8-K 1 a2069014z8-k.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) JANUARY 22, 2002 24/7 REAL MEDIA, INC (Exact name of registrant as specified in its charter) DELAWARE 1-14355 13-3995672 (State or other jurisdiction of (Commission File Number) (I.R.S. Employer incorporation) Identification No.) 1250 BROADWAY, NEW YORK, NEW YORK, 10001 (Address of principal executive offices) Registrant's telephone number, including area code (212) 231-7100 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On January 22, 2002, the Company completed the sale of its wholly owned subsidiary, Imake Software & Services, Inc., ("Imake") to Schaszberger Corporation, an entity controlled by Mark Schaszberger, President of Imake. Under the terms of the sale, the purchase price payable by the buyer was approximately $6.5 million for the stock of Imake, of which $2 million was in the form of a 6% four year secured note, approximately $500,000 in cash consideration, and a potential earn out of up to $4 million over the next three years based on gross revenue. The estimated fair value of the secured note and the earn out is $500,000 and $1.5 million, respectively. Additionally, the Company received Series A preferred stock of Schaszberger Corp which as of the closing date represented 19.9% of the buyer. The Note is secured by certain assets of Imake and is guaranteed by Schaszberger Corporation. In the event that the earn out is not met within the three year period, the Company is entitled to receive a $1 Warrant for common stock with a value equal to the difference between $3 million and the actual earn out paid to date subject to certain limitations. The consideration paid to the Company was determined as a result of negotiations between the buyer and the Company. We expect to record an impairment charge relating to the net assets of Imake of approximately $7.0 million in the fourth quarter of 2001. The loss is subject to adjustment based on the actual value of assets and liabilities sold and actual transaction expenses incurred and the ultimate fair value of the consideration received. See the Company's historical consolidated financial statements included in 24/7 Real Media's Annual Report on Form 10-K for the year ended December 31, 2000 and our quarterly report on Form 10-Q for the nine months ended September 30, 2001 for additional information. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of Businesses Acquired Not applicable (b) Unaudited Pro Forma Consolidated Financial Information Introduction to Unaudited Pro Forma Consolidated Financial Information Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2001 Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 2000 and the nine months ended September 30, 2001 Notes to Unaudited Pro Forma Consolidated Financial Information (c) Exhibits 99.1 Purchase and Sale Agreement by and Among 24/7 Real Media, Inc., Imake Software & Services, Inc. and Schaszberger Corporation. 99.2 Press release announcing sale of Imake Software & Services, Inc. * Disclosure schedules and other attachments are omitted, but will be furnished supplementally to the Commission upon request. INTRODUCTION TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The unaudited pro forma consolidated statements of operations for the year ended December 31, 2000 and nine months ended September 30, 2001 give effect to the sale of the business, as if it had occurred on January 1, 2000 and January 1, 2001, respectively. The unaudited pro forma consolidated balance sheet as of September 30, 2001 gives effect to sale of the business as if it had occurred on September 30, 2001. 24/7 Real Media, Inc. believes the accounting used for the pro forma adjustments provides a reasonable basis on which to present the unaudited pro forma consolidated financial statements. The pro forma adjustments do not include any returns that we might have earned on the sale proceeds if any. The unaudited pro forma consolidated statements of operations and unaudited pro forma consolidated balance sheet are unaudited and were derived by adjusting the historical consolidated financial statements of 24/7 Real Media, Inc., which includes the results of the business. The unaudited pro forma consolidated financial statements are provided for informational purposes only and should not be construed to be indicative of 24/7 Real Media, Inc.'s consolidated financial position or results of operations had the transaction been consummated on the date assumed and do not project 24/7 Real Media, Inc.'s consolidated financial position or results of operations for any future date or period. The unaudited pro forma consolidated financial statements and accompanying notes should be read in conjunction with 24/7 Real Media, Inc.'s historical consolidated financial statements and notes thereto included in 24/7 Real Media, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2000, and its quarterly report on Form 10-Q as of and for the nine months ended September 30, 2001. 24/7 REAL MEDIA, INC. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2001
24/7 IMAKE HISTORICAL HISTORICAL(1) ----------- ----------- ASSETS Current Assets: Cash and cash equivalents .................................................. $ 7,451 (368) Restricted cash ............................................................ 1,500 Accounts receivable, net ................................................... 6,514 (1,166) Asset held for sale ........................................................ Prepaid expenses and other current assets .................................. 5,171 (81) ----------- ----------- Total current assets ................................................ 20,636 (1,615) ----------- ----------- Property and equipment, net ................................................ 23,165 (1,244) Intangible assets, net ..................................................... 15,856 (6,468) Amount Receivable - Imake .................................................. Other assets ............................................................... 743 (256) ----------- ----------- Total assets ........................................................ $ 60,400 $ (9,583) =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ........................................................... $ 3,706 (299) Accrued liabilities ........................................................ 9,696 (49) Current installments of obligations under capital leases.................... 44 Deferred revenue ........................................................... 326 (39) Deferred gain on sale of non-core asset..................................... 2,603 ----------- ----------- Total current liabilities ........................................... 16,375 (387) ----------- ----------- Intercompany payables ...................................................... -- (8,102) Obligations under capital leases, excluding current installments ........... 120 Minority Interest .......................................................... 105 Common stock ............................................................... 413 Additional paid-in capital ................................................. 1,068,148 Deferred stock compensation ................................................ (1,335) 261 Unrealized gain/loss on marketable securities .............................. -- Foreign currency translation ............................................... (344) Accumulated deficit ........................................................ (1,023,082) (1,355) ----------- ----------- Total stockholders' equity .......................................... 43,800 (1,094) ----------- ----------- Commitments and contingencies .................................................. -- -- Total liabilities and stockholder's equity .......................... $ 60,400 $ (9,583) =========== =========== PRO FORMA PRO FORMA ADJUSTMENTS(1) COMBINED ----------- ----------- ASSETS Current Assets: Cash and cash equivalents .................................................. $ 7,083 Restricted cash ............................................................ 1,500 Accounts receivable, net ................................................... 5,348 Asset held for sale ........................................................ 479 (ii) 419 (60) (vi) Prepaid expenses and other current assets .................................. 300 (iii) 5,390 ----------- ----------- Total current assets ................................................ 719 19,740 ----------- ----------- Property and equipment, net ................................................ 21,921 Intangible assets, net ..................................................... -- 9,388 Amount Receivable - Imake .................................................. 500 (i) 1,700 1,200 (iii) Other assets ............................................................... 12 (iv) 499 ----------- ----------- Total assets ........................................................ $ 2,431 $ 53,248 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ........................................................... 3,407 Accrued liabilities ........................................................ 9,647 Current installments of obligations under capital leases.................... 44 Deferred revenue ........................................................... (287) Deferred gain on sale of non-core asset..................................... 2,603 ----------- ----------- Total current liabilities ........................................... -- 15,988 ----------- ----------- Intercompany payables ...................................................... 8,102 (v) -- Obligations under capital leases, excluding current installments ........... 120 Minority Interest .......................................................... 105 Common stock ............................................................... 413 Additional paid-in capital ................................................. 1,068,148 Deferred stock compensation ................................................ (1,074) Unrealized gain/loss on marketable securities .............................. -- Foreign currency translation ............................................... (344) Accumulated deficit ........................................................ (5,671) (1,030,108) ----------- ----------- Total stockholders' equity .......................................... (5,671) 37,035 ----------- ----------- Commitments and contingencies .................................................. -- -- Total liabilities and stockholder's equity .......................... $ 2,431 $ 53,248 =========== ===========
See accompanying notes to the unaudited Pro Forma financial statements
24/7 REAL MEDIA, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 24/7 IMAKE PRO FORMA PRO FORMA HISTORICAL HISTORICAL (2) ADJUSTMENTS RESULTS ------------ ------------ ------------ ------------ Revenues: Integrated Media Solutions .............................. $ 28,269 $ -- -- $ 28,269 Technology Solutions .................................... 12,790 (4,728) -- 8,062 ------------ ------------ ------------ ------------ Total revenues ................................... 41,059 (4,728) -- 36,331 Cost of revenues: Integrated Media Solutions .............................. 24,814 -- 24,814 Technology Solutions .................................... 4,191 (2,045) -- 2,146 ------------ ------------ ------------ ------------ Total cost of revenues ........................... 29,005 (2,045) -- 26,960 Gross profit ..................................... 12,054 (2,683) -- 9,371 ------------ ------------ ------------ ------------ Operating expenses: Sales and marketing ..................................... 17,158 (1,465) -- 15,693 General and administrative .............................. 29,442 (1,605) -- 27,837 Product development ..................................... 12,523 (2,922) -- 9,601 Other expenses: ......................................... -- Amortization of goodwill, intangibles and advan 18,094 (5,537) -- 12,557 Stock-based compensation ............................ 2,655 (1,179) -- 1,476 Write-off of in process technology and .............. -- other merger related costs ........................ -- -- -- Restructuring and exit costs ........................ 1,011 (59) -- 952 Gain on sale of non-core assets, net ................ (1,529) -- -- (1,529) Equity loss in earnings of affiliate ................ 512 (3) 512 Impairment of intangible assets ..................... 68,169 (11,435) -- 56,734 ------------ ------------ ------------ ------------ Total operating expenses ......................... 147,523 (24,202) 512 123,833 ------------ ------------ ------------ ------------ Operating loss ................................... (135,469) 21,519 (512) (114,462) Interest income, net .......................................... 750 750 Gain on sale of investments, net .............................. 4,985 -- 4,985 Impairment of investments ..................................... (3,089) -- (3,089) ------------ ------------ ------------ ------------ Loss from continuing operations ............................ $ (132,823) $ 21,519 $ (512) $ (111,816) ============ ============ ============ ============ Net loss per share from continuing operations - basic and diluted .......... $ (3.04) $ (2.56) ============ ============ Weighted average common shares outstanding .................... 43,630,239 43,630,239 ============ ============
See accompanying notes to the unaudited Pro Forma financial statements
24/7 REAL MEDIA, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 24/7 IMAKE PRO FORMA PRO FORMA HISTORICAL HISTORICAL (2) ADJUSTMENTS RESULTS ------------ ------------ ------------ ------------ Revenues: Integrated Media Solutions ............................ $ 121,867 $ -- $ 121,867 Technology Solutions .................................. 24,206 (7,703) -- 16,503 ------------ ------------ ------------ ------------ Total revenues ................................... 146,073 (7,703) -- 138,370 Cost of revenues: Integrated Media Solutions ............................ 95,020 -- 95,020 Technology Solutions .................................. 7,942 (2,726) -- 5,216 ------------ ------------ ------------ ------------ Total cost of revenues ........................... 102,962 (2,726) -- 100,236 Gross profit ..................................... 43,111 (4,977) -- 38,134 ------------ ------------ ------------ ------------ Operating expenses: Sales and marketing ................................... 42,688 (1,335) -- 41,353 General and administrative ............................ 49,862 (2,474) -- 47,388 Product development ................................... 18,188 (1,805) -- 16,383 Other expenses: Amortization of goodwill, intangibles and advances .. 118,923 (7,948) -- 110,975 Stock-based compensation ............................ 8,217 (3,731) -- 4,486 Write-off of in process technology and .............. -- other merger related costs ........................ 5,336 (4,700) -- 636 Restructuring and exit costs ........................ 11,731 -- -- 11,731 Equity loss in earnings of affiliate ................ -- -- 512 (3) 512 Impairment of intangible assets ..................... 500,220 (5,362) -- 494,858 ------------ ------------ ------------ ------------ Total operating expenses ......................... 755,165 (27,355) 512 728,322 ------------ ------------ ------------ ------------ Operating loss ................................... (712,054) 22,378 (512) (690,188) Interest income, net ..................................... 1,359 1,359 Gain on sale of investments, net ......................... 52,059 -- 52,059 Gain on exchange of patent rights, net ................... 4,053 -- 4,053 Impairment of investments ................................ (101,387) -- (101,387) ------------ ------------ ------------ ------------ Loss from continuing operations ....................... $ (755,970) $ 22,378 $ (512) $ (734,104) ============ ============ ============ ============ Net loss per share from continuing operations - basic and diluted $ (22.66) $ (22.00) ============ ============ Weighted average common shares outstanding ............... 33,363,613 33,363,613 ============ ============
See accompanying notes to the unaudited Pro Forma financial statements 24/7 REAL MEDIA, INC. NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS (1) To reflect the sale of Imake Software & Services, Inc. to Schaszberger Corporation ("Purchaser"). The Company has reflected the earnout and the Note receivable based on a fair value analysis. The actual amount recognized may differ, however, the maximum potential earn out is limited to $4 million. The analysis does not take into account the value of the contingent Warrant to be received in case of an earnout shortfall. Consideration: (i) Fair value of 6% Note Receivable due January 2006........................... $ 500 (ii) Reimbursement of payroll advances........................................... 479 (iii) Net Present value of earnout based on gross revenues through December 2005.. 1,500 (iv) Series A Convertible Preferred Stock of Schaszberger Corp................... representing 19.9% of the Purchaser calculated as follows................... Net assets of Imake at September 30, 2001............................ 1,094 Cancellation of intercompany payable................................. 8,102 Write-off of goodwill................................................. (6,468) Note payable to 24/7 Real Media....................................... (2,000) Reimbursement of payroll per agreement................................ (479) Write-off of deferred financing costs................................. (188) --------- Adjusted net assets of Schaszberger Corp.... 61 19.9% --------- 24/7 equity investment in Schaszberger Corp.... 12 -------- 2,491 (v) Write-off of intercompany advances........................................... (8,102) (vi) Estimated transactional costs................................................ (60) Net Assets sold............................................................ (1,094) -------- Loss on sale of Imake $ (6,765) ========
(2) To eliminate the historical operations of Imake (3) To reflect the Company's portion of equity losses in Imake. The Company's investment represents 19.9% of Imake however its losses are limited to the Company's investment in and loan to Schaszberger Corporation of $12,000 and $500,000 respectively. SIGNATURES 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. 24/7 Real Media, Inc Date February 6, 2002 By: /s/ Mark E. Moran ---------------------------- Executive Vice President and General Counsel