<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
FILED PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): APRIL 8, 1998
CMG INFORMATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 0-22846 04-2921333
<S> <C> <C>
(State or other jurisdiction (Commission File Number) (IRS Employer Identification No.)
of incorporation)
</TABLE>
100 BRICKSTONE SQUARE, ANDOVER, MA 01810
(Address of principal executive offices, including Zip Code)
(978) 684-3600
(Registrant's telephone number, including area code)
<PAGE>
The undersigned registrant hereby amends the following items, financial
statements, exhibits, or other portions of the Current Report on Form 8-K filed
by the registrant on April 23, 1998 as set forth on the pages attached hereto:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
- ------- ------------------------------------------------------------------
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Accipiter, Inc.
Financial Statements
December 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Accipiter, Inc.:
We have audited the accompanying balance sheets of Accipiter, Inc as of December
31, 1997 and 1996 and the related statements of operations, stockholders'
deficit, and cash flows for the year ended December 31, 1997 and the period from
April 4, 1996 (inception) to December 31, 1996. 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 Accipiter, Inc. as of December
31, 1997 and 1996 and the results of its operations and its cash flows for the
year ended December 31, 1997 and the period from April 4, 1996 (inception) to
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
March 26, 1998
<PAGE>
ACCIPITER, INC.
Balance Sheets
<TABLE>
<CAPTION>
December 31,
March 31, -------------------------------
1998 1997 1996
------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 689,332 $ 1,225,245 $ 95,392
Accounts receivable, net of allowance for doubtful accounts of
$19,120 at March 31, 1998 and December 31, 1997 711,944 436,744 4,290
Other current assets 2,383 19,935 --
------------- ------------- -------------
Total current assets 1,403,659 1,681,924 99,682
Property and equipment, at cost 327,255 282,216 83,262
Less accumulated depreciation 65,441 50,440 8,625
------------- ------------- -------------
Net property and equipment 261,814 231,776 74,637
------------- ------------- -------------
Other assets, net 1,648 1,648 1,067
------------- ------------- -------------
Total assets $ 1,667,121 $ 1,915,348 $ 175,386
============= ============= =============
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 228,291 $ 79,222 $ 36,383
Payroll and sales taxes payable 137 605 24,500
Deferred revenues 247,766 -- --
------------- ------------- -------------
Total current liabilities 476,194 79,827 60,883
------------- ------------- -------------
Notes payable (note 3) -- -- 250,000
------------- ------------- -------------
Total liabilities 476,194 79,827 310,883
------------- ------------- -------------
Preferred stock, $.001 par value, 4,250,000 shares authorized:
Series A convertible redeemable preferred stock 1,735,299 shares
designated, 1,424,940, 1,424,940 and 999,999 shares issued and
outstanding at March 31, 1998 and December 31, 1997 and 1996,
respectively (notes 3 and 4) 1,000,000 1,000,000 500,000
Series B convertible preferred stock 2,514,701 shares designated,
2,189,383 and 2,173,883 shares issued and outstanding at March 31,
1998 and December 31, 1997, respectively (notes 3 and 4 3,000,414 2,979,132 --
Stockholders' deficit (note 4):
Common stock $.01 par value, 8,000,000 shares authorized,
1,950,380, 1,950,000 and 1,950,000 shares issued and outstanding
at March 31, 1998, December 31, 1997 and 1996, respectively 19,500 19,500 19,504
Additional paid in capital 47 -- --
Accumulated deficit (2,829,038) (2,163,111) (654,997)
------------- ------------- -------------
Total stockholders' deficit (2,809,487) (2,143,611) (635,497)
------------- ------------- -------------
Commitments, contingencies and subsequent event (notes 3, 4, 5, and 6)
Total liabilities and stockholders' deficit $ 1,667,121 $ 1,915,348 $ 175,386
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ACCIPITER, INC.
Statements of Operations
<TABLE>
<CAPTION>
Three months ended Period from
March 31, Year ended April 14, 1996
-------------------------------------- December 31, to December 31,
1998 1997 1997 1996
------------------ ------------------ ------------------ ------------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
License fees $ 491,068 $ 85,050 $ 771,710 $ --
Support fees 54,181 3,642 122,356 --
Consulting fees 24,770 -- 93,639 4,290
------------------ ------------------ ------------------ ------------------
Total revenues 570,019 88,692 987,705 4,290
------------------ ------------------ ------------------ ------------------
Operating expenses:
Development 235,421 130,805 649,209 203,092
Support 125,110 17,000 138,300 --
Marketing 150,522 89,282 506,709 170,403
General and administrative expenses (note 5) 392,701 90,591 672,761 168,221
Executive 108,708 26,985 179,152 66,224
Selling 220,358 58,081 348,773 45,979
Royalties 12,620 -- 23,600
Other -- -- 280
------------------ ------------------ ------------------ ------------------
Total operating expenses 1,245,440 412,744 2,518,784 654,187
------------------ ------------------ ------------------ ------------------
Operating loss (675,421) (324,052) (1,531,079) (649,897)
------------------ ------------------ ------------------ ------------------
Other income, net:
Interest income, net 11,094 9 19,220 1,712
Other income (expense), net (1,600) 3,242 3,745 --
------------------ ------------------ ------------------ ------------------
Other income, net 9,494 3,251 22,965 --
Income tax benefit (note 2) -- -- -- --
------------------ ------------------ ------------------ ------------------
Net loss $ (665,927) $(320,801) $(1,508,114) $(649,897)
================== ================== ================== ==================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ACCIPITER, INC.
Statement of Stockholders' Deficit
<TABLE>
<CAPTION>
Common Stock Additional
------------------ paid in Accumulated
Shares Amount capital Deficit Total
--------- -------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to
founders 650,000 $ 6,500 $ 7,900 $ -- $ 14,400
Issuance of shares pursuant to
2 for 1 stock dividend 1,300,000 13,000 (7,900) (5,100) --
Net loss -- -- -- (649,897) (649,897)
--------- -------- ---------- ----------- -----------
December 31, 1996 1,950,000 19,500 -- (654,997) (635,497)
Net loss -- -- -- (1,508,114) (1,508,114)
--------- -------- ---------- ----------- -----------
December 31, 1997 1,950,000 $19,500 $ -- $(2,163,111) $(2,143,611)
Exercise of stock options
(unaudited) 380 4 47 -- 51
Net loss (unaudited) -- -- -- (665,927) (665,927)
--------- -------- ---------- ----------- -----------
March 31, 1998 (unaudited) 1,950,380 $19,504 $ 47 $(2,829,038) $(2,809,487)
========= ======== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ACCIPITER, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended Period from
March 31, Year ended April 14, 1996
------------------------------- December 31, to December 31,
1998 1997 1997 1996
------------- ------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (665,927) $ (320,801) $(1,508,114) $ (649,897)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization expense 15,001 -- 41,815 8,735
Bad debt expense -- -- 19,120 --
Increase in accounts receivable (275,200) (30,745) (451,574) (4,290)
Increase (decrease) in other current assets 17,552 (1,000) (19,935) --
Increase in other assets -- -- (581) (1,177)
Increase in accounts payable and accrue
expenses 149,069 59,943 42,839 36,383
Increase (decrease) in payroll and sales taxes
payable (468) (17,467) (23,895) 24,500
Increase in deferred revenues 247,766 -- -- --
------------- ------------- ------------- -------------
Net cash used in operating activities (512,207) (310,070) (1,900,325) (585,746)
------------- ------------- ------------- -------------
Cash flows from investing activities purchase of
equipment (45,039) (11,467) (198,954) (83,262)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from notes payable -- 250,000 550,000 250,000
Proceeds from issuance of preferred stock 21,282 -- 2,679,132 500,000
Proceeds from issuance of common stock 51 -- -- 14,400
------------- ------------- ------------- -------------
Net cash provided by financing activities 21,333 250,000 3,229,132 764,400
------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents (535,913) (71,537) 1,129,853 95,392
Cash and cash equivalents at beginning of period 1,225,245 95,392 95,392 --
------------- ------------- ------------- -------------
Cash and cash equivalents at end of period $ 689,332 $ 23,855 $ 1,225,245 $ 95,392
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ACCIPITER, INC.
Notes to Financial Statements
December 31, 1997 and 1996
(1) Company Operations and Summary of Significant Accounting Policies
-----------------------------------------------------------------
(a) Nature of Business and Presentation
-----------------------------------
Accipiter, Inc. (the "Company") develops and markets Internet application
software that enables web sites to deliver targeted advertising based on
specific demographic profiles and to track individual visitors on a web
site. Most of the Company's efforts since incorporation have been devoted
to obtaining capital and developing and testing products. Accipiter's
clients are both domestic and international organizations with web sites on
the Internet.
The Company was accounted for as a development stage enterprise in
accordance with Statement of Financial Accounting Standards No. 7,
"Accounting and Reporting by Development Stage Enterprises" in 1996.
Operations commenced in 1997.
Interim Financial Statements
The financial statements of Accipiter, Inc. as of March 31, 1998 and for
the three months ended March 31, 1997 and 1998 are unaudited. All
adjustments and accruals (consisting only of normal recurring adjustments)
have been recorded that, in the opinion of management, are necessary for a
fair presentation. Results of operations for the interim periods are not
necessarily indicative of the results for the full year.
(b) Revenue Recognition
-------------------
The Company's revenue, which consists of license fees, software support and
consulting fees, is recognized in accordance with AICPA Statement of
Position 91-1, "Software Revenue Recognition" (AICPA SOP 91-1). Revenue
from license fees is recognized upon shipment of the product and
fulfillment of acceptance terms, if any. Revenue from software support and
consulting services is recognized as services are provided.
(c) Income Taxes
------------
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 bases and operating loss carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. 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.
(d) Property and Equipment
----------------------
Property and equipment, consist of computer and office equipment which is
being depreciated using the straight-line method over its estimated useful
life of five years for furniture and three years for office equipment.
<PAGE>
ACCIPITER, INC.
Notes to Financial Statements, Continued
(1) Company Operations and Summary of Significant Accounting Policies,
------------------------------------------------------------------
Continued
---------
(e) 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 as of 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.
(2) Income Taxes
------------
There was no income tax benefit for the year ended December 31, 1997 and
the period from April 4, 1996 (inception) to December 31, 1996. The
difference between the actual tax and the expected benefit is as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
Computed "expected" tax benefit $(512,800) (220,900)
Increase benefit in income taxes resulting from:
Increase in valuation reserve 511,700 220,900
Nondeductible meals and entertainment 1,100 -
--------- --------
$ - -
========= ========
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards
(NOL's) for federal income tax purposes of approximately $1,895,000 which
expire in varying amounts between 2011 and 2012. The Company has NOL's for
state tax purposes of approximately $1,895,000 which expire in varying
amounts between 2001 and 2002. Additionally, the Company has research and
development credits of approximately $23,000 which expire in varying
amounts between 2009 and 2010. Due to the uncertainty regarding the
ultimate realizability of the Company's NOL's, a full valuation allowance
has been provided such that deferred tax assets are not recognized.
The components of deferred tax assets and deferred tax liabilities as of
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Deferred tax assets:
Tax loss carryforwards $ 644,300 114,000
Miscellaneous reserves and credits 6,700 200
Start-up costs 85,700 108,000
--------- --------
Total 736,700 222,200
Valuation allowance (732,600) (220,900)
Net deferred asset $ 4,100 1,300
========= ========
</TABLE>
<PAGE>
ACCIPITER, INC.
Notes to Financial Statements, Continued
(2) Income Taxes, Continued
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Deferred tax liabilities:
Fixed assets $4,100 1,300
Deferred tax liability 4,100 1,300
---------- ---------
Net deferred tax assets and (liability) $ - -
========== =========
</TABLE>
The Tax Reform Act of 1986 contains provisions which limit the ability to
utilize net operating loss carryforwards in the case of certain events
including significant changes in ownership interests. If the Company's
NOL's are limited, and the Company has taxable income which exceeds the
permissible yearly NOL, the Company would incur federal income tax
liability even though NOL's would be available in future years.
(3) Note payable
------------
During December 1996, the holder of the preferred stock ("Investor")
advanced $250,000 in the form of a convertible note that accrued interest
at 10%. The Investor advanced an additional $250,000 in 1997. The advances
totaling $500,000 were converted to 422,000 shares of Series A preferred
stock in 1997. Accrued interest of $3,485 was converted to 2,941 shares of
Series A preferred stock in 1997.
During May 1997, the Investor advanced the Company $300,000 in the form of
a convertible note that accrued interest at 10% and which was subsequently
converted to 218,500 shares of Series B preferred stock. Accrued interest
of $5,610 was converted to 4,086 shares of Series B preferred stock in
1997.
(4) Capital Structure
-----------------
The Company is authorized to issue up 8,000,000 shares of $.01 par value
common stock and 4,250,000 shares of $.001 par value preferred stock, of
which 1,735,299 shares have been designated as Series A convertible
preferred stock and 2,514,701 shares have been designated as Series B
convertible preferred stock.
Series A and B preferred stock ("preferred stock")
--------------------------------------------------
The significant terms of the preferred stock are as follows:
Dividends - The holders of the preferred stock are eligible to receive
dividends if and when declared by the Board of Directors of the Company.
The preferred stockholders' right to receive dividends is senior to that of
common stockholders.
<PAGE>
ACCIPITER, INC.
Notes to Financial Statements, Continued
(4) Capital Structure, Continued
----------------------------
Series A and B preferred stock ("preferred stock"), Continued
-------------------------------------------------------------
Liquidation Preference - The holders of preferred stock are senior to the
common shareholders in the event of liquidation. The Series A preferred
stockholders are entitled to receive a liquidation preference of $0.50 per
preferred share. The Series B preferred stockholders are entitled to
receive a liquidation preference of $1.373 per preferred share.
Redemption and Conversion - Each share of preferred stock is convertible
into common stock at the rate of one common share to one preferred share.
The preferred stock is convertible upon the occurrence of an initial public
offering or at the option of the preferred stockholders. In the event the
preferred stock has not been redeemed or converted prior to July 1, 2002,
the shares are redeemable at the option of the stockholders, with one-third
payable on July 1, 2002, one-third payable on July 1, 2003, and one-third
payable on July 1, 2004, from legally available funds on a pro rata basis
at the liquidation preference.
Voting Rights - The holders of the preferred stock are generally entitled
to vote based on the number of common shares they would receive upon
conversion.
Stock Options
-------------
On May 30, 1996, the Board of Directors adopted a stock option plan to
create an additional incentive for key employees, directors and consultants
or advisors. At December 31, 1997, 1,050,000 common shares were authorized
for issuance to be granted within 10 years of plan adoption. The Company
issued incentive stock options to acquire 796,250 shares of common stock to
employees and nonqualified options to acquire 71,864 common shares to a
director during the period from adoption of the plan to December 31, 1997.
The exercise price for options issued through February 1997 was set at
$0.0667. The exercise price for options issued after February 1997 was set
at $0.1373. Exercise prices were estimated to approximate the market value
of the common stock on the date of issuance. Generally, the options provide
that after a six month waiting period, vesting occurs ratably each month
over forty-two months. At December 31, 1997, options for 143,481 shares
were vested. No options have been exercised as of December 31, 1997.
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeds the exercise price.
<PAGE>
ACCIPITER, INC.
Notes to Financial Statements, Continued
(4) Capital Structure, Continued
----------------------------
Stock Options, Continued
------------------------
SFAS No. 123, Accounting for Stock-Based Compensation, permits entities to
recognize compensation expense over the vesting period using the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No. 123
also allows entities to continue to apply the provisions of APB Opinion No.
25 and provide pro forma net income and earnings per share disclosures for
employee stock option grants made in 1996 and future years as if the fair-
value-based method defined in SFAS No. 123 had been applied. The Company
has elected to apply the provisions of APB Opinion No. 25.
The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions
used for the grants in 1997 and 1996; dividend yield of 0%; expected
volatility of 0%; risk-free interest rate of 5.0% to 6.0%; and expected
lives of 10 years for each option. The pro forma disclosures have not been
included as the fair value of options granted for the year ended December
31, 1997 are immaterial.
A summary of the status of the Company's stock plan as of December 1997 and
1996 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
1997 Exercise 1996 Exercise
Shares Price Shares Price
--------- -------- ------ -------
<S> <C> <C> <C> <C>
At the beginning of the year 362,750 $0.0667 - $ -
Granted 505,000 0.1273 362,750 0.0667
Exercised - - - -
Terminated (12,000) 0.0667 - -
--------- -------- ------ -------
At the end of year 856,114 0.1024 362,750 0.0667
Options exercisable
at year-end 143,481 47
Weighted-average fair
value of options granted
during the year $ 0.1273 $ 0.0667
</TABLE>
The following table summarizes the information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding
------------------- Number of
Number Remaining options
Exercise price outstanding contractual life exercisable
-------------- ----------- ---------------- -----------
<S> <C> <C> <C>
0.0667 423,250 8.5 - 9.2 years 120,966
0.1373 432,864 9.2 - 10 years 22,515
----------- -----------
Total 856,114 143,481
=========== ===========
</TABLE>
<PAGE>
ACCIPITER, INC.
Notes to Financial Statements, Continued
(4) Capital Structure, Continued
----------------------------
Stock Warrants
--------------
In May 1996, the Company issued warrants to Investor for 63,300 shares of
Series A preferred stock at an initial exercise price of $1.184834 per
share. The warrants vested on May 31, 1997 and expire five years after the
vesting date, on May 31, 2002.
In December 1996, the Company issued warrants to Investor for 250,000
shares of Series A preferred stock at an initial exercise price of $.50 per
share. The warrants vested immediately and expire on December 6, 2006.
In February 1997, the Company entered into a license agreement with CINET,
a customer. In connection with this agreement, the Company issued warrants
to purchase 181,862 shares of common stock at an initial exercise price of
$2.50 per share. Such warrants vest during the two years after the date of
the agreement pursuant to certain conditions. The warrants are exercisable
for two years after the vesting period. If the license agreement between
the Company and CINET is terminated, the right to exercise these warrants
will terminate after 60 days.
In June 1997, the Company entered into a consulting agreement with a
director of the Company. Pursuant to this agreement, the Company issued
warrants to purchase 60,000 shares of common stock at an initial exercise
price of $0.1373 per share. This warrant expires on June 12, 2002.
(5) Leases
------
The Company has operating leases for office facilities, equipment, and
furniture. Rent expense under these leases and other month-to-month
arrangements totaled $163,407 and $14,311 in 1997 and 1996, respectively.
The future minimum lease payments under the noncancellable lease agreements
are as follows:
<TABLE>
<S> <C>
1998 $217,043
1999 125,693
2000 76,836
2001 16,429
--------
Total minimum lease payments $436,001
========
</TABLE>
<PAGE>
ACCIPITER, INC.
Notes to Financial Statements, Continued
(6) Subsequent Event
----------------
On March 11, the Company and CMG Information Services, Inc. ("CMG") entered
into a letter agreement, providing for the acquisition of the Company by
CMG. It is anticipated that the transaction will close on April 2, 1998.
The letter agreement provides that the Company will be merged with a newly
created wholly-owned subsidiary of CMG. It also provides that each common
share of the Company and stock equivalents determined on a fully-diluted
as-converted basis will be converted into the right to receive $35,000,000
worth of CMG common stock, price determined on March 2, 1998 as $55.50 per
share. If the price of common stock of CMG fluctuates according to the
agreement at the acquisition date, the number of shares may vary
accordingly. The letter agreement provides that the acquisition is subject
to the execution of a definitive agreement and to the occurrence or waiver
of certain conditions.
(7) Related Party Transactions
--------------------------
As noted in note 4, the Company entered into a consulting agreement with a
director in June 1997. Payments under this agreement in 1997 totaled
$42,000. The agreement ended in early 1998.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
- ------- ------------------------------------------------------------------
(B) PRO FORMA FINANCIAL INFORMATION
In April 1998, CMG Information Services, Inc. ("the Company" or "CMG")
acquired Accipiter, Inc. ("Accipiter") for approximately $30.2 million,
including acquisition costs.
The unaudited Pro Forma Condensed Consolidated Statements of Operations (the
"Pro Forma Statements of Operations") for the year ended July 31, 1997 and the
six months ended January 31, 1998 give effect to the acquisition of Accipiter as
if it had occurred on August 1, 1996. The Pro Forma Statements of Operations
are based on historical results of operations of the Company and Accipiter for
the year ended July 31, 1997 and the six months ended January 31, 1998. The
unaudited Pro Forma Condensed Consolidated Balance Sheet (the "Pro Forma Balance
Sheet") gives effect to the acquisition of Accipiter as if the acquisition had
occurred on that date. The Pro Forma Statements of Operations and Pro Forma
Balance Sheet and the accompanying notes (the "Pro Forma Financial Information")
should be read in conjunction with and are qualified by the historical financial
statements of the Company and notes thereto.
On May 11, 1998, CMG effected a two-for-one stock split in the form of a
stock dividend. Accordingly, all share and per share information in the Pro
Forma Financial Information has been retroactively adjusted to reflect the stock
split.
The Pro Forma Financial Information is intended for informational purposes
only and is not necessarily indicative of the future financial position or
future results of operations of the consolidated company after the acquisition
of Accipiter, or of the financial position or results of operations of the
consolidated company that would have actually occurred had the acquisition of
Accipiter been effected as of the dates described above.
<PAGE>
CMG INFORMATION SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1998
(In thousands)
<TABLE>
<CAPTION>
CMG
Information Pro forma Pro forma
Services, Inc. Accipiter, Inc. Adjustments As Adjusted
---------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
- ------
Cash and available-for-sale securities $ 31,313 $ 1,081 $ $ 32,394
Accounts and license fees receivable, net 15,853 563 16,416
Prepaid expenses and other current assets 9,972 2 9,974
---------------- --------------- ----------- -----------
Total current assets 57,138 1,646 58,784
Property and equipment, net 8,801 261 9,062
Investments in affiliates 29,236 -- 29,236
Cost in excess of net assets of
subsidiaries acquired, net of
accumulated amortization 16,385 -- 10,556 (a) 26,941
Other assets 2,941 2 2,943
---------------- --------------- ----------- -----------
Total assets $114,501 $ 1,909 $10,556 $126,966
================ =============== =========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Notes payable $ 22,700 $ -- $ $ 22,700
Accounts payable and accrued expenses 20,445 159 198 (a) 20,802
Deferred revenues 2,906 138 3,044
Other current liabilities 4,557 -- 4,557
---------------- --------------- ----------- -----------
Current liabilities 50,608 297 198 51,103
Long-term liabilities 18,855 -- 18,855
Minority interest 6,759 -- 6,759
Redeemable preferred stock -- 4,000 (4,000) (b) --
Stockholders' equity 38,279 (2,388) 14,358 (a)(b) 50,249
Total liabilities and stockholders'
equity $114,501 $ 1,909 $10,556 $126,966
================ =============== =========== ===========
</TABLE>
<PAGE>
CMG INFORMATION SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months Ended January 31, 1998
--------------------------------------------------------------------
CMG
Information Pro forma Pro forma
Services, Inc, Accipiter, Inc. Adjustments As Adjusted
-------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
Net revenues $ 42,953 $ 710 $ $ 43,663
Operating expenses:
Cost of revenues 30,951 222 4 (c) 31,177
Research and development 10,813 473 122 (c) 11,408
In-process research and development 875 -- 875
Selling 16,725 636 40 (c) 17,401
General and administrative 9,292 425 1,575 (a)(c) 11,292
-------------- --------------- ------------ -----------
Total operating expenses 68,656 1,756 1,741 72,153
-------------- --------------- ------------ -----------
Operating loss (25,703) (1,046) (1,741) (28,490)
Other income (expense):
Interest income (expense), net (347) 23 (324)
Equity in losses of affiliates (4,516) -- (4,516)
Minority interest (28) -- (28)
Other gains 29,613 -- 29,613
-------------- --------------- ------------ -----------
24,722 23 -- 24,745
-------------- --------------- ------------ -----------
Loss before income taxes (981) (1,023) (1,741) (3,745)
Income tax expense (benefit) 2,168 -- (358) (d) 1,810
-------------- --------------- ------------ -----------
Net loss $ (3,149) $(1,023) $(1,383) $ (5,555)
============== =============== ============ ===========
Basic loss per share $(0.16) $ (0.27) (e)
============== ===========
Diluted loss per share $(0.17) $ (0.27) (e)
============== ===========
Weighted average shares used in
computing Basic loss per share 19,656 20,920 (e)
============== ===========
Weighted average shares used in
computing Diluted loss per share 19,656 20,920 (e)
============== ===========
</TABLE>
<PAGE>
CMG INFORMATION SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Twelve Months Ended July 31, 1997
--------------------------------------------------------------------
CMG
Information Pro forma Pro forma
Services, Inc, Accipiter, Inc. Adjustments As Adjusted
-------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
NET REVENUES $ 70,607 $ 403 $ $ 71,010
Operating expenses:
Cost of revenues 42,152 73 9 (c) 42,234
Research and development 25,058 672 245 (c) 25,975
In-process research and development 1,312 -- 1,312
Selling 37,583 660 80 (c) 38,323
General and administrative 17,611 293 3,148 (a)(c) 21,052
-------------- --------------- ------------ -----------
Total operating expenses 123,716 1,698 3,482 128,896
-------------- --------------- ------------ -----------
Operating loss (53,109) (1,295) (3,482) (57,886)
Other income (expense):
Interest income (expense), net 1,749 6 1,755
Equity in losses of affiliates (5,556) -- (5,556)
Minority interest 4,787 -- 4,787
Other gains 27,140 -- 27,140
-------------- --------------- ------------ -----------
28,120 6 -- 28,126
-------------- --------------- ------------ -----------
Loss before income taxes (24,989) (1,289) (3,482) (29,760)
Income tax expense (benefit) (2,962) -- (451) (d) (3,413)
-------------- --------------- ------------ -----------
Net loss $(22,027) $(1,289) $(3,031) $(26,347)
============== ===========
Basic loss per share $ (1.17) $ (1.31)(e)
============== ===========
Diluted loss per share $ (1.17) $ (1.31)(e)
============== ===========
Weighted average shares used in
computing Basic loss per share 18,858 20,122 (e)
============== ===========
Weighted average shares used in
computing Diluted loss per share 18,858 20,122 (e)
============== ===========
</TABLE>
<PAGE>
CMG INFORMATION SERVICES, INC.
Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information
(1) Pro Forma Adjustments and Assumptions
(a) The Company acquired Accipiter for approximately $30.2 million in April
1998, including costs of acquisition, of which approximately $11.0 million
was allocated to goodwill. The goodwill is being amortized over a period of
five years. The pro forma adjustments reflect amortization expense for the
six months ended January 31, 1998 and the year ended July 31, 1997,
assuming the transaction had occurred on August 1, 1996. The value of the
goodwill at August 1, 1996 would have been $12.0 million. Approximately
$18.0 million of the purchase price was allocated to in-process research
and development expense which has been charged to operations during the
quarter ended April 30, 1998. This amount has not been reflected in the Pro
Forma Statements of Operations.
Approximately $2.2 million of deferred compensation was recorded at the
time of acquisition relating to 43,000 of the CMG common shares issued to
employee stockholders of Accipiter which are being held in escrow. These
shares are excluded from the purchase price because their ultimate issuance
is contingent upon the retention of the employees and the achievement of
certain performance criteria by Accipiter during the escrow period.
Deferred compensation expense will be recognized over the two-year period
of the escrow.
The following represents the allocation of the purchase price over the
historical net book values of the acquired assets and liabilities of
Accipiter at January 31, 1998, and is for illustrative purposes only.
Actual fair values will be based on financial information as of the
acquisition date (April 9, 1998). Assuming the transaction occurred on
January 31, 1998, the allocation would have been as follows (in thousands):
<TABLE>
<S> <C>
Working capital $ 1,349
Property, plant and equipment 261
Other assets 2
In-process research and development 18,010
Goodwill 10,556
-------
Purchase price $30,178
=======
</TABLE>
The pro forma adjustment reconciles the historical balance sheet of
Accipiter at January 31, 1998 to the allocated purchase price assuming the
transaction had occurred on January 31, 1998 and includes the accrual of
approximately $198,000 of acquisition costs to be paid by CMG.
(b) The pro forma adjustment reflects the conversion of redeemable
preferred stock into common stock of Accipiter which was then exchanged for
CMG common stock upon the acquisition of Accipiter by CMG.
(c) The pro forma adjustment reflects the amortization of deferred
compensation expense in the amount of $541,000 and $1,082,000 for the six
months ended January 31, 1998 and the year ended July 31, 1997,
respectively, assuming that the acquisition had occurred on August 1, 1996.
See note (a) for description of the nature of the deferred compensation
expense resulting from the acquisition.
(d) The pro forma adjustment reflects the income tax benefit that would
have been recorded by the Company in its consolidated statement of
operations related to Accipiter's net losses for the six months and year
ended January 31, 1998 and July 31, 1997, respectively, assuming that the
acquisition had occurred on August 1, 1996. No tax benefit for the
amortization of goodwill or deferred compensation has been included in the
pro forma adjustment.
(e) The pro forma loss per common share is computed by dividing the net
loss available to common stockholders by the weighted average number of
common shares outstanding. The calculation of the weighted average number
of common shares outstanding assumes that the 1,263, 692 shares of the
Company's common stock issued in the acquisition of Accipiter were
outstanding for the entire period.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
- ------- ------------------------------------------------------------------
(c) Exhibits
# 2.1* Agreement and Plan of Merger dated as of April 8, 1998 among CMG
Information Services, Inc., CMGI Acquisition Corporation,
Accipiter, Inc., and Certain Stockholders of Accipiter, Inc. Named
Herein. Pursuant to Item 602 (b) (2) of Regulation S-K, the
schedules and certain exhibits to the Agreement and Plan of Merger
are omitted. A list of such schedules and exhibits appear in the
table of contents to the Agreement and Plan of Merger. The
Registrant hereby undertakes to furnish supplementally a copy of
any omitted schedule or exhibit to the Commission upon request.
# 2.2* Employee Stockholder Escrow Agreement dated April 8, 1998.
# 2.3 Non-Employee Stockholder Escrow Agreement dated April 8, 1998.
# 2.4 Employee Investment Representation and Lockup Letters dated
April 8, 1998.
# 2.5 Non-Employee Investment Representation and Lockup Letters dated
April 8, 1998.
# 2.6 Registration Rights Agreement dated April 8, 1998.
23.1 Consent of KPMG Peat Marwick, LLP, Independent Auditors.
- ----------------
* Confidential treatment requested.
# Previously filed.
<PAGE>
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.
CMG INFORMATION SERVICES, INC.
(Registrant)
Date: June 12, 1998 By: /s/ Andrew J. Hajducky III
-----------------------------
Andrew J. Hajducky III, CPA
Chief Financial Officer and Treasurer
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
CMG Information Services, Inc.:
We consent to the incorporation by reference in the registration statements (No.
33-86742 and No. 33-06745) on Form S-8 of CMG Information Services, Inc. of our
report dated March 26, 1998, with respect to the financial statements of
Accipiter, Inc. as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' deficit and cash flows for the year ended December 31,
1997 and the period from April 4, 1996 (inception) to December 31, 1996, which
report appears in the Form 8-K/A of CMG Information Services, Inc. dated
June 12, 1998.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Raleigh, NC
June 12, 1998
