Exhibit 99.1
Unaudited pro forma condensed consolidated combined financial statements for the
fiscal year ended December 30, 2002, and the six month period ended June 30,
2003
On October 21, 2003, the Company closed two related transactions previously
announced on October 17, 2003: (1) a private placement of common stock and
warrants to purchase common stock (the "Offering") and (2) an exchange of its 8%
Series A Cumulative Convertible Participating Preferred Stock and related series
A warrants for cash and 9% five-year term loans (the "Recapitalization"). Also
on October 21, 2003, the Company repaid its outstanding Senior Subordinated Debt
(altogether, the "Transactions").
The following unaudited consolidated Pro Forma financial information illustrates
the effect of the Transactions described below, as if such Transactions occurred
on the first day of the periods presented in the unaudited Pro Forma Statements
of Operations (January 1, 2002 for the year ended December 31, 2002; and January
1, 2003 for the six months ended June 30, 2003) and on the last day of the
period for the unaudited Pro Forma Balance Sheet:
o issuance of 9,739,111 shares of common stock and warrants to purchase
3,408,689 shares of common stock in the Offering at an assumed
aggregate offering price of $7.86 per unit;
o the exchange of all outstanding 8% Series A Cumulative Convertible
Participating Preferred Stock (the "Series A Preferred Stock") and
outstanding warrants to purchase 2,744,703 shares of common stock held
by holders of such Series A Preferred Stock for the following
consideration:
1. $55 million from cash raised in the offering, and
2. $25 million in term loans with, if certain conditions are
satisfied, warrants to purchase up to 250,000 shares of common
stock;
o the repayment of $12.2 million of Senior Subordinated Debt and accrued
interest and the related cancellation of outstanding warrants to
purchase 1,187,500 shares of common stock; and
o payment of an estimated $7.5 million of fees, commissions, and
expenses in connection with the Transactions.
The Pro Forma financial information is based on the Company's historical
statements as of and for the six-month period ended June 30, 2003 and the year
ended December 31, 2002, the details of the Transactions, and assumptions the
Company believes to be reasonable. Changes in such assumptions could materially
impact this presentation. Management has prepared the Pro Forma financial
information without audit.
The Pro Forma financial information does not purport to be indicative of results
or financial condition that would have been achieved had the Transactions
occurred on the dates indicated, nor does it purport to indicate the results or
financial condition that might be obtained in the future. The Pro Forma
financial information should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 2002 and the Quarterly
Report on Form 10-Q for the six months ended June 30, 2003.
Pro Forma Statements of Operations
For the Six Months Ended June 30, 2003
(In Thousands, Except Per Share Data)
(Unaudited)
Pro Forma Pro Forma
Historical Adjustments
------------- ------------- ------ -------------
Income Statement Data:
Revenues......................... $ 26,711 $ -- $ 26,711
Cost and expenses................
Operating costs................ $ 16,957 $ -- $ 16,957
Selling and promotional costs.. $ 1,646 $ -- $ 1,646
General and administrative
expenses ..................... $ 3,623 $ -- $ 3,623
Other depreciation and
amortization .................. $ 2,889 $ -- $ 2,889
------------- ------------- ------ -------------
Income from operations........... $ 1,596 $ -- $ 1,596
Interest income.................. $ (37) $ -- $ (37)
Interest expense ................
$ 1,230 $ 381 (f)(i) $ 1,611
------------- ------------- ------ -------------
Income (loss) before income taxes $ 403 $ (381) $ 22
Income tax (benefit) expense .... $ 28 $ (152) (g) $ (124)
------------- ------------- ------ -------------
Net income (loss) ............... $ 375 $ (229) $ 146
Accretion and dividends on
redeemable
preferred stock................ $ (4,949) $ (1,928) (h) $ (6,877)
------------- ------------- ------ -------------
Net loss
to common stockholders......... $ (4,574) $ (2,157) $ (6,731)
============= ============= ====== =============
Basic and diluted
loss per share................. $ (0.85) $ (0.45)
============= =============
Weighted average common shares
outstanding.................... 5,381 (a) 15,120
============= =============
See notes to unaudited Pro Forma financial information.
Pro Forma Statements of Operations
For the Year Ended December 31, 2002
(In Thousands, Except Per Share Data)
(Unaudited)
Pro Forma Pro Forma
Historical Adjustments
------------- ------------- ------ -------------
Income Statement Data:
Revenues......................... $ 50,774 $ -- $ 50,774
Cost and expenses................
Operating costs................ $ 31,472 $ -- $ 31,472
Selling and promotional costs.. $ 3,140 $ -- $ 3,140
General and administrative
expenses ..................... $ 7,619 $ -- $ 7,619
Leased facilities and office
closings ...................... $ (290) $ -- $ (290)
Amortization of restricted stock
award ......................... $ -- $ -- $ --
Amortization of goodwill ...... $ -- $ -- $ --
Other depreciation and
amortization .................. $ 5,939 $ -- $ 5,939
------------- ------------- ---- -------------
Income from operations........... $ 2,894 $ -- $ 2,894
Interest income.................. $ (172) $ -- $ (172)
Interest expense ................ $ 2,137 $ 819 (f)(i)$ 2,956
------------- ------------- ---- -------------
Income (loss) before income taxes $ 929 $ (819) $ 110
Income tax benefit .............. $ (208) $ (328) (g) $ (536)
------------- ------------- ---- -------------
Net income (loss) ............... $ 1,137 $ (491) $ 646
Accretion and dividends on
redeemable
preferred stock................ $ (9,293) $ (6,812) (h) $ (16,105)
------------- ------------- ---- -------------
Net loss
to common stockholders......... $ (8,156) $ (7,303) $ (15,459
============= ============= ==== =============
Basic and diluted
loss per share................. $ (1.52) $ (1.02)
============= =============
Weighted average common shares
outstanding.................... 5,353 (a) 15,092
============= =============
See notes to unaudited Pro Forma financial information.
Pro Forma Balance Sheet Data
As of June 30, 2003
(In Thousands)
(Unaudited)
Pro Forma
Historical Adjustments Pro Forma
-------------- ------------- --------- -------------
Assets
Current Assets
Cash and cash equivalents. $ 8,083 $ 2,097 (a)(c)(d) $ 10,180
Other current assets...... $ 5,583 $ (156) (c) $ 5,427
Property and equipment, net.. $ 19,760 $ -- $ 19,760
Other assets................. $ 31,896 $ 500 (i) $ 32,396
-------------- ------------- --------- -------------
Total assets......... $ 65,322 $ 2,441 $ 67,763
============== ============= ========= =============
Liabilities and Stockholder's
Deficit
Current liabilities.......... $ 10,251 $ (578) (c) $ 9,673
Long term liabilities
Debentures due in 2005, net
of unaccreted discount..... $ 10,288 $ (10,288) (c) $ --
New debt issued in
recapitalization........... $ -- $ 24,031 (b) $ 24,031
Other long term liabilities.. $ 3,380 $ -- $ 3,380
-------------- ------------- --------- -------------
Total liabilities.... $ 23,919 $ 13,170 $ 37,084
-------------- ------------- --------- -------------
Redeemable series A
preferred stock ...... $ 58,138 $ (58,138) (d) $ --
-------------- ------------- --------- -------------
Stockholder's equity (deficit)
Common stock,
par value $0.01....... $ 60 $ 97 (a) $ 157
$110,490
Additional paid in capital $ 61,179 $ 49,311 (a)(b)(c)(d)
Accumulated deficit....... $(75,123) $ (1,994) (c)(e) $(77,117)
Treasury stock............ $ (2,851) $ -- $ (2,851)
-------------- ------------- --------- -------------
Total stockholders' equity
(deficit).............. $(16,735) $ 47,414 $ 30,679
-------------- ------------- --------- -------------
Total liabilities and
stockholder's
deficit ........... $ 65,322 $ 2,441 $ 67,763
============== ============= ========= =============
See notes to unaudited Pro Forma financial information.
Notes to unaudited Pro Forma financial information:
a) The Offering raised $68.9 million after the payment of fees, including
$500,000 which are treated as deferred financing costs (see Note i), and
there will be 9,739,111 shares of common stock, par value $0.01, issued in
the Offering.
b) We have assumed that 250,000 warrants will be issued in connection with the
$25 million term loan, and that the original book value of the term loan
will be reduced by the fair value of these warrants, estimated to be
$969,000. The difference between the face value of the term loan and the
original book value will be amortized over time, using the interest method,
by means of a charge to interest expense. These warrants will only be
issued if certain conditions occur in the first year after the closing of
the Transactions.
c) The Transactions include the repayment of Senior Subordinated Debt,
amounting to $11,798,000 at June 30, 2003 including accrued interest
thereon, and expensing the remaining balance of certain costs we had
incurred in connection with the issuance of this debt. We have also assumed
the cancellation of certain warrants granted in connection with the
issuance of the Senior Subordinated Debt valued at $1,021,000. For each
full month between the date the Senior Subordinated Debt is repaid in full
and February 1, 2005, the Company can cancel 62,500 of the 2,000,000
warrants originally granted, up to a maximum of 1,500,000. For the
unaudited Pro Forma Statement of Operations for the year ended December 31,
2002, we have assumed that the Senior Subordinated Debt and the related
warrants were never issued.
d) In the Recapitalization, the Company is exchanging $55 million of cash and
the $25 million term loan noted above for all of the currently outstanding
Series A Preferred Stock and all of the warrants valued at $19.9 million
originally issued in connection with the Series A Preferred Stock.
e) The Series A Preferred Stock was recorded in May 2000 at a discount to its
face value of $60 million, and the difference has been recorded through a
charge to accretion expense in determining Net Loss to Common Stockholders.
The fair value of the Series A Preferred Stock and dividends payable
thereon at June 30, 2003 has been estimated at approximately $60 million,
and the difference between the current accreted book value and the fair
value has been recorded as an adjustment to accretion expense in the income
statement.
f) The 9% interest and amortization of loan discount connected with the new
term loan has been expensed in the unaudited Pro Forma Statements of
Operations, and the 12% interest and other expenses connected with the
Senior Subordinated Debt have been eliminated.
g) A rate of 40% has been assumed for the tax effect of the above transactions
in the Pro Forma Statements of Operations.
h) Because the Transactions are assumed to occur at the beginning of each of
the periods presented in the Pro Forma Operating Statements (January 1,
2002 for the year ended December 31, 2002 and January 1, 2003 for the six
months ended June 30, 2003), and the Series A Preferred Stock would have
had a lower book value on those dates, the adjustment to accretion expense
(discussed in note e above) is greater than that recorded at June 30, 2003.
i) Professional fees of $500,000 are treated as deferred financing costs and
amortized as interest expense over the five-year term of the $25 million
term loan.