-----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, StLXpOyU22PtMRxtrl6DL1kyXADXk8ySKTMEP4eK8pAidyudDfQ8jiGEsIUSMHIN IyVRWEAil8l++UPMqlfrMQ== 0000893816-99-000003.txt : 19990308 0000893816-99-000003.hdr.sgml : 19990308 ACCESSION NUMBER: 0000893816-99-000003 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981218 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990305 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER OUTSOURCING SERVICES INC CENTRAL INDEX KEY: 0000893816 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 133252333 STATE OF INCORPORATION: NY FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-20824 FILM NUMBER: 99557986 BUSINESS ADDRESS: STREET 1: 360 WEST 31ST ST STREET 2: 11TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10001 BUSINESS PHONE: 2125643730 8-K/A 1 U.S SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) December 18, 1998 ----------------- COMPUTER OUTSOURCING SERVICES, INC. ----------------------------------- (Exact name of registrant as specified in its charter) Commission file number: 0-20824 ------- New York 13-3252333 ------------------------------- ------------------- (State or other juristiction of IRS Employer incorporation or organization) Identification No.) 2 Christie Heights Street - Leonia, NJ 07605 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) (201) 840-4700 -------------- (Issuer's telephone number) COMPUTER OUTSOURCING SERVICES, INC. Item 2. Acquisition or Disposition of Assets On December 18, 1998, Computer Outsourcing Services, Inc. (the "Company" or "COSI") purchased certain assets and the business of Enterprise Technology Group, Incorporated ("Enterprise") for $4,000,000 in cash and 300,000 shares of COSI common stock. Certain additional consideration in the form of cash and common stock may be payable, at various times, based upon the future performance of the acquired business over the period ending December 31, 2001. The acqui- sition was made by COSI Acquisition Corp., a wholly-owned subsidiary of the Company. On December 28, 1998, COSI Acquisition Corp. changed its name to ETG, Inc. The Company utilized cash on hand for the payment of $4,000,000 at closing. The assets acquired consist predominantly of intangibles associated with the business of providing information technology infrastructure management solutions to large companies. Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired: 1. Audited Financial Statements of Enterprise as of and for the years ended December 31,1996 and 1997, attached herewith as exhibit 99.1. 2. Unaudited Interim Financial Statements for Enterprise as of and for the nine months ended September 30, 1998, attached herewith as exhibit 99.2. (b) Pro Forma Information: UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME The following unaudited pro forma consolidated financial statements give effect to the purchase of certain assets and business of Enterprise for cash of $4,000,000 and 300,000 shares of the Company's common stock valued at $8.925 per share. The allocation of Enterprise's purchase price has not been finally determined. Accordingly, the amounts reflected in the pro forma consolidated financial statements may differ from the amounts that would have been used if the final purchase price allocation had been known. The unaudited consolidated statement of income for the year ended October 31, 1998 gives effect to the Enterprise acquisition as if it had occurred as of November 1, 1997. The unaudited pro forma consolidated balance sheet as of October 31, 1998 gives effect to the acquisition of Enterprise as if it had been consumated on October 31, 1998. The pro forma consolidated financial statements have been prepared by the Company's management. The pro forma consoliated financial state- ments may not be indicative of the results that actually would have occurred had the combination been in effect on the dates indicated, nor do they purport to indicate the results which may be achieved in the future. The pro forma consolidated financial statements should be read in conjunction with the financial statements and notes thereto of Enterprise appearing elsewhere herein and in the Company's Annual Report on Form 10-KSB for the year ended October 31, 1998. (c)(1) Exhibits previously filed: 10.1 Asset Purchase Agreement dated as of December 16, 1998 between Computer Outsourcing Services, Inc.; COSI Acquisition Corp.; Enterprise Technology Group, Incorporated; and Certain Stockholders of Enterprise Technology Group, Incorporated. 10.2 Employment Agreement dated as of December 18, 1998 between COSI Acquisition Corp and Warren E. Ousley. 10.3 Registration Rights Agreement, dated as of December 18, 1998, by and among Computer Outsourcing Services, Inc.; Enterprise Technology Group, Incorporated; and each of the Stockholders of Enterprise Technology Group, Incorporated. 10.4 Non-Competition and Non-Solicitation Agreement dated as of December 18, 1998 by and between COSI Acquisition Corp. and Warren E. Ousley. 10.5 Non-Competition and Non-Solicitation Agreement dated as of December 18, 1998 by and between COSI Acquisition Corp. and M. Peter Miller, not filed as it is substantially similar to Exhibit 10.4 except as to one of the parties. 10.6 Non-Competition and Non-Solicitation Agreement dated as of December 18, 1998 by and between COSI Acquisition Corp. and Enterprise Technology Group, Incorporated, not filed as it is substantially similar to Exhibit 10.4 except as to one of the parties. (c)(2) Exhibits filed herewith: 99.1 Audited Financial Statements of Enterprise as of and for the years ended December 31,1996 and 1997. 99.2 Unaudited Interim Financial Statements for Enterprise as of and for the nine months ended September 30, 1998. PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) ---------------------------------------------------- COMPUTER ENTERPRISE OUTSOURCING TECHNOLOGY SERVICES, GROUP, INC. INC. AND - TWELVE PRO FORMA SUBSIDIARIES MONTHS CONSOLIDATED - YEAR ENDED ENDED YEAR ENDED OCTOBER 31, OCTOBER 31, PRO FORMA OCTOBER 31, 1998 1998 ADJUSTMENTS 1998 ----------- ----------- ----------- ----------- REVENUES $30,403,381 $ 5,031,726 $ - $35,435,107 ----------- ----------- ----------- ----------- OPERATING EXPENSES 19,828,954 380,584 20,209,538 SELLING EXPENSES 1,384,557 1,825,049 (1,007,620)a 2,201,986 GENERAL & ADMINISTRATIVE EXPENSES 8,200,798 3,192,586 64,535 b 11,457,919 INTEREST EXPENSE/(INCOME) (547,499) (4,287) 223,509 c (328,277) ----------- ----------- ----------- ----------- TOTAL EXPENSES 28,866,810 5,393,932 (719,576) 33,541,166 ----------- ----------- ----------- ----------- INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES 1,536,571 (362,206) 719,576 1,893,941 PROVISION FOR INCOME TAXES 457,621 - 286,867 d 744,488 ----------- ----------- ----------- ----------- INCOME/(LOSS) FROM CONTINUING OPERATIONS 1,078,950 (362,206) 432,709 1,149,453 LOSS ON DISCONTINUED OPERATION NET OF INCOME TAX BENEFIT (76,464) (76,464) GAIN ON SALE OF DISCONTINUED OPERATION, NET OF INCOME TAX PROVISION 1,696,160 - - 1,696,160 ----------- ----------- ----------- ----------- NET INCOME/(LOSS) $ 2,698,646 $ (362,206) $ 432,709 $ 2,769,149 =========== =========== =========== =========== See notes to pro forma consolidated financial statements. PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) ---------------------------------------------------- COMPUTER ENTERPRISE OUTSOURCING TECHNOLOGY SERVICES, GROUP, INC. INC. AND - TWELVE PRO FORMA SUBSIDIARIES MONTHS CONSOLIDATED - YEAR ENDED ENDED YEAR ENDED OCTOBER 31, OCTOBER 31, PRO FORMA OCTOBER 31, 1998 1998 ADJUSTMENTS 1998 ----------- ----------- ----------- ----------- BASIC EARNINGS PER SHARE: INCOME FROM CONTINUING OPERATIONS $ 0.27 $ 0.26 LOSS ON DISCONTINUED OPERATION (0.02) (0.02) GAIN ON SALE OF DISCONTINUED OPERATION 0.42 0.39 ----------- ----------- NET INCOME $ 0.67 $ 0.63 =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 4,058,376 300,000 j 4,358,376 =========== =========== =========== DILUTED EARNINGS PER SHARE: INCOME FROM CONTINUING OPERATIONS $ 0.24 $ 0.24 LOSS FROM DISCONTINUED OPERATION (0.01) (0.01) GAIN ON SALE OF DISCONTINUED OPERATION 0.38 0.36 ----------- ----------- NET INCOME $ 0.61 $ 0.59 =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES AND SHARE EQUIVALENTS OUTSTANDING 4,427,921 300,000 j 4,727,921 =========== =========== =========== See notes to pro forma consolidated financial statements. PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED) AT OCTOBER 31, 1998 ---------------------------------------------------- COMPUTER OUTSOURCING ENTERPRISE SERVICES, TECHNOLOGY INC. AND GROUP, PRO FORMA PRO FORMA SUBSIDIARIES INC. ADJUSTMENTS CONSOLIDATED ----------- ----------- ----------- ----------- CURRENT ASSETS: Cash and equivalents $ 9,403,006 $ 175,658 (4,465,658)e $ 5,113,006 Marketable securities 3,218,170 - - 3,218,170 Net accounts receivable 4,452,117 1,149,359 (1,149,359)f 4,452,117 Deferred income taxes 603,627 - - 603,627 Net assets held for sale 229,289 - - 229,289 Prepaid expenses and other current assets 1,179,539 4,600 (4,600)f 1,179,539 ----------- ----------- ----------- ----------- 19,085,748 1,329,617 (5,619,617) 14,795,748 ----------- ----------- ----------- ----------- PROPERTY & EQUIPMENT, net 2,508,875 153,523 (88,951)g 2,573,447 ----------- ----------- ----------- ----------- OTHER ASSETS: Deferred software, net 1,803,013 - - 1,803,013 Intangibles, net 2,221,842 - 6,902,928 h 9,124,770 Due from related parties 89,313 - - 89,313 Deferred income taxes 718,341 - - 718,341 Security deposits and other noncurrent assets 521,404 - - 521,404 ----------- ----------- ----------- ----------- 5,353,913 - 6,902,928 12,256,841 ----------- ----------- ----------- ----------- TOTAL ASSETS $26,948,536 $ 1,483,140 $ 1,194,360 $29,626,036 =========== =========== =========== =========== See notes to pro forma consolidated financial statements. PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED) AT OCTOBER 31, 1998 ---------------------------------------------------- COMPUTER OUTSOURCING ENTERPRISE SERVICES, TECHNOLOGY INC. AND GROUP, PRO FORMA PRO FORMA SUBSIDIARIES INC. ADJUSTMENTS CONSOLIDATED ----------- ----------- ----------- ----------- CURRENT LIABILITES: Accounts payable $ 1,029,406 $ 33,089 $ (33,089)f $ 1,029,406 Current portion of long- term debt and capitalized lease obligations 260,277 260,277 Due to related parties - 250,000 (250,000)f - Income taxes payable 2,468,747 (21,800) 21,800 f 2,468,747 Accrued expenses 2,365,850 58,916 (58,916)f 2,365,850 Customer deposits and other current liabilities 202,787 - - 202,787 ----------- ----------- ----------- ----------- 6,327,067 320,205 (320,205) 6,327,067 ----------- ----------- ----------- ----------- LONG-TERM LIABILITIES: Long-term debt and capitalized lease obligations 11,510 - - 11,510 Other long-term liabilities 3,016,606 - - 3,016,606 ----------- ----------- ----------- ----------- 3,028,116 - - 3,028,116 ----------- ----------- ----------- ----------- STOCKHOLDERS' EQUITY: Common stock 42,857 1,000 2,000 j 45,857 Additional paid-in capital 11,946,837 45,938 2,628,562 j 14,621,337 Retained earnings 5,603,659 1,115,997 (1,115,997)f 5,603,659 ----------- ----------- ----------- ----------- 17,593,353 1,162,935 $ 1,514,565 20,270,853 ----------- ----------- ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $26,948,536 $ 1,483,140 $ 1,194,360 $29,626,036 =========== =========== =========== =========== See notes to pro forma consolidated financial statements. NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS a. Reduction of compensation to principal shareholders of Enterprise in accordance with the terms of the acquisition agreement and a newly executed employment contract. b. Reduction of compensation to a principal shareholder of Enterprise in accordance with the terms of the acquisition agreement and a newly executed employment contract in the amount of $390,812; elimination of certain state income taxes of $11,351 imposed on S corporations; and an increase in amortization of intangibles acquired in the amount of $466,698. (See note h) c. Reduction of interest income by the amount not earned on the purchase price payment of $4,000,000 plus costs of $290,000 incurred in connection with the acquisition. d. Increase in federal and state income taxes on pro forma adjustments. e. Payment of the cash purchase price plus costs of $4,290,000, and elimination of assets not acquired. (See Note f) f. The Company purchased only the ongoing operations, customer lists, and certain fixed assets of Enterprise, and did not assume liabilities. Accordingly, the items that were neither acquired nor assumed have been eliminated. g. Reduction of the fixed asset values of Enterprise to reflect only the assets acquired. h. In connection with the acquisition, Enterprise and its principal shareholders entered into non-competition and non-solicitation agreements with the Company. A value of $50,000 was assigned to these agreements. The Company also recorded $6,852,928 in excess of cost over net assets acquired (goodwill). The goodwill is being amortized on a straight-line basis over 15 years, the the agreements are being amortized over the terms of such agreements (approximately 61 months) j. In connection with the acquisition, the Company issued 300,000 shares of common stock, with a value of $2,677,500. The equity amounts on Enterprise's balance sheet were eliminated. COMPUTER OUTSOURCING SERVICES, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. COMPUTER OUTSOURCING SERVICES, INC. March 5, 1999 /s/ Zach Lonstein ----------------------------------- Principal Executive Officer EX-99.1 2 ENTERPRISE TECHNOLOGY GROUP, INC. FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION YEARS ENDED DECEMBER 31, 1997 AND 1996 WITH REPORT OF INDEPENDENT AUDITORS CONTENTS REPORT OF INDEPENDENT AUDITORS ................................ PAGE 3 BALANCE SHEETS ................................................ PAGE 4 STATEMENTS OF EARNINGS ........................................ PAGE 5 STATEMENTS OF STOCKHOLDERS' EQUITY ............................ PAGE 6 STATEMENTS OF CASH FLOWS ...................................... PAGE 7 NOTES TO THE FINANCIAL STATEMENTS ............................. PAGE 8-9 ADDITIONAL INFORMATION: EXPENSE SCHEDULES ............................................. PAGE 11 KIRKBY & ASSOCIATES Certified Public Accountants REPORT OF INDEPENDENT AUDITORS To the Board of Directors Enterprise Technology Group, Inc. Secaucus, NJ 07094 We have audited the accompanying balance sheets of Enterprise Technology Group, Inc. as of December 31, 1997 and December 31, 1996, and the related statements of earnings, cash flows, and retained earnings for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. an audit includes examining,on a test basis, evidence supporting amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Enterprise Technology Group, Inc. as of December 31, 1997 and December 31, 1996, and the results of its operations and cash flows for the twelve months then ended in conformity with generally accepted accounting principles. Our examination was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The information on page 10 is presented for purposes of additional analysis, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the examination of the basic financial statements and, in our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Kirkby & Associates Bloomingdale, Illinois 60108 November 25, 1998 ENTERPRISE TECHNOLOGY GROUP, INC. BALANCE SHEETS DECEMBER 31: ASSETS 1997 1996 ---------- ---------- CURRENT ASSETS: Cash $ 828,392 $ 3,215 Accounts receivable-(No allowance for doubtful accounts considered necessary) 104,488 373,605 VSE investment (valued at cost) 4,600 ---------- ---------- 937,480 376,820 ---------- ---------- PROPERTY AND EQUIPMENT, at cost Office furniture and equipment 167,970 68,773 Transportation equipment 24,359 ---------- ---------- 192,329 68,773 Less: Accumulated depreciation 87,972 50,421 ---------- ---------- 104,357 18,352 ---------- ---------- OTHER ASSETS Computer software 2,027 Less: Accumulated amortization 479 ---------- ---------- 1,548 ---------- ---------- TOTAL ASSETS $1,043,385 $ 395,172 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES 1997 1996 ---------- ---------- Accounts payable $ - $ 12,500 Unearned revenue 750,000 Accrued payroll taxes and witholdings 104,486 14,146 Accrued state replacement tax 19,655 (650) ---------- ---------- 874,141 25,996 ---------- ---------- STOCKHOLDERS' EQUITY Capital Stock, $1 par value, 1,000 shares authorized, issued, and outstanding 1,000 1,000 Contributed capital 45,938 Retained earnings 122,306 368,176 ---------- ---------- 169,244 369,176 ---------- ---------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,043,385 $ 395,172 ========== ========== See notes to financial statements. -4- ENTERPRISE TECHNOLOGY GROUP,INC. STATEMENTS OF EARNINGS FOR THE YEAR ENDED DECEMBER 31: 1997 1996 ----------- ----------- NET SALES $ 4,999,067 $ 2,224,225 ----------- ----------- OPERATING EXPENSES 324,629 138,646 SELLING EXPENSES 2,046,624 821,393 GENERAL & ADMINISTRATIVE EXPENSES 2,876,547 908,218 ----------- ----------- TOTAL EXPENSES 5,247,800 1,868,257 EARNINGS FROM OPERATIONS (248,733) 355,968 ----------- ----------- OTHER INCOME (EXPENSE): Interest income 2,863 465 ----------- ----------- 2,863 465 ----------- ----------- EARNINGS BEFORE INCOME TAXES (245,870) 356,433 PROVISION FOR INCOME TAXES (NOTE C) ----------- ----------- NET EARNINGS $ (245,870) $ 356,433 =========== =========== See notes to financial statements. -5- ENTERPRISE TECHNOLOGY GROUP INC. STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31,1997 AND 1996 COMMON STOCK CONTRIBUTED RETAINED ----------------- CAPITAL EARNINGS SHARES AMOUNT ------- -------- ----------- ----------- BALANCE, JANUARY 1,1996 1,000 $ 1,000 $ $ 11,743 Net earnings 356,433 ------- -------- ----------- ----------- Balance December 31,1996 1,000 1,000 368,176 Capital Contributions 45,938 Net earnings (245,870) ------- -------- ----------- ----------- Balance,December 31,1997 1,000 $ 1,000 $ 45,938 $ 122,306 ======= ======== =========== ========== See notes to financial statements. -6- ENTERPRISE TECHNOLOGY GROUP, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31: 1997 1996 ---------- ---------- Cash Flows From Operating Activities Net Income (loss) $ (245,870) $ 356,433 ---------- ---------- Add (deduct) items not affecting cash Depreciation and amortization 38,030 21,853 (Increase) decrease in accounts receivable 269,117 (346,548) Increase (decrease) in accounts payable (12,500) (3,002) Increase (decrease) in unearned revenue 750,000 Increase (decrease) in accrued payroll taxes 82,378 10,454 Increase (decrease) in accrued profit sharing 7,962 Increase (decrease) in accrued state income tax 20,305 ---------- ---------- 1,155,292 (317,243) ---------- ---------- Net Cash Provided (Used) From Operating Activities 909,422 39,190 ---------- ---------- Cash Flows From Investing Activities Purchase of office furniture and equipment (99,197) (36,831) Purchase of transportation equipment (24,359) Purchase of computer software (2,027) Purchase of VSE investment (4,600) ---------- ---------- Net Cash Provided (Used) From Investing Activities (130,183) (36,831) ---------- ---------- Cash Flows From Financing Activities Capital Contributions 45,938 - ---------- ---------- Net Cash Provided (Used)From Financing Activities 45,938 - ---------- ---------- Net Increase (Decrease)In Cash 825,177 2,359 Cash Balance,January 1 3,215 856 ---------- ---------- Cash Balance,December 31 $ 828,392 $ 3,215 ========== ========== Supplementary Information: Interest Paid $ 1,578 $ 7,299 ========== ========== Income taxes paid (Note C) $ - $ - ========== ========== See notes to financial statements. -7- ENTERPRISE TECHNOLOGY GROUP, INC. NOTES TO FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND 1996 Note A - Summary of Significant Accounting Policies Description of Business The Corporation is a provider of leading edge Information Technology Infrastructure management solutions, by delivering initiatives to reduce costs and defining options for senior management. Basis of Accounting The Corporation maintains its books on the accrual basis of accounting. The Corporation recognizes revenues as earned and expenses as incurred. Fixed Assets Fixed assets are carried at cost. Depreciation is computed over the assets' useful life using accelerated methods of depreciation. Note B - Operating Leases The Corporation operates from facilities leased from Harman Plaza Corporation. The lease terms are from October 1, 1996 to October 1, 2001 at $5,529.88 per month plus monthly utility costs. The share- holders of the Corporation have personally guaranteed the lease. Note C - Income Taxes The Corporation elected to be taxed as an S corporation under the Internal Revenue Code. Accordingly, the current taxable income of the Corporation is allocable to the shareholders who are responsible for the payment of Federal and State income taxes thereon. The Corporation is subject to a replacement tax which was $507 and $20,798 for the years ending December 31, 1996 and 1997 respectively. -8- ENTERPRISE TECHNOLOGY GROUP, INC. NOTES TO FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND 1996 Note D - Profit-Sharing Plan The Company instituted a 401K plan to effective January 1, 1997 for all eligible employees. There was no company contribution for the plan during 1997. Note E - Related Part Transactions The company has contracts that a related party has been assigned all duties,responsibilities, and value under these contracts. The company has agreed to disclaim any value for these contracts and the related party has agreed to indemnify the company for any claims involving the use of these contracts. No funds pass through the company and the related party processes all transactions. -9- ADDITONAL INFORMATION ENTERPRISE TECHNOLOGY GROUP,INC. EXPENSE SCHEDULES FOR THE YEARS ENDED DECEMBER 31: OPERATING EXPENSES 1997 1996 ----------- ----------- Rent $ 121,180 $ 36,928 Moving expense 980 Payroll Taxes 47,467 48,057 Telephone 31,460 15,289 Utilities 4,586 3,049 Vehicle 504 Insurance-general 2,011 1,795 Insurance-group 79,391 10,696 Depreciation 37,551 21,852 Amortization 479 ----------- ----------- $ 324,629 $ 138,646 =========== =========== SELLING EXPENSES 1997 1996 ----------- ----------- Advertising and promotions $ 3,215 $ - Commissions 468,750 11,400 Consulting 1,556,145 798,059 Meals and entertainment 18,514 11,934 ----------- ----------- $ 2,046,624 $ 821,393 =========== =========== GENERAL AND ADMINISTRATIVE EXPENSES 1997 1996 ----------- ----------- Salary-officers $ 1,172,227 $ 241,927 Salary-office 186,771 77,842 Salary-consulting 1,283,912 545,224 Contract labor 4,167 Reimbursed salaries (48,560) Training 10,490 2,000 Interest 1,578 7,299 License and fees 1,306 88 Office expense 25,154 10,955 Professional fees 2,678 3,569 Travel expense 167,653 61,935 State replacement tax 20,798 507 Dues and subscriptions 3,980 1,265 ----------- ----------- $ 2,876,547 $ 908,218 =========== =========== See notes to financial statements. -11- EX-99.2 3 Bertrand P. McAndrew & Associates 120 Harrison Street Barrington, IL 60010 November 3, 1998 Enterprise Technology Group, Inc. 1 Harmon Plaza, 3rd Floor Secaucus, N.J. 07094 Dear Client: We have compiled the accompanying balance sheet of Enterprise Technology Group, Inc. (an S corporation) as of September 30, 1998, and the related statement of income for the nine month period then ended, in accordance with the standards established by the American Institute of Certified Accountants. A compilation is limited to presenting in the form of financial statements information that is the representation of management. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or other form of assurance on them. Management has elected to omit substantially all of the disclosures required by generally accepted accounting principles. If the omitted disclosures were included in the financial statements, they might influence the user's conclusions about the Company's financial position and results of operations. Accordingly, these financial statements are not designed for those who are not informed about such matters. The Company, with the consent of its shareholders, has elected under the Internal Revenue Code to be an S corporation. In lieu of corporation income taxes, the shareholders of an S corporation are taxed on their proportionate share of the Company's taxable income. Therefore, no provision or liability for federal income taxes has been included in these financial statements. Very truly yours, /s/ Bertrand P. McAndrew & Associates ENTERPRISE TECHNOLOGY GROUP, INC. BALANCE SHEET SEPTEMBER 30, 1998 ASSETS CURRENT ASSETS: Cash $ 147,911 Accounts receivable 605,122 VSE investment (valued at cost) 4,600 ---------- 757,633 ---------- PROPERTY AND EQUIPMENT, at cost Office furniture and equipment 220,152 Transportation equipment 26,078 ---------- 246,230 Less: Accumulated depreciation 109,404 ---------- 136,826 ---------- OTHER ASSETS Computer software 10,369 Less: Accumulated amortization 986 ---------- 9,383 ---------- TOTAL ASSETS $ 903,842 ========== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Accounts payable $ 12,860 Accrued payroll taxes and witholdings 16,629 Accrued state replacement tax (21,000) ---------- 8,489 ---------- LONG TERM LIABILITIES Notes payable - shareholders 250,000 ---------- STOCKHOLDERS' EQUITY Capital Stock, $1 par value, 1,000 shares authorized, issued, and outstanding 1,000 Contributed capital 45,938 Retained earnings 598,415 ---------- 645,353 ---------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 903,842 ========== See accountants' compilation letter. ENTERPRISE TECHNOLOGY GROUP,INC. STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 NET SALES $ 3,037,585 ----------- OPERATING EXPENSES 249,420 SELLING EXPENSES 795,862 GENERAL & ADMINISTRATIVE EXPENSES 1,518,181 ----------- TOTAL EXPENSES 2,563,463 ----------- EARNINGS FROM OPERATIONS 474,122 ----------- OTHER INCOME (EXPENSE): Interest income 1,987 ----------- 1,987 ----------- EARNINGS BEFORE INCOME TAXES 476,109 PROVISION FOR INCOME TAXES - ----------- NET EARNINGS $ 476,109 =========== See accountants' compilation letter. -----END PRIVACY-ENHANCED MESSAGE-----