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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FEBRUARY 10, 1997
(Date of Report)
COTELLIGENT GROUP, INC.
(Exact name of registrant as specified in its charter)
AMENDMENT NO. 1
The registrant hereby amends Form 8-K dated December 11, 1996 as set
forth in the pages attached hereto. The filing of this report occurs
within 60 days after the date of application for extension of time to
file.
DELAWARE 0-25372 94-3173918
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
101 California Street, Suite 2050
San Francisco, California 94111
(address of principal executive offices) (Zip Code)
(415) 439-6400
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
COTELLIGENT GROUP, INC. FORM 8-K/A
INDEX
<CAPTION>
Page
Item 7 - Financial Statements and Exhibits
<S> <C>
COTELLIGENT GROUP, INC.
Pro forma Balance Sheet as of September 30, 1996 4
Pro Forma Consolidated Statement of Operations for the Year Ended March 31, 1994 (Unaudited) 5
Pro Forma Consolidated Statement of Operations for the Year Ended March 31, 1995 (Unaudited)..... 6
Pro Forma Consolidated Statement of Operations for the Year Ended March 31, 1996 (Unaudited) 7
Pro Forma Consolidated Statement of Operations for the Six Months Ended September 30, 1995
(Unaudited).................................................................................. 8
Pro Forma Consolidated Statement of Operations for the Six Months Ended September 30, 1996
(Unaudited).................................................................................. 9
Notes to Restated and Pro Forma Consolidated Statements of Operations............................ 10
PITTSBURGH BUSINESS CONSULTANTS
Report of Price Waterhouse LLP, Independent Accountants......................................... 11
Balance Sheet at December 31, 1995 and September 30, 1996 (Unaudited)........................... 12
Statement of Operations for the Year Ended December 31, 1995 and for the Nine Months
Ended September 30, 1996 (Unaudited)......................................................... 13
Statement of Stockholder's Equity for the Year Ended December 31, 1995 and
for the Nine Months Ended September 30, 1996 (Unaudited).................................... 14
Statement of Cash Flows for the Year Ended December 31, 1995 and for the Nine Months
Ended September 30, 1996 (Unaudited)........................................................ 15
Notes to Financial Statements.................................................................... 16
Signatures....................................................................................... 21
</TABLE>
2
<PAGE>
COTELLIGENT GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Cotelligent Group, Inc. ("Cotelligent" or the "Company") was formed
to acquire, own and operate software professional service businesses
specializing in computer consulting and contract programming. On February 20,
1996, Cotelligent merged with four companies: Financial Data Systems, Inc.
("FDSI"), BFR Co., Inc. ("BFR"), Data Arts & Sciences, Inc. ("DASI") and
Chamberlain Associates, Inc. ("CAI"), collectively the Founding Companies.
All outstanding shares of the Founding Companies' capital stock was converted
into shares of Cotelligent's Common Stock concurrently with the consummation
of an initial public offering (the "Offering") of Cotelligent Common Stock.
On June 28, 1996 Cotelligent acquired ESP Software Services, Inc.
("ESP") and INNOVA Solutions Inc. ("ISI") and on September 30, 1996 Cotelligent
acquired JasTech, Inc. and JasTech of Florida, Inc. ("JTI") (collectively the
"Pooled Companies") in business combinations accounted for under the
pooling-of-interests method. Accordingly, the historical financial statements of
Cotelligent have been restated in accordance with generally accepted accounting
principles to present the financial data as if Cotelligent and the Pooled
Companies had always been members of the same operating group.
Additionally, on November 27, 1996 Cotelligent acquired Pittsburgh
Business Consultants, Inc. ("PBC") in a business combination to be accounted
for as a pooling-of-interests.
The pro forma consolidated statements of operations for the year ended
March 31, 1996 and the six months ended September 30, 1996 give effect to the
acquisitions of the Founding Companies and Pittsburgh Business Consultants, Inc.
as if these acquisitions were made on April 1, 1995. Additionally, the pro forma
consolidated statements reflect adjustments for the acquisitions of the Pooled
Companies, PBC and the Founding Companies including elimination of the results
of operations of a PBC consulting division ("MCS") which was discontinued,
compensation differentials to employees and former owners of the Founding
Companies, PBC and the Pooled Companies, the planned termination of
contributions to retirement plans, incremental selling, general and
administrative costs of the corporate activities of Cotelligent, one-time,
non-recurring acquisition costs related to the Pooled Companies and adjustments
to reflect income taxes as if the entities were combined and subject to the
effective federal and state statutory rates for the combined entity throughout
the periods presented.
The pro forma consolidated statements of operations for the years ended
March 31, 1995 and 1994 give effect to the acquisition of Pittsburgh Business
Consultants, Inc., a business combination accounted for as a
pooling-of-interests consummated on November 27, 1996. Financial
information of PBC for the years ended December 31, 1993, 1994 and 1995 have
been combined with the financial information of the Company for the years ended
March 31, 1994, 1995 and 1996, respetively. Additionally, the consolidated
statements reflect the elimination of the results of operations of MCS, the
discontinued division, and adjustments for compensation differentials to
former owners and the planned termination of contributions to employee
benefit plans of PBC.
The pro forma consolidated balance sheet also gives effect to the
acquisition of PBC in the pooling-of-interests business combination consummated
on November 27, 1996.
3
<PAGE>
COTELLIGENT GROUP, INC.
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1996
(In Thousands)
(Unaudited)
<TABLE>
Pittsburgh
Cotelligent Business Pro Forma
Group, Inc. Consultants Adjustments Combined
--------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 9,987 $ 24 $ 10,011
Accounts receivable, net............ 16,823 3,532 20,355
Notes receivable from stockholders... 38 - 38
Notes receivable..................... - 47 47
Deferred income taxes................ 337 - 337
Prepaid expenses and other current
assets............................. 952 82 1,034
--------------- ---------------- --------------- --------------
Total current assets............... 28,137 3,658 31,882
--------------- ---------------- --------------- --------------
Property and equipment, net............. 2,469 296 2,765
Deferred income taxes................... 188 - 188
Other assets............................ 126 - 126
--------------- ---------------- --------------- --------------
Total current assets $ 30,920 $ 3,981 $ 34,901
=============== ================ =============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt...................... $ 1,608 $ 1,204 $ 2,812
Accounts payable..................... 1,617 289 1,906
Accrued compensation and related
payroll liabilities................ 4,377 1,393 5,770
Due to related parties............... 100 165 265
Income taxes payable................. 771 - 771
Deferred income taxes................ 821 - 821
Other accrued liabilities............ 1,487 210 1,697
--------------- ---------------- --------------- --------------
Total current liabilities.......... 10,781 3,261 14,042
--------------- ---------------- --------------- --------------
Long-term debt.......................... 216 - 216
Deferred income taxes................... 20 - 20
Other long-term liabilities............. 341 - 341
--------------- ---------------- --------------- --------------
Total liabilities.................. 11,358 3,261 14,619
--------------- ---------------- --------------- --------------
Commitment and contingencies - - -
Stockholders' equity:
Common stock......................... 80 10 2 (a) 92
Additional paid-in capital........... 18,006 146 82 (a) 18,327
Treasury stock....................... - (371) 371 (a) -
Retained earnings.................... 1,476 935 (455) (a) 1,956
--------------- ---------------- --------------- --------------
Total stockholders' equity......... 19,562 720 0 20,282
--------------- ---------------- --------------- --------------
Total liabilities and stockholders'
equity $ 30,920 $ 3,981 $ 0 $ 34,901
=============== ================ =============== ==============
<FN>
The accompanying notes are an integral part
of these financial statements.
</FN>
</TABLE>
4
<PAGE>
COTELLIGENT GROUP, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1994
(In Thousands)
(Unaudited)
<TABLE>
March 31,
1994 Pittsburgh
Cotelligent Business Pro Forma
Group, Inc. Consultants Adjustments Pro Forma
-------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues............................ $ 15,914 $ 10,765 $ (1,324) (f) $ 25,355
Cost of services.................... 10,249 6,793 (777) (f) 16,265
-------------- ----------------- --------------- ---------------
Gross margin........................ 5,665 3,972 (547) 9,090
Selling, general and administrative (537) (g)
expense........................... 5,021 3,183 (320) (f) 7,347
-------------- ----------------- --------------- ---------------
Operating income.................... 644 789 310 1,743
Other expense (income):
Interest expense (income), net... 70 16 - 86
Other (income)................... (11) (1) - (12)
-------------- ----------------- --------------- ---------------
Total other expense (income)... 59 15 - 74
-------------- ----------------- --------------- ---------------
Income before income taxes.......... 585 774 310 1,669
Provision for income taxes.......... 162 0 506 (h) 668
============== ================= =============== ===============
Net income (loss)................... $ 423 $ 774 $ (196) $ 1,001
============== ================= =============== ===============
<FN>
The accompanying notes are an integral part of these
financial statements.
</FN>
</TABLE>
5
<PAGE>
COTELLIGENT GROUP, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1995
(In Thousands)
(Unaudited)
<TABLE>
March 31,
1995 Pittsburgh
Cotelligent Business Pro Forma
Group, Inc. Consultants Adjustments Pro Forma
-------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues............................ $ 17,480 $ 15,784 $ (3,121) (f) $ 30,143
Cost of services.................... 12,163 10,458 (1,958) (f) 20,663
-------------- ----------------- --------------- ----------------
Gross margin........................ 5,317 5,326 (1,163) 9,480
Selling, general and administrative (517) (f)
expense........................... 5,799 4,652 (711) 9,223
-------------- ----------------- --------------- ----------------
Operating income.................... (482) 674 65 257
Other expense (income):
Interest expense (income), net... 76 28 - 104
Other (income)................... (12) - - (12)
-------------- ----------------- --------------- ----------------
Total other expense (income)... 64 28 - 92
-------------- ----------------- --------------- ----------------
Income before income taxes.......... (546) 646 65 165
Provision for income taxes.......... (77) 0 143 66
============== ================= =============== ================
Net income (loss)................... $ (469) $ 646 $ (78) (h) $ 99
============== ================= =============== ================
<FN>
The accompanying notes are an integral part of these
financial statements.
</FN>
</TABLE>
6
<PAGE>
COTELLIGENT GROUP, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1996
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
<TABLE>
Founding
Pittsburgh Companies
Cotelligent Business April 1, 1995- Pro Forma
Group, Inc. Consultants Feb 19, 1996 Adjustments Pro Forma
--------------- --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues....................... $ 33,105 $ 19,681 $ 55,745 $ (2,430) (f) $ 106,101
Cost of services............... (1,631) (f)
............................... 23,620 13,607 42,361 (298) (b) 77,659
--------------- --------------- ---------------- --------------- ---------------
Gross margin............. 9,485 6,074 13,384 (501) 28,442
Selling, general and (565) (f)
administrative expenses...... 8,106 4,856 10,374 (1,561) (d) 21,120
--------------- --------------- ---------------- --------------- ---------------
Operating income............... 1,379 1,218 3,010 1,625 7,322
Other expense (income):
Interest expense (income), (16) (f)
net....................... 129 97 421 (202) (e) 429
Other (income).............. (41) (305) (36) 339 (f) (43)
--------------- --------------- ---------------- --------------- ---------------
Total other expense
(income)............... 88 (208) 385 121 386
--------------- --------------- ---------------- --------------- ---------------
Income before income taxes..... 1,291 1,426 2,625 1,504 6,846
Provision for income taxes..... 199 - 1,952 587 (h) 2,774
--------------- --------------- ---------------- --------------- ---------------
Net income..................... $ 1,092 $ 1,426 $ 673 $ 917 $ 4,108
=============== =============== ================ =============== ===============
Earnings per share............. $.54
===============
Weighted average shares
outstanding.................. (i) 7,540,273
===============
<FN>
The accompanying notes are an integral part of these
financial statements.
</FN>
</TABLE>
7
<PAGE>
COTELLIGENT GROUP, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
<TABLE>
Founding
Pittsburgh Companies
Cotelligent Business April 1, 1995- Pro Forma
Group, Inc. Consultants Feb 19, 1996 Adjustments Pro Forma
--------------- --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues....................... $ 11,769 $ 10,584 $ 30,636 $ (1,267) (f) $ 51,722
Cost of services............... (944) (f)
............................... 8,224 7,408 23,610 (192) (b) 38,106
--------------- --------------- ---------------- --------------- ---------------
Gross margin................... 3,545 3,176 7,026 (131) 13,616
Selling, general and (330) (f)
administrative expense....... 3,017 2,536 5,404 (432) (d) 10,195
--------------- --------------- ---------------- --------------- ---------------
Operating income............... 528 640 1,622 631 3,421
Other expense (income):
Interest expense (income), (9) (f)
net....................... 70 53 246 (117) (e) 243
Other (income).............. (15) (325) (37) 339 (f) (38)
--------------- --------------- ---------------- --------------- ---------------
Total other expense
(income)................ 55 (272) 209 213 205
--------------- --------------- ---------------- --------------- ---------------
Income before income taxes..... 473 912 1,413 418 3,216
Provision for income taxes..... 47 0 1,509 (270) (h) 1,286
--------------- --------------- ---------------- --------------- ---------------
Net income (loss).............. $ 426 $ 912 $ (96) $ 688 $ 1,930
=============== =============== ================ =============== ===============
Earnings per share............. $.26
===============
Weighted average shares
outstanding.................. (i) 7,303,824
===============
<FN>
The accompanying notes are an integral part of these
financial statements.
</FN>
</TABLE>
8
<PAGE>
COTELLIGENT GROUP, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
<TABLE>
Pittsburgh
Cotelligent Business Pro Forma
Group, Inc. Consultants Adjustments Pro Forma
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues............................ $ 53,195 $ 10,014 $ - $ 63,209
Cost of services.................... 38,340 6,609 - 44,949
-------------- --------------- --------------- --------------
Gross margin................... 14,855 3,405 18,260
Non-recurring transaction costs..... 788 - (788) (c) -
Selling, general and administrative
expenses.......................... 11,477 2,702 (583) (d) 13,596
-------------- --------------- --------------- --------------
Operating income.................... 2,590 703 1,371 4,664
Other expense (income):
Interest expense (income), net... (86) 37 (14) (e) (63)
Other (income)................... (32) (21) - (53)
-------------- --------------- --------------- --------------
Total other expense (income)... (118) 16 (14) (116)
-------------- --------------- --------------- --------------
Income before income taxes.......... 2,708 687 1,385 4,780
Provision for income taxes.......... 1,855 - (39) (h) 1,816
-------------- --------------- --------------- --------------
Net income (loss)................... $ 853 $ 687 $ 1,424 $ 2,964
============== =============== =============== ==============
Earnings per share.................. $.32
==============
Weighted average shares
outstanding....................... (i) 9,361,937
==============
<FN>
The accompanying notes are an integral part of these
financial statements.
</FN>
</TABLE>
9
<PAGE>
COTELLIGENT GROUP, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
Note 1 - Unaudited Pro Forma Balance Sheet Adjustments
(a) Reclassification of components of stockholders' equity of Pittsburgh
Business Consultants, Inc. so as to appropriately reflect the components
of stockholders' equity of Cotelligent Group, Inc. subsequent to the
acquisition.
Note 2 - Unaudited Pro Forma Adjustments
Pro forma data reflects adjustments for the following:
(b) Reduction in compensation to former owners and employees as a result of the
renegotiation of executive compensation arrangements and the termination of
contributions to employee benefit plans made in conjunction with the
acquisition of the Founding Companies;
(c) The exclusion of non recurring transaction costs related to the
acquisitions of ESP, ISI and JTI;
(d) Reduction in compensation to former owners and employees of the Founding
Companies, PBC and the Pooled Companies as a result of the renegotiation of
executive compensation arrangements ($2,147 for the year ended March 31,
1996, $870 for the six months ended September 30, 1995 and $553 for the six
months ended September 30, 1996), termination of contributions to employee
benefit plans ($117 for the year ended March 31, 1996, and $62 for the six
months ended September 30, 1995 and $30 for the six months ended September
30, 1996), offset by increased expenses for corporate operating activities
($703 for the year ended March 31, 1996, and $500 for the six months ended
September 30, 1995);
(e) Reduction in interest expense as a result of termination of an employee
stock ownership plan ($147 for the year ended March 31, 1996, and $87 for
the six months ended September 30, 1995) and the payoff of debt to a former
stockholder of ESP ($55 for the year ended March 31, 1996, $30 for the six
months ended September 30, 1995 and $14 for the six months ended September
30, 1996);
(f) Adjustments to eliminate the results of operations of Pittsburgh Business
Consultants, Inc.'s MCS consulting division which was discontinued as of
December 31, 1996.
(g) Reduction in compensation to former owners of Pittsburgh Business
Consultants, Inc. ("PBC") as a result of the renegotiation of executive
compensation arrangements, and termination of contributions to PBC employee
benefit plans.
(h) Income taxes as if the entities were combined and subject to the effective
federal and state statutory rates throughout the periods presented (40% for
the years ended March 31, 1996, 1995 and 1994 and the six months ended
September 30, 1995, and 38% for the six months ended September 30, 1996);
(i) Pro forma weighted average shares outstanding used to determine pro forma
earnings per share were calculated based on the following: (i) shares
issued by Cotelligent prior to the Offering, shares issued to the
stockholders of the Founding Companies in connection with the Acquisitions
and shares sold in the Offering to pay the cash portion of the
consideration of the Founding Companies were considered outstanding for the
entire period, (ii) additional shares sold to the public in the Offering,
(iii) shares issued to acquire the Pooled Companies, (iv) shares issued to
acquire PBC and (v) dilution attributable to options to purchase common
stock in applying the treasury method.
10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Pittsburgh Business Consultants, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Pittsburgh Business Consultants,
Inc. (the Company) at December 31, 1995, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
As described in Note 1, on November 27, 1996, Pittsburgh Business Consultants,
Inc. entered into and completed an agreement and plan of reorganization and
merger with Cotelligent Group, Inc.
Price Waterhouse LLP
Minneapolis, Minnesota
December 13, 1996
11
<PAGE>
PITTSBURGH BUSINESS CONSULTANTS, INC.
BALANCE SHEET
(In Thousands Except Share Amounts)
<TABLE>
(Unaudited)
December 31, September 31,
1995 1996
----------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................$ 16 $ 24
Accounts receivable, less allowance for doubtful accounts of
$90 at December 31, 1995 and $115 at September 30, 1996.............. 3,179 3,532
Current maturities of notes receivable................................. 63 47
Prepaid expenses and other current assets.............................. 84 82
----------- ---------
Total current assets.............................................. 3,342 3,685
Notes receivable, less current maturities................................. 12 -
Property and equipment.................................................... 307 296
----------- ---------
Total assets......................................................$ 3,661 $ 3,981
=========== =========
Liabilities and Stockholders' Equity
Current liabilities:
Bank line of credit....................................................$ 745 $ 1,204
Notes payable - affiliates............................................. - 165
Accounts payable....................................................... 384 289
Accrued payroll, related taxes and withholdings........................ 1,274 1,393
Other accrued liabilities.............................................. 144 210
----------- ---------
Total current liabilities............................................ 2,547 3,261
Stockholders' equity:
Common stock - shares authorized: 100,000, $1.00
par value, issued and outstanding 10,150 shares
(including 2,422 shares held in treasury)............................ 10 10
Additional paid-in capital............................................. 9 146
Retained earnings...................................................... 1,466 935
Treasury stock, at cost................................................ (371) (371)
----------- ---------
Total stockholders' equity........................................ 1,114 720
----------- ---------
Total liabilities and stockholders' equity........................ $ 3,661 $ 3,981
=========== ==========
<FN>
The accompanying notes are an integral part of these
financial statements.
</FN>
</TABLE>
12
<PAGE>
PITTSBURGH BUSINESS CONSULTANTS, INC.
STATEMENT OF OPERATIONS
(In Thousands)
<TABLE>
(Unaudited)
For the For the
Year Ended Nine Months Ended
December 31, September 30,
----------------------------------
1995 1995 1996
----------------- ----------- ---------------
<S> <C> <C> <C>
Revenues........................................... $ 19,681 $ 14,972 $ 14,448
Cost of services................................... 13,607 10,404 9,658
----------------- -------------- ---------------
Gross margin............................... 6,074 4,568 4,790
Selling, general and administrative expenses....... 4,856 3,614 4,115
----------------- -------------- ---------------
Operating income.......................... 1,218 954 675
----------------- -------------- ---------------
Other income (expense):
Interest income.................................. 1 - 10
Interest expense................................. (118) (99) (65)
Gain on sale of assets .......................... 325 325 -
Miscellaneous expense............................ - - (3)
----------------- -------------- ---------------
Total other income (expense)............. 208 226 (58)
----------------- -------------- ---------------
Net Income....................................... $ 1,426 $ 1,180 $ 617
================= ============== ===============
<FN>
The accompanying notes are an integral part of these
financial statements.
</FN>
</TABLE>
13
<PAGE>
PITTSBURGH BUSINESS CONSULTANTS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(In Thousands, Except Share Amounts)
<TABLE>
Additional
Common Stock Retained Paid-in Treasury
Shares Amount Earnings Capital Stock Total
------ ------ -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994.... 10 $ 10 $ 1,153 $ 9 $ (371) $ 801
Net income...................... - - 1,426 - - 1,426
Shareholders' distribution...... - - (1,113) - - (1,113)
------ ----- -------- --------- -------- --------
Balance at December 31, 1995.... 10 10 1,466 9 (371) 1,114
Net income (unaudited).......... - - 617 - - 617
Issuance of stock under option
agreements (unaudited)...... - - - 137 - 137
Shareholders' distributions
(unaudited).................. - - (1,148) - - (1,148)
------- ----- -------- --------- -------- --------
Balance at September 30, 1996
(unaudited)..................... 10 $ 10 $ 935 $ 146 $ (371) $ 720
======= ====== ====== ======== ========= =======
<FN>
The accompanying notes are an integral part of these
financial statements.
</FN>
</TABLE>
14
<PAGE>
PITTSBURGH BUSINESS CONSULTANTS, INC.
STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
(Unaudited)
For the For the
Year Ended Nine Months Ended
December 31, September 30,
-------------------------------------------
1995 1995 1996
---------------------- ---------------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net In$ome............................................ $ 1,426 $ 1,180 $ 617
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Compensation expense on stock Options.............. - - 137
Provision for allowance for doubtful accounts...... 90 - 25
Depreciation....................................... 155 115 82
Gain on disposal of property and equipment......... (325) (325) (25)
Loss on marketable securities...................... - - 36
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable......... 31 300 (378)
(Increase) decrease in prepaid expenses and
other current assets............................ 35 (4) 2
Increase (decrease) in accounts payable and
accrued liabilities............................. (216) (407) 60
Other changes...................................... - - 47
------------------- ------------------- ---------------
Net cash provided by (used in)operating activities 1,196 859 603
------------------- ------------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment.................... (80) (59) (147)
Proceeds on the sale of assets......................... 392 394 100
Purchases of marketable securities..................... - - (52)
Loans to Employess..................................... (25) - -
Payments on notes receivable........................... 7 - 28
------------------- ------------------- ----------------
Net cash provided by (used in)investing activities 294 335 (71)
------------------- ------------------- ----------------
Cash Flows from financing activities:
Dividends to stockholders.............................. (1,113) (1,038) (1,148)
Net borrowings (repayments) on bank line of credit..... (391) (174) 459
Net borrowings from related parties.................... - - 165
------------------- ------------------- ----------------
Net cash provided by (used) in financing activities (1,504) (1,212) (524)
------------------- ------------------- ----------------
Net increase (decrease)in cash............................ (14) (18) 8
Cash at beginning of period............................... 30 30 16
------------------- ----------------- ----------------
Cash at end of period.................................... $ 16 $ 12 $ 24
=================== ================= ================
Supplemental disclosure of cash flow information:
Interest paid.......................................... $ 118 $ 97 $ 55
Noncash transactions investing activities:
Conversion of trade accounts receivable to note receivable $ 53 $ - $ -
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
15
<PAGE>
PITTSBURGH BUSINESS CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS
(In Thousands)
Note 1 - Business Organization
Pittsburgh Business Consultants, Inc. (the Company), provides data
processing services which include contract programming, systems analysis and
design, software support and development, technical writing and training and
project management. The majority of revenues are to customers in Pennsylvania,
Iowa and Colorado. In addition to its headquarters in Pittsburgh, Pennsylvania,
the Company also has offices located in California, Colorado, Iowa and Ohio.
On November 27, 1996, the Company entered into and completed an
agreement and plan of reorganization and merger with Cotelligent Group Inc.
(Cotelligent) whereby the Company exchanged all of its outstanding common stock
for common stock of Cotelligent. The transaction will be accounted for under the
pooling-of-interests method of accounting.
Note 2 - Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid
investments purchased with an initial maturity of three months of less.
Property and Equipment
Property and equipment are stated at cost, and depreciation is provided
over the estimated useful lives of the respective assets (three to seven years)
using straight-line or accelerated methods.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade accounts receivable.
Receivables arising from services provided to clients are not collateralized
and, accordingly, the Company performs ongoing credit evaluations of its clients
to reduce the risk of loss.
Revenue Recognition
Revenue is recognized as services are performed.
16
<PAGE>
PITTSBURGH BUSINESS CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS
(In Thousands)
Fair Value of Financial Instruments
The fair value of debt is considered to approximate carrying value as
the interest rates approximates those currently available.
Income Taxes
The Company is treated as an S Corporation for federal and state income
tax purposes pursuant to regulations of the Internal Revenue Service and the
Pennsylvania Department of Revenue. Under these regulations, the net income of
the Company is treated as taxable income to the stockholders; accordingly, the
accompanying statements of operations do not reflect any provision for income
taxes.
Earnings Per Share
Historical earnings per share has not been presented because it is not
considered to be meaningful as a result of the merger with Cotelligent as
discussed in Note 1.
Unaudited Interim Financial Statements
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial condition of the Company as of September 30, 1996 and the
results of operations and cash flows for the nine months ended September 30,
1995 and 1996, as presented in the accompanying unaudited interim financial
statements.
Note 3 - Notes Receivable
Notes receivable are comprised of the following at December 31, 1995;
<TABLE>
<S> <C>
Demand note receivable from employee, secured by mortgage on real estate
owned by the borrower, interest at 9.75%, due on December 31, 1996.............................$ 25
Unsecured note receivable, payable in monthly installments of $4 including interest
at 9.75% through July 1996...................................................................................... 3
Unsecured note receivable, payable in monthly installments of $3 including
interest at 7.12% through April 1997............................................................................ 47
------
75
Less - Current maturities......................................................................................... 63
------
Long-term portion.................................................................................................$ 12
======
</TABLE>
17
<PAGE>
PITTSBURGH BUSINESS CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS
(In Thousands)
Note 4 - Line of Credit
The Company has a loan agreement with a bank (the Loan Agreement)
which provides for a revolving line of credit with a borrowing limit equal to
the lesser of 80 percent of eligible accounts receivable or $1,900.
Outstanding borrowings are payable on demand and bear interest at the bank's
prime rate plus 1 3/4 percent (9.5 percent at December 31, 1995). The Loan
Agreement is renewable annually and is secured by accounts receivable and
equipment of the Company and the personal guarantees of the majority stockholder
and his spouse.
The Loan Agreement contains various covenants, among other things,
which limit (i) any additional indebtedness, liens or security interests in the
Company's assets except to the lender; (ii) advances or loans to others and
advances to any officer in excess of $25; (iii) distributions to stockholders;
(iv) guarantees for the indebtedness of others; and, (v) transfer of assets or
conducting business with any affiliate.
The Loan Agreement also requires the maintenance of certain financial
ratios for the Company including (i) minimum working capital of not less than
$650, (ii) tangible net worth of not less than $1,000; and (iii) debt to
tangible net worth of 3.0 to 1 or less. If these financial ratios are satisfied,
and debt to tangible net worth is 2.0 to 1 or less, the Loan Agreement provides
for a reduction in the interest rate to the bank's prime rate plus 1/2 percent.
As of December 31, 1995, the Company was not in compliance with the
covenant relating to distributions to stockholders for which a waiver was
obtained from the lending bank.
The outstanding balance of this line of credit was paid in December
of 1996 in conjunction with the merger with Cotelligent.
Note 5 - Property and Equipment
Property and equipment consisted of the following at December 31, 1995:
<TABLE>
December 31,
1995
-------------
<S> <C>
Furniture and office equipment................................................................. $ 884
Vehicles....................................................................................... 52
------------
936
Less - Accumulated depreciation................................................................. 629
------------
$ 307
============
</TABLE>
Depreciation expense for the year ended December 31, 1995 was $155.
18
<PAGE>
PITTSBURGH BUSINESS CONSULTANTS
NOTES TO FINANCIAL STATEMENTS
(In Thousands)
Note 6 - Lease Commitments
The Company's general offices are leased under terms of an operating
lease agreement (the Lease Agreement) which expires January 1999. The Lease
Agreement requires the Company to pay for its proportionate share of increases
in defined operating expenses in excess of 1993 levels; however, such additional
payment shall not exceed 4% of the required annual minimum rental. The Company
may terminate the lease Agreement by giving written notice 90 days prior to the
commencement of either of the last two years of its term and payment of a
maximum cancellation fee ranging from $38 to $19.
The Company also rents office space in various other locations under
terms of operating lease agreements which have remaining terms of forty-nine
months or less.
The Company also leases two vehicles and certain equipment under
non-cancelable operating lease agreements. The Company's majority stockholder
and his spouse have personally guaranteed payment of one vehicle lease.
Future minimum lease payments for the Company's operating leases are as follows:
<TABLE>
Equipment
Years Ending and Office
December 31, Vehicles Space Total
-------------- ---------------- ------------------
<S> <C> <C> <C>
1996............................................ $ 50 $ 256 $ 306
1997............................................ 42 418 460
1998............................................ 22 402 424
============== ================ ==================
$ 114 $ 1,076 1,190
============== ================ ==================
</TABLE>
Total lease expense recorded by the Company was $400 for the year ended December
31, 1995.
Note 7 - Profit-Sharing Plan
The Company maintains a profit-sharing plan (the Plan) covering
substantially all employees. The Plan permits employees to make contributions
and provides for the Company to make matching contributions at the discretion of
the board of directors, based on established percentages of up to 6 percent of
compensation. For the year ended December 31, 1995, the Company's board of
directors authorized matching contributions of $55, which is presented as a
current liability in the accompanying balance sheet.
Note 8 - Related Parties
In January 1996, the Company entered into an agreement with Manutech,
Services, Inc. an affiliated entity, which provides for the Company to borrow
from or lend to the affiliate up to $500 at a rate of 9.25%. As of September 30,
1996 the Company had $165 of outstanding borrowings under this agreement.
The Company also provides accounting and administrative services
for Manutech Services, Inc. The Company charges $2 per month for these
services, which is deemed to be the cost of providing these services.
Note 9 - Significant Clients
During 1995, one client accounted for approximately 49% of revenues.
19
<PAGE>
PITTSBURGH BUSINESS CONSULTANTS
NOTES TO FINANCIAL STATEMENTS
(In Thousands)
Note 10 - Disposition of MCS Practice
The Company ceased the operations of its MCS consulting division in
two transactions as described below.
Under the terms of a purchase and sale agreement (the Agreement),
dated June 9, 1995 the Company sold, to an unrelated third party, certain
furniture and equipment with a net book value of $49, seven employment contracts
with professional consulting staff, the right to enter into contracts with
certain customers in the health care industry that were in process, the trade
name of its MCS division, and related goodwill for an adjusted cash sales price
of $388. The sale resulted in a gain of $339 which is included in the statement
of operations. The Agreement also provides, among other things, that the Company
cannot own or have an equity interest in any data center which processes
transactions for the health care industry, and competes with the purchaser for a
period of 5 years.
Additionally, pursuant to the terms of a sales agreement (the Sales
Agreement) effective January 1, 1996, the Company sold its right, title and
interest to a consulting contract with a customer, to Manutech Services, Inc.
(Manutech), an entity incorporated on February 12, 1996, and owned by the
stockholders of the Company and the three children of its majority stockholder
who are presently employed by the Company. The Company received a promissory
note in the amount of $25 to be paid in monthly installments of $2 including
interest at 6.4 percent through March 1, 1997.
Additionally, the Company sold, at net book value, furniture and
equipment to Manutech for a $73 promissory note to be paid in monthly
installments of $6 including interest at 9.25% through March 1, 1997.
During the year ended December 31, 1995, contract income, from the
customer associated with the contract sold to Manutech accounted for 7% of the
Company's sales.
The Sales Agreement and the agreements referred to in the preceding
paragraph violated the covenant in the Company's Loan Agreement with respect
to the transfer of assets or conducting business with any affiliate. A waiver
was obtained from the lending bank for this violation.
Note 11 - Stock Options
On January 8, 1996, the Company's President and 98% Shareholder
granted to two employees stock options to purchase 3.0% of the outstanding stock
of the Company directly from the Shareholder, at an exercise price equal to the
net asset value per share of the Company at December 31, 1995.
Compensation expense of $137 was recorded based on the difference
between the exercise price and the fair market value of the stock on the grant
date.
These options were exercised on November 26, 1996.
20
<PAGE>
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 thereunto duly authorized.
COTELLIGENT GROUP, INC.
February 10, 1997 /s/ CURTIS J. PARKER
- ----------------- -------------------------
Date Curtis J. Parker
Vice President
and Chief Accounting Officer
21
<PAGE>
