-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J9vCq/nUbRDLH73w4pq0+aTXDQjlE060nb2lzM/TfsN91kMQ5gKGHQNsxuOmcP8a YN/oH5arYDyW2xj60q9KWw== 0000829323-00-000001.txt : 20000403 0000829323-00-000001.hdr.sgml : 20000403 ACCESSION NUMBER: 0000829323-00-000001 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 20000331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CGI HOLDING CORP CENTRAL INDEX KEY: 0000829323 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 870450450 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 033-19980-D FILM NUMBER: 590716 BUSINESS ADDRESS: STREET 1: 8400 BROOKFIELD AVENUE CITY: BROOKFIELD STATE: IL ZIP: 60513 BUSINESS PHONE: 7083570900 MAIL ADDRESS: STREET 1: 8400 BROOKFIELD AVE CITY: BROOKFIELD STATE: IL ZIP: 60513 FORMER COMPANY: FORMER CONFORMED NAME: GEMSTAR ENTERPRISES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: NORTH STAR PETROLEUM INC DATE OF NAME CHANGE: 19900530 10KSB/A 1 AMENDED ANNUAL REPORT FOR PERIOD ENDED 12/31/97 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/A (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 ---------------- [ ]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 33-19980-D ---------------------- CGI Holding Corporation ----------------------------------- (Exact name of registrant as specified in charter) Nevada 87-0450450 - ------------------------------ ------------------------- State or other jurisdiction of (I.R.S. Employer I.D. No.) incorporation or organization 8400 Brookfield Avenue, Brookfield, Illinois 60513 - --------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code (708) 387-0900 --------------- Securities registered pursuant to section 12(b) of the Act: Title of each class Name of each exchange on which registered None N/A - ------------------ ----------------------------------------- Securities registered pursuant to section 12(g) of the Act: None --------------- (Title of class) Check whether the Issuer (1) filed all reports required to be filed by section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes [X] No [ ] (2) Yes [ ] No [X] Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] 1 State issuer's revenues for its most recent fiscal year: $3,956,794 State the aggregate market value of the voting stock held by nonaffiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days: The Company does not have an active trading market and it is, therefore, difficult, if not impossible, to determine the market value of the stock. Based on the average bid and ask price of $1.344 per share for the Company's Common Stock at March 19, 1998, the market value of shares held by nonaffiliates would be $7,522,055. As of March 19, 1998, the Registrant had 8,272,779 shares of common stock issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the part of the form 10-KSB (e.g., part I, part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or other information statement; and (3) Any prospectus filed pursuant to rule 424(b) or (c) under the Securities Act of 1933: NONE 2 PART I ITEM 1. DESCRIPTION OF BUSINESS HISTORY AND ORGANIZATION CGI Holding Corporation, (the "Company"), was incorporated under the laws of the State of Nevada in October of 1987, under the name of North Star Petroleum, Inc. and completed a public offering of its common stock and warrants in August of 1988. Subsequent to the public offering, the Company engaged in the exploration, development and production of oil and gas on a joint venture basis with other industry partners and real estate developments. The Company's prior operations proved unsuccessful, and, from 1993 until July 1997, the Company had essentially no operations. Since the sale of its prior business, the Company sought to merge with an existing operating entity in order to establish business operations. On June 30, 1997 a preliminary agreement was signed by the Company and Roli Ink Corporation , a Wisconsin corporation("RIC"), and Safe Environment Corporation, an Illinois corporation ("SECO"). On July 28, 1997, effective August 4, 1997, all shareholders of RIC and SECO approved the transaction and tendered their stock certificates in RIC and SECO in exchange for the shares of the Company's common stock. The Company changed its fiscal year end from September 30 to December 31, the year end of RIC and SECO. Under the terms of the Reorganization Agreements, the Company acquired all of the issued and outstanding shares of RIC and SECO for an aggregate of 4,961,056 shares of Common Stock. As a result of the purchase of RIC and SECO, shareholders of RIC and SECO acquired approximately 59.9% of the Company. After the acquisition, the RIC shareholders represented 26.6% and the SECO shareholders represented 33.3% of the Company. Pursuant to the Reorganization Agreement, RIC's and SECO's businesses became the business of the Company, and John Giura and Ann K. Knaack, who were appointed directors of the Company at the closing of the acquisition, took over management of the Company as well as the operations of RIC and SECO. Nature of Business CGI Holding Corporation is a holding company which owns 100% of two subsidiaries, Safe Environment Corporation(SECO) and Roli Ink Corporation(RIC). RIC RIC was incorporated in the State of Wisconsin in 1985 for the purpose of manufacturing and selling water based printing inks to industrial printers. After some initial problems finding acceptance for water based inks versus solvent inks, RIC developed, in house, a new ink product line. With its new product line, RIC began focusing on the corrugated box manufacturers who were producing display grade boxes. This area represented potentially good volume, and the box manufacturers could pay the prices required by RIC's ink products. RIC primarily concentrates its efforts on the Wisconsin and Northern Illinois ink market due to limited capital for expansion. Currently, RIC's major competitors are INX, Sun Chemical, Heritage International and Progressive Inks. RIC supplies approximately 40 customers total with four of those customers accounting for approximately 64% of its business. The loss of any of these four customers would have a material negative effect on RIC's business. Additionally, RIC has only one independent manufacturer's representative who sells approximately 60% of RIC's ink. The loss of the services of this independent representative could have a material negative effect on RIC's sales. Only 40% of RIC's sales were generated from "in house" personnel. In addition to specialty corrugated ink, RIC sells ink to envelope and label manufacturers and medical packaging plants. It also sells a conductive and static dissipative coating used in electronics packaging. RIC recognizes revenue at time of shipment to the customer. All of RIC's inks are water based and contain no materials which are listed as "hazardous" materials by the Food and Drug Administration or Environmental Protection Agency. All RIC's inks are in compliance with CONTEG regulations which specify that no more than 100 parts per million of heavy metals be used. Additionally, no RIC ink contains ozone depleting substances as identified by the U.S. Clean Air Act amendment of 1990. 3 SECO SECO was formed in November 1987 to provide asbestos abatement services. SECO has been involved in the asbestos abatement industry since its formation and has recently expanded to include lead mitigation in order to better serve the clients overall environmental needs. SECO provides asbestos abatement services to industrial, government and private concerns desiring to remove or abate asbestos and/or lead in the workplace or residence in order to alleviate the health risks associated with asbestos and/or lead. The asbestos and lead environmental remediation industry developed out of concern for the health of workers, students and residents who may be exposed to these hazards. Environmental remediations are performed in accordance with SECO's standard operating procedures which meet or exceed applicable federal, state, and local regulations and guidelines. Because of the health hazards posed by asbestos and lead, the need to comply with requirements of the Occupations Safety and Health Administration ("OSHA"), the Environmental Protection Agency ("EPA"), and similar state and local agencies, environmental remediation has to be performed by trained and licensed personnel using approved techniques and equipment. As the asbestos abatement industry matures and the market shrinks, SECO intends to look for other opportunities. At the present time, SECO has not identified any other business it intends to enter. SECO has begun developing asbestos and lead operations and maintenance programs to assist building owners to manage their asbestos and lead in place, with large scale removal occurring only to facilitate renovation or prior to building demolitions. SECO is also investigating the potential to expand into interior demolition, re-insulation, painting and duct cleaning. SECO recognizes revenue utilizing the Percentage of Completion method of accounting. The Company has conducted an initial review of the potential for computer and programming problems related to the year 2000 wherein some computer programs will interpret the 00 at the end of the year 2000 as 1900. At the present time, the Company does not anticipate incurring any major expenses or time delays because of the year 2000 problem. ITEM 2. DESCRIPTION OF PROPERTIES RIC leases approximately 11,550 square feet of manufacturing and office space under a lease effective from August 21, 1996, and ending on September 30, 1999. Under the terms of the RIC lease, RIC pays a monthly fee of $3,164 plus real estate taxes of $602.25 per month. The building contains another 3,450 feet which RIC may expand into if future growth warrants such expansion. Currently, RIC only operates one shift and believes additional shifts can be added in the future to handle anticipated growth. RIC is located in Milwaukee, Wisconsin. SECO, located in Brookfield, Illinois, leases, on a month to month basis, approximately 8,000 square feet of office, warehouse and storage facilities. Approximately 2,000 square feet is used as office space with the remaining facility principally used as a warehouse. Most of SECO's projects are performed on site so its facilities are primarily used for storing and working on its equipment when not in use. The terms of the lease require monthly payments of $2,500 during 1997 and $3,000 per month starting in January 1998. The building is leased from 8400 Brookfield Partners which is owned and controlled by John Giura, the president of the Company, and James Spachman, a major shareholder of the Company. The lease is on a month to month term. (See: Item 12: "Certain Relationships and Related Transactions.") The Company also uses this facility as its corporate offices. The Company and SECO believes this facility will be adequate for its future needs. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS None. 4 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is quoted on the National Association of Securities Dealers Electronic Bulletin Board under the symbol "CGIC." Set forth below are the high and low bid prices for the Company's Common Stock for each quarter during the last two years. Although the Company's Common Stock is quoted on the Electronic Bulletin Board it has traded sporadically with low volume. Consequently, the information provided below may not be indicative of the Company's Common Stock price under different conditions. Quarter Ended High Bid Low Bid - ------------- -------- ------- March 1996 $0.45 $0.30 June 1996 $0.30 $0.30 September 1996 $0.30 $0.30 December 1996 $0.30 $0.30 March 1997 $0.30 $0.30 June 1997 $0.30 $0.30 September 1997 $4.50 $1.50 December 1997 $3.75 $1.625 These prices were revised to retroactively reflect the reverse stock split. At March 19, 1998, the bid and asked price for the Company's Common Stock was $1.25 and $1.44 respectively. All prices listed herein reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions. Since its inception, the Company has not paid any dividends on its Common Stock, and the Company does not anticipate that it will pay dividends in the foreseeable future. At March 19, 1998, the Company had approximately 154 shareholders. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION OVERVIEW Prior to the acquisition of RIC and SECO, the Company had no operations or revenue. With the addition of RIC and SECO, the Company posted its first profitable year having net consolidated income of $149,243 on sales of $3,956,794. As the Company had no operations prior to the acquisition of RIC and SECO, all comparisons set forth herein reflect the comparisons as to how RIC and SECO performed in 1997 as opposed to prior years. The operations of the Company prior to the acquisition of RIC and SECO offer no comparative value since the Company had no operations or direction, and future operations will focus on RIC and SECO. Any Statements made by the Company that are forward looking are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that forward-looking statements invoke risk and uncertainties which may affect the Company's business prospects and performance. This includes economic, competitive, governmental, technological and other factors discussed in this filing which may or may not materialize. Any forward-looking statements made herein may not reflect the risk factors and uncertainties surrounding such statements. PLAN OF OPERATION Through the acquisition of RIC and SECO, the Company had $2,927,781 in assets as of December 31, 1997. These assets included $372,597 in property, plant and equipment which had a value before depreciation of $393,050. The Company had current assets of $2,053,065 at December 31, 1997, resulting in working capital of $893,866. The majority of the Company's current assets are accounts receivable consisting of $1,513,279. The Company's accounts receivable, as collected, will be enough to cover all of the Company's current liabilities of $1,159,199. The Company only has $155,336 in long term debt, which also could be covered by current accounts receivable, when collected. The Company believes its current property, plant and equipment are adequate for the Company's current and foreseeable needs. If the Company is able to expand into different regions of the United States, it will be necessary to acquire additional plant space and equipment which would be located closer to the clients. With the Company's available funds, the Company should be able to continue to operate and complete its projects for the 1998 year as well as to expand its operations as business warrants. 5 The Company intends to continue to focus on the asbestos and lead abatement field with SECO, and ink production and sales with RIC. The Company is, however, cognizant of the need to diversify its focus on the asbestos and lead abatement industries as asbestos and lead abatement projects become fewer. At present the Company has not identified any new business opportunities but will be investigating potential new businesses in the future. SEGMENT ANALYSIS The following analysis includes the activities of Safe Environment Corporation (SECO) and Roli Ink Corporation (RIC) and CGI Holding Corporation for all periods presented. NET SALES BY INDUSTRY SEGMENT INDUSTRY SEGMENT 1997 1996 AMOUNT PERCENT AMOUNT PERCENT SECO $6,183,602 69.36 6,862,262 70.69 RIC 2,732,185 30.64 2,845,543 29.31 OTHER 0 0 0 0 ---------- ------ ---------- ------ TOTAL SALES $8,915,787 100.00 $9,707,805 100.00 ========== ====== ========== ====== OPERATING PROFIT BY INDUSTRY SEGMENT INDUSTRY SEGMENT AMOUNT PERCENT AMOUNT PERCENT SECO $611,766 62.89 $500,426 70.51 RIC 354,912 36.49 225,934 31.84 OTHER 6,067 0.62 (16,673) (2.35) ---------- ------ ---------- ------ TOTAL PROFIT BEFORE INCOME TAXES $972,745 100.00 $709,687 100.00 ========== ====== ========== ====== RESULTS OF OPERATIONS Since the Company had no prior operations, the following discussion reflects the financial results of RIC and SECO for the past two years. The Company's wholly owned subsidiaries, RIC and SECO, continued to remain profitable producing combined sales of $8,915,787. Sales did decrease from the $9,707,805 for the year ended December 31, 1996. This decrease was principally due to one of the Company's subsidiaries, SECO, having to delay the commencement of a large project. The project was a $700,000 contract which was initially scheduled to commence in October of 1997 but was delayed until January of 1998 due to the company's inability to relocate its operations prior to commencement. Although overall sales decreased, net profits before taxes increased to $972,745 from $709,687. Cost of sales for 1997 was $5,796,613, a decrease from 1996 of $973,796. As a result of this decrease, the cost of sales percentage comparisons were, 65% for 1997 and 70% for 1996. This 5% decrease was attributable to more profitable bidding by SECO in the amount of $834,767 and overhead reduction by RIC of $123,270. General and administrative expenses remained fairly constant from 1996 to 1997. Interest expense decreased $37,756 in 1997 as compared to 1996. This was a direct result of debt reduction during the year in the amount of $304,959. RIC RIC had sales of $2,732,185 for the year ended December 31, 1997, with net profits before taxes of $354,912. As with SECO, RIC's sales decreased in 1997 from 1996 when sales were $2,845,543. This decrease in sales, however, was offset by the reduction in cost of operations from $1,460,745 to $1,260,746. Expenses decreased due to the expiration of a management contract. RIC does not anticipate that expenses will increase in the future beyond the percentage currently being incurred. As a result of the decrease in expenses, net income before income taxes increased to $354,912 for RIC in 1997 as opposed to $225,934 in 1996. The Company anticipates that both RIC and SECO will experience moderate increases in sales for 1998. There can be no assurance that sales will increase or that expenses can be reduced. 6 SECO SECO accounted for $6,183,602 in sales with profit before income tax of $611,766. This represented a decrease in sales from $6,862,261 in 1996. Although sales decrease by $678,659 from 1996, profits before taxes increased to $611,766 from $500,426 in 1996. The increase in profits was the result of more efficient and accurate bidding on projects with higher profit margins. As a result, the cost of operations was only $4,539,014 in 1997 compared to $5,373,781 in 1996. The net profits after taxes decreased to $364,090 for SECO in 1997 from the $409,486 in 1996. In 1996, SECO was able to take advantage of a net operating loss carryforward which reduced the tax obligation of SECO in 1996. Beginning in 1997, the net operating loss carryforward was zero. The Net Operating Loss carryforward to 1996 reduced the Company's federal and state taxes in the amount of $107,901. SECO is hopeful that its current bidding process will continue to result in improved profits on the projects it performs. This will be increasingly important as the number of asbestos abatement projects declines in the future. ITEM 7. FINANCIAL STATEMENTS The financial statements of the Company are set forth immediately following the signature page to this form 10-KSB. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company has had no disagreements with its certified public accountants with respect to accounting practices or procedures or financial disclosure. The Company did change its independent accountant as reported in the Company's form 8-k dated February 20, 1998. 7 PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The following table sets forth as of March 19, 1998, the name, age, and position of each executive officer and director and the term of office of each director of the Company. Name Age Position Director or Officer Since ---- --- -------- ------------------------- John Giura 65 President, Chief Financial Officer, Director August 1997 Ann Knaack 41 Vice-President, Director August 1997 Debra Moore 36 Secretary August 1997 Set forth below is certain biographical information regarding the Company's executive officers and directors. John Giura, has for the past five years been a director and president of RIC and SECO. For over 36 years, Mr. Giura has been a business owner, manager and operator in the fields of investment management, venture capital and various types of operating companies. In 1987, Mr. Giura co-founded SECO and in 1994 acquired control of SECO. In 1993, Mr. Giura, along with other individuals acquired control of RIC and has been its acting president, chief executive officer and director since acquiring control. Mr. Giura received his BA degree from the University of Naples (Italy) in 1956 and an MA in economics from the University of Chicago in 1961. Ann K. Knaack, has been an officer of RIC for the past five years. Prior to joining RIC, Ms. Knaack worked for the Signmark Division of the W.H. Brady Company in Milwaukee, Wisconsin. Ms. Knaack received her BA in business and management from Alverno College in Milwaukee, Wisconsin. Debra Moore currently is employed by the Company. Ms. Moore has a decade of extensive experience in the asbestos abatement industry. Ms. Moore was responsible for personnel management and account receivables and also held a license for abatement as a supervisor and management planner during her time with SECO. Ms. Moore's career in the environmental industry began in 1986 at Asbestos Training and Employment, Inc. She joined SECO in 1989 and moved to the position of executive assistant to the Director of Waste Solutions Corporation in 1996. Ms. Moore then assumed responsibility for corporate records and customer affairs. Ms. Moore attended Purdue University. Except as set forth below, to the knowledge of management, during the past five years, no present or former director, or executive officer of the Company: (1)filed a petition under the federal bankruptcy laws or any state insolvency law, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing; (2)was convicted in a criminal proceeding or named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (3)was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting, the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, associated person of any of the foregoing, or as an investment advisor, underwriter, broker or dealer in securities, or as an affiliate person, director or employee of any investment company, or engaging in or continuing any conduct or practice in connection with such activity; (ii) engaging in any type of business practice; or (iii)engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws; (4) was the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any federal or state authority barring, suspending, or otherwise limiting for more than 60 days the right of such person to engage in any activity described above, or to be associated with persons engaged in any such activity; 8 (5) was found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any federal or state securities law, and the judgment in such civil action or finding by the Securities and Exchange Commission has not been subsequently reversed, suspended, or vacated. (6) was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated. Mr Giura, president of the Company, has been permanently disqualified from acting as a Registered Investment Advisor as a result of two federal convictions in 1986 and 1989 relating to allegations occurring prior to June 1985. To the best of the Company's knowledge, there are no other injunctions or permanent bars limiting Mr Giura's involvement in any type of business, security or banking activities. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT The Company is not subject to the requirements of Section 16(a) of the Exchange Act. ITEM 10. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following tables set forth certain summary information concerning the compensation paid or accrued for each of the Company's last three completed fiscal years for the Company's or its principal subsidiaries' chief executive officer, and each of its other executive officers that received compensation in excess of $100,000 during such period (as determined at December 31, 1997, the end of the Company's last completed fiscal year):
Long Term Compensation ---------------------- Annual Compensation Awards Payouts Other Restricted Name and Annual Stock Options All Principal Year Salary Bonus($) Compensation Awards /SARs Other Position Compensation - -------------- ----- ------ -------- ------------ ------ ------- ------------ John Giura 1997 53,000* -0- 7,200 -0- -0- 3,000 President and CEO Denny Nestripke Former President And CEO 1996 -0- -0- -0- -0- -0- -0- 1995 -0- -0- -0- -0- -0- -0-
*Mr. Giura's compensation was paid by RIC during the 1997 fiscal year. In 1996 and 1995, Mr. Giura received $48,000 in salary from RIC. In 1996, Mr. Giura also received $100,000 in compensation from SECO. Cash Compensation There was no cash compensation paid to any director of the Company during the fiscal years ended December 31, 1997, 1996, and 1995. Mr. Giura did receive compensation from RIC, one of the Company's subsidiaries, during the 1997 fiscal year. Mr. Giura does not have any employment contract with the Company and no set compensation arrangement has been set for Mr. Giura for 1998. Bonuses and Deferred Compensation None. Compensation Pursuant to Plans. None. Pension Table None. 9 Other Compensation None. Compensation of Directors. None. Termination of Employment and Change of Control Arrangement There are no compensatory plans or arrangements, including payments to be received from the Company, with respect to any person named in the Cash Compensation section set out above which would in any way result in payments to any such person because of his resignation, retirement, or other termination of such person's employment with the Company or its subsidiaries, or any change in control of the Company, or a change in the person's responsibilities following a changing in control of the Company. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of March 2, 1998, the name and the number of shares of the Company's Common Stock, par value $0.001 per share, held of record or beneficially owned by each person who held of record, or was known by the Company to own beneficially, more than 5% of the 8,272,777 issued and outstanding shares of the Company's Common Stock, and the name and shareholdings of each director and of all officers and directors as a group. Title of Name of Amount and Nature of Percentage Class Beneficial Owner Beneficial Ownership(1) of Class - ----- ---------------- -------------------- ---------- Common John Giura C/O CGI Holding Corporation 400 Brookfield Avenue Brookfield, Illinois 60513 2,536,494 (a) 30.66% Common Depository Trust Company 649,165 7.85 Common James Spachman 735 Selbourn Road Riverside, Illinois 60546 814,000 9.84% Officers, Directors: Common John Giura ----See Above----- Common Ann K. Knaack 68,016 0.82% Common Debra Moore 71,500 (b) 0.86% All Officers and Directors as a Group (3 Persons) 2,676,010 32.35% (a) Includes 135,300 shares which are held jointly by Mr. Giura and Mr. Spachman and 1,021,900 held by CIB Bank Hillside as custodian for Mr. Giura. Mr. Giura also controls 260,000 shares owned by Mentor Investments, a company he controls. (b) Ms. Moore has 51,500 shares in her name and 20,000 shares she controls as custodian for her children. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS TRANSACTIONS WITH MANAGEMENT AND OTHERS. The Company leases its SECO office facilities from 8400 Brookfield Partners which is owned by John Giura, the president of the Company, and James Spachman who is a principal shareholder of the Company. The Company pays 8400 Brookfield Partners $3,000 per month for lease of the facilities starting in 1998. (See: Item 2: "Description of Properties.") The current management of the Company, John Giura and Ann Knaack, were both shareholders and officers of RIC and SECO prior to their acquisition by the Company. Due to his share ownership in RIC and SECO, Mr. Giura, in particular, received a substantial number of shares of common stock of the Company as a result of the acquisition of RIC and SECO. The Company believes that the acquisitions were arms length negotiations. 10 CERTAIN BUSINESS RELATIONSHIPS During the fiscal year ended December 31, 1997, there were no material transactions between the Company and its management or principal shareholders except as set forth above. CONTRACTUAL AGREEMENTS The company contracts with Mentor Investments, Inc. to provide direct labor for certain jobs. `Mentor' is responsible for the cost of the payroll taxes and workmens compensation insurance. `Mentor' receives, for these services, the cost of the gross payroll plus 20%. INDEBTEDNESS OF MANAGEMENT Mr. Giura and Mr. Spachman loaned SECO various amounts on a revolving personal line of credit as projects where undertaken. Such amounts did not exceed $300,000 during the year. All funds loaned to SECO were repaid during the 1997 fiscal year. TRANSACTIONS WITH PROMOTERS The Company was organized more than five years ago; hence transactions between the Company and its promoters or founders are not deemed to be material. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a)(1)FINANCIAL STATEMENTS. The following financial statements are included in this report: Title of Document Page - ----------------- ---- Report of Poulos & Bayer, LTD., Certified Public Accountants 12 Balance Sheets as of December 31, 1997, and 1996 13 Statements of Stockholders' Equity for the years ended December 31, 1997, and 1996, and from inception 14 Statements of Operations for the twelve ended December 31, 1997, and 1996 15 Statements of Cash Flows for the fiscal years ended December 31, 1997, and 1996 16 Notes to Financial Statements 23 (a)(2)FINANCIAL STATEMENT SCHEDULES. The following financial statement schedules are included as part of this report: None. (a)(3)EXHIBITS. The following exhibits are included as part of this report: Number 2: Plan and Agreements of Reorganization Incorporated by reference to the Registrants Form 10-QSB, for quarter ended June 30, 1997 Number 3: Initial Articles of Incorporation and Bylaws Incorporated by reference to the Registrant's registration statement on Form S-18, SEC File No. 33-19980-D Number 3: Amended Articles of Incorporation Incorporated by reference to the Registrant's Form 10-KB, for the year ended September 30, 1989. Number 3: Amended Articles of Incorporation Incorporated by reference to the Registrant's Form 10-QSB, for the quarter ended December 31, 1995. Number 3: Amended Articles of Incorporation Incorporated by reference to the Registrant's Form 10-QSB, for the quarter ended September 30, 1995. 11 Number 4: Warrant Agent Agreement Incorporated by reference to the Registrant's registration statement on Form S-18, File No. 33-19980-D. Number 4: First Amendment to Warrant Agent Agreement: Incorporated by reference to the Registrant's Form 10-QSB, for the quarter ended December 31, 1995. Number 4: Second Amendment to Warrant Agent Agreement Incorporated by reference to the Registrant's Form 10-QSB, for the quarter ended September 30, 1995. Number 11: Computation of Income per Share Refer to the financial statement contained in this Form 10-KSB. Number 21: Subsidiaries of the Registrant The Registrant has two subsidiaries, Roli Ink Corporation, a Wisconsin Corporation; and Safe Environment Corp., an Illinois Corporation. Number 27: Financial Data Schedule Included in the Report as Exhibit 27. Reports on Form 8-K. The Company did not file any reports on Form 8-K in its fourth quarter; however, in February 1998, the Company filed a Form 8-K discussing its change of independent accountants. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: CGI Holding Corporation Date: April 13, 1998 By: /s/ John Giura John Giura, President and Director (Principal Executive Officer) 12 Independent Auditor's Report To the Board of Directors CGI Holding Corporation 8400 Brookfield Avenue Brookfield, Illinois 60513 We have audited the accompanying balance sheets of CGI Holding Corporation (a Nevada Corporation) as of December 31, 1997 and 1996, and the related statements of income, stockholder's equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CGI Holding Corporation as of December 31, 1997 and 1996 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. By: /s/ Poulos & Bayer, Ltd. Poulos & Bayer, Ltd. Chicago, Illinois February 4, 1998 13 CGI HOLDING CORPORATION, INC. COMPARATIVE CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 AND 1996 ASSETS DECEMBER 31, DECEMBER 31, 1997 1996 --------- ------------ CURRENT ASSETS Cash 174,267 356 Accounts Receivable 1,513,279 0 Inventory 238,257 0 Other Current Assets 127,262 2,225 --------- ----------- TOTAL CURRENT ASSETS 2,053,065 2,581 --------- ----------- PROPERTY, PLANT AND EQUIPMENT Property,Plant and Equipment 393,050 0 Less: Accumulated Depreciation 20,453 0 ---------- ----------- NET PROPERTY, PLANT AND EQUIPMENT 372,597 0 ---------- ----------- OTHER ASSETS Other Assets 3,552 250 Goodwill 498,567 0 ---------- ----------- TOTAL OTHER ASSETS 502,119 250 ---------- ----------- TOTAL ASSETS 2,927,781 2,831 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current Portion of Long-Term Debt 131,906 0 Accounts Payable 440,741 0 Short-Term Borrowings 134,832 0 Billings in Excess of Cost and Estimated Earnings 52,461 0 Accrued Corporate Income Taxes 331,654 0 Accrued Liabilities 67,605 0 --------- ----------- TOTAL CURRENT LIABILITIES 1,159,199 0 --------- ----------- LONG TERM LIABILITIES Long-Term Debt, Net of Current Portion 155,336 0 Deferred Income Tax 11,135 0 -------- ----------- TOTAL LONG-TERM LIABILITIES 166,471 0 -------- ----------- STOCKHOLDERS' EQUITY Preferred Stock, $0.001 par value, 5,000,000 shares authorized; no shares issued or outstanding 0 0 Common Stock, $0.001 par value, 100,000,000 shares authorized; 8,272,779 shares issued and outstanding 8,273 10,759 Additional Paid-In Capital 2,434,088 914,285 Retained Earnings (840,250) (922,213) --------- ----------- TOTAL STOCKHOLDERS' EQUITY 1,602,111 2,831 --------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2,927,781 2,831 ========= =========== The accompanying notes are an integral part of these statements. 14 CGI HOLDING CORPORATION, INC. STATEMENT OF STOCKHOLDERS' EQUITY DECEMBER 31, 1997 COMMON COMMON PAID-IN RETAINED SHARES STOCK CAPITAL EARNINGS ---------- -------- -------- -------- COMMON SHARES $0.001 PAR VALUE STOCK ACCOUNTS REFLECTED AT POST REORGANIZATION UNIT SHARES BALANCE: JANUARY 1, 1996 6,758,614 6,759 908,285 (905,540) COMMON STOCK ISSUED FOR CASH AT $.0025 PER SHARE, AUGUST 26, 1996 4,000,000 4,000 6,000 1996 NET INCOME 0 0 0 (16,673) --------- --------- --------- -------- BALANCE: DECEMBER 31, 1996 10,758,614 10,759 914,285 (922,213) ISSUED 5,800,000 SHARES OF COMMON STOCK FOR $29,000 5,800,000 5,800 23,200 0 1 FOR 5 REVERSE STOCK SPLIT (13,246,891) (13,247) 13,247 0 PURCHASE OF ROLI AND SECO ON AUGUST 4, 1997 4,961,056 4,961 1,483,356 0 1997 NET INCOME 0 0 0 149,243 DISTRIBUTION TO ROLI SHARE- HOLDERS 0 0 0 (67,280) --------- --------- --------- -------- BALANCE: DECEMBER 31, 1997 8,272,779 8,273 2,434,088 (840,250) ========= ========= ========= ======== The accompanying notes are an integral part of these statements. 15 CGI HOLDING CORPORATION, INC. CONSOLIDATED STATEMENTS OF OPERATIONS TWELVE MONTHS ENDED DECEMBER 31, 1997 AND 1996 TWELVE MONTHS ENDED DECEMBER 31 ---------------------- 1997 1996 ---------- ----------- SALES 3,956,794 0 COST OF GOODS SOLD 2,540,541 0 --------- ----------- GROSS PROFIT 1,416,253 0 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 1,178,806 16,673 --------- ---------- INCOME FROM OPERATIONS 237,447 (16,673) --------- ---------- OTHER INCOME (EXPENSE) Other 93,000 0 Interest Income 1,369 0 Interest Expense (23,579) 0 --------- ---------- TOTAL OTHER INCOME 70,790 0 --------- ---------- INCOME BEFORE CORPORATE INCOME TAXES 308,237 (16,673) --------- ---------- INCOME TAX PROVISION Current Tax Expense 147,859 0 Deferred Tax Expense 11,135 0 --------- ---------- TOTAL INCOME TAX PROVISION 158,994 0 --------- ---------- NET INCOME 149,243 (16,673) ========= ========== NET INCOME PER COMMON SHARE 0.03 (0.01) ========= ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 4,809,359 1,630,079 ========= ========== The accompanying notes are an integral part of these statements. 16 CGI HOLDING CORPORATION, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 FOR THE YEARS ENDED DEC. 31 DEC. 31 1997 1996 ------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net Profit 149,243 (16,673) Non-Cash Items Included In Net Profit Depreciation 20,453 0 Amortization 14,245 0 Other Changes: Change in Accounts Receivable 175,080 0 Change in Inventory (34,187) 0 Change in Other Current Assets 179 0 Change in Prepaid Insurance 3,375 0 Change in Other Assets 19,728 0 Change in Accounts Payable (11,139) 0 Change in Accrued Expenses (48,111) 0 Change in Accrued Income Taxes 155,207 0 Change in Deferred Income Taxes 11,135 0 Change in Billings in Excess of Costs and Estimated Earnings 52,461 0 --------- --------- NET CASH CHANGE FROM OPERATING ACTIVITIES 507,669 (16,673) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Fixed Assets Acquired (75,050) 0 --------- --------- NET CASH CHANGE FROM INVESTING ACTIVITIES (75,050) 0 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Change in Loan Payable (24,356) 0 Change in Notes Payable (324,604) 0 Proceeds from Sale of Stock 29,000 10,000 Distributions to Shareholders (67,280) 0 --------- --------- NET CASH CHANGE PROVIDED BY FINANCING ACTIVITIES (387,240) 10,000 --------- --------- NET CASH CHANGE 45,379 (6,673) ACQUIRED CASH-OPERATING COMPANIES 128,532 0 CASH BALANCE: JANUARY 1 356 7,029 --------- --------- CASH BALANCE: DECEMBER 31 174,267 356 ========= ========= The accompanying notes are an integral part of these statements. 17 As required, the historical financial statements of the acquired corporations, Roli Ink Corporation and Safe Environment Corporation, are presented for the years ended December 31, 1996 and 1995 and the 7 month period ended July 31, 1997. ROLI INK CORPORATION BALANCE SHEET JULY 31, 1997 AND DECEMBER 31, 1996 AND 1995 ASSETS UNAUDITED AUDITED JULY 31, DECEMBER 31, DECEMBER 31, 1997 1996 1995 -------------- --------- ------------ CURRENT ASSETS Cash 49,265 61,436 69,284 Accounts Receivable 282,347 287,359 251,518 Inventory 184,702 168,254 190,946 Other Current Assets 4,627 0 0 ------------- --------- ----------- TOTAL CURRENT ASSETS 520,941 517,049 511,748 ------------- --------- ----------- PROPERTY, PLANT AND EQUIPMENT Property, Plant and Equipment 349,924 340,028 303,270 Less: Accumulated Depreciation 195,751 177,678 133,874 ------------- ---------- ----------- NET PROPERTY, PLANT AND EQUIPMENT 154,173 162,350 169,396 ------------- ---------- ----------- OTHER ASSETS Other assets 20,302 0 5,965 ------------- ---------- ----------- TOTAL ASSETS 695,416 679,399 687,109 ============= ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current Portion of Long-Term Debt 30,700 30,700 106,720 Accounts Payable 81,459 117,249 122,332 Accrued Corporate Income Taxes 0 62,142 13,371 Accrued Liabilities 42,826 99,168 97,608 ------------ --------- ----------- TOTAL CURRENT LIABILITIES 154,985 309,259 340,031 ------------ --------- ----------- LONG TERM LIABILITIES Long-Term Debt, Net of Current Portion 59,304 81,970 68,900 Deferred Income Tax 9,822 9,822 2,492 ------------ -------- ----------- TOTAL LONG-TERM LIABILITIES 69,126 91,792 71,392 ------------ -------- ----------- STOCKHOLDERS' EQUITY Common Stock, 1,682 1,577 1,577 Additional Paid-In Capital 359,308 298,510 298,510 Retained Earnings 250,315 118,261 (24,401) Treasury Stock (140,000) (140,000) 0 ------------- --------- ----------- TOTAL STOCKHOLDERS' EQUITY 471,305 278,348 275,686 ------------- --------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 695,416 697,399 687,109 ============= ========= =========== 18 ROLI INK CORPORATION STATEMENT OF PROFIT AND LOSS SEVEN MONTHS ENDED JULY 31, 1997 AND TWELVE MONTHS ENDED DECEMBER 31, 1996 AND 1995 UNAUDITED AUDITED SEVEN MONTHS ENDED TWELVE MONTHS ENDED JULY 31 DECEMBER 31 ----------- ---------------------- 1997 1996 1995 ----------- ---------- ----------- SALES 1,606,594 2,845,543 2,629,567 COST OF GOODS SOLD 853,771 1,399,775 1,372,245 ----------- --------- ----------- GROSS PROFIT 752,823 1,445,768 1,257,322 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 506,138 1,207,288 1,184,144 ----------- --------- ---------- INCOME FROM OPERATIONS 246,685 238,480 73,178 ----------- --------- ---------- OTHER INCOME (EXPENSE) Other 0 0 0 Interest Income 0 0 0 Interest Expense (5,372) (12,546) (7,969) ----------- --------- ---------- TOTAL OTHER INCOME (5,372) (12,546) (7,969) ----------- --------- ---------- INCOME BEFORE CORPORATE INCOME TAXES 241,313 225,934 65,209 ----------- --------- ---------- INCOME TAX PROVISION Current Tax Expense 14,716 75,942 13,621 Deferred Tax Expense 0 7,330 2,492 Proforma Tax Expense 58,873 0 0 ----------- --------- ---------- TOTAL INCOME TAX PROVISION 73,589 83,272 16,113 ----------- --------- ---------- NET INCOME 167,724 142,662 49,096 =========== ========= ========== 19 ROLI INK CORPORATION STATEMENT OF CASH FLOWS TWELVE MONTHS ENDED DECEMBER 31, 1996 AND 1995 AUDITED FOR THE YEARS ENDED DEC. 31 DEC. 31 1996 1995 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net Profit 142,662 49,095 Non-Cash Items Included In Net Profit Depreciation 43,805 28,905 Other Changes: Change in Accounts Receivable (35,841) (30,869) Change in Inventory 22,693 (57,412) Change in Deposits 5,965 (936) Change in Accounts Payable (5,084) 18,618 Change in Accrued Expenses 1,559 22,834 Change in Accrued Income Taxes 48,771 13,168 Change in Deferred Income Taxes 7,330 2,492 --------- --------- NET CASH CHANGE FROM OPERATING ACTIVITIES 231,860 45,895 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Fixed Assets Acquired (36,758) (146,397) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Change in Notes Payable (62,950) 96,620 Distributions to Shareholders 0 0 Treasury Stock Purchase (140,000) 0 --------- --------- NET CASH CHANGE PROVIDED BY FINANCING ACTIVITIES (202,950) 96,620 --------- --------- NET CASH CHANGE (7,848) (3,882) CASH BALANCE: JANUARY 1 69,284 73,166 --------- --------- CASH BALANCE: DECEMBER 31 61,436 69,284 ========= ========= 20 SAFE ENVIRONMENT CORPORATION BALANCE SHEET JULY 31, 1997 AND DECEMBER 31, 1996 AND 1995 ASSETS UNAUDITED AUDITED JULY 31, DECEMBER 31, DECEMBER 31, 1997 1996 1995 -------------- --------- ------------ CURRENT ASSETS Cash 79,267 11,442 94,791 Accounts Receivable 1,406,012 1,387,536 398,250 Inventory 19,368 26,883 21,005 Other Current Assets 123,714 152,949 58,653 ------------- --------- ----------- TOTAL CURRENT ASSETS 1,628,361 1,578,810 572,699 ------------- --------- ----------- PROPERTY, PLANT AND EQUIPMENT Property, Plant and Equipment 624,944 585,190 440,087 Less: Accumulated Depreciation 413,765 382,919 309,511 ------------- ---------- ----------- NET PROPERTY, PLANT AND EQUIPMENT 211,179 202,271 130,576 ------------- ---------- ----------- OTHER ASSETS Other Assets 2,978 4,493 5,035 Investment in SECO Abatement 0 0 113,607 Investment in All Weather 0 0 5,000 ------------- ---------- ----------- TOTAL OTHER ASSETS 2,978 4,493 123,642 ------------- ---------- ----------- TOTAL ASSETS 1,842,518 1,785,574 826,917 ============= ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current Portion of Long-Term Debt 349,681 527,914 632,294 Accounts Payable 370,421 585,830 113,218 Accrued Corporate Income Taxes 176,447 30,940 4,294 Accrued Liabilities 72,890 19,887 6,078 Short Term Borrowings 142,313 62,116 47,148 Billings in Excess of Costs and Estimated Earnings 0 101,183 0 ------------ --------- ----------- TOTAL CURRENT LIABILITIES 1,111,752 1,327,870 803,032 ------------ --------- ----------- LONG TERM LIABILITIES Long-Term Debt, Net of Current Portion 154,858 24,333 0 Shareholder Loan 24,356 113,500 113,500 ------------ -------- ----------- TOTAL LONG-TERM LIABILITIES 179,214 137,833 113,500 ------------ -------- ----------- STOCKHOLDERS' EQUITY Common Stock, 93,902 167,504 191,504 Retained Earnings 516,038 251,367 (158,119) Treasury Stock (58,388) (99,000) (123,000) ------------ --------- ----------- TOTAL STOCKHOLDERS' EQUITY 551,552 319,871 (89,615) ------------ --------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 1,842,518 1,785,574 826,917 ============ ========= =========== 21 SAFE ENVIRONMENT CORPORATION STATEMENT OF PROFIT AND LOSS SEVEN MONTHS ENDED JULY 31, 1997 AND TWELVE MONTHS ENDED DECEMBER 31, 1996 AND 1995 UNAUDITED AUDITED SEVEN MONTHS ENDED TWELVE MONTHS ENDED JULY 31 DECEMBER 31 ----------- ---------------------- 1997 1996 1995 ----------- ---------- ----------- SALES 3,352,399 6,862,262 3,048,697 COST OF GOODS SOLD 2,402,301 5,373,782 2,065,747 ----------- --------- ----------- GROSS PROFIT 950,098 1,488,480 982,950 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 504,423 989,690 452,740 ----------- --------- ---------- INCOME FROM OPERATIONS 445,675 498,790 530,210 ----------- --------- ---------- OTHER INCOME (EXPENSE) Other 0 82,161 163,866 Interest Income 872 0 0 Interest Expense (26,363) (80,525) (87,241) ----------- --------- ---------- TOTAL OTHER INCOME (25,491) 1,636 76,625 ----------- --------- ---------- INCOME BEFORE CORPORATE INCOME TAXES 420,184 500,426 606,835 ----------- --------- ---------- INCOME TAX PROVISION Current Tax Expense 155,513 90,940 4,294 Deferred Tax Expense 0 0 0 Proforma Tax Expense 0 0 212,392 ----------- --------- ---------- TOTAL INCOME TAX PROVISION 155,513 90,940 216,686 ----------- --------- ---------- NET INCOME 264,671 409,486 390,149 =========== ========= ========== 22 SAFE ENVIRONMENT CORPORATION STATEMENT OF CASH FLOWS TWELVE MONTHS ENDED DECEMBER 31, 1996 AND 1995 AUDITED FOR THE YEARS ENDED DEC. 31 DEC. 31 1996 1995 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net Profit 409,487 602,541 Non-Cash Items Included In Net Profit Loss on Sale of Equipment 1,040 0 Depreciation 61,022 43,916 Other Changes: Change in Accounts Receivable (989,286) 345,447 Change in Inventory (5,877) (21,005) Change in Employee Loan (1,000) 0 Change in other Current Assets (93,297) 30,452 Change in Deposits 542 (1,331) Change in Accounts Payable 472,611 (218,953) Change in Accrued Expenses (10,939) (20,495) Change in Accrued Income Taxes 48,771 13,168 Change in Inter Co Receivable 115,918 (113,607) Change in Investment in All Weather 5,000 (5,000) Change in Billings in Excess of Costs and Estimated Earnings 101,182 0 --------- --------- NET CASH CHANGE FROM OPERATING ACTIVITIES 115,174 655,133 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Fixed Assets Acquired (113,576) (24,173) Proceeds from Sale of Fixed Assets 3,500 0 --------- --------- NET CASH FLOWS FROM INVESTING ACTIVITIES (110,076) (24,173) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Change in Notes Payable (88,447) (285,542) Change in Loans Payable 0 (290,000) Proceeds from Sale of Stock 0 12,504 --------- --------- NET CASH CHANGE PROVIDED BY FINANCING ACTIVITIES (88,447) (563,038) --------- --------- NET CASH CHANGE (83,349) 67,922 CASH BALANCE: JANUARY 1 94,791 26,869 --------- --------- CASH BALANCE: DECEMBER 31 11,442 94,791 ========= ========= 23 CGI HOLDING CORPORATION FOOTNOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE 1 - PURCHASE OF ROLI INK CORPORATION AND SAFE ENVIRONMENT CORPORATION On July 28, 1997, the Company entered into a reorganization with two privately held corporations, Safe Environment Corporation (SECO), an Illinois corporation, and Roli Ink Corporation (Roli), a Wisconsin corporation. The Company changed its name from Gemstar Enterprises to CGI Holding Corporation. The Company completed a 1-for-5 revenue stock split of its outstanding common shares resulting in 3,311,723 common shares outstanding. The Company then issued a controlling interest of 4,961,056 shares (post-split) to the shareholders of SECO and Roli. The reorganization was accounted for as the purchase of "RIC" and "SECO" by CGI Holding Corporation. The purchase method was utilized in accordance with Accounting Principles Board opinion number 16. The net assets of the operating companies were purchased by the issuance of common shares of CGI Holding Corporation as follows: the shareholders of RIC received 2,200,056 shares and the shareholders of SECO received 2,761,000 shares leaving the shareholders of CGI Holding Corporation with 3,311,723 or 40.03% of the outstanding shares. The market value of the shares at the time of purchase was $0.30 per share. The excess of the purchase price over the fair value of the assets received was recorded by the acquiring corporation as goodwill and is being amortized over a fifteen year life. The purchase price of Safe Environment Corporation was $828,300(2,761,000 shares at $0.30/share). The fair value of SECO's net assets at the time of acquisition was $523,373, resulting in goodwill of $304,927. The purchase price of Roli Ink Corporation was $660,017(2,200,056 shares at $0.30/share). The fair value of RIC's assets at the time of acquisition was $452,132 resulting in goodwill of $207,885. The activities of SECO and RIC are included in the registrants from August 1, 1997 to December 31, 1997. 24 CGI HOLDING CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS AS OF DECEMBER 31, 1997 CGI ROLI INK SECO TOTAL ADJUST- PRO FORMA HOLDING CORP MENTS RESULTS ---------- --------- --------- --------- ------ --------- SALES 3,956,794 1,606,594 3,352,399 8,915,787 8,915,787 COST OF SALES 2,540,541 853,771 2,402,301 5,796,613 5,796,613 ---------- --------- --------- --------- ------ --------- GROSS PROFIT 1,416,253 752,823 950,098 3,119,174 3,119,174 SELLING AND ADMINISTRATIVE 1,178,806 506,138 504,423 2,189,367 (3,011)2,186,356 ---------- --------- --------- --------- ------ --------- INCOME FORM OPERATIONS 237,447 246,685 445,675 929,807 932,818 ---------- --------- --------- --------- ------ --------- OTHER INCOME(EXPENSE) OTHER 93,000 0 0 93,000 93,000 INTEREST INCOME 1,369 0 872 2,241 2,241 INTEREST EXPENSE (23,579) (5,372) (26,363) (55,314) (55,314) ---------- --------- --------- --------- ------ --------- TOTAL OTHER 70,790 (5,372) (25,491) 39,927 39,927 ---------- --------- --------- --------- ------ --------- INCOME BEFORE TAXES 308,237 241,313 420,184 969,734 972,745 ---------- --------- --------- --------- ------ --------- INCOME TAX PROVISION CURRENT 147,859 14,716 155,513 318,088 318,088 PRO FORMA 0 0 0 0 58,873 58,873 DEFERRED 11,135 0 0 11,135 11,135 ---------- --------- --------- --------- ------- -------- TOTAL TAXES 158,994 14,716 155,513 329,223 388,096 ---------- --------- --------- --------- ------- -------- NET INCOME 149,243 226,597 264,671 640,511 584,649 ========== ========= ========= ========= ======= ======== NET INCOME PER SHARE 0.08 ========= WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,745,217 ========= (A) 48,919 ADD BACK DEPRECIATION RECORDED FOR ROLI AND SECO FOR THE 7 MONTHS ENDED JULY 31, 1997 (25,966) RECORD DEPRECIATION FOR THE 7 MONTHS ENDED JULY 31, 1997, BASED ON THE FAIR VALUE AT TIME OF PURCHASE (19,942) AMORTIZATION OF GOODWILL FOR FIRST 7 MONTHS ENDED JULY 31, 1997. -------- 3,011 NET ADJUSTMENT ======== (B) 58,873 ROLI INK CORPORATION WAS A SUBCHAPTER S CORPORATION ======== FOR THE 7 MONTH PERIOD ENDED JULY 31, 1997 REQUIRING AN ADJUSTMENT TO RECORD THE FEDERAL TAX LIABILITIES THAT WOULD HAVE BEEN REALIZED HAD THE ENTITY BEEN A TAXPAYER FOR THIS PERIOD. 25 CGI HOLDING CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS AS OF DECEMBER 31, 1996 CGI ROLI SECO TOTAL ADJUST- TOTAL 1996 1996 1996 MENTS SALES 0 2,629,567 6,862,262 9,491,829 9,491,829 COST OF SALES 0 1,372,245 5,373,782 6,746,027 6,746,027 ------- --------- ---------- ---------- ------- --------- GROSS PROFIT 0 1,257,322 1,488,480 2,745,802 2,745,802 SELLING AND ADMINISTRATIVE 14,223 1,184,144 989,690 2,188,057(21,544) 2,166,513 ------- --------- ---------- ---------- ------- --------- INCOME FROM OPERATIONS (14,223) 73,178 498,790 557,745 579,289 ------- --------- ---------- ---------- ------- --------- OTHER INCOME(EXPENSE) OTHER 0 0 82,161 82,161 82,161 INTEREST INCOME 0 0 0 0 - INTEREST EXPENSE 0 (7,969) (80,525) (88,494) (88,494) ------- --------- ---------- ---------- ------- --------- TOTAL OTHER 0 (7,969) 1,636 (6,333) (6,333) ------- --------- ---------- ---------- ------- --------- INCOME BEFORE TAXES (14,223) 65,209 500,426 551,412 572,956 ------- --------- ---------- ---------- ------- --------- INCOME TAX PROVISION CURRENT 0 13,621 90,940 104,561 104,561 PRO FRMA 0 0 0 0 109,230 109,230 DEFERRED 0 2,492 0 2,492 3,974 6,466 ------- --------- ---------- ---------- ------- --------- TOTAL TAXES 0 16,113 90,940 107,053 220,257 ------- --------- ---------- ---------- ------- --------- NET INCOME (14,223) 49,096 409,486 444,359 352,699 ======= ========= ========== ========== ======= ========= 104,827 DEPREC ADDBACK-$43,805 + $61,022 (49,086) DEPREC DED-PURCHASED ASSET VALUE-SEE DEPREC SCHEDULE (34,187) AMORTIZATION OF GOODWILL FOR FIRST HALF OF YEAR ------- 21,554 NET ADJUSTMENT ======= (2,492) REVERSE OUT DEFERRED TAXES FOR ROLI INK 6,466 DEFERRED TAXES RESULTING FROM TAX DEPRECIATION IN EXCESS OF BOOK DEPRECIATION AND GOODWILL AMORTIZATION ------- 3,974 NET ADJUSTMENT ======= 109,230 PROFORMA TAX-SECO UTILIZED A NOL CARRYOVER IN 1996 WHICH REDUCED THEIR TAX LIABILITY 26 Note 2 - Consolidated Financial Statements These consolidated financial statements include the accounts of SECO and Roli for the period August 1, 1997 to December 31, 1997 and the accounts of CGI Holding Corporation for all periods presented. All intercompany accounts and transactions have been eliminated upon consolidation. Nature of Business CGI Holding Corporation is a holding company which owns 100% of two subsidiaries, Safe Environment Corporation(SECO) and Roli Ink Corporation(RIC). RIC RIC was incorporated in the State of Wisconsin in 1985 for the purpose of manufacturing and selling water based printing inks to industrial printers. After some initial problems finding acceptance for water based inks versus solvent inks, RIC developed, in house, a new ink product line. With its new product line, RIC began focusing on the corrugated box manufacturers who were producing display grade boxes. This area represented potentially good volume, and the box manufacturers could pay the prices required by RIC's ink products. RIC primarily concentrates its efforts on the Wisconsin and Northern Illinois ink market due to limited capital for expansion. Currently, RIC's major competitors are INX, Sun Chemical, Heritage International and Progressive Inks. RIC supplies approximately 40 customers total with four of those customers accounting for approximately 64% of its business. The loss of any of these four customers would have a material negative effect on RIC's business. Additionally, RIC has only one independent manufacturer's representative who sells approximately 60% of RIC's ink. The loss of the services of this independent representative could have a material negative effect on RIC's sales. Only 40% of RIC's sales were generated from "in house" personnel. In addition to specialty corrugated ink, RIC sells ink to envelope and label manufacturers and medical packaging plants. It also sells a conductive and static dissipative coating used in electronics packaging. RIC recognizes revenue at time of shipment to the customer. All of RIC's inks are water based and contain no materials which are listed as "hazardous" materials by the Food and Drug Administration or Environmental Protection Agency. All RIC's inks are in compliance with CONTEG regulations which specify that no more than 100 parts per million of heavy metals be used. Additionally, no RIC ink contains ozone depleting substances as identified by the U.S. Clean Air Act amendment of 1990. SECO SECO was formed in November 1987 to provide asbestos abatement services. SECO has been involved in the asbestos abatement industry since its formation and has recently expanded to include lead mitigation in order to better serve the clients overall environmental needs. SECO provides asbestos abatement services to industrial, government and private concerns desiring to remove or abate asbestos and/or lead in the workplace or residence in order to alleviate the health risks associated with asbestos and/or lead. The asbestos and lead environmental remediation industry developed out of concern for the health of workers, students and residents who may be exposed to these hazards. Environmental remediations are performed in accordance with SECO's standard operating procedures which meet or exceed applicable federal, state, and local regulations and guidelines. Because of the health hazards posed by asbestos and lead, the need to comply with requirements of the Occupations Safety and Health Administration ("OSHA"), the Environmental Protection Agency ("EPA"), and similar state and local agencies, environmental remediation has to be performed by trained and licensed personnel using approved techniques and equipment. 27 As the asbestos abatement industry matures and the market shrinks, SECO intends to look for other opportunities. At the present time, SECO has not identified any other business it intends to enter. SECO has begun developing asbestos and lead operations and maintenance programs to assist building owners to manage their asbestos and lead in place, with large scale removal occurring only to facilitate renovation or prior to building demolitions. SECO is also investigating the potential to expand into interior demolition, re-insulation, painting and duct cleaning. SECO recognizes revenue utilizing the Percentage of Completion method of accounting. The Company has conducted an initial review of the potential for computer and programming problems related to the year 2000 wherein some computer programs will interpret the 00 at the end of the year 2000 as 1900. At the present time, the Company does not anticipate incurring any major expenses or time delays because of the year 2000 problem. 28 NOTE 3 - Significant Accounting Policies A. Revenue and Cost Recognition SECO SECO uses the percentage of completion method of accounting for all construction projects. The recognition of contract revenue and profit during construction is absed on expected total profit and estimated progress toward completion in the current year. estimated progress is measured by actual costs to date compared to projected total costs for eachh respective contract. All job related costs are recognized in the period in which they occur. RIC Income and costs are recognized at time of shipment to customer. B. Accounts Receivable Management deems all receivables are collectable and no provisions for bad debts are required. C. Inventory Inventory is stated at cost using the first-in, first-out method. D. Fixed Assets All assets are depreciated over their useful life using the 150% declining method with the exception of fixed assets acquired by RIC after January 1, 1997. These assets are being depreciated using the straight line method over their useful lives. E. Goodwill Goodwill in the amount of $512,812 was recorded on the purchase of RIC and SECO on August 4, 1997. This goodwill is being amortized over a fifteen year life. NOTE 4 - Accounts Receivable Accounts Receivable at December 31, 1997 consist of the following:
Currently Due 1,513,279 Retainages 105,279 ---------- 1,408,000 ==========
Retainages are due in less than one (1) year. NOTE 5 - Costs and Estimated Earnings on Uncompleted Contracts
Costs Incurred on Uncompleted Contracts 89545 Estimated Earnings 19573 ------- Subtotal 109118 Less: Billings to Date 116579 ------- -7461 ======= Included on Balance Sheet Costs and Estimated Earnings in Excess of Billings 45000 Billings in Excess of Costs and Estimated Earnings 52461 ------ -7461 ======
29 NOTE 6 - NOTES PAYABLE Description Current Long-Term ---------------- --------- ----------- a.) CIB Bank Note payable dated February 3, 1997 for $250,000 note payable monthly at $6,945.00 principal plus 9% interest with a maturity date of February 1, 2000. This note is secured by the general assets of SECO. 83,340.00 97,210.00 b.) Vehicle 1 - payment is $400.00/month. Note is secured by the vehicle and has an interest rate of 8.5%. 4,951.02 0.00 c.) Vehicle 2 - payment is $478.50/month. Note is secured by the vehicle and has an interest rate of 9.475%. 5,933.63 0.00 d.) Vehicle 3 - payment is $285.09/month. Note is secured by the vehicle and has an interest rate of 8.5%. 2,862.17 5,005.05 e.) Vehicle 4 - payment is $375.69/month. Note is secured by the vehicle and has an interest rate of 9.5%. 4,118.95 1,835.04 f.) M & I Northern Bank Dated 6/30/96 payable monthly $1,873.96 principal and interest. Balance of $40,659.54 due on 6/20/99. This note is unsecured and has an interest rate of 9%. 15,699.94 51,286.36 b.) Gordon Page Payable $15,000 6/30/98 This note is unsecured and bears no interest. 15,000.00 0.00 ----------- ---------- Totals 131,905.71 155,336.45 =========== ==========
Principal payments for the next five years are as follows: 1998 $131,906 1999 139,461 2000 15,875 2001 0 2002 0 -------- TOTALS $287,242 ======== NOTE 7 - Consulting Agreement The company is committed to pay a consulting agreement in the amount $2,000 per month through 1999. This is payable to the original owner of the company. NOTE 8 - Contractual Agreements The company contracts with Mentor Investments, Inc. to provide direct labor for certain jobs. `Mentor' is responsible for the cost of the payroll taxes and workmens compensation insurance. `Mentor' receives, for these services, the cost of the gross payroll plus 20%. 30 NOTE 9 - Distribution to Shareholders The shareholders elected `S' Corporation status effective January 1, 1997. The `S' Corporation status was terminated effective August 4, 1997 when the company was merged with CGI Holding Corporation. The shares of `Roli' were exchanged for shares of `CGI' at 130.8 shares of `CGI' for each share of `ROLI.' The distribution to shareholders represents a portion of the `S" Corporation earnings for 1997. NOTE 10 - Leasing Commitments The company leases office and warehouse facilities at a monthly rate of $2,500.00, without a formal agreement. NOTE 11 - Related Party Transactions SECO, located in Brookfield, Illinois, leases, on a month to month basis, approximately 8,000 square feet of office, warehouse and storage facilities. Approximately 2,000 square feet is used as office space with the remaining facility principally used as a warehouse. Most of SECO's projects are performed on site so its facilities are primarily used for storing and working on its equipment when not in use. The terms of the lease require monthly payments of $2,500 during 1997 and $3,000 per month starting in January 1998. The building is leased from 8400 Brookfield Partners which is owned and controlled by John Giura, the president of the Company, and James Spachman, a major shareholder of the Company. The lease is on a month to month term. (See: Item 12: "Certain Relationships and Related Transactions.") The Company also uses this facility as its corporate offices. The Company and SECO believes this facility will be adequate for its future needs. EX-27 2 FDS
5 This schedule contains summary financial information extracted from the condensed consolidated balance sheet as of December 31, 1997, and condensed statements of operations for the twelve months ended December 31, 1997, and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 174,267 0 1,513,279 0 238,257 127,262 393,050 20,453 2,927,781 1,159,199 155,336 0 0 8,273 1,593,838 2,927,781 3,956,794 3,956,794 2,540,541 2,540,541 1,178,806 0 23,579 308,237 158,994 149,243 0 0 0 149,243 0.03 0.03
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