As filed with the Securities and Exchange Commission on April 15, 2002
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 2 to
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): July 6, 2001
PLAYBOY ENTERPRISES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 001-14790 36-4249478
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(State or other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation or Organization) Identification No.)
680 NORTH LAKE SHORE DRIVE, CHICAGO, ILLINOIS 60611
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (312) 751-8000
-----------------
NOT APPLICABLE
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(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets.
The purpose of this Amendment No. 2 to Form 8-K by Playboy
Enterprises, Inc. (the "Company") is to amend certain financial information
included in Item 7(a) and 7(b) of the Company's Form 8-K/A filed with the
Securities and Exchange Commission on September 19, 2001.
Certain matters discussed within this Amendment No. 2 to Form 8-K
are forward-looking statements within the meaning of the Private Litigation
Reform Act of 1995 and as such may involve known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance or achievements of the Company to be different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Although the Company believes the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, it can give no assurance that its expectations will be
attained. These risks are detailed from time to time in the Company's
filings with the Securities and Exchange Commission.
Item 7. Pro Forma Financial Information, Financial Statements, and Exhibits
Contents
(a) Historical Financial Statements of Acquired Businesses or Businesses
to be Acquired:
Califa Entertainment Group, Inc. & Subsidiary
Audited Financial Statements for the Year Ended December 31, 2000
Independent Auditors' Report........................................F-1
Independent Auditors' Report of SEI 1 ApS, wholly owned subsidiary
of Califa.......................................................F-2
Consolidated Balance Sheet..........................................F-3
Consolidated Statement of Income and Accumulated Deficit............F-5
Consolidated Statement of Cash Flows................................F-7
Notes to Consolidated Financial Statements..........................F-8
Unaudited Condensed Consolidated Financial Statements for the
Six Months Ended June 30, 2001 and 2000
Unaudited Condensed Consolidated Balance Sheet ....................F-16
Unaudited Condensed Consolidated Statements of Income..............F-17
Unaudited Condensed Consolidated Statements of Cash Flows..........F-18
Notes to Unaudited Condensed Consolidated Financial Statements.....F-19
V.O.D., Inc.
Audited Financial Statements for the Year Ended December 31, 2000
Independent Auditors' Report.......................................F-20
Balance Sheet......................................................F-21
Statement of Operations and Retained Earnings (Deficit)............F-22
Statement of Cash Flows............................................F-23
Notes to Financial Statements......................................F-24
Unaudited Condensed Financial Statements for the Six Months Ended
June 30, 2001 and 2000
Unaudited Condensed Balance Sheet..................................F-28
Unaudited Condensed Statements of Operations.......................F-29
Unaudited Condensed Statements of Cash Flows.......................F-30
Notes to Unaudited Condensed Financial Statements..................F-31
(b) Unaudited Pro Forma Condensed Consolidated Financial Information:
Unaudited Pro Forma Condensed Consolidated Financial Information........P-1
Unaudited Pro Forma Condensed Consolidated Balance Sheet................P-2
Unaudited Pro Forma Condensed Consolidated Statement of Operations
(For The Six Months Ended June 30, 2001)............................P-4
Unaudited Pro Forma Condensed Consolidated Statement of Operations
(For The Year Ended December 31, 2000)..............................P-5
Notes To The Unaudited Pro Forma Condensed
Consolidated Financial Information..................................P-6
Independent Auditors' Report
Board of Directors
Califa Entertainment Group, Inc.
Van Nuys, California
We have audited the accompanying consolidated balance sheet of Califa
Entertainment Group, Inc. (a California S corporation) and subsidiary as of
December 31, 2000, and the related consolidated statements of income and
accumulated deficit and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We did not audit the
financial statements of SEI 1 ApS, a wholly owned subsidiary, which
statements reflect total assets of $1,463,677 as of December 31, 2000, and
total revenues of $3,674,423 for the year then ended. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it related to the amounts included for SEI 1 ApS, is
based solely on the report of the other auditors.
We conducted our audit in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 and the report of other auditors provide a reasonable basis
for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Califa Entertainment Group,
Inc. and subsidiary as of December 31, 2000, and the results of their
operations and their cash flows for the year then ended in conformity with
U.S. generally accepted accounting principles.
As described in Note 13 to the financial statements, the Company has
adjusted retained earnings at the beginning of 2000 to correct an
overstatement of certain assets and liabilities.
/s/ Kirsch, Kohn & Bridge LLP
Encino, California
December 19, 2001
F-1
Copenhagen, 19 December 2001
Management
William Michael Fitzgerald Asher
Auditors' Report
We have audited the financial statements presented by the Board of
Directors and the Management of SEI 1 ApS for 2000.
Basis of Opinion
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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
our audit provides a reasonable basis for our opinion.
Supplementary information
The company has, contrary to Danish legislation, not filed the accounting
records in Denmark, for which the management can be held liable.
Conclusion
In our opinion, the financial statements have been prepared in accordance
with the accounting provisions of Danish legislation and give a true and
fair view of the company's assets and liabilities, financial position and
results for 2000.
Accounting provisions of Danish legislation vary in certain significant
respects from accounting principles generally accepted in the United States
of America as set out in Notes 7 and 8 to the accounts.
We can state that the company's filing of accounting records has not been
carried out in compliance with the Danish legislation.
Copenhagen, 19 December 2001
Grothen & Perregaard
Incorporated State Authorized Public Accountants
/s/ Erik Stener Jorgensen
Erik Stener Jorgensen
State Authorized Public Accountant
F-2
CALIFA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
Consolidated Balance Sheet
December 31, 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 295,970
Accounts receivable 2,863,512
Reimbursable foreign taxes 1,258,630
Prepaid expenses 109,421
Prepaid income taxes 9,900
Due from V.O.D., Inc. 1,064,631
--------------
TOTAL CURRENT ASSETS 5,602,064
--------------
PROPERTY AND EQUIPMENT 95,208
--------------
OTHER ASSETS
Intangible assets - Spice purchase (net of accumulated
amortization of $1,041,873) 7,482,541
Covenant not to compete (net of accumulated
amortization of $240,877) 1,072,997
Security deposit 9,000
Deferred tax asset 4,500
--------------
TOTAL OTHER ASSETS 8,569,038
--------------
TOTAL ASSETS $ 14,266,310
==============
See accompanying auditor's report and notes
to consolidated financial statements
F-3
CALIFA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
Consolidated Balance Sheet (Continued)
December 31, 2000
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Current portion of long-term debt $ 11,158,416
Accounts payable and accrued expenses 1,845,171
Foreign taxes payable 1,258,630
Due to officer 3,550
-----------------
TOTAL CURRENT LIABILITIES 14,265,767
-----------------
LONG-TERM DEBT - Net of current portion 1,767
-----------------
TOTAL LIABILITIES 14,267,534
COMMITMENTS
STOCKHOLDERS' DEFICIENCY
Common stock - no par value, 200 shares authorized,
issued and outstanding 2,000
Accumulated deficit (page F-6) (3,224)
-----------------
TOTAL STOCKHOLDERS' DEFICIENCY (1,224)
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 14,266,310
=================
See accompanying auditor's report and notes
to consolidated financial statements
F-4
CALIFA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
Consolidated Statement of Income and Accumulated Deficit
For the Year Ended December 31, 2000
SALES $ 17,754,340
COST OF SALES 7,142,742
----------
GROSS PROFIT 10,611,598
----------
OPERATING EXPENSES
Selling expenses 1,952,115
General and administrative expenses 7,932,157
----------
TOTAL OPERATING EXPENSES 9,884,272
----------
INCOME FROM OPERATIONS 727,326
----------
OTHER INCOME (EXPENSES)
Foreign currency translation 7,080
Interest expense (1,010,463)
Interest income 71
Transponder sublease income 870,000
----------
NET OTHER EXPENSES (133,312)
----------
INCOME BEFORE PROVISION FOR INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 594,014
PROVISION FOR INCOME TAXES 3,642
----------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 590,372
See accompanying auditor's report and notes
to consolidated financial statements
F-5
CALIFA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
Consolidated Statement of Income and Accumulated Deficit (Continued)
For the Year Ended December 31, 2000
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ (152,625)
----------
NET INCOME 437,747
----------
ACCUMULATED DEFICIT, BEGINNING OF YEAR, AS PREVIOUSLY REPORTED (42,476)
PRIOR PERIOD ADJUSTMENT (398,495)
----------
ACCUMULATED DEFICIT, BEGINNING OF YEAR, AS RESTATED (440,971)
----------
ACCUMULATED DEFICIT, END OF YEAR $ (3,224)
==========
See accompanying auditor's report and notes
to consolidated financial statements
F-6
CALIFA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
For the Year Ended December 31, 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 437,747
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 717,914
Cumulative effect of change in accounting principle 152,625
Deferred income taxes (4,500)
(Increase) decrease in assets:
Accounts receivable (889,547)
Expenses allocated to V.O.D., Inc. (424,059)
Reimbursable foreign taxes (886,325)
Prepaid expenses (54,419)
Prepaid income taxes (9,900)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 671,509
Foreign taxes payable 865,470
---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 576,515
---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (67,235)
Advances to V.O.D., Inc. (640,572)
---------------
NET CASH USED IN INVESTING ACTIVITIES (707,807)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments to Vivid Video, Inc. (1,236)
Payments on long-term debt (93,222)
---------------
NET CASH USED IN FINANCING ACTIVITIES (94,458)
---------------
NET DECREASE IN CASH (225,750)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 521,720
---------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 295,970
===============
See Note 14 for Supplemental Disclosures of Cash Flow Information
See accompanying auditor's report and notes
to consolidated financial statements
F-7
CALIFA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Description of business
Califa Entertainment Group, Inc. (the Parent) is in the
business of owning and operating pay per view cable and
satellite entertainment networks. SEI 1 ApS, a Denmark
Corporation (the Subsidiary), is in the business of
purchasing and selling programming that the Parent shows
on the pay per view networks. Business began on March 15,
1999.
B. Principles of consolidation
The consolidated financial statements include the
accounts of Califa Entertainment Group, Inc. and SEI 1
ApS, a wholly owned subsidiary incorporated in Denmark
(the Company). All significant intercompany accounts and
transactions have been eliminated in consolidation.
The financial statements of SEI 1 ApS have been prepared
in accordance with the accounting provisions of Danish
legislation. If the account balances of SEI 1 ApS were
presented in accordance with accounting principles
generally accepted in the United States, there would be
no material impact on the financial position or results
of operations of the Company for the periods presented.
C. Property and equipment
Property and equipment are stated at cost. Depreciation
is being computed using the straight-line or declining
balance methods over the estimated useful lives of the
assets as follows:
Computer equipment 5 Years
Furniture and fixtures 10 Years
Office equipment 5 Years
D. Intangible assets
The Company amortizes the purchased intangible assets on
the straight-line basis over fifteen years.
The covenant not to compete is being amortized on the
straight-line basis over ten years.
F-8
CALIFA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. Income taxes
The Company has elected to be taxed under the provisions
of Subchapter S of the Internal Revenue Code. Under these
provisions, the Company does not pay federal corporate
income taxes on its taxable income and is not allowed a
net operating loss carryover or carryback as a deduction
against taxable income. Instead, the stockholders include
their respective share of the Company's net income or
loss in their individual federal income tax returns. Due
to the passage of California/federal conformity
legislation, California has generally adopted the federal
Subchapter S provisions with the exception that the
Company is required to pay tax at a rate of 1.5% of
taxable income as adjusted for California purposes or
$800, whichever is greater. The Company is also treated
as a Subchapter S corporation for California purposes.
F. Cash equivalents
For purposes of the statement of cash flows, the Company
considers all highly liquid investments with original
maturities of three months or less to be cash
equivalents.
G. Use of estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the amounts reported in the financial statements and
accompanying notes. Actual results could differ from
those estimates.
F-9
CALIFA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. Concentration of Credit Risk
The Company maintains cash balances at a large regional
bank. Accounts at the bank institution are insured by the
Federal Deposit Insurance Corporation up to $100,000. At
December 31, 2000, cash on deposit at the bank totaled
$396,757.
2. DUE FROM V.O.D., INC.
Advances to V.O.D., Inc. (see note 11) were made in the ordinary
course of business and are due on demand. No interest was accrued
on these advances for the year ended December 31, 2000. V.O.D.,
Inc. repaid $600,000 of the advance on January 3, 2001.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2000 is summarized by major
classifications as follows:
Computer equipment $ 32,805
Office equipment 78,351
Furniture and fixtures 8,959
--------------
120,115
Less accumulated depreciation 24,907
--------------
Total $ 95,208
==============
Depreciation expense for the year ended December 31, 2000 amounted
to $19,854.
F-10
CALIFA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2000
4. INTANGIBLE ASSETS - SPICE PURCHASE
On March 15, 1999, the Company entered into an agreement with
Spice Entertainment Companies, Inc. ("Spice") to purchase
affiliation agreements and license agreements related to motion
picture rights and all currently outstanding subscription orders
and accounts receivable directly in connection with the operation
of the Spice Hot Network. The total purchase price was
$10,500,000, which was allocated as follows:
Affiliation agreements and license agreements $ 8,524,414
Transferred accounts receivable 1,957,204
Investment in SEI 1 ApS 18,382
------------
$ 10,500,000
============
Amortization expense on the affiliation agreements and license
agreements for the year ended December 31, 2000 amounted to
$568,294. This agreement contains a buy-back option, which became
exercisable in September 2000. Under the terms of the buy-back
option, Spice can purchase from the Company all rights, title,
interests, assets and obligations relating to the Company for a
mutually agreed upon fair market value. As a result of the
buy-back option, the debt related to the asset purchase has been
classified as short-term (see note 6).
5. COVENANT NOT TO COMPETE
On March 15, 1999, the Company entered into a non-compete
agreement with Spice Entertainment Companies, Inc. ("Spice"). The
agreement states that Spice will not directly or indirectly engage
in the hot programming business, license or otherwise exploit the
tradename "Spice" in connection with the hot programming business
or enter into any agreements to acquire any licensing,
distribution or transmission rights with respect to any hot
programming for a period of ten years.
Amortization expense on the covenant for the year ended December
31, 2000 amounted to $129,766.
F-11
CALIFA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2000
6. LONG-TERM DEBT
Long-term debt at December 31, 2000 consists of the following:
Note payable - Spice Entertainment Companies, Inc.,
interest payable quarterly at 9%, maturing March,
2006 or upon exercise of the buy-back option. $10,000,000
Note payable - Spice Entertainment Companies, Inc.,
covenant not to compete, payable in quarterly
installments of $50,000 including interest at 9%,
maturing June 1, 2009. 1,155,876
Contract payable to a credit leasing company secured by
equipment, payable in monthly installments of $225
including interest at 5%, maturing August, 2002. 4,307
---------------
11,160,183
Current portion (11,158,416)
---------------
Non-current portion $ 1,767
===============
Long-term debt matures as follows during the years ending December 31:
2001 $ 11,158,416
2002 1,767
---------------
$11,160,183
===============
7. DUE TO OFFICER
Advances payable to an officer of the Company are due on demand.
No interest was accrued on this loan for the year ended December
31, 2000.
F-12
CALIFA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2000
8. COMMITMENTS
The Company is obligated under a lease agreement expiring April 9,
2004, for its office space. In addition to the rental costs, the
Company is subject to its proportionate share of any increase in
real estate taxes and operating cost over the base year.
Future minimum lease payments for the years ending December 31 are
as follows:
2001 $ 53,200
2002 55,100
2003 56,525
2004 19,000
---------------
$ 183,825
===============
The Company has entered into an agreement with Loral SpaceCom
Corporation to lease transponder services on their C-band Telstar
5 Satellite on a month-to-month basis. The monthly rate is
$145,000, and the total transponder expense for the year ended
December 31, 2000 was $1,740,000. The Company has entered into an
agreement with Playboy Entertainment Group, Inc. for the sublease
of a portion of the Company's transponder service from Loral
SpaceCom Corporation. The sublease runs concurrent with the above
lease. The monthly rate is $72,500, and the total transponder
sublease income for the year ended December 31, 2000 was $870,000.
9. PROVISION FOR INCOME TAXES
The provision (benefit) for income taxes consists of the
following:
Current Deferred Total
-------- -------- -------
State $ 5,900 $ (4,500) $ 1,400
Foreign 2,242 - 2,242
-------- -------- -------
$ 8,142 $ (4,500) $ 3,642
======== ======== =======
F-13
CALIFA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2000
PROVISION FOR INCOME TAXES (CONTINUED)
The Company generated California net operating losses of
approximately $317,000 for the period ended December 31, 1999.
These net operating losses are available to offset against future
taxable income and expire in 2009.
10. MAJOR CUSTOMERS AND VENDORS
During the year ended December 31, 2000, the Company's sales to
one customer accounted for 49% of total sales for the year. The
related accounts receivable was $417,962 as of December 31, 2000.
During the year ended December 31, 2000, the Company's programming
purchases from one vendor totaled $3,690,000. There is also a
related payable of approximately $1,200,000 to this major vendor
for Danish VAT tax.
11. RELATED PARTY TRANSACTIONS
During the year ended December 31, 2000, the Company provided
various overhead services to V.O.D., Inc., a related entity partly
owned by the Company's stockholders. The overhead services
provided, such as facilities, labor, and other general and
administrative expenses, have been allocated to the related
entity. The cost of the services provided amounted to $424,059.
During the year ended December 31, 2000, the Company advanced
money to V.O.D., Inc., a related entity partly owned by the
Company's stockholders (see note 2).
During the year ended December 31, 2000, the Company paid Vivid
Entertainment Group, Inc., a related party owned by the Company's
stockholders, $6,404,999 for stockholder and officer compensation,
of which $155,000 is included in accounts payable at December 31,
2000.
12. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
The Company has adopted Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities." This change requires start-up
costs to be expensed as incurred. Financial statements for the
year ended December 31, 1999 have not been restated, and the
cumulative effect of the change of $152,625 is shown as a one-time
charge to income for the year ended December 31, 2000.
F-14
CALIFA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2000
13. PRIOR PERIOD ADJUSTMENT
Retained earnings at the beginning of 2000 has been adjusted to
correct an overstatement of accounts receivable and to reduce the
carrying value of the covenant not to compete and its
corresponding note payable to net present value. These corrections
resulted in a decrease to net income for 1999 by $398,495.
14. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 1,010,463
=============
Income taxes $ 18,042
=============
15. SUBSEQUENT EVENT
On July 6, 2001, Playboy Enterprises, Inc. ("Playboy") acquired
(i) two networks (The Hot Network and The Hot Zone) and the
related television assets of Califa Entertainment Group, Inc.
("Califa"). In addition, under the asset purchase agreement
related to the acquisition of the Califa networks, upon the
resolution of certain contingencies, Playboy will acquire
another network (Vivid TV) and the related television assets of
V.O.D., Inc. ("VODI"), a separate entity owned by Califa's
principals. Playboy is currently operating Vivid TV through a
management services agreement and has generally assumed the risks
and benefits associated with the ownership of the Vivid TV assets.
Consideration for Califa's assets is $28.3 million. This amount
will be paid to Califa over ten years, and a majority of the
payments may be made in cash or stock at Playboy's option. The
consideration for Califa could potentially increase by
approximately $4,844,400 should the acquired assets achieve
certain financial performance targets (as defined).
F-15
Califa Entertainment Group, Inc.
Unaudited Condensed Consolidated Balance Sheet
June 30, 2001
Assets
Current assets:
Cash $ 1,894,603
Accounts receivable, net 3,428,157
Accounts receivable from related parties 1,843,083
Prepaid expenses 24,921
-----------------
Total current assets 7,190,764
Property and equipment, net 83,646
Intangible assets, net 8,223,107
Other assets 9,000
-----------------
Total assets $ 15,506,517
=================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 2,104,520
Accrued expenses 87,040
Financing obligations 11,105,876
Financing obligations to related parties 3,550
-----------------
Total current liabilities 13,300,986
Noncurrent liabilities 4,307
-----------------
Total liabilities 13,305,293
Stockholders' equity:
Common stock, no par value, 200 shares
authorized, issued and outstanding 2,000
Retained earnings 2,199,224
-----------------
Total stockholders' equity 2,201,224
-----------------
Total liabilities and stockholders' equity $ 15,506,517
=================
See accompanying notes.
F-16
Califa Entertainment Group, Inc.
Unaudited Condensed Consolidated Statements of Income
Six months ended June 30
2001 2000
----------------------------------
Net revenues $ 10,047,101 $ 9,804,803
Costs and expenses:
Cost of sales (3,975,058) (3,151,977)
Selling and administrative expenses (3,392,753) (4,496,325)
----------------------------------
Total costs and expenses (7,367,811) (7,648,302)
----------------------------------
Income from operations 2,679,290 2,156,501
Other expense:
Interest expense (478,600) (504,597)
----------------------------------
Total other expense (478,600) (504,597)
----------------------------------
Net income before income
taxes and cumulative
effect of change in
accounting principle 2,200,690 1,651,904
Provisions for income taxes (1,720) (1,302)
----------------------------------
Net income before cumulative effect
of change in accounting principle 2,198,970 1,650,602
Cumulative effect of change in
accounting principle - (152,625)
----------------------------------
Net income $ 2,198,970 $ 1,497,977
==================================
See accompanying notes.
F-17
Califa Entertainment Group, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
Six months ended June 30
2001 2000
---------------------------
Operating activities
Net income $ 2,198,970 $ 1,497,977
Adjustments to reconcile net income to cash
flows provided by (used in) operating
activities:
Amortization of intangible assets 350,814 350,814
Amortization of covenant discount - 52,813
Depreciation 11,562 8,163
Cumulative effect of a change in
accounting principle - 152,625
Changes in operating assets and
liabilities:
Accounts receivable, net (564,645) (2,568,423)
Prepaid expenses 1,353,030 366,670
Accounts payable 259,349 125,694
Accrued expenses (1,171,590) -
---------------------------
Cash flows provided by (used in) operating
activities 2,437,490 (13,667)
Investing activities
Purchases of property and equipment - (59,512)
Other assets 4,500 -
---------------------------
Cash flows provided by (used in) investing
activities 4,500 (59,512)
Financing activities
Payments on financing obligations (50,000) (100,000)
Advances to related parties (793,357) (83,220)
Repayments to related parties - (69,926)
Payments on capital lease obligations - (3,066)
---------------------------
Cash flows used in financing activities (843,357) (256,212)
---------------------------
Increase (decrease) in cash 1,598,633 (329,391)
Cash at beginning of period 295,970 521,720
---------------------------
Cash at end of period $ 1,894,603 $ 192,329
===========================
See accompanying notes.
F-18
CALIFA ENTERTAINMENT GROUP, INC.
Notes to Unaudited Consolidated Financial Statements
June 30, 2001
1. Basis of Financial Statement Presentation
The accompanying unaudited condensed consolidated financial statements of
Califa Entertainment Group, Inc. ("Califa") have been prepared in
accordance with accounting principles generally accepted in the United
States for interim financial information. Accordingly, they do not include
all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements.
In the opinion of management, all adjustments consisting only of normal
recurring accruals necessary to present fairly the financial position of
Califa as of June 30, 2001 and the results of its operations and cash flows
for the six months ended June 30, 2001 and 2000 have been included. The
results of operations for interim periods are not necessarily indicative of
the results which may be realized for the full year. For further
information, refer to the financial statements and footnotes thereto
included in Califa's audited financial statements for the year ended
December 31, 2000.
2. Subsequent Event
On July 6, 2001, Playboy Enterprises, Inc. ("Playboy") acquired (i) two
networks (The Hot Network and The Hot Zone) and the related television
assets of Califa Entertainment Group, Inc. ("Califa"). In addition, under
the asset purchase agreement related to the acquisition of the Califa
networks, upon the resolution of certain contingencies, Playboy will
acquire another network (Vivid TV) and the related television assets of
V.O.D., Inc. ("VODI"), a separate entity owned by Califa's principals.
Playboy is currently operating Vivid TV through a management services
agreement and has generally assumed the risks and benefits associated with
the ownership of the Vivid TV assets. Consideration for Califa's assets is
$28.3 million. This amount will be paid to Califa over ten years, and a
majority of the payments may be made in cash or stock at Playboy's option.
The consideration for Califa could potentially increase by approximately
$4,844,400 should the acquired assets achieve certain financial performance
targets (as defined).
F-19
Independent Auditors' Report
Board of Directors
V.O.D., Inc.
Van Nuys, California
We have audited the accompanying balance sheet of V.O.D., Inc. (a
California S Corporation) as of December 31, 2000 and the related
statements of operations and retained earnings (deficit) 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 V.O.D., Inc. as of
December 31, 2000 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
/s/ Kirsch, Kohn & Bridge LLP
Encino, California
September 5, 2001
F-20
V.O.D., INC.
Balance Sheet
December 31, 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 666,461
Accounts receivable 190,702
Prepaid expenses 74,250
-----------------
TOTAL ASSETS (ALL CURRENT) $ 931,413
=================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 266,636
Due to affiliates 1,118,631
Loans payable - stockholders 465,900
-----------------
TOTAL LIABILITIES (ALL CURRENT) 1,851,167
-----------------
COMMITMENTS
STOCKHOLDERS' DEFICIENCY
Common stock - no par value, 1,000,000 shares
authorized, 1,357 issued and outstanding 220,677
Accumulated deficit (Page F-22) (1,140,431)
-----------------
TOTAL STOCKHOLDERS' DEFICIENCY (919,754)
-----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 931,413
=================
See accompanying auditor's report and
notes to financial statements
F-21
V.O.D., INC.
Statement of Operations and Retained Earnings (Deficit)
For the Year Ended December 31, 2000
SALES $ 1,422,124
COST OF SALES 719,951
---------
GROSS PROFIT 702,173
OPERATING EXPENSES
Selling and administrative expenses 1,854,227
---------
LOSS FROM OPERATIONS (1,152,054)
OTHER INCOME
Interest income 12,923
---------
LOSS BEFORE PROVISION FOR INCOME TAXES (1,139,131)
PROVISION FOR INCOME TAXES 1,300
---------
NET LOSS (1,140,431)
RETAINED EARNINGS,
Beginning of Year -
---------
ACCUMULATED DEFICIT,
End of Year $ (1,140,431)
=========
See accompanying auditor's report and
notes to financial statements
F-22
V.O.D., INC.
Statement of Cash Flows
For the Year Ended December 31, 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,140,431)
Adjustments to reconcile net loss
to net cash used in operating activities:
(Increase) decrease in assets:
Accounts receivable (190,702)
Prepaid expenses (72,750)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 266,636
Programming costs and expenses allocated
from affiliates 478,059
-----------------
NET CASH USED IN OPERATING ACTIVITIES (659,188)
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances from affiliate 639,072
Proceeds from stockholders loans 466,800
Proceeds from issuance of common stock 219,777
-----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,325,649
-----------------
NET INCREASE IN CASH 666,461
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR -
-----------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 666,461
=================
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the
year for:
Interest $ -
=================
Income taxes $ 1,300
=================
See accompanying auditor's report and
notes to financial statements
F-23
V.O.D., INC.
Notes to Financial Statements
December 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Description of Business
The Company ("VODI") is in the business of owning and
operating a pay per view cable and satellite
entertainment network. The Company incorporated on
November 3, 1999 and began operations in August 2000.
B. Income Taxes
The Company has elected to be taxed under the provisions
of Subchapter S of the Internal Revenue Code. Under these
provisions, the Company does not pay federal corporate
income taxes on its taxable income and is not allowed a
net operating loss carryover or carryback as a deduction
against taxable income. Instead, the stockholders include
their respective share of the Company's net income or
loss in their individual federal income tax returns. Due
to the passage of California/federal conformity
legislation, California has generally adopted the federal
Subchapter S provisions with the exception that the
Company is required to pay tax at a rate of 1.5% of
taxable income as adjusted for California purposes or
$800, whichever is greater. The Company has also elected
to be treated as a Subchapter S corporation for
California purposes.
C. Cash Equivalents
For purposes of the statement of cash flows, the Company
considers all highly liquid investments with original
maturities of three months or less to be cash
equivalents.
D. Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principals requires
management to make estimates and assumptions that affect
the amounts reported in the financial statements and
accompanying notes. Actual results could differ from
those estimates.
F-24
V.O.D., INC.
Notes to Financial Statements
December 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. Concentration of Credit Risk
The Company maintains cash balances at a large regional
bank. Accounts at the bank institution are insured by the
Federal Deposit Insurance Corporation up to $100,000. At
December 31, 2000, the cash on deposit at the bank
totaled $736,110.
F. Start-Up Costs
The Company has adopted Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities." This
statement requires start-up costs to be expensed as
incurred. These costs are included in the Statement of
Operations.
2. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 2000 includes the following:
Accounts receivable, DirecTV $ 1,414,445
Programming penalty due to DirectTV (see Note 8) (1,231,222)
Accounts receivable, other customers 7,479
----------------
$ 190,702
================
3. DUE TO AFFILIATES
Advances from affiliates were made in the ordinary course of
business and are payable on demand. No interest was accrued on
these advances for the year ended December 31, 2000. The Company
paid down $600,000 of the advance on January 3, 2001.
4. LOANS PAYABLE - STOCKHOLDERS
Loans payable to the Company's stockholders are due on demand. No
interest was accrued on these loans for the year ended December
31, 2000.
F-25
V.O.D., INC.
Notes to Financial Statements
December 31, 2000
5. COMMITMENTS
The Company has entered into agreements with programming suppliers
for exclusive rights to purchase various programming. The monthly
rates vary from $5,000 to $9,000.
Total expenses under these agreements were $100,000 for the year
ended December 31, 2000.
The future minimum payments under these agreements are as follows
for the years ending December 31:
2001 $ 168,000
2002 168,000
2003 68,000
-------------------
$ 404,000
===================
6. ISSUANCE OF COMMON SHARES
In January 2000, the Company issued an additional 457 shares of
common stock in exchange for a note receivable of $219,777. The
note was paid off prior to year-end, including interest received
of $12,923.
7. PROVISION FOR STATE FRANCHISE TAXES
Current $ 1,300
Deferred -
-------------------
$ 1,300
===================
The Company generated a California net operating loss of
approximately $1,139,000 for the year ended December 31, 2000.
This net operating loss is available to offset against future
taxable income and expires in 2010.
F-26
V.O.D., INC.
Notes to Financial Statements
December 31, 2000
8. PROGRAMMING PENALTY
The Company supplies programming to DirecTV, which has an
exclusive contract with another programming provider. The
Company's programming is deemed to violate the exclusivity clause
and results in the assessment of a penalty to DirecTV. The Company
has agreed to reimburse DirecTV for all of the penalty incurred.
During 2000, this amounted to $1,231,222 and is included in
selling and administrative expenses in the accompanying financial
statements. Management will continue to reimburse DirecTV for the
penalty for the year 2001, which amount cannot be determined.
9. MAJOR CUSTOMER
During the year ended December 31, 2000, the Company's sales to
one customer accounted for 99% of total sales for the year. See
also Note 2.
10. RELATED PARTY TRANSACTIONS
During the year ended December 31, 2000, the Company received
programming for its channel from an entity owned by two of the
Company's stockholders. The value of the programming was $54,000.
During the year ended December 31, 2000, the Company received
various overhead services from an entity owned by two of the
Company's stockholders. The overhead services provided, such as
facilities, labor, and other general and administrative expenses
totaled $424,059.
11. SUBSEQUENT EVENT
On July 6, 2001, Playboy Enterprises, Inc. ("Playboy") acquired
(i) two networks (The Hot Network and The Hot Zone) and the
related television assets of Califa Entertainment Group, Inc.
("Califa"). In addition, under the asset purchase agreement
related to the acquisition of the Califa networks, upon the
resolution of certain contingencies, Playboy will acquire another
network (Vivid TV) and the related television assets of V.O.D.,
Inc. ("VODI"), a separate entity owned by Califa's principals.
Playboy is currently operating Vivid TV through a management
services agreement and has generally assumed the risks and
benefits associated with the ownership of the Vivid TV assets.
Consideration for VODI's assets is $41.7 million. This amount will
be paid to VODI over ten years, and a majority of the payments may
be made in cash or stock at Playboy's option. The consideration
for VODI could potentially increase by approximately $7,155,600
should the acquired assets achieve certain financial performance
targets (as defined).
F-27
V.O.D., Inc.
Unaudited Condensed Balance Sheet
June 30, 2001
Assets
Current assets:
Cash $ 15,174
Accounts receivable, net 347,090
-----------------
Total assets $ 362,264
=================
Liabilities and stockholders' deficiency
Current liabilities:
Accounts payable $ 96,926
Accounts payable to related parties 1,952,083
Financing obligations to related parties 465,900
-----------------
Total current liabilities 2,514,909
Stockholders' deficiency:
Common stock, no par value, 1,000,000
shares authorized, 1,357 shares issued
and outstanding 220,677
Accumulated deficit (2,373,322)
-----------------
Total stockholders' deficiency (2,152,645)
-----------------
Total liabilities and stockholders' deficiency $ 362,264
=================
See accompanying notes.
F-28
V.O.D., Inc.
Unaudited Condensed Statements of Operations
Six months ended June 30
2001 2000
----------------------------------
Revenues $ 2,221,388 $ -
Costs and expenses:
Cost of sales (3,074,086) (92,500)
Selling and administrative expenses (380,193) (10,636)
----------------------------------
Total costs and expenses (3,454,279) (103,136)
----------------------------------
Net loss $ (1,232,891) $ (103,136)
==================================
See accompanying notes.
F-29
V.O.D., Inc.
Unaudited Condensed Statements of Cash Flows
Six months ended June 30
2001 2000
---------------------------
Operating activities
Net loss $ (1,232,891) $ (103,136)
Adjustments to reconcile net loss to cash
flows used in operating activities:
Changes in operating assets and
liabilities:
Accounts receivable, net (156,388) (700)
Prepaid expenses 74,250 (1,500)
Accounts payable (169,710) -
---------------------------
Cash flows used in operating activities (1,484,739) (105,336)
Financing activities
Issuance of common stock - 900
Advances from related parties 833,452 134,572
---------------------------
Cash flows provided by financing activities 833,452 135,472
---------------------------
(Decrease) increase in cash (651,287) 30,136
Cash at beginning of period 666,461 -
---------------------------
Cash at end of period $ 15,174 $ 30,136
===========================
See accompanying notes.
F-30
V.O.D., INC.
Notes to Unaudited Condensed Financial Statements
June 30, 2001
1. Basis of Financial Statement Presentation
The accompanying unaudited condensed financial statements of V.O.D., Inc.
("VODI") have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information.
Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States
for complete financial statements. In the opinion of management, all
adjustments consisting only of normal recurring accruals necessary to
present fairly the financial position of VODI as of June 30, 2001 and the
results of its operations and cash flows for the six months ended June 30,
2001 and 2000 have been included. The results of operations for interim
periods are not necessarily indicative of the results which may be realized
for the full year. For further information, refer to the financial
statements and footnotes thereto included in VODI's audited financial
statements for the year ended December 31, 2000.
Revenues as reported in the accompanying unaudited condensed statements of
operations consists of gross revenues generated from the distribution of
the Vivid TV network.
2. Subsequent Event
On July 6, 2001, Playboy Enterprises, Inc. ("Playboy") acquired (i) two
networks (The Hot Network and The Hot Zone) and the related television
assets of Califa Entertainment Group, Inc. ("Califa"). In addition, under
the asset purchase agreement related to the acquisition of the Califa
networks, upon the resolution of certain contingencies, Playboy will
acquire another network (Vivid TV) and the related television assets of
V.O.D., Inc. ("VODI"), a separate entity owned by Califa's principals.
Playboy is currently operating Vivid TV through a management services
agreement and has generally assumed the risks and benefits associated with
the ownership of the Vivid TV assets. Consideration for VODI's assets is
$41.7 million. This amount will be paid to VODI over ten years, and a
majority of the payments may be made in cash or stock at Playboy's option.
The consideration for VODI could potentially increase by approximately
$7,155,600 should the acquired assets achieve certain financial performance
targets (as defined).
F-31
Unaudited Pro Forma Condensed Consolidated Financial Information
On July 6, 2001, Playboy Enterprises, Inc. (the "Company") completed its
acquisition of i) two networks (The Hot Network and The Hot Zone) and the
related television assets of Califa Entertainment Group, Inc. ("Califa")
pursuant to the terms of an Asset Purchase Agreement, dated as of June 29,
2001, by and among the Company, Califa, V.O.D., Inc. ("VODI", and together
with Califa, the "Sellers"), Steven Hirsch, Dewi James and William Asher.
In addition, under the Asset Purchase Agreement, upon the resolution of
certain contingencies, the Company will acquire a third network (Vivid TV)
and the related television assets of VODI. The Asset Purchase Agreement
provides that the Company will manage the assets used in the operation of
Vivid TV (the "Vivid TV Assets") in accordance with provisions contained in
the Asset Purchase Agreement until the closing of the purchase of the Vivid
TV Assets (the "Vivid TV Closing"). These provisions generally allocate to
the Company the risks and benefits associated with the ownership of the
Vivid TV Assets. The Vivid TV Closing will take place promptly following
the earliest to occur of (a) the Company obtaining the consent of DirecTV,
Inc. ("DTV") to the transfer of the Vivid TV Assets or (b) the earlier of
the termination of the license agreement between DTV and VODI or December
31, 2004.
Under the terms of the Asset Purchase Agreement, until the Vivid TV
Closing, VODI will retain legal title to Vivid TV and the related
television assets of VODI and the Company will supervise and coordinate the
day to day activities of the Vivid TV business. The Company's performance
and implementation of the management services will be subject to the
supervision of and direction of the board of directors of VODI and an
officer of VODI designated by the board for that purpose. The board of VODI
will retain all jurisdictional powers incident to ownership of VODI and its
full responsibility to act for the benefit of VODI and its shareholders.
Until the Vivid TV Closing, as compensation for the management services,
the Company will be entitled to receive from VODI an amount equal to 90% of
VODI's aggregate net revenues during the period of time in which the
Company provides the management services. If at the end of any quarter,
VODI's net revenues in that quarter are less than zero, the Company will
fund the cash deficits from net revenues received in previous quarters, if
any. If such funding by the Company is insufficient to cover cash deficits,
the Company will fund such deficits against amounts due for net revenues
for future quarters. Since July 6, 2001, such deficits have been, on
average, approximately $100,000 per month. The Company expects deficits
(which could be more or less than these amounts) to continue until the
Vivid TV Closing. Under the terms of the Asset Purchase Agreement, net
revenues means the gross revenues of VODI arising from the Vivid TV Assets
less all operating costs (including overhead and cost of programming) and
sales taxes and other similar taxes as calculated in accordance with GAAP.
As of the Vivid TV Closing, the transfer of the Vivid TV Assets will be
treated as if the transfer had occurred at the same time as the transfer of
the other assets transferred under the Asset Purchase Agreement, and the
next installment (and subsequent installments, if necessary) of the
purchase price to be paid to the Sellers will be reduced by an amount equal
to (a) the net revenues paid to the Sellers between the closing under the
Asset Purchase Agreement and the Vivid TV Closing less (b) an amount equal
to such net revenues multiplied by the percentage point difference between
(x) the sum of the highest effective federal individual income tax rate
plus the highest effective California state individual income tax rate and
(y) the sum of the federal individual capital gains tax rate plus the
California state individual capital gains tax rate.
The Company is accounting for the acquisitions of Califa and VODI
(collectively, the "Acquisitions") under the purchase method. The
consideration for Califa's assets was $28.3 million. The Company also
assumed the obligations of Califa related to a note payable and non-compete
liability. The consideration for VODI's assets was $41.7 million. The total
consideration will be paid over ten years. The Company will be obligated to
pay an additional $12 million in consideration should the acquired assets
achieve certain financial performance targets. The Company believes that it
is highly probable that the financial performance targets will be met.
Accordingly, the pro forma financial information is presented as if such
additional consideration will be paid.
The Company has the option to use its Class B common stock to make up
approximately $70 million of these payments. The number of shares, if any,
the Company will issue will be based on the trading prices of the Class B
common stock surrounding the applicable payment dates. Prior to each
scheduled payment of consideration, the Company must provide the Sellers
with written notice specifying the portion of the purchase price payment
that the Company intends to pay in cash and the portion in Class B common
stock. If the Company notifies the Sellers that the Company intends to
issue Class B common stock, the Sellers must elect the portion of the
shares that the Sellers want the Company to register under the Securities
Act (the "eligible Shares"). The Company is then obligated to issue
eligible Shares registered under the Securities Act. The Sellers may sell
the eligible Shares received during the 90-day period following the date
the eligible shares are issued. If we do not get the registration statement
relating to the resale of our shares issued in connection with a specified
payment effective within the periods set forth in the agreement, we are
also obligated to pay the selling stockholders interest on the amount of
the payment until the registration statement is declared effective. The
interest payment can be paid in shares of our Class B common stock at our
option. For purposes of this section, references to eligible shares also
includes any shares of Class B common stock issued to pay any required
interest payments, if applicable. The interest rate will vary depending on
the length of time required after the applicable payment date to get the
registration statement declared effective. The number of eligible Shares
that may be sold on any day during a selling period is limited under the
asset purchase agreement. A selling period will be extended if the
applicable volume limitations did not permit all of the eligible Shares to
be sold during that selling period, assuming that the maximum number of
shares were sold on each day during the period.
If the Sellers elect to sell eligible Shares during the applicable selling
period and the proceeds from those sales are less than the aggregate value
of the eligible Shares sold when the shares were issued, the Company has
agreed to make the Sellers whole for the shortfall by, at the Company's
option, (i) paying the shortfall in cash, (ii) issuing additional shares of
Class B common stock in an amount equal to the shortfall (the "make-whole
shares"), or (iii) increasing the next scheduled payment of consideration
to the Sellers in an amount equal to the shortfall plus interest on the
shortfall at a specified interest rate until the next scheduled payment of
consideration. The foregoing make-whole mechanism will apply only to the
extent the Sellers have sold the maximum number of shares they are entitled
to sell during the applicable selling period in accordance with the
applicable volume limitations.
The Company is obligated to issue make-whole shares that are registered
under the Securities Act and the Sellers are entitled to sell those shares
during a 30-day selling period that follows their issuance. Sales of
make-whole shares are also subject to volume limitations and the selling
periods applicable to make-whole shares will also be extended if the
applicable volume limitations did not permit all of the make-whole shares
to be sold during the applicable selling period, assuming that the maximum
number of shares were sold on each day during the period. If during the
applicable selling period for eligible Shares or make-whole shares, the
sales proceeds exceed the amount of the purchase price payment or the
amount of the make-whole payment, the Sellers will immediately cease the
offering and sale of the remaining eligible Shares or make-whole shares, as
applicable, and the remaining eligible Shares or make-whole shares, as
applicable, will be returned promptly to the Company along with any excess
sales proceeds.
The following unaudited pro forma condensed consolidated financial
information of the Company presents the unaudited pro forma condensed
consolidated balance sheet at June 30, 2001 as if at such date, the
Acquisitions had been completed. The following unaudited pro forma
condensed consolidated statements of operations present the Company's
results of operations for the year ended December 31, 2000 and the six
months ended June 30, 2001 as if the Acquisitions had been completed on
January 1, 2000. The pro forma condensed consolidated statements of
operations give effect to the Acquisitions during the periods presented and
reflect the consolidated historical financial data of the Company and the
Acquisitions, as more fully described in the notes hereto.
The pro forma condensed consolidated financial information is presented for
illustrative purposes only and does not purport to present the actual
financial position or results of operations of the Company had the
Acquisitions actually occurred on the dates specified, nor is it
necessarily indicative of the results of operations that may be achieved in
the future.
P-1
Playboy Enterprises, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
June 30, 2001
(In thousands)
Historical
Historical VODI and Pro Forma
Playboy Califa Adjustments Pro Forma
------------------------------------------------ ----------------
Assets
Cash and cash equivalents $ 1,658 $ 1,910 $ (1,000)(3) $ 2,468
(100)(3)
Marketable securities 3,322 - - 3,322
Accounts receivable, net 36,360 3,775 40,135
Accounts receivable from related parties 6,974 1,843 (1,843)(6) 6,974
Inventories, net 19,262 - 19,262
Deferred subscription acquisition costs 10,849 - 10,849
Other current assets 10,898 25 10,923
------------------------------------------------ ----------------
Total current assets 89,323 7,553 (2,943) 93,933
Accounts receivable from related parties 57,500 - 57,500
Property and equipment, net 10,316 84 10,400
Programming costs 56,192 - 56,192
Intangible and other assets 73,400 8,232 (8,223)(1) 104,209
30,800 (3)
Goodwill 85,898 - 28,211 (3) 114,109
------------------------------------------------ ----------------
Total assets $ 372,629 $ 15,869 $ 47,845 $ 436,343
================================================ ================
P-2
Playboy Enterprises, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
June 30, 2001
(In thousands)
Liabilities and shareholders' equity
Financing obligations $ 14,524 $ 11,106 $ (11,106) (4) $ 14,524
Consideration payable-short term - - 23,417 (3) 23,417
Financing obligations to related parties 5,000 470 (470) (2) 5,000
Accounts payable 18,389 2,201 - 20,590
Accounts payable to related parties 1,045 1,952 (1,843) (6) 1,154
Accrued salaries, wages and employee benefits 3,373 87 3,460
Deferred revenues 45,058 - 45,058
Deferred revenues from related parties 4,854 - 4,854
Other liabilities and accrued expenses 16,593 - 1,626 (3) 18,219
------------------------------------------------- -----------------
Total current liabilities 108,836 15,816 11,624 136,276
Financing obligations 91,886 - 91,886
Consideration payable-long term - - 36,270 (3) 36,270
Financing obligations to related parties 5,000 - 5,000
Deferred revenues to related parties 50,025 - 50,025
Net deferred tax liabilities 4,679 - 4,679
Other noncurrent liabilities 16,116 4 16,120
------------------------------------------------- -----------------
Total liabilities 276,542 15,820 47,894 340,256
Shareholders' equity:
Common stock 248 223 (223) (5) 248
Capital in excess of par value 122,334 - 122,334
Accumulated deficit (23,148) (174) 174 (5) (23,148)
Unearned compensation restricted stock (2,689) - (2,689)
Accumulated other comprehensive loss (658) - (658)
------------------------------------------------- -----------------
Total shareholders' equity 96,087 49 (49) 96,087
------------------------------------------------- -----------------
Total liabilities and shareholders' equity $ 372,629 $ 15,869 $ 47,845 $ 436,343
================================================= =================
See accompanying notes.
P-3
Playboy Enterprises, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the six months ended June 30, 2001
(In thousands, except per share amounts)
Historical
Historical VODI and Pro Forma
Playboy Califa Adjustments Pro Forma
--------------------------------------------------- -----------------------
Net revenues $ 139,138 $ 12,268 $ (2,501) (C) $ 146,154
(2,316) (G)
(435) (I)
Costs and expenses:
Cost of sales (122,567) (7,049) 2,973 (C) (123,892)
2,316 (G)
435 (I)
Selling and administrative expenses (26,197) (3,773) (2,364) (A) (31,502)
483 (D)
349 (K)
--------------------------------------------------- ------------------
Total costs and expenses (148,764) (10,822) 4,192 (155,394)
--------------------------------------------------- ------------------
Operating income (loss) (9,626) 1,446 (1,060) (9,240)
Nonoperating income (expense):
Investment income 620 - (450) (B) 170
Interest expense (5,370) (478) 478 (B) (8,018)
(2,648) (E)
Equity in operations of PTVI 421 - 421
Loss on disposal (100) - (100)
Other, net (837) - - (837)
--------------------------------------------------- ------------------
Total nonoperating expense (5,266) (478) (2,620) (8,364)
--------------------------------------------------- ------------------
Income (loss) from continuing operations before
income taxes (14,892) 968 (3,680) (17,604)
Income tax expense (654) (2) (632) (H) (1,288)
--------------------------------------------------- ------------------
Income (loss) from continuing operations $ (15,546) $ 966 $ (4,312) $ (18,892)
=================================================== ==================
Loss from continuing operations per common share:
Basic and diluted $ (0.64) $ (0.74)
Weighted-average number of common shares outstanding:
Basic and diluted 24,310 25,637 (J)
See accompanying notes
P-4
Playboy Enterprises, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the year ended December 31, 2000
(In thousands, except per share amounts)
Historical
Historical VODI and Pro Forma
Playboy Califa Adjustments Pro Forma
--------------------------------------------------- -----------------------
Net revenues $ 307,722 $ 19,176 $ (4,229) (C) $ 321,438
870 (F)
(1,231) (G)
(870) (I)
Costs and expenses:
Cost of sales (265,369) (7,863) 4,951 (C) (266,180)
1,231 (G)
870 (I)
Selling and administrative expenses (55,385) (11,738) (4,728) (A) (66,808)
4,345 (D)
698 (K)
Restructuring expenses (3,908) - - (3,908)
--------------------------------------------------- ------------------
Total costs and expenses (324,662) (19,601) 7,367 (336,896)
--------------------------------------------------- ------------------
Operating income (loss) (16,940) (425) 1,907 (15,458)
Nonoperating income (expense):
Investment income 1,519 13 (900) (B) 632
Interest expense (9,148) (1,010) 1,010 (B) (15,900)
(6,752) (E)
Equity in operations of PTVI and other (375) - (375)
Loss on disposal (2,924) - (2,924)
Other, net (3,531) 877 - (3,524)
(870) (F)
--------------------------------------------------- ------------------
Total nonoperating expense (14,459) (120) (7,512) (22,091)
--------------------------------------------------- ------------------
Loss from continuing operations before income taxes (31,399) (545) (5,605) (37,549)
Income tax expense (16,227) (5) (1,264) (H) (17,496)
--------------------------------------------------- ------------------
Loss from continuing operations $ (47,626) $ (550) $ (6,869) $ (55,045)
=================================================== ==================
Loss from continuing operations per common share:
Basic and diluted $ (1.96) $ (2.15)
Weighted-average number of common shares outstanding:
Basic and diluted 24,240 25,567 (J)
See accompanying notes.
P-5
Playboy Enterprises, Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(In thousands, except per share amounts)
Pro Forma Balance Sheet Adjustments
1. To reflect the elimination of goodwill and other intangible assets
previously recorded by Califa prior to the Acquisitions.
2. To reflect the elimination of financing obligations that were not
assumed by Playboy.
3. To reflect the purchase price of the Acquisitions and the allocation
of the purchase price to the tangible and identifiable intangible
assets and liabilities of Califa and VODI based upon management's
estimates of their fair value, with the remainder allocated to
goodwill.
Net present value of cash or stock consideration $ 60,687
Merger related expenses 1,726
----------------
Total consideration 62,413
Net tangible assets acquired and liabilities assumed 3,402
Distribution agreements 28,500
Non-compete agreements 2,300
----------------
Excess purchase price (Goodwill) $ 28,211
================
Upon closing, the Company paid $1,000 of the purchase price and
merger related expenses of $100. The Company will also make
scheduled payments of $16,000 and $6,500 in the Spring of 2002 in
the form of stock.
P-6
Pro Forma Balance Sheet Adjustments (continued)
4. To reflect the elimination of the financing obligations due from
Califa to Playboy.
5. To reflect the elimination of Califa and VODI equity in connection
with the Acquisitions.
6. To reflect the elimination of transactions between Califa and VODI.
P-7
Pro Forma Statement of Operations Adjustments
A. To reflect amortization of identifiable intangible assets using the
straight-line method of amortization: non-compete agreements (5 to 10
years) and distribution agreements (1 to 2 years). The Company will
apply the provisions of Statement of Financial Accounting Standards
No. 141, "Business Combinations" and No. 142, "Goodwill and Other
Intangible Assets" in recording the Acquisitions. Pursuant to SFAS No.
142, goodwill and intangible assets with indefinite lives are not
amortized. As a result, the pro forma information does not reflect
amortization of goodwill and certain intangible assets.
B. To reflect the elimination of interest expense and interest income
due to the assumption of Califa's financing obligations previously
due to Playboy.
C. To reflect the elimination of license fees charged by Playboy to
Califa for programming rights.
D. To reflect the elimination of salary expense incurred and paid by
Califa and VODI to its former shareholders. Such shareholders will
not be employed by Playboy subsequent to the Acquisitions. All
significant responsibilities of the business acquired will be borne
by current employees of Playboy and former employees of Califa and
VODI.
E. To reflect the interest expense associated with the amortization of
the discount of the purchase price due to the timing of the payments
over the ten-year payment period, using the following assumptions:
Total consideration (undiscounted) $ 82,000
================
Discounted consideration of
Company's preliminary estimate
of its cost of borrowings $ 60,687
================
The discount rate used was consistent with Playboy's historical
cost of borrowings.
F. To reclassify transponder sublease income on the historical
financial statements of Califa from other income to revenues.
P-8
G. To reflect the elimination of transactions between Playboy and VODI.
H. To reflect the tax effects of the Acquisitions, principally due to
the tax effects of basis differences arising from the different book
and tax amortization for goodwill and indefinite lived intangible assets.
I. To reflect the elimination of revenues and expenses related to the
sublease of Califa's transponder capacity to Playboy.
J. The weighted average shares outstanding reflect the presumed
increase in outstanding shares as a result of the shares to be
issued in the Spring of 2002 as part of the consideration paid to
the owners of Califa and VODI. The shares to be issued are assumed
to be 1,327, based on the most recent share price of $16.96, with a
total value of $22,500. The remaining payments of the purchase price
are to be made in cash or stock, at the discretion of the Company.
K. To reflect the elimination of amortization of intangible assets
recorded on the historical financial statements of Califa.
(c) Exhibits
Exhibit No. Description
---------- -----------
2.1* Asset Purchase Agreement, dated as of June
29, 2001, by and among Playboy Enterprises,
Inc., Califa Entertainment Group, Inc.,
V.O.D., Inc., Steven Hirsch, Dewi James and
William Asher. Playboy Enterprises, Inc.
agrees to furnish supplementally any omitted
schedule to the Securities and Exchange
Commission upon request.
- ------------
* Certain information omitted pursuant to a request for confidential
treatment filed separately with the Securities and Exchange
Commission.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this amendment to the report to be
signed on its behalf by the undersigned hereunto duly authorized.
PLAYBOY ENTERPRISES, INC.
By: /s/ Linda Havard
------------------------------------
Name: Linda G. Havard
Title: Executive Vice President, Finance
and Operations, and Chief Financial
Officer (Authorized Officer and
Principal Financial and Accounting
Officer)
Dated: April 15, 2002
EXHIBIT INDEX
Exhibit No. Description
---------- -----------
2.1* Asset Purchase Agreement, dated as of June
29, 2001, by and among Playboy Enterprises,
Inc., Califa Entertainment Group, Inc.,
V.O.D., Inc., Steven Hirsch, Dewi James and
William Asher. Playboy Enterprises, Inc.
agrees to furnish supplementally any omitted
schedule to the Securities and Exchange
Commission upon request.
- ------------
* Certain information omitted pursuant to a request for confidential
treatment filed separately with the Securities and Exchange Commission.