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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
----------------
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to __________
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Commission File Number 33-19980-D
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CGI Holding Corporation
-----------------------------------
(Exact name of registrant as specified in charter)
Nevada 87-0450450
- ------------------------------ -------------------------
State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization
8400 Brookfield Avenue, Brookfield, Illinois 60513
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (708) 485-3434
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Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
- ------------------ -----------------------------------------
Securities registered pursuant to section 12(g) of the Act:
None
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(Title of class)
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 registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. (1) Yes [X] No [ ] (2) Yes
[ ] No [X]
Check if disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB. [ ]
<PAGE> 1
State issuer's revenues for its most recent fiscal year: $8,885,787
State the aggregate market value of the voting stock held by
nonaffiliates computed by reference to the price at which the stock
was sold, or the average bid and asked prices of such stock, as of
a specified date within the past 60 days: The Company does not
have an active trading market and it is, therefore, difficult, if
not impossible, to determine the market value of the stock. Based
on the bid price for the Company's Common Stock at March 19, 1998, of $1.25
per share, the market value of shares held by nonaffiliates would be
$6,995,959.
As of March 19, 1998, the Registrant had 8,272,777 shares of
common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the part of the form 10-KSB (e.g., part I, part II, etc.) into which the
document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or other information statement; and (3) Any prospectus filed pursuant to
rule 424(b) or (c) under the Securities Act of 1933: NONE
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY AND ORGANIZATION
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 developments.
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 and management of the two acquired corporations became
the business and 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 RIC and SECO acquired approximately 59.9% of the
Company. After the acquisition, the RIC shareholders represented 26.6% and
the SECO shareholders represented 33.3% of the Company. Other individuals
purchased 1,160,000 shares of Common Stock in private transactions from
existing shareholders of the Company.
Pursuant to the Reorganization Agreement, RIC's and SECO's businesses
became the business of the Company, and John Giura and Ann K. Knaack, who were
appointed directors of the Company at the closing of the acquisition, took
over management of the Company as well as the operations of RIC and SECO.
RIC
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 manufacturers who were
producing display grade boxes. This area represented potentially good volume,
and the box manufacturers 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. Currently, RIC's major
competitors are INX, Sun Chemical, Heritage International and Progressive
Inks. RIC supplies approximately 40 customers total with four of those
customers accounting for approximately 64% of its business. The loss of any
of these four customers would have a material negative effect on RIC's
business. Additionally, RIC has only one independent manufacturer's
representative who sells approximately 60% of RIC's ink. The loss of the
services of this independent representative could
<PAGE> 3
have a material negative effect on RIC's sales. Only 40% of RIC's sales were
generated from "in house" personnel.
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.
All of RIC's inks are water based and contain no materials which are
listed as "hazardous" materials by the Food and Drug Administration or
Environmental Protection Agency. All RIC's inks are in compliance with CONTEG
regulations which specify that no more than 100 parts per million of heavy
metals be used. Additionally, no RIC ink contains ozone depleting substances
as identified by the U.S. Clean Air Act amendment of 1990.
SECO
SECO was formed in November 1987 to provide asbestos abatement services.
SECO has been involved in the asbestos abatement industry since its formation
and has recently expanded to include lead mitigation in order to better serve
the clients overall environmental needs. SECO provides asbestos abatement
services to industrial, government and private concerns desiring to remove or
abate asbestos and/or lead in the workplace or residence in order to alleviate
the health risks associated with asbestos and/or lead.
The asbestos and lead environmental remediation industry developed out of
concern for the health of workers, students and residents who may be exposed
to these hazards. Environmental remediations are performed in accordance with
SECO's standard operating procedures which meet or exceed applicable federal,
state, and local regulations and guidelines. Because of the health hazards
posed by asbestos and lead, the need to comply with requirements of the
Occupations Safety and Health Administration ("OSHA"), the Environmental
Protection Agency ("EPA"), and similar state and local agencies, environmental
remediation has to be performed by trained and licensed personnel using
approved techniques and equipment.
As the asbestos abatement industry matures and the market shrinks, SECO
intends to look for other opportunities. At the present time, SECO has not
identified any other business it intends to enter. SECO has begun developing
asbestos and lead operations and maintenance programs to assist building
owners to manage their asbestos and lead in place, with large
scale removal occurring only to facilitate renovation or prior to building
demolitions. SECO is also investigating the potential to expand into
interior demolition, re-insulation, painting and duct cleaning.
The Company has conducted an initial review of the potential for computer
and programming problems related to the year 2000 wherein some computer
programs will interpret the 00 at the end of the year 2000 as 1900. At the
present time, the Company does not anticipate incurring any major expenses or
time delays because of the year 2000 problem.
ITEM 2. DESCRIPTION OF PROPERTIES
RIC leases approximately 11,550 square feet of manufacturing and office
space under a lease effective from August 21, 1996, and ending on September
30, 1999. Under the terms of the RIC lease, RIC pays a monthly fee of $3,164
plus real estate taxes of $602.25 per month. The building contains another
3,450 feet which RIC may expand into if future growth warrants such
expansion. Currently, RIC only operates one shift and believes additional
shifts can be added in the future to handle anticipated growth. RIC is
<PAGE> 4
located in Milwaukee, Wisconsin.
SECO, located in Brookfield, Illinois, leases, on a month to month
basis, approximately 8,000 square feet of office, warehouse and storage
facilities. Approximately 2,000 square feet is used as office space with the
remaining facility principally used as a warehouse. Most of SECO's projects
are performed on site so its facilities are primarily used for storing and
working on its equipment when not in use. The terms of the lease require
monthly payments of $2,500 during 1997 and $3,000 per month starting in
January 1998. The building is leased from 8400 Brookfield Partners which is
owned and controlled by John Giura, the president of the Company, and James
Spachman, a major shareholder of the Company. The lease is on a month to
month term. (See: Item 12: "Certain Relationships and Related
Transactions.") The Company also uses this facility as its corporate
offices. The Company and SECO believes this facility will be adequate for its
future needs.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the National Association of
Securities Dealers Electronic Bulletin Board under the symbol "CGIC." Set
forth below are the high and low bid prices for the Company's Common Stock for
each quarter during the last two years. Although the Company's Common Stock
is quoted on the Electronic Bulletin Board it has traded sporadically with low
volume. Consequently, the information provided below may not be indicative of
the Company's Common Stock price under different conditions.
Quarter Ended High Bid Low Bid
- ------------- -------- -------
March 1996* $0.09 $0.06
June 1996* $0.06 $0.06
September 1996* $0.06 $0.06
December 1996* $0.06 $0.06
March 1997* $0.06 $0.06
June 1997* $0.06 $0.06
September 1997 $4.50 $1.50
December 1997 $3.75 $1.625
*The stock prices prior to August 1997 do not reflect the 1 for 5 reverse
split and are prior to the merger with RIC and SECO. Accordingly, such
figures do not properly provide a history of the Company's securities on which
to make an investment decision.
At March 19, 1998, the bid and asked price for the Company's Common Stock
was $1.25 and $1.44 respectively. All prices listed herein reflect
inter-dealer prices, without retail mark-up, mark-down or commissions, and may
not represent actual transactions. Since its inception, the Company has not
<PAGE> 5
paid any dividends on its Common Stock, and the Company does not anticipate
that it will pay dividends in the foreseeable future. At March 19, 1998, the
Company had approximately 154 shareholders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
OVERVIEW
The Company's financial statements and results of operations reflect the
acquisition of RIC and SECO in 1997. Prior to the acquisition of RIC and
SECO, the Company had no operations or revenue. With the addition of RIC and
SECO, the Company posted its first profitable year having net consolidated
income of $653,053 on sales of $8,885,787. As the Company had no operations
prior to the acquisition of RIC and SECO, all comparisons set forth herein
reflect the comparisons as to how RIC and SECO performed in 1997 as opposed to
prior years. The operations of the Company prior to the acquisition of RIC
and SECO offer no comparative value since the Company had no operations or
direction, and future operations will focus on RIC and SECO.
Any Statements made by the Company that are forward looking are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned that forward-looking statements
invoke risk and uncertainties which may affect the Company's business
prospects and performance. This includes economic, competitive, governmental,
technological and other factors discussed in this filing which may or may not
materialize. Any forward-looking statements made herein may not reflect the
risk factors and uncertainties surrounding such statements.
PLAN OF OPERATION
Through the acquisition of RIC and SECO, the Company acquired $2,446,671
in assets as of December 31, 1997. These assets included $390,054 in
property, plant and equipment which had a value before depreciation of over
$1,049,918. The Company had current assets of $2,053,065 at December 31,
1997, resulting in working capital of $1,287,472.
The majority of the Company's current assets are accounts receivable
consisting of $1,513,279. The Company's accounts receivable, as collected,
will be enough to cover all of the Company's current liabilities of
$1,159,199. The Company only has $165,158 in long term debt, which also could
be covered by current accounts receivable, when collected.
The Company believes its current property, plant and equipment are
adequate for the Company's current and foreseeable needs. If the Company is
able to expand into different regions of the United States, it will be
necessary to acquire additional plant space and equipment which would be
located closer to the clients.
With the Company's available funds, the Company should be able to
continue to operate and complete its projects for the 1998 year as well as to
expand its operations as business warrants.
The immediate focus will be consolidating RIC and SECO, where possible,
including office personnel, management and accounting. Management believes
that cost savings and improved productivity can be achieved through this
consolidation.
The Company intends to continue to focus on the asbestos and lead
abatement field with SECO, and ink production and sales with RIC. The Company
<PAGE> 7
is, however, cognizant of the need to diversify its focus on the asbestos and
lead abatement industries as asbestos and lead abatement projects become
fewer. At present the Company has not identified any new business
opportunities but will be investigating potential new businesses in the
future.
RESULTS OF OPERATIONS
The Company's wholly owned subsidiaries, RIC and SECO, continued to
remain profitable producing combined sales of $8,885,787. Sales did decrease
from the $9,707,805 for the year ended December 31, 1996. This decrease was
principally due to one of the Company's subsidiaries, SECO, having to delay
the commencement of a large project. Although overall sales decreased, net
profits before taxes increased to $971,141 from $726,361.
In 1997, the net profit after taxes increased to $653,053 from $522,149
in 1996. This increase resulted from a reduction in cost of goods sold to
$5,799,760 which represented approximately 65% of the sales, as opposed to
1996 when cost of goods sold was $6,773,556 which represented approximately
70% of sales. This decrease was due to bidding on more profitable contracts
in SECO and reducing overhead in RIC.
General and administrative expenses remained fairly constant from 1996 to
1997. The Company is working on reducing general and administrative expenses
as it consolidates some of the operations, particularly management and
clerical functions, for its two subsidiaries SECO and RIC.
RIC
RIC had sales of $2,702,184 for the year ended December 31, 1997, with
net profits before taxes of $354,912. As with SECO, RIC's sales decreased in
1997 from 1996 when sales were $2,845,543. This decrease in sales, however,
was offset by the reduction in cost of operations from $1,460,745 to
$1,399,775. Expenses decreased due to the expiration of a management
contract. RIC does not anticipate that expenses will increase in the future
beyond the percentage currently being incurred. As a result of the decrease
in expenses, net income increased to $284,500 for RIC in 1997 as opposed to
$142,662 in 1996.
The Company anticipates that both RIC and SECO will experience moderate
increases in sales for 1998. The Company will also focus on reducing
operating expenses and on consolidating the operations of SECO and RIC. There
can be no assurance that sales will increase or that expenses can be reduced.
SECO
SECO accounted for $6,183,602 in sales with profit before income tax of
$516,525. This represented a decrease in sales from $6,862,261 in 1996.
Although sales decrease by $678,659 from 1996, profits before taxes increased
to $516,525 from $418,265 in 1996. The increase in profits was the result of
more efficient and accurate bidding on projects with higher profit margins.
As a result, the cost of operations was only $4,539,014 in 1997 compared to
$5,373,781 in 1996.
The net profits after taxes decreased to $364,090 for SECO in 1997 from
the $409,486 in 1996. In 1996, SECO was able to take advantage of a net
operating loss carryforward which reduced the tax obligation of SECO in 1996.
Beginning in 1997, the net operating loss carryforward was zero.
<PAGE> 7
SECO is hopeful that its current bidding process will continue to result
in improved profits on the projects it performs. This will be increasingly
important as the number of asbestos abatement projects declines in the future.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are set forth immediately
following the signature page to this form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no disagreements with its certified public
accountants with respect to accounting practices or procedures or financial
disclosure. The Company did change its independent accountant as reported in
the Company's form 8-k dated February 20, 1998.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth as of March 19, 1998, the name, age, and
position of each executive officer and director and the term of office of each
director of the Company.
Name Age Position Director or Officer Since
---- --- -------- -------------------------
John Giura 65 President, Chief Financial
Officer, Director August 1997
Ann Knaack 41 Vice-President,
Director August 1997
Debra Moore 36 Secretary August 1997
Set forth below is certain biographical information regarding the
Company's executive officers and directors.
John Giura, has for the past five years been a director and president of
RIC and SECO. For over 36 years, Mr. Giura has been a business owner, manager
and operator in the fields of investment management, venture capital and
various types of operating companies. In 1987, Mr. Giura co-founded SECO and
in 1994 acquired control of SECO. In 1993, Mr. Giura, along with other
individuals acquired control of RIC and has been its acting president, chief
executive officer and director since acquiring control. Mr. Giura received
his BA degree from the University of Naples (Italy) in 1956 and an MA in
economics from the University of Chicago in 1961.
Ann K. Knaack, has been an officer of RIC for the past five years. Prior
to joining RIC, Ms. Knaack worked for the Signmark Division of the W.H. Brady
Company in Milwaukee, Wisconsin. Ms. Knaack received her BA in business and
management from Alverno College in Milwaukee, Wisconsin.
<PAGE> 8
Debra Moore currently is employed by the Company. Ms. Moore has a decade
of extensive experience in the asbestos abatement industry. Ms. Moore was
responsible for personnel management and account receivables and also held a
license for abatement as a supervisor and management planner during her time
with SECO. Ms. Moore's career in the environmental industry began in 1986 at
Asbestos Training and Employment, Inc. She joined SECO in 1989 and moved to
the position of executive assistant to the Director of Waste Solutions
Corporation in 1996. Ms. Moore then assumed responsibility for corporate
records and customer affairs. Ms. Moore attended Purdue University.
Except as set forth below, to the knowledge of management, during the
past five years, no present or former director, or executive officer of the
Company:
(1)filed a petition under the federal bankruptcy laws or any state
insolvency law, nor had a receiver, fiscal agent or similar officer appointed
by a court for the business or property of such person, or any partnership in
which he was a general partner at or within two years before the time of such
filing, or any corporation or business association of which he was an
executive officer at or within two years before the time of such filing;
(2)was convicted in a criminal proceeding or named subject of a pending
criminal proceeding (excluding traffic violations and other minor offenses);
(3)was the subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining him from or otherwise limiting, the
following activities:
(i) acting as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker, leverage
transaction merchant, associated person of any of the foregoing, or as an
investment advisor, underwriter, broker or dealer in securities, or as an
affiliate person, director or employee of any investment company, or engaging
in or continuing any conduct or practice in connection with such activity;
(ii) engaging in any type of business practice; or
(iii)engaging in any activity in connection with the purchase or
sale of any security or commodity or in connection with any violation of
federal or state securities laws or federal commodities laws;
(4) was the subject of any order, judgment, or decree, not subsequently
reversed, suspended, or vacated, of any federal or state authority barring,
suspending, or otherwise limiting for more than 60 days the right of such
person to engage in any activity described above, or to be associated with
persons engaged in any such activity;
(5) was found by a court of competent jurisdiction in a civil action or
by the Securities and Exchange Commission to have violated any federal or
state securities law, and the judgment in such civil action or finding by the
Securities and Exchange Commission has not been subsequently reversed,
suspended, or vacated.
(6) was found by a court of competent jurisdiction in a civil action or
by the Commodity Futures Trading Commission to have violated any federal
commodities law, and the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated.
Mr Giura, president of the Company, has been disqualified from acting as a
Registered Investment Advisor as a result of two federal convictions in 1986
and 1989 relating to allegations occurring prior to June 1985. To the best
of the Company's knowledge, there are no other injunctions or permanent bars
limiting Mr Giura's involvement in any type of business, security or banking
activities.
<PAGE> 9
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company is not subject to the requirements of Section 16(a) of the
Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Company's last three completed
fiscal years for the Company's or its principal subsidiaries' chief executive
officer, and each of its other executive officers that received compensation
in excess of $100,000 during such period (as determined at December 31, 1997,
the end of the Company's last completed fiscal year):
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options All
Principal Year Salary Bonus($) Compensation Awards /SARs Other
Position Compensation
- -------------- ----- ------ -------- ------------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
John Giura 1997 53,000* -0- 7,200 -0- -0- 3,000
President
and CEO
Denny Nestripke
Former President
And CEO 1996 -0- -0- -0- -0- -0- -0-
1995 -0- -0- -0- -0- -0- -0-
</TABLE>
*Mr. Giura's compensation was paid by RIC during the 1997 fiscal year. In
1996 and 1995, Mr. Giura received $48,000 in salary from RIC. In 1996, Mr.
Giura also received $100,000 in compensation from SECO.
Cash Compensation
There was no cash compensation paid to any director of the Company during
the fiscal years ended December 31, 1997, 1996, and 1995. Mr. Giura did
receive compensation from RIC, one of the Company's subsidiaries, during the
1997 fiscal year. Mr. Giura does not have any employment contract with the
Company and no set compensation arrangement has been set for Mr. Giura for
1998.
Bonuses and Deferred Compensation
None.
<PAGE> 10
Compensation Pursuant to Plans.
None.
Pension Table
None.
Other Compensation
None.
Compensation of Directors.
None.
Termination of Employment and Change of Control Arrangement
There are no compensatory plans or arrangements, including payments to be
received from the Company, with respect to any person named in the Cash
Compensation section set out above which would in any way result in payments
to any such person because of his resignation, retirement, or other
termination of such person's employment with the Company or its subsidiaries,
or any change in control of the Company, or a change in the person's
responsibilities following a changing in control of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 2, 1998, the name and the
number of shares of the Company's Common Stock, par value $0.001 per share,
held of record or beneficially owned by each person who held of record, or was
known by the Company to own beneficially, more than 5% of the 8,272,777 issued
and outstanding shares of the Company's Common Stock, and the name and
shareholdings of each director and of all officers and directors as a group.
Title
of Name of Amount and Nature of Percentage
Class Beneficial Owner Beneficial Ownership(1) of Class
- ----- ---------------- -------------------- ----------
Common John Giura
C/O CGI Holding
Corporation
400 Brookfield
Avenue
Brookfield, Illinois
60513 2,536,494 (a) 30.66%
Common Depository Trust Company 649,165 7.85
Common James Spachman
735 Selbourn Road
Riverside, Illinois
60546 814,000 9.84%
Officers, Directors:
Common John Giura ----See Above-----
Common Ann K. Knaack 68,016 0.82%
Common Debra Moore 71,500 (b) 0.86%
All Officers and Directors
as a Group (3 Persons) 2,676,010 32.35%
<PAGE> 11
(a) Includes 135,300 shares which are held jointly by Mr. Giura and Mr.
Spachman and 1,021,900 held by CIB Bank Hillside as custodian for Mr. Giura.
Mr. Giura also controls 260,000 shares owned by Mentor Investments, a company
he controls.
(b) Ms. Moore has 51,500 shares in her name and 20,000 shares she controls as
custodian for her children.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS.
The Company leases its SECO office facilities from 8400 Brookfield
Partners which is owned by John Giura, the president of the Company, and James
Spachman who is a principal shareholder of the Company. The Company pays 8400
Brookfield Partners $3,000 per month for lease of the facilities starting in
1998. (See: Item 2: "Description of Properties.")
The current management of the Company, John Giura and Ann Knaack, were
both shareholders and officers of RIC and SECO prior to their acquisition by
the Company. Due to his share ownership in RIC and SECO, Mr. Giura, in
particular, received a substantial number of shares of common stock of the
Company as a result of the acquisition of RIC and SECO. The Company believes
that the acquisitions were arms length negotiations.
CERTAIN BUSINESS RELATIONSHIPS
During the fiscal year ended December 31, 1997, there were no material
transactions between the Company and its management or principal shareholders
except as set forth above.
INDEBTEDNESS OF MANAGEMENT
Mr. Giura and Mr. Spachman loaned SECO various amounts on a revolving
personal line of credit as projects where undertaken. Such amounts did not
exceed $300,000 during the year. All funds loaned to SECO were paid back
during the 1997 fiscal year.
TRANSACTIONS WITH PROMOTERS
The Company was organized more than five years ago; hence transactions
between the Company and its promoters or founders are not deemed to be
material.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1)FINANCIAL STATEMENTS. The following financial statements are included
in this report:
Title of Document Page
- ----------------- ----
Report of Poulos & Bayer, LTD., Certified Public Accountants 15
Balance Sheets as of December 31, 1997, and 1996 16
Statements of Stockholders' Equity for the years ended
December 31, 1997, and 1996, and from inception 17
<PAGE> 12
Statements of Operations for the twelve and three months
ended December 31, 1997, and 1996 18
Statements of Operations for the twelve months ended
December 31, 1997, 1996 and 1995 19
Statements of Cash Flows for the fiscal years ended
December 31, 1997, and 1996 20
Notes to Financial Statements 21
(a)(2)FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedules are included as part of this report:
None.
(a)(3)EXHIBITS. The following exhibits are included as part of this report:
Number 2: Plan and Agreements of Reorganization
Incorporated by reference to the Registrants Form 10-QSB, for quarter ended
June 30, 1997
Number 3: Initial Articles of Incorporation and Bylaws
Incorporated by reference to the Registrant's registration statement on Form
S-18, SEC File No. 33-19980-D
Number 3: Amended Articles of Incorporation
Incorporated by reference to the Registrant's Form 10-KB, for the year ended
September 30, 1989.
Number 3: Amended Articles of Incorporation
Incorporated by reference to the Registrant's Form 10-QSB, for the quarter
ended December 31, 1995.
Number 3: Amended Articles of Incorporation
Incorporated by reference to the Registrant's Form 10-QSB, for the quarter
ended September 30, 1995.
Number 4: Warrant Agent Agreement
Incorporated by reference to the Registrant's registration statement on Form
S-18, File No. 33-19980-D.
Number 4: First Amendment to Warrant Agent Agreement:
Incorporated by reference to the Registrant's Form 10-QSB, for the quarter
ended December 31, 1995.
Number 4: Second Amendment to Warrant Agent Agreement
Incorporated by reference to the Registrant's Form 10-QSB, for the quarter
ended September 30, 1995.
Number 11: Computation of Income per Share
Refer to the financial statement contained in this Form 10-KSB.
Number 21: Subsidiaries of the Registrant
<PAGE> 13
The Registrant has two subsidiaries, Roli Ink Corporation, a Wisconsin
Corporation; and Safe Environment Corp., an Illinois Corporation.
Number 27: Financial Data Schedule
Included in the Report as Exhibit 27.
Reports on Form 8-K.
The Company did not file any reports on From 8-K in its fourth quarter;
however, in February 1998, the Company filed a Form 8-K discussing its change
of independent accountants.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
CGI Holding Corporation
Date: April 13, 1998 By John Giura, President and Director
(Principal Executive Officer)
<PAGE> 15
Independent Auditor's Report
To the Board of Directors
CGI Holding Corporation
8400 Brookfield Avenue
Brookfield, Illinois 60513
We have audited the accompanying balance sheets of CGI Holding Corporation (a
Nevada Corporation) as of December 31, 1997 and 1996, and the related statements
of income, retained earnings, and cash flows for the year then ended. 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 in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CGI Holding Corporation as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
___________________________________________
Poulos & Bayer, Ltd.
February 4, 1998
<PAGE> 16
CGI HOLDING CORPORATION, INC.
CONDENSED COMPARATIVE CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
ASSETS
DECEMBER 31, DECEMBER 31,
1997 1996
--------- ------------
CURRENT ASSETS
Cash 174,267 72,878
Accounts Receivable 1,513,279 1,674,895
Inventory 238,257 195,137
Unexpired Insurance 82,262 79,654
Other Current Assets 45,000 73,295
--------- -----------
TOTAL CURRENT ASSETS 2,053,065 2,095,859
--------- -----------
PROPERTY, PLANT AND EQUIPMENT
Leasehold Improvements 28,262 28,262
Fixtures and Equipment 447,025 362,651
Vehicles 147,804 144,930
Contracting Equipment 426,827 389,375
---------- -----------
1,049,918 925,218
Less: Accumulated Depreciation 659,864 560,597
---------- -----------
NET PROPERTY, PLANT AND EQUIPMENT 390,054 364,621
---------- -----------
OTHER ASSETS 3,552 4,493
---------- -----------
TOTAL ASSETS 2,446,671 2,464,973
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt 131,906 558,614
Accounts Payable 440,741 753,079
Short-Term Borrowings 134,832 62,116
Billings in Excess of Cost and
Estimated Earnings 52,461 101,182
Accrued Corporate Income Taxes 331,654 93,082
Accrued Liabilities 16,540 30,234
Commissions Payable 51,065 38,822
Loan Payable-Shareholder 0 113,500
--------- -----------
TOTAL CURRENT LIABILITIES 1,159,199 1,750,629
--------- -----------
LONG TERM LIABILITIES
Long-Term Debt, Net of Current Portion 155,336 106,303
Deferred Income Tax 9,822 9,822
-------- -----------
TOTAL LONG-TERM LIABILITIES 165,158 116,125
-------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock, $0.001 par value, 5,000,000 shares
authorized; no shares issued or outstanding 0 0
Common Stock, $0.001 par value, 100,000,000 shares
authorized; 8,272,779 shares issued and outstanding 8,273 4,621
Additional Paid-In Capital 363,674 223,970
Retained Earnings 750,367 369,628
--------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,122,314 598,219
--------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2,446,671 2,464,973
========= ===========
The accompanying notes are an integral part of these statements.
<PAGE> 17
CGI HOLDING CORPORATION, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1997
COMMON COMMON PAID-IN RETAINED TREASURY
SHARES STOCK CAPITAL EARNINGS STOCK
---------- -------- -------- -------- ---------
COMMON SHARES $0.001 PAR VALUE
STOCK ACCOUNTS REFLECTED AT
POST REORGANIZATION UNIT SHARES
BALANCE: JANUARY 1, 1996 4,745,616 4,746 486,845 (182,521 (123,000)
TREASURY SHARES ACQUIRED (257,022) 0 0 0 (140,000)
TREASURY SHARES ISSUED 132,000 132 (24,132) 0 24,000
1996 NET INCOME 0 0 0 552,149 0
0 0 (239,000) 0 239,000
ELIMINATE TREASURY ACCOUNT 0 (257) 257 0 0
--------- --------- -------- -------- ---------
BALANCE: DECEMBER 31, 1996 4,620,594 4,621 223,970 369,628 0
TREASURY SHARES ACQUIRED (836,000) 0 0 0 (81,500)
TREASURY SHARES ISSUED 782,100 0 (73,602) 0 122,112
REVENUE 1996 ELIMINATION 0 0 239,000 0 (239,000)
ADJUSTMENT PER NOTE 394,362 394 60,509 (60,903) 0
JULY 28, 1997 MERGER 3,311,723 3,312 13,247 0 0
CGI ACCOUNTS (11,607)
1997 NET INCOME 0 0 0 653,053 0
ELIMINATE Roli's S' CORPORATION
PROFIT TO CONTRIBUTED CAPITAL 0 0 110,491 (110,491) 0
DISTRIBUTIONS TO `S'
CORPORATION SHAREHOLDERS 0 0 0 (100,920) 0
ELIMINATE TREASURY ACCOUNT 0 (54)(198,334) 0 198,388
--------- --------- -------- -------- --------
BALANCE: DECEMBER 31, 1997 8,272,779 8,273 363,674 750,367 0
========= ========= ======== ======== ========
The accompanying notes are an integral part of these statements.
<PAGE> 18
CGI HOLDING CORPORATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
TWELVE MONTHS AND THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
TWELVE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31 DECEMBER 31
---------------------- -----------------------
1997 1996 1997 1996
---------- ----------- ----------- -----------
SALES 8,885,787 9,707,805 2,447,364 2,707,730
COST OF GOODS SOLD 5,799,760 6,773,556 1,663,176 2,349,555
--------- ----------- ----------- -----------
GROSS PROFIT 3,086,027 2,934,249 784,188 358,175
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 2,154,813 2,196,978 682,115 494,946
--------- --------- ----------- -----------
INCOME FROM OPERATIONS 931,214 737,271 102,073 (136,771)
--------- --------- ----------- -----------
OTHER INCOME (EXPENSE)
Other 93,000 80,635 99 (12)
Interest Income 2,241 1,525 1,005 1,525
Interest Expense (55,314) (93,070) (13,447) (30,984)
--------- --------- ----------- -----------
TOTAL OTHER INCOME 39,927 (10,910) (12,343) (29,471)
--------- --------- ----------- -----------
INCOME BEFORE CORPORATE
INCOME TAXES 971,141 726,361 89,730 (166,242)
INCOME TAX PROVISION 318,088 174,212 33,778 (84,174)
--------- --------- ----------- -----------
NET INCOME 653,053 552,149 55,952 (82,068)
========= ========= =========== ===========
NET INCOME PER
COMMON SHARE 0.10 0.11 0.01 ($0.02)
========= ========= =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,376,477 4,961,056 8,272,779 4,961,056
========= ========= =========== ===========
The accompanying notes are an integral part of these statements.
<PAGE> 19
CGI HOLDING CORPORATION, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31
1997 1996 1995
--------- ----------- -----------
SALES 8,885,787 9,707,805 5,678,264
COST OF GOODS SOLD 5,799,760 6,773,556 3,437,992
--------- ----------- -----------
GROSS PROFIT 3,086,027 2,934,249 2,240,272
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,154,813 2,196,978 1,636,885
--------- ----------- -----------
INCOME FROM OPERATIONS 931,214 737,271 603,387
OTHER INCOME (EXPENSE) --------- ----------- -----------
Other 93,000 80,636 163,866
Interest Income 2,241 1,525 0
Interest Expense (55,314) (93,071) (95,210)
--------- ----------- -----------
TOTAL 39,927 (10,910) 68,656
--------- ----------- -----------
INCOME BEFORE CORPORATE
TAX 971,141 726,361 672,043
INCOME TAX PROVISION 318,088 174,212 20,407
--------- ----------- -----------
NET INCOME 653,053 552,149 651,636
========= =========== ===========
NET INCOME PER COMMON SHARE 0.10 0.11 0.14
========= =========== ============
WEIGHTED AVERAGE NUMBER
OF COMMON STOCK 6,376,477 4,961,056 4,745,616
========= =========== ===========
The accompanying notes are an integral part of these statements.
<PAGE> 20
CGI HOLDING CORPORATION, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
FOR THE YEARS ENDED
DEC. 31 DEC. 31 DEC. 31
1997 1996 1995
------- -------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit 648,590 552,149 651,636
Non-Cash Items Included In Net Loss
Depreciation 106,950 104,827 72,821
Loss (Gain) on Sale of Equipment (57) 1,040 0
Change in Accounts Receivable 161,615 (1,025,128) 314,578
Change in Consulting and Insurance Refunds 0 0 8,185
Change in Inventory (43,120) 16,815 (78,417)
Change in Loans Receivable 1,000 (1,000) 15,000
Change in Prepaid Insurance (2,609) (21,002) 7,267
Change in Costs and Estimated Earnings
Over Billings 27,295 (72,295) 0
Change in Deposits 941 6,507 (2,268)
Change in Accounts Payable (262,338) 467,528 (200,335)
Change in Accrued Expenses (48,827) 12,745 1,215
Change in Inter-Company Receivable (2,624) 115,918 (113,607)
Change in Investment In All Weather Roofing 0 5,000 5,000
Change in Accrued Income Taxes 238,572 75,417 17,462
Change in Deferred Income Taxes 0 7,330 2,492
Change in Billings in Excess of Costs and
Estimated Earnings (48,721) 101,182 0
--------- --------- ---------
NET CASH CHANGE FROM OPERATING
ACTIVITIES 776,668 347,033 701,029
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed Assets Acquired (139,825) (150,334) (170,570)
Proceeds from Sale of Fixed Assets 7,500 3,500 0
--------- --------- ---------
NET CASH CHANGE FROM INVESTING ACTIVITIES (132,325) (146,834) (170,570)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Loan Payable (113,500) 0 (290,000)
Change in Notes Payable (304,958) (151,397) (188,922)
Change in Treasury Stock (81,500) (140,000) 12,504
Proceeds from Sale of Stock 48,510 0 0
Distributions to Shareholders (100,920) 0 0
--------- --------- ---------
NET CASH CHANGE PROVIDED BY FINANCING
ACTIVITIES (552,368) (291,397) (466,418)
--------- --------- ---------
NET CASH CHANGE 91,975 (91,198) 64,041
CASH BALANCE: JANUARY 1 72,878 164,075 100,035
-------- --------- ---------
CASH BALANCE: DECEMBER 31 164,853 72,878 164,075
======== ========= =========
The accompanying notes are an integral part of these statements.
<PAGE> 21
Note 1 - Condensed Consolidated Financial Statements
These financial statements are condensed and therefore, do not include all
disclosures. These statements should be read in conjunction with the annual
financial statements of Safe Environment Corporation (SECO) and Roli Ink
Corporation (Roli).
These consolidated financial statements include the accounts of SECO and Roli
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 Corporation and Roli Ink Corporation
On July 28, 1997, the Company entered into a reorganization with two privately
held corporations, Safe Environment Corporation (SECO), an Illinois corporation,
and Roli Ink Corporation (Roli), a Wisconsin corporation. The Company changed
its name from Gemstar Enterprises to CGI Holding Corporation. The Company
completed a 1-for-5 revenue stock split of its outstanding common shares
resulting in 3,311,723 common shares outstanding. The Company then issued a
controlling interest of 4,961,056 shares (post-split) to the shareholders of
SECO and Roli. The statement of stockholders' equity reflects the post-split
outstanding shares.
Note 3 - Management Discussion of 1997 and Fourth Quarter Operating Results
Revenues for the year were $8.9 million, compared to $9.7 million for the
combined operating companies in 1996. Net income was $653,053 in 1997 versus
$552,149 for 1996. Per share earnings were $0.10 in 1997. The operating
companies became public on August 4, 1997 after a reorganization of Gemstar
Enterprise, Inc.
For the fourth quarter, sales were $2.4 million, compared to $2.7 million for
the combined operating companies during the same period last year. Fourth
quarter net income was $55,952 versus a loss of ($82,068) for the combined
operating companies during the same period in 1996. Earnings per share for
the quarter were $0.01.
"We are pleased to report significantly higher earnings, despite lower sales,"
said John Giura, President and CEO. "We are concentrating on winning bids
for quality jobs that bring higher returns rather than volume. Using this
strategy, we were able to significantly improve margins in the fourth quarter
and increase operating margins for the year to 10.5 percent, up from 7.6
percent in 1996. We see this strong trend continuing. Currently several high
margin jobs are in process."
Separately, C.G.I. Holding Corporation announced that the Company is in the
final stages of a major acquisition that will more than double its annual
sales and net income. Completion of the acquisition is subject to due
diligence and the raising of required funding. Additional details of the
acquisition were not provided.
C.G.I. is a holding company having a goal of acquiring companies with growth
potential that fit the Company's long-term objectives. C.G.I.'s initial
acquisitions, Roli Ink Corporation and SECO (Safe Environment Corporation) are
both profitable companies. Roli Ink manufactures and sells high-quality,
premium-priced, environmentally compatible, water-based inks used in the
flexographic and coating printing process for high grade, corrugated envelopes,
specialty labels and medical packing printing.
SECO is a environmental remediation company specializing in asbestos removal.
SECO offers customers nationwide a comprehensive range of asbestos abatement
services tailored to their specific requirements.
This news release contains forward-looking statements. Investors are cautioned
that actual results may differ materially from such forward-looking statements.
Forward-looking statements involve risks and uncertainties including, but not
limited to, competitive pressures and other important factors detailed in the
Company's filings with the Securities and Exchange Commission.
<PAGE> 22
ROLI INK CORPORATION
COMPARATIVE STATEMENT OF PROFIT AND LOSS
TWELVE MONTHS AND THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
TWELVE MONTHS ENDED THREE MONTHS ENDED
DEC. 31 DEC. 31 DEC. 31 DEC. 31
1997 1996 1997 1996
---------- ---------- ---------- ----------
SALES 2,702,185 2,845,543 670,276 780,611
LESS: COST OF OPERATIONS 1,260,746 1,399,775 323,561 454,887
- --------- ---------- --------- ---------- ----------
GROSS PROFIT 1,441,439 1,445,768 346,714 325,724
LESS: OPERATING EXPENSES 1,079,671 1,091,995 292,350 187,831
- --------- ---------- --------- ---------- ----------
NET PROFIT ON OPERATIONS 361,768 353,773 54,365 137,893
LESS: INTEREST EXPENSE 6,856 12,546 1,568 4,740
- --------- ---------- --------- ---------- ----------
NET PROFIT BEFORE
OTHER EXPENSES 354,912 341,227 52,796 133,153
LESS: OTHER EXPENSES 0 115,293 0 115,293
- --------- ---------- --------- ---------- ----------
NET PROFIT BEFORE
CORPORATE INCOME TAXES 354,912 225,934 52,796 17,860
LESS: CORPORATE INCOME TAXES 70,412 83,272 17,820 7,386
- --------- ---------- --------- ---------- ---------
NET PROFIT 284,500 142,662 34,976 10,474
========== ========= ========== =========
<PAGE> 23
SAFE ENVIRONMENT CORPORATION
COMPARATIVE STATEMENT OF PROFIT AND LOSS
TWELVE MONTHS AND THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
TWELVE MONTHS ENDED THREE MONTHS ENDED
DEC. 31 DEC. 31 DEC. 31 DEC. 31
1997 1996 1997 1996
---------- ---------- ---------- -----------
SALES 6,183,602 6,862,262 1,777,089 1,927,118
LESS: COST OF OPERATIONS 4,539,014 5,373,781 1,339,615 1,894,668
- ------------ ---------- ---------- ---------- -----------
GROSS PROFIT 1,644,588 1,488,480 437,474 32,450
LESS: OPERATING EXPENSES 1,079,605 989,690 394,228 191,822
- ------------ ----------- ---------- ---------- -----------
NET PROFIT ON OPERATIONS 564,983 498,790 43,245 (159,371)
LESS: INTEREST EXPENSE 48,458 80,525 11,878 26,244
- ------------ ----------- ---------- ---------- -----------
NET PROFIT BEFORE
OTHER INCOME 516,525 418,266 31,367 (185,616)
ADD: OTHER INCOME 95,241 82,161 1,103 1,514
- ------------ ------------ ---------- ---------- -----------
NET PROFIT BEFORE
CORPORATE INCOME TAXES 611,766 500,427 32,471 (184,102)
LESS: CORPORATE INCOME TAXES 247,676 90,940 15,958 (91,560)
- ------------ ----------- ---------- ---------- -----------
NET PROFIT 364,090 409,487 16,513 (92,542)
=========== ========== ========== ===========
<PAGE> 24
ROLI INK CORPORATION
FOOTNOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
A. Accounts Receivable
Management deems all receivables are collectable and no provisions for bad
debts are required.
B. Inventory
Inventory is stated at cost using the first-in, first-out method.
C. Fixed Assets
All assets are acquired in 1995 and 1996 are depreciated over their useful life
using the 150% declining method. Assets acquired in 1997 are depreciated using
the straight line method over their useful lives.
D. Notes Payable
The following indebtedness is reflected on the balance sheet:
<TABLE>
<CAPTION>
December 31, 1997
<S> <C>
a.) M & I Northern Bank
Dated 6/30/96 payable monthly
$1,873.96 principal and interest.
Balance of $40,659.54 due on
6/20/99. 66,986
b.) Gordon Page
Payable $15,000 6/30/98
No interest 15,000
--------
Totals 81,986
========
</TABLE>
2. COMMITMENTS
The company is committed to pay a consulting agreement in the amount
$2,000 per month through 1999. This is payable to the original owner of the
company.
3. ADJUSTMENT
As part of a financing agreement on a line of credit with M & I Northern Bank,
the monthly management fee was reduced in 1994. In consideration, the board
issued 3,015 shares valued at $20.20 per share on April 15, 1997.
4. DISTRIBUTION TO SHAREHOLDERS
The shareholders elected `S' Corporation status effective January 1, 1997. The
`S' Corporation status was terminated effective August 4, 1997 when the company
was merged with CGI Holding Corporation. The shares of `Roli' were exchanged
for shares of `CGI' at 130.8 shares of `CGI' for each share of `ROLI.' The
distribution to shareholders represents a portion of the `S" Corporation
earnings for 1997.
<PAGE> 25
SAFE ENVIRONMENT CORPORATION
FOOTNOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
A. Revenue and Cost Recognition
Revenues from fixed-price construction contracts and time-and-material contracts
are recognized upon pre-agreed stages of completion. This method is used
because management considers expended costs to be the best available measure of
progress on these contracts.
Contract costs include all direct material, labor, sub-contractors and equipment
costs and those indirect costs related to contract performance. General and
Administrative Costs are charged to expense as incurred. Changes in job
performance, job conditions and estimated profitability are recognized in the
period in which the revenues are determined.
B. Accounts Receivable
Management anticipates all receivables are collectible.
C. Fixed Assets
Fixed assets are depreciated over their estimated useful life using the 150%
declining-balance method.
2. ACCOUNTS RECEIVABLE
Accounts Receivable at December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Currently Due 1,166,623.14
Retainages 105,278.52
-------------
1,061,344.62
=============
</TABLE>
Retainages are due in less than one (1) year.
3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
<S> <C>
Costs Incurred on
Uncompleted Contracts 89545
Estimated Earnings 19573
-------
Subtotal 109118
Less: Billings to Date 116579
-------
-7461
=======
Included on Balance Sheet
Costs and Estimated Earnings
in Excess of Billings 45000
Billings in Excess of Costs
and Estimated Earnings 52461
------
-7461
======
</TABLE>
<TABLE>
<CAPTION>
4. NOTES PAYABLE
Description Current Long-Term
---------------- --------- -----------
<S> <C> <C>
a.) CIB Bank
Note payable dated February 3, 1997
for $250,000 note payable monthly
at $6,945.00 principal plus interest
with a maturity date of February 1, 2000 83,340.00 97,210.00
b.) Vehicle 1 - payment is $400.00
principal plus interest 4,951.02 0.00
c.) Vehicle 2 - payment is $478.50
principal plus interest 5,933.63 0.00
d.) Vehicle 3 - payment is $285.09
principal plus interest 2,862.17 5,005.05
e.) Vehicle 4 - payment is $375.69
principal plus interest 4,118.95 1,835.04
---------- -----------
Totals 101,205.77 104,050.09
========== ===========
</TABLE>
5. LEASING COMMITMENTS
The company leases office and warehouse facilities at a monthly rate of
$2,500.00, without a formal agreement.
6. CONTRACTUAL AGREEMENTS
The company contracts with Mentor Investments, Inc. to provide direct labor for
certain jobs. `Mentor' is responsible for the cost of the payroll taxes and
workmens compensation insurance. `Mentor' receives, for these services, the cost
of the gross payroll plus 20%.
7. TREASURY STOCK
At January 1, 1996 there were 61,500 shares in treasury
November, 1996 issued (12,000)
March, 1997 purchased 76,000
March, 1997 issued (71,100)
---------
Shares in Treasury 54,400
=========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet as of December 31, 1997, and condensed
statements of operations for the twelve months ended December 31, 1997, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 174,267
<SECURITIES> 0
<RECEIVABLES> 1,513,279
<ALLOWANCES> 0
<INVENTORY> 238,257
<CURRENT-ASSETS> 130,814
<PP&E> 1,049,918
<DEPRECIATION> (659,864)
<TOTAL-ASSETS> 2,446,671
<CURRENT-LIABILITIES> 1,169,021
<BONDS> 155,336
0
0
<COMMON> 8,273
<OTHER-SE> 1,114,041
<TOTAL-LIABILITY-AND-EQUITY> 2,446,671
<SALES> 8,885,787
<TOTAL-REVENUES> 8,885,787
<CGS> 5,799,760
<TOTAL-COSTS> 5,799,760
<OTHER-EXPENSES> 2,250,054
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,314
<INCOME-PRETAX> 971,141
<INCOME-TAX> 318,088
<INCOME-CONTINUING> 653,053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 653,053
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
