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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, 1999
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[ ]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
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(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
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (708) 387-0900
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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
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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: $11,038,938
State the aggregate market value of the voting and nonvoting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked prices of such common equity, as of a
specified date within the past 60 days: There is no active trading market for
shares of the issuer's common stock and it is, therefore, difficult, if not
impossible, to determine the market value for shares of the issuer's common
stock. Based on the average bid and asked price of $0.31 per share for the
issuer's common stock at April 6, 2000, the market value of the issuer's common
stock held by non-affiliates would be $2,158,093. A list and description of
affiliates can be found in Item 11.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of April 6, 2000, there were
10,229,779 shares of the issuer's common stock issued and outstanding.
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY AND ORGANIZATION
CGI Holding Corporation (formerly known as North Star Petroleum, Inc.) (the
"Company") was incorporated under the laws of the State of Nevada in October of
1987. From 1993 until July 1997, the Company had essentially no operations.
On June 30, 1997, the Company entered into a preliminary letter of intent with
Safe Environment Corporation, an Illinois corporation ("SECO-Illinois"), and
Roli Ink Corporation, a Wisconsin corporation ("RIC"). On July 28, 1997, the
Company entered into a reorganization agreement (the "Reorganization Agreement")
with SECO-Illinois and RIC, all of the shareholders of SECO-Illinois and RIC
approved the transaction and the shareholders of SECO-Illinois and RIC tendered
their stock certificates in SECO-Illinois and RIC. Pursuant to the terms of the
Reorganization Agreement, the Company agreed to purchase all of the issued and
outstanding equity interests in SECO-Illinois and RIC in exchange for shares of
the Company's common stock (the "Common Stock"). Immediately prior to the
reorganization, the Company completed a 1-for-5 revenue stock split of its
outstanding Common Stock, resulting in 3,311,723 shares of Common Stock issued
and outstanding. The reorganization became effective on August 4, 1997. Upon the
effective date of the reorganization, the Company issued an additional 4,961,056
(post-split) shares of Common Stock to the shareholders of SECO-Illinois and RIC
in exchange for all of the issued and outstanding equity interests in
SECO-Illinois and RIC. Therefore, upon the effective date of the reorganization,
the shareholders of SECO-Illinois and RIC held approximately 59.9% of the issued
and outstanding Common Stock. The shareholders of SECO-Illinois received
2,761,000 shares of Common Stock (approximately 33.3% of the issued and
outstanding Common Stock) and the shareholders of RIC received 2,200,056 shares
of Common Stock (approximately 26.6% of the issued and outstanding Common
Stock).
In connection with the reorganization, the Company changed its fiscal year end
from September 30 to December 31, the year-end of SECO-Illinois and RIC.
On March 5, 1999, the Company's wholly owned subsidiary, Personal Care Products,
Inc., acquired substantially all of the assets of Salle International, L.L.C. (a
private company) under an asset purchase agreement dated March 2, 1999. The
acquisition price for Trifinity's assets was $1,319,171. The acquisition price
consisted of (i) assumed debt of $951,171 and (ii) 1,600,000 shares of Common
Stock (with a market value of $368,000). Subsequent to the acquisition, Personal
Care Products, Inc. changed its name to Trifinity, Inc. ("Trifinity").
SAFE ENVIRORNMENT CORPORATION
The Company currently has three subsidiaries involved in the asbestos/lead
abatement industry. SECO-Illinois was incorporated in the State of Illinois in
1987 and has been involved in the asbestos abatement industry since its
formation. Safe Environment Corporation of Indiana ("SECO-Indiana") was
incorporated in the State of Indiana in 1999 and Safe Environment Corporation of
Missouri ("SECO-Missouri") was incorporated in the State of Missouri in 1999.
SECO-Illinois, SECO-Indiana and SECO-Missouri are collectively referred to as
SECO.
SECO recently expanded its services to include lead mitigation in order to
better serve its clients overall environmental needs. SECO provides asbestos and
lead 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 must be
performed by trained and licensed personnel using approved techniques and
equipment.
SECO-Illinois markets its services primarily in the State of Illinois,
SECO-Indiana markets its services primarily in the State of Indiana and
SECO-Missouri markets its services primarily in the State of Missouri. The
asbestos abatement and lead mitigation industry is currently driven by three
markets: industrial, public and commercial.
The industrial market consists of chemical, petroleum and manufacturing
facilities that were constructed prior to discontinuation of the use of asbestos
for the insulation of pipes and tanks. These types of facilities are continually
performing operations and maintenance procedures that require the removal and/or
repair of these insulation materials.
The public market consists of federally and state owned facilities, schools and
military facilities that contain asbestos materials such as pipe insulation and
floor tile and lead paint on interior building components.
<PAGE> 3
The commercial real estate market consists of corporate offices containing
asbestos materials such as sprayed on insulation and floor tile. These materials
must be removed prior to any renovations.
As the asbestos abatement industry matures and the market shrinks, SECO intends
to look for other opportunities. SECO recently expanded its services to include
interior demolition, which now constitutes approximately 30% of SECO's business.
In addition, SECO has begun developing asbestos and lead operations and
maintenance programs to assist building owners in managing their in place
asbestos and lead, with large scale removal occurring only to facilitate
renovation or prior to building demolitions. SECO is also investigating
potential expansion into re-insulation, painting and duct cleaning.
SECO currently employs approximately 22 full time employees who average 40 hours
per week. Included in total employees are 12 administrative staff and 10
supervisors. In addition, SECO has a pool of approximately 85 hourly field
personnel who are available on an as needed basis. SECO recently entered into a
contract with Laborers Union Local 225.
ROLI INK CORPORATION
RIC was incorporated in the State of Wisconsin in 1985. RIC manufactures and
sells water based printing inks to industrial printers. After some initial
problems finding acceptance for water based inks (as opposed to solvent inks),
RIC developed, in house, a new product line. With its new product line, RIC
began focusing its marketing efforts on corrugated box manufacturers producing
display grade boxes. This market represents potentially good volume, and this
type of box manufacturer typically has the ability to 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 SUN, INX, BCM and Akzo Nobel. SUN and INX
are international ink companies. INX has 48 branches and 1300 employees. SUN has
at least 60 branches and 2800 employees. They both have extensive marketing
campaigns. SUN and INX are very active in marketing their ink dispensing systems
throughout the United States. This allows them to sell their ink bases to
customers who have either leased or purchased their ink dispensing systems.
These two suppliers also produce very low cost, low quality ink that they stock
and offer at prices that are marginally profitable. In addition, SUN and INX are
very active in bidding and securing ink contracts with various printing
companies' corporate headquarters. BCM has one facility located in Ohio. It
manufactures high quality inks for corrugated materials and has much of the same
operating philosophies as RIC. Akzo Nobel is an international company that
competes with RIC primarily at label accounts.
Currently, RIC supplies approximately 40 customers total. Five of these
customers account for approximately 70% of RIC's business. The loss of any of
these five customers would have a material negative effect on RIC's business.
Additionally, RIC has three independent manufacturer's representatives who
collectively sell approximately 40% of RIC's ink. Only 60% 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. RIC sells to plants
that are looking for top-of-the-line custom inks using the finest quality
ingredients formulated specifically for their customers' printing equipment. RIC
does not produce low cost, low quality commodity inks, a market in which
competition with larger companies is very difficult. As does its competitors,
RIC offers an ink dispensing system that can be leased or sold directly to its
customers. Fast service and excellent quality are RIC's main focus.
All of RIC's inks are water based and contain no materials that are listed as
"hazardous" materials by the Food and Drug Administration (the "FDA") or EPA.
All of RIC's inks are in compliance with the Coalition of Northeastern
Governors' ("CONEG") regulations which specify that no more than 100 parts per
million of heavy metals be used. Additionally, RIC's inks do not contain
ozone-depleting substances, as identified by the U.S. Clean Air Act amendment of
1990.
RIC employs 12 employees. There are 9 full time employees and 2 part time, on
call employees who work at the main headquarters in Milwaukee, Wisconsin. There
is also 1 employee, the President, who conducts business out of the CGI office
in Brookfield, Illinois.
<PAGE> 4
TRIFINITY, INC.
Trifinity (formerly known as Personal Care Products, Inc.) was incorporated in
the State of Illinois in 1999.
Trifinity is a turn-around/start-up operation that markets and distributes
licensed and house brand personal care products and performs contract liquid
filling. At the time of acquisition, the Company anticipated that Trifinity
would require the balance of 1999 and part of 2000 to develop and complete its
marketing, distribution and manufacturing process.
The personal care product market is dominated by large, international companies.
Trifinity's major competitors in this market include Unilever, Johnson & Johnson
and Shering Plough. Trifinity currently has license rights through December
2000, renewable on an annual basis, to distribute and market the Nintendo Game
Boy bath collection. Contract liquid filling is generally performed by regional
companies like Trifinity.
Trifinity's operations are regulated by the Bureau of Alcohol, Tobacco and
Firearms (due to its mouth wash products). Trifinity is also FDA registered and
regulated by the EPA.
Trifinity currently employs 24 full-time employees. Included in total employees
are 4 administrative staff.
ITEM 2. DESCRIPTION OF PROPERTIES
SECO-Illinois leases, on a month to month basis, approximately 8,000 square feet
of office, warehouse and storage facilities in Brookfield, Illinois.
Approximately 2,000 square feet is used as office space, with the remaining
facility principally used as a warehouse. Most of SECO-Illinois's projects are
performed on site, so its facilities are primarily used for storing and working
on its equipment when not in use. Under the terms of the SECO-Illinois lease,
SECO-Illinois pays monthly rent of $3,000. 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.
Presently, the property is encumbered by a 20 year adjustable rate mortgage from
the Community Bank of Ravenswood. 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-Illinois
believe this facility will be adequate for their future needs.
SECO-Indiana leases a small office and warehouse space in Indiana under a lease
effective from February 1, 1999 through January 31, 2000. Under the terms of its
lease, SECO-Indiana pays monthly rent of $465. SECO-Indiana believes this space
will be adequate for its future needs.
SECO-Missouri leases approximately 20,000 square feet of office and warehouse
space in Missouri under a lease effective from March 1, 1999 through February
28, 2000. Under the terms of its lease, SECO-Missouri pays monthly rent of
$2,200. SECO-Missouri believes this space will be adequate for its future needs.
<PAGE> 5
RIC leases approximately 13,187 square feet of manufacturing and office space in
Milwaukee, Wisconsin under a lease effective from September 30, 1999 through
October 31, 2000. Under the terms of the RIC lease, RIC pays monthly base rent
of $2,926 plus real estate taxes of $675 per month. The building contains
another 3,450 feet that 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.
Trifinity leases approximately 40,000 square feet of manufacturing and office
space in Waukegan, Illinois under a lease effective from July 1, 1999 through
June 30, 2003. Under the terms of its lease, Trifinity pays monthly rent of
$13,600. Trifinity believes this space will be adequate for its future needs.
ITEM 3. LEGAL PROCEEDINGS
People of the State of Illinois, Plaintiff, v. Robert Larsen, Et. Al.,
Defendants, No. 96 CH 1033.
This action is pending in the Circuit Court of the Nineteen Judicial Circuit,
Lake County, Illinois. The Company is not a party to this action. However,
SECO-Illinois is a defendant. This action, filed in 1996, was brought by the
State of Illinois to compel defendant Larsen to conduct an environmental
clean-up of his property. SECO-Illinois was thereafter named an additional
defendant, from whom the State sought the imposition of unspecified penalties as
the result of certain asbestos removal work which it had conducted on the
subject property. In the summer of 1999, Larsen filed a counterclaim against
SECO-Illinois, seeking unspecified damages against it for sums Larsen was
allegedly caused to expend by reason of improper remediation work performed by
SECO-Illinois. The matter remains pending and undetermined, and currently is in
the process of discovery. Discovery to date has indicated that Larsen is seeking
damages in excess of $200,000.
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 Common Stock is quoted on the National Association of Securities Dealers
Electronic Bulletin Board under the symbol "CGIH" (the Common Stock formerly
traded under the symbol "CGIC"). Set forth below are the high and low bid prices
for the Common Stock for each quarter during the last two years. Although the
Common Stock is quoted on the Electronic Bulletin Board, it has traded
sporadically. Consequently, the information provided below may not be indicative
of the Common Stock price under different conditions.
Quarter Ended High Bid Low Bid
- ------------- -------- -------
March 1998 3.38 0.75
June 1998 1.13 0.53
September 1998 0.75 0.20
December 1998 0.51 0.21
March 1999 0.46 0.23
June 1999 0.28 0.23
September 1999 0.25 0.24
December 1999 0.43 0.25
At April 6, 2000, the bid and asked price for the Common Stock was $0.23 and
$0.38, respectively. All prices listed herein reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions. Since its inception, the Company has not paid any dividends on the
Common Stock, and the Company does not anticipate that it will pay dividends in
the foreseeable future. At April 6, 2000, the Company had approximately
10,229,779 shareholders.
RECENT SALES OF UNREGISTERED SECURITIES
On March 5, 1999, the Company issued 1,600,000 shares of Common Stock to PCP
Partners, an Illinois general partnership, in connection with the purchase of
the assets of Salle International, L.L.C. (See: Item 1: "Description of
Business.")
On June 15, 1999, the Company sold 200,000 shares of Common Stock to Richard
Levy for $60,000 in cash ($0.30 per share).
On July 1, 1999, issued 100,000 shares of Common Stock to Chander Jadhwani (a
director of the Company) in exchange for (i) $21,000 in cash ($0.21 per share)
and (ii) consulting services he performed on behalf of the Company.
The above-described transactions were private placements pursuant to Section
4(2) of the Securities Act of 1933, as amended. The Company did not use
underwriters for any of the above-described transactions and, therefore, the
transactions did not involve underwriter discounts or commissions.
<PAGE> 6
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
The Company's total assets at December 31, 1999 were $6,822,925, an increase of
$2,739,845 over the prior year. This increase was primarily attributable to the
acquisition of Trifinity in March of 1999 and the start-up of SECO-Indiana and
SECO-Missouri in January of 1999. Correspondingly, total liabilities increased
during the same period by $3,579,559.
Working capital at December 31, 1999 was $265,289, as compared to $1,057,549
last year, reflecting a decrease of $792,260. The Company's cash flow for the
year 1999 was a negative $30,495.
Total short-term debt increased in 1999 in the amount of $2,165,697. Long-term
debt increased in the same period by $1,251,425, resulting in a total increase
in debt in the amount of $3,417,122. Debt assumed in the purchase of Trifinity
and the start up of SECO-Missouri amounted to $951,171 and $400,000
respectively. The remainder of the increase was caused by the deficit earnings
in 1999.
The Company raised $81,000 in 1999 through the issuance of 300,000 shares of
Common Stock.
In view of the substantial increase in debt that occurred in 1999, management
has engaged an investment banking firm for the purpose of selling its wholly
owned subsidiary RIC. It is believed by management that RIC can be sold for an
amount in excess of $2,500,000 in a cash transaction. The projected date for
this transaction is the second quarter of 2000.
The proceeds of this sale will be used to reduce debt, increase working capital
and to have available funds for potential acquisitions.
RESULTS OF OPERATIONS
Sales increased in 1999 in the amount of $1,998,763 to a total of $11,038,938.
This increase was a result of Trifinity's sales in 1999 of $513,635, RIC's
increase of $744,828 and SECO's increase of $740,300.
Cost of sales for the year were $8,995,849, an increase of $2,592,847 over the
prior year or a percentage increase of 40.49 percent.
Selling, general and administrative expenses for the year 1999 were $3,595,150
as compared to 1998's total of $2,111,235, representing an increase of
$1,491,964 or 70.67 percent.
Interest expense increased in 1999 by $226,283 for a total of $297,815, a direct
result of the increased debt in 1999.
Income before taxes was ($1,834,458) in 1999 as compared to $474,668 in 1998.
The net loss in 1999 resulted in negative total income taxes for the year
totaling ($544,744). Total tax expense is comprised of current tax expense of
($166,977) and deferred tax expense of ($377,767). The total after tax loss for
1999 was ($1,288,714) or ($0.13) per share compared to 1998's net profit after
taxes of $265,041 or $0.03 per share.
<PAGE> 7
SEGMENT ANALYSIS
In 1999, the Company consisted of five operating subsidiaries: SECO-Illinois,
SECO-Indiana, SECO-Missouri (collectively, "SECO"), RIC and Trifinity. In 1998,
the Company consisted of two operating subsidiaries: SECO-Illinois and RIC.
NET SALES BY INDUSTRY SEGMENT
INDUSTRY SEGMENT 1999 1998
AMOUNT PERCENT AMOUNT PERCENT
SECO $7,430,125 67.31 6,689,845 74.00
RIC 3,095,158 28.04 2,350,330 26.00
TRIFINITY 513,655 4.65 0 0
OTHER 0 0 0 0
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TOTAL SALES $11,038,938 100.00 $9,040,175 100.00
========== ====== ========== ======
OPERATING PROFIT BY INDUSTRY SEGMENT
INDUSTRY SEGMENT AMOUNT PERCENT AMOUNT PERCENT
SECO ($1,548,572) 99.78 $372,881 78.56
RIC 548,380 (35.33) 191,205 40.28
TRIFINITY (357,389) 23.03 0 0
OTHER (194,480) 12.53 (89,418) (18.84)
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TOTAL OPERATING PROFIT($1,552,061) 100.00 $474,668 100.00
========== ====== ========== ======
TOTAL ASSETS BY INDUSTRY SEGMENT
INDUSTRY SEGMENT AMOUNT PERCENT AMOUNT PERCENT
SECO $3,892,533 57.05 $2,911,147 71.30
RIC 869,338 12.74 609,336 14.92
TRIFINITY 1,492,477 21.87 0 0
OTHER 568,577 8.34 562,597 13.78
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TOTAL ASSETS $6,822,925 100.00 $4,083,080 100.00
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SECO
SECO generated gross revenues in 1999 of $7,430,125 as compared to $6,689,845,
representing an increase of $740,280 or a percentage increase of 9.96 percent.
However, cost of operations for the year 1999 were $7,117,752 compared to
$5,103,695 in 1998 resulting in a gross profit decrease of 19.51 percent.
General and administrative expenses for the year were $1,860,945(25.05% of
sales) as compared to $1,168,107(17.46% of sales) in 1998.
Interest expense increased to $141,606 in 1999 from $65,355 in 1998, an increase
of $78,756.
The increase in general and administrative expenses and interest was due in
large part to the two subsidiaries in Missouri and Indiana which started
operations in January of 1999.
The net loss before taxes for 1999 was ($1,712,030), as compared to a net profit
in 1998 of $372,881.
Many factors led to the poor year by SECO. In 1999, the asbestos abatement
industry shifted away from the private sector to mainly public contracts. In
1999, SECO generated 80 percent of their contracts from public school districts
and due to very competitive conditions, these contracts were estimated at low
margins. Additionally, management accepted contracts that were severely
under-estimated as to labor costs, resulting in some severe operating losses. As
this was happening, the available labor force was reduced as workers sought
employment in other industries, thus driving up labor costs. As well, SECO
signed a contract in early 1999 with Laborers Union Local 225. In estimating
contracts management failed to recognize the additional labor costs associated
with its union responsibilities.
In the first quarter of 1999, the Company expanded its asbestos/lead abatement
operations into the Missouri and Indiana markets. The costs related to these
expansion moves did not materialize into additional operating profits. Of the
total losses incurred by SECO, $258,342 was attributable to Missouri and $32,511
was attributable to Indiana.
In order to reverse the trend that existed in 1999, management has engaged two
experienced estimators, who are also capable at selling and marketing SECO. They
have also taken steps to reduce overhead by reducing some staff positions. It is
also the plan of management to concentrate on larger contracts as opposed to
smaller jobs with lower gross profit margins.
<PAGE> 8
RIC
RIC's sales during 1999 were $3,095,158, an increase from 1998 of $744,808 or
31.64 percent. During 1999, its cost of sales percentage decreased to 51.70
percent compared to 55.28 percent in 1998, thereby reflecting a gross profit
percentage of 48.30 percent. Operating expenses increased in 1999 to $946,638
from $854,111 in 1998. As a percentage of sales, operating expenses decreased to
30.58 percent in 1999 compared to 36.34 percent in 1998.
Net profit before taxes for the year was $523,212 compared to $191,205 in 1998,
an increase of $332,007.
The increase in sales and profitability of RIC was due to the recovery of two of
its largest five customers in 1999. RIC anticipates that revenues from these two
customers will continue through the year 2000.
TRIFINITY
The results of Trifinity are included in the registrants from March 5, 1999. No
comparative data is available for Trifinity.
The results of Trifinity were expected for the period ended December 31, 1999.
It is believed that Trifinity will contribute positively to the Company's
earnings beginning in the year 2000.
OTHER
Included in other are the operating expenses incurred by the Company. These
include amortization of goodwill in the amount of $42,536 and interest expense
of $56,363.
FORWARD LOOKING STATEMENTS
This report included forward looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
statements contain information regarding growth and earnings expectations based
on the Company's current assumptions involving a number of risks and
uncertainties. There are certain important factors that can cause actual results
to differ materially from the forward-looking statements, including, without
limitation, adverse business or market conditions; the ability of the Company to
secure and satisfy customers; and adverse competitive developments. Readers are
cautioned not to place undue reliance on forward looking statements.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are set forth immediately following the
signature page to this form 10-KSB.
<PAGE> 9
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the executive officers, directors and significant
employees of the Company:
Name Age Position
- -------------------- --- -----------------------
John Giura 67 President, Secretary and Director, Chairman
Ann K. Knaack 43 Vice President and Director
Jaime Bendersky 71 Director
Chander Jadhwani 49 Director
Ronald F. Riba 67 Director
John Giura has served as a Director, President, Chief Executive Officer and
Chief Financial Officer of the Company since August of 1997. Mr. Giura has been
the Secretary of the Company since 1999. In 1987, Mr. Giura co-founded
SECO-Illinois and in 1994 he acquired control of SECO-Illinois. Mr. Giura has
been a director of SECO-Illinois since 1997, and served as its President and
Chief Executive Officer from 1994 though 1998. Mr. Giura, along with other
individuals, acquired control of RIC in 1993. Mr. Giura has been a director of
RIC since 1993, and has served as its President since 1996. In addition, Mr.
Giura has been a director of Trifinity since March 1999. 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 served as a Director and Vice President of the Company since
August of 1997. Ms. Knaack jointed RIC in 1992. Over the past eight years, Ms.
Knaack has held various management positions with RIC including those of General
Manager, Secretary, Vice President and Chief Operating Officer. Ms. Knaack is
also a Director of RIC. Ms. Knaack received her BA in business and management
from Alverno College in Milwaukee, Wisconsin.
Dr. Bendersky has served as a Director of the Company since 1998. Dr. Bendersky
is a licensed physician specializing in internal medicine and as of April of
1998, an emeritus member on the medical staff of Westlake Community Hospital in
Melrose Park, Illinois. From 1966 until his retirement in April of 1998, Dr.
Bendersky had been an active member on the medical staff of Westlake Community
Hospital. Dr. Bendersky is currently involved in the establishment of a clinic
in Oak Brook, Illinois that will provide diagnostic evaluation and treatment of
patients with obesity.
Mr. Jadhwani has served as a Director of the Company since 1997. Chander
Jadhwani has been Manager of New Business Development for the Company since
August of 1997. His duties include the development and execution of the
Company's strategic business plans and acquisitions. Mr. Jadhwani has been
employed by Waste Solutions Corporation, a privately owned company involved in
the manufacture of products used in the clean up of hazardous waste since 1994.
He serves as a Managing Director responsible for the development and execution
of Waste Solution Corporation's strategic business plans. Mr. Jadhwani received
an MS in structural engineering from the Illinois Institute of Technology in
1976 and an MBA from the Illinois Institute of Technology in 1984.
Ronald F. Riba was a director of the Company from 1998 until March 2000. Prior
to his retirement in 1999, Mr. Riba was a Vice President of Investments of
Everen Securities, Inc., a publicly held financial services company engaged in
the business of securities brokerage and investment banking (formerly Kemper
Securities, Inc.). Mr. Riba had been a registered broker with Everen Securities,
Inc. for nearly eleven years. During his career, Mr. Riba provided investment
advice and services to both institutional and individual clients.
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 such person was an executive
officer at or within two years before the time of such filing;
<PAGE> 10
(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 such person 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 permanently 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.
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.
<PAGE> 11
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets 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 subsidiary's chief executive officer, and
each of its other executive officers who received compensation in excess of
$100,000 during such periods (as determined at December 31, 1999):
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options All
Principal Year Salary Bonus($) Compensation Awards /SARs Other
Position Compensation
- -------------- ----- ------ -------- ------------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
John Giura 1999 72,000 -0- 7,200 -0- -0- 2,000
John Giura 1998 60,000 -0- 7,200 -0- -0- 2,000
John Giura 1997 53,000 -0- 7,200 -0- -0- 2,000
President
and CEO
Denny Nestripke
Former President
And CEO 1997 -0- -0- -0- -0- -0- -0-
Ann K. Knaack 1999 110,600 -0- 7,200 -0- -0- 2,000
Vice President
</TABLE>
Cash Compensation
John Giura was paid $72,000 by RIC for the year ended December 31, 1999. In 1998
and 1997 Mr. Giura was paid by RIC. Mr. Giura does not have an employment
contract with the Company and no set compensation arrangement has been set for
Mr. Giura for the fiscal year ended December 31, 2000.
Ann K. Knaack was paid $110,600 by RIC for the year ended December 31, 1999. Ms.
Knaack does not have an employment contract with the Company. Her base
compensation for the fiscal year ended December 31, 2000 has been set at
$93,000.
Bonuses and Deferred Compensation
The Company maintains a 401K profit sharing plan. The Company matches employee
contributions to fifty percent with a maximum limit of $2,000. Total Company
contributions for 1999 were $12,384.
Compensation Pursuant to Plans.
None.
Pension Table
None.
Other Compensation
None.
Compensation of Directors.
None.
Employment Contracts and Termination of Employment, and Change-in-Control
Arrangements
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.
<PAGE> 12
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of December 31, 1999 by (i) each person who is
known by the Company to own beneficially more than 5% of the outstanding shares
of Common Stock, (ii) each director of the Company, (iii) each of the named
executives and (iv) all directors and executive officers of the Company as a
group. At December 31, 1999, there were approximately 10,229,779 shares of
Common Stock issued and outstanding.
Title
of Name and Address of mount and Nature of Percent
Class Beneficial Owner Beneficial Ownership(1) of Class
- ----- ---------------- -------------------- ----------
Common John Giura
President and Director
C/O CGI Holding
Corporation
8400 Brookfield Ave
Brookfield, IL
60513 2,536,494 (2) 24.80%
Common PCP Partners 1,600,000 15.64%
c/o William Blair & Co.
222 West Adams
Chicago, IL 60606
Common James Spachman
735 Selbourn Road
Riverside, IL
60546 814,000 7.96%
Common Jaime Bendersky 283,680 2.77%
Director
324 Hambleton Drive
Oakbrook, IL 60523
Common Chander Jadhwani 250,000 (3) 2.44%
Director
c/o CGI Holding Corporation
8400 Brookfield Ave
Brookfield, IL 60513
Common Ann K. Knaack 73,016 0.71%
Vice President and Director
c/o Roli Ink Corporation
4010 W Douglass Ave
Milwaukee, WI 53209
Common Ronald F. Riba 125,000 1.22%
Director
16 W Canterbury Dr.
Arlington Heights, IL 60004
Common Directors and Officers as a 3,268,190 31.95%
Group (6 persons)
(1) Except as set forth in the footnotes to this table, the persons named in the
table above have sole voting and investment power with respect to all shares
shown as beneficially owned by them.
(2) 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, Inc., a company of
which he is the sole shareholder.
(3) Includes 20,000 held by Mr. Jadhwani as custodian for his children.
<PAGE> 13
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
SECO-Illinois leases its office facilities from 8400 Brookfield Partners. 8400
Brookfield Partners is owned by John Giura, the president of the Company, and
James Spachman, a principal shareholder of the Company. Pursuant to a
month-to-month lease, the Company pays 8400 Brookfield Partners $3,000 per month
for the lease of the facilities. (See: Item 2: "Description of Properties.")
The Company contracts with Mentor Investments, Inc. ("Mentor") to provide direct
labor for certain jobs. Mentor is responsible for the cost of the payroll taxes
and workmens compensation insurance. Mentor receives, as reimbursement, the cost
of the payroll plus 20% to cover employer payroll taxes and workers compensation
insurance. John Giura, the president of the Company, is the sole shareholder of
Mentor.
The Company and SECO-Illinois borrowed funds from shareholders throughout the
year to cover operating expenses. The total outstanding principal balance due as
of December 31, 1999 was $615,000. The detail of this principal balance as of
December 31, 1999 is as follows:
Jaime Bendersky $300,000 - Principal balance due on April 1, 2001.
Interest paid quarterly at a rate of 10%
(loan to the Company).
Jim Spachman $200,000 - No repayment terms. Interest paid
quarterly at 1/2% over the prime rate (loan
to the Company).
John Giura - $115,000 - No repayment terms. No interest paid
or accrued ($70,000 loan to the Company and
$45,000 loan to SECO-Illinois).
Chander Jadhwani, a director of the Company, performed due diligence and
consulting services for the Company in connection with the acquisition of
Trifinity and for other potential acquisitions by the Company. In exchange for
his services, Mr. Jadhwani received a reduced purchase price for shares of
Common Stock (See: Item 5: "Market For Common Equity And Related Stockholder
Matters".)
TRANSACTIONS WITH PROMOTERS
Not applicable.
ITEM 13. EXHIBITS AND REPORTS
(a)(1)FINANCIAL STATEMENTS. The following financial statements are filed as part
of this report:
Title of Document Page
- ----------------- ----
Report of Poulos & Bayer, LTD., Certified Public Accountants 16
Balance Sheets
December 31, 1999, and 1998 17
Statements of Stockholders' Equity
For the years ended December 31, 1999, and 1998 18
Statements of Operations
For the years ended December 31, 1999, and 1998 19
Statements of Cash Flows
For the years ended December 31, 1999, and 1998 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 filed as part of this report:
EXHIBIT NO. DOCUMENT DESCRIPTION
2.1 Plan and Agreements of Reorganization, incorporated by
reference to the Registrant's Form 10-QSB for quarter ended
June 30, 1997.
2.2 Asset Purchase Agreement, incorporated by reference to the
Registrant's Form 8-K filed March 19, 1999 and Form 8 K/A
filed June 19, 1999.
3.1 Articles of Incorporation, incorporated by reference to the
Registrant's registration statement on Form S-18, SEC File No.
33-19980-D.
3.2 Amended Articles of Incorporation, incorporated by reference
to the Registrant's Form 10-KSB for the year ended September
30, 1989.
<PAGE> 14
3.3 Amended Articles of Incorporation, incorporated by reference
to the Registrant's Form 10-QSB for the quarter ended December
31, 1995.
3.4 Amended Articles of Incorporation, incorporated by reference
to the Registrant's Form 10-QSB for the quarter ended
September 30, 1995.
3.5 By-laws, incorporated by reference to the Registrant's
registration statement on Form S-18, SEC File No. 33-19980-D.
4.1 Warrant Agent Agreement, incorporated by reference to the
Registrant's registration statement on Form S-18, SEC File No.
33-19980-D.
4.2 First Amendment to Warrant Agent Agreement, incorporated by
reference to the Registrant's Form 10-QSB for the quarter
ended December 31, 1995.
4.3 Second Amendment to Warrant Agent Agreement, incorporated by
reference to the Registrant's Form 10-QSB for the quarter
ended September 30, 1995.
11 A computation of income per share is contained in this Form
10-KSB.
21 The Registrant has five subsidiaries: Safe Environment
Corporation, an Illinois corporation; Safe Environment
Corporation of Indiana, an Indiana corporation; Safe
Environment Corporation of Missouri, a Missouri corporation;
Roli Ink Corporation, a Wisconsin Corporation; and
Trifinity, Inc., an Illinois corporation.
27 A Financial Data Schedule is included in this Form 10-KSB as
Exhibit 27.
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the fourth quarter of
1999.
<PAGE> 15
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on this 14th day of April, 2000.
CGI Holding Corporation
By: /s/ John Giura
----------------------------------
John Giura
Director, President and Chief Financial
Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated on this 14th day of April, 2000.
Signature Title
/s/ John Giura President, Chief Financial Officer and Director
- ------------------------
John Giura
/s/ Ann K. Knaack Vice President and Director
- ------------------------
Ann K. Knaack
/s/ Jaime Bendersky Director
- ------------------------
Jaime Bendersky
/s/ Chander R. Jadhwani Director
- ------------------------
Chander R. Jadhwani
<PAGE> 16
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, 1999 and 1998, and the related statements
of income, stockholder's equity, and cash flows for the years 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, 1999 and 1998 and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
By: /s/ Poulos & Bayer, Ltd.
Poulos & Bayer, Ltd.
Chicago, Illinois
March 21, 2000
<PAGE> 17
CGI HOLDING CORPORATION, INC.
COMPARATIVE CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999 AND 1998
ASSETS DECEMBER 31, DECEMBER 31,
1999 1998
------------- -------------
CURRENT ASSETS
Cash $117,190 $147,685
Accounts Receivable 3,002,240 2,487,844
Allowance for Doubtful Accounts (167,489) 0
Inventory 867,063 217,535
Other Current Assets 174,173 103,413
Prepaid Corporate Taxes 211,029 0
Deferred Corporate Taxes 377,767 0
Costs and Estimated Earnings in
Excess of Billings 74,154 263,775
------------- -------------
TOTAL CURRENT ASSETS $4,656,126 $3,220,252
------------- -------------
PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment $1,820,165 $474,667
Less: Accumulated Depreciation (273,649) (76,219)
------------- -------------
NET PROPERTY, PLANT AND EQUIPMENT 1,546,516 398,448
------------- -------------
OTHER ASSETS
Goodwill 522,032 464,380
Other Assets 98,251 0
------------- -------------
TOTAL OTHER ASSETS 620,283 464,380
------------- -------------
TOTAL ASSETS $6,822,925 $4,083,080
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt $622,860 $141,987
Notes Payable-Line of Credit 2,410,836 800,000
Short-Term Borrowings 152,050 123,181
Accounts Payable 767,047 723,721
Accrued Corporate Income Taxes 21,312 34,761
Accrued Liabilities 201,733 69,173
Loan Payable-Shareholders 315,000 269,880
------------ -------------
TOTAL CURRENT LIABILITIES $4,490,838 $2,162,703
------------ -------------
LONG TERM LIABILITIES
Long-Term Debt, Net of
Current Portion $967,734 $16,310
Deferred Income Tax 22,665 22,665
Loan Payable-Shareholders 300,000 0
------------ -------------
TOTAL LONG-TERM LIABILITIES $1,290,399 38,975
------------ -------------
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;
10,229,779 shares issued and
outstanding 10,230 8,330
Additional Paid-In Capital 2,895,381 2,448,281
Retained Earnings (1,863,923) (575,209)
------------ -------------
TOTAL STOCKHOLDERS' EQUITY 1,041,688 1,881,402
------------ -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $6,822,925 $4,083,080
============ =============
The accompanying notes are an integral part of these statements.
<PAGE> 18
CGI HOLDING CORPORATION, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1999 AND 1998
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS
--------- ------- -------- ----------
BALANCE: JANUARY 1, 1998 8,272,779 8,273 2,434,088 (840,250)
EMPLOYEE STOCK BONUS 57,000 57 14,193
1998 NET INCOME 265,041
--------- --------- --------- ----------
BALANCE: DECEMBER 31, 1998 8,329,779 8,330 2,448,281 (575,209)
ISSUED 1,600,000 SHARES OF
COMMONT STOCK FOR THE PURCHASE
OF SALLE INTERNATIONAL ON
MARCH 5, 1999 1,600,000 1,600 366,400
ADDITIONAL ISSUANCE OF 200,000
SHARES ON JUNE 15, 1999 AT
$0.30/SHARE 200,000 200 59,800
ADDITIONAL ISSUANCE OF 100,000
SHARES ON JULY 1, 1999 AT
$0.21/SHARE 100,000 100 20,900
1999 NET LOSS (1,288,714)
---------- --------- --------- ----------
BALANCE: DECEMBER 31, 1999 10,229,779 10,230 2,895,381 (1,863,923)
========== ========= ========= ==========
The accompanying notes are an integral part of these statements.
<PAGE> 19
CGI HOLDING CORPORATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1999 AND 1998
TWELVE MONTHS ENDED
DECEMBER 31,1999 DECEMBER 31, 1998
SALES $11,038,938 $9,040,175
COST OF GOODS SOLD 8,995,849 6,403,002
------------ ------------
GROSS PROFIT $2,043,089 $2,637,173
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 3,595,150 2,111,235
------------ ------------
INCOME FROM OPERATIONS ($1,552,061) $525,938
------------ ------------
OTHER INCOME (EXPENSE)
Other $14,738 $20,214
Interest Income 1,680 48
Interest Expense (297,815) (71,532)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) ($281,397) ($51,270)
------------ ------------
INCOME BEFORE CORPORATE
INCOME TAXES ($1,834,458) $474,668
------------ ------------
INCOME TAX PROVISION
Current Tax Expense ($166,977) $198,097
Deferred Tax Expense (377,767) 11,530
------------ ------------
TOTAL INCOME TAX PROVISION ($544,744) 209,627
------------ ------------
NET INCOME ($1,288,714) $265,041
============ ============
NET INCOME PER
COMMON SHARE ($0.13) $0.03
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 9,808,683 8,274,184
============ ============
The accompanying notes are an integral part of these statements.
<PAGE> 20
CGI HOLDING CORPORATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
TWELVE MONTHS ENDED DECEMBER 31, 1999 AND 1998
TWELVE MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit ($1,288,714) $265,041
Non-Cash Items Included in Net Profit
Depreciation 197,430 55,766
Amortization 42,636 34,187
Allowance for Bad Debts 167,489 0
Stock Bonus 0 14,250
Change in Accounts Receivable (342,881) (974,565)
Change in Inventory (197,604) 20,722
Change in Other Current Assets (70,760) (11,151)
Change in Costs and Estimated Earnings
Over Billings 189,621 (218,775)
Change in Prepaid Corporate Taxes (211,029) 0
Change in Other Assets (63,251) (6,448)
Change in Accounts Payable 43,326 282,980
Change in Accrued Expenses 132,560 1,573
Change in Accrued Income Taxes (13,449) (296,893)
Change in Deferred Income Taxes (377,767) 11,530
Change in Billings in Excess of Costs and
Estimated Earnings 0 52,461
---------- ---------
NET CASH CHANGE FROM OPERATING
ACTIVITIES ($1,792,393) ($874,244)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed Assets Acquired ($385,054) ($81,617)
---------- ----------
NET CASH CHANGE FROM INVESTING ACTIVITIES ($385,054) ($81,617)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Debt $1,720,832 $659,399
Change in Shareholder Loans 345,120 269,880
Proceeds from Sale of Stock 81,000 0
---------- ----------
NET CASH CHANGE FROM FINANCING
ACTIVITIES $2,146,952 $929,279
---------- ----------
NET CASH CHANGE ($30,495) ($26,582)
CASH BALANCE: JANUARY 1 147,685 174,267
---------- ----------
CASH BALANCE: DECEMBER 31 $117,190 $147,685
========== ==========
Supplemental Information
Interest Paid $297,815 $71,532
Income Taxes Paid 64,102 497,443
The accompanying notes are an integral part of these statements.
Supplemental Schedule of Noncash Investing and Financing Activities
The Company issued 1,600,000 shares of common stock with a par value of $.001
and market value of $368,000 plus assumed debt of $951,171 in connection with
the purchase of the assets of Salle International.
The Company assumed certain debt in the amount of $400,000 to purchase
contracting equipment to start up SECO Missouri.
<PAGE> 21
CGI HOLDING CORPORATION
FOOTNOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - PURCHASE OF ROLI INK CORPORATION AND SAFE ENVIRONMENT CORPORATION
On July 28, 1997, CGI Holding Corporation (the "Company") entered into a
reorganization with two privately held corporations, Safe Environment
Corporation ("SECO-Illinois"), an Illinois corporation, and Roli Ink Corporation
("Roli"), a Wisconsin corporation. Immediately prior to the reorganization, 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 additional shares (post-split) to the
shareholders of SECO-Illinois and Roli. In connection with the reorganization,
the Company changed its name from Gemstar Enterprises to CGI Holding
Corporation.
The reorganization was accounted for as the purchase of SECO-Illinois and RIC by
the Company. The purchase method was utilized in accordance with Accounting
Principles Board opinion number 16. The net assets of SECO-Illinois and RIC were
purchased by the issuance of common shares of the Company as follows: the
shareholders of SECO-Illinois received 2,761,000 shares and the shareholders of
RIC received 2,200,056 shares, leaving the shareholders of the Company
immediately prior to the reorganization with 3,311,723 or 40.03% of the
outstanding shares. The market value of shares of the Company at the time of
purchase was $0.30 per share. The excess of the purchase price over the fair
value of the assets received was recorded by the Company as goodwill and is
being amortized over a fifteen year life.
The purchase price of SECO-Illinois was $828,300(2,761,000 shares at
$0.30/share). The fair value of SECO-Illinois' net assets at the time of
acquisition was $523,373, resulting in goodwill of $304,927.
The purchase price of RIC was $660,017(2,200,056 shares at $0.30/share). The
fair value of RIC's assets at the time of acquisition was $452,132, resulting in
goodwill of $207,885.
The activities of SECO-Illinois and RIC are included in the registrants from
August 1, 1997 to December 31, 1997 and for the year ended December 31, 1998.
<PAGE> 22
NOTE 2 - PURCHASE OF ASSETS OF SALLE INTERNATIONAL, L.L.C.
On March 5, 1999, the Company's wholly owned subsidiary, Personal Care Products,
Inc., acquired substantially all of the assets of Salle International, L.L.C. (a
private company) under an asset purchase agreement dated March 2, 1999. The
acquisition price for Trifinity's assets was $1,319,171. The acquisition price
consisted of (i) assumed debt of $951,171 and (ii) 1,600,000 shares of Common
Stock (with a market value of $368,000). Subsequent to the acquisition, Personal
Care Products, Inc. changed its name to Trifinity, Inc. ("Trifinity"). Goodwill
in the amount of $100,188 was recorded at the date of purchase and is being
amortized over a ten year life.
NOTE 3 - NATURE OF BUSINESS
CGI Holding Corporation is a holding company which owns 100% of five
subsidiaries, Safe Environment Corporation ("SECO-Illinois"), Safe Environment
Corporation of Indiana ("SECO-Indiana"), Safe Environment Corporation of
Missouri ("SECO-Missouri"), Roli Ink Corporation ("RIC") and Trifinity, Inc.
("Trifinity").
SECO
The Company currently has three subsidiaries involved in the asbestos/lead
abatement industry. SECO-Illinois was incorporated in the State of Illinois in
1987 and has been involved in the asbestos abatement industry since its
formation. SECO-Indiana was incorporated in the State of Indiana in 1999 and
SECO-Missouri was incorporated in the State of Missouri in 1999. SECO-Illinois,
SECO-Indiana and SECO-Missouri are collectively referred to as SECO.
SECO recently expanded its services to include lead mitigation in order to
better serve its clients overall environmental needs. SECO provides asbestos and
lead 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 must 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. SECO recently expanded its services to include
interior demolition, which now constitutes approximately 30% of SECO's business.
In addition, SECO has begun developing asbestos and lead operations and
maintenance programs to assist building owners in managing their in place
asbestos and lead, with large scale removal occurring only to facilitate
renovation or prior to building demolitions. SECO is also investigating
potential expansion into re-insulation, painting and duct cleaning.
<PAGE> 23
SECO recognizes revenue utilizing the Percentage of Completion method of
accounting.
RIC
RIC was incorporated in the State of Wisconsin in 1985. RIC manufactures and
sells water based printing inks to industrial printers. After some initial
problems finding acceptance for water based inks (as opposed to solvent inks),
RIC developed, in house, a new product line. With its new product line, RIC
began focusing its marketing efforts on corrugated box manufacturers producing
display grade boxes. This market represents potentially good volume, and this
type of box manufacturer typically has the ability to 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 SUN, INX, BCM and Akzo Nobel. Currently, RIC
supplies approximately 40 customers total. Five of these customers account for
approximately 70% of RIC's business. The loss of any of these five customers
would have a material negative effect on RIC's business. Additionally, RIC has
three independent manufacturer's representatives who sell approximately 40% of
RIC's ink. Only 60% 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.
RIC recognizes revenue at time of shipment to the customer. All of RIC's inks
are water based and contain no materials that are listed as "hazardous"
materials by the Food and Drug Administration (the "FDA") or EPA. All of RIC's
inks are in compliance with the Coalition of Northeastern Governors' regulations
which specify that no more than 100 parts per million of heavy metals be used.
Additionally, RIC's inks do not contain ozone-depleting substances, as
identified by the U.S. Clean Air Act amendment of 1990.
TRIFINITY
On March 5, 1999, the Company's wholly owned subsidiary, Personal Care Products,
Inc., acquired substantially all of the assets of Salle International, L.L.C. (a
private company) under an asset purchase agreement dated March 2, 1999.
Subsequent to the acquisition, Personal Care Products, Inc. changed its name to
Trifinity, Inc. ("Trifinity").
Trifinity is a turn-around/start-up operation that markets and distributes
licensed and house brand personal care products and performs contract liquid
filling. At the time of acquisition, the Company anticipated that Trifinity
would require the balance of 1999 and part of 2000 to develop and complete its
marketing, distribution and manufacturing process.
Trifinity's operations are regulated by the Bureau of Alcohol, Tobacco and
Firearms (due to its mouth wash products). Trifinity is also FDA registered and
regulated by the EPA.
Trifinity recognizes revenue at the time of shipment.
NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES
A. Revenue and Cost Recognition
SECO
SECO uses the percentage of completion method of accounting for all construction
projects. The recognition of contract revenue and profit during construction is
based on expected total profit and estimated progress toward completion in the
current year. Estimated progress is measured by actual costs to date compared to
projected total costs for each respective contract. All job related costs are
recognized in the period in which they occur.
RIC
Income and costs are recognized at time of shipment to customer.
TRIFINITY
Income and costs are recognized at time of shipment to customer.
B. Inventory
Inventory is stated at cost using the first-in, first-out method.
C. Fixed Assets
All assets are depreciated over their useful life using the 150% declining
method with the exception of fixed assets acquired by RIC after January 1, 1997.
These assets are being depreciated using the straight line method over their
useful lives.
Note 5 - Accounts Receivable
Accounts receivable at December 31, 1999 consist of the following:
Currently Due $3,002,240
Retainages 93,137
----------
$2,909,103
==========
Retainages are due in less than one (1) year.
<PAGE> 24
Note 6 - Notes Payable
Current Long-Term
----------- --------------
a.)CIB Bank - Line of Credit
Interest rate of 8.75% and maturity
date of August 1, 2000. This
note is secured by general assets
of SECO. $1,350,000 0
b.)Marine Bank and Savings - Line of Credit
Note due on 5/1/00 with an interest
rate of 8.00%. The note guaranteed
by the general assets of Roli Ink. 242,836 0
c.)Marine Bank - Line of Credit
Note due on 7/1/2000 with an interest
rate of 9.00%. The total amount
available is $1,000,000 350,000 0
d.)CIB Bank - Line of Credit
Interest rate is 1/2 over prime. 468,000 0
----------- --------------
TOTAL LINE OF CREDIT $2,410,836 0
e.)Union Federal Savings - Equipment Loan
Note dated 8/20/99 with a 6 year
amortization and interest rate of
11.25% 70,621 457,542
f.)Clara Bendersky - Note payable due
April 1, 2001 with interest rate of
10.00% 0 150,000
g.)Otto Barth - Note payable due
June 30, 2001 with interest rate of
8.25% 0 50,000
h.)Audrey Love- Note payable due
October 31, 1999 with interest rate of
8.25% 100,000 0
i.)George Kouronos - Note payable due
July 9, 2000 with interest rate of
8.25% 100,000 0
j.)John English - Note payable dated 7/1/99
with interest rate of 8.00% 143,000 0
k.)Note Payable - Finova
Note is due on June 1, 2000 and has
an interest rate of 11.75%. 119,077 0
l.)Computer Loan
36 month noted dated September 1999 with
an interest rate of 15.99%. 612 945
m.)Marine Bank Installment Loan
Note dated 8/5/99 with interest rate of
8.00 and maturity date of 8/5/04 30,700 111,077
n.)CIB Bank - Installment Loan
Note payable for 60 months at 4,091 per
month with interest rate of 8.50%
Maturity date is 2/29/04 35,826 136,552
o.)Vehicle 3 - payment is $285.09/month.
Note is secured by the vehicle and has
an interest rate of 8.5%. 1,890 0
p.)Vehicle 5 - payment is $303.05/month.
Note is secured by the vehicle and has
an interest rate of 7.65%. 3,173 4,322
q.)Equipment Loan - 48 month note dated
11/28/99 with interest rate of 5.9% 7,076 18,921
r.)Equipment Loan - 48 month note dated
December 1999. 6,500 21,604
s.)Vehicle Loan - 60 month note dated 4/3/99
with interest rate of 7.59% 4,385 16,771
----------- -------------
Subtotal 622,860 967,734
----------- -------------
Totals $3,033,696 967,734
=========== =============
Principal payments for the next five years are as follows:
2000 $3,033,696
2001 368,452
2002 179,827
2003 192,152
2004 139,938
----------
$3,914,065
==========
<PAGE> 25
NOTE 7 - CONTRACTUAL AGREEMENTS
The Company contracts with Mentor Investments, Inc. ("Mentor") to provide direct
labor for certain jobs. Mentor is responsible for the cost of the payroll taxes
and workmens compensation insurance. Mentor receives, as reimbursement, the cost
of the payroll plus 20% to cover employer payroll taxes and workers compensation
insurance. This practice ended in August of 1999.
NOTE 8 - LEASING COMMITMENTS
The Company leases office and warehouse facilities at a monthly rate of
$3,000.00 without a formal agreement.
NOTE 9 - RELATED PARTY TRANSACTIONS
SECO-Illinois, 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-Illinois'
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.
NOTE 10 - LOAN FROM SHAREHOLDERS
The Company and SECO-Illinois borrowed funds from shareholders throughout the
year to cover operating expenses. The total outstanding principal balance due as
of December 31, 1999 was $615,000. The detail of this principal balance as of
December 31, 1999 is as follows:
Jaime Bendersky $300,000 - Principal balance due on April 1, 2001.
Interest paid quarterly at a rate of 10%
(loan to the Company).
Jim Spachman $200,000 - No repayment terms. Interest paid
quarterly at 1/2% over the prime rate (loan
to the Company).
John Giura - $115,000 - No repayment terms. No interest paid
or accrued ($70,000 loan to the Company and
$45,000 loan to SECO-Illinois).
NOTE 11 - INSURANCE
SECO is insured for General Liability by American Alternative Insurance
Corporation for $1,000,000 with an aggregate limit of $5,000,000 available as
needed on a per job basis. The deductible is $5,000. A.M. Best's Rating for
American Alternative Insurance Corporation is A++15.
NOTE 12 - STOCK BONUS
In accordance to APB 25, the Company granted 57,000 shares valued at .25 per
share on 12/22/98 to certain key employees. An amount of $14,250 was charged to
expense.
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 117,190
<SECURITIES> 0
<RECEIVABLES> 3,002,240
<ALLOWANCES> 167,489
<INVENTORY> 867,063
<CURRENT-ASSETS> 4,656,126
<PP&E> 1,820,165
<DEPRECIATION> 273,649
<TOTAL-ASSETS> 6,822,925
<CURRENT-LIABILITIES> 4,490,838
<BONDS> 0
0
0
<COMMON> 10,230
<OTHER-SE> 1,031,458
<TOTAL-LIABILITY-AND-EQUITY> 6,822,925
<SALES> 11,038,938
<TOTAL-REVENUES> 11,038,938
<CGS> 8,995,849
<TOTAL-COSTS> 8,995,849
<OTHER-EXPENSES> 3,595,150
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 297,815
<INCOME-PRETAX> (1,834,458)
<INCOME-TAX> (544,744)
<INCOME-CONTINUING> (1,288,714)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,288,714)
<EPS-BASIC> (.13)
<EPS-DILUTED> (.13)
</TABLE>
