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Previous: BARNETT AUTO TRUST 1997-A, 8-K, 1999-06-18 |
Next: OUTLOOK SPORTS TECHNOLOGY INC, 10QSB, 1999-06-18 |
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
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 5, 1999
CLARK/BARDES HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 000-24769 52-2103926
(State or other (Commission (IRS employer
jurisdiction of file number) identification no.)
incorporation or
organization)
2121 SAN JACINTO STREET, SUITE 2200
DALLAS, TEXAS 75201-7906
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code:
(214) 871-8717
<PAGE> 2
On April 20, 1999, Clark/Bardes Holdings, Inc., a Delaware Corporation
filed with the SEC a Current Report on Form 8-K reporting, among other things,
its acquisition of Phynque, Inc., d/b/a Management Compensation
Group/Healthcare, a Minnesota Corporation ("MCG/Healthcare") on April 5, 1999.
Clark/Bardes Holdings, Inc. indicated in such report that it would file certain
financial information by amendment, as permitted under Form 8-K, Item 7. The
purpose of this amendment is to include such financial information.
ITEM 7. PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENT OF BUSINESS ACQUIRED
The Independent Auditor's Report dated February 18,
1999 (except for certain information dated April 6,
1999) and the following audited financial statements
of Phynque, Inc., d/b/a MCG/Healthcare are included
herein:
(i) Independent Auditor's Report;
(ii) Balance Sheets as of September 30, 1998 and
1997;
(iii) Statements of Income for the years ended
September 30, 1998, 1997 and 1996;
(iv) Statements of Changes in Stockholders'
Equity for the years ended September 30,
1998, 1997 and 1996; and
(v) Statements of Cash Flows for the years ended
September 30, 1998, 1997 and 1996.
The following unaudited financial statements of
Phynque, Inc., d/b/a MCG/Healthcare are included
herein:
(i) Balance Sheets as of March 31, 1999 and
1998; and
(ii) Statements of Income for the three months
ended March 31, 1999 and 1998.
(b) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial
statements of the Company are included herein:
(i) Unaudited Pro Forma Balance Sheets as of
March 31, 1999 and December 31, 1998; and
(ii) Unaudited Pro Forma Income Statements for
the quarters ended March 31, 1999 and
December 31, 1998.
2
<PAGE> 3
(c) EXHIBITS
The following Exhibits are filed herewith:
23.1 Consent of Independent Auditors.
3
<PAGE> 4
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Phynque, Inc.
d/b/a Management Compensation Group/Healthcare
Minneapolis, Minnesota
We have audited the accompanying balance sheets of PHYNQUE, INC., d/b/a
MANAGEMENT COMPENSATION GROUP/HEALTHCARE, as of September 30, 1998 and 1997,
and the related statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1998. 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 PHYNQUE, INC., d/b/a
MANAGEMENT COMPENSATION GROUP/HEALTHCARE, as of September 30, 1998 and 1997,
and the results of its operations and its cash flows for each of the three
years in the period ended September 30, 1998, in conformity with generally
accepted accounting principles.
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
February 18, 1999, except for the information
captioned "Sale of Company" in Note 16,
as to which the date is April 6, 1999
<PAGE> 5
- 2 -
PHYNQUE, INC.
d/b/a MANAGEMENT COMPENSATION GROUP/HEALTHCARE
BALANCE SHEETS
September 30, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
------------- ------------
(Restated)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 96,748 $ 176,001
Investment in securities 122,820 --
Receivables:
Commissions 2,771,585 1,479,104
Bonuses 2,087,692 967,568
Accounts (net of allowance for doubtful accounts
of $60,000 and $68,000) 1,308,418 1,488,967
Employee stockholders/officers 1,409,403 1,046,666
Other prepayments and advances 307,861 128,062
------------- ------------
TOTAL CURRENT ASSETS 8,104,527 5,286,368
------------- ------------
PROPERTY AND EQUIPMENT 1,863,353 1,573,101
------------- ------------
OTHER ASSETS
Artwork investment 1,454,930 1,419,393
Officers' split dollar receivable 135,053 113,625
Other 26,134 16,224
------------- ------------
1,616,117 1,549,242
------------- ------------
$ 11,583,997 $ 8,408,711
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit borrowings $ -- $ 1,550,000
Current maturities of long-term debt 840,000 819,372
Accounts payable 135,841 179,245
Accrued expenses 1,281,376 755,480
Commissions and bonuses payable 1,730,617 276,993
Current maturities of deferred compensation 2,843,111 626,200
------------- ------------
TOTAL CURRENT LIABILITIES 6,830,945 4,207,290
------------- ------------
OTHER LIABILITIES, net of current maturities
Long-term debt 3,022,861 1,603,233
Deferred compensation 126,027 2,807,020
------------- ------------
3,148,888 4,410,253
------------- ------------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - par value $1 per share; 25,000 shares authorized; shares
issued and outstanding - 1,146 and 1,173 1,146 1,173
Additional paid-in capital 54,917 57,590
Retained earnings (deficit) 1,548,101 (267,595)
------------- ------------
1,604,164 (208,832)
------------- ------------
$ 11,583,997 $ 8,408,711
============= ============
</TABLE>
See notes to financial statements.
<PAGE> 6
- 3 -
PHYNQUE, INC.
d/b/a MANAGEMENT COMPENSATION GROUP/HEALTHCARE
STATEMENTS OF INCOME
Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
(Restated) (Restated)
<S> <C> <C> <C>
REVENUES
Commissions $ 21,296,945 $ 17,325,120 $ 17,946,729
Consulting fees 4,702,614 4,614,122 3,488,833
------------- ------------- -------------
25,999,559 21,939,242 21,435,562
------------- ------------- -------------
OPERATING EXPENSES
Salaries and bonuses 11,627,051 10,354,913 10,266,113
General and administrative 8,181,014 7,639,050 7,037,360
Interest 644,674 564,845 476,996
------------- ------------- -------------
20,452,739 18,558,808 17,780,469
------------- ------------- -------------
OPERATING INCOME 5,546,820 3,380,434 3,655,093
STOCKHOLDER MARKETING BONUSES 3,731,124 3,001,485 3,192,131
------------- ------------- -------------
NET INCOME $ 1,815,696 $ 378,949 $ 462,962
============= ============= =============
</TABLE>
See notes to financial statements.
<PAGE> 7
- 4 -
PHYNQUE, INC.
d/b/a MANAGEMENT COMPENSATION GROUP/HEALTHCARE
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock
---------------- Additional Retained
Shares Par Paid-In Earnings
Issued Value Capital (Deficit) Total
------ ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, September 30, 1995,
as restated 1,039 $1,039 $39,496 $(1,104,678) $(1,064,143)
Stock issued 154 154 15,246 -- 15,400
Stock retired (142) (142) (11,644) (2,414) (14,200)
Net income (restated) -- -- -- 462,962 462,962
----- ------ ------- ---------- ----------
BALANCE - September 30, 1996,
as restated 1,051 1,051 43,098 (644,130) (599,981)
Stock issued 147 147 14,553 -- 14,700
Stock retired (25) (25) (61) (2,414) (2,500)
Net income (restated) -- -- -- 378,949 378,949
----- ------ ------- ---------- ----------
BALANCE - September 30, 1997,
as restated 1,173 1,173 57,590 (267,595) (208,832)
Stock retired (27) (27) (2,673) -- (2,700)
Net income -- -- -- 1,815,696 1,815,696
----- ------ ------- ---------- ----------
BALANCE - September 30, 1998 1,146 $1,146 $54,917 $ 1,548,101 $ 1,604,164
===== ====== ======= =========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 8
- 5 -
PHYNQUE, INC.
d/b/a MANAGEMENT COMPENSATION GROUP/HEALTHCARE
STATEMENTS OF CASH FLOWS
Years Ended September 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
(Restated) (Restated)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,815,696 $ 378,949 $ 462,962
Adjustments to reconcile net income
to net cash provided (used) by operating
activities:
Depreciation 480,192 473,701 441,042
Changes in operating assets and liabilities:
Receivables (2,232,056) 1,031,878 (1,680,131)
Accounts payable and accrued expenses 482,492 398,766 (107,262)
Commissions and bonuses payable 1,453,624 (1,375,366) 226,743
Deferred compensation (464,082) (165,525) 242,641
Other (211,137) (32,390) 107,820
----------- ----------- -----------
Net cash provided (used) by operating activities 1,324,729 710,013 (306,185)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of investment securities (122,820) -- --
Net advances to stockholders/officers (368,565) (726,104) (829,954)
Purchases of property and equipment (770,444) (149,788) (561,915)
Purchases of artwork (29,709) (29,925) (12,974)
Proceeds from officers' split dollar receivable -- -- 64,025
----------- ----------- -----------
Net cash used by investing activities (1,291,538) (905,817) (1,340,818)
----------- ----------- -----------
FINANCING ACTIVITIES
Net proceeds from (payments on) line of credit borrowings (1,550,000) 650,000 900,000
Proceeds from long-term debt 2,259,628 334,198 1,175,996
Payments on long-term debt (819,372) (655,754) (674,727)
Proceeds from stock issued -- 14,700 15,400
Payments for stock retired (2,700) (2,500) (14,200)
----------- ----------- -----------
Net cash provided (used) by financing activities (112,444) 340,644 1,402,469
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (79,253) 144,840 (244,534)
CASH AND CASH EQUIVALENTS
Beginning of year 176,001 31,161 275,695
----------- ----------- -----------
End of year $ 96,748 $ 176,001 $ 31,161
=========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 9
- 6 -
PHYNQUE, INC.
d/b/a MANAGEMENT COMPENSATION GROUP/HEALTHCARE
NOTES TO FINANCIAL STATEMENTS
1. The Company and Summary of Significant Accounting Policies -
The Company
Phynque, Inc., d/b/a Management Compensation Group/Healthcare, designs
and implements deferred compensation programs and insurance coverage,
and provides consulting and administrative services throughout the
United States. The Company's primary clients include healthcare
providers such as hospitals and medical clinics.
Use of Estimates
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts and
disclosures in the financial statements and accompanying notes. Actual
results could differ from these estimates. Significant management
estimates relate to bonuses receivable on first year commissions.
Cash Equivalents
All highly liquid investments purchased with original maturities of
three months or less are considered cash equivalents.
Credit Risk
Significant concentrations of credit risk exist in cash and cash
equivalents, investments (held by a limited number of financial
institutions) and receivables which, although due from entities
dispersed across different geographic regions, are concentrated in the
health care and life insurance industries.
Financial Instruments
The carrying values of cash and cash equivalents, investments,
receivables, line of credit borrowings, accounts payable, commissions
and bonuses payable, and other financial instruments approximate their
fair values principally because of their short-term nature. The carrying
value of long-term debt does not differ significantly from its fair
value. It is not practicable to determine the fair value of
stockholders/officers advances receivable as the relationship of the
parties to the Company influences the terms, and similar instruments are
not generally available.
Property and Equipment
Property and equipment are carried at cost less accumulated
depreciation. Depreciation is provided using the straight-line method
over the estimated useful lives of the assets, generally 5 to 12 years.
Artwork
Artwork, which is held for investment purposes, is carried at the lower
of cost or market value. No depreciation is provided.
(continued)
<PAGE> 10
- 7 -
PHYNQUE, INC.
d/b/a MANAGEMENT COMPENSATION GROUP/HEALTHCARE
NOTES TO FINANCIAL STATEMENTS
1. The Company and Summary of Significant Accounting Policies - (continued)
Revenue Recognition
First year insurance commission and bonus revenue is recognized at the
time the insured party is contractually committed to purchase the
policy. Renewal commissions are recognized when the policy premium is
due. Cancellations and other adjustments, which are deemed to be
immaterial, are recognized in the year the cancellation or adjustment is
determined.
Fixed price consulting contracts generally last six months, and revenues
are recognized as amounts are billed. Management believes that overall
this method recognizes revenues as earned and also matches revenues with
expenses.
Advertising Costs
Advertising costs are expensed when incurred and totalled $43,839,
$29,985, and $40,315 for the years ended September 30, 1998, 1997 and
1996, respectively.
Income Taxes
No income tax provision is included in these financial statements as the
Company elected to be taxed as an S corporation under the provisions of
the Internal Revenue Code and applicable state regulations.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Statements of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130), No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131), No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" (SFAS 132), and No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS
133). SFAS 130 establishes standards for reporting and display of
comprehensive income and components in financial statements. SFAS 131
establishes standards for public enterprises to report operating segment
information. SFAS 132 revised disclosure standards about pension and
other post retirement plans. SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. All are effective for years beginning after December 15,
1997, except SFAS 133 which is effective for years beginning after June
15, 1999. Management believes that implementation of these Statements
will not have a material effect on the financial statements.
2. Investment in Securities -
Investments in securities are accounted for as available-for-sale
securities and consist of mutual funds. Cost of the funds approximates
market value. The securities are restricted for deferred compensations
benefits.
<PAGE> 11
- 8 -
PHYNQUE, INC.
d/b/a MANAGEMENT COMPENSATION GROUP/HEALTHCARE
NOTES TO FINANCIAL STATEMENTS
3. Employee Stockholders/Officers Receivables -
The receivables are unsecured and bear annual interest at 5.63% and
5.95% for September 30, 1998 and 1997, respectively. Interest earned on
these advances was $26,785, $33,520 and $17,222 for the years ended
September 30, 1998, 1997 and 1996, respectively.
4. Property and Equipment -
Property and equipment consists of the following;
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Leasehold improvements $1,127,012 $1,119,735
Furniture, fixtures, and equipment 2,684,914 2,520,490
Software 621,911 29,694
---------- ----------
4,433,837 3,669,919
Less accumulated depreciation 2,570,484 2,096,818
---------- ----------
$1,863,353 $1,573,101
========== ==========
</TABLE>
5. Line of Credit -
The Company has a $2,500,000 bank line of credit, expiring July 1, 1999,
with interest at the prime rate (8.25% and 8.50% at September 30, 1998
and 1997, respectively) plus .50% and collateralized by receivables and
stockholder guarantees. Interest only payments are required monthly.
The maximum amount borrowed under the line of credit was $1,300,000,
$1,550,000 and $1,000,000, respectively, during the years ended
September 30, 1998, 1997 and 1996; the average borrowings were $608,330,
$545,830 and $220,140, respectively; and the weighted average borrowings
interest rates were 9.00%, 9.09% and 9.25%, respectively.
6. Accrued Expenses -
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Pension and profit sharing contributions $ 530,995 $235,286
Compensation 441,242 315,704
Other 309,139 204,490
---------- --------
$1,281,376 $755,480
========== ========
</TABLE>
<PAGE> 12
- 9 -
PHYNQUE, INC.
d/b/a MANAGEMENT COMPENSATION GROUP/HEALTHCARE
NOTES TO FINANCIAL STATEMENTS
7. Long-Term Debt -
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Interest
Description Rate 1998 1997
----------------------------------------------------- -------------- ------------ -------------
<S> <C> <C> <C>
Insurance company, payable in monthly Prime $ 2,870,000 $ 1,614,583
installments of $70,000 plus interest with plus .50%
final payment of $1,050,000 due December
2000, collateralized by commissions and
bonuses receivable from insurance company
Insurance company, payable in seven equal Variable 992,861 774,900
annual installments beginning in 2002, between
unsecured 7.50% and
8.50%
Lessor, retired in 1998 7.50% -- 33,122
------------ -------------
3,862,861 2,422,605
Less current maturities 840,000 819,372
------------ -------------
$ 3,022,861 $ 1,603,233
============ =============
</TABLE>
Future maturities are as follows:
<TABLE>
<CAPTION>
Year Ending
September 30, Amount
------------- ------------
<S> <C>
1999 $ 840,000
2000 840,000
2001 1,190,000
2002 141,837
2003 141,837
Thereafter 709,187
------------
$ 3,862,861
============
</TABLE>
8. Operating Leases -
The Company leases facilities under agreements expiring January 2003.
The Company also leases residential property from a partnership
controlled by a stockholder at a monthly rental of $9,000 through April
1999. In addition, the Company leases furniture, equipment and
automobiles under agreements expiring through 2002.
(continued)
<PAGE> 13
- 10 -
PHYNQUE, INC.
d/b/a MANAGEMENT COMPENSATION GROUP/HEALTHCARE
NOTES TO FINANCIAL STATEMENTS
8. Operating Leases - (continued)
Approximate future minimum lease commitments, including estimated
operating costs, are as follows:
<TABLE>
<CAPTION>
Year Ending
September 30, Amount
------------- ------------
<S> <C>
1999 $ 1,513,000
2000 1,472,000
2001 1,383,500
2002 1,286,500
2003 839,500
------------
$ 6,494,500
============
</TABLE>
Rent expense was $1,629,115, $1,308,398 and $1,073,438 for the years
ended September 30, 1998, 1997 and 1996, respectively.
9. Deferred Compensation Plan -
The unfunded deferred compensation plan provides retirement benefits to
certain key retired and current executives. Benefits are accrued over
the period of employment and are payable in 120 equal monthly
installments following termination of employment. Interest is imputed at
8%.
The Plan requires benefits due retired employee stockholders/officers to
be paid before any sale of the Company (Note 16). Accordingly, current
maturities of deferred compensation at September 30, 1998, includes the
entire deferred compensation liability due retired employee
stockholders/officers with the remaining balance due starting in 2002.
10. Benefit Plans -
The defined contribution pension plan covers all full-time employees who
have completed one year of service. Plan contributions equal 5.5% of the
first $160,000 of each participant's compensation plus 5.5% of
compensation exceeding the social security wage base to $160,000.
Pension expense was $514,032, $542,952 and $449,152 for the years ended
September 30, 1998, 1997 and 1996, respectively.
The profit-sharing plan covers all full-time employees who have
completed one year of service. Contributions are determined annually by
the Board of Directors. The 401(k) incentive savings plan includes all
full-time employees. The Company contributes 100% of each employee's
contribution up to a maximum of 3% of compensation. Profit sharing and
401(k) incentive savings plans contributions were $271,252, $237,023 and
$222,807 for the years ended September 30, 1998, 1997 and 1996,
respectively.
<PAGE> 14
- 11 -
PHYNQUE, INC.
d/b/a MANAGEMENT COMPENSATION GROUP/HEALTHCARE
NOTES TO FINANCIAL STATEMENTS
11. Cash Flow Information -
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information
Interest paid $ 587,808 $ 531,631 $ 474,496
Supplemental disclosure of noncash operating, investing, and
financing activities
Artwork purchased from an employee
stockholder/officer applied to advances receivable $ 5,828 $ 258,893 $ --
Cash value of life insurance used to reduce
accrued expenses payable to an employee
stockholder/officer $ -- $ -- $ 82,344
Accrued expenses payable to an employee
stockholder/officer applied to advances
receivable $ -- $ -- $ 84,281
</TABLE>
12. Contingency -
At September 30, 1998, the Company pledged insurance commissions
receivable of $221,255 as collateral for a bank line of credit to a
stockholder.
13. Related Party Transactions -
Balances and transactions with employee stockholders/officers or
entities controlled by employee stockholders/officers are as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Commissions and bonuses payable to
employee stockholders/officers $ 487,798 $ 276,993 $ 530,814
Interest income 26,785 33,520 17,222
Rental income - artwork 43,241 43,792 36,253
Rent expense 195,597 181,800 137,601
Artwork purchased 5,828 258,894 --
</TABLE>
<PAGE> 15
- 12 -
PHYNQUE, INC.
d/b/a MANAGEMENT COMPENSATION GROUP/HEALTHCARE
NOTES TO FINANCIAL STATEMENTS
14. Significant Insurance Commission and Bonus Revenue -
Insurance commission and bonus revenues represents approximately 75% of
total revenues. Approximate percentages of insurance commission and
bonus revenues from product sales by four major insurance providers are
as follows:
<TABLE>
<CAPTION>
Provider 1998 1997 1996
-------- ---- ---- ----
<S> <C> <C> <C>
A 46% 45% 33%
B 18 20 26
C 11 11 15
D 11 9 12
</TABLE>
15. Restatement of Prior Financial Statements -
The accompanying financial statements for the years ended September 30,
1997 and 1996, previously unaudited, were restated to adjust previously
recorded insurance commissions and bonuses receivable and previously
unrecorded deferred compensation benefits due certain retired
stockholders/officers and a nonstockholder/officer. The effects of these
adjustments on beginning retained earnings are as follows:
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------
1997 1996 1995
------------- ------------ --------------
<S> <C> <C> <C>
As previously reported $ 3,646,867 $ 3,639,281 $ 2,757,430
Adjustments:
Year end insurance commissions
and bonuses receivable (481,242) (684,667) (506,005)
Deferred compensation benefits (3,433,220) (3,598,744) (3,356,103)
------------ ------------ -------------
As restated $ (267,595) $ (644,130) $ (1,104,678)
============ ============ =============
</TABLE>
These adjustments increased fiscal 1997 net income by $368,949 and
decreased fiscal 1996 net income by $421,303.
Certain reclassifications were also made to the 1997 and 1996 financial
statements to make them comparable with 1998.
<PAGE> 16
- 13 -
PHYNQUE, INC.
d/b/a MANAGEMENT COMPENSATION GROUP/HEALTHCARE
NOTES TO FINANCIAL STATEMENTS
16. Subsequent Events -
Retroactive Termination of Certain Deferred Compensation Benefits
On November 1, 1998, the Company retroactively terminated deferred
compensation benefits for all current stockholders/officers.
Accordingly, any benefits previously due to current
stockholders/officers are not reflected in these financial statements.
Benefits remain in effect however, for all covered retired
stockholders/officers and a current nonstockholder/officer.
Sale of Company
On April 5, 1999, an unrelated publicly traded company acquired
substantially all Company assets and operations and assumed certain
liabilities.
<PAGE> 17
PHYNQUE, INC.
d/b/a/ MANAGEMENT COMPENSATION GROUP /HEALTHCARE
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31,
1999 1998
-------- --------
(in thousands)
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents $ 184 $ 6
Investments in securities
Receivables:
Commissions 2,118 2,803
Bonuses 1,452 1,203
Accounts 1,215 1,124
Employee stockholders/officers 1,504 1,594
Allowance for uncollectibles
-------- --------
Total accounts receivable 6,289 6,724
-------- --------
Prepayments and advances 54 42
-------- --------
Total current assets 6,527 6,772
Equipment & leasehold improvements - net 2,006 1,843
Artwork 1,467 1,455
Officers' split dollar insurance receivable 140 118
Other 23 153
-------- --------
Total assets $ 10,163 $ 10,341
========
Liabilities and Stockholders' Equity
Current liabilities
Line of credit $ -- $ 400
Current portion of long term debt 840 840
Accounts payable 279 254
Accrued expenses 757 597
Commissions and bonuses 1,918 433
Current maturities of deferred
compensation 1,713 1,453
-------- --------
Total current liabilities 5,507 3,977
-------- --------
Long term debt 2,601 3,347
Deferred compensation 2,222 2,482
Stockholders' equity (deficit)
Common stock
Authorized - 25,000 shares; $1.00 par value
Issued and outstanding - 1,146 in 1998 and
1,173 in 1997 1 1
Paid in capital 55 58
Retained earnings (deficit) (223) 476
-------- --------
Total stockholders' equity (deficit) (167) 535
-------- --------
Total liabilities and stockholders'
equity $ 10,163 $ 10,341
======== ========
</TABLE>
<PAGE> 18
PHYNQUE, INC.
d/b/a/ MANAGEMENT COMPENSATION GROUP /HEALTHCARE
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months March 31
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Revenues
Commissions $ 4,656 $ 5,264
Consulting fees 1,102 1,406
-------- --------
5,758 6,670
-------- --------
Operating expenses
Salaries and bonuses 2,392 2,522
Marketing bonuses and commissions 1,594 1,021
General and administrative 3,028 2,303
Interest expense (income) (190) (16)
-------- --------
6,824 5,830
-------- --------
Income before income taxes (1,066) 840
Income taxes -- --
-------- --------
Net income $ (1,066) $ 840
======== ========
</TABLE>
<PAGE> 19
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following table sets forth unaudited pro forma financial
inforation of the Company for the periods ended and as of the dates indicated.
The unaudited pro forma financial information of the Company set forth below
was derived from the audited and unaudited financial statements of Clark/Bardes
Holdings, Inc. and Phynque, Inc.
The unaudited pro forma balance sheets and income statements have been
prepared to give effect to the acquisition of Phynque, Inc. as if such
transaction had occurred as of the beginning of each period presented. the
unaudited pro forma financial information of the Company set forth below is
based upon available information and certain assumptions that the Company
believes are reasonable. The unaudited pro forma financial information of the
Company set forth below does not purport to represent either what the Company's
financial position or results of operations actually would have been if the
transactions had actually occurred as of such dates or what such results will
be for any future periods.
<PAGE> 20
UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1998
(In Thousands Except Shares)
<TABLE>
<CAPTION>
ASSETS
THE PHYNQUE, INC.
COMPANY ASSETS & THE COMPANY
(HISTORICAL LIABILITIES ADJUSTMENTS PRO FORMA
12/31/98) ACQUIRED DR/(CR) AS ADJUSTED
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents $ 12,102 $ 9 19,000 (1) $ 10,153
(15,777) (2)
(310) (4)
(3,583) (5)
(1,288) (6)
Investments 175 175
Account and notes receivable:
Trade 7,145 3,297 10,442
Employee stockholders/ officers 1,505 (1,120) (3) 385
Affiliates 872 872
Notes 393 393
Interest 60 60
Allowance for uncollectibles (394) (97) (491)
----------- ------------- -----------
Total accounts and notes receivable 8,076 4,705 11,661
Deposits and advances 59 54 113
----------- ------------- -----------
Total current assets 20,237 4,943 22,102
Equipment and leasehold improvements - net 1,178 2,006 3,184
Artwork 1,467 (850) (3) 617
Intangible assets - net 45,209 (753) 29,763 (2) 72,623
310 (4)
(1,906) (8)
Deferred commissions - net --
Deferred tax asset 607 836 (9) 1,443
Other assets 262 163 425
----------- ------------- -----------
Total assets $ 67,493 $ 7,826 $ 100,394
=========== ============= ===========
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
LIABILITIES and STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C>
Current liabilities
Accounts payable $ 2,925 $ 239 $ 3,164
Bank overdraft 40 40
Commissions and fees payable 2,634 824 3,458
Income taxes 528 528 (9) --
Accrued liabilities 2,331 1,633 -- 3,964
Accrued interest 320 144 142 (5) 540
(218) (7)
Accrued pension & profit sharing 823 823
Current portion of long term debt 4,344 840 (5,700) (1) 10,157
(212) (2)
99 (3)
840 (5)
----------- ------------- -----------
Total current liabilities 13,082 4,543 22,146
Long term debt 24,713 2,601 (13,300) (1) 44,654
(8,512) (2)
1,871 (3)
2,601 (5)
Deferred severance 682 682
Stockholders' equity --
Preferred stock
Authorized - 1,000,000 shares; $.01 par value
None issued
Common stock --
Authorized - 20,000,000 shares; $.01 par value, --
Issued and outstanding - 8,202,534 82 (3) (2) 85
Paid in capital 26,274 (5,259) (2) 31,533
Retained earnings 3,342 3,412 (6,7&8) 1,294
(1,364) (9)
----------- -----------
Total stockholders' equity (deficit) 29,698 32,912
----------- ------------- -----------
Total liabilities and stockholders' equity $ 67,493 $ 7,826 $ 100,394
=========== ============= ===========
</TABLE>
<PAGE> 22
UNAUDITED PRO FORMA INCOME STATEMENT
AS OF DECEMBER 31, 1998
(In Thousands Except Shares)
<TABLE>
<CAPTION>
THE PHYNQUE,
COMPANY INC. THE COMPANY
(HISTORICAL (HISTORICAL ADJUSTMENTS PRO FORMA
12/31/98) 9/30/98) DR/(CR) AS ADJUSTED
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions and service fees $ 72,264 $ 21,297 $ 93,561
Consulting fees -- 4,703 4,703
Other 2,502 -- 2,502
----------- ------------- -----------
Total revenues 74,766 26,000 100,766
Commission and fee expense 46,111 3,731 49,842
----------- ------------- -----------
Net revenue 28,655 22,269 50,924
----------- ------------- -----------
Expenses
General and administrative 19,616 19,808 39,424
Amortization of intangibles 1,232 -- 1,906 (8) 3,138
Put warrants 4,800 -- 4,800
----------- ------------- -----------
Total expenses 25,648 19,808 47,362
----------- ------------- -----------
Operating income 3,007 2,461 3,562
Other income (expense) --
Interest income 565 -- 565
Interest expense (3,166) (645) 1,288 (6) (5,317)
----------- ------------- -----------
218 (7)
Total (2,601) (645) (4,752)
----------- ------------- -----------
Income before income taxes 406 1,816 (1,190)
Income taxes 817 -- (1,364) (9) 179
726 (10)
----------- ------------- -----------
Net income (loss) $ (411) $ 1,816 $ (1,369)
=========== ============= ===========
Net income (loss) per share:
Basic $ (0.08) $ (0.12)
=========== ===========
Diluted $ (0.08) $ (0.12)
=========== ===========
</TABLE>
<PAGE> 23
EXPLANATION OF PRO FORMA ADJUSTMENTS
<TABLE>
<S> <C>
#1 Proceeds from borrowings
Revolving credit $ 14,000
Term loan 5,000
-----------
$ 19,000
===========
current $ 5,700
long-term $ 13,300
#2 Payment to the sellers
Cash direct $ 15,277
Cash placed in escrow 500
Note - 8 years @ 10% 8,724
CBH common stock - 326,363 shares @ $16.125
par @ $.01 3
paid in capital 5,259
-----------
$ 29,763
===========
#3 Seller cash adjustments
repayment of advances $ 1,120
purchase of art 850
-----------
total applied to revolving credit $ 1,970
===========
#4 Transaction costs $ 310
===========
#5 Repayment of acquired long term debt
current $ 840
long term 2,601
accrued interest 142
-----------
$ 3,583
===========
</TABLE>
<PAGE> 24
<TABLE>
<S> <C>
#6 Interest on borrowed funds
$17,030 for 90 days @ 7% $ 298
$17,030 for 270 days @ 7.75% 990
-----------
$ 1,288
===========
#7 Interest on sellers' note (first payment)
per amortization schedule $ 218
===========
#8 Amortization of intangibles
non-compete $500,000 for 5 years $ 100
inforce revenue 1,024
goodwill = $19,549 for 25 years 782
-----------
$ 1,906
===========
#9 Tax benefit of pro forma income statement adjustments
interest on borrowed funds $ 1,288
interest on sellers' note 218
amortization ( tax approximates book) 1,906
-----------
$ 3,412
===========
tax benefit @ 40% 1,364
book liability 528
-----------
deferred tax asset $ 836
===========
#10 Taxes attributable to Phynque, Inc. (an S corporation) income
income statement only
</TABLE>
<TABLE>
<CAPTION>
basic diluted
----- -------
<S> <C> <C>
#11 Net income (loss) per share
denominator at December 31, 1998 5,006,009 5,006,009
shares issued 326,363 326,363
pro forma shares outstanding 5,332,372 5,332,372
net income (loss) $ (1,369) $ (1,369)
per share $ (0.26) $ (0.26)
</TABLE>
<PAGE> 25
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1999
(In Thousands Except Shares)
<TABLE>
<CAPTION>
ASSETS
THE PHYNQUE, INC.
COMPANY ASSETS & THE COMPANY
(HISTORICAL LIABILITIES ADJUSTMENTS PRO FORMA
3/31/99) ACQUIRED DR/(CR) AS ADJUSTED
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents $ 3,760 $ 9 19,000 (1) $ 2,801
(15,777) (2)
(310) (4)
(3,583) (5)
(298) (6)
Investments 175 175
Account and notes receivable:
Trade 6,507 3,297 9,804
Employee stockholders/ officers 1,505 (1,120) (3) 385
Affiliates --
Notes 384 384
Interest 61 61
Allowance for uncollectibles (394) (97) (491)
----------- ------------- -----------
Total accounts and notes receivable 6,558 4,705 10,143
Deposits and advances 82 54 136
----------- ------------- -----------
Total current assets 10,400 4,943 13,255
Equipment and leasehold improvements - net 1,137 2,006 3,143
Artwork 1,467 (850) (3) 617
Intangible assets - net 44,813 (753) 29,763 (2) 73,656
310 (4)
(477) (8)
Deferred commissions - net 7,287 7,287
Deferred tax asset 451 451
Other assets 642 163 805
----------- ------------- -----------
Total assets $ 64,730 $ 7,826 $ 99,214
=========== ============= ===========
</TABLE>
<PAGE> 26
<TABLE>
<S> <C> <C> <C> <C> <C>
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,989 $ 239 $ 2,228
Bank overdraft -- 40 40
Commissions and fees payable 3,487 824 4,311
Income taxes 1,075 -- 332 (9) 743
426 (10)
Accrued liabilities 1,202 1,633 -- 2,835
Accrued interest 5 144 142 (5) 62
(55) (7)
Accrued pension & profit sharing 823 823
Current portion of long term debt 6,000 840 (5,700) (1) 11,813
(212) (2)
99 (3)
840 (5)
----------- ------------- -----------
Total current liabilities 13,758 4,543 22,855
Long term debt 19,759 2,601 (13,300) (1) 39,700
(8,512) (2)
1,871 (3)
2,601 (5)
Deferred severance 682 682
Stockholders' equity --
Preferred stock
Authorized - 1,000,000 shares; $.01 par value
None issued
Common stock --
Authorized - 20,000,000 shares; $.01 par value, --
Issued and outstanding - 8,202,534 82 (3) (2) 85
Paid in capital 26,321 (5,259) (2) 31,580
Retained earnings 4,810 830 (6,7&8) 4,312
(332) (9)
----------- -----------
Total stockholders' equity (deficit) 31,213 35,977
----------- ------------- -----------
Total liabilities and stockholders' equity $ 64,730 $ 7,826 $ 99,214
=========== ============= ===========
</TABLE>
<PAGE> 27
UNAUDITED PROFORMA INCOME STATEMENT
AS OF MARCH 31, 1999
(In Thousands Except Shares)
<TABLE>
<CAPTION>
THE PHYNQUE,
COMPANY INC. THE COMPANY
(HISTORICAL (HISTORICAL ADJUSTMENTS PRO FORMA
3/31/99) 3/31/99) DR/(CR) AS ADJUSTED
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions and service fees $ 23,634 $ 4,656 $ 28,290
Consulting fees -- 1,102 1,102
Other 423 -- 423
----------- ------------- -----------
Total revenues 24,057 5,758 29,815
Commission and fee expense 14,183 1,594 15,777
----------- ------------- -----------
Net revenue 9,874 4,164 14,038
----------- ------------- -----------
Expenses
General and administrative 6,255 5,413 11,668
Amortization of intangibles 620 -- 477 (8) 1,097
----------- ------------- -----------
Total expenses 6,875 5,413 12,765
----------- ------------- -----------
Operating income 2,999 (1,249) 1,273
Other income (expense) -- -- --
Interest income 68 206 274
Interest expense (564) (26) 298 (6) (943)
55 (7)
----------- ------------- -----------
Total (496) 180 (669)
----------- ------------- -----------
Income before income taxes 2,503 (1,069) 604
Income taxes 1,035 -- (332) (9) 277
(426) (10)
----------- ------------- -----------
Net income (loss) $ 1,468 $ (1,069) $ 327
=========== ============= ===========
Net income (loss) per share:
Basic $ 0.18 $ 0.04
=========== ===========
Diluted $ 0.17 $ 0.04
=========== ===========
</TABLE>
<PAGE> 28
EXPLANATION OF PROFORMA ADJUSTMENTS
<TABLE>
<S> <C>
#1 Proceeds from borrowings
Revolving credit $ 14,000
(repay quarterly over 5 years after December 31, 1999)
Term loan 5,000
(repay quarterly @ $1,250)
-----------
$ 19,000
===========
current $ 5,700
long-term $ 13,300
#2 Payment to the sellers
Cash direct $ 15,277
Cash placed in escrow 500
Note - 8 years @ 10%
current 212
long-term 8,512
CBH common stock - 326,363 shares @ $16.125
par @ $.01 3
paid in capital 5,259
-----------
$ 29,763
===========
#3 Seller cash adjustments
repayment of advances $ 1,120
purchase of art 850
-----------
total applied to revolving credit $ 1,970
===========
#4 Transaction costs $ 310
===========
#5 Repayment of acquired long term debt
current $ 840
long term 2,601
accrued interest 142
-----------
$ 3,583
===========
#6 Interest on borrowed funds
$17,030 for 90 days @ 7% $ 298
===========
</TABLE>
<PAGE> 29
<TABLE>
<S> <C>
#7 Interest on sellers' note (first payment)
per amortization schedule $ 55
===========
#8 Amortization of intangibles
non-compete $500,000 for 5 years $ 25
inforce revenue 256
goodwill = $19,549 for 25 years 196
-----------
$ 477
===========
#9 Tax benefit of pro forma income statement adjustments
interest on borrowed funds $ 298
interest on sellers' note 55
amortization ( tax approximates book) 477
-----------
$ 830
===========
tax benefit @ 40% $ 332
===========
#10 Tax benefit of Phynque, Inc. (an S corporation) loss
income statement only = 40% of $1,066 $ (426)
===========
</TABLE>
<TABLE>
<CAPTION>
#11 Net income (loss) per share
basic diluted
----- -------
<S> <C> <C>
denominator at March 31, 1999 8,202,535 8,422,529
shares issued (WASO) 81,591 81,591
pro forma shares outstanding 8,284,126 8,504,120
net income (loss) $ 330 $ 330
per share $ 0.04 $ 0.04
</TABLE>
<PAGE> 30
SIGNATURE
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.
CLARK/BARDES HOLDINGS, INC.
By: /s/ MELVIN G. TODD
-----------------------------------------
Melvin G. Todd
President and Chief Executive Officer
Date: June 17, 1999
4
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
23.1 Consent of Independent Auditors.
</TABLE>
<PAGE> 1
CONSENT OF LURIE, BESIKOF, LAPIDUS & CO., LLP
We consent to the incorporation by reference in the current report of
Clark/Bardes Holdings, Inc. (Form 8-K/A) of our report, dated February 18,
1999, except for the information captioned "Sale of Company" in Note 16, as to
which the date is April 6, 1999, relating to the financial statements of
Phynque, Inc., d/b/a Management Compensation Group/Healthcare.
/s/ LURIE, BESIKOF, LAPIDUS & CO., LLP
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
June 17, 1999
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