U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT OF 1934
Commission File Number: 33-19980-D
CGI HOLDING CORPORATION
--------------------------------
(Exact name of small business issuer as specified in its
charter)
Nevada 87-0450450
-------------------- ------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
OF incorporation or organization) No.)
8400 Brookfield Avenue, Brookfield, Illinois 60513
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(708) 485-3434
-------------------------------
(Issuer telephone number)
Gemstar Enterprises, Inc., 73-251 Amber Street, Palm Desert,
California 92260
--------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the Issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the Company
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X]
No [ ] Yes [ ] No [x]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date: 8,272,779 shares of its $0.001 par value common stock
as of November 18, 1997.
Transitional Small Business Disclosure Format (check one) Yes
[ ] No [X]
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CGI HOLDING CORPORATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
December 30,
1997
-----------
Current Assets
Cash $ 28,391
Accounts receivable 2,396,101
Inventory 182,231
Other current assets 93,037
-----------
Total Current Assets 2,699,760
-----------
Property and Equipment
Leasehold improvements 28,262
Fixtures and equipment 441,336
Vehicles 155,404
Contracting equipment 426,826
-----------
1,051,828
Less: accumulated depreciation (639,643)
-----------
Net Property and Equipment 412,185
-----------
Deposits and other assets 3,552
-----------
Total Assets $ 3,115,497
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 656,196
Commissions payable 50,327
Short-term borrowings 110,341
Accrued liabilities 74,092
Income taxes payable 283,110
Billings over cost and
estimated earnings 111,399
Current portion of
long-term debt 505,608
-----------
Total Current Liabilities 1,791,073
-----------
Long-term debt, net of
current portion 185,526
Deferred Income Tax 9,822
----------
Total Long-Term Liabilities 195,348
Stockholders' Equity
Preferred stock, $0.001 par value,
5,000,000 shares authorized; no
shares issued or outstanding -
Common stock - $0.001 par value;
100,000,000 shares authorized,
8,272,779 issued and outstanding 8,273
Additional paid-in capital 248,616
Retained earnings 872,187
-----------
Total Stockholders' Equity 1,129,076
-----------
Total Liabilities and
Stockholders' Equity $ 3,115,497
===========
See the accompanying notes to condensed consolidated
financial statements.
CGI HOLDING CORPORATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Sales $2,163,171 $4,309,685 $6,438,423 $7,000,075
Cost of goods sold 1,446,380 2,794,011 4,136,584 4,424,001
---------- ---------- ---------- ----------
Gross profit 716,791 1,515,674 2,301,839 2,576,074
General and admin-
istrative expense 486,093 809,170 1,472,698 1,702,032
---------- ---------- ----------- ----------
Income from Operations 230,698 706,504 829,141 874,042
---------- ---------- ----------- ----------
Other Income(Expense)
Other (23) 4 92,901 80,647
Interest income - - 1,236 -
Interest expense (16,978) (29,471) (41,867) (62,086)
---------- ---------- ----------- ----------
Total Other
Income (17,001) (29,467) 52,270 18,561
---------- ---------- ----------- ----------
Income before income
taxes 213,697 677,037 881,411 892,603
Income tax provision 76,777 196,958 284,310 258,386
---------- ----------- ----------- ----------
Net Income $ 136,920 $ 480,079 $ 597,101 $ 634,217
========== =========== =========== ==========
Net Income Per
Common Share $ 0.02 $ 0.10 $ 0.10 $ 0.13
========== =========== =========== ==========
Weighted average
number of common
shares outstanding 7,264,863 4,961,056 5,737,431 4,961,056
========== =========== =========== ===========
See the accompanying notes to condensed consolidated financial statements.
CGI HOLDING CORPORATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash
----------------------------
For the Nine Months
Ended September 30,
---------------------
1997 1996
--------- -----------
Cash Flows From Operating Activities
Net profit $ 597,101 $ 634,216
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 79,046 70,344
Change on accounts receivable (721,206) (2,861,508)
Change in employee loan 400 -
Changes in inventory 12,905 29,643
Change in prepaid insurance 27,755 27,917
Change in cost and estimated
earnings over billings 32,007 (21,041)
Change in deposits 941 997
Change in accounts payable (37,644) 878,716
Change in accrued expenses 204,665 414,474
Change in accrued income taxes (18,376) 217,437
Change in billing in excess of
cost and estimated earnings 10,217 -
Change in investment in all
weather roofing - 5,000
--------- ----------
Net Cash Provided by (Used
in) Operating Activities 187,811 (603,805)
--------- ----------
Cash Flows From Investing Activities
Purchase of property and equipment (126,610) (147,616)
--------- ----------
Net Cash Used in Investing
Activities (126,610) (147,616)
--------- ----------
Cash Flows From Financing Activities
Proceeds from sale of common stock 48,510 -
Change in loan payable 11,500 880,248
Change in notes payable (50,558) (165,025)
Distribution to shareholder (33,640) -
Redemption of common stock (81,500) (90,000)
--------- ----------
Net Cash Provided by (Used
by) Financing Activities (105,688) 625,223
--------- ----------
Net Decrease in Cash (44,487) (126,198)
Cash at Beginning of Period 72,878 164,075
--------- ----------
Cash at End of Period $ 28,391 $ 37,877
========= ==========
See the accompanying notes to condensed consolidated financial statements.
CGI HOLDING CORPORATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NOTE 1--CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements
have been prepared by the Company, and are not audited. All
adjustments necessary for fair presentation have been included,
and consist only of normal recurring adjustments, except as
disclosed herein. These financial statements are condensed and,
therefore, do not include all disclosures normally required
by generally accepted accounting principles. These statements
should be read in conjunction with the annual financial
statements of Safe Environment Corporation and Roli Ink
Corporation included in the Company's Form 10-QSB dated June
30, 1997. The financial position and results of operations
presented in the accompanying financial statements are not
necessarily indicative of the results to be generated for the
remainder of 1997.
The consolidated financial statements include the accounts
of Safe Environment Corporation and Roli Ink Corporation for
all periods presented and the accounts of CGI Holding Corporation
from July 28, 1997. All intercompany accounts and transactions
have been eliminated upon consolidation.
NOTE 2--REORGANIZATION WITH SAFE ENVIRONMENT CORP.
AND ROLI INK CORPORATION
On July 28, 1997, the Company entered a reorganization with
two privately held corporations, Safe Environment Corporation
(Safe), a Wisconsin corporation, and Roli Ink Corporation
(Roli), an Illinois Corporation. As part of the
reorganization, the Company changed its name to CGI Holding
Corporation, and agreed to complete a 1-for-5 reverse stock
split of the outstanding common shares resulting in 3,311,723
common shares being outstanding immediately before the
reorganization. The Company then issued a controlling interest
of 4,961,056 shares (post-split) to the shareholders of Safe
and Roli.
The reorganization was accounted for as the purchase of Gemstar
Enterprises, Inc. under the purchase method of accounting. The
3,311,723 shares deemed issued in the acquisition were valued at
$(384), which was Gemstar's net capital deficiency on the date
of the reorganization. The operations of Gemstar have been
included in the consolidated results of operations from July
28, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
-------
CGI Holding Corporation, (the "Company"), was
incorporated under the laws of the State of Nevada in
October of 1987, under the name of North Star Petroleum,
Inc. and completed a public offering of its common stock and
warrants in August of 1988. Subsequent to the public
offering, the Company engaged in the exploration,
development and production of oil and gas on a joint venture
basis with other industry partners and real estate
development.
The Company's prior operations proved unsuccessful and
from 1993 until July 1997, the Company had essentially no
operations. Since the sale of its prior business, the
Company was seeking to acquire assets or to acquire or merge
with an existing operating entity in order to establish
business operations. On June 30, 1997, the Company signed
two separate Agreements and Plan of Reorganization, (the
"Reorganization Agreements") to acquire Roli Ink
Corporation, a Wisconsin corporation ("RIC"), and Safe
Environment Corp., an Illinois corporation ("SECO"), in a so
called "reverse acquisition" transaction with a closing date
of July 28, 1997. On the closing date, all shareholders of
RIC and SECO approved the transaction and tendered their
stock certificates in RIC and SECO in exchange for shares of
the Company's Common Stock. The businesses of the two
acquired corporation became the business of the Company as
well as the management of the acquired corporation becoming
the management of the Company. The Company changed its
fiscal year end from September 30, to December 31, which is
the fiscal year end of RIC and SECO.
Under the terms of the Reorganization Agreements, the
Company acquired all of the issued and outstanding shares of
RIC and SECO for an aggregate of 4,961,056 shares of Common
Stock. As a result of the purchase of RIC and SECO,
shareholders of the Acquired Corporations own approximately
59.9% of the Company. The RIC shareholders represent 26.6%
and the SECO shareholders represent 33.3% of the Company.
After the acquisition, individuals associated with the
Acquired Corporations purchased, from existing shareholders
of the Company, an additional 1,160,000 shares of Common
Stock.
Pursuant to the Reorganization Agreement, RIC's and
SECO's business became the business of the Company and John
Giura and Ann K. Knaack, who were appointed directors of the
Company on the Closing Date, will manage the operations of
the Company as well as the operations of RIC and SECO.
RIC was incorporated in the State of Wisconsin in 1985
for the purpose of manufacturing and selling water based
printing inks to industrial printers. After some initial
problems finding acceptance for water based inks versus
solvent inks, RIC developed, in house, a new ink product
line. With its new product line, RIC began focusing on the
corrugated box manufactures who were producing display grade
boxes. This area represented potentially good volume and
the box manufactures could pay the prices required by RIC's
ink products. RIC primarily concentrates its efforts on the
Wisconsin and Northern Illinois ink market due to limited
capital for expansion.
In addition to specialty corrugated ink, RIC sells ink
to envelope and label manufacturers and medical packaging
plants. It also sells a conductive and static dissipative
coating used in electronics packaging.
SECO was formed in November 1987 to provide asbestos
abatement services. SECO has been involved in the asbestos
abatement industry since its formation. SECO provides
asbestos abatement services to industrial and government
concerns desiring to remove asbestos in the workplace or
other environments in order to remedy the health risks
associated with asbestos and to return the plants and or
office facilities to operation on a timely basis.
The asbestos abatement industry developed out of
concern for the health of workers who may be exposed to
asbestos. SECO's services involve the removal of the
asbestos and the transportation of asbestos to a site where
it can be disposed. Asbestos abatement is performed in
accordance with SECO's operating procedures and applicable
federal, state, and local guidelines. Because of the health
hazards posed by asbestos, the need to comply with
applicable requirements of the Occupational Safety and
Health Administration ("OSHA") and similar state agencies
and local regulations relating to workplace safety, asbestos
abatement has to be performed by trained personnel using
approved techniques. SECO employees engaged in asbestos
abatement obtain required certification that they meet or
exceed minimal competence requirements of applicable
authorities.
Liquidity and Capital Resources
-------------------------------
For the quarter ended September 30, 1997, the Company
had assets of $3,115,612 and liabilities of $1,990,522. As
of September 30, 1997, the Company had working capital of
$678,853 consisting primarily of accounts receivable from
its subsidiary SECO. The Company feels these receivables
are collectible and that all liabilities will be able to be
paid in a timely manner. Through the acquisition of SECO
and RIC the Company increased its property, plant and
equipment by $412,185.
The Company's operations with the addition of the new
subsidiaries, Roli and SECO, are profitable and able to
cover ongoing expenses. Currently, the Company has the
plants and equipment needed to carry on its existing
operations and to expand sales in its current geographical
coverage areas. The Company does want to expand its
operations in both subsidiaries and may seek outside sources
of financing including potentially equity and/or debt
financing as warranted.
Results of Operations
---------------------
Through the acquisition of RIC and SECO, the Company
acquired two businesses that combined to produce $136,920
for the quarter ended September 30, 1997. For the quarter
ended September 30, 1997, SECO produced income of $82,907,
on sales of $1,505,879 and RIC produced income of $54,013 on
sales of $657,292. Without the acquisition of RIC and SECO,
the Company would of had no revenue.
Although the Company produced income for the quarter
ended September 30,1997, as opposed to the same time frame
in 1996, its operating subsidiary SECO experienced decreased
revenue over the same period in 1996. For the quarter ended
September 30, 1996, SECO had income of $428,127 as opposed
to the $82,907 produced in 1997. This decrease was the
result of fewer projects to bid on in 1997 as opposed to
1996. SECO is hopeful that by expanding its geographical
area, it can reverse this trend of fewer contracts to bid
on.
RIC experienced only slight gains over its income in
1996 having produced income of $51,952 for the quarter ended
September 30, 1996, as opposed to the $54,013 for the 1997
quarter. For the nine months ended September 30, 1997, Roli
experienced substantial gains over 1996, having produced
$249,524 in income as opposed to $132,188 for the same time
frame in 1996. SECO on the other hand decreased to $347,577
for the nine months ended September 30, 1997, from the
$502,029 in 1996.
The Company is hopeful to reduce some of the
administrative expenses by combining certain functions which
can be handled at the parent company level. As the
acquisition has only recently been complete, it is difficult
to determine how the combined entities will perform.
AS the Company is able to streamline its general and
administrative expenses, it is hopeful that it can expand
the geographical service area for SECO and RIC to increase
revenue. The Company is hopeful that with the cash flow
generated by the two operations, the Company will be able to
expand its new subsidiaries service areas and thereby expand
their business.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
The board of directors adopted resolutions and a
majority of the Company's shareholders approved such
resolutions providing for a recapitalization (the
"Recapitalization") pursuant to which the issued and
outstanding shares of Common Stock, were reversed split, or
consolidated, on a 1-for-5 basis, so that shareholders will
own one (1) share of common stock (hereinafter the
"Consolidated Common Stock") for each five (5) shares of
Common Stock held by the shareholder prior to the "effective
date" of the Recapitalization. No fractional shares were
issued in connection with such Recapitalization and any
fractional shares were rounded down to the nearest whole
number.
For purposes of the Recapitalization of the Common
Stock in the OTC Electronic Bulletin Board, the
Recapitalization was effective on August 4, 1997.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In July 1997, pursuant to a shareholder consent of
certain shareholders of the Company, who collectively
represent in excess of fifty percent (50%) of the votes
eligible to be cast as of the record date of June 30, 1997,
the following resolutions were approved and through actions
of the Company's officers the relevant transactions were
closed on July 28, 1997:
1. A recapitalization pursuant to which the issued
and outstanding shares of the Company's common stock were
reverse split, or consolidated, on a 1-for-5 basis so that
shareholders will own one share of Common Stock for each 5
shares now held.
2. a) An Agreement and Plan of Reorganization
dated June 30, 1997, between the Company and RIC, pursuant
to which the Company acquired RIC in a corporate
reorganization with RIC becoming a wholly owned subsidiary
of the Company, and the shareholders of RIC receiving an
aggregate of 2,200,056 post-split shares of the Common Stock
after giving effect to the Recapitalization described above.
b) An Agreement and Plan of Reorganization dated
June 30, 1997, between the Company and SECO, pursuant to
which the Company acquired SECO in a corporate
reorganization with SECO becoming a wholly owned subsidiary
of the Company, and the shareholders of SECO receiving an
aggregate of 2,761,000 post-split shares of Common Stock
after giving effect to the Recapitalization described above.
3. An amendment to the Company's Certificate of
Incorporation changing the name of the Company to CGI
Holding Corporation.
4. The election of John Giura and Ann K. Knaack as
directors of the Company, effective as of the date of the
closing of the above reorganization agreements, to serve in
accordance with the provisions of the Company's Certificate
of Incorporation and bylaws and until their successors are
elected and qualified.
Management solicited the Shareholder Consent from
holders of record of the Common Stock outstanding as of June
30, 1997. Each shareholder had the right to one vote for
each share of Common Stock owned. There was no cumulative
voting. Holders of 6,634,750 shares representing 61.67% of
the 10,758,614 issued and outstanding shares of Common Stock
approved the above actions.
As a result of the acquisition of the two companies,
RIC and SECO, the Company changed its fiscal year end from
September 30 to December 31 the fiscal year end of the two
new subsidiaries. The fiscal year end was changed to better
match were the operations of the Company were occurring.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
----------
None
(b) Reports on From 8-K.
---------------------
None. Information required to be reported pursuant to
Item 1,2, and 6 of Form 8-K has been included or reference
in this Form 10-QSB for the Quarter ended June 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
CGI HOLDING CORPORATION
Dated: November 21, 1997 By: /S/ John Giura
----------------- ------------------
John Giura, Principal
Accounting,and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet as of September 30, 1997, and statements of operations for the nine months
ended Setpember 30, 1997, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 28,391
<SECURITIES> 0
<RECEIVABLES> 2,396,101
<ALLOWANCES> 0
<INVENTORY> 182,231
<CURRENT-ASSETS> 2,699,760
<PP&E> 1,051,828
<DEPRECIATION> (639,643)
<TOTAL-ASSETS> 3,115,497
<CURRENT-LIABILITIES> 1,790,073
<BONDS> 195,348
0
0
<COMMON> 8,273
<OTHER-SE> 1,120,803
<TOTAL-LIABILITY-AND-EQUITY> 3,115,497
<SALES> 6,438,423
<TOTAL-REVENUES> 6,438,423
<CGS> 4,136,584
<TOTAL-COSTS> 4,136,584
<OTHER-EXPENSES> 1,472,698
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,867
<INCOME-PRETAX> 881,411
<INCOME-TAX> 284,310
<INCOME-CONTINUING> 597,101
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 597,101
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
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