<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
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 20, 1999
COMPLETE BUSINESS SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN
(STATE OR OTHER JURISDICTION OF INCORPORATION)
0-22141 38-2606945
(COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
32605 WEST TWELVE MILE ROAD, SUITE 250, FARMINGTON HILLS, MI 48334
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(248) 488-2088
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
(FORMER NAME AND FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE> 2
Complete Business Solutions, Inc. (the "Company") hereby amends and restates
Item 7 of its report on Form 8-K dated April 20, 1999 as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
1. The audited financial statements of Impact Innovations Group, Inc. as
of December 31, 1998 and for the year ended December 31, 1998.
-2-
<PAGE> 3
Impact Innovations Group, Inc.
TABLE OF CONTENTS
PAGE(S)
Report of Independent Public Accountants...................... 4
Financial Statements:
Balance Sheet as of December 31, 1998....................... 5
Statement of Operations for the year
ended December 31, 1998................................... 6
Statement of Stockholder's Deficit for
the year ended December 31, 1998.......................... 7
Statement of Cash Flows for the year
ended December 31, 1998................................... 8
Notes to Financial Statements............................... 9 to 15
-3-
<PAGE> 4
Report of Independent Public Accountants
To Impact Innovations Group, Inc.:
We have audited the accompanying consolidated balance sheet of IMPACT
INNOVATIONS GROUP, INC. (a Delaware corporation and a wholly-owned subsidiary of
Medaphis Corporation) as of December 31, 1998, and the related consolidated
statements of operations, stockholder's deficit and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our consolidated audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Impact Innovations Group, Inc.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Detroit, Michigan,
July 2, 1999.
-4-
<PAGE> 5
IMPACT INNOVATIONS GROUP, INC.
BALANCE SHEET AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS LIABILITIES AND STOCKHOLDER'S DEFICIT
<S> <C> <C> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash $ 82,589 Accounts payable $ 703,922
Accounts receivable, less allowance for Accrued payroll and related costs 4,386,343
doubtful accounts of $550,421 8,679,060 Current portion of capital lease 127,650
Other accrued liabilities 1,048,295
Prepaid expenses and other 397,501 -----------
----------- Total current liabilities 6,266,210
Total current assets 9,159,150 -----------
-----------
PROPERTY AND EQUIPMENT: LONG-TERM LIABILITIES:
Software 3,215,013 Capital lease obligations, less current
Equipment 5,804,731 portion 127,650
Furniture and fixtures 1,071,417 Due to Parent 45,370,661
Leasehold Improvements 1,233,028 -----------
----------- Total long-term liabilities 45,498,311
11,324,189 -----------
Less- Accumulated depreciation (8,180,750)
-----------
Net property and equipment 3,143,439 COMMITMENTS AND CONTINGENCIES
-----------
STOCKHOLDER'S DEFICIT:
Common stock, $0.001 par value, 3,000
OTHER ASSETS: shares authorized, issued and
Intangibles, net of accumulated outstanding -
amortization of $1,188,323 242,675 Additional paid-in-capital 685,154
Other assets, net 73,848 Retained deficit (39,830,563)
----------- -----------
Total other assets 316,523 Total stockholder's deficit (39,145,409)
----------- -----------
$12,619,112 $12,619,112
=========== ===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
-5-
<PAGE> 6
IMPACT INNOVATIONS GROUP, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
REVENUES: $ 51,115,918
------------
COST OF REVENUES:
Salaries, wages and employee benefits 19,586,100
Contractual services 3,163,783
Project travel, relocation and other 2,658,251
Depreciation and amortization 3,253,524
------------
Total cost of revenues 28,661,658
------------
Gross profit 22,454,260
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 28,648,162
------------
Loss from operations (6,193,902)
OTHER EXPENSE, NET 366,329
------------
Loss before income tax expense (benefit) (6,560,231)
INCOME TAX EXPENSE (BENEFIT) -
------------
Loss from continuing operations (6,560,231)
DISCONTINUED OPERATIONS:
Loss from discontinued operations, net of tax (2,416,949)
Loss on sale of discontinued operations, net of tax (1,365,156)
Loss from discontinued operations ------------
(3,782,105)
------------
NET LOSS $(10,342,336)
============
LOSS PER SHARE:
Continuing Operations $ (2,186)
Discontinued Operations (1,261)
------------
Net Loss $ (3,447)
============
</TABLE>
The accompanying notes are an integral part of this statement.
-6-
<PAGE> 7
IMPACT INNOVATIONS GROUP, INC.
STATEMENT OF STOCKHOLDER'S DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Additional
Paid
Common In Retained
Stock Capital Deficit Total
-------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1997 $ -- $685,154 $(29,488,227) $(28,803,073)
Net loss -- -- (10,342,336) (10,342,336)
-------- -------- ------------ ------------
BALANCE - DECEMBER 31, 1998 $ -- $685,154 $(39,830,563) $(39,145,409)
======== ======== ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
-8-
<PAGE> 8
IMPACT INNOVATIONS GROUP, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,342,336)
Adjustments to reconcile net loss to net cash
cash provided by operating activities-
Loss from discontinued operations 2,416,949
Loss on sale of discontinued operations 3,165,156
Depreciation and amortization 3,253,524
Change in assets and liabilities-
Accounts receivable 4,169,672
Prepaid expenses and other 589,102
Accounts payable 86,190
Accrued payroll and related costs (340,446)
Other accrued liabilities (1,901,307)
-----------
Net cash provided by continuing operations 1,096,504
Net cash used in discontinued
operations (985,850)
-----------
Net cash provided by operating activities 110,654
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,821,511)
-----------
Net cash used for investing activities (1,821,511)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital lease obligations (9,418)
Borrowings from Parent 1,802,864
-----------
Net cash provided by financing activities 1,793,446
-----------
NET INCREASE IN CASH 82,589
CASH - BEGINNING OF YEAR -
------------
CASH - END OF YEAR $ 82,589
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 8,000
============
Cash paid for income taxes $ -
============
Property transfer to parent $ 1,809,000
============
Capital lease obligation $ 255,300
============
</TABLE>
The accompanying notes are an integral part of this statement.
-7-
<PAGE> 9
IMPACT INNOVATIONS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND BASIS OF PRESENTATION
Impact Innovations Group, Inc., a wholly-owned subsidiary of
Medaphis Corporation ("Medaphis" or "Parent"), provides
full-service systems integration and information technology
consulting to a wide variety of industries. The consolidated
financial statements include the accounts of Impact Innovations
Group, Inc. ("Impact") and its wholly-owned subsidiary, SageComm
International Limited (collectively referred to as the
"Company"). All significant intercompany accounts and
transactions of the Company have been eliminated in the
accompanying consolidated financial statements.
During 1998, the business of the Company was conducted as an
integral part of Medaphis' overall operations. The
accompanying consolidated financial statements include the
effects of various allocated costs and expenses which are not
necessarily indicative of the costs and expenses which would have
resulted had the Company been operated as a separate entity. All
of the allocations and estimates reflected in the consolidated
financial statements are based on assumptions that management
believes are reasonable. See Note 5 for discussion of related
party transactions.
On April 20, 1999, Complete Business Solutions, Inc. ("CBSI")
executed a definitive Stock Purchase Agreement with Medaphis,
for all of the outstanding capital stock of Impact Innovations
Group, Inc. The purchase price for the capital stock was
approximately $15 million, subject to adjustment based on the
final balance sheet of Impact Innovations Group, Inc. Medaphis
retained all future obligations or proceeds related to the
settlement of contingencies described in Note 7.
(2) SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Professional services revenue is recorded based on the terms of
the underlying contracts, which are primarily time and
material already made. Revenue from time and material
contracts is recognized as services are rendered and costs are
incurred based on contractual rates. Revenue for which
customers have not yet been invoiced, $3,562,525 at December
31, 1998, is reflected as accounts receivable in the
accompanying consolidated balance sheet.
-9-
<PAGE> 10
IMPACT INNOVATIONS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Financial Instruments
The fair value and carrying amounts of certain of the Company's
financial instruments, primarily accounts receivable, accounts
payable and a capital lease, are approximately equivalent.
Property and Equipment
Property and equipment are stated at the lower of cost or market.
Depreciation is provided using the straight line method over the
estimated useful lives of the assets, generally ten years for
furniture and fixtures and three to ten years for equipment and
software. Leasehold improvements are amortized over the expected
life of the asset or term of the lease, whichever is shorter.
Intangibles Assets
Intangible assets consist primarily of goodwill and a client list.
Goodwill represents the excess of the cost of a business acquired
in 1994 over the fair value of its net identifiable assets at the
date of the acquisition and is being amortized on a straight-line
basis over 5 years. The client list, also acquired in the 1994
business acquisition, is being amortized using the straight-line
method over the estimated period of benefit, 5 years.
The Company continually evaluates whether events and circumstances
have occurred that indicate the remaining estimated useful life
of its intangible assets may warrant revision or that the
remaining balance may not be recoverable. When factors indicate
that the intangible assets should be evaluated for possible
impairment, the Company uses an estimate of the related business'
undiscounted cash flow over the remaining life of the goodwill in
measuring whether the goodwill is recoverable.
Income Taxes
Deferred income taxes reflect the tax consequences on future years
of differences between the tax bases of assets and liabilities
and their financial reporting amounts. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Future tax
benefits, such as net operating loss carryforwards, are
recognized to the extent that realization of such benefits is
more likely than not.
-10-
<PAGE> 11
IMPACT INNOVATIONS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Comprehensive Income
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). Adoption of SFAS 130 did not have a significant
effect on the presentation of the Company's financial
statements.
(3) DISCONTINUED OPERATION AND DIVESTITURE
On September 21, 1998, the Company completed the sale of the Per
Se Decision Support Services Group ("DSS") line of business
for cash consideration of $1,800,000. DSS conducted the design
and development of data warehousing decision support
application software for the telecommunication industry.
Pursuant to APB No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions", the consolidated financial statements of
the Company have been presented to reflect DSS as a
discontinued operation in 1998.
The net operating results of DSS from January 1, 1998 through the
date of the decision to discontinue DSS July 1, 1998, and the loss
on disposition have been reported in the Consolidated Statement of
Operations as "Loss from discontinued operations", and "Loss on
sale of discontinued operations", respectively.
The loss from discontinued operations is comprised of the following:
<TABLE>
<S> <C>
Revenue $ 17,005
Cost of Revenue 1,917,879
Selling, General and Administrative Expenses 516,075
-----------
Loss from Discontinued Operations $(2,416,949)
</TABLE> ===========
(4) INTANGIBLE ASSETS
Intangible assets consist of goodwill of $551,838 and a customer
list for $879,160. At December 31, 1998 accumulated amortization
was $1,188,323. Amortization expense recorded in 1998 was $801,280.
-11-
<PAGE> 12
IMPACT INNOVATIONS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(5) RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company engages in
transactions with related parties, including Medaphis and
subsidiaries of Medaphis.
The Company maintains all cash accounts with Medaphis. Cash receipts
are received into the Medaphis cash accounts and expenses are funded
by Medaphis. The net effect of these transactions contributed to the
net payable due to the parent of $45,370,661 as presented in the
accompanying balance sheet. In connection with the acquisition by CBSI,
subsequent to year end, the payable to the Parent was eliminated.
Sales to these parties totaled approximately $350,000 in 1998. As of
December 31, 1998, there were no accounts receivable which
resulted from such sales.
During 1998, the Company transferred equipment totaling
approximately $1,809,000 to affiliated companies of Medaphis. The
assets were transferred at book value.
In the ordinary course of business, certain expenses are paid by
Medaphis on behalf of the Company. Such expenses, which include
office rent, legal fees, certain utilities, insurance, payroll
taxes, and various office expenses are then reimbursed by the
Company, at cost. In addition, the Company was allocated $1,155,000
in 1998 for a portion of Medaphis expenses determined to be incurred in
support of the Company's businesses, including management, legal, human
resources and accounting.
During 1998, the Company purchased services from related affiliated
companies, totaling approximately $487,000. As of December 31,
1998, there were no accounts payable which resulted from such
purchases.
At December 31, 1998, the Company was a subsidiary guarantor of
senior notes due 2005 of Medaphis. On April 20, 1999, the Company
was discharged and released from this guarantee obligation.
(6) COMMITMENTS
The Company's capital lease consists of a lease for computer
equipment entered into in December 1998. The future minimum lease
payments under this capital lease are $127,650 in 1999 and 2000.
As of December 31, 1998, the cost and accumulated amortization of
these assets included in property and equipment in the
accompanying balance sheet are $255,300 and $7,092, respectively.
-12-
<PAGE> 13
IMPACT INNOVATIONS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
The Company leases its office and certain other equipment under
noncancelable long-term operating leases. Rent expense totaled
approximately $2,927,000 in 1998. Future minimum rental payments
required under these operating leases for the years ending
December 31, are as follows:
<TABLE>
<S> <C>
1999 $2,026,000
2000 1,746,000
2001 1,047,000
2002 869,000
2003 571,000
</TABLE>
(7) CONTINGENCIES
On January 28, 1998, a former customer filed a complaint against the
Company seeking recovery for alleged damages in connection with
work performed under a consulting contract. The Company denies
any liability to the complainant and has filed a counterclaim for
unpaid fees and expenses, interest and attorneys' fees. Pursuant
to the contract, the case is pending before the American
Arbitration Association and discovery is proceeding. The Company
is unable to estimate a possible range of loss, if any.
From time to time, the Company is a party to other litigation
incidental to the Company's business. The Company does not
believe that the ultimate resolution of any matters will have a
material adverse effect on its financial position, results of
operations or cash flows.
As discussed in Note 1, in conjunction with the sale of the Company,
Medaphis retained all future obligations or proceeds related to
the settlement of the aforementioned contingencies.
(8) STOCK OPTIONS
On July 28, 1998, the Company adopted the Impact Innovations Key
Employee Incentive Plan (the "IIG Plan"), a non-qualified stock option
plan for Impact employees. The IIG Plan has 1,500,000 shares of Impact
stock reserved for issuance or approximately 15% of the total
capitalization of Impact. The strike price of the options under the
IIG Plan is determined by the fair market value of Impact's common
stock on the date of grant. IIG Plan options vest on the third
anniversary of the grant date and expire on the tenth anniversary of
the grant date. In the event of a change of control,
-13-
<PAGE> 14
IMPACT INNOVATIONS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
all options outstanding under the IIG Plan are canceled.
<TABLE>
<CAPTION>
1998
----------------------------
Impact Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Options outstanding as of January 1 - -
Granted 1,168,000 $5.00
Exercised - -
Canceled (185,000) 5.00
--------- -----
Options outstanding as of December 31 983,000 5.00
=========
Options exercisable as of December 31 -
Weighted-average fair value of
options granted during the year $1.64
</TABLE>
Subsequent to yearend, the Company was acquired by CBSI and all
options were canceled.
The Company accounts for its stock-based compensation plans under APB
No. 25. As a result, the Company has not recognized compensation expense
for stock options granted to employees with an exercise price equal to
the quoted market price of the Common Stock on the date of grant and
which vest based solely on continuation of employment by the recipient
of the option award. The Company adopted SFAS No. 123 for disclosure
purposes in 1996. For SFAS No. 123 purposes, the fair value of each option
grant and stock based award has been estimated as of the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions:
<TABLE>
<S> <C>
Expected life (years).......................... 3.74
Risk-free interest rate........................ 5.09%
Dividend rate.................................. 0.00%
Expected volatility............................ 61.66%
</TABLE>
(9) INCOME TAXES
The components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<S> <C>
Currently payable $ -
Deferred -
-------
$ -
=======
</TABLE>
Approximately $6,800,000 of deferred tax assets relating to net
operating loss carryforwards are available as of December 31, 1998
that expire through 2016. A valuation allowance has been recognized
to offset the related deferred tax assets due to uncertainty of
realizing the benefit of the loss carryforwards.
-14-
<PAGE> 15
IMPACT INNOVATIONS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
In 1998, the effective tax rates differ from the statutory
Federal income tax rate of 34% primarily as a result of
changes in the valuation allowance and the non-deductibility
of certain expenses for tax reporting purposes. The
significant cumulative temporary differences giving rise to
deferred tax assets at December 31, 1998 result primarily
from accruals and reserves not currently deductible and
depreciation and amortization.
(10) EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution plan, the BSG
Alliance/IT, Inc. 401(k) Retirement Savings Plan (the
"Plan"). All employees of the Company are eligible to
participate in the Plan once they have completed six months
of service and attained age 21.
The Plan allows eligible employees to contribute up to 15% of
their compensation, subject to certain limitations, a
percentage of which are matched by the Company. The Company
can, at its discretion, make additional contributions to the
Plan which are allocated to participants based on a formula.
The company's contribution expense was $607,634 for the year
ended December 31, 1998.
-15-
<PAGE> 16
2. The following unaudited financial statements of Impact Innovations
Group, Inc. have been prepared by management. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been omitted. In the opinion of management, the accompanying
unaudited financial statements contain all adjustments, consisting
of normal recurring adjustments, necessary to present fairly the
financial position of Impact Innovations Group, Inc. as of
March 31, 1999, and the results of its operations and cash flows for
the three month period ended March 31, 1999. These financial
statements should be read in conjunction with the financial statements
and footnotes thereto for the year ended December 31, 1998 included in
this Form 8-K/A.
The results of operations for the three month period ended March 31,
1999 are not necessarily indicative of the results to be expected in
future quarters or for the full fiscal year ending December 31, 1999.
-16-
<PAGE> 17
IMPACT INNOVATIONS GROUP, INC.
BALANCE SHEET AS OF MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS LIABILITIES AND STOCKHOLDER'S DEFICIT
<S> <C> <C> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash $ 257,067 Accounts payable $ 538,169
Accounts receivable, less allowance for Accrued payroll and related costs 2,175,440
doubtful accounts of $550,421 9,284,984 Current portion of capital lease 127,081
Prepaid expenses and other 236,574 -----------
----------- Total current liabilities 4,365,855
Total current assets 9,778,625 -----------
-----------
LONG-TERM LIABILITIES:
Capital lease obligations, less current
portion above 92,165
Due to Parent 49,264,769
-----------
Total long-term liabilities 49,356,934
-----------
COMMITMENTS AND CONTINGENCIES
Net property and equipment 2,643,875 STOCKHOLDER'S DEFICIT:
----------- Common stock, $0.001 par value, 3,000
shares authorized, issued and
OTHER ASSETS: outstanding -
Intangibles, 170,424 Additional paid-in-capital 685,154
Other assets, net 377,240 Retained deficit (41,437,779)
----------- -----------
Total other assets 547,664 Total stockholder's deficit (40,752,625)
----------- -----------
$12,970,164 $12,970,164
=========== ===========
</TABLE>
-17-
<PAGE> 18
IMPACT INNOVATIONS GROUP, INC.
STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<S> <C>
REVENUES: $10,422,259
-----------
COST OF REVENUES:
Salaries, wages and employee benefits 4,904,097
Contractual services 464,958
Project travel, relocation and other 545,641
Depreciation and amortization 593,609
-----------
Total cost of revenues 6,508,305
-----------
Gross profit 3,913,954
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,186,851
-----------
Loss from operations (1,272,897)
OTHER EXPENSE, NET 334,319
-----------
(Income) Loss before income tax (1,607,216)
INCOME TAX EXPENSE -
-----------
NET LOSS (1,607,216)
===========
Earnings per shares $ (536)
==========
</TABLE>
-18-
<PAGE> 19
IMPACT INNOVATIONS GROUP, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,607,216)
Adjustments to reconcile net loss to net cash
cash provided by (used in) operating activities-
Depreciation and amortization 593,609
Change in assets and liabilities-
Accounts receivable (605,924)
Prepaid expenses and other (142,465)
Accounts payable (165,753)
Accrued payroll and related costs (2,210,903)
Other accrued liabilities 476,870
-----------
Net cash used by operating activities (3,661,782)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (21,794)
-----------
Net cash used for investing activities (21,794)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital lease obligations (36,054)
Borrowings from parent 3,894,108
-----------
Net cash provided by financing activities 3,858,054
-----------
NET INCREASE IN CASH 174,478
CASH - BEGINNING OF PERIOD 82,589
------------
CASH - END OF PERIOD $ 257,067
============
</TABLE>
-19-
<PAGE> 20
(b) Pro Forma Financial Information
On April 20, 1999, Complete Business Solutions, Inc. (the "Company") executed a
definitive Stock Purchase Agreement with Medaphis Corporation ("Medaphis"),
Impact Innovations Holdings, Inc. ("Holdings") and E-Business Solutions.com,
Inc. ("Solutions"), formerly Impact Innovations Group, Inc., for all of the
outstanding capital stock of Solutions owned by Medaphis and Holdings. The
transactions contemplated by the Stock Purchase Agreement were also consummated
on April 20, 1999. Pursuant to the Stock Purchase Agreement, the Company
acquired all of the issued and outstanding capital stock of Solutions. The
purchase price for the capital stock was approximately $15 million, subject to
adjustment based on the final balance sheet of Solutions. The purchase price was
determined through arm's length negotiations by the parties and was based upon
evaluation by the Company of the value of Solutions and the complementary nature
of the business of Solutions with that of the Company. The Company used working
capital to fund the purchase price.
The unaudited condensed pro forma combined balance sheet as of March 31, 1999
gives pro forma effect to the acquisition of Impact Innovations Group, Inc. as
if it had occurred on March 31, 1999. The acquisition of Impact Innovations
Group, Inc. will be accounted for by the purchase method of accounting. The
unaudited condensed pro forma combined balance sheet does not purport to be
indicative of the financial position of the Company had such transaction
actually been completed as of March 31, 1999, or which may be obtained in the
future.
The unaudited condensed pro forma combined statements of operations for the year
ended December 31, 1998 and for the three month period ended March 31, 1999 give
pro forma effect to the acquisition of Impact Innovations Group, Inc. as if they
had occurred on the first day of each period presented. The unaudited condensed
pro forma combined statements of operations do not purport to be indicative of
the results of operations of the Company had such transaction actually been
completed on the first day of each period presented, or which may be obtained in
the future.
-20-
<PAGE> 21
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1999
This balance sheet should be read in conjuction with the Impact Innovations
Group Inc. historical financial statements and notes thereto included in this
Form 8-K/A, and the Complete Business Solutions, Inc. and subsidiaries
historical financial statements included in its Quarterly Report on Form 10-Q
for the period ended March 31,1999. All amounts are in thousands.
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL IMPACT
COMPLETE BUSINESS INNOVATIONS PRO FORMA PRO FORMA
SOLUTIONS, INC. GROUP, INC. ADJUSTMENTS(2)(3) COMBINED
ASSETS ----------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ....................... $104,826 $ 257 $(15,000) $ 90,083
Accounts receivable, net ....................... 89,232 9,285 -- 98,517
Revenue earned in excess of billings, net........ 12,511 -- -- 12,511
Prepaid expenses and other ...................... 5,657 236 (124) 5,769
-------- ------- ------ --------
Total current assets ........................ $212,226 9,778 (15,124) 206,880
-------- ------- ------ --------
Property and equipment, net ....................... $ 19,975 2,644 (1,803) 20,816
Goodwill, net ..................................... 16,928 61 10,972 27,961
Other assets ...................................... 9,158 487 173 9,818
-------- ------- ------ --------
Total assets ................................ $258,287 $12,970 $ (5,782) $265,475
======== ======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................ $ 5,259 538 -- 5,797
Accured payroll and related costs ............... 26,518 2,175 900 29,593
Deferred revenue ................................ 1,224 -- -- 1,224
Other accrued liabilities ....................... 5,941 1,653 1,830 9,424
-------- ------- ------- --------
Total current liabilities ................... $ 38,942 4,366 2,730 46,038
-------- ------- ------- --------
Other liabilities.................................. 294 92 -- 386
Due to Medaphis.................................... -- 49,265 (49,265) --
Commitments and contingencies
Shareholders' equity:
Preferred stock ................................... $ -- -- -- --
Common stock ...................................... -- 685 (685) --
Additional paid-in capital ........................ 182,183 -- -- 182,183
Retained earnings ................................. 41,147 (41,438) 41,438 41,147
Stock subscriptions receivable .................... (3,116) -- -- (3,116)
Cumulative translation adjustment ................. (1,163) -- -- (1,163)
-------- ------- ------- --------
Total shareholders' equity .................. $219,051 (40,753) 40,753 $219,051
-------- ------- ------- --------
Total liabilities and shareholders' equity... $258,287 $12,970 $ (5,782) $265,475
======== ======= ======== ========
</TABLE>
-21-
<PAGE> 22
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
This statement should be read in conjunction with the Impact Innovations Group,
Inc. historical financial statements and notes thereto included in this Form
8-K/A, and the Complete Business Solutions, Inc. and subsidiaries historical
financial statements included in its Annual Report on Form 10-K, dated December
31, 1998. All amounts are in thousands, except per share amounts.
<TABLE>
<CAPTION>
COMPLETE
BUSINESS HISTORICAL
HISTORICAL SOLUTIONS, INC. IMPACT ACQUISITION
COMPLETE BUSINESS PRO FORMA INNOVATIONS PRO FORMA PRO FORMA
SOLUTIONS, INC. ADJUSTMENTS(4) GROUP, INC. ADJUSTMENTS(5)(7) COMBINED
----------------- ------------ -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues ......................................... $ 376,567 $ -- $ 51,115 $ (6,706) $ 420,976
Cost of revenues
Salaries, wages and employee benefits .......... 195,237 -- 19,586 (1,899) 212,924
Contractual services ........................... 34,678 -- 3,164 (594) 37,248
Project travel, relocation and other ........... 15,334 -- 2,658 (109) 17,883
Depreciation and amortization .................. 3,850 -- 3,253 368 7,471
--------- -------- -------- -------- --------
Total cost of revenues ...................... 249,099 -- 28,661 (2,234) 275,526
--------- -------- -------- -------- --------
Gross profit ................................ 127,468 -- 22,454 (4,472) 145,450
Selling general and administrative expenses ...... 85,468 -- 28,648 (2,177) 111,939
Merger Costs and Other............................ 28,250 -- -- -- 28,250
--------- -------- -------- -------- --------
Income (loss) from operations ............... 13,750 -- (6,194) (2,295) 5,261
Other expense (income) ........................... (2,927) -- 366 7 (2,554)
--------- -------- -------- -------- --------
Income (loss) before provision for income
taxes .................................... 16,677 -- (6,560) (2,302) 7,815
Provision for income taxes ....................... 9,986 (1,417) -- (3,101) 5,468
-------- -------- -------- -------- --------
Net income (loss) from continuing
operations ............................... $ 6,691 $ 1,417 $ (6,560) $ 799 $ 2,347
======== ======== ======== ======== ========
Pro forma net income per common share ............ $ .18 $ .06
======== ========
Diluted Weighted average shares outstanding ...... 36,211 36,211
======== ========
</TABLE>
-22-
<PAGE> 23
COMPLETE BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999
This statement should be read in conjunction with the Impact Innovation Group,
Inc. historical financial statements and notes thereto included in this Form
8-K/A, and the Complete Business Solutions, Inc. and subsidiaries historical
financial statements included in its Quarterly Report on Form 10-Q for the
periods ended March 31, 1999. All amounts are in thousands, except per
share amounts.
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL ACQUISITION
COMPLETE BUSINESS IMPACT INNOVATION PRO FORMA PRO FORMA
SOLUTIONS, INC. GROUP, INC. ADJUSTMENTS(5)(6) COMBINED
----------------- ----------------- ----------- (7) ---------
<S> <C> <C> <C> <C>
Revenues ........................................... $112,027 $10,422 $ - $122,449
Cost of revenues:
Salaries, wages and employee benefits ............ 59,837 4,904 - 64,741
Contractual services ............................. 7,723 465 - 8,188
Project travel and relocation .................... 4,770 545 5,315
Depreciation and amoritization ................... 896 594 92 1,582
-------- ------- ------- --------
Total cost of revenues ..................... 73,226 6,508 92 79,826
-------- ------- ------- --------
Gross profit ............................... 38,801 3,914 (92) 42,623
Selling, general and administrative expenses ....... 24,231 5,187 - 29,418
-------- ------- ------- --------
Income (loss) from operations .............. 14,570 (1,273) (92) 13,205
Other expense (income) ............................. (1,040) 334 - (706)
-------- ------- ------- --------
Income (loss) before provision for income
taxes..................................... 15,610 (1,607) (92) 13,911
Provision for income taxes.......................... 5,375 - (595) 4,780
-------- ------- ------- --------
Net income (loss)........................... $ 10,235 $(1,607) $ 503 $ 9,131
======== ======= ======= ========
Diluted income per common share .................... $ .27 $ .24
======== ========
Weighted average shares outstanding (5) ............ 37,956 37,956
======== ========
</TABLE>
-23-
<PAGE> 24
NOTE 1. The unaudited condensed pro forma combined balance sheet and statements
of operations have been prepared to reflect the acquisition of Impact
Innovations Group, Inc. The acquisition of Impact Innovations Group, Inc. will
be accounted for by the purchase method of accounting. The purchase pure
allocations were based on preliminary estimates and are subject to revisions.
All amounts are in thousands, except per share amounts.
NOTE 2. Represents the purchase price paid for Impact Innovations Group, Inc.
NOTE 3. Represents the allocation of purchase price to record assets and
liabilities at fair value, and the accrual of severence costs and lease
terminations directly attributable to the acquisition.
NOTE 4. Represents additional benefit for Federal and state income taxes at the
effective income tax rate as if the companies acquired by Complete Business
Solutions in 1998 had revoked their subchapter S elections prior to January 1,
1998 and the companies had been taxed as C corporations.
NOTE 5. Reflects the amortization of goodwill over a period of 30 years.
NOTE 6. Reflects the tax benefit of the Impact Innovations Group, Inc. loss and
the amortization of goodwill.
NOTE 7. Reflects the elimination of revenue and expenses in 1998 of certain
business retained by Medaphis. That business was transferred to another Medaphis
subsidiary effective January 1, 1999.
-24-
<PAGE> 25
(c) Exhibits
23.1 Consent of Arthur Andersen LLP
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.
Complete Business Solutions, Inc.
By: /s/ Timothy S. Manney
-------------------------
Timothy S. Manney
Executive Vice President for Finance and Administration
Date: July 6, 1999
-25-
<PAGE> 26
COMPLETE BUSINESS SOLUTIONS, INC.
EXHIBIT INDEX
Number and Description
of Exhibit
23.1 Consent of Arthur Andersen LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 8-K/A, into Complete Business Solutions, Inc.'s
previously filed Registration Statement File Nos. 333-36701, 333-58205 and
333-58209.
Arthur Andersen LLP
Detroit, Michigan
July 2, 1999