SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
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) February 12, 1999
IENTERTAINMENT NETWORK, INC.
--------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
0-29750 56-2092059
- ------------------------------------ ----------------------------------
(Commission file Number) (IRS Employer ID Number)
215 Southport Drive, Suite 1000, Morrisville, North Carolina 27560
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (919) 461-0722
------------------------
Interactive Magic, Inc.
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
iEntertainment Network, Inc. (formerly Interactive Magic, Inc.) hereby files
Amendment No. 1 to its Report on Form 8-K filed on February 22, 1999 for the
purpose of filing the financial statements and pro forma financial information
required by Item 7 of Form 8-K.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired. The financial
statements for the acquired business required by Item 7 of
Form 8-K promulgated by the Commission under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") are
filed herewith as Exhibit 99.2.
(b) Pro Forma Financial Information. The following pro forma
financial information required by Item 7 of Form 8-K
promulgated by the Commission under the Exchange Act is filed
with this report.
IENTERTAINMENT NETWORK, INC.
(F/K/A INTERACTIVE MAGIC, INC.)
UNAUDITED PRO FORMA FINANCIAL DATA
On February 12, 1999, Interactive Magic, Inc. ("Interactive Magic" or the
"Company") consummated the acquisition of MPG-Net, Inc. ("MPG-Net") by
exchanging 600,000 shares of its common stock valued at approximately $3.1
million for all of the outstanding common stock of MPG-Net and issuing 150,000
shares of its common stock valued at approximately $.8 million in full
settlement of certain debt obligations of MPG-Net. MPG-Net is primarily in the
business of developing, publishing and distributing interactive, real time 3-D
entertainment for multi-user online/Internet play, as well as creating
entertainment platforms on the Internet such as online game channels, game hubs
and websites. The merger was originally accounted for under the
pooling-of-interests method in accordance with Accounting Principles Board
Opinion No. 16, BUSINESS COMBINATIONS. Subsequent to the merger, the management
of the Company began to explore and evaluate various business strategies,
including the potential sale of its CD-ROM business. During the second quarter
of 1999, the Company consummated an agreement to sell a significant portion of
its CD-ROM business. Although the CD-ROM asset disposition was not contemplated
at the time of the MPG-Net merger, the proximity of the transaction to the
closing of the merger made it impracticable to overcome the presumption that the
asset disposition was done in contemplation of the merger. Therefore, the
pooling treatment was rescinded, and the Company accounted for the MPG-Net
merger as a purchase business combination. The excess of the aggregate purchase
price over the fair value of the net assets acquired of approximately $4.4
million is being amortized over 3 years.
The following unaudited pro forma condensed financial statements have been
prepared to give effect to the MPG-Net acquisition, using the purchase method of
accounting.
The unaudited pro forma condensed financial information has been presented for
illustrative purposes only and is not necessarily indicative of the financial
position or results of operations that would have actually been reported had the
acquisition occurred at the beginning of the periods presented, nor is it
necessarily indicative of future financial position or results of operations.
These unaudited pro forma condensed combined financial statements including the
notes thereto are qualified in their entirety by reference to and should be read
in conjunction with, the respective historical consolidated financial statements
and notes thereto of Interactive Magic, Inc. incorporated by reference in this
Form 8-K/A and the historical combined financial statements and notes thereto of
MPG-Net included herein. The unaudited pro forma information neither includes
nor assumes any benefits from cost or operational savings resulting from the
acquisition.
The unaudited pro forma condensed balance sheet as of December 31, 1998 gives
effect to the acquisition as if it had occurred on December 31, 1998, as well as
gives effect to the pro forma adjustments described in the accompanying notes.
The unaudited pro forma condensed statements of operations for all periods
presented give effect to the acquisition as if it had occurred on January 1,
1997, as well as gives effect to the pro forma adjustments described in the
accompanying notes.
HISTORICAL PRO FORMA
-------------------------------------------
INTERACTIVE MAGIC (A) MPG-NET (B) ADJUSTMENTS PRO FORMA
----------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,943 $ 82 $ - $ 3,025
Trade receivables, net of allowances 2,109 59 - 2,168
Prepaid expenses and other 3,642 61 (200) (c) 3,503
----------------------------------------------------------------------------------
Total current assets 8,694 202 (200) 8,696
Property and equipment, net 1,082 192 - 1,274
Noncurrent royalties receivable 726 - - 726
Excess of purchase price over fair value of
net assets acquired - - 4,374 (h) 4,374
Other noncurrent assets 18 11 - 29
==================================================================================
Total assets $10,520 $405 $4,174 $15,099
==================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses 2,466 551 (212) (d) 2,805
Lines of credit 1,348 - - 1,348
Accrued interest payable to related parties - 4,320 (4,320) (e),(f) -
Rent payable to stockholder - 481 (481) (f) -
Note payable to related party - 1,200 (1,200) (e) -
Note payable to stockholder - 11,290 (11,290) (f ) -
Current portion of notes payable and
capital lease obligations 23 233 (200) (c) 56
----------------------------------------------------------------------------------
Total current liabilities 3,837 18,075 (17,703) 4,209
Noncurrent liabilities 132 28 - 160
Common Stock 985 6 15 (e) 1,054
3 (g)
4 (i)
41 (j)
Additional paid-in capital 31,522 48 212 (d) 53,134
763 (e)
16,030 (f)
3 (g)
4,374 (h)
229 (i)
(47) (j)
Deferred compensation - (29) 29 (g) -
Accumulated deficit (25,862) (17,723) 483 (e) (43,364)
(29) (g)
(233) (i)
Accumulated other comprehensive loss (94) - - (94)
----------------------------------------------------------------------------------
Total stockholders' equity (deficit) 6,551 (17,698) 21,877 10,730
==================================================================================
Total liabilities and stockholders' equity
(deficit) $10,520 $ 405 $ 4,174 $ 15,099
==================================================================================
iEntertainment Network, Inc.
(f/k/a Interactive Magic, Inc.)
Notes to Unaudited Pro Forma Condensed Balance Sheet
(a) Reflects the historical consolidated balance sheet of Interactive
Magic, Inc. as of December 31, 1998.
(b) Reflects the historical combined balance sheet of Multiplayer Games
Network, Inc., Tantalus, Inc. and MPG-Net, Inc. (collectively "MPG-Net") as
of December 31, 1998.
(c) Reflects the elimination of a $200,000 note payable from MPG-Net to
Interactive Magic.
(d) Reflects the assumption by the primary stockholder of MPG-Net of MPG-Net's
obligation for unpaid professional fees totaling $212,000 in exchange for a
$212,000 note payable to MPG-Net from the stockholder. This note was
subsequently canceled by the stockholder and is reflected as additional
paid-in capital.
(e) Reflects the cancellation of MPG-Net's note payable to related party of
$1,200,000 and related accrued interest of $61,000 through the issuance of
150,000 shares of Interactive Magic common stock valued at $778,000 as full
settlement. This transaction resulted in a $483,000 extraordinary gain on
extinguishment of the debt.
(f) Reflects the cancellation of the note payable to stockholder of MPG-Net of
$11,290,000, related accrued interest of $4,259,000 and rent payable to the
primary stockholder of MPG-Net of $481,000. The cancellation of these
amounts due to the stockholder are reflected as additional paid-in capital.
(g) Reflects the expensing of the remaining $29,000 of unamortized deferred
compensation as a result of an automatic acceleration of vesting provision
of an MPG-Net employee stock option agreement triggered by the merger, as
well as the issuance of 30,000 shares of Interactive Magic common stock in
exchange for the MPG-Net common stock issued upon exercise of such option.
(h) Reflects the recording of the $4,374,000 excess of the aggregate purchase
price over the fair value of net assets acquired from MPG-Net.
(i) Reflects the issuance of 45,000 shares of Interactive Magic common stock
valued at $233,000 in consideration for financial advisory services
incurred by MPG-Net in connection with the acquisition.
(j) Reflects the issuance of an additional 525,000 shares of Interactive Magic,
Inc. common stock in exchange for the remaining net assets of MPG-Net, less
the $6,000 book value of the outstanding common stock of MPG-Net.
Interactive Magic, Inc.
Unaudited Pro Forma Condensed Statement of Operations
Year ended December 31, 1998
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
HISTORICAL PRO FORMA
-----------------------------------------
INTERACTIVE MAGIC (A) MPG-NET (B) ADJUSTMENTS PRO FORMA
------------------------------------------------------------------------------------
Net revenues:
CD-ROM product sales 9,177 - - 9,177
Online sales 1,773 107 - 1,880
Contract royalties and licenses 1,616 122 - 1,738
Advertising and other - 94 - 94
------------------------------------------------------------------------------------
Total net revenues 12,566 323 - 12,889
Cost of revenues:
Cost of products and services 3,157 72 - 3,229
Royalties and amortized costs 2,942 10 - 2,952
------------------------------------------------------------------------------------
Total cost of revenues 6,099 82 - 6,181
Gross profit 6,467 241 - 6,708
Operating expenses:
Sales and marketing 8,490 148 - 8,638
Product development 5,983 835 - 6,818
General and administrative 2,684 755 - 3,439
Goodwill amortization - - 1,458 (d) 1,458
------------------------------------------------------------------------------------
Total operating expenses 17,157 1,738 1,458 20,353
------------------------------------------------------------------------------------
Operating loss (10,690) (1,497) (1,458) (13,645)
Total other expense 527 1,034 (1,024) (e) 537
------------------------------------------------------------------------------------
Loss before income taxes (11,217) (2,531) (14,182)
(434)
Income tax expense 28 - - 28
====================================================================================
Loss before extraordinary item (11,245) (2,531) (434) (14,210)
====================================================================================
Pro forma loss per share:
Loss per share before
extraordinary item $ (1.73) $(1.96)
Weighted average shares used in
computing pro forma loss per
share (C) 6,515,213 7,265,213
Interactive Magic, Inc.
Unaudited Pro Forma Condensed Statement of Operations
Year ended December 31, 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
HISTORICAL PRO FORMA
----------------------------------------
INTERACTIVE MAGIC (A) MPG-NET (B) ADJUSTMENTS PRO FORMA
-----------------------------------------------------------------------------------
Net revenues:
CD-ROM product sales 14,067 - - 14,067
Online sales 1,615 130 - 1,745
Contract royalties and licenses 820 6 - 826
Advertising and other - - - -
-----------------------------------------------------------------------------------
Total net revenues 16,502 136 - 16,638
Cost of revenues:
Cost of products and services 3,715 115 - 3,830
Royalties and amortized costs 2,634 95 - 2,729
-----------------------------------------------------------------------------------
Total cost of revenues 6,349 210 - 6,559
Gross profit (loss) 10,153 (74) - 10,079
Operating expenses:
Sales and marketing 6,760 51 - 6,811
Product development 3,878 1,449 - 5,327
General and administrative 1,941 835 2,776
Goodwill amortization - - 1,458 (d) 1,458
-----------------------------------------------------------------------------------
Total operating expenses 12,579 2,335 1,458 16,372
-----------------------------------------------------------------------------------
Operating loss (2,426) (2,409) (1,458) (6,293)
Total other expense 1,905 924 (903) (e) 1,926
-----------------------------------------------------------------------------------
Loss before income taxes (4,331) (3,333) (555) (8,219)
Income tax expense (benefit) (33) - - (33)
-----------------------------------------------------------------------------------
Loss before extraordinary item (4,298) (3,333) (555) (8,186)
Pro forma loss per share:
Loss per share before $ (1.36) $ (2.10)
extraordinary item (C)
Weighted average shares used in
computing pro forma loss per
share (C) 3,152,930 3,902,930
Interactive Magic, Inc.
Notes to Unaudited Pro Forma Condensed Statements of Operations
For the years ended December 31, 1998 an 1997
(a) Reflects the historical consolidated statement of operations of
Interactive Magic, Inc. for the respective period.
(b) Reflects the historical combined results of operations of Multiplayer Games
Network Inc. and Tantalus, Inc. for the year ended December 31, 1997 and
historical combined results of operations of Multiplayer Games Network
Inc., Tantalus, Inc. and MPG-Net, Inc. (collectively "MPG-Net") for the
year ended December 31, 1998.
(c) The pro forma loss per share before extraordinary item reflects the pro
forma loss before the extraordinary items divided by historical weighted
average shares outstanding of Interactive Magic plus the 750,000 shares of
common stock issued in connection with the acquisition.
(d) Reflects one year in amortization of the excess of purchase price over fair
value of net assets acquired.
(e) Reflects the elimination of MPG-Net related party interest incurred by
MPG-Net in connection with notes payable and other obligations to related
parties which were canceled or settled as a result of the acquisition.
(c) Exhibits.
10.27* Agreement and Plan of Merger ("Merger Agreement") by and among the Company, iMagicOnline
Corporation, MPG-Net, Inc., Multiplayer Games Network, Inc., Tantalus, Inc., James
Hettinger and Donn A. Clendenon dated as of January 25, 1999
10.32* Amendment No. 1 dated February 12, 1999 to the Merger Agreement
10.33* Escrow Agreement dated as of February 12, 1999 by and among the Company, Branch Banking
and Trust Company, Multiplayer Games Network, Inc., Tantalus, Inc. and James Hettinger
10.34* Registration Rights Agreement dated as of February 12, 1999 by and among the Company,
Multiplayer Games Network, Inc. and Tantalus, Inc.
10.35* Registration Rights Agreement dated as of February 12, 1999 by and among the Company,
Andrew G. Burch, IFM Venture Group and James Bailey.
23.1 Consent of Ernst & Young LLP
99.2 Financial Statements of MPG-Net
* Previously filed
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 hereunto duly authorized.
iENTERTAINMENT NETWORK, INC.
/s/Robert Hart
Date: February 15, 2000 ----------------------------
Robert Hart
Chief Financial Officer