SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-26464
CSI Computer Specialists, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 52-1599610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
904 Wind River Lane Suite 100
Gaithersburg, Maryland 20878
(Address of principal executive offices) (Zip code)
301-921-8860
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Securities Exchanges on which Registered
Common Stock, par value $0.001 per share The NASDAQ SmallCap Market
Securities registered pursuant to section 12(g) of the Act:
N/A
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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. Yes X No ________
Check if there is no disclosure of delinquent filers pursuant 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. |_|
State issuer's revenues for its most recent fiscal year. $24,185,609
As of March 23, 1998, the aggregate market value of Common Stock outstanding
held by non-affiliates of the issuer was $2,205,491 (computed by reference to
the average bid and asked price of the Common Stock) and the total number of
shares of Common Stock outstanding was 4,116,226.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the Part of the Form 10-K SB(e.g., Part I, Part II, etc.) into which the
document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or information statement; and (3) Any prospectus filed pursuant to Rule
424(b) or (c) under the Securities Act of 1933. The listed documents should be
clearly described for identification purposes (e.g., annual report to security
holders for fiscal year ended December 24, 1990).
None.
Transitional Small Business Disclosure Format (check one):
Yes ___; No X
Certain statements made in this Annual Report on Form 10-KSB are
"forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements involve known and unknown risks,
uncertainties, and other factors that may cause actual results, performance, or
achievements of the Company to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, the
Company's actual results could differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
include, but are not limited to, the timing of revenues, rapid technological
change, the demand for services for computer hardware systems and computer
equipment, the timing and amount of capital expenditures and other risks
detailed herein.
<PAGE>
CONTENTS
Page
Part I Item 1 Description of Business 4
Item 2 Description of Property 8
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of Security Holders 9
Part II Item 5 Market for Common Equity and Related Stockholder Matters 9
Item 6 Management's Discussion and Analysis 9
Item 7 Financial Statements F-1
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 12
Part III Item 9 Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) 12
Item 10 Executive Compensation 13
Item 11 Security Ownership of Certain Beneficial Owners and
Management 14
Item 12 Certain Relationships and Related Transactions 15
Item 13 Exhibits List and Reports on Form 8-K 15
<PAGE>
PART 1
Item 1. Description of Business
General
CSI Computer Specialists, Inc. (the "Company") was
incorporated pursuant to the laws of the State of Delaware on February 22, 1994.
The Company is the successor to CSI-Maryland. CSI-Maryland was incorporated
pursuant to the laws of the State of Maryland in October 1988 for the purpose of
providing computer hardware services, including installation and de-installation
of equipment, computer upgrades, computer maintenance and repair, and the sale
of computer parts and equipment. The Company was organized by CSI-Maryland to
enable CSI-Maryland to merge with and into the Company on March 31, 1994 in
order to effectuate a reincorporation in the State of Delaware.
The Company provides a full range of computer hardware services,
including sales and maintenance of mainframe and mid-range computer equipment
and parts, network design and installation, computer upgrades, and installation
and de-installation of equipment. The Company provides its services to
commercial customers, agencies of federal, state and local governments, and
universities, hospitals, and associations in the Mid-Atlantic region of the
United States, including West Virginia, Virginia, Maryland, the District of
Columbia, New Jersey, New York, Connecticut, Pennsylvania, and in Illinois and
California, as a result of recent asset acquisitions.
In pursuit of its plans for geographic expansion, the Company opened
offices near Philadelphia, Pennsylvania in January, 1995 and in Richmond,
Virginia in December, 1995. In addition, as part of the Company's efforts to
expand its technological expertise and customer base, the Company completed its
acquisition of Capitol Computer Systems, Inc., doing business as CCS Systems,
Inc. in December, 1995. CCS Systems, Inc. is a Lanham, Maryland value added
reseller specializing in equipment sales and computer hardware maintenance.
Furthering its expansion efforts, the Company acquired Cintronix, Inc., which
specializes in the sale and servicing of personal computers, in January, 1997,
and Advanced Network Systems, which provides network integration service and
sales to companies and associations in the Washington, DC metropolitan area, in
February, 1997. The Company acquired the assets of Phoenix Service, Inc. in May,
1997. Phoenix Service provides mainframe sales and maintenance services in the
Eastern region of the country, as well as outside Chicago, Illinois and San
Francisco, California.
Initially, the Company's business was limited to providing service for
computer mainframes manufactured by International Business Machines ("IBM") and
peripheral equipment, such as printers, disk drives, tape drives and computer
controllers. The Company has broadened its peripheral support to include
servicing for products manufactured by Memorex, Storage Technology and various
other original equipment manufacturers of input/output products. In addition,
the Company offers maintenance services for personal computers and associated
peripheral equipment produced by several major manufacturers, such as IBM,
Compaq, NEC, Epson and Hewlett-Packard, as well as provides parts and services
for computer mainframes manufactured by Digital Equipment Corporation ("DEC"),
such as DEC/VAX platforms and peripheral equipment.
The Company provides its services to customers pursuant to maintenance
agreements. Substantially all of the Company's maintenance agreements are
fixed-fee agreements for terms of one or more years. Pursuant to such an
agreement, a customer agrees to pay a fixed amount, payable monthly, in exchange
for the Company's agreement to provide all parts (other than expendable parts)
and labor necessary to maintain or repair the equipment during the term of such
agreement. The Company occasionally provides services on a "time-and-materials"
basis pursuant to which a customer agrees to pay a specified rate for each
particular service to be performed by the Company and to purchase any
replacement parts used in connection therewith.
The Company began actively selling computer equipment in 1993, and
management believes that current market conditions have afforded the Company
strong potential for growth. The Company sells computer equipment pursuant to
equipment sales agreements. Pursuant to such agreements, customers pay for the
computer equipment which they purchase from the Company upon delivery. Given the
Company's large existing customer base, the Company has what management believes
to be a "niche market audience," which enables the Company to "bundle" its
services to include the sale of equipment to a customer, the installation of
such equipment and the maintenance of the installed equipment on a continuing
basis. The acquisition of Cintronix, Inc. has enabled the Company to expand its
sales of mid-range and personal computer products, bringing purchasing volume to
levels that provide more competitive pricing from suppliers and distributors.
The industry in which the Company operates has been characterized by
rapid and continuous technological advances, permitting cost reduction,
increased computer processing capacities and broadened equipment platforms.
Customers frequently upgrade or replace equipment and also use mainframes and
peripheral equipment manufactured by various vendors to take advantage of
technological innovations. As a result, equipment which is replaced by different
or newer models becomes available to the resale or secondary market. This
enables the Company to purchase this equipment and support additional product
lines.
Management believes that the Company has been able to compete
successfully because of the high quality of service the Company provides and the
competitive pricing it is able to offer to its customers. As a result, since its
inception, the Company has been able to attract and maintain long-term
relationships with its existing customers and to expand its customer base
consistently and effectively.
Maintenance Services
The Company provides third-party, multi-vendor computer hardware and
peripheral equipment maintenance services to commercial customers, agencies of
federal, state and local governments, universities, hospitals, associations and
other organizations located primarily in the Mid-Atlantic region of the United
States. The equipment currently maintained and serviced by the Company consists
of a wide range of peripheral subsystems, including terminals, disk drives, tape
drives, printers and computer controllers, and also includes the mainframes,
mid-range minicomputers and personal computers on which such peripheral
subsystems are dependent. The equipment serviced or maintained by the Company
varies from customer to customer and ranges from providing services for
individual computers or peripherals to providing services for many computers and
peripherals located in a customer's mainframe computer room. Services provided
by the Company consist primarily of scheduled preventive maintenance and
emergency remedial services. Preventive maintenance includes inspections,
diagnostic analysis, cleaning, adjustments, and replacement of components and
parts. In addition, the Company conducts inspections for certification of
equipment in connection with determining whether mainframes and peripheral
equipment meet original equipment manufacturer maintenance standards.
Most of the mainframe computers maintained and serviced by the Company
are manufactured by IBM, although the Company also provides such services for
computers manufactured by other companies, including Memorex, Storage
Technology, and DEC. The personal computers and peripheral equipment currently
serviced by the Company are manufactured by numerous companies. The Company, in
1995, expanded its business to include the sale and servicing of IBM RISC
System/6000, IBM AS/400 and IBM ES/9000. In addition, the Company greatly
expanded its sale and servicing capabilities in the mid-range computer area with
the acquisitions of Cintronix, Inc. and Advanced Network Systems in early 1997.
Maintenance Agreements
The Company provides most of its services pursuant to maintenance
agreements having terms of one or more years. Pursuant to such agreements, a
customer is obligated to pay a fixed amount on a monthly basis in exchange for
the Company's agreement to provide all parts (other than expendable parts) and
labor necessary to maintain or repair the equipment subject to the agreement
during the term of the agreement. Additionally, the Company occasionally
provides services on a "time-and-materials" basis pursuant to which a customer
agrees to pay a specified rate for each particular service to be performed by
the Company and to purchase any replacement parts used in connection therewith.
The Company's standard maintenance agreement provides that upon expiration of
the initial term thereof, such agreement will continue on a month-to-month basis
until such time as either party terminates the agreement. It has been the
Company's experience that very few of its maintenance agreements with its
customers are cancelled or discontinued upon expiration of their initial terms
given the monthly renewal provisions.
Most of the Company's maintenance agreements with agencies of the
federal government are entered into for terms of three to five years. However,
such maintenance agreements provide agencies an annual right to terminate the
contract in the event that the agencies do not receive the requisite
governmental funding. Revenues from such contracts are, therefore, dependent
upon annual governmental funding. Such termination rights have seldom been
exercised, however, and such maintenance agreements have terminated upon
expiration of their specified terms and, in some cases, have been renewed for
one-year periods.
Subcontracting
The Company has entered into subcontracting agreements with several of
its vendors pursuant to which such vendors perform certain services which the
Company has agreed to provide to customers pursuant to existing maintenance
agreements. In such cases, the Company acts as the "prime contractor" for the
provision of computer maintenance services and the vendor acts as the
"subcontractor." The Company enters into such agreements for several reasons.
The Company may elect to enter into subcontracting agreements when the equipment
that is subject to a maintenance agreement is expensive or is otherwise
difficult for the Company to obtain or replace. Similarly, such subcontracting
agreements have been advantageous to the Company when the services required by a
maintenance agreement have been of a particular level of engineering expertise
that the Company does not otherwise provide. The Company also enters into
subcontracting agreements because customers sometimes prefer to be provided
services by one entity, such as the Company, which has the ability to service
all of its computer equipment (notwithstanding the manufacturer or the model),
rather than rely on the services which may be provided individually by each
vendor with respect to its own manufactured product or model. Such agreements
may be terminated by either party at any time upon delivery of written notice 30
days in advance of such termination. Several companies offer the services and
expertise for which the Company enters into subcontracting agreements.
Therefore, management believes that the loss of the services of any one
subcontractor would not have a material adverse effect on the Company's
business.
Equipment Sales
The Company sells computer equipment pursuant to equipment sales
agreements. Pursuant to such agreements, customers pay for the computer
equipment which they purchase from the Company upon delivery. Generally, the
Company takes an order for equipment from a customer, contacts its suppliers to
ascertain the availability of the equipment, provides the customer with a quoted
price for the equipment and executes an agreement upon the customer's acceptance
of the terms. The Company does not, therefore, maintain a large inventory of
computer equipment, particularly mid-range and personal computer equipment,
which is readily available. Revenues from the sale of computer equipment have
steadily increased during recent years, with the largest increase resulting from
the sale of mid-range and personal computer equipment. A significant increase in
revenues from the sale of mid-range and personal computer equipment occurred in
1997, with a 280 percent increase over 1996. This increase is principally due to
the acquisition of Cintronix, Inc., which specializes in the sale and servicing
of personal computers. The Company intends to continue to expand this area of
its business during the next few years.
Sales and Marketing
The Company currently employs approximately twenty-five full-time
marketing representatives. Most representatives direct their efforts to
promoting the Company's sales and services to commercial accounts, universities,
hospitals and associations in the Mid-Atlantic region, Illinois and California.
The remaining representatives market the Company's services primarily to federal
government agencies. The majority of the leads pursued by the marketing
representatives are generated by existing customers and by referrals from
various vendors. In addition, the Company utilizes the services of several
contract marketing representatives, who provide marketing services. To date, the
Company has done little advertising. However, the Company is in the process of
developing an effective marketing and advertising program, a primary part of
which will be the integration and cross-education of sales personnel to market
each subsidiary's and division's products and services to the others' customer
base.
Principal Suppliers and Subcontractors
The Company acquires from IBM a significant part of the equipment and
parts which it uses in connection with providing maintenance services. The
Company also relies on IBM to provide subcontracting services. See Note 10 to
the Financial Statements included in Item 7 hereof. Payments made by the Company
to IBM equaled $257,000 and $221,000, respectively, during the fiscal years
ended December 31, 1997 and 1996. The Company also subscribes to a service
called "CDLANET," which provides the Company with access to an "on-line"
nationwide database of equipment offered for sale by various vendors and
distributors. The Company frequently acquires equipment from various vendors
identified using this service. In addition, the Company, primarily through its
subsidiary Cintronix, Inc., acquires a significant part of its personal computer
and network equipment and supplies for resale from Tech Data and Ingram Micro,
from which the Company purchased $2.7 million and $1.5 million, respectively, of
equipment and supplies in 1997. Due to the significant number of comparable
vendors of these products, the Company does not feel that the loss of any one
supplier would have a material adverse effect on the Company's business.
Customers
Historically, most of the Company's direct revenues are derived
from services performed through maintenance agreements. However, with the
acquisition of Cintronix, Inc., equipment and parts sales accounted for 58% of
the Company's combined revenues for 1997. The percentage of commercial customers
serviced by the Company pursuant to maintenance agreements for the fiscal years
ended December 31, 1997 and 1996 equaled approximately 73% and 79%,
respectively, of all customers serviced by the Company pursuant to maintenance
agreements. Federal government agencies serviced pursuant to maintenance
agreements accounted for approximately 27% and 21%, respectively, of the
Company's customers for the fiscal years ended December 31, 1997 and 1996.
Revenues derived from time and materials agreements approximated 7% and 5%,
respectively, of the Company's gross revenues for the fiscal years ended
December 31, 1997 and 1996. Revenues generated by parts and equipment sales,
reflecting the increase provided by Cintronix, Inc., represented approximately
58% and 30%, respectively, of gross revenues for the fiscal years ended December
31, 1997 and 1996.
The Company's customers generally have been loyal. It has been the
Company's experience that most of its maintenance agreements are renewed.
Currently, no one customer represents more than 7% of the total revenues of the
Company. The Company's commercial customers include American Management Systems,
Inc., Lockheed Martin, IBM, Interactive Systems, Inc. ("ISI"), Computer Data
Systems Inc., and Medlantic Health Care System, Inc.
Business Strategy
The objectives of the Company are, through the provision of currently
offered and new services to increase its customer base and to also increase
equipment sales. Management believes that increasing the Company's customer base
can be achieved by the cross marketing of products and services between the
Company and its acquired subsidiaries and divisions, as well as the expansion of
sales and servicing of additional mainframe and mid-range computers. The Company
can also realize these objectives by expanding its business to provide sales and
service outside of the Mid-Atlantic region into other geographical locations.
Management also believes that it can continue to increase its sales of parts and
equipment as a result of the Company's designation as a "Value Added Reseller"
of computer equipment produced by various manufacturers, and through the
provision of network design and integration services to new and existing
customers. Designation as a "Value Added Reseller" enables the Company to
acquire computer equipment directly from manufacturers at discounts based upon
the volume of its purchases. Management believes that the acquisition of
Cintronix, Inc. will also result in increased parts and equipment sales.
Cintronix, Inc., is a MicroAge franchisee, and as such benefits from the various
programs offered by MicroAge including dealer arrangements with manufacturers,
financing and insurance programs, and business referrals.
Acquisitions
The Company's long-term plan has been to pursue its growth and
acquisition strategy on both a national and regional level. The Company
implemented this plan on a national level when it acquired the assets of Phoenix
Service, Inc., which gives the Company the ability to develop business in major
population areas in California and Illinois where it had not previously been
represented. Management believes that the acquisitions of Cintronix, Inc. and
Advanced Network Systems in early 1997 have furthered the Company's goal of
developing regional clusters of sales and service representatives to improve
customer service and to gain greater market penetration. Management also
believes that these businesses will draw on the operational and management
expertise of the Company, and that the Company will realize cost savings and
expansion of customer bases through the centralization of controls, economies of
scale, finance, cash management, inventory control and purchasing, accounting,
marketing, and human resource functions. The Company does not presently
anticipate any further acquisitions until the companies acquired in 1997 have
been sufficiently integrated so that the expected synergies are achieved.
Management believes that such synergies will occur during 1998.
The Company could be subject to liabilities arising from an acquisition
in the event the Company has assumed unknown or contingent liabilities or in the
event such liabilities are imposed on the Company. In an effort to minimize such
risks, prior to making acquisitions, the Company has conducted due diligence
investigations of its targets. In addition, the Company has sought to avoid such
liabilities by purchasing only selected assets and assuming selected liabilities
of certain acquirees and seeking indemnification. There can be no assurance,
however, that these efforts will result in the Company's avoidance of any such
liabilities, which could have a material adverse effect on the Company's
financial condition.
Employees
The Company has approximately 160 full-time employees who are located
at the Company's headquarters in Gaithersburg, Maryland and in nine cities in
the Mid-Atlantic region, Illinois and California.
Item 2. Description of Property
The Company's headquarters are located in Gaithersburg,
Maryland (the "Gaithersburg facility"). In addition to the Gaithersburg
facility, the Company maintains its National Support Center in Beltsville,
Maryland (the "Beltsville facility"); sales and marketing offices in Towson,
Maryland ("the Towson facility"), Fairfield, New Jersey (the "Fairfield
facility"), and Wheaton, Illinois (the "Wheaton facility"); and office and
warehouse space in Moorestown, New Jersey (the "Moorestown facility"),
Sunnyvale, California (the "Sunnyvale facility") and Richmond, Virginia (the
"Virginia facility"). In addition, CCS Systems, Inc., a wholly-owned subsidiary
of the Company, maintains its offices and service facilities in Lanham, Maryland
(the "Lanham facility"), and Cintronix, Inc., the other wholly-owned subsidiary
of the Company, maintains its offices in Annapolis, Maryland (the "Annapolis
facility").
The Gaithersburg facility is leased by the Company pursuant to a lease
having a term of ten years, which term expires in November, 2007. The
Gaithersburg facility consists of 12,566 square feet and is used by the Company
primarily as general office space. The monthly rental payment for such space is
approximately $13,350 and is subject to annual increases.
The Beltsville facility is leased by the Company pursuant to a lease
having a term of five years, which term is scheduled to expire in October, 2002.
The monthly rental payment for such space is $13,912 and is subject to annual
increases. The Beltsville facility currently consists of 31,000 square feet and
is used by the Company to house the Company's technical support staff, in-house
training instructors and logistical personnel, and for the storage and
warehousing of the bulk of the Company's equipment, parts and supply
inventories.
The Towson facility is used by marketing personnel of the Company and
is leased by the Company on a month-to-month basis. The monthly rental payment
for such space is $995.
The Fairfield facility is used by marketing personnel of the Company.
The Company assumed the lease held by Phoenix Service for this facility. The
lease is for a fifteen-month period and expires in September, 1998. The monthly
rental payment for such space is $624.
The Wheaton facility is used by marketing personnel of the Company. The
Company assumed the lease held by Phoenix Service for this facility. The lease
is on a month-to-month basis. The monthly rental payment for such space is $850.
The Moorestown facility is leased by the Company pursuant to a lease
having a term of ten years, which term is scheduled to expire in February, 1999.
The Company assumed the lease from Phoenix Service. The Moorestown facility
consists of approximately 19,200 square feet and is used by the Company for
storage and warehousing of equipment, parts and supplies for accounts in its
service area, as well as office space for the computer engineers assigned to
that area. The monthly rental payment for such space is $11,328 per month.
The Sunnyvale facility is leased by the Company pursuant to a lease
having a term of two years, which term is scheduled to expire on June 22, 1999.
The Sunnyvale facility consists of approximately 3,726 square feet and is used
by the Company for storage and warehousing of equipment, parts and supplies
for accounts in that service area, as well as office space for the computer
engineers assigned to that area. The monthly rental payment for such space is
$5,384 and is subject to annual increases.
The Virginia facility is leased by the Company pursuant to a lease
having a term of five years, which term is scheduled to expire on December 31,
2000. The Virginia facility consists of approximately 5,900 square feet and is
used by the Company for storage and warehousing of equipment, parts and supplies
for accounts in that service area, as well as office space for the computer
engineers assigned to that area. The monthly rental payment for such space is
$4,316 and is subject to annual increases.
The Lanham facility is leased by CCS Systems, Inc., pursuant to a lease
having a term expiring in December, 1998. The Lanham facility consists of
approximately 8,000 square feet and is used for storage and warehousing of
equipment, parts and supplies for the service of CCS Systems, Inc.'s customers,
as well as housing the sales, administrative and service personnel of such
company. The monthly rental payment for such space is $5,668 and is subject to
annual increases.
The Annapolis facility is leased by Cintronix, Inc. pursuant to a lease
having a term expiring in October, 1999. The Annapolis facility consists of
approximately 6,000 square feet and is used primarily for housing the sales,
administrative and service personnel of such company, and for storage and
warehousing of equipment, parts and supplies en route to customers under sales
agreements. The monthly rental payment for such space is $4,377 and is subject
to annual increases.
In addition to the foregoing facilities, the Company maintains local
parts storage facilities in various locations throughout the Mid-Atlantic region
of the United States and in Illinois to provide local support to area accounts.
The monthly rental for these storage centers is less than $100 each. The
facilities are leased pursuant to month-to-month leases. In the event that any
lease is terminated or not otherwise renewed, management believes that the
Company would be able to lease adequate space elsewhere on terms comparable to
those in the current lease.
The Company does not intend to invest in real estate or interests in
real estate, real estate mortgages, or securities of or interests in persons
primarily engaged in real estate activities in the foreseeable future.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's Common Stock trades on the Nasdaq SmallCap Market under the symbol
"CSIS". The following table sets forth the range of high and low trade price
information for the periods indicated:
1st Quarter 1996 High 7 1/8 Low 4 5/8
2nd Quarter 1996 High 6 1/4 Low 5.0
3rd Quarter 1996 High 5 7/8 Low 2 3/4
4th Quarter 1996 High 3 5/8 Low 1 1/8
1st Quarter 1997 High 2 5/8 Low 1 3/16
2nd Quarter 1997 High 2 5/8 Low 1 13/16
3rd Quarter 1997 High 1 15/16 Low 1
4th Quarter 1997 High 1 9/16 Low 25/32
1st Quarter 1998 High 1 5/8 Low 3/4
As of May 13, 1998, the Company's Common Stock was held by approximately 40
holders of record. As of June 13, 1997, the Company's Common Stock was held by
approximately 35 holders of record and approximately 732 beneficial holders. The
Company believes that it continues to have in excess of 700 beneficial holders.
The Company has never declared or paid a cash dividend and has no present plan
to do so in the foreseeable future. The Company currently intends to retain its
future earnings, if any, to fund the development and finance the growth of its
business. The amount and timing of any future dividends will depend on general
business conditions encountered by the Company, as well as the financial
condition, earnings and capital requirements of the Company, and such other
factors as the Board of Directors of the Company may deem relevant.
***
Item 6. Management's Discussion and Analysis
GENERAL
The Company provides a full range of computer hardware services,
including sales and maintenance of mainframe and mid-range computer equipment
and parts, network design and installation, computer upgrades, and installation
and de-installation of equipment. These services are provided to commercial
customers, agencies of federal, state and local governments, universities,
associations and hospitals primarily in the Mid-Atlantic region of the United
States, including West Virginia, Virginia, Maryland, the District of Columbia,
New Jersey, New York, Connecticut and Pennsylvania, and also in Illinois and
California.
The Company's principal business is providing computer maintenance and
repair services, which are provided under both fixed fee and time and materials
arrangements. Under the fixed fee arrangement, which is the primary method of
service, a customer pays a fixed monthly fee for the term of the agreement,
generally one to two years, for which the Company provides the parts and labor
for both scheduled preventative maintenance and emergency repairs. The Company
records the revenue from fixed fee contracts ratably over the term of the
contract, while the costs the Company incurs to provide the maintenance and
emergency repairs are charged to expense as incurred. Accordingly, the
profitability of the Company's maintenance and repair services can and will be
affected by period to period fluctuations in the number and severity of the
emergency repairs required by its customers, which the Company cannot predict or
control. Additionally, in certain circumstances the Company will choose to
provide the contracted-for services by subcontracting with others, particularly
when the equipment covered by the agreement cannot be serviced in a cost
effective manner, is difficult to repair or replace, or requires unique
engineering expertise that is not applicable to equipment utilized by a
significant number of the Company's other customers. The Company obtains such
subcontracting services through short-term agreements, and its profit margin
will generally be lower than if the work were not subcontracted. Accordingly,
operating results may fluctuate from period to period as a result of changes
in the level and nature of subcontracted services.
The sale of computer equipment accounts for a rapidly expanding portion
of the Company's business, and, as a result, revenues therefrom have and will
continue to fluctuate from period to period. This fluctuation has stabilized
somewhat with the acquisition of Cintronix, Inc., whose business is primarily
equipment sales, but which sales are also somewhat seasonal. Cross marketing
among the Company's subsidiaries and divisions should decrease these
fluctuations over time. Mainframe equipment sales are entered into more commonly
to secure contracts for the maintenance thereof than for the profit on the
equipment sale itself, and the margins on these sales of equipment are subject
to market conditions. Consequently, operating profits as a percentage of gross
sales are subject to fluctuation due to the volume and the makeup of equipment
sales. Other areas of expansion are in the areas of servicing laser printers,
providing help desk support services, and expanding the Company's technical
capabilities to maintain the more current mainframe technology.
RESULTS OF OPERATIONS
Revenues for the fiscal year ended December 31, 1997 increased by 123%
to $24,185,609 compared to revenues of $10,835,678 for the fiscal year ended
December 31, 1996. This increase in annual net revenues resulted from sales
growth in both maintenance services and equipment sales, notably with the
increased revenues generated by Cintronix, Inc., a wholly-owned subsidiary
acquired in January, 1997, and which accounted for 87% of the increase in
revenues. Maintenance revenues increased principally due to growth in the
Company's and its subsidiaries' book of fixed fee agreements, both in number and
dollar amount of the agreements. Maintenance revenues for 1997 increased by 34%
to $10,111,099 compared to maintenance revenues of $7,536,634 for 1996.
Maintenance services accounted for approximately 42% of the Company's revenues
for 1997 compared to 70% for 1996, due to the increase in equipment and parts
sales. Equipment and parts sales increased 327% to $14,074,510 for 1997 compared
with $3,299,044 for 1996, comprising 58% of sales in 1997 and 30% of sales in
1996. Cintronix, Inc. accounted for about 282% of that increase.
The Company's cost of sales as a percentage of revenues was 82% in 1997
compared to 68% in 1996. An increase in the costs of maintenance services as a
percentage of maintenance service income was combined with the higher level of
equipment sales by Cintronix, Inc., on which profit margins percentages are
lower. The increased costs of maintenance services resulted primarily from
increased costs of emergency replacement parts and increased reliance on
subcontracted services. Subcontractor costs could decrease as the necessary
expertise is developed in-house to service newer technology; however, as the
Company enters into contracts on even more recent technology, the services of
subcontractors may still be required. Additionally, gross margins in fiscal 1997
have been adversely affected by the costs associated with integrating the
Company's newly-acquired operations with existing operations in Philadelphia,
Pennsylvania and Richmond, Virginia. The Company expects that the costs of
maintenance services as a percentage of maintenance service income to increase
in future quarters as the Company expands the mix of hardware that will be
maintained under contracts and as the competition based on pricing results in
lower margins. The Company expects to partially offset these costs by reducing
subcontract expense as the Company develops the additional in-house expertise,
and by increasing both the book of fixed fee agreements and the parts and
equipment sales.
Selling, general and administrative expenses as a percentage of net
revenues were 22% and 32%, respectively, for 1997 and 1996. The decrease in the
percentage is primarily due to the larger base of the increased equipment sales.
The Company expects short-term fluctuations in this percentage in the future as
it adds to its technical support, marketing staff and other administrative
personnel in order to expand its customer base and increase equipment sales.
These expenses increased 54% to $5,331,448 for 1997 compared to $3,487,760 for
1996. The increase is primarily attributable to hiring additional marketing and
office personnel to support the increased revenue base, as well as the
administrative costs of the companies acquired in 1997.
The Company's operating loss for the fiscal year ended December 31,
1997 increased 2117% to a loss of $919,378 compared to a loss of $41,469 for
1996. The decrease in operating profit was primarily attributable to the overall
increase in costs of sales compared to the increase in revenues, as well as the
increase in selling and administrative costs related to building up sales staff
and integrating the combined operations of each of the newly acquired
businesses.
Net interest income decreased 81% to $39,317, compared to $206,460 for
1996, primarily as a result of the decrease in investment earnings as the
remaining proceeds of the Company's 1995 initial public offering were utilized
for the 1997 acquisitions. The Company expects that net interest income will
continue to decrease until the Company starts generating additional cash from
operations.
Net income decreased 657% to a loss of $569,440 for 1997 from a profit
of $102,246 for the prior year, primarily as a result of the higher costs of
sales, the increased selling and administrative costs and the integration of the
acquired companies. The Company expects that its cross marketing efforts, as
well as cost-cutting efforts to reduce duplication of administrative expenses,
will improve its performance in the future.
The Company's results of operations have been adversely affected in the
last year by increased competition in the computer market, as well as
management time and expenses associated with the Company's 1997 acquisitions.
Management is now focused on the integration and coordination of these newly
acquired businesses.In order to compete in the rapidly changing computer market,
management is currently expanding the Company's mid-range network support and
maintenance operations, expanding maintenance services to include newer
mainframe technology and expanding software support and help desk services.
LIQUIDITY AND CAPITAL RESOURCES
Working capital, which consists principally of cash and investments in
government securities for terms of three months or less, was $193,056 at
December 31, 1997, compared to $3,915,578 at December 31, 1996. Cash flows used
in operations for 1997 totaled $1,242,800, resulting primarily from operations
and increased by an increase in accounts receivable and the parts and supply
inventories necessary to support service contracts on newer technologies. The
ratio of current assets to current liabilities decreased to 1.8:1 from 7.5:1 at
December 31, 1996. The decrease in the current ratio was due chiefly to the use
of Company cash to complete the three acquisitions in 1997.
The Company has a $750,000 revolving line of credit with Crestar Bank
which was renewed to continue until May, 1998. At December 31, 1997, the balance
owed on this line of credit was $650,000.
Cintronix, Inc., a wholly-owned subsidiary, has a $1.3 million line of
credit with First Union Bank which will expire in June, 1998. At December 31,
1997, the balance owed on this line of credit was $496,839.
The Company's principal commitments at December 31, 1997 consisted of
obligations under operating leases for facilities.
The Company believes that its existing cash , as supplemented by
expected cash flow from operations and existing credit facilities, is sufficient
to satisfy its currently anticipated working capital needs.
Year 2000 Issues
Year 2000 Compliance means the ability of software and other processing
capabilities to interpret and manipulate correctly all data that includes the
Year 2000 and dates thereafter. The Company principally sells and services
computer hardware and has not been confronted with Year 2000 issues in providing
such services. Further, the Company has surveyed all of its internal business
systems and software applications and determined that they are Year 2000
compliant. Consequently, the Company does not expect its business to be
adversely affected in any material respect because of Year 2000 issues.
<PAGE>
F-1
Item 7. Financial Statements and Supplementary Data
CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
INDEX
Page
Report of Independent Auditors .............................. F-2........
Consolidated Balance Sheet as of December 31, 1997 .......... F-3........F-4
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996................................... F-5........
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997 and 1996.................................... F-6........
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996.................................... F-7........F-8
Notes to Consolidated Financial Statements ................... F-9........F-17
. . . . . . . . . . . .
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
CSI Computer Specialists, Inc.
Rockville, Maryland
We have audited the accompanying consolidated balance sheet of
CSI Computer Specialists, Inc. and its subsidiaries as of December 31, 1997, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the two years in the period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of CSI Computer Specialists, Inc. and its subsidiaries as of December
31, 1997, and the consolidated results of their operations and their cash flows
for each of the two years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
April 8, 1998
<PAGE>
CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.
Assets:
Current Assets:
Cash and Cash Equivalents $ 193,056
Accounts Receivable 3,513,478
Accounts Receivable - Related Party 121,427
Net Investment in Sales Type Leases - Current 215,618
Resale Inventory 384,241
Parts and Supplies 1,033,068
Prepaid Income Taxes 323,544
Prepaid Expenses 173,031
Miscellaneous Receivables 12,952
---------------
Total Current Assets 5,970,415
Property and Equipment:
Vehicles 122,787
Furniture and Fixtures 261,360
Equipment 1,110,745
Equipment Under Operating Leases 87,300
Leasehold Improvements 120,183
---------------
Totals - At Cost 1,702,375
Less: Accumulated Depreciation 933,686
---------------
Property and Equipment - Net 768,689
---------------
Other Assets:
Cash - Restricted 416,897
Goodwill [Net of Accumulated Amortization of $210,578] 2,396,365
Net Investment in Sales Type Leases - Non-Current 77,271
Other Assets 96,573
---------------
Total Other Assets 2,987,106
Total Assets $ 9,726,210
===============
See Notes to Consolidated Financial Statements.
<PAGE>
CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 1,764,012
Accrued Expenses 146,088
Bank Revolving Lines of Credit 1,146,839
Deferred Income Taxes Payable 182,835
Current Maturities of Long-Term Debt 11,401
---------------
Total Current Liabilities 3,251,175
Long-Term Debt - Net of Current Maturities 8,445
---------------
Commitments and Contingencies --
Stockholders' Equity:
Preferred Stock - Authorized, 10,000,000 Shares of $.001 Par Value;
Issued and Outstanding, None --
Common Stock - Authorized, 25,000,000 Shares of $.001 Par Value;
Issued and Outstanding, 3,966,126 Shares 3,966
Common Stock - $.001 Par Value, Stock Subscribed and
Unissued - 75,000 Shares 75
Paid-in Capital 5,627,114
Retained Earnings 835,435
Total Stockholders' Equity 6,466,590
Total Liabilities and Stockholders' Equity $ 9,726,210
===============
See Notes to Consolidated Financial Statements.
<PAGE>
CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended
December 31,
1 9 9 7 1 9 9 6
------- -------
Revenues $ 24,185,609 $ 10,835,678
--------------- --------------
Costs and Expenses:
Cost of Sales 19,773,539 7,389,387
Selling, General and Administrative 5,331,448 3,487,760
--------------- --------------
Total Costs and Expenses 25,104,787 10,877,147
---------------- ---------------
Operating [Loss] (919,378) (41,469)
---------------- ---------------
Other Income [Expense]:
Interest Income 114,318 207,720
Interest Expense (75,001) (1,260)
---------------- ---------------
Total Other Income 39,317 206,460
---------------- ---------------
[Loss] Income Before [Benefit] Provision
for Income Taxes (880,061) 164,991
---------------- ---------------
[Benefit] Provision for Income Taxes:
Current (225,558) 129,719
Deferred (85,063) (66,974)
---------------- ---------------
Total [Benefit] Provision for Income Taxes (310,621) 62,745
---------------- ---------------
Net [Loss] Income $ (569,440) $ 102,246
================ ===============
Net [Loss] Income Per Share $ (.14) $ .03
================ ===============
Weighted Average Number of Shares
Outstanding 3,966,126 3,652,500
================= ===============
See Notes to Consolidated Financial Statements.
<PAGE>
CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Paid-in
Shares Amount Capital
Balance - December 31, 1995 3,727,500 $ 3,727 $ 5,227,428
Net Income -- -- --
------------- ------------- --------------
Balance - December 31, 1996 3,727,500 3,727 5,227,428
Issuance Pursuant to Stock
Purchase Agreement B
January 10, 1997 313,626 314 399,686
Net [Loss] -- -- --
------------- ------------- --------------
Balance - December 31, 1997 4,041,126 $ 4,041 $ 5,627,114
============= ============= ==============
Total
Retained Stockholders'
Earnings Equity
Balance - December 31, 1995 $ 1,302,629 $ 6,533,784
Net Income 102,246 102,246
--------------- ---------------
Balance - December 31, 1996 1,404,875 6,636,030
Issuance Pursuant to Stock
Purchase Agreement B
January 10, 1997 -- 400,000
Net [Loss] (569,440) (569,440)
--------------- ---------------
Balance - December 31, 1997 $ 835,435 $ 6,466,590
=============== ===============
See Notes to Consolidated Financial Statements.
<PAGE>
CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended
December 31,
1 9 9 7 1 9 9 6
------- -------
Operating Activities:
Net [Loss] $ (569,440) $ 102,246
---------------- ---------------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 463,433 339,170
Amortization of Parts and Supplies 727,311 446,122
Provision for Bad Debts 42,829 35,926
Deferred Income Taxes (85,063) (66,974)
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (351,306) (101,877)
Inventory B resale (214,025) --
Parts and Supplies (905,609) (753,052)
Prepaid Income Taxes (208,126) 48,025
Prepaid Expenses (62,615) (5,067)
Miscellaneous Receivables (5,970) 1,547
Other Assets (15,427) 13,274
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 15,137 (24,754)
Income Taxes Payable (73,929) --
----------------- ---------------
Total Adjustments (673,360) (67,660)
---------------- ---------------
Net Cash - Operating Activities (1,242,800) 34,586
----------------- ---------------
Investing Activities:
Net Cash Transferred - Acquisition of
Subsidiaries 13,907 --
Cash - Restricted (400,000) --
Payment of Acquisition Costs (1,968,549) (499,494)
Acquisition of Property and Equipment (549,168) (190,770)
---------------- ---------------
Net Cash - Investing Activities (2,903,810) (690,264)
---------------- ---------------
Financing Activities:
Payments on Long-Term Debt (9,751) (4,839)
Proceeds from Revolving Line of Credit 433,839 --
---------------- ---------------
Net Cash - Financing Activities 424,088 (4,839)
---------------- ----------------
Net [Decrease] in Cash and Cash Equivalents (3,722,522) (660,517)
Cash and Cash Equivalents - Beginning of Years 3,915,578 4,576,095
---------------- ---------------
Cash and Cash Equivalents - End of Years $ 193,056 $ 3,915,578
================ ===============
See Notes to Consolidated Financial Statements.
<PAGE>
CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended
December 31,
1 9 9 7 1 9 9 6
------- -------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 72,383 $ 1,407
Income Taxes $ 14,300 $ 120,251
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
On January 10, 1997, the Company purchased all of the issued and outstanding
shares of Cintronix, Inc. for a total purchase price of $1,300,000. On this
date, $900,000 was paid, and the remaining $400,000 was paid on January 10, 1997
by 313,726 shares of the Company's common stock, calculated using the
then-closing bid price of the common stock.
See Notes to Consolidated Financial Statements.
<PAGE>
CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[1] Corporate Organization and Principles of Consolidation
The consolidated financial statements include the accounts of CSI Computer
Specialists, Inc. and its wholly-owned subsidiaries, Capitol Computer Services,
Inc. T/A CCS Systems, Inc., and Cintronix, Inc. [the "Company"]. All
intercompany balances and transactions have been eliminated.
CSI Computer Specialists, Inc., a Delaware corporation, is the successor to
Computer Specialists, Inc., a Maryland corporation ["CSI-Maryland"], which was
incorporated in 1988. The Company was organized by CSI-Maryland to enable
CSI-Maryland to merge with and into the Company in March 1994, in order to
effectuate a reincorporation in the State of Delaware.
The Company, which operates primarily from Maryland, provides computer hardware
services, which primarily consist of maintenance and repair along with
installation and deinstallation of equipment, and sales of parts and equipment
to governmental and commercial entities in the Mid-Atlantic region of the United
States. The Company provides its services to customers primarily pursuant to
maintenance agreements for terms of one to three years.
[2] Summary of Significant Accounting Policies
A summary of the significant accounting policies in the preparation of the
accompanying consolidated financial statements follows:
Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased.
Parts and Supplies - Bulk purchases of spare parts and supplies which are
utilized to support maintenance contracts are recorded at cost and are amortized
to operations on a straight-line basis over a period ranging from eighteen to
twenty-four months. The Company also purchases certain parts for immediate use
which are charged to expense as incurred. Management estimates that this
methodology approximates a lower of cost or market inventory valuation on an
average cost basis. Actual results could differ from those estimates.
Property and Equipment and Depreciation - Property and equipment is recorded at
cost. Depreciation is provided for using declining balance methods based on
estimated useful lives of five to seven years. Equipment under operating leases
are depreciated over the terms of the respective leases, usually two to three
years.
The Company's leasing operations consist principally of the leasing of computer
equipment to existing monthly maintenance customers. The leases are for terms of
two to three years, and are cancelable at any time by the lessee. If the lease
goes to term, ownership of the equipment passes to the lessee. Beginning January
of 1996, the Company's leasing operations consist principally of leasing
computer equipment under sales-type leases expiring in various years through
1999.
<PAGE>
CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
[2] Summary of Significant Accounting Policies [Continued]
Property and Equipment and Depreciation [Continued] - Minimum lease payments
to be received as of December 31, 1997 for each of the next 5 years are:
Year ended
December 31,
1998 $ 238,544
1999 80,282
-----------
Total 318,826
Less: Interest Portion (25,937)
Total $ 292,899
----- ===========
Current $ 215,617
Non-Current $ 77,271
Expenditures for normal repairs and maintenance are charged against income as
incurred.
Depreciation for the years ended December 31, 1997 and 1996 was $300,502 and
$339,170, respectively.
Income Taxes - The provision for income taxes includes federal and state income
taxes currently payable and those deferred because of temporary differences
between the financial statement and tax bases of assets and liabilities. In 1997
the Company elected to change its method of reporting income for tax purposes to
the accrual method. Temporary differences between financial reporting and tax
reporting existing as of January 1, 1996 are being recognized over the next
five-year period [See Note 8].
Goodwill Policy - Amortization is provided on a straight-line basis over 15
years. Goodwill represents the excess of cost over the fair value of net assets
acquired. The Company evaluates the period of goodwill amortization continually
to determine whether current events and circumstances warrant revised estimates
of its useful life.
Impairment - Management evaluates the period of amortization of intangible
assets to determine whether events and circumstances warrant revised estimates
of useful lives. Additionally, management reviews long-lived assets including
intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. As of December 31,
1997, management expects these assets to be fully recoverable.
Stock Options Issued to Employees - The Company adopted Statement of Financial
Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based
Compensation," on January 1, 1997 for financial note disclosure purposes and
applies the intrinsic value method of Accounting Principles Board ["APB"]
Opinion No. 25, "Accounting for Stock Issued to Employees," for financial
reporting purposes.
Advertising Costs - Advertising costs are expensed when incurred. Advertising
expense was $31,339 and $35,534 for the years ended December 31, 1997 and 1996,
respectively.
<PAGE>
CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
[2] Summary of Significant Accounting Policies [Continued]
Revenue Recognition - The Company derives its revenue principally from fixed
price maintenance contracts, which it recognizes ratably over the term of the
contract. Revenue from computer equipment sales and performance under time and
materials contracts are recognized upon product shipment or the performance of
the related work.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Earnings Per Share - Earnings per share are calculated by dividing net earnings
by the weighted average common shares outstanding during 1997 and 1996
[3,966,126 and 3,652,500, respectively]. Options and warrants did not result in
dilution for the years ended December 31, 1997 and 1996.
[3] Accounts Receivable
Accounts receivable at December 31, 1997 consist of:
Receivables Under U. S. Government Contracts and Subcontracts:
Amounts Billed $ 1,105,751
Unbilled Amounts 169,099
Commercial and Other Receivables 838,149
----------------
Total 2,112,999
Less: Allowance for Doubtful Receivables 172,253
----------------
Total $ 1,940,746
----- ================
[4] Notes Payable
The Company has a note payable to General Motors Financing with an interest rate
of 9% and maturity date of January 11, 1998. The note payable was used to
finance the purchase of a vehicle. The Company also has a note payable through
its subsidiary, Cintronix, to First Union Bank with an interest rate of 9% and a
maturity date of November, 2000. This note payable was also used to finance the
purchase of a vehicle.
December 31,
1 9 9 7
Notes Payable $ 19,846
Less: Current Maturities 11,401
-----------------
Long-Term Debt $ 8,445
-------------- =================
<PAGE>
CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
[4] Notes Payable [Continued]
Maturities of long-term debt at December 31, 1997 is as follows:
1998 $ 11,401
1999 3,972
1999 4,473
------------------
Total $ 19,846
----- =================
[5] Revolving Lines of Credit
The Company arranged for a bank line of credit with a maximum amount of
$750,000. The line bears interest at the rate of 1.0% over prime. The prime rate
at December 31, 1997 was 8.5%. The line is secured by accounts receivable,
general intangibles and parts and supplies, and is personally guaranteed by the
officers of the Company. The Company is required to maintain certain ratios and
$650,000 in tangible net worth. The Company was in compliance with the ratio and
tangible net worth requirements at December 31, 1997. The balance due on the
line of credit at December 31, 1997 was $650,000.
Cintronix, Inc., arranged for a bank line of credit with a maximum amount of
$1,300,000. The line bears interest at the rate of 1.0% over prime. The prime
rate at December 31, 1997 was 8.5%. The line is secured by accounts receivable
and inventories, and is guaranteed by the Company and CCS Systems, Inc. The
balance due on the line of credit at December 31, 1997 was $496,839.
[6] Fair Value of Financial Instruments
Effective December 31, 1996, the Company adopted Statement of Financial
Accounting Standards ["SFAS"] No. 107, "Disclosure about Fair Value of Financial
Instruments," which requires the disclosure of the fair value of off- and
on-balance sheet financial instruments. The carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable and notes payable are
estimated to approximate fair value because of the short maturities of those
instruments.
[7] Commitments
The Company leases facilities and vehicles under operating leases which expire
at various dates through 2002. Facility lease agreements provide for rent
increases based on changes in the Consumer Price Index and adjustments for a
proportionate share of real estate taxes and operating expenses.
Minimum rental commitments under all noncancelable operating leases with a
remaining term in excess of one year are as follows:
Year Amount
1998 $ 697,617
1999 508,716
2000 412,639
2001 362,869
2002 343,082
Thereafter 1,052,807
---------------
Total $ 3,377,730
----- ===============
Total rent expense for the years ended December 31, 1997 and 1996 approximated
$423,400 and $271,000, respectively.
<PAGE>
CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
[7] Commitments [Continued]
In April 1996, the Company entered into employment agreements with its Chief
Executive Officer, Chief Financial Officer, and its President for an initial
period through 1999 with automatic renewals for successive one-year periods,
unless terminated by the Company or the executive. The agreements provide for
initial base compensation aggregating $378,250 subject to annual cost of living
increases, as well as a bonus to the Chief Executive Officer equal to 5.5% of
the Company's earnings before income taxes. Additional employment agreements
were entered into as part of the acquisition of Cintronix, Inc. [See Note 12].
[8] Income Taxes
The components of income tax expenses are as follows:
December 31,
1 9 9 7 1 9 9 6
Current:
Federal $ (184,658) $ 109,282
State (40,900) 20,437
------------- ------------
Total Current [Benefit] Expense (225,558) 129,719
------------- ------------
Deferred:
Federal (69,637) (58,937)
State (15,426) (8,037)
------------- ------------
Total Deferred [Benefit] Expense (85,063) (66,974)
------------- ------------
Totals $ (310,621) $ 62,745
------ ============= ============
A net deferred tax liability of $182,835 is shown as a current liability and
represents the balance due with respect to the Company's election to change from
a cash basis of income tax reporting to an accrual basis of income tax
reporting. This election was made in January of 1996 under section 481 of the
Internal Revenue Code.
The following table reconciles the U.S. federal income tax rate to the Company's
effective tax rate:
1 9 9 7 1 9 9 6
------- -------
U.S. Statutory Rate (34.0)% 34.0%
Increases [Decreases] Resulting from:
State Income Taxes (7.0)% 7.0%
Surtax Exemption 5.0 % (3.0)%
----------- -----------
Totals (35.0)% 38.0 %
------ =========== ===========
[9] Related Party Transactions
For the years ended December 31, 1997 and 1996, the Company recognized revenue
approximating $490,000 [including equipment sales of $107,000], and $375,000
[including equipment sales of $86,000], respectively, from a corporation owned
by the Company's majority stockholder. At December 31, 1997, accounts receivable
include $130,771 from the related party.
<PAGE>
CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
[10] Major Vendors/Customers
The Company paid approximately $221,200 and $414,000 in 1997 and 1996,
respectively, to one vendor for subcontract services and the purchase of parts
and supplies. Management believes that there are alternative competitive sources
within the industry.
Revenue under U. S. Government contracts approximated 21% and 25%, respectively,
of total revenues for the years ended December 31, 1997 and 1996.
[11] Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist of cash and cash equivalents and accounts receivable.
Concentrations of credit risk with respect to accounts receivable are limited as
a result of the dispersion of the Company's customer base among both
governmental and commercial entities in the Mid-Atlantic area. Generally, the
Company does not require collateral or other security to support customer
receivables. The Company routinely assesses the financial strength of its
customers and based upon factors surrounding the credit risk of its customers
establishes an allowance for uncollectible accounts receivable and, as a
consequence, believes that its accounts receivable credit risk exposure beyond
such allowances is limited. The Company places its cash with high credit quality
financial institutions. The amount on deposit in any one institution that
exceeds federally insured limits is subject to credit risk. The Company has
$360,779 in financial institutions which are subject to such risk.
[12] Acquisition of Subsidiary and Divisions
The Company acquired 100% of the outstanding capital stock of Cintronix, Inc.,
on January 10, 1997 for $1,300,000 in a business combination accounted for under
the purchase method of accounting. The Company paid the purchase price at
closing with $900,000 cash and the balance of the purchase price, $400,000, paid
in shares of the Company's common stock calculated using the then-closing bid
price of the common stock. The Company set up a $400,000 escrow account to
redeem these shares at the sellers' option. This option expires in January,1999.
The purchase price of this acquisition exceeded the fair value of the net assets
of Cintronix, Inc. by $1,022,901 which is being amortized over 15 years under
the straight-line method.
Certain principal stockholders of Cintronix, Inc. and certain key employees
entered into employment agreements with Cintronix, Inc. in conjunction with the
closing on January 10, 1997. The employment agreements provide that Cintronix,
Inc. will employ each of such persons for varying terms of two or three years at
salaries commensurate with their positions and duties. Each of the employment
agreements contain non-compete and confidentiality provisions.
The Company acquired the book of business of Advanced Network Systems, a
division of American Bankers Corporation Service Corporation, on February 28,
1997 for $200,000 in a business combination accounted for under the purchase
method of accounting. The acquisition is operated as a division of the Company.
The Company paid the purchase price at closing with $200,000 cash.
The purchase price of this acquisition was recorded as goodwill and is being
amortized over 15 years under the straight-line method.
Certain key employees entered into employment agreements with the Company in
conjunction with the closing on February 28, 1997. The employment agreements
provide that the Company will employ each of such persons for varying terms of
two or three years at salaries commensurate with their positions and duties.
Each of the employment agreements contain non-compete and confidentiality
provisions.
<PAGE>
CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
[12] Acquisition of Subsidiary and Divisions [Continued]
The Company acquired 100% of the business assets of Phoenix Service, Inc., on
May 28, 1997 for $793,579 in a business combination accounted for under the
purchase method of accounting. The acquisition is operated as a division of the
Company. The Company paid the purchase price at closing in cash.
The purchase price of this acquisition exceeded the fair value of the net assets
of Phoenix Service, Inc. by $568,797 which is being amortized over 15 years
under the straight-line method.
Certain key employees of Phoenix Service, Inc. entered into employment
agreements with the Company in conjunction with the closing on May 28, 1997. The
employment agreements provide that the Company will employ each of such persons
for varying terms of two or three years at salaries commensurate with their
positions and duties. Each of the employment agreements contain non-compete and
confidentiality provisions.
All results have been included from the date acquired. The following pro forma
[unaudited] information assumes the acquisitions occurred on January 1, 1996:
Years ended
December 31,
1 9 9 7 1 9 9 6
------- -------
Revenues $ 25,150,216 $ 23,597,346
Net [Loss] Income $ (547,838) $ 71,964
Earnings Per Share:
Net [Loss] Income $ (0.13) $ 0.02
[13] Stock Options
The Company adopted the CSI Computer Specialists, Inc. 1994 Stock Option Plan in
1994 which provides for the grant of both qualified and nonqualified stock
options to officers, directors, employees and consultants. The Stock Option Plan
has authorized the granting, in the aggregate, of options to purchase up to
200,000 shares of stock. Options granted under the Plan vest immediately.
Following is a summary of the status of fixed options outstanding at December
31, 1997:
Outstanding Stock Options
------------------------------------------------------
Weighted-Average
Range of Remaining Weighted-Average
Exercise Prices Shares Contractual Life Exercise Price
$0.87 - $1.50 11,850 8 $0.93
$3.12 - $5.37 127,500 8 $5.35
Exercisable
Stock Options
---------------------------
Range of Weighted-Average
Exercise Prices Shares Exercise Price
$0.87 - $1.50 11,850 $0.93
$3.12 - $5.37 127,500 $5.35
The Company also adopted an incentive compensation plan in 1995, for the
majority stockholder whereby the stockholder has been granted a ten year option
to purchase up to 200,000 shares of common stock at an exercise price of $1.95
per share. The options are exercisable if the Company achieves certain earnings
levels as follows:
Earnings Before
Interest and Taxes Number of Shares
$ 1,200,000 100,000
$ 2,000,000 100,000
<PAGE>
CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
[13] Stock Options [Continued]
If it becomes probable that the above earnings levels will be achieved, the
Company will recognize compensation expense equal to the difference between the
fair market value and the exercise price pursuant to APB Opinion No. 25.
Achievement of the above earnings levels is likely to result in substantial
compensation expense to the Company in future years.
A summary of stock options activity under all plans is as follows:
1 9 9 7 1 9 9 6
------- -------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
Outstanding -
January 1, 129,500 5.35 134,750 5.38
Granted 11,850 .93 2,000 3.81
Exercised -- -- -- --
Forfeited/Expired (2,000) (3.81) (7,250) (5.38)
--------- --------- ---------- --------
Outstanding -
December 31, 139,350 4.99 129,500 5.38
-------------- ========= ========= ========== ========
Exercisable -
December 31, 139,350 4.99 129,500 5.38
-------------- ======== ========= ========== ========
Shares Available on
December 31, For
Options that may
be Granted 260,650 270,500
----------- ======== ==========
The Company applies APB Opinion No. 25 for stock options issued to employees in
accounting for its stock option plans for financial reporting purposes. The
exercise price for all stock options issued to employees during 1997 and 1996
was equal to the market price of the Company's stock at the date of grant.
Accordingly, no compensation expense has been recognized for the Company's
stock-based compensation plans.
Had compensation cost for the Company's stock options issued to employees been
determined based upon the fair value at the grant date for stock options issued
under these plans pursuant to the methodology prescribed under Statement of
Financial Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and earnings per share would have been
reduced, on a pro forma basis, by approximately $6,570, or $0.00 per share for
the year ended December 31, 1997 and increased by approximately $5,798 or $0.00
per share for the year ended December 31, 1996. The weighted-average fair value
of stock options granted to employees used in determining the pro forma amounts
is estimated at $.55 and $2.90, during 1997 and 1996, respectively, using the
Black-Scholes option-pricing model for the pro forma amounts with the following
weighted average assumptions:
December 31,
1 9 9 7 1 9 9 6
Risk-free Interest Rate 6.18% 6.20%
Expected Life 4 Years 4 Years
Expected Volatility 65.20% 109.9%
Expected Dividends N/A N/A
<PAGE>
CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
[13] Stock Options [Continued]
Net income and income per share as reported, and on a pro forma basis as if
compensation cost had been determined on the basis of fair value pursuant to
SFAS No. 123 is as follows:
December 31,
1 9 9 7 1 9 9 6
Net (Loss) Income:
As Reported $ (569,440) $ 102,246
---------------- ---------------
Pro Forma $ (576,010) $ 108,027
---------------- ---------------
Income Per Share:
As Reported $ (.14)$ .03
----------------- ---------------
Pro Forma $ (.14)$ .03
----------------- ---------------
[14] New Authoritative Pronouncements
The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities." SFAS No. 125 is
effective for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1997. Earlier application is not
allowed. The provisions of SFAS No. 125 must be applied prospectively;
retroactive application is prohibited. Adoption on January 1, 1997 is not
expected to have a material impact on the Company. Some provisions of SFAS
No. 125, which are unlikely to apply to the Company, have been deferred by the
FASB.
The FASB has also issued SFAS No. 128, "Earnings per Share," and SFAS
No. 129, "Disclosure of Information about Capital Structure," in February 1997.
SFAS No. 128 simplifies the earnings per share ["EPS"] calculations required by
Accounting Principles Board ["APB"] Opinion No. 15, and related interpretations,
by replacing the presentation of primary EPS with a presentation of basic EPS.
SFAS No. 128 requires dual presentation of basic and diluted EPS by entities
with complex capital structures. Basic EPS includes no dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings of an entity,
similar to the fully diluted EPS of APB Opinion No. 15. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. When
adopted, SFAS No. 128 will require restatement of all prior-period EPS data
presented; however, the Company has not sufficiently analyzed SFAS No. 128 to
determine what effect SFAS No. 128 will have on its historically reported EPS
amounts.
SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997. Earlier
application is permitted. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. SFAS No. 130 is not
expected to have a material impact on the Company.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 changes how operating segments
are reported in annual financial statements and requires the reporting of
selected information about operating segments in interim financial reports
issued to shareholders. SFAS No. 131 is effective for periods beginning after
December 15, 1997, and comparative information for earlier years is to be
restated. SFAS No. 131 need not be applied to interim financial statements in
the initial year of its application. SFAS No. 131 is not expected to have a
material impact on the Company.
<PAGE>
PART III
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Directors and Executive Officers of Registrant
Donald C. Weymer
Chairman of the Board of Directors
Chief Executive Officer
Secretary
Donald C. Weymer has been the Chief Executive Officer and Chairman of the Board
of Directors of the Company since 1988 and has been the Secretary of the Company
since March, 1994. He was the Chief Financial Officer from March, 1994 until
October, 1995. In 1991 Mr. Weymer founded ISI, a Virginia corporation, which
provides data processing outsourcing, timesharing and fundraising assistance to
agencies of the federal government, non-profit organizations and commercial
clients. Mr. Weymer has served as the Chief Executive Officer and the President
of ISI since 1991.
Term of Office: Mr. Weymer's term as director is three years, expiring
in 2001 or until a successor is elected and qualified.
Age: 53
William F. Pershin
Director
President
Chief Accounting Officer
William F. Pershin has been the President and a director of the Company since
1988 and has been the Chief Accounting Officer of the Company since March, 1994.
Term of Office: Mr. Pershin's term as director is three years, expiring
in 2000 or until a successor is elected and qualified.
Age: 43
Herbert H. Derian
Director
Herbert H. Derian has been the president and a director since 1985 of Cintronix,
Inc., which is a MicroAge franchisee specializing in the sale and servicing of
personal computers. Cintronix, Inc. is a wholly-owned subsidiary of the Company.
Mr. Derian was appointed to the Board of Directors in January, 1997 to fill a
vacancy.
Term of Office: Mr. Derian's term as director expires in 1998 or until
a successor is elected and qualified.
Age: 68
C. A. Miller, III
Director
C. A. Miller III has been employed with Southern States Cooperative, Inc., of
Richmond, Virginia since 1979, and currently serves as Vice President of
Information Systems. Mr. Miller was appointed to the Board of Directors in
March, 1998 to fill a vacancy.
Term of Office: Mr. Miller's term as director expires in 2001 or until
a successor is elected and qualified.
Age: 58
David A. Chappell
Director
David A. Chappell has been an insurance agent with Northwestern Mutual Life
since 1984. In addition, he has been an account representative with Jacksonville
Specialty Advertising since 1996. Mr. Chappell was appointed to the Board of
Directors in March, 1998 to fill a vacancy.
Term of Office: Mr. Chappell's term as director expires in 2001 or
until a successor is elected and qualified.
Age: 43
James D. Boccabella
Chief Financial Officer
James D. Boccabella, age 44, has been the Chief Financial Officer of the Company
since October, 1995. For the five years prior to that, he owned and operated a
public accounting practice, James D. Boccabella, CPA, CFP.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the "Exchange
Act"), requires that the Company's directors, executive officers, and persons
who own more than 10% of a registered class of the equity securities of the
Company ("reporting persons") file with the Securities and Exchange Commission
(the "Commission") initial reports of ownership, and reports of changes in
ownership, of shares of stock, and options to purchase such shares, of the
Company. Reporting persons are required by Commission rules to furnish the
Company with copies of all Section 16(a) reports they file.
Based solely on a review of Section 16(a) reports furnished to the Company for
the fiscal year ended December 31, 1997, (the "1997 fiscal year") and
representations by reporting persons that no other reports were required for the
1997 fiscal year, all Section 16(a) reporting requirements were met.
Item 10. Executive Compensation
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid or accrued by the Company
during the three fiscal years ended December 31, 1997, to the Company's
executive officers:
Annual Compensation Awards
- -------------------------------------------------------------------------------
Name Other Number of
and Annual Under-
Principal Compen- lying
Position Year Salary Bonus sation Options
- -------------------------------------------------------------------------------
Donald C. Weymer 1997 $178,464 0 0 0
Chief Executive
Officer,
Chairman of the
Board, Secretary
1996 $163,404 $9,600 0 0
1995 $155,625 $33,100 0 0
William F. 1997 $142,974 0 0 0
Pershin
President and
Director
1996 $136,168 0 0 0
1995 $129,688 0 0 0
James D. 1997 $101,333 0 0 0
Boccabella
Chief Financial
Officer
1996 $96,842 0 0 0
1995 $39,400 0 $18,355(1) 25,000(2)
(1) Represents payment by the Company to Mr. Boccabella for accounting and
management consulting services provided to the Company by Mr.
Boccabella prior to his employment with the Company.
(2) These options were awarded to Mr. Boccabella under the Company's Stock
Option Plan for accounting and management services rendered to the
Company.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of January 31, 1998, the number and
percentage of outstanding shares of Common Stock beneficially owned by (i) all
persons known by the Company to own more than 5% of such shares, (ii) each
director, (iii) each executive officer, and (iv) all executive officers and
directors as a group. Unless otherwise noted below, each person named in the
table has sole voting and sole investment power with respect to each of the
shares beneficially owned by such person.
Name and Address Amount of
of Beneficial Owner Beneficial
Ownership Percent
- -------------------------------------------------------------------------------
Donald C Weymer 1,060,000 25.7%
1013 Parrs Ridge Road
Spencerville, Maryland 20868
William F Pershin 640,000 15.5%
11616 Morning Star Drive
Germantown, Maryland 20876
Lorelei F Derian 235,294 5.7%
1305 Eva Gude Drive
Crownsville, Maryland 21032
David A. Chappell 5,450 0.1%
650-D Ponte Vedra Blvd
Ponte Vedra Beach , Florida
32082
C. A. Miller III 15,000 0.4%
3003 Water Creek Court #1-A
Midlothian, Virginia 23112
James D. Boccabella 25,000 0.6%
P O Box 399
Olney, Maryland 20830
All executive officers and 1,745,450 42.4%
directors as a group (5
persons)
Item 12. Certain Relationships and Related Transactions
Donald C. Weymer
The Company provides computer maintenance services to ISI, which is owned by
Donald C. Weymer, a stockholder, director and officer of the Company, pursuant
to the terms of maintenance agreements. Mr. Weymer is also the owner and chief
executive officer of ISI. During the fiscal years ended December 31, 1997 and
1996, approximately $705,000 (including equipment sales of $362,000) and
$490,000 (including equipment sales of $107,000), respectively, of the Company's
revenues were generated by services rendered and equipment sold to ISI by the
Company. See Note 9 of the Financial Statements included in Item 7 hereof.
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Title of Exhibit
3.4 ** Agreement and Plan of Merger between CSI Computer Specialists,
Inc. (Delaware) and Computer Specialists, Inc. (Maryland)
filed with the Securities and Exchange Commission as an
exhibit to the Registration Statement filed on July 19, 1995
(the "Registration Statement") and incorporated herein by
reference.
3.5 ** Bylaws of CSI Computer Specialists, Inc. (Registrant) filed
with the Securities and Exchange Commission as an exhibit to
the Registration Statement and incorporated herein by
reference.
3.7 ** Certificate of Amendment of Certificate of Incorporation of
CSI Computer Specialists, Inc. (Delaware) as filed with the
Secretary of State of the State of Delaware on August 5, 1994,
filed with the Securities and Exchange Commission as an
exhibit to the Registration Statement and incorporated herein
by reference.
4.1 ** Specimen Common Stock Certificate, filed with the
Securities and Exchange Commission as an exhibit to the
Registration Statement and incorporated herein by reference.
4.2 ** Specimen Warrant Certificate, filed with the Securities and
Exchange Commission as an exhibit to the Registration
Statement and incorporated herein by reference.
4.3 ** Form of Underwriter's Unit Purchase Option, filed with the
Securities and Exchange Commission as an exhibit to the
Registration Statement and incorporated herein by reference.
4.4 ** Form of Warrant Agreement by and among the Company,
Biltmore Securities, Inc. and Continental Stock Transfer &
Trust Company, amended from that which was filed with the
Securities and Exchange Commission as an exhibit to the
Registration Statement and incorporated herein by reference.
10.1 ** Form of Maintenance Agreement filed with the Securities and
Exchange Commission as an exhibit to the Registration
Statement and incorporated herein by reference.
10.2 ** Form of Subcontracting (Microcomputer Service) Agreement filed
with the Securities and Exchange Commission as an exhibit to
the Registration Statement and incorporated herein by
reference.
10.3 ** Form of Equipment Sales Agreement filed with the Securities
and Exchange Commission as an exhibit to the Registration
Statement and incorporated herein by reference.
10.6 ** Employment Agreement, dated April 7, 1994, by and between the
Company and Donald C. Weymer filed with the Securities and
Exchange Commission as an exhibit to the Registration
Statement and incorporated herein by reference.
10.7 ** Employment Agreement, dated April 7, 1994, by and between the
Company and William Pershin filed with the Securities and
Exchange Commission as an exhibit to the Registration
Statement and incorporated herein by reference.
10.8 ** CSI Computer Specialists, Inc. 1994 Stock Option Plan filed
with the Securities and Exchange Commission as an exhibit to
the Registration Statement and incorporated herein by
reference.
10.9 ** Plan for Incentive Compensation of Donald C. Weymer filed with
the Securities and Exchange Commission as an exhibit to the
Registration Statement and incorporated herein by reference.
10.10 ** Revolving Commercial Loan Note, dated May 27, 1994, in
favor of Citizens Bank of Maryland in the principal amount of
$750,000 filed with the Securities and Exchange Commission as
an exhibit to the Registration Statement and incorporated
herein by reference.
10.11 ** Security Agreement, dated May 27, 1994, in favor of
Citizens Bank of Maryland and corresponding Financing
Statement filed with the Securities and Exchange Commission as
an exhibit to the Registration Statement and incorporated
herein by reference.
11. Computation of Net Income per Common Share(included in the
Financial Statements in Item 7).
21. Subsidiaries of the Company
27. Financial Data Schedule.
** Previously filed as noted.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CSI Computer Specialists, Inc.
May 18, 1998 By: /s/ Donald C. Weymer
- ------------ --------------------------------------
Date Donald C. Weymer
Chief Executive Officer
May 18, 1998 By: /s/ James D. Boccabella
- ------------ --------------------------------------
Date James D. Boccabella, CPA
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
May 18, 1998 By: /s/ Donald C. Weymer
- ------------ --------------------------------------
Date Donald C. Weymer
Chairman of the Board, Chief Executive
Officer and Director
May 18, 1998 By: /s/ William F. Pershin
- ------------ --------------------------------------
Date William F. Pershin
President and Director
May 18, 1998 By: /s/ Herbert H. Derian
- ------------ --------------------------------------
Date Herbert H. Derian
Director
<PAGE>
Exhibit 21
Subsidiaries of the Company
Subsidiary (Year Acquired) State of Incorporation
CCS Systems, Inc. 1995 Virginia
Cintronix, Inc. 1997 Maryland
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 193,056
<SECURITIES> 0
<RECEIVABLES> 3,863,475
<ALLOWANCES> 172,253
<INVENTORY> 1,417,309
<CURRENT-ASSETS> 5,970,415
<PP&E> 1,702,375
<DEPRECIATION> 933,686
<TOTAL-ASSETS> 9,726,210
<CURRENT-LIABILITIES> 3,251,175
<BONDS> 0
0
0
<COMMON> 4,041
<OTHER-SE> 6,462,549
<TOTAL-LIABILITY-AND-EQUITY> 9,726,210
<SALES> 24,185,609
<TOTAL-REVENUES> 24,299,927
<CGS> 19,733,539
<TOTAL-COSTS> 19,733,539
<OTHER-EXPENSES> 5,331,448
<LOSS-PROVISION> 42,828
<INTEREST-EXPENSE> 75,001
<INCOME-PRETAX> (880,061)
<INCOME-TAX> (310,621)
<INCOME-CONTINUING> (569,440)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (569,440)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
