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
June 28, 1996
Date of report (Date of earliest event reported)
_________________________
THE SOURCE COMPANY
(Exact name of Registrant as specified in its charter)
Missouri 0-26238 43-1710906
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
11644 Lilburn Park Road, St. Louis, Missouri 63146
(Address of principal executive offices) (Zip Code)
(314) 995-9040
(Registrant's telephone number, including area code)
Item 7. Financial Statements and Exhibits
(a) Financial Statements of business acquired.
Magazine Marketing, Inc.
Contents
Independent Auditors' Report 1
Financial Statements
Balance sheet 2
Statement of income and retained earnings 3
Statement of cash flows 4
Summary of accounting policies 5-6
Notes to financial statements 7-9
Independent Auditors' Report
To the Stockholder
Magazine Marketing, Inc.
St. Louis, Missouri
We have audited the balance sheet of Magazine Marketing, Inc. as of December
31, 1995, and the related statements of income and retained earnings 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 Magazine Marketing, Inc.
at December 31, 1995, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
BDO Seidman, LLP
St. Louis, Missouri
August 16, 1996
December 31, 1995
Assets
Current
Cash and cash equivalents $ 8,389
Trade receivables, less of allowance for doubtful
accounts of $1,500 108,389
Refundable income taxes 2,600
Prepaid expenses 610
Due from stockholder 9,620
Total Current Assets 129,608
Furniture, Fixtures and Equipment
Equipment 18,576
Automobile 27,867
Furniture and fixtures 12,240
Leasehold improvements 23,506
82,189
Less accumulated depreciation 59,883
Net Furniture, Fixtures and Equipment 22,306
Other Assets
Deposits 108
Total Other Assets 108
$152,022
Magazine Marketing, Inc.
Balance Sheet
December 31, 1995
Liabilities and Stockholder's Equity
Current
Accounts payable $ 3,362
Accrued payroll taxes 336
Deferred income taxes 36,855
Total Current Liabilities 40,553
Commitments (Note 2)
Stockholder's Equity
Common stock, no par value - shares authorized, 750;
issued and outstanding, 100 500
Retained earnings 110,969
Total Stockholder's Equity 111,469
$152,022
See accompanying summary of accounting
policies and notes to financial statements.
Magazine Marketing, Inc.
Statement of Income and Retained Earnings
Year Ended December 31, 1995
Commission Revenues $508,180
Cost of Commission Revenues 379,629
Gross Profit 128,551
Selling, General and Administrative Expenses (Note 1) 114,938
Operating Income 13,613
Other Income
Dividend income 374
Interest income 1,043
Other 1,500
Total Other Income 2,917
Income before Taxes on Income 16,530
Taxes on Income (Note 3) 9,654
Net Income 6,876
Retained Earnings, January 1, 1994 104,093
Retained Earnings, December 31, 1995 $110,969
See accompanying summary of accounting
policies and notes to financial statements.
Magazine Marketing, Inc.
Summary of Accounting Policies
Business Magazine Marketing, Inc. (the Company), located
in Canton, Ohio, is a provider of merchandise
management information and related services
primarily in connection with the display and
marketing of magazines and other periodicals.
The Company's customers are predominantly
located in the United States.
The Company occasionally provides consulting
services on presentation of merchandise. Such
transactions normally involve customers related
to the Company's business activity.
Concentrations of
Credit Risk Services are provided to mass merchandise,
grocery, convenience and pharmacy stores
throughout the United States. Management
periodically performs credit evaluations of
its customers and generally does not require
collateral. At the balance sheet date,
the Company had no concentrated credit risk
with any individual customer.
Revenue Recognition Commission revenues are recognized during the
period in which services are performed.
Furniture, Furniture, fixtures and equipment are stated
Fixtures and at cost. Depreciation is computed using
Equipment straight-line and accelerated methods over the
estimated useful lives.
Income Taxes Income taxes are accounted for under the asset
and liability method specified by Statement of
Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
Cash Equivalents For purposes of the statement of cash flows, the
Company considers all investments purchased with
a maturity of three months or less to be cash
equivalents.
Use of The preparation of financial statements in
Estimates conformity with generally accepted
accounting principles requires management to
make estimates and assumptions that affect the
reported amounts of assets and liabilities and
disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of revenues
and expenses during the reporting period.
Actual results could differ from those
estimates.
Fair Value of The carrying amounts of all asset and liability
Financial financial instruments approximate their
Instruments estimated fair value at December 31, 1995. Fair
value of a financial instrument is defined as
the amount at which the instrument could be
exchanged in a current transaction between
willing parties.
Magazine Marketing, Inc.
Notes to Financial Statements
1. Related Party The Company leases office space from the
Transactions stockholder of the Company on a monthly
basis. Rent related to the lease for the
year ended December 31, 1995 was $24,000.
The stockholder of the Company, from time
to time, has received cash advances from
the Company. At December 31, 1995, $9,620
was due from the stockholder.
2. Employee The Company has a profit sharing plan.
Benefit Plans Annual contributions to the plan are
determined by the stockholder and may not
exceed the amount that may be deducted for
federal income tax purposes. Profit
sharing contributions charged against
operations were $15,000.
In accordance with the Stock Acquisition
Agreement (Note 5), the profit sharing
plan is in the process of being
terminated.
3. Taxes on Provision for income taxes in the
Income statement of income consists of
the following components:
Year Ended December 31, 1995
Current income taxes $1,600
Deferred income taxes 8,054
$9,654
Deferred income taxes reflect the net tax
effects of temporary differences between
the carrying amount of the assets and
liabilities for financial reporting
purposes and the amounts used for
income tax purposes. The major source of
the differences is the use of the accrual
basis of accounting for financial
reporting purposes and the use of the cash
basis of accounting for income tax
purposes. The Company's total deferred
income tax assets and total deferred
income tax liabilities at December 31,
1995 are as follows:
Magazine Marketing, Inc.
Notes to Financial Statements
December 31, 1995
Deferred Income Tax Asset
Allowance for doubtful accounts $ 525
Total Gross Deferred Income Tax Asset 525
Deferred Income Tax Liability
Net income not previously taxed under
cash basis of accounting for income
tax purposes (37,380)
Total Gross Deferred Income Tax Liability (37,380)
Net Deferred Tax Liability $(36,855)
The following summary reconciles taxes at the maximum federal
statutory rate to taxes on income:
1995 Amount Percent
Statutory rate $5,786 35%
Non-deductible entertainment 2,768 17
Non-deductible officer's life insurance 1,100 6
Taxes On Income $9,654 58%
4. Supplemental The Company paid $2,025 for income taxes
Cash Flow during the year.
Information
5. Subsequent On June 28, 1996, the Company's sole
Event stockholder sold all of his common stock to
L-Sub, a wholly-owned subsidiary of The
Source Company, pursuant to the Stock
Acquisition Agreement (the Agreement) dated
June 20, 1996, in exchange for $275,000, a
non-interest bearing note in the amount of
$80,000 to be collected over a two year
period, plus 100,000 shares of common stock
of The Source Company.
Certain assets were excluded from the
Agreement including cash, accounts
receivable from customers and the
automobile. These assets were transferred
to the sole stockholder at the transaction
date.
(b) Pro Forma Financial Information.
The Source Company and Subsidiaries
Pro Forma Condensed Consolidated Financial Statements
On June 28, 1996, The Source Company (the Company), through its wholly owned
subsidiary, L-Sub, acquired all of the issued and outstanding shares of the
common stock of Magazine Marketing, Inc. in exchange for a cash payment of
$275,000, a non-interest bearing note payable for $80,000 and 100,000 shares
of the Company's common stock.
In connection with the acquisition, the Company has decided to retain two
key employees of Magazine Marketing.
The acquisition will be accounted for as a purchase, with the assets
acquired and liabilities assumed recorded at fair values, and the results of
Magazine Marketing, Inc. operations included in the Company's consolidated
financial statements from the date of the acquisition.
The accompanying condensed consolidated financial statements illustrate the
effect of the acquisition ("Pro Forma") on the Company's financial position
and results of operations. The condensed balance sheet as of April 30, 1996
is based on the historical balance sheet of the Company as of that date and
on the balance sheet of Magazine Marketing as of June 28, 1996 and assumes
the acquisition took place on April 30, 1996. The condensed consolidated
statements of income for the year ended January 31, 1996 and the three
months ended April 30, 1996 are based on the historical statements of income
of the Company for those dates and on the historical statements of Magazine
Marketing as of December 31, 1995 and June 28, 1996 respectively. The pro
forma condensed consolidated statements of income assume the acquisition
took place on February 1, 1995.
The pro forma condensed consolidated financial statements may not be
indicative of actual results of the acquisition. In particular, the pro
forma condensed consolidated financial statements are based on management's
current estimate of the allocation of the purchase price, the actual
allocation of which may vary.
Magazine Marketing
Summary of Accounting Policies
Business
Magazine Marketing, Inc. (the Company), located in Canton, Ohio, is a
provider of merchandise management information and related services
primarily in connection with the display and marketing of magazines and
other periodicals. The Company's customers are predominantly located in the
United States.
Concentrations of Credit Risk
Services are provided to mass merchandise, grocery, convenienc and pharmacy
stores throughout the United States. Management periodically performs
credit evaluations of its customers and generally does not require
collateral. At the balance sheet date, the Company had no concentrated
credit risk with any individual customer.
Revenue Recognition
Commission revenues are recognized during the period in which services are
performed.
Furniture, Fixtures, and Equipment
Furniture, fixtures and equipment are stated at cost. Depreciation is
computed using straight-line and accelerated methods over the estimated
useful lives.
Income Taxes
Income taxes are accounted for under the asset and liability method
specified by Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
investments purchased with a maturity of three months or less to be cash
equivalents.
Unaudited Financial Statements
In the opinion of management, the unaudited financial information as of June
28, 1996 and for the period January 1, 1996 through June 28, 1996 reflects
all adjustments (consisting only of normal recurring adjustments) necessary
to fairly present such information in accordance with generally accepted
accounting principles. The results of operations for the period January 1,
1996 through June 28, 1996 are not necessarily indicative of the results to
be expected for the entire year.
Magazine Marketing
Notes to Comparative Financial Statements (Unaudited)
1. Related Party Transactions
The Company leases office space from the stockholder of the Company on a
monthly basis. Rent related to the lease for the periods ended June 28,
1996 and June 28, 1995 were $10,000 and $10,000 respectively.
The stockholder of the Company, from time to time, has received cash
advances from the Company. The total of these advances at June 28, 1996 and
June 28, 1995 were $0 and $8,332, respectively.
2. Employee Benefit Plans
The Company has a profit sharing plan. Contributions to the plan are
determined by the stockholder and may not exceed the amount that may be
deducted for federal income tax purposes. Profit sharing contributions
charged against operations for the periods ending June 28, 1996 and June 28,
1995 were $5,000 and $0 respectively.
In accordance with the Stock Acquisition Agreement (Note 3), the profit
sharing plan is in the process of being terminated.
3. Subsequent Event
On June 28, 1996, the Company's sole stockholder sold all of his common
stock to L-Sub, a wholly owned subsidiary of The Source Company, pursuant to
the Stock Acquisition Agreement (the Agreement) dated June 20, 1996, in
exchange for $275,000, a non-interest bearing note of $80,000 to be
collected over a two year period, plus 100,000 shares of common stock of The
Source Company.
Certain assets were excluded from the Agreement including cash, accounts
receivable from customers and the automobile. These assets were transferred
to the sole stockholder at the transaction date.
Magazine Marketing
Unaudited Balance Sheet
June 28, 1996
- --------------------------------------------------------------------
Assets
Current
Cash $ 309
Receivables:
Trade (net of allowance for doubtful accounts) 116,839
Other current assets 3,350
- --------------------------------------------------------------------
Total Current Assets 120,498
- --------------------------------------------------------------------
Office Equipment and Furniture 48,409
Less Accumulated Depreciation and Amortization (30,816)
- --------------------------------------------------------------------
Net Office Equipment and Furniture 17,593
- --------------------------------------------------------------------
Other Assets
Other 108
- --------------------------------------------------------------------
Total Other Assets 108
- --------------------------------------------------------------------
TOTAL ASSETS $ 138,199
- --------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current
Accounts payable 2,500
Deferred income taxes 41,191
- --------------------------------------------------------------------
Total Current Liabilities 43,691
- --------------------------------------------------------------------
TOTAL LIABILITIES 43,691
- --------------------------------------------------------------------
Stockholders' Equity
Common stock 500
Retained Earnings 94,008
- --------------------------------------------------------------------
Total Stockholders' Equity 94,508
- --------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 138,199
See Notes to Comparative Condensed Consolidated Financial Statements
(Unaudited)
Magazine Marketing, Inc.
Unaudited Income Statements
Period Period
Ended Ended
For Period For Period
For Period 1/1/XX-6/28/XX 6/28/96 6/28/95
- -----------------------------------------------------------------------
Commission Revenues $236,934 $254,090
Cost of Commission Revenues 183,245 189,815
- -----------------------------------------------------------------------
Gross Profit 53,689 64,275
Selling, General and Administrative
Expense 69,095 57,469
- -----------------------------------------------------------------------
Operating Income/(Loss) (15,406) 6,806
Other Income (Expense)
Interest income 181 521
Other - 937
- -----------------------------------------------------------------------
Total Other Income (Expense) 181 1,458
Income before Income Taxes (15,225) 8,264
Provision for Income Taxes 1,736 4,827
- -----------------------------------------------------------------------
Net Income/(Loss) (16,961) 3,437
See Notes to Comparative Condensed Consolidated Financial Statements
(Unaudited)
Magazine Marketing, Inc.
Statement of Cash Flows
Year Ended December 31, 1995
Operating Activities
Net income $ 6,876
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 11,704
Deferred income taxes 8,054
Provision for losses on accounts receivable 500
Changes in assets and liabilities:
Increase in accounts receivable (24,112)
Increase in prepaid expenses (200)
Increase in refundable income taxes (425)
Increase in accounts payable 723
Increase in accrued payroll taxes 77
Cash Provided by Operating Activities 3,197
Investing Activities
Advances to stockholder (21,620)
Capital expenditures (2,316)
Proceeds from sale of fixed assets 7,368
Cash Used in Investing Activities (16,568)
Decrease in Cash (13,371)
Cash and Cash Equivalents, beginning of year 21,760
Cash and Cash Equivalents, end of year $ 8,389
See accompanying summary of accounting
policies and notes to financial statements.
The Source Company and Subsidiaries
Notes to Pro Forma Condensed and Consolidated
Financial Statements (Unaudited)
Note A - Pro Forma Adjustments
The pro forma adjustments to the condensed consolidated balance sheet
are as follows:
1. To reflect the acquisition of Magazine Marketing and the allocation of
the assets on the basis of the fair valued of the assets acquired and
liabilities assumed. Certain receivables and equipment were not acquired.
The components of the purchase price and its allocation to the assets and
liabilities are as follows:
Components of purchase price:
Cash from Boatmen's Bank Term Loan $ 275,000
Note Payable (see note 2) 73,950
Transaction Costs 85,000
100,000 shares of redeemable Common Stock
(traded at $4.375 on 6/28, discounted by
20% due to fact that shares are restricted
and have limited marketability 350,000
-------
Total Purchase Price: 783,950
Allocation of purchase price:
Trade Receivables (53,946)
Office Equipment (7,869)
Other Assets (3,458)
Accounts Payable 2,500
Deferred Income Tax 41,191
-------
Cost in excess of net assets acquired: $762,368
========
2. The note payable entered into by the Company is payable to James Looman,
the former owner of Magazine Marketing, Inc. It is non-interest bearing and
is payable in eight quarterly installments of $10,000 with the first payment
due on July 1, 1996. This note has been discounted using the Company's
current effective borrowing rate of 9.25% and has a discounted value of
$73,950. Of this amount, $36,159 is reflected on the balance sheet as a
current liability with an additional $37,791 reflected as long term debt.
Note B - The pro forma adjustments to the condensed consolidated statements
of income are as follows:
3. Changes in SG&A expense are related to amortization of goodwill which
has been netted against costs reduction related to the consolidation of
duplicate SG&A functions (see note 5).
Year Period
Ended Ended
31-Jan-96 30-Apr-96
Goodwill Amortization $ 50,825 $ 6,353
SG&A Cost Reduction (28,113) (16,918)
--------- --------
Net Change in SG&A: $ 22,712 $(10,565)
========= ========
4. The reduction in the cost of commission revenues is the result of the
consolidation of duplicate functions. The adjustments are based on actions
to eliminate positions and related costs that have been taken or formally
communicated. Historically, it takes approximately 6 months from the date
of an acquisition to completely move the operations of the acquired company
into The Source Company. Accordingly, the benefits of the cost reductions
have been reflected for only a portion of the year ended January 31, 1996.
The following schedule details the nature of these adjustments:
Cost of Commission Revenue Reductions
Year Period
Ended Ended
31-Jan-96 30-Apr-96
Salaries/Payroll Taxes $ 63,531 $ 34,155
Insurance 6,122 3,072
Professional Fees 6,009 1,787
Depreciation Adjustments
associated with elimination
of expense already reflected
in pro forma: (11,705) (2,357)
Depreciation (See schedule below) 3,935 492
-------- -------
Total Reductions: $ 67,892 $37,149
======== =======
FMV of PP&E acquired (see Note 1): $ 7,869
Projected Life (Years) 2
Monthly Depreciation $ 328
Quarterly Depreciation $ 984
Annual Depreciation $ 3,935
5. The reduction in the SG&A expense is the result of the consolidation of
duplicate functions. The adjustments are based on actions to eliminate
positions and related costs that have been taken or formally communicated.
Historically, it takes approximately 6 months from the date of an
acquisition to completely migrate the operations of the acquired company
into The Source Company. Accordingly, the benefits of the cost reductions
have been reflected for only a portion of the year ended January 31, 1996.
The following schedule details the nature of these adjustments:
SG&A Expense Reductions
Year Period
Ended Ended
31-Jan-96 30-Apr-96
Advertising $ 1,905 $ -
Education 601 773
Postage 1,489 1,416
Professional Fees 2,437 8,243
Profit Sharing 15,000 2,500
Supplies 1,009 781
Phone 2,117 1,214
Contract Labor - 1,343
-------- --------
$ 28,113 $ 16,270
======== ========
6. The increase in interest expense is associated with the note payable
referenced in note 2.
7. To adjust the provision for income taxes to reflect the income tax
effects, at the Company's effective tax rate, of the proforma adjustments to
income before income taxes.
(c) Exhibits - See Exhibit Index on page _____ hereof.
<TABLE>
The Source Company
Unaudited Pro Forma Condensed Consolidated Balance Sheet
<CAPTION>
The Source Magazine
Company Marketing Pro Forma
April 30, 1996 At 4/30/96 At 6/28/96 Adjustments Pro Forma
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Current
Cash $ 1,073,570 $ 309 $ (275,309)(1) $ 798,570
Receivables:
Trade (net of allowance
for doubtful accounts) 4,493,721 116,839 (62,893)(1) 4,547,667
Related Parties 53,171 - - 53,171
Employees 3,623 - - 3,623
Interest Receivable 21,498 - - 21,498
Notes Receivable - Officers 75,853 - - 75,853
Notes Receivable - Others 178,438 - - 178,438
Other current assets 1,665 3,350 - 5,015
- -------------------------------------------------------------------------------------------------------------
Total Current Assets 5,901,539 120,498 (338,202) 5,683,835
- -------------------------------------------------------------------------------------------------------------
Office Equipment and Furniture 1,578,744 48,409 (40,540) 1,586,613
Less Accumulated Depreciation and
Amortization (1,035,201) (30,816) (30,816) (1,035,201)
- -------------------------------------------------------------------------------------------------------------
Net Office Equipment and Furniture 543,543 17,593 (9,724)(1) 551,412
- -------------------------------------------------------------------------------------------------------------
Other Assets
Notes Receivable - Officers 241,474 - - 241,474
Investment in limited partnership 62,956 - - 62,956
Goodwill, net of accumulated
amortization 80,968 - 762,368(1) 843,336
Cash surrender value of life
insurance 71,618 - - 71,618
Other 59,335 108 - 59,443
- -------------------------------------------------------------------------------------------------------------
Total Other Assets 516,351 108 762,368 1,278,827
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 6,961,433 $ 138,199 $ 414,442 $ 7,514,074
- -------------------------------------------------------------------------------------------------------------
<FN>
See Notes to Pro Forma Consolidated Financial Statements (Unaudited)
</TABLE>
<TABLE>
The Source Company
Unaudited Pro Forma Condensed Consolidated Balance Sheet
<CAPTION>
The Source Magazine
Company Marketing Pro Forma
April 30, 1996 At 4/30/96 At 6/28/96 Adjustments Pro Forma
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Liabilities and Stockholders' Equity
Current
Note payable - bank $ 1,807,715 $ - $ - $ 1,807,715
Accounts payable 52,660 2,500 85,000(1) 140,160
Due To Retailers 195,026 - - 195,026
Accrued liabilities:
Compensation 249,669 - - 249,669
Income taxes 85,464 - - 85,464
Other 86,614 - - 86,614
Deferred income taxes 117,000 41,191 - 158,191
Current maturties of long-term
debt 45,165 - 36,159(1)(2) 81,324
- -------------------------------------------------------------------------------------------------------------
Total Current Liabilities 2,639,313 43,691 121,159 2,804,163
- -------------------------------------------------------------------------------------------------------------
Long-term Debt 71,787 - 73,950(1)(2) 145,737
Less current maturities (45,165) - (36,159)(1)(2) (81,324)
- -------------------------------------------------------------------------------------------------------------
Total Long-term Debt 26,622 - 37,791 64,413
- -------------------------------------------------------------------------------------------------------------
Deferred income taxes 278,000 - - 278,000
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,943,935 43,691 158,950 3,146,576
- -------------------------------------------------------------------------------------------------------------
Redeemable Common Stock, 100,000 shares
Issued and Outstanding 350,000(1) 350,000
- -------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock 200 - - 200
Common stock 63,824 500 500(1) 63,824
Additional paid-in-capital 2,928,753 - - 2,928,753
Retained Earnings 1,024,721 94,008 (94,008) 1,024,721
- -------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 4,017,498 94,508 (94,508) 4,017,498
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY $ 6,961,433 $ 138,199 $ 414,442 $ 7,514,074
- -------------------------------------------------------------------------------------------------------------
<FN>
See Notes to Pro Forma Consolidated Financial Statements (Unaudited)
</TABLE>
<TABLE>
The Source Company
Unaudited Pro Forma Condensed Consolidated Statements of Income
<CAPTION>
The Source Magazine
Company Marketing Pro Forma
Year Ended January 31, 1996 (1/31/96) (12/31/95) Adjustments Pro Forma
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commission Revenues $7,195,176 $508,180 $ - $7,703,356
Sale of Merchandise 926,008 - - 926,008
- -------------------------------------------------------------------------------------------------------------
8,121,184 508,180 - 8,629,364
- -------------------------------------------------------------------------------------------------------------
Cost of Commission Revenues 3,859,409 379,629 (67,892)(4) 4,171,146
Cost of Merchandise Sold 549,813 - - 549,813
- -------------------------------------------------------------------------------------------------------------
4,409,222 379,629 (67,892) 4,720,959
- -------------------------------------------------------------------------------------------------------------
Gross Profit 3,711,962 128,551 67,892 3,908,405
Selling, General and Administrative Expense 2,799,841 114,938 22,712(3),(5) 2,937,491
- -------------------------------------------------------------------------------------------------------------
Operating Income/(Loss) 912,121 13,613 45,180 970,914
- -------------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 25,403 1,043 - 26,446
Interest expense (120,427) - (3,841)(6) (124,268)
Registration Expense (213,666) - (213,666)
Other (5,437) 1,874 - (3,563)
- -------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) (314,127) 2,917 (3,841) (315,051)
Income before Income Taxes 597,994 16,530 41,339 655,863
Provision for Income Taxes 406,000 9,654 14,469(7) 420,123
- -------------------------------------------------------------------------------------------------------------
Net Income 191,994 6,876 26,870 225,740
- -------------------------------------------------------------------------------------------------------------
Earnings Per Share $0.03 N/A $ 0.04
Weighted Average of Shares Outstanding 6,084,542 N/A 6,084,542
- -------------------------------------------------------------------------------------------------------------
Pro Forma Amounts
Income before income taxes 598,706 16,530 - 615,236
Provision for income taxes 284,000 9,654 - 293,654
- -------------------------------------------------------------------------------------------------------------
Net Income/(Loss) 314,706 6,876 - 321,582
- -------------------------------------------------------------------------------------------------------------
Earnings Per Share $ 0.05 N/A $ 0.05
Weighted Average of Shares Outstanding 6,084,542 N/A 100,000(1) 6,184,542
- -------------------------------------------------------------------------------------------------------------
<FN>
See Notes to Pro Forma Consolidated Financial Statements (Unaudited)
</TABLE>
<TABLE>
The Source Company
Unaudited Pro Forma Condensed Consolidated Statements of Income
<CAPTION>
The Source Magazine
Company Marketing Pro Forma
Period Ended 4/30/96 (4/30/96) (6/28/96) Adjustments Pro Forma
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commission Revenues $1,917,738 $118,467 $ - $2,036,205
Sale of Merchandise 29,938 - - 29,938
- -------------------------------------------------------------------------------------------------------------
1,947,676 118,467 - 2,066,143
- -------------------------------------------------------------------------------------------------------------
Cost of Commission Revenues 1,091,404 91,623 (37,149)(4) 1,145,878
Cost of Merchandise Sold - - - -
- -------------------------------------------------------------------------------------------------------------
1,091,404 91,623 (37,149) 1,145,878
- -------------------------------------------------------------------------------------------------------------
Gross Profit 856,272 26,844 37,149 920,265
Selling, General and Administrative Expense 714,855 34,548 (10,565)(3)(5) 738,838
- -------------------------------------------------------------------------------------------------------------
Operating Income/(Loss) 141,417 (7,704) 47,714 181,427
Other Income (Expense)
Interest income 8,956 90 - 9,046
Interest expense (42,322) - (874)(6) (43,196)
Other (5,955) - - (5,955)
- -------------------------------------------------------------------------------------------------------------
Total Other Income (Expense) (39,321) 90 (874) (40,105)
Income before Income Taxes 102,096 (7,614) 46,840 141,322
Provision for Income Taxes 54,300 868 16,547(7) 71,715
- -------------------------------------------------------------------------------------------------------------
Net Income/(Loss) 47,796 (8,482) 32,041 69,607
- -------------------------------------------------------------------------------------------------------------
Earnings Per Share - Primary $ 0.01 N/A $ - $ 0.01
Weighted Average Shares Outstanding - Primary 6,607,389 N/A 100,000 6,707,389
- -------------------------------------------------------------------------------------------------------------
Earnings Per Share - Fully Diluted $ 0.01 N/A $ 0.01
Weighted Avg Shares Outstanding - Fully
Diluted 6,937,965 N/A 100,000(1) 7,037,965
- -------------------------------------------------------------------------------------------------------------
<FN>
See Notes to Pro Forma Consolidated Financial Statements (Unaudited)
</TABLE>
<TABLE>
Magazine Marketing
Unaudited Statements of Cash Flow
<CAPTION>
Period 1/1/XX - 6/28/XX
--------------------------------------
1996 1995
<S> <C> <C>
Operating Activities
Net income (loss) (16,961) 3,437
Adjustments to reconcile net
cash provide by operating activities:
Depreciation and amortization 4,713 5,852
Provision for losses on accounts receivable 0 250
Refundable Income Taxes (750) 0
Deferred income taxes 4,336 0
Changes in assets and liabilities:
(Increase)/Decrease in accounts receivable (8,450) (12,269)
(Increase)/Decrease in other assets 610 (100)
Increase/(Decrease) in A/P and acrrued expenses (1,198) 4,427
- -------------------------------------------------------------------------------------------------------------
(Cash Used in) and Provided by Operating Activities (17,700) 1,597
- -------------------------------------------------------------------------------------------------------------
Investment Activities
Sale of P&E 0 3,684
Due From Shareholder 9,620 (10,810)
Capital expenditures 0 (1,158)
- -------------------------------------------------------------------------------------------------------------
Cash Provided by (Used in) Investing Activities 9,620 (8,284)
- -------------------------------------------------------------------------------------------------------------
(Decrease) in Cash (8,080) (6,687)
Cash, beginning of period (8,389) 21,760
- -------------------------------------------------------------------------------------------------------------
Cash, end of period $ 309 $ 15,073
- -------------------------------------------------------------------------------------------------------------
<FN>
See Notes to Comparative Condensed Consolidated Financial Statements (Unaudited)
</TABLE>
SIGNATURE
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 hereto duly authorized.
Date: September 9, 1996
THE SOURCE COMPANY
By: /s/ Lance C. McCord
Lance C. McCord
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Exhibit
10.14 Stock Acquisition Agreement dated as of June 20, 1996,
among James Looman, the sole shareholder of Magazine
Marketing, Inc., Magazine Marketing, Inc. and the
Source Company.
99.2 Press Release dated June 28, 1996
