Financial Statements
Young Adult Marketing Divisions
(Operating Divisions of
American Passage Media Corporation)
Years ended June 30, 1996 and 1995
with Report of Independent Auditors
Young Adult Marketing Divisions
(Operating Divisions of American Passage Media Corporation)
Financial Statements
Years Ended June 30, 1996 and 1995
Contents
Report of Independent Auditors
Audited Financial Statements
Balance Sheets
Statements of Income
Statements of Cash Flows
Notes to Financial Statements
Report of Independent Auditors
The Board of Directors
Young Adult Marketing Divisions
We have audited the accompanying balance sheets of the Young
Adult Marketing Divisions (operating divisions of American
Passage Media Corporation) as of June 30, 1996 and 1995, and the
related statements of income and cash flows for the years then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly,
in all material respects, the financial position of the Young
Adult Marketing Divisions (operating divisions of American
Passage Media Corporation) at June 30, 1996 and 1995, and the
results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Seattle, Washington
July 30, 1996
Young Adult Marketing Divisions
(Operating Divisions of American Passage Media Corporation)
Balance Sheets
June 30
Assets 1996 1995
_______________________
Current assets:
Accounts receivable, less allowance
for doubtful accounts of $72,221
(1995 - $85,628) $1,370,651 $1,218,975
Prepaid expenses 32,423 11,807
_______________________
Total current assets 1,403,074 1,230,782
Furniture, fixtures, and equipment,
net of accumulated depreciation of
$91,661 (1995 - $77,721) 49,707 36,967
_______________________
Total assets $1,452,781 $1,267,749
_______________________
_______________________
Liabilities
Current liabilities:
Accounts payable $1,560,288 $1,618,355
Accrued expenses 229,348 295,898
Deferred revenues 464,890 303,519
________________________
Total liabilities 2,254,526 2,217,772
Divisional deficiency of assets (801,745) (950,023)
_______________________
Total liabilities and deficiency
of assets $1,452,781 $1,267,749
_______________________
_______________________
See accompanying notes.
Young Adult Marketing Divisions
(Operating Divisions of American Passage Media Corporation)
Statements of Income
Year Ended June 30
1996 1995
________________________
Net revenues $5,802,209 $5,048,231
Cost of revenues 2,727,246 2,484,272
________________________
Gross margin 3,074,963 2,563,959
Operating expenses:
Selling, general, and
administrative 1,905,535 1,987,050
Corporate administrative
(Note 3) 251,728 236,665
________________________
2,157,263 2,223,715
________________________
Net income $ 917,700 $ 340,244
________________________
________________________
See accompanying notes.
Young Adult Marketing Divisions
(Operating Divisions of American Passage Media Corporation)
Statements of Cash Flows
Year Ended June 30
1996 1995
_______________________
Net income $ 917,700 $ 340,244
Adjustments to reconcile income to
net cash flow from operations:
Depreciation 13,723 12,238
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable (151,676) 380,108
Increase in prepaid expenses (20,616) (11,807)
Decrease in accounts payable and
accrued expenses (124,617) (23,855)
Increase in deferred revenues 161,370 222,318
________________________
Net cash flows from operations 795,884 919,246
Investing activity - purchases of furni-
ture, fixtures, and equipment (26,463) (16,878)
Financing activity - net cash outflow
to the Company (769,421) (902,368)
________________________
Net change in cash 0 0
Cash, beginning of year 0 0
________________________
Cash, end of year $ 0 $ 0
________________________
________________________
See accompanying notes.
Young Adult Marketing Divisions
(Operating Divisions of American Passage Media Corporation)
Notes to Financial Statements
June 30, 1996
1. Organization and Basis of Presentation
On June 7, 1996, American Passage Media Corporation (the Company)
reached agreement with Network Event Theatre, Inc. (NET) to sell
certain divisions of the Company, including the following:
College Newspapers, Campus Postering, Gymboards, Spring Break,
and the national sales group of The Directory of Classes (the
Divisions). These divisions are included in a group that is
collectively referred to as the Young Adult Marketing divisions.
The Divisions provide national advertisers with media services to
facilitate the targeting of specific market segments. The
principal media services provided by the Divisions include
advertising placement in college newspapers, campus postering,
event marketing at college campuses, and sales of national
advertising in college and university class directories.
These financial statements have been prepared as if the Divisions
had operated as independent, standalone entities for all periods
presented. Such divisional financial statements have been
prepared using the historical basis of accounting and include all
of the assets, liabilities, revenues and expenses, and cash flows
of the Divisions previously included in the Company's financial
statements.
In accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 55 ("SAB 55"), these statements have been
adjusted to include certain corporate expenses incurred by the
Company on the Divisions' behalf. The financial statements may
not necessarily present the Divisions' financial position,
results of operations, and cash flows if the Divisions were a
standalone entity.
2. Summary of Significant Accounting Policies
Furniture, Fixtures, and Equipment
Furniture, fixtures, and equipment are recorded at cost.
Depreciation is provided using the straight-line and accelerated
methods based on estimated useful lives ranging from two to ten
years. Expenditures for major remodeling and improvements are
capitalized as leasehold improvements and amortized over the
shorter of the life of the lease (including option period if
exercised) or the life of the asset. Leased assets are recorded
Young Adult Marketing Divisions
(Operating Divisions of American Passage Media Corporation)
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
at cost and are amortized on a straight-line basis over the
lesser of the related lease terms or their economic lives.
Amortization expense is included with depreciation expense.
Income Taxes
The Company operates under Subchapter S of the Internal Revenue
Code and, consequently, is not subject to federal income tax; the
stockholders include the Company's income or loss in their own
income for tax purposes. For income tax purposes, the Company
has a December 31 year-end. The Divisions are included in the
Company's income tax reporting.
Concentration of Credit Risks
Substantially all of the Divisions' accounts receivable and
revenues are generated from customers in the advertising
industry. The Divisions perform ongoing credit evaluations of
their customers and generally do not require collateral. The
Divisions maintain accounts receivable allowances for potential
credit losses, and such losses have been within management's
expectations.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions which affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Young Adult Marketing Divisions
(Operating Divisions of American Passage Media Corporation)
Notes to Financial Statements (continued)
3. Corporate Allocations
The Company provides services to the Divisions, including general
management, accounting, treasury, tax, financial audit and
reporting, benefits administration, insurance, information
systems management, accounts receivable and credit, and accounts
payable functions. These corporate administrative costs were not
historically allocated to individual divisions. In accordance
with SAB 55, the Company has allocated a portion of these
expenses to the Divisions. For purposes of these financial
statements, the above corporate costs have been allocated based
on the percentage of time corporate administrative personnel were
estimated to spend on the Young Adult Marketing divisions. Such
allocations and corporate charges totaled $251,728 and $236,665
for the years ended June 30, 1996 and 1995, respectively.
Management believes that the basis used for allocating corporate
administrative services is reasonable. However, the amounts
included in these allocations may differ from those that would
result from transactions among unrelated parties. In addition,
these allocations were not based on specific costs attributable
to the Divisions and may not be representative of actual costs
that would have been incurred if the Divisions had been operating
independently.
Young Adult Marketing Divisions
(Operating Divisions of American Passage Media Corporation)
Notes to Financial Statements (continued)
4. Revenues and Directing Operating Expenses-by Division
A breakdown of the gross margin earned by each of the divisions for the year
ended June 30, 1996 and 1995 is as follows:
Year Ended College Campus Sales
June 30, 1996 Newspapers Postering Gymboards Spring Break Commissions Total
_____________ ________________________________________________________________________________
Net revenues $2,506,244 $1,816,688 $1,075,754 $ 209,300 $ 194,223 $5,802,209
Costs of revenues 692,010 1,182,725 701,915 150,596 - 2,727,246
________________________________________________________________________________
Gross margin $1,814,234 $ 633,963 $ 373,839 $ 58,704 $194,223 $3,074,963
________________________________________________________________________________
________________________________________________________________________________
Year Ended
June 30 1995
_____________
Net revenues $1,855,674 $1,739,971 $1,122,745 $142,195 $187,646 $5,048,231
Costs of revenues 594,973 1,213,970 551,608 123,721 - 2,484,272
________________________________________________________________________________
Gross margin $1,260,701 $ 526,001 $ 571,137 $ 18,474 $187,646 $2,563,959
________________________________________________________________________________
________________________________________________________________________________
Young Adult Marketing Divisions
(Operating Divisions of American Passage Media Corporation)
Notes to Financial Statements (continued)
5. Savings Plan
The Divisions are included in the Company's 401(k) savings plan,
which covers all employees with at least six months of service.
The Company, at its discretion, matches employee contributions.
The Divisions' share of the Company's contributions was $10,870
and $7,119 for 1996 and 1995, respectively.