<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
August 1, 1996
Date of Report (Date of earliest event reported)
CKS GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
Delaware 0-27090 77-0385435
-------- ------- ----------
<S> <C> <C>
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer Identification
incorporation) No.)
</TABLE>
10441 Bandley Drive
Cupertino, California 95014
(Address of principal executive offices)
(408) 366-5100
(Registrant's telephone number, including area code)
<PAGE> 2
The undersigned Registrant hereby amends the following items, financial
statements, exhibits, or other portions of its Current Report on Form 8-K,
originally filed with the Securities and Exchange Commission on August 15, 1996
(the "Form 8-K") as set forth in the pages attached hereto.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following financial statements and exhibits are filed as
part of this report, where indicated.
(a) Financial statements of business acquired, prepared pursuant
to Rule 3-05 of Regulation S-X:
Page
Independent Auditors' Report 3
Balance Sheets 4
Statements of Operations and Retained Earnings 5
Statements of Cash Flows 6
Notes to Financial Statements 7
(b) Pro forma financial information required pursuant to Article
11 of Regulation S-X:
Page
Unaudited Pro Forma Consolidated Balance Sheet 12
Unaudited Pro Forma Consolidated Statements of Operations 13
Notes to Pro Forma Consolidated Financial Information 14
(c) Exhibits in accordance with Item 601 of Regulation S-K:
Exhibits.
2.1 Agreement and Plan of Reorganization, dated as of
June 7, 1996, by and among CKS Group, Inc., a
Delaware corporation, Schell/Mullaney, Inc., a New
York corporation, SMI Acquisition Corp., a New York
corporation, Michael Schell and Brian Mullaney.
(Confidential Treatment Requested).
23.1 Consent of Independent Auditors.
2
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CKS Group, Inc.:
We have audited the accompanying balance sheets of Schell/Mullaney,
Inc. as of December 31, 1994 and 1995, and the related statements of operations
and retained earnings, and cash flows for each of the years in the three-year
period ended December 31, 1995. 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 financial statements referred to above present
fairly, in all material respects, the financial position of Schell/Mullaney,
Inc. as of December 31, 1994 and 1995, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1995, in conformity with generally accepted accounting principles.
/S/ KPMG PEAT MARWICK LLP
New York, New York
June 6, 1996
3
<PAGE> 4
SCHELL/MULLANEY, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
---- ---- ----
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ -- $ -- $ 389
Accounts receivable 1,937 1,876 1,020
Prepaid expenses and other current assets 30 35 21
------ ------ ------
Total current assets 1,967 1,911 1,430
Property and equipment, net 319 449 416
Note receivable from officer 500 500 500
Deposits 16 69 87
------ ------ ------
Total assets $2,802 $2,929 $2,433
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 303 $ 209 $ 345
Accrued expenses 15 112 27
Billings in excess of expenditures 783 383 506
Current portion of notes payable 500 540 40
Deferred income taxes 16 36 36
------ ------ ------
Total current liabilities 1,617 1,280 954
Notes payable, less current portion -- 160 140
Deferred rent 340 354 353
------ ------ ------
Total liabilities 1,957 1,794 1,447
------ ------ ------
Commitments and contingencies
Shareholders' equity:
Common stock; $1.00 par value; 20,000 shares authorized;
100 shares issued and outstanding -- -- --
Retained earnings 845 1,135 986
------ ------ ------
845 1,135 986
Total shareholders' equity ------ ------ ------
Total liabilities and shareholders' equity $2,802 $2,929 $2,433
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
SCHELL/MULLANEY, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
--------------------------------- ------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues $ 4,173 $ 4,624 $ 5,046 $ 2,338 $ 2,886
Operating expenses:
Direct salaries and related expenses 3,071 3,039 3,492 1,475 2,622
Other direct operating expenses 343 342 408 280 206
General and administrative expenses 693 603 602 169 204
------- ------- ------- ------- -------
Total operating expenses 4,107 3,984 4,502 1,924 3,032
------- ------- ------- ------- -------
Operating income (loss) 66 640 544 414 (146)
Other income (expense), net 36 36 (101) (2) (3)
------- ------- ------- ------- -------
Income (loss) before income taxes 102 676 443 412 (149)
Income taxes 54 61 75 -- --
------- ------- ------- ------- -------
Net income (loss) 48 615 368 412 (149)
Retained earnings at beginning of period 357 230 845 845 1,135
Dividend to shareholders (175) -- (78) -- --
------- ------- ------- ------- -------
Retained earnings at end of period $ 230 $ 845 $ 1,135 $ 1,257 $ 986
======= ======= ======= ======= =======
Pro forma net income (loss) data (unaudited):
Income (loss) before income taxes, as reported $ 443 $ (149)
Pro forma income tax expense (benefit) 177 (60)
------- -------
Pro forma net income (loss) $ 266 $ (89)
======= =======
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
SCHELL/MULLANEY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- --------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................ $ 48 $ 615 $ 368 $ 412 $(149)
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred taxes ............................... (2) 12 20 -- --
Depreciation and amortization ................ 101 100 142 60 61
Loss on disposal of property and equipment ... -- -- 125 -- --
Changes in operating assets and liabilities:
Accounts receivable ........................ (100) 2,859 61 786 856
Prepaid expenses and other assets .......... 14 (14) (58) (156) (4)
Accounts payable ........................... 255 (3,844) (94) 162 136
Other liabilities .......................... (29) 518 (289) (437) 37
----- ------- ----- ----- -----
Net cash provided by operating activities 287 246 275 827 937
----- ------- ----- ----- -----
Cash flows from investing activities:
Purchases of property and equipment .......... (78) (122) (397) (159) (28)
Loan to officer .............................. -- (500) -- -- --
----- ------- ----- ----- -----
Net cash used in investing activities .... (78) (622) (397) (159) (28)
----- ------- ----- ----- -----
Cash flows from financing activities:
Net borrowings (repayments) on line of credit
and notes payable ........................... (75) 375 200 (500) (520)
Dividends paid ............................... (175) -- (78) -- --
----- ------- ----- ----- -----
Net cash provided (used) by financing ....
activities.............................. (250) 375 122 (500) (520)
----- ------- ----- ----- -----
Change in cash and cash equivalents ............. (41) (1) -- 168 389
Cash and cash equivalents, beginning of period .. 42 1 -- -- --
----- ------- ----- ----- -----
Cash and cash equivalents, end of period ........ $ 1 -- -- -- --
===== ======= ===== ===== =====
Cash paid:
Interest ..................................... $ -- -- 9 3 15
===== ======= ===== ===== =====
Income taxes ................................. $ 140 58 28 6 41
===== ======= ===== ===== =====
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
SCHELL/MULLANEY, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)
(1) NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Schell/Mullaney, Inc. (the Company) is a New York advertising and
marketing firm specializing in servicing technology companies.
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of 90 days or less to be cash equivalents.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, including
accounts receivable, approximate fair value.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable.
Accounts receivable from one client in the computer software industry was
$1,637,000 as of December 31, 1995.
Property and Equipment
Property and equipment are stated at cost, net of accumulated
depreciation and amortization. Property and equipment are depreciated using the
five to seven year MACRS method which is not materially different from the
methods required by generally accepted accounting principles. Leasehold
improvements are amortized over the lesser of their useful lives or the
remaining term of the related lease.
Revenue Recognition
Commissions, agency bonuses, and fees represent the principal sources
of revenue derived from the placement of various forms of media and production.
Fixed fee income is recognized on a straight line basis during the contract
period. Commissions are generally recognized when media placements appear and
when production is completed. Agency bonuses are awarded to the Company at the
discretion of the client and amounted to $-0-, $625,000 and $1,538,000 in 1993,
1994 and 1995, respectively. Billings in excess of expenditures represent
amounts billed in excess of costs incurred and estimated profit to be earned and
are recorded as a liability.
Fees earned from one client in the computer software industry
approximated 90%, 75% and 86% of revenues in 1993, 1994 and 1995, respectively.
The contract with this client expired in March 1996 and was renegotiated,
extending the contract to April 1999. The client has the right to terminate the
agreement with 90 days notice.
7
<PAGE> 8
SCHELL/MULLANEY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company is an S corporation, as defined by the Internal Revenue
Service. No provision for federal income taxes has been made in the accompanying
financial statements since any liability for such income taxes is that of the
shareholders and not of the Company. Certain assets and liabilities have bases
for income tax purposes that differ from the carrying value for financial
reporting purposes, primarily due to the Company utilizing the cash basis of
accounting for tax purposes. The Company is, however, subject to certain state
and local alternative income taxes. The accompanying statement of income and
retained earnings for the year ended December 31, 1995 includes a provision for
income taxes on an unaudited pro forma basis as if the Company had been a C
corporation fully subject to federal and state income taxes (see note 6).
Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Interim Financial Information
The financial statements for the three months ended March 31, 1995 and
1996 are unaudited but include all adjustments (consisting of normal recurring
adjustments), which are, in the opinion of management, necessary for a fair
presentation.
(2) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment included the following (in thousands):
DECEMBER 31,
----------------
1994 1995
---- ----
<S> <C> <C>
Furniture and fixtures ....................... $181 $238
Equipment .................................... 278 284
Leasehold improvements ....................... 169 232
---- ----
628 754
Less accumulated depreciation and amortization 309 305
---- ----
$319 $449
==== ====
</TABLE>
In conjunction with vacating its former facilities, the Company
recorded a $125,000 loss in 1995 from the abandonment of certain property and
equipment. This loss has been included in other income (expense), net in the
accompanying statement of income and retained earnings.
(3) NOTE RECEIVABLE FROM OFFICER
The Chairman of the Company was indebted to the Company as of December
31, 1995 under a note totaling $500,000 due January 26, 1997, plus accrued
interest of $20,000. The note bears interest at 3.98% per annum. Interest income
of $19,000 and $20,000 was recognized for the years ended December 31, 1994 and
1995,
8
<PAGE> 9
SCHELL/MULLANEY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
respectively. Accrued interest is included with prepaid and other current
assets in the accompanying balance sheets. The loan is expected to be repaid
prior to the closing of the merger with CKS Group, Inc. (see note 8).
(4) NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Unsecured note payable to bank, due January 12, 1995, interest at prime
plus 2% ........................................................... $500 $ --
Unsecured notes payable to bank, due January 31, 1996, interest and
prime plus 2% ..................................................... -- 500
Installment loan payable, due in equal monthly installments of $3,000,
interest at prime plus 1.5%, secured by the Company's furniture and
fixtures, and personally guaranteed by the shareholders ........... -- 200
---- ----
500 700
Less current maturities ................................................ 500 540
---- ----
$ -- $160
==== ====
</TABLE>
The $500,000 due January 1996 was repaid. The Company's debt agreements
contain financial covenants, including but not limited to, debt service and debt
to worth ratios. The average interest rate for 1994 and 1995 approximated 10.5%
and 10.7%, respectively.
The Company has obtained a letter of credit for the purchase of
supplies in the amount of $81,000. The Company has also obtained a letter of
credit as security on its existing lease, issued by Chemical Bank in the amount
of $50,000.
(5) LEASES
Total rent expense was approximately $242,000, $242,000, and $267,000
for the years ended December 31, 1993, 1994, and 1995, respectively.
9
<PAGE> 10
SCHELL/MULLANEY, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
Future minimum operating lease payments for facilities and equipment
are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending Lease Sublease Net lease
December 31, commitments income commitments
------------ ----------- -------- -----------
<S> <C> <C> <C>
1996 ....................... $ 525 359 166
1997 ....................... 566 246 320
1998 ....................... 560 246 314
1999 ....................... 571 246 325
2000 ....................... 382 246 136
2001 ....................... 328 226 102
------ ------ ------
$2,932 1,569 1,363
====== ====== ======
</TABLE>
(6) INCOME TAXES
The components of income taxes, as presented in the accompanying
statements of income and retained earnings, are comprised of state and local
alternative income taxes as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Current ................................. $ 56 $ 49 $ 55
Deferred ................................ (2) 12 20
---- ---- ----
$ 54 $ 61 $ 75
==== ==== ====
</TABLE>
The pro forma provision for income taxes reflects the income tax
expense that would have been reported if the Company had been a C Corporation
using the asset and liability method. Under this approach deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. The components of unaudited pro
forma income taxes for the year ended December 31, 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
Pro forma income taxes:
<S> <C>
Current ........................................................ $ 37
Deferred ....................................................... 140
Total pro forma income taxes ................................... $177
====
</TABLE>
The following tabulation reconciles the expected pro forma corporate
federal income tax expense (computed by multiplying the Company's income before
income taxes by 34%) to the Company's unaudited pro forma income tax expense for
the periods ended December 31, 1995 (in thousands):
10
<PAGE> 11
SCHELL/MULLANEY, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<S> <C>
Expected pro forma income taxes ........................... $151
State income taxes, net of federal effect ................. 26
----
Total pro forma income taxes ..................... $177
====
</TABLE>
The Company reports income on the cash method of accounting for income
tax purposes which would have resulted in a deferred tax liability of $327,000
on a pro forma basis.
(7) EMPLOYEE SAVINGS PLAN
The Company has a salary reduction employee savings plan for all
employees meeting certain minimum requirements. The plan, which is a qualified
plan under Section 401(k) of the Internal Revenue Code, allows eligible
employees to contribute percentages of their compensation with statutory maximum
amounts. The Company may also make contributions at its discretion.
Contributions were $25,000, $19,000, and $33,000 for the years ended December
31, 1993, 1994, and 1995, respectively.
(8) PROPOSED ACQUISITION BY CKS GROUP, INC.
On June 7, 1996, the Company agreed to be acquired by CKS Group, Inc.
(CKS) for initial consideration consisting of CKS common stock valued at $5
million and up to $9 million of additional common stock if certain performance
targets are achieved in 1997 and 1998. Consummation of the transaction is
subject to a number of conditions, including the issuance of a permit by the
California Department of Corporations following a hearing as to the fairness of
the proposed acquisition, the absence of a material adverse change in the
business of the Company and other matters.
11
<PAGE> 12
CKS GROUP INC. -- SCHELL/MULLANEY, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheet has been
derived from the CKS Group, Inc. (the Company) unaudited consolidated balance
sheet as of May 31, 1996 included in the Company's quarterly report on Form 10-Q
for the quarter ended May 31, 1996. Adjustments have been made to such
information to give effect to the acquisition of Schell/Mullaney, Inc.
(Schell/Mullaney) as if it had occurred on the balance sheet date. The unaudited
pro forma consolidated balance sheet combines the Company's consolidated balance
sheet as of May 31, 1996 with Schell/Mullaney's balance sheet as of June 30,
1996. The unaudited pro forma consolidated balance sheet should be read in
conjunction with the consolidated financial statements of the Company and
Subsidiaries and Schell/Mullaney, including the notes thereto, contained
elsewhere in this Form 8-K.
<TABLE>
<CAPTION>
The Company Schell/Mullaney Pro Forma Pro Forma
Actual Actual Adjustments Combined
----------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 38,960 $ 389 $ 500(a)
677(b) $39,172
Accounts receivable, net .......................... 10,744 1,020 11,764
Fees and expenditures in excess of billings ...... 1,669 -- 1,669
Prepaid expenses and other current assets ......... 924 21 945
-------- ------ -------- -------
Total current assets ..................... 52,297 1,430 (177) 53,550
Property and equipment, net ................................ 3,398 416 3,814
Note receivable from officer ............................... -- 500 500(a) --
Deposits ................................................... -- 87 87
Goodwill ................................................... -- -- 4,887(c) 4,887
-------- ------ -------- -------
Total assets ............................. $ 55,695 $2,433 $ 4,210 $62,338
======== ====== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................. $ 4,652 $ 345 $ $ 4,997
Accrued expenses .................................. 3,373 27 3,400
Billings in excess of fees and expenditures ....... 1,879 506 2,385
Current portion of notes payable and
capital lease obligations ....................... 327 40 367
Income taxes payable .............................. 381 -- 381
Deferred income taxes ............................. -- 36 337(c) 373
-------- ------ -------- -------
Total current liabilities ................ 10,612 954 337 11,903
Notes payable and capital lease obligations,
less current portion ..................................... 311 140 451
Deferred rent .............................................. -- 353 (353)(c) --
Deferred income taxes ...................................... 256 -- 256
-------- ------ -------- -------
Total liabilities ........................ 11,179 1,447 (16) 12,610
-------- ------ -------- -------
Commitments
Stockholders' equity:
Preferred stock; $.001 par value;
none issued and outstanding ..................... -- -- --
Common stock; $.001 par value; actual -- 12,714,437
shares issued and outstanding; pro forma
-- 12,897,503 shares issued and outstanding ..... 13 -- 13
Common stock; $1.00 par value; actual -- 100
shares issued and outstanding; pro forma -- none
issued and outstanding .......................... -- --
Additional paid-in capital ........................ 40,253 -- 5,000 45,253
Notes receivable from stockholders ................ (292) -- (292)
Retained earnings ................................. 4,542 986 (677)(b)
(97)(c) 4,754
-------- ------ -------- -------
Total stockholders' equity ............... 44,516 986 4,226 49,728
-------- ------ -------- -------
Total liabilities and stockholders' equity $ 55,695 $2,433 $ 4,210 $62,338
======== ====== ======== =======
</TABLE>
See accompanying notes to unaudited pro forma consolidated
financial information.
12
<PAGE> 13
CKS GROUP INC. -- SCHELL/MULLANEY, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated statements of operations
combine the Company's operating results for the year ended November 30, 1995 and
six month period ended May 31, 1996 with Schell/Mullaney's operating results for
the year ended December 31, 1995 and six months ended June 30, 1996,
respectively. The unaudited pro forma consolidated statements of operations are
not necessarily indicative of the future results of operations of the Company or
the results of operations which would have resulted had the Company and
Schell/Mullaney been combined during the periods presented. In addition, the pro
forma results are not intended to be a projection of future results.
<TABLE>
<CAPTION>
Year Ended November 30, 1995
---------------------------------------------------------------------------
The Company Schell/Mullaney Pro Forma
Actual Actual Pro Forma Adjustments Combined
----------- --------------- --------------------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues ............................... $ 34,792 $ 5,046 $ $ 39,838
-------- ------- -------- --------
Operating expenses:
Direct salaries and related expenses 10,485 3,492 (1,517)(a) 12,460
Other direct operating expenses .... 13,164 408 -- 13,572
General and administrative expenses 8,688 602 205(c) 9,495
-------- ------- -------- --------
Total operating expenses ....... 32,337 4,502 (1,312) 35,527
-------- ------- -------- --------
Operating income ....................... 2,455 544 1,312 4,311
Other income (expense) ................. (27) (101) (20)(b) (148)
-------- ------- -------- --------
Income before income taxes ......... 2,428 443 1,292 4,163
Income taxes ........................... 1,062 75 701(d) 1,838
-------- ------- -------- --------
Net income ......................... $ 1,366 $ 368 $ 591 $ 2,325
======== ======= ======== ========
Pro forma net income
Pro forma net income per share ......... $ 0.13 $ 0.21
======== ========
Shares used in per share compensation .. 10,726 183 10,909
======== ======== ========
<CAPTION>
Six Months Ended May 31,1996
--------------------------------------------------------------------------
The Company Schell/Mullaney Pro Forma
Actual Actual Pro Forma Adjustments Combined
----------- --------------- --------------------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues ................................. $22,895 $ 2,886 $ $25,781
------- ------- -------- -------
Operating expenses:
Direct salaries and related expenses . 6,775 2,622 (1,536)(a) 7,861
Other direct operating expenses ...... 8,459 206 -- 8,665
General and administrative expenses .. 5,284 204 122(c) 5,610
------- ------- -------- -------
Total operating expenses ........... 20,518 3,032 (1,414) 22,136
------- ------- -------- -------
Operating income (loss) .................. 2,377 (146) 1,414 3,645
Other income (expense) ................... 774 (3) (10)(b) 761
------- ------- -------- -------
Income (loss) before income taxes .... 3,151 (149) 1,404 4,406
Income taxes ............................. 1,106 -- 441(d) 1,547
------- ------- -------- -------
Net income (loss) .................... $ 2,045 $ (149) $ 963 $ 2,859
======= ======= ======== =======
Pro forma net income (loss) per share .... $ 0.16 $ 0.21
======= =======
Shares used in per share compensation .... 13,147 183 13,330
======= ======== =======
</TABLE>
See accompanying notes to unaudited pro forma consolidated
financial information.
13
<PAGE> 14
CKS GROUP, INC. -- SCHELL/MULLANEY, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
All of the shares of outstanding common stock of Schell/Mullaney were
exchanged for 183,066 shares of the Company's common stock based on the closing
price of the Company's common stock on August 1, 1996. The following adjustments
have been reflected in the unaudited pro forma consolidated balance sheet:
(a) To record the repayment of the $500,000 note receivable from
officer prior to closing.
(b) To reflect the final $677,000 S Corporation distribution prior
to closing.
(c) To record the estimated allocation of purchase price to the
net assets of Schell/Mullaney as follows (in thousands):
<TABLE>
<S> <C>
Book value of net assets of Schell/ Mullaney after adjustments (a) and (b) $ 97
Deferred rent ............................................................ 353
Deferred tax liability resulting from conversion to C Corporation status . (337)
Goodwill ................................................................. 4,887
-------
Fair value of common stock to be issued in the exchange .................. $ 5,000
=======
</TABLE>
The actual allocation of the purchase price will depend upon the
composition of Schell/ Mullaney's net assets on the closing date and the
Company's evaluation of the fair value of such net assets as of such date.
Consequently, the ultimate allocation of purchase price could differ from that
presented above.
The acquisition agreement also provides for additional payments up to
$9 million in the form of the Company's common stock in the event certain
performance targets are achieved in 1997 and 1998. In the event such payments
are made, additional goodwill will be recorded and amortized over its remaining
estimated life.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The following adjustments have been reflected in the unaudited pro
forma consolidated statements of operations:
(a) To reflect the anticipated reduction in salary and bonus
expense as if the employment agreements entered into in
conjunction with the acquisition had been in effect from the
beginning of the periods presented.
(b) To eliminate interest income related to the $500,000 note
receivable from officer which was repaid prior to the closing.
(c) To record amortization of goodwill over an estimated life of
20 years.
(d) To record additional income tax expense at the combined
statutory rate as a result of the termination of
Schell/Mullaney's S Corporation status effective upon the
closing, net of nondeductible goodwill amortization resulting
from the acquisition.
14
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
DESCRIPTION SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
<S> <C> <C>
2.1 Agreement and Plan of Reorganization, dated as of June 7,
1996, by and among CKS Group, Inc., a Delaware corporation,
Schell/Mullaney, Inc., a New York corporation, SMI
Acquisition Corp., a New York corporation, Michael Schell
and Brian Mullaney .*
23.1 Consent of Independent Auditors. 17
</TABLE>
- ---------------------------------
(*) Filed as an Exhibit to Registrant's Report on Form 8-K dated June 7,
1996, filed with the Commission on June 19, 1996.
15
<PAGE> 16
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.
CKS GROUP, INC.
Dated: October 9, 1996 By: /s/ CARLTON H. BAAB
-------------------------------------
Carlton H. Baab
Executive Vice President,
Chief Financial Officer and Secretary
16
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of
CKS Group, Inc.:
We consent to the incorporation by reference in the registration
statement (No. 33-33412) on Form S-8 of CKS Group, Inc. of our report dated June
6, 1996, with respect to the balance sheets of Schell/Mullaney, Inn. as of
December 31, 1994 and 1995, and the related statements of operations and
retained earnings, and cash flows for each of the years in the three-year period
ended December 31, 1995, which report appears in the Form 8-K/A of CKS Group,
Inc. dated August 1, 1996.
(signed) KPMG PEAT MARWICK LLP
New York, New York
October 9, 1996
17
