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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________.
COMMISSION FILE NUMBER: 0-27090
CKS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 77-0385435
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
10441 BANDLEY DRIVE, CUPERTINO, CA 95014
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (408) 366-5100
N/A
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(FORMER NAME, FORMER ADDRESS & FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIODS AS THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT.
YES NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICAL DATE.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT MAY 31, 1996
----------------------------------- ---------------------------
<S> <C>
COMMON STOCK -- $0.001 PAR VALUE... 12,714,437
</TABLE>
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<PAGE> 2
CKS GROUP, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets -- May 31, 1996 and
November 30, 1995. .................................................... 3
Condensed Consolidated Statements of Income -- Three and six months
ended May 31, 1996 and May 31, 1995. .................................. 4
Condensed Consolidated Statements of Cash Flows -- Six months ended
May 31, 1996 and May 31, 1995. ........................................ 5
Notes to Condensed Consolidated Financial Statements. ................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. ................................................ 7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. .................................................... 11
ITEM 2. CHANGES IN SECURITIES. ................................................ 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. ...................................... 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. ................ 11
ITEM 5. OTHER INFORMATION. .................................................... 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. ..................................... 11
SIGNATURES......................................................................... 12
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CKS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $38,960 $ 2,327
Accounts receivable, net of allowances of $1,040 and $868 in 1996
and 1995....................................................... 10,744 7,203
Fees and expenditures in excess of billings....................... 1,669 471
Prepaid expenses and other current assets......................... 924 1,095
------- -------
Total current assets........................................... 52,297 11,096
Property and equipment, net......................................... 3,398 2,590
------- -------
Total assets.............................................. $55,695 $ 13,686
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 4,652 $ 3,681
Accrued expenses.................................................. 3,373 2,371
Billings in excess of fees and expenditures....................... 1,879 959
Current portion of notes payable and capital lease obligations.... 327 316
Income taxes payable.............................................. 381 972
------- -------
Total current liabilities...................................... 10,612 8,299
Noncurrent portion of notes payable and capital lease obligations... 311 412
Deferred income taxes............................................... 256 380
------- -------
Total liabilities......................................... 11,179 9,091
======= =======
Stockholders' equity:
Preferred stock; $.001 par value; 5,000,000 shares authorized;
none issued and outstanding.................................... -- --
Common stock; $.001 par value; 30,000,000 shares authorized:
Series A common stock; none and 3,114,437 shares issued and
outstanding as of May 31, 1996 and November 30, 1995,
respectively.................................................. -- 3
Common stock; 12,714,437 and 9,463,070 issued and outstanding
as of May 31, 1996 and November 30, 1995, respectively........ 13 7
Additional paid-in capital........................................ 40,253 2,380
Notes receivable from stockholders................................ (292) (292)
Retained earnings................................................. 4,542 2,497
------- -------
Total stockholders' equity..................................... 44,516 4,595
------- -------
Total liabilities and stockholders' equity................ $55,695 $ 13,686
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
CKS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ -------------------
MAY 31, MAY 31,
------------------ -------------------
1996 1995 1996 1995
------- ------ ------- -------
<S> <C> <C> <C> <C>
Revenues............................................. $13,745 $8,738 $22,895 $14,938
------- ------- ------- -------
Operating expenses:
Direct salaries and related expenses............... 3,797 2,599 6,775 4,651
Other direct operating expenses.................... 5,232 3,558 8,459 5,810
General and administrative expenses................ 3,195 2,008 5,284 3,714
------- ------- ------- -------
Total operating expenses........................ 12,224 8,165 20,518 14,175
------- ------- ------- -------
Operating income................................ 1,521 573 2,377 763
Other income (expense), net.......................... 515 3 774 (33)
------- ------- ------- -------
Income before income taxes...................... 2,036 576 3,151 730
Income taxes......................................... 734 253 1,106 321
------- ------- ------- -------
Net income...................................... $ 1,302 $ 323 $ 2,045 $ 409
======= ======= ======= =======
Net income per share................................. $ 0.10 $ 0.03 $ 0.16 $ 0.04
======= ======= ======= =======
Shares used in per share computation................. 13,361 10,765 13,147 10,720
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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CKS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
MAY 31, 1996 MAY 31, 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ 2,045 $ 409
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred taxes................................................ (125) (239)
Compensation related to stock options......................... 53 --
Depreciation and amortization................................. 453 353
Changes in operating assets and liabilities:
Accounts receivable......................................... (3,541) 564
Fees and expenditures in excess of billings................. (1,198) (424)
Prepaid expenses and other current assets................... 171 1
Accounts payable............................................ 971 (658)
Accrued expenses............................................ 1,002 301
Billings in excess of fees and expenditures................. 920 132
Income taxes payable........................................ (591) (141)
------- ------
Net cash provided by operating activities................ 160 298
------- ------
Cash flows from investing activities:
Purchases of property and equipment.............................. (1,260) (367)
------- ------
Cash flows from financing activities:
Net borrowings (repayments) on line of credit and notes
payable....................................................... (90) (685)
Collections on stockholder notes receivable...................... -- 70
Proceeds from sale of common stock............................... 37,823 1,925
------- ------
Net cash provided by financing activities................ 37,733 1,310
------- ------
Change in cash and cash equivalents................................ 36,633 1,241
Cash and cash equivalents, beginning of period..................... 2,327 43
------- ------
Cash and cash equivalents, end of period........................... $ 38,960 $1,284
======= ======
Supplementary disclosure of cash paid:
Interest......................................................... $ 30 $ 39
======= ======
Income taxes..................................................... $ 2,237 $ 460
======= ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
CKS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION. The unaudited condensed consolidated
financial statements for the three and six month periods ended May 31, 1996 and
May 31, 1995 reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the interim
periods. The condensed consolidated financial statements should be read in
conjunction with those consolidated financial statements and notes thereto,
together with management's discussion and analysis of financial condition and
results of operations, contained in the Company's Annual Report on Form 10-K for
the fiscal year ended November 30, 1995. The results of operations for the three
and six months ended May 31, 1996 are not necessarily indicative of the results
expected for any subsequent quarter or for the entire fiscal year ending
November 30, 1996.
NOTE 2. INITIAL PUBLIC OFFERING. In December 1995, the Company completed
its initial public offering (IPO) and issued 2,475,000 shares of its common
stock at a per share price of $17.00. The Company received proceeds of
approximately $37.8 million in cash, net of underwriting discounts, commissions
and other costs.
NOTE 3. INCORPORATION IN DELAWARE. On December 7, 1995, the Company was
reincorporated in the State of Delaware. In conjunction with the reincorporation
in Delaware, all outstanding shares of Series A Common Stock were converted into
an equal number of shares of Common Stock of the Company and all outstanding
options to purchase shares of Series B Common Stock of the Company were
converted into options to purchase an equal number of shares of Common Stock of
the Company.
NOTE 4. NET INCOME PER SHARE. Net income per share is computed using the
weighted average number of shares outstanding of common stock and dilutive
common equivalent shares from stock options using the treasury stock method. In
accordance with certain Securities and Exchange Commission (SEC) Staff
Accounting Bulletins, such computations for periods prior to the IPO include all
common and common equivalent shares issued within 12 months of the offering date
as if they were outstanding for all periods presented using the treasury stock
method and the anticipated initial public offering price. The difference between
primary and fully diluted net income per share is either not significant or
anti-dilutive in all periods presented.
NOTE 5. SUBSEQUENT EVENTS. In June 1996, the Company completed a secondary
public offering of 1,800,000 shares of its common stock at a per share price to
the public of $34.00. Of these shares, 131,500 were sold by the Company, and
1,668,500 were sold by certain shareholders. The Company received proceeds of
approximately $3.7 million in cash, net of underwriting discounts, commissions
and other costs.
In June 1996, the Company agreed to acquire Schell/Mullaney, Inc. ("SMI"),
a New York corporation, by means of a merger of SMI Acquisition Corp., a New
York corporation and wholly owned subsidiary of the Company ("Sub"), with and
into SMI pursuant to an Agreement and Plan of Reorganization, dated as of June
7, 1996, by and among the Company, Sub, SMI and the shareholders of SMI. The
acquisition is expected to close in July 1996.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This section contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements as a result of factors,
including those set forth under "Factors Affecting Operating Results and Market
Price of Stock." Readers are also encouraged to refer to the Company's Annual
Report on Form 10-K for a further discussion of the Company's business and the
risks and opportunities attendant thereto.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1996 AND 1995
REVENUES
The Company generates the majority of its revenues through project
fees on a fixed fee for service basis. Revenues increased to $13.7 million in
the quarter ended May 31, 1996 from $8.7 million in the same quarter of fiscal
year 1995, representing an increase of 57.3%. This increase in revenues was due
to an increase in the volume of creative, design and production projects
undertaken for existing clients of the Company, as well as the establishment of
new client relationships. Revenues from new media projects represented
approximately 33% of revenues for the quarter ended May 31, 1996. The Company
defines new media as media that delivers content to end users in digital form,
including the World Wide Web, the Internet, proprietary online services,
CD-ROMs, laptop PC presentations and interactive kiosks.
DIRECT SALARIES AND RELATED EXPENSES
Direct salaries and related expenses consist primarily of salaries and
other related benefits for regular and temporary employees. The Company's direct
salaries and related expenses increased 46.1% to approximately $3.8 million in
the quarter ended May 31, 1996 from approximately $2.6 million during the same
quarter of fiscal year 1995, representing 27.6% of revenues for the second
quarter of fiscal year 1996 and 29.7% of revenues in the same quarter of fiscal
1995. This increase in absolute dollars resulted principally from the Company's
hiring of additional full time employees, many of whom initially provided
services to the Company as independent consultants on a periodic basis. The
decrease in these expenses as a percentage of revenues reflects a more rapid
increase in revenues than in direct salaries and related expenses. Fees paid to
independent consultants are included in other direct operating expenses.
OTHER DIRECT OPERATING EXPENSES
Other direct operating expenses include materials, contract freelance
talent (independent consultants), facilities and equipment expenses necessary to
provide services to the Company's clients. Other direct operating expenses
increased 47.0% to $5.2 million in the quarter ended May 31, 1996, from $3.6
million in the same quarter of fiscal year 1995, representing 38.1% of revenues
in the second quarter of 1996 and 40.7% of revenues in the same quarter of
fiscal 1995. The period over period increase in absolute dollars was
attributable to increases in materials costs and freelance talent costs
necessary to support the higher level of revenues. The decrease in other direct
operating expenses as a percentage of revenues resulted principally from the
increased proportion of higher margin creative and design projects.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include headquarters expenses,
insurance, personnel costs for finance and administration, accounting and legal
fees, bad debt expense, management information systems expenses, and employee
benefits. General and administrative expenses increased to approximately $3.2
million in the fiscal quarter ended May 31, 1996 from approximately $2.0 million
in the same quarter of fiscal year 1995, representing an increase of 59.1%. As a
percentage of revenues, general and administrative expenses increased to 23.2%
of revenues in the quarter ended May 31, 1996 from 23.0% in the same quarter of
1995. This period over period increase in absolute dollars in general and
administrative expenses was attributable principally to higher general and
administrative payroll costs and increased facilities costs to support the
Company's growth, higher legal and accounting expenses associated with being a
public company, and
7
<PAGE> 8
increases in business development expense. As a percentage of revenues,
increases in legal and accounting, business development, and payroll expenses
were partially offset by percentage decreases in bad debt expense, facilities
costs, and a reduction in management fees paid to The Interpublic Group of
Companies ("IPG").
INTEREST AND OTHER INCOME
Interest income increased by approximately $331,000 in the fiscal quarter
ended May 31, 1996 versus the same quarter of fiscal 1995 due to higher average
cash and cash equivalents balances. During the quarter ended May 31, 1996, the
Company also gained approximately $187,000 from the sale of stock accepted from
a client in lieu of fees.
INCOME TAXES
Combined federal and state income tax rates were 36.1% in the quarter ended
May 31, 1996 and 43.9% in the second quarter of 1995. The reduction in rate is
primarily due to the impact of income generated by the Company's holdings in tax
advantaged investments.
SIX MONTHS ENDED MAY 31, 1996 AND MAY 31, 1995
REVENUES
Revenues increased to $22.9 million in the six months ended May 31, 1996
from $14.9 million in the six months ended May 31, 1995, representing an
increase of 53.3%. This increase in revenues was due to an increase in the
volume of creative and design projects undertaken for existing clients of the
Company, as well as the establishment of new client relationships. Revenues from
new media projects represented approximately 32% of revenues for the six months
ended May 31, 1996.
DIRECT SALARIES AND RELATED EXPENSES
The Company's direct salaries and related expenses increased 45.7% to
approximately $6.8 million in the six months ended May 31, 1996 from
approximately $4.7 million during the six months ended May 31, 1995,
representing 29.6% of revenues for the first six months of fiscal year 1996 and
31.1% of revenues for the first six months of fiscal 1995. This increase in
absolute dollars resulted principally from the Company's hiring of additional
full time employees, many of whom initially provided services to the Company as
independent consultants on a periodic basis. The decrease in these expenses as a
percentage of revenues reflects a more rapid increase in revenues than in direct
salaries and related expenses. Fees paid to independent consultants are included
in other direct operating expenses.
OTHER DIRECT OPERATING EXPENSES
Other direct operating expenses increased 45.6% to $8.5 million in the six
months ended May 31, 1996, from $5.8 million in the first six months of fiscal
year 1995, representing 36.9% of revenues in the first six months of 1996 and
38.9% of revenues in the first six months of 1995. The period over period
increase in absolute dollars was attributable to increases in materials costs
and freelance talent costs necessary to support the higher level of revenues.
The decrease in other direct operating expenses as a percentage of revenues
resulted principally from the increased proportion of higher margin creative and
design projects.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased to approximately $5.3 million
in the six months ended May 31, 1996 from approximately $3.7 million in the same
period of fiscal year 1995, representing an increase of 42.3%. As a percentage
of revenues, general and administrative expenses decreased to 23.1% of revenues
in the six months ended May 31, 1996 from 24.9% in the first six months of
fiscal 1995. This period over period increase in absolute dollars in general and
administrative expenses was attributable principally to increases in business
development expense, higher legal and accounting expenses associated with being
a public company and increased lease payments associated with additional
offices, offset in part by a decrease in bad debt reserve
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expense due to the collection of a previously reserved receivable. The decrease
in these expenses as a percentage of revenues reflects a more rapid increase in
revenues than in general and administrative expenses.
INTEREST AND OTHER INCOME
Interest income increased by approximately $612,000 during the six months
ended May 31, 1996 over the same period of fiscal 1995 due to higher average
cash and cash equivalents balances.
INCOME TAXES
Combined federal and state income tax rates were 35.1% in the six months
ended May 31, 1996 and 44.0% in the first six months of fiscal 1995. The
reduction in rates is primarily due to the impact of income generated by the
Company's holdings in tax advantaged investments.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and investments in
property and equipment through cash generated from operations, bank borrowing,
equity financing and capital lease financing arrangements. At May 31, 1996, the
Company had no material capital commitments.
Cash and cash equivalents, consisting primarily of high-quality municipal
bonds and tax-advantaged money market instruments, totaled $39.0 million at May
31, 1996 compared to $2.3 million at November 30, 1995. The increase in cash and
cash equivalents during this period was primarily due to net proceeds of $37.8
million resulting from the sale of stock in connection with the Company's
initial public offering in December 1995 and from cash provided by operations of
$160,000, offset in part by cash used in investing activities of $1.3 million.
The Company has a $3.0 million credit facility available under a revolving
line of credit based on 75% percent of eligible accounts receivable. The Company
also has a $1.0 million three year term loan facility available for purchases of
equipment. The credit facilities are secured by all the assets of the Company
and bear interest at prime plus 0.5% for the line of credit and 0.75% for the
term loan. At May 31, 1996, there was no indebtedness outstanding under these
credit facilities. These credit agreements, which are scheduled to expire on
July 31, 1996, require compliance with various financial covenants and
restrictions, including maintenance of minimum levels of net worth and
profitability, and restrict the Company's ability to pay dividends or to effect
mergers or acquisitions without the bank's consent.
The Company believes its current cash and cash equivalents, together with
existing credit facilities and cash flows from operations, if any, will be
sufficient to meet the Company's cash requirements for at least the next twelve
months, including the cost of business acquisitions, if any.* The Company may
need to raise additional funds through public or private debt or equity
financing in order to take advantage of opportunities that may become available
to the Company, including expansion and acquisition of businesses, products or
technologies, or otherwise to respond to competitive pressures. There can be no
assurance that the Company will be able to raise additional capital on favorable
terms or at all.
FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK
CKS operates in a rapidly changing environment that involves a number of
uncertainties, some of which are beyond the Company's control. In addition to
the uncertainties described elsewhere in this report and in the Company's Annual
Report on Form 10-K for the fiscal year ended November 30, 1995, these
uncertainties include the following:
The Company's five largest clients accounted for 37% of the Company's
revenues for the six months ended May 31, 1996, with fluctuations in the amount
of revenue contribution from each such client from
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual performance will meet the
Company's current expectations.
9
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quarter to quarter. Since the Company's clients generally retain the Company on
a project by project basis, a client from whom the Company generates substantial
revenue in one period may not be a substantial source of revenue in a subsequent
period. To the extent that the Company's major clients do not remain a
significant source of revenues, and the Company is unable to replace these
clients, there could be a direct and immediate material adverse effect on the
Company's business, financial condition and operating results.
The Company generates the substantial majority of its revenues through
project fees on a fixed fee for service basis. The Company assumes greater
financial risk on fixed-price type contracts than on either time-and-material or
cost-reimbursable contracts. Failure to anticipate technical problems, estimate
costs accurately or control costs during performance of a fixed-price contract
may reduce the Company's profit or cause a loss. Although the majority of the
Company's projects typically last four to six weeks and therefore each
individual short-term project creates less exposure than a long-term fixed-price
contract, in the event the Company does not accurately anticipate the progress
of a number of significant revenue-generating projects, there could be a
material adverse effect on the Company's business, operating results and
financial condition.
The Company's operating results have fluctuated in the past and may
fluctuate in the future as a result of a variety of factors, including timing of
the completion, material reduction or cancellation of major projects or the loss
of a major client, timing of the receipt of new business, timing of the hiring
or loss of personnel, timing of the opening or closing of an office, the
relative mix of high margin creative projects as compared to lower margin
production projects, changes in the pricing strategies and business model of the
Company or its competitors, capital expenditures and other costs relating to the
expansion of operations, and other factors that are outside of the Company's
control. Operating results could also be materially adversely affected by
increased competition in the Company's markets. The Company experiences some
seasonality in its business which results from timing of product introductions
and business cycles of the Company's clients. As a result of the foregoing and
other factors, the Company anticipates that it may experience material and
adverse fluctuations in future operating results on a quarterly or annual basis.
Therefore, the Company believes that period to period comparisons of its
revenues and operating results are not necessarily meaningful and that such
comparisons cannot be relied upon as indicators of future performance.
The trading price of the Company's Common Stock is subject to fluctuations
in response to quarterly variations in operating results, announcements of
technological innovations or new products or services by the Company or its
competitors, as well as other events or factors. In addition, the stock market
has from time to time experienced price and volume fluctuations which have
particularly affected the market price of technology-oriented and media
companies, which often have been unrelated to the operating performance of these
companies. These broad market fluctuations may adversely affect the market price
of the Company's Common Stock.
The Company's future growth is dependent to a significant extent upon its
ability to increase the amount of revenue it derives from providing marketing
and advertising solutions to its customers through new media, which the Company
defines as media that delivers content to end users in digital form, including
the World Wide Web, the Internet, proprietary online services, CD-ROMs, laptop
PC presentations and interactive kiosks. The market for marketing and
advertising through new media has only recently begun to develop, is rapidly
evolving and is characterized by an increasing number of market entrants who
have introduced or developed products and services for communication and
commerce through new media. Demand and market acceptance for recently introduced
products and services are subject to a high level of uncertainty. There can be
no assurance that commerce and communication through new media will continue to
grow.
Conflicts of interest are inherent in certain segments of the marketing
communications industry, particularly in advertising. The Company has in the
past and will in the future be unable to pursue potential advertising and other
opportunities because such opportunities will require the Company to provide
services to direct competitors of existing Company clients. In addition, the
Company risks alienating or straining relationships with existing clients each
time the Company agrees to provide services to even indirect competitors of
existing Company clients. Conflicts of interest may jeopardize the stability of
revenues generated from existing clients and preclude access to business
prospects, either of which developments could have a material adverse effect on
the Company's business, financial condition and operating results.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on May 8, 1996, the
following individual was elected to the Board of Directors:
<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
---------- --------------
<S> <C> <C>
Thomas K. Suiter.................................. 10,971,244 0
</TABLE>
The following proposal was approved at the Company's Annual Meeting:
<TABLE>
<CAPTION>
AFFIRMATIVE NEGATIVE VOTES
VOTES VOTES WITHHELD
----------- -------- --------
<S> <C> <C> <C>
Ratify the appointment of KPMG Peat Marwick
LLP as independent auditors for the fiscal
year ending November 30, 1996............. 10,971,944 0 200
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ------------------------------------------------------------------------ ----
<C> <S> <C>
11.1 Statement Regarding Computation of Per-Share Earnings 13
</TABLE>
b. Reports on Form 8-K
None.
11
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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 thereunto duly authorized.
CKS GROUP, INC.
(Registrant)
Date: July 15, 1996 By: /s/ MARK D. KVAMME
Mark D. Kvamme, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date: July 15, 1996 By: /s/ CARLTON H. BAAB
Carlton H. Baab, Executive Vice
President and Chief Financial
Officer (Principal
Financial and Accounting Officer)
12
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EXHIBIT 11.1
CKS GROUP, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION
OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- -------------------
MAY 31, MAY 31,
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income.......................................... $ 1,302 $ 323 $ 2,045 $ 409
------- ------- ------- -------
Weighted average number of common shares
outstanding....................................... 12,721 10,239 12,513 10,051
Number of common stock equivalents as a result of
stock options outstanding using the treasury stock
method............................................ 640 -- 634 --
Number of common shares issued and stock options
granted in accordance with Staff Accounting
Bulletin No. 83................................... -- 526 -- 669
------- ------- ------- -------
Shares used in per share computation................ 13,361 10,765 13,147 10,720
------- ------- ------- -------
Net income per share................................ $ 0.10 $ 0.03 $ 0.16 $ 0.04
======= ======= ======= =======
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> MAY-31-1996
<EXCHANGE-RATE> 1
<CASH> 38,960
<SECURITIES> 0
<RECEIVABLES> 11,784
<ALLOWANCES> (1,040)
<INVENTORY> 0
<CURRENT-ASSETS> 52,297
<PP&E> 3,398
<DEPRECIATION> 0
<TOTAL-ASSETS> 55,695
<CURRENT-LIABILITIES> 10,612
<BONDS> 0
0
0
<COMMON> 40,266
<OTHER-SE> 4,250
<TOTAL-LIABILITY-AND-EQUITY> 55,695
<SALES> 22,895
<TOTAL-REVENUES> 22,895
<CGS> 0
<TOTAL-COSTS> 20,518
<OTHER-EXPENSES> 774
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,151
<INCOME-TAX> 1,106
<INCOME-CONTINUING> 2,045
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,045
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
