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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(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, 1998
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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
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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: $9,040,175
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 average bid and ask price of $0.265 per share for the Company's Common
Stock at March 11, 1999, the market value of shares held by nonaffiliates would
be $1,370,339. A list and description of affiliates can be found in Item 11.
As of March 11, 1999, the Registrant had 8,329,779 shares of common stock issued
and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portion of Item 1 refers to an 8-K filing on March 19, 1999.
<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 reverse 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.
Narrative Description of SECO
SECO has been involved in the asbestos abatement industry since its formation,
in November of 1987, 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.
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 the discontinuation of asbestos for
insulation of pipes and tanks. These facilities are continually performing
operations and maintenance procedures that require the removal and/or repair of
these 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.
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. 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.
Seco currently employs approximately 57 full time employees who average 40 hours
per week. Included in total employees are 10 adminisitrative staff, 12
supervisors and 35 field personnel. In addition, SECO has a pool of
approximately 150 additional workers who are available on an as needed basis.
<PAGE> 3
Narrative description of 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 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
manufactures could pay the prices required by RIC's ink products. RIC primarily
concentrates its efforts on the Wisconsin and Northern Illinois ink market due
to limited capital for expansion. 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 brnches 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 some cases, ink may be sold with very little if any margin. In
addition, SUN and INX are very active in bidding and securing ink contracts with
various printing companies' corporate head quarters. 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 which competes with RIC primarily at label accounts. RIC
supplies approximately 40 customers total with five of those customers
accounting for approximately 64% of its 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 sells to plants
that are looking for top-of-line custom inks using the finest quality
ingredients formulated specifically for their customer's printing equipment. RIC
does not produce low cost, low quality commodity inks where competition with
larger companies is very difficult. As does it competitors, RIC offers an ink
dispensing system that can be leased or sold directly to their customer. Fast
service and excellent quality are RIC's main focus.
RIC recognizes revenue at time of shipment to the customer.
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.
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.
Acquisition
On March 5, 1999, CGI Holding Corporation acquired substantially all of the
assets of Salle International, L.L.C. ( a private corporation) under an asset
purchase agreement dated March 2, 1999. The acquisition price was $1,319,171.
Refer to 8-K filed March 19, 1999 and form 8 K/A dated June 19, 1999.
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 $3,694 plus real
estate taxes of $530.30 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 located in Milwaukee, Wisconsin.
<PAGE> 4
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
$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.
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 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
At the Special Meeting of Stockholders held on October 22, 1998 ("Special
Meeting") the stockholders of the Company:
(i) elected Messieurs Jamie Bendersky, Chander Jadhwani and Ronald Riba as
directors of the Company by a vote of 6,115,386 in favor to 0 against for
Messieurs Bendersky and Riba and by a vote of 6,115,236 in favor to 150 against
for Mr. Jadhwani and
(ii) ratified the selection of Poulos & Bayer, LTD. to serve as the Company's
independent public accountants and auditors for the current fiscal year by a
vote of 6,115,386 in favor to 0 against.
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.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
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March 1997 $0.30 $0.30
June 1997 $0.30 $0.30
September 1997 $4.50 $1.50
December 1997 $3.75 $1.625
March 1998 $3.38 $0.75
June 1998 $1.13 $0.53
September 1998 $0.75 $0.20
December 1998 $0.51 $0.21
At March 11, 1999, the bid and asked price for the Company's Common Stock was
$0.23 and $0.30 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 paid any dividends
on its Common Stock, and the Company does not anticipate that it will pay
dividends in the foreseeable future. At March 11, 1999, the Company had
approximately 157 shareholders.
<PAGE> 5
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The financial statements have been restated to reflect the change in accounting
principle on the merger transaction dated August 4, 1997. This transaction was
originally reported as a pooling-of-interests and has subsequently been changed
to use the purchase method of accounting in accordance with APB 16. A review of
certain treasury share transactions within two years of the merger prohibited
the use of the pooling method. This restatement was made for the years ended
December 31, 1997 and 1998.
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
1998 1997
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NET PROFIT AS ORIGINALLY REPORTED $253,730 $653,053
ELIMINATION OF SECO AND RIC PRE-MERGER
OPERATING PROFITS 0 (491,268)
DECREASE IN DEPRECIATION 56,110 12,838
INCREASE IN AMORTIZATION OF GOODWILL (34,187) (14,245)
CHANGE IN DEFERRED TAXES (11,530) (11,135)
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NET PROFIT AS RESTATED $265,041 $149,243
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EARNINGS PER SHARE AS ORIGINALLY REPORTED 0.03 0.10
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EARNINGS PER SHARE RESTATED 0.03 0.03
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LIQUIDITY AND CAPITAL RESOURCES
The Company had total assets of $4,083,080 at December 31, 1998, an increase of
$1,155,299 over December 31, 1997. These assets included $398,448 in property,
plant and equipment. The Company had current assets of $3,220,252 at December
31, 1998, resulting in working capital of $1,057,549. This is an increase in
working capital of $163,683 over 1997.
The majority of the Company's current assets are accounts receivable consisting
of $2,487,844. The Company's accounts receivable, as collected, will be enough
to cover all of the Company's current liabilities of $2,162,703. The Company
only has $16,310 in long term debt, which also could be covered by current
accounts receivable, when collected.
Long term borrowing decreased in 1998 by $139,026 to $16,310. However, the
company was forced to increase its short term borrowings, including loans from
shareholders and line of credit in the amount of $269,800 and $800,000
respectively. This was necessitated by an increase of Seco's accounts receivable
of $1,040,988. This substantial increase was the result of percentage of
completion billings late in the fourth quarter. The company believes its
accounts receivable, as collected, will be enough to cover all of the company's
short term obligations.
The company also increased its available line of credit from $800,000 to
$2,000,000 on March 1, 1999 to cover future cash needs.
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 1999 year as well as to expand its
operations as business warrants.
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 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 is exploring possibilities in the interior demolition, re-insulation,
painting and duct cleaning industries for potential future businesses.
OVERVIEW
Prior to the acquisition of RIC and SECO, the Company had no operations or
revenue. 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 1998 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.
RESULTS OF OPERATIONS
Sales for the year ended December 31, 1998 were $9,040,715, an increase over
1997 in the amount of $124,388 or 1.38 percent. Cost of sales for 1998 were
$6,403,002 compared to 1997 of $5,796,613, an increase of $606,389 or 10.46
percent. The major cause for the increase in cost of sales percentage from 65.27
percent in 1997 to 70.83 percent in 1998 was the highly competitive Chicago
market forcing Seco to reduce margins. Seco has countered by opening branches in
Missouri and Indiana to expand their market base. Operating expenses for the
year 1998 were $2,133,158 compared to $2,186,356 for 1997, a decrease of
$53,198.
Net income before taxes in 1998 was $474,668, a decrease from 1997's $972,745,
resulting in a decrease of net profit before taxes of $498,077.
Income taxes for 1998 were $198,015 compared to $388,096 in 1997, a decrease of
$190,081.
The company's net income after taxes for the year ended December 31, 1998 was
$265,041($.03/share) compared to $584,649 ($.08/share), representing a decrease
of $319,608 ($.05/share).
Interest expense increased from $55,314 in 1997 to $71,532 in 1998, an increase
of $16,218. The increase is attributed to the line of credit borrowings detailed
under Liquidity and Capital Resources.
Other income decreased from $93,000 in 1997 to $20,214 in 1998, a decrease of
$72,786. Reflected in other income for the year 1997 was a non-recurring item of
$51,000. This item reflects the negotiated decrease of insurance premiums
accrued by SECO as to asbestos liability.
<PAGE> 6
SEGMENT ANALYSIS
The Company's operations are divided into operating segments using individual
products or services or groups of related products and services. Each segment
has separate management that reports to a person that makes decisions about
performance assessment and resource allocation for all segments. The Company has
two operating segments: asbestos abatement and ink production. The Company
evaluates the performance of each segment using before-tax income or loss from
continuing operations. There are no sales transactions between segments.
Listed below is a presentation of sales, operating profit and total assets for
all reportable segments. The other segment category consists of the management
company CGI Holding Corporation.
NET SALES BY INDUSTRY SEGMENT
INDUSTRY SEGMENT 1998 1997
AMOUNT PERCENT AMOUNT PERCENT
SECO $6,689,845 74.00 6,183,602 69.36
RIC 2,350,330 26.00 2,732,185 30.64
OTHER 0 0 0 0
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TOTAL SALES $9,040,175 100.00 $8,915,787 100.00
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OPERATING PROFIT BY INDUSTRY SEGMENT
1998 1997
INDUSTRY SEGMENT AMOUNT PERCENT AMOUNT PERCENT
SECO $372,881 78.56 $611,766 62.89
RIC 191,205 40.28 354,912 36.49
OTHER (89,418) (18.84) 6,067 0.62
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TOTAL PROFIT $474,668 100.00 $653,053 100.00
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TOTAL ASSETS BY INDUSTRY SEGMENT
1998 1997
INDUSTRY SEGMENT AMOUNT PERCENT AMOUNT PERCENT
SECO $2,911,147 71.30 $1,673,419 57.16
RIC 609,336 14.92 746,380 25.49
OTHER 562,597 13.78 507,982 17.35
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TOTAL PROFIT $4,083,080 100.00 $2,927,781 100.00
========== ====== ========== ======
RIC
RIC had sales of $2,350,330 for the year ended December 31, 1998, with net
profits before taxes of $191,205. RIC's sales decreased in 1998 from 1997 when
sales were $2,702,185. This reduction in sales was primarily due to a decrease
in sales from two of RIC's top five customers. RIC anticipates that sales from
these two customers will improve in 1999. As a result of the decrease in sales,
net income after taxes decreased to $120,936 for RIC in 1998 as opposed to
$284,500 in 1997.
SECO
SECO accounted for $6,689,845 in sales with profit before income taxes of
$372,881. This represented a increase in sales from $6,183,602 in 1997. Although
sales increased by $506,243 from 1997, profits before taxes decreased to
$372,881 from $611,766 in 1997. The decrease in profits was the result of less
profitable jobs from increased competition in the Chicagoland market. As a
result, the cost of operations was $5,103,695 in 1998 compared to $4,539,014 in
1997, a gross profit decrease of 2.89 percent.
The net profits after taxes decreased to $244,175 for SECO in 1998 from the
$364,090 in 1997. This is a direct result of the lower profit margins realized
on asbestos removal contracts.
OTHER
In 1998, CGI Holding Corporation incurred miscellaneous administrative expenses
including legal and accounting fees relating to possible mergers and
acquisitions. These expenses totalled more than $100,000 for the year and are
not expected to recur in future periods.
YEAR 2000
The Company has evaluated the impact of the Year 2000 issue on its business and
does not expect to incur significant costs associated with Year 2000 compliance
or that Year 2000 issues will have a material impact on the Company's business,
results of operations of financial condition. The Company's propietary software
systems and applications are currently Year 2000 compliant. Certain third-party
software for which the Company pays maintenance fees is not yet Year 2000
compliant, but the Company has made provisions to upgrade these third-party
software systems in time.
The Company has received written assurances from third-party vendors and
suppliers and customers with whom it has material relationships that they are
Year 2000 compliant or will be Year 2000 compliant in time.
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.
The financial statements have been restated to reflect the change in accounting
principle on the merger transaction dated August 4, 1997. This transaction was
originally reported as a pooling-of-interests and has subsequently been changed
to use the purchase method of accounting in accordance with APB 16. A review of
certain treasury share transactions within two years of the merger prohibited
the use of the pooling method. This restatement was made for the years ended
December 31, 1997 and 1998.
<PAGE> 7
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE.
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 the executive officers, directors and significant
employees of the Company:
Name Age Position
-------------------- --- -----------------------
John Giura 66 President and Director, Chairman
Ann K Knaack 42 Vice President and Director
Jaime Bendersky 70 Director
Chander Jadhwani 48 Director
Ronald F Riba 66 Director
John Giura has served as a Director, President, Chief Executive Officer and
Chief Financial Officer of the Company since August of 1997. For the past five
years Mr Giura also has been a Director and President of RIC and SECO. In 1987,
Mr Giura co-founded SECO and in 1994 acquired control of SECO. Mr Giura, along
with other individuals, acquired control of RIC in 1993 and has been its
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 served as a Director and Vice President of the Company since
August of 1997. Ms Knaack has been involved with the Subsidiaries since 1992
when she joined RIC. 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 a director of RIC. Ms.
Knaack received her BA in business and management from Alverno College in
Milwaukee, Wisconsin.
Jaime Bendersky, M.D., 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.
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 its strategic business plans. Mr. Jadhwani received a MS in structural
engineering from Illinois Institute of Technology in 1976 and a MBA from
Illinois Institute of Technology in 1984.
Ronald F Riba is 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 Securitiess, Inc.). Mr Riba has
been a registered broker with Everen Securities, Inc. for nearly ten years.
During his career, Mr Riba has 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 he was an executive officer at or
within two years before the time of such filing;
<PAGE> 8
(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 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 injuctions 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> 9
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 $100,000 during such period (as determined at December 31, 1998, the
end of the Company's last completed fiscal year):
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options All
Principal Year Salary Bonus($) Compensation Awards /SARs Other
Position Compensation
-------------- ----- ------ -------- ------------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
John Giura 1998 60,000 -0- 7,200 -0- -0- 2,000
John Giura 1997 53,000 -0- 7,200 -0- -0- 2,000
John Giura 1996 148,000 -0- 7,200 -0- -0- -0-
President
and CEO
Denny Nestripke
Former President
And CEO 1997 -0- -0- -0- -0- -0- -0-
1996 -0- -0- -0- -0- -0- -0-
</TABLE>
Cash Compensation
John Giura was paid $60,000 by Roli Ink Corp for the year ended December 31,
1998. In 1997 Mr Giura was paid by RIC. In 1996, Mr Giura was paid $100,000 by
SECO and $48,000 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 1999.
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 1998 were $12,966.
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.
<PAGE> 10
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 2, 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 March 2, 1999, there were approximately 8,329,779 shares of common
stock issued and outstanding.
Title
of Name of Amount and Nature of Percentage
Class Beneficial Owner Beneficial Ownership(1) of Class
----- ---------------- -------------------- ----------
Common John Giura
President and Director
C/O CGI Holding
Corporation
8400 Brookfield Ave
Brookfield, Illinois
60513 2,536,494 (2) 30.45%
Common James Spachman
735 Selbourn Road
Riverside, Illinois
60546 814,000 9.77%
Common Depository Trust Company 649,165 7.79%
Common Jaime Bendersky 203,680 2.45%
Director
324 Hambleton Drive
Oakbrook, IL 60523
Common Chander Jadhwani 150,000 1.80%
Director
c/o Cgi Holding Corp
8400 Brookfield Ave
Brookfield, Il 60513
Common Ann K Knaack 72,016 0.86%
VicePresident and Director
c/o Roli Ink Corporation
4010 W Douglass Ave
Milwaukee, WI 53209
Common Debra Moore 71,500(3) 0.86%
Secretary
c/o CGI Holding Corp
8400 Brookfield
Brookfield, Il 60513
Common Ronald F Riba 125,000 1.50%
Director
16 W Canterbury Dr.
Arlington Heights, Il 60004
Common Directors and Officers as a 3,158,690 37.92%
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 he
controls.
(3) Includes 20,000 held by Ms Moore as custodian for her children.
<PAGE> 11
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 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, 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 Investments.
The Company borrowed funds from shareholders throughout the year to cover
operating expenses. The total balance due on December 31, 1998 was $269,880. The
detail of this balance is:
Clara Bendersky $150,000 - Due date is December 31, 2000. Interest is
paid quarterly at a rate of 10%.
Jim Spachman $115,000 - No repayment terms. Interest is paid quarterly
at 1/2% over prime rate.
John Giura $4,880 - No repayment provisions and no interest paid or
accrued.
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
(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 14
Balance Sheets
December 31, 1998, and 1997 15
Statements of Stockholders' Equity
For the years ended December 31, 1998, and 1997 16
Statements of Operations
For the years ended December 31, 1998, and 1997 17
Statements of Cash Flows
For the years ended December 31, 1998, and 1997 18
Notes to Financial Statements 19
(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.
<PAGE> 12
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
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 Form 8-K in its fourth quarter; however,
in March 1999, the Company filed a Form 8-K discussing its acquisition of
Salle International, L.L.C..
<PAGE> 13
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
CGI Holding Corporation
Dated: March 29, 1999 By: /s/ John Giura
----------------------------------
John Giura, Director, President
and Chief Financial Officer
Dated: March 29, 1999
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.
/s/ Ann K. Knaack
------------------------
Ann K. Knaack, Director and Vice President
Date: March 29, 1999
/s/ Chander Jadhwani
------------------------
Chander Jadhwani, Director
Date: March 29, 1999
<PAGE> 14
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, 1998 and 1997, 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, 1998 and 1997 and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
As discussed in Footnote 1 to the financial statements, the Company changed its
method of accounting relating to the merger dated August 4, 1997.
By: /s/ Poulos & Bayer, Ltd.
Poulos & Bayer, Ltd.
Chicago, Illinois
January 23, 1999
<PAGE> 15
CGI HOLDING CORPORATION, INC.
COMPARATIVE CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND 1997
(RESTATED) (RESTATED)
ASSETS DECEMBER 31, DECEMBER 31,
1998 1997
------------- -------------
CURRENT ASSETS
Cash $147,685 $174,267
Accounts Receivable 2,487,844 1,513,279
Inventory 217,535 238,257
Other Current Assets 103,413 82,262
Costs and Estimated Earnings in
Excess of Billings 263,775 45,000
------------- -------------
TOTAL CURRENT ASSETS $3,220,252 $2,053,065
------------- -------------
PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment $474,667 $393,050
Less: Accumulated Depreciation 76,219 20,453
------------- -------------
NET PROPERTY, PLANT AND EQUIPMENT 398,448 372,597
------------- -------------
OTHER ASSETS
Goodwill 464,380 498,567
Other Assets 0 3,552
------------- -------------
TOTAL OTHER ASSETS 464,380 502,119
------------- -------------
TOTAL ASSETS $4,083,080 $2,927,781
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt $141,987 $131,906
Notes Payable-Line of Credit 800,000 0
Short-Term Borrowings 123,181 134,832
Accounts Payable 723,721 440,741
Accrued Corporate Income Taxes 34,761 331,654
Accrued Liabilities 69,173 120,066
Loan Payable-Shareholders 269,880 0
------------ -------------
TOTAL CURRENT LIABILITIES $2,162,703 $1,159,199
------------ -------------
LONG TERM LIABILITIES
Long-Term Debt, Net of Current Portion $16,310 $155,336
Deferred Income Tax 22,665 11,135
------------ -------------
TOTAL LONG-TERM LIABILITIES 38,975 166,471
------------ -------------
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;
8,329,779 shares issued and
outstanding 8,330 8,273
Additional Paid-In Capital 2,448,281 2,434,088
Retained Earnings (575,209) (840,250)
------------ -------------
TOTAL STOCKHOLDERS' EQUITY 1,881,402 1,602,111
------------ -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $4,083,080 $2,927,781
============ =============
The accompanying notes are an integral part of these statements.
<PAGE> 16
CGI HOLDING CORPORATION, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1998 AND 1997
(RESTATED)
COMMON COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS
--------- ------- -------- --------
BALANCE: JANUARY 1, 1997 10,758,614 10,759 914,285 (922,213)
ISSUED 5,800,000 SHARES OF
COMMON STOCK FOR $29,000 5,800,000 5,800 23,200 0
1 FOR 5 REVERSE STOCK SPLIT (13,246,891) (13,247) 13,247 0
PURCHASE OF ROLI AND SECO ON
AUGUST 4, 1997 4,961,056 4,961 1,483,356 0
1997 NET INCOME 0 0 0 149,243
DISTRIBUTION TO ROLI SHARE-
HOLDERS 0 0 0 (67,280)
--------- --------- --------- --------
BALANCE: DECEMBER 31, 1997 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)
========= ========= ========= ========
The accompanying notes are an integral part of these statements.
<PAGE> 17
CGI HOLDING CORPORATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1998 AND 1997
TWELVE MONTHS ENDED
(RESTATED) (RESTATED)
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
SALES $9,040,175 $3,956,794
COST OF GOODS SOLD 6,403,002 2,540,541
------------ ------------
GROSS PROFIT $2,637,173 $1,416,253
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 2,111,235 1,178,806
------------ ------------
INCOME FROM OPERATIONS $525,938 $237,447
------------ ------------
OTHER INCOME (EXPENSE)
Other $20,214 $93,000
Interest Income 48 1,369
Interest Expense (71,532) (23,579)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) ($51,270) $70,790
------------ ------------
INCOME BEFORE CORPORATE
INCOME TAXES $474,668 $308,237
------------ ------------
INCOME TAX PROVISION
Current Tax Expense $198,097 $147,859
Deferred Tax Expense 11,530 11,135
------------ ------------
TOTAL INCOME TAX PROVISION 209,627 158,994
------------ ------------
NET INCOME $265,041 $149,243
============ ============
NET INCOME PER
COMMON SHARE $0.03 $0.03
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 8,274,184 4,809,359
============ ============
The accompanying notes are an integral part of these statements.
<PAGE> 18
CGI HOLDING CORPORATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
TWELVE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(RESTATED)
TWELVE MONTHS ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit $265,041 $149,243
Non-Cash Items Included in Net Profit
Depreciation 55,766 20,453
Amortization 34,187 14,245
Stock Bonus 14,250 0
Change in Accounts Receivable (974,565) 175,080
Change in Inventory 20,722 (34,187)
Change in Other Current Assets (11,151) 3,554
Change in Costs and Estimated Earnings
Over Billings (218,775) 0
Change in Other Assets (6,448) 19,728
Change in Accounts Payable 282,980 (11,139)
Change in Accrued Expenses 1,573 (48,111)
Change in Accrued Income Taxes (296,893) 155,207
Change in Deferred Income Taxes 11,530 11,135
Change in Billings in Excess of Costs and
Estimated Earnings (52,461) 52,461
--------- ---------
NET CASH CHANGE FROM OPERATING
ACTIVITIES ($874,244) $507,669
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed Assets Acquired ($81,617) ($75,050)
--------- ----------
NET CASH CHANGE FROM INVESTING ACTIVITIES ($81,617) ($75,050)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Loan Payable $269,880 ($24,356)
Change in Notes Payable 659,399 (324,604)
Proceeds from Sale of Stock 0 29,000
Distribution to Shareholders 0 (67,280)
--------- ----------
NET CASH CHANGE FROM FINANCING
ACTIVITIES $929,279 ($387,240)
--------- ----------
NET CASH CHANGE ($26,582) $45,379
ACQUIRED CASH-OPERATIING COMPANIES 0 128,532
CASH BALANCE: JANUARY 1 174,267 356
--------- ----------
CASH BALANCE: DECEMBER 31 $147,685 $174,267
========= ==========
Supplemental Information
Interest Paid $71,532 $55,314
Income Taxes Paid 497,443 94,282
The accompanying notes are an integral part of these statements.
<PAGE> 19
CGI HOLDING CORPORATION, INC.
FOOTNOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - RESTATEMENT OF FINANCIAL STATEMENTS
The financial statements have been restated to reflect the change in accounting
principle on the merger transaction dated August 4, 1997. This transaction was
originally reported as a pooling-of-interests and has subsequently been changed
to use the purchase method of accounting in accordance with APB 16. A review of
certain treasury share transactions within two years of the merger prohibited
the use of the pooling method. This restatement was made for the years ended
December 31, 1997 and 1998.
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
1998 1997
--------------- --------------
NET PROFIT AS ORIGINALLY REPORTED $253,730 $653,053
ELIMINATION OF SECO AND RIC PRE-MERGER
OPERATING PROFITS 0 (491,268)
DECREASE IN DEPRECIATION 56,110 12,838
INCREASE IN AMORTIZATION OF GOODWILL (34,187) (14,245)
CHANGE IN DEFERRED TAXES (11,530) (11,135)
--------------- --------------
NET PROFIT AS RESTATED $265,041 $149,243
=============== ==============
EARNINGS PER SHARE AS ORIGINALLY REPORTED 0.03 0.10
=============== ==============
EARNINGS PER SHARE RESTATED 0.03 0.03
=============== ==============
NOTE 2 - PURCHASE OF ROLI INK CORPORATION AND SAFE ENVIRONMENT 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 reorganization was accounted for as the purchase of "RIC" and "SECO" by CGI
Holding Corporation. The purchase method was utilized in accordance with
Accounting Principles Board opinion number 16. The net assets of the operating
companies were purchased by the issuance of common shares of CGI Holding
Corporation as follows: the shareholders of RIC received 2,200,056 shares and
the shareholders of SECO received 2,761,000 shares leaving the shareholders of
CGI Holding Corporation with 3,311,723 or 40.03% of the outstanding shares. The
market value of the shares 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 acquiring corporation as goodwill and is being amortized over a
fifteen year life.
The purchase price of Safe Environment Corporation was $828,300(2,761,000 shares
at $0.30/share). The fair value of SECO's net assets at the time of acquisition
was $523,373, resulting in goodwill of $304,927.
The purchase price of Roli Ink Corporation 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 and RIC are included in the registrants from August 1,
1997 to December 31, 1997 and for the year ended December 31, 1998..
<PAGE> 20
CGI HOLDING CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
AS OF DECEMBER 31, 1997
CGI ROLI INK SECO TOTAL ADJUST- PRO FORMA
HOLDING CORP MENTS RESULTS
---------- --------- --------- --------- ------ ---------
SALES 3,956,794 1,606,594 3,352,399 8,915,787 8,915,787
COST OF SALES 2,540,541 853,771 2,402,301 5,796,613 5,796,613
---------- --------- --------- --------- ------ ---------
GROSS PROFIT 1,416,253 752,823 950,098 3,119,174 3,119,174
SELLING AND
ADMINISTRATIVE 1,178,806 506,138 504,423 2,189,367 (3,011)2,186,356
---------- --------- --------- --------- ------ ---------
INCOME FORM OPERATIONS 237,447 246,685 445,675 929,807 932,818
---------- --------- --------- --------- ------ ---------
OTHER INCOME(EXPENSE)
OTHER 93,000 0 0 93,000 93,000
INTEREST INCOME 1,369 0 872 2,241 2,241
INTEREST EXPENSE (23,579) (5,372) (26,363) (55,314) (55,314)
---------- --------- --------- --------- ------ ---------
TOTAL OTHER 70,790 (5,372) (25,491) 39,927 39,927
---------- --------- --------- --------- ------ ---------
INCOME BEFORE TAXES 308,237 241,313 420,184 969,734 972,745
---------- --------- --------- --------- ------ ---------
INCOME TAX PROVISION
CURRENT 147,859 14,716 155,513 318,088 318,088
PRO FORMA 0 0 0 0 58,873 58,873
DEFERRED 11,135 0 0 11,135 11,135
---------- --------- --------- --------- ------- --------
TOTAL TAXES 158,994 14,716 155,513 329,223 388,096
---------- --------- --------- --------- ------- --------
NET INCOME 149,243 226,597 264,671 640,511 584,649
========== ========= ========= ========= ======= ========
NET INCOME PER SHARE 0.08
=========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 7,745,217
=========
(A) 48,919 ADD BACK DEPRECIATION RECORDED FOR ROLI AND SECO FOR
THE 7 MONTHS ENDED JULY 31, 1997
(25,966) RECORD DEPRECIATION FOR THE 7 MONTHS ENDED JULY 31,
1997, BASED ON THE FAIR VALUE AT TIME OF PURCHASE
(19,942) AMORTIZATION OF GOODWILL FOR FIRST 7 MONTHS ENDED
JULY 31, 1997.
--------
3,011 NET ADJUSTMENT
========
(B) ROLI INK CORPORATION WAS A SUBCHAPTER S CORPORATION FOR THE 7 MONTH
PERIOD ENDED JULY 31, 1997 REQUIRING AN ADJUSTMENT TO RECORD THE
FEDERAL TAX LIABILITIES THAT WOULD HAVE BEEN REALIZED HAD THE ENTITY
BEEN A TAXPAYER FOR THIS PERIOD.
<PAGE> 21
Note 3 - Consolidated Financial Statements
These consolidated financial statements include the accounts of SECO and Roli
for the period August 1, 1997 to December 31, 1998 and the accounts of CGI
Holding Corporation for all periods presented. All intercompany accounts and
transactions have been eliminated upon consolidation.
Nature of Business
CGI Holding Corporation is a holding company which owns 100% of two
subsidiaries, Safe Environment Corporation(SECO) and Roli Ink Corporation(RIC).
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 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.
RIC recognizes revenue at time of shipment to the customer.
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.
<PAGE> 22
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.
SECO recognizes revenue utilizing the Percentage of Completion method of
accounting.
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.
SEGMENT ANALYSIS
The Company's operations are divided into operating segments using individual
products or services or groups of related products and services. Each segment
has separate management that reports to a person that makes decisions about
performance assessment and resource allocation for all segments. The Company has
two operating segments: asbestos abatement and ink production. The Company
evaluates the performance of each segment using before-tax income or loss from
continuing operations. There are no sales transactions between segments.
Listed below is a presentation of sales, operating profit and total assets for
all reportable segments. The other segment category consists of the management
company CGI Holding Corporation.
NET SALES BY INDUSTRY SEGMENT
INDUSTRY SEGMENT 1998 1997
AMOUNT PERCENT AMOUNT PERCENT
SECO $6,689,845 74.00 6,183,602 69.36
RIC 2,350,330 26.00 2,732,185 30.64
OTHER 0 0 0 0
---------- ------ ---------- ------
TOTAL SALES $9,040,175 100.00 $8,915,787 100.00
========== ====== ========== ======
OPERATING PROFIT BY INDUSTRY SEGMENT
1998 1997
INDUSTRY SEGMENT AMOUNT PERCENT AMOUNT PERCENT
SECO $372,881 78.56 $611,766 62.89
RIC 191,205 40.28 354,912 36.49
OTHER (89,418) (18.84) 6,067 0.62
---------- ------ ---------- ------
TOTAL PROFIT $474,668 100.00 $653,053 100.00
========== ====== ========== ======
TOTAL ASSETS BY INDUSTRY SEGMENT
1998 1997
INDUSTRY SEGMENT AMOUNT PERCENT AMOUNT PERCENT
SECO $2,911,147 71.30 $1,673,419 57.16
RIC 609,336 14.92 746,380 25.49
OTHER 562,597 13.78 507,982 17.35
---------- ------ ---------- ------
TOTAL PROFIT $4,083,080 100.00 $2,927,781 100.00
========== ====== ========== ======
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.
B. Accounts Receivable
Management deems all receivables are collectable and no provisions for bad
debts are required.
C. Inventory
Inventory is stated at cost using the first-in, first-out method.
D. 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, 1998 consist of the following:
Currently Due $2,487,844
Retainages 254,730
---------------
$2,233,114
===============
Retainages are due in less than one (1) year.
Note 6 - Costs and Estimated Earnings on Uncompleted Contracts
Costs Incurred on
Uncompleted Contracts $201,198
Estimated Earnings 62,577
-----------
Subtotal $263,775
Less: Billings to Date 0
-----------
$263,775
===========
Included on Balance Sheet
Costs and Estimated
Earnings in Excess of Billings $263,775
Billings in Excess of Costs
and Estimated Earnings 0
-----------
$263,775
===========
<PAGE> 23
Note 7 - Notes Payable
Current Long-Term
----------- --------------
a.)CIB Bank - Line of Credit
Interest rate of 9.00% and maturity
date of August 1, 1999. This
note is secured by general assets
of SECO. $650,000.00 $0.00
b.)M & I Northern Bank - Line of Credit
Note due on 5/1/99 with an interest
rate of 7.75%. The note guaranteed
by the general assets of Roli Ink. 150,000.00 0.00
----------- -------------
TOTAL LINE OF CREDIT $800,000.00 $0.00
c.)CIB Bank
Note payable dated February 3, 1997
for $250,000 note payable monthly
at $6,945.00 principal plus 9% interest
with a maturity date of February 1,
2000. This note is secured by the general
assets of SECO, 83,340.00 $6,925.00
d.)Vehicle 1 - payment is $400.00/month.
Note is secured by the vehicle and has
an interest rate of 8.5%. 397.19 0.00
e.)Vehicle 2 - payment is $478.50/month.
Note is secured by the vehicle and has
an interest rate of 9.475%. 522.93 0.00
f.)Vehicle 3 - payment is $285.09/month.
Note is secured by the vehicle and has
an interest rate of 8.5%. 3,115.15 1,889.91
g.)Vehicle 4 - payment is $375.69/month.
Note is secured by the vehicle and has
an interest rate of 9.5%. 1,835.05 0.00
h.)Vehicle 5 - payment is $303.05/month.
Note is secured by the vehicle and has
an interest rate of 7.65%. 2,940.12 7,495.34
i.)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
This note is unsecured and has an
interest rate of 9%. 49,831.38 0.00
----------- -------------
Subtotal 141,981.82 16,310.25
----------- -------------
Totals $941,981.82 $16,310.25
=========== =============
Principal payments for the next five years are as follows:
1999 $941,982
2000 11,988
2001 3,425
2002 897
2003 0
---------
$958,292
=========
<PAGE> 24
Note 8 - Consulting Agreement
The Company is committed to pay a consulting agreement in the amount of $2,000
per month through 1999. This is payable to the original owner of the company.
Note 9 - 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, as reimbursement, the cost
of the payroll plus 20% to cover employer payroll taxes and workers compensation
insurance.
Note 10 - Adjustment to Stockholder's Equity
ROLI 'S' CORPORATION EARNINGS AND DISTRIBUTION
Roli Ink Corporation had 'S' Corporation status with the Internal Revenue
Service from January 1, 1997 to the merger date of July 28, 1997. The
undistributed profit from this time period has been reclassified from retained
earnings to paid in capital. The distributions to Roli Ink Corporation's
shareholder's were made to cover each shareholder's respective tax liabilities
related to the profit of Roli Ink Corporation from January 1, 1997 to July 28,
1997.
Note 11 - 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.
Note 12 - Leasing Commitments
The Company leases office and warehouse facilities at a monthly rate of
$3,000.00 without a formal agreement.
Note 13 - Related Party Transactions
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.
<PAGE> 25
Note 14 - Loan from Shareholders
The Company borrowed funds from shareholders throughout the year to cover
operating expenses. The total balance due on December 31, 1998 was $269,880.
The detail of this balance is:
Clara Bendersky $150,000 - Due date is December 31, 2000. Interest is
paid quarterly at a rate of 10%.
Jim Spachman $115,000 - No repayment terms. Interest is paid quarterly
at 1/2% over prime rate.
John Giura $4,880 - No repayment provisions and no interest paid or
accrued.
Note 15 - 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 16 - INCOME TAXES
The current tax expense for CGI Holding Corporation for the year ended December
31, 1998 was $198,097 and the deferred tax expense for the same period amounted
to $11,530.
The deferred taxes resulted from the difference between depreciation allowed by
current tax provisions versus the amount recorded on the Company's financial
statements and the amortization of goodwill relating to the merger on August 31,
1997.
In 1998, the Company's tax depreciation exceeded its book depreciation and
goodwill resulting in deferred taxes on the income statement of $11,530 and an
increase in the deferred tax liability account on the balance sheet by the same
amount.
Note 17 - 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.