SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] For the fiscal year ended May
31, 1996; or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the transition period
from __________ to _________
Commission File Number 0-11791
GREENTREE SOFTWARE, INC.
(Name of Small Business Issuer in its Charter)
New York 13-2897997
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(State or Other (I.R.S. Employer
Jurisdiction of Identification No.
Incorporation or
Organization
2801 Fruitville Road
Suite 180
Sarasota, Florida 34237
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Address of Principal (Zip Code)
Executive Offices)
Issuer's Telephone Number, Including Area (508) 460-7997
Code: ---------------
Securities Registered Under Section 12(b) of the Exchange Act: NONE
Securities Registered Under Section 12(g) of the Exchange Act:
Title of Each Class
-----------------------------
Common Shares, par value $.04
per share
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State Issuer's revenues for its most recent fiscal year: $305,132
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State the aggregate market value of the voting stock held by
non-affiliates as of August, 1996:
Common Shares, par value $.04 per share - $3,132,392
State the number of shares outstanding in each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding
------------------------ ----------------
Common Shares, par value 9,503,662 shares
$.04 per share
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into this Annual Report on Form
10-KSB.
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Greentree Software, Inc.
Annual Report on Form 10-KSB
May 31, 1996
Cross Reference Sheet
PART I Page
Item 1. Description of Business 1
Item 2. Description of Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security- Holders 16
Part II
Item 5. Market for Common Equity and Related 16
Stockholder Matters
Item 6. Management's Discussion and Analysis or Plan of 19
Operations
Item 7. Financial Statements 23
Item 8. Changes in the Disagreements with Accounts on 23
Accounting and Financial Disclosure
Part III
Item 9. Directors, Executive Officers, Promoters and Control 24
Persons; Compliance with Section 16(a) of the
Exchange Act
Item 10. Executive Compensation 25
Item 11. Security Ownership of Certain Beneficial Owners and 27
Management
Item 12. Certain Relationships and Related Transactions 29
Item 13. Exhibits, Lists, and Reports on Form 8-K 29
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Part I
Item 1. Description of Business
General
Greentree Software, Inc. (the "Company" or "Greentree") began
operations in June 1977 as a management consulting firm specializing in the area
of purchasing and materials management. The Company was incorporated in New York
in 1984. In 1985, the Company introduced its first software product for
purchasing and materials management, Computer Aided Purchasing(R) ("CAP1") for
use on IBM compatible personal computers. Since 1991, all of the Company's
revenues have been derived from the sale and maintenance of software products.
Due to the Company's continued losses from operations, difficulties in
successfully releasing GT Purchase PRO and securing significant product sales,
the Company experienced difficulties in securing the funds necessary to support
the negative cash flow from operations during fiscal 1996, and the timely
redevelopment of GT Purchase PRO (See the section "Liquidity and Capital
Resources" in this section for further comments.) In addition, the Company
believes that certain prospective customers may have deferred orders, or not
placed orders, due to concerns with respect to the financial viability of the
Company.
Additional funding will be required during the second quarter of fiscal
1997 to facilitate marketing and customer support efforts. There can be no
assurance that funding will be available, or that, if obtained, will be
sufficient to support the Company's operations until such time that as the
Company's operations may be sustained from operating cash flows.
Software Products
The Company first released its Microsoft Windows(TM) and client/server
based purchasing and materials management software system (GT Purchase PRO) in
May 1994. However, due to problems encountered with the initial software
development toolset, general problems relating to the transition to the
client/server, Windows platform, and a change from internal to external
development, the Company's GT Purchase PRO product (formerly referred to as GT
4.0) has required substantial and ongoing product development to eliminate
operating and performance problems encountered when operating the software. As a
result, the Company has been required to repeatedly seek additional funding in
order to continue operating.
GT Purchase PRO contains the general functionality of the previous CAP3
system, and in addition to a number of new features and capabilities, is
compatible with Structured Query Language ("SQL") databases, the client/server
architecture, and E-Mail. GT Purchase PRO has been developed primarily with a
fourth generation language rapid application development ("RAD") toolset, which
is designed specifically to take advantage of SQL database management systems
and Windows throughout.
In March, 1996, the Company released its GT Purchase PRO version 5.0
which substantially eliminated the product's prior performance and operating
problems.
The GT Purchase PRO purchasing and materials management system
currently consists of the following modules:
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Purchasing Requisitioning
Receiving Quotations and RFQ's
Inventory Invoice Matching
All of the modules can be integrated into one common logical system,
and interfaces are available for supporting external Accounts Payable and MRP
applications and systems.
GT Purchase PRO enables organizations to increase efficiencies by
automating the process of collecting, compiling and communicating each step and
aspect of the procurement process. GT Purchase PRO can be combined with
industry-standard E-mail systems to provide a method for communicating
purchasing related information throughout an organization. Users can send and
receive requisitions, PO's and other data within networks using MS Mail, CC:Mail
and Groupwise E-mail systems.
GT Purchase PRO, as with any new software product, has and may continue
to contain "bugs". The Company has recently established a formal Quality
Assurance program, as well as beta-testing by select customers and/or prospects,
to identify those bugs which are considered significant and need to be corrected
prior to general release of the product/module to prospects and customers.
Management believes that all significant bugs with respect to the modules
released to date have been identified and corrected or are being corrected, and
that all significant bugs with respect to future modules will be identified and
corrected, through these efforts; however, there is no assurance that all
significant bugs have been or will be identified and, if identified, eliminated.
The Company spent approximately $619,000 and $825,000 in fiscal 1996
and fiscal 1995, respectively, on research and development activities, including
amounts capitalized as part of deferred software development costs of
approximately $419,000 and $726,000, respectively.
Maintenance Service
Maintenance revenues for fiscal 1996 and fiscal 1995, primarily for the
Company's discontinued DOS-based product, were $173,261 and $191,767,
respectively. See Item 6 to this Report for additional comments related to the
trend of billings for these revenues. Maintenance contracts are generally sold
to customers for 15% of the software product cost. These entitle the customer to
telephone support, and upgrades as they become available.
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Warranties
In its standard customer license agreement, the Company specifically
disclaims any warranty of performance, merchantability or fitness for any
particular purpose. The Company, however, gives a 90-day limited warranty on the
magnetic diskette on which the software program is recorded to be free from
defects in materials and workmanship under normal use and service.
The Company's standard maintenance agreement for its CAP3 System and GT
Purchase PRO modules provides that the Company will furnish such services as are
necessary to correct any malfunction in such software. Under the terms of such
agreement, if the Company is unable to correct a malfunction by means of
telephone or telecommunication assistance, repairs may, at the customer's
option, be performed on the premises where the software is located. For such
services rendered the customer is obligated to pay the Company fees at certain
prescribed rates as set forth in the agreement and to provide reimbursement for
travel and other expenses.
Dependence on Customers, Resellers or Suppliers
The Company is dependent on the outsourcing relationship it has with
LDSi, its current software developer and support resource. Although plans are to
bring software development in house in the future, for the next few months at
least the Company will receive new product development and support from LDSi.
Copyrights, Trademarks and Patents
The trade names "Computer Aided Purchasing" or "CAP" and "CAPlink" have
been registered by the Company with the United States Patent and Trademark
Office and will expire in March 1999 and December 2000, respectively, unless
renewed. Under the Trademark Revision Act of 1988, trademark registrations in
the United States have a ten-year term and can be renewed repeatedly for
ten-year terms provided certain criteria are met. The Company has sought, and
will continue to seek, to protect all software programs developed by it under
United States copyright laws. Mark, name, logo or any other commercial symbol
have not been registered by the Company and no applications are presently
pending for such registration. Management of the Company is of the opinion that
loss of the Company's tradename and logo would handicap future operations
because of the current favorable identification with the name.
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The Company holds no patents and has no patent applications pending.
The Company is in the process of applying for the copyright of its GT
Purchase PRO product. Management intends to protect aggressively the Company's
copyright and proprietary rights against any attempt by a competitor to infringe
or interfere with such rights. However, litigation in this area is expensive
and, in view of the Company's cash flow problems (see the section "Liquidity and
Capital Resources" in Item 7 to this Report), the Company may not have, or,
assuming no such problems, may not wish to commit, funds to commence or pursue
such litigation, especially because the high costs thereof could adversely
affect the Company's results of operations. Even if the Company commences such
litigation, there is no assurance that the Company would be successful
therewith.
Markets and Competition
The market for purchasing software in which the Company competes is
highly competitive. The Company is now marketing to the financial, MIS and
purchasing departments of large companies which seek improvements and increased
efficiencies in the purchasing function.
Companies are increasingly looking for ways to eliminate inefficiencies
in corporate procurement processes due to documented opportunities for reducing
costs. According to industry reports, many large companies have either recently
re-engineered their purchasing functions or are planning to do so within the
next twelve months.
Additional competition for purchasing systems comes from custom built
on-line systems, suppliers' proprietary systems and purchasing card systems.
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Employees
As of September 1, 1996, the Company had six full-time employees. All
of the Company's software development and a substantial amount of its technical
support has been recently outsourced to a third party software development firm.
On August 6, 1996, Mr. John Medico resigned as Chief Executive Officer
and President. Mr. Jeffrey Pinkerton was named President, and Mr. Joseph D.
Mooney was appointed as a consultant to the Company with primary
responsibilities for sales, marketing, and leading the Company through its next
stage of financing.
Upon the relocation of the Company to Sarasota, Fl., three key
development personnel resigned from the Company, and subsequently entered into
contractual agreements with Parera Information Services (See "Recent Events").
Private Placements
On December 5, 1995, the Company received net proceeds of $455,438 from
the sale of 1,410,000 shares of the Company's $0.04 par value Common Shares,
(the "Common Shares") at $0.40 per share to an accredited investment group (as
such term is defined in Rule 501(a) under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to Regulation D under the Securities Act (the
"December 1995 Private Placement"). The Company paid a cash placement fee of
$45,120 and issued a five year warrant to purchase 169,200 Common Shares at
$0.48 per share to the placement agent for the December 1995 Private Placement.
On January 30, 1996, the Company received net proceeds of $613,401 from
the sale of 2,471,665 shares of the Company's Common Shares, at $0.30 per share
to accredited investors (as such term is defined in Rule 501(a) under the
Securities Act), pursuant to Regulation D under the Securities Act (the "January
1996 Private Placement"). The Company paid a cash placement fee of $59,320 and
issued a five year warrant to purchase 296,600 Common Shares at $0.36 per share
to the placement agent for the January 1996 Private Placement.
On May 15, 1996, the Company received net proceeds of $507,902 from the
sale of 871,428 shares of the Company's Common Shares, at $0.70 per share to
accredited investors (as such term is defined in Rule 501(a) under the
Securities Act), pursuant to Regulation D under the Securities Act (the "May
1996 Private Placement"). The Company paid a cash placement fee of $48,800 and
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issued a five year warrant to purchase 104,571 Common Shares at $0.84 per share
to the placement agent for the May 1996 Private Placement.
Recent Events
During August and September 1995, the Company negotiated with Mr.
Douglas Fleming a contract for the completion of the GT Purchase PRO product,
which Mr. Fleming would undertake as an independent contractor. The delivery
date for the new product was January 2, 1996, and this was announced to
customers who had been waiting for delivery of the new product. The Company
eventually entered into this development contract formally on October 11, 1995,
when it signed a development contract with Parera Information Services, the
organization through which Mr. Fleming had decided to operate to complete the
product development. Since the Company was relocating to Sarasota, two other of
its key development personnel also resigned from the Company, and subsequently
entered into contractual agreements with Parera to work on the completion of the
GT Purchase PRO product.
Under the terms of the development contract, the Company was required
to make progress payments each month. Since the funding activities were delayed,
the Company was unable to make all of the progress payments. As a result, Parera
canceled the development contract on December 1, 1995. Throughout December, the
Company attempted to renegotiate the development contract, since it expected to
be successful in its fund raising during December. These negotiations were not
successful, and the Company entered into a development agreement with LDSi of
Minneapolis, in January 1996. By using the original system design that the
Company had already developed, and the Powerbuilder source code the Company
possessed before the relocation to Sarasota took place, LDSi delivered to the
Company a "super beta" version of GT Purchase PRO on February 14, 1996. The
"super beta" version contained all of the modules that had been announced by the
Company, plus support for MS-Mail and Microsoft SQL Server as a database
platform. Between February 14 and May 31, several update releases of the system
were provided to the Company, for release to its existing customers. In addition
to enhancements and bug fixes, these subsequent release also contained support
for additional SQL databases, specifically Oracle, Sybase and Informix, and
support for additional E-Mail systems, specifically cc:Mail and Groupwise.
During February through May 1996, the Company began to make several
initial shipments of the new product to new customers, not upgrades for existing
DOS customers. Because of the sophistication of the new
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client/server product, and the newness of system, these new shipments
required more on-site support from Greentree personnel than had previously been
required, which diverted sales activities from making even more sales.
In June 1996, the Company began to prepare for the next product
release, which would include more enhancements, and a new Asset Management
module. This module has already been developed, and is now in the process of
testing, along with the rest of the software that will comprise the next
release. No date has been announced for its release and there can be no
assurance that such product will be released or if released, will generate
sufficient revenues to meet the Company's aging capital requirements.
On August 9, 1996, Mr. Medico resigned as Chief Executive Officer and
President. Mr. Pinkerton was appointed President. At the same time, the Company
entered into a consulting agreement with Mr. Joseph D. Mooney, primarily in the
sales and marketing functions of the Company, and also to assist in its current
fund raising efforts.
Mr. Muhlbach resigned as Chief Financial Officer of the Company on
August 14 1996.
Risk Factors
The Company has a history of losses financially and combined with past
unaccomplished goals relating to software development, sales and marketing, it
is uncertain that proper funding can be received to move the Company forward to
exploit the market opportunities that are ahead of it.
History of Losses and Accumulated Deficit; Declining Revenues;
Uncertainty of Future Profitability. The Company had a net loss of approximately
$1.6 million for the fiscal year ended on May 31, 1996 and had an accumulated
deficit at May 31, 1996 of approximately $12.8 million. The Company has
experienced ongoing losses from operations and expects that such
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losses will continue for at least some period until product sales may be
generated in sufficient volume to offset expenses. For the fiscal year ended May
31, 1995, the Company had revenues of $558,982. For the fiscal year ended May
31, 1996, the Company has had revenues of $305,132. There can be no assurance
the Company's revenues will continue at all or will grow sufficiently to achieve
profitability. The Company does not expect to be profitable at all unless and
until such time as sales of its software products generate sufficient revenue to
fund its operations.
Capital Requirements; Uncertainty of Additional Funding. At September
11, 1996 the Company had expended a substantial portion of it's cash balances.
Predicting the costs of the ongoing development of the Company's software
product and of the expansion of its sales force and other required personnel, as
well as its working capital and other capital needs, is difficult. There can be
no assurance that revenues, if any, generated by the Company from the sale of
its software product will be adequate to complete the development of its
software product and to expand its sales force. The Company anticipates that it
may have to raise additional capital to fund continued operations. There can be
no assurance that any such required capital would be available on acceptable
terms, if at all. If the Company is unable to raise such additional capital on
acceptable terms, it could have to discontinue operations and liquidate.
GT Purchase PRO Software. The Company has invested heavily in research
for, and development of, its core purchasing and materials management software
system - GT Purchase PRO. The product was initially made available for delivery
to the market at the end of the fourth quarter of fiscal 1994. The orders
received to date for the earlier GT Purchase PRO product have been significantly
lower than expected by management. Management believes that this was due
primarily to a variety of problems which were partly created by one of the
development tools used to develop the initial product. The Company, through the
use of independent contractors over which the Company has only limited control,
has recently completed the development of a new version of the GT Purchase PRO
product ("GT Purchase PRO 5.0"). The Company believes the software development
toolset used to produce GT Purchase PRO 5.0 has corrected the performance
problems associated with the prior version of the product; however, there can be
no assurance that (i) such performance problems have been completely eliminated;
(ii) any further required development work will be completed on a timely basis;
(iii) there will be satisfactory acceptance of the new product into the
marketplace; or
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(iv) revenues from this new product will be realized in any material amounts, if
at all, and, if realized, when. GT Purchase PRO 5.0, as with any new software
product, has contained, and in the future may contain, "bugs." There is no
assurance that all significant bugs have been or will be identified and, if
identified, eliminated.
Litigation. On February 12, 1996, the Company was sued by Parera
Information Services, Inc. in the United States District Court for the District
of Massachusetts. Parera and the Company were parties to a software development
agreement. The complaint seeks damages for breach of contract, alleged copyright
infringement, misrepresentation and violation of the Massachusetts Consumer
Protection Act. Additionally, Parera seeks injunctive relief prohibiting the
Company from marketing its GT Purchase PRO Version 5.0 software, declaring
Parera as the owner of the software and freezing the Company's assets. The
Company disputes Parera's claims and plans to vigorously defend this matter.
Additionally, the Company anticipates filing counterclaims against Parera.
The Company believes that all of the claims alleged by Parera in its
complaint are either without merit or subject to counterclaims that the Company
has against Parera. The Company intends to vigorously defend the lawsuit and
expects to prevail or obtain a favorable settlement. However, there can be no
assurance that the lawsuit will be decided or resolved in the Company's favor.
Although the Company believes the foregoing action will ultimately be settled in
its favor, it is too early to determine with any accuracy what the actual
outcome may be. Should Parera be successful in obtaining judgments in its favor,
including any substantial monetary damages or a temporary or permanent
injunction with regard to the Company's products, the Company could be forced to
discontinue operations and seek liquidation. In addition, the Company has very
limited financial and other resources with which to respond and defend the above
action.
On August 22, 1996, the Company was sued by a former employee in the
United States District Court for the Southern District of New York. The Company
was served with process on August 26, 1996. The complaint alleges that the
Company owes the employee back wages and further alleges that the Company
wrongfully rescinded stock options for approximately 37,500 shares of the
Company's stock. The Company has not yet responded to the complaint and is
currently investigating the allegations. The response is due on September 30,
1996.
In connection with the October 1995 private placement, the accredited
investor, T.I.S. Acquisition and Management Group, Inc. (T.I.S. Acquisition),
has made a claim for certain legal and other expenses under the terms of a Stock
Purchase Agreement entered into by the Company and T.I.S. Acquisition. T.I.S.
Acquisition is claiming approximately $138,000 in expenses in connection with
acquiring 1,410,000 shares of the Company's common stock. The Company believes
that T.I.S. Acquisition breached the contract by not providing a "best efforts
fund raising" effort. In addition, the Company believes a significant amount of
the expenses claimed are not properly chargeable to the Company. Since the
Company does not believe it is responsible for these expenses, it has made no
provision for them in the accompanying financial statements.
There can be no assurance that any of this litigation will be resolved
in the Company's favor and a final determination against the Company in any of
such cases would have a material adverse effect on the Company.
New Management, Ability to Recruit Sales, Service and Implementation
Personnel. The Company's new management have a very limited history in operating
the Company or experience in managing a company with the problems and of the
size and stage of development of the Company. There can be no assurance that the
Company's management will be successful in meeting their planned objectives for
the Company. The ability to achieve anticipated revenues is substantially
dependent on the ability of the Company to attract on a timely basis and retain
skilled personnel, especially key management, sales, service and implementation
personnel. The Company believes that its future success will depend in large
part on its ability to attract and retain highly skilled
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technical, managerial, marketing and professional services personnel to ensure
the quality of products and services provided to its customers. Competition for
such personnel, in particular for product development and implementation
personnel, is intense, and the Company competes in the market for such personnel
against numerous companies, including larger, more established companies with
significantly greater financial resources than the Company. There can be no
assurance that the Company will be successful in attracting and retaining
skilled personnel. The Company's inability to attract and retain qualified
employees would have a material adverse effect on the Company's business.
Substantial Competition. The software field is a growing one and, in
addition to the computer manufacturers which also offer software products
performing functions similar to the Company's products, a large number of
publishing companies and software developers are introducing new software
programs and systems into the market. Existing competitive products offered by
companies with greater financial or marketing resources, and additional
competitive products that may be developed in the future, could adversely impact
and limit the Company's revenues. There can be no assurance that competitors do
not have or will not offer or develop products that are superior to the
Company's products or that achieve greater market acceptance. In addition,
suppliers of relational database management systems and companies that develop
management information software applications for large multinational
manufacturers have begun to target the firms targeted by the Company and offer
applications that compete in the Company's markets. As a result, competition
(including price competition) is likely to increase substantially, which may
result in price reductions and loss of market share. The Company may also face
market resistance from potential customers from the large installed base of
legacy systems, who may be reluctant to commit the time and resources necessary
to convert to an open systems-based client/server software product. As the
client/server computing market expands, a large number of companies, many with
significantly greater resources than the Company, may enter the market or
increase their market share by acquiring or entering into alliances with
competitors of the Company. There can be no assurance that the Company will be
able to compete successfully against its competitors or that the competitive
pressures faced by the Company will not adversely affect its financial
performance.
The Company sells in a highly fragmented market consisting of a few
large multinational suppliers and a much larger number of small, regional
competitors. The Company believes that its industry will experience
consolidation which may further increase the competitive
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pressures facing similar companies. In order to compete effectively in the broad
markets which the Company presently targets, the Company will need to continue
to grow and attain sufficient size to ensure that it can develop new products,
in a timely basis, in response to evolving technologies and customer demands and
sell such products to a variety of manufacturing industries worldwide. No
assurance can be given that the Company will be able to grow sufficiently to
enable it to compete effectively.
The Company believes that its history of financial and product
performance problems has negatively affected its image in the marketplace and
that it has lost potential business from potential clients who expressed
concerns about the Company's current financial status and ability to remain
solvent. It is impossible to predict what effect these issues may have on the
Company's future market image, overall competitiveness and ability to market its
products.
Dependence on One Product. Substantially all of the Company's revenues
are expected to be derived from the sale of its GT Purchase PRO 5.0 and related
support services. Accordingly, any event that adversely affects fees from such
product or fees derived from the sale of such product, such as competition from
other products, significant flaws in the product or incompatibility with third
party hardware or software products, negative publicity or evaluation, or
obsolescence of the hardware platforms or software environments in which the
product runs, could have a material adverse effect on the Company's results of
operations. The Company's future financial performance will depend on the
continued development and introduction of new and enhanced versions of GT
Purchase PRO 5.0 and other products, and on customer acceptance of such new
enhanced products.
Rapid Technological Change and New Products. The market for the
Company's software products is characterized by rapid technological advances,
evolving industry standards, changes in end-user requirements and frequent new
product introductions and enhancements. The introduction of products embodying
new technologies and the emergence of new industry standards could render the
Company's existing products and products currently under development obsolete
and unmarketable. Accordingly, the Company's future success will depend upon its
ability to enhance its current products and develop and introduce new products
that keep pace with technological developments, satisfy varying end-user
requirements and achieve market acceptance. Any failure by the Company to
anticipate or respond adequately to technological developments or end-user
requirements, or any significant
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delays in product development or introduction, could severely damage the
Company's competitive position and have an adverse effect on revenues. There can
be no assurance that the Company will be successful in developing and marketing
new products or product enhancements on a timely basis or that the Company will
not experience significant delays in the future which could have a material
adverse effect on the Company's results of operations. In addition, there can be
no assurance that new products or product enhancements developed by the Company
will achieve market acceptance. The Company may need to expand its outside
development agreements or recruit an internal product development staff to meet
these challenges. There can be no assurance that the Company will be successful
in hiring and training adequate product development personnel to meet its needs.
Dependence on Third Party Software and Hardware. GT Purchase PRO 5.0
incorporates and uses software products and computer hardware and equipment
developed by other entities. The relational database management systems used in
the Company's products, and the operating systems on which the Company's
products can function, have been developed or are owned by third-party entities.
There can be no assurance that all of these entities will remain in business,
that such entities will continue to support these product lines, that their
product lines will remain viable or that these products will otherwise continue
to be available to the Company.
Dependence on Third Party Developers. The Company is currently relying
on the expertise and personnel provided by third party software developers for
the development of, and customization and installation work that is required in
connection with, GT Purchase PRO 5.0. There can be no assurance that the third
party developers will continue to provide services to the Company on acceptable
terms or at all. In the event that the Company would be unable in the future to
reach an agreement with the third party developers, the Company may incur
expense and delay in satisfying customer needs associated with recruiting a
suitable replacement group and negotiating an agreement on terms acceptable to
the Company. The failure to maintain a relationship with third party developers
could have a material adverse effect on the Company.
Intellectual Property and Proprietary Rights. The Company intends to
rely on a combination of copyright, trademark and trade secret laws, employee
and third party nondisclosure agreements and other industry standard methods for
protecting ownership of its proprietary software. There can be no assurance,
however, that, in spite of these
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precautions, an unauthorized third party will not copy or reverse-engineer
certain portions of the Company's products or obtain and use information that
the Company regards as proprietary. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent as
do the laws of the United States. There can be no assurance that the mechanisms
used by the Company to protect its software will be adequate or that the
Company's competition will not independently develop software products that are
substantially equivalent or superior to the Company's software products. An
independent software development group, with which the Company had entered into
a software development agreement, has recently filed suit against the Company
which claims, among other things, copyright infringement and breach of contract.
See RISK FACTORS - Litigation.
The Company expects that, as the number of software products in the
industry increases and the functionality of these products further overlaps,
software products will increasingly be subject to claims of infringement on
third party proprietary rights. Any such claim, whether with or without merit,
could result in costly litigation and require the Company to enter into royalty
or licensing arrangements. Such royalty or license arrangements, if required,
may not be available on terms acceptable to the Company or at all.
NASD Requirements. The Common Shares are traded in the over-the-counter
market and reported in the National Association of Securities Dealers, Inc.'s
("NASD") OTC Bulletin Board or in the "pink sheets" as reported by the National
Quotation Bureau, Inc. However, because the bid price of the Common Shares has
consistently been below $5.00 per share, the Common Shares, when recommended by
a broker-dealer, are subject to the limitations of Rule 15g-9 under the Exchange
Act, which Rule imposes additional sales practices requirements on
broker-dealers which sell the Common Shares (1) to persons other than (a)
existing customers with a previous history of trading through such
broker-dealer, (b) institutional accredited investors (for example, a bank or
savings and loan association) and (c) a director and/or officer of the Company
and/or the beneficial owner of 5% or more of the Common Shares or (2) in
transactions not exempt by the Rule. For transactions under Rule 15g-9, the
broker-dealer must obtain written information from the prospective purchaser as
to his or her financial situation, investment experience and investment
objectives and, based on such information, reasonably determine that
transactions in the security are suitable for that person and that the
prospective investor (or his or her independent adviser) has sufficient
knowledge and experience in financial matters so as to be reasonably expected to
be capable of evaluating the risks of transactions
13
<PAGE>
in such security. The broker-dealer must also receive the purchaser's written
agreement to the transaction prior to the sale. Certain broker-dealers,
particularly if they are market makers in the Common Shares, will have to comply
with the disclosure requirements of Rules 15g-2, 15g-3, 15g-4, 15g-5 and 15g-6
under the Exchange Act. Consequently, Rule 15g-9 and these other Rules may
adversely affect the ability of broker-dealers to sell the Common Shares and
also may adversely affect the ability of purchasers in this offering to sell
their shares in the secondary market.
Authorized Shares. The Company currently has 15,000,000 authorized
Common Shares. After accounting for the warrants the Company is required to
issue, shares reserved under stock option plans, outstanding warrants and shares
required to be reserved under various warrant antidilution provisions, the
Company believes it will have a limited number of authorized but unissued
shares available for raising any additional required capital. Any increase in
the Company's authorized Common Shares would require a shareholder vote at a
shareholder meeting. There can be no assurance that such remaining authorized
Common Shares will be sufficient to allow the Company to raise any additional
required capital or that the Company would have sufficient funds to pay the
expenses of a shareholder meeting and proxy solicitation for the purpose of
increasing the number of authorized shares. Furthermore, there can be no
assurance that any request for shareholder approval of an increase in the number
of authorized shares would be approved.
Dividends. In view of the cash requirements of the Company and the
current and anticipated operating losses, the Company does not intend to pay
dividends on the Common Shares in the foreseeable future.
14
<PAGE>
Item 2. Description of Properties
Effective October 1, 1995, the Company relocated its offices to 2801
Fruitville Road in Sarasota, Florida, where it occupies approximately 3,833
square feet under a lease expiring September 30, 2000. For the first ten months
of the lease, monthly rentals were $3,332.54 per month. Subsequent monthly
rentals is $ 5,212.09.
Prior to October 1, 1995, the Company maintained its offices in
Marlborough, Massachusetts. This lease was terminated by mutual consent. In
connection with the termination, the Company paid a $50,000 termination fee.
Subsequent to May 31, 1996, the Company is formulating plans to
relocate to the Boston area.
Item 3. Legal Proceedings
On February 12, 1996, the Company was sued by Parera Information
Services Inc. in the United States District Court for the District of
Massachusetts. Parera and the Company had been parties to a software development
agreement (See Item 1 - Recent Events). The complaint seeks unspecified money
damages for alleged breach of contract, copyright infringement,
misrepresentation and violation of the Massachusetts Consumer Protection Act.
Additionally Parera seeks injunctive relief prohibiting the Company from
marketing its GT Purchase PRO Version 5.0 software, declaring Parera as the
owner of the software and freezing the assets of the Company.
The Company has asserted counterclaims against Parera seeking money
damages as well as the return of equipment loaned to Parera pursuant to the
software development agreement.
On April 12, 1996 the Court denied Parera's request for a preliminary
injunction. On the same date the Court ordered the parties to complete discovery
within 60 days. Discovery was concluded on or about June 13, 1996 and Parera
renewed its motion for preliminary injunction. On July 30, the Court held a
hearing on the renewed motion for preliminary injunction. The renewed motion was
denied by the Court on August 1, 1996. The matter is now scheduled for trial to
commence on November 4, 1996.
The Company has vigorously defended itself against Parera's claims.
Discovery has not revealed a strong basis for Parera's claims of ownership of
any rights to the software or originality by Parera. Moreover, Parera has to
date been unable to identify with particularity
15
<PAGE>
what portions of the software, if any, use protected expression belonging to
Parera. The breach of contract action is weakened by the express terms of the
software development agreement, which provides that Parera's rights under the
software development agreement were terminated when Parera terminated the
contract on December 1, 1995. The Company strategy is to prove at trial that
Parera's claims are baseless and that Parera is in fact liable to the Company
for its conduct.
The Company is unable to predict the likelihood of an unfavorable
outcome in this matter although as stated above there are strong defenses to the
claims and the Court has twice determined that Parera has not established a
likelihood of success on the merits in denying Parera's motions for preliminary
injunction.
On August 22, 1996 the Company was sued by a former employee in the
United States District Court for the Southern District of New York. The Company
was served with process on August 26, 1996. The complaint alleges that the
Company owes the employee back wages and further alleges that the Company
wrongfully rescinded stock options for approximately 37,500 shares of the
Company's stock. The Company has not yet responded to the Complaint and is
currently investigating the allegations. The response is due on September 30,
1996.
In connection with the October 1995 private placement, the accredited
investor, T.I.S. Acquisition and Management Group, Inc. (T.I.S. Acquisition),
has made a claim for certain legal and other expenses under the terms of a Stock
Purchase Agreement entered into by the Company and T.I.S. Acquisition. T.I.S.
Acquisition is claiming approximately $138,000 in expenses in connection with
acquiring 1,410,000 shares of the Company's common stock. The Company believes
that T.I.S. Acquisition breached the contract by not providing a "best efforts
fund raising" effort. In addition, the Company believes a significant amount of
the expenses claimed are not properly chargeable to the Company. Since the
Company does not believe it is responsible for these expenses, it has made no
provision for them in the accompanying financial statements.
Item 4. Submission of Matters to a Vote of Security-Holders
None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market Information
The Common Shares are traded in the National Association of Securities
Dealers OTC Bulletin Board (Symbol: GTSW). The following table sets forth the
range of high and low bid quotations of the Common Shares for each quarterly
period during the two fiscal years ended May 31, 1996 as reported by NASD
Bulletin Board. The quotations in the table and the succeeding paragraph
represent prices in the over-the-counter market
16
<PAGE>
between dealers in securities, do not include retail markup, markdown, or
commissions and may not necessarily represent actual transactions.
Bid
------------------------------------
Period High Low
- ------ ---- ---
Fiscal Year Ending
May 31, 1996
First Quarter $1 - 1 / 4 $9 / 16
Second Quarter $1 - 5 / 32 $9 / 16
Third Quarter $1 - 11 / 16 $11 / 32
Fourth Quarter $1 - 5 / 8 $5 / 8
Bid
-------------------------------------
Period High Low
- ------ ---- ---
Fiscal Year Ending
May 31, 1995
First Quarter $2 - 13 / 16 $2 - 1 / 16
Second Quarter $3 - 1 / 8 $2 - 5 / 16
Third Quarter $2 - 3 / 4 $2 - 5 / 32
Fourth Quarter $2 - 7 / 16 $15 / 16
The closing bid sales price of the Common Shares on August 2, 1996 in
the NASD OTC Bulletin Board (as reported by the NASD) was $15 / 32 per share.
Holders
The number of holders of record of the Common Shares at August 1, 1996
was 402. Management of the Company is of the opinion that, based on copies of
proxy statements and Annual Reports requested by brokers, banks and other record
holders for beneficial owners in connection with the last two meetings of
shareholders, that a significant number of registered shares are held for
beneficial owners.
Dividends
The Company has never paid cash dividends on the Common Shares nor does
the Board of Directors anticipate the Company paying cash dividends in the
foreseeable future because of the financial requirements necessary to develop
operations.
17
<PAGE>
NASD Requirements
Under the NASD's maintenance criteria for continued listing of the
Common Shares in the NASDAQ System, a company must, among other criteria, have
minimum capital and surplus of $1,000,000, total assets of $2,000,000 and a per
share bid price of $1.00.
The NASD, by letter dated June 29, 1995, notified the Company that (1)
because the Common Shares failed to maintain a closing inside bid price greater
than, or equal to, $1.00 per share during the ten consecutive trade dates
preceding the date of the letter, the Company was not in compliance with that
maintenance criteria; (2) because the Company did not meet both aspects of the
alternative maintenance criteria to the per share bid price of having its
capital and surplus exceed $2,000,000 and its public float for the Common Shares
exceed $1,000,000, and (3) if, within 90 calendar days of the date of the
letter, the Common Shares failed to close at a bid price of $1.00 or more, the
Common Shares would become subject to a formal delisting action. In December,
1995, the Company was not in compliance with the three requirements, and was
de-listed from the NASDAQ system.
The Company's Common Shares continue to be traded in the
over-the-counter market and reported in the NASD's OTC Bulletin Board or in the
"Pink Sheets" as reported by the National Quotation Bureau, Inc. However,
because the bid price of the Common Shares was below $5.00 per share when the
Common Shares were delisted from the NASDAQ System, the Common Shares, when
recommended by a broker-dealer, are subject to the limitations of Rule 15g-9
under the Exchange Act, which Rule imposes additional sales practices
requirements on broker-dealers which sell the Common Shares (1) to persons other
than (a) existing customers with a previous history of trading through such
broker-dealer, (b) institutional accredited investors (for example, a bank or
savings and loan association) and (c) a director and/or officer of the Company
and/or the beneficial owner of 5% or more of the Common Shares or (2) in
transactions not exempt by the Rule. For transactions under Rule 15g-9, the
broker-dealer must obtain written information from the prospective purchaser as
to his or her financial situation, investment experience and investment
objectives and, based on such information, reasonably determine that
transactions in the security are suitable for that person and that the
prospective investor (or his or her independent adviser) has sufficient
knowledge and experience in financial matters so as to be reasonably expected to
be capable of evaluating the risks of transactions in such security. The
broker-dealer must also receive the purchaser's written agreement to the
transaction prior to the sale. Certain broker-
18
<PAGE>
dealers, particularly if they are market makers in the Common Shares, will have
to comply with the disclosure requirements of Rules 15g-2, 15g-3, 15g-4, 15g-5
and 15g-6 under the Exchange Act. Consequently, Rule 15g-9 and these other Rules
may adversely affect the ability of broker-dealers to sell the Common Shares as
a result of the delisting.
Item 7. Management's Discussion and Analysis of Operations and Plan
of Operations
Results of Operations
Fiscal 1996 was a very disappointing year for both the sales and the
product development of Greentree. From a sales perspective, GT Purchase PRO
version 4.0 had been released, but, as has been stated, the development tool on
which it was built was flawed. While a rewrite of the system in another
development tool was already underway, it had not been released, so that all new
sales activities were focused on selling the new product as a future sale. This
in turn built up demand for the new product, putting high pressure on the
Company to deliver the new product as soon as possible. With the cancellation of
the original development contract, the Company quickly located and entered into
a new development agreement with a second Powerbuilder development house. As a
result, the new GT Purchase PRO product developed for the client/server
marketplace was not released until the end of February 1996, and before full
quality control had been able to be completed, resulting in additional
installation work diverting resources from the selling effort.
Fiscal Year Ended May 31, 1996 Versus 1995
Total sales (composed of product and services revenues) for fiscal 1996
were $305,132 compared to $558,982 for fiscal 1995, reflecting a decrease of
$253,850 or 45.4%. Product revenues for fiscal 1996 were $ 125,785 compared to
$315,843 for fiscal 1995, a decrease of $190,008 or 60.2%. Services revenue for
fiscal 1996 were $ 179,347 compared to $243,139 for fiscal 1995, a decrease of
$63,792, or 26.2%. Included in services revenue for fiscal 1996 were training
and dealer fees of $13,565 compared to $51,372 for fiscal 1995, a decrease of
$37,807 or 73.6%. Also included in service revenues for fiscal 1996 were
maintenance revenues of $165,782 compared to $191,767 for fiscal 1995, a
decrease of $25,986 or 13.6%.
The primary reason for the decline in sales was due to the need to
rewrite significant portions of the GT Purchase PRO source code using a new
development tool. This was due to the Company's inability to
19
<PAGE>
adequately address the performance deficiencies created by `bugs' in one of the
tools previously utilized by the Company to develop GT Purchase PRO. Further
delays in bringing GT Purchase PRO to market in its rewritten form were due to
repeated delays in securing the funding necessary to continue GT Purchase PRO
development. All sales in fiscal 1996 were made by the Company's internal sales
force, and management anticipates that the majority of all sales in fiscal 1997
will also be made by the Company's internal sales force.
Due to the Company's continued losses from operations, difficulties in
successfully releasing GT Purchase PRO and securing significant product sales,
the Company experience difficulties in securing the funds necessary to support
the negative cash flow from operations during fiscal 1996, and the timely
redevelopment of GT Purchase PRO (See the section "Liquidity and Capital
Resources" in this section for further comments.) In addition, the Company
believes that certain prospective customers may have deferred orders, or not
placed orders, due to concerns with respect to the financial viability of the
Company.
Additional funding will be required during the second quarter of fiscal
1997 to facilitate marketing and customer support efforts. There can be no
assurance that funding will be available, or that, if obtained, will be
sufficient to support the Company's operations until such time that as the
Company's operations may be sustained from operating cash flows.
Although management believes that the CAP3 system is still a viable
product to those companies that will be maintaining their DOS-based operating
environments, an increasing proportion of companies are migrating to other
operating environments particularly Microsoft's Windows and Windows 95, which is
used by GT Purchase PRO. Of the $125,785 in product revenue for fiscal 1996 and
the $315,843 in product revenue for fiscal 1995, $12,280 or 9.8% in fiscal 1996
and $32,416 or 10.3% in fiscal 1995 were related to sales of the CAP3 system.
Furthermore, management has determined that as of September 1, 1996, the Company
will cease to accept new orders for the CAP3 system due to declining potential
for future sales as compared to the effort required to support new CAP3
customers, consistent with the Company's obligations under Maintenance
Agreements with its customers.
The cost of sales for fiscal 1996 decreased to $523,853 from $1,240,561
in fiscal 1995, a decrease of $716,708 or 57.8%. One of the primary reasons for
this decline was reduced amortization of deferred software development costs and
reduced write-offs of development costs, particularly write-offs incurred in
fiscal 1995 of development costs
20
<PAGE>
associated with the problematic development tool being used to develop GT
Purchase PRO through April 1995. Two other primary reasons for the reduced cost
of sales was lower compensation expense and lower outside programmer, consultant
and contract labor expense. As of May 31,1996 the Company had recorded $768,516
in net capitalized software costs. Capitalization costs are being amortized on a
straight-line basis over thirty six months from the date of product release.
Management continues to believe that these capitalized amounts are recoverable
given the expected revenue increase from GT Purchase PRO; however, should
revenues not increase to the levels expected by Management, these amounts would
have to be written down to their realizable values, which could result in a
material charge against earnings.
Selling expenses for fiscal 1996 were $562,272 compared to $839,599 in
fiscal 1995, a decrease of $277,327 or 33%. This decrease was primarily due to
reduced compensation expense and reduced advertising and promotion costs as a
result of the Company's decision in April 1995 to rewrite substantial portions
of GT Purchase PRO and therefore to scale down marketing activities in advance
of the release of GT Purchase PRO.
General and administrative expenses for fiscal 1996 were $597,175
compared to $860,163 for the prior year, a decrease of $62,988 or 7.3%. This
decrease was due to lower occupancy costs, decreased professional fees, and
general efforts to restrict expenses while the Company awaited the completion of
the rewrite of GT Purchase PRO. These efforts were offset in part by relocation
expenses associated with the move of the Company's office from Marlborough,
Massachusetts to Sarasota, Florida.
Interest expense for fiscal 1996 was $744 compared to $41,251 for the
prior year, a decrease of $40,507 or 98.2%. Interest income for fiscal 1996 was
$2,432 compared to $47,346 in fiscal 1995, a decrease of $44,914 or 94.9%. This
decrease is due to the elimination of the Note Payable and the related
Certificate of Deposit (see Notes to the Financial Statements).
For fiscal 1996, the Company reported a net loss of $1,576,480 (or $.24
per share) a decrease of $858,766 ($.24 per share) or 36.2%. This loss was
caused by the lower than anticipated sales volume, but was reduced due to the
lower operating expense, as indicated above.
21
<PAGE>
Liquidity and Capital Resources
During fiscal 1996, the Company raised $1,576,741, net of cash
placement agent fees and other issue costs, from the issuance of Common Shares
in Private Placements in October and December 1995 and January and April and May
of 1996. All such proceeds were used to fund product development, sales and the
Company's general operating expenses. The Company currently anticipates that it
will require additional and ongoing outside funding to continue operating until
such time that the Company is able to generate product sales sufficient to
offset its working capital deficit and ongoing operating expenses. There can be
no assurance that the Company will be successful in securing outside funding or,
if available, upon what terms.
The Company had a working capital deficit of $645,258 as at May 31,
1996 as compared with a working capital deficit of $569,502 as at May 31, 1995,
an increase of $75,756. The primary reason for this decrease in working capital
is the decreased use of cash to fund operations for fiscal 1996. Cash at May 31,
1996 was $249,525 as compared to $157,621 on May 31, 1995, a decrease of $8,361.
At September 11, 1996, the Company had expended substantially all of it's cash
balances.
The Company incurred approximately $31,723 in capital expenditures
during fiscal 1996, as compared to $91,904 during fiscal 1995.
(See the Independent Auditors' Report and Note 1 to Notes to Financial
Statements in Item 7 to this Report regarding the continued existence of the
Company as a "going concern").
Plan of Operation
Management Reorganization
Upon consummation of the private offering of shares to the TIS group,
all but one of the members of the Company's senior management and all but one of
the Directors of the Company resigned and were replaced by a new management
team, as follows:
George Michael Cassidy, Chief Executive Officer, and J. Robert Gary,
Chief Financial Officer and a Director, resigned from the Company in August
1995. Jeffrey B. Pinkerton, President, was retained as Vice President for
Product Development, reporting to Mr. John Medico,
22
<PAGE>
previously with the TIS Group, who joined the Company as its Chief Executive
Officer and President. Douglas Fleming, Vice President of Operations, was
offered the option of relocating with the Company to Sarasota, Florida, which he
declined, and accordingly resigned from the Company effective September 30,
1995, with the intention of completing the product development as an independent
contractor.
During that period, Mr. Medico relocated the Company from its
Marlborough, Massachusetts office, to Sarasota, FL, and recruited Mr. Arnold
Muhlbach as Chief Financial Officer, Secretary and Treasurer. At TIS's request,
Mr. Pinkerton became a Director of the Company in October 1995.
Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-1
Balance Sheets at May 31, 1996 and 1995 F-2
Statements of Operations for the years ended
May 31, 1996 and 1995 F-3
Statements of Stockholders' Equity for the years
ended May 31, 1996 and 1995 F-4
Statements of Cash Flows for the years ended
May 31, 1996 and 1995 F-5
Notes to Financial Statements F-6
Item 8. Changes in and Disagreements with Accountants.
None.
23
<PAGE>
Part III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act.
Executive Officers and Directors
As of September 1, 1996, the executive officers and directors of the
Company were as follows:
Year Became
Officer or
Name Age Position with Company Director
---- --- --------------------- ----------
Brad I. Markowitz 38 Chairman of the Board and a
director 1994
Jeffrey B. Pinkerton 48 President and a director 1994
Each executive officer is elected to serve at the discretion of the
Board of Directors. For information relating to agreements which the Company has
with certain of the persons named in the above table, see the section
"Employment Agreements" in Item 10 to this Report.
Family Relationships
There are no family relationships among any directors or executive
officers of the Company.
Business History
Joining the Company as Chairman of the Board on February 16, 1994, Brad
I. Markowitz has been President and a director of Focus Capital Corp., a New
York investment banking firm, from October 1990 to the present. From May 1987 to
March 1993, Mr. Markowitz was Vice President of The ADCO Group, a New York
company involved in real estate, banking and venture capital funding. He is also
an officer and director of a number of private companies and President and a
Director of Buckeye Communications, Inc.
Jeffrey B. Pinkerton, prior to rejoining the Company on February 17,
1994, was, from June 1991 until February 16, 1994, owner of Viewpoint Consulting
in Ridgewood, New Jersey, a reseller for the Company's software products. From
September 1987 through May 1991,
24
<PAGE>
Mr. Pinkerton was Executive Vice President and a director of the Company.
No director serves as a director of a company which has a security
registered under Section 12(b) or (g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or is an investment company registered under the
Investment Company Act of 1940, as amended.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3 and 4 furnished to the Company
under Rule 16a-3(e) promulgated under the Exchange Act with respect to fiscal
1995, the Company is not aware of any director or officer of the Company or
beneficial owner of 10% or more of the outstanding shares of the Common Shares
who failed to file reports required by Section 16(a) of the Exchange Act during
such fiscal year or prior years. Based upon the Company's review of such forms,
the Company is not aware of any director or officer of the Company or beneficial
owner of 10% or more of the outstanding shares of the Common Shares who failed
to file such reports on a timely basis, as disclosed in such forms, during such
fiscal years or prior years.
Forms 4
-------
Name and Reporting Capacity Fiscal 1996 Fiscal 1995
- --------------------------- ----------- -----------
John J. Medico 1 --
Chief Executive Officer and President
(10/4/95 to 8/96)
Brad I. Markowitz, Chairman of the
Board and a Director 1 --
Jeffrey B. Pinkerton -- 1
President
Item 10. Executive Compensation
The following table sets forth summary compensation information paid or
awarded during fiscal 1996 and 1995 and the fiscal year ended May 31, 1994 by
the Company to (i) its Chief Executive Officer as of May 31, 1996 and (ii) each
highly paid executive who served at the end of fiscal 1996 whose total annual
salary and bonus exceeded $100,000:
25
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Awards Payouts
------ -------
Other
Annual Restricted Options/ LTIP All Other
Name and Principal Compen- Stock SARs Payouts Compen-
Position Year Salary Bonus sation Award (#) ($) sation
-------- ---- ------ ----- ------ ----- --- --- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John J. Medico
Chief Executive Officer 1996 (1) $87,500 (1) -- -- -- -- -- --
Jeffrey B. Pinkerton
President 1996 (2) 108,750 (2) -- -- -- -- -- --
President 1995 120,000 -- -- -- -- .. --
1994 35,923 -- -- -- -- -- --
</TABLE>
- ---------------
(1) Mr. Medico was appointed President and Chief Executive Officer by the
Board of Directors on October 4, 1995 and resigned on August 9, 1996.
(2) See note (1) to the table in the section "Executive Officers and
Directors" in Item 9 to this Report for information as to the
officership and designation held by Mr. Pinkerton in the Company during
fiscal 1994 and thereafter. See also the section "Employment
Agreements" in this Item 10 to this Report.
No individual grants were made during fiscal 1996 to any of the
executive officers listed in the Summary Compensation Table noted above.
No options were exercised during the year by any person holding options
which were eligible to be exercised. The following table sets forth the fiscal
1996 ending option values for executive officers named in the Summary
Compensation Table:
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
<TABLE>
<CAPTION>
Value of Unexercisable
Number of Unexercised in-the-Money Options at
Shares Value Options at FY-End FY-End
Name Acquired Received Exercisable/Unexercisable Exercisable/Unexercisable
---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jeffrey B. 0 0 75,000/50,000 $0/0
Pinkerton
</TABLE>
26
<PAGE>
(1) Based on the mean between the high bid and low asked prices supplied
by the National Quotations Bureau in the NASDAQ System and reported by
the NASD.
Directors
Each director who is not an officer or employee of the Company receives
a director's fee of $150 for each Board of Directors meeting attended. At the
current time no director is eligible to receive the fee. Each director who is
not an employee is eligible to receive after his election an option to purchase
2,500 of the Common Shares. Mr. Markowitz has not been granted any such option.
Employment Agreements
Refer to the exhibits of this Form 10-KSB.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information concerning the shares of the
Common Shares owned beneficially as of August 1, 1996 by (1) each person known
to the Company to own beneficially 5% or more of the Common Shares; (2) each
director of the Company; (3) the chief executive officers of the Company as of
May 31, 1996; (4) each executive officer of the Company as of May 31, 1996 whose
compensation exceeded $100,000 in fiscal 1996; and (5) all directors and
executive officers as a group. Each beneficial owner has advised the Company
that he has sole voting and investing power as to the shares of the Common
Shares, except as indicated in the notes below and except as to the options and
warrants described in the notes below which do not have any voting power until
exercised and the options which generally may not be transferred except in
certain limited circumstances.
Percent of
Number of Beneficial
Name and Address Shares Ownership (1)
- ---------------- --------- --------
John J. Medico (2) 83,335 .66%
71 Hillside Road
Cumberland, RI 02864
Brad I. Markowitz (3) 302,710 (4) 2.41%
1 North Lexington Avenue
White Plains, NY 10601
27
<PAGE>
Jeffrey B. Pinkerton (5) 186.766 (6) 1.49%
41 Indian Brook Road
Ashland, MA 01721
TIS Acquisition and 1,410,000 11.24%
Management Group, Inc.
200 South Sixth Street
Suite 450
Minneapolis, MN
Primerica Life Insurance 666,666 5.31%
Company
3120 Breckenridge Blvd.
Duluth, GA 30199
Mark Cahill 770,000 (7) 6.14%
666 Greenwich Street
New York, NY 10014
All directors and 572,811 (2), (3) 4.5%
executive officers as and (5)
a group (3 persons)
- ---------------
(1) The percentages computed in the table are based on 12,547,001 shares of
the Common Shares being outstanding on August 1, 1996 and effect being
given, where appropriate, pursuant to Rule 13d-3(d)(1)(i) under the
Exchange Act, to any option or warrant then exercisable or exercisable
within 60 days thereafter.
(2) Mr. Medico was the Chief Executive Officer of the Company from
October 4, 1995 to August 9, 1996.
(3) Mr. Markowitz is the Chairman of the Board and a director of the
Company.
(4) The shares reported in the table reflect 63,267 shares owned by
Focus Capital Corp., 108,402 shares issuable upon the exercise of two
February Warrants and 114,375 shares issuable upon the exercise of a
Placement Agent's Warrant, which Warrants are also
28
<PAGE>
held by Focus Capital Corp. and 16,666 and of record by Mr. Markowitz.
Mr. Markowitz is the President and a director of Focus Capital Corp.
and his wife is the sole shareholder. He disclaims beneficial ownership
of 286,044 of such shares.
(5) Mr. Pinkerton is President and a director of the Company.
(6) The shares reported in the table include 53,499 shares issuable upon
the exercise of two February Warrants, 50,000 shares issuable upon the
exercise of options granted pursuant to the 1994 Option Plan and 50,000
shares issuable upon the exercise of options granted pursuant to the
1987 Option Plan.
(7) Of such 770,000 shares, 36,667 are owned of record by Raymond James
as Custodian of the IRA Account of Mark Cahill.
The Company is not aware of any arrangements, the operation of which
may at a subsequent date result in a change in control of the Company.
Item 12. Certain Relationships and Related Transactions
None.
Item 13. Exhibits, Lists, and Reports on Form 8-K
(a) Exhibits
The following exhibits (1) which are designated with a footnote
reference are incorporated by reference to a prior registration statement
declared effective under the Securities Act or a periodic report filed pursuant
to Section 13 of the Exchange Act and (2) which are designated
29
<PAGE>
with an asterisk are filed with this Report. As to the Exhibits 10(k) and 10(k)
(1) designated with a double asterisk, confidential treatment has been granted
as to certain aspects of two of the exhibits to each of the Agreement and the
Addendum.
Number Exhibit
- ------ -------
3(a) Certificate of Incorporation of the Company. (1)
3(a)(1) Amendment to Certificate of Incorporation of the Company
as filed in the State of New York on August 18, 1983. (1)
3(a)(2) Amendment to Certificate of Incorporation of the Company
as filed in the State of New York on January 26, 1988.(2)
3(a)(3) Amendment to Certificate of Incorporation of the Company
as filed in the State of New York on December 23, 1993.
(11)
3(a)(4) Amendment to Certificate of Incorporation of the Company
as filed in the State of New York on April 28, 1994. (11)
3(b) By-Laws of the Company. (3)
4(a) Form of Warrant expiring February 15, 1998 issued by the
Company in the February and June 1994 private
placements. (4)
4(b) Form of Warrant expiring February 15, 1998 issued by the
Company to Raymond James & Associates, Inc., acting
through its division Awad & Associates, is the same
Warrant as Exhibit 4(a).
4(c) Form of Warrant expiring June 10, 1997 issued by the
Company in the June 1992 private placement. (5)
4(d) Warrant expiring June 10, 1997 issued by the Company to
Pennsylvania Merchant Group Ltd ("PMG"). (6)
4(e) Warrant expiring June 10, 1997 issued by the Company to
Gold & Wachtel. (6)
30
<PAGE>
4(f) Warrant expiring October 28, 1994 issued by the Company
to James A. Schacher. (7)
4(g) Warrant which expired August 6, 1993 issued by the
Company to James Horan. (7)
4(h) Warrant expiring April 30, 1998 issued by the Company to
Princeton Securities Corp. (11)
4(i)* Warrant expiring January 31, 1999 issued by the
Company to Wm Smith & Co.
10(a) The Company's Non-Qualified Stock Option Plan. (8)
10(a)(2) The Company's Stock Option Plan of 1994. (11)
10(b) Employment Agreement dated June 4, 1987 between the
Company and Mr. Joseph I. Kesselman. (7)
10(b)(1) Employment Agreement dated June 14, 1990 between the
Company and Mr. Kesselman. (9)
10(b)(2) Employment Agreement dated February 12, 1991 between
the Company and Mr. Kesselman. (8)
10(b)(3) Employment Agreement dated June 8, 1992 between the
Company and Mr. Kesselman. (2)
10(c) Employment Agreement dated September 28, 1987 between
the Company and Mr. James A. Schacher. (7)
10(c)(1) Employment Agreement dated February 12, 1991 between
the Company and Mr. Schacher. (8)
10(d) Form of Convertible Note due April 1, 1991 between the
Company and certain private investors. (8)
10(e) Placement Agent Agreement dated June 4, 1992 between
the Company and PMG. (2)
31
<PAGE>
10(f) Form of Purchase Agreement dated as of February 16,
1994 by and between the Company and the purchasers in
the February 1994 private placement. (4)
10(g) Agreement dated January 19, 1994 between the Company
and Awad & Associates. (4)
10(g)(1) Amendments dated February 16 and 18, 1994 substituting
Raymond James & Associates, Inc., acting through its
division Awad & Associates, in the agreement filed as
Exhibit 10(g). (4)
10(h) Lease dated April 30, 1983 between Lexington Ave. & 42nd
St. Corporation, as landlord, and the Company and
Dunwoodie Communications, Inc., as tenants. (2)
10(h)(1) Lease dated March 15, 1994 between R.K. Associates, Inc.,
as landlord, and the Company, as tenant. (11)
10(i) Form of standard maintenance agreement of the Company.
(8)
10(j) Form of standard customer license agreement of the
Company. (8)
10(k)** Value Added Dealer Agreement dated October 1991
between MCI Telecommunications Corporation and the
Company. (2)
10(k)(1)** Addendum to Agreement, effective as of January 1, 1992,
between the Company and MCI International, Inc. (2)
10(l) Letter dated July 23, 1992 from the Company to George M.
Cassidy. (10)
10(l)(1) Employment Agreement dated February 17, 1994 between
the Company and George M. Cassidy. (11)
10(m) Letter dated June 22, 1992 from the Company to
Joseph Crichton. (10)
10(n) Letter dated September 16, 1992 from the Company to
J. Robert Gary. (10)
32
<PAGE>
10(n)(1) Employment Agreement dated February 17, 1994 between
the Company and J. Robert Gary. (11)
10(o) Acceptance letter from Trainor Data Systems ("Trainor")
for the $200,000 fixed-price creation of Greentree
Software, Inc.'s CAP4 software. (3)
10(o)(1) Agreement to Complete Development on CAP4 between
Nicheware and Greentree Software, Inc. dated March 7,
1994. (11)
10(p) Delrina Corporation Pro Var Membership Agreement. (3)
10(q) Employment Agreement dated February 17, 1994 between
the Company and Jeffrey B. Pinkerton. (11)
10(r) Agreement dated September 23, 1993 between Focus
Capital Corp. and the Company. (11)
10(s)* Financial Consulting Agreement dated January 31, 1995
between Wm Smith & Co. and the Company
10(t)* Placement Agent Agreement dated April 26, 1995 between
the Company and Wm Smith Securities, Inc.
10(t)(1)* Amendment dated May 26, 1995 between Wm Smith
Securities, Inc., as Placement Agent and the Company.
10(t)(2)* Amendment dated July 6, 1995 between Wm Smith
Securities, Inc., as Placement Agent, and the Company.
10(u)* Proposed investment letter between TIS Acquisitions and
Management Group, Inc. and the Company executed
August 18, 1995.
10(v) Registration Rights Agreement dated as of December 25,
1995 among the Company and certain of its Shareholder.
(10)
33
<PAGE>
10(w) Registration Rights Agreement dated as of April 23, 199
among the Company and certain of its Shareholders. (10)
10(x) Form of Warrant issued to Wm. Smith Securities &
Gilmore & Co. (10)
10(y) Lease between the Company and Fruitville-Tuttle Ltd.
22 Subsidiaries of the Company. (2)
23.1 Consent of KPMG Peak Marwick LLP.
- ---------------
(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-18, File No. 2-86249-NY.
(2) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1992.
(3) Incorporated herein by reference to the Company's Annual Report on
Form 10-KSB for the fiscal year ended May 31, 1993.
(4) Incorporated herein by reference to the Company's Current Report on
Form 8-K filed on March 2, 1993.
(5) Incorporated herein by reference to the Company's Current Report on
Form 8-K filed on June 26, 1992.
(6) Incorporated herein by reference to the Company's Current Report on
Form 8-K filed on July 15, 1992.
(7) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1987.
(8) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1991.
(9) Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1990.
(10) Incorporated herein by reference to the Company's Registration
Statement on Form S-1, File No. 333-45475.
34
<PAGE>
(11) Incorporated herein by reference to the Company's Annual Report on
Form 10-KSB for the fiscal year ended May 31, 1994.
(b) Reports on Form 8-K
On May 28, 1996 the Company filed a report on Form 8-K
disclosing the closing of the sale of 871,523 shares of its
common stock to accredited investors.
On August 25, 1995 the Company filed a report on Form 8-K
disclosing that it had entered into a conditional, non-binding
letter of intent to effect a private offering to an accredited
investor of 3,125,000 shares of its common stock.
On November 10, 1995 the Company filed a report on Form 8-K
disclosing, inter alia, that it had on October 27, 1995 closed
an offering of 1,344, 216 shares of common stock to an
investor.
On January 2, 1996 the Company filed a report on Form 8-K
disclosing that on December 6, 1995 the Company had been
informed by NASDAQ that its securities would be delisted from
the NASDAQ small corp. market effective as of December 7,
1995.
35
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto to be duly authorized.
GREENTREE SOFTWARE, INC.
(Registrant)
Date: September 12th, 1996
/s/ Jeffrey B. Pinkerton
------------------------
Jeffrey B. Pinkerton
President, Chief Financial
Officer and Director
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on September 12, 1996
.
Signature Title
--------- -----
/s/ Jeffrey B. Pinkerton President, Chief Financial
- ----------------------- Officer (Chief Executive
Jeffrey B. Pinkerton Officer, Principal Accounting
Officer and Principal
Financial Officer) and
Director
/s/ Brad I. Markowitz
- ----------------------
Brad I. Markowitz
36
<PAGE>
GREENTREE SOFTWARE, INC.
Financial Statements
May 31, 1996 and 1995
With Independent Auditors' Report Thereon
<PAGE>
Independent Auditors' Report
__________________
The Board of Directors and Stockholders
Greentree Software, Inc.:
We have audited the accompanying balance sheets of Greentree
Software, Inc. as of May 31, 1996 and 1995 and the related
statements of operations, stockholders' equity, and cash
flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statement based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the 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 audits provide
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 Greentree Software, Inc. as of May 31, 1996 and
1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
As discussed in Notes 1 and 5 to the financial statements,
the Company has incurred substantial losses from operations,
has a working capital deficit, an accumulated deficit, and a
liquidity deficiency, and is currently party to two
lawsuits, one of which involves its rights to continue to
sell its primary product. These matters raise substantial
doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are
also described in Note 1 to the financial statements. The
financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ KPMG PEAT MARWICK LLP
St. Petersburg, Florida
September 11, 1996
F-1
<PAGE>
GREENTREE SOFTWARE, INC.
Balance Sheets
May 31, 1996 and 1995
Assets (note 1) 1996 1995
________________________________ __________ __________
Current assets:
Cash and cash equivalents $ 249,525 157,621
Certificates of deposit -- 775,000
Accounts receivable, net 112,749 71,454
Inventories 4,854 17,114
Prepaid expenses and
other current assets 17,153 8,280
__________ __________
Total current assets 384,281 1,029,469
__________ __________
Property and equipment, net 120,000 211,015
Other assets:
Customer list, net 45,341 60,004
Deferred software
development costs, net 768,516 513,382
Security deposits 5,111 32,055
Other 10,382 56,877
__________ __________
829,350 662,318
__________ __________
Total assets $1,333,631 1,902,802
========== ==========
Liabilities and Stockholders' Equity 1996 1995
____________________________________ ____________ ____________
Current liabilities:
Accounts payable $ 447,791 396,802
Notes payable -- 775,000
Accrued expenses 430,296 252,828
Deferred revenue 151,452 174,341
____________ ____________
Total current liabilities 1,029,539 1,598,971
____________ ____________
Commitments, contingencies
and related party transactions
Stockholders' equity:
Common stock, $0.04 par
value, authorized 15,000,000
shares, issued and outstanding
9,503,662 and 4,750,474 shares,
respectively 380,146 190,019
Additional paid-in capital 12,833,851 11,447,237
Accumulated deficit (12,820,873) (11,244,393)
____________ ____________
393,124 392,863
Less treasury stock
(28,684 shares), at cost (89,032) (89,032)
____________ ____________
Total stockholders' equity 304,092 303,831
____________ ____________
Total liabilities and
stockholders' equity $ 1,333,631 1,902,802
============ ============
See accompanying notes to financial statements.
F-2
<PAGE>
GREENTREE SOFTWARE, INC.
Statements of Operations
Years ended May 31, 1996 and 1995
1996 1995
___________ ___________
Net revenues:
Product $ 125,785 315,843
Services 179,347 243,139
___________ ___________
305,132 558,982
___________ ___________
Costs and expenses:
Cost of revenues 523,853 1,240,561
Selling expenses 562,272 839,599
General and administrative 797,175 860,163
___________ ___________
1,883,300 2,940,323
___________ ___________
Operating loss (1,578,168) (2,381,341)
Interest income, net of
interest expense 1,688 6,095
___________ ___________
Net loss $(1,576,480) (2,375,246)
=========== ===========
Net loss per common share:
Net loss per common share $ (.24) (.54)
=========== ===========
Weighted average number
of common shares
outstanding 6,649,000 4,352,000
=========== ===========
See accompanying notes to financial statements.
F-3
<PAGE>
GREENTREE SOFTWARE, INC.
Statements of Stockholders' Equity
Years ended May 31, 1996 and 1995
Additional
Common stock paid-in
Shares Amount capital
------ ------ -------
Balance,
May 31, 1994 4,120,809 $ 164,832 10,509,227
Net proceeds
from June
Private Placement 91,250 3,650 146,678
Net proceeds from
exercise of
February Warrants 377,794 15,112 729,834
Proceeds from
exercise of
stock options 160,621 6,425 61,948
Net loss -- -- --
--------- ------- ----------
Balance,
May 31, 1995 4,750,474 190,019 11,447,237
Net proceeds
from October
Private Placement 1,410,000 56,400 399,038
Net proceeds
from December
Private Placement 2,471,665 98,866 514,535
Net proceeds
from April
Private Placement 871,523 34,861 473,041
Net loss -- -- --
--------- ------- ----------
Balance,
May 31, 1996 9,503,662 $ 380,146 12,833,851
========= ======= ==========
Total
Treasury Accumulated stockholders'
stock deficit equity
----- ------- ------
Balance,
May 31, 1994 (36,771) (8,869,147) 1,768,141
Net proceeds
from June
Private Placement -- -- 150,328
Net proceeds from
exercise of
February Warrants -- -- 744,496
Proceeds from
exercise of
stock options (52,261) -- 16,112
Net loss -- (2,375,246) (2,375,246)
--------- ------- ----------
Balance,
May 31, 1995 (89,032) (11,244,393) 303,831
Net proceeds
from October
Private Placement -- -- 455,438
Net proceeds
from December
Private Placement -- -- 613,401
Net proceeds
from April
Private Placement -- -- 507,902
Net loss -- (1,576,480) (1,576,480)
--------- ------- ----------
Balance,
May 31, 1996 (89,032) (12,820,873) 304,092
========= ======= ==========
See accompanying notes to financial statements.
F-4
<PAGE>
GREENTREE SOFTWARE, INC.
Statements of Cash Flows
Years ended May 31, 1996 and 1995
1996 1995
___________ ___________
Cash flows from operating activities:
Net loss $(1,576,480) (2,375,246)
Adjustments to
reconcile net loss
to net cash used in
operating activities:
Depreciation and
amortization 152,492 81,566
Amortization/write-off
of deferred software costs 163,797 1,001,992
Increase in allowance
for uncollectible accounts
receivable 15,000 6,195
Deferred revenue (22,889) 73,159
Changes in operating
assets and liabilities:
Accounts receivable (56,295) (11,219)
Certificates of deposit 775,000 775,000
Inventories 12,260 9,576
Prepaid expenses and
other current assets (8,873) 27,169
Deferred software
development costs (418,931) (726,093)
Other assets 58,348 (12,008)
Accounts payable and
accrued expenses 228,457 183,551
___________ ___________
Net cash used in
operating activities (678,114) (966,358)
___________ ___________
Cash flows from investing
activities --
Additions to property
and equipment (31,723) (67,702)
___________ ___________
Net cash used in
investing activities (31,723) (67,702)
___________ ___________
Cash flows from
financing activities:
Net proceeds from
placements of common
stock 1,576,741 150,328
Net proceeds from
exercise of warrants -- 744,496
Proceeds from exercise
of stock options -- 16,112
Retirement of notes
payable (775,000) (775,000)
Other -- (12,490)
___________ ___________
Net cash provided by
financing activities 801,741 123,446
___________ ___________
Net increase (decrease)
in cash and cash
equivalents 91,904 (910,614)
Cash and cash equivalents,
beginning of year 157,621 1,068,235
___________ ___________
Cash and cash equivalents,
end of year $ 249,525 157,621
=========== ===========
Supplemental disclosures
of cash flow information --
Cash paid for --
Interest expense $ 744 41,251
=========== ===========
See accompanying notes to financial statements.
F-5
<PAGE>
GREENTREE SOFTWARE, INC.
Notes to Financial Statements
May 31, 1996 and 1995
(1) Basis of Presentation
The accompanying financial statements of Greentree Software,
Inc. (the Company) have been presented on the basis that the
Company is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in
the normal course of business. The Company reported a net
loss of $1,576,480 for the year ended May 31, 1996 and
$2,375,246 for the year ended May 31, 1995. Additionally,
at May 31, 1996 the Company has a working capital deficit of
$645,258 and an accumulated deficit of $12,820,873.
Information available at September 11, 1996 indicates that
losses are continuing. At September 11, 1996, the Company
had expended substantially all of its cash and cash
equivalent balances.
The Company's continued existence is dependent upon its
ability to raise capital and subsequently market its
Windows(R)-based purchasing application - GT Purchase PRO.
Management believes that it will be successful in raising
additional capital through the placement of Company equity
as discussed in Note 10. Historically, the Company has been
successful raising funds from outside sources through
private placement or other means. While the Company
believes that its most recent version of GT Purchase PRO has
demand in the marketplace, a successful equity placement
will be dependent upon each potential investor's evaluation
of the prospects for generating revenues from this product.
The Company, however, provides no assurances that
significant revenues will be generated.
As discussed in Note 5, the Company is currently party to
two lawsuits, one of which involves its rights to continue
to sell GT Purchase PRO. The ultimate outcome of such
litigation is currently uncertain.
All of the above matters raise substantial doubt about the
Company's ability to continue as a going concern. The
accompanying financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
The Company is considered a Small Business (SB) filer
pursuant to Securities and Exchange Commission (SEC)
regulations. As such, the accompanying financial statements
are not intended to, nor do they, include all disclosures
required by the SEC's Regulation SX.
(2) Summary of Significant Accounting Policies
(a) Accounting Estimates
Management is required to make estimates and assumptions
during the preparation of financial statements in conformity
with generally accepted accounting principles. These
estimates and assumptions affect the reported amounts of
assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial
statements. They also affect reported amounts of net income
(loss) during the period. Actual results could differ
materially from these estimates and assumptions.
(Continued)
F-6
<PAGE>
2
GREENTREE SOFTWARE, INC.
Notes to Financial Statements
(b) Revenue Recognition
The Company generally recognizes product revenue at the time
products are shipped provided that no significant Company
obligations remain outstanding and collection of the
resulting receivable is deemed probable by management.
Insignificant obligations remaining at the time of shipment
are accrued. In fiscal 1996, the Company did not obtain
signed license agreements on certain product shipments,
including all shipments of its most recent version of GT
Purchase PRO. For those shipments where a license agreement
does not exist and the probability of collection and the
existence of remaining obligations could not be determined,
the sale has not been recorded and revenue has not been
recognized in the accompanying financial statements.
Service revenues are comprised primarily of revenues derived
from maintenance agreements. Maintenance fees are recorded
as deferred revenue and recognized over the maintenance
period which is usually twelve months. Also included in
deferred revenue are deferred product revenues which, based
on terms, will be recognized as revenue when the various
terms are met.
(c) Accounts Receivable
Accounts receivable is presented net of an allowance for
uncollectible accounts of $26,700 and $11,700 at May 31,
1996 and 1995, respectively.
(d) Software Development Costs
The Company is engaged in research and development
activities in the area of computer software. In accordance
with generally accepted accounting principles, costs
incurred prior to determination of technological feasibility
are considered research and development and treated as
period costs and, accordingly, charged to operations. Once
technological feasibility has been established, development
costs, are capitalized and amortized over the estimated
economic lives of the respective products. The Company has
determined that an estimated product life of three years is
reasonable for amortization purposes. Amortization charged
to operations, along with write-offs of unrealizable costs,
amounted to approximately $164,000 and $1,002,000 during the
fiscal years ended May 31, 1996 and 1995, respectively.
(e) Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is charged to operations over
the estimated lives of the related assets, generally 5 to 7
years, using the straight-line method. Maintenance and
repairs are charged to expense as incurred. Improvements
and betterments that extend the useful life of the assets
are capitalized.
Depreciation, including the write-down discussed above, was
approximately $123,000 and $65,000 for the years ended May
31, 1996 and 1995, respectively.
(f) Certificates of Deposit / Notes Payable
The Notes Payable were fully secured by a $775,000
certificate of deposit which was used to retire the notes in
June 1995.
(Continued)
F-7
<PAGE>
3
GREENTREE SOFTWARE, INC.
Notes to Financial Statements
(g) Customer List
During the year ended May 31, 1994, the Company acquired the
customer list of one of its resellers for $80,000. This
reseller subsequently became employed as president of the
Company. These costs are being amortized using the
straight-line method over five years. Amortization expense
related to this intangible asset was approximately $15,000
for both the fiscal years ended May 31, 1996 and 1995.
(h) Inventories
Inventories are carried at the lower of cost or market with
cost determined under the first-in, first-out method.
Inventories are comprised of purchased software for resale
and product documentation.
(i) Cash and Cash Equivalents
The Company considers all highly liquid instruments with
original maturities of 90 days or less to be cash
equivalents for financial statement purposes. Included in
cash equivalents at May 31, 1996 was a certificate of
deposit totaling approximately $100,000. As discussed in
Note 1, as of September 11, 1996, the Company had expended
substantially all of its cash and cash equivalent balances.
(j) Income Taxes
The Company accounts for income taxes in accordance with the
provisions of the Financial Accounting Standards Board
Statement of Financial Accounting Standard No. 109 (SFAS
109), Accounting for Income Taxes. SFAS 109 requires that
deferred income taxes reflect the tax consequences on future
years of differences between the tax bases of assets and
liabilities and their financial reporting amounts.
The Company is in a loss position for income taxes and as
such, no income taxes have been paid during the years ended
May 31, 1996 and 1995.
(k) Loss Per Common Share
Net loss per common share is computed by dividing net loss
by the weighted average number of shares outstanding during
the year. For the years ended May 31, 1996 and 1995, common
stock options and warrants were anti-dilutive and were not
included in the weighted average number of common shares
used in determining per share amounts.
(Continued)
F-8
<PAGE>
4
GREENTREE SOFTWARE, INC.
Notes to Financial Statements
(3) Property and Equipment
At May 31, 1996, property and equipment balances consisted
of the following:
Net book value of furniture and equipment
to be used in operations $ 50,000
Net book value of furniture and equipment
subject to litigation (note 5) 65,000
Furniture and equipment held for sale, which
approximates net realizable value 5,000
________
$120,000
========
Furniture and equipment held for sale is located in a
warehouse in Sarasota, Florida.
Comparative balances as of May 31, 1995 are not considered
meaningful given various changes in the Company's
operations.
(4) Income Taxes
The Company has net operating loss carryforwards (NOLs) for
Federal income purposes of approximately $11,500,000 at May
31, 1996. Such NOLs are available to offset future taxable
income, if any. The NOLs expire at various times from 1998
through 2011. The Company's potential utilization of NOLs
is further subject to limitation under the provisions of
Internal Revenue Code Section 382.
Income tax expense was $0 for both the years ended May 31,
1996 and 1995. Such amounts differ from amounts computed by
applying the United States Federal income tax rate of 34% to
loss before income taxes as a result of the following:
1996 1995
---- ----
Expected federal tax at 34% $(536,003) (807,584)
Other, primarily state net
operating loss
benefit, net of federal
tax effect (143,009) (83,713)
Increase in valuation allowance 679,012 891,297
_________ _________
Total $ --
========= =========
(Continued)
F-9
<PAGE>
5
GREENTREE SOFTWARE, INC.
Notes to Financial Statements
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets are
presented below:
1996 1995
---- ----
Deferred tax assets:
Net operating loss
carryforwards $ 4,350,000 3,779,240
Other, net 115,000 6,748
___________ ___________
Total gross deferred
tax assets 4,465,000 3,785,988
Less valuation allowance (4,465,000) (3,785,988)
___________ ___________
Net deferred tax asset $ --
=========== ===========
The valuation allowance for deferred tax assets was
$3,785,988 and $2,894,691 at June 1, 1995 and 1994,
respectively. The net change in the total valuation
allowance for the fiscal years ended May 31, 1996 and 1995
was an increase of $679,012 and $891,297, respectively,
related primarily to the incurrance of additional net
operating losses.
(5) Commitments and Contingencies, Including Litigation
Employment agreements for certain key executives call for
minimum salary levels, stock option awards and incentive
bonuses which are payable if specific management and Company
goals are attained.
The Company has entered into a letter of intent, pending
board of directors' and stockholders' approval, to retain
the services of a consultant who, subject to satisfaction of
certain conditions will begin to serve as the chief
executive officer of the Company. Salient terms of the
agreements are as follows:
(a) The individual will receive a base compensation of
$200,000 per year;
(b) The individual will be entitled to deferred
compensation, in addition to his compensation, during the
first year of service. Such deferred compensation will
total $175,000.
(c) The individual is to receive options to purchase
400,000 shares of the Company's common stock at an exercise
price of $0.60 per share. Such options are to vest in equal
installments upon 120 days, 240 days and 365 days of
service, respectively. Additionally, the individual is to
receive options for the purchase of 300,000 additional
shares of the Company's common stock. Such options shall
have an exercise price of $0.60 per share and shall vest in
the event the Company is sold for a price equivalent to at
least $2.00 per share or the Company's common stock trades
at or above $2.00 per share.
All of the options discussed above shall expire in not
less than five years from the date of grant.
(Continued)
F-10
<PAGE>
6
GREENTREE SOFTWARE, INC.
Notes to Financial Statements
On February 12, 1996, the Company was sued by Parera
Information Services, Inc. (Parera) in the United States
District Court for the District of Massachusetts. Parera
and the Company had been parties to a software development
agreement. The complaint seeks unspecified monetary damages
for alleged breach of contract, copyright infringement,
misrepresentation and violation of the Massachusetts
Consumer Protection Act. Additionally, Parera seeks
injunctive relief prohibiting the Company from marketing its
GT Purchase PRO Version 5.0 software, declaring Parera as
the owner of the software and freezing the assets of the
Company.
The Company has asserted counterclaims against Parera
seeking monetary damages as well as the return of equipment
loaned to Parera (see Note 3) pursuant to the software
development agreement.
On April 12, 1996, the Court denied Parera's request for a
preliminary injunction. On the same date, the Court ordered
the parties to complete discovery within 60 days. Discovery
was concluded on or about June 13, 1996 and Parera renewed
its motion for a preliminary injunction. On July 30, the
Court held a hearing on the renewed motion for preliminary
injunction. The renewed motion was denied by the Court on
August 1, 1996. The matter is now scheduled for trial to
commence on November 4, 1996.
Should Parera be successful in obtaining judgment in its
favor, including any substantial monetary damages or a
temporary or permanent injunction with regard to the
Company's products, the Company could be forced to
discontinue operations and seek liquidation. In addition,
the Company has very limited financial resources with which
to respond to and defend the above action.
On August 22, 1996, the Company was sued by a former
employee in the United States District Court for the
Southern District of New York. The Company was served with
process on August 26, 1996. The complaint alleges that the
Company owes the employee back wages and further alleges
that the Company wrongfully rescinded stock options for
approximately 37,500 shares of the Company's stock. The
Company has not yet responded to the complaint and is
currently investigating the allegations. The response is
due on September 30, 1996.
In connection with the October 1995 private placement, the
accredited investor, T.I.S. Acquisition and Management
Group, Inc. (T.I.S. Acquisition), has made a claim for
certain legal and other expenses under the terms of a Stock
Purchase Agreement entered into by the Company and T.I.S.
Acquisition. T.I.S. Acquisition is claiming approximately
$138,000 in expenses in connection with acquiring 1,410,000
shares of the Company's common stock. The Company believes
that T.I.S. Acquisition breached the contract by not
providing a "best efforts fund raising" effort. In
addition, the Company believes a significant amount of the
expenses claimed are not properly chargeable to the Company.
Since the Company does not believe it is responsible for
these expenses, it has made no provision for them in the
accompanying financial statements.
(6) Operating Leases
During the year ended May 31, 1996, the Company relocated
its headquarters from the Boston, Massachusetts area to
Sarasota, Florida. In connection with such relocation
costs, lease termination costs of approximately $50,000 were
paid.
(Continued)
F-11
<PAGE>
7
GREENTREE SOFTWARE, INC.
Notes to Financial Statements
The Company has entered into a five-year lease for office
space (three suites) in Sarasota. Of the three suites for
which the Company is committed, one is currently sublet for
a six-month period, one is vacant and one is occupied by the
Company. Subsequent to May 31, 1996, the Company has been
formulating plans to return to the Boston area. The Company
is currently under negotiations to sublet both the vacant
suite and its currently occupied suite under a one-year
sublease agreement at a rate approximating that being paid
by the Company. The Company believes that the Sarasota
office facility will be sublet, and as such, no provision
has been made in the financial statements related to this
lease abandonment, other than (1) the portion of the rent
commitment related to currently vacated space through the
expected sublet execution date and (2) a reserve of
approximately $25,000 made in the fourth quarter of fiscal
1996 related to potential future cash outflows with respect
to the commitment. No lease has as yet been signed in the
Boston area.
Future minimum lease payments under this noncancelable
operating lease as of May 31, 1996 are as follows:
Year
ending Committed
May 31, Commitment sublease Net
- ------- ---------- -------- ---
1997 $ 62,500 (9,000) 53,500
1998 62,500 -- 62,500
1999 62,500 -- 62,500
2000 62,500 -- 62,500
2001 20,900 -- 20,900
_________ _________ _________
$ 270,900 (9,000) 261,900
========= ========= =========
Rent expense (excluding lease termination costs) amounted to
approximately $56,000 and $174,000 for the fiscal years
ended May 31, 1996 and 1995, respectively.
(7) Stockholders' Equity
Delisting of Common Shares
Under the National Association of Securities Dealers, Inc.'s
("NASD") maintenance criteria for continued listing of
common shares in the National Association of Securities
Dealers Automated Quotation System, a Company must, among
other criteria, have minimum capital and surplus of
$1,000,000, total assets of $2,000,000 and a per share bid
price of $1.00. During the year ended May 31, 1996, the
Company did not meet these requirements and was delisted in
December 1995.
(Continued)
F-12
<PAGE>
8
GREENTREE SOFTWARE, INC.
Notes to Financial Statements
Equity Placements
During the fiscal years ended May 31, 1996 and 1995, the
following successful equity placements occurred:
(a) Fiscal Year Ended May 31, 1996
1. During October and December 1995 (October Private
Placement), the Company sold an aggregate of 1,410,000
shares of its common stock at a price of $0.40 per share in
a private placement offering. Net proceeds realized by the
Company were $455,438.
2. During December 1995 and January 1996 (December Private
Placement), the Company sold an aggregate of 2,471,665
shares of its common stock at a price of $0.30 per share in
a private placement offering. Net proceeds realized by the
Company were $613,401.
3. During April and May 1996 (April Private Placement),
the Company sold an aggregate of 871,523 shares of its
common stock at a price of $0.70 per share in a private
placement offering. Net proceeds realized by the Company
were $507,902. As of May 31, 1996, the Company's stock
transfer agent had yet to formally issue such shares. Share
amounts have been included in outstanding totals as of May
31, 1996.
In connection with the various fiscal 1996 equity
placements, common stock warrants were issued to placement
agents. These warrants are included in the summary of
outstanding warrants discussed below in this Note 7.
(b) Fiscal Year Ended May 31, 1995
During June 1994 (June Private Placement), the Company sold
an aggregate of 91,250 shares of its common stock at a price
of $2.00 per share in a private placement offering. Net
proceeds realized by the Company were $150,328. In
connection with this offering, warrants to purchase common
stock were issued to the placement agent. These warrants
are included in the summary of outstanding warrants
discussed below in this Note 7.
Stock Options
The Company maintains two Non-Qualified Stock Option Plans,
the 1994 Stock Option Plan and the 1987 Stock Option Plan,
under which stock options can be granted to consultants, key
employees and directors or officers of the Company. The
options under each plan are generally exercisable over a
five-year period. The 1994 Stock Option Plan was adopted on
April 4, 1994 and approved by the shareholders at the
Company's annual meeting held on December 28, 1994. Under
the plan there are 1,000,000 shares reserved for future
issuance. Below is a schedule reflecting by year the number
of options granted and exercised and the price range and
exercise price of these options.
(Continued)
F-13
<PAGE>
9
GREENTREE SOFTWARE, INC.
Notes to Financial Statements
1994 Stock Option Plan
Year Number of
ended options Options Exercise
May 31, granted Price exercised price
- ------- ------- ----- --------- -----
1994 366,500 $2.80 -- --
1995 155,000 $2.80 -- --
-------
Total 521,500
=======
While not formally canceled by the Board of Directors,
options to purchase 494,000 shares of common stock relate to
employees who have terminated service with the Company.
Subsequent to May 31, 1996, the Company entered into
agreements with two former employees whereby previously
issued options to purchase 250,000 shares of common stock
(included in the 521,500 above) were canceled in exchange
for warrants to purchase 20,000 shares of common stock at an
exercise price of $0.84 per share.
The Company's 1987 Stock Option Plan was adopted on October
8, 1987 and approved by the shareholders on January 8, 1988.
Under the plan, there were 197,500 shares, increased to
375,000 at the shareholders' annual meeting on February 7,
1989, which are reserved for future issuance. At the Board
of Directors meeting held on February 12, 1991, by a
unanimous vote the directors agreed to extend for an
additional five years the expiration dates on all then
outstanding options. Below is a schedule reflecting by year
the number of options granted and exercised and the price
range and exercise price of these options.
1987 Stock Option Plan
Number
of options
granted
Year ended (net of Price Options Exercise
May 31, expirations) range exercised price
- ------- ------------ ----- --------- -----
1988 75,000 $0.04 - $2.00 -- --
1989 247,304 $0.60 - $3.88 -- --
1991 27,500 $1.92 - $3.76 -- --
1992 3,750 $2.36 - $7.50 -- --
1993 20,000 $2.75 - $7.36 67,681 $0.60
1994 1,250 $3.00 -- --
1995 -- -- 160,621 $0.04 - $0.60
1996 (37,500) $0.04 - $7.50 -- --
------- -------
Total 337,304 $0.04 - $7.50 228,302
======= =======
(Continued)
F-14
<PAGE>
10
GREENTREE SOFTWARE, INC.
Notes to Financial Statements
Included in the Company's 1996 April Private Placement
memorandum is a statement indicating that the Company had
agreed to issue the former president of the Company and the
current president of the Company stock options for 200,000
(exercisable at $0.36 per share) and 175,000 shares
(exercise price to be determined), respectively, of the
Company's common stock. Such memorandum goes on to indicate
that 100,000 and 50,000 shares, respectively, of the options
vest immediately with the balance in each case to vest in
equal annual increments annually for the next three years.
Additionally, the Company has indicated its intent to issue
options to purchase 100,000 shares (exercise price to be
determined) to the chairman of the company's board of
directors.
These three options have not formally been approved by the
board of directors as of September 11, 1996 as two of the
aforementioned individuals comprise the entirety of the
board of directors. Such individuals have indicated that
such matters will be submitted for formal approval at the
Company's annual stockholders' meeting.
Warrants to Purchase Common Stock
During the fiscal year ended May 31, 1995, warrants to
purchase common stock were exercised, resulting in the
purchase of 377,794 shares of common stock. Proceeds to the
Company were $744,496.
At May 31, 1996, the Company has a total of approximately
2,900,000 outstanding warrants for the purchase of the
Company's common stock. Exercise prices range from $0.36 to
$1.85 per share, with the price of certain warrants subject
to adjustment for anti-dilution provisions. Warrants expire
at various times from June 1997 through May 2001. Warrants
were issued to placement agents in various years from fiscal
1993 through fiscal 1996. Proceeds to the Company should
all warrants be exercised is approximately $3,800,000. At
May 31, 1996, warrants with potential proceeds of
approximately $3,500,000 are "out of the money".
As approved by the shareholders at the Company's annual
meeting on December 28, 1994, the Company's Certificate of
Incorporation was changed to increase the authorized shares
of Common Stock, $0.04 par value from 6,250,000 shares to
15,000,000 shares.
(8) Related Party Transactions
During the fiscal year ended May 31, 1996, compensation and
relocation costs were paid to certain officers of the
Company. Such individuals also own shares of the Company's
common stock.
Options to certain officers and directors are currently
pending shareholder approval. These options are discussed
in Note 7.
(9) Risk Concentrations
During each of the fiscal years ended May 31, 1996 and 1995,
one customer (different customer in each year) accounted for
approximately $37,000 (12%) and $68,000 (12%) of net
revenues, respectively.
(Continued)
F-15
<PAGE>
11
GREENTREE SOFTWARE, INC.
Notes to Financial Statements
(10) Fund Raising Activities
The Company has begun discussions with an unrelated third
party relative to the potential placement of equity
securities. While the parties have yet to enter into a
specific commitment, the Company believes that discussions
have been productive and the chances of completing the
placement are promising. Management believes that the
placement proceeds would enable the Company to continue
operations through at least the third quarter of the fiscal
year ending May 31, 1997.
(11) Recently Issued Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standard No.
123 (SFAS 123) Accounting for Stock Based Compensation
effective for transactions entered into during fiscal years
beginning after December 15, 1995. SFAS 123 provides
alternatives for the methods used by entities to record
compensation expense associated with its stock based
compensation plans. Additionally, SFAS 123 provides further
guidance on the disclosure requirements relating to stock
based compensation plans. Management believes that it will
most likely adopt the disclosure provisions of SFAS 123 and
as such, the adoption will not have a material impact on the
financial condition or results of operations of the Company.
F-16
Exhibit 10(y)
LEASE
This Lease, made and entered into this 25th day of September, 1995, by and
between FRUITVILLE-TUTTLE, LTD., a Florida limited partnership, (hereinafter
referred to as "Landlord"), and, GREENTREE SOFTWARE, COMPANY, a Delaware
corporation, (herein after referred to as "Tenant").
WITNESSETH:
That Landlord, in consideration of the rentals hereinafter reserved and
the covenants and conditions herein undertaken by Tenant, hereby leases,
lets, and demises to Tenant, and Tenant hereby leases and hires from Landlord
the real property described as Suite 180, Phase I, Pen West Park, consisting
of 3,833 square feet more or less at 2801 Fruitville Road, Sarasota, Florida
34237. The entire leased property including the land, building and other
improvements depicted on Exhibit "A" are hereinafter referred to collectively
as the "Premises." The address of the Premises is 2801 Fruitville Road,
Sarasota, Florida. The building on the Premises is hereinafter referred to as
the "Building."
1. TERM. The term of this Lease shall be for a period of five (5) years
commencing on the Commencement Date, as hereinafter defined, and terminating
on the last day of the sixty (60) full months following the Commencement
Date, unless sooner terminated in accordance with the provisions hereof.
2. COMMENCEMENT DATE. The Commencement Date of this Lease shall be October
1, 1995.
3. RENT AND SECURITY DEPOSIT. Tenant agrees to pay landlord at the
Landlord's address set forth above, or at such other place as Landlord may
designate in writing, base rent for the Premises in the amount of
$210,815.00, payable $42,163.00 for the first year of the lease term, payable
in increments of $3,513.58 per month, payable in advance on the first day of
each month. If the Commencement Date is other than the first day of the
month, the rent for the partial month within which the Commencement Date
occurs shall be prorated to the first of the following month at $115.52 per
day and shall be payable on the first day of the first full month following
the Commencement Date. Tenant shall also pay monthly all applicable sales,
use and excise taxes required to be paid by Landlord to any governmental
authority on such rental receipts.
4. LAST MONTH'S RENT. Tenant has deposited with Landlord the sum of
$3,513.58 to be held by Landlord throughout the term of this Lease and any
renewal or extension thereof. Upon Tenant's default under any term or
provision of this Lease, Landlord may apply the same to pay any portion of
any installment of rent or additional rent when due, or in liquidation of
Landlord's damage; and Landlord shall not thereby waive any right or remedy
available to Landlord under this Lease or by law with respect to such
default. In all other events and provided that Tenant is not in default
hereunder, said sum shall be credited toward the amount of the last month's
rent due under this Lease or any renewal or extension thereof. Tenant agrees
that Landlord may co-mingle said sum with other monies of Landlord and that
Landlord shall be entitled to retain all interest, if any, earned thereon.
5. TRANSFER OF LAST MONTH'S RENT. Landlord may deliver the funds deposited
hereunder by Tenant to the purchaser of Landlord's interest in the Premises
in the event that such interest be sold and thereupon Landlord shall be
discharged from any further liability with respect to such deposits, and this
provision shall also apply to any subsequent transferees.
6. ANNUAL RENT INCREASE. Commencing at the end of the first lease year of
this Lease and continuing at the end of each consecutive lease year
thereafter during the term of this Lease and
<PAGE>
any extensions or renewals thereof, the annual rent payment hereunder shall
be recalculated by multiplying the annual rent applicable to the expiring
lease year by a fraction, the numerator of which shall be the Consumer Price
Index for the eleventh month of said expiring lease year and the denominator
of which shall be the Consumer Price Index for the same month one year
earlier. The Consumer Price Index referred to herein shall be the "Consumer
Price Index for all Urban Consumers (CPI-U)" as published monthly by the
United States Department of Labor Bureau of Labor Statistics or such successor
United States Government index which is most similar to such index. Landlord
shall notify Tenant in writing during the twelfth month of each lease year of
the change in annual and monthly rental resulting from the CPI adjustment.
Tenant shall begin paying such revised amount with the first monthly rent
payment following receipt of notification of recalculation from Landlord. The
first Lease year to which the adjustment will be applicable shall commence on
the first day of the 12th full month following the Commencement Date. The
total increase under this CPI increase shall not exceed four percent (4%) per
year.
7. TAXES. Tenant hereby agrees to pay to the taxing authorities, via
Landlord within ten (10) days of receipt of bill from Landlord regarding
same, all real property and property taxes and assessments that may be levied
against the Premises and/or Building (and personal property located thereon
or therein) by any lawful authority during the term of this Lease and any
extension or renewal thereof. Taxes will be pro-rated on a square footage
basis, as per Paragraph 17(d). In the event that Landlord's mortgage so
requires, Tenant agrees to pay along with monthly rental one-twelfth (1/12) of
the estimated annual real estate taxes.
8. ALTERATIONS AND IMPROVEMENTS. Tenant after occupancy agrees to make no
alterations to the Premises (other than interior decorating) without Landlord's
prior written consent, which shall not be unreasonably withheld, and all such
alterations and improvements (including interior decorating) shall be at the
Tenant's sole cost and expense. All such alterations and improvements shall
remain the property of Landlord upon the termination of this Lease, or Landlord
at its sole option may require Tenant, at Tenant's expense, to promptly remove
any or all of such alterations or improvements and restore the Premises to the
same condition as existed on the Commencement Date hereof, ordinary wear and
tear excepted.
9. LIENS PROHIBITED. Tenant shall not permit any liens to attach to any
interest in the Premises for labor, services or materials furnished thereto
pursuant to a contract with Tenant. In the event such liens do attach, Tenant
agrees to pay and discharge the same forthwith. Without limitation of the
foregoing, Landlord may transfer such lien to a bond posted by Landlord
pursuant to the provisions of Chapter 713, Florida Statutes, and recover from
Tenant all costs of such bond. Landlord hereby notifies all persons and
entities that any liens claimed by any party as the result of improving the
Premises pursuant to a contract with Tenant, or with any persons other than
Landlord, shall extend to, and only to, the right, title and interest in and
to the Premises, if any, of the person contracting for such improvements.
This paragraph shall be construed so as to prohibit, in accordance with the
provisions of Chapter 713, Florida Statutes, the interest of Landlord in the
Premises being subject to any lien or any improvements made by Tenant or any
other person on the Premises.
10. UTILITIES. Tenant acknowledges that the Premises is metered for
electricity and that the Premises is served by heating, ventilating and air
conditioning (HVAC) equipment located on the Premises. Tenant, at Tenant's
sole cost and expense, shall be responsible at all times during the term of
this Lease and any extension or renewal hereof for furnishing the Premises
with and paying for all water, sewer, electricity, telephone service and all
2
<PAGE>
other utilities or services required, used or consumed by Tenant at the
Premises. Water and sewer services are paid via Tenant's contribution to CAM
expense costs.
11. REPAIRS AND MAINTENANCE. Landlord and Tenant herewith acknowledge that
the roof, parking lot and all exterior maintenance shall be performed as
written in this lease under the CAM provisions. Tenant shall obtain an air
conditioning service contract for air conditioning equipment and shall be
responsible for air conditioning and interior maintenance.
12. INSURANCE. Throughout the term of this Lease and any extension or
renewal thereof, Tenant shall maintain in force a policy or policies of
public liability insurance (including broad form general liability extension
endorsement) insuring Tenant against the claims of all persons for personal
injuries or property damage, or both, arising out of or incident to Tenant's
use or occupancy of the Premises. Landlord shall be named as additional
insured under said policies and Tenant shall deliver to Landlord certificates
evidencing such coverage in an amount of not less than $250,000.00 for
property damage loss from any one accident and $1,000,000.00 for personal
injuries from any one accident and $500,000.00 for injuries to any one
person.
13. INDEMNITY. Tenant shall defend, indemnify and hold Landlord harmless
from any and all losses, damages, claims, liability and expenses whatsoever,
including reasonable attorneys' fees through appellate proceedings, arising
from Tenant's use of the Premises, or from the conduct of Tenant's business,
or from any activity, work or things done, permitted or suffered by the
Tenant, his agents, employees, contractors or invitees, in or about the
Premises, or elsewhere, or from any negligence of Tenant, its agents,
contractors, employees or invitees. Landlord shall not be liable to Tenant,
or any employee, agent, contractor or invitee of Tenant, for any injury or
damage to person or property for any reason whatsoever.
14. CASUALTY. In the event that the Premises shall be destroyed or
substantially damaged by fire or other casualty to the extent that the same
shall not be tenantable by Tenant, Landlord, at Landlord's sole option,
either may elect to cancel this Lease as of the time of the damage to or
destruction of the Premises, whereupon Tenant shall be relieved from the
payment of any rent accruing thereafter, or Landlord may elect to restore the
Premises. Landlord shall notify Tenant of Landlord's election within thirty
(30) days following the damage or destruction. Rent shall abate during any
period or repair or reconstruction. Landlord's notice to Tenant shall state
the number of days necessary for repair or reconstruction. If reconstruction
or repair is estimated to take more than ninety (90) days, Tenant shall have
the option to cancel this Lease. If the Premises are partially damaged by
fire or other casualty so that the Premises remain partially tenantable,
Landlord shall immediately make necessary repairs and, during such repairs,
the rent shall partially abate equal to the proportion of the Premises which
are not tenantable.
15. USE. Tenant hereby covenants and agrees to use the Premises for a
general purpose office and Tenant shall not use the Premises for any other
use or purpose whatsoever without Landlord's prior written consent. Tenant
additionally covenants not to perform any act on the Premises prohibited by
law and not to fail to perform any act required by law in connection with the
use of the Premises including all building, housing, fire and health codes
and regulations, not to use or maintain the Premises in such a manner as to
constitute an actionable nuisance to Landlord or any third party and not to
commit or permit waste of the Premises. Upon termination of this Lease,
Tenant shall surrender the Premises in a broom clean condition and in as good
a condition as existed upon the completion of Tenant's Work, reasonable wear
and tear excepted.
3
<PAGE>
16. ENTRY. Tenant agrees to permit Landlord and Landlord's agents entry to
the Premises: (a) Upon reasonable advance notice during the term of this
Lease (or any extension or renewal hereof) for the purpose of inspecting the
Premises, preventing waste thereto, making such repairs or performing such
maintenance as Landlord may deem necessary, showing the Premises to
prospective purchasers or discharging any duty imposed upon Landlord by this
Lease or by law or (b) within six months prior to the termination of this
lease and any renewal thereof, upon reasonable notice, for the purpose of
showing the Premises to prospective tenants at all reasonable hours.
17. COMMON AREAS.
(a) As used herein:
(1) "Common Areas" shall mean all parking areas, sidewalks,
walkways, loading areas, canopies, ramps, drainage facilities, outside water
and sewer lines, landscaped areas, drainage areas, outside lighting fixtures
and electrical lines, trash collection facilities and other areas or
facilities available for the common use or benefit of tenants or customers of
the Building.
(2) Common area maintenance ("CAM") expenses shall mean all those
expenses (a) arising from or related to the operation of the Building by
Landlord, including, but not limited to maintenance and repair of the
exterior walls, roof, floor, ceiling and all other obligations of Landlord
under the terms hereof relating to the Building; (b) arising from or related
to the operation of the Common Area, including, but not limited to,
maintenance, repair, lighting, grounds maintenance, landscaping maintenance,
maintenance of lighting facilities, drainage facilities and all payroll costs
of expenses related to Common Areas and all utilities serving the Building
which are not separately metered; (c) associated with fees for required
licenses, off-site administrative charges such as printing and copying, and
management fees; (d) incurred for the payment of real property taxes and
assessments assessed against the Common Areas; (e) arising from insurance on
the Building and the Common Areas, including fire, casualty, liability and
extended coverage insurance, all of which shall be in such amounts as may be
determined appropriately by Landlord.
(b) Tenant shall have non-exclusive rights to use the Common Area.
(c) During the term of this Lease, Landlord shall, subject to events
beyond is reasonable control, maintain the Common Areas in good order and
repair. The Common Areas shall be subject to the exclusive control and
management of Landlord and Landlord shall have the right to establish,
modify, change and enforce from time to time rules and regulations with
respect to the Common Areas so long as such rules are not discriminatory
against Tenant. Tenant agrees to abide by and conform with such rules and
regulations. Landlord reserves the right at any time during the term of this
Lease to redesignate, alter, modify, expand, reduce and change the Common
Areas and to place displays or other improvements within the Common Areas on
either a temporary or permanent basis. Landlord shall not be responsible for
security of the Common Areas.
(d) CAM expenses shall be apportioned by the basis of the square
footage of Tenant's rented space 3,833 square feet in relation to the total
of the leasable space within the Building. Tenant's common area maintenance
charges for 1995 shall be $798.54 per month.
(e) Prior to March 1 of each year, Landlord shall furnish to Tenant an
estimated budget (the "Budget") for that
4
<PAGE>
calendar year of all CAM expenses, as set forth herein, said payment to be
made in twelve (12) equal, consecutive monthly installments with each monthly
installment of rent. In the event the Budget results in a CAM payment
different from the prior year, then credits to or payment from the Tenant for
prior payments made that same calendar year will be applicable toward or paid
with the monthly rent next due following receipt of the new Budget.
(f) Prior to March 1 of each year, Landlord shall furnish to Tenant a
statement prepared by Landlord's accountant reflecting actual CAM expenses
for the previous calendar year (the "CAM statement"). If the CAM statement
reflects that Tenant paid more than its pro rata share of CAM expenses in the
previous year, Tenant shall be entitled to a credit against the rental
payment next due (and such additional monthly rental payments thereafter as
to allow a complete offset of said credit). If the CAM statement reflects
that Tenant paid less than its proportionate share of CAM expenses in the
prior year, Tenant shall pay such additional amount owing along with the
rental payment next due. In the event the lease term has concluded, then the
party owing money hereunder shall make payment within 10 days of delivery of
the CAM statement.
18. SUBORDINATION. Tenant agrees that this Lease is and at all times shall
be subject and subordinate to the lien of any mortgage now or hereafter
encumbering the Premises or any portion thereof and Tenant agrees from time
to time to execute, acknowledge and deliver free of charge any instrument of
subordination required or requested by any such mortgagee, and a signed
writing acknowledging the status of this Lease in exchange for a
nondisturbance agreement from said mortgagee. Upon transfer of any or all of
Landlord's interest in this Lease or the Premises, or both, regardless of
whether such transfer is characterized as voluntary or by operation of law,
conditional or unconditional, absolute or as security for performance of an
obligation, Tenant agrees to promptly execute, acknowledge and deliver to
such transferee such estoppels, attornment agreements and similar items as
such transferee may reasonably require. Upon the absolute transfer of the
premises to any party assuming Landlord's obligations hereunder, the person
or entity executing this Lease as Landlord shall thereupon be relieved of any
and all further obligations to Tenant hereunder so long as the transferee
assumes all of Landlord's obligations hereunder.
19. ASSIGNMENT AND SUBLEASING. Tenant shall not assign this Lease, or any
right or privilege granted hereunder, or sublet all or any portion of the
Premises, without Landlord's prior written consent, which consent shall not
be unreasonably withheld. No such assignment or subletting shall release
Tenant from liability hereunder unless Landlord executes such release.
20. CONDEMNATION. If any portion of the Premises is condemned for any
public use or purpose by any legally constituted authority with the result
that the same are no longer reasonably suitable for Tenant's continued use
thereof for the purposes set forth in Paragraph 17 hereof, then Tenant shall
have the option of cancelling this Lease, and rent shall be accounted for
between Landlord and Tenant as of the date of taking or the date that Tenant
is required to vacate the Premises, whichever date last occurs. In the event
of such cancellation, Landlord shall be entitled to all compensation to be
paid by the condemning authority, except that Tenant may pursue any claim
Tenant may have for business interruption or moving expenses.
21. HOLDING OVER. Should Tenant hold over possession of the Premises or
any portion thereof after the expiration or termination of this Lease without
Landlord's permission, such continued possession shall not be construed as a
renewal of this Lease, but, upon acceptance of rent by Landlord after the
termination hereof, shall be construed as a tenancy at will from month to
month, subject to all of Tenant's obligations and covenants as described
5
<PAGE>
in this Lease; provided, however, that Landlord shall not be obligated to
accept such rent or allow Tenant to remain in possession of the Premises
following expiration or termination of this Lease.
22. DEFAULT. Tenant shall be deemed in default of its obligations under
this Lease upon the occurrence of the following:
(a) Tenant's default in payment of any rent, additional rent or other
sums due hereunder when Landlord has not received such rent or other sums
within fifteen (15) days following a due date;
(b) Tenant's continued default in performance of any other covenant,
promise or obligation of this Lease for any period of more than thirty (30)
days after delivery of written notice of such default to Tenant unless Tenant
has undertaken in good faith to cure such default to Tenant unless Tenant has
undertaken in good faith to cure such default but same cannot reasonably be
accomplished within said thirty (30) day period;
(c) The involuntary bankruptcy of, or appointment of a receiver or
trustee for Tenant is same is not discontinued within thirty days;
(d) Tenant's voluntary petitioning for relief under, or otherwise
seeking the benefit of, any bankruptcy, reorganization or insolvency law;
(e) The sale of Tenant's interest under this Lease by execution or
other legal process or Tenant's attempted assignment or subleasing without
Landlord's permission;
(f) Tenant's abandonment or vacation of the Premises during the term
of this Lease or any extension or renewal thereof (Tenant's non-occupation of
the Premises for a period of thirty (30) days shall be conclusively deemed an
abandonment);
(g) The seizure, sequestration or impounding by virtue or under
authority of any legal proceeding of any of the personal property or fixtures
of Tenant used in or incident to the operation of the Premises.
23. LANDLORD'S REMEDIES. Upon Tenant's default hereunder, Landlord may
exercise any one or all of the following options:
(a) Terminate Tenant's right to possession under this Lease and reenter
and take possession of the Premises and relet or attempt to relet the
Premises on behalf of Tenant, at such rent and under such terms and
conditions as Landlord may, in the exercise of Landlord's sole discretion,
deem best under the circumstances for the purpose of reducing Tenant's
liability; and Landlord shall not be deemed to have thereby accepted a
surrender of the Premises, and Tenant shall remain liable for all rent,
additional rent due under this Lease and for all damages suffered by Landlord
because of Tenant's breach of any of the covenants of this Lease. At any time
during such repossession or reletting, Landlord may, by delivering written
notice to Tenant, elect to exercise its option under the following
subparagraph to accept a surrender of the Premises, terminate and cancel this
Lease, and retake possession and occupancy of the Premises. Nothing in this
subparagraph shall be construed as imposing any enforceable duty upon
Landlord to relet the Premises or otherwise mitigate or minimize Landlord's
damages by virtue of Tenant's default.
(b) Declare this Lease to be terminated by written notice, and reenter
upon and take possession of the Premises, whereupon the term hereby granted
and all right, title and interest of Tenant in the Premises shall terminate.
Such termination shall be without prejudice to Landlord's right to collect
from Tenant any
6
<PAGE>
rent or additional rent that has accrued prior to such termination, together
with all damages suffered by Landlord because of Tenant's breach of any
covenant contained in this Lease.
(c) Declare the entire remaining unpaid rent for the term of this
Lease to be immediately due and payable, and, at Landlord's option, take
immediate action to recover and collect the same by any available procedure.
24. NON-WAIVER OF SUBSEQUENT DEFAULTS. Any failure of Landlord to enforce
any provision of this Lease, or to demand strict compliance therewith, upon
any default by Tenant shall not be construed as modifying the terms of this
Lease or as a waiver of Landlord's right to terminate this Lease as herein
provided or otherwise to enforce the provisions hereof upon any subsequent
default by Tenant, unless such modifications or waiver is in writing signed
by the Landlord.
25. COST OF ENFORCEMENT. In the event that Landlord or Tenant shall hire
an attorney to enforce any provision of this Lease or bring action to recover
any sum due hereunder or bring an action for any breach hereunder, the
prevailing party shall be entitled to recover all costs and expenses
incurred, including reasonable attorneys' fees prior to trial, at trial and
on appeal.
26. NOTICES. Any notice or demand required under this Lease or by law
shall be in writing and shall be deemed to have been delivered when mailed by
first class mail addressed to Landlord at 1401 Manatee Avenue West, Suite
1110, Bradenton, Florida 34205 and to Tenant at 2801 Fruitville Road, Suite
180, Sarasota, Florida 34237. Such addresses may be changed by written notice
as provided in this paragraph.
27. INTEGRATION AND MODIFICATION. This Lease and any exhibits constitute
a complete and total integration of the agreement of the parties, and all
antecedent agreements, promises, representations and affirmations, whether
written or oral, are merged herein and superseded hereby. No oral promises,
representations or affirmations made contemporaneously with the execution of
this Lease shall operate to modify, enlarge or contradict its express terms.
This Lease may be modified by the subsequent agreement of the parties, but no
such modification shall be operative unless contained in a writing signed by
the party to be charged thereunder.
28. INTERPRETATION. The covenants herein shall bind, and the benefits
hereof shall inure to, the respective heirs, personal representatives,
successors, and permitted assigns of the parties hereto, jointly and
severally. Unless the context requires otherwise, the singular shall be
construed to include the plural and vice versa. The paragraph headings used
herein are for convenient reference only and are not to be used in
interpreting or construing the terms of this Lease. This Lease is made and
executed in Sarasota, Florida, and it shall be construed in the State of
Florida pursuant to its laws.
29. NO JOINT VENTURE. Landlord shall in no event be construed to be a
partner or joint venturer of Tenant or any permitted assignee or sublessee,
and Landlord shall not be responsible for any of Tenant's debts or
liabilities of any permitted assignee or sublessee.
30. TIME. Time is of the essence of this Lease and this applies to all the
terms, covenants and conditions contained herein.
31. RADON NOTIFICATION. Radon is a naturally occurring radioactive gas
that, when it has accumulated in a building in sufficient quantities, may
present health risks to persons who are exposed to it over time. Levels of
radon that exceed federal and
7
<PAGE>
state guidelines have been found in buildings in Florida. Additional
information regarding radon and radon testing may be obtained from your
county public health unit. This Paragraph is provided pursuant to Florida
Statutes Section 404.056 (8).
IN WITNESS WHEREOF, the parties hereto have stamped their hands and seal
the day and year first above written.
"TENANT"
SIGNATURES WITNESSED BY: GREENTREE SOFTWARE, COMPANY
By: /s/ John J. Medico
-----------------------------------
/s/ John J. Medico John Medico, Vice President
- ------------------------------
Witness
- ------------------------------
Witness
"LANDLORD"
FRUITVILLE TUTTLE, LTD.,
a Florida Limited Partnership
/s/ Wendy B. Davenport Its General Partner
- ---------------------- TuFru, Inc.
Witness
/s/ Sherry Borga By: /s/ John McKay
- ---------------------- -------------------------
Witness John McKay, President
8
EXHIBIT 23.1
Consent of Independent Auditors'
The Board of Directors and Stockholders
Greentree Software, Inc.:
We consent to the incorporation by reference in the
registration statement (No. 333-05245) on Form SB-3 of
Greentree Software, Inc. of our report dated September 11,
1996, relating to the balance sheets of Greentree Software,
Inc. as of May 31, 1996 and 1995, and the related statements
of operations, stockholders' equity, and cash flows for the
years then ended, which report appears in the May 31, 1996
annual report on Form 10-KSB of Greentree Software, Inc.
Our report dated September 11, 1996, contains an explanatory
paragraph that states that "the accompanying financial
statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Notes 1 and 5
to the financial statements, the Company has incurred
substantial losses from operations, has a working capital
deficit, an accumulated deficit, and a liquidity deficiency,
and is currently party to two lawsuits, one of which
involves its rights to continue to sell its primary product.
These matters raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans
and assessments in regard to these matters are also
described in Note 1 to the financial statements. The
financial statements do not include any adjustments that
might result from the outcome of this uncertainty."
/s/ KPMG PEAT MARWICK LLP
St. Petersburg, Florida
September 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-K FOR THE FISCAL YEAR ENDED MAY 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> May-31-1996
<PERIOD-START> May-1-1995
<PERIOD-END> May-31-1996
<EXCHANGE-RATE> 1
<CASH> 249,525
<SECURITIES> 0
<RECEIVABLES> 112,749
<ALLOWANCES> 0
<INVENTORY> 4,854
<CURRENT-ASSETS> 384,221
<PP&E> 120,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,333,631
<CURRENT-LIABILITIES> 1,029,539
<BONDS> 0
0
0
<COMMON> 380,146
<OTHER-SE> (76,054)
<TOTAL-LIABILITY-AND-EQUITY> 1,333,631
<SALES> 305,132
<TOTAL-REVENUES> 305,132
<CGS> 523,853
<TOTAL-COSTS> 1,883,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,688)
<INCOME-PRETAX> (1,576,480)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,576,480)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,576,480)
<EPS-PRIMARY> (024)
<EPS-DILUTED> (024)
</TABLE>
