DELSOFT CONSULTING INC
10-Q, 2000-05-15
COMPUTER PROGRAMMING SERVICES
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<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                                   FORM 10-QSB


                  Quarterly Report Under Section 13 or 15(d) of
                       The Securities Exchange Act of 1934
                  For the Quarterly Period Ended March 31, 2000

                 Transition Report under Section 13 or 15(d) of
                 The Exchange Act For the Transition Period from

   ____________________________________to ___________________________________
                             Commission File Number


                            DelSoft Consulting, Inc.

        (Exact Name of Small Business Issuer as Specified in its Charter)

                      Georgia                         58-2247152
      --------------------------------------- -----------------------------
         (State or other jurisdiction of           (I.R.S. Employer
          incorporation or organization)           Identification No.)

        106 Bombay Lane, Roswell, Georgia               30076

     (Address of principal executive office)         (Zip Code)

Issuer's telephone number, including area code:    (770) 518-4289

      Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the past 12 months
(or such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]      No [   ]


    At May 11, 2000, there were issued and outstanding 11,855,816 shares of
Common Stock.


    Transitional Small Business Disclosure Format (check one): Yes [ ]   No [X]


<PAGE>


                            DELSOFT CONSULTING, INC.

                INDEX TO UNAUDITED CONDENSED FINANCIAL STATEMENTS



                                                                         PAGE
                                                                         ----
PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

         REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                         F-2

         CONDENSED BALANCE SHEETS
           MARCH 31, 2000 AND JUNE 30, 1999                               F-3

         CONDENSED STATEMENTS OF OPERATIONS
           NINE AND THREE MONTHS ENDED MARCH 31, 2000 AND 1999            F-4

         CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
           NINE MONTHS ENDED MARCH 31, 2000                               F-5

         CONDENSED STATEMENTS OF CASH FLOWS
           NINE MONTHS ENDED MARCH 31, 2000 AND 1999                      F-6

         NOTES TO CONDENSED FINANCIAL STATEMENTS                          F-7/14



                                      * * *



                                      F-1
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                    ----------------------------------------


To the Board of Directors and
  Stockholders
Delsoft Consulting, Inc.


We have reviewed the accompanying condensed balance sheet of DELSOFT CONSULTING,
INC. as of March 31, 2000, and the related condensed statements of operations
for the nine and three months ended March 31, 2000, statements of stockholders'
equity and cash flows for the nine months ended March 31, 2000. These
financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review of the condensed financial statements referred to above, we
are not aware of any material modifications that should be made to the
accompanying financial statements for them to be in conformity with generally
accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of the Company as of June 30, 1999, and the related
statements of operations, stockholders' equity and cash flows for the year then
ended which are not presented herein, and in our report dated July 23, 1999, we
expressed an unqualified opinion on those financial statements. In our opinion,
the information set forth in the accompanying balance sheet as of June 30, 1999
is fairly stated, in all material respects, in relation to the balance sheet
from which it has been derived.

The accompanying condensed statements of operations for the nine and three
months ended March 31, 1999 and cash flows for the nine months ended March 31,
1999 were not audited or reviewed by us and, accordingly, we do not express an
opinion or any other form of assurance on them.



                                                           J.H. Cohn LLP



Roseland, New Jersey
May 9, 2000



                                      F-2
<PAGE>


                            DELSOFT CONSULTING, INC.

                            CONDENSED BALANCE SHEETS
                       MARCH 31, 2000 AND JUNE 30, 1999


<TABLE>
<CAPTION>
                                                                                   March             June
                                 ASSETS                                          31, 2000          30, 1999
                                 ------                                          --------          --------
                                                                                (Unaudited)      (See Note 1)
<S>                                                                            <C>               <C>
Current assets:
     Cash and cash equivalents                                                 $   150,046        $    11,139
     Accounts receivable, net of allowance for doubtful accounts
         of $20,000                                                                664,767          1,376,033
     Prepaid and refundable income taxes                                           191,441            137,567
     Other current assets                                                          175,565             50,702
                                                                               -----------        -----------
              Total current assets                                               1,181,819          1,575,441
Equipment and furnishings, net of accumulated depreciation
     of $119,665 and $102,555                                                      154,241            205,845
Intangible assets, net of accumulated amortization of $194,888
     and $343,701                                                                  284,030          1,107,023
Noncurrent deferred tax assets, net                                                580,000            157,200
Other assets                                                                        18,409            119,021
                                                                               -----------        -----------

              Totals                                                           $ 2,218,499        $ 3,164,530
                                                                               ===========        ===========

                    LIABILITIES AND STOCKHOLDERS' EQUITY
                    ------------------------------------

Current liabilities:
     Note payable to bank                                                      $   291,847        $   643,412
     Current portion of long-term debt                                              30,647             38,536
     Accounts payable                                                              113,207            145,692
     Accrued compensation and other liabilities                                    118,523            284,595
                                                                               -----------        -----------
              Total current liabilities                                            554,224          1,112,235
Long-term debt, net of current portion                                              72,028             64,588
                                                                               -----------        -----------
              Total liabilities                                                    626,252          1,176,823
                                                                               -----------        -----------
Commitments and contingencies

Stockholders' equity:
     Common stock, no par value; 100,000,000 shares authorized;
         11,855,816 and 9,889,149 shares (1999 restated)
         issued and outstanding                                                  2,495,832          2,775,652
     Retained earnings (accumulated deficit)                                      (843,217)            16,742
     Unearned compensation                                                         (60,368)          (804,687)
                                                                               -----------        -----------
              Total stockholders' equity                                         1,592,247          1,987,707
                                                                               -----------        -----------

              Totals                                                           $ 2,218,499        $ 3,164,530
                                                                               ===========        ===========
</TABLE>


See Notes to Condensed Financial Statements.


                                      F-3
<PAGE>


                            DELSOFT CONSULTING, INC.

                       CONDENSED STATEMENTS OF OPERATIONS
               NINE AND THREE MONTHS ENDED MARCH 31, 2000 AND 1999
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                    Nine Months                       Three Months
                                                                  Ended March 31,                    Ended March 31,
                                                            ----------------------------       ----------------------------
                                                                2000             1999            2000               1999
                                                            -----------       ----------       -----------       ----------
<S>                                                         <C>               <C>              <C>               <C>
Gross revenue                                               $ 4,331,995       $6,075,930       $ 1,076,695       $1,779,043
Direct project costs                                          3,040,805        4,297,093           827,351        1,297,134
                                                            -----------       ----------       -----------       ----------
Net revenues                                                  1,291,190        1,778,837           249,344          481,909
                                                            -----------       ----------       -----------       ----------

Other (income) expenses:
    Selling, general and administrative
        expenses                                              1,957,592        2,021,377           731,668          669,972
    Interest expense                                             63,243           68,968            16,296           25,725
    Reversal of amortization of unearned
        compensation                                           (133,751)
    Loss from discontinued Canadian
        operations                                                               196,085                             65,527
    Write-off of intangible assets                              703,598
    Costs of terminated acquisition                             112,593
                                                            -----------       ----------       -----------       ----------
           Totals                                             2,703,275        2,286,430           747,964          761,224
                                                            -----------       ----------       -----------       ----------

Loss before credit for income taxes                          (1,412,085)        (507,593)         (498,620)        (279,315)

Credit for income taxes                                        (552,126)        (190,800)         (203,000)        (111,000)
                                                            -----------       ----------       -----------       ----------

Net loss                                                    $  (859,959)      $ (316,793)      $  (295,620)      $ (168,315)
                                                            ===========       ==========       ===========       ==========


Basic loss per share (1999 restated)                        $      (.08)      $     (.03)      $      (.03)      $     (.02)
                                                            ===========       ==========       ===========       ==========


Basic weighted average common shares
    outstanding (1999 restated)                              10,223,937        9,889,149        10,900,871        9,889,149
                                                            ===========       ==========       ===========       ==========
</TABLE>



See Notes to Condensed Financial Statements.


                                      F-4
<PAGE>


                            DELSOFT CONSULTING, INC.

                   CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
                        NINE MONTHS ENDED MARCH 31, 2000
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                            Common Stock                 Retained
                                                     ----------------------------        Earnings                         Total
                                                      Number of                        (Accumulated     Unearned       Stockholders'
                                                       Shares            Amount          Deficit)     Compensation        Equity
                                                     ----------        ----------      ------------    ------------    -------------
<S>                                                  <C>               <C>             <C>             <C>             <C>
Balance, July 1, 1999                                11,159,149        $2,775,652       $  16,742      $ (804,687)      $1,987,707

Cancellation of shares held by founder               (1,270,000)
                                                     ----------        ----------       ---------      ----------       ----------
Balance, July 1, 1999, as restated                    9,889,149         2,775,652          16,742        (804,687)       1,987,707

Issuance of compensatory stock options                                     64,680                         (64,680)

Amortization of unearned compensation                                                                       5,250            5,250

Effect of cancellation of stock options                                  (937,500)                        803,749         (133,751)

Proceeds from issuance of common stock,
    net of expenses of $31,000                          666,667           369,000                                          369,000

Proceeds from exercise of stock options               1,300,000           224,000                                          224,000

Net loss                                                                                 (859,959)                        (859,959)
                                                     ----------        ----------       ---------      ----------       ----------
Balance, March 31, 2000                              11,855,816        $2,495,832       $(843,217)     $  (60,368)      $1,592,247
                                                     ==========        ==========       =========      ==========       ==========

</TABLE>




See Notes to Condensed Financial Statements.


                                      F-5
<PAGE>


                            DELSOFT CONSULTING, INC.

                       CONDENSED STATEMENTS OF CASH FLOWS
                    NINE MONTHS ENDED MARCH 31, 2000 AND 1999
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                     2000             1999
                                                                                  ----------       ----------
<S>                                                                               <C>              <C>
Operating activities:
     Net loss                                                                     $(859,959)       $(316,793)
     Adjustments to reconcile net loss to net cash
         used in operating activities:
         Depreciation of equipment and furnishings                                   49,421           49,885
         Amortization of intangible assets                                          119,395          217,609
         Amortization of unearned compensation                                        5,250           99,609
         Reversal of amortization of unearned compensation                         (133,751)
         Noncash compensation                                                        56,964
         Write-off of intangible assets                                             703,598
         Write-off of costs of terminated acquisition                               112,593
         Deferred income taxes                                                     (414,000)        (106,800)
         Changes in operating assets and liabilities:
              Accounts receivable                                                   711,266          248,050
              Prepaid and refundable income taxes                                   (53,874)        (239,720)
              Other current assets                                                 (133,663)         (24,147)
              Other assets                                                          (11,981)        (101,328)
              Accounts payable                                                      (32,485)          11,174
              Accrued compensation and other liabilities                           (166,072)        (133,409)
              Income taxes payable                                                                  (180,346)
                                                                                  ----------       ----------
                  Net cash used in operating activities                             (47,298)        (476,216)
                                                                                  ----------       ----------

Investing activities - capital expenditures                                          (2,908)         (23,071)
                                                                                  ----------       ----------
Financing activities:
     Net proceeds from (repayments of) line of credit borrowings                   (351,565)         245,029
     Repayments of long-term borrowings                                             (52,322)         (25,358)
     Net proceeds from issuances of common stock                                    369,000
     Proceeds from exercise of stock options                                        224,000
                                                                                  ----------       ----------
                  Net cash provided by financing activities                         189,113          219,671
                                                                                  ----------       ----------

Net increase (decrease) in cash and cash equivalents                                138,907         (279,616)
Cash and cash equivalents, beginning of period                                       11,139          313,451
                                                                                  ----------       ----------

Cash and cash equivalents, end of period                                          $ 150,046        $  33,835
                                                                                  ==========       ==========
Supplemental disclosure of cash flow data:
     Interest paid                                                                $  68,597        $  64,583
                                                                                  ==========       ==========

     Income taxes paid (refunded)                                                 $  (4,554)       $ 167,254
                                                                                  ==========       ==========
</TABLE>

Supplemental schedule of noncash investing and financing activities:

     The Company purchased equipment at a cost of, and issued long-term
     obligations in the principal amount of, $51,873 during the nine months
     ended March 31, 2000 and $16,069 during the nine months ended March 31,
     1999.


See Notes to Condensed Financial Statements.


                                       F-6
<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 March 31, 2000 and its results of operations
                for the nine and three months ended March 31, 2000 and 1999,
                changes in stockholders' equity for the nine months ended March
                31, 2000 and cash flows for the nine months ended March 31, 2000
                and 1999. Information included in the condensed balance sheet as
                of June 30, 1999 has been derived from, and certain terms used
                herein are defined in, the audited financial statements of the
                Company as of June 30, 1999 and for the years ended June 30,
                1999 and 1998 (the "Audited Financial Statements") included in
                the Company's Annual Report on Form 10-KSB for the year ended
                June 30, 1999 that was previously filed with the United States
                Securities and Exchange Commission (the "SEC"). Pursuant to the
                rules and regulations of the SEC, certain information and
                disclosures normally included in financial statements prepared
                in accordance with generally accepted accounting principles have
                been condensed or omitted from these financial statements unless
                significant changes have taken place since the end of the most
                recent fiscal year. Accordingly, these unaudited condensed
                financial statements should be read in conjunction with the
                Audited Financial Statements and the other information also
                included in the Form 10-KSB.

                The results of the Company's operations for the nine and three
                months ended March 31, 2000 are not necessarily indicative of
                the results of operations for the full year ending June 30,
                2000.


Note 2 - Earnings (loss) per common share:
                As further explained in Note 1 of the notes 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 the Company
                had a net loss for the nine and three months ended March 31,
                2000 and 1999 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.

                The number of shares outstanding and the weighted average number
                of shares outstanding have been retroactively adjusted in the
                accompanying condensed financial statements as if the
                cancellation of 1,270,000 shares issued to a founder of the
                Company had occurred on the date of their original issuance
                instead of on November 16, 1999 (see Note 9 herein).


                                      F-7
<PAGE>


                            DELSOFT CONSULTING, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)



Note 3 - Note payable to bank:
               At March 31, 2000, the Company had borrowed $291,847 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 (an effective
               rate of 10.5% at March 31, 2000) or 7%.


Note 4 - Long-term debt:
               At March 31, 2000, long-term debt consisted of equipment loans
               totaling $102,676 which are payable in monthly installments and
               bear interest at rates ranging from 7.75% to 13.75%. 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 March 31, 2000 total $30,647 in 2001;
               $34,065 in 2002; $32,835 in 2003; and $5,128 in 2004.

               See Note 5 of the notes to the Audited Financial Statements for
               additional information regarding long-term debt.


Note 5 - Credit for income taxes:
                The net credit for income taxes for the nine and three months
                ended March 31, 2000 and 1999 consisted of the following
                provisions (credits):

<TABLE>
<CAPTION>
                                                          Nine Months                 Three Months
                                                        Ended March 31,              Ended March 31,
                                                 -------------------------      -------------------------
                                                    2000            1999           2000            1999
                                                 ----------    -----------      ---------     -----------
                    <S>                          <C>           <C>              <C>           <C>
                    Federal:
                       Current                   $(142,000)    $  (84,000)                    $  (84,000)
                       Deferred                   (320,000)       (79,900)      $(168,000)       (12,100)
                                                 ----------    -----------      ---------     -----------
                           Totals                 (462,000)      (163,900)       (168,000)       (96,100)
                                                 ----------    -----------      ---------     -----------
                    State:
                       Current                       3,874
                       Deferred                    (94,000)       (26,900)        (35,000)       (14,900)
                                                 ----------    -----------      ---------     -----------
                           Totals                  (90,126)       (26,900)        (35,000)       (14,900)
                                                 ----------    -----------      ---------     -----------

                           Totals                $(552,126)     $(190,800)      $(203,000)    $ (111,000)
                                                 ==========    ===========      =========     ===========
</TABLE>




                                      F-8
<PAGE>


                            DELSOFT CONSULTING, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)



Note 5 - Credit for income taxes (concluded):
                The net credit for income taxes for the nine and three months
                ended March 31, 2000 and 1999 differs from the amount computed
                using the Federal statutory rate of 34% as a result of the
                following:

<TABLE>
<CAPTION>
                                                                                     Nine Months            Three Months
                                                                                        Ended                   Ended
                                                                                       March 31,             March 31,
                                                                                   ----------------       ---------------
                                                                                   2000        1999       2000       1999
                                                                                   ----        ----       ----       ----
<S>                                                                                <C>         <C>        <C>        <C>
                    Tax at Federal statutory rate                                  (34)%       (34)%      (34)%      (34)%
                    State income taxes, net of Federal income
                       tax effect                                                   (4)         (4)        (5)        (4)
                    Effect of nondeductible expenses                                             2                     1
                    Other items, primarily surtax exemptions                        (1)         (2)        (2)        (3)
                                                                                   ----        ----       ----       ----
                    Effective tax rate                                             (39)%       (38)%      (41)%      (40)%
                                                                                   ====        ====       ====       ====

<CAPTION>
                As of March 31, 2000, deferred tax assets and liabilities were
                attributable to temporary differences related to the following:
<S>                                                                                                            <C>
                    Deferred tax assets:
                       Net operating losses carryforwards                                                      $521,000
                       Amortization of intangible assets                                                         50,500
                       Other                                                                                      9,900
                                                                                                               --------
                           Total                                                                                581,400
                    Deferred tax liabilities - depreciation                                                      (1,400)
                                                                                                               --------
                       Net deferred tax assets                                                                 $580,000
                                                                                                               ========
</TABLE>

               The deferred tax assets listed above include the potential
               benefits of $521,000 attributable to net operating loss
               carryforwards of approximately $1,158,000 and $1,814,000
               available as of March 31, 2000 to reduce the Company's future
               Federal and state taxable income, respectively, which will expire
               at various dates through 2019.

               Future realization of the net deferred tax assets of $580,000 as
               of March 31, 2000 is dependent on the Company's ability to
               generate sufficient taxable income prior to the expiration of the
               net operating loss carryforwards or reversal of the other
               temporary differences from which the net deferred tax assets
               arose. Management believes, but cannot assure, that it is more
               likely than not that the Company will realize its net deferred
               assets prior to their expiration in 2019 since the net operating
               loss carryforwards arose primarily from nonrecurring losses (see
               Note 10 herein). However, such estimates are subject to change
               and management cannot assure that the net deferred tax assets
               will be realized.


                                      F-9
<PAGE>


                            DELSOFT CONSULTING, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)



Note 6 - Stock options:
                Pursuant to the Company's Stock Option Plan (the "Plan"),
                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 by the Board of Directors to key executives, other
                members of management, other employees and directors of the
                Company, as further explained in Note 10 of the notes to the
                Audited Financial Statements.

                The Board of Directors may also grant options for the purchase
                of shares of common stock to the Company's directors, officers,
                consultants and other advisors that are not covered under the
                Plan. During the nine months ended March 31, 2000, options were
                granted to directors and officers for the purchase of 4,400,000
                shares and to a consultant for the purchase of 1,100,000 shares.

                The options for the 4,400,000 shares issued to the directors and
                officers have an exercise price of $.24 per share (which
                represented the fair market value on the date of grant) and will
                expire in September and November 2009. Options for the purchase
                of 2,600,000 shares vested as of the date of issuance and
                options for the purchase of 600,000 shares will vest in
                September 2000, 2001 and 2002, respectively. No compensation was
                charged in connection with the issuance of the options to the
                directors and officers. During the three months ended March 31,
                2000, the Company received $48,000 upon the exercise of options
                issued to directors and officers for the purchase of 200,000
                shares.

                The options for the 1,100,000 shares issued to the consultant
                have an exercise price of $.16 per share (which was less than
                the fair market value of $.21875 per share on the date of grant)
                and were initially scheduled to expire in December 2004. All of
                the options became vested as of the date of issuance. The fair
                value of the options was estimated at $64,680 as of the date of
                grant using the Black-Scholes option-pricing model (see Note 10
                of the notes to the Audited Financial Statements). Accordingly,
                the Company charged $64,680 to unearned compensation and common
                stock as of the date of grant. The unearned compensation is
                being amortized over the effective period of the options. A
                total of $4,312 was amortized during the nine months ended March
                31, 2000, and the unamortized balance of the unearned
                compensation of $60,368 has been shown separately as a reduction
                of stockholders' equity in the accompanying condensed balance
                sheet as of March 31, 2000. During the three months ended March
                31, 2000, the Company received $176,000 upon the exercise of
                options issued to the consultant for the purchase of 1,100,000
                shares.


                                      F-10
<PAGE>


                            DELSOFT CONSULTING, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)



Note 6 - Stock options (continued):
               The Company had also issued options that were not covered under
               the Plan during 1998 for the purchase of 2,500,000 shares of
               common stock to certain executive officers that were 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 unearned
               compensation and common stock on June 30, 1998 based on the
               number of shares that were subject to the options and the excess
               of the fair market value over the exercise price for each share.
               The unearned compensation was being amortized from July 1, 1998
               on a straight-line basis over the remaining term of each option.
               A total of $132,813 had been amortized and charged to selling,
               general and administrative expenses during the year ended June
               30, 1999 (including $99,609, or $.01 per share, during the nine
               months ended March 31, 1999). The unamortized balance of the
               unearned compensation of $804,687 has been shown separately as a
               reduction of stockholders' equity in the accompanying condensed
               balance sheet as of June 30, 1999.

               At various dates during the nine months ended March 31, 2000, the
               options for the purchase of the 2,500,000 shares granted in 1998
               were canceled. A total of $938 of unearned compensation related
               to these options had been amortized during the nine months ended
               March 31, 2000. The cancellation of the options has been
               accounted for as a change in accounting estimate and,
               accordingly, the Company wrote off related balances of the
               unearned compensation as of the respective dates of cancellation
               which totaled $803,749 and reduced common stock by an equivalent
               amount during the nine months ended March 31, 2000. In addition,
               the accompanying condensed statements of operations include a
               credit of $133,751 (or $.01 per share) for the nine months ended
               March 31, 2000 and a credit of $6,251 (or less than $.01 per
               share) for the nine months ended March 31, 2000 for the reversal
               of the accumulated amortization of the unearned compensation
               related to those shares through the respective dates of
               cancellation.

               As of March 31, 2000, the Company had stock options that remained
               outstanding for the purchase of 5,398,000 shares of common stock
               that expire at various dates through November 2009 with exercise
               prices ranging from $.24 to $2.50 per share, of which options to
               purchase 2,962,667 shares were exercisable.


                                      F-11
<PAGE>


                            DELSOFT CONSULTING, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)



Note 6 - Stock options (concluded):
               A summary of the status of the Company's shares subject to
               options as of March 31, 2000 and changes during the nine months
               then ended is presented below:

<TABLE>
<CAPTION>
                                                                                           Weighted
                                                                           Shares          Average
                                                                             or            Exercise
                                                                           Price            Price
                                                                        ----------         --------
                    <S>                                                 <C>                <C>
                    Outstanding, at July 1, 1999                         4,203,500          $1.08
                    Granted                                              5,500,000            .30
                    Canceled                                            (3,005,500)           .78
                    Exercised                                           (1,300,000)           .24
                                                                        ----------

                    Outstanding, at March 31, 2000                       5,398,000         $  .60
                                                                        ==========         ======

                    Options exercisable, at March 31, 2000               2,962,667

                    Weighted average fair value of options
                         granted during the nine months
                         ended March 31, 2000                                 $.22
                                                                              ====
</TABLE>


Note 7 - Major customers and concentration of credit risk:
               Approximately 53% and 62% of the Company's net revenues were
               derived from two customers during the nine and three months ended
               March 31, 2000, respectively, and approximately 76% and 75% of
               the Company's net revenues were derived from these customers
               during the nine and three months ended March 31, 1999,
               respectively. These customers also accounted for approximately
               46% of the Company's accounts receivable balance at March 31,
               2000. 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 March 31, 2000.


Note 8 - Venture capital agreement:
               As of March 31, 2000, 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 12 of the notes to
               the Audited Financial Statements).


                                      F-12
<PAGE>


                            DELSOFT CONSULTING, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)


Note 9 - Employment agreements:
               As explained in Note 12 of the notes to the Audited Financial
               Statements, the Company had entered into employment agreements
               with three of its key executives as of June 30, 1999. During the
               nine months ended March 31, 2000, two of those agreements were
               amended and one was cancelled. In addition, the Company entered
               into an employment agreement with another key executive. As a
               result, the Company was obligated as of March 31, 2000 to make
               aggregate payments to the three key executives under the
               remaining employment agreements of approximately $107,500 during
               the remainder of the year ending June 30, 2000, $430,000 during
               each of the years ending June 30, 2001 and 2002 and $47,500
               during the year ending June 30, 2003.

               In connection with the employment agreement that was effectively
               cancelled on November 16, 1999, the former executive officer, who
               was also one of the founders of the Company, agreed to allow the
               Company to cancel 1,270,000 shares of common stock that it had
               issued to him in exchange for nominal consideration at the time
               the Company was founded. The number of shares outstanding and the
               weighted average number of shares outstanding have been
               retroactively adjusted in the accompanying condensed financial
               statements as if the cancellation had occurred on the date of
               their original issuance. The retroactive change reduced the
               weighted average number of shares outstanding for the nine months
               ended March 31, 2000 from 11,493,937 shares to 10,223,937 shares,
               for the three months ended March 31, 2000 from 12,170,871 shares
               to 10,900,871 shares and for both the nine and three months ended
               March 31, 1999 from 11,159,149 shares to 9,889,149 shares. It
               increased the loss per share from ($.07) to ($.08) for the nine
               months ended March 31, 2000 and from ($.02) to ($.03) for
               both the nine months ended March 31, 1999 and the three months
               ended March 31, 2000; it did not affect the loss of ($.02) per
               share for the three months ended March 31, 1999. The retroactive
               change also reduced the weighted average number of shares
               outstanding from 11,159,149 shares to 9,889,149 shares and
               increased the loss per share from $(.03) to $(.04) for the year
               ended June 30, 1999 and reduced the weighted average number of
               shares outstanding from 10,146,767 shares to 8,876,767 shares but
               did not affect the income per share of $.03 for the year ended
               June 30, 1998.


Note 10- Nonrecurring losses:
               As further explained in Note 7 of the notes to the Audited
               Financial Statements, the Company ceased its operations in Canada
               during March 1999 and transferred all of the remaining Canadian
               assets to the United States. The losses from the Canadian
               operations of $196,085 (or $.02 per share) and $65,527 (or $.01
               per share) for the nine and three months ended March 31, 2000,
               respectively, have been included in the Company's continuing
               operations in the accompanying unaudited condensed statements of
               operations.


                                      F-13
<PAGE>


                            DELSOFT CONSULTING, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)



Note 10- Nonrecurring losses (concluded):
               As further explained in Note 3 of the notes to the Audited
               Financial Statements, in May 1998, the Company acquired NYE 2000
               Systems, Inc. ("NYE 2000"), which was the developer of a software
               product for the conversion of other software into programs that
               are "Year 2000" compliant. Management of the Company believed
               that the NYE 2000 software product would continue to have a
               substantial international market after January 1, 2000, and it
               was focusing the Company's marketing efforts for this product in
               Europe. The entire cost of acquiring NYE 2000 of $1,450,724 had
               been allocated to intangible assets and were being amortized over
               five years.

               In September 1999, management decided to redirect the Company's
               sales and marketing efforts primarily to internet software
               development and e-commerce consulting and, in January 2000, it
               decided to abandon substantially all of the Company's activities
               related to "Year 2000" compliance, including the international
               marketing efforts for the NYE 2000 software product. As a result,
               the accompanying unaudited condensed statements of operations for
               the nine and three months ended March 31, 2000 include a charge
               of $703,598 (or $.07 per share) for the write-off of the
               unamortized portion of the intangible assets arising from the
               acquisition of NYE 2000.

               During December 1999, management decided to terminate the
               Company's negotiations for the proposed acquisition of a computer
               consulting company. As a result, the accompanying unaudited
               condensed statements of operations for the nine months ended
               March 31, 2000 include a charge for the write-off of $112,593 (or
               $.01 per share) for the costs related to the terminated
               acquisition.


                                      * * *



                                      F-14
<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion should be read in conjunction with the condensed
financial statements and notes thereto appearing elsewhere in this report.

OVERVIEW

         DelSoft Consulting, Inc. ("DelSoft" or the "Company") is a rapidly
growing professional services firm that was incorporated in Georgia on July 1,
1996. The Company offers its clients value added services, including intranet,
extranet, and Web site solutions (which collectively commenced in the second
quarter of fiscal 2000), professional services staffing, strategy consulting,
and related services. DelSoft delivers internet solutions designed to improve
clients' business processes including, strategy consulting, analysis and design,
technology development, systems implementation, and systems integration. The
Company also provides consulting services in the areas of ERP/CRM application
development and integration, and large scale application development. The
Company's solutions target a client's specific business functions enabling the
linkage of people, processes, and technologies in the new digital economy.

         DelSoft markets its services and solutions to senior executives in
organizations of both existing and potential clients where technology-enabled
change (primarily Internet centric) can have a significant competitive impact.
DelSoft continues to identify opportunities to become a client's preferred
provider of comprehensive information technology ("IT") services and solutions.

         DelSoft's revenues primarily consist of fees from consulting services
engagements, including both time-and-materials and fixed-price engagements.
Revenues from time-and-materials engagements are recognized as services are
provided. Billable rates vary by the service provided and the geographical
region. Historically, a substantial majority of the Company's projects have been
client-managed applications development and Year 2000 remediation related work
performed on a time-and-materials basis. DelSoft intends to increase the
percentage of its projects that are based on internet applications development
on a fixed-price engagement. The pricing, management, and execution of
individual engagements are the responsibility of the consulting office that
performs or coordinates the services.

         Cost of revenues include direct costs, such as personnel salaries and
benefits and the cost of any third-party hardware or software included in an
Internet solution, and overhead expenses directly related to the engagement.
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, projects 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/or maintains 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
1000 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.



<PAGE>



         The key solutions offered by the Company include the following:

         (a) INTERNET CENTRIC SERVICES AND SOLUTIONS: Providing professional
services to clients who are creating or weaving the internet with their existing
businesses to achieve e-Business capabilities. The Company expects a significant
portion of its future revenues to be derived from professional services related
to internet consulting, including intranet, extranet, and Web site solutions.

         (b) PROFESSIONAL SERVICES STAFFING: Providing highly-skilled software
professionals to augment the internal information management staffs of major
corporations currently represents the majority of the Company's 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. DelSoft
expects that future revenues will be dependent on the number and scope of client
engagements. Currently, the Company's IT professionals have significant
experience in mainframe, client/server, ERP, and CRM applications development
and systems integration.


RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1999

REVENUES:

The Company's revenues decreased approximately 39%, from $1,779,043 for the
three months ended March 31, 1999 to $1,076,695 for the three months ended March
31, 2000. This decrease in revenues was primarily attributable to a reduction in
the total number of IT professionals on existing client projects, as the Company
transitioned from Year 2000 engagements to e-commerce consulting services.

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 decreased approximately 36%, from
$1,297,134 for the three months ended March 31, 1999 to $827,351 for the three
months ended March 31, 2000. This decrease is primarily attributable to a
reduction in the total number of IT professionals on existing client projects
and is in line with the reduction of net revenue.

NET REVENUE.

Net revenue consists of revenues less direct project costs. Net revenue
decreased approximately 48%, from $481,909 for the three months ended March 31,
1999 to approximately $249,344 for the three month period ended March 31, 2000.
This decrease is primarily attributable to the reduction in the number of IT
professionals utilized by the Company (including independent contractors) and a
decrease in the overall margins on e-commerce engagements as compared to Year
2000 engagements.


SELLING, GENERAL AND ADMINISTRATIVE.


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 9% from $669,972 for the three months ended March 31, 1999 to $731,668
for the three months ended March 31, 2000. This increase, while partially offset
by decreases in certain selling, general, and administrative expenses required
to implement and support the Company's Year 2000 sales and marketing strategies,
was primarily attributable to substantial increases in the infrastructure
required to support the Company's e-commerce consulting and project
implementation services.



<PAGE>




OTHER (INCOME) EXPENSES.

The Company ceased its operations in Canada during March 1999 and transferred
all of the remaining Canadian assets to the United States. The nonrecurring loss
from the Canadian operations of $65,527 (or $.01 per share) for the three months
ended March 31, 1999 has been included in other expenses.

NET INCOME (LOSS).


As a result of the above, the Company's net loss after taxes for the three
months ended March 31, 2000, increased approximately 76%, from a net loss of
($168,315) for the three months ended March 31, 1999 to a net loss of ($295,620)
for the comparable three-month period.


RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 2000
COMPARED TO THE NINE MONTHS ENDED MARCH 31, 1999

REVENUES:

The Company's revenues decreased approximately 29%, from $6,075,930 for the nine
months ended March 31, 1999 to $4,331,995 for the nine months ended March 31,
2000. This decrease in revenues was primarily attributable to a reduction in the
total number of IT professionals on existing client projects, as the Company
transitioned from Year 2000 engagements to e-commerce consulting services.

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 decreased approximately 29%, from $4,297,093 for the nine
months ended March 31, 1999 to $3,040,805 for the nine months ended March 31,
2000. This decrease is primarily attributable to a reduction in the total number
of IT professionals on existing client projects and is in line with the
reduction of net revenue.

NET REVENUE

Net revenue consists of revenues less direct project costs. Net revenue
decreased approximately 27%, from $1,778,837 for the nine months ended March 31,
1999 to $1,291,190 for the nine months ended March 31, 2000. This decrease is
primarily attributable to the reduction in the number of IT professionals
utilized by the Company (including independent contractors) and a decrease in
the overall margins on e-commerce engagements as compared to Year 2000
engagements.

SELLING, GENERAL AND ADMINISTRATIVE

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
decreased 3% from $2,021,377 for the nine months ended March 31, 1999 to
$1,957,592 for the nine months ended March 31, 2000. This decrease, while
partially offset by increases in the infrastructure required to support the
Company's e-commerce consulting and project implementation services and was
primarily attributable to decreases in certain selling, general, and
administrative expenses required to implement and support the Company's Year
2000 sales and marketing strategies.


<PAGE>



OTHER (INCOME) EXPENSES

The Company ceased its operations in Canada during March 1999 and transferred
all of the remaining Canadian assets to the United States. The nonrecurring loss
from the Canadian operations of $196,085 (or $.02 per share) for the nine months
ended March 31, 1999 has been included in other expenses.

At various dates during the nine months ended March 31, 2000, options to
purchase 2,500,000 shares of common stock granted to certain executive officers
during the year ended June 30, 1998 were canceled. The Company had charged
$937,500 to unearned compensation and common stock upon the issuance of these
options. Of the $937,500 initially charged to unearned compensation, $133,751
had been amortized and charged to selling, general and administrative expenses
during the year ended June 30, 1999, including $938 during the nine months ended
March 31, 2000. The Company's condensed statement of operations for the nine
months ended March 31, 2000, includes a credit of $133,751 for the reversal of
the accumulated amortization of the unearned compensation related to those
shares through March 31, 2000.

Other (income) expense also includes nonrecurring charges of $703,598 and
$112,593 for the nine months ended March 31, 2000 related to the write-off of
the intangible assets arising from the acquisition of NYE 2000 and the costs
related to the termination of the proposed acquisition of a computer consulting
company.

In September 1999, management decided to redirect the Company's sales and
marketing efforts primarily to Internet software development and e-commerce
consulting and, in January 2000, it decided to abandon substantially all of the
Company's activities related to "Year 2000" compliance, including the
international marketing efforts for the NYE 2000 software product. As a result,
the accompanying unaudited condensed statement of operations for the nine months
ended March 31, 2000 includes a charge of $703,598 (or $.07 per share) for the
write-off of the unamortized portion of the intangible assets arising from the
acquisition of NYE 2000. In addition, during December 1999, management decided
to terminate the Company's negotiations for the proposed acquisition of a
computer consulting company. As a result, the accompanying unaudited condensed
statement of operations for the nine months ended March 31, 2000 includes a
charge for the write-off of $112,593 (or $.01 per share) for the costs related
to the terminated acquisition.


NET INCOME (LOSS)


As a result of the above, the Company's net loss after taxes for the nine months
ended March 31, 2000, increased approximately 171%, from a net loss of
($316,793) for the nine months ended March 31, 1999 to a net loss of ($859,959)
for the comparable nine month period.


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. 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 March 31, 2000, the


<PAGE>



Company had outstanding borrowings under the aforementioned facility of
approximately $292,000 and working capital of approximately $628,000.

         In addition, during the nine months ended March 31, 2000, the Company
received net proceeds from the issuance of Common Stock and the exercise of
stock options of $369,000 and $224,000, respectively.

       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. 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 additional 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.


CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The statements contained in the section captioned Management's Discussion and
Analysis of Financial Condition and Results of Operations which are not
historical are "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements represent the
Company's present expectations or beliefs concerning future events. The Company
cautions that such forward-looking statements involve known and unknown risks,
uncertainties and other factors 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 toward
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; and the ability to develop and
implement operational and financial systems to manage the Company's growth.




<PAGE>


                                   SIGNATURES


         In accordance with Section 13 or 15(d) of the Exchange Act, the Company
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.


                                            DELSOFT CONSULTING, INC.


                                            By: /s/ Brian Koch

                                                Brian Koch
                                                President

                                            Date: May 15, 2000


In accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Company in the capacities set forth and on
the dates indicated.


      Signature                        Position                     Date

By: /s/Brian Koch              President and Director         Date: May 15, 2000
   ---------------------       (Principal Executive Officer)
    Brian Koch


By: /s/ Brian Koch             Acting Chief                   Date: May 15, 2000
   ---------------------       Financial Officer
    Brian Koch


By: /s/ Ben J. Giacchino        Director                      Date: May 15, 2000

    Ben J. Giacchino

By:/s/Adil Choksey              Secretary                     Date: May 15, 2000

        Adil Choksey


<TABLE> <S> <C>


<ARTICLE>                     5
<CURRENCY>                    U.S. DOLLARS

<S>                                 <C>
<PERIOD-TYPE>                              9-MOS
<FISCAL-YEAR-END>                    JUN-30-2000
<PERIOD-START>                       JUL-01-1999
<PERIOD-END>                         MAR-31-2000
<EXCHANGE-RATE>                                1
<CASH>                                   150,046
<SECURITIES>                                   0
<RECEIVABLES>                            684,767
<ALLOWANCES>                              20,000
<INVENTORY>                                    0
<CURRENT-ASSETS>                       1,181,819
<PP&E>                                   273,906
<DEPRECIATION>                           119,665
<TOTAL-ASSETS>                         2,218,499
<CURRENT-LIABILITIES>                    554,224
<BONDS>                                        0
                          0
                                    0
<COMMON>                               2,495,832
<OTHER-SE>                             (903,585)
<TOTAL-LIABILITY-AND-EQUITY>           2,218,499
<SALES>                                4,331,995
<TOTAL-REVENUES>                       4,331,995
<CGS>                                  3,040,805
<TOTAL-COSTS>                          2,640,032
<OTHER-EXPENSES>                               0
<LOSS-PROVISION>                          63,243
<INTEREST-EXPENSE>                        63,243
<INCOME-PRETAX>                      (1,412,085)
<INCOME-TAX>                           (859,959)
<INCOME-CONTINUING>                            0
<DISCONTINUED>                                 0
<EXTRAORDINARY>                                0
<CHANGES>                                      0
<NET-INCOME>                           (859,959)
<EPS-BASIC>                                (0.8)
<EPS-DILUTED>                              (0.8)



</TABLE>


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