
Delaware corporation) as of December 31, 1998, and the related statements of
operations, stockholders' equity (deficit) 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 financial position of 7thStreet.com, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
February 17, 1999
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of 7thStreet.com, Inc.
(formerly known as Street Technologies, Inc.):
We have audited the accompanying balance sheet of 7thStreet.com, Inc. (a
Delaware corporation) as of December 31, 1997, and the related statements of
operations, stockholders' equity (deficit) 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 financial position of 7thStreet.com, Inc. as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
KPMG LLP
Stamford, CT
June 5, 1998
F-2
<PAGE>
7(TH) STREET.COM, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................................... $ 1,349,611 $ 1,109,222
Accounts receivable, net of allowance of $12,822 in 1998 and $6,000 in 1997,
respectively.................................................................... 602,679 413,468
Prepaid expenses and other current assets......................................... 288,908 352,901
------------- -------------
Total current assets.......................................................... 2,241,198 1,875,591
COMPUTER SOFTWARE, NET.............................................................. 525,217 --
EQUIPMENT AND FURNITURE, NET........................................................ 359,273 383,084
OTHER ASSETS........................................................................ 21,170 7,658
------------- -------------
Total assets.................................................................. $ 3,146,858 $ 2,266,333
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.................................................................. $ 181,030 $ 168,369
Accrued expenses.................................................................. 275,587 148,938
Current portion of capital lease obligations...................................... 57,123 88,837
Deferred revenue.................................................................. 1,352,505 622,789
------------- -------------
Total current liabilities..................................................... 1,866,245 1,028,933
CAPITAL LEASE OBLIGATIONS........................................................... -- 57,123
DEFERRED REVENUE.................................................................... 1,234,088 1,643,499
------------- -------------
Total liabilities............................................................. 3,100,333 2,729,555
------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock, $.0005 par value; authorized 30,000,000 shares; issued and
outstanding 14,002,235 and 14,000,000 shares in 1998 and 1997, respectively..... 7,001 7,000
Convertible Preferred Stock Series A, $.0005 par value; authorized 6,000,000
shares; issued and outstanding 5,520,930 shares in 1998 and 1997, respectively
(liquidation preference--$.63 per share)........................................ 3,318,400 3,318,400
Convertible Preferred Stock Series B, $.0005 par value; authorized 6,405,979
shares; no shares issued and outstanding in 1998 and 1997, respectively......... -- --
Additional paid-in capital........................................................ 155,851 --
Accumulated deficit............................................................... (3,434,727) (3,788,622)
------------- -------------
Total stockholders' equity (deficit).......................................... 46,525 (463,222)
------------- -------------
Total liabilities and stockholders' equity (deficit).......................... $ 3,146,858 $ 2,266,333
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
7(TH) STREET.COM, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 19977
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
REVENUES:
Technology licenses and maintenance............................................... $ 3,155,555 $ 3,832,582
Content, subscription and other................................................... 1,527,530 355,424
------------- -------------
Total revenues................................................................ 4,683,085 4,188,006
COSTS OF REVENUES:
Content, subscription, maintenance and other...................................... 312,449 569,318
------------- -------------
Gross profit.................................................................. 4,370,636 3,618,688
------------- -------------
OPERATING EXPENSES:
Research, development and production.............................................. 2,238,779 2,429,327
Selling and marketing............................................................. 880,193 1,852,458
General and administrative........................................................ 983,453 1,025,977
------------- -------------
Total operating expenses...................................................... 4,102,425 5,307,762
------------- -------------
Income (loss) from operations................................................. 268,211 (1,689,074)
INTEREST INCOME, net................................................................ 85,684 163,151
------------- -------------
Income (loss) before provision for income taxes............................... 353,895 (1,525,923)
PROVISION FOR INCOME TAXES.......................................................... -- 22,829
------------- -------------
Net income (loss)............................................................. $ 353,895 $ (1,548,752)
------------- -------------
------------- -------------
Net income (loss) per share
Basic......................................................................... $ .03 $ (.11)
------------- -------------
------------- -------------
Diluted....................................................................... $ .02 $ (.11)
------------- -------------
------------- -------------
Weighted average shares outstanding
Basic......................................................................... 14,000,612 14,000,000
------------- -------------
------------- -------------
Diluted....................................................................... 19,521,542 14,000,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
7(TH) STREET.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 19977
<TABLE>
<CAPTION>
PREFERRED STOCK
-------------------------------------------
CONVERTIBLE SERIES A CONVERTIBLE SERIES B COMMON STOCK ADDITIONAL
-------------------- --------------------- ---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- --------- --------- ---------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996...... 5,520,930 $3,273,000 3,202,900 $4,630,664 14,000,000 $ 7,000 $ -- $(2,239,870)
Exchange of Series B Preferred
Stock....................... -- -- (3,202,900) (4,630,664) -- -- -- --
Series A Preferred Stock
accretion................... -- 45,400 -- -- -- -- -- --
Net loss...................... -- -- -- -- -- -- -- (1,548,752)
--------- --------- --------- ---------- --------- ----------- ----------- ------------
BALANCE, December 31, 1997...... 5,520,930 3,318,400 -- -- 14,000,000 7,000 -- (3,788,622)
Exercise of Common Stock
options..................... -- -- -- -- 2,235 1 851 --
Compensation expense in
connection with Common Stock
option issuances............ -- -- -- -- -- -- 155,000 --
Net income.................... -- -- -- -- -- -- -- 353,895
--------- --------- --------- ---------- --------- ----------- ----------- ------------
BALANCE, December 31, 1998...... 5,520,930 $3,318,400 -- $ -- 14,002,235 $ 7,001 $ 155,851 $(3,434,727)
--------- --------- --------- ---------- --------- ----------- ----------- ------------
--------- --------- --------- ---------- --------- ----------- ----------- ------------
<CAPTION>
STOCKHOLDERS'
EQUITY
(DEFICIT)
------------
<S> <C>
BALANCE, December 31, 1996...... $5,670,794
Exchange of Series B Preferred
Stock....................... (4,630,664)
Series A Preferred Stock
accretion................... 45,400
Net loss...................... (1,548,752)
------------
BALANCE, December 31, 1997...... (463,222)
Exercise of Common Stock
options..................... 852
Compensation expense in
connection with Common Stock
option issuances............ 155,000
Net income.................... 353,895
------------
BALANCE, December 31, 1998...... $ 46,525
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
7TH STREET.COM, 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).................................................................. $ 353,895 $ (1,548,752)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities--
Depreciation and amortization.................................................. 573,589 135,610
Accretion of Series A Preferred Stock.......................................... -- 45,400
License revenue recognized in 1997 in exchange of Series B Convertible
Preferred Stock.............................................................. -- (2,439,664)
Non cash compensation expense.................................................. 155,000 --
Changes in operating assets and liabilities--
Accounts receivable.......................................................... (189,211) (324,237)
Prepaid expenses and other current assets.................................... (192,211) (321,693)
Accounts payable............................................................. 12,661 38,933
Accrued expenses............................................................. 126,649 (67,139)
Deferred revenue............................................................. 320,305 (1,066,462)
------------ -------------
Net cash provided by (used in) operating activities........................ 1,160,677 (5,548,004)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures--equipment and furniture...................................... (159,589) (183,646)
Capital expenditures--software..................................................... (654,207) --
Increase in other assets........................................................... (18,507) --
------------ -------------
Net cash used in investing activities...................................... (832,303) (183,646)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of Common Stock options................................. 852 --
Payments on capital leases......................................................... (88,837) (78,530)
------------ -------------
Net cash used in financing activities...................................... (87,985) (78,530)
------------ -------------
Net increase (decrease) in cash and cash equivalents....................... 240,389 (5,810,180)
CASH AND CASH EQUIVALENTS, beginning of year......................................... 1,109,222 6,919,402
------------ -------------
CASH AND CASH EQUIVALENTS, end of year............................................... $ 1,349,611 $ 1,109,222
------------ -------------
------------ -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest......................................................... $ 13,187 $ 23,514
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
7(TH) STREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. INCORPORATION AND NATURE OF BUSINESS
Street Technologies, Inc. (the "Company") was incorporated under the laws of
the State of Delaware on November 14, 1995. The Company markets interactive
multimedia courseware that is accessed instantly over the Internet and
intranets.
The Company relies on its streaming technology and content aggregation to
deliver enriched online learning. The Company's streaming technology allows
digital video, audio, graphics and animation to be accessed simultaneously by
multiple users over the Internet and intranets.
The Company's principal products include StreamMaker, an authoring tool for
developing streams, Learning University, an advanced learning distribution
system for online multimedia courses for organizations, and Tutorials.com, an
advanced learning distribution system for online multimedia courses for
individuals.
The Company merged with 7thLevel, Inc. in February 1999. In connection with
the merger, the Company changed its name to 7thStreet.com, Inc. (See Note 10).
2. SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Cash equivalents were $1,287,478 and $1,046,442 at December 31, 1998 and
1997, respectively, and consisted of certificates of deposit and short-term
mutual funds with maturities under ninety days. For purposes of the statement of
cash flows, the Company considers all investments with original maturities of
ninety days or less to be cash equivalents.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the provisions of
Statement of Position ("SOP") No. 97-2, "Software Revenue Recognition." Revenues
from software license agreements are recognized upon delivery and acceptance of
the software if there are no significant post-delivery and acceptance
obligations, and payment is fixed and determinable. Revenues for post-contract
customer support are recognized ratably over the term of the support period.
Revenues from development and consulting services are recognized in the period
in which services are provided and the revenues are fixed and determinable.
For direct and indirect sales to organizations, the Company recognizes
revenue for the software license at the time of sale. In most instances, the
Company provides web hosting services. The Company recognizes revenue for this
post-contract support ratably over the hosting period, which is generally one
year.
The Company recognizes revenue for the sale to resellers during the year as
product is delivered and payment is made. In most instances, the Company
provides web hosting services and therefore recognizes revenue for this
post-contract support ratably over the hosting period.
Prior to January 1, 1998, the Company recognized revenue in accordance with
SOP No. 91-1, "Software Revenue Recognition".
F-7
<PAGE>
7(TH) STREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION AND AMORTIZATION
The Company provides for depreciation and amortization using the
straight-line method to allocate the cost of property and equipment over their
estimated useful lives as follows:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
ASSET CLASSIFICATION LIFE
- ------------------------------------------------------------------------ --------------------
<S> <C>
Computer equipment...................................................... 3 years
Furniture and fixtures and office equipment............................. 10 years
</TABLE>
SOFTWARE DEVELOPMENT COSTS
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for
the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed,"
requires the capitalization of certain software development costs once
technological feasibility is established. The capitalized cost is then amortized
on a straight-line basis over the estimated product life, or on the ratio of
current revenues to total projected product revenues, whichever is greater.
For the year ended December 31, 1998, the Company has capitalized $525,217
of software development costs, net of accumulated amortization of $385,192.
These costs will be amortized over a period of nine months to five years.
Software development costs incurred prior to achieving technological feasibility
are charged to development expense as incurred.
For the year ended December 31, 1997, the Company has determined that the
period between achieving technological feasibility which the Company has defined
as the establishment of a working model, and the general availability of such
software has been short and, as a result, software development costs qualifying
for capitalization have been insignificant. Accordingly, in the accompanying
1997 statement of operations software development costs have been expensed as
incurred and included in research and development costs.
LONG-LIVED ASSETS
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Under the
provisions of this statement, the Company has evaluated its long-lived assets
for financial impairment, and will continue to evaluate them as events or
changes in circumstances indicate that the carrying amount of such assets may
not be fully recoverable.
The Company evaluates the recoverability of long-lived assets held for sale
by comparing the asset's carrying amount with its fair value less cost to sell.
Based on these evaluations, there were no adjustments to the carrying value of
long-lived assets in 1998 or 1997.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the current
year presentation.
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires using the asset and liability method of
accounting for income taxes. Under this method,
F-8
<PAGE>
7(TH) STREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities, and their respective tax
bases. Deferred income tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Valuation allowances are
provided against deferred tax assets when, in the opinion of management, net
deferred assets are not expected to be realized.
EARNINGS (LOSS) PER SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
128, "Earnings Per Share" ("SFAS No. 128"). This statement established standards
for computing and presenting earnings per share. This statement is effective for
periods ending after December 15, 1997.
Basic earnings per share was determined by dividing net income (loss) by the
weighted average common shares outstanding during the period. Diluted earnings
per share was determined by dividing net income (loss) by diluted weighted
average shares outstanding. Diluted weighted average shares reflects the
dilutive effect, if any, of common equivalent shares and nominal issuances.
Common equivalent shares include common stock options and warrants to the extent
their effect is dilutive, based on the treasury stock method.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires the measurement of the fair value of stock options
or warrants granted to employees to be included in the statement of operations
or, alternatively, disclosed in the notes to financial statements. The Company
has determined that it will continue to apply the provisions of Accounting
Principles Board Opinion ("APB") No. 25 in determining measurement of
compensation expense and to disclose in the notes to its financial statements
the impact on net earnings as if the fair-value-based compensation cost had been
recognized.
USE OF ESTIMATES AND OTHER UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
The Company's estimates and future results could be adversely affected by a
number of uncertainties related to its new software products. Such factors
include, but are not limited to, market acceptance; ability to obtain sales
volumes and adequate prices; the Company's sustained commitment of resources to
further development and market the technology; and the technological competitive
advantage of these new products.
F-9
<PAGE>
7(TH) STREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
3. SIGNIFICANT SOFTWARE LICENSE, MAINTENANCE AND RESELLER AGREEMENTS
a. On September 30, 1998, the Company entered into a technology license
agreement with a customer whereby the customer received the right to use
Streammaker. Additionally, the customer will pay the Company a 10% royalty
for customer's sale of content developed with Streammaker. This agreement,
which replaced a previous technology agreement executed in January 1997,
specified that in conjunction with the execution of the agreement, certain
royalties previously owed to each party would be paid.
In consideration, the customer paid the Company the net amount due of
$366,648, which represented $684,648 due to the Company less $318,000 due to
the customer. $512,648 of the total $684,648 was recognized as technology
license revenue in 1998, and $172,000 was deferred on September 30, 1998 and
will be recognized ratably over a two-year period.
b. On May 1, 1998, the Company entered into a software license and
content acquisition agreement, whereby the customer received a 75-year
license for the use of Streammaker. The customer also received a maintenance
contract for two years and the authority to resell the Company's software.
In consideration, the customer paid the Company $2,500,000, of which
$2,153,000 was recognized as technology license and content revenue in 1998,
and $347,000 was deferred on May 1, 1998 and will be recognized ratably over
a two-year period.
c. On December 18, 1996, the Company entered into a Streammaker license
agreement with a customer, whereby the customer received the perpetual right
to incorporate Streammaker into the customer's software products, and
software maintenance for five years. In consideration, the customer agreed
to pay the Company a percentage of the revenue attributable to the sale of
content developed with Streammaker. As part of this agreement, the customer
paid the Company $1,000,000, a guaranteed minimum royalty for 1997. The
$1,000,000 was deferred at December 31, 1996 and recognized as technology
license revenue in 1997.
Concurrent with this agreement, the same customer purchased 3,202,990 shares
of Convertible Preferred Stock Series B for $4,630,664 (net of issuance
costs of $366,000).
On December 24, 1997, the Company and the customer amended the
aforementioned technology license agreement whereby the customer's license
became royalty free. In consideration, the customer paid the Company
$300,000 and returned the Company's Convertible Series B Preferred Stock.
In 1997, the Company accounted for this exchange as a sale and has allocated
$2,739,664 of the total consideration to technology license revenue
recognized in 1997. The balance of the consideration has been allocated to
the performance of future maintenance and has been deferred at December 31,
1997, to be recognized as maintenance revenue ratably over the maintenance
period. In 1998, approximately $548,000 was recognized in maintenance
revenue under this contract.
F-10
<PAGE>
7(TH) STREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
4. EQUIPMENT AND FURNITURE
Equipment and furniture at December 31, 1998 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Computer equipment.................................................. $ 588,872 $ 436,639
Furniture, fixtures and office equipment............................ 134,920 127,562
----------- -----------
723,792 564,201
Less--Accumulated depreciation...................................... (364,519) (181,117)
----------- -----------
$ 359,273 $ 383,084
----------- -----------
----------- -----------
</TABLE>
Depreciation and amortization expense on property and equipment, including
capital leases, was approximately $183,000 and $136,000 in 1998 and 1997,
respectively. The book value of equipment under capital leases included in
equipment and furniture was $254,478 at December 31, 1998 and 1997.
5. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
SFAS No. 105, "Disclosure of Information About Financial Instruments With
Off-Balance Sheet Risk and Financial Instruments With Concentrations of Credit
Risk," requires disclosure of any significant off-balance sheet risk and credit
risk concentrations. The Company maintains its cash and cash equivalents with
several financial institutions and invests in investment-grade securities.
The Company recorded revenues of greater than 10% of total revenues from the
following customers:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
--------------- ---------------
SIGNIFICANT PERCENTAGE PERCENTAGE
CUSTOMER OF REVENUES OF REVENUES
- ----------------- --------------- ---------------
<S> <C> <C>
1......... 48% --
2......... 12% 81%
3......... 11% --
</TABLE>
6. INCOME TAXES
For 1998, the Company had no federal income tax expense and state income tax
expense was insignificant. The provision for income taxes for the year ended
December 31, 1997 was $22,829, of which $16,829 was current federal and $6,000
was current state and local.
F-11
<PAGE>
7(TH) STREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
6. INCOME TAXES (CONTINUED)
Actual income tax expense differs from the amount computed by applying the
U.S. Federal income tax rate of 34% to loss before income taxes for the year
ended December 31, 1997 as a result of the following:
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Expected Federal income tax benefit.................................................................. $ (518,814)
State and local income taxes, net of Federal benefit................................................. 3,960
Non deductible expenses.............................................................................. 14,600
Valuation allowance.................................................................................. 523,083
-----------
Total income tax expense........................................................................... $ 22,829
-----------
-----------
</TABLE>
At December 31, 1998, the Company had operating loss carryforwards available
to offset future federal taxable income of approximately $1,269,000. These
operating loss carryforwards expire at various dates through 2012 and under
Section 382 of the Internal Revenue Code, may be limited due to ownership
changes.
The approximate income tax effect of each type of temporary difference and
carryforward that gives rise to the Company's deferred tax asset as of December
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Deferred revenue.................................................. $ 820,158 $ 887,355
Net operating loss carryforwards.................................. 513,836 318,846
Inventory obsolescence............................................ 117,167 199,484
Other temporary differences....................................... 101,660 62,627
Software development costs........................................ (212,713) --
------------ ------------
1,340,108 1,468,312
Less--Valuation allowance......................................... 1,340,108 1,468,312
------------ ------------
Net deferred tax asset...................................... $ -- $ --
------------ ------------
------------ ------------
</TABLE>
The Company has recorded a valuation allowance equal to its net deferred tax
asset due to the uncertainty of realizing the benefit of this asset.
7. STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
The Company has authorized capital of 30,000,000 shares of Common Stock with
a par value of $0.0005 per share. As part of the initial capital investment to
form the Company, 12,000,000 shares of Common Stock were issued to the Company's
Chairman and Chief Executive Officer at par value. On January 6, 1996, the
Company issued 2,000,000 shares of Common Stock in connection with the
acquisition of Nova Productions, Inc., a Colorado-based software company.
PREFERRED STOCK
The Company has authorized 6,000,000 shares of Convertible Preferred Stock
Series A (Series A Preferred Stock). On April 6, 1996, the Company entered into
a Securities Purchase Agreement with
F-12
<PAGE>
7(TH) STREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Charterhouse Equity Partners II, L.P. and Chief Nominees Limited (collectively,
the "Investors") whereby the Investors purchased 5,520,930 shares of Series A
Preferred Stock for $3,500,000. Each share of Series A Preferred Stock is
convertible into one share of the Company's Common Stock.
The Company has authorized 6,405,979 shares of Convertible Preferred Stock
Series B (Series B Preferred Stock). On December 18, 1996, the Company entered
into a Securities Purchase Agreement with the customer described in Note 3c,
whereby the customer purchased 3,202,990 shares of Series B Preferred Stock for
$4,996,664, inclusive of issuance costs of $366,000. Each share of Series B
Preferred Stock is convertible into one share of the Company's Common Stock.
On December 24, 1997, the Company and the customer entered in an agreement
whereby the customer exchanged the shares of Series B Preferred Stock and
$300,000 in consideration for amendments to the original License Agreement (see
Note 3).
All preferred stockholders are entitled to receive dividends and other
distributions equivalent to those declared or paid on Common Stock as if all
Preferred Stock had been converted into shares of Common Stock. No such
dividends have been declared.
Each share of Preferred Stock is convertible at the option of the holder and
is mandatorily converted into Common Stock upon the closing of an initial public
offering if the amount raised in the initial public offering is $12.5 million in
the aggregate and at least $3.12 per share.
WARRANTS
Effective December 18, 1996, the Company issued a warrant to purchase up to
64,000 shares of Series B Preferred Stock, par value $0.0005 per share of the
Company for a per share price of $1.56 with an expiration date of December 15,
2001.
8. STOCK OPTIONS
On January 29, 1996, the Company established the Stock Option Plan (the
"Plan") which was amended on October 10, 1997. The Plan provides for the grant
of incentive and nonqualified stock options to employees, directors and certain
consultants. All stock options are issued with exercise prices equal to fair
market value at the date of grant, as determined by the Company's Board of
Directors. At December 31, 1998, there were 650,500 shares available for
issuance under the Plan.
F-13
<PAGE>
7(TH) STREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
8. STOCK OPTIONS (CONTINUED)
The table below provides a summary of stock option activity for the years
ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE PRICE
SHARES PER SHARE
---------- ---------------
<S> <C> <C>
Outstanding at December 31, 1996................................... 1,959,000 $ 0.33
Options granted................................................ 683,500 1.56
Options cancelled.............................................. (930,000) 0.40
---------- -----
Outstanding at December 31, 1997................................... 1,712,500 0.73
Options granted................................................ 567,000 1.61
Options canceled............................................... (27,765) 0.76
Options exercised.............................................. (2,235) 1.02
---------- -----
Outstanding at December 31, 1998................................... 2,249,500 0.97
---------- -----
---------- -----
Exercisable at December 31, 1998................................... 964,208 $ 0.63
---------- -----
---------- -----
</TABLE>
F-14
<PAGE>
7(TH) STREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
8. STOCK OPTIONS (CONTINUED)
Employee and consultant options are normally exercisable in increments over
a three or four year period or are based on meeting certain performance goals,
such as sales plans. At December 31, 1998, options outstanding had a weighted
average remaining contractual life of 8.16 years.
The Company adopted SFAS No. 123 during 1996 and elected to continue to
apply the provisions of APB 25 in measuring compensation expense. As such, the
Company does not recognize compensation expense relating to the issuance of
employee stock options where the exercise price of the option equaled the fair
value (as determined by the Company's Board of Directors) of the stock on the
date of grant. As a nonpublic entity, the Company utilizes the minimum value
method to determine the fair value of the options on the date of grant in
accordance with SFAS No. 123. In January 1998, the Company's President issued
100,000 options to purchase shares of the Company's common stock owned by him to
an employee. As the shares were issued at an amount that was below fair market
value, a compensation expense of $155,000 was recognized in the Company's
December 31, 1998 financial statements.
The weighted average fair value of options granted in 1998 ranged from
$0.47--$0.52 per share, and in 1997 ranged from $0.20-$0.24 per share based on
the following weighted average estimates on the date of grant using the modified
Black-Scholes option pricing model:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------
<S> <C> <C>
Risk-free interest rate........................................... 4.39%-5.81% 6.75%
Expected life in years............................................ 7 10
Expected volatility and dividends................................. -- --
</TABLE>
Had the Company recorded compensation for the options issued in 1998 and
1997, the following would be the resultant pro forma amounts of net income
(loss):
<TABLE>
<CAPTION>
1998 1997
---------- -------------
<S> <C> <C>
Net income (loss)--as reported..................................... $ 353,895 $ (1,548,752)
Net income (loss)--pro forma....................................... 66,550 (1,657,675)
</TABLE>
9. LEASE COMMITMENTS
The Company has operating leases for its office facilities which expire on
various dates through 2000. The leases provide for escalation and additional
payments relating to operating expenses.
The Company leases certain computer and office equipment under capital
leases expiring on various dates through 1999. The following is a schedule of
future minimum lease payments for capital and operating leases as of December
31, 1998:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
Year ending December 31
1999............................................................... $ 59,513 $ 124,900
2000............................................................... -- 15,200
--------- ----------
Total minimum lease payments................................... 59,513 $ 140,100
--------- ----------
--------- ----------
Less--Interest component........................................... (2,390)
--------- ----------
Present value of minimum lease payments........................ 57,123
Less--Current portion.............................................. 57,123
--------- ----------
Noncurrent portion............................................. $ --
--------- ----------
--------- ----------
</TABLE>
Rent expense for all operating leases was approximately $166,000 and
$177,000 for 1998 and 1997, respectively.
F-14
<PAGE>
7(TH) STREET.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
10. RELATED PARTY TRANSACTIONS
The Company maintains a key man life insurance policy for its President. The
face amount of the policy is $5,000,000, and the Company is the beneficiary to
the policy. The premiums for this policy are $11,710 per annum. As of December
31, 1998, there is no cash surrender value on this policy.
11. SUBSEQUENT EVENT
In February 1999, the Company merged with 7(th) Level, Inc., ("7(th) Level")
a public company that uses its streaming technology to market multimedia
communications products. To consummate the transaction, 7(th) Level issued
4,948,182 shares of 7(th)Level's Common Stock and shares of 7(th) Level's Series
D 8% Preferred Stock ("Series D") with an aggregate liquidation preference of
$21,643,970. Upon the receipt of shareholder approval, the Series D shares will
convert into Common Stock at $3.00. In addition to the preferred dividends, the
Preferred shares are entitled to participate with the Common Stock in dividends
and distributions and to vote on most matters on an "as converted" basis. The
total value of the transaction is $36,488,516 and will be accounted for by
7(th)Level using the purchase method of accounting.
SUMMARY UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following pro forma consolidated combined condensed balance sheet and
statement of operations of 7(th) Level, Inc. as of and for the year ended
December 31, 1998, have been derived from 7(th) Level, Inc.'s consolidated
financial statements, which have been prepared in accordance with generally
accepted accounting principles and have been audited by Arthur Andersen LLP. The
condensed balance sheet and statement of operations for 7thStreet.com, Inc.
(formerly Street Technologies, Inc.) for the year ended December 31, 1998, have
been derived from 7thStreet.com, Inc.'s financial statements which have been
prepared in accordance with generally accepted accounting principles and have
been audited by Arthur Andersen LLP, independent public accountants. All of the
financial data set forth below should be read in conjunction with the
consolidated financial statements of 7(th)Level, Inc. filed on the Company's
Form 10-K and the financial statements of 7thStreet.com, Inc. which are included
in this Form 8-K/A.
The following tables present summary unaudited pro forma combined condensed
financial information after giving effect to the 7(th) Street.com, Inc. Merger.
The Merger has been accounted for using purchase accounting. The pro forma
combined condensed balance sheet has been prepared as if such transaction had
been effective as of December 31, 1998, while the pro forma combined condensed
statement of operations for the year ended December 31, 1998 has been prepared
as if such transaction had been effective as of January 1, 1998. The data below
is presented for illustrative purposes and is not necessarily indicative of the
operating results or financial positions that would have occurred or that will
occur in the future.
F-15
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following pro forma consolidated combined condensed balance sheet and
statement of operations of 7(th) Level, Inc. as of and for the year ended
December 31, 1998, have been derived from 7(th) Level, Inc.'s consolidated
financial statements, which have been prepared in accordance with generally
accepted accounting principles and have been audited by Arthur Andersen LLP. The
condensed balance sheet and statement of operations for 7thStreet.com, Inc.
(formerly Street Technologies, Inc.) for the year ended December 31, 1998, have
been derived from 7thStreet.com, Inc.'s financial statements which have been
prepared in accordance with generally accepted accounting principles and have
been audited by Arthur Andersen LLP, independent public accountants. All of the
financial data set forth below should be read in conjunction with the
consolidated financial statements of 7(th)Level, Inc. filed on the Company's
Form 10-K and the financial statements of 7thStreet.com, Inc. which are included
in this Form 8-K/A.
The following tables present summary unaudited pro forma combined condensed
financial information after giving effect to the 7(th) Street.com, Inc. Merger.
The Merger has been accounted for using purchase accounting. The pro forma
combined condensed balance sheet has been prepared as if such transaction had
been effective as of December 31, 1998, while the pro forma combined condensed
statement of operations for the year ended December 31, 1998 has been prepared
as if such transaction had been effective as of January 1, 1998. The data below
is presented for illustrative purposes and is not necessarily indicative of the
operating results or financial positions that would have occurred or that will
occur in the future.
F-16
<PAGE>
7TH LEVEL, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
STREET
TECHNOLOGIES,
7TH LEVEL INC. ADJUSTMENTS PRO FORMA
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $ 11,215,702 1,349,611 -- $ 12,565,313
Accounts receivable, net.... 42,317 602,679 -- 644,996
Prepaid expenses and other
current assets............ 286,238 288,908 -- 575,146
------------ ------------- ----------- ------------
Total current assets.... 11,544,257 2,241,198 -- 13,785,455
Fixed assets, net............. 1,399,652 359,273 -- 1,758,925
Capitalized software, net..... -- 525,217 13,626,000(1) 14,151,217
Intangible assets............. 7,059 -- 3,162,000(1) 3,169,059
Goodwill...................... -- -- 8,441,876(2) 8,441,876
Other assets.................. 65,421 21,170 -- 86,591
------------ ------------- ----------- ------------
Total Assets............ $ 13,016,389 3,146,858 25,229,876 $ 41,393,123
------------ ------------- ----------- ------------
------------ ------------- ----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............ 197,962 181,030 -- 378,992
Accrued expenses............ 2,172,692 275,587 -- 2,448,279
Current portion of deferred
revenue................... -- 1,352,505 -- 1,352,505
Current portion of notes
payable................... 485,135 -- -- 485,135
Capital leases.............. 148,493 57,123 -- 205,616
Other current liabilities... 183,114 -- -- 183,114
------------ ------------- ----------- ------------
Total current
liabilities........... 3,187,396 1,866,245 -- 5,053,641
Deferred revenue............ -- 1,234,088 -- 1,234,088
Other long term
liabilties................ 45,916 -- -- 45,916
------------ ------------- ----------- ------------
Total Liabilites........ 3,233,312 3,100,333 -- 6,333,645
Stockholders Equity
Common stock................ 237,636 7,001 49,482(4) 294,119
Preferred stock............. 628,800 3,318,400 216,440(4) 4,163,640
Additional paid in
capital................... 93,965,769 155,851 33,600,954(4) 127,722,574
Accumulated deficit......... (85,049,128) (3,434,727) (8,637,000)(3) (97,120,855)
------------ ------------- ----------- ------------
Total Stockholders
Equity................ 9,783,077 46,525 25,229,876 35,059,478
------------ ------------- ----------- ------------
Total Liabilities and
Equity................ $ 13,016,389 3,146,858 25,229,876 $ 41,393,123
------------ ------------- ----------- ------------
------------ ------------- ----------- ------------
</TABLE>
- ------------------------
(1) Reflects the preliminary allocation of purchase price to certain
intangibles, including core technology, assembled work force and trade
names, amortized over fifteen years, seven years and twenty years
respectively.
(2) Reflects the preliminary allocation of purchase price to goodwill, which is
being amortized over a period of twenty years.
(3) The purchase price of approximately $36.5 million includes a one time charge
of approximately $8.6 million of in process research and development
expense.
(4) Gives effect to the issuance of 4,948,182 shares of Common Stock, and 21,644
shares of Series D Preferred Stock, for an aggregate purchase price of
approximately $36.5 million.
(5) Reflects amortization of intangible assets based on the lives described in
Note (1) above.
F-17
<PAGE>
7TH LEVEL, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
7TH LEVEL STREET TECHNOLOGIES, INC. ADJUSTMENTS PRO FORMA
------------ ------------------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues...................... $ 1,571,398 4,683,085 -- $ 6,254,483
Cost of revenue............... 233,454 312,449 -- 545,903
------------ ---------- ----------- ------------
Gross margin................ 1,337,944 4,370,636 -- 5,708,580
Research and product
development................. 3,629,786 2,238,779 -- 5,868,565
Sales and marketing
expenses.................... 555,593 880,193 -- 1,435,786
General and administrative.... 5,428,783 983,453 -- 6,412,236
Amortization of intangible
assets...................... 6,072 -- 1,542,451(5) 1,548,523
------------ ---------- ----------- ------------
Total expenses.......... 9,620,234 4,102,425 1,542,451 15,265,110
Income (loss) from continuing
operations.................. (8,282,290) 268,211 -- (9,556,530)
Other Income (Expense)........ (2,675,409) 85,684 -- (2,589,725)
------------ ---------- ----------- ------------
Basic and diluted net
income (loss)......... $(10,957,699) 353,895 1,542,451 $(12,146,255)
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------
Basic and diluted net
loss per share........ $ (0.67) -- -- $ (0.57)
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------
Weighted average number
of common shares...... $ 16,355,158 -- -- $ 21,303,340
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------
Basic and diluted net
loss per share
available to common
stockholders.......... $ (1.03) -- -- $ (0.84)
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------
</TABLE>
- ------------------------
(1) Reflects the preliminary allocation of purchase price to certain
intangibles, including core technology, assembled work force and trade
names, amortized over fifteen years, seven years and twenty years,
respectively.
(2) Reflects the preliminary allocation of purchase price to goodwill, which is
being amortized over a period of twenty years.
(3) The purchase price of approximately $36.5 million includes a one time charge
of approximately $8.6 million of in process research and development
expense.
(4) Gives effect to the issuance of 4,948,182 shares of Common Stock, and 21,644
shares of Series D Preferred Stock, for an aggregate purchase price of
approximately $36.5 million.
(5) Reflects amortization of intangible assets based on the lives described in
Note (1) above.
F-18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
7(TH) LEVEL, INC.
By: /s/ MARC E. LANDY
-----------------------------------------
MARC E. LANDY
Date: April 16, 1999 CHIEF FINANCIAL OFFICER
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO.
- ---------------
<C> <S>
23.1 Consent of KPMG LLP
23.2 Consent of Arthur Andersen LLP
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of 7th Street.com, Inc.
(formerly known as Street Technologies, Inc.):
We consent to the incorporation by reference in Registration Statement No.
333-64365 on Form S-3 and Registration Statements Nos. 333-65525, 333-10341 and
333-10339 on Forms S-8 of 7th Level, Inc. of our report dated June 5, 1998, with
respect to the balance sheet of 7th Street.com, Inc. as of December 31, 1997,
and the related statements of operations, stockholders' equity (deficit), and
cash flows for the year then ended, which report appears in this Form 8-K/A of
7th Level, Inc.
KPMG LLP
Stamford, Connecticut
April 13, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 17, 1999, included in this Form 8-K/A, into 7(th)
Level, Inc.'s previously filed Registration Statement No. 333-65525, No.
333-10335, No. 033-87944, No. 333-10341, No. 333-10339 filed on Forms S-8 and
File No. 333-64365 filed on Form S-3.
ARTHUR ANDERSEN LLP
New York, New York
April 14, 1999
