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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM 10-SB
General Form for Registration of Securities
of Small Business Issuers Under Section 12(b) or 12(g) of
the Securities Exchange Act of 1934
DelSoft Consulting, Inc.
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(Name of Small Business Issuer in its charter)
Georgia 75-2719614
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
106 Bombay Lane, Roswell, Georgia 30076
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(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code: (770) 518-4289
Securities to be registered under Section 12(b) of the Act:
None.
Securities to be registered under Section 12(g) of the Act:
Common Stock
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(Title of class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
The following discussion contains certain forward-looking statements
which involve known and unknown risks, uncertainties and other factors and which
may cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, the uncertainty as to the Company's future profitability;
the uncertainty as to the demand for information technology services and
solutions; industry trends towards outsourcing information technology services;
increasing competition in the information technology services market; the
ability to hire, train and retain sufficient qualified personnel; the ability to
obtain financing on acceptable terms to finance the Company's growth strategy;
the ability to develop and implement operational and financial systems to manage
the Company's growth; and other factors referenced in this registration
statement. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Forward Looking Statements and Associated Risks."
OVERVIEW
DelSoft Consulting, Inc. ("DelSoft" or the "Company") was founded in July
1996 as a professional services staffing firm, and has, over the past 27 months,
developed its technological and managerial infrastructure to offer its clients
value added services, including professional services staffing, solutions and
services for the Year 2000 problem and application maintenance outsourcing
(collectively referred to as "solutions"). The Company markets solutions to both
existing and potential clients with the objective of becoming one of such
client's preferred providers of comprehensive information technology ("IT")
services and solutions. With the trend in the commercial market moving toward
fully integrated information systems solutions, the Company offers its clients a
broad range of business and technical services as a service outsourcer and
systems integrator capable of providing complex tool solutions. This total
solutions approach includes proprietary software and tools, proven processes and
methodologies, tested project management practices and resources management and
procurement programs. The Company is headquartered in the Metropolitan Atlanta
area with satellite offices in Ottawa, Canada, Indianapolis, Indiana and
Detroit, Michigan. It also has human resources officers stationed in Bangalore
and Madras, India who are actively recruiting IT professionals.
BACKGROUND
The Company was incorporated in Georgia on July 1, 1996. In its first two
years, the Company has applied a significant amount of its funds and resources
towards the creation of the kind of infrastructure it believes will be needed to
grow its business. This included the hiring of personnel, development of new
services, establishment of an overseas recruitment division, and opening of
satellite offices.
On December 12, 1996, DelSoft merged with Pyke Corp., a Delaware
corporation and publicly traded shell company ("Pyke") with the Company as the
surviving entity. Pyke's 418 shareholders received one share of DelSoft Common
Stock for every six shares of Pyke common stock they held. The Company issued
1,713,316 shares in the merger, or approximately 17% of DelSoft's outstanding
Common Stock on a post-merger, fully diluted basis. The primary purpose of the
merger was to increase the Company's shareholder base to help support an
eventual trading market in the stock to make the securities more attractive and
thereby facilitate the company's future efforts to raise equity capital.
At the time of the merger, Pyke had a cash balance of $10,279 and no other
assets or liabilities. Pyke had no operations prior to the effective date of
the merger, and there was no market for the shares, so the shares issued by the
Company in the merger were valued at Pyke's net asset value of $10,279.
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SERVICES
DelSoft provides its clients with a one-stop shop for a broad range of IT
applications solutions and services. Historically, the substantial majority of
the Company's projects have been client-managed. On client-managed projects,
DelSoft provides professional services as a member of the project team on a
time-and-materials basis. On DelSoft-managed projects, DelSoft takes complete
responsibility for project management and bills the client on either a time-and-
materials or fixed-price basis. The Company is seeking to shift a larger portion
of its business to DelSoft-managed projects, which generally carry higher profit
margins.
The solutions and services offered by the Company include the following:
(a) PROFESSIONAL SERVICES STAFFING: Providing highly-skilled software
professionals to augment the internal information management staffs of major
corporations remains the Company's primary business. The Company supplies
clients' staffing needs from among its diverse supply of software professionals.
The Company is committed to expanding its professional services staffing
operations in conjunction with its solutions business in both the mainframe and
client/server development environments.
(b) SERVICES AND SOLUTIONS FOR THE YEAR 2000 PROBLEM: The Company
offers the NYE 2000(TM) proprietary software toolset. The NYE 2000 software tool
may be used to analyze and convert Natural(TM) source code to be Year 2000
compliant, and is expected to allow the Company to perform Year 2000 projects
more efficiently. The NYE 2000 software tool allows a user to choose between
full field expansion, windowing, or a combination of both. Customers may license
the toolset and use it in their environment, or the Company will provide the
toolset in conjunction with its delivery of proven methodologies, experienced
project management, and skilled resources with significant Year 2000 project
experience.
(c) APPLICATION MAINTENANCE OUTSOURCING: Spurred by global competition
and rapid technological change, large companies, in particular, are downsizing
and turning to outside service providers to perform their IT functions. The
reasons for such outsourcing range from cost reduction to capital asset
improvement and from improved technology introduction to better strategic focus.
In response to this trend, the Company, has at its disposal a complete staff
that includes experienced project managers, technicians and operators. These
professionals provide essential data functions including, applications
development, systems maintenance, data network management, voice network
administration and help desk operations.
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SALES AND MARKETING
DelSoft sells its services to large organizations through a direct sales
force. The Company is also aggressively pursuing preferred vendor arrangements
with large organizations. As a preferred vendor, the Company would be one of a
limited number of service providers to a particular client, thus enabling it to
sell its services more effectively. These contracts generally result in lower
margins due to negotiated discounts, but are expected to generate higher and
more steady revenues.
CLIENTS
The Company provides its services and solutions primarily to Fortune 1,000
companies with significant IT budgets and recurring staffing or software
development needs. Substantially all of the Company's clients are large
companies, major systems integrators or governmental agencies. The Company's
strategy is to maximize its client retention rate and secure follow-on
engagements by providing high quality services and client responsiveness.
Two-thirds of the Company's net revenues for fiscal year 1998 were derived
from only two clients: USA Group and Ernst & Young LLP. The Company's
relationship with USA Group is long-standing. Although the parties could
terminate the arrangement at any time, the current project has been renewed
through September 1999. Significant effort has already been invested in this
project and the Company believes it unlikely that its current project with USA
Group would be abruptly terminated. Although Ernst & Young is a major client,
the nature of the relationship is that the Company works with Ernst & Young on
projects for their clients.
Most of the Company's projects, including those with its two major clients,
are terminable by the client at any time without penalty. The loss of any
significant client and/or project could have a material adverse effect on the
Company's business, operating results and financial condition.
COMPETITION
The IT services industry is highly competitive and is served by numerous
national, regional and local firms, all of which are either existing or
potential competitors of the Company. Currently, the Company's primary
competitors include participants from a variety of market segments, including
"Big Five" accounting firms, service departments of computer hardware and
software companies, general management consulting firms, programming companies
and temporary staffing firms. Many of these competitors have substantially
greater financial, technical and marketing resources and greater name
recognition than the Company. In addition, the Company's clients may elect to
increase their internal IT resources to satisfy their solutions needs. The
Company believes that the principal competitive factors in the IT services
industry include the range of services offered, technical expertise,
responsiveness to client needs, speed in delivering IT solutions, quality of
service and perceived value. The Company believes that the range of services and
solutions that it offers combined with its diverse pool of labor resources gives
the Company a competitive advantage in the IT marketplace.
INTELLECTUAL PROPERTY RIGHTS
The Company relies upon a combination of nondisclosure and other
contractual arrangements and trade secret, copyright and trademark laws to
protect its proprietary rights and the proprietary rights of third parties from
whom the Company licenses intellectual property.
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The Company enters into confidentiality agreements with its employees and limits
distribution of proprietary information. There can be no assurance that the
steps taken by the Company in this regard will be adequate to deter
misappropriation of proprietary information or that the Company will be able to
detect unauthorized use and take appropriate steps to enforce its intellectual
property rights. The intellectual property rights to the software developed by
the Company in connection with a client engagement is typically assigned to the
client.
Although the Company's intellectual property has never been the subject of
an infringement claim, there can be no assurance that third parties will not
assert infringement claims against the Company in the future, that assertion of
such claims will not result in litigation or that the Company would prevail in
such litigation or be able to obtain a license for the use of any infringed
intellectual property from a third party on commercially reasonable terms.
Furthermore, litigation, regardless of its outcome, could result in substantial
costs to, and diversion of effort by, the Company. Any infringement claim or
litigation against the Company could, therefore, materially and adversely affect
the Company's business, operating results and financial condition.
HUMAN RESOURCES
The Company's success depends in large part on its ability to attract,
develop, motivate and retain highly skilled IT professionals. The Company's
human resources department is dedicated full-time to recruiting IT professionals
and managing its human resources. The Company recruits in a number of countries
and regions, including the United States, India, Canada, South America, Central
America, Mexico, and the Philippines. The Company also advertises in various
newspapers. In addition, the Company's employees are a valuable recruiting tool
and are actively involved in referring new employees and screening candidates
for new positions. DelSoft uses a standardized global selection process which
includes interviews, tests and reference checks.
The Company has a focused retention strategy that includes career planning,
training and benefits. The Company's comprehensive benefits package includes
Company-paid health insurance, a 401(k) plan, dental insurance, and green card
processing. The Company uses stock options as part of its recruitment and
retention strategy.
As of September 30, 1998, DelSoft employed 63 full-time employees,
consisting of 43 technical consultants, 7 employees in marketing and sales and 7
employees in administration and support. DelSoft also has contracts with 6
independent consultants. DelSoft's IT professionals typically have Master's or
Bachelor's degrees in Computer Science or another technical discipline and two
to ten years of IT experience. In addition, the Company uses independent
contractors to staff client engagements.
On April 13, 1998, the Company acquired the client database of an IT
recruiting company based in Detroit, Michigan. The
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Company has maintained an ongoing relationship with this IT recruiting company
since 1996, and it has assisted the Company in finding and placing IT
professionals in the past. Management believes that the newly acquired client
database will reduce the costs of hiring its IT professionals.
GOVERNMENT REGULATION OF IMMIGRATION
The Company's solutions and services are not currently subject to direct
regulation by any government or law other than regulations applicable to
businesses generally.
Some of DelSoft's consultants are citizens of other countries, most of whom
are working in the United States under H1-B temporary visas. The H1-B visa,
which is issued subject to approval by the Immigration and Naturalization
Service, allows companies that can prove that they need workers with certain
skills Americans cannot provide to hire foreign nationals for such jobs for up
to six years. Under current law, there is a statutory limit of 65,000 new H1-B
visas that may be issued in any government fiscal year. For the federal fiscal
year ending September 30, 1998, this limit was reached in May. The statutory
limit will be increased to 115,000 new H1-B visas for fiscal year 1999 and 2000,
and 107,500 for fiscal year 2001. The statutory limit will return to 65,000 in
fiscal year 2002, beginning October 1, 2001. In years in which this limit is
reached, the Company may be unable to obtain enough H1-B visas to bring
sufficient foreign employees to the U.S. Moreover, the Company may have to
replace existing employees whose H1-B visas expire at the end of their six year
term with new employees, some of whom may also require visas. If the Company
were unable to obtain H1-B visas for its employees in sufficient quantities or
at a sufficient rate for a significant period of time, the Company's business,
operating results and financial condition could be materially adversely
affected.
Furthermore, Congress and administrative agencies with jurisdiction over
immigration matters have periodically expressed concerns over the levels of
legal and illegal immigration into the U.S. These concerns have often resulted
in proposed legislation, rules and regulations aimed at reducing the number of
employment-based visas and permanent residency visas that may be issued. Any
changes in such laws making it more difficult to hire foreign nationals or
limiting the ability of the Company to retain foreign employees, could require
the Company to incur additional unexpected labor costs and expenses or result in
the Company having insufficient qualified personnel to perform all of the
engagements under which the Company is obligated or that might otherwise be
available to the Company. Any such restrictions or limitations on the Company's
hiring practices could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company spent approximately $113,072 on obtaining 47 visas for the
fiscal year ended June 30, 1998. Because some of its employees hold visas, the
Company is obligated to maintain certain public access files. The cost of that
effort is included in the amount disclosed above.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
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The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this report.
OVERVIEW
DelSoft Consulting, Inc. is a professional services staffing firm that was
incorporated in Georgia on July 1, 1996. The Company offers its clients value
added services, including professional services staffing, solutions and services
for the Year 2000 problem, and application maintenance outsourcing (collectively
referred to as "solutions"). DelSoft markets solutions to both existing and
potential clients with the objective of becoming one of such client's preferred
providers of comprehensive information technology ("IT") services and solutions.
DelSoft's revenues are derived from fees paid by clients for professional
services. Historically, a substantial majority of the Company's projects have
been client-managed. On client-managed projects, DelSoft provides professional
services as a member of the project team on a time-and-materials basis. The
Company recognizes revenues on such projects as the services are performed.
DelSoft's most significant cost item is its personnel expense, which consists
primarily of salaries and benefits for the Company's billable personnel. The
number of IT professionals assigned to projects may vary depending on the size
and duration of each engagement. Moreover, project terminations and completion
and scheduling delays may result in short periods when personnel are not
assigned to active projects. DelSoft manages its personnel costs by closely
monitoring client needs and basing personnel increases on specific project
engagements. While the number of IT professionals may be adjusted to reflect
active projects, the Company continues to process H1-B visas and maintain a
database of available professionals to respond to increased demand for the
Company's services on both existing projects and new engagements.
The Company provides its services and solutions primarily to Fortune 1,000
companies with significant IT budgets and recurring staffing or software
development needs. Substantially all of the Company's clients are large
companies, major systems integrators or governmental agencies.
The solutions offered by the Company include the following:
(a) PROFESSIONAL SERVICES STAFFING: Providing highly-skilled software
professionals to augment the internal information management staffs of major
corporations remains the Company's primary business. The Company supplies
clients' staffing needs from among its diverse supply of software professionals.
The Company is committed to expanding its professional services staffing
operations in conjunction with its solutions business in the mainframe and
client/server development environments and enterprise resource planning software
market.
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(b) SERVICES AND SOLUTIONS FOR THE YEAR 2000 PROBLEM: The Company offers
NYE2000(TM), a proprietary software toolset, which facilitates the analysis and
conversion of NATURAL(TM) source code to make it Year 2000 compliant. NYE2000
allows a user to choose between full field expansion, windowing, or a
combination of both. Customers may license the toolset and use it in their
environment, or DelSoft will provide the toolset in conjunction with proven
methodologies, experienced project management, and skilled resources with
significant Year 2000 project experience.
(c) APPLICATION MAINTENANCE OUTSOURCING: Spurred by global competition and
rapid technological change, large companies, in particular, are downsizing and
turning to outside service providers to perform their IT functions. The reasons
for such outsourcing range from cost reduction to capital asset improvement and
from improved technology introduction to better strategic focus. In response to
this trend, the Company, has at its disposal a complete staff that includes
experienced project managers, technicians and operators. These professionals
provide essential data functions including, applications development, systems
maintenance, data network management, voice network administration and help desk
operations.
During 1998, the Company redirected its focus to expanding its professional
services staffing operations through direct and/or end-user client placements
that generate higher revenues and higher gross margins than subcontractor
placements. As a result, DelSoft released any consultants not meeting this
general profile. In the first quarter, this process continued. New placements
during this period will generate an average of approximately $220,000 in gross
revenues per placement (on an annualized basis) at an average gross margin of
approximately 44%. This compares to an average of approximately $137,000 in
gross revenues per placement (on an annualized basis) at an average gross margin
of approximately 37% during the three-month period ending September 30, 1997.
During the first quarter, the Company signed a letter of intent to acquire a
computer-consulting firm, providing a variety of computer programming services
with an emphasis on client-server ("Acquisition"). The target company, which is
headquartered in New York City, has approximately one hundred IT professionals
throughout the tri-state area and Europe. Management of the target company
estimates current revenues of approximately $9.6 million and current profits
(prior to taxes, compensation and distributions to shareholders and any
resulting acquisition costs) of approximately $1 million in 1998. The companies
are in the process of completing their respective due diligence. The terms of
the Acquisition, including the purchase price, have not been finalized. The
Acquisition will be paid for with a combination of cash and stock. The target
company has agreed to a payout over three years. In addition, the purchase price
is subject to reduction in the event the revenues and/or profits of the target
company decline.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1997
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REVENUES. The Company's revenue increased slightly to approximately $2,345,000
million for the first quarter of 1999 from $2,319,000 for the first quarter of
1998. This increase in revenues in spite of a decrease in the total number of
consultants is primarily attributable to significantly higher billable rates for
services provided to existing clients and engagements with new clients as
compared to the billable rates for the same period last year.
DIRECT PROJECT COSTS. Direct project costs consist primarily of salaries and
employee benefits for billable IT professionals and the associated travel and
relocation costs of these professionals, as well as the cost of the independent
contractors used by the Company. Direct project costs increased slightly to
approximately $1,704,000 for the first quarter of 1999 from $1,693,000 for the
first quarter of 1998. The increase in direct project costs in spite of a
decrease in the total number of consultants is primarily attributable to the
increase in professional salaries to attract and retain qualified IT
professionals to staff existing and additional projects due to increased
competition in the marketplace.
NET REVENUE. Net revenue consists of revenues less direct project costs. Net
revenue increased slightly from approximately $626,000 during the three-month
period ended September 30, 1997 to approximately $642,000 during the three-month
period ended September 30, 1998. This increase in spite of a decrease in the
total number of consultants is primarily attributable to billing rates
increasing at higher levels than professional salaries and engagements with new
clients being more profitable than those with existing clients. The increase in
net revenue was offset by higher personnel expenses resulting from the hiring of
additional IT professionals at higher salaries to support existing and
additional client engagements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist of costs associated with the Company's sales and
marketing efforts, executive management, finance and human resource functions,
facilities and telecommunications costs and other general overhead expenses.
Selling, general and administrative expenses increased to approximately $676,000
in the first quarter of 1999 from approximately $481,000 in the first quarter of
1998. In addition, the Company recognized charges relating to the amortization
of intangible assets and unearned compensation of approximately $73,000 and
$33,000, respectively during the three months ended September 30, 1998, with no
corresponding charges in the comparable prior period. The increase in selling,
general, and administrative expenses is primarily attributable to the Company's
continued investment in infrastructure and in the initiatives required to
implement the Company's marketing strategies. These costs include the
development of additional services offerings, the expansion of its recruiting
capabilities, and the opening of additional offices. The most significant of
these costs consisted of the sales and marketing efforts associated with the
Company's proprietary Year 2000 software toolset, NYE2000.
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NET INCOME (LOSS). The Company's net income for the three months ended September
30, 1997, of approximately $71,000 decreased by approximately $112,000 to a net
loss of approximately $41,000 for the comparable period in 1998. The primary
reason for this decrease is attributable to the non-cash charges of $73,000 and
$33,000, respectively, relating to amortization of the intangibles and unearned
compensation plus the efforts associated with marketing and selling the
Company's proprietary Year 2000 software toolset, NYE2000.
RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1998
COMPARED TO THE YEAR ENDED JUNE 30, 1997
REVENUES. The Company's revenues increased approximately 80%, from
approximately $6.1 million in 1997 to approximately $11 million in 1998. This
growth in revenues was primarily attributable to additional services provided to
existing clients and engagements with new clients. In addition, new placements
in 1998 were at higher billable rates as compared to the billable rates for the
same period last year.
DIRECT PROJECT COSTS. Direct project costs consist primarily of salaries and
employee benefits for billable IT professionals, as well as the cost of the
independent contractors used by the Company. Direct project costs increased
approximately 69%, from approximately $4.8 million in 1997 to approximately $8.1
million in 1998. This increase is primarily attributable to the Company's
ability to attract and retain its own qualified IT professionals while
decreasing its reliance on independent contractors. In addition, professional
salaries to attract and retain qualified IT professionals to staff existing and
additional projects are higher due to increased competition in the marketplace.
NET REVENUE. Net revenue consists of revenues less direct project costs. Net
revenue increased approximately 123%, from approximately $1.3 million in 1997
to approximately $2.9 million in 1998. This increase is attributable primarily
to an increase in the number of IT professionals utilized by the Company
(including independent contractors). In addition, billing rates increased at a
slightly higher level than professional salaries and engagements with new
clients were more profitable than those with existing clients. The increase in
net revenue was partially offset by higher personnel expenses resulting from the
hiring of additional professionals to support the increase in client
engagements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist of costs associated with the Company's sales and
marketing efforts, executive management, finance and human resource functions,
facilities and telecommunications costs and other general overhead expenses.
Selling, general and administrative expenses increased approximately 75%, from
approximately $1.2 million in 1997 to approximately $2.1 million in 1998. The
increase in selling, general, and administrative expenses is primarily
attributable to the Company's continued investment in infrastructure and in the
initiatives required to implement the Company's marketing strategies. These
costs include the development of additional services offerings, the expansion of
its recruiting capabilities, and the opening of additional offices. Also,
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the Company has increased professional and marketing expenses as a public
company not previously incurred as a private company.
NET INCOME (LOSS). The Company's net income for the year ended June 30, 1998,
increased approximately 305%, from approximately $74,000 in 1997 to
approximately $300,000 in 1998.
LIQUIDITY AND CAPITAL RESOURCES. Historically, the Company has financed its
working capital requirements through internally generated funds, the sale of
shares of its common stock, and proceeds from short-term bank borrowings.
During 1998, the Company received net proceeds of $705,000 from sales of common
stock.
The Company currently has a $1.25 million revolving credit facility with
Emergent Financial Group. The credit facility bears interest at the higher of
1.5% over the prime rate or 7%. Borrowings under the revolving credit facility
are secured by substantially all of the Company's assets. In addition, Jerry
Rosemeyer, Benjamin Giacchino, and Jeffrey A. Rinde each executed a limited
personal guaranty obligating each of them to pay the sum of $100,000 of the
Company's outstanding borrowings when due; provided, however, that if an event
of default and/or a default had not occurred as defined in the Loan Documents
dated February 18, 1997, between the Company and Emergent Financial Group, the
limited personal guaranty expire at the end of six months from its execution.
Accordingly, these guarantees have expired. The facility contains certain
restrictive covenants, including, the maintenance of certain financial ratios
and limitations on payment of dividends and additional borrowings. As of
September 30, 1998 and November 10, 1998, the Company had outstanding borrowings
of approximately $548,000 and $590,000, respectively.
Except for additional cash that may be required to close the Acquisition, the
Company currently anticipates existing sources of liquidity and cash generated
from operations are sufficient to satisfy its cash needs through the next twelve
months. To close the Acquisition or in the future, the Company may seek to
increase the amount of its credit facilities, negotiate additional credit
facilities or issue corporate debt or equity securities. Any debt incurred or
issued by the Company may be secured or unsecured, fixed or variable rate
interest and may be subject to such terms as the board of directors of the
Company deem prudent. The Company expects any proceeds from such additional
credit or sales of securities to be used primarily in the hiring of further IT
professionals and/or the acquisition of other consulting companies.
The Company does not believe that its business is subject to seasonal trends.
The Company does not believe that inflation had a significant impact on the
Company's results of operations for the periods presented. On an ongoing basis,
the Company attempts to minimize any effects of inflation on its operating
results by controlling operating costs, and, whenever possible, seeking to
insure that billing rates reflect increases in costs due to inflation.
YEAR 2000. The "Year 2000" issue concerns the potential exposures related to
the automated generation of business and financial misinformation resulting from
the use of computer programs which have been written using two digits, rather
than four, to define the applicable year of business transactions. The Company
has evaluated, and is continuing to evaluate, the potential cost associated with
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becoming Year 2000 compliant. The Company believes that the principal staffing
and financial systems it intends on using as of January 1, 1999, which are
licensed from and maintained by third-party software development companies, are
Year 2000 compliant. Management does not anticipate that the remaining costs
associated with assuring that its internal systems will be Year 2000 compliant
will be material to its business, operations or financial condition.
The Company intends on conducting a risk evaluation and assessment study to
determine the preparedness level of customers, vendors, and other service
providers for the Year 2000 and the subsequent impact on the Company. The
Company will take such actions as management deems appropriate based on the
results of the review. The Company expects to incur only minimal internal staff
costs and other miscellaneous expenses related to the risk evaluation and
assessment project.
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ITEM 3. DESCRIPTION OF PROPERTY.
DelSoft's principal office is located at 106 Bombay Lane, Roswell,
Georgia 30076. The office, which is approximately 2300 square feet, is leased
pursuant to a lease which expires in May 2000. DelSoft's current location is
adequate for its projected needs, and the Company does not believe it will have
difficulty obtaining additional space as needed. DelSoft has a second office
located at 1980 E. 116th Street, Suite 317, Carmel, Indiana. The office, which
is approximately 1,618 square feet, is leased pursuant to a lease which expires
in December 1999. The office is adequate for its projected needs,and the Company
does not believe it will have difficulty obtaining additional space as needed.
The Company has recently opened two additional sales offices, located at 6111
Jackson Road, Suite 105, Ann Arbor, Michigan, and 440 Laurier Avenue West, Suite
200, Ottawa, Ontario, Canada K1R7X6, respectively. These sales offices, which
are each approximately 150 square feet, are leased pursuant to leases which
expire in November 1999 and December 1998, respectively. Both of these sales
offices are adequate for the Company's projected needs, and the Company does not
believe it will have difficulty in obtaining additional space as needed.
The monthly rent on each of the offices is as follows:
Roswell, Georgia $2,650
Carmel, Indiana $1,867
Ottawa, Canada $552* (*based on exchange rate on
November 19, 1998.
Actual rate is in Canadian
dollars at CAN$856)
Detroit, Michigan $300
The Company maintains a Commercial Business Package (Property) insurance
policy on the Roswell, Georgia and Carmel, Indiana offices. The policy coverage
total on contents is approximately $164,000. The liability coverage is
$2,000,000 on these two locations. The Company does not maintain insurance on
the Ottawa and Detroit offices because the contents of these two offices is
negligible, and they are not used for meeting with customers.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The Company is authorized to issue 100,000,000 shares of Common Stock,
of which 11,259,149 shares were issued and outstanding on September 30, 1998. As
of September 30, 1998, there were 398 shareholders of record.
The following table sets forth certain information regarding the
beneficial ownership of the shares of Common Stock as of September 30, 1998, by
(i) each person who is known by the Company to be the
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beneficial owner of more than five percent (5%) of the issued and
outstanding shares of Common Stock, (ii) each of the Company's
directors and executive officers and (iii) all directors and executive
officers as a group:
<TABLE>
<CAPTION>
Percent of Shares
Beneficial Owner* Shares Beneficially Owned Outstanding <F1>
----------------- ------------------------- -----------------
<S> <C> <C>
Ben J. Giacchino 2,681,767 <F2> 23.71%
Jerry Rosemeyer 2,683,650 <F2> 23.73
Jeffrey A. Rinde 2,302,837 <F3> 20.10
Michael Osso 2,425,000 <F4> 15.05
Adil Choksey 0 -
All Directors and
Executive Officers
as a Group (5 persons) 10,093,254 72.18%
</TABLE>
- ---------------------
[FN]
* Unless otherwise indicated, the beneficial owner's address is
the same as the Company's principal office.
<F1> Percentages calculated on the basis of the amount of outstanding
shares plus, for each person, any shares that person has the
right to acquire within 60 days pursuant to options or other
rights.
<F2> Includes 50,000 shares subject to stock options which are
currently exercisable.
<F3> Includes 200,000 shares subject to stock options which are
currently exercisable.
<F4> Consists of 2,425,000 shares subject to stock options which are
currently exercisable.
</FN>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The following is a list of the names and ages of all directors and
executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael Osso 37 President and Director
Adil Choksey 34 Vice President
Jeffrey A. Rinde 31 Chief Financial Officer,
General Counsel, Secretary and
Director
Ben J. Giacchino 43 Director
</TABLE>
Directors serve from the time they are elected or appointed until the next
annual meeting of shareholders or until their successors are elected.
14
<PAGE>
Mr. Osso has served as President of DelSoft since September 1997 and as
a Director since November 1997. Prior to his employment with DelSoft, Mr. Osso
was employed by Bridgton Consulting, Inc. ("Bridgton"), an IT services provider
similar to the Company, as a Consultant from November 1993 to August 1997, by
TTI Technologies, a computer consulting company, as a Software Engineer from
July 1993 to November 1993, and by Long Island Savings Bank as a Systems Analyst
from November 1988 to June 1993.
Mr. Choksey has served as Vice President of DelSoft since November
1996. Prior to his employment with DelSoft, Mr. Choksey was employed by Bridgton
as Vice President of Sales from November 1995 to October 9 1996, by Beechwood
Computing Limited, a software consulting firm, as Vice President of Sales from
July 1994 to October 1995, and by Pertech Computers Ltd., a hardware/software
sales company, as a Regional Sales Manager from July 1990 to June 1994.
Mr. Rinde has served as Chief Financial Officer and General Counsel of
DelSoft since January 1997, as its Secretary since July 1997 and as a Director
since November 1997. He has also been a member of Briskin & Rinde, L.C., a
general civil litigation firm with an emphasis on commercial transactions and
litigation,since May 1995. Prior to his membership in Briskin & Rinde, L.C., Mr.
Rinde was employed by Chapman & Fennell, a general practice law firm, from April
1993 to November 1994. During the period from November 1994 through May 1995,
Mr. Rinde relocated from New York to Georgia and obtained a license to practice
law in the State of Georgia. From May 1992 to April 1993, Mr. Rinde was General
Counsel for Willow Peripherals, a computer company.
Mr. Giacchino has served as a Director of DelSoft since July
1996. He also served as Chief Operating Officer and Secretary of the
Company from July 1996 to July 1997. Prior to his employment with
DelSoft, Mr. Giacchino was employed with Bridgton as Vice President
from January 1994 to July 1996 and as a Director since January 1994,
and with Greenway Capital Corp., a stock brokerage firm, as a stock
broker from August 1991 to December 1993. Mr. Giacchino has 15 years
experience as a manager at various levels in the investment banking
and brokerage industry.
15
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth certain information regarding
the annual compensation for services to the Company for the fiscal
year ended June 30, 1998 with respect to the Company's Chief Executive
Officer and all other executive officers as of June 30, 1998 who
earned more than $100,000 in salary and bonus during such fiscal year
(the "Named Executive Officers"):
<TABLE>
<CAPTION>
Summary Compensation Table
- ---------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term
----------------------------------------- Compensation
------------
Awards
------------
Securities
Name and Underlying
Principal Position Year Salary Bonus Options
- ---------------------------- -------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Jerry Rosemeyer 1998<F1> $ 26,666 $0 --
President and Chief Executive
Officer 1997 $111,162 $0 125,000
Michael Osso 1998<F2> $147,796 $0 2,525,000
President
Adil Choksey 1998 $110,002 $ 5,000 --
Vice President
Jeffrey A. Rinde 1998 $142,723 $0 100,000
Chief Financial Officer 1997 $116,202 $73,590 250,000
</TABLE>
- ------------------
</FN>
<F1> Mr. Rosemeyer served in these positions in fiscal year 1998 only through
August 31, 1998.
<F2> Mr. Osso became president of the Company September 1, 1998.
16
<PAGE>
The following table contains certain information concerning the options
granted to the Named Executive Officers during the fiscal year ended June 30,
1998.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
- -------------------------------------------------------------------------------------------------------------
Number of Percent of Total
Securities Options Granted
Underlying to Employees in Exercise or
Name Options Granted Fiscal Year Base Price Expiration Date
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Michael Osso
President 125,000 3.5% $2.00 September 1, 2007
2,400,000 67.4% $0.50 January 31, 2008
- ---------------------------------------------------------------------------------------------------------------
Jeffrey A. Rinde
Chief Financial Officer 100,000 2.8% $0.50 January 31, 2008
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth certain information concerning the
exercise of stock options during the fiscal year ended June 30, 1997 by each
Named Executive Officer and the value at fiscal year end of unexercised options
held by the Named Executive Officers.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
- --------------------------------------------------------------------------------------------------------------
Value of
Number of Securities Unexercised
Underlying Unexercised In-the-Money
Shares Options at FY-End Options at FY-End
Acquired on Exercisable/ Exercisable/
Name Exercise Value Realized Unexercisable Unexercisable*
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jerry Rosemeyer
Chief Executive Officer 0 - 50,000/75,000 $12,500/$18,750
- -------------------------------------------------------------------------------------------------------------------
Michael Osso
President 0 - 200,000/150,000 $ 4,200,000/$31,250
- -------------------------------------------------------------------------------------------------------------------
Jeffrey A. Rinde
Chief Financial Officer 0 - 200,000/150,000 $200,000/$37,500
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Based on the closing sale price of Common Stock reported by the Nasdaq Stock
Market OTC Bulletin Board as of June 30, 1998, which was $2.25 per share, less
exercise price payable by optionees.
17
<PAGE>
STOCK OPTION AND INCENTIVE PLANS
In December 1997, the Company adopted the DelSoft Consulting, Inc.
Stock Option Plan (the "Stock Option Plan") to provide key employees, officers
and directors an opportunity to own Common Stock of the Company and to provide
incentives for such persons to promote the financial success of the Company.
Pursuant to the Stock Option Plan, the Board of Directors of the Company is
authorized to grant to its key executives, other members of management and
directors incentive and/or nonincentive stock options for the purchase of up to
2,000,000 shares of the Company's common stock. Under the Stock Option Plan, the
exercise price of all options must be at least 100% of the fair market value of
the common stock on the date of grant (the exercise price of an incentive stock
option for an optionee that holds more than ten percent of the combined voting
power of all classes of stock of the Company must be at least 110% of the fair
market value on the date of grant). The maximum term of an option may not exceed
ten years.
In July 1996, the Company adopted the Executive Incentive Compensation
Plan (the "Incentive Plan") that was administered by the Company's Board of
Directors. Under the terms of the Incentive Plan, a participant earned incentive
compensation, which was payable in cash and/or common stock of the Company,
based on a formula that took into consideration the percentage increase in the
Company's billable hours, gross revenues and profitability over the
corresponding amounts in the preceding fiscal year. Incentive compensation was
limited to 80% of a participant's base salary for the year. The Incentive Plan
was rescinded on July 1, 1997, because the Board of Directors decided that the
plan placed an undue financial strain on the Company.
EMPLOYMENT AGREEMENTS
The Company has entered into an Employment Agreement with Mr. Osso,
dated August 5, 1997, pursuant to which Mr. Osso agreed to serve as President of
the Company for a term of four years commencing on September 1, 1997, and for
additional one year terms unless the Company elects not to extend the term. In
consideration for his services as President, Mr. Osso will receive on an annual
basis, (i) a base salary of not less than $130,000, subject to an annual
increase of 5%, (ii) options to purchase 25,000 shares of the Company's Common
Stock at a price equal to the fair market value of the Common Stock on the date
such options are granted, and (iii) a bonus for any month in which the Company
bills 15,000 hours or more. The Employment Agreement contains covenants against
competition, solicitation and a confidentiality agreement. On April 1, 1998, Mr.
Osso's base salary was increased to $200,000.
The Company has entered into an Employment Agreement with Mr. Choksey,
dated July 1, 1996, pursuant to which Mr. Choksey agreed to serve as Vice
President of Sales of the Company for a term of five years commencing on July 1,
1996, and for additional one year terms unless the Company elects not to extend
the term. In consideration for his services as Vice President, Mr. Choksey will
receive, (i) a base salary of not less than $95,000 per year ($65,000 for 1996),
subject
18
<PAGE>
to an annual increase of 5%, and (ii) a bonus for any month in which the Company
bills 15,000 hours or more. The Employment Agreement contains covenants against
competition and solicitation and a confidentiality agreement.
The Company has entered into an Employment Agreement with Mr. Rinde,
dated July 1, 1996, pursuant to which Mr. Rinde agreed to serve as General
Counsel and Chief Financial Officer of the Company for a term of five years
commencing on January 1, 1997, and for additional one year terms unless the
Company elects not to so extend the term. In consideration for his services as
General Counsel and Chief Financial Officer, Mr. Rinde will receive on an annual
basis, (i) a base salary of $111,500, subject to an annual increase of 5%, (ii)
options to purchase 50,000 shares of the Company's Common Stock at a price equal
to the fair market value of the Common Stock on the date of exercise, and (iii)
a bonus for any month in which the Company bills 15,000 hours or more. The
Employment Agreement contains covenants against competition and solicitation and
a confidentiality agreement. On November 1, 1998, Mr. Rinde's base salary was
increased to $181,000.
The Company has entered into a Consulting Agreement with Mr. Rosemeyer,
dated September 1, 1997. Under the agreement, the Company has agreed to pay Mr.
Rosemeyer (i) $288,000 over a period of 24 months in consecutive equal monthly
installments of $12,000, (ii) any amount due and owing as of June 30, 1997
pursuant to the Company's Executive Incentive Compensation Program, and (iii) a
commission in the amount equal to 10% of the gross sales price for any sale of
the Company's hyperdate methodology made by Mr. Rosemeyer on behalf of the
Company. The Company also agreed to grant to Mr. Rosemeyer, on an annual basis
for a period of four years, an option to purchase 25,000 shares of Common Stock
in accordance with the Company's Stock Option Plan. In consideration for the
payments and options, Mr. Rosemeyer agreed to provide up to 10 hours of services
per week during the term of the Agreement. The Consulting Agreement contains
covenants against competition and solicitation and a confidentiality agreement.
Mr. Rosemeyer was employed by Bridgton, which engages in a business similar to
the Company's, at the time the Consulting Agreement was entered into. The
Company has consented to, and has waived its rights under the covenant against
competition with respect to such employment.
The Company has entered into a Consulting Agreement with Mr. Giacchino,
dated June 18, 1997. Under the agreement, the Company agreed to pay Mr.
Giacchino (i) $80,000 in 16 equal installments in accordance with the Company's
normal payroll practices and (ii) any commissions and amounts payable pursuant
to the Company Executive Incentive Compensation Program due and owing as of June
1997. The Company also agreed to grant to Mr. Giacchino, on an annual basis for
a period of four years, an option to purchase 25,000 shares of Common Stock in
accordance with the Company's Stock Option Plan. In consideration for the
payments and options, Mr. Giacchino agreed to provide up to 10 hours of services
per week during the term of the Agreement. The Consulting Agreement contains
covenants against competition and solicitation, and a confidentiality agreement.
Mr. Giacchino was employed by Bridgton, which engaged in a business similar to
the Company's, at the time the Consulting Agreement was entered into. The
Company has consented to, and has waived its rights
19
<PAGE>
under the covenant against competition with respect to such employment. On
October 1, 1997, Mr. Giacchino rejoined the Company as a full-time employee, and
he no longer receives payments under the consulting agreement.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Jerry Rosemeyer and Ben Giacchino, who together own approximately 48%
of the issued and outstanding Common Stock, are officers, directors and
controlling shareholders of Bridgton. The Company and Bridgton occupy the same
office facilities, and Bridgton is in the same business as the Company and deals
with many of the same customers and vendors. Michael Osso and Adil Choksey were
also previously employed by Bridgton.
During the period from July 1996 through March 1998, the Company billed
Bridgton a total of $560,000 for the services of its programmers and engineers
and realized a gross profit of approximately $101,000; and Bridgton billed the
Company approximately $728,000 for the services of its programmers and engineers
and, based on information provided by the management of Bridgton, realized a
gross profit of approximately $172,000. Bridgton also billed the Company
approximately $131,000 for reimbursement of overhead expenses. As of March 31,
1998, Bridgton owed the Company approximately $8,200, which was included in
accounts receivable in the accompanying balance sheet.
In June 1997, the Company recorded the purchase of various items of
office equipment from Bridgton in the amount of $9,989. This equipment was
originally purchased by Bridgton from Mr. Giacchino at the same price.
Bridgton ceased further business operations in February 1998.
ITEM 8. DESCRIPTION OF SECURITIES.
The authorized capital stock of the Company consists of 100,000,000
shares of common stock, no par value per share, and 5,000,000 shares of
preferred stock, par value $1.00 per share of which 11,259,149 shares of Common
Stock and no shares of preferred stock were issued and outstanding on September
30, 1998. As of September 30, 1998, there were 398 holders of record of Common
Stock. All outstanding shares of Common Stock are fully paid and nonassessable.
Holders of the Common Stock are entitled to one vote per share on all matters
voted on by shareholders, including elections of directors, and the holders of
the Common Stock exclusively possess all voting power. The articles of
incorporation do not provide for cumulative voting in the election of directors.
The holders of Common Stock are entitled to such dividends as may be declared
from time to time by the board of directors from funds available therefor, and
upon liquidation they are entitled to receive pro rata all assets of the Company
available for distribution to such holders. The holders of Common Stock have no
preemptive rights.
The Company's common shares are "penny stock" as defined by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the NASDAQ system, provided that current price
and volume information with respect to transactions in such securities is
provided by the exchange or system). The Commission has adopted rules that
regulate broker-dealer practices in connection with transactions in penny
stocks. The penny stock rules require a broker-dealer, prior to a transaction in
a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document prepared by the Commission that provides information
about penny stocks and the nature and level of risks in the penny stock market.
The broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. The bid and
compensation information, must be given to the customer orally or in writing
before or with the customer's confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
such rules the broker-dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for a stock that is subject to the penny stock rules and therefore make
it more difficult to sell those shares.
DelSoft's articles of incorporation and bylaws do not contain any
provision that would delay, defer or prevent a change in control.
20
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS.
The Common Stock has been traded in the over-the-counter market and
quoted under the symbol "DSFT" since April 1997. The following table sets forth,
for the periods indicated, the high and low bid information for the Common
Stock. As of September 30, 1998, there were approximately 398 holders of record
of the Common Stock.
<TABLE>
<CAPTION> Price Range
-----------
High Low
---- ---
<S> <C> <C>
Quarter Ended September 30, 1998 3.20 1.75
YEAR ENDED JUNE 30, 1998
Fourth Quarter (through June 15) 2.31 1.34
Third Quarter 2.25 1.50
Second Quarter 10.375 6.25
First Quarter 10.875 5.34375
YEAR ENDED JUNE 30, 1997
Fourth Quarter (from April 28) 7.375 5.00
</TABLE>
The high and low bid information provided above are those reported by
the Nasdaq Stock Market OTC Bulletin Board. The quotations reflect inter-dealer
prices, without retail markup, markdown or commission and may not represent
actual transactions.
The Company has no current plan to register any shares of Common Stock
for sale to the public. Of the 11,259,149 shares of Common Stock outstanding as
of September 30, 1998 8,354,936 shares are subject to the limitations of Rule
144 promulgated under the Securities Act. In general, under Rule 144 as
currently in effect, a person (or persons whose shares are aggregated) who holds
shares of restricted securities as to which a minimum of one year has elapsed
since the latter of the date of acquisition from the issuer or from an affiliate
of the issuer, and any person who is an "affiliate" as that term is defined
under the Securities Act, is entitled to sell, within any three month period, a
number of shares that does not exceed the greater of (i) one percent of the then
outstanding shares of Common Stock of the Company (approximately 110,966 shares
as of September 30, 1998) or (ii) the average weekly trading volume of the
Common Stock during the four calendar weeks preceding a sale by such person.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
issuer. Under Rule 144, however, a person who holds restricted securities as to
which a minimum of two years has elapsed since their acquisition from the issuer
or an affiliate of the issuer and who is not, and for the three months prior to
the sale of such shares has not been, an affiliate of the issuer is free to sell
such shares without regard to the volume, manner of sale and certain other
limitations contained in Rule 144.
21
<PAGE>
The Company has not declared or paid any cash dividends since its
organization. The credit facility with Emergent Financial Group prohibits the
Company from declaring or paying any cash or other dividends or distributions on
any of its corporate stock (other than stock dividends) while there is an
outstanding balance.
WARRANTS AND OPTIONS
In April 1998, the Company granted options to purchase 87,500 of the
Company's Common Stock to Randy Hitchcock of American Computer Company. The
options have the exercise price of $1.25 and expire in April 2003.
In March 1998, the Company granted Barry Kaplan Associates an option
to purchase up to 100,000 shares of Common Stock as partial consideration for
certain consulting services provided under a Consulting Agreement dated February
20, 1998. The options have the following exercise prices: $1.50 for the first
25,000 shares, $2.00 for the second 25,000 shares, $2.50 for the third 25,000
shares and $3.00 for the last 25,000 shares. None of the options are exercisable
prior to March 15, 1998, and options not exercised on or before April 30, 2001
are rendered null and void.
As of September 30, 1998, options to purchase an aggregate of 1,789,500
shares of Common Stock had been granted under the Stock Option Plan, of which
options to purchase an aggregate of 86,000 shares of Common Stock had been
canceled due to the termination of a certain employee's employment. As of
September 30, 1998, none of the foregoing options had been exercised.
As of September 30, 1998, the Company has outstanding a warrant which
entitles James Owen to purchase 15,000 shares of Common Stock at $1.00 per
share.
ITEM 2. LEGAL PROCEEDINGS.
An action entitled HAS, INC. V. BRIDGTON, INC., ET. AL., Civil Action
No. IP98-0167 C was filed on February 6, 1998 in the United States District
Court for the Southern District of Indiana, Indianapolis Division. The
plaintiffs named the Company as a co-defendant. The plaintiff alleges that the
Company tortiously interfered with the plaintiff's contracts with Bridgton,
causing Bridgton to breach such contracts, and that the Company tortiously
interfered with the plaintiff's business relationship with one of plaintiff's
clients by placing computer consultants with the plaintiff's clients. The
complaint seeks compensatory and punitive damages and other relief. The Company
believes such claim is baseless and intends to defend itself vigorously.
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of these actions,
individually or in the aggregate, will have a material adverse effect on the
financial position or results of operations of the Company.
22
<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES.
Effective as of December 31, 1997, the Company's board of directors
dismissed Allen P. Fields, CPA and appointed J.H. Cohn LLP as the Company's
independent public accountants. The report of Allen P. Fields, CPA on the
Company's financial statements as of June 30, 1997 did not contain an adverse
opinion or disclaimer of opinion and was not modified as to uncertainty, audit
scope or accounting principles. In connection with the audit for the period from
July 31, 1996 (date of inception) to June 30, 1997 and through December 31,
1997, there were no disagreements with Allen P. Fields, CPA on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure at the time of the change of independent public accountants
or with respect to the Company's financial statements. Prior to retaining J.H.
Cohn LLP, the Company had not consulted J.H. Cohn LLP regarding the application
of accounting principles or the type of audit opinion that might be rendered on
the Company's financial statements.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The Company issued 375,000 shares of Common Stock to NYE 2000 Systems,
Inc. as part of the consideration for the NYE 2000 software tool and related
rights purchased by the Company pursuant to a certain Purchase Agreement, dated
May 15, 1998. There were no underwriters involved in the sale, and no
commissions were paid in connection with the sale. The sale was exempt from
registration under Section 4(2) of the Securities Act. NYE 2000 Systems, Inc.
was a sophisticated investor and had available to it a copy of the Company's
filed Form 10SB.
On May 22, 1998, the Company sold 533,333 newly issued shares of Common
Stock to Merchant Services Group, Inc. for $500,000 ($0.938 per share). There
were no underwriters involved in the sale, and no commissions were paid in
connection with the sale. The sale was exempt from registration under Rule 504
promulgated under the Securities Act.
On April 13, 1998, the Company issued 162,500 shares of Common Stock in
a restricted stock agreement with Randy Hitchcock in connection with a purchase
of certain assets of his business, American Computer Company. The Company also
paid $90,000 and issued to him options to purchase 87,500 shares of Common Stock
as part of the consideration in that transaction. In connection with this
transaction, Mr. Hitchcock was provided access to the Company's financial
statements and business plans. Through a prior business relationship with the
Company, he was familiar with the Company's business and customers. The Company
believes Mr. Hitchcock was adequately sophisticated to make an investment in the
Company under the exemption from registration provided under Section 4(2) of the
Securities Act.
In March 1998, the Company issued options to purchase up to 100,000
shares of Common Stock to Barry Kaplan Associates in consideration of consulting
services performed for the Company. The Company believes the principals of Barry
Kaplan Associates were sophisticated investors, and they were provided with
financial statements of the Company, business summaries of the Company and a
copy of the Company's Rule 15c2-11 Disclosure Statement. The Company is claiming
an exemption from registration of the issuance of the options under Section 4(2)
of the Securities Act.
On November 25, 1997, the Company issued 100,000 shares of Common Stock
to Millennium Holdings Group, Inc. as consideration for certain consulting
services provided under a Consulting Agreement dated October 22, 1997. There
were no underwriters involved in the sale, and no commissions were paid in
connection with the sale. The Company believes Millennium Holdings Group, Inc.
was a sophisticated investor, and the Company provided this investor with
information about the Company to the extent requested by the investor and as the
Company deemed adequate for an exemption from registration under Section 4(2) of
the Securities Act.
On June 23, 1997, DelSoft sold 75,000 newly issued shares of Common
Stock to Mark Yagalla for $250,000 ($3.33 per share). There were no underwriters
involved in the sale, and no commissions were paid in connection with the sale.
Mark Yagalla was an accredited investor and the Company claims that the sale was
exempt from registration under Section 4(2) of the Securities Act.
In connection with a loan to the Company made by James Owen in December
1996, the Company issued to Mr. Owen in early 1997 a warrant to purchase up to
15,000 shares of its Common Stock. The Company had reason to believe Mr. Owen
was an accredited investor at the time of the transaction, and the Company
claims an exemption from registration under Section 4(2) of the Securities Act.
The Company merged with Pyke Corp., a Delaware corporation, on December
12, 1996, and in connection therewith issued 1,713,316 shares of its Common
Stock to Pyke's 418 shareholders. The value of Pyke Corp. was determined to be
$10,279 based upon its sole asset, a cash balance of that amount. The Company
determined that it was eligible for an exemption from registration under Rule
504 at that time and claims that exemption for this merger. Cyber Capital Corp.
assisted the Company in identifying and consummating the merger with Pyke.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's articles of incorporation eliminate or limit the personal
liability of the directors to the Company and its shareholders for monetary
damages for certain breaches of fiduciary duty and the duty of care, to the
maximum extent permitted by Georgia law.
Under Section 14-2-851 of the Georgia Business Corporation Code (the
"Code"), a corporation is authorized to indemnify, or obligate itself to
indemnify an individual made a party to a proceeding because he is or was a
director against liability incurred in the proceeding (or, if the proceeding is
by or in the right of the corporation, the reasonable expenses incurred by the
director in connection with the proceeding) if he acted in a manner he believed
in good faith to be in or not opposed to the best interests of the
23
<PAGE>
corporation and, in the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful, in each case as determined pursuant
to Section 14-2-855 of the Code by the board of directors,special legal counsel
or the shareholders. To the extent that a director is successful, on the merits
or otherwise, in the defense of such proceeding, indemnification by the
corporation is mandatory under Section 14-2-852 of the Code with respect to the
reasonable expenses incurred by the director in connection with the proceeding.
A corporation may not indemnify a director, however, in connection with a
proceeding by or in the right of the corporation in which the director was
adjudged liable to the corporation; or in connection with any other proceeding
in which he was adjudged liable on the basis that personal benefit was
improperly received by him.
Under Section 14-2-857 of the Code, an individual who is made a party
to a proceeding because he is or was an officer of the corporation is entitled
to indemnification by the corporation against any reasonable expenses incurred
by the director in connection with the proceeding, to the extent the officer is
successful, on the merits or otherwise, in the defense of such proceeding. The
corporation may indemnify and advance expenses to an officer, employee or agent
who is not a director to the extent consistent with public policy.
24
<PAGE>
DELSOFT CONSULTING, INC.
INDEX TO FINANCIAL STATEMENTS
-----------------------------
PAGE
------
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS F-2/3
BALANCE SHEET
JUNE 30, 1998 F-4
STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1998 AND 1997 F-5
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998 AND 1997 F-6
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998 AND 1997 F-7
NOTES TO FINANCIAL STATEMENTS F-8/21
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1998 (Unaudited) F-22
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited) F-23
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1998 (Unaudited) F-24
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited) F-25
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) F-26/30
* * *
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors and Stockholders
Delsoft Consulting, Inc.
We have audited the accompanying balance sheet of Delsoft Consulting, Inc. as of
June 30, 1998, and the related statements of income, stockholders' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Delsoft Consulting, Inc. as of
June 30, 1998, and its results of operations and cash flows for the year then
ended, in conformity with generally accepted accounting principles.
J. H. COHN LLP
Roseland, New Jersey
August 5, 1998
F-2
<PAGE>
REPORT OF CERTIFIED PUBLIC ACCOUNTANT
-------------------------------------
To the Board of Directors and Stockholders
Delsoft Consulting, Inc.
I have audited the accompanying statements of income, stockholders' equity and
cash flows of Delsoft Consulting, Inc. for the year ended June 30, 1997. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the results of operations and cash flows of Delsoft
Consulting, Inc. for the year ended June 30, 1997, in conformity with generally
accepted accounting principles.
Allen Field, CPA
Atlanta, Georgia
September 19, 1997
F-3
<PAGE>
DELSOFT CONSULTING, INC.
BALANCE SHEET
JUNE 30, 1998
ASSETS
------
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 313,451
Accounts receivable, net of allowance for doubtful accounts of $10,000 1,183,394
Deferred tax assets 13,000
Other current assets 20,556
----------
Total current assets 1,530,401
Equipment and furnishings, net of accumulated depreciation of $47,829 232,296
Intangible assets, net of accumulated amortization of $53,556 1,397,168
Other assets 20,602
----------
Total $3,180,467
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 38,134
Accounts payable 199,514
Accrued compensation and other liabilities 463,917
Income taxes payable 180,346
----------
Total current liabilities 881,911
Long-term debt, net of current portion 85,014
Deferred tax liabilities 800
----------
Total liabilities 967,725
----------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; 100,000,000 shares authorized;
11,159,149 shares issued and outstanding 2,775,652
Retained earnings 374,590
Unearned compensation (937,500)
----------
Total stockholders' equity 2,212,742
----------
Total $3,180,467
==========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
DELSOFT CONSULTING, INC.
STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Gross revenues $11,020,278 $6,124,133
Direct project costs 8,094,640 4,784,351
----------- ----------
Net revenues 2,925,638 1,339,782
----------- ----------
Expenses:
Selling, general and administrative expenses 2,074,441 1,188,416
Interest expense 137,147 15,684
Write-off of capitalized software development costs 135,963
----------- ----------
Totals 2,347,551 1,204,100
----------- ----------
Income before income taxes 578,087 135,682
Provision for income taxes 277,979 61,200
----------- ----------
Net income $ 300,108 $ 74,482
----------- ----------
Basic earnings per share $ .03 $ .01
=========== ===========
Basic weighted average common shares outstanding 10,146,767 10,013,316
=========== ===========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
DELSOFT CONSULTING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock
------------------------- Stock Total
Number of Subscription Retained Unearned Stockholders'
Shares Amount Receivable Earnings Compensation Equity
---------- ----------- ------------ -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Initial issuance of shares 8,300,000 $ 498 $ 498
Issuance of shares in connection with
acquisition 1,713,316 10,279 10,279
Subscription for purchase of 75,000 shares 250,000 $(250,000)
Net income $ 74,482 74,482
---------- ---------- --------- -------- ----------
Balance, June 30, 1997 10,013,316 260,777 (250,000) 74,482 85,259
Issuance of shares upon receipt of pro-
ceeds from subscriptions receivable 75,000 250,000 250,000
Issuance of compensatory stock options 937,500 $(937,500)
Proceeds from sales of shares, net of
expenses of $45,000 533,333 455,000 455,000
Issuance of shares in connection with
acquisitions 537,500 1,122,375 1,122,375
Net income 300,108 300,108
---------- ---------- --------- -------- --------- ----------
Balance, June 30, 1998 11,159,149 $2,775,652 $ - $374,590 $(937,500) $2,212,742
========== ========== ========= ======== ========= ==========
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
DELSOFT CONSULTING, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Operating activities:
Net income $ 300,108 $ 74,482
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation of equipment and furnishings 42,417 9,967
Amortization of intangible assets 53,556
Provision for bad debts 6,750 3,750
Loss on sale of equipment 14,429
Write-off of capitalized software costs 135,963
Deferred income taxes (61,700) 49,500
Changes in operating assets and liabilities:
Accounts receivable (324,370) (869,524)
Other current assets 8,812 (29,368)
Other assets (5,281) (15,321)
Accounts payable (185,472) 384,986
Accrued compensation and other liabilities 178,761 285,156
Income taxes payable 168,646 11,700
--------- ---------
Net cash provided by (used in) operating activities 332,619 (94,672)
--------- ---------
Investing activities:
Net cash received as a result of acquisition 10,279
Capital expenditures (63,966) (85,393)
Proceeds from sale of equipment 29,837
Capitalized software development costs (135,963)
Purchases of intangible assets (328,349)
--------- ---------
Net cash used in investing activities (362,478) (211,077)
--------- ---------
Financing activities:
Net proceeds from (repayments of) line of credit borrowings (489,316) 489,316
Proceeds from long-term borrowings 15,000
Repayments of long-term borrowings (69,888) (1,551)
Net proceeds from issuances of common stock 705,000 498
--------- ---------
Net cash provided by financing activities 145,796 503,263
--------- ---------
Net increase in cash and cash equivalents 115,937 197,514
Cash and cash equivalents, beginning of period 197,514 -
--------- ---------
Cash and cash equivalents, end of period $ 313,451 $ 197,514
========= =========
Supplemental disclosure of cash flow data:
Interest paid $ 133,771 $ 14,934
========= =========
Income taxes paid $ 171,033
=========
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business and summary of accounting policies:
Business:
Delsoft Consulting, Inc. (the "Company") provides customized software
solutions, system integration and development services to large
commercial enterprises throughout the United States primarily under
short-term contracts or subcontracts. The Company, which was
incorporated on July 1, 1996, uses June 30 as its fiscal year end;
accordingly, the period from its inception on July 1, 1996 to June
30, 1997 was its initial fiscal year.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Revenue recognition:
Revenues are generally recognized as services are provided.
Cash equivalents:
Cash equivalents include all highly liquid investments with a
maturity of three months or less when acquired.
Allowance for Doubtful Accounts:
The Company establishes an allowance for uncollectible trade accounts
receivable based on historical collection experience and management's
evaluation of collectibility of outstanding accounts receivable. The
allowance for doubtful accounts was $10,000 as of June 30, 1998.
Equipment and furnishings:
Equipment and furnishings are stated at cost, net of accumulated
depreciation. Provision is made for depreciation of equipment and
furnishings under the straight-line method by annual charges to
operations over their estimated useful lives.
Software development costs:
Pursuant to Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed, the Company is required to charge the costs of
creating a computer software product to research and development
expense as incurred until the technological feasibility of the
product has been established; thereafter, all related software
development and production costs are required to be capitalized.
Commencing upon the initial release of a product, capitalized
software development costs and any costs of related purchased
software are generally required to be amortized over the estimated
economic life of the product based on current and estimated future
revenues. Thereafter, capitalized software development costs and
costs of purchased software are reported at the lower of unamortized
cost or estimated net realizable value. Due to the inherent
technological changes in the software development industry, estimated
net realizable values or economic lives may decline and, accordingly,
the amortization period may have to be accelerated.
F-8
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business and summary of accounting policies (continued):
Software development costs (concluded):
During fiscal 1997, the Company was required to capitalize $135,963
of software development costs related to a software product that it
evaluated as technologically feasible. However, as of June 30, 1998,
the Company had not been able to market the product and management
estimated that as of that date the product did not have any net
realizable value; accordingly, the related capitalized software
development costs of $135,963 were written off in 1998.
Charges to research and development expenses for software development
costs incurred prior to the establishment of technological
feasibility were not material in 1998 and 1997.
Advertising:
The Company expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations were not material
during 1998 and fiscal 1997.
Intangible assets:
Intangible assets are comprised of costs in excess of net assets of
acquired businesses that are being amortized on a straight-line basis
over estimated useful lives of five years. The Company periodically
evaluates the recoverability of its intangible assets and measures
the amount of impairment, if any, by assessing, among other things,
the market and economic conditions related to, and the current and
estimated future levels of income and cash flows to be generated by,
the acquired businesses.
Stock split:
All references to numbers of shares and per share amounts in these
notes and the accompanying financial statements have been
retroactively restated for a 9-for-1 stock split effected in the form
of a dividend by the Company in November 1996.
Earnings per share:
The Company has presented "basic" earnings per share in the
accompanying statements of income in accordance with the provisions
of Statement of Financial Accounting Standards No. 128, Earnings per
Share ("SFAS 128"). SFAS 128 also requires the presentation of
"diluted" earnings per share if the amount differs from basic
earnings per share. Basic earnings per share is calculated by
dividing net income by the weighted average number of common shares
outstanding during each period. The calculation of diluted earnings
per share is similar to that of basic earnings per share, except that
the denominator is increased to include the number of additional
common shares that would have been outstanding if all potentially
dilutive common shares, such as those issuable upon the exercise of
stock options and warrants, were issued during the period.
F-9
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business and summary of accounting policies (continued):
Earnings per share (concluded):
The weighted average number of common shares outstanding used in
computing basic earnings per share was 10,146,767 and 10,013,316 in
1998 and 1997, respectively, which includes the 1,713,316 shares
issued in connection with the acquisition of Pyke Corp. ("Pyke") in
November 1996 (see Note 3) as if they had been outstanding from July
1, 1996.
For the purpose of computing diluted earnings per share, the assumed
exercise of all of the Company's outstanding stock options and
warrants and the application of the treasury stock method in 1998
would result in an increase in the weighted average number of common
shares outstanding to 11,954,917; however, diluted earnings per share
would be $.03, which is the same as basic earnings per share. The
assumed exercise of all of the Company's outstanding stock options
and warrants and the application of the treasury stock method in 1997
would have had an insignificant effect on the weighted average number
of common shares outstanding and no effect on earnings per share.
Accordingly, diluted earnings per share amounts have not been
presented in the accompanying statements of income.
Stock options:
In accordance with the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"),
the Company will recognize compensation costs as a result of the
issuance of stock options based on the excess, if any, of the fair
value of the underlying stock at the date of grant or award (or at an
appropriate subsequent measurement date) over the amount the employee
must pay to acquire the stock. Therefore, the Company will not be
required to recognize compensation expense as a result of any grants
of stock options at an exercise price that is equivalent to or
greater than fair value. The Company will also make pro forma
disclosures, as required by Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123"), of net income or loss as if a fair value based method of
accounting for stock options had been applied instead if such amounts
differ materially from the historical amounts.
Income taxes:
The Company accounts for income taxes pursuant to the asset and
liability method which requires deferred income tax assets and
liabilities be computed annually for differences between the
financial statement and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
F-10
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business and summary of accounting policies (concluded):
Other recent accounting pronouncements:
The Financial Accounting Standards Board (the "FASB") has issued
Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information ("SFAS 131"),
which could require the Company to make additional disclosures in its
financial statements no later than for the year ending June 30, 1999.
SFAS 131 requires disclosures for each segment of a business and the
determination of segments based on its internal management structure.
Management is in the process of evaluating whether SFAS 131 will
require the Company to make any additional disclosures.
The Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("ACSEC") has issued
Statement of Position No. 98-1, Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use ("SOP 98-1"), which
could require the Company to revise certain accounting measurements
and make additional disclosures in its financial statements no later
than for the year ending June 30, 1999. SOP 98-1 defines internal use
software and modifies previous standards related to the
capitalization, amortization and write-off of costs related to the
development of such software. Management believes that the Company's
measurements and disclosures already substantially comply with those
required by SOP 98-1.
The FASB and ACSEC had issued certain other pronouncements as of June
30, 1998 that will become effective in subsequent periods; however,
management does not believe that any of those pronouncements will
effect any financial accounting measurements or disclosures the
Company will be required to make.
Note 2 - Equipment and furnishings:
Equipment and furnishings consisted of the following as of June 30,
1998:
Range of
Estimated
Useful
Lives Amount
--------- --------
Equipment 3-7 years $ 73,597
Furnishings 7 years 26,523
Automobiles 5 years 180,005
--------
280,125
Less accumulated depreciation 47,829
--------
Total $232,296
========
F-11
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 2 - Equipment and furnishings (concluded):
Depreciation of equipment and furnishings amounted to $42,417 and
$9,967 in 1998 and 1997, respectively.
During 1998 and 1997, the Company purchased equipment at a cost of, and
issued long-term obligations in the principal amount of, $158,352 and
$21,235, respectively. These noncash transactions are not reflected in
the accompanying statements of cash flows.
Note 3 - Acquisitions of businesses:
Merger with Pyke in 1997:
On November 13, 1996, the Company entered into an Agreement and Plan
of Merger (the "Merger Agreement") with Pyke. Under the Merger
Agreement, the Company issued 1,713,316 shares of its common stock to
the stockholders of Pyke to acquire all of the shares of Pyke's
common stock then outstanding and Pyke was merged with the Company
(the "Merger"). At the time of the Merger, Pyke was a publicly-traded
shell corporation with no previous operations of a commercial nature.
Pyke had a cash balance of $10,279 and no other assets or
liabilities.
The acquisition was accounted for as a purchase that was effective as
of November 13, 1996. Since Pyke did not have any operations prior to
the date of the Merger and there was no market for the shares of
common stock that were exchanged, the shares issued by the Company
were valued at Pyke's net asset value of $10,279 as of the date of
the Merger. Information as to the unaudited pro forma results of
operations of the Company and Pyke assuming the Merger had been
consummated on July 1, 1996 has not been presented because such
information would not differ materially from the information in the
accompanying 1998 and 1997 historical statements of income of the
Company.
Acquisitions in 1998:
On April 13, 1998, the Company acquired a recruiting business for
technology consultants, including a database containing certain
proprietary information regarding the names and "skillsets" of
certain information technology consultants, from its sole proprietor.
The consideration paid by the Company for this acquisition consisted
of a cash payment of $90,000; the issuance of 162,500 shares of
common stock valued by the Company at $314,844, or $1.9375 per share
(the closing market price for the shares on April 13, 1998); and
options for the purchase of 87,500 shares at $1.25 per share, which
were valued at $57,531 based on the Black-Scholes option-pricing
model allowable under the provisions of SFAS 123. The seller also
entered into an employment agreement with the Company (see Note 11).
The sole proprietorship did not have any sales or significant
expenses prior to, or any significant tangible assets as of, the date
of acquisition.
F-12
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 3 - Acquisitions of businesses (continued):
Acquisitions in 1998 (continued):
On May 15, 1998, the Company acquired NYE 2000 Systems, Inc. ("NYE
2000"), a Canadian development stage company that had developed a
technologically feasible software product that will convert other
software into programs that are "Year 2000" compliant. The
consideration initially paid by the Company for this acquisition
consisted of a cash payment of $210,000 and the issuance of 375,000
shares of common stock valued by the Company at $750,000, or $2.00
per share (the closing market price for the shares on May 15, 1998).
The Company is also contingently obligated to make additional cash
payments to the sellers based on future sales, as defined, during any
period in which the Company is the licensor or user of the software
conversion product. The sellers also entered into employment
agreements with the Company (see Note 11). NYE 2000 did not have any
sales or significant expenses prior to, or any significant tangible
assets as of, the date of acquisition.
The acquisitions were accounted for as purchases and, accordingly,
the results of operations of each of the acquired businesses have
been included in the accompanying statements of income from the
respective dates of acquisition. The total initial costs of the
acquisitions are summarized below:
Cash payments to sellers $ 300,000
Payments for acquisition costs 28,349
----------
Total cash payments 328,349
Fair value of 537,500 shares and options for the
purchase of 87,500 shares of common stock
issued to sellers 1,122,375
----------
Total costs of acquisitions $1,450,724
==========
Since the acquired companies did not have any significant tangible
assets as of the respective dates of acquisition, the initial costs
of the acquisitions represented costs in excess of net assets
acquired, which were allocated to intangible assets and, accordingly,
are being amortized from the date of acquisition based on an
estimated useful life of five years. Amortization of intangible
assets amounted to $53,556 in 1998. Any additional contingent
consideration paid by the Company in connection with the acquisition
of NYE 2000 will be allocated to intangible assets and amortized over
the remaining useful life of the asset.
The issuances of common stock and options for the purchase of common
stock valued at $1,122,375 as part of the consideration paid for the
acquired businesses were noncash transactions that are not reflected
in the accompanying 1998 statement of cash flows.
F-13
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 3 - Acquisitions of businesses (concluded):
Acquisitions in 1998 (concluded):
Information as to the unaudited pro forma results of operations of
the Company and the acquired businesses assuming their acquisitions
had been consummated on July 1, 1996 has not been presented because
such information would not differ materially from the information in
the accompanying 1998 and 1997 historical statements of income.
Note 4 - Note payable to bank:
At June 30, 1998, the Company had an unused line of credit under a
revolving credit agreement with Emergent Financial Corp. that allowed
maximum borrowings of $1,250,000. Any outstanding borrowings will bear
interest, which will be payable monthly, at the higher of 1.5% above
the prime rate or 7%, and will be secured by substantially all of the
Company's assets.
The revolving credit agreement contains certain restrictive covenants
which, among other things, require the maintenance of certain financial
ratios and limit payments of cash dividends and capital expenditures.
The lender has agreed to waive certain of these covenants until July 1,
1999.
Note 5 - Long-term debt:
As of June 30, 1998, long-term debt totaled $123,148 and consisted of
equipment loans payable in monthly installments through February 2003
with interest at rates ranging from 8.15% to 8.95%; the loans were
secured by equipment with a net book value that approximated the total
outstanding balance.
Principal payment requirements for long-term obligations in each of the
five years subsequent to June 30, 1998 total $38,134 in 1999; $42,341
in 2000; $29,379 in 2001; $7,861 in 2002 and $5,433 in 2003.
Management of the Company believes that the equipment loans had
carrying values that approximated their fair values as of June 30, 1998
because the interest rates and other relevant terms of such financial
instruments were the equivalent of those that the Company could have
obtained for new loans as of that date.
Note 6 - Related party transactions:
Certain stockholders, who owned more than 50% of the Company's common
stock during 1998 and 1997 were also directors and former officers of
the Company. These stockholders also owned a controlling interest in,
and were officers and directors of, Bridgton Consulting, Inc.
("Bridgton"), which had conducted business activities that were similar
to those of the Company prior to ceasing operations in February 1998.
Bridgton and the Company had occupied the same office facilities.
F-14
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 6 - Related party transactions (concluded):
The Company billed Bridgton approximately $211,000 and $349,000 for the
services of its programmers and engineers and realized a gross profit
of approximately $38,000 and $63,000 on such billings during 1998 and
1997, respectively. Bridgton billed the Company approximately $322,000
and $406,000 for the services of its programmers and engineers and,
based on information provided by the management of Bridgton, realized a
gross profit of approximately $75,000 and $97,000 during 1998 and 1997,
respectively. Bridgton also billed the Company approximately $50,000
and $81,000 during 1998 and 1997, respectively, to obtain reimbursement
for the overhead expenses it incurred on behalf of the Company.
During 1998, the Company paid a stockholder, who is also one of its
directors, a fee of $45,000 for assistance in raising $500,000 through
a private placement of common stock.
Note 7 - Provision for income taxes:
The provision for income taxes in 1998 and 1997 consisted of the
following:
1998 1997
--------- -------
Federal:
Current provision $200,278 $ 8,300
Deferred provision (credit) (52,400) 42,000
-------- -------
Totals 147,878 50,300
-------- -------
State:
Current provision 139,401 3,400
Deferred provision (credit) (9,300) 7,500
-------- -------
Totals 130,101 10,900
-------- -------
Totals $277,979 $61,200
======== =======
The provision for income taxes in 1998 and 1997 differs from the amount
computed using the Federal statutory rate of 34% as a result of the
following:
1998 1997
---- ----
Tax at Federal statutory rate 34% 34%
State income taxes, net of Federal
income tax effect 15 2
Effect of nondeductible expenses 6 11
Other (primarily surtax exemptions) (7) (2)
-- --
Effective tax rate 48% 45%
== ==
F-15
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 7 - Provision for income taxes (concluded):
At June 30, 1998, deferred tax assets and liabilities were attributable
to the following:
Deferred tax assets:
Provision for doubtful accounts $ 10,000
Accrued state taxes 3,000
--------
Total 13,000
--------
Deferred tax liabilities:
Depreciation expense (15,000)
Amortization expense 14,200
--------
Total (800)
--------
Net deferred tax assets $ 12,200
========
Note 8 - Retirement plan:
The Company sponsors a "401(k)" plan whereby eligible employees may
defer a portion of their salary for Federal income tax purposes and
accumulate retirement benefits. The Company may make additional
contributions to the plan, subject to certain limitations, for the
benefit of its employees on a discretionary basis. The Company did not
make any contributions to the plan in 1998 and 1997.
Note 9 - Stock option plan:
On July 1, 1996, the Board of Directors approved the Company's Stock
Option Plan (the "Plan") whereby, subject to ratification of the Plan
by the Company's stockholders, incentive and/or nonincentive stock
options for the purchase of up to 2,000,000 shares of the Company's
common stock may be granted to key executives, other members of
management, other employees and directors of the Company. Under the
Plan, the exercise price of all options must be at least 100% of the
fair market value of the common stock on the date of grant (the
exercise price of an incentive stock option for an optionee that holds
more than ten percent of the combined voting power of all classes of
stock of the Company must be at least 110% of the fair market value on
the date of grant). The maximum term of an option may not exceed ten
years. The actual term of each option and the manner of exercise are
determined by the Board of Directors.
F-16
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 9 - Stock option plan (continued):
In addition to issuing options pursuant to the Plan, the Company issued
options during 1998 for the purchase of 2,500,000 shares of common
stock to certain executive officers that are exercisable at $.50 per
share through February 2008. The options had a fair market value of
$.875 per share on the date they were granted. Accordingly, the Company
charged $937,500 to deferred compensation and additional paid-in
capital in 1998 based on the number of shares that are subject to the
options and the excess of the fair market value over the exercise price
for each share (the balance of the unamortized deferred compensation is
shown separately as a reduction of stockholders' equity in the
accompanying balance sheet as of June 30, 1998). The deferred
compensation will be amortized on a straight-line basis over the
remainder of the term of each option.
A summary of the status of the Company's options as of June 30, 1998
and 1997 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1998 1997
------------------- -----------------
Weighted Weighted
Shares Average Shares Average
or Exercise or Exercise
Price Price Price Price
---------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding, at beginning of
year 651,250 $2.00 651,250 $2.00
Granted 3,087,500 .75
Canceled (86,000) 2.00
--------- -------
Outstanding, at end of year 3,652,750 $ .95 651,250 $2.00
========= ===== ======= =====
Options exercisable, at
end of year 3,002,500 -
========= =======
Weighted average fair value
of options granted during
the year $.66 $.97
==== ====
</TABLE>
F-17
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 9 - Stock option plan (concluded):
The following table summarizes information about fixed stock options
outstanding at June 30, 1998:
Options Outstanding Options Exercisable
------------------------------------ --------------------------------
Weighted
Average
Years of Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
---------- ----------- ----------- --------- ----------- --------
$ .50 2,500,000 9.60 $ .50 2,500,000 $ .50
$1.25 87,500 9.79 1.25 1.25
$1.75 225,000 9.75 1.75 225,000 1.75
$2.00 50,000 9.00 2.00 50,000 2.00
$2.00 125,000 9.17 2.00 2.00
$2.00 565,250 8.67 2.00 127,500 2.00
$2.25 100,000 9.67 2.25 100,000 2.25
--------- ---------
$.50-$2.25 3,652,750 9.45 $ .95 3,002,500 $ .74
========== ========= ==== ====== ========= =====
Since the Company has elected to continue to use the provisions of APB
25 in accounting for its stock options and the exercise price of all of
the options granted approximated the fair market value at the date of
grant other than the 2,500,000 options granted to the two executive
officers in 1998 as described above, no earned or unearned compensation
cost was recognized in the accompanying financial statements for stock
options granted in 1998 and 1997. Had compensation cost for all of the
other stock options granted in 1998 and 1997 been determined based on
the fair value of the options at the grant date under the provisions of
SFAS 123, the Company's net income and earnings per share would have
been reduced from the amounts reported in the accompanying statements
of income as shown below:
1998 1997
----------- -----------
Net income - as reported $ 300,108 $ 74,482
Net income - pro forma 122,700 44,452
Basic weighted average common shares
outstanding - as reported 10,146,767 10,013,316
Basic weighted average common shares
outstanding - pro forma 11,946,913 10,223,316
Basic earnings per share - as reported $ .03 $ .01
Basic earnings per share - pro forma $ .01 $ -
The fair value of each option granted in 1998 and 1997 was estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions: risk-free interest rate of
6.3%; expected option lives of ten years; expected volatility of 16.0%;
and expected dividends of 0%.
F-18
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 10- Stock purchase warrants:
On January 7, 1997, the Company issued two warrants to purchase an
aggregate of 15,000 shares of common stock at $1.00 per share to a
lender as part of the consideration for a loan made to the Company. The
warrants became exercisable on the date they were issued and will
expire on December 31, 1999. The estimated fair market value of the
warrants on the date of issuance was not material.
Note 11- Commitments and contingencies:
Consulting agreements:
The Company has entered into a consulting agreement with one of its
former officers (who was also a member of its Board of Directors)
which obligates the Company to make aggregate payments of $144,000 in
1999 and $24,000 in 2000.
Employment agreements:
The Company has entered into employment agreements with three of its
key executives which obligate the Company to make aggregate payments
of approximately $337,000 in 1999, 2000 and 2001; and $77,000 in
2002.
During 1998, the Company entered into employment agreements with four
employees in connection with its acquisitions (see Note 3) which
obligate the Company to make aggregate payments of approximately
$540,000 in 1999, plus bonuses based on certain types and levels of
sales.
Executive incentive compensation plan:
On July 1, 1996, the Company adopted, and on July 1, 1997, the
Company terminated, an executive incentive compensation plan (the
"Incentive Plan") that was administered by the Company's Board of
Directors. Under the terms of the Incentive Plan, a participant was
going to earn incentive compensation, which would have been paid in
cash and/or common stock of the Company, based on, among other
things, the percentage increases in the Company's billable hours,
gross revenues and profitability over the corresponding amounts
applicable to the preceding fiscal year. Since fiscal 1997 was the
base year and the Incentive Plan was terminated as of the beginning
of fiscal 1998 by a resolution made by the Board of Directors dated
April 24, 1998, no amounts have been or will be charged to
compensation based on the terms of the Incentive Plan.
F-19
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 11- Commitments and contingencies (continued):
Leases:
During the period from July 1, 1996 through December 20, 1996, the
Company leased its office space for $1,000 per month from certain
stockholders. During December 1996, the Company entered into
agreements with an unrelated lessor whereby it temporarily leased
office space on a month-to-month basis from December 21, 1996
through April 30, 1997 and moved into new office facilities on May 1,
1997 under a noncancelable operating lease which expires on April 30,
2000. The Company has a one-year renewal option. Minimum annual
rental commitments under the noncancelable lease for periods after
June 30, 1998 aggregate $59,322 which is payable as follows: $31,762
in 1999 and $27,560 in 2000. The lease also requires the Company to
pay all operating expenses. Rent expense charged to operations under
all of the leases aggregated $38,230 and $16,035 in 1998 and 1997,
respectively.
Venture capital agreement:
On October 4, 1996, a venture capital group (the "Group") agreed to:
assist the Company in finding and acquiring a publicly-traded shell
company; assist the Company in obtaining the approvals necessary for
the quotation and trading of the Company's common stock on the NASDAQ
Bulletin Board; and, upon the completion of the acquisition and the
commencement of quotation and trading of the Company's common stock,
contribute $550,000 to the Company's capital or obtain equity
financing totaling at least $550,000 for the Company. In exchange,
the Company agreed to pay the Group $50,000 once the equity financing
and the other services had been provided.
As of June 30, 1997, the Group had assisted the Company in
consummating the acquisition of Pyke, which had been a publicly
traded shell company, and obtaining the necessary approvals for the
quotation and trading of the Company's common stock on the NASDAQ
Bulletin Board. The members of the Group had been stockholders of
Pyke, and they or their nominees had received a total of 1,356,664
shares of the Company's common stock as a result of the Merger with
Pyke. However, as of June 30, 1998, the Group had not fulfilled its
commitment to provide the Company with $550,000 of equity financing.
Management of the Company cannot provide any assurance that the Group
will be able to fulfill its commitment, and it is considering what
legal or equitable actions to take against the members of the Group.
F-20
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 11- Commitments and contingencies (concluded):
Concentrations of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and trade
accounts receivable. The Company maintains its cash balances with
high quality financial institutions. At times, such balances may
exceed Federally insured limits.
Approximately 67% and 68% of the Company's net revenues were derived
from two customers during 1998 and 1997, respectively, who also
accounted for approximately 60% of its accounts receivable balance at
June 30, 1998. The Company closely monitors the extension of credit
to its customers while maintaining appropriate allowances for
potential credit losses. Accordingly, management does not believe
that the Company was exposed to significant credit risk at June 30,
1998.
Cancellation of shares:
During 1998, the Company issued 100,000 shares of restricted common
stock with a fair value of $405,000 to consultants who agreed to
provide the Company with certain advertising and promotional services
over a twelve month period commencing in April 1998. Initially, the
Company recorded the value of the shares issued as a deferred charge
that it intended to write-off over the expected service period.
However, in the opinion of the management of the Company, the
consultants failed to provide the agreed upon services. Accordingly,
the Company considers the agreement to have been effectively
terminated, and it reversed the deferred charge and reduced the
number of shares outstanding. The Company will seek the actual
cancellation of the shares.
Litigation:
The Company is a party to a number of lawsuits and claims arising out
of the conduct of its business. While the ultimate outcome of these
proceedings cannot be predicted with certainty, management believes
the overall effect of these lawsuits will not be material to the
Company's financial statements.
Note 12- Change in number of authorized shares:
During 1998, the Board of Directors and stockholders approved an
increase from 20,000,000 to 100,000,000 in the number of shares of
common stock authorized for issuance by the Company.
* * *
F-21
<PAGE>
DELSOFT CONSULTING, INC.
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1998
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents $ 112,419
Accounts receivable, net of allowance for doubtful
accounts of $10,000 1,444,228
Deferred tax assets 51,600
Prepaid income taxes 91,720
Other current assets 28,120
----------
Total current assets 1,728,087
Equipment and furnishings, net of accumulated
depreciation of $62,094 218,031
Intangible assets, net of accumulated
amortization of $126,092 1,324,632
Other assets 67,086
----------
Total $3,337,836
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Note payable to bank $ 548,436
Current portion of long-term debt 39,701
Accounts payable 144,662
Accrued compensation and other liabilities 308,129
----------
Total current liabilities 1,040,928
Long-term debt, net of current portion 74,769
Deferred tax liabilities 17,200
----------
Total liabilities 1,132,897
----------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; 100,000,000 shares authorized;
11,159,149 shares issued and outstanding 2,775,652
Retained earnings 333,584
Unearned compensation (904,297)
----------
Total stockholders' equity 2,204,939
----------
Total $3,337,836
==========
See Notes to Condensed Financial Statements.
F-22
<PAGE>
DELSOFT CONSULTING, INC.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
1998 1997
----------- ----------
Gross revenue $ 2,345,207 $ 2,318,557
Direct project costs 1,703,559 1,692,522
----------- ----------
Net revenues 641,648 626,035
----------- ---------
Expenses:
Selling, general and administrative expenses 676,490 481,328
Interest expense 20,364 35,927
----------- ----------
Totals 696,854 517,255
----------- ----------
Income (loss) before provision (credit)
for income taxes (55,206) 108,780
Provision (credit) for income taxes (14,200) 37,932
----------- ----------
Net income (loss) $ (41,006) $ 70,848
=========== ===========
Basic earnings (loss) per share $ - $ .01
=========== ===========
Basic weighted average common shares outstanding 11,159,149 10,080,164
=========== ===========
See Notes to Condensed Financial Statements.
F-23
<PAGE>
DELSOFT CONSULTING, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
------------------------ Total
Number of Retained Unearned Stockholders'
Shares Amount Earnings Compensation Equity
---------- ---------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1998 11,159,149 $2,775,652 $374,590 $(937,500) $2,212,742
Amortization of unearned compensation 33,203 33,203
Net loss (41,006) (41,006)
---------- ---------- -------- --------- ----------
Balance, September 30, 1998 11,159,149 $2,775,652 $333,584 $(904,297) $2,204,939
========== ========== ======== ========= ==========
</TABLE>
See Notes to Condensed Financial Statements.
F-24
<PAGE>
DELSOFT CONSULTING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Operating activities:
Net income (loss) $ (41,006) $ 70,848
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation of equipment and furnishings 16,081 7,542
Amortization of intangible assets 72,536
Amortization of unearned income 33,203
Deferred income taxes (22,200) 33
Changes in operating assets and liabilities:
Accounts receivable (260,834) 63,011
Prepaid income taxes (91,720)
Other current assets (7,564) (59,334)
Other assets (46,484) (309)
Accounts payable (54,852) (103,503)
Accrued compensation and other liabilities (155,788) 17,182
Income taxes payable (180,346) 37,948
--------- ---------
Net cash provided by (used in) operating activities (738,974) 33,418
--------- ---------
Investing activities - capital expenditures (1,816) (7,695)
--------- ---------
Financing activities:
Net proceeds from (repayments of) line of credit borrowings 548,436 (338,126)
Repayments of long-term borrowings (8,678) (15,816)
Proceeds from issuances of common stock 250,000
--------- ---------
Net cash provided by (used in) financing activities 539,758 (103,942)
--------- ---------
Net decrease in cash and cash equivalents (201,032) (78,219)
Cash and cash equivalents, beginning of period 313,451 197,514
--------- ---------
Cash and cash equivalents, end of period $ 112,419 $ 119,295
========= =========
Supplemental disclosure of cash flow data:
Interest paid $ 17,503 $ 32,946
========= =========
Income taxes paid $ 280,066 $ 16,100
========= =========
</TABLE>
See Notes to Condensed Financial Statements.
F-25
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Unaudited interim financial statements:
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial position
of Delsoft Consulting, Inc. (the "Company") as of September 30, 1998,
its results of operations and cash flows for the three months ended
September 30, 1998 and 1997 and its changes in stockholders' equity for
the three months ended September 30, 1998. Certain terms used herein
are defined in the audited financial statements of the Company as of
June 30, 1998 and for the years ended June 30, 1998 and 1997 (the
"Audited Financial Statements") also included in this Form 10-SB.
Accordingly, these unaudited condensed financial statements should be
read in conjunction with the Audited Financial Statements and the other
information also included in this Form 10-SB.
The results of the Company's operations for the three months ended
September 30, 1998 are not necessarily indicative of the results of
operations for the full year ending June 30, 1999.
Note 2 - Earnings (loss) per common share:
As further explained in Note 1 to the Audited Financial Statements, the
Company presents basic and, if appropriate, diluted earnings (loss) per
share in accordance with the provisions of Statement of Financial
Accounting Standards No. 128, Earnings per Share ("SFAS 128"). Diluted
per share amounts have not been presented in the accompanying unaudited
condensed statements of operations because: (i) the Company had a net
loss for the three months ended September 30, 1998 and, accordingly,
the assumed effects of the exercise of all of the Company's outstanding
stock options and warrants and the application of the treasury stock
method would have been anti-dilutive; and (ii) the assumed effects of
the exercise of all of the Company's outstanding stock options and
warrants and the application of the treasury stock method for the three
months ended September 30, 1997 would have had an insignificant effect
on the weighted average number of common shares outstanding and no
effect on earnings per share.
Note 3 - Note payable to bank:
At September 30, 1998, the Company had borrowed $548,436 under the
revolving credit agreement that provides it with a $1,250,000 line of
credit (see Note 4 of the notes to the Audited Financial Statements).
Interest on outstanding borrowings is payable monthly at the higher of
1.5% above the prime rate or 7% (an effective rate of 9.75% at
September 30, 1998).
F-26
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 4 - Long-term debt:
At September 30, 1998, long-term debt consisted of equipment loans
totaling $114,470 which are payable in monthly installments and bear
interest at rates ranging from 8.15% to 8.95%. The loans were secured
by equipment with a net book value that approximated the total
outstanding balance.
Principal payment requirements for long-term obligations in each of the
years subsequent to September 30, 1998 total $39,701 in 1999; $43,258
in 2000; $20,048 in 2001; $8,030 in 2002; and $3,433 in 2003.
See Note 5 of the notes to the Audited Financial Statements for
additional information regarding long-term debt.
Note 5 - Related party transactions:
During the three months ended September 30, 1998, there were no
transactions between the Company and Bridgton (see Note 6 of the notes
to the Audited Financial Statements). During the three months ended
September 30, 1997, the Company billed Bridgton approximately $91,000
for the services of its programmers and engineers and realized a gross
profit of approximately $16,000 on such billings, and Bridgton billed
the Company approximately $224,000 for the services of its programmers
and engineers and, based on information provided by the management of
Bridgton, realized a gross profit of approximately $54,000. Bridgton
also billed the Company approximately $50,000 during the three months
ended September 30, 1997 to obtain reimbursement for the overhead
expenses it incurred on behalf of the Company.
Note 6 - Provision (credit) for income taxes:
The provision (credit) for income taxes for the three months ended
September 30, 1998 and 1997 consisted of the following:
1998 1997
-------- -------
Federal:
Current provision $ 5,000 $30,212
Deferred provision (credit) (18,900) 33
-------- -------
Totals (13,900) 30,245
-------- -------
State:
Current provision 3,000 7,687
Deferred credit (3,300)
-------- -------
Totals (300) 7,687
-------- -------
Totals $(14,200) $37,932
======== =======
F-27
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 6 - Provision (credit) for income taxes (concluded):
The provision (credit) for income taxes for the three months ended
September 30, 1998 and 1997 differs from the amount computed using the
Federal statutory rate of 34% as a result of the following:
Tax at Federal statutory rate (34)% 34%
State income taxes, net of Federal income tax effect 5
Effect of nondeductible expenses 7 15
Other items, primarily surtax exemptions 1 (19)
--- ---
Effective tax rate (26)% 35%
=== ===
At September 30, 1998, deferred tax assets and liabilities were
attributable to the following:
Deferred tax assets:
Provision for doubtful accounts $ 4,700
Unearned compensation 13,300
Amortization of intangible assets 33,600
--------
Total 51,600
Deferred tax liabilities - depreciation (17,200)
--------
Net deferred tax assets $ 34,400
========
Note 7 - Stock option plan:
Subject to ratification by the Company's stockholders, the Company may
grant incentive and/or nonincentive stock options for the purchase of
up to 2,000,000 shares of the Company's common stock to key executives,
other members of management, other employees and directors of the
Company under the Company's Stock Option Plan (the "Plan"), as further
explained in Note 9 of the Notes to the Audited Financial Statements.
As of June 30, 1998, the Company had options outstanding for the
purchase of a total of 3,652,750 shares of common stock at exercise
prices ranging from $.50 to $2.25 per share, including options not
subject to the Plan for the purchase of 2,500,000 shares of common
stock exercisable at $.50 per share granted to two executive officers
during the year ended June 30, 1998. During the three months ended
September 30, 1998, the Company granted options subject to the Plan to
purchase a total of 550,750 shares of common stock at an exercise price
of $2.00 per share and no options were exercised or canceled.
Accordingly, as of September 30, 1998, the Company had options
outstanding for the purchase of a total of 4,203,500 shares of common
stock at exercise prices ranging from $.50 to $2.25 per share, of which
options to purchase a total of 3,002,500 shares were exercisable.
F-28
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Stock option plan (concluded):
The Company has elected to continue to use the provisions of APB 25 in
accounting for its stock options. Since the exercise price of the
options not subject to the Plan for the purchase of 2,500,000 shares of
common stock granted to the two executive officers during 1998 was less
than the fair market value at the date of grant, the Company recorded
deferred compensation of $937,500 in 1998, of which $72,536 was
amortized during the three months ended September 30, 1998 (there was
no charge for amortization during the three months ended September 30,
1997). The Company has not recognized any earned or unearned
compensation cost in connection with the issuance of any other options
or warrants since the exercise price of all of those options
approximated the fair market value at the date of grant. Had
compensation cost for all of the other stock options granted by the
Company been determined based on the fair value of the options at the
grant date under the provisions of SFAS 123, the Company's net income
(loss) and earnings (loss) per share would have been reduced from the
amounts reported in the accompanying unaudited condensed statements of
operations for the three months ended September 30, 1998 and 1997 as
shown below:
1998 1997
----------- -----------
Net income (loss) - as reported $ (41,006) $ 70,848
Net income (loss) - pro forma (99,538) 51,787
Basic weighted average common shares
outstanding - as reported 11,159,149 10,080,164
Basic weighted average common shares
outstanding - pro forma 13,335,927 10,080,164
Basic earnings (loss) per share -
as reported $ - $ .01
Basic earnings (loss) per share -
pro forma $ (.01) $ .01
The fair value of each option granted was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted average assumptions: risk-free interest rate of 6.3%;
expected option lives of ten years; expected volatility of 16.0%; and
expected dividends of 0%.
Note 8 - Concentrations of credit risk:
Approximately 82% and 65% of the Company's net revenues were derived
from two customers during the three months ended September 30, 1998 and
1997, respectively, who also accounted for approximately 75% of its
accounts receivable balance at September 30, 1998. The Company closely
monitors the extension of credit to its customers while maintaining
appropriate allowances for potential credit losses. Accordingly,
management does not believe that the Company was exposed to significant
credit risk at September 30, 1998.
F-29
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 9 - Venture capital agreement:
As of September 30, 1998, the Group had not fulfilled its commitment to
provide the Company with $550,000 of equity financing pursuant to their
October 4, 1996 agreement (see Note 11 of the notes to the Audited
Financial Statements).
* * *
F-30
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS.
ITEM 2. DESCRIPTION OF EXHIBITS.
2 Agreement and Plan of Merger, dated November 13, 1996, by and
between the Company and Pyke Corp.**
3.1 Articles of Incorporation*
3.2 Bylaws**
4 Form of Common Stock Certificate of the Company*
10.1 Lease Agreement, dated December 20, 1996 by and between the
Company and VPB Realty**
10.2 Subcontractor Agreement, dated July 1, 1996, by and between the
Company and Bridgton, Inc.**
10.3 Loan and Security Agreement, dated February 18, 1997, by and
between the Company and Emergent Financial Corp.**
10.4 Employment Agreement, dated August 5, 1997, by and between the
Company and Michael Osso**
10.5 Employment Agreement, dated July 1, 1996, by and between the
Company and Adil Choksey**
10.6 Employment Agreement, dated July 1, 1996, by and between the
Company and Jeffrey A. Rinde**
10.7 Consulting Agreement, dated September 1, 1997, by and between the
Company and Jerry Rosemeyer**
10.8 Consulting Agreement, dated June 18, 1997, by and between the
Company and Benjamin J. Giacchino**
10.9 Delsoft Consulting, Inc. Stock Option Plan**
10.10 Consulting Agreement, dated October 22, 1997, by and between the
Company and Millennium Holdings Group, Inc.*
10.11 Amendments to Loan and Security Agreement, dated April __, 1997, July
8, 1997 and August 29, 1997, by and between the Company and Emergent
Financial Corp.*
10.12 Guaranty of Validity, executed by Messrs. Ben J. Giacchino, Jerry
Rosemeyer and Jeffrey A. Rinde in favor of Emergent Financial
Corporation on February 18, 1997.*
10.13 Guaranty, executed by Messrs. Ben J. Giacchino, Jerry Rosemeyer and
Jeffrey A. Rinde in favor of Emergent Financial Corporation on February
18, 1997.*
16.1 Letter from Allen P. Fields, dated November 21, 1998, on change in
certifying accountant*
27 Financial Data Schedule (For SEC use only)*
_____________
* Filed herewith
** Previously filed.
II-1
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the registrant caused this amendment to registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
DELSOFT CONSULTING, INC.
By: /s/ Michael Osso
-----------------------
Name: Michael Osso
Title: President
Date: November 24, 1998
II-2
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
DELSOFT CONSULTING, INC.
I.
The name of the Corporation is DelSoft Consulting, Inc.
II.
The Corporation shall have authority to issue 100,000,000 shares of common
stock with no par value (the "Common Stock"), and 5,000,000 shares of preferred
stock, par value $1.00 per share (the "Preferred Stock").
Holders of the Common Stock are entitled to the entire voting power, all
dividends declared and all assets of the Corporation upon dissolution, subject
to the rights and preferences, if any, of the holders of the Preferred Stock to
such voting power, dividends and assets upon dissolution pursuant to applicable
law and the resolution or resolutions of the Board of Directors providing for
the issue of one or more series of Preferred Stock.
The Board of Directors is hereby authorized to issue, at any time and from
time to time, shares of Preferred Stock in one or more series. The number of
shares within any such series shall be designated by the Board of Directors in
one or more resolutions, and the shares of each series so designated shall have
such preferences with respect to the Common Stock and other series of Preferred
Stock, and such other rights, restrictions or limitations with respect to
voting, dividends, conversions, exchange, redemption and any other matters, as
may be set forth in one or more resolutions adopted by the Board of Directors.
If and to the extent required by law, Articles of Amendment setting forth any
such designation, preferences, rights, restrictions or limitations shall be
filed with the Georgia Secretary of State prior to the issuance of any shares of
such series.
The authority of the Board of Directors with respect to the establishment
of each series of Preferred Stock shall include, without limiting the generality
of the foregoing, determination of the following matters which may vary between
series:
(a) The distinctive designation of that series and the number of shares
constituting that series, which number may be increased (except where otherwise
provided by the Board of Directors in creating such series) or decreased (but
not below the number of shares of such series then outstanding) from time to
time;
(b) The dividend rate on the shares of that series, whether dividends shall
be cumulative, and, if so, from which date or dates, and the relative rights of
priority, if any, of payments of dividends on shares of that series;
<PAGE>
(c) Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and, if so, the
terms and conditions of such conversion, including provisions for adjustment of
the conversion rate in such events as the Board of Directors shall determine;
(e) Whether the shares of that series shall be redeemable, and, if so, the
terms and conditions of such redemption, including the date or dates upon or
after which they shall be redeemable, and the amount per share payable in case
of redemption, which amount may vary under different conditions;
(f) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series; and
(h) Any other relative preferences, rights, restrictions or limitations of
that series, including but not limited to any obligations of the Corporation to
repurchase shares of that series upon specified events.
III.
Any action or actions of the shareholders may only be taken at a duly
called annual or special meeting of shareholders.
IV.
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of his duty of
care or other duty as a director, provided that this provision shall eliminate
or limit the liability of a director only to the extent permitted from time to
time by the Georgia Business Corporation Code (the "Code") or any successor law
or laws. If at any time the Code shall have been amended to authorize the
further elimination or limitation of the liability of a director, then the
liability of each director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Code, as so amended, without further action
by the shareholders, unless the provisions of the Code, as amended, require
further action by the shareholders. Any repeal or modification of the foregoing
provisions of this Article IV shall not adversely affect the elimination or
limitation of liability or alleged liability pursuant hereto of any director of
the Corporation for or with respect to any alleged act or omission of the
director occurring prior to such repeal or modification.
2
<PAGE>
V.
In discharging the duties of their respective positions and in determining
what is believed to be in the best interests of the Corporation, the Board of
Directors, committees of the Board of Directors and individual directors, in
addition to considering the effects of any action on the Corporation or its
shareholders, may consider the interests of the employees, customers, suppliers,
and creditors of the Corporation and its subsidiaries, the communities in which
offices or other establishments of the Corporation and its subsidiaries are
located, and all other factors the directors consider pertinent.
VI.
The Corporation may, to the fullest extend permitted by the laws of the
State of Georgia, as amended and in effect from time to time, indemnify its
directors, officers, employees and agents and all other persons whom it may
choose to indemnify.
VII.
The Bylaws of the Corporation may be adopted, amended or repealed by a
majority vote of the entire Board of Directors of the Corporation.
VIII.
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation in the manner now or
hereafter prescribed by statute, and all rights conferred upon the shareholders
herein are granted subject to this reservation.
IX.
The street address and county of the Corporation's registered office shall
be 400 Perimeter Center Terrace, Suite 900, County of DeKalb, City of Atlanta,
Georgia 30346. The registered agent of the Corporation at the office shall be
Jeffrey A. Rinde.
3
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Amended and Restated
Articles of Incorporation to be executed by its duly authorized officer on the
18th day of May 1998.
DELSOFT CONSULTING, INC.
/s/ Jeffrey A. Rinde
--------------------
Name: Jeffrey A. Rinde
Title: CFO
4
<PAGE>
EXHIBIT 4
DELSOFT CONSULTING INC.
ORGANIZED UNDER THE LAWS OF THE STATE OF GEORGIA
NUMBER SHARES
- --------------- ---------------
SEE REVERSE FOR
CERTAIN DEFINITIONS
-----------------
CUSIP 247348 10 5
-----------------
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE COMMON STOCK, NO PAR VALUE OF
DELSOFT CONSULTING INC.
transferable only on the books of the Corporation in person or by attorney upon
surrender of this Certificate properly endorsed. This Certificate and the
shares represented hereby are subject to all the provisions of the Articles of
Incorporation, to all of which the holder by acceptance hereby assents.
This Certificate is not valid until countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be endorsed
by the facsimile signatures of its duly authorized officers and to be sealed
with the facsimile seal of the Corporation.
Dated:
[SEAL OF DELSOFT CONSULTING INC. APPEARS HERE]
COUNTERSIGNED:
CORPORATE STOCK TRANSFER, INC.
370 - 17th Street, Suite 2350, Denver, Colorado 80202
BY _____________________________________________________
Transfer Agent Authorized Signature
<PAGE>
DELSOFT CONSULTING INC.
CORPORATE STOCK TRANSFER, INC.
TRANSFER FEE: $15.00 PER CERTIFICATE
- --------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM as tenants in common UNIF GIFT MIN ACT - ____________ Custodian for _____________
(Cust.) (Minor)
TEN ENT as tenants by the entireties under Uniform Gifts to Minors
Act of ______________________________
JT TEN as joint tenants with the right of (State)
survivorship and not as tenants
in common
Additional abbreviations may also be used though not in the above list
For value received _____________________________________ hereby sell, assign and transfer into
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
-------------------------------------------------
-------------------------------------------------
Please print or type name and address of assignee
_________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________
__________________________________________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate and do hereby irrevocably constitute and appoint
_________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________
Attorney to transfer the said stock on the books of the within named Corporation, with full power of substitution
in the premises.
Dated ___________________, 19__
SIGNATURE GUARANTEED: X ___________________________________________________________
X ___________________________________________________________
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, THE SIGNATURES(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO S.E.C. RULE 17Ad-15.
</TABLE>
<PAGE>
EXHIBIT 10.10
MILLENNIUM
- ----------------------
Holdings Group, Inc.
- ----------------------
CONSULTING AGREEMENT
THIS AGREEMENT (the "Agreement"), is made and entered into as of this
22nd day of October, 1997, by and between Millennium Holdings Group, Inc., a New
York Corporation with offices at 2200 Corporate Boulevard, N.W., Suite 311, Boca
Raton, FL 33431 ("Millennium" or the "Consultant") and DelSoft Consulting with
offices at 106 Bombay Lane, Roswell, GA 30076 ("Company") (together the
"Parties").
WHEREAS, the Parties desire to formalize the terms and conditions
under which Millennium shall provide consulting services to the Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, and other valid consideration, receipt of which is hereby
acknowledged, the Parties agree as follows:
1. Term of Agreement and Renewal.
The Agreement shall remain in effect from the date of execution hereof
through the expiration of a one year period, and may be renewed upon the mutual
consent of the Parties.
2. Nature of Services to be Rendered.
Millennium shall provide the Company with corporate consulting services in
the areas of mergers and acquisitions, corporate finance, corporate financial
relations, introductions to other financial relations companies and other
financial services. Millennium shall also use its best efforts to locate and
identify to the Company private and/or public companies for potential merger
with or acquisition by the Company.
3. Compensation.
As compensation for its consulting services rendered hereunder, the Company
shall pay to Millennium and Millennium shall accept securities, as follows:
(a) The Company shall issue to Millennium, simultaneously with the
execution of this Agreement and upon receipt of Millennium's check in the amount
of $100, representing consideration for the shares, a total of one hundred
thousand (100,000) shares of the Company's
<PAGE>
restricted common stock, at $.001 per share (the "Shares"), with registration
rights as hereinafter described; The Company shall allow Millennium "piggyback"
registration rights on the 144 stock as follows: 50,000 shares to be registered
in any registration within one year and 50,000 shares to be registered within
any further registrations.
In connection with the location and identification of potential
candidates for corporate merger and/or acquisition, the Consultant shall be
entitled to receive compensation in an amount equal to ten percent (10%) of the
value of the total price paid by the Company for any completed merger or
acquisition with an identity located and/or identified by the Consultant (the
"Transaction"). One-half of the Consultant's fee shall be paid in cash and one-
half in shares of the Company's restricted stock, with "piggyback" registration
rights as described in paragraph #9 of this Agreement. In the event no cash is
paid in the Transaction, than the entire fee shall be payable in shares of the
Company's stock, should the Transaction involve all cash, then the entire fee to
the Consultant shall be payable in cash.
4. Warranties and Representations of the Consultant.
In order to induce the Company to enter into this Agreement, the Consultant
hereby makes the following unconditional warranties and representations:
(a) In connection with its execution of and performance under this
Agreement, the Consultant has not taken and will not take any action which would
cause it to become required to make any filings with or to register in any
capacity with the Securities and Exchange Commission (the "SEC"), the National
Association of Security Dealers, Inc. (the "NASD"); the securities commissioner
or department of any state, or any other regulatory or governmental body or
agency.
(b) Neither the Consultant nor any of its principals is subject to any
sanction or restriction imposed by the SEC, the NASD, any state securities
commission or department, or any other regulatory or governmental body or
agency, which would prohibit, limit or curtail the Consultant's execution of
this Agreement or the performance of its obligations hereunder.
(c) The Consultant will take no action causing it to be a "promoter"
pursuant to the Securities Act, requiring disclosure in SEC filings, without the
Company's prior written consent.
-2-
<PAGE>
(d) Millennium's purchase of Shares pursuant to this Agreement is an
investment made for its own account.
(e) Millennium is not now a party to a consulting agreement with any
other corporation or entity involved in a business which is the same as or
similar to the Company's.
(f) Millennium is permitted to provide consulting services to any
corporation or entity engaged in a business identical or similar to the
Company's, provided, however, that the Consultant shall keep confidential all
information it receives from the Company which is of a confidential or
proprietary nature, without disclosure to or for the benefit of any third
parties.
5. Warranties and Representations of the Company.
In order to induce the Consultant to enter into this Agreement, the Company
hereby makes the following unconditional warranties and representations:
(a) The Company is not subject to any restriction imposed by the SEC
or by operation of the Securities Act of 1933, as amended (the "1933 Act"), the
Exchange Act of 1934, as amended (the "1934 Act") or any of the rules and
regulations promulgated under the 1933 Act or the 1934 Act which would prohibit
its execution of this Agreement or the performance of its obligations to the
Consultant herein set forth.
(b) The Company has not been sanctioned by the SEC or any state
securities commissioner or department in connection with any issuance of its
securities.
(c) The Company is not a party to any other contract or agreement with
terms similar to those contained herein.
(d) All payments required to be made to Millennium hereunder will be
made on time and in accordance with the payment terms and conditions set forth
herein.
(e) The Company acknowledges that Millennium does not guarantee its
ability to cause the consumption of any contract or merger or acquisition with
any corporate candidate.
6. Execution of Investment Letter.
Simultaneously with the execution hereof, Millennium shall execute and
deliver to the Company an investment letter in the form annexed hereto as
Exhibit "A".
7. Issuance of Shares to Millennium.
Upon receipt of the Consultant's check in payment of the full purchase
price for the Shares together with the Investment Letter, the Company will cause
to be issued to Millennium a
-3-
<PAGE>
validly-endorsed stock certificate bearing the facsimile signatures of its
President and Secretary. Such Shares shall be issued as fully-paid and non-
assessable securities. The Company shall take all corporate action necessary for
the Share issuance to be legally valid and irrevocable, including obtaining the
prior unanimous written consent of its Board of Directors.
8. Registration Obligations.
Should the Company file any registration statement with the SEC for any of
its securities, at any time subsequent to the date of execution of this
Agreement, the Company shall provide prior written notice of its intention to
Millennium and to any subsequent holder of any portion of the Shares, at written
request and direction of the Consultant and/or subsequent holders, shall
thereupon be included in such registration statement. (See 3a of this agreement)
9. Waiver of Registration Obligations.
In the event of NASD-registered broker-dealer shall execute a letter of
intent to conduct a firm commitment underwriting of the Company's securities,
with anticipated gross proceeds of at least $1,000,000, and shall require that
all of the Company's shareholders waive registration rights, Millennium will
provide a written waiver of its registration right herein provided.
10. Expense Reimbursement.
Millennium shall be entitled to receive cash reimbursement, and the Company
shall provide cash reimbursement, of all cash expenses paid by Millennium on
behalf of the Company in performance of its duties hereunder. Such expenses
shall include without limitation expenses for communications, deliveries and
travel. In no event, however, will Millennium incur on behalf of the Company an
expense in excess of $500 without the prior written consent of the Company.
11. Indemnification of Millennium by the Company.
The Company shall indemnify and hold harmless Millennium and its principals
from and against any and all liabilities and damages in connection with the
Company's ownership and operation and, without limiting the foregoing, shall pay
the Consultant's legal fees and expenses if the Company is named as a defendant
in any proceedings brought in connection with the Company.
-4-
<PAGE>
12. Indemnification of the Company by the Consultant.
Millennium shall indemnify and hold harmless the Company and its principals
from and against any and all liabilities and damages arising out actions taken
by Millennium in connection with its services as consultant, which actions were
not authorized by the Company.
13. Arbitration.
Any and all conflicts, disputes and disagreements arising out of or in
connection with any aspect of the Agreement shall be subject to arbitration in
accordance with the rules of The American Arbitration Association then in
effect. Written Notice of Dispute shall be served by either Party upon the
other Party at its address set forth herein or such other address as it shall
have provided in writing for that purpose, and the arbitration date shall be set
no later than two months from the date such Notice is served. The dispute shall
be submitted to The American Arbitration Association headquarters located at 150
West 51st Street, New York City. The Parties designate the Supreme Court, New
York County as the court in which any arbitration award shall be subject to
confirmation, and will abide by such confirmation.
14. Entire Understanding/Incorporation of other Documents.
With the exception of the Investment Letter, the Agreement contains the
entire understanding of the Parties with regard to the subject matter hereof,
superseding any and all prior agreements or understandings whether oral or
written, and no further or additional agreements, promises, representations or
covenants may be inferred or construed to exist between the Parties.
15. No Assignment or Delegation Without Prior Approval.
No portion of the Agreement or any of its provisions may be assigned, nor
obligations delegated, to any other person or party without the prior written
consent of the Parties except by operation of law or as otherwise set forth
herein.
16. Survival of Agreement.
The Agreement and all of its terms shall inure to the benefit of any
permitted assignees of or lawful successors to either Party.
17. No Amendment Except in Writing.
Neither the Agreement nor any of its provisions may be altered or amended
except in a dated writing signed by the Parties.
-5-
<PAGE>
18. Waiver of Breach.
No waiver of any breach of any provision hereof shall be deemed to
constitute a continuing waiver or a waiver of any other portion of the
Agreement.
19. Severability of the Agreement.
Except as otherwise provided herein, if any provision hereof is deemed by
arbitration or a court of competent jurisdiction to be legally unenforceable or
void, such provision shall be stricken from the Agreement and the remainder
hereof shall remain in full force and effect.
20. Governing Law.
The Agreement and its provisions shall be construed in accordance with and
pursuant to, and governed by, the laws of the State of New York, as applicable
to agreements to be performed solely within the State of New York, without
regard to its conflict-of-laws provisions then in effect.
21. No Construction Against Drafter.
The Agreement shall be construed without regard to any presumption or other
rule requiring construction against the Party causing the drafting hereof.
IN WITNESS WHEREOF, the Parties have executed the Agreement as of the date
first above written.
DELSOFT CONSULTING, INC. MILLENNIUM HOLDINGS GROUP, INC.
By:____________________________ By:_____________________________________
Jeff Rinde, C.F.O. Gary Schultheis, President
-6-
<PAGE>
INVESTMENT REPRESENTATION LETTER
--------------------------------
The undersigned subscriber (the "Subscriber") hereby offers to purchase
100,000 shares of the common stock, par value $.001 per share (the "Shares") of
DelSoft Consulting Inc. (the "Company") for total cash consideration of $100.00.
In order to induce the Company to accept this subscription offer, the Subscriber
hereby makes the following representations, gives the following warranties, and
acknowledges the following information:
(1) The Shares are being purchased solely for investment purposes, for the
Subscriber's own account, and not with a view to, or for sale in connection
with, any distribution of the Shares within the meaning of the Securities Act of
1933, as amended (the "Securities Act").
(2) The Shares have not been registered under the Securities Act and are to
be issued to the Subscriber in reliance upon one or more exemptions from
registration contained in the Securities Act and applicable state securities
laws. The Subscriber has no right to demand the registration of the Shares Act
to permit them to be resold, and no representations about subsequent
registrations have been made by the Company. The Shares cannot be transferred
except pursuant to a registration under the Securities Act or pursuant to an
exemption from the Securities Act deemed to be lawfully available.
(3) The exemption provided by Rule 144 under the Securities Act provide for
limited sale of unregistered shares but may not be available to the Subscriber
at the time s/he may desire to sell the Shares. No representations have been
made to the Subscriber that any part of the Shares will be saleable pursuant to
Rule 144 at any particular time.
(4) The Shares represent a speculative investment involving a high degree
of risk of loss of the purchase price.
(5) The Subscriber has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of an
investment in the Shares and of making an informed investment decision.
(6) The Subscriber is able to bear the economic risk of the investment in
the Shares, to hold the Shares for an indefinite period of time, and to afford a
complete loss of the purchase price.
(7) The Shares will be represented by a certificate bearing a prominent
legend setting forth the restricted nature of the Shares as deemed appropriate
by the Company's counsel.
MILLENNIUM HOLDINGS ACCEPTED BY
GROUP, INC. DELSOFT CONSULTING INC.
By:_____________________________ By:________________________________
Gary Schultheis, President Jeff Rinde, CFO
<PAGE>
EXHIBIT 10.11
AMENDMENT #1
TO
LOAN AND SECURITY AGREEMENT AND RELATED FINANCING DOCUMENTS
DATED FEBRUARY 18, 1997 BETWEEN EMERGENT FINANCIAL CORP. (HEREIN REFERRED TO AS
"SECURED PARTY") AND DELSOFT CONSULTING, INC. (HEREIN REFERRED TO AS "DEBTOR")
DATED: APRIL _____, 1997
For and in consideration of the premises, the mutual agreements, warranties and
representations herein made, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the Debtor and Secured
Party agree to as follows; that the Loan and Security Agreement, Shareholders
Consent, Certificate of Board Resolutions and Incumbency, Disclosure Statement
Regarding Interest and Other Charges, Demand Promissory Note executed February
18, 1997, and other related Transaction Documents as defined in that certain
Loan and Security Agreement between Debtor and Secured Party dated February 18,
1997 are amended as follows:
1. As evidenced by the Loan and Security Agreement dated February 18, 1997
between Debtor and Secured Party, the Schedule to the Loan and Security
Agreement dated February 18, 1997 as amended and restated in accordance to
the amended and Restated Schedule #1 to the Loan and Security Agreement
executed in conjunction with this amendment #1 dated this ____ day of April
and made a part of this document as Exhibit "A".
2. As evidenced by the Demand Promissory Note dated February 18, 1997 between
Secured Party and Debtor, the principal sum of the Demand Promissory Note
is amend from $300,000. to $500,000.
DEBTOR ACKNOWLEDGES THAT IT HAS READ THIS AMENDMENT DATED TO THE LOAN AND
SECURITY AGREEMENT ALONG WITH THE AMENDED AND RESTATED SCHEDULE TO THE LOAN AND
SECURITY AGREEMENT ATTACHED AS EXHIBIT "A" HERETO AND IS AWARE OF ALL OF THE
TERMS THEREOF, THAT THEY MERELY CONSTITUTE AN OFFER BY DEBTOR TO SECURED PARTY
UNTIL OR UNLESS ACCEPTED BY SECURED PARTY IN WRITING AT ITS PRINCIPAL PLACE OF
BUSINESS.
1
<PAGE>
ACCEPTED THIS _____ DAY OF APRIL, 1997
ATTEST: DEBTOR: DELSOFT CONSULTING, INC.
______________________ __________________________
The undersigned Guarantor(s) of the Indebtedness at any time owing by Delsoft
Consulting, Inc. to Emergent Financial Corp., hereby acknowledges and consents
to the forgoing and affirms that nothing contained therein shall modify in any
respect such guaranty.
Witness:
__________________________________ __________________________________
Jerry Rosemeyer, Guarantor
__________________________________ __________________________________
Jeffrey A. Rinde, Guarantor
__________________________________ __________________________________
Benjamin J. Giacchino, Guarantor
Accepted and agreed to this _____ day of April, 1997.
Emergent Financial Corp.
__________________________________ _____________________________
Witness Connie J. Warner
2
<PAGE>
EXHIBIT "A"
#1 AMENDMENT AND RESTATED SCHEDULE
TO THE LOAN AND SECURITY AGREEMENT DATED FEBRUARY 18, 1997
This Amended and Restated Schedule is a part of a Loan and Security
Agreement, dated February 18, 1997, between Delsoft Consulting, Inc. and
Emergent Financial Corp. and succeeds the Original Schedule dated February 18,
1997. The amended Schedule items covered under this Amended and Restated
Schedule pertain to Items 1(A) and 19.
1. Borrowing Capacity (SS 1.1(c))
Borrowing Capacity at any time shall be the net amount determined by
taking the lesser of the following amounts:
(A) $500,000.00
or
(B) the amount equal to the sum of:
(i) 86 % to the Receivable Borrowing Base:
----
(ii) n/a % of the Inventory Borrowing Base;
-----
and subtracting from the lessor of (A) or (B) above, the sum of (a)
banker's acceptances, plus (b) letters of guaranty, plus (c) standby letter
of credit.
2. Inventory Borrowing Base Percentages (SS 1.1(r))
The following percentages of dollar value (calculated at the lower of
actual cost or market value) are applicable to the following categories of
Eligible Inventory:
( n/a ) finished goods, to the extent of 0 %;
---
( n/a ) raw materials, to the extent of 0 %:
---
( n/a ) work in process to the extent to 0 %,
---
3. Cash Discount (SS 1.1(g) & 10.3)
Maximum Cash Discount to 2.00%, 10 days.
4. Receivable--Age (SS 1.1(o)(i))
90 days after ( x ) Invoice date
--
3
<PAGE>
( ) due date (not to exceed __ days after invoice date)
shown on the Invoice evidencing the applicable
Receivable.
5. Receivable Disqualification Percentage (SS 1.1(o) (vi))
25 % or more.
----
6. Permissible Foreign Account Debtors (SS 1.1(o)(vii))
None
7. Inventory Accounting (SS 1.1(r))
( n/a ) First-in, first-out (FIFO)
( n/a ) Last-in, first-out (LIFO)
( n/a ) Other as specified below
Actual cost of identified items.
8. Payment Account (SS 1.1 (t))
There is ( X ) a Payment Account
is not ( )
Name and address of depository bank:
NationsBank of Georgia, N.A.
9. State of Incorporation (SS 4.2(b), 5.1)
Debtor: Georgia
Consolidated Subsidiary None
10. Location(s) of Inventory and Equipment (SS 5.4(c), 5.7, 5.8(a) & 11.1)
Inventory Locations:
Same as the address on the front page to the Loan and Security Agreement
Equipment Locations (including names and addresses of owners or real
property and mortgages):
4
<PAGE>
Same as the address on the front page to the Loan and Security Agreement
11. Permitted Encumbrances (SS 5.5(a), 5.5(c) & 11.3) None, other than current
obligations.
12. Business Records Location (SS 5.7(a), 5.7(c) & 11.1)
Same as the address on the front page to the Loan and Security Agreement
13. Trademarks and Patents (SS 5.17)
Debtor: None
Consolidated Subsidiary: None
14. Margin Stock: (SS 5.22)
None
15. Labor Contracts (SS 5.24)
Debtor: None
Consolidated Subsidiary: None
16. Authorized Shares (SS 5.27)
No. of authorized common shares: 20,000,000
Par Value of common shares: $ 1.00
No. of issued and outstanding shares:_____________________
17. Required Documents (SS 6.1, 6.4, 6.7, 9.2(b)
<TABLE>
<CAPTION>
Check if Required Frequency Due
----------------- -------------
<S> <C> <C>
Receivable Schedule (Aging) ( X ) Monthly, for the end of
the month, due by the
10th of the following
month.
Inventory Reports
(a) Value Reports ( X ) Upon Request
(b) Periodic Summary Reports ( X ) Upon Request
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C>
(c) Dispute Report ( X ) Upon Request
Credits & Extension Reports ( X ) Same as Receivable Aging
Copies of billing documents relating to ( X ) At each billing cycle
the Receivables
List of names and addresses of Account ( X ) At closing and upon
Debtors request
Reconciliation report, in form ( X ) Monthly, for the end of
satisfactory to Secured Party, showing the month, due by the
all Receivables, collections, payments, 10th of the following
Credits, & Extensions since the month.
proceeding report
Payable aging report, showing the amounts ( X ) Monthly, for the end of
due and owing on all of Debtor's payable the month, due by the
according to Debtor's records as of the 10th of the following
close of such periods as shall be month.
specified by Secured Party.
Payroll tax returns ( X ) Quarterly
Payroll tax calculations and deposit ( X ) Monthly
information
Invoice and Credit registers ( X ) Daily or with each
Advance Request
</TABLE>
18. Interest Rate (SS 8.2)
Two and percent ( 2.00% ) plus the greater of (i)) the Prime Rate or (i))
Seven percent (7.00%)
19. Fees and Due Dates (SS 8.3)
<TABLE>
<CAPTION>
Type Amount Due Date(s)
---- ------ -----------
<S> <C> <C>
Monthly Service Fee 1.00% of the average daily Due and payable on the first
balance of the outstanding day of each month for the
loan balance, subject to a preceding month.
$1,000.00 minimum per month.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C>
Facility Fee 1.00% ($3,000.00) of the At closing and at the
Borrowing Capacity as defined anniversary date of the Loan
in Schedule Item 1(A) and Security Agreement, in the
event of renewal. Should any
amended increases in the
Borrowing capacity as defined
in Schedule Item 1 (A) occur
prior to the anniversary date,
than a pro-rata portion of the
1.00% fee will be assessed for
the balance of the annual
period.
Overline Fee 0.50% per daily occurrence of Due and payable on the first
the excess of indebtedness days of each month for the
over the borrowing capacity preceding month.
defined in Schedule Item 1(A).
Overcollateral Fee 0.50% per daily occurrence of Due and payable on the first
the excess of indebtedness days of each month for the
over the borrowing capacity preceding month.
defined in Schedule Item 1(A).
Audit Fee $400.00 per quarter plus out Due on the first day of the
of pocket expenses. month following the audit work.
</TABLE>
20. Uncollected Funds Adjustment (SS 8.6)
( ) __ calendar days; or
(xx) Three (3) Business Days: or
( ) for each Item, the number of days estimated by Secured Party as
necessary for collection of funds from the particular institution on
which such Item is drawn.
21. Additional Covenants (SS 10 & 1)
22. Annual Financial Statements -- Timing (SS 10.1(a))
- Within 90 days following the end of the fiscal year.
23. Annual Financial Statements -- Form (SS 10.1(a))
7
<PAGE>
The following prepared by independent certified public accountants
satisfactory to Secured Party
( ) a compilation
( ) a review
( X ) audited
24. Interim Financial Statements (SS 10.1(b)
- Within 20 days after the end of the month.
25. Terms of Sale (SS 10.3)
Due dates to no more than 30 calendar days from date of Invoice, except in
regard to transactions specified below under "Datings."
Datings: None
26. Net Working Capital: Consolidated Tangible Net Worth (SS 10.13)
Minimum net working capital $ 100,000.00
Minimum consolidated tangible net worth: $ 100,000.00
27. Permitted Borrowing (SS 11.2)
Debtor: None, other than Emergent Financial Corp.
Consolidated Subsidiary: None
28. Permitted Investments and Advances (SS 11.9(d))
Debtor: None
Consolidated Subsidiary: None
8
<PAGE>
29. Permitted Guaranties (SS 5.18, 11.10)
Debtor: None, other than obligations relating to company
automobiles.
Consolidated Subsidiary: None
30. Maximum Annual Lease Rentals (SS 11.11)
Debtor: Currant lease obligations at the time to this agreement plus any
new lease obligations tied to permissible capital expenditures.
31. Permitted Capital Expenditures (SS 11.12)
Debtor: $100,000.00 annually.
Consolidated Subsidiary: None
32. Maximum Aggregate Compensation (SS 11.13(a))
Debtor: $ n/a.
Consolidated Subsidiary: $ n/a.
33. Maximum Annual Compensation for Certain Individuals (SS 11.1 3(b))
Name Amount
---- ------
Debtor: Jerry Rosemeyer $175,000.00
Benjamin J. Giacchino $175,000.00
Jeffrey A. Rinde $175,000.00
Consolidated Subsidiary:
34. State (SS 1.1(ff))
9
<PAGE>
Georgia
35. Initial Term and Renewal Term (SS 14.13)
Initial Term: One (1) Year
Renewal Term: Annually
36. Percentage of Stock Ownership of Consolidated Subsidiaries (SS 5.25, SS
10.24))
Consolidated Subsidiary Debtor's Percentage of Ownership
----------------------- --------------------------------
None None
37. Prepayment Premium (SS 14.13)
1.00% of the total credit facility.
38. Other Provisions (SS 14.9)
Borrower will pay all legal fees incurred by EFC relative to the close to
this transaction.
39. Bank or Financial Institution (SS 1.1(w))
NationsBank of Georgia, N.A.
10
<PAGE>
The undersigned have executed this Schedule on the ____ day of _______. 1997.
Lender: Emergent Financial Corp. Borrower: Delsoft Consulting, Inc.
By:______________________________ By:___________________________________
Connie Warne, President Jerry Rosemeyer, President
Attest:__________________________ Attest:_______________________________
Benjamin J. Giacchino, Secretary
(Corporate Seal) (Corporate Seal)
11
<PAGE>
AMENDMENT #2
TO
LOAN AND SECURITY AGREEMENT AND RELATED FINANCING DOCUMENTS DATED FEBRUARY 18,
1997 BETWEEN EMERGENT FINANCIAL CORP. (HEREIN REFERRED TO AS "SECURED PARTY")
AND DELSOFT CONSULTING, INC. (HEREAFTER REFERRED TO AS "DEBTOR")
DATED: JULY 8, 1997
For and in consideration of the premises, the mutual agreements, warranties and
representations herein made, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the Debtor and Secured
Party agree to as follows; that the Loan and Security Agreement, Shareholders
Consent, Certificate of Board Resolutions and Incumbency, Disclosure Statement
Regarding Interest and Other Charges, Demand Promissory Note executed February
18, 1997, and other related Transaction Documents as defined in that certain
Loan and Security Agreement between Debtor and Secured Party dated February 18,
1997 and amended on April 22,1997 are further amended as follows:
1. As evidenced by the Loan and Security Agreement dated February 18, 1997 (as
amended on April 22, 1997) between Debtor and Secured Party, the Schedule
to the Loan and Security Agreement dated February 18, 1997 is further
amended and restated in accordance to the "#2" Amended and Restated
Schedule to the Loan and Security Agreement executed in conjunction with
this amendment #2 dated this ___ day of July, 1997 and made a part of this
document as Exhibit "A".
2. As evidenced by the Demand Promissory Note dated February 18,1997 (as
amended on April 22, 1997) between Secured Party and Debtor, the principal
sum of the Demand Promissory Note is amended from $500,000. to $750,000.
DEBTOR ACKNOWLEDGES THAT IT HAS READ THIS AMENDMENT DATED TO THE LOAN AND
SECURITY AGREEMENT ALONG WITH THE AMENDED AND RESTATED SCHEDULE TO THE LOAN AND
SECURITY AGREEMENT ATTACHED AS EXHIBIT "A" HERETO AND IS AWARE OF ALL OF THE
TERMS THEREOF, THAT THEY MERELY CONSTITUTE AN OFFER BY DEBTOR TO SECURED PARTY
UNTIL OR UNLESS ACCEPTED BY SECURED PARTY IN WRITING AT ITS PRINCIPAL PLACE OF
BUSINESS.
12
<PAGE>
ACCEPTED THIS 8th DAY OF JULY, 1997
ATTEST: DEBTOR: DELSOFT CONSULTING, INC.
______________________ ___________________________
The undersigned Guarantor(s) of the Indebtedness at any time owing by Delsoft
Consulting, Inc. to Emergent Financial Corp., hereby acknowledges and consents
to the forgoing and affirms that nothing contained therein shall modify in any
respect such guaranty.
Witness:
______________________ _________________________________
Jerry Rosemeyer, Guarantor
______________________ _________________________________
Jeffrey A. Rinde, Guarantor
______________________ _________________________________
Benjamin J. Giacchino, Guarantor
Accepted and agreed to this 8th day of July, 1997.
Emergent Financial Corp.
______________________ -------------------------------
Witness Ron Warnock, Vice President
13
<PAGE>
EXHIBIT "A"
#1 AMENDED AND RESTATED SCHEDULE
TO THE LOAN AND SECURITY AGREEMENT DATED FEBRUARY 18, 1997
This Amended and Restated Schedule is a part of a Loan and Security
Agreement, dated February 18, 1997, between Delsoft Consulting, Inc. and
Emergent Financial Corp. and succeeds the Original Schedule dated February 18,
1997. The amended Schedule items covered under this Amended and Restated
Schedule pertain to Items 1(A), 10, 12, 38.
1. Borrowing Capacity (SS 1.1(c))
Borrowing Capacity at any time shall be the net amount determined by
taking the lesser of the following amounts:
(A) $750,000.00
or
(B) the amount equal to the sum of:
(i) 85.00 % of the Receivable Borrowing Base:
-------
and
(ii) the lessor of -0- or the amount of the Inventory Borrowing
Base;
2. Inventory Borrowing Base Percentages (SS 1.1(r))
The following percentages of dollar value (calculated at the lower of
actual cost or market value) are applicable to the following categories of
Eligible Inventory:
( n/a ) finished goods, to the extent of ___;
( n/a ) raw materials, to the extent of ___.
( n/a ) work in process to the extent to ____
3. Cash Discount (SS 1.1(g) & 10.3)
Maximum Cash Discount to 2.00%, 10 days.
4. Receivable--Age (SS 1.1(o)(i))
90 days after ( XX ) Invoice date
--
14
<PAGE>
( ) due date (not to exceed __ days after invoice date)
shown on the Invoice evidencing the applicable
Receivable.
5. Receivable Disqualification Percentage (SS 1.1(o) (vi))
25 % or more.
----
6. Permissible Foreign Account Debtors (SS 1.1(o)(vii))
None
7. Inventory Accounting (SS 1.1(r))
( n/a ) First-in, first-out (FIFO)
( n/a ) Last-in, first-out (LIFO)
( n/a ) Other as specified below
8. Payment Account (SS 1.1 (t))
There is ( X ) a Payment Account
is not ( )
Name and address of depository bank:
NationsBank of Georgia, N.A.
9. State of Incorporation (SS 4.2(b), 5.1)
Debtor: Georgia
Consolidated Subsidiary None
10. Location(s) of Inventory and Equipment (SS 5.4(c), 5.7, 5.8(a) & 11.1)
Inventory Locations: 106 Bombay Lane, Roswell, Georgia 30076
Equipment Locations (including names and addresses of owners or real
property and mortgages):
106 Bombay Lane, Roswell, Georgia 30076
11. Permitted Encumbrances (SS 5.5(a), 5.5(c) & 11.3)
None, other than current obligations
15
<PAGE>
12. Business Records Location (SS 5.7(a), 5.7(c) & 11.1)
106 Bombay Lane, Roswell, Georgia 30076
13. Trademarks and Patents (SS 5.17)
Debtor: None
Consolidated Subsidiary: None
14. Margin Stock: (SS 5.22)
None
15. Labor Contracts (SS 5.24)
Debtor: None
Consolidated Subsidiary: None
16. Authorized Shares (SS 5.27)
No. of authorized common shares: 20,000,000
Par Value of common shares: $1.00
No. of issued and outstanding shares:_______________________
17. Required Documents (SS 6.1, 6.4, 6.7, 9.2(b)
<TABLE>
<CAPTION>
Check if Required Frequency Due
----------------- --------------------
<S> <C> <C>
Receivable Schedule (Aging) ( X ) Monthly, for the end of
the month, due by the
10th of the following
month.
Inventory Reports
(a) Value Reports ( X ) Upon Request
(b) Periodic Summary Reports ( X ) Upon Request
(c) Dispute Report ( X ) Upon Request
Credits & Extension Reports ( X ) Upon Occurrence
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
Copies of billing documents relating to ( X ) At each billing cycle
the Receivables
List of names and addresses of Account ( X ) At closing and upon
Debtors request
Reconciliation report, in form ( X ) Same and Receivable Aging
satisfactory to Secured Party, showing
all Receivables, collections, payments,
Credits, & Extensions since the
proceeding report
Payable aging report, showing the amounts ( X ) Monthly, for the end of
due and owing on all of Debtor's the month, due by the
payables according to Debtor's records 10th of the following
as of the close of such periods as shall month.
be specified by Secured Party.
Other as indicated below:
Payroll tax returns ( X ) On filing due date
Payroll tax calculations and deposit ( X ) On filing due date
information
Invoice and Credit registers ( X ) Daily or with each
Advance Request
</TABLE>
18. Interest Rate (SS 8.2)
(a) Two percent ( 2.00% ) plus the greater of (i) the Prime Rate or (ii)
Seven percent (7.00%)
19. Fees and Due Dates (SS 8.3)
<TABLE>
<CAPTION>
Type Amount Due Date(s)
- ---- ------- -----------
<S> <C> <C>
Monthly Service Fee 1.00% of the average daily Due and payable on the first
balance of the outstanding day of each month for the
loan balance, subject to a preceding month.
$1,000.00 minimum per month.
Facility Fee 1.00% ($3,000.00) of the At the anniversary date of
Borrowing Capacity as defined closing of the Loan and
in Schedule Item 1(A) Security Agreement, in the
event of renewal. Should any
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C>
amended increases in the
Borrowing Capacity as defined
in Schedule Item 1 (A) occur
prior to the anniversary date,
than a pro-rated portion of
the 1.00% fee will be assessed
for the balance of the annual
period.
Audit Fee $400.00 per day plus expenses, Due on the first day of the
plus out of pocket expenses. month following the audit work.
Overline Fee 0.50% per daily occurrence of Due and payable on the first
the excess of indebtedness of day of each month for the
Debtor over and above the preceding month.
Borrowing Capacity defined in
Schedule Item 1(A).
Overcollateral Fee 0.50% per daily occurrence of Due and payable on the first
the excess of indebtedness of day of each month for the
Debtor over the borrowing preceding month.
capacity defined in Schedule
Item 1(A).
</TABLE>
20. Uncollected Funds Adjustment (SS 8.6)
( ) ____________ calendar days; or
(xx) Three (3) Business Days: or
( ) for each Item, the number of days estimated by Secured Party
as necessary for collection of funds from the particular
institution on which such Item is drawn.
21. Additional Covenants (SS 10 & 1)
22. Annual Financial Statements -- Timing (SS 10.1(a))
- Within 90 days following the end of the fiscal year.
23. Annual Financial Statements -- Form (SS 10.1(a))
18
<PAGE>
The following prepared by independent certified public accountants
satisfactory to Secured Party
( ) a compilation
( ) a review
( X ) audited
24. Interim Financial Statements (SS 10.1(b)
- Within 20 days after the end of the month.
25. Terms of Sale (SS 10.3)
Due dates to no more than 30 calendar days from date of Invoice, except in
regard to transactions specified below under "Datings."
Datings: None
26. Net Working Capital: Consolidated Tangible Net Worth (SS 10.13)
Minimum net working capital $ 100,000.00
Minimum consolidated tangible net worth: $ 100,000.00
27. Permitted Borrowing (SS 11.2)
Debtor: None, other than Emergent Financial Corp.
Consolidated Subsidiary: None
28. Permitted Investments and Advances (SS 11.9(d))
Debtor: None
Consolidated Subsidiary: None
19
<PAGE>
29. Permitted Guaranties (SS 5.18, 11.10)
Debtor: None, other than obligations relating to company
automobiles.
Consolidated Subsidiary: None
30. Maximum Annual Lease Rentals (SS 11.11)
Debtor: Currant lease obligations at the time to this agreement plus any
new lease obligations tied to permissible capital expenditures.
Consolidated Subsidiary: N/A
31. Permitted Capital Expenditures (SS 11.12)
Debtor: $100,000.00 annually.
Consolidated Subsidiary: N/A
32. Maximum Aggregate Compensation (SS 11.13(a))
Debtor: $ n/a.
Consolidated Subsidiary: $ n/a.
33. Maximum Annual Compensation for Certain Individuals (SS 11.1 3(b))
Name Amount
---- ------
Debtor: Jerry Rosemeyer $175,000.00
Benjamin J. Giacchino $175,000.00
Jeffrey A. Rinde $175,000.00
Consolidated Subsidiary:
20
<PAGE>
34. State (SS 1.1(ff)) Georgia
35. Initial Term and Renewal Term (SS 14.13)
Initial Term: One (1) Year
Renewal Term: Annually
36. Percentage of Stock Ownership of Consolidated Subsidiaries (SS 5.25, SS
10.24))
Consolidated Subsidiary Debtor's Percentage of Ownership
----------------------- --------------------------------
_______________________ ________________________________
37. Prepayment Premium (SS 14.13)
1.00% of the total credit facility.
38. Other Provisions (SS 14.9)
(SS 1.1.1 (cc)) Secured Party is defined as and notices will be sent to:
Emergent Financial Corp.
7 Laurens Street, Suite 601
Greenville, S.C. 29601
39. Bank or Financial Institution (SS 1.1(w))
NationsBank of Georgia, N.A.
21
<PAGE>
The undersigned have executed this Schedule on the ____ day of _______, 1997.
Lender: Emergent Financial Corp. Borrower: Delsoft Consulting, Inc.
By:_____________________________ By:____________________________
Ron Warnock, Vice President Jerry Rosemeyer, President
Attest:__________________________ Attest:________________________
Benjamin J. Giacchino, Secretary
(Corporate Seal) (Corporate Seal)
22
<PAGE>
AMENDMENT #3
TO
LOAN AND SECURITY AGREEMENT AND RELATED FINANCING DOCUMENTS DATED FEBRUARY 18,
1997 BETWEEN EMERGENT FINANCIAL CORP. (HEREIN REFERRED TO AS "SECURED PARTY")
AND DELSOFT CONSULTING, INC. (HEREAFTER REFERRED TO AS "DEBTOR")
DATED: August 29, 1997
For and in consideration of the premises, the mutual agreements, warranties and
representations herein made, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the Debtor and Secured
Party agree to as follows; that the Loan and Security Agreement, Shareholders
Consent, Certificate of Board Resolutions and Incumbency, Disclosure Statement
Regarding Interest and Other Charges, Demand Promissory Note executed February
18, 1997, and other related Transaction Documents as defined in that certain
Loan and Security Agreement between Debtor and Secured Party dated February 18,
1997 and amended on April 22,1997 and July 8, 1997, are further amended as
follows:
1. As evidenced by the Loan and Security Agreement dated February 18, 1997 (as
amended on April 22, 1997 and July 8, 1997) between Debtor and Secured
Party, the Schedule to the Loan and Security Agreement dated February 18,
1997, is further amended and restated in accordance to the "#3" Amended and
Restated Schedule to the Loan and Security Agreement executed in
conjunction with this Amendment #3 and made a part of this document as
Exhibit "A".
2. As evidenced by the Demand Promissory Note dated February 18, 1997 (as
amended on April 22, 1997 and July 8, 1997), between Debtor and Secured
Party, the Principal sum of the Demand Promissory Note is amended from
$750,000. to $1,000,000.
DEBTOR ACKNOWLEDGES THAT IT HAS READ THIS AMENDMENT TO THE LOAN AND SECURITY
AGREEMENT ALONG WITH THE AMENDED AND RESTATED SCHEDULE #3 ATTACHED HERETO AS
EXHIBIT "A", AND IS AWARE OF ALL OF THE TERMS THEREOF, THAT THEY MERELY
CONSTITUTE AN OFFER BY DEBTOR TO SECURED PARTY UNTIL OR UNLESS ACCEPTED BY
SECURED PARTY IN WRITING AT ITS PRINCIPAL PLACE OF BUSINESS.
23
<PAGE>
ACCEPTED THIS 29th DAY OF AUGUST, 1997
ATTEST: DEBTOR: DELSOFT CONSULTING, INC.
_____________________ _______________________________
The undersigned Guarantor(s) of the Indebtedness at any time owing by Delsoft
Consulting, Inc. to Emergent Financial Corp., hereby acknowledges and consents
to the forgoing and affirms that nothing contained therein shall modify in any
respect such guaranty.
Witness:
_____________________ __________________________________
Jerry Rosemeyer, Guarantor
_____________________ __________________________________
Jeffrey A. Rinde, Guarantor
_____________________ __________________________________
Benjamin J. Giacchino, Guarantor
Accepted and agreed to this 29th day of August, 1997.
Emergent Financial Corp.
_____________________ ______________________________
Witness Ron Warnock, Vice President
24
<PAGE>
EXHIBIT "A"
#3 AMENDED AND RESTATED SCHEDULE
TO THE LOAN AND SECURITY AGREEMENT DATED FEBRUARY 18, 1997
This Amended and Restated Schedule is a part of a Loan and Security
Agreement, dated February 18, 1997, between Delsoft Consulting, Inc. and
Emergent Financial Corp. and succeeds the Original Schedule dated February 18,
1997, as amended. The amended Schedule items covered under this Amended and
Restated Schedule pertain to Items 1(A), 10, 12, 38.
1. Borrowing Capacity (SS 1.1(c))
Borrowing Capacity at any time shall be the net amount determined by
taking the lesser of the following amounts:
(A) $1,000,000.00
or
(B) the amount equal to the sum of:
(i) 85.00 % of the Receivable Borrowing Base:
-------
and
(ii) the lessor of -0- or the amount of the Inventory Borrowing
Base;
2. Inventory Borrowing Base Percentages (SS 1.1(r))
The following percentages of dollar value (calculated at the lower of
actual cost or market value) are applicable to the following categories of
Eligible Inventory:
( n/a ) finished goods, to the extent of ___;
( n/a ) raw materials, to the extent of ___.
( n/a ) work in process to the extent to ____
3. Cash Discount (SS 1.1(g) & 10.3)
Maximum Cash Discount to 2.00%, 10 days.
4. Receivable--Age (SS 1.1(o)(i))
90 days after ( XX ) Invoice date
--
25
<PAGE>
( ) due date (not to exceed __ days after invoice date)
shown on the Invoice evidencing the applicable
Receivable.
5. Receivable Disqualification Percentage (SS 1.1(o) (vi))
25 % or more.
----
6. Permissible Foreign Account Debtors (SS 1.1(o)(vii))
None
7. Inventory Accounting (SS 1.1(r))
( n/a ) First-in, first-out (FIFO)
( n/a ) Last-in, first-out (LIFO)
( n/a ) Other as specified below
8. Payment Account (SS 1.1 (t))
There is ( X ) a Payment Account
is not ( )
Name and address of depository bank:
NationsBank, N.A.
9. State of Incorporation (SS 4.2(b), 5.1)
Debtor: Georgia
Consolidated Subsidiary None
10. Location(s) of Inventory and Equipment (SS 5.4(c), 5.7, 5.8(a) & 11.1)
Inventory Locations: 106 Bombay Lane, Roswell, Georgia 30076
Equipment Locations (including names and addresses of owners or real
property and mortgages):
106 Bombay Lane, Roswell, Georgia 30076
11. Permitted Encumbrances (SS 5.5(a), 5.5(c) & 11.3)
None, other than current obligations
26
<PAGE>
12. Business Records Location (SS 5.7(a), 5.7(c) & 11.1)
106 Bombay Lane, Roswell, Georgia 30076
13. Trademarks and Patents (SS 5.17)
Debtor: None
Consolidated Subsidiary: None
14. Margin Stock: (SS 5.22)
None
15. Labor Contracts (SS 5.24)
Debtor: None
Consolidated Subsidiary: None
16. Authorized Shares (SS 5.27)
No. of authorized common shares: 20,000,000
Par Value of common shares: $1.00
No. of issued and outstanding shares: ____________________
17. Required Documents (SS 6.1, 6.4, 6.7, 9.2(b)
<TABLE>
<CAPTION>
Check if Required Frequency Due
--------------------- --------------------------
<S> <C> <C>
Receivable Schedule (Aging) ( X ) Monthly, for the end of
the month, due by the
10th of the following
month.
Inventory Reports
(a) Value Reports ( X ) Upon Request
(b) Periodic Summary Reports ( X ) Upon Request
(c) Dispute Report ( X ) Upon Request
Credits & Extension Reports ( X ) Upon Occurrence
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Copies of shipping documents relating to ( X ) At each billing cycle
the Receivables
List of names and addresses of Account ( X ) Upon request
Debtors
Reconciliation report, in form ( X ) Same and Receivable Aging
satisfactory to Secured Party, showing
all Receivables, collections, payments,
Credits, & Extensions since the
proceeding report
Payable aging report, showing the amounts ( X ) Monthly, for the end of
due and owing on all of Debtor's the month, due by the
payables according to Debtor's records 10th of the following
as of the close of such periods as shall month.
be specified by Secured Party.
Other as indicated below:
Payroll tax returns ( X ) On filing due date
Payroll tax calculations and deposit ( X ) On filing due date
information
Invoice and Credit registers ( X ) Daily or with each
Advance Request
</TABLE>
18. Interest Rate (SS 8.2)
(a) Two percent ( 2.00% ) plus the greater of (i) the Prime Rate or (ii)
Seven percent (7.00%)
19. Fees and Due Dates (SS 8.3)
<TABLE>
<CAPTION>
Type Amount Due Date(s)
- ---- ------ ----------
<S> <C> <C>
Monthly Service Fee 1.00% of the average daily Due and payable on the first
balance of the outstanding day of each month for the
loan balance, subject to a preceding month.
$1,000.00 minimum per month.
Facility Fee 1.00% of the Borrowing At the anniversary date of
Capacity as defined in closing of the Loan and
Schedule Item 1(A) Security Agreement, in the
event of renewal. Should any
</TABLE>
28
<PAGE>
<TABLE>
<S> <C> <C>
amended increases in the
Borrowing Capacity as defined
in Schedule Item 1 (A) occur
prior to the anniversary date,
than a pro-rated portion of
the 1.00% fee will be assessed
for the balance of the annual
period.
Audit Fee $400.00 per day plus expenses, Due on the first day of the
plus out of pocket expenses. month following the audit work.
Overline Fee 0.50% per daily occurrence of Due and payable on the first
the excess of indebtedness of day of each month for the
Debtor over and above the preceding month.
Borrowing Capacity defined in
Schedule Item 1(A).
Overcollateral Fee 0.50% per daily occurrence of Due and payable on the first
the excess of indebtedness of day of each month for the
Debtor over the borrowing preceding month.
capacity defined in Schedule
Item 1(A).
</TABLE>
20. Uncollected Funds Adjustment (SS 8.6)
() ____________ calendar days; or
(xx) Three (3) Business Days: or
( ) for each Item, the number of days estimated by Secured Party as
necessary for collection of funds from the particular institution on which
such Item is drawn.
21. Additional Covenants (SS 10 & 1)
22. Annual Financial Statements -- Timing (SS 10.1(a))
- Within 90 days following the end of the fiscal year.
23. Annual Financial Statements -- Form (SS 10.1(a))
29
<PAGE>
The following prepared by independent certified public accountants
satisfactory to Secured Party
( ) a compilation
( ) a review
( X ) audited
24. Interim Financial Statements (SS 10.1(b)
- Within 20 days after the end of the month.
25. Terms of Sale (SS 10.3)
Due dates to no more than 30 calendar days from date of Invoice, except in
regard to transactions specified below under "Datings."
Datings: None
26. Net Working Capital: Consolidated Tangible Net Worth (SS 10.13)
Minimum net working capital $ 100,000.00
Minimum consolidated tangible net worth: $ 100,000.00
27. Permitted Borrowings (SS 11.2)
Debtor: None, other than that of Emergent Financial Corp.
Consolidated Subsidiary: None
28. Permitted Investments and Advances (SS 11.9(d))
Debtor: None
Consolidated Subsidiary: None
30
<PAGE>
29. Permitted Guaranties (SS 5.18, 11.10)
Debtor: None, other than obligations relating to company
automobiles.
Consolidated Subsidiary: None
30. Maximum Annual Lease Rentals (SS 11.11)
Debtor: Current lease obligations at the time of this Agreement plus any
new lease obligations tied to permissible capital expenditures.
Consolidated Subsidiary: N/A
31. Permitted Capital Expenditures (SS 11.12)
Debtor: $100,000.00 annually.
Consolidated Subsidiary: N/A
32. Maximum Aggregate Compensation (SS 11.13(a))
Debtor: $ n/a.
Consolidated Subsidiary: $ n/a.
33. Maximum Annual Compensation for Certain Individuals (SS 11.1 3(b))
Name Amount
---- ------
Debtor: Jerry Rosemeyer $175,000.00
Benjamin J. Giacchino $175,000.00
Jeffrey A. Rinde $175,000.00
Consolidated Subsidiary:
31
<PAGE>
34. State (SS 1.1(ff)) Georgia
35. Initial Term and Renewal Term (SS 14.13)
Initial Term: One (1) Year
Renewal Term: Annually
36. Percentage of Stock Ownership of Consolidated Subsidiaries (SS 5.25, SS
10.24))
Consolidated Subsidiary Debtor's Percentage of Ownership
----------------------- --------------------------------
_______________________ ________________________________
37. Prepayment Premium (SS 14.13)
1.00% of the total credit facility.
38. Other Provisions (SS 14.9)
(SS 1.1.1 (cc)) Secured Party is defined as and notices will be sent to:
Emergent Financial Corp.
7 Laurens Street, Suite 601
Greenville, S.C. 29601
39. Bank or Financial Institution (SS 1.1(w))
NationsBank of Georgia, N.A.
32
<PAGE>
The undersigned have executed this Schedule on the 29th day of August,
1997.
Lender: Emergent Financial Corp. Borrower: Delsoft Consulting, Inc.
By:_____________________________ By:___________________________________
Ron Warnock, Vice President Jerry Rosemeyer, President
Attest:_________________________ Attest:________________________________
Benjamin J. Giacchino, Secretary
(Corporate Seal) (Corporate Seal)
33
<PAGE>
EXHIBIT 10.12
The following Guaranty of Validity was executed by Messrs. Ben J.
Giacchino, Jerry Rosemeyer and Jeffrey A. Rinde in favor of Emergent Financial
Corporation on February 18, 1997:
GUARANTY OF VALIDITY
THIS GUARANTY OF VALIDITY ("Guaranty"), made and executed this 18th day of
February, 1997 by BENJAMIN J. GIACCHINO, a resident of the State of GEORGIA
("Guarantor"), in favor of Emergent Financial Corporation, a South Carolina
corporation ("Lender");
WITNESSETH:
WHEREAS, DELSOFT CONSULTING, INC., a GEORGIA corporation ("Borrower"), proposes
to enter into a Loan and Security Agreement ("Loan Agreement") with Lender, and,
upon the terms and subject to the conditions contained therein, to borrow money
from Lender;
WHEREAS, as a condition precedent to Lender's entering into the Loan Agreement
and extending to Borrower the credit contemplated thereby, Lender has required
the execution of this Guaranty by Guarantor in favor of Lender; and
WHEREAS, Guarantor has agreed to make and execute this Guaranty in favor of
Lender to induce Lender to enter into the Loan Agreement and extend to Borrower
the credit contemplated thereby;
NOW, THEREFORE, in consideration of the premises and other good and valuable
considerations, the receipt and sufficiency of which is hereby expressly
acknowledged, Guarantor does hereby agree with Lender as follows:
1. Certain Definitions. All capitalized terms used herein without
definition shall have the meaning ascribed to such terms in the Loan Agreement.
2. Guaranty. Guarantor hereby unconditionally warrants, represents and
guaranties to Lender, and its successors and assigns, that:
(a) Accounts of Borrower which may be assigned to Lender by Borrower
pursuant to the Loan Agreement, and all Schedules of Accounts and other papers,
documents, instruments and assignments relating to the Accounts: (i) are and
shall be genuine and in all respects what they purport to be; (ii) are and will
be valid and subsisting and have arisen out of the bona fide sale of Inventory
or other property sold and delivered to the Account Debtors of Borrower or the
rendition of services by Borrower to the Account Debtors in the ordinary course
of business of Borrower; and (iii) are not and will not be invalid, incomplete,
forged or fictitious;
(b) Borrower will not list any Accounts on any Schedule of Accounts
delivered to Lender pursuant to the Loan Agreement which is disputed or which is
subject to any defense,
<PAGE>
setoff, credit, deduction or counter-charge, other than cash discounts for
prompt payment which are reflected on each invoice;
(c) Proper entries have been made and will be made on the books of Borrower
disclosing Lender's lien and security interest in the Accounts and other
Collateral to Lender;
(d) Borrower has and will have absolute and good title to all Collateral,
free and clear of any liens, security interests or other claims except the lien
and security interest in favor of Lender and Permitted Liens, and has the right
to assign and grant the lien and security interest to Lender, and Guarantor has
no knowledge of any fact that would impair the validity thereof;
(e) All monies, checks, notes, drafts or other remittances received by
Borrower on account of Accounts or other sales of Inventory or rendition of
services shall be accounted for and transmitted by Borrower to Lender, or to
such employee or agent of Lender as Lender may designate, in the original form
in which such remittance is received, immediately upon receipt, but no later
than the first (1st) business day following the receipt thereof by Borrower, and
that Borrower shall not use any of the proceeds of Collateral or commingle the
same with any of its own funds; and
(f) Neither Borrower nor Guarantor will do anything to impede or interfere
with the normal collection and payment of the Accounts.
3. Guaranty Unconditional. This Guaranty is a primary and original
obligation of Guarantor, and shall remain in full force and effect until revoked
in writing by Guarantor or his executors, administrators, heirs, personal
representatives, successors or assigns, and a copy of such revocation has been
duly received by Lender, but such revocation shall not effect or impair the
obligation of Guarantor, or of his executors, administrators, heirs, personal
representatives, successors and assigns, arising out of or in connection with
any transactions theretofore entered into by Borrower or by Lender with or for
the account of Borrower before the receipt by Lender of such notice or
revocation. Guarantor waives any right to conferred by N.C.G.S. (S) 26.7, et
--
seq. and agrees that his liability on this Guaranty shall be immediate and
- ----
shall not be contingent upon the exercise or enforcement by Lender of whatever
remedies it may have against Borrower or other or enforcement of any lien or
realization upon any security Lender may at any time possess.
4. Obligations of Guarantor Absolute. The obligations of Guarantor
hereunder shall not be subject to any reduction, limitation, impairment or
termination for any reason, including, without limitation, any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any
defense or setoff, counterclaim or termination whatsoever, by reason of the
invalidity, illegality or unenforceability of the provisions of this Guaranty,
the Loan Agreement, any of the other Loan Documents or the Obligations.
<PAGE>
Guarantor agrees that without notice to Guarantor and without affecting,
impairing, modifying or releasing the obligations of Guarantor hereunder, Lender
may compromise or settle or extend the period of duration or the time for the
payment of discharge or performance of or may refuse to enforce or may release
all or any parties to any and all modify or impair any property securing the
Obligations or on which Lender at any time may have a lien, or may refuse to
enforce its rights, or may make any compromise or agreement therefore, in
respect of any property that secures the Obligation or with any party to the
Obligations or may grant other indulgences to any party to the Obligations or
may amend or modify or make changes in any of the Obligations or of the Loan
Agreement or any of the other Loan Documents (other than this Guaranty) or may
release, surrender, exchange, Obligations or any other Person whatever, or may
release or substitute any other guarantors of the Obligations, whether parties
to this instrument or not, or may exchange, enforce, waive or release any
security for any guaranty of the Obligations.
5. Waivers. Guarantor does hereby waive notice of (a) acceptance of this
Guaranty, (b) notice of the extension of credit from time to time given by
Lender to Borrower or by Borrower, (c) notice of any matter referred to in
Section 4 hereof, (d) any demand, proof or notice of the failure or any party to
pay the Obligations, (e) the creation, existence or acquisition of any
Obligations or notice of any other fact which might increase notice thereof as
to any instrument, and (g) default and all notices and demands to which
Guarantor might otherwise be entitled.
6. No Right of Setoff. No act of commission or omission of any kind or at
any time upon the part of Lender in respect of any matter whatsoever shall in
any way effect or impair the rights of Lender to enforce any right, power or
benefit under this Guaranty, which Guarantor has or may have against Lender
shall be available to or asserted by Guarantor in any suit or action brought by
Lender to enforce any rights or claims that he may have against Lender
separately, it being the intent of this Guaranty that Guarantor shall be
unconditionally and absolutely obligated to pay fully all of his obligations
hereunder.
7. Governing Law. This Guaranty and the transactions evidenced shall be
interpreted, and the rights and liabilities of the parties hereto determined in
accordance with the internal laws (as opposed to the conflicts of law
provisions) of the State of Georgia.
8. Waiver of Subrogation. Guarantor expressly waives any and all rights
of subrogation, reimbursements, indemnity, exoneration, contribution or any
other claim which he may now or hereafter have against Borrower; and further
waives any right to enforce any remedy which Lender now has or may hereafter
have against Borrower and the benefit of, and any other right to participate in,
any collateral security for the Obligations or any guaranty of the Obligations
now or hereafter held by Lender.
<PAGE>
9. Collection Expenses. Guarantor agrees to pay all out-of-pocket expense
incurred by Lender in connection with the collection of any amounts due from
Guarantor hereunder and the enforcement of Lender's right under this Guarantor,
including without limitation, court cost, collection charges and attorney's
fees.
10. Notices. All notices and other communications hereunder shall be in
writing and shall be made by telegram, telex, electric transmitter or overnight
air courier or certified or registered mail, return receipt requested, and shall
be deemed to be received by the other party one (1) business day after sending,
if sent by telegram, telex, electric transmitter or overnight air courier, and
three (3) business days after mailing, if sent by certified or register mail.
All notices addressed to the party to be notified as follows:
(a) If to Guarantor,
at:
With a copy to:
(b) If to Lender, Connie J. Warne, President
Emergent Financial Corp.
at: 6100 Lake Forrest Drive, Suite 240
Atlanta, Georgia 30328
or to such other address as each party may designate for itself by like notice
given in accordance with this Section 10.
11. Severability. Wherever possible, each provision of this Guaranty shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Guaranty shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
provisions or the remaining provisions of this Guaranty.
12. Entire Agreement. This Guaranty embodies the entire understanding and
agreement between the parities hereto with respect to the subject matter hereof
and shall supersede all prior agreements, understandings and inducements,
whether express or implied, oral or written.
13. Miscellaneous. This Guaranty shall be binding upon Guaranty and his
heirs, personal representatives, successors and assigns, and shall inure to the
benefit or Lender and
<PAGE>
its successors and assigns. This Guaranty cannot be changed, modified or
terminated orally. Section headings have been inserted in this Guaranty as a
matter of convenience of reference only and shall not be used in the
interpretation of this Guaranty.
14. JURY TRIAL WAIVER. GUARANTOR AND LENDER EACH WAIVE ANY RIGHT TO TRIAL
BY JURY GUARANTOR OR LENDER MAY HAVE IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATED TO THIS GUARANTY OR THE TRANSACTION RELATED HERETO.
IN WITNESS WHEREOF, Guarantor has hereunto set his hand and seal on the day
and year first above written.
/s/ Jeffrey A. Rinde /s/ Benjamin J. Giacchino
- -------------------------------- ------------------------------------
Witness BY: BENJAMIN J. GIACCHINO (INDIVIDUALLY)
Emergent Financial Corp.
/s/ Connie J. Warne
- -------------------------------- ------------------------------------
Witness BY: Connie J. Warne, President
<PAGE>
EXHIBIT 10.13
The following Guaranty was executed by Messrs. Ben J. Giacchino, Jerry
Rosemeyer and Jeffrey A. Rinde in favor of Emergent Financial Corp. on February
18, 1997:
GUARANTY
--------
STATE OF GEORGIA
COUNTY OF FULTON
In consideration of the sum of One Dollar (S1.00) and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the undersigned, and to induce Emergent Financial Corp. a South
Carolina corporation (hereinafter referred to as "Lender") to make loans or
otherwise extend credit to DELSOFT CONSULTING, INC. (hereinafter referred to as
"Borrower") and/or to renew or extend in whole or in part any indebtedness of
Borrower to Lender, or to make other financial accommodations to Borrower, which
extension of loans and financial accommodations to Borrower will be of direct
financial benefit to the undersigned, jointly and severally, do hereby
unconditionally guarantee to Lender and to its endorsers, transferees,
successors and assigns, of either this guaranty or any of the obligations
secured hereby, the prompt payment and performance according to their terms of
all obligations (as hereinafter defined) of Borrower to the Lender of any kind
or character, and do agree that if such obligations, or any of them, are not
performed or paid by the Borrower, the undersigned will immediately do so.
The undersigned hereby unconditionally and irrevocably guarantees to the
Lender the full and punctual payment, when due, whether by acceleration or
otherwise, of the sum of (a) $100,000.00 of the unpaid principal balance of the
indebtedness evidenced by all obligations (as hereinafter defined) as of the
date of computation, plus (b) all accrued and unpaid interest thereon, plus (c)
all expenses, costs, and charges permitted to be charged by the Lender to the
Borrower pursuant to the terms of any note, loan agreement, and other loan
documents (the amounts described in clauses (a), (b), and (c) of this sentence
being hereinafter referred to collectively as the "Indebtedness"). The term
"Indebtedness" also includes any payments made by the Borrower to the Lender and
subsequently recovered by the Borrower or a trustee for the Borrower pursuant to
the Borrower's bankruptcy or insolvency, subject to the limitations set forth in
the preceding sentences of this paragraph. The guaranty of the undersigned as
set forth in this section is an absolute, continuing, unconditional guaranty of
payment and not of collection. The undersigned acknowledges that under the
terms of the loan agreement and the note, the Borrower may borrow, repay, and
reborrow proceeds of the loan from time to time and that the outstanding
principal balance of the loan may be reduced to zero and thereafter increased.
This guaranty is absolute, unconditional and continuing, regardless of the
validity, regularity, or enforceability of any of the obligations covered by
this guaranty or the fact that a security interest or lien or any collateral or
security therefor may not be enforceable by Lender or may otherwise be subject
to equities or defenses or prior claims in favor of others or may be invalid or
defective in any way and for any reason, including any action, or failure to
act, on Lender's part. This guaranty shall remain in force and effect, whether
or not Borrower changes its status, ownership, composition, personnel, name or
<PAGE>
location. Notwithstanding the foregoing provisions of this paragraph, the
undersigned shall be fully liable to Lender for any fraud, misrepresentation, or
misappropriation or misapplication of funds. Notwithstanding anything to the
contrary stated herein, provided that an event of default has not occurred and
Borrower is not in default of any of the terms of the Loan Documents dated
February 18, 1997 between Borrower and Lender, this Guaranty shall expire at the
expiration of sixth months from the date this Guaranty is executed by the
undersigned.
The obligations covered by this guaranty include all obligations of the
Borrower to the Lender now existing or hereafter coming into existence,
including but not limited to all obligations of Borrower to Lender arising under
or pertaining to: any loan agreement, security agreement, instrument of lien,
security deed or other security device; any promissory note, loans, advances,
over-advances, an/or accounts; any and all other indebtedness and obligations of
Borrower to Lender however evidenced or arising whether direct, indirect or by
way of assignment, whether joint or several, absolute or contingent, or due or
to become due; and any renewals, extensions, or modifications, in whole or in
part of any of the obligations heretofore described, together with all damages,
losses, costs, interest, charges, expenses and liabilities of every kind, nature
and description suffered or incurred by the Lender, arising in any manner out of
or in any way connected with, or growing out of said obligations of the Borrower
to the Lender. Lender shall not be liable for failure to collect obligations
covered by this guaranty or to realize upon any collateral or security
therefore, or any part thereof or for any delay in so doing, nor shall Lender be
under any obligation to take any action whatsoever with regard thereto.
Nothing herein contained shall obligate Lender to grant credit to, or
continue Lender's financing arrangements with Borrower. This guaranty may not
be terminated so long as any obligations of Borrower to Lender are outstanding
and unpaid. This guaranty shall be continuing, irrevocable and shall bind any
inure to the benefit of the respective heirs, legal representatives, successors
and assigns of Guarantor(s), and to Lender's successors and assigns. This
Guaranty shall be revived and reinstated in the event that any payment received
by Lender, or any of Lender's successors and assigns, endorsers or transferees,
on any of the obligations, is required to be repaid or rescinded under present
or future federal or state law or regulation relative to bankruptcy, insolvency,
or other relief of debtors, to the same extent as if such payment had never been
made, and the amount of such payment and interest thereon shall be part of the
obligations guaranteed hereby.
This guaranty shall be effective regardless of the solvency or insolvency
of Borrower, the dissolution of Borrower, the institution by or against Borrower
of any proceeding under the Federal Bankruptcy Code, any reorganization, merger
or consolidation of Borrower, or any change in the ownership, composition, or
nature of Borrower.
<PAGE>
In the event any proceeding is instituted by or against Borrower under the
Federal Bankruptcy Code or any other bankruptcy, insolvency or moratorium law,
as between the undersigned and Lender, all of the obligations shall be
immediately due and payable, without notice and demand of any kind, and the
undersigned agree immediately to pay the obligations in full, irrespective of
whether the obligations can be accelerated against Borrower and irrespective of
any right which Borrower may have under any bankruptcy, insolvency or moratorium
law to cure defaults and reinstate the maturities of the obligations.
The undersigned hereby consent and agree that the Lender may at any time,
either with or without consideration, surrender any property or other security
of any kind or nature whatsoever held by it or by any person, firm or
corporation on its behalf or for its account securing any of the obligations
covered by this guaranty, or substitute any collateral so held by it for other
collateral of like kind or of any kind without notice to or further consent from
undersigned and such surrender or substitution shall not in any way affect the
liability of the undersigned hereunder. The undersigned shall not be discharged
from his or their obligations and undertakings hereunder in the event the Lender
releases or agrees not to sue any person against whom the undersigned has, to
the knowledge of Lender, a right of recourse or should the Lender agree to
suspend the right to enforce the promissory note(s) signed by Borrower, or a
guaranty given by any other person, or Lender's interest in the collateral given
by Borrower to secure the loans made by Lender. Lender shall be under no duty
to exercise all or any rights and remedies given by any note or agreement signed
by Borrower, nor given by any other guaranty given to Lender to secure
Borrower's indebtedness to Lender, as a condition or requirement of enforcing
this guaranty.
The undersigned waives notice of: the creation of any of the obligations,
notice of nonpayment or default by Borrower under any of the obligations or
under any agreement now or hereafter existing between Borrower and Lender;
notice of presentment, demand, notice of dishonor, protest, notice of acceptance
of this guaranty or the creation or extension or renewal of any obligation of
the Borrower to which this guaranty relates; and any other notices whatever; and
agrees that no modification of any of the obligations (including the release of
any of the undersigned), or of any collateral security given by Borrower shall
affect, impair or release the undersigned from any of the indebtedness then
accrued or thereafter to accrue under this guaranty or any part hereof. In the
event any claim hereunder is collected by law or through an attorney-at-law, the
undersigned shall be liable to Lender for all costs of collection including
reasonable attorney's fees. The undersigned hereby expressly waive, renounce
and agree not to assert, any right, claim or cause of action, including, without
limitation, a claim for reimbursement, subrogation, indemnification or
otherwise, against the Borrower arising out of or by reason of this instrument
or the obligations of the undersigned hereunder, including, without limitation,
the payment or securing or purchasing of any of the obligations by the
undersigned. The waiver, renunciation and agreement contained in the preceding
sentence is for the benefit of Lender and also for the benefit of the Borrower,
who may assert the benefits thereof as a third party beneficiary, and the
undersigned may be released from
<PAGE>
such waiver, renunciation and agreement only by the execution and delivery, by
Lender and Borrower, of any instrument expressly releasing the undersigned
therefrom.
The undersigned agrees that no act or omission on the part of the Lender
shall in any way affect or impair this guaranty. The undersigned hereby waives
the right to require the holder of the obligations guaranteed to take action
against the principal as provided for in O.C.G.A. Section 10-7-24. At the
option of the Lender this may be treated as a guaranty or as a suretyship, with
the right to proceed against the undersigned without first proceeding against
the Borrower.
This guaranty is made subject to all the terms, conditions, agreements, or
stipulations contained in the agreements, deeds, notes, instruments and other
documents evidencing the obligations hereby guaranteed, which are hereby
expressly incorporated herein, and the undersigned agrees that the terms,
conditions and provisions of any agreements, deeds, wills, instruments or other
documents which may be executed by the Borrower to evidence such obligations in
the future shall simultaneously with their execution, become a part of this
guaranty.
The liability of the undersigned shall not be modified in any manner
whatsoever by any extension that may be granted to Borrower by any court in any
proceeding under the Bankruptcy Act or any amendments thereof and the
undersigned expressly waives the benefit of any such extension.
It is especially and expressly agreed if the indebtedness of said Borrower
now or at any time hereafter exceeds the amount permitted by law, or said
Borrower is not liable because the act of creating the obligation is ultra
vires, or the officers creating same acted without authority, and for these
reasons the indebtedness to Lender which the undersigned agreed to pay cannot be
enforced against the Borrower, such facts shall in no manner affect the
liability of the undersigned hereunder, notwithstanding said Borrower is not
liable for such indebtedness, unto the same extent as the undersigned would have
been liable if the indebtedness of the said Borrower had been enforceable
against it.
It being the express intention of the parties hereto to conform strictly
with the applicable usury laws, it is agreed that nothing contained herein shall
be so construed as to require the payment of interest at a rate in excess of the
maximum allowable by law, and in no event shall the undersigned be obligated to
pay interest exceeding such maximum rate of interest permitted by law, and all
such agreements, conditions, or stipulations, if any, which may in any event or
contingency whatsoever operate to bind, obligate, or compel the undersigned to
pay a rate of interest exceeding the maximum rate of interest permitted by law
shall be without binding force or effect at law or in equity to the extent only
of the excess of interest over such maximum rate of interest permitted by law.
It is the intention of the parties hereto that in the construction and
interpretation of this guaranty, the foregoing sentence shall
<PAGE>
be given precedence over any other agreement, condition, or stipulation herein
contained which is in conflict with same.
No act on Lender's part and nothing other than the full payment,
performance and discharge of all aforementioned indebtedness and obligations of
Borrower shall operate to discharge or satisfy the liability of the undersigned
hereunder. Lender's accounting records of any transactions with Borrower shall
be admissible in evidence in any action or proceeding, and shall be binding upon
the undersigned in establishing transactions and entries reflected therein, and
shall be accepted as prima facie proof thereof. In the event any claim or
action, or action on any judgment, based on this guaranty, is made or brought
against the undersigned, the undersigned agree not to assert against Lender any
setoff or counter claim which the Borrower may have, and further the undersigned
agree not to deduct any setoff or seek to counterclaim for or recoup. Any
amounts which are or may be owed by Lender to undersigned, or for any loss of
contribution from any other guarantor. Furthermore, in any litigation based on
this guaranty in which Lender and any of the undersigned shall be adverse
parties, the undersigned hereby waive trial by jury and waive the right to
interpose any defense based upon any statutes of Limitations or any claim of
laches and waive the performance of each and every condition precedent to which
the undersigned might otherwise be entitled by law.
In the event of any breach, default under or termination of any of the
agreements between Lender and Borrower, or in the event that undersigned shall
fail to observe or perform any agreements, warranties, or covenants contained
herein, or upon the death of any of the undersigned, or should any of the
undersigned dissolve or cease its business, call a meeting of its creditors,
fail to meet its debts as they mature, commit an act of bankruptcy, have
commenced by or against the undersigned any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceeding under any federal or state
law, then the liability of all of the undersigned for the entire obligations
covered by this guaranty shall mature even if the liability of Borrower therefor
does not.
The undersigned and each of them waive and renounce each for himself and
family any and all homestead of exemption rights either of them may have under
or by virtue of the constitution or laws of Georgia, any other State, or the
United States, against the liabilities and obligation hereby created, and do
hereby jointly and severally transfer, convey and assign to the Lender or holder
hereof a sufficient amount of any homestead or exemption that may be allowed to
the undersigned, or any of the, including such homestead or exemption that may
be set apart in bankruptcy to pay this obligation in full, with all costs of
collection; and each of the undersigned hereby directs the trustee in bankruptcy
having possession of such homestead or exemption to deliver to the Lender a
sufficient amount of property or money so set apart as exempt to pay the
obligation hereby created.
<PAGE>
Where the obligation of Borrower hereby guaranteed is an obligation of a
corporation, this guaranty is to cover all obligations to the Lender purporting
to be made in behalf of Borrower by an officer or agent of Borrower without
regard to the actual authority or such officer or agent. The term corporation
or Borrower shall include associations of all kinds and all purported
corporations whether correctly and legally chartered and organized or not.
Where the undersigned is an natural person this agreement binds his heirs,
administrators and executors, and where a corporation, is successors and
assigns.
Where the obligation of Borrower hereby guaranteed is an obligation of an
individual, such individual's undersigned spouse, if any, hereby unconditionally
guarantees that the liability of the undersigned spouse shall be equal to the
obligation of Borrower from time to time as hereinabove described. Such spouse
hereby acknowledges and agrees that without said unconditional guarantee by the
undersigned spouse, Lender would not have extended credit to Borrower, that
Lender's extension of credit to Borrower is a direct economic benefit to said
undersigned spouse and that the Lender's extension of credit to Borrower as set
forth herein shall be good, valuable and sufficient consideration for such
spouse's guarantee of Borrower's obligation to Lender hereunder.
The word "Lender" as herein used shall include transferees, assigns and
successors of Lender, and all rights of Lender hereunder shall inure to the
benefit of its transferees, successors and assigns.
The words importing the singular number hereunder shall include the plural
number and vice versa and any pronouns used herein shall be deemed to cover all
genders. Without limiting the generality of the foregoing, if more than one
person executes this guaranty, the words "undersigned", "his", and "him" as used
herein shall include all such persons collectively and each such person
individually, and all such persons shall be jointly and severally liable
hereunder. "Person" as used herein means individual, corporation, partnership,
joint venture, association, joint stock company, trusts, unincorporated
associated, government or any agency or political subdivision thereof.
No termination hereof shall be effected by death of any or all if the
undersigned. In the event of the death of any of the undersigned, his
obligations hereunder shall continue in full force and effect, against his
estate as to all indebtedness and obligations which shall have been created or
incurred by Borrower prior to the time when Lender shall have actually received
notice, in writing, of such death; and this guaranty shall, from the date of
such death as to all indebtedness or obligations created, incurred or arising
after such death remain in full force as a guaranty by the surviving
undersigned.
Notwithstanding any provision in this Guaranty to the contrary, the
aggregate dollar amount of the Guarantor's liability under this Guaranty shall
be limited to the largest dollar amount which would render the obligations of
the Guarantor hereunder subject to avoidance
<PAGE>
under Section 548 or any other section of the Federal Bankruptcy Code, or
subject to being set aside under any applicable state fraudulent conveyance law.
This guaranty embodies the whole agreement of the parties and may not be
modified except in writing, and no course of dealing between Lender and any of
the undersigned shall be effective to change or modify this guaranty. Lender's
failure to exercise any right hereunder shall not be construed as a waiver of
the right to exercise the same or any other right at any other time and from
time to time thereafter, and such rights shall be considered as cumulative
rather than alternative. No knowledge of any breach or other nonobservance by
any of the undersigned of me terms and provisions of this guaranty shall
constitute a waiver thereof, nor a waiver of any obligations to be performed by
the undersigned hereunder. The undersigned agrees that this guaranty shall be
governed by and construed and enforced according to the laws of the State of
Georgia. Each of the undersigned hereby consent to the in personam jurisdiction
of the courts of the State of Georgia. Wherever possible each provision of the
guaranty shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this guaranty shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this guaranty.
IN WITNESS WHEREOF, the guarantors, intending to be jointly and severally
legally bound hereby, as hereinabove described, have caused this guaranty to be
signed by their duly authorized officers, and their seals affixed, or have
signed and sealed this guaranty, as the case may be, this 18TH DAY OF FEBRUARY,
1997, at Atlanta, Georgia.
Witnessed:
/s/ Jeffrey A. Rinde By: /s/ Benjamin J. Giacchino
- ----------------------------------- --------------------------------------
Jeffrey A. Rinde BENJAMIN J. GIACCHINO (INDIVIDUALLY)
ACCEPTANCE:
The foregoing guaranty is accepted in Atlanta, Georgia, this 18TH DAY OF
FEBRUARY, 1997.
EMERGENT FINANCIAL CORP.
By: /s/ Connie J. Warner
----------------------------------
Connie J. Warner, President
(CORPORATE SEAL)
<PAGE>
EXHIBIT 16.1
ALLEN P. FIELDS
CERTIFIED PUBLIC ACCOUNTANT
1801 Piedmont Avenue, N.E.
Suite 103
Atlanta, Georgia 30324
(404) 874-9104
(770) 396-3632
November 21, 1998
Securities and Exchange Commission
Washington, D.C. 30549
Gentlemen:
This letter is written at the request of Mr. Kazuhiro Shimizu, Kilpatrick
Stockton, LLP, attorneys for Delsoft Consulting, Inc. "(the Company)".
In connection with the Company's filing of an amendment to its Form 10-SB on or
about Monday, November 23, 1998, I concur with the disclosures made by the
Company pursuant to Item 304 of Regulation S-B, specifically Item 3, Changes in
and Disagreements with Accountants on Accounting and Financial Disclosures, as
contained in a facsimile transmission sent to me on Saturday, October 21, 1998,
a copy of which is attached.
Thank you.
Very truly yours,
/s/ Allen P. Fields
-------------------
Allen P. Fields
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<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> SEP-30-1998 JUN-30-1998
<CASH> 112,419 313,451
<SECURITIES> 0 0
<RECEIVABLES> 1,454,228 1,193,394
<ALLOWANCES> 10,000 10,000
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<CURRENT-ASSETS> 1,728,087 1,530,401
<PP&E> 280,125 280,125
<DEPRECIATION> 62,094 47,829
<TOTAL-ASSETS> 3,337,836 3,180,467
<CURRENT-LIABILITIES> 1,040,928 881,911
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0 0
0 0
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<TOTAL-COSTS> 1,703,559 8,094,640
<OTHER-EXPENSES> 676,490 2,074,441
<LOSS-PROVISION> 0 135,963
<INTEREST-EXPENSE> 20,364 137,147
<INCOME-PRETAX> (55,206) 578,087
<INCOME-TAX> (14,200) 277,979
<INCOME-CONTINUING> (41,006) 300,108
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