<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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): April 24, 1998
OSAGE SYSTEMS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-22808 95-4374983
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
1661 East Camelback Road
Suite 245
Phoenix, AZ 85016
(Address of principal executive office)
Registrant's telephone number, including area code: (602) 274-1299
(Former name or former address, if changed since last report)
<PAGE> 2
GENERAL EXPLANATION
The purpose of this Report is to amend the registrant's Current Report
on Form 8-K dated April 24, 1998 relative to the acquisition of Open System
Technologies, Inc. This Report amends the information provided under Item 7(a)
and 7(b).
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Acquired Businesses
OPEN SYSTEM TECHNOLOGIES, INC. (FORMERLY COMPUTER HEALTH &
SAFETY, INC.)
Independent Auditors' Report
Balance Sheet as of December 31, 1997
Statement of Income and Retained Earnings for the year ended
December 31, 1997
Statement of Cash Flows for the year ended December 31, 1997
Notes to Financial Statements
Independent Auditors' Report
Balance Sheet as of December 31, 1996
Statement of Income and Retained Earnings for the year ended
December 31, 1996
Statement of Cash Flows for the year ended December 31, 1996
Notes to Financial Statements
Unaudited Interim Financial Statements:
Balance Sheets as of March 31, 1998 and 1997
Statements of Operations for the three months ended
March 31, 1998 and 1997
Statements of Cash Flows for the three months ended
March 31, 1998 and 1997
Notes to Financial Statements
(b) Pro Forma Financial Information
<PAGE> 3
FINANCIAL STATEMENTS PROVIDED UNDER ITEM 7(A)
F-1
<PAGE> 4
Independent Auditors' Report
The Board of Directors
Open System Technologies, Inc.:
We have audited the accompanying balance sheet of Open System Technologies, Inc.
(an S Corporation) as of December 31, 1997, and the related statements of income
and retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Open System Technologies, Inc.
at December 31, 1997, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Clark, Schaefer, Hackett & Co.
Middletown, Ohio
January 16, 1998
F-2
<PAGE> 5
OPEN SYSTEM TECHNOLOGIES, INC.
Balance Sheet
December 31, 1997
Assets
<TABLE>
<S> <C>
Current assets:
Cash $ 6,157
Accounts receivable 2,179,734
Inventories 98,474
Other current assets 80,876
----------
2,365,241
----------
Property and equipment, net 165,787
----------
Other assets 35,000
----------
$2,566,028
==========
Liabilities and Stockholders' Equity
Current liabilities:
Cash management account $ 265,277
Accounts payable 910,629
Note payable 76,000
Accrued liabilities 77,043
----------
1,328,949
----------
Stockholders' equity:
Common stock, $1 par value; authorized 750 shares;
issued and outstanding 10 shares 10
Paid-in capital 490
Retained earnings 1,236,579
----------
1,237,079
----------
$2,566,028
==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 6
OPEN SYSTEM TECHNOLOGIES, INC.
Statement of Income and Retained Earnings
Year Ended December 31, 1997
<TABLE>
<S> <C>
Net Sales $11,938,449
Cost of Sales 9,675,150
-----------
Gross profit 2,263,299
General and administrative expenses 1,692,492
-----------
Income from operations 570,807
-----------
Other income (expenses):
Other income 25,094
Interest expense (26,635)
-----------
Total other expense (1,541)
-----------
Net income 569,266
Retained earnings - beginning of year 780,171
Dividends paid (112,858)
-----------
Retained earnings - end of year $ 1,236,579
===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 7
OPEN SYSTEM TECHNOLOGIES, INC.
Statement of Cash Flows
Year Ended December 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 569,266
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 76,176
Loss on disposal 5,530
Changes in current assets and liabilities:
Accounts receivable - trade (454,418)
Inventories 242,462
Other assets (90,214)
Cash management account 265,277
Accounts payable 688,803
Accrued expenses (115,687)
-----------
Net cash provided by operating activities 1,187,195
-----------
Cash flows from investing activities:
Purchase of property and equipment (112,427)
-----------
Cash flows from financing activities:
Decrease in note payable (794,808)
Payment on note payable, stockholder (200,000)
Payment of dividends (112,858)
-----------
Net cash used in financing activities (1,107,666)
-----------
Net decrease in cash (32,898)
Cash - beginning of year 39,055
-----------
Cash - end of year $ 6,157
===========
Supplementary disclosure of cash flow information:
Cash paid during the year for interest $ 25,255
===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 8
OPEN SYSTEM TECHNOLOGIES, INC.
Notes to Financial Statements
1. Summary of Significant Accounting Policies:
The following accounting principles and practices of the Company are set
forth to facilitate the understanding of data presented in the financial
statements:
Nature of operations
Open System Technologies, Inc. (the Company), a Delaware corporation,
specializes in the sale and integration of computer systems, particularly
in open-system, client servers environments. The Company maintains several
Value Added Reseller (VAR) agreements with computer equipment manufacturers
whereby the Company purchases products from the manufacturer on a
non-exclusive basis for resale to end-users. The Company was previously
named Computer Health & Safety, Inc., but operated under the name, Open
Systems Technologies. During 1997, the Company amended its Certificate of
Incorporation to change its name to Open Systems Technologies, Inc.
Revenue recognition
Revenue is recognized from equipment sales when the product is shipped to
the customer and from support services over the contractual period or as
the services are performed.
Accounts receivable
Accounts receivable have been adjusted for all known uncollectible
accounts. No allowance for bad debts is considered necessary at year end.
Inventories
Inventories include completed equipment and parts, and are stated at the
lower of cost or market. Cost is determined using the first-in, first-out
(FIFO) method.
Property and equipment - net
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets.
F-6
<PAGE> 9
INCOME TAXES
The Company is an S Corporation for federal income tax purposes. As such,
the income tax effects of the results of operations of the Company accrue
directly to the stockholder. Accordingly, the accompanying financial
statements do not include a provision for income taxes.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash on deposit and trade accounts
receivable. Periodically during the year, the Company may have cash deposits
in excess of federally-insured limits. The Company places its cash with high
credit quality financial institutions and believes its exposure to loss is
limited. The Company routinely assesses the financial strength of its
customers and, as a consequence, believes that its trade accounts receivable
credit risk exposure is limited.
2. INVENTORIES:
The Company's inventories consist of high-technology computer equipment,
which are subject to rapid technological obsolescence or reduction in value
as a result of new products developed by competitors or normal competitive
pressures. The Company periodically estimates a reduction in value based on
current market conditions. At December 31, 1997, no reserve for obsolescence
was considered necessary. Changes in the marketplace for high technology
computer equipment may significantly affect management's estimates.
3. PROPERTY AND EQUIPMENT, NET:
Property and equipment, net at December 31, 1997, consists of the following:
<TABLE>
<S> <C>
Leasehold improvement $ 9,965
Office equipment 89,179
Computer equipment 258,361
Office sign 3,129
--------
360,634
Less accumulated depreciation 194,847
--------
$165,787
========
</TABLE>
F-7
<PAGE> 10
4. NOTE PAYABLE:
The Company has a line of credit expiring on May 31, 1998 which provides for
borrowings of up to $1,750,000 bearing interest at prime (8.5% at December
31, 1997) plus 0.5%. $500,000 of the line is secured by the personal
guarantee of a stockholder. The remainder of the line is unsecured. The line
of credit contains certain restrictive covenants. At December 31, 1997, the
Company was either in compliance with these covenants or obtained a waiver of
compliance from the creditor. At December 31, 1997, $76,000 was outstanding
under this line of credit.
5. RELATED PARTY TRANSACTIONS:
A note payable to the stockholder of $200,000 was repaid during 1997. The
interest rate of the note was 9%. Interest expense related to this note was
$13,859 during 1997.
6. BUSINESS AND CREDIT CONCENTRATIONS:
Two vendors accounted for 81% of the Company's purchases. All of the
Company's customers are located in South Florida. Consequently, changes in
the South Florida economy could affect the Company's operations. At December
31, 1997, two customers accounted for approximately 75% of accounts
receivable. Four customers accounted for approximately 67% of the Company's
sales for the year ended 1997.
7. COMMITMENTS:
The Company is obligated under a noncancellable operating lease for office
space which expires in May 31, 2000. Minimum future rental payments under
this noncancellable operating lease as of December 31, 1997 are as follows:
1998 $ 98,800
1999 103,600
2000 44,000
--------
$246,400
========
F-8
<PAGE> 11
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Computer Health & Safety, Inc.
We have audited the accompanying balance sheet of Computer Health & Safety, Inc.
at December 31, 1996, and the related statements of income and retained earnings
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Computer Health & Safety, Inc.
at December 31, 1996, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Miami, Florida
January 24, 1997
F-9
<PAGE> 12
COMPUTER HEALTH & SAFETY, INC.
BALANCE SHEET
December 31, 1996
<TABLE>
<S> <C>
Assets
------
Current assets:
Cash $ 39,055
Accounts receivable, (net of allowance
for doubtful accounts of $10,229) 1,725,316
Inventories 340,936
Other current assets 24,929
----------
Total current assets 2,130,236
----------
Property and equipment, net 135,066
Other assets 733
----------
Total assets $2,266,035
==========
Liabilities and Stockholder's Equity
------------------------------------
Current liabilities:
Accounts payable $ 221,826
Note payable 870,808
Note payable, stockholder 200,000
Accrued liabilities 192,730
----------
Total current liabilities 1,485,364
----------
Stockholder's equity:
Common stock, $1 par value. Authorized
750 shares; issued and outstanding
10 shares 10
Paid-in capital 490
Retained earnings 780,171
----------
Total stockholder's equity 780,671
Commitments
----------
Total liabilities and
stockholder's equity $2,266,035
==========
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE> 13
COMPUTER HEALTH & SAFETY, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Net sales $11,476,169
Cost of sales 9,311,239
-----------
Gross profit 2,164,930
General and administrative expenses 1,821,553
-----------
Income from operations 343,377
Other income (expense):
Other income 7,649
Interest expense (123,341)
-----------
Total other expense (115,692)
-----------
Net income 227,685
Retained earnings, beginning of year 721,908
Prior period adjustment (note 7) (62,401)
Dividends paid (107,021)
-----------
Retained earnings, end of year $ 780,171
===========
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE> 14
COMPUTER HEALTH & SAFETY, INC.
STATEMENT OF CASH FLOWS
For the year ended December 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 227,685
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation 52,432
Bad debt expense 10,229
Changes in current assets and liabilities:
Accounts receivable, trade (535,477)
Inventories 44,825
Other current assets (22,074)
Accounts payable (100,188)
Accrued expenses 142,836
---------
Net cash used in operating activities (179,732)
---------
Cash flows from investing activities:
Purchase of property and equipment (109,276)
---------
Cash flows from financing activities:
Increase in note payable 257,276
Payment on note payable, stockholder (22,748)
Payment of dividends (107,021)
---------
Net cash provided by financing activities 127,507
---------
Net decrease in cash (161,501)
Cash, beginning of year 200,556
---------
Cash, end of year $ 39,055
=========
Supplementary disclosure of cash flow information:
Cash paid during the year for interest $ 123,341
=========
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE> 15
COMPUTER HEALTH & SAFETY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(1) DESCRIPTION OF BUSINESS
Computer Health and Safety, Inc. (the "Company"), a Delaware corporation,
specializes in the sale and integration of computer systems, particularly
in open-system, client server environments. The Company maintains several
Value Added Reseller ("VAR") agreements with computer equipment
manufacturers whereby the Company purchases products from the manufacturer
on a non-exclusive basis for resale to end-users. The Company conducts its
operations under the name of its division, Open System Technologies.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(b) PROPERTY AND EQUIPMENT, NET
Property and equipment are stated at cost. Depreciation of property
and equipment is calculated on a straight-line basis over the
estimated useful lives of the assets.
Maintenance and repairs are charged to operations when incurred.
Substantial expenditures for improvements that increase the capacity
or extend the useful life of the asset are capitalized.
(c) INVENTORIES
Inventories include completed equipment and parts, and are stated at
the lower of cost or market. Cost is determined using the first-in,
first-out ("FIFO") method for all inventories.
(d) REVENUE RECOGNITION
Revenue is recognized from equipment sales when the product is shipped
to the customer and from support services over the contractual period
or as the services are performed.
(e) INCOME TAXES
The Company is an S corporation for federal income tax purposes. As
such, the income tax effects of the results of operations of the
Company accrue directly to the stockholder. Accordingly, the
accompanying financial statements do not include a provision for
income taxes.
(Continued)
F-13
<PAGE> 16
COMPUTER HEALTH & SAFETY, INC.
NOTES TO FINANCIAL STATEMENTS
(f) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(g) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, on January 1, 1996. This statement requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell. Adoption of this statement did not have a material impact on
the Company's financial position, results of operations, or liquidity.
(3) INVENTORIES
Inventories at December 31, 1996 consist of:
Completed equipment ....... $242,829
Parts ..................... 111,761
--------
Total ............... 354,590
Less reserve .............. 13,654
--------
$340,936
========
The Company's inventories consist of high-technology computer equipment,
which are subject to rapid technological obsolescence or reduction in
value as a result of new products developed by competitors or normal
competitive pressures. The Company periodically estimates a reserve for
obsolete inventory and reduction in value based on current market
conditions. Changes in the marketplace for high technology computer
equipment may significantly effect management's estimates.
(4) PROPERTY AND EQUIPMENT, NET
Property and equipment, net at December 31, 1996 consists of the following:
Office equipment ..................... $ 24,239
Computer equipment ................... 248,881
--------
Total ............................ 273,120
Less accumulated depreciation ........ 138,054
--------
Property and equipment, net ...... $135,066
========
(Continued)
F-14
<PAGE> 17
COMPUTER HEALTH & SAFETY, INC.
NOTES TO FINANCIAL STATEMENTS
(5) NOTE PAYABLE
The Company has an unsecured line of credit expiring on August 31, 1997,
which provides for borrowings of up to $2,500,000 bearing interest at
prime (8.25% at December 31, 1996) plus 0.5 percent. At December 31, 1996,
$870,808 was outstanding under this line of credit. The line of credit
contains a number of restrictive covenants. At December 31, 1996, the
Company was not in compliance with the debt service coverage ratio. The
Company has obtained a waiver of compliance with this covenant from the
creditor.
(6) NOTE PAYABLE, STOCKHOLDER
As of December 31, 1996, the Company had a note payable to the stockholder
of $200,000. Monthly interest only installments are due until September 1,
1997 at which time the entire principal balance is due. The note bears an
annual interest rate of 9 percent. Related interest expense incurred
during 1996 amounted to $19,659.
(7) PRIOR PERIOD ADJUSTMENT
During 1996, the Company identified a $62,401 overstatement of the
Company's December 31, 1995 inventory and a corresponding understatement
of cost of sales for the year ended December 31, 1995. The Company has
reflected this error as a prior year adjustment in their financial
statements for the year ended December 31, 1996.
(8) BUSINESS AND CREDIT CONCENTRATIONS
One vendor accounted for 65 percent of the Company's purchases. All of the
Company's customers are located in South Florida. Consequently, changes in
the South Florida economy could affect the Company's operations. At
December 31, 1996, three customers accounted for approximately 88 percent
of accounts receivable. Three customers accounted for approximately 54
percent of the Company's sales for the year ended 1996.
(9) COMMITMENTS
(a) LEASES
The Company is obligated under a noncancelable operating lease for
office space which expires in 1997. Minimum future rental payments
under this noncancelable operating lease as of December 31, 1996 are
$12,740 in 1997.
Rent expense on this lease approximated $47,612 for the year ended
December 31, 1996.
F-15
<PAGE> 18
OPEN SYSTEM TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1997
(UNAUDITED) (UNAUDITED)
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 223,960 $ 259,867
Accounts receivable - net of $3,000 allowance for
doubtful accounts in 1998 and $17,000 in 1997 1,540,023 1,770,280
Inventories - net of $3,000 reserve in 1998 and
$21,000 in 1997 112,125 197,836
Prepaid expenses and other current assets 89,364 45,708
---------- ----------
Total current assets 1,965,472 2,273,690
---------- ----------
FURNITURE AND EQUIPMENT - net 173,960 116,655
OTHER ASSETS 28,638 15,687
---------- ----------
TOTAL $2,168,070 $2,406,032
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable under line of credit $ 323,000
Accounts payable 535,891 $1,102,311
Accrued expenses 67,043 87,189
---------- ----------
Total current liabilities 925,934 1,189,500
---------- ----------
NOTES PAYABLE 200,000
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock 10 10
Additional paid-in-capital 490 490
Retained earnings 1,241,636 1,016,032
---------- ----------
Total stockholders' equity 1,242,136 1,016,532
---------- ----------
TOTAL $2,168,070 $2,406,032
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
F-16
<PAGE> 19
OPEN SYSTEM TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
(UNAUDITED) (UNAUDITED)
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
NET SALES $2,328,969 $3,044,053
COST OF SALES 1,839,249 2,380,436
---------- ----------
Gross profit 489,720 663,616
---------- ----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 463,688 403,445
---------- ----------
OPERATING INCOME 26,032 260,171
INTEREST INCOME - net 1,354 690
---------- ----------
NET OPERATING INCOME $ 27,386 $ 260,861
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
F-17
<PAGE> 20
OPEN SYSTEM TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 27,386 $ 260,861
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 18,633 24,000
Changes in operating assets and liabilities:
Accounts receivable 639,711 (44,964)
Inventories (13,651) 143,100
Prepaid expenses and other assets (2,126) (35,733)
Accounts payable (640,015) 880,485
Accrued expenses (10,000) (105,541)
----------- -----------
Net cash provided by operating activities 19,938 1,122,208
----------- -----------
INVESTING ACTIVITIES - Capital expenditures (26,806) (5,589)
----------- -----------
FINANCING ACTIVITIES:
Net borrowings(repayments) on notes payable 247,000 (870,808)
Shareholder distributions (22,328) (25,000)
----------- -----------
Net cash provided by (used in) financing activities 224,672 (895,808)
----------- -----------
NET INCREASE IN CASH 217,803 220,811
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,157 39,056
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 223,960 $ 259,867
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
F-18
<PAGE> 21
OPEN SYSTEM TECHNOLOGIES, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of the Company, the accompanying unaudited interim financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position of the Company and the
results of its operations and changes in its financial position for the
periods presented.
F-19
<PAGE> 22
PRO FORMA FINANCIAL INFORMATION PROVIDED UNDER ITEM 7(B)
F-20
<PAGE> 23
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated balance sheet at March 31, 1998
combines historical financial information as if the acquisition of Open System
Technologies, Inc. ("OST") had occurred on March 31, 1998. The unaudited pro
forma consolidated statement of operations for the year ended December 31, 1997
and the three months ended March 31, 1998 combines historical statements of
operations for Osage Systems Group, Inc. (the "Company") and the acquired
company, OST, as if the acquisition had occurred on January 1, 1997.
The detailed assumptions used to prepare the unaudited pro forma consolidated
financial information are contained herein. The unaudited pro forma consolidated
financial information reflects the use of the purchase method of accounting for
the acquisition. The purchase price allocation used in the preparation of the
pro forma financial information is preliminary and subject to change based upon
final evaluations being performed.
The unaudited pro forma consolidated financial information assumes the
acquisition was funded from currently available cash, assorted private placement
transactions and through the issuance of common stock.
The unaudited pro forma data are not necessarily indicative of the financial
position or results of operations which would have actually been reported had
the transactions been consummated at the date mentioned above or which may be
reported in the future.
The unaudited pro forma data should be read in conjunction with the notes to the
unaudited pro forma consolidated historical financial information and the
historical financial statements, and notes thereto, of the Company which are
incorporated by reference to the Company's Form 10-KSB and the historical
financial statements of OST which are included herein.
F-21
<PAGE> 24
OSAGE SYSTEMS GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(in thousands)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------- PRO FORMA CONSOLIDATED
OSAGE OST ADJ. BALANCE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 2,498 $ 224 $ (2,500){a} $ 222
Accounts receivable 4,484 1,540 6,024
Inventories 518 112 630
Prepaid expenses and other current assets 162 89 251
Deferred income taxes 425 200 {d} 625
-------- ------ ------------- --------
Total current assets 8,087 1,965 (2,300) 7,752
-------- ------ ------------- --------
FURNITURE AND EQUIPMENT - net 292 174 466
-------- ------ ------------- --------
OTHER ASSETS:
Goodwill - net 4,276 4,287 {d} 8,563
Other 64 29 93
-------- ------ ------------- --------
Total other assets 4,340 29 4,287 8,656
-------- ------ ------------- --------
Total assets $ 12,719 $2,168 $ 1,987 $ 16,874
======== ====== ============= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes payable under line of credit $ 309 $ 323 $ 632
Notes payable - other 207 207
Accounts payable 4,168 535 4,703
Accrued expenses 876 67 $ 238 {c} 1,181
Deferred revenue 20 20
Income taxes payable 191 191
-------- ------ ------------- --------
Total current liabilities 5,771 925 238 6,934
-------- ------ ------------- --------
NOTES PAYABLE - OTHER 296 420 {c} 716
-------- ------ ------------- --------
SHAREHOLDERS' EQUITY:
Series A preferred stock 12 12
Series B preferred stock 5 5
Series C preferred stock 5 5
Common stock 56 1 4 {b} 60
(1){e}
Additional paid-in-capital 7,336 2,568 {b} 9,904
Retained earnings (deficit) (762) 1,242 (1,242){e} (762)
-------- ------ ------------- --------
Total shareholders' equity 6,652 1,243 1,329 9,224
-------- ------ ------------- --------
Total liabilities and shareholders' equity $ 12,719 $2,168 $ 1,987 $ 16,874
======== ====== ============= ========
</TABLE>
F-22
<PAGE> 25
PRO FORMA ADJUSTMENT LEGEND
{a} Amount represents the following adjustments to cash:
<TABLE>
<S> <C>
OST acquisition cash $ (2,500)
========
</TABLE>
{b} Amount represents net adjustment to common stock and additional paid in
capital:
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT SHARE INFORMATION
----------------------------------------------------
COMMON
SHARES STOCK APIC TOTAL
----------------------------------------------------
<S> <C> <C> <C> <C>
OST shares 333,334 3 2,233 2,237
Fees paid 50,000 1 335 336
----------------------------------------------------
Total 383,334 $ 4 $ 2,568 $ 2,572
====================================================
</TABLE>
{c} Amount represents an adjustment to record liabilities resulting from
the OST acquisition. Balance consists of $238 which will be paid within
one year following the closing with the balance payable two years
following the closing of the acquisition.
{d} The following summarizes the adjustment for goodwill:
<TABLE>
<S> <C>
Total stock consideration 2,572
Cash 2,500
Present value of additional liabilities resulting from OST
acquisition 658 {c}
Pro forma adjustment for deferred income taxes (200)
-------
Total consideration 5,530
-------
FMV of net assets acquired 1,243
-------
Goodwill $ 4,287
=======
</TABLE>
{e} Amount represents elimination of shareholders' equity.
F-23
<PAGE> 26
OSAGE SYSTEMS GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Historical
- -------------------------------------------------------------------------------------------------------------------
PRO FORMA
PRO FORMA CONSOLIDATED
OSAGE OST ADJ. BALANCE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $ 5,642 $ 2,329 $ 7,971
COST OF SALES 4,580 1,839 6,419
------- ------- ----- ---------
Gross profit 1,062 490 1,552
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,223 464 $ 71 {a} 1,758
------- ------- ----- ---------
OPERATING INCOME (LOSS) (161) 26 (71) (206)
INTEREST - Net 35 1 (16) {c} (20)
------- ------- ----- ---------
INCOME (LOSS) BEFORE BENEFIT FOR
INCOME TAXES (126) 27 (87) (186)
BENEFIT FOR INCOME TAXES (39) (18) {b} (57)
------- ------- ----- ---------
NET INCOME (LOSS) $ (87) $ 27 $ (69) $ (129)
======= ======= ===== ==========
LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.02) $ (0.02)
======= ==========
SHARES USED IN PER SHARE CALCULATION 5,342 5,725 {d}
======= ==========
</TABLE>
F-24
<PAGE> 27
PRO FORMA ADJUSTMENT LEGEND
{a} Amount represents the amortization of goodwill. While the Company
has yet to complete the final purchase accounting entries, based on
its preliminary estimate, the Company believes that any additional
adjustments required will be allocated to goodwill, which is
estimated to be amortized over 15 years.
{b} Amount represents adjustment for income taxes as follows:
<TABLE>
<S> <C>
Current tax provision for OST assuming a 40%
tax rate as OST was taxed as an S Corp. prior to
the acquisition $ 11
Tax benefit of deductible goodwill resulting from the OST
acquisition (29)
=======
Total $ (18)
=======
{c} Amount represents amortization of discount on liabilities
resulting from the OST acquisition.
{d} Amount represents the number of shares outstanding resulting from
the acquisition of OST as if the shares were outstanding as of
January 1, 1997:
Weighted average shares outstanding as of March 31, 1998 5,342
OST shares 333
Fees paid 50
=======
Total 5,725
=======
</TABLE>
F-25
<PAGE> 28
OSAGE SYSTEMS GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Historical
- -----------------------------------------------------------------------------------------------------------
PRO FORMA
PRO FORMA CONSOLIDATED
OSAGE OST ADJ. BALANCE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES $ 14,191 $ 11,938 $ 26,129
COST OF SALES 11,670 9,675 21,345
---------- -------- ------- --------
Gross profit 2,521 2,263 4,784
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,807 1,692 $ 286 {a} 4,785
---------- -------- ------- --------
OPERATING INCOME (LOSS) (286) 571 (286) (1)
INTEREST - Net (10) (2) (62) {c} (74)
---------- -------- ------- --------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES (296) 569 (348) (75)
PROVISION (BENEFIT) FOR INCOME TAXES (3) 114 {b} 111
---------- -------- ------- --------
NET INCOME (LOSS) $ (293) $ 569 $ (462) $ (186)
========== ======== ======= ========
LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.06) $ (0.04)
========== ========
SHARES USED IN PER SHARE CALCULATION 4,820 5,203 {d}
========== ========
</TABLE>
F-26
<PAGE> 29
PRO FORMA ADJUSTMENT LEGEND
{a} Amount represents the amortization of goodwill. While the Company
has yet to complete the final purchase accounting entries, based on
its preliminary estimate, the Company believes that any additional
adjustments required will be allocated to goodwill, which is
estimated to be amortized over 15 years.
{b} Amount represents adjustment for income taxes as follows:
<TABLE>
<S> <C>
Current tax provision for OST assuming a 40%
tax rate as OST was taxed as an S Corp. prior to
the acquisition $ 228
Tax benefit of deductible goodwill resulting from the OST
acquisition (114)
------
Total $ 114
======
{c} Amount represents amortization of discount on liabilities
resulting from the OST acquisition.
{d} Amount represents the number of shares outstanding resulting from
the acquisition of OST as if the shares were outstanding as of
January 1, 1997:
Shares outstanding as of December 31, 1997 4,820
OST shares 333
Fees paid 50
------
Total 5,203
======
</TABLE>
F-27
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: June 8, 1998 OSAGE SYSTEMS GROUP, INC.
BY:/s/ Jack R. Leadbeater
Jack R. Leadbeater
Chief Executive Officer
