SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 29, 2001
NBG RADIO NETWORK, INC.
(Exact name of registrant as specified in its charter)
Nevada
---------------------------------------------------
(State or other jurisdiction of incorporation)
0-24075 88-0362102
------------------------ ------------------------------------
(Commission File Number) (IRS Employer Identification Number)
520 SW Sixth Avenue, Suite 750, Portland, Oregon 97204
------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(503) 802-4624
----------------------------------------------------
(Registrant's telephone number, including area code)
1
Item 2. Acquisition or Disposition of Assets.
On June 29, 2001 NBG Radio Network, Inc. ("NBG") completed its acquisition (the
"Acquisition") of Glenn Fisher Entertainment Corporation, a California
corporation ("Fisher Entertainment"). The Acquisition was made pursuant to a
Stock Purchase Agreement dated October 25, 2000, as amended (the "Agreement"),
among NBG, Fisher Entertainment, and Glenn Fisher.
NBG acquired Fisher Entertainment by purchasing the outstanding stock held by
its founder and sole shareholder, Glenn Fisher, for approximately $5.3 million
in cash. The amount and terms of the consideration were determined through
arms-length negotiations among the parties. The acquisition was financed through
a $6.2 million credit facility with MCG Finance Corporation. The credit facility
is secured by all of the assets of NBG - including the stock of NBG's
subsidiaries - and is structured to allow for the possibility of an additional
$10 million in funding to finance future strategic acquisitions.
Fisher Entertainment is engaged in the business of creating, producing and
distributing syndicated radio programs and services and affiliating radio
stations and providing related products and services. The assets of Fisher
Entertainment include advertising rights, radio syndication rights, employment
contracts, and a sound record. The Acquisition also includes certain physical
property used by Fisher Entertainment in the operation of its business. NBG
intends that Fisher Entertainment continue to use the physical property in the
operation of its business.
Glenn Fisher will hold no formal management position with NBG or Fisher
Entertainment, but has signed a three-year exclusive consulting contract with
Fisher Entertainment.
The foregoing summary of the provisions of the Agreement is qualified by: (1)
the Agreement, a copy of which is attached as Exhibit 2.1 and incorporated
herein by reference, and (2) the press release issued with respect to the
Acquisition, a copy of which is attached as Exhibit 99.1 and which is
incorporated herein by reference.
Item 7 Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
The following financial statements of Glenn Fisher Entertainment Corporation
called for by this Item 7 (a) are included in this report beginning immediately
following the signature page:
Balance Sheets as of December 2000 and 1999 and unaudited Balance Sheet
as of June 30, 2001
Statements of Income for the years ended December 31, 2000 and 1999,
and for the six-month periods ended June 30, 2001 and 2000 (unaudited)
Statements of Stockholder's Equity for the years ended December 31,
2000 and 1999, and for the six-month periods ended June 30, 2001 and
2000 (unaudited)
Statements of Cash Flows for the years ended December 31, 2000 and
1999, and for the six-month period ended June 30, 2001 (unaudited)
Notes to Financial Statements
Independent Auditor's Report
(b) Pro forma financial information.
The following pro forma financial information called for by this Item 7(b) is
included in this report immediately following the financial statements of Glenn
Fisher Entertainment Corporation called for by Item 7(a):
Unaudited Pro Forma Combined Balance Sheet as of May 31, 2001
Unaudited Pro Forma Combined Statement of Income (Loss) for the Six
Months Ended May 31, 2001.
2
Unaudited Pro Forma Combined Statement of Income (Loss) for the Year
Ended November 30, 2000
Notes to Unaudited Pro Forma Combined Financial Statements
(c) Exhibits.
2.1 Stock Purchase Agreement dated October 6, 2000 among NBG Radio
Network, Inc., Glen Fisher Entertainment Corporation, and Glen
Fisher (including First Amendment to Stock Purchase Agreement
dated October 25, 2000 and Sixth Amendment to Stock Purchase
Agreement dated June 29, 2001) (Filed as Exhibit 2.1 to Form 8-K
filed on July 13, 2001.
99.1 Press Release (Filed as Exhibit 99.1 to Form 8-K filed July 10,
2001).
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NBG RADIO NETWORK, INC.
(Registrant)
Date: September 14, 2001 By: /s/John J. Brumfield
---------------------------------
John J. Brumfield
Chief Financial Officer and
Vice President, Finance
4
GLENN FISHER ENTERTAINMENT COPPORATION
BALANCE SHEETS
ASSETS
June 30, December 31,
------------------------------------
2001 2000 1999
----------------- ------------------ -----------------
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 26,736 $ - $ -
Accounts receivable 7,000 32,820 385,886
Contracts receivable 686,500 1,973,500 1,086,562
----------------- ------------------ -----------------
Total current assets 720,236 2,006,320 1,472,448
----------------- ------------------ -----------------
OFFICE EQUIPMENT, net of accumulated
depreciation and amortization 13,051 19,051 31,224
----------------- ------------------ -----------------
Total assets $ 733,287 $2,025,371 $1,503,672
================= ================== =================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Checks issued in excess of bank $ - $ 4,831 $ 8,343
balance
Accounts payable 35,739 11,459 6,487
Accrued liabilities 42,000 112,830 109,410
Deferred revenue 686,500 1,973,500 1,086,562
----------------- ------------------ -----------------
Total current liabilities 764,239 2,102,620 1,210,802
----------------- ------------------ -----------------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDER'S EQUITY (DEFICIT)
Common stock, no par value; 1,000
shares authorized; 1,000 shares
issued and outstanding 59,194 59,194 59,194
Retained earnings (deficit) (90,146) (136,443) 233,676
----------------- ------------------ -----------------
Total stockholder's equity
(deficit) (30,952) (77,249) 292,870
----------------- ------------------ -----------------
Total liabilities and stock-
holder's equity (deficit) $ 733,287 $2,025,371 $1,503,672
================= ================== =================
See accompanying notes.
F-1
GLENN FISHER ENTERTAINMENT CORPORATION
STATEMENTS OF INCOME
Six months ended
June 30, Year ended December 31,
-----------------------------------------------------------
2001 2000 2000 1999
-------------- -------------- -------------- --------------
(unaudited)
REVENUES $1,311,225 $ 867,055 $1,961,500 $1,633,856
DIRECT COSTS 844,541 599,233 1,359,587 811,059
-------------- -------------- -------------- --------------
GROSS MARGIN 466,684 267,822 601,913 822,797
-------------- -------------- -------------- --------------
GENERAL AND ADMINISTRATIVE
EXPENSES
Advertising 17,777 51,257 90,301 61,950
Wages and employee benefits 59,669 45,735 83,672 105,428
Travel and entertainment 38,165 31,857 59,835 55,274
Telephone and Internet costs 8,836 12,092 40,057 18,432
Consulting and professional 12,162 11,724 20,571 24,190
Rent 8,156 6,158 15,133 13,470
Depreciation and amortization 6,000 5,733 12,173 11,836
Office supplies 3,174 4,167 7,129 8,529
Other expenses 16,113 4,917 17,736 4,440
-------------- -------------- -------------- --------------
Total general and
administrative
expenses 170,052 173,641 346,607 303,549
-------------- -------------- -------------- --------------
Net income $296,632 $94,181 $255,306 $519,248
============== ============== ============== ==============
See accompanying notes.
F-2
GLENN FISHER ENTERTAINMENT CORPORATION
STATEMENTS OF STOCKHOLDER'S EQUITY
Retained Total
Common Stock Earnings Stockholder's
-------------------------------
Shares Amount (Deficit) Equity
-------------- -------------- -------------- -----------------
BALANCE,
December 31, 1998 1,000 59,194 80,409 139,603
Net income - - 519,248 519,248
Distributions - - (365,981) (365,981)
-------------- -------------- -------------- -----------------
BALANCE,
December 31, 1999 1,000 $ 59,194 $ 233,676 $ 292,870
Net income - - 255,306 255,306
Distributions - - (625,425) (625,425)
-------------- -------------- -------------- -----------------
BALANCE,
December 31, 2000 1,000 $ 59,194 $(136,443) $ (77,249)
Net income - - 296,632 296,632
Distributions - - (250,335) (250,335)
-------------- -------------- -------------- -----------------
BALANCE,
June 30, 2001
(unaudited) 1,000 $ 59,194 $ (90,146) $ (30,952)
============== ============== ============== =================
See accompanying notes.
F-3
GLENN FISHER ENTERTAINMENT CORPORATION
STATEMENTS OF CASH FLOWS
Six months ended
June 30, Year ended December 31,
---------------------------- ---------------------------
2001 2000 2000 1999
-------------- ------------- ------------ --------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $296,632 $ 94,181 $255,306 $519,248
Adjustments to reconcile net
income to cash from
operating activities:
Depreciation and amortization 6,000 5,600 12,173 11,836
Changes in assets and liabilities:
Accounts receivable 25,820 369,787 353,066 (266,291)
Contracts receivable 1,287,000 714,372 (886,938) (1,086,562)
Accounts payable and checks
issued in excess of bank
balance 19,449 (1,413) 1,460 9,228
Accrued liabilities (70,830) (96,410) 3,420 83,432
Deferred revenue (1,287,000) (714,372) 886,938 1,086,562
-------------- ------------- ------------ --------------
Net cash from operating
activities 277,071 371,745 625,425 357,453
-------------- ------------- ------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of office equipment - - - (1,982)
-------------- ------------- ------------ --------------
Net cash from investing
activities - - - (1,982)
-------------- ------------- ------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to stockholder (250,335) (356,607) (625,425) (365,981)
-------------- ------------- ------------ --------------
Net cash from financing
activities (250,335) (356,607) (625,425) (365,981)
-------------- ------------- ------------ --------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 26,736 15,138 - (10,510)
CASH, beginning of period - - - 10,510
-------------- ------------- ------------ --------------
CASH, end of period $ 26,736 $ 15,138 $ - $ -
============== ============= ============ ==============
See accompanying notes.
F-4
GLENN FISHER ENTERTAINMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS ACTIVITY
Glenn Fisher Entertainment Corporation (the Company) was organized as an S
Corporation under the laws of the state of California on January 3, 1997. The
Company has been involved in the acquisition, creation, and syndication of
national radio programming.
Substantially all operations of the Company are conducted from the Company's
headquarters in Santa Cruz, California. The Company employs radio show
personalities who broadcast from Los Angeles, California, Detroit, Michigan, and
Portland, Oregon. The Company's customers are located throughout the United
States; however, four customers in 1999 and three customers in 2000 accounted
for substantially all of the revenue and accounts receivables as of and for the
years then ended.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates and assumptions - Management uses estimates and assumptions in
preparing financial statements in accordance with accounting principles
generally accepted in the United States of America. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were assumed in
preparing the financial statements.
Office equipment - Office equipment is stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives of the
assets, which range from three to seven years. Maintenance and repairs are
charged to operations when incurred. Betterments and renewals are capitalized.
Depreciation and amortization expenses for the years ending December 31, 2000
and 1999, were $12,173 and $11,836, respectively.
Revenue recognition - The Company recognizes revenue from the sale of
advertising rights when sales representatives fulfill their commitment to
provide radio advertising during secured time periods, or when sales
representatives make an unconditional and nonrefundable commitment to purchase
advertising rights. The Company recognizes revenue from the performance of radio
syndication when there are no further performance obligations and no right of
refund exists.
Significant customer and concentrations of credit risk - Approximately 87% of
the Company's 2000 revenues were from one customer, NBG Radio Network, Inc.
Income taxes - For federal and state purposes, the Company has elected to be
taxed under the provisions of Subchapter S of the Internal Revenue Code.
Accordingly, the financial statements do not include a provision for federal or
state income taxes because the Company does not incur federal or state income
taxes. Instead, such earnings and losses are included in the stockholder's
personal income tax returns and are taxed based on his personal tax returns.
Marketing and advertising costs - All costs relating to marketing and
advertising are expensed in the year incurred. Amounts expensed for the years
ended December 31, 2000 and 1999, were $90,301 and $61,950, respectively.
F-5
NOTE 3 - CONTRACT REVENUES
Sales representative agreements - The Company has entered into employment and
syndication agreements with radio program personalities or producers which allow
it to distribute and syndicate their programs. With respect to these agreements,
the Company also entered into several contracts with sales representatives
through which the representatives obtained advertising for these nationally
syndicated radio and talk radio programs, and received rights to sell
advertising for bartered time obtained in exchange for a daily prep sheet
service. Each of the sales representative agreements, which extend from 12 to 18
months, provides for at least monthly payments from the sales representative to
the Company and for the sharing of revenues that exceed established, aggregate
monthly amounts for the radio programs. During 1999, the sales representatives
did not meet the levels for advertising sales that required revenue sharing and,
therefore, the Company did not receive any revenue sharing payments, which range
from 50% to 75%, for the year ended December 31, 1999. During 2000, the Company
received approximately $75,000 in revenue sharing payments for one program.
When sales representative agreements are entered into, the Company records an
asset and liability for noncancellable agreements that have a determinable
amount (typically contracts with fixed payments). Agreements based solely upon a
percentage share of revenues generated from advertising on a show are not
determinable and, therefore, not recorded. At December 31, 2000 and 1999, the
contracts receivable and deferred revenue balances, which represents
noncancellable commitments from a single third-party to buy advertising time
from the Company, were $1,973,500 and $1,086,562, respectively.
Subsequent to December 31, 2000, the Company renewed its existing sales
representative agreements and entered into additional representation agreements
with substantially similar terms and conditions as all prior contracts.
NOTE 4 - PROGRAM CONTRACT OBLIGATIONS
Employment agreements - The Company has entered into employment agreements with
several talk radio program personalities. Each of the employment agreements,
which extend from four to nine years, provide for an annual salary paid biweekly
and profit sharing payments, which range from 25% to 50%. The Company did not
meet profit levels for advertising revenues that required profit sharing and,
therefore, did not make any profit sharing payments for the year ended December
31, 1999. The Company recognized profit sharing expenses of approximately
$37,000 for the year ended December 31, 2000. Further, the Company has the right
to terminate any and all employment agreements without cause. Expenses related
to the employment agreements, which have been recorded as direct costs, were
$340,887 and $156,433 for the years ended December 31, 2000 and 1999,
respectively.
Subsequent to December 31, 2000, the Company entered into an additional
employment agreement with substantially similar terms and conditions as all
prior employment agreements, and terminated an employment agreement with an
individual.
Production agreements - During 2000 and 1999, the Company entered into
production agreements with two radio stations for separate radio programs. The
agreements provide that, in exchange for the exclusive right to broadcast the
programs, the radio stations will assist in production of the program, except
for satellite costs, and provide four minutes of advertising time when the radio
program is aired. One production agreement also requires a revenue sharing
payment to the radio station of 10% of gross receipts. Production costs
associated with the production agreements did not exceed $100,000 in either 2000
or 1999. Overall production costs, including satellite time, for the years ended
December 31, 2000 and 1999, were $334,047 and $195,834, respectively.
F-6
NOTE 4 - PROGRAM CONTRACT OBLIGATIONS - (continued)
Syndication agreements - The Company has also entered into syndication
agreements with several radio programs and a daily prep sheet service. Each of
the syndication agreements, which extend from three years to indefinitely,
generally provide for the Company to pay normal distribution, advertising, and
syndication costs related to the radio programs, and for sharing 25% to 75% of
revenues received by the Company from its sales representative. Certain
syndication agreements require the Company to pay travel expenses related to
promotion, provide satellite time, and provide minimum monthly advances against
future collections of revenue by the Company. The Company is obligated to
provide either distribution or satellite time. In addition, the Company will
provide minimum monthly advances as follows:
Years ending December 31, 2001 $ 132,000
2002 99,000
2003 84,000
2004 96,000
2005 96,000
2006 56,000
----------
$ 563,000
==========
Syndication costs, recorded in the accompanying financial statements as direct
costs, excluding satellite time, totaled $684,653 and $458,792 for the years
ended December 31, 2000 and 1999, respectively.
Subsequent to December 31, 2000, the Company entered into additional syndication
agreements with substantially similar terms and conditions as all prior
agreements.
Station relations contracts - The Company has existing contracts to provide
radio station clearance and station relations duties for specified radio
programs. In consideration for providing the service, the Company receives a
percentage of adjusted gross receipts (adjusted for advertising agency
commissions) ranging from 5% - 15%.
Subsequent to December 31, 1999, all station relations contracts either expired
or were terminated.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Lease commitments - The Company leases its office space on a month-to-month
basis for approximately $12,000 per year.
Legal contingencies - The Company may become involved in certain claims and
legal actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, there are no current matters
expected to have a material adverse effect on the financial condition of the
Company.
NOTE 6 - SALE OF COMPANY TO NBG RADIO NETWORK, INC.
During June 2001, the Company completed negotiations to be acquired by NBG Radio
Network, Inc. (NBG), a company involved in the acquisition, creation, and
syndication of national radio programming and music production and distribution.
Prior to the acquisition, NBG was the primary sales representative for the
Company. In exchange for all of the outstanding common shares of the Company,
the sole stockholder received $5,000,000 and entered into a three-year
consulting agreement with NBG. The sole stockholder also became entitled to
receive up to $400,000 from NBG for certain tax related matters.
F-7
INDEPENDENT AUDITOR'S REPORT
To the Stockholder
Glenn Fisher Entertainment Corporation
We have audited the accompanying balance sheets of Glenn Fisher Entertainment
Corporation as of December 31, 2000 and 1999, and the related statements of
income, stockholder's equity (deficit), and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2000 and 1999, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
/s/ MOSS ADAMS LLP
Portland, Oregon
July 13, 2001
F-8
NBG RADIO NETWORK, INC. PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited combined financial information for NBG give effect to
the acquisition of GFEC as well as the receipt and disbursement of proceeds from
the $6.2 million credit facility with MCG Finance Corporation.
The pro forma combined balance sheet was prepared as if the acquisition had
occurred prior to November 30, 2000. The pro forma statements of income (loss)
were prepared as if the acquisition had occurred prior to the beginning of the
periods presented.
The pro forma combined balance sheet and statements of income (loss) are not
necessarily indicative of the consolidated financial position or results of
operations as they might have been had the acquisition actually occurred on the
dates indicated. The pro forma combined balance sheet and statements of income
(loss) should be read in conjunction with the notes to the unaudited pro forma
combined financial statements.
F-8a
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MAY 31, 2001
HISTORICAL
--------------------------------
GLENN FISHER ADJUSTMENTS
NBG RADIO ENTERTAINMENT RELATED TO PRO FORMA
NETWORK, INC. CORPORATION ACQUISITION COMBINED
--------------- ---------------- ---------------- ---------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $548,832 $ 26,736 $ 6,200,000 (B) $ 1,191,868
Accounts receivable, net of allowance (5,583,700)(B)
of doubtful accounts of $60,000 4,766,063 7,000 - 4,773,063
Unbilled receivables 152,865 - - 152,865
Note receivable 167,200 - - 167,200
Related-party receivables 5,790 - - 5,790
Barter exchange receivables 81,880 - - 81,880
Prepaids and other current assets 457,539 - (300,000)(A) 157,539
Contract receivables - 686,500 (686,500)(C) -
Sales representation agreements, net
of accumulated amortization 2,243,920 - (1,653,228)(C) 590,692
--------------- ---------------- ---------------- ---------------
Total current assets 8,424,089 720,236 (2,023,428) 7,120,897
--------------- ---------------- ---------------- ---------------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation 170,482 13,051 - 183,533
OTHER ASSETS - - 150,000 (B) 150,000
IDENTIFIABLE INTANGIBLES, net of
amortization 160,243 - 1,518,688 (A) 1,199,415
(479,516)(A)
GOODWILL 903,203 3,792,689 (A) 5,048,064
728,978 (C)
(376,806)(A)
--------------- ---------------- ---------------- ---------------
Total assets $9,658,017 $ 733,287 $ 3,310,605 $13,701,909
=============== ================ ================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $500,000 $ - $(500,000)(B) $ -
Accounts payable 536,490 35,739 - 572,229
Accrued interest - - 375,560 (B) 375,560
Accrued liabilities 3,216 42,000 280,425 (A) 419,641
94,000 (E)
Deferred revenue - 686,500 (686,500)(C) -
Sales representation agreement
liabilities 1,751,915 - (924,250)(C) 827,665
--------------- ---------------- ---------------- ---------------
Total current liabilities 2,791,621 764,239 (1,360,765) 2,195,095
--------------- ---------------- ---------------- ---------------
OTHER LIABILITIES
Long-term debt - - 6,200,000 (B) 4,216,768
(2,150,000)(B)
166,768 (B)
Deferred interest - - 97,199 (B) 97,199
--------------- ---------------- ---------------- ---------------
Total other liabilities - - 4,313,967 4,313,967
--------------- ---------------- ---------------- ---------------
STOCKHOLDERS' EQUITY
Preferred stock - - - -
Common stock 14,322 59,194 (59,194)(A) 14,322
Additional paid-in capital 9,016,881 - 2,150,000 (B) 11,166,881
Retained deficit (1,937,267) (90,146) 90,146 (A) (3,760,816)
(1,823,549)
Stock subscription receivable (227,540) - - (227,540)
--------------- ---------------- ---------------- ---------------
Total stockholders' equity 6,866,396 (30,952) 357,403 7,192,847
--------------- ---------------- ---------------- ---------------
Total liabilities and
stockholders' equity $9,658,017 $ 733,287 $ 3,310,605 $13,701,909
=============== ================ ================ ===============
F-9
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME (LOSS)
FOR THE SIX MONTHS ENDED MAY 31, 2001
HISTORICAL
--------------------------------
GLENN FISHER ADJUSTMENTS
NBG RADIO ENTERTAINMENT RELATED TO PRO FORMA
NETWORK, INC. CORPORATION ACQUISITION COMBINED
---------------- --------------- ---------------- ---------------
REVENUES
Advertising income $ 6,149,719 $ 1,311,225 $(1,287,000)(C) $ 6,173,944
Kiosk income 522,184 - - 522,184
Interest income 4,118 - - 4,118
---------------- --------------- ---------------- ---------------
Total revenues 6,676,021 1,311,225 (1,287,000) 6,700,246
DIRECT COSTS 4,885,516 844,541 (1,287,000)(C) 4,443,057
---------------- --------------- ---------------- ---------------
GROSS MARGIN 1,790,505 466,684 - 2,257,189
---------------- --------------- ---------------- ---------------
GENERAL AND ADMINISTRATIVE EXPENSES
Wages and employee benefits 1,547,228 59,669 94,000 (E) 1,700,897
Travel and entertainment 172,779 38,165 - 210,944
Consulting and professional 503,624 12,162 233,700 (D) 749,486
Advertising 23,107 17,777 - 40,884
Depreciation and amortization 215,164 6,000 856,322 (A) 1,077,486
Postage and printing 61,666 - - 61,666
Rent 46,952 8,156 - 55,108
Interest 20,678 - 639,527 (B) 660,205
Office supplies 33,049 3,174 - 36,223
Telephone 52,864 8,836 - 61,700
Other expenses 127,735 16,113 - 143,848
---------------- --------------- ---------------- ---------------
Total general and administrative
expenses 2,804,846 170,052 1,823,549 4,798,477
---------------- --------------- ---------------- ---------------
Net income (loss) before provision for income taxes (1,014,341) 296,632 (1,823,549) (2,541,258)
Provision for income taxes - - - -
---------------- --------------- ---------------- ---------------
Net income (loss) $(1,014,341) $ 296,632 $(1,823,549) $(2,541,258)
================ =============== ================ ===============
Basic and diluted income (loss) per share
of common stock $ (0.08) $ 296.63 $ - $ (0.19)
================ =============== ================ ===============
Weighted average number of shares outstanding 13,500,106 1,000 - 13,500,106
================ =============== ================ ===============
F-10
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME (LOSS)
FOR THE YEAR ENDED NOVEMBER 30, 2000
HISTORICAL
---------------------------------
GLENN FISHER ADJUSTMENTS
NBG RADIO ENTERTAINMENT RELATED TO PRO FORMA
NETWORK, INC. CORPORATION ACQUISITION COMBINED
----------------- --------------- -------------- ---------------
REVENUES
Advertising income $11,152,185 $ 1,961,500 $(1,712,062)(C) $11,401,623
Kiosk income 633,646 - - 633,646
Interest income 17,722 - - 17,722
----------------- --------------- -------------- ---------------
Total revenues 11,803,553 1,961,500 (1,712,062) 12,052,991
DIRECT COSTS 6,749,179 1,359,587 (1,712,062)(C) 6,396,704
----------------- --------------- -------------- ---------------
GROSS MARGIN 5,054,374 601,913 - 5,656,287
----------------- --------------- -------------- ---------------
GENERAL AND ADMINISTRATIVE EXPENSES
Wages and employee benefits 2,069,018 83,672 188,000 (E) 2,340,690
Travel and entertainment 237,954 59,835 - 297,789
Consulting and professional 563,991 20,571 233,700 (D) 818,262
Advertising 83,156 90,301 - 173,457
Depreciation and amortization 434,293 12,173 1,520,660 (A) 1,967,126
Bad debt expense 180,774 - - 180,774
Postage and printing 159,633 - - 159,633
Rent 130,189 15,133 - 145,322
Interest 7,861 - 1,287,581 (B) 1,295,442
Office supplies 65,521 7,129 . 72,650
Telephone and Internet costs 106,754 40,057 - 146,811
Other expenses 189,118 17,736 - 206,854
----------------- --------------- -------------- ---------------
Total general and administrative expenses 4,228,262 346,607 3,229,941 7,804,810
----------------- --------------- -------------- ---------------
Net income (loss) before provision for income taxes 826,112 255,306 (3,229,941) (2,148,523)
Provision for income taxes - - - -
----------------- --------------- -------------- ---------------
Net income (loss) $ 826,112 $ 255,306 $(3,229,941) $(2,148,523)
================= =============== ============== ===============
Basic income (loss) per share of common stock $ 0.07 $ 255.31 $ - $ (0.18)
================= =============== ============== ===============
Diluted income (loss) per share of common stock $ 0.06 $ 255.31 $ - $ (0.15)
================= =============== ============== ===============
Weighted average number of shares outstanding-basic 12,208,138 1,000 - 12,208,138
================= =============== ============== ===============
Weighted average number of shares outstanding-diluted 14,617,459 1,000 - 14,617,459
================= =============== ============== ===============
F-11
Notes to Unaudited Pro Forma Combined Financial Statements
Note A - Basis of Presentation - On June 29, 2001, NBG Radio Network, Inc. (NBG
or the Company) acquired all of the common stock of Glenn Fisher Entertainment
Corporation (GFEC) for $5,280,425 and, as of the date of the acquisition, GFEC
became a wholly owned subsidiary of NBG. The unaudited pro forma financial
information has been prepared using the purchase method of accounting and is
based on the historical financial statements of NBG and GFEC assuming the
acquisition had been concluded at the beginning of the periods presented. The
unaudited pro forma financial statements combine GFEC's balance sheet as of June
30, 2001 with the balance sheet of NBG as of May 31, 2001; GFEC's statement of
income for the six months ended June 30, 2001 with NBG's statement of income for
the six months ended May 31, 2001; and, GFEC's statement of income for the year
ended December 31, 2000 with NBG's statement of income for the year ended
November 30, 2000. Certain amounts in the historical financial statements of
GFEC have been reclassified and adjusted to conform with NBG's historical
financial presentation. All inter-company transactions have been eliminated. The
pro forma adjustments represent management's best estimate based on available
information at the present time. These adjustments may change as additional
information becomes available.
Under the purchase method of accounting, the assets acquired and liabilities
assumed by NBG have been recorded at their respective fair market values at the
effective date of acquisition as follows:
Goodwill $ 3,792,689
Identifiable intangibles (contract rights) 1,518,688
Assets 733,287
Liabilities (764,239)
------------
Total consideration for GFEC $ 5,280,425
============
Cash paid in acquisition of GFEC at closing $ 4,700,000
Cash paid in acquisition of GFEC as deposit $ 300,000
Liability accrued in acquisition of GFEC 280,425
------------
Total consideration for GFEC $ 5,280,425
============
Identifiable intangible assets (contract rights) of $1,518,688 have been
recognized and will be amortized over the lives of the underlying assets, which
have a weighted average life of 2.5 years. Goodwill, the excess of the purchase
price over the fair value of the assets acquired and liabilities assumed, have
been recorded at $4,521,667 (including $728,978, as discussed in "Note C").
Amortization of goodwill and other intangible assets will result in a charge to
pro forma earnings of approximately $856,000 for the first 6 months and
approximately $1,500,000 for the first 12 months.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No 142, Goodwill and Other Intangible Assets,
which will become effective for fiscal years beginning after December 15, 2001.
Under the new accounting pronouncement, goodwill (and intangible assets deemed
to have indefinite lives) will no longer be amortized but will be subject to
annual impairment tests in accordance with the Statement. Other intangible
assets, including recorded contract rights, will continue to be amortized over
their useful lives. During 2002, the Company will perform the first of the
required impairment tests of goodwill and indefinite lived intangible assets but
has not yet determined what the effect of these tests, if any, will be on the
earnings and financial position of the Company.
F-12
Note B - Long-term Debt - NBG acquired GFEC by purchasing the outstanding stock
held by its founder and sole shareholder, Glenn Fisher. The acquisition was
financed through a $6.2 million credit facility with MCG Finance Corporation.
The credit facility is secured by all of the assets of NBG, including the stock
of NBG's subsidiaries, and is structured to allow for the possibility of
additional funding of up to $10 million to finance future strategic
acquisitions. In exchange for $6.2 million, NBG and GFEC issued MCG Finance
Corporation a note with a face value of $6.2 million and a warrant to aquire NBG
Common Stock. The fair market value of the warrant is estimated to be $2.15
million. With the proceeds, NBG acquired the stock of GFEC, retired its
outstanding line of credit in the amount of $500,000, paid financing fees and
costs of $356,617, and received excess cash in the amount of $616,300 to fund
any purchase price adjustments and other acquisition costs. Disbursement of the
funds was as follows:
MCG credit facility $ 6,200,000
Acquisition price of GFEC
common stock $(5,000,000)
Pre-payments by NBG 300,000
------------
Paid to GFEC $(4,700,000)
Pay-off of NBG line of credit (500,000)
Prepaid loan fees (150,000)
Financing fees and costs (233,700)
------------
(5,583,700)
------------
Net cash to NBG $ 616,300
============
The $5 million acquisition price of GFEC excludes contingent consideration of
$280,425 described in Note A.
For the six month period ended May 31, 2001, and the twelve month period ended
November 30, 2000, interest expense related to the financing, including deferred
interest, was $472,759 and $944,039, respectively. Interest expense recognized
for the amortization of the pro rata share allocated to common stock warrants
was $166,768 and $343,542, for the six month period ended May 31, 2001, and the
twelve month period ended November 30, 2000, respectively.
Note C - Intercompany Transactions - Prior to the acquisition transaction, NBG
and GFEC entered into a number of joint business transactions. In its
transactions with NBG, GFEC sold to NBG its rights to employment and syndication
agreements with radio program personalities or producers pursuant to sales
representation agreements. The sales representation agreements were recorded by
GFEC as contracts receivable and deferred revenues when the determinable amount
of noncancellable agreements were identified. In its transactions with GFEC, NBG
recognized its liabilities to GFEC in accordance with the acquired sales
representation agreements. The costs of the sales representation agreements were
deferred by NBG until such time that they were matched with related programming
revenues.
In consolidation, the intercompany contracts receivable and deferred revenue
balances of $686,500 recognized by GFEC and the unamortized sales representation
agreement costs of $1,653,228 and contract liablilities of $924,250 recognized
by NBG were eliminated, resulting in the recognition of $728,978 in additional
goodwill.
Note D - Acquisition Costs and Anticipated Cost Savings - In connection with the
financing from MCG, NBG incurred financing related costs of $383,700. The costs
are primarily related to due diligence and legal costs incurred by the lender,
investment banking fees, and loan fees. Although non-recurring in nature,
adjustments for these costs are reflected in the unaudited pro forma combined
statements of income (loss).
F-13
NBG expects to increase pre-tax income by achieving annual cost savings of
$855,000, $772,000 and $1,129,000 for the years ending November 30, 2001, 2002
and 2003, respectively, by acquiring GFEC and the rights to the employment,
production, and syndication agreements. No adjustments have been included in the
unaudited pro forma combined financial information for the anticipated cost
savings. There can be no assurance that anticipated operating cost savings will
be achieved in the amounts or at the times anticipated.
Note E - Consulting Agreement - As part of the acquisition by NBG, Glenn Fisher,
the former president and sole shareholder of GFEC, entered into a three-year
consulting agreement with NBG. Terms of the consulting agreement provide for
monthly payments of $16,667 to Fisher for the three-year period covered by the
agreement.
F-14