8-K 1 a34035.txt MKTG SERVICES, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------------------------------------- FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: December 9, 2002 MKTG SERVICES, INC. ------------------- (Exact name of Registrant as specified in charter) Nevada 0-16730 88-0085608 -------------------------------------------------------------------------------- (State or other (Commission (I.R.S. Employer jurisdiction of File No.) Identification No.) incorporation) 333 Seventh Avenue New York, New York 10001 ------------------------ (Address of Principal Executive Offices) 917-339-7100 ------------ (Registrant's telephone number, including area code) Item 2. Acquisition or Disposition of Assets On December 9, 2002, MKTG Services, Inc. (the "Company") completed its sale of substantially all of the assets relating to its direct list sales and services business held by certain of its wholly-owned subsidiaries, MKTG Services - Boston, Inc., MKTG Services - New York, Inc. and MKTG Services - Philly, Inc. to Automation Research, Inc. ("ARI"), an Ohio corporation and wholly-owned subsidiary of CBC Companies, Inc. for $11 million in cash plus the assumption of all directly related liabilities, subject to a final working capital adjustment, pursuant to a definitive agreement entered into as of November 30, 2002. Approximately $500,000 is being held in escrow for six months in connection with certain indemnifications made by the Company and its subsidiaries in accordance with the terms and conditions of the purchase agreement. The purchase price was determined through arms-length negotiations between ARI and the Company. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (a) N/A (b) Pro forma financial information. (c) The following documents are filed herewith as exhibits to this Form 8-K: 2.1 Asset Purchase Agreement dated as of November 30, 2002 (all Exhibits and Schedules are omitted from this filing, but will be filed with the Commission supplementally upon request). 99.1 Press Release issued by the Registrant dated December 2, 2002. 99.2 Press Release issued by the Registrant dated December 10, 2002. -2- 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. MKTG SERVICES, INC. Date: December 24, 2002 By: /s/ Cindy H. Hill ----------------- --------------------------- Title: Chief Accounting Officer -3- UNAUDITED PRO FORMA FINANCIAL STATEMENTS On December 9, 2002, MKTG Services, Inc. (the "Company" or "MKTG") completed its sale of substantially all of the assets relating to its list sales and services business held by certain of its wholly-owned subsidiaries, MKTG Services - Boston, Inc., MKTG Services - New York, Inc. and MKTG Services - Philly, Inc. (collectively "North East Operations") to Automation Research, Inc., ("ARI") an Ohio corporation and wholly-owned subsidiary of CBC Companies, Inc. for $11 million in cash plus the assumption of all directly related liabilities, subject to a final working capital adjustment, pursuant to a definitive agreement entered into as of November 30, 2002. Approximately $500,000 is being held in escrow for six months in connection with certain indemnifications made by MKTG and its subsidiaries in accordance with the terms and conditions of the purchase agreement. On July 31, 2001, MKTG completed its sale of all the outstanding capital stock of its Grizzard Communications Group, Inc. ("Grizzard") subsidiary to Omnicom Group, Inc. The purchase price of the transaction was $89.8 million payable in cash. The accompanying unaudited pro forma balance sheet gives effect to the consummation of the sale of substantially all of the assets relating to the Company's North East Operations held by certain of its wholly-owned subsidiaries, as if the transaction occurred on September 30, 2002. The accompanying unaudited pro forma statements of operations gives effect to the consummation of the sale of substantially all of the assets and the assumption of all directly related liabilities relating to the Company's North East Operations held by certain of its wholly-owned subsidiaries, as if the transaction occurred as of July 1, 2001. In addition, the accompanying unaudited pro forma statements of operations gives effect to the consummation of the sale of all the outstanding capital stock of the Company's wholly owned subsidiary, Grizzard as if the transaction occurred as of July 1, 2001. The unaudited pro forma financial statements should be read in conjunction with the accompanying notes and the historical financial statements of MKTG, and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" which have been previously filed. The unaudited pro forma financial statements do not purport to present the results of operations of MKTG had the transactions assumed herein occurred as of July 1, 2001, nor are they necessarily indicative of the results of operations which may be achieved in the future. -4- MKTG Services, Inc. Pro Forma Balance Sheet As of September 30, 2002 (Unaudited) (In thousands)
MKTG Services, Inc. (Historical) (A) Adjustments Pro Forma ---------------- ----------------------- ---------------- ASSETS Current assets: Cash and cash equivalents $ 2,291 $ 8,025 (B) $ 10,316 Due from ARI - 500 (C) 500 Accounts receivable, net 17,928 (15,691)(D) 2,237 Restricted cash 4,946 - 4,946 Other current assets 1,318 (658)(E) 660 ------ --------- ------- Total current assets 26,483 (7,824) 18,659 Property and equipment, net 3,189 (2,323)(F) 866 Goodwill, net 15,518 (13,240)(G) 2,278 Identifiable intangible assets, net 569 (534)(H) 35 Related party note receivable 996 - 996 Other assets 981 (689)(I) 292 --------- ---------- ------- Total assets $ 47,736 $ (24,610) $23,126 ========= ========== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 1,426 $ (928)(J) $ 498 Accounts payable-trade 16,646 (16,132)(K) 514 Accrued expenses and other current liabilities 4,861 (1,990)(L) 2,871 Net liabilities of discontinued operation 1,593 - 1,593 Current portion of long-term obligations 4,980 (93)(M) 4,887 --------- ---------- ------- Total current liabilities 29,506 (19,143) 10,363 Long-term obligations, net of current portion 138 (36)(N) 102 Other liabilities 5,880 (273)(O) 5,607 --------- ---------- ------- Total liabilities 35,524 (19,452) 16,072 --------- ---------- ------- Convertible preferred stock 10,384 - 10,384 Minority interest in preferred stock of discontinued subsidiary 281 - 281 Stockholders' equity: Common stock 67 - 67 Additional paid-in capital 229,840 - 229,840 Accumulated deficit (226,966) (5,158)(P) (232,124) Less: treasury shares at cost (1,394) - (1,394) --------- ---------- ------- Total stockholders' equity 1,547 (5,158) (3,611) --------- ---------- ------- Total liabilities and stockholders' equity $ 47,736 $(24,610) $ 23,126 ========== ======== ========
See Notes to Pro Forma Balance Sheet. -5- MKTG Services, Inc. Notes to Pro Forma Balance Sheet As of September 30, 2002 (Unaudited) (In thousands) (A) MKTG's historical balance sheet has been derived from a previously filed Form 10Q. (B) Cash and cash equivalents: Sale price less amount held in escrow $10,500 Repayment of certain lines-of-credit (929) Transaction fees (1,546) ------- $8,025 ======= (C) Due from ARI: Funds held in escrow $500 ==== (D) Accounts receivable, net: Balance sold in transaction $(15,691) ========= (E) Other current assets: Balance sold in transaction $(658) ====== (F) Property and equipment, net: Balance sold in transaction $(2,323) ======== (G) Goodwill, net: Balance sold in transaction $(13,240) ========= (H) Identifiable intangible assets, net: Balance sold in transaction $(534) ====== (I) Other assets: Balance sold in transaction $(189) Write-off of prepaid financial advisor fees (500) ----- $(689) ==== (J) Short-term borrowings: Amount paid off with proceeds from sale $928 ==== (K) Accounts payable- trade: Liabilities assumed by ARI $(16,132) ========= (L) Accrued expenses and other current liabilities: Liabilities assumed by ARI $(1,990) ======== (M) Current portion of long-term obligations: Liabilities assumed by ARI $(93) ===== (N) Long-term obligations, net of current portion: Liabilities assumed by ARI $(36) ===== (O) Other liabilities: Liabilities assumed by ARI $(273) ======
-6- (P) Adjustment to record loss on sale: Sale price $ 11,000 Less: Book value of net assets sold adjusted for $928 of short-term borrowings not assumed by the acquirer (14,112) Less: Transaction fees (2,046) --------- Loss on sale of the North East Operations $ (5,158) (Q) ======== (Q) The Company is in the process of completing the step one process of performing a transitional impairment test of its existing goodwill, including the goodwill related to the North East Operations in connection with the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets." The results of the testing may effect the calculation of the loss on sale of the North East Operations. Any impairment charge will be booked by the Company in accordance with SFAS No. 142 transition provisions. If there is an impairment under SFAS No. 142, the loss in item (P) above will be reduced or could result in a gain.
-7- MKTG Services, Inc. Pro Forma Statement of Operations For the Year Ended June 30, 2002 (Unaudited) (In thousands, except per share data)
Grizzard MKTG Communications North East Services, Inc. Group Operations (Historical) (Historical) (Historical) (A) (B) (C) Adjustment Pro Forma ---------------------------------------------------------------- ------------- Revenues $38,972 $2,831 $20,113 - $16,028 --------- ------ ------- ------- Operating costs and expenses: Salaries and benefits 36,361 3,343 17,356 $ (39)(D) 15,623 Direct costs 5,832 1,299 3,876 - 657 Selling, general and administrative 11,824 1,168 6,684 (16)(E) 3,956 Loss on abandoned lease reserves 7,101 - - - 7,101 (Gain) loss on sale of Grizzard (1,748) 125 - 1,873 (F) - Goodwill impairment 35,900 - 30,678 - 5,222 Depreciation and amortization 3,324 - 2,931 - 393 --------- ------ ------- ------ ------- Total operating costs and expenses 98,594 5,935 61,525 1,818 32,952 --------- ------ ------- ------ ------- Loss from operations (59,622) (3,104) (41,412) 1,818 (16,924) Interest (expense) income and other (686) (515) (263) - 92 --------- ------ ------- ------ ------- Loss from continuing operations before income taxes (60,308) (3,619) (41,675) 1,818 (16,832) Provision for income taxes (516) - - (416)(G) (100) --------- ------ ------- ------ ------- Loss from continuing operations $ (60,824) $ (3,619) $ (41,675) $1,402 $ (16,932) ========== =========== ========== ======= ========== Basic and diluted loss from continuing operations per common share $ (9.95) $ (2.77) ======== ========= Weighted average common shares outstanding 6,115 6,115 ===== =====
See Notes to Pro Forma Statement of Operations. -8- MKTG Services, Inc. Notes to Pro Forma Statement of Operations For the Year Ended June 30, 2002 (Unaudited) (In thousands) (A) MKTG's historical statement of operations for the year ended June 30, 2002 has been derived from a previously filed Form 10K. (B) The elimination of Grizzard's operations for the year ended June 30, 2002 have been derived from Grizzard's books and records which were included in the consolidated statement of operations of MKTG for the year ended June 30, 2002. (C) The elimination of the North East Operations' operations for the year ended June 30, 2002 have been derived from the books and records of the Company and its wholly-owned subsidiaries, MKTG Services - Boston, Inc., MKTG Services - New York, Inc. and MKTG Services - Philly, Inc. which were included in the consolidated statement of operations of MKTG for the year ended June 30, 2002. (D) Salaries and benefits: Adjustment to reflect reduction of salaries and benefits for MKTG's and Grizzard employees dedicated to the operations of Grizzard who will no longer be employed by the Company after the sale, net of the effects of replacing certain positions related to Company wide functions previously performed by Grizzard personnel. $ (39) ====== (E) Selling, general & administrative: Adjustment to reflect reduction of expenses directly related to elimination of the Allocation of certain Grizzard costs incurred for the benefit of MKTG by Grizzard employees specified in (D) above $ (16) ===== (F) Gain on sale of subsidiary: Adjustment to reverse actual gain recognized on sale of Grizzard $1,873 ====== (G) Provision for income taxes: Additional taxes incurred for tax gain on sale of Grizzard $(400) Minimum state taxes incurred for North East Operations (16) ------ $(416) ====== (H) The pro forma loss from continuing operations for the year ended June 30, 2002 does not include a loss on sale of North East Operations in the amount of $5,158 which will be recorded in the financial statements of the Company within the next twelve months. The Company is in the process of completing the step one process of performing a transitional impairment test of its existing goodwill, including the goodwill related to the North East Operations in connection with the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets." The results of the testing may effect the calculation of the loss on sale of the North East Operations. Any impairment charge will be booked by the Company in accordance with SFAS No. 142 transition provisions. If there is an impairment under SFAS No. 142, the loss on sale of North East operations will be reduced or could result in a gain.
-9- MKTG Services, Inc. Pro Forma Statement of Operations For the Three Months Ended September 30, 2002 (Unaudited) (In thousands, except per share data)
MKTG North East Services, Inc. Operations (Historical) (Historical) (A) (B) Adjustments Pro Forma ---------------------------------------------------------------- Revenues $ 9,441 $4,937 - $ 4,504 ---------- ------ ------- Operating costs and expenses: Salaries and benefits 7,500 3,590 - 3,910 Direct costs 951 724 - 227 Selling, general and administrative 1,522 1,102 - 420 Depreciation and amortization 203 132 - 71 -------- ------ --------- ------- Total operating costs and expenses 10,176 5,548 - 4,628 -------- ------ --------- ------- (Loss) income from continuing operations (735) (611) - (124) Settlement of lawsuit 966 966 Interest expense and other (62) (34) - (28) -------- ------ --------- ------- Income (loss) from continuing operations before income taxes 169 (645) 814 Provision for income taxes (11) - - (11) -------- ------ --------- ------- Income (loss) from continuing operations $158 $ (645) $ - $803 ==== ======== ========= ==== Basic earnings per share from continuing operations $ .02 $ .12 ===== ====== Weighted average common shares outstanding- basic 6,650 6,650 ===== ===== Diluted earnings per share from continuing operations $.01 $.04 ==== ==== Weighted average common shares outstanding- diluted 21,094 21,094 ====== ======
See Notes to Pro Forma Statements of Operations. -10- MKTG Services, Inc. Pro Forma Statement of Operations For the Three Months Ended September 30, 2002 (Unaudited) (In thousands) (A) MKTG's statement of operations for the three months ended September 30, 2002 has been derived from a previously filed Form 10Q. (B) Elimination of the North East Operation's operations for the three months ended September 30, 2002 have been derived from the books and records of the Company and its wholly-owned subsidiaries, MKTG Services - Boston, Inc., MKTG Services - New York, Inc. and MKTG Services - Philly, Inc. which were included in the consolidated statement of operations of MKTG for the three months ended September 30, 2002. (C) The pro forma loss from continuing operations for the three months ended September 30, 2002 does not include a loss on sale of North East Operations in the amount of $5,158. The Company is in the process of completing the step one process of performing a transitional impairment test of its existing goodwill, including the goodwill related to the North East Operations in connection with the adoption of SFAS N0. 142, "Goodwill and Other Intangible Assets." The results of the testing may effect the calculation of the loss on sale of the North East Operations. Any impairment charge will be booked by the Company in accordance with SFAS No. 142 transition provisions. If there is an impairment under SFAS No. 142, the loss on sale of North East operations will be reduced or could result in a gain. -11-