U.S SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 18, 1998
-----------------
COMPUTER OUTSOURCING SERVICES, INC.
-----------------------------------
(Exact name of registrant as specified in its charter)
Commission file number: 0-20824
-------
New York 13-3252333
------------------------------- -------------------
(State or other juristiction of IRS Employer
incorporation or organization) Identification No.)
2 Christie Heights Street - Leonia, NJ 07605
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(201) 840-4700
--------------
(Issuer's telephone number)
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC.
Item 2. Acquisition or Disposition of Assets
On December 18, 1998, Computer Outsourcing Services, Inc. (the "Company" or
"COSI") purchased certain assets and the business of Enterprise Technology
Group, Incorporated ("Enterprise") for $4,000,000 in cash and 300,000 shares of
COSI common stock. Certain additional consideration in the form of cash and
common stock may be payable, at various times, based upon the future performance
of the acquired business over the period ending December 31, 2001. The acqui-
sition was made by COSI Acquisition Corp., a wholly-owned subsidiary of the
Company. On December 28, 1998, COSI Acquisition Corp. changed its name to ETG,
Inc.
The Company utilized cash on hand for the payment of $4,000,000 at closing.
The assets acquired consist predominantly of intangibles associated with the
business of providing information technology infrastructure management solutions
to large companies.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired:
1. Audited Financial Statements of Enterprise as of and for the years
ended December 31,1996 and 1997, attached herewith as exhibit 99.1.
2. Unaudited Interim Financial Statements for Enterprise as of and for
the nine months ended September 30, 1998, attached herewith as exhibit
99.2.
(b) Pro Forma Information:
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME
The following unaudited pro forma consolidated financial statements give
effect to the purchase of certain assets and business of Enterprise for
cash of $4,000,000 and 300,000 shares of the Company's common stock
valued at $8.925 per share.
The allocation of Enterprise's purchase price has not been finally
determined. Accordingly, the amounts reflected in the pro forma
consolidated financial statements may differ from the amounts that would
have been used if the final purchase price allocation had been known.
The unaudited consolidated statement of income for the year ended
October 31, 1998 gives effect to the Enterprise acquisition as if it had
occurred as of November 1, 1997. The unaudited pro forma consolidated
balance sheet as of October 31, 1998 gives effect to the acquisition of
Enterprise as if it had been consumated on October 31, 1998.
<PAGE>
The pro forma consolidated financial statements have been prepared by
the Company's management. The pro forma consoliated financial state-
ments may not be indicative of the results that actually would have
occurred had the combination been in effect on the dates indicated, nor
do they purport to indicate the results which may be achieved in the
future. The pro forma consolidated financial statements should be read
in conjunction with the financial statements and notes thereto of
Enterprise appearing elsewhere herein and in the Company's Annual Report
on Form 10-KSB for the year ended October 31, 1998.
(c)(1) Exhibits previously filed:
10.1 Asset Purchase Agreement dated as of December 16, 1998 between
Computer Outsourcing Services, Inc.; COSI Acquisition Corp.; Enterprise
Technology Group, Incorporated; and Certain Stockholders of Enterprise
Technology Group, Incorporated.
10.2 Employment Agreement dated as of December 18, 1998 between COSI
Acquisition Corp and Warren E. Ousley.
10.3 Registration Rights Agreement, dated as of December 18, 1998, by
and among Computer Outsourcing Services, Inc.; Enterprise Technology
Group, Incorporated; and each of the Stockholders of Enterprise
Technology Group, Incorporated.
10.4 Non-Competition and Non-Solicitation Agreement dated as of December
18, 1998 by and between COSI Acquisition Corp. and Warren E. Ousley.
10.5 Non-Competition and Non-Solicitation Agreement dated as of December
18, 1998 by and between COSI Acquisition Corp. and M. Peter Miller, not
filed as it is substantially similar to Exhibit 10.4 except as to one
of the parties.
10.6 Non-Competition and Non-Solicitation Agreement dated as of December
18, 1998 by and between COSI Acquisition Corp. and Enterprise Technology
Group, Incorporated, not filed as it is substantially similar to Exhibit
10.4 except as to one of the parties.
(c)(2) Exhibits filed herewith:
99.1 Audited Financial Statements of Enterprise as of and for the years
ended December 31,1996 and 1997.
99.2 Unaudited Interim Financial Statements for Enterprise as of and for
the nine months ended September 30, 1998.
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
----------------------------------------------------
COMPUTER ENTERPRISE
OUTSOURCING TECHNOLOGY
SERVICES, GROUP, INC.
INC. AND - TWELVE PRO FORMA
SUBSIDIARIES MONTHS CONSOLIDATED
- YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, PRO FORMA OCTOBER 31,
1998 1998 ADJUSTMENTS 1998
----------- ----------- ----------- -----------
REVENUES $30,403,381 $ 5,031,726 $ - $35,435,107
----------- ----------- ----------- -----------
OPERATING EXPENSES 19,828,954 380,584 20,209,538
SELLING EXPENSES 1,384,557 1,825,049 (1,007,620)a 2,201,986
GENERAL & ADMINISTRATIVE
EXPENSES 8,200,798 3,192,586 64,535 b 11,457,919
INTEREST EXPENSE/(INCOME) (547,499) (4,287) 223,509 c (328,277)
----------- ----------- ----------- -----------
TOTAL EXPENSES 28,866,810 5,393,932 (719,576) 33,541,166
----------- ----------- ----------- -----------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS
BEFORE PROVISION FOR
INCOME TAXES 1,536,571 (362,206) 719,576 1,893,941
PROVISION FOR INCOME TAXES 457,621 - 286,867 d 744,488
----------- ----------- ----------- -----------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS 1,078,950 (362,206) 432,709 1,149,453
LOSS ON DISCONTINUED
OPERATION NET OF
INCOME TAX BENEFIT (76,464) (76,464)
GAIN ON SALE OF DISCONTINUED
OPERATION, NET OF
INCOME TAX PROVISION 1,696,160 - - 1,696,160
----------- ----------- ----------- -----------
NET INCOME/(LOSS) $ 2,698,646 $ (362,206) $ 432,709 $ 2,769,149
=========== =========== =========== ===========
See notes to pro forma consolidated financial statements.
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
----------------------------------------------------
COMPUTER ENTERPRISE
OUTSOURCING TECHNOLOGY
SERVICES, GROUP, INC.
INC. AND - TWELVE PRO FORMA
SUBSIDIARIES MONTHS CONSOLIDATED
- YEAR ENDED ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, PRO FORMA OCTOBER 31,
1998 1998 ADJUSTMENTS 1998
----------- ----------- ----------- -----------
BASIC EARNINGS PER SHARE:
INCOME FROM CONTINUING
OPERATIONS $ 0.27 $ 0.26
LOSS ON DISCONTINUED
OPERATION (0.02) (0.02)
GAIN ON SALE OF
DISCONTINUED OPERATION 0.42 0.39
----------- -----------
NET INCOME $ 0.67 $ 0.63
=========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 4,058,376 300,000 j 4,358,376
=========== =========== ===========
DILUTED EARNINGS PER SHARE:
INCOME FROM CONTINUING
OPERATIONS $ 0.24 $ 0.24
LOSS FROM DISCONTINUED
OPERATION (0.01) (0.01)
GAIN ON SALE OF
DISCONTINUED OPERATION 0.38 0.36
----------- -----------
NET INCOME $ 0.61 $ 0.59
=========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES AND SHARE
EQUIVALENTS OUTSTANDING 4,427,921 300,000 j 4,727,921
=========== =========== ===========
See notes to pro forma consolidated financial statements.
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
AT OCTOBER 31, 1998
----------------------------------------------------
COMPUTER
OUTSOURCING ENTERPRISE
SERVICES, TECHNOLOGY
INC. AND GROUP, PRO FORMA PRO FORMA
SUBSIDIARIES INC. ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- -----------
CURRENT ASSETS:
Cash and equivalents $ 9,403,006 $ 175,658 (4,465,658)e $ 5,113,006
Marketable securities 3,218,170 - - 3,218,170
Net accounts receivable 4,452,117 1,149,359 (1,149,359)f 4,452,117
Deferred income taxes 603,627 - - 603,627
Net assets held for sale 229,289 - - 229,289
Prepaid expenses and
other current assets 1,179,539 4,600 (4,600)f 1,179,539
----------- ----------- ----------- -----------
19,085,748 1,329,617 (5,619,617) 14,795,748
----------- ----------- ----------- -----------
PROPERTY & EQUIPMENT, net 2,508,875 153,523 (88,951)g 2,573,447
----------- ----------- ----------- -----------
OTHER ASSETS:
Deferred software, net 1,803,013 - - 1,803,013
Intangibles, net 2,221,842 - 6,902,928 h 9,124,770
Due from related parties 89,313 - - 89,313
Deferred income taxes 718,341 - - 718,341
Security deposits and
other noncurrent assets 521,404 - - 521,404
----------- ----------- ----------- -----------
5,353,913 - 6,902,928 12,256,841
----------- ----------- ----------- -----------
TOTAL ASSETS $26,948,536 $ 1,483,140 $ 1,194,360 $29,626,036
=========== =========== =========== ===========
See notes to pro forma consolidated financial statements.
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
AT OCTOBER 31, 1998
----------------------------------------------------
COMPUTER
OUTSOURCING ENTERPRISE
SERVICES, TECHNOLOGY
INC. AND GROUP, PRO FORMA PRO FORMA
SUBSIDIARIES INC. ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- -----------
CURRENT LIABILITES:
Accounts payable $ 1,029,406 $ 33,089 $ (33,089)f $ 1,029,406
Current portion of long-
term debt and
capitalized lease
obligations 260,277 260,277
Due to related parties - 250,000 (250,000)f -
Income taxes payable 2,468,747 (21,800) 21,800 f 2,468,747
Accrued expenses 2,365,850 58,916 (58,916)f 2,365,850
Customer deposits and
other current liabilities 202,787 - - 202,787
----------- ----------- ----------- -----------
6,327,067 320,205 (320,205) 6,327,067
----------- ----------- ----------- -----------
LONG-TERM LIABILITIES:
Long-term debt and
capitalized lease
obligations 11,510 - - 11,510
Other long-term
liabilities 3,016,606 - - 3,016,606
----------- ----------- ----------- -----------
3,028,116 - - 3,028,116
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Common stock 42,857 1,000 2,000 j 45,857
Additional paid-in
capital 11,946,837 45,938 2,628,562 j 14,621,337
Retained earnings 5,603,659 1,115,997 (1,115,997)f 5,603,659
----------- ----------- ----------- -----------
17,593,353 1,162,935 $ 1,514,565 20,270,853
----------- ----------- ----------- -----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $26,948,536 $ 1,483,140 $ 1,194,360 $29,626,036
=========== =========== =========== ===========
See notes to pro forma consolidated financial statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
a. Reduction of compensation to principal shareholders of Enterprise in
accordance with the terms of the acquisition agreement and a newly
executed employment contract.
b. Reduction of compensation to a principal shareholder of Enterprise
in accordance with the terms of the acquisition agreement and a
newly executed employment contract in the amount of $390,812;
elimination of certain state income taxes of $11,351 imposed on S
corporations; and an increase in amortization of intangibles
acquired in the amount of $466,698. (See note h)
c. Reduction of interest income by the amount not earned on the
purchase price payment of $4,000,000 plus costs of $290,000 incurred
in connection with the acquisition.
d. Increase in federal and state income taxes on pro forma adjustments.
e. Payment of the cash purchase price plus costs of $4,290,000, and
elimination of assets not acquired. (See Note f)
f. The Company purchased only the ongoing operations, customer lists,
and certain fixed assets of Enterprise, and did not assume
liabilities. Accordingly, the items that were neither acquired nor
assumed have been eliminated.
g. Reduction of the fixed asset values of Enterprise to reflect only
the assets acquired.
h. In connection with the acquisition, Enterprise and its principal
shareholders entered into non-competition and non-solicitation
agreements with the Company. A value of $50,000 was assigned to
these agreements. The Company also recorded $6,852,928 in excess
of cost over net assets acquired (goodwill). The goodwill is being
amortized on a straight-line basis over 15 years, the the agreements
are being amortized over the terms of such agreements (approximately
61 months)
j. In connection with the acquisition, the Company issued 300,000
shares of common stock, with a value of $2,677,500. The equity
amounts on Enterprise's balance sheet were eliminated.
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
COMPUTER OUTSOURCING SERVICES, INC.
March 5, 1999 /s/ Zach Lonstein
-----------------------------------
Principal Executive Officer
ENTERPRISE TECHNOLOGY GROUP, INC.
FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION
YEARS ENDED DECEMBER 31, 1997 AND 1996
WITH
REPORT OF INDEPENDENT AUDITORS
<PAGE>
CONTENTS
REPORT OF INDEPENDENT AUDITORS ................................ PAGE 3
BALANCE SHEETS ................................................ PAGE 4
STATEMENTS OF EARNINGS ........................................ PAGE 5
STATEMENTS OF STOCKHOLDERS' EQUITY ............................ PAGE 6
STATEMENTS OF CASH FLOWS ...................................... PAGE 7
NOTES TO THE FINANCIAL STATEMENTS ............................. PAGE 8-9
ADDITIONAL INFORMATION:
EXPENSE SCHEDULES ............................................. PAGE 11
<PAGE>
KIRKBY & ASSOCIATES
Certified Public Accountants
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Enterprise Technology Group, Inc.
Secaucus, NJ 07094
We have audited the accompanying balance sheets of Enterprise Technology Group,
Inc. as of December 31, 1997 and December 31, 1996, and the related statements
of earnings, cash flows, and retained earnings 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 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 Enterprise Technology Group,
Inc. as of December 31, 1997 and December 31, 1996, and the results of its
operations and cash flows for the twelve months then ended in conformity
with generally accepted accounting principles.
Our examination was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information on page 10 is presented
for purposes of additional analysis, and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the examination of the basic financial statements and,
in our opinion, the information is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ Kirkby & Associates
Bloomingdale, Illinois 60108
November 25, 1998
<PAGE>
ENTERPRISE TECHNOLOGY GROUP, INC.
BALANCE SHEETS
DECEMBER 31:
ASSETS
1997 1996
---------- ----------
CURRENT ASSETS:
Cash $ 828,392 $ 3,215
Accounts receivable-(No allowance for
doubtful accounts considered necessary) 104,488 373,605
VSE investment (valued at cost) 4,600
---------- ----------
937,480 376,820
---------- ----------
PROPERTY AND EQUIPMENT, at cost
Office furniture and equipment 167,970 68,773
Transportation equipment 24,359
---------- ----------
192,329 68,773
Less: Accumulated depreciation 87,972 50,421
---------- ----------
104,357 18,352
---------- ----------
OTHER ASSETS
Computer software 2,027
Less: Accumulated amortization 479
---------- ----------
1,548
---------- ----------
TOTAL ASSETS $1,043,385 $ 395,172
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES 1997 1996
---------- ----------
Accounts payable $ - $ 12,500
Unearned revenue 750,000
Accrued payroll taxes and witholdings 104,486 14,146
Accrued state replacement tax 19,655 (650)
---------- ----------
874,141 25,996
---------- ----------
STOCKHOLDERS' EQUITY
Capital Stock, $1 par value, 1,000 shares
authorized, issued, and outstanding 1,000 1,000
Contributed capital 45,938
Retained earnings 122,306 368,176
---------- ----------
169,244 369,176
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,043,385 $ 395,172
========== ==========
See notes to financial statements.
-4-
<PAGE>
ENTERPRISE TECHNOLOGY GROUP,INC.
STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31:
1997 1996
----------- -----------
NET SALES $ 4,999,067 $ 2,224,225
----------- -----------
OPERATING EXPENSES 324,629 138,646
SELLING EXPENSES 2,046,624 821,393
GENERAL & ADMINISTRATIVE EXPENSES 2,876,547 908,218
----------- -----------
TOTAL EXPENSES 5,247,800 1,868,257
EARNINGS FROM OPERATIONS (248,733) 355,968
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 2,863 465
----------- -----------
2,863 465
----------- -----------
EARNINGS BEFORE INCOME TAXES (245,870) 356,433
PROVISION FOR INCOME TAXES (NOTE C)
----------- -----------
NET EARNINGS $ (245,870) $ 356,433
=========== ===========
See notes to financial statements.
-5-
<PAGE>
ENTERPRISE TECHNOLOGY GROUP INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,1997 AND 1996
COMMON STOCK CONTRIBUTED RETAINED
----------------- CAPITAL EARNINGS
SHARES AMOUNT
------- -------- ----------- -----------
BALANCE, JANUARY 1,1996 1,000 $ 1,000 $ $ 11,743
Net earnings 356,433
------- -------- ----------- -----------
Balance December 31,1996 1,000 1,000 368,176
Capital Contributions 45,938
Net earnings (245,870)
------- -------- ----------- -----------
Balance,December 31,1997 1,000 $ 1,000 $ 45,938 $ 122,306
======= ======== =========== ==========
See notes to financial statements.
-6-
<PAGE>
ENTERPRISE TECHNOLOGY GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31:
1997 1996
---------- ----------
Cash Flows From Operating Activities
Net Income (loss) $ (245,870) $ 356,433
---------- ----------
Add (deduct) items not affecting cash
Depreciation and amortization 38,030 21,853
(Increase) decrease in accounts receivable 269,117 (346,548)
Increase (decrease) in accounts payable (12,500) (3,002)
Increase (decrease) in unearned revenue 750,000
Increase (decrease) in accrued payroll taxes 82,378 10,454
Increase (decrease) in accrued profit sharing 7,962
Increase (decrease) in accrued state income tax 20,305
---------- ----------
1,155,292 (317,243)
---------- ----------
Net Cash Provided (Used) From Operating Activities 909,422 39,190
---------- ----------
Cash Flows From Investing Activities
Purchase of office furniture and equipment (99,197) (36,831)
Purchase of transportation equipment (24,359)
Purchase of computer software (2,027)
Purchase of VSE investment (4,600)
---------- ----------
Net Cash Provided (Used) From Investing Activities (130,183) (36,831)
---------- ----------
Cash Flows From Financing Activities
Capital Contributions 45,938 -
---------- ----------
Net Cash Provided (Used)From Financing Activities 45,938 -
---------- ----------
Net Increase (Decrease)In Cash 825,177 2,359
Cash Balance,January 1 3,215 856
---------- ----------
Cash Balance,December 31 $ 828,392 $ 3,215
========== ==========
Supplementary Information:
Interest Paid $ 1,578 $ 7,299
========== ==========
Income taxes paid (Note C) $ - $ -
========== ==========
See notes to financial statements.
-7-
<PAGE>
ENTERPRISE TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND 1996
Note A - Summary of Significant Accounting Policies
Description of Business
The Corporation is a provider of leading edge Information Technology
Infrastructure management solutions, by delivering initiatives to
reduce costs and defining options for senior management.
Basis of Accounting
The Corporation maintains its books on the accrual basis of accounting.
The Corporation recognizes revenues as earned and expenses as incurred.
Fixed Assets
Fixed assets are carried at cost. Depreciation is computed over the
assets' useful life using accelerated methods of depreciation.
Note B - Operating Leases
The Corporation operates from facilities leased from Harman Plaza
Corporation. The lease terms are from October 1, 1996 to October 1,
2001 at $5,529.88 per month plus monthly utility costs. The share-
holders of the Corporation have personally guaranteed the lease.
Note C - Income Taxes
The Corporation elected to be taxed as an S corporation under the
Internal Revenue Code. Accordingly, the current taxable income of the
Corporation is allocable to the shareholders who are responsible for
the payment of Federal and State income taxes thereon. The Corporation
is subject to a replacement tax which was $507 and $20,798 for the
years ending December 31, 1996 and 1997 respectively.
-8-
<PAGE>
ENTERPRISE TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND 1996
Note D - Profit-Sharing Plan
The Company instituted a 401K plan to effective January 1, 1997 for all
eligible employees. There was no company contribution for the plan
during 1997.
Note E - Related Part Transactions
The company has contracts that a related party has been assigned all
duties,responsibilities, and value under these contracts. The company
has agreed to disclaim any value for these contracts and the related
party has agreed to indemnify the company for any claims involving the
use of these contracts. No funds pass through the company and the
related party processes all transactions.
-9-
<PAGE>
ADDITONAL INFORMATION
<PAGE>
ENTERPRISE TECHNOLOGY GROUP,INC.
EXPENSE SCHEDULES
FOR THE YEARS ENDED DECEMBER 31:
OPERATING EXPENSES 1997 1996
----------- -----------
Rent $ 121,180 $ 36,928
Moving expense 980
Payroll Taxes 47,467 48,057
Telephone 31,460 15,289
Utilities 4,586 3,049
Vehicle 504
Insurance-general 2,011 1,795
Insurance-group 79,391 10,696
Depreciation 37,551 21,852
Amortization 479
----------- -----------
$ 324,629 $ 138,646
=========== ===========
SELLING EXPENSES 1997 1996
----------- -----------
Advertising and promotions $ 3,215 $ -
Commissions 468,750 11,400
Consulting 1,556,145 798,059
Meals and entertainment 18,514 11,934
----------- -----------
$ 2,046,624 $ 821,393
=========== ===========
GENERAL AND ADMINISTRATIVE EXPENSES 1997 1996
----------- -----------
Salary-officers $ 1,172,227 $ 241,927
Salary-office 186,771 77,842
Salary-consulting 1,283,912 545,224
Contract labor 4,167
Reimbursed salaries (48,560)
Training 10,490 2,000
Interest 1,578 7,299
License and fees 1,306 88
Office expense 25,154 10,955
Professional fees 2,678 3,569
Travel expense 167,653 61,935
State replacement tax 20,798 507
Dues and subscriptions 3,980 1,265
----------- -----------
$ 2,876,547 $ 908,218
=========== ===========
See notes to financial statements.
-11-
Bertrand P. McAndrew & Associates
120 Harrison Street
Barrington, IL 60010
November 3, 1998
Enterprise Technology Group, Inc.
1 Harmon Plaza, 3rd Floor
Secaucus, N.J. 07094
Dear Client:
We have compiled the accompanying balance sheet of Enterprise Technology
Group, Inc. (an S corporation) as of September 30, 1998, and the related
statement of income for the nine month period then ended, in accordance with
the standards established by the American Institute of Certified Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or other form of assurance on them.
Management has elected to omit substantially all of the disclosures
required by generally accepted accounting principles. If the omitted
disclosures were included in the financial statements, they might influence the
user's conclusions about the Company's financial position and results of
operations. Accordingly, these financial statements are not designed for those
who are not informed about such matters.
The Company, with the consent of its shareholders, has elected under the
Internal Revenue Code to be an S corporation. In lieu of corporation income
taxes, the shareholders of an S corporation are taxed on their proportionate
share of the Company's taxable income. Therefore, no provision or liability for
federal income taxes has been included in these financial statements.
Very truly yours,
/s/
Bertrand P. McAndrew & Associates
<PAGE>
ENTERPRISE TECHNOLOGY GROUP, INC.
BALANCE SHEET
SEPTEMBER 30, 1998
ASSETS
CURRENT ASSETS:
Cash $ 147,911
Accounts receivable 605,122
VSE investment (valued at cost) 4,600
----------
757,633
----------
PROPERTY AND EQUIPMENT, at cost
Office furniture and equipment 220,152
Transportation equipment 26,078
----------
246,230
Less: Accumulated depreciation 109,404
----------
136,826
----------
OTHER ASSETS
Computer software 10,369
Less: Accumulated amortization 986
----------
9,383
----------
TOTAL ASSETS $ 903,842
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 12,860
Accrued payroll taxes and witholdings 16,629
Accrued state replacement tax (21,000)
----------
8,489
----------
LONG TERM LIABILITIES
Notes payable - shareholders 250,000
----------
STOCKHOLDERS' EQUITY
Capital Stock, $1 par value, 1,000 shares
authorized, issued, and outstanding 1,000
Contributed capital 45,938
Retained earnings 598,415
----------
645,353
----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 903,842
==========
See accountants' compilation letter.
<PAGE>
ENTERPRISE TECHNOLOGY GROUP,INC.
STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
NET SALES $ 3,037,585
-----------
OPERATING EXPENSES 249,420
SELLING EXPENSES 795,862
GENERAL & ADMINISTRATIVE EXPENSES 1,518,181
-----------
TOTAL EXPENSES 2,563,463
-----------
EARNINGS FROM OPERATIONS 474,122
-----------
OTHER INCOME (EXPENSE):
Interest income 1,987
-----------
1,987
-----------
EARNINGS BEFORE INCOME TAXES 476,109
PROVISION FOR INCOME TAXES -
-----------
NET EARNINGS $ 476,109
===========
See accountants' compilation letter.
