SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
----------------------------------------
FORM 8-K/A
Amendment No. 1 to
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 21, 1998
ELLIGENT CONSULTING GROUP, INC.
[Exact Name of Registrant as specified in its Charter]
Nevada 33-14576-D 87-0453842
[State or Other Jurisdiction [Commission File No.] [IRS Employer
of Incorporation] Identification No.]
152 West 57th Street, 40th Floor, New York, New York 10019
[Address of principal executive offices; ZIP Code]
Registrant's Telephone No., including Area Code: (212) 765-2915
N/A
(Former name or Former Address, if changed since last report)
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information
ELLIGENT CONSULTING GROUP, INC. AND SUBSIDIARY
PRO FORMA COMBINED FINANCIAL STATEMENTS
[UNAUDITED]
- ------------------------------------------------------------------------------
The following pro forma combined balance sheet as of July 31, 1998 and combined
statement of operations for the year then ended give effect to the acquisition
by Patra Capital Limited ["Patra"] of the outstanding stock of Conversion
Services International, Inc. ["CSI"] effective September 21, 1998 and the effect
of Elligent Consulting Group, Inc. ["Elligent"] acquiring all of the outstanding
stock of Patra effective September 3, 1998. For accounting purposes, July 31,
1998 is the effective date for both transactions.
The pro forma information gives effect to the Patra/CSI transaction under the
purchase method of accounting and the assumptions and adjustments in the
accompanying notes to the pro forma financial statements.
The Elligent/Patra transaction is reflected as a recapitalization. Patra is
deemed to be the acquiror [for accounting purposes] as Patra received the larger
portion of voting rights in the combined entity.
The pro forma balance sheet gives effect to the transactions as if they occurred
on the balance sheet date. The pro forma statement of operations for the year
ended July 31, 1998 gives effect to these transactions as if they had occurred
at the beginning of the period presented. The historical statement of operations
of the Company will reflect the effects of these transactions from the date of
acquisition forward.
The pro forma combined statements have been prepared by Elligent's management
based upon the historical financial statements of Elligent, Patra and CSI. These
pro forma statements may not be indicative of the results that actually would
have occurred if the combination had been in effect on the date indicated or
which may be obtained in the future.
The most recent fiscal year end of the CSI differs from Elligent's most recent
fiscal year end by more than 93 days. CSI's statement of operations has been
updated to adjust for this difference. The adjustment is listed in Note [A] of
the pro forma financial information.
2
<PAGE>
ELLIGENT CONSULTING GROUP, INC. AND SUBSIDIARY
- ------------------------------------------------------------------------------
PRO FORMA COMBINED BALANCE SHEETS AS OF JULY 31, 1998.
[UNAUDITED]
- ------------------------------------------------------------------------------
<TABLE>
Elligent Patra Capital CSI
July 31, July 31, June 30, Pro Forma Pro Forma
1 9 9 8 1 9 9 8 1 9 9 8 Adjustments Combined
Assets:
Current Assets:
<S> <C> <C> <C> <C> <C>
Cash $ 333,696 $ 1,000 $ 7,780 $(1,500,000)[1] $ 342,476
1,500,000 [4]
Accounts Receivable - Net -- -- 2,777,068 -- 2,777,068
Due From Stockholders -- -- 571,981 -- 571,981
Due From Employees -- -- 25,356 -- 25,356
Other Current Assets -- -- 915 -- 915
--------- --------- ---------- ----------- -----------
Total Current Assets 333,696 1,000 3,383,100 -- 3,717,796
Property and Equipment -
Net -- 38,772 344,542 -- 383,314
Goodwill - Net -- -- -- 11,448,370[1] 11,448,370
Other Assets -- 59,689 14,893 -- 74,582
--------- --------- ---------- ----------- -----------
Total Assets $ 333,696 $ 99,461 $3,742,535 $11,448,370 $15,624,062
========= ========= ========== =========== ===========
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
3
<PAGE>
ELLIGENT CONSULTING GROUP, INC. AND SUBSIDIARY
- ------------------------------------------------------------------------------
PRO FORMA COMBINED BALANCE SHEETS AS OF JULY 31, 1998.
[UNAUDITED]
- ------------------------------------------------------------------------------
<TABLE>
Elligent Patra Capital CSI
July 31, July 31, June 30, Pro Forma Pro Forma
1 9 9 8 1 9 9 8 1 9 9 8 Adjustments Combined
Liabilities and
Stockholders' Equity:
Current Liabilities:
<S> <C> <C> <C> <C> <C>
Cash Overdraft $ -- $ -- $ 67,252 $ -- $ 67,252
Accounts Payable 792 58,000 1,272,003 -- 1,330,795
Accrued Expenses -- -- 177,333 -- 177,333
Deferred State Taxes -- -- 51,104 -- 51,104
Notes and Leases Payable -
Current -- -- 1,212,160 -- 1,212,160
Notes Payable Stockholders -
Current -- -- -- 5,953,292 [1] 5,953,292
--------- --------- ---------- ----------- ----------
Total Current Liabilities 792 58,000 2,779,852 5,953,292 8,791,936
--------- --------- ---------- ----------- ----------
Long-Term Liabilities:
Notes and Leases Payable -- -- 112,168 -- 112,168
Notes Payable
Stockholders -- -- -- 2,205,593 [1] 3,705,593
1,500,000 [4]
Due to Stockholder -- 237,401 -- 237,401
--------- --------- ---------- ----------- ----------
Total Long-Term
liabilities -- 237,401 112,168 3,705,593 4,055,162
--------- --------- ---------- ----------- ----------
Commitments and
Contingencies -- -- -- -- --
--------- --------- ---------- ----------- ----------
Stockholders' Equity:
Common Stock 1,594 200 1,100 (1,100)[1] 14,544
12,950 [2]
(200)[2]
Additional Paid-in Capital 386,955 -- 2,640,000 [1] 2,958,560
(68,395)[2]
Retained Earnings (Deficit) (55,645) (196,140) 850,415 (850,415)[1] (196,140)
55,645 [2]
Stock Subscription
Receivable -- -- (1,000) 1,000 [1] --
--------- --------- ---------- ----------- -----------
Total Stockholders'
Equity 332,904 (195,940) 850,515 1,789,485 2,776,964
--------- --------- ---------- ----------- -----------
Total Liabilities and
Stockholders' Equity $ 333,696 $ 99,461 $3,742,535 $11,448,370 $15,624,062
========= ========= ========== =========== ===========
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
4
<PAGE>
ELLIGENT CONSULTING GROUP, INC. AND SUBSIDIARY
- ------------------------------------------------------------------------------
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED JULY 31,
1998.
[UNAUDITED]
- ------------------------------------------------------------------------------
<TABLE>
Elligent Patra Capital CSI
Twelve Seven Twelve
months ended months ended months ended
July 31, July 31, December 31, Pro Forma Pro Forma
1 9 9 8 1 9 9 8 1 9 9 7 Adjustments Combined
<S> <C> <C> <C> <C> <C>
Revenue $ -- $ -- $13,246,763 $ 4,482,896 [A] $17,729,659
Cost of Revenue -- -- 8,142,709 3,250,550 [A] 11,393,259
--------- --------- ----------- ---------- -----------
Gross Profit -- -- 5,104,054 1,232,346 6,336,400
General and
Administrative
Expenses 57,781 196,140 5,190,326 1,074,068 [A] 5,678,795
(839,520)[3]
Amortization of
Goodwill 572,419 [5] 572,419
Operating Loss (57,781) (196,140) (86,272) 425,379 85,186
--------- --------- ----------- ---------- -----------
Other Revenue and
[Expenses]:
Interest Income -
Stockholder Loans -- -- 54,014 1,614 [A] 55,628
Interest Income 3,226 -- -- -- 3,226
Interest Expense -- -- (87,069) (48,323)[A] (640,680)
(505,288)[7]
Total Other Income
[Expenses] 3,226 -- (33,055) (551,997) (581,826)
--------- --------- ----------- ---------- -----------
[Loss] Income Before
Income Taxes
[Benefit] (54,555) (196,140) (119,327) (126,618) (496,640)
Income Taxes -- -- (7,631) 11,316 [A] 14,000
(3,685)[6]
14,000 [8]
--------- --------- ----------- ----------
Net [Loss] Income $ (54,555) $(196,140) $ (111,696) $ (148,249) $ (510,640)
========= ========= =========== ========== ===========
Net [Loss] Per Share $ (.05) $ (.04)
========= ===========
Weighted Average Number
of Shares Outstanding 1,064,005 14,014,005
========= ===========
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
5
<PAGE>
ELLIGENT CONSULTING GROUP, INC. AND SUBSIDIARY
- ------------------------------------------------------------------------------
NOTES PRO FORMA COMBINED FINANCIAL STATEMENTS
[UNAUDITED]
- ------------------------------------------------------------------------------
[A] Adjustment to include Conversion Services International, Inc. ["CSI"]
revenue and expenses for the period January 1, 1998 through June 30, 1998
and to eliminate CSI revenue and expenses for the period January 1, 1997
through June 30, 1997.
[1] Adjustment to reflect the merger of Patra Capital, Ltd. ["Patra"] and
Conversions Services International, Inc. ["CSI"]. The transaction is
accounted for as a purchase. Total consideration of $12,298,885 consists of
cash of $1,500,000 and notes of $8,500,000 discounted at 8% to $8,158,885
and 1.1 million shares of Elligent Consulting Group, Inc. ["Elligent"]
common stock in connection with the CSI Acquisition with an approximate
fair value of $2.64 million. The adjustment results in goodwill of
$11,448,370.
Up to approximately 354,000 additional shares of Elligent may be issued in
connection with the transaction based on the security price of Elligent
shares up to 90 days after the closing.
[2] Adjustment to reflect the merger of Elligent and Patra Acquisition, Inc. as
a recapitalization reflected at historical cost. In the merger, all of the
outstanding Patra Acquisition stock was exchanged for 12,950,000 shares of
newly issued Elligent stock of which 1.1 million shares were issued in the
Patra and CSI merger [See Note 1]. Pursuant to the merger, there are
14,544,225 common shares outstanding.
[3] To eliminate officers salaries on CSI in excess of $500,000 pursuant to
employment contracts.
[4] To reflect the loan of the funds from the majority shareholder of Elligent
to pay the $1.5 million cash portion of the purchase price.
[5] To reflect amortization of goodwill over 20 years on the straight-line
method.
[6] To eliminate CSI income taxes.
[7] To reflect interest expense on notes payable in connection with the
acquisition related debt.
[8] To reflect pro forma income taxes.
. . . . . . . . .
6
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
Elligent Consulting Group, Inc.
New York, New York
We have audited the accompanying combined balance sheets of
Conversion Services International, Inc. and its affiliate as of December 31,
1997 and 1996, and the related combined statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined 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 combined financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
combined financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Conversion Services International, Inc. and its affiliate as of December 31,
1997 and 1996, and the combined results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
June 9, 1998, except as
to Note 11 for which the date is
September 21, 1998 and except as to Note 6 for
which the date is October 5, 1998
7
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
- ------------------------------------------------------------------------------
COMBINED BALANCE SHEETS
- ------------------------------------------------------------------------------
<TABLE>
June 30, December 31,
-------- ------------
1 9 9 8 1 9 9 7 1 9 9 6
------- ------- -------
[Unaudited]
Assets:
Current Assets:
<S> <C> <C> <C>
Cash $ 7,780 $ 2,626 $ 7,141
Accounts Receivable, Less Allowance
for Doubtful Accounts of $33,200 and
$-0- at December 31, 1997 and 1996,
Respectively 2,777,068 2,293,698 1,329,075
Due from Stockholders 321,981 378,021 485,835
Due from Employees 25,356 29,106 8,550
Other Current Assets 915 915 2,750
----------- ---------- -----------
Total Current Assets 3,133,100 2,704,366 1,833,351
----------- ---------- -----------
Property and Equipment - Net 344,542 276,449 271,764
----------- ---------- -----------
Other Assets:
Due from Stockholders 250,000 250,000 --
Other 14,893 14,893 14,141
----------- ---------- -----------
Total Other Assets 264,893 264,893 14,141
----------- ---------- -----------
Total Assets $ 3,742,535 $3,245,708 $ 2,119,256
=========== ========== ===========
Liabilities and Stockholders' Equity:
Current Liabilities:
Cash Overdraft $ 67,252 $ 98,357 $ 4,170
Accounts Payable 1,272,003 1,077,144 384,876
Accrued Expenses 177,333 149,992 48,008
Deferred State Taxes 51,104 36,904 54,565
Notes and Leases Payable - Current 1,212,160 1,003,402 558,269
----------- ---------- -----------
Total Current Liabilities 2,779,852 2,365,799 1,049,888
----------- ---------- -----------
Notes and Leases Payable 112,168 143,214 205,977
----------- ---------- -----------
Commitments and Contingencies -- -- --
----------- ---------- -----------
Stockholders' Equity:
Common Stock of CSI - No Par Value,
3,000 Shares Authorized; 1,000 Shares
Issued and Outstanding 100 100 100
Common Stock of Doorways, Inc. - No
Par Value, 3,000 Shares Authorized;
1,000 Shares Issued and Outstanding 1,000 1,000 1,000
Retained Earnings 850,415 736,595 863,291
Stock Subscription - Doorways, Inc. (1,000) (1,000) (1,000)
----------- ---------- -----------
Total Stockholders' Equity 850,515 736,695 863,391
----------- ---------- -----------
Total Liabilities and Stockholders' Equity $ 3,742,535 $3,245,708 $ 2,119,256
=========== ========== ===========
</TABLE>
See Notes to Combined Financial Statements.
8
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
- ------------------------------------------------------------------------------
COMBINED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------
<TABLE>
Six months ended Y e a r s e n d e d
June 30, D e c e m b e r 31,
1 9 9 8 1 9 9 7 1 9 9 7 1 9 9 6 1 9 9 5
------- ------- ------- ------- -------
[Unaudited][Unaudited]
<S> <C> <C> <C> <C> <C>
Revenue $9,860,282 $5,377,386 $13,246,763 $9,305,906 $ 6,341,573
Cost of Revenue 6,311,693 3,061,143 8,142,709 4,776,864 3,908,404
---------- --------- ---------- ---------- -----------
Gross Profit 3,548,589 2,316,243 5,104,054 4,529,042 2,433,169
Operating Expenses 3,343,578 2,419,510 5,190,326 4,115,967 2,279,562
---------- --------- ---------- ---------- -----------
Operating Income
[Loss] 205,011 (103,267) (86,272) 413,075 153,607
---------- --------- ---------- ---------- -----------
Other Revenue and
[Expenses]:
Interest Income -
Stockholder Loans 28,917 27,303 54,014 25,812 27,292
Interest Expense (79,755) (31,432) (87,069) (33,730) (39,279)
Other -- -- -- (15,888) --
---------- --------- ---------- ---------- -----------
Total Other [Expenses] (50,838) (4,129) (33,055) (23,806) (11,987)
---------- --------- ---------- ---------- -----------
Income [Loss] Before
State Income Taxes
[Benefit] 154,173 (107,396) (119,327) 389,269 141,620
State Income Taxes
[Benefit] 18,798 (7,518) (7,631) 33,040 9,722
---------- --------- ---------- ---------- -----------
Net Income [Loss] $ 135,375 $ (99,878) $ (111,696) $ 356,229 $ 131,898
========== ========= ========== ========== ===========
</TABLE>
See Notes to Combined Financial Statements.
9
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
- ------------------------------------------------------------------------------
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
<TABLE>
Doorways,
CSI Doorways, Inc. Inc. Total
Common Stock Common Stock Retained Stock Stockholders'
Shares Amount Shares Amount Earnings Subscription Equity
Balance - December 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1,000 $ 100 1,000 $ 1,000 $454,694 $ (1,000) $454,794
Distributions -- -- -- -- (53,000) -- (53,000)
Net Income for the year
ended December 31,
1995 -- -- -- -- 131,898 -- 131,898
------ ------- ------ ------- -------- -------- --------
Balance - December 31,
1995 1,000 100 1,000 1,000 533,592 (1,000) 533,692
Distributions -- -- -- -- (26,530) -- (26,530)
Net Income for the year
ended December 31,
1996 -- -- -- -- 356,229 -- 356,229
------ ------- ------ ------- -------- -------- --------
Balance - December 31,
1996 1,000 100 1,000 1,000 863,291 (1,000) 863,391
Distributions -- -- -- -- (15,000) -- (15,000)
Net [Loss] for the year
ended December 31,
1997 -- -- -- -- (111,696) -- (111,696)
------ ------- ------ ------- -------- -------- --------
Balance - December 31,
1997 1,000 100 1,000 1,000 736,595 (1,000) 736,695
Distributions -- -- -- -- (21,555) -- (21,555)
Net Income for the six
months ended June 30,
1998 -- -- -- -- 135,375 -- 135,375
------ ------- ------ ------- -------- -------- --------
Balance - June 30, 1998
[Unaudited] 1,000 $ 100 1,000 $ 1,000 $850,415 $ (1,000) $850,515
====== ======= ====== ======= ======== ======== ========
</TABLE>
See Notes to Combined Financial Statements.
10
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
- ------------------------------------------------------------------------------
COMBINED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
<TABLE>
Six months ended Y e a r s e n d e d
June 30, D e c e m b e r 31,
1 9 9 8 1 9 9 7 1 9 9 7 1 9 9 6 1 9 9 5
------- ------- ------- ------- -------
[Unaudited][Unaudited]
Operating Activities:
<S> <C> <C> <C> <C> <C>
Net Income [Loss] $ 135,375 $ 35,122 $ (111,696)$ 356,229 $ 131,898
Adjustments to Reconcile Net
Income [Loss] to Net Cash
[Used for] Provided by
Operating Activities:
Depreciation and Amortization 85,255 69,210 135,424 86,142 39,169
Loss on Disposal of Assets -- -- -- 840 --
Loss on Investment -- -- -- 15,048 --
Provision for Bad Debts -- 7,200 33,232 5,250 21,530
Officers Salaries 100,000 -- -- -- --
----------- ---------- ----------- ----------- ----------
Net Income Adjusted for
Noncash Items 320,630 111,532 56,960 463,509 192,597
Changes in Operating Assets
and Liabilities:
[Increase] Decrease in:
Accounts Receivable (483,370) (196,616) (997,855) (463,295) (282,486)
Other Current Assets -- (6,600) 1,835 (2,750) --
Due from Employees 3,750 (10,000) (20,556) 28,086 (12,750)
Other Assets -- 274 (752) (3,029) (1,651)
[Increase] Decrease in:
Accounts Payable 194,859 160,104 692,268 (12,631) 193,258
Accrued Expenses 27,341 (25,992) 101,984 21,306 26,576
Deferred Taxes 14,200 6,027 (17,661) 28,278 3,761
----------- ---------- ----------- ----------- ----------
Net Cash - Operating
Activities - Forward 77,410 38,729 (183,777) 59,474 119,305
----------- ---------- ----------- ----------- ----------
Investing Activities:
Loans to Stockholders (43,960) (177,762) (157,186) (116,837) (359,111)
Purchase of Property and
Equipment (153,348) (70,313) (132,819) (231,108) (40,717)
Proceeds on Sale of
Equipment -- -- -- 965 --
Payment for Investment -- -- -- (18,750) --
Distribution from Investment -- -- -- 3,530 --
----------- ---------- ----------- ----------- ----------
Net Cash - Investing
Activities - Forward $ (197,308)$ (248,075)$ (290,005)$ (362,200) $ (399,828)
</TABLE>
See Notes to Combined Financial Statements.
11
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
- ------------------------------------------------------------------------------
COMBINED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
<TABLE>
Six months ended Y e a r s e n d e d
June 30, D e c e m b e r 31,
1 9 9 8 1 9 9 7 1 9 9 7 1 9 9 6 1 9 9 5
------- ------- ------- ------- -------
[Unaudited][Unaudited]
Net Cash - Operating
<S> <C> <C> <C> <C> <C>
Activities - Forwarded $ 77,410 $ 38,729 $ (183,777)$ 59,474 $ 119,305
----------- ---------- ----------- ----------- ----------
Net Cash - Investing
Activities - Forwarded (197,308) (248,075) (290,005) (362,200) (399,828)
----------- ---------- ----------- ----------- ----------
Financing Activities:
Cash Overdraft (31,105) 92,477 94,187 4,170 --
Proceeds on Borrowings on
Notes Payable 810,000 150,000 445,000 355,000 375,000
Principal Payments on Notes
and Leases Payable (632,288) (29,588) (69,920) (35,989) (29,718)
Distributions to
Stockholders (21,555) -- -- (26,530) (53,000)
----------- ---------- ----------- ----------- ----------
Net Cash - Financing
Activities 125,052 212,889 469,267 296,651 292,282
----------- ---------- ----------- ----------- ----------
Net Increase [Decrease]
in Cash 5,154 3,543 (4,515) (6,075) 11,759
Cash - Beginning of Periods 2,626 7,141 7,141 13,216 1,457
----------- ---------- ----------- ----------- ----------
Cash - End of Periods $ 7,780 $ 10,684 $ 2,626 $ 7,141 $ 13,216
=========== ========== =========== =========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 79,755 $ 31,432 $ 87,069 $ 33,730 $ 39,279
Income Taxes $ -- $ -- $ 8,713 $ 8,638 $ 1,684
Supplemental Schedule of Noncash Investing and Financing Activities:
The Company entered into capital leases for $7,290, $41,107 and $-0- during
1997, 1996 and 1995, respectively.
During 1997, $15,000 of distributions were credited to amounts due from
stockholders.
See Notes to Combined Financial Statements.
</TABLE>
12
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies
[A] Organization and Business - Conversion Services International, Inc. ["CSI"]
was incorporated on February 1, 1990. CSI and Doorways, Inc. [together the
"Company"] are principally engaged in the information technology services
industry. The Company provides consulting, professional services, systems
integration and software development, on credit, to its customers principally
located in New Jersey and New York.
The accompanying combined financial statements include the accounts of CSI and
Doorways, Inc. which is owned by a principal shareholder of CSI. All
intercompany transactions and balances have been eliminated.
[B] Revenue Recognition - Revenue from consulting and professional services are
recognized at the time the services are provided. Revenue from systems
integration and software development are recognized based on the terms of the
contracts. Revenue under maintenance contracts is recognized ratably over the
life of the contract.
[C] Property and Equipment and Depreciation and Amortization - Property and
equipment are stated at cost, less accumulated depreciation and amortization,
and includes equipment held under capital lease agreements. Depreciation, which
includes amortization of leased equipment, is computed principally by the double
declining balance method and is based on the estimated useful lives of the
various assets ranging from three to seven years. When assets are sold or
retired, the cost and accumulated depreciation are removed from the accounts and
any gain or loss is included in operations.
[D] 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.
[E] Concentrations of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk are cash and accounts
receivable arising from its normal business activities. The Company routinely
assesses the financial strength of its customers, based upon factors surrounding
their credit risk, establishes an allowance for uncollectible accounts, and as a
consequence, believes that its accounts receivable credit risk exposure beyond
such allowances is limited. The Company places its cash with a high credit
quality financial institution. The amount on deposit in any one institution that
exceeds federally insured limits is subject to credit risk. The Company had $-0-
and $97,626 as of December 31, 1997 and 1996, respectively, with a financial
institution subject to credit risk beyond the insured amount. The Company has
not experienced any losses in such accounts. The Company does not require
collateral or other security to support financial instruments subject to credit
risk.
Customers accounting for 10% or more of revenue in 1997, 1996 and 1995 are as
follows:
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
Customer A $3,481,075 $ -- $ --
Customer B $ -- $ 1,449,452 $ --
Customer C $ -- $ 1,112,968 $ --
Customer D $ -- $ 912,136 $ 784,478
Customer E $ -- $ -- $ 988,088
The above customers comprised 24% and 26% of accounts receivable at December 31,
1997 and 1996, respectively. Additionally, 1 and 2 customers, who are not
considered significant customers based on the volume of revenue, represent 10%
and 27% of accounts receivable at December 31, 1997 and 1996, respectively.
13
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #2
- ------------------------------------------------------------------------------
[1] Summary of Significant Accounting Policies [Continued]
[F] Advertising - The Company expenses advertising costs as incurred.
Advertising costs amounted to approximately $88,000, $68,000 and $22,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
[G] Income Taxes - The Company, with consent of its stockholders, has elected
under the Internal Revenue Code to be an S corporation. In lieu of federal
corporation income taxes, the stockholders of an S corporation are taxed on
their proportionate share of the Company's taxable income. Therefore, no
provision or liability for federal income taxes has been included in the
financial statements. The Company has also elected under state law to be an S
corporation. However, the Company is subject to some state corporation income
taxes.
Income taxes are provided based upon the provisions of Statement of Financial
Accounting Standards ["SFAS"] No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
[H] Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased. The
Company has no cash equivalents at December 31, 1997 and 1996.
[2] Property and Equipment and Depreciation and Amortization
Property and equipment and accumulated depreciation and amortization as of
December 31, 1997 and 1996 are as follows:
1 9 9 7 1 9 9 6
------- -------
Computers and Equipment $ 513,767 $ 380,948
Furniture and Fixtures 30,161 30,161
Property Held Under Capital Lease 48,447 41,157
---------- ----------
Totals 592,375 452,266
Less: Accumulated Depreciation and
Amortization 315,926 180,502
---------- ----------
Property and Equipment - Net $ 276,449 $ 271,764
---------------------------- ========== ==========
Depreciation expense was $135,424, $86,142 and $39,169 for 1997, 1996 and 1995,
respectively.
For property held under capital leases, amortization expense, which is included
in depreciation expense, for the years ended December 31, 1997, 1996 and 1995
was $14,628, $8,231 and $1,415, respectively, and accumulated amortization was
$22,859 and $8,231 at December 31, 1997 and 1996, respectively.
[3] Related Party Transactions - Due From Stockholders
The amounts due from stockholders of $628,021 and $485,835 at December 31, 1997
and 1996, respectively, consists of loans receivable from stockholders of the
Company. The loans are due on demand and include interest at prime plus 1.5%. At
December 31, 1997 and 1996, the prime rate was 8.50% and 8.25%, respectively.
Interest income on stockholders loans amounted to $54,014, $25,812 and $27,292
for 1997, 1996 and 1995, respectively.
14
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #3
- ------------------------------------------------------------------------------
[4] Due From Employees
The amounts due from employees of $29,106 and $8,550 at December 31, 1997 and
1996, respectively, consist of loans and advances which are non-interest bearing
and have no stated terms of repayment.
[5] Employee Benefit Plan
The Company adopted a pension plan pursuant to Section 401 [K] of the Internal
Revenue Code, that covers substantially all employees. Eligible employees may
contribute on a tax deferred basis a percentage of compensation up to the
maximum allowable amount. Employee contributions vest immediately. The Plan does
not require a matching contribution by the Company. The Company's contributions
to the Plan [which were charged to operations] were $17,690, $25,000, and
$40,000 in 1997, 1996 and 1995, respectively. The Company's contributions vest
in 20% increments annually, beginning with 2 years of service, until fully
vested after six years of service.
[6] Long-Term Debt and Capital Leases
Long-term debt at December 31, 1997 and 1996 consisted of the following:
1 9 9 7 1 9 9 6
Revolving line of credit $ 925,000 $ 480,000
Note payable to a bank in monthly installments of
$4,167, including interest at the bank's prime rate
plus 2%, due March 2001. The note is collateralized
by equipment. 162,500 200,000
Note payable to a bank in monthly installments of
$1,042 including interest at the bank's prime rate
plus 2.5%, due March 1999. The note is
collateralized by equipment. 15,625 28,125
Note payable to a bank in monthly installments of
$520 including interest at the bank's prime rate
plus 2.5%, due March 1998. The note is
collateralized by equipment. 1,600 7,840
Note payable to a bank in monthly installments of
$4,167 including interest at the bank's prime rate
plus 2.5%, due September 1997. The note is
collateralized by equipment. -- 9,375
Obligations under capital leases, collateralized by
equipment originally costing $48,447, payable in various
monthly installments including interest at various
rates from 14.75% to 20.93% through 2000. 41,891 38,906
----------- -----------
Totals 1,146,616 764,246
Less: Current Portion 1,003,402 558,269
----------- -----------
Totals $ 143,214 $ 205,977
------ =========== ===========
The revolving line of credit due April 30, 1998 bears interest at the bank's
prime rate plus 1.5% payable monthly. The Company may borrow the lesser of 80%
of eligible accounts receivable less than 90 days or $1,500,000. At December 31,
1997, the Company had approximately $532,000 in available credit under this
line. Based on the terms of the agreement, the line is collateralized by
accounts receivable and equipment. At December 31, 1997, the line of credit was
in default pursuant to certain debt covenants. The line is classified as a
current liability. On October 5, 1998, the bank waived the defaulted covenants
and extended the revolving line of credit until January 1, 1999.
15
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #4
- ------------------------------------------------------------------------------
[6] Long-Term Debt and Capital Leases [Continued]
The prime rate at December 31, 1997 and 1996 was 8.50% and 8.25%, respectively.
At December 31, 1997 and 1996, the weighted average interest rate on short-term
borrowings was 10.50% and 10.25%, respectively.
The following schedule shows the future maturities of long-term debt exclusive
of capital leases:
Years ended
December 31,
1998 $ 989,100
1999 53,125
2000 50,000
2001 12,500
-----------
Total $ 1,104,725
----- ===========
The Company leases property under capital leases. The following schedule shows
the minimum lease payments under capital lease as of December 31, 1997:
Years ended
December 31,
1998 $ 19,852
1999 17,975
2000 13,781
-----------
Total 51,608
Less: Amount Representing Interest 9,717
Total 41,891
Less: Current Portion 14,302
-----------
Long-Term Portion $ 27,589
----------------- ===========
[7] Commitments and Contingencies
Leases - The Company leases office space under an operating lease, as amended,
which expires in June of 1999. In February 1998, the Company moved its offices
to a new location. Additional rent expense in the amount of $94,294 has been
accrued for 1997, which represents the remainder of the lease payments due under
the old lease through June of 1999. The liability is included in accrued
expenses.
The Company had leased additional office space pursuant to a one year lease
which expired in May 1997.
In November 1997, the Company entered into a commitment to lease new office
space commencing February 1998 and expiring January 2003. The lease contains
provisions for the lease of additional office space for a five year term
commencing upon the completion of renovations to the initial space. The lease
contains an option to renew both spaces for a term of five years. In addition to
minimum rentals, the Company is liable for contingent rentals based on its
proportionate share of real estate taxes and operating expenses, as defined.
The Company was committed under an operating lease for an automobile which
expired May 1997.
16
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #5
- ------------------------------------------------------------------------------
[7] Commitments and Contingencies [Continued]
Leases [Continued] - Minimum annual rentals under the leases are as follows:
Year Ended
December 31,
1998 $ 194,778
1999 290,267
2000 256,750
2001 256,750
2002 256,750
Thereafter 122,749
-----------
Total $ 1,378,044
----- ===========
Total rent expense, including automobile rental, was $93,248, $92,723 and
$71,886 for the years ended December 31, 1997, 1996 and 1995, respectively.
Letter of Credit - The Company is committed under an outstanding letter of
credit with a bank to secure the security deposit on the new office space, in
the amount of $167,344, which expires November 1998. The agreement will
automatically extend for additional one year periods with a final expiration
date of November 2003.
[8] Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments are as follows:
1 9 9 7 1 9 9 6
------- -------
Carrying Fair Carrying Fair
Amount Value Amount Value
Notes Payable - Long-Term $ (115,625) $ (115,625) $ (179,715) $ (179,715)
In assessing the fair value of these financial instruments, the Company has used
a variety of methods and assumptions, which were based on estimates of market
conditions and risks existing at that time. For certain instruments, including
cash, due from related parties, and debt maturing within one year, it was
estimated that the carrying amount approximated fair value for the majority of
these instruments because of their short maturities. The fair value of the notes
payable long-term is based on current rates at which the Company could borrow
funds with similar remaining maturities.
[9] State Income Taxes [Benefit]
The state income tax provision [benefit] consists of the following:
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
Current $ (1,157)$ 6,080 $ 7,062
Deferred (6,474) 26,960 2,660
---------- ----------- -----------
Income Tax Provision [Benefit] $ (7,631)$ 33,040 $ 9,722
------------------------------ ========== =========== ===========
17
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #6
- ------------------------------------------------------------------------------
[9] State Income Taxes [Benefit][Continued]
Deferred tax liabilities was made up of the following at December 31, 1997 and
1996:
1 9 9 7 1 9 9 6
------- -------
Deferred Tax Asset:
Cash Basis Adjustments $ 41,555 $ 25,443
----------- -----------
Deferred Tax Liabilities:
Cash Basis Adjustments 77,672 78,117
Excess Book over Tax Basis of Property and Equipment 787 1,891
Totals 78,459 80,008
----------- -----------
Net Deferred Tax Liability $ 36,904 $ 54,565
-------------------------- =========== ===========
[10] New Authoritative Pronouncements
The Financial Accounting Standard Board ["FASB"] has issued Statement of
Financial Accounting Standards ["SFAS"] No. 130, "Reporting Comprehensive
Income." SFAS No. 130 is effective for fiscal years beginning after December 15,
1997. Earlier application is permitted. Reclassification of financial statements
for earlier periods provided for comparative purposes is required. SFAS No. 130
is not expected to have a material impact on the Company.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 changes how operating segments are
reported in annual financial statements and requires the reporting of selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after December 15,
1997, and comparative information for earlier years is to be restated. SFAS No.
131 need not be applied to interim financial statements in the initial year of
its application. SFAS No. 131 is not expected to have a material impact on the
Company.
In February 1998, the FASB issued SFAS No. 132, "Employees Disclosure about
Pensions and Other Postretirement Benefits," which is effective for fiscal years
beginning after December 15, 1997. The modified disclosure requirements are not
expected to have a material impact on the Company's results of operations,
financial position or cash flows.
The FASB has issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative depends on the intended use of the
derivative and how it its designated, for example, gain or losses related to
changes in the fair value of a derivative not designated as a hedging instrument
is recognized in earnings in the period of the change, while certain types of
hedges may be initially reported as a component of other comprehensive income
[outside earnings] until the consummation of the underlying transaction.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of SFAS No. 133 should be as of the
beginning of a fiscal quarter; on that date, hedging relationships must be
designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged, but
it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is
not to be applied retroactively to financial statements of prior periods. The
Company does not currently have any deriative instruments and is not currently
engaged in any hedging activities.
18
<PAGE>
CONVERSION SERVICES INTERNATIONAL, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #7
- ------------------------------------------------------------------------------
[11] Subsequent Event
The Company entered into a plan and agreement of merger with Patra Capital Ltd.
["Patra"] as of August 1, 1998, whereby all of the Company's common stock will
be sold to Patra in exchange for cash, notes receivable and restricted common
stock of Elligent Consulting Group, Inc. [a publicly-held company], the parent
company of Patra. Upon the closing on September 21, 1998, the Company merged
into Patra.
[12] Unaudited Interim Statements
The interim financial statements include all adjustments which in the opinion of
management are necessary in order to make the financial statements not
misleading.
. . . . . . . . .
19
<PAGE>
The historical financial statements of Patra will be provided within the
applicable time requirement in a subsequent amendment to this Form 8-K.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ELLIGENT CONSULTING GROUP, INC.
Dated:October 19, 1998 By: /s/ Edwin T. Brondo
---------------------
Edwin T. Brondo
Chief Financial Officer
21
