UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
June 10, 1999 0-27556
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(Date of earliest report) (Commission File Number)
NETWORK EVENT THEATER, INC.
(Exact name of registrant as specified in its charter)
Delaware 3864111
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
529 Fifth Avenue, New York, New York 10017
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(Address of Principal Executive Offices) (Zip Code)
(212) 622-7300
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name or former address, if changed since last report.)
Item 2. Acquisition or Disposition of Assets.
On June 9, 1999, Network Event Theater, Inc. (the "Registrant")
acquired Trent Graphics, Inc. ("Trent") pursuant to a Merger Agreement (the
"Merger Agreement") dated June 9, 1999 among the Registrant, Trent, Trent
Acquisition Co. Inc., a wholly-owned subsidiary of the Registrant
("Acquisition"), and Charles Sirolly, Thomas Sirolly, Daniel Sirolly and
William Sirolly, the stockholders of Trent (the "Stockholders"). Trent sells
posters and other products at sales events at junior and four-year college
campuses and high schools, through retailers and over the internet and other
mediums and sells and custom frames wall posters. The acquisition was
accomplished by the merger (the "Merger") of Trent into Acquisition, which
then changed its name to Trent Graphics, Inc. The purchase price for Trent was
$3.5 million in cash and $3.5 million in shares of Registrant's common stock.
In addition, if Trent's EBITDA (as defined in the Merger Agreement) for the
two years ending June 30, 2001 exceeds certain targets, Registrant will pay to
the Stockholders up to an additional $600,000 in cash and issue to the
Stockholders up to an additional $600,000 in shares of Registrant's common
stock.
Simultaneously with the Merger, Trent entered into four-year
employment agreements with each of the Stockholders.
See the Merger Agreement attached as exhibit 7(c)(1) for more
information concerning the Merger.
On June 10, 1999, the Registrant acquired substantially all of the
assets of HelloXpress USA, Inc. ("Hello"), pursuant to an Asset Purchase
Agreement (the "Asset Agreement") dated June 10, 1999 among Registrant, its
wholly owned subsidiary Pik:Nik Media, Inc., Hello and Dalia Smith and Ron
Smith, the stockholders of Hello (the "Hello Stockholders"). Hello produces,
markets and distributes postcards containing advertisements in Washington,
Baltimore, Boston, Philadelphia and Atlanta. The purchase price for the assets
of Hello and a non-competition agreement from the Hello Stockholders was
$300,000 in cash and $250,000 in shares of Registrant's common stock. In
addition, if Local Sales (as defined in the Asset Agreement) from July 1, 1999
through June 30, 2000 exceed certain targets, Registrant will pay up to an
additional $45,000 in cash and issue up to an additional $200,000 in shares of
Registrant's common stock.
Simultaneously with the closing, Pik:Nik Media, Inc. entered into a
one-year employment agreement with Dalia Smith.
See the Asset Agreement attached as exhibit 7(c)(2) for more
information concerning the acquisition of assets from Hello.
Item 7. Financial Statements, Proforma Financial Information and Exhibits.
(a) Audited financial statements of Trent Graphics Inc. for the
years ended December 31, 1997 and 1998.
(b) Pro forma financial information relating to the purchase of
Trent Graphics, Inc. was not available at the time of filing
of this Current Report on Form 8-K. Pro forma information will
be filed as soon as practicable.
(c) (2.1) Merger Agreement dated June 9, 1999 among Registrant,
Trent Acquisition Co., Inc., Trent Graphics, Inc. and
Charles Sirolly, Thomas Sirolly, Daniel Sirolly and
William Sirolly.
(2.2) Asset Purchase Agreement dated June 10, 1999 among
Registrant, Pik:Nik Media, Inc., HelloXpress USA,
Inc., and Dalia Smith and Ron Smith.
(23) Consent of Stone, Trembly-Deibler & Associates, Inc.,
independent accountants of Trent Graphics, Inc.
STONE, TREMBLY-DEIBLER & ASSOCIATES, INC.
Certified Public Accountants
529 Sarah Street o Stroudsburg, PA 18360 o (570) 421-5606 o (570) 421-5738 fax
To the Board of Directors
Trent Graphics, Inc.
140 N. 2nd Street, Suite 104
Stroudsburg, PA 18360
Independent Auditor's Report
We have audited the accompanying balance sheets of Trent Graphics, Inc., as of
December 3 1, 1998 and 1997, and the related statements of income, retained
earnings, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 Trent Graphics, Inc., as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Stone, Trembly-Deibler and Associates, Inc
March 25, 1999
TRENT GRAPHICS, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
1998 1997
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ASSETS
CURRENT ASSETS
Cash $ 449,972 $ 240,319
Accounts receivable - net 12,030 8,823
Inventory 405,352 256,834
Prepaid expenses & deposits 31,823 18,277
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Total Current Assests $ 899,177 $ 524,253
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PROPERTY, PLANT & EQUIPMENT
Machinery and equipment $ 366,569 $ 280,555
Leasehold improvements 37,119 37,119
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$ 403,688 $ 317,674
Less: accumulated depreciation 214,915 190,645
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Property, Plant & Equipment - Net 188,773 127,029
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TOTAL ASSETS $1,087,950 $ 651,282
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See accompanying notes and accountants' report.
TRENT GRAPHICS, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
1998 1997
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LIABILITIES
CURRENT LIABILITIES
Current portion of long-term debt $ 38,946 $ 4,215
Accounts payable 106,667 131,712
Accrued taxes 61,042 43,677
Accrued wages 16,983 37,486
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Total Current Liabilities $ 223,638 $ 217,090
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LONG TERM DEBT, less current portion $ 133,972 $ 6,298
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TOTAL LIABILITIES $ 357,610 $ 223,388
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STOCKHOLDERS' EQUITY
Capital stock $ 3,250 $ 3,250
Retained earnings 727,090 424,644
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Total Stockholders' Equity $ 730,340 $ 427,894
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TOTAL LIABILITIES AND EQUITY $1,087,950 $ 651,282
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See accompanying notes and accountants' report.
TRENT GRAPHICS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
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SALES $ 6,395,849 $ 5,462,484
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COST OF GOODS SOLD
Beginning inventory $ 256,834 $ 300,617
Purchases 1,862,483 1,547,689
Wages 59,318 64,847
Subcontracting 15,328 453
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$ 2,193,963 $1, 913,606
Less: ending inventory 405,352 256,834
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Total Cost of Goods Sold $ 1,788,611 $ 1,656,772
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GROSS PROFIT $ 4,607,238 $ 3,805,712
TOTAL EXPENSES $ 4,138,802 $ 3,672,361
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NET INCOME $ 468,436 $ 133,351
RETAINED EARNINGS - BEGINNING OF YEAR $ 424,644 $ 329,293
DISTRIBUTIONS (165,990) (38,000)
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RETAINED EARNINGS - END OF YEAR $ 727,090 $ 424,644
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See accompanying notes and accountants' report
TRENT GRAPHICS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 468,436 $ 133,351
Adjustments to reconcile net cash provided by
operating activities:
Depreciation & amortization 51,180 39,199
Bad debts 7,347
Change in assets and liabilities
(Increase) decrease in:
Accounts receivable (3,207) (7,068)
Inventory (148,518) 43,783
Prepaids & deposits (13,546) (3,067)
Increase (decrease) in:
Accounts payable (25,045) 32,119
Accrued taxes 17,365 3,593
Accrued wages (20,503) 5,220
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Net Cash Provided By Operating Activities $ 326,162 $ 254,477
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures` $(112,924) $ (15,419)
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CASH FLOWS FROM FINANCING ACTIVITIES
Long term financing $ 172,100
Payment on debt (9,695) $ (3,575)
Stockholder distributions (165,990) (38,000)
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Net Cash Used By Financing Activities $ (3,585) $ (41,575)
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(continued)
See accompanying notes and accountants' report
TRENT GRAPHICS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,1998 AND 1997
1998 1997
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NET INCREASE IN CASH $209,653 $197,483
CASH - BEGINNING OF YEAR 240,319 42,836
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CASH - END OF YEAR $449,972 $240,319
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SUPPLEMENTAL DISCLOSURE
Interest paid in cash $ 24,313 $ 22,947
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See accompanying notes and accountants' report
TRENT GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
NATURE OF BUSINESS
Since 1974, Trent Graphics has been a wholesaler and retailer of prints and
posters. Prints are sold both unframed and framed (by-in-house framing). Their
major customers are college students and college book stores throughout the
United States. The company also operates retail stores throughout the United
States. The corporate headquarters and warehouse are located in Stroudsburg, PA.
DESCRIPTION OF ENTITY
On January 1, 1991, a change of entity was made from partnership to corporation.
The operations are now in Trent Graphics, Inc., a Pennsylvania subchapter "S"
corporation.
BASIS OF REPORTING
The books and records of the corporation are maintained on the accrual basis for
financial reporting purposes.
ACCOUNTS RECEIVABLE
Accounts receivable are carried net of the allowance for doubtful accounts of
$872 in 1998 and $872 in 1997.
DEPRECIATION & AMORTIZATION
Property, plant & equipment are. stated at cost of acquisition. Assets are
depreciated using the straight-line method over their estimated useful lives for
financial statement purposes and accelerated methods for income tax purposes.
INCOME TAXES
The corporation does not provide for income taxes. The corporation is taxed
under subchapter "S" laws for federal and state purposes. All items flow
through to the stockholders' individual income tax returns.
INVENTORIES
Inventories are stated at the lower of cost or market. Physical inventories are
taken on a bi- annual basis.
TRENT GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1998 1997
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NOTE 1: NOTE PAYABLE - LINE OF CREDIT
The company has two established lines
of credit with PNC Bank. Both lines
have an interest rate of the bank's
base plus 1.0%, secured by inventory
(current rate: 8.75%). $ 600,000 $ 600,000
Less: current advances ------------ -----------
Available $ 600,000 $ 600,000
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NOTE 2: LONG TERM DEBT
Installment loan payable to PNC Bank
in monthly payments of $423, including
interest for 60 months at a rate of
9.78%, secured by automotive
equipment. $ 6,298 $ 10,513
Installment loan payable to GMAC in
monthly payments of $408, including
interest for 60 months at a rate of
3.5%, secured by automotive
equipment. 16,620
Equipment loan payable to PNC Bank in
monthly installments of $2,500, plus
interest for 60 months at a prime rate
of 7.75%, secured by inventory and
equipment. 150,000
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$ 172,918 10,513
Less: current installments 38,946 4,215
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$ 133,972 $ 6,298
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TRENT GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 2: LONG-TERM DEBT (CONTINUED)
Following are the maturities of long-term debt for each of the next
five years:
Year Ending December 31,
1999 $ 38,946
2000 36,123
2001 34,648
2002 33,201
2003 30,000
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$ 172,918
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1998 1997
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NOTE 3: CAPITAL STOCK
Trent Graphics, Inc., common stock,
par value $1 per share; authorized
10,000 shares; issued and outstanding,
3,250 shares. $ 3,250 $ 3,250
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NOTE 4: LEASE COMMITMENTS
The Company leases office equipment and a retail store relative to its
operations. The following is a schedule, by years, of future minimum
rental payments required under noncancellable operating leases that have
initial lease terms in excess of one year as of December 31, 1998:
Year Ending December 31,
1999 $ 100,183
2000 99,300
2001 3,400
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$ 202,883
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Rent expense charged to operations for the years ended December 31, 1998
and 1997 under such noncancellable leases amounted to $83,767 and
$14,100, respectively.
NOTE 5: CONCENTRATION OF CREDIT RISK
The Company maintains its bank accounts at high credit quality financial
institutions. The cash balances of each are insured up to $ 100,000 by
the Federal Deposit Insurance Corporation. The cash balances at times
may exceed federally insured limits.
TRENT GRAPHICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 6: USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
NOTE 7: ESTIMATED FAIR VALUF, OF FINANCIAL INSTRUMENTS
The Company's cash, accounts receivable, accounts payable and accrued
expenses as reported approximate fair value because of the short
maturity of these instruments. The long-term debt as stated also
approximates fair value because of the contractual agreement to
liquidate the indebtedness at the stated amount.
NOTE 8: EXPENSES 1998 1997
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Officers' salaries $ 338,580 $ 313,650
Salaries & wages 1,311,949 1,091,721
Rent 1,064,269 890,841
Taxes 207,252 185,342
Sales & warehouse supplies 58,259 73,396
Advertising 84,352 85,474
Automotive expense 311,723 307,354
Travel expense 304,450 307,484
Utilities 35,560 26,681
Insurance 56,814 59,079
Office expense 32,741 33,762
Telephone 47,743 37,706
Delivery costs 103,452 83,527
Equipment upkeep 14,299 8,675
Leasehold maintenance 7,707 12,444
Bank charges 48,645 40,423
Professional fees 19,373 5,867
Employee benefits 14,930 39,442
Interest 24,313 22,947
Bad debts 1,211 7,347
Depreciation & amortization 51,180 39,199
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Total Expenses $ 4,138,802 $ 3,672,361
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NETWORK EVENT THEATER, INC.
By: /s/ Harlan Peltz
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Chairman of the Board and
Chief Executive Officer
Dated June 24, 1999