SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
-----------------------
Date of Report
(Date of earliest
event reported): March 27, 2000
LOGISOFT CORP.
(Exact name of registrant as specified in its charter)
Delaware 0-23100 22-2649848
- --------------- ---------------- ------------------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
375 Woodcliff Drive, Fairport, NY 14450
----------------------------------------------------------------
(Address of principal executive offices, including zip code)
(716) 249-8600
------------------------------
(Registrant's telephone number)
Reconversion Technologies, Inc.
6605 Pittsford-Palmyra Road, Fairport, NY 14450
------------------------------
(former name or former address, if changed since last report)
EXPLANATORY NOTE
Pursuant to Items 1, 2, 7(a) and 7(b) of the Securities and Exchange
Commission's (the "Commission") General Instructions for Form 8-K, Logisoft
Corp., formerly known as Reconversion Technologies, Inc., a Delaware corporation
("LogiSoft" or the "Company") hereby amends Items 1, 2, 7(a) and 7(b) of its
current report on Form 8-K, filed with the Commission on March 27, 2000 to
disclose in Item 1 a change in the control of LogiSoft, to amend and restate in
its entirety Item 2, and to file financial statements and pro forma financial
information for LogiSoft reflecting the merger of LogiSoft and LogiSoft Computer
Products Corp., a New York corporation, formerly known as LogiSoft Corp. ("LCP")
and the share exchange between LogiSoft and eStorefronts.net Corp., a New York
corporation ("eStorefronts"), both of which were effective on March 10, 2000
(together, the "Transactions").
<PAGE>
LOGISOFT CORP.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
8-K/A
Item 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
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Item 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
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Item 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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Item 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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Item 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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Item 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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Item 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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Item 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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2
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
(a) Changes in Control of LogiSoft. Pursuant to the Transactions,
----------------------------------
control of LogiSoft was acquired by the principals of LCP and eStorefronts. In
anticipation of the Transactions, all but one member of LogiSoft's Board of
Directors-W. Leo Morris, Clark Bundren, John Sams and Robert Garner-resigned
from the Board, effective March 9, 2000. The sole remaining member of the
Board, Joel Holt, appointed Robert Lamy, Scott Fox, Alan Kleinmaier(1) and Gene
Divine to the Board of Directors of LogiSoft. Joel Holt resigned from the Board
effective March 10, 2000. In connection with the Transactions, certain of LCP
and eStorefront's shareholders assumed the key officer and executive management
positions in LogiSoft. Robert Lamy became President of LogiSoft, Scott Fox
became Vice President of Marketing, Robert Ballard became President of
LogiSoft's Computer Products division, and William Lamy became Director of
Technology. Robert Lamy acquired 4,191,750 shares of LogiSoft common stock
(13.8%), William Lamy received 2,826,750 shares of LogiSoft common stock (9.3%),
Michael Pruitt acquired 2,100,000 shares of LogiSoft common stock (6.9%) and
Robert Ballard acquired 907,407 shares of LogiSoft common stock (3.0%).
Further, Robert Lamy, William Lamy and Robert Ballard ("Purchasers")
executed a Voting Agreement with Michael Pruitt, Bruce Goldfarb, Darien Road,
Ltd., Michael Cimino, Corsica Marketing, Inc., Avenel Financial Group (together,
the "Shareholders") and LogiSoft on March 10, 2000, pursuant to which for a
period of up to two (2) years from the date of the Transactions (i) they agreed
that LogiSoft would have four (4) directors or such greater number as the
Purchasers and the Shareholders would unanimously agree; (ii) the Purchasers
agreed to vote in favor of the election as directors of LogiSoft, two persons
nominated by the Shareholders; and (iii) the Shareholders agreed to vote in
favor of the election as directors of LogiSoft, two persons nominated by the
Purchasers. In addition, the Purchasers and David Wilkerson, Scott Fox, David
White, Walter Robb, Carl Mosack and Van Ernst Jakobs Securities have executed a
Second Voting Agreement that allows Robert Lamy, William Lamy and Robert Ballard
to vote shares of those shareholders for purposes of the determination of the
number of directors and election of the individuals nominated, pursuant to the
Voting Agreement. As a result, 50.4% of the outstanding common stock of the
LogiSoft is controlled by the Purchasers and Shareholders under these voting
agreements.
(b) Beneficial and Management Share Ownership. The following table sets
---------------------------------------------
forth the beneficial owners of more than five percent (5%) of the outstanding
shares of common stock of LogiSoft on May 12, 2000 (all share amounts herein
have been re-stated for the exchange ratios effective in the Transactions).
<TABLE>
<CAPTION>
<S> <C> <C>
Shares
beneficially Percent of
Name and address owned Shares Outstanding
- ------------------------- ------------ -------------------
Robert Lamy
8 Beatrice Cove
Fairport, NY 14450 (1),
(2) 4,191,750 13.8%
- ------------------------- ------------ -------------------
William Lamy
8 Arber Ct
Fairport, NY 14450 (1) 2,826,750 9.3%
- ------------------------- ------------ -------------------
<FN>
(1) Alan Kleinmaier resigned from the LogiSoft Board on April 27, 2000 and the
seat on the Board remains vacant.
</TABLE>
3
<PAGE>
The persons and entities named in the above table have sole voting and
investment power with respect to all shares shown as beneficially owned by
them, except as noted below.
(1) Robert Lamy and William Lamy are brothers. Robert Lamy serves as
LogiSoft's President and William Lamy serves as its Director of
Technology.
(2) Mssrs. R. Lamy and W. Lamy are parties to the voting agreements
described in Item 1(a) above.
(c) The table below gives the number and the percent of LogiSoft common
stock beneficially owned as of May 12, 2000 by persons who (1) were members of
the Board of Directors and executive officers of LogiSoft during 1999; (2) are
currently members of the LogiSoft Board of Directors; or (3) are currently
executive officers of LogiSoft.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Shares Percent of
beneficially Shares
owned Outstanding
- --------------------------- ------------ ------------
Robert Lamy, Director and 4,191,750 13.8%
President (1), (2)
- --------------------------- ------------ ------------
Scott Fox, Director and VP 873,000 2.9%
of Marketing (2)
- --------------------------- ------------ ------------
Gene Devine, Director 50,000 *
- --------------------------- ------------ ------------
Alan Kleinmaier, Former -- *
Director
- --------------------------- ------------ ------------
John Van Heel, Chief 25,000 *
Financial Officer (3)
- --------------------------- ------------ ------------
W. Leo Morris, Former 277,500 *
Director
- --------------------------- ------------ ------------
Clark Bundren, Former 275,030 *
Director
- --------------------------- ------------ ------------
John Sams, Former Director 245,000 *
- --------------------------- ------------ ------------
Joel Holt, Former Director 839,176 2.8%
- --------------------------- ------------ ------------
</TABLE>
* Represents beneficial ownership of less than 1% of Common Stock.
(1) This individual is party to the Voting Agreement described in Item 1(a)
above.
(2) This individual is party to the Second Voting Agreement described in
Item 1(a) above.
(3) Represents 25,000 vested stock options granted to Mr. Van Heel. Excludes
275,000 shares that Mr. Van Heel may acquire pursuant to stock options
exercisable over four years in equal annual installments.
In connection with the Transactions described above, Mssrs. Morris,
Bundren, Garner and Sams resigned as directors of LogiSoft, effective March 9,
2000. Effective March 10, 2000, Messrs. R. Lamy, Fox, Divine and
Kleinmaier (1) were appointed as Directors and Mr. Holt resigned.
(1) Alan Kleinmaier resigned from the LogiSoft Board on April 27, 2000 and the
seat on the Board remains vacant.
4
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) Acquisition or Disposition of Assets
----------------------------------------
(1) Keystone Sale. The majority shareholders of LCP and eStorefronts
--------------
required as a pre-condition of the Transactions that LogiSoft sell its
wholly-owned subsidiary, Keystone Laboratories, Inc. ("KLI"). KLI is a forensic
urine drug screening and confirmatory testing laboratory located in Asheville,
North Carolina. Urine laboratory tests are used primarily by employers to
detect the use of illegal substances by employees and/or prospective employees.
On March 7, 2000, LogiSoft executed a Purchase and Sale Agreement to sell all of
its issued and outstanding shares of the capital stock of KLI. Joel Holt, a
former president of LogiSoft and a director of LogiSoft until the closing of the
Transactions, purchased KLI from LogiSoft for a purchase price of $720,000. At
the closing of the KLI sale on March 9, 2000, Mr. Holt issued a promissory note
(the "Note") in the principal amount of the purchase price, payable in twelve
(12) equal monthly installments of $60,000 each, commencing April 1, 2000. To
date the Company has received the two payments that have come due under the
Note. The purchase price for KLI was determined as a result of arms-length
negotiations between Mr. Holt and the LogiSoft Board of Directors.(2)
(2) New Capital. The majority shareholders of LCP and eStorefronts
------------
also required as part of the Transactions that LogiSoft have at least $5,000,000
in cash equity at the closing of the Transactions. To meet this pre-condition,
LogiSoft issued 5,500,000 shares of LogiSoft common stock at a purchase price of
$1.00 per share to nine (9) unrelated investors on March 9, 2000. Thus, at the
time of the closing of the Transactions, LogiSoft's assets consisted of
$5,500,000 in cash equity plus the Note, and LogiSoft maintained no operations.
(3) LCP Merger. On March 10, 2000, LogiSoft consummated a merger with
-----------
LCP. Pursuant to the Agreement and Plan of Reorganization, a wholly-owned New
York subsidiary of LogiSoft was merged with and into LCP in a reverse triangular
merger, the surviving corporation of the merger, becoming a wholly-owned
subsidiary of LogiSoft (the "LCP Merger"). Prior to the LCP Merger, Robert
Lamy, William Lamy, Robert Ballard and Michael Pruitt were the sole shareholders
of LCP. Upon consummation of the LCP Merger, all of the outstanding common stock
of LCP was converted into 7,500,000 shares of LogiSoft common stock. The
conversion ratio of LCP stock into LogiSoft stock was determined as a result of
arms-length negotiations between unrelated parties and was based upon a review
of financial statements, business plans and the recent valuations placed on
e-commerce companies.
(4) eStorefronts Exchange. On March 10, 2000, LogiSoft also
----------------------
consummated the acquisition of eStorefronts, an affiliate of LCP. Pursuant to
the Agreement and Plan of Reorganization, LogiSoft exchanged 4,500,000 shares of
LogiSoft common stock for all of the issued and outstanding shares of
eStorefronts' common stock (the "eStorefronts Exchange"). Prior to the
eStorefronts Exchange, the shareholders of eStorefronts were Robert Lamy,
William Lamy, Robert Ballard, Walter Robb, James Tusty, David White, Scott Fox,
David Wilkerson, Jeff Sorenson and Matthew Bailey. Upon consummation of the
eStorefronts Exchange, eStorefronts became a wholly-owned subsidiary of
LogiSoft. The conversion ratio of eStorefronts stock into LogiSoft stock was
determined as a result of arms-length negotiations between unrelated parties and
was based upon a review of financial statements, business plans and the recent
valuations placed on e-commerce companies.
Effective May 1, 2000, LogiSoft changed its name from Reconversion
Technologies, Inc. to LogiSoft Corp. to better reflect its business.
(2) The prior audited financial results of KLI, together with the evaluation of
expected future results, were the primary factors utilized in determined
the purchase price.
5
<PAGE>
(b) Business
--------
OVERVIEW.
LogiSoft is a publicly held (OTC BB:LGST),full-spectrum Internet business
development enterprise. LogiSoft offers comprehensive strategic Internet
services with its core competencies being sophisticated interactive web
development and domestic/international e-commerce solutions. Additionally,
LogiSoft develops and operates a variety of e-commerce/retail businesses through
its subsidiaries and through strategic partnerships that leverage its knowledge
of technology, e-commerce and Internet marketing.
LogiSoft operates its business through its two wholly-owned subsidiaries,
LCP, which encompasses the Computer Products division and the strategic Internet
services division ("LogiSoft Interactive" or "LGI") and eStorefronts, which
contains the Company's e-commerce activities.
Our global e-business solutions provide comprehensive, sophisticated
Internet capabilities to both traditional middle market and pure e-business
companies. LogiSoft Interactive provides up-front planning with our strategic
consulting services, custom front-end architecture and web site development as
well as comprehensive back end support upon web site completion. LGI's
competitive advantage is the unique ability to deliver these services on a
global scale which includes a proprietary e-commerce solution that allows for
transactions in multiple languages and currencies, settlement in multiple
countries and in multiple transaction methods - all automated and updated in
real time.
LCP was founded in 1989 as a software and hardware provider to corporate
customers and educational entities such as universities and school districts.
This business is operated as LogiSoft Computer Products ("Computer Products").
Computer Products has grown consistently for the past 10 years and is being
migrated to an Internet-based platform.
In 1996, LCP launched its Internet division, LGI, and found immediate
success, winning both local and national awards in 1997. In 1999, the LGI
completed its development of a proprietary e-commerce platform that enables it
to roll out turn-key domestic and international web sites that allow companies
to penetrate international markets on a cost effective basis.
eStorefronts partners with traditional and pure web-based businesses to
take those businesses to the Internet. It participates in the development and
implementation of the business plan in exchange for revenue-sharing and/or
equity-based arrangements.
LogiSoft's goal is to become a best in class provider of true vertically
integrated global web solutions for middle market companies (sub Fortune 500).
These global web solutions include:
- - Site localization
- - Automated customer services
- - Logistics support
- - Cultural assessment
- - Micromarketing by country
- - Legacy system integration
- - e-commerce in multiple currencies
- - Processing of all taxes, duties and tariffs
- - Custom statistical analysis
To March 2000, LCP largely self-financing, with profits from the
software/hardware division being used to invest in and create the infrastructure
for LGI's international platform and the launch of e-commerce activities.
Despite higher current sales volume in Computer Products ($3.7 million or 86% of
1999 revenues), the Company's recent investments and business plan focus
primarily on the strategic Internet services business (LGI) and e-commerce. As
described above in Items 1 and 2, in March 2000 LogiSoft received funding to
expand and implement its business plan, which is outlined herein. The equity
funding provided in connection with the Transactions will allow the Company to
aggressively pursue its Internet and e-commerce growth strategy through
expansion of our client base, headcount, increased investment in our engagement
methodology, product/solution development and brand awareness. However, the
impact of the Transactions on the Company's operations for the quarter ended
March 31, 2000 was not significant because they were consummated in March 2000.
6
<PAGE>
PRODUCTS AND SERVICES
LogiSoft reports its results in two business segments, strategic Internet
services, through LGI, and e-commerce/retail, through both Computer Products and
eStorefronts.
Strategic Internet Services
Interactive Web Development
- -----------------------------
Having developed web sites since 1995, LGI has a comprehensive list of core
services for interactive web development. Our abilities and services range from
front-end design to sophisticated back end database solutions. These
capabilities have evolved since formalizing our corporate web development
services in 1996 and continue to be developed and expanded. We have received
both local and national recognition for design, e-commerce and database
integration solutions. Some of our core interactive web services include:
- - programming
- - architecture
- - graphic design / creative
- - Copy writing
- - multimedia
- - e-commerce
- - strategic consulting
- - information management
- - database integration
- - database marketing
- - data mining
- - customer relationship management
- - quality assurance & testing
Marketing and Planning Consultation
- --------------------------------------
LGI provides a comprehensive set of strategic Internet services to clients
looking to enhance their existing business model by complementing it with web
based solutions. These solutions can range from strategic planning, to
globalization of a client brand via their web presence, to customer utilization,
to content development, to database or affiliate marketing. In each case, our
marketing and planning consultation team identifies and articulates where
opportunities for clients can be maximized through a robust web presence.
7
<PAGE>
Domestic and International E-commerce
- ----------------------------------------
LGI has the unique ability to develop and implement e-commerce solutions
that currently can reach up to 40 countries with tailored transactional
capabilities that support the specific needs of a target country. The LGI
solution reduces time to market and cost of sales for a client while expanding
revenues, profits and customer expertise. Consumers demand payment flexibility
and LGI's e-commerce system allows secure delivery of virtually all methods of
payment including:
- - All major and regional credit cards
- - Direct bank drafts
- - COD
- - Checks
- - P.O.'s
Each e-commerce storefront is custom built to the exact specifications of
our client by their LGI support team. LogiSoft Interactive has built integrated
e-commerce tools that allow customers to create products to their exact
specifications through an interactive web utility. The architecture of the
system's ordering process allows clients that build products for distribution by
the hundreds or thousands to handle orders for products that come in one at a
time. LGI completes the process with integrated logistics solutions with
alliance companies that deliver real time tracking, cost and time analysis.
Our international e-commerce engine allows for transactions in multiple
languages and currencies, settlement in multiple countries and multiple
transactions methods - all automated and updated in real time. What does this
mean for the LGI client? If a company wishes to reach Japan, LGI enables the
client to sell its products in Yen, utilize specific Japanese transactional
methods such as direct bank drafts and COD, include all relevant taxes and
tariffs so the consumer does not have to pay at the door and provide connection
to the process of shipping the product via multiple carriers. In addition, LGI
brings category leading research from each country to ensure that the client's
consumer is being accurately targeted for maximum capture and conversion. This
research is derived from online data mining through a custom built extranet
utility. This data, in conjunction with traditional qualitative and
quantitative research allows us to micro market to each country's distinctive
consumer needs.
For example, by providing the JCB credit card (its penetration in Japan
equals the top 3 US cards combined) for Japanese transactions as well as direct
bank drafts and COD which account for 32% of all Japanese transactions, LogiSoft
provides international commerce solutions that are tailored to that country's
specific needs. The results of this approach are often dramatic - while the
conversion rate of a typical international site is less than 1%, the LGI
solution delivers an average conversion rate of 2.8%. If the client wishes, LGI
can connect all countries' e-commerce capabilities via a proprietary database
that pegs transaction to a single currency and reduces all risk between
currencies by allowing pricing to "float" in real time.
Technical Architecture
- -----------------------
We use extensive engineering capabilities to deliver complex Internet based
business solutions by employing proven technologies such as XML, Java, Cold
Fusion, SQL, ASP, CGI, C, Perl and C++. Our technical group creates
functionality for the user without compromising the needs of the client.
Typical solutions include developing Internet-enabled business applications,
integrating web-based applications with our client's existing systems and
databases, and building sophisticated e-commerce platforms. We generally host
our client's international e-commerce platform in order to ensure effective
connectivity of our technical requirements with those of various financial
service companies that pipe into our global e-commerce solutions. LGI develops
and maintains these client solutions on a 24/7/365 basis to ensure consistent
performance and connectivity. We integrate all solutions with "2+2" back end
functionality which allows clients that don't have supportive IT on site to
update the site via an English scripted extranet that requires simple input of
text based information with no programming skills required.
8
<PAGE>
After Build Site Management
- ------------------------------
To successfully offer world class e-business architecture solutions, a
company needs to provide management tools to allow for maximum assessment of the
site performance, tracking trends and all other mission critical metrics.
LogiSoft Interactive has created a custom built extranet that assesses up to
1,800 datapoints for client websites and can be tailored to specific needs of
the client. Data indicates that it is vital for e-business companies to perform
regular trend analysis on their site to uncover opportunities that can be used
to improve their relationship with customers.
E-Commerce/Retail
Computer Products Sales
- -------------------------
Computer Products offers a total computer solution for the educational,
corporate and consumer marketplace. Computer Products has developed a core
group of product offerings to address the computer needs for both the corporate
and consumer markets as well as a special niche within the educational market.
Computer Products has over 35,000 products available and has been providing
technology products to academic institutions and educators in the Northeast
region for over a decade. Through strategic customer and vendor relationships
in the educational arena, Computer Products has become a regional leader in the
distribution of instructional software. Through years of accumulation, we offer
a comprehensive list of leading software titles at prices tailored for the
academic market through our special manufacturer authorizations from companies
like Microsoft, Adobe, Symantec, The Learning Company, Edmark and many others.
We are able to become partners with our clients by combining a strong product
mix with a true dedication to customer satisfaction and a keen knowledge of the
needs of educators.
Through the implementation of our on-line education and corporate
superstore we will provide a vehicle for our customer base to convert to an
Internet based platform. This will be a fully automated system that will allow
customers 24x7 purchasing, quoting, reporting and customer service. Customers
will be able to order any of our 35,000 products at their own custom prices
through purchase orders or credit cards. Ultimately, this on-line vehicle will
reduce our costs to acquire new business and serve existing accounts as well as
provide a platform for rapid growth outside of the Northeast region.
In both the corporate and educational markets, clients have the need for an
experienced, market-connected supplier of computer products. Computer Products
takes that need one step further by understanding and meeting clients' present
needs as well as designing plans to meet their future needs. Computer Products
delivers this valued service to our clients by leveraging major vendor
authorizations and our experienced sales professionals who have a depth in
understanding of the industry. Through our value added web site ClubEd,
www.clubeducation.com, Computer Products has created an on-line community whose
- ---------------------
purpose is to support and aid educators. This educational club is intended to be
an interactive electronic community and meeting place for technology users in
education to meet their peers and discuss their needs with the developers of
software and computer products. This automated, value-add web site will provide
a forum for educators to read about news flashes from the computer industry,
explore the latest product releases and discover the solutions other
educational institutions have put in place to meet the ever-changing demands of
educating our children. Computer Products directly interacts with its customer
base through trade shows, e-newsletters focused on education and software
expositions that put the software directly in the hands of the end-users for
evaluation. National educational technology shows such as FETC (Florida
Educational Technology Conference) and NECC (National Education Conference)
provide us a forum to meet and influence thousands of educators interested in
educational technology.
9
<PAGE>
E-commerce Partners
- --------------------
When a company approaches LogiSoft about creating a web-based solution,
LogiSoft is often afforded the option of taking an equity stake or profit share
in the Internet venture in exchange for providing its range of expertise on an
ongoing basis. LogiSoft partners with these companies through its wholly-owned
subsidiary, e-Storefronts and provides its partners with the complete range of
LogiSoft's expertise. LogiSoft may receive equity and/or revenue-sharing in
return. Typically, LogiSoft is paid for all services associated with the
strategy development and site build, in addition to any equity or
revenue-sharing relationship.
The Company's e-commerce business has not yet contributed significant
revenues and does not currently have any equity participations in partner
businesses. Our recent partner relationships have resulted in revenue-sharing
arrangements. Recent additions to LogiSoft's list of partner companies include
Dunlop Tire Company and Jolt Cola, which demonstrates the opportunity for
EStorefronts (these sites were both launched in the second quarter of fiscal
2000.) The Company is currently considering several opportunities to partner
with companies that want to capitalize on the opportunities afforded them by the
Internet. We are particularly selective in analyzing these opportunities to
focus our resources on those with viable business plans and value propositions.
The partner model is unique in that it offers the LogiSoft investors the
following advantages:
1. The chance to invest in private companies with great growth potential
before they are public
2. A diversified portfolio of companies / investments in Internet-related
commerce
3. The chance to invest in private companies without having to worry about
liquidity
While some partners pay a royalty or commission to eStorefronts based upon
the volume of on-line sales, others choose to utilize eStorefront's
consumer-based infrastructure to execute and deliver orders. Having a
start-to-finish solution has proven to be a competitive advantage in acquiring
accounts that are not consumer direct. eStorefronts has a fulfillment partner
for shipping and warehousing purposes, which minimizes inventory and logistics
management. eStorefront's results are reflected in our e-commerce/retail
business segment.
INDUSTRY BACKGROUND
Growth of the Internet
The Internet is transforming nearly every facet of our daily lives. In
some academic circles, its birth, subsequent growth and overall societal impact
have been compared to the invention of the Gutenberg printing press. While there
are many areas within the Internet economy that offer businesses tremendous
growth potential, the companies that are positioned as e-business architects
(such as LogiSoft) serving the entire Internet economy will have the best
opportunity for maximum advantage in this space. See the chart below for recent
growth numbers from the Internet.
<TABLE>
<CAPTION>
'98 - '99 '99 - '00
INDICATOR 1999 2000 CHANGE CHANGE
- -------------------------------------- -------------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
GLOBAL WEB USERS (1) 144 million 240 million 60% 67%
- -------------------------------------- -------------- -------------- ----------- ----------
U.S. WEB USERS (2) 69 million 102 million 26% 48%
- -------------------------------------- -------------- -------------- ----------- ----------
WORLDWIDE PC SHIPMENTS (3) 91.7 million 113.1 million 13% 23%
- -------------------------------------- -------------- -------------- ----------- ----------
NUMBER OF WEB PAGES 4 1.0 billion 2.2 billion 320% 120%
- -------------------------------------- -------------- -------------- ----------- ----------
WORLDWIDE RETAIL E-COMMERCE SITES 5 15.8 33.5 222% 112%
billion billion
- -------------------------------------- -------------- -------------- ----------- ----------
WORLDWIDE B-TO-B E-COMMERCE REVENUE 6 $ 44.5 $ 96.9 324% 117%
billion billion
- -------------------------------------- -------------- -------------- ----------- ----------
DEVICES ACCESSING THE WEB 7 147.4 237.1 59% 61%
million million
- -------------------------------------- -------------- -------------- ----------- ----------
SMALL BUSINESSES SELLING ONLINE 8 .9 million 1.6 million 125% 78%
- -------------------------------------- -------------- -------------- ----------- ----------
AVERAGE HOMEPAGE DOWNLOAD TIME 9 6.49 seconds 4.73 seconds -35% -27%
- -------------------------------------- -------------- -------------- ----------- ----------
U.S. K-12 CLASSROOMS WITH NET ACCESS 10 51% 95% 176% 30%
- -------------------------------------- -------------- -------------- ----------- ----------
RADIO STATIONS BROADCASTING ONLINE 11 2,261 3,537 81% 56%
- -------------------------------------- -------------- -------------- ----------- ----------
ITEMS ADDED FOR SALE DAILY ON EBAY 12 250,000 400,000 456% 60%
</TABLE>
Sources: 1-8 International Data Corp., 9 Keynote Systems,
10 U.S. Department of Education, 11 BRS Media 12eBay
Internationalization of the Internet
The Internet wave is spreading rapidly beyond its U.S. origins. In 2000,
North America will represent only 43 percent of the online population and that
will fall to 30 percent by 2005, according to projections by the Computer
Industry Almanac. Western and Eastern Europe meanwhile, will account for about a
third of all Internet users in 2005, up from about 28 percent this year. And
almost a quarter of the worldwide online population in 2005 will reside in the
Asia-Pacific region. China and Japan will be twin leaders of Internet usage in
Asia by 2003, when each will have about 45 million users.
Online commerce and advertising revenues will remain largely within the
U.S., at least in the short term. By 2003 the U.S. will still retain more than
half of all e-commerce revenue, with Europe representing about a third,
according to International Data Corp. estimates. Advertising is even more
U.S.-centric. The U.S. accounted for 85 percent of all online ad revenues last
year, according to Forrester Research, and will keep more than two-thirds
through 2004.
As Web usage goes global, English is ceasing to be the dominant language
online. About 43 percent of users in 1999 were non-English speakers, according
to Global Reach. Japanese, Spanish and German were the most prevalent
non-English languages.
Projection of Opportunities
LogiSoft believes that as the Internet becomes more of a global resource,
the opportunities for companies that are International solution providers will
be significant. The Internet is still in an early phase of adaptation with many
areas of the globe, such as South America, India and Asia, still significantly
under-penetrated. Therefore LogiSoft's strategic underpinning as an
internationally focused e-business solutions company that provides
comprehensive, sophisticated Internet capabilities to both traditional and pure
e-business companies creates an environment for significant revenue growth. By
providing strategic consulting services, custom architecture and comprehensive
back end support, LogiSoft will be positioned as a supplier of choice for those
companies that require a strong global presence.
10
<PAGE>
Over the next nine months, Computer Products plans to release and begin
promoting its on-line superstore. With the release of the superstore, the
further development of ClubEd, and direct sales efforts, we plan on reaching new
markets outside of the North Eastern U.S. region. Through selective
product/market acquisitions, national trade shows, direct database marketing and
an expanded sales force, LogiSoft has the tools in place to drive increased
revenue and profitability through Computer Products.
LOGISOFT STRATEGY
1. Enhance and expand e-business integration capabilities - focusing on
International solutions
2. Expand client base and maximize client relationships
3. Expand geographic coverage in U.S.
4. Pursue strategic acquisitions
5. Develop strong partnerships and alliances
6. Deliver profitable revenue growth
Enhance and Expand E-business Integration Capabilities - focusing on
International solutions
Over the next 12 months, LGI will grow the number of countries to which it
can deliver scalable e-business solutions. We will also launch enhancements for
existing countries, centering on forward marketing solutions that support our
desire to micro-market our client's needs in real time. This will allow clients
to manage a worldwide transaction-based business from a single home office -
with each country's website being a unique solution based upon that particular
country's expectations and feedback.
Expand Client Base and Maximize Client Relationships
LogiSoft has established strong business relationships with a diverse base
of clients. We are expanding the number and depth of our sales and business
development teams to penetrate target clients, while focusing on increasingly
larger and more complex strategic Internet services engagements.
We recognize that our success starts and ends with our clients. To that
end we are employing several tactics that will strengthen and enhance existing
and future relationships by:
- - Disproportionate expansion (relative to traditional companies) of the
client services function within LogiSoft to allow for complete 24/7
client management. This complements the pursuit of our global
strategy and is a competitive advantage in the existing marketplace.
- - Utilize the client services function to acquire broader engagements with
clients including Internet strategy consulting, creative design,
systems engineering, application development services and database
marketing management
Our engagement methodology allows us to deliver consistent, best in class
solutions that produce tangible results. LGI's engagement methodology, which we
call The Matrix, is comprised of four core phases: Reveal, Dream, Develop,
Deploy. The Matrix governs and directs our e-projects from initial requirements
to final testing and launch. The goal of The Matrix is to provide controls for
quality, consistency, clarity, organization, budget and timeline for LogiSoft
staff and management as well as client contacts. Ultimately, The Matrix allows
us to deliver best practices, optimize existing talents and define utilization
resulting in both superior products and profitability. The Matrix processes are
evaluated and updated periodically to reflect any improved technologies and
practices. The Matrix will allow us to maintain the quality, consistency and
efficiency of our strategic Internet services while we rapidly grow our staff.
11
<PAGE>
Expand Geographic Coverage in U.S.
LogiSoft recognizes that delivery of sophisticated e-business solutions
requires a permanent presence in locations of geographic proximity to the
client. Therefore LogiSoft is aggressively expanding our geographical presence
through a combination of internal growth complemented by strategic acquisition.
As of May 8, 2000, LogiSoft had five offices through the United States -
Rochester, Buffalo and satellite offices in Boston, Charlotte and Boca Raton -
with several others cities being targeted for future expansion as business
dictates.
Pursue Strategic Acquisitions
LogiSoft intends to continue to pursue strategic acquisitions that provide
additional skilled management, technical and creative personnel, client
relationships and technology skills that fit our International e-business
positioning.
To deliver comprehensive e-business solutions for a global marketplace,
LogiSoft must actively develop alliances that can be effectively used to improve
our solution management abilities. Our core competency is developing
custom-built commerce and database solutions that allow clients to effectively
manage and grow one to one marketing opportunities with customers. Certain
areas such as language translations, clearing transactions and
shipping/logistics are not core competencies of LogiSoft and require strong
alliance partners to ensure successful implementation of e-commerce strategies.
Develop Strong Partnerships and Alliances
We have entered into strategic alliances that deliver enhancements to our
abilities and complement the services that we offer our clients. An example of
a synergistic strategic alliance partner is Saatchi & Saatchi Rowland (SSR). We
have formed a strategic alliance with SSR to meet expanding client needs for
fully integrated marketing, technology and communications solutions. The joint
alliance will allow each company to provide broader support to clients turning
to the Internet for marketing, commerce and communications. SSR is a global
partner that delivers solutions worldwide. We have established strategic
relationships with other companies including Allaire, EMC, Chase Merchant
Services, Oracle, Verio, Match Logic, UPS, World Point and eTranslate.
Deliver Profitable Revenue Growth
LogiSoft's executive team is committed to profitable long-term growth.
Consequently, LogiSoft's business model is focused on clients that have
pre-existing brand presence, which is of immediate advantage in acquiring and
subsequently retaining customers. Our ability to grow profitably is based on
the automated process by which we can manage a complex, transaction-based,
international business. The majority of updates required for site support are
done by either the client after completion of the site or in the case of our
commerce model, are updated automatically with no required human intervention.
LogisSoft's profitability in 1999 was depressed due to costs to develop our
proprietary, international e-commerce platform and costs incurred in conjunction
with the Transactions. In the first quarter of 2000, margins and profitability
improved, but investments in infrastructure to support the implementation of our
business plan will make short-term profitability a challenge.
LogiSoft's Rochester headquarters will keep ongoing intellectual capital
costs at a minimum. Rochester is currently ranked third nationally for the
number of technical graduates it produces annually providing a healthy technical
recruitment environment.
12
<PAGE>
COMPETITION
While the market for e-business architects focusing on global solutions is
quite new, it is highly competitive, with companies introducing solutions that
may be similar in nature to those provided by LogiSoft. Our target market is
rapidly evolving and is subject to continuous technological change. Existing or
future competitors may develop or offer strategic Internet services that provide
a significant advantage over the services offered by LogiSoft. Although most
companies to date have not offered the range of international solutions offered
by LogiSoft, several have expressed their intent to do so. These competitors
could at any time choose to focus their resources on LogiSoft's target markets,
which could negatively affect our business, results of operations and overall
financial condition.
In pursuing acquisition opportunities we may compete with other companies
with similar growth strategies and greater financial resources than we have
available to us. Competition for these acquisitions could increase overall
costs and reduce the number of best fit targets available.
The barriers to entry in the strategic Internet services space are
relatively low and therefore LogiSoft must rely on the skill of its personnel
and the superior nature of our client services to maintain relationships that
deliver superior financial performance over time.
Although national competition in computer products resale to the corporate
sector is intense, resale competition in the educational sector is not as
prevalent. Competition in the educational segment of the market is dramatically
reduced from the main channel primarily due to the need for dealers to get
specialized, difficult-to-obtain, authorizations from the manufacturers to sell
their products at drastically reduced pricing to educational entities.
PEOPLE
Our Senior Executives have over 70 years of management experience among
them in a variety of disciplines relevant to our business. Our senior
executives have managed both emerging and mature businesses in a variety of
industries including, hardware, software, consumables, media, entertainment
financial services and traditional packaged goods.
The number of our employees has grown from less than 10 in 1998 to over 50
as of May 2000. None of our employees are currently represented by a labor
union. LogiSoft has experienced no work stoppages since its founding over 10
years ago and believes that its relationship with its employees is good.
As our company grows we believe that having LogiSoft's headquarters based
in Rochester, NY will be a source of ongoing competitive advantage. Rochester
is currently ranked third nationally for the number of technical graduates it
produces annually and recently was ranked as having the seventh most affordable
housing in the nation (USA Today Report on the top 100 cities in the US). Our
---------
decision to create satellite offices in other markets will allow the sales and
marketing group to develop strong on-location relationships that can be
leveraged into incremental revenue growth opportunities.
13
<PAGE>
CLIENTS
LogiSoft enjoys strong relationships with a variety of diverse companies.
In each case, LogiSoft tailors a solution that best fits the needs of the client
and their customers. Our client list includes:
- - Chase Pitkin
- - Dunlop Tire Corp.
- - Jolt Cola
- - LPGA
- - Sentry Group
- - Fran Tarkenton Small Business Network
- - Xerox Corp.
- - Pappyland Television
- - PSC Inc.
- - Rochester General Hospital (ViaHealth)
- - Rochester Business Journal
- - Seneca Foods
- - Mann's Jewelers
- - 1st Air
In 1999, one hardware and software customer, ViaHealth, accounted for 20%
of the Company's total revenues. During the quarter ended March 31, 2000, this
customer accounted for 15% of the Company's total revenues.
(2) Properties
----------
The LogiSoft headquarters is located in 8,500 square feet of leased office
space located at 375 Woodcliff Drive in Pittsford, New York (Rochester). Our
lease on this space expires in October 2005. The cost of this lease averages
$13,400 per month. We believe the terms are consistent with local market
conditions. We plan to lease an additional 2,000 square feet in the same
building in the second quarter of 2000. This location houses our headquarters,
LGI and eStorefronts activities.
Our Computer Products division and certain administrative personnel are
located in two adjacent office units in a 5,200 square foot building space
located at 6605 Pittsford-Palmyra Road in Pittsford, New York. This building
and land is owned by the Company and has a net book value at March 31, 2000 of
$230,000.
The space that we currently occupy is adequate for our projected growth
needs over the next 12 months. However, we may require additional space if we
make any strategic acquisitions or if our growth exceeds our expectations.
(3) Management
----------
CURRENT DIRECTORS
The following table sets forth information regarding the members of our
Board of Directors:
<TABLE>
<CAPTION>
First year
elected as Term
Name director Expires Age
- --------- ---------- ------- ---
<S> <C> <C> <C>
R. Lamy 2000 2001 33
- --------- ---------- ------- ---
S. Fox 2000 2001 35
- --------- ---------- ------- ---
G. Devine 2000 2001 39
- --------- ---------- ------- ---
</TABLE>
14
<PAGE>
Messrs. R. Lamy, Fox, Devine and Kleinmaier were appointed as Directors of
LogiSoft on March 10, 2000 in connection with the Transactions. Mr. Kleinmaier
resigned his position on April 27, 2000 and that Director position is currently
unfilled.
LogiSoft's By-laws provide for not less than two or more than seven
directors. The Board of Directors is acting to fill the vacant board seat with
an individual who will bring expertise in our targeted markets and in
International e-commerce.
Directors are elected by shareholder vote at each annual meeting of
shareholders and all Directors shall hold office until their respective
successors are elected.
EXECUTIVE OFFICERS
Executive officers are appointed by and serve at the discretion of the
Board of Directors. The Company has employment agreements with each of its
executive officers. These employment agreements provide for three-year terms
for each of the executive officers. There are no family relationships among any
of the Directors or executive officers.
<TABLE>
<CAPTION>
Officer
Name Office since Age
- ----------------- ----------------------- -------- ---
<S> <C> <C> <C>
Robert Lamy President 2000 33
- ----------------- ----------------------- -------- ---
Scott Fox Secretary,
Vice President, Marketing 2000 35
- ----------------- ----------------------- -------- ---
John Van Heel Chief Financial Officer 2000 34
- ----------------- ----------------------- -------- ---
</TABLE>
BIOGRAPHIES OF DIRECTORS AND EXECUTIVE OFFICERS
Robert Lamy is the President of LogiSoft and is the founder of LCP and
eStorefronts. Mr. Lamy founded LCP in 1989 as a software and hardware supplier
to corporate customers and educational entities and developed it into a
multi-faceted technology company. Mr. Lamy's early appreciation for the
opportunities offered by the Internet led him to establish LGI in 1996, which
focused on web site design, hosting and dial-up service. Mr. Lamy led the
consistent growth of LGI and the development of its proprietary e-commerce
solution that allows for transactions in multiple languages and currencies,
settlement in multiple currencies and in multiple transaction methods - all
automated and updated in real time. He also founded eStorefronts in 1998, to
capitalize on the explosive growth of e-commerce. Prior to his work with LCP
and eStorefronts, Mr. Lamy held the position of account manager with three
computer companies, each time being recognized as the top sales performer. Mr.
Lamy attended the State University of New York at Oswego. He received a degree
in Computer Science. Mr. Lamy was named President of the Company on March 10,
2000, following the Transactions.
Scott Fox is our Secretary and Vice President, Marketing. Immediately
prior to joining LogiSoft, Mr. Fox was the Strategic Business Unit Manager for
Sentrysafe.com. During his four year tenure, sentrysafe.com grew more than 60
times in size and through Sentry's International Web sites, reached over 30
countries with native language and currency. Sentrysafe.com was named the 1997
Web Site of the Year by The Rochester Business Journal (Rochester, New York).
------------------------------
Mr. Fox has been involved with the Internet since 1995, when he worked in
new channel development for Hallmark Cards. During his eight-year tenure at
Hallmark, Scott was involved in multiple assignments including general
management of virtually all non-card businesses. Mr. Fox has spoken at numerous
forums such as Internet World and the Internet Commerce Expo, and has published
articles on the topic of Internet marketing in several publications. Mr. Fox is
currently on the board of the e-Business Association, Inc. based in Rochester,
NY. Mr. Fox graduated from the Rochester Institute of Technology with a
Bachelor of Science in Package Engineering and received his MBA from the
University of Kansas. Mr. Fox was appointed as Vice President of Marketing
on March 11, 2000, following the Transactions.
15
<PAGE>
John Van Heel is our Chief Financial Officer. Prior to joining LogiSoft,
Mr. Van Heel spent 11 years with PricewaterhouseCoopers, LLP, most recently as
Director in the Transaction Services Group based in New York City and Milan,
Italy where he consulted with strategic and financial investors on mergers and
acquisitions. During his five plus years in this position, Mr. Van Heel advised
on more than 50 transactions with a value exceeding $20 billion. Mr. Van Heel
graduated from the University of Buffalo with a Bachelor of Science in Business
Administration. Mr. Van Heel was appointed Chief Financial Officer of the
Company on May 1, 2000.
Eugene Devine is a director at LogiSoft since March 10, 2000. Mr. Devine
is the Managing Director for Florida-based Avenel Financial Group, a private
investment bank group. He is principally responsible for running the business
development and marketing activities of Avenel, assisting clients in building
their online businesses. Prior to joining Avenel, Mr. Devine was Senior Vice
President of Marketing for the Florida-based mortgage.com. He joined
mortgage.com in October of 1998 and led the company's branding and online
marketing of their mortgage origination business unit as well as supported
numerous out-sourced customers who relied on mortgage.com to help build their
Internet loan origination business. Mr. Devine was also Senior Vice President
of Marketing for Eastern Mortgage Services (EMS). At EMS he became a recognized
pioneer and industry expert on Internet marketing, advertising and mortgage
origination. Under his leadership at EMS, he has been credited with the launch
of their Internet origination business in 1993 and management of one of the
first profitable on-line mortgage sites on the Internet. Mr. Devine is an
active speaker both in the mortgage banking and electronic commerce industries.
Recognized early on as a pioneer in the online mortgage origination field, he
speaks frequently at some of the industries most prestigious conferences
including the Mortgage Banking Association of America national & technology
conferences, and the Congressional Housing Round Table. Mr. Devine is also a
contributing writer for numerous trade association journals, including the
Mortgage Banking Association of America, National Home Equity Mortgage
Association, The Direct Marketing Association and DM News. He is a graduate of
Pennsylvania State University and resides in Pompano Beach, Florida.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table and narrative text disclose the compensation paid
during 1999 to the President and two other highly-paid individuals, including
those who were not serving as executive officers during that year. The
compensation of the President, the two (2) other executive officers and the two
(2) other individuals not serving as an executive officers effective for fiscal
2000 whose annual salary and bonuses are expected to exceed $100,000 during 2000
are noted.
<TABLE>
<CAPTION>
Summary Compensation Table
Name and Principal Other
Position Year Salary Bonus compensation
- -------------------- ----- -------- ------------ --------------
<S> <C> <C> <C> <C>
R. Lamy, President 2000 $125,000 (1) - -
1999 $ 45,114 $166,700 (4) $ 6,000 (2)
- -------------------- ----- -------- ------------ --------------
W. Lamy, Director 2000 $ 85,000 (1) - -
of Technology 1999 $ 41,775 $190,700 (4) - -
- -------------------- ----- -------- ------------ --------------
R. Ballard,
President, Computer 2000 $ 75,000 (1) - -
Products Division 1999 $ 39,740 $ 68,700 (4) - -
- -------------------- ----- -------- ------------ --------------
S. Fox, VP of
Marketing and 2000 $115,000(5) (1) - -
Secretary 1999 - - - - - -
- -------------------- ----- -------- ------------ --------------
John Van Heel, Chief 2000 $110,000(5) (1) $ 10,000(3)
Financial Officer 1999 - - - - - -
- -------------------- ----- -------- ------------ --------------
<FN>
(1) These executives are eligible to receive bonuses of 25% of their salary
for fiscal 2000, based upon the achievement of personal and
corporate objectives.
(2) In 1999, the Company paid for a $6,000 initiation fee for Mr. R. Lamy's
membership to Locust Hill Country Club.
(3) Mr. Van Heel was paid a $10,000 signing bonus in May 2000 and was also
reimbursed for relocation costs from his previous residence outside of
New York City.
(4) Includes amounts paid to this executive and shareholder of LCP in
conjunction with the Transactions.
(5) Represents annualized salary.
</TABLE>
16
<PAGE>
The officers and other individuals noted in the above table also receive a
standard package of medical, dental and life insurance, vacation, an individual
retirement account plan and other benefits. The Board of Directors deliberates
compensation matters to the extent they are not delegated to the President.
No stock-based compensation was paid to these or any other of the Company's
employees during 1999. In April 2000, the Company adopted its 2000 Stock Option
Plan that sets aside approximately 3,000,000 stock options for employees. Under
this plan, Mr. Van Heel was granted 25,000 options with an exercise price of
$0.01 that vested immediately upon grant. In addition, Mr. Van Heel was granted
275,000 options that vest over a four-year period. The exercise price for these
stock options is the closing price of LogiSoft's stock on the day of grant.
(4) Market for Common Equity and Related Stockholder Matters
---------------------------------------------------------------
MARKET INFORMATION
Our $0.0001 par value common stock ("Common Stock") is traded in the
over-the-counter market and is quoted on the NASD Over The Counter Bulletin
Board ("OTCBB") under the symbol "LGST." Prior to May 1, 2000, we were quoted
on the OTCBB under the symbol "RTTK."
The following tables set forth the quarterly high and low daily prices of
our Common Stock as reported by the OTCBB from 1998 through May 12, 2000. The
prices represent quotations by dealers without adjustments for retail mark-ups,
mark-downs or commissions and may not represent actual transactions. In the
second quarter of 1998, the Company's Common Stock was suspended from the OTCBB
and therefore there was no market for the Company's stock, pending completion of
the re-qualification procedure. The Company's stock commenced trading on June
7, 1999.
17
<PAGE>
<TABLE>
<CAPTION>
2000 High Low
- ----------------------------------- ------ --------
<S> <C> <C>
First quarter $6.875 $ 1.0625
- ----------------------------------- ------ --------
Second quarter through May 12, 2000 $5.000 $ 1.875
- ----------------------------------- ------ --------
1999 High Low
- ----------------------------------- ------ --------
First quarter N/A N/A
- ----------------------------------- ------ --------
Second quarter $0.750 $ 0.250
- ----------------------------------- ------ --------
Third quarter $0.750 $ 0.280
- ----------------------------------- ------ --------
Fourth quarter $1.125 $0.46875
- ----------------------------------- ------ --------
1998 High Low
- ----------------------------------- ------ --------
First quarter $ 0.25 $ 0.0625
- ----------------------------------- ------ --------
Second quarter $0.625 $ 0.0625
- ----------------------------------- ------ --------
Third quarter N/A N/A
- ----------------------------------- ------ --------
Fourth quarter N/A N/A
- ----------------------------------- ------ --------
</TABLE>
The OTCBB is a regulated quotation service that displays real-time quotes
and volume information in over-the-counter (OTC) equity securities. The OTCBB
does not impose listing standards or requirements, does not provide automatic
trade executions and does not maintain relationships with quoted issuers.
Stocks traded on the OTCBB may face a loss of market makers, lack of readily
available bid and ask prices for its stock, experience a greater spread between
the bids and ask price of its stock and a general loss of liquidity with its
stock. In addition, certain investors have policies against purchasing or
holding OTC securities. Both trading volume and the market value of our
securities have been, and will continue to be, materially affected by the
trading on the OTCBB.
DESCRIPTION OF REGISTRANT'S SECURITIES
In accordance with our Certificate of Incorporation, we are authorized to
issue up to 60,000,000 shares of Common Stock and 2,000,000 shares of Series A
non-voting Preferred Stock. As of May 12, 2000, there were 30,452,553 shares of
Common Stock outstanding. No other class or series of stock was issued and
outstanding on that date.
Common Stock
As of May 12, 2000, there were 30,452,553 shares of Common Stock
outstanding. In addition, as of May 12, 2000, there were outstanding warrants
to purchase 4,172,145 shares of Common Stock. Class C warrants representing
2,767,500 of the warrants outstanding, are exercisable at $1.75 per share and
can be exercised through December 7, 2000. The Class A and B warrants are each
exercisable into 1,404,645 shares of Common Stock at a strike price of $1.00,
exercisable through June 7, 2000. Based upon the number of shares outstanding
as of May 12, 2000, and assuming the exercise of all outstanding stock warrants,
the total number of outstanding shares of Common Stock would be 34,624,698.
Each share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors. As
noted in Item 1(a) above, certain shareholders have entered into voting
agreements that define the manner in which those shareholders must vote for the
purposes of determining the number of directors of the Company and the election
of directors. Holders of Common Stock are entitled to receive ratably the
dividends, if any, declared from time to time by the board of directors out of
legally available funds. Holders of Common Stock have no conversion, redemption
or preemptive rights to subscribe to any of our securities. In the event of
any liquidation, dissolution or winding-up of our affairs, holders of Common
Stock will be entitled to share ratably in our assets remaining after provision
for payment of liabilities to creditors. The rights, preferences and
privileges of holders of Common Stock may be subject to the rights of the
holders of any shares of preferred stock, which we may issue in the future.
18
<PAGE>
Holders
At May 12, 2000, there were approximately 377 holders of the Company's
Common Stock, an undetermined number of which represent more than one individual
participant in securities positions with the Company.
Dividends
The Company has never paid cash dividends on its Common Stock, and intends
to utilize current resources to expand its operations. Therefore, it is not
anticipated that cash dividends will be paid on the Company's Common Stock in
the foreseeable future.
Preferred Stock
The Company has authorized 2,000,000 shares of a Series A, par value $2.75,
non-voting preferred class of stock ("Preferred Stock"). The Preferred Stock
would earn a 6% cumulative dividend payable on the 15th of January, April, July
and October to stockholders of record on the last day of the months prior to the
dividend date. The Series A Preferred Stock shall receive a liquidation
preference over the Company's Common Stock as well as any other classes of
stock established by the Company.
As of May 12, 2000, there were no shares of Preferred Stock issued or
outstanding.
Stock Plans
In April 2000, the Company adopted its 2000 Stock Option Plan (the "Plan")
and the Company's Board of Directors approved the same. The Plan is subject to
approval by the Company's shareholders at the next shareholders' meeting. The
Plan was established to advance the interests of the Company and its
stockholders by attracting, retaining and motivating key personnel of the
Company. The Board of Directors, or a committee that it appoints, is authorized
to grant options to purchase the Common Stock of the Company, not to exceed an
aggregate maximum of 3,000,000 shares. The Board of Directors, or a committee
that it appoints, is also authorized to establish the exercise price and vesting
terms of individual grants under the Plan.
Options granted under the Plan may be either "incentive stock options"
intended to qualify as such under the Internal Revenue Code, or "non-qualified
stock options". The Company expects that most options granted pursuant to the
Plan will be subject to vesting over a four year period, such as 25% increments
on each grant date anniversary, during which the optionee must continue to be an
employee of the Company. The Board or the committee, if applicable, may choose
to impose different vesting requirements or none at all. Options outstanding
under the Plan may have a maximum term of up to ten (10) years.
The Plan also provides that all options that are not vested will become
vested upon a change in control, unless the options are either assumed or
substituted for equivalent options. In addition, unvested options become
vested, after a change in control, if an optionee is subject to involuntary
termination other than for cause during that optionee's remaining vesting
period.
Through May 12, 2000, options covering a total of approximately 500,000
shares of the Company's Common Stock had been granted to employees at strike
prices ranging from $1.85 to $2.51 per share, other than those granted to Mr.
Van Heel, whose options are described in the section entitled "Executive
Compensation".
19
<PAGE>
(5) Changes in Accountants
In May of 2000 we engaged Bonadio & Co., LLP as our independent public
accountants to prepare audited financials. Our prior management had most
recently used a public accounting firm located in Tulsa, OK to perform the
audit. Subsequent to the Transactions, management desired to have accounting
services provided by a firm that has a local presence in Rochester, N.Y., the
location of our headquarters and our primary operations. Therefore, we engaged
Bonadio & Co., LLP. On May 15, 2000 LogiSoft filed its notice of change of
accountants on Form 8-K.
(6) Management's Discussion and Analysis of Financial Condition and
THE INFORMATION IN THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES ACT OF 1934, AS AMENDED. SUCH STATEMENTS ARE BASED UPON CURRENT
EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. ANY STATEMENTS CONTAINED
HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE
FORWARD-LOOKING STATEMENTS. FOR EXAMPLE, THE WORDS "BELIEVES", "ANTICIPATES",
"PLANS", "EXPECTS", "INTENDS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. LOGISOFT'S ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DISCREPANCY
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "LIQUIDITY AND CAPITAL
RESOURCES" BELOW, AS WELL AS "RISK FACTORS" INCLUDED BELOW. ALL FORWARD-LOOKING
STATEMENTS IN THIS DOCUMENT ARE BASED ON INFORMATION AVAILABLE TO LOGISOFT AS OF
THE DATE HEREOF AND LOGISOFT ASSUMES NO OBLIGATION TO UPDATE ANY SUCH
FORWARD-LOOKING STATEMENTS.
Results of Operations
Results of operations - Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER DECEMBER DECEMBER DECEMBER
1998 1999 1998 1999
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES:
e-commerce/retail revenues 2,671,593 3,668,069 92.5% 85.7%
Strategic Internet services 216,776 614,098 7.5% 14.3%
----------- ---------- ----------- ---------
TOTAL REVENUE 2,888,369 4,282,167 100.0% 100.0%
COST OF REVENUES:
e-commerce/retail costs 2,292,412 3,195,703 79.4% 74.6%
Project personnel costs 169,119 332,967 5.9% 7.8%
----------- ---------- ----------- ---------
TOTAL COST OF REVENUES 2,461,531 3,528,670 85.2% 82.4%
GROSS PROFIT 426,838 753,497 14.8% 17.6%
OPERATING EXPENSES:
Sales and marketing 188,425 306,237 6.5% 7.2%
General and administrative 213,002 623,876 7.4% 14.6%
Stock based compensation - 150,000 0.0% 3.5%
Depreciation 18,811 22,657 0.7% 0.5%
Amortization 342 757 0.0% 0.0%
----------- ---------- ----------- ---------
Total operating costs 420,580 1,103,527 14.6% 25.8%
OPERATING INCOME 6,258 (350,030) 0.2% -8.2%
Interest expense (17,481) (34,030) -0.6% -0.8%
Other income / (expense) 5,901 35 0.2% 0.0%
----------- ---------- ----------- ---------
Income before taxes (5,322) (384,025) -0.2% -9.0%
Income taxes provision (benefit) 6,821 5,989 0.2% 0.1%
----------- ---------- ----------- ---------
Income before minority interest (12,143) (390,014) -0.4% -9.1%
Minority interest in (income) / loss 18,672 96,926 0.6% 2.3%
----------- ---------- ----------- ---------
NET INCOME 6,529 (293,088) 0.2% -6.8%
=========== ========== =========== =========
</TABLE>
20
<PAGE>
Overview
- --------
On March 10, 2000 and following the Transactions, LCP and eStorefronts, two
emerging Internet, e-commerce and technology solutions/service companies, became
wholly-owned subsidiaries of LogiSoft, a public shell company. At the time of
the Transactions, LCP shareholders owned 56% of eStorefronts common stock.
The LCP Merger has been accounted for as an issuance of stock by LCP for
the assets of LogiSoft. The share exchange between the shareholders of
eStorefronts and LogiSoft has been accounted for at historical cost for the 56%
of eStorefronts controlled by the LCP shareholders. Accordingly, the historical
combined financial statements of LCP and eStorefronts replace those of LogiSoft.
The acquisition of the 44% minority interest in eStorefronts has been recorded
at the fair value of the shares issued to the eStorefronts minority
shareholders, resulting in goodwill of $1,980,000, which is being amortized over
its estimated useful life of five years.
Effective May 1, 2000, LogiSoft, formerly Reconversion Technologies, Inc.,
changed its name to LogiSoft Corp. and its ticker symbol to 'LGST' to better
reflect the Company's business.
The Company is a full-spectrum Internet business development enterprise
that offers comprehensive strategic Internet services with its core competencies
being sophisticated interactive web development and domestic/international
e-commerce solutions. Additionally, LogiSoft develops and operates a variety of
e-commerce/retail businesses through subsidiaries and strategic partnerships
that leverage its knowledge of technology, e-commerce and Internet marketing.
Our global e-business solutions provide comprehensive, sophisticated
Internet capabilities to both traditional middle market and pure e-business
companies. LogiSoft Interactive provides up front planning with our strategic
consulting services, custom front-end architecture and web site development as
well as comprehensive back end support upon web site completion. LGI's
competitive advantage is the unique ability to deliver these services on a
global scale which includes a proprietary e-commerce solution that allows for
transactions in multiple languages and currencies, settlement in multiple
countries and in multiple transaction methods - all automated and updated in
real time.
LogiSoft operates its business through its two wholly-owned subsidiaries,
LCP, which encompasses the Computer Products division and LGI and eStorefronts,
which contains the Company's e-commerce activities.
LCP was founded in 1989 as a software and hardware provider to corporate
customers and educational entities such as universities and school districts.
This business is operated as LogiSoft Computer Products ("Computer Products").
Computer Products has grown consistently for the past 10 years and is being
migrated to an Internet-based platform.
In 1996, LCP launched its Internet division, LGI, and found immediate
success, winning both local and national awards in 1997. In 1999, LGI completed
its development of a proprietary e-commerce platform that enables it to roll out
turn-key domestic and international web sites that allow companies to penetrate
international markets on a cost effective basis.
21
<PAGE>
eStorefronts partners with traditional and pure web-based businesses to
take businesses to the Internet. It participates in the development and
implementation of the business plan in exchange for revenue-sharing and/or
equity-based arrangements.
LogiSoft's goal is to become a best in class provider of true vertically
integrated global web solutions for middle market companies (sub Fortune 500).
The equity funding raised by the Company in connection with the
Transactions will allow the Company to aggressively pursue its Internet and
e-commerce growth strategy through expansion of our client base and headcount
and increased investment in our engagement methodology, product/solution
development and brand awareness. The impact of the Transactions on the
Company's operations for the year ended December 31, 1999 or the quarter ended
March 31, 2000 was not significant due to the timing of their completion.
Basis and presentation of financial statements
- ---------------------------------------------------
The Company will maintain LCP's December 31 fiscal year end. LogiSoft's
fiscal year end was June 30.
The Company's financial statements for years ended December 31, 1999 and
1998 include the historical combined financial statements of LCP and
eStorefronts giving effect to the 44% minority interest in eStorefronts.
Accordingly, net income (loss) in the Company's combined accounts for the years
ended December 31, 1999 and 1998 includes 56% of the eStorefronts operations.
Presentation of information in the financial statements
Revenues for uncollateralized e-commerce/retail sales are recognized upon
passage of title of the related goods to the customer.
Strategic Internet services revenues are recognized on a percentage of
completion basis for fixed fee contracts based on the ratio of costs incurred to
total estimated costs for individual projects. Revenues are recognized as
services are performed for time and material contracts.
Costs of revenues for our e-commerce/retail business are comprised
primarily of the purchased cost of products sold.
Cost of revenues for strategic Internet services consist primarily of
project personnel costs such as salaries, employee benefits and incentive
compensation of billable employees and the cost of any third-party hardware or
software included in an Internet solution.
Sales and marketing expenses include product and service research,
advertising, brand name promotions and lead-generation activities,
shipping/logistics as well as salaries, employee benefits and incentive
compensation of personnel in these functions.
General and administrative expenses are comprised of the salaries, employee
benefits and incentive compensation of personnel responsible for administrative,
accounting, legal, human resources functions, the costs of the company's
facilities and other general and administrative expense.
22
<PAGE>
RESULTS OF OPERATIONS
Comparison of the Years Ended December 31, 1999 and December 31, 1998
REVENUES.
Revenues increased $1,393,798 or 48% to $4,282,167 for the year ended
December 31, 1999 from $2,888,369 in 1998. The increase was attributable to
substantial increases in e-commerce/retail sales and revenues from strategic
Internet services.
Sales of computer products to corporate and educational markets, increased
$996,476 or 37% to $3,668,069 for the year ended December 31, 1999 from
$2,671,593 for the year ended December 31, 1998. This increase was due to
greater penetration of key accounts, including increased purchases of client
licenses by a significant customer as a part of that customer's program to
achieve licensing compliance with certain software makers. During the year
ended December 31, 1999, sales to this customer accounted for approximately 20%
of total revenues for the period. The customer's licensing compliance program
also resulted in increased sales during the last half of 1999 and is expected be
completed in fiscal 2000.
Revenues from strategic Internet services increased $397,322 or 183% to $614,098
for the year ended December 31, 1999 from $216,776 for the year ended December
31, 1998. This revenue growth was due to a significant increase in our client
base and an increase in headcount. In the year ended December 31, 1999, the
number of active engagements for sophisticated web site development more than
doubled from the prior year period. For the year ended December 31, 1999,
strategic Internet services revenues represented 14% of total revenues, up from
8% in the year ended December 31, 1998.
There were no customers that accounted for more than 10% of total Company
revenues in the year ended December 31, 1998.
COST OF REVENUES. Cost of revenues increased $1,067,139 or 43% to $3,528,670 for
the year ended December 31, 1999 from $2,461,531 for the year ended December 31,
1998. The dollar increase was attributable to the higher revenues for both
e-commerce/retail and strategic Internet services. As a percentage of revenues,
overall cost of revenues decreased to 82% for the year ended December 31, 1999
from 85% in 1998. This percentage decrease related primarily to a decrease in
project personnel costs as a percentage of revenues for strategic Internet
services. Project personnel costs decreased from 78% of strategic Internet
revenues in 1998 to 54% in 1999.
During 1999, increases in billable employees and utilization were offset
somewhat by the investment made by LGI in developing the Company's proprietary
international e-commerce platform. This effort resulted in reduced average
billing rates realized. Excluding the development of the e-commerce platform,
project personnel costs would have represented approximately 50% or less of
strategic Internet revenues.
SALES AND MARKETING. Sales and marketing costs increased $117,812 or 63% to
$306,237 for the year ended December 31, 1999 from $188,425 for the year ended
December 31, 1998. The dollar increase was attributable to higher numbers of
sales and marketing personnel and increased marketing activities primarily to
support the growth of our strategic Internet services business. As a percentage
of revenues, sales and marketing expenses remained stable at about 7% of
revenues.
GENERAL AND ADMINISTRATIVE. General and administrative costs increased $410,874
or 193% to $623,876 for the year ended December 31, 1999 from $213,002 in the
year ended December 31, 1998. General and administrative expenses in 1999
include $334,000 of special executive compensation costs paid in anticipation of
the Transactions. Excluding these expenses, general and administrative costs
increased $76,874 or 36% from 1998. This increase was the result of higher
personnel costs resulting from an increase in staff, higher normal bonuses and
compensation and operating and infrastructure expenses to support the growth of
the business. As a percentage of revenues, general and administrative expenses,
excluding the special expenses, remained stable at approximately 7% in 1999 and
1998.
23
<PAGE>
STOCK COMPENSATION. The $150,000 non-cash charge for stock compensation expense
is related to stock granted to individuals for services rendered during 1999.
DEPRECIATION. Depreciation expense increased $3,846 in the year ended December
31, 1999 to $22,657 as a result of increased purchases of computer and other
equipment to support the growth of the strategic Internet services business and
facilities. The company invested $61,046 in capital equipment during the year
ended December 31, 1999 and $64,071 in the year ended December 31, 1998,
including the purchase of a second office adjacent to the Company's other owned
office space in Rochester, NY and other equipment, for $138,800. These capital
expenditures were financed with a mortgage and a capital lease, respectively.
INTEREST EXPENSE. Interest expense increased from $17,481 for the year ended
December 31, 1998 to $34,030 for the year ended December 31, 1999. This
increase was due to higher average outstanding debt balances during 1999,
resulting primarily from the purchase of an addition to our owned office
location during 1998.
PROVISION FOR INCOME TAXES. For the years ended December 31, 1999 and 1998, net
tax provisions were recorded of $5,989 and $$6,821, respectively. The tax
charges in Income tax expense represents combined federal and state income
taxes. In 1998 and 1999, we recorded net tax provisions despite financial
statement losses due to non-deductible permanent differences and valuation
allowances recorded on deferred tax assets. Our effective tax rate may vary
from period to period based on the Company's future expansion into areas with
varying income tax rates and deductibility of certain costs and expenses by
jurisdiction.
MINORITY INTEREST. As noted previously, the LCP shareholders owned 56% of
eStorefronts common stock prior to the Transactions. Accordingly, the combined
financial statements reflect the minority interest's portion of the operating
losses of eStorefronts for the years ended December 31, 1999 and 1998, $96,926
and $18,672 respectively. The 1999 eStorefronts loss relates primarily to the
stock-based compensation charge of $150,000 related to services provided to that
company in 1999 ($84,000 after the minority interest) and the costs of
developing and marketing eStorefront's initial web sites.
NET LOSS. The Company recorded a net loss of $293,088 for the year ended
December 31, 1999 and net income of $6,529 for the year ended December 31, 1998.
The loss in 1999 reflects the Company's investment in the development of the
International e-commerce platform, the non-cash charge for stock compensation of
$150,000 in eStorefronts, the special executive compensation expenses paid in
anticipation of the Transactions, of $334,000 and higher financing costs.
Results in 1998 reflect strong results of the hardware and software division,
offset by the initial investments the Company made in developing its proprietary
international e-commerce platform and in the launch of eStorefronts.
24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company may borrow up to $400,000 under the terms of an annually renewable
working capital line-of-credit agreement. Amounts borrowed bear interest at the
prime rate plus 1%, (9.5% at December 31, 1999), are collateralized by all of
the assets of the Company and are guaranteed by certain of the Company's
shareholders. At December 1999, the amount outstanding on the line of credit
was $350,000. The balance on the line of credit was repaid in April 2000.
The Company also has a mortgage payable to a bank on its current office facility
in Rochester, NY. The amount outstanding on this mortgage was $198,154 at
December 31, 1999. This mortgage requires annual payments of $21,000 through
October 2015.
At December 31, 1999, the Company had $59,550 in cash and cash equivalents.
In the two years ended December 31, 1999, the Company used $223,338 to fund
operating activities relating primarily to losses from operations in 1999 and
higher accounts receivable. These cash requirements were funded primarily
through the Company's line-of-credit, higher accounts payable and accrued
liabilities and the proceeds from the sale of eStorefronts stock. Accounts
receivable balances were significantly higher at year-end 1999 due to a
significant increase in sales in the last quarter of 1999 versus 1998.
Historically, accounts receivable balances are high at quarter ends due to
customer ordering patterns for computer products. Customer payment terms for
Computer Products range from net 30 days to net 180 days, for certain of the
Company's large municipal and health care customers. Billings for strategic
Internet services are made on a schedule established for each engagement. In
general, a 25% to 50% customer deposit is required prior to commencing work and
subsequent billings are made as pre-established milestones are completed.
Payment for strategic Internet services billings is generally due upon
presentation of the related invoices.
On March 10, 2000, LCP completed a reverse triangular merger with LogiSoft,
which for accounting purposes, was treated as an issuance of shares by LCP to
shareholders of LogiSoft for $5.5 million in cash and a promissory note of
$720,000. Certain investors who purchased shares of LogiSoft for the purposes
of the merger transaction also received warrants to purchase an additional 2.75
million shares of the Company's stock exercisable through December 7, 2000 at
specified prices. If all of these warrants and other existing warrants were
exercised, the Company would receive proceeds of approximately $6.2 million.
The Company believes its available cash resources and credit facilities will be
sufficient to meet its anticipated working capital and capital expenditure
requirements for at least the next twelve months. However, the Company may need
to raise additional funding sooner in order to support its growth, develop new
or enhance existing products and services, respond to competitive pressures,
acquire complementary businesses or take advantage of unanticipated
opportunities.
Comparison of the Years Ended December 31, 1998 and December 31, 1997
REVENUES. Revenues increased $1,128,968 or 64% to $2,888,369 for the year ended
December 31, 1998 from $1,759,401 in 1997. The increase was attributable to
strong growth in both e-commerce/retail sales and strategic Internet services.
Strategic Internet services revenues represented 3% of total revenues in 1997
versus 8% in 1998.
Sales of technology solutions products, primarily computer hardware and software
products sold to industrial and educational markets, increased $964,941 or 57%
to $2,671,593 for the year ended December 31, 1999 from $1,706,652 in for the
year ended December 31, 1997.
25
<PAGE>
Strategic Internet sales grew by more than 300% in 1998, to $216,776, from
$53,000 in 1997.
There were no customers that accounted for more than 10% of total Company
revenues in the years ended December 31, 1998 or 1997.
COST OF REVENUES. In 1997, cost of revenues for computer products totaled
$1,420,689 or 83% of e-commerce/retail revenues versus 79% in 1998.
OPERATING COSTS. Total operating costs, including project personnel costs,
increased 96% from $288,807 to $590,000 for the year ended December 31, 1998
from $300,894 in the year ended December 31, 1997. The increase in operating
costs is related primarily to increased staff to support the growth of the
strategic Internet services business and eStorefronts, which was founded in 1998
and was investing in the development of three branded e-commerce sites during
1998 and into 1999. Total salaries and hourly wages and bonuses increased
$205,000 from 1997 to 1998.
NET INCOME (LOSS). The net income for the year ending December 31, 1998 was
$6,529 versus net income of $10,800 in 1997. The 1998 net income reflects the
positive results of the Computer Products business offset by investments the
Company made in expanding its Internet services business and in launching
eStorefronts.
26
<PAGE>
Results of operations - Quarters ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
REVENUES:
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH MARCH MARCH MARCH
1999 2000 1999 2000
-------- ---------- ------ ------
<S> <C> <C> <C> <C>
REVENUES:
e-commerce/retail revenues 550,719 924,520 87.3% 77.6%
Strategic Internet services 80,320 266,721 12.7% 22.4%
-------- ---------- ------ ------
TOTAL REVENUE 631,039 1,191,241 100.0% 100.0%
COST OF REVENUES:
e-commerce/retail costs 467,879 800,259 74.1% 67.2%
Project personnel costs 69,126 107,228 11.0% 9.0%
-------- ---------- ------ ------
TOTAL COST OF REVENUES 537,005 907,487 85.1% 76.2%
GROSS PROFIT 94,034 283,754 14.9% 23.8%
OPERATING EXPENSES:
Sales and marketing 65,542 108,411 10.4% 9.1%
General and administrative 56,768 115,187 9.0% 9.7%
Stock based compensation - - 0.0% 0.0%
Depreciation 6,759 11,931 1.1% 1.0%
Amortization 87 22,389 0.0% 1.9%
-------- ---------- ------ ------
Total operating costs 129,156 257,918 20.5% 21.7%
OPERATING INCOME (35,122) 25,836 -5.6% 2.2%
Interest expense (6,069) (13,495) -1.0% -1.1%
Interest income - 21,188 0.0% 1.8%
Other income / (expense) 325 83 0.1% 0.0%
-------- ---------- ------ ------
Income before taxes (40,866) 33,612 -6.5% 2.8%
Income taxes provision (benefit) 637 12,212 0.1% 1.0%
-------- ---------- ------ ------
Income before minority interest (41,503) 21,400 -6.6% 1.8%
Minority interest in (income) / loss 18,241 1,002 2.9% 0.1%
-------- ---------- ------ ------
NET INCOME (23,262) 22,402 -3.7% 1.9%
======== ========== ====== ======
</TABLE>
Overview
- --------
For a description of the Company and the Transactions, refer to the
"Overview" section in the Management Discussion and Analysis section relating
to the years ended December 31, 1998 and 1999.
27
<PAGE>
The equity funding raised by the Company in connection with the
transactions discussed above will allow the Company to aggressively pursue its
Internet and e-commerce growth strategy through expansion of our client base and
headcount and increased investment in our engagement methodology,
product/solution development and brand awareness. The impact of the
transactions on the Company's operations for the quarter ended March 31, 2000
was not significant because they were consummated during March 2000.
In the first quarter of fiscal 2000, operating margins and profitability
improved, despite the goodwill amortization charge of $22,000. However,
investments in infrastructure to support the implementation of our business plan
will make short-term profitability expansion a challenge during this year of
transition.
Basis and presentation of financial statements
- ---------------------------------------------------
The Company will maintain LCP's December 31 fiscal year end. LogiSoft's
fiscal year end was June 30.
The unaudited combined financial statements for the quarter ended March 31,
1999 include the historical combined financial statements of LCP and
eStorefronts, giving effect to the 44% minority interest in eStorefronts. The
unaudited consolidated financial statements for the quarter ended March 31, 2000
include the historical combined accounts of LCP and eStorefronts for the period
from January 1, 2000 through March 9, 2000 and reflect the issuance of stock for
the assets of LogiSoft and the acquisition of the minority interest in
eStorefronts on March 10, 2000. Accordingly, net income for the quarter ended
March 31, 2000 include 56% of the eStorefronts operations through March 9, 2000
and 100% thereafter. The $5,500,000 in cash and the $720,000 note receivable
are recorded as proceeds from the issuance of 18,434,553 shares of LCP on March
10, 2000.
For a general discussion of the Basis and Presentation of the financial
statements, refer to the similar section above in the Management Discussion and
Analysis covering the years ended December 31, 1999 and 1998.
28
<PAGE>
RESULTS OF OPERATIONS
Comparison of the Three Months Ended March 31, 2000 and March 31, 1999
REVENUES. Revenues increased $560,202 or 89% to $1,191,241 for the quarter
ended March 31, 2000 from $631,039 for the quarter ended March 31, 1999. The
increase was attributable to substantial increases in both e-commerce/retail
sales and strategic Internet services.
Sales of computer products to industrial, health care and educational markets,
increased $373,801 or 68% to $924,520 for the quarter ended March 31, 2000 from
$550,719 for the quarter ended March 31, 1999. This increase was due to greater
penetration of key accounts, including increased purchases of client licenses by
a significant customer as a part of that customer's program to achieve licensing
compliance with certain software makers. During the quarter ended March 31,
2000, sales to this customer accounted for approximately 15% of total revenues
for the period. The customer's licensing compliance program also resulted in
increased sales during the last half of 1999 and is expected be completed in
fiscal 2000. Historically, computer products sales in the first quarter have
been low compared with other quarters.
Revenues from strategic Internet services revenues increased $186,401 or 232% to
$266,721 for the quarter ended March 31, 2000 from $80,320 for the quarter ended
March 31, 1999. This revenue growth was due to a significant increase in our
client base and an increase in headcount. In the quarter ended March 31, 2000,
the number of active engagements for sophisticated web site development more
than tripled from the prior year period and the average size of these
engagements increased. For the quarter ended March 31, 2000, strategic Internet
services revenues represented 22% of total revenues, up from 13% in the quarter
ended March 31, 1999 and 14% for the year ended December 31, 1999.
Two e-commerce/retail customers each accounted for 12% of total Company revenues
in the quarter ended March 31, 1999.
COST OF REVENUES. Cost of revenues increased $370,482 or 69% to $907,487 for the
quarter ended March 31, 2000 from $537,005 for the quarter ended March 31, 1999.
The dollar increase was attributable to the higher revenues for both
e-commerce/retail and strategic Internet services. As a percentage of revenues,
cost of revenues decreased from 85% in the quarter ended March 31, 1999 to 76%
in the quarter ended March 31, 2000. The decrease in the cost of revenues as a
percentage of revenues is attributable to the strategic Internet services
business, where higher billing rates, increased utilization and improvements in
efficiency and engagement processes positively impacted margins. During the
quarter ended March 31, 2000, the gross margin in the strategic Internet
services business was 59% versus 14% for the quarter ended March 31, 1999.
Margins for the prior year quarter were depressed as a result of the significant
investment in developing the Company's proprietary international e-commerce
platform, which resulted in reduced average billing rates realized in the
strategic Internet services business.
SALES AND MARKETING. Sales and marketing costs increased $42,869 or 65% to
$108,411 for the quarter ended March 31, 2000 from $65,542 for the quarter ended
March 31, 1999. The dollar increase was attributable to higher numbers of sales
and marketing personnel and increased marketing activities to support the growth
of our Computer Products and strategic Internet services businesses. As a
percentage of revenues, sales and marketing expenses decreased to 9% in the
quarter ended March 31, 2000 from 10% in the year earlier period.
GENERAL AND ADMINISTRATIVE. General and administrative costs increased $58,419
or 103% to $115,187 for the quarter ended March 31, 2000 from $56,768 for the
quarter ended March 31, 1999. The dollar increase was attributable to increased
headcount, higher compensation and spending on infrastructure to support the
growth of the business. As a percentage of revenues, general and administrative
expenses increased slightly from 9% in the quarter ended March 31, 1999 to 10%
in the quarter ended March 31, 2000.
29
<PAGE>
DEPRECIATION. Depreciation expense increased $5,172 in the quarter ended March
31, 2000 to $11,931 as a result of increased purchases of computer and other
equipment to support the growth of the strategic Internet services business and
facilities. The company invested $21,531 in capital equipment during the
quarter ended March 31, 2000 and $3,589 in the quarter ended March 31, 1999.
AMORTIZATION. Amortization expenses increased $22,302 in the quarter ended
March 31, 2000 versus the prior year period as a result of the amortization of
the goodwill of $1,980,000 recorded for the acquisition of the 44% minority
interest in eStorefronts on March 10, 2000.
INTEREST INCOME AND INTEREST EXPENSE. Interest expense increased from $6,069
for the quarter ended March 31, 1999 to $13,495 for the quarter ended March 31,
2000. This increase was due to higher average outstanding balances on our
line-of-credit during the March 2000 quarter as a result of increased
investments and the growth of the business. During the quarter ended March 31,
2000, the Company recorded $21,188 in interest income. Investment balances at
March 31, 2000 relate to the proceeds of $5,500,000 received as a result of the
Transactions.
PROVISION FOR INCOME TAXES. For the quarters ended March 31, 2000 and 1999, net
tax provisions were recorded of $12,212 and $637, respectively. The tax charges
in Income tax expense represents combined federal and state income taxes. In
1999, we recorded a net tax provision despite the financial statement loss due
to non-deductible permanent differences and valuation allowances recorded on
deferred tax assets. Our effective tax rate for the quarter ended March 31,
2000 was 36%. Our effective tax rate may vary from period to period based on
the Company's future expansion into areas with varying income tax rates and
deductibility of certain costs and expenses by jurisdiction.
MINORITY INTEREST. As noted previously, the LCP shareholders owned 56% of
eStorefronts common stock prior to the mergers. Accordingly, the combined
financial statements reflect the minority interest's portion of the operating
losses of eStorefronts for the quarters ended March 31, 2000 and 1999, $1,002
and $18,241, respectively.
NET LOSS. The Company recorded net income of $22,402 for the quarter ended
March 31, 2000 versus a net loss of $23,262 for the quarter ended March 31,
1999. The improved results reflect the strong performance of the strategic
Internet services business, for which gross margins grew from 14% to 59%
and lower net financing costs, offset by lower profitability in the Computer
Products division and amortization expenses of $22,000 (non-cash) related to the
eStorefronts goodwill. Lower net income in 1999 reflects the investments the
Company had undertaken in developing its proprietary international e-commerce
platform and in growing its strategic Internet services business.
LIQUIDITY AND CAPITAL RESOURCES
On March 10, 2000, LCP completed a reverse triangular merger with LogiSoft,
which for accounting purposes was treated as an issuance of shares by LCP to
shareholders of LogiSoft for $5.5 million in cash and a promissory note of
$720,000.
The Company may borrow up to $400,000 under the terms of an annually renewable
working capital line-of-credit agreement. Amounts borrowed bear interest at the
prime rate plus 1% (9.75% at March 2000), are collateralized by all of the
assets of the Company and are guaranteed by certain of the Company's
shareholders. At March 31, 2000, borrowings under the line-of-credit agreement
totaled $400,000, up from $350,000 at December 1999. The line of credit was
repaid in April 2000.
30
<PAGE>
The Company also has a mortgage payable to a bank on its office facility in
Rochester, NY that houses its Computer Products division and certain
administrative functions. The amount outstanding on this mortgage was $195,658
at March 31, 2000. This mortgage requires annual payments of $21,000 through
October 2015.
The Company invests predominantly in instruments that are highly liquid,
investment grade, and have maturities of less than one year, with the intent to
make such funds readily available for operating purposes. At March 31, 2000,
the Company had $5,040,519 million in cash and cash equivalents including
$3,500,000 that was invested in certificates of deposit with a 90 day term, at a
6% rate. The remainder of the Company's cash and cash equivalents was held in
available funds as discussed above.
In the quarter ended March 31, 2000, the Company used $485,128 in cash in its
operations, primarily due to the payment of accounts payable and accrued
expenses, offset by positive operating results. The reduction of trade
creditors and accrued expenses was financed principally by the proceeds from the
Transactions. As noted above, the Company repaid its line of credit of
$400,000 in April 2000.
Historically, accounts receivable balances are high at quarter ends due to
customer ordering patterns for computer products. Customer payment terms range
from net 30 days to net 180 days, for certain of the Company's large municipal
and health care computer products customers. For strategic Internet services
projects, a 25% to 50% customer deposit is generally required prior to
commencing work and subsequent billings are made as pre-established milestones
are completed. Billings for strategic Internet services projects are generally
due upon presentation of invoices.
At March 31, 2000, the Company had outstanding capital expenditure commitments
totaling approximately $115,000. These capital expenditure commitments relate
primarily to the expansion of our Rochester facilities and additional equipment
required for planned additions to the Company's staff.
In March 2000, the Company signed a lease for 8,500 square feet of additional
office space in Rochester, NY related to the expansion of our headquarters and
strategic Internet services staffs. The lease commences in May 2000 and runs
for 66 months. The Company paid a $28,684 deposit for this lease. This amount
is recorded in Other Assets. Monthly payments under this lease increase from
$12,000 initially to $14,000 after two years.
The Company believes its available cash resources and credit facilities will be
sufficient to meet its anticipated working capital and capital expenditure
requirements for at least the next twelve months. However, the Company may need
to raise additional funding sooner in order to support its growth, develop new
or enhance existing products and services, respond to competitive pressures,
acquire complementary businesses or take advantage of unanticipated
opportunities. Certain investors who purchased shares of LogiSoft, prior to the
Transactions, through the exercise of existing Class B warrants, received
warrants to purchase an additional 2.75 million shares of the Company's stock
exercisable through December 7, 2000 at $1.75 per share. If all of these
warrants and other existing warrants were exercised, the Company would receive
proceeds of approximately $6.2 million.
Year 2000 risk
- ----------------
Prior to December 31, 1999, many installed computer systems and software
products were coded to accept only two-digit entries to identify a year in the
date code field. Consequently, as of January 1, 2000, many of these systems
could fail or malfunction because they may not be able to distinguish between
20th century dates and 21st century dates. Accordingly, many companies,
including LogiSoft and LogiSoft's customers, potential customers, vendors and
strategic partners, have upgraded their systems to comply with applicable "Year
2000" requirements.
31
<PAGE>
Because LogiSoft and its clients are dependent, to a very substantial
degree, upon the proper functioning of its and their computer systems, a failure
of its or their systems to correctly recognize dates beyond December 31, 1999
could materially disrupt operations, which could materially and adversely affect
LogiSoft's business, results of operations and financial condition.
Additionally, LogiSoft's failure to provide Year 2000 compliant products and
services to our clients could result in financial loss, reputation harm and
legal liability.
In 1998 and 1999, LogiSoft completed a review of its information technology
systems, hardware and software, and its non-information technology systems, and
took action to remediate systems, where necessary. LogiSoft believes it has
identified its mission critical systems. LogiSoft has obtained confirmations
from the providers of these systems that they are Year 2000 compliant and has
conducted internal tests of such systems as part of its Year 2000 efforts.
LogiSoft has confirmed Year 2000 compliance of all material existing LogiSoft
systems supplied by third party providers and continues to test new products.
LogiSoft has obtained written certification regarding the critical hardware and
software systems used to assemble client solutions or to support LogiSoft's
internal electronic infrastructure. LogiSoft has also obtained written
certification regarding facilities items and other non-standard applications and
systems.
LogiSoft has not examined third party readiness. LogiSoft has not researched and
is not researching its clients' readiness, except to the extent clients request
LogiSoft to examine solutions delivered by LogiSoft.
Prior to December 31, 1999, LogiSoft completed contingency plans for critical
individual information technology systems and non-information technology systems
for implementation. LogiSoft has not to date experienced any material adverse
effects of its systems. Furthermore, management believes that the Year 2000 risk
will not pose significant future operational problems for LogiSoft's computer
systems.
However, there is no guarantee that LogiSoft's Year 2000 program, including
consulting with third parties, will avoid any future material adverse effects on
LogiSoft's operations, customer relations or financial condition. LogiSoft's
total cost of its year 2000 readiness program was not significant.
There is no guarantee that additional costs will not be incurred.
RISK FACTORS
LogiSoft stockholders may be exposed to risks inherent in our business. The
value of such an investment may increase or decline and could result in a loss.
Prospective investors should carefully consider the following factors as well
as other information contained in this filing on Form 8-K before deciding to
invest in LogiSoft Common Stock.
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, set forth below are cautionary statements
identifying important factors that could cause our actual results to differ
materially from those projected in any forward-looking statements made by or on
behalf of us, whether oral or written. We wish to ensure that any
forward-looking statements are accompanied by meaningful cautionary statements
in order to maximize to the fullest extent possible the protections of the safe
harbor established in the Private Securities Litigation Reform Act of 1995.
Accordingly, any such statements are qualified in their entirety by reference
to, and are accompanied by, the following important factors that could cause our
actual results to differ materially from those projected in our forward-looking
statements.
32
<PAGE>
Our limited operating history in strategic Internet services and e-commerce
- --------------------------------------------------------------------------------
makes it difficult to evaluate our business.
- --------------------------------------------------
Despite the fact that LCP was founded in 1989, the Company has a limited
operating history as a provider of strategic Internet services and in
e-commerce, its primary areas of investment and expected growth. As a result,
we have a limited operating history on which you can base your evaluation of our
business and prospects. Our business and prospects must be considered in light
of the risks and uncertainties frequently encountered by companies in their
early stages of development. These risks are further amplified by the fact that
we are operating in the new and rapidly evolving strategic Internet services
market. These risks and uncertainties include the following:
- - our business model and strategy have evolved and are continually being
reviewed;
- - we may not be able to successfully implement our business model and
strategy;
- - our management has not worked together for very long; and
- - uncertainties regarding the Internet, such as taxation of e-commerce,
shifts in technology and significant competition.
Our business is growing quickly, particularly subsequent to the receipt of
capital in connection with the Transactions (see related discussion in Items 1
and 2 above). This growth currently relates primarily to increased investment
in infrastructure and management resources needed to expand the business, which
is substantially increasing our cost structure. This rapid growth has
stretched, and could continue to stretch, our resources. We expect that we will
need to continue to hire and retain management personnel and other employees.
In fact, a significant number of employees and several of our executive officers
have joined us recently and our management has limited experience managing a
public company.
In order to manage our growth effectively, we must establish offices in new
geographic locations, set fixed-price fees accurately, maintain high employee
utilization rates, maintain project quality and successfully negotiate rates,
particularly if the average size of our projects continues to increase.
Our performance may depend on the effective integration of acquired
businesses and new offices. This integration, even if successful, may be
expensive and time consuming and could strain our resources.
We cannot be sure that we will be successful in meeting these challenges
and addressing these risks and uncertainties. If we are unable to do so, our
business will not be successful and the value of your investment in LogiSoft
will decline.
Potential fluctuations in our quarterly results make financial forecasting
- --------------------------------------------------------------------------------
difficult and could affect our common stock trading price.
- ------------------------------------------------------------------
Our financial results may fluctuate from quarter to quarter. In future
quarters, our operating results may not meet public market analysts' and
investors' expectations. If that happens, the price of our common stock may
fall. Many factors can cause these fluctuations, including
- - the number, size, timing and scope of our projects;
- - customer concentration;
- - long and unpredictable sales cycles;
- - contract terms of projects;
- - degrees of completion of projects;
- - project delays or cancellations;
- - competition for and utilization of employees;
- - how well we estimate the resources we need to complete projects;
- - the integration of acquired businesses;
- - pricing changes in the industry; and
- - variability in market demand for the Internet and information technology
consulting.
33
<PAGE>
A high percentage of our operating expenses, particularly personnel and
rent, are fixed in advance of any particular quarter. As a result, if we
experience unanticipated changes in our projects or in our employee utilization
rates, we could experience large variations in quarterly operating results and
losses in any particular quarter. Due to these factors, we believe you should
not compare our quarter-to-quarter operating results to predict our future
performance.
We have generally realized lower revenue in the first quarter of the year
than in other quarters and higher revenue in the second quarter. We believe that
this has been due primarily to client budget cycles, particularly with regard to
our clients for computer hardware and software products in the educational
market, and the short-term nature of our contracts.
We have an accumulated deficit and expect to incur further losses this year.
- --------------------------------------------------------------------------------
We incurred a substantial loss in 1999 and as of March 31, 2000, we had an
accumulated deficit of approximately $357,700. Despite the fact that the 1999
loss includes the effect of $334,000 in special costs and non-cash compensation
charge of $150,000 ($84,000 after minority interest) and the fact that we were
profitable in the first quarter of fiscal 2000, investments in staff and
infrastructure to support the implementation of our business plan will make
short-term profitability a challenge during this year of transition.
Additionally, our revenue composition has changed substantially from inception,
and we expect further change as our business develops. Historically, a
substantial majority of our revenue was derived from sales of hardware and
software to corporations and educational and government customers. To succeed,
we must take advantage of our existing relationships to substantially increase
our revenue derived from web development, comprehensive strategic Internet
services and e-commerce. To facilitate this increase in revenues, we intend to
invest heavily in acquisitions, infrastructure, development and marketing. As a
result, we may not be able to achieve or sustain profitability. If we fail to
achieve or sustain profitability, the trading price of our common stock would
likely decline.
Our growth is dependent on the successful completion of acquisitions.
- ------------------------------------------------------------------------------
We anticipate that a portion of our future growth will be accomplished
through acquisitions. The success of this plan depends upon our ability to:
- - identify suitable acquisition opportunities;
- - effectively integrate acquired personnel, operations, products and
technologies into our organization;
- - retain and motivate the personnel of acquired businesses;
- - retain customers of acquired businesses; and
- - obtain necessary financing on acceptable terms.
Additionally, in pursuing acquisition opportunities we may compete with
other companies with similar growth strategies, many of which are larger than we
are and have greater financial and other resources than we do. Competition for
acquisition targets could also result in increased prices for acquisition
targets and a diminished pool of companies available for acquisition.
34
<PAGE>
The partnerships we have developed may not be as synergystic as anticipated
- --------------------------------------------------------------------------------
Leadership in the e-business architecture space requires successful
companies to develop strong partnerships with companies that offer complimentary
capabilities. Select partnerships may not deliver the results anticipated and
may hinder LogiSoft's ability to create timely solutions for existing clients.
Our fixed-fee contracts involve financial risk.
- ----------------------------------------------------
Most of our existing strategic Internet services contracts are on a
fixed-fee basis, rather than a time and materials basis. We assume greater
financial risk on fixed-fee contracts than on time-and-materials engagements.
We have a limited history in estimating our costs for our fixed-fee engagements.
If we fail to estimate costs on fixed-fee contracts accurately or encounter
unexpected problems, our financial performance will be adversely effected. To
reduce this financial risk, we are continuously refining our estimating methods
and we are attempting to price most new contracts on a time-and-materials basis
through extended requirements gathering processes. We try to price any
fixed-fee contracts on a four-phase basis-specifications and requirements,
creative, technical implementation and quality assurance & testing. Each phase
is priced separately, immediately prior to its commencement. From time to time,
we have had to commit unanticipated resources to complete some of our projects,
resulting in lower gross margins. Despite improved margins in the first quarter
of fiscal 2000, we may experience similar situations in the future.
We may not be able to hire and retain highly skilled employees, which could
- --------------------------------------------------------------------------------
affect our ability to compete effectively.
- -----------------------------------------------
Our ability to generate revenues is dependent upon the number and expertise
of the personnel we employ. To succeed, we must hire, train, motivate, retain
and manage employees who are highly skilled in the Internet and its rapidly
changing technology. Because of the recent and rapid growth of the Internet,
individuals who have Internet expertise and can perform the services we offer
are scarce. Competition for these individuals, therefore, is intense. We might
not be able to hire enough of them or to train, motivate, retain and manage the
employees we do hire. This could hinder our ability to complete existing
projects and bid for new projects. In addition, because the competition for
qualified employees in the Internet industry is intense, hiring, training,
motivating, retaining and managing employees with the strategic, technical and
creative skills we need is both time-consuming and expensive. High turnover
resulting in additional training expense would decrease our profitability.
We depend on our key management personnel for our future success.
- ---------------------------------------------------------------------------
Our success depends largely on the skills of our key management and
technical personnel. The loss of one or more of our key management or technical
personnel may materially and adversely affect our business and results of
operations. Currently, our key management including Robert Lamy, President,
William Lamy, Director of Technology, Robert Ballard, President of the Computer
Products division, Scott Fox, Vice President Marketing and John Van Heel, Chief
Financial Officer. We do not maintain key man insurance for any of our
employees at this point. However, we intend on obtaining this insurance for
officers and several other critical positions. We cannot guarantee that we will
be able to replace any of these individuals in the event their services become
unavailable.
The loss of one or more of our major customers could harm our business.
- --------------------------------------------------------------------------------
The loss of one or more of our major customers, the failure to attract new
customers on a timely basis, or a reduction in revenue associated with existing
or proposed customers would harm our business and prospects. Rochester General
Hospital (Via Health) comprised approximately 20% of our revenue for the twelve
months ended December 31, 1999. This and other clients may account for a large
portion of our revenue in the future.
35
<PAGE>
We generally do not have long-term contracts and need to establish relationships
- --------------------------------------------------------------------------------
with new clients.
- -------------------
Our clients generally retain us on a project-by-project basis, rather than
under long-term contracts. As a result, a client may or may not engage us for
further services once a project is completed or may unilaterally reduce the
scope of, or terminate, existing projects. To become profitable, we need to
establish and develop relationships with more companies and other corporate
users of information technology. The absence of long-term contracts and the need
for new clients create an uncertain revenue stream, which could negatively
affect our financial condition.
Failure to raise necessary capital could restrict our growth, limit our
- --------------------------------------------------------------------------------
development of new products and services and hinder our ability to compete.
- --------------------------------------------------------------------------------
Although the Company believes its available cash resources and credit
facilities will be sufficient to meet its anticipated working capital and
capital expenditure requirements for at least the next twelve months, we may
need to raise additional funding sooner in order to support growth, develop
new or enhance existing products and services, respond to competitive pressures,
acquire complementary businesses or take advantage of unanticipated
opportunities. Failure to raise these funds may:
- - restrict our growth;
- - limit our development of new products and services; and
- - hinder our ability to compete.
Any of these consequences would have a material adverse effect on our
business, results of operations and financial condition.
We may be liable for defects or errors in the solutions we develop.
- --------------------------------------------------------------------------------
Many of the solutions we develop are critical to the operations of our
clients' businesses. Any defects or errors in these solutions could result in:
- - delayed or lost client revenues;
- - adverse customer reaction toward LogiSoft;
- - negative publicity;
- - additional expenditures to correct the problem; and
- - claims against us.
If we fail to meet our clients' expectations, we could damage our reputation and
- --------------------------------------------------------------------------------
have difficulty attracting new business.
- --------------------------------------------
Many of our projects are complex and critical to our clients. As a result,
if we fail or are unable to meet a client's expectations, we could damage our
reputation. This could adversely affect our ability to attract new business from
that client or others. If we fail to perform adequately on a project, a client
could sue us for economic damages.
We depend on intellectual property, which may be difficult to protect. This
- --------------------------------------------------------------------------------
could affect our ability to compete effectively.
- ------------------------------------------------------
36
<PAGE>
Our success depends, in part, upon our intellectual property rights. We do
not have any patents or patent applications pending and we have not trademarked
any of our names, logo's or other intellectual property but intend to do so.
Because existing trade secret and copyright laws afford us only limited
protection, third parties may attempt to disclose, obtain or use our solutions
or technologies. This is particularly true in foreign countries where laws or
law enforcement practices may not protect our proprietary rights as fully as in
the United States. Others may independently develop and obtain patents or
copyrights for technologies that are similar or superior to our technologies. If
that happens, we may not be able to license those technologies on reasonable
terms, or at all.
Generally, we develop software applications and Internet solutions
involving web site design and programming for specific client engagements. We
generally retain ownership of all source code, intermediate files created while
producing final images, host-resident applications that may be used within a
client's site to perform vital functions and other key aspects of Internet
solutions. However, issues relating to ownership of and rights to use software
applications and frameworks can be complicated. Accordingly, we may become
involved in disputes that affect our ability to resell or reuse these
applications and frameworks and we may be compelled to pay economic damages in
these disputes.
The developing market for strategic Internet services and the level of
- --------------------------------------------------------------------------------
acceptance of the Internet as a business medium will affect our business.
- --------------------------------------------------------------------------------
The market for strategic Internet services is relatively new and is
evolving rapidly. Our future growth is dependent upon our ability to provide
strategic Internet services that are accepted by our existing and future clients
as an integral part of their business model. Demand and market acceptance for
recently introduced services are subject to a high level of uncertainty. The
level of demand and acceptance of strategic Internet services is dependent upon
a number of factors, including:
- - the growth in consumer access to and acceptance of new interactive
technologies such as the Internet;
- - companies adopting Internet-based business models; and
- - the development of technologies that facilitate two-way communication
between companies and targeted audiences.
Significant issues concerning the commercial use of these technologies
include security, reliability, cost, ease of use and quality of service. These
issues remain unresolved and may inhibit the growth of Internet business
solutions that utilize these technologies.
Industry analysts and others have made many predictions concerning the
growth of the Internet as a business medium. These predictions should not be
relied upon. If the market for strategic Internet services fails to develop, or
develops more slowly than expected, or if our services do not achieve market
acceptance, our business will not succeed and the value of your investment in
our common stock will decline.
We may not be able to keep up with the continuous technological change in our
- --------------------------------------------------------------------------------
market, which could harm our business.
- -------------------------------------------
Our success will depend, in part, on our ability to respond to
technological advances. We may not be successful in responding quickly,
cost-effectively and sufficiently to these developments. Many of our competitors
are larger than us and have significantly more financial resources to invest in
advances in technology, products, engagement methodology and other areas central
to the strategic Internet services. We will not be able to compete effectively
if we are unable, for technical, financial or other reasons, to adapt in a
timely manner in response to technological advances. In addition, employee time
allocated to responding to technological advances will not be available for
client engagements.
37
<PAGE>
We operate in a highly competitive market with low barriers to entry, which
- --------------------------------------------------------------------------------
could limit our market share and harm our financial performance.
- -------------------------------------------------------------------------
While the market for strategic Internet services is relatively new, it is
already highly competitive and characterized by an increasing number of entrants
that have introduced or developed products and services similar to those offered
by us. In addition, there are relatively low barriers to entry into our
business. We have no patents that would preclude or inhibit competitors from
entering the strategic Internet services market. We believe that due to the low
cost of entering our markets, competition will intensify and increase in the
future. This intense competition may limit our ability to become profitable or
result in the loss of market share. As a result, our competitors may be better
positioned to address developments in the industry or may react more effectively
to industry changes, which could adversely affect our business.
Our software and hardware business is largely dependent upon retaining our
- --------------------------------------------------------------------------------
manufacturer authorizations that allow us to sell software to educational
- --------------------------------------------------------------------------------
facilities at discounted pricing.
- ------------------------------------
Since 1991, we have been accumulating authorizations from key software
manufacturers that allow us to sell products to educational facilities at deep
discounts. If we were to lose any of these authorizations, our ability to sell
computer products to educational customers could be adversely impacted, which
could have a similar impact on our sales, profitability and ability to expand
within this business line.
Our business is subject to U.S. and foreign government regulation of the
- --------------------------------------------------------------------------------
Internet.
- ---------
State, local and federal governments in the U.S. and local and national
governments in the European Union have recently passed legislation relating to
the Internet. Because these laws are still being implemented, we are not certain
how they will affect our business. This new legislation may indirectly affect us
through its impact on our clients and potential clients. In addition, U. S. and
foreign governmental bodies are considering, and may consider in the future,
other legislative proposals to regulate the Internet. We cannot predict if or
how any future legislation would impact our business, results of operations or
financial condition.
You may encounter volatility in the market price for our Common Stock.
- --------------------------------------------------------------------------------
The trading price of our Common Stock has been and is likely to continue to
be highly volatile. Our stock price could be subject to wide fluctuations in
response to factors such as the following:
- - actual or anticipated variations in quarterly results of operations;
- - the addition or loss of affiliates or providers;
- - our ability to hire and retain employees;
- - additions or departures of key personnel;
- - announcements of technological innovations, new products or services by us
or our competitors;
- - changes in financial estimates or recommendations by securities analysts;
- - conditions or trends in the Internet and online commerce industries;
- - changes in the market valuations of other Internet or online service
companies;
- - our announcements of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
- - sales of our Common Stock;
- - general market conditions; and
- - other events or factors, many of which are beyond our control.
38
<PAGE>
In addition, the stock market in general, and the Nasdaq National Market
and the market for Internet and technology companies in particular, have
experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of these companies. These broad
market and industry factors may materially and adversely affect our stock price,
regardless of our operating performance. The trading prices of the stocks of
many technology companies are at or near historical highs and reflect
price-earnings ratios substantially above historical levels. These trading
prices and price-earnings ratios may not be sustained.
Further, the existing market for our Common Stock has been characterized by
low volumes and may not be sustained. In such circumstances, it may be
difficult for shareholders to sell shares of our Common Stock at a price that is
attractive. Also, if the market price of our Common Stock significantly
decreases, one or more of our investors may file a claim against us for a refund
of their investment or for other damages. These types of litigation, regardless
of the outcome, could result in substantial costs and a diversion of
management's attention and resources, which could adversely affect our business,
results of operations and financial condition.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
In May of 2000 we engaged Bonadio & Co., LLP as our independent public
accountants to prepare audited financials. Our prior management had most
recently used a public accounting firm located in Tulsa, OK to perform the
audit. Subsequent to the Transactions, management desired to have accounting
services provided by a firm that has a local presence in Rochester, N.Y., the
location of our headquarters and our primary operations. Therefore, we engaged
Bonadio & Co., LLP. On May 15, 2000, LogiSoft filed its notice of change of
accountants on Form 8-K.
ITEM 5. OTHER EVENTS
Not applicable.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
Effective March 9, 2000 LogiSoft accepted the resignations of W. Leo
Morris, C. Bundren, R. Garner and J. Sams from the board of directors in
connection with the Transactions. Effective March 10, 2000, R. Lamy, S. Fox, G.
Devine and A. Kleinmaier were named as directors of the Company and Mr. Holt
resigned. Mr. Kleinmaier resigned as a director on April 27, 2000 and that
director position is currently unfilled.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Audited financial statements of LCP and eStorefronts for the years ended
December 31, 1999 and 1998 (combined) and unaudited financial statements for the
quarter ended March 31, 1999 (combined) and for the Company for the quarter
ended March 31, 2000 (consolidated) are filed herewith along with Proforma
financial statements showing the impact of the Transactions as if they had
occurred on January 1, 1999.
39
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Report of Independent Accountants. . . . . . . . . . . . . . . . . . F-1
Combined and Consolidated Balance Sheets at December 31, 1999,
1998 (audited) and at March 31, 2000 and 1999 (unaudited) . F-2
Combined and Consolidated Statements of Income and Operations
for the years ended December 31, 1999 and 1998 (audited)
and the quarters ended March 31, 2000 and 1999 (unaudited) . F-3
Combined and Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1999 and 1998 (audited)
and the quarter ended March 31, 2000 (unaudited) . . . . . . . F-4
Combined and Consolidated Statements of Cash Flows for the years
ended December 31, 1999 and 1998 (audited) and the quarters
ended March 31, 2000 and 1999 (unaudited) . . . . . . . . . . . F-5
Notes to Combined and Consolidated Financial Statements . . . . . . . . F-6
</TABLE>
<PAGE>
LOGISOFT COMPUTER PRODUCTS CORP.
ESTOREFRONTS.NET CORP.
COMBINED FINANCIAL STATEMENTS AS OF
-----------------------------------
DECEMBER 31, 1999 AND 1998
--------------------------
TOGETHER WITH
-------------
INDEPENDENT AUDITORS' REPORT
----------------------------
AND
---
UNAUDITED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS AS OF
--------------------------------------------------------------
MARCH 31, 2000 AND 1999
-----------------------
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
May 18, 2000
To the Stockholders of
LogiSoft Computer Products Corp. and eStorefronts.net Corp.:
We have audited the accompanying combined balance sheets of LogiSoft Computer
Products Corp. and eStorefronts.net Corp. (New York corporations) as of December
31, 1999 and 1998, and the related combined statements of income and operations
and changes in stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Companies' management.
Our responsibility is to express an opinion on these financial statements 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
misstate-ment. 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of LogiSoft Computer
Products Corp. and eStorefronts.net Corp. as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Bonadio & Co., LLP
Rochester, NY
F-1
<PAGE>
<TABLE>
<CAPTION>
LOGISOFT COMPUTER PRODUCTS CORP.
--------------------------------
ESTOREFRONTS.NET CORP.
----------------------
COMBINED AND CONSOLIDATED BALANCE SHEETS
----------------------------------------
December 31, March 31,
-------------------------
1998 1999 2000
------------- ---------- ----------
<S> <C> <C> <C>
(unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and equivalents $ 105,808 $ 59,550 $5,040,519
Accounts receivable 245,147 1,003,495 988,958
Note receivable - - 720,000
Due from officer 9,751 6,909 -
Unbilled revenues - 12,000 20,000
Inventory 6,174 6,542 9,858
Prepaid expenses and other current assets 1,924 4,884 13,474
Deferred tax asset 1,318 37,640 37,640
------------- ---------- ----------
Total current assets 370,122 1,131,020 6,830,449
------------- ---------- ----------
PROPERTY AND EQUIPMENT, net 328,652 367,041 376,641
------------- ---------- ----------
OTHER ASSETS:
Intangible assets, net 6,181 11,424 1,969,035
Other assets - - 28,684
------------- ---------- ----------
6,181 11,424 1,997,719
------------- ---------- ----------
$704,955 $1,509,485 $9,204,809
============= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31,
---------------------------
1998 1999 2000
-------------- ----------- -----------
<S> <C> <C> <C>
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Line-of-credit $ 20,000 $ 350,000 $ 400,000
Current portion of long-term debt 8,853 9,428 8,400
Note payable - officer - 12,000 -
Accounts payable 321,341 628,000 399,558
Accrued expenses and other current liabilities 15,661 389,529 159,915
Advanced billings 2,100 14,800 23,900
-------------- ----------- -----------
Total current liabilities 367,955 1,403,757 991,773
LONG-TERM DEBT, net of current portion 214,184 199,736 197,167
DEFERRED TAX LIABILITY 11,164 19,354 27,831
-------------- ----------- -----------
Total liabilities 593,303 1,622,847 1,216,771
-------------- ----------- -----------
MINORITY INTEREST 25,328 1,002 -
-------------- ----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $2.75 par value, 2,000,000
shares authorized, no shares issued - - -
Common stock, $.0001 par value, 60,000,000
shares authorized, 11,651,250, 12,000,000
and 30,434,553 (unaudited) shares issued
and outstanding, respectively 1,165 1,200 3,044
Additional paid-in capital 99,585 264,550 8,342,706
Retained earnings 10,902 (379,112) (357,712)
-------------- ----------- -----------
111,652 (113,362) 7,988,038
Less: Minority interest (25,328) (1,002) -
-------------- ----------- -----------
Total stockholders' equity 86,324 (114,364) 7,988,038
-------------- ----------- -----------
$ 704,955 $1,509,485 $9,204,809
============== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
LOGISOFT COMPUTER PRODUCTS CORP.
--------------------------------
ESTOREFRONTS.NET CORP.
----------------------
COMBINED AND CONSOLIDATED STATEMENTS OF INCOME AND OPERATIONS
-------------------------------------------------------------
Year ended December 31, Quarter ended March 31,
------------------------ -----------------------
1998 1999 1999 2000
----------- ----------- --------- ------------
<S> <C> <C> <C> <C>
(unaudited)
REVENUE:
E-commerce/retail $2,671,593 $3,668,069 $550,719 $ 924,520
Strategic internet services 216,776 614,098 80,320 266,721
----------- ----------- --------- -----------
Total revenue 2,888,369 4,282,167 631,039 1,191,241
----------- ----------- --------- -----------
COST OF REVENUE:
E-commerce/retail 2,292,412 3,195,703 467,879 800,259
Strategic internet services 169,119 332,967 69,126 107,228
----------- ----------- --------- -----------
Total cost of revenue 2,461,531 3,528,670 537,005 907,487
----------- ----------- --------- -----------
Gross profit 426,838 753,497 94,034 283,754
----------- ----------- --------- -----------
OPERATING EXPENSES:
Sales and marketing 188,425 306,237 65,542 108,411
General and administrative 213,002 623,876 56,768 115,187
Stock based compensation - 150,000 - -
Depreciation 18,811 22,657 6,759 11,931
Amortization 342 757 87 22,389
----------- ----------- --------- -----------
Total operating expenses 420,580 1,103,527 129,156 257,918
----------- ----------- --------- -----------
Income (loss) from operations 6,258 (350,030) (35,122) 25,836
----------- ----------- --------- -----------
OTHER INCOME (EXPENSE):
Interest expense (17,481) (34,030) (6,069) (13,495)
Interest income - - - 21,188
Other 5,901 35 325 83
----------- ----------- --------- -----------
(11,580) (33,995) (5,744) 7,776
----------- ----------- --------- -----------
Income (loss) before income taxes
and minority interest (5,322) (384,025) (40,866) 33,612
INCOME TAXES (6,821) (5,989) (637) (12,212)
----------- ----------- --------- -----------
Income (loss) before minority interest (12,143) (390,014) (41,503) 21,400
MINORITY INTEREST 18,672 96,926 18,241 1,002
----------- ----------- --------- -----------
NET INCOME (LOSS) $ 6,529 $ (293,088) $(23,262) $ 22,402
=========== =========== ========= ===========
NET INCOME (LOSS)
PER COMMON SHARE:
BASIC AND DILUTED $ - $ (0.03) $ - $ -
=========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
LOGISOFT COMPUTER PRODUCTS CORP.
--------------------------------
ESTOREFRONTS.NET CORP.
----------------------
COMBINED AND CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------
LogiSoft Computer Products Corp.
--------------------------------------------------------
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
---------- ------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 7,500,000 $ 750 $ - $ 23,045 $ 23,795
Issuance of founders shares (November, 1998) - - - - -
Sale of shares (December, 1998) - - - - -
Minority interest in sale of shares - - - - -
Net income (loss) - - - 30,293 30,293
---------- ------ ----------- ---------- -----------
BALANCE, December 31, 1998 7,500,000 750 - 53,338 54,088
Sale of shares (January, 1999) - - - - -
Issuance of shares for services - - - - -
Minority interest in issuance of shares - - - - -
Net loss - - - (169,727) (169,727)
---------- ------ ----------- ---------- -----------
BALANCE, December 31, 1999 7,500,000 750 - (116,389) (115,639)
Issuance of shares in merger (unaudited) 18,434,553 1,844 6,218,156 - 6,220,000
Stock issuance costs (unaudited) - - (120,000) - (120,000)
Acquisition of eStorefronts minority interest (unaudited) - - - - -
Net income (loss) (unaudited) - - - 56,200 56,200
---------- ------ ----------- ---------- -----------
BALANCE, March 31, 2000 (unaudited) 25,934,553 $2,594 $6,098,156 $ (60,189) $6,040,561
========== ====== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
eStorefronts.net Corp.
-----------------------------------------------------------------
Common Stock Paid-in Retained Minority
Shares Amount Capital Earnings Interest Total
--------- ------ ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 - $ - $ - $ - $ - $ -
Issuance of founders shares (November, 1998) 3,926,250 393 (393) - - -
Sale of shares (December, 1998) 225,000 22 99,978 - - 100,000
Minority interest in sale of shares - - - - (44,000) (44,000)
Net income (loss) - - - (42,436) 18,672 (23,764)
--------- ------ ----------- ---------- --------- -----------
BALANCE, December 31, 1998 4,151,250 415 99,585 (42,436) (25,328) 32,236
Sale of shares (January, 1999) 11,250 1 14,999 - - 15,000
Issuance of shares for services 337,500 34 149,966 - - 150,000
Minority interest in issuance of shares - - - - (72,600) (72,600)
Net loss - - - (220,287) 96,926 (123,361)
--------- ------ ----------- ---------- --------- -----------
BALANCE, December 31, 1999 4,500,000 450 264,550 (262,723) (1,002) 1,275
Issuance of shares in merger (unaudited) - - - - - -
Stock issuance costs (unaudited) - - - - - -
Acquisition of eStorefronts minority interest (unaudited) - - 1,980,000 - - 1,980,000
Net income (loss) (unaudited) - - - (34,800) 1,002 (33,798)
--------- ------ ----------- ---------- --------- -----------
BALANCE, March 31, 2000 (unaudited) 4,500,000 $ 450 $2,244,550 $(297,523) $ - $1,947,477
========= ====== =========== ========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Combined/Consolidated
---------------------------------------------------------------------------
Common Stock Paid-in Retained Minority
Shares Amount Capital Earnings Interest Total
------------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 7,500,000 $ 750 $ - $ 23,045 $ - $ 23,795
Issuance of founders shares (November, 1998) 3,926,250 393 (393) - - -
Sale of shares (December, 1998) 225,000 22 99,978 - - 100,000
Minority interest in sale of shares - - - - (44,000) (44,000)
Net income (loss) - - - (12,143) 18,672 6,529
---------- ------------- ----------- ---------- ---------- -----------
BALANCE, December 31, 1998 11,651,250 1,165 99,585 10,902 (25,328) 86,324
Sale of shares (January, 1999) 11,250 1 14,999 - - 15,000
Issuance of shares for services 337,500 34 149,966 - - 150,000
Minority interest in issuance of shares - - - - (72,600) (72,600)
Net loss - - - (390,014) 96,926 (293,088)
---------- ------------- ----------- ---------- ---------- -----------
BALANCE, December 31, 1999 12,000,000 1,200 264,550 (379,112) (1,002) (114,364)
Issuance of shares in merger (unaudited) 18,434,553 1,844 6,218,156 - - 6,220,000
Stock issuance costs (unaudited) - - (120,000) - - (120,000)
Acquisition of eStorefronts minority interest (unaudited) - - 1,980,000 - - 1,980,000
Net income (loss) (unaudited) - - - 21,400 1,002 22,402
---------- ------------- ----------- ---------- ---------- -----------
BALANCE, March 31, 2000 (unaudited) 30,434,553 $ 3,044 $8,342,706 $(357,712) $ - $7,988,038
========== ============= =========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
LOGISOFT COMPUTER PRODUCTS CORP.
--------------------------------
ESTOREFRONTS.NET CORP.
----------------------
COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------
Year ended December 31, Quarter ended March 31,
------------------------ -----------------------
1998 1999 1999 2000
------------ ---------- --------- ------------
<S> <C> <C> <C> <C>
(unaudited)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,529 $(293,088) $(23,262) $ 22,402
Adjustments to reconcile net income (loss) to
net cash flow from operating activities:
Minority interest (18,672) (96,926) (18,241) (1,002)
Depreciation and amortization 19,153 23,414 6,846 34,320
Deferred taxes (2,577) (28,132) - 8,477
Stock based compensation - 150,000 - -
Changes in:
Accounts receivable 16,370 (758,348) (96,661) 14,537
Inventory (2,213) (368) 215 (3,316)
Prepaid expenses and other current assets 9,333 (2,960) (11,609) (8,590)
Unbilled revenues, net of advanced billings 2,100 700 23,700 1,100
Accounts payable 71,663 306,659 82,000 (228,442)
Accrued expenses 157 373,868 (744) (324,614)
------------ ---------- --------- -----------
Net cash flow from (used in)
operating activities 101,843 (325,181) (37,756) (485,128)
------------ ---------- --------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Increase in other assets - - - (28,684)
Increase in intangible assets (900) (6,000) - -
Purchases of property and equipment (64,071) (61,046) (3,589) (21,531)
Repayments - due from officer - 2,842 - 6,909
------------ ---------- --------- -----------
Net cash flow from (used in)
investing activities (64,971) (64,204) (3,589) (43,306)
------------ ---------- --------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings on line-of-credit, net 20,000 330,000 50,000 50,000
Repayment of long-term debt (6,918) (13,873) (3,453) (3,597)
Borrowings on note payable - officer - 12,000 - -
Repayments of note payable - officer (45,836) - - (12,000)
Proceeds from sale of stock 100,000 15,000 15,000 -
Cash acquired in merger transactions - - - 5,500,000
Stock issuance costs - - - (25,000)
------------ ---------- --------- -----------
Net cash flow from financing activities 67,246 343,127 61,547 5,509,403
------------ ---------- --------- -----------
CHANGE IN CASH AND EQUIVALENTS 104,118 (46,258) 20,202 4,980,969
CASH AND EQUIVALENTS - beginning of year 1,690 105,808 105,808 59,550
------------ ---------- --------- -----------
CASH AND EQUIVALENTS - end of year $ 105,808 $ 59,550 $126,010 $5,040,519
============ ========== ========= ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash interest paid $ 16,762 $ 32,482 $ 4,639 $ 14,034
============ ========== ========= ===========
Cash taxes paid $ 12,022 $ 10,945 $ 979 $ 1,212
============ ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
LOGISOFT COMPUTER PRODUCTS CORP.
--------------------------------
ESTOREFRONTS.NET CORP.
----------------------
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------
(1) Description of Business
-------------------------
The combined and consolidated financial statements include Logisoft Computer
Products Corp. (LCP), formerly known as LogiSoft Corp., and eStorefronts.net
Corp. (eStorefronts), which are under common control, together the Companies.
The shareholders of LCP owned 56% of the shares of eStorefronts through March
10, 2000, when LCP and eStorefronts shares were exchanged in transactions with
LogiSoft Corp., formerly known as Reconversion Technologies, Inc. (LogiSoft or
the Company), as discussed below. After these transactions, LCP and
eStorefronts were wholly-owned subsidiaries of LogiSoft.
Business
Together, LCP and eStorefronts are a full-spectrum Internet business development
enterprise. The Companies offer comprehensive strategic Internet services with
core competencies being sophisticated Interactive web development and
domestic/international e-commerce solutions. Additionally, the Companies
develop and operate a variety of e-commerce/retail businesses through
subsidiaries and strategic partnerships that leverage their knowledge of
technology, e-commerce and Internet marketing.
The Companies provide comprehensive, sophisticated Internet capabilities to both
traditional middle market and pure e-business companies. LCP provides up front
planning with strategic consulting services, custom front-end architecture and
web development as well as comprehensive back end support upon web site
completion. LCP's competitive advantage is the unique ability to deliver these
services on a global scale which includes a proprietary e-commerce solution that
allows for transactions in multiple languages and currencies, settlement in
multiple countries and multiple transactions methods - all automated and updated
in real time.
LCP was founded in 1989 as a software and hardware provider to corporate
customers and educational entities such as universities and school districts.
In 1996, LCP launched its Internet division, "LogiSoft Interactive", and found
immediate success, winning both local and national awards in 1997. In 1999,
LogiSoft Interactive completed its development of a proprietary e-commerce
platform that enables it to roll out turn-key domestic and international
websites that allow companies to penetrate international markets on a cost
effective basis. The software and hardware solutions business is being migrated
to an internet based platform. eStorefronts partners with both traditional and
pure web-based businesses to take businesses to the Internet. It participates
in the development and execution of the business plan in exchange for
revenue-sharing and/or equity-based arrangements.
Merger Transactions (unaudited)
On March 10, 2000, LCP was acquired by Reconversion Technologies, Inc. (now
known as Logisoft), a public shell company registered in Delaware in a reverse
triangular merger, in which the shareholders of LCP received 7,500,000 shares of
LogiSoft for all of the outstanding common stock of LCP. For accounting
purposes, this transaction has been recorded as an issuance of LCP stock in
exchange for the assets of LogiSoft. At the time of acquisition, LogiSoft had no
operations and its assets consisted of $5,500,000 in cash and a note receivable
for $720,000. Effective May 1, 2000, Reconversion Technologies, Inc. changed
its name to LogiSoft Corp. and its ticker symbol to 'LGST' to better reflect its
business.
F-6
<PAGE>
Consistent with the accounting for this transaction as an issuance of shares by
LCP for the assets of LogiSoft, the historical financial statements of LCP
replace those of the legal issuer, LogiSoft, and the assets and activity of
LogiSoft are included in the consolidated financial statements of the Company
from March 10, 2000. The Company will maintain LCP's December 31 fiscal year
end. LogiSoft's fiscal year end was June 30.
The $5,500,000 cash in LogiSoft on the date of acquisition represents the
proceeds received from the sale of 2,750,000 shares of its stock and the
exercise of 2,750,000 existing warrants to purchase registered shares of its
common stock at $1 per share by nine unrelated investors on March 9, 2000.
Also on March 10, 2000 and in conjunction with the LCP transaction, LogiSoft
acquired all of the outstanding common stock of eStorefronts for 4,500,000
shares of LogiSoft in a share exchange. LCP shareholders owned 56% of
eStorefronts common stock at the time of this transaction. The share exchange
between the shareholders of eStorefronts and LogiSoft has been accounted for at
historical cost for the 56% of eStorefronts controlled by the LCP shareholders.
The acquisition of the minority interest of 44% by LogiSoft has been accounted
for using purchase accounting.
The purchase price of the 44% minority interest in eStorefronts in excess of
fair value of net assets acquired has been reflected as goodwill. This goodwill
of approximately $1,980,000 is being amortized over its estimated useful life of
five years.
In connection with the transactions, shareholders owning 50.4% of the Company
including the LCP shareholders, certain eStorefronts shareholders and other
investors entered into voting agreements. The agreements are effective for two
years from the date of the reverse merger transaction and require the parties
to vote to maintain the number of directors of the Company at four and to vote
for the two candidates for board of directors seats nominated by (1) the former
LCP shareholders and (2) certain investors in the 5,500,000 shares issued on
March 9, 2000. The pre-transaction shareholders of LCP and eStorefronts occupy
the key executive management positions of the Company.
On March 7, 2000, LogiSoft entered into an agreement for the sale of Keystone
Laboratories, Inc. (Keystone), a drug screening and confirmatory testing
laboratory business, to its former president for a $720,000 promissory note.
Keystone's business was operated in the normal course up to the time of its
disposal and was LogiSoft's only operating business at that time. This disposal
was a condition precedent to completing the transactions with LCP and
eStorefronts.
F-7
<PAGE>
(2) Basis and Presentation of Financial Statements
---------------------------------------------------
The combined financial statements for the years ended December 31, 1999 and
1998 and quarter ended March 31, 1999 (unaudited) include the historical
combined financial statements of LCP and eStorefronts giving effect to the 44%
minority interest in eStorefronts. The unaudited consolidated financial
statements for the quarter ended March 31, 2000 include the historical combined
accounts of LCP and eStorefronts for the period from January 1, 2000 through
March 9, 2000 and reflect the issuance of stock for the assets of LogiSoft and
the acquisition of the minority interest in eStorefronts on March 10, 2000.
Accordingly, the results of operations for the quarter ended March 31, 2000
include 56% of the eStorefronts operations through March 9, 2000 and 100%
thereafter. The $5,500,000 in cash and the $720,000 note receivable are
recorded as proceeds from the issuance of 18,434,553 shares of LCP on March 10,
2000.
All significant intercompany accounts and transactions have been eliminated.
Revenue Recognition and Related Expenses -
Revenue from uncollateralized e-commerce/retail sales is recognized upon passage
of title of the related goods to the customer.
Strategic internet services revenue is recognized on a percentage of completion
basis for fixed fee contracts, based on the ratio of costs incurred to total
estimated costs for individual projects. Revenue is recognized as services are
performed for time and material contracts.
Cost of revenue for the e-commerce/retail business is comprised primarily of the
purchased cost of products sold.
Cost of revenue for strategic internet services consists primarily of project
personnel costs such as salaries, employee benefits and incentive compensation
of billable employees and the cost of any third-party hardware or software
included in an Internet solution.
Sales and marketing expenses include product and service research, advertising,
brand name promotions, lead-generation activities and shipping/logistics as well
as salaries, employee benefits and incentive compensation of personnel in these
functions.
General and administrative expenses are comprised of the salaries, employee
benefits and incentive compensation of personnel responsible for administrative,
accounting, legal, human resources functions, the costs of the Company's
facilities and other general and administrative expense.
Cash and Equivalents -
The Company considers all highly liquid investments with an original maturity of
90 days or less to be cash and equivalents. The Company maintains its cash in
bank demand deposit accounts, which at times may exceed federally insured
limits. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash and
equivalents.
F-8
<PAGE>
Inventory -
Inventory consists of computer hardware and software supplies and is stated
at the lower of cost, determined on a first-in, first-out (FIFO) basis, or
market.
Property and Equipment -
Property and equipment is recorded at cost. Expenditures for renewals and
improvements that significantly add to the productive capacity or extend the
useful life of an asset are capitalized. Expenditures for maintenance and
repairs are charged to operations as incurred. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets as
follows:
Buildings and improvements 40 years
Computers and office equipment 3 - 5 years
Furniture and fixtures 10 years
The Company reviews quarterly its properties in accordance with the
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long Lived Assets" to determine if its carrying costs will be
recovered from future operating cash flows. In cases where the Company does not
expect to recover its carrying costs, the Company recognizes an impairment loss.
Intangible Assets -
Intangible assets consist of goodwill, deferred financing costs and prepaid
licensing fees. Goodwill is being amortized over its estimated useful life of
five (5) years. Deferred financing fees are amortized on a straight-line basis
over the term of the related mortgage. Prepaid licensing fees are amortized
over the estimated useful life of the licensing agreement of five (5) years.
The carrying value of goodwill and other intangible assets are reviewed if facts
and circumstances suggest that they may be impaired. If this review indicates
goodwill or other intangibles will not be recoverable, as determined based on
future expected cash flows or other fair market value determinations, the
Company's carrying value of the goodwill or other intangibles are reduced to
fair value.
Advertising Costs -
The Company expenses advertising costs as incurred. The Company recorded
expense of $7,800 and $6,500 for the years ended December 31, 1998 and 1999,
respectively, and $700 (unaudited) and $3,300 (unaudited) for the quarters ended
March 31, 1999 and March 31, 2000, respectively.
Income Taxes -
The Company applies the asset and liability approach for financial accounting
and reporting purposes for income taxes. The Company accounts for certain items
of income and expense in different time periods for financial reporting and
income tax purposes. Provisions for deferred income taxes are made in
recognition of such temporary differences, where applicable. A valuation
allowance is established against deferred tax assets unless the Company believes
it is more likely than not that the benefit will be realized.
Net Income (Loss) per Common Share -
The Company computes net income (loss) per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128).
Under the provisions of SFAS No. 128 basic net income (loss) per share (Basic
EPS) is computed by dividing net income (loss) by the weighted average number of
common shares outstanding. Diluted net income (loss) per common share (Diluted
EPS) is computed by dividing net income (loss) by the weighted average number of
common shares and dilutive common shares equivalents then outstanding.
F-9
<PAGE>
Weighted average common shares outstanding are as follows:
<TABLE>
<CAPTION>
Years Ended Quarters Ended
December 31, March 31,
---------------------------- ----------------------
1998 1999 1999 2000
------------ -------------- ---------- ----------
<S> <C> <C> <C> <C>
(unaudited)
Weighted average shares 7,913,486 10,047,925 10,018,875 14,628,509
Dilutive potential shares - - - 958,765
------------ -------------- ---------- ----------
Adjusted weighted
average shares 7,913,486 10,047,925 10,018,875 15,587,274
============ ============== ========== ==========
</TABLE>
Fair Value of Financial Instruments -
The carrying amounts of financial instruments including cash and equivalents,
accounts receivable, notes receivable, accounts payable and accrued expenses
approximate fair value. The carrying amount of long-term debt approximates fair
value based on current rates of interest available to the Company for loans of
similar maturities.
New Accounting Pronouncements -
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
is required to be adopted in years beginning after June 15, 1999. In July,
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB statement No. 133, "
which amends SFAS No. 133 to be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. The Company will be required to adopt SFAS
133 for the quarter ending March 31, 2001. The Company anticipates that the
adoption of SFAS No. 133 will not have a significant effect on the financial
condition or results of operations of the Company.
Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. The estimates and assumptions used in the accompanying
combined financial statements are based upon management's evaluation of the
relevant facts and circumstances as of the date of the financial statements.
Actual results could differ from those estimates.
F-10
<PAGE>
(3) Property and Equipment
------------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, March 31,
--------------------------- ----------
1998 1999 2000
-------------- ----------- -----------
<S> <C> <C> <C>
(unaudited)
Land, building and improvements $ 272,819 $ 290,531 $ 292,945
Computers and office equipment 125,432 163,946 182,221
Furniture and fixtures 12,616 16,584 17,426
-------------- ----------- -----------
410,867 471,061 492,592
Less: Accumulated depreciation (82,215) (104,020) (115,951)
-------------- ----------- -----------
$ 328,652 $ 367,041 $ 376,641
============== =========== ===========
</TABLE>
In 1998, the Company purchased land and a building for $120,000 financed with
bank debt. Also in 1998, the Company entered into a capital lease for equipment
with a recorded value of $17,616.
(4) Intangible Assets
------------------
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
--------------------------- -----------
1998 1999 2000
-------------- ----------- -----------
<S> <C> <C> <C>
(unaudited)
Goodwill $ - $ - $1,980,000
Deferred financing costs 7,147 7,147 7,147
Prepaid licensing fees - 6,000 6,000
-------------- ----------- -----------
7,147 13,147 1,993,147
Less: Accumulated amortization (966) (1,723) (24,112)
-------------- ----------- -----------
$ 6,181 $ 11,424 $1,969,035
============== =========== ===========
</TABLE>
(5) Other Assets (unaudited)
-------------------------
Other assets consists of a deposit paid in March, 2000 relating to a lease
agreement for additional office space.
F-11
<PAGE>
(6) Financing Arrangements
-----------------------
Long-Term Debt -
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, March 31,
---------------------
1998 1999 2000
--------- ---------- --------
<S> <C> <C> <C>
(unaudited)
Mortgage payable to a bank in
monthly installments of $1,751,
including interest at 7.96%
through October, 2015. 207,623 $198,154 $ 195,658
Capital lease obligation payable
in monthly installments of $367,
including interest at 7.00%
through June, 2002. 15,414 11,010 9,909
--------- ---------- ---------
223,037 209,164 205,567
Less: Current portion (8,853) (9,428) (8,400)
--------- ---------- ---------
214,184 $199,736 $ 197,167
========= ========== =========
</TABLE>
Future maturities of long-term debt are as follows at December 31, 1999:
2000 . . . . . . . . . . . . . . . . . $ 9,428
2001 . . . . . . . . . . . . . . . . . 9,842
2002 . . . . . . . . . . . . . . . . . 8,089
2003 . . . . . . . . . . . . . . . . . 6,374
2004 . . . . . . . . . . . . . . . . . 6,900
Thereafter . . . . . . . . . . . . . . 168,531
--------
$209,164
========
Line-of-Credit -
The Company may borrow $400,000 under the terms of an annually renewable
working capital line-of-credit agreement. Amounts borrowed bear interest at the
prime rate plus 1% (9.5% at December 31, 1999 and 9.75% at March 31, 2000
(unaudited)), are collateralized by all assets of the Company and are guaranteed
by certain shareholders.
F-12
<PAGE>
(7) Stockholder's Equity
---------------------
Equity Transactions -
All equity transactions have been retroactively restated to reflect the exchange
ratios from the March 10, 2000 merger transactions.
Quarter ended March 31, 2000 (unaudited) -
As described in Note 1, LCP and eStorefronts entered into transactions with
LogiSoft on March 10, 2000. For accounting purposes, these transactions have
been reflected as an issuance of 18,434,553 common shares by LCP in exchange for
the assets of LogiSoft and the purchase of the 44% minority interest in
eStorefronts. Transactions costs of $120,000 were incurred related to the
merger transactions which have been recorded as a reduction in paid-in capital.
Year ended December 31, 1999 -
During 1999, eStorefronts sold 11,250 common shares for $15,000 and issued
337,500 common shares valued at $150,000 to individuals for services rendered.
Year ended December 31, 1998 -
During 1998, eStorefronts was formed. In connection with the formation,
3,926,250 common shares were issued to the founders of eStorefronts.
Subsequently, eStorefronts sold 225,000 common shares for $100,000.
Warrants (unaudited) -
On November 13, 1997, LogiSoft's Disclosure Statement and Plan of Reorganization
(the Plan) was confirmed. In connection with the Plan, LogiSoft issued the
following warrants to purchase LogiSoft's common stock:
- - Class A warrants to purchase 1,624,172 shares of common stock at $1 per
share exercisable through June 7, 2000.
- - Class B warrants to purchase 1,475,973 shares of common stock at $1 per
share exercisable through June 7, 2000.
- - Upon the exercise of a Class B warrant, a Class C warrant will be issued
allowing the purchase of the number of shares of common stock equal to the
number of shares purchased upon exercise of the Class B warrants. Class C
warrants are exercisable at $1.75 per share through December 7, 2000.
In the quarter ended March 31, 2000 and prior to the merger transactions,
227,500 Class A warrants were exercised and an additional 1,300,000 Class B
warrants were issued under the Plan. These Class B warrants and 1,450,000 of
the previously issued Class B warrants were exercised as a part of the sale of
2,750,000 shares of LogiSoft on March 9, 2000 in conjunction with the merger
transactions.
The exercise of the 2,750,000 Class B warrants resulted in the issuance of
the same number of Class C warrants, which are exercisable at $1.75 per share on
or before December 7, 2000.
At March 31, 2000, Class A and B warrants to purchase 1,422,145 shares and Class
C warrants to purchase 2,767,500 shares were outstanding.
F-13
<PAGE>
Preferred Stock (unaudited) -
The Company has authorized the issuance of 2,000,000 shares of Series A
non-voting, cumulative preferred stock with a par value of $2.75.
A 6% cumulative dividend is payable quarterly to stockholders of record on the
last day of the month prior to the dividend date. The Series A stock has a
liquidation preference over the Company's common stock as well as any other
classes of stock established by the Company.
Stock Option Plan (unaudited) -
In April, 2000, the Company adopted its 2000 Stock Option Plan (the Plan). The
Plan is subject to approval by the shareholders. Under the Plan, the Board of
Directors is authorized to grant options to purchase up to 3,000,000 shares of
the Company's common stock. The Board of Directors is authorized to establish
the exercise price and vesting terms of individual grants under the Plan.
(8)Income Taxes
-------------
The components of the deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1999
--------- ----------
Assets:
<S> <C> <C>
Net operating loss carryforward $ 17,014 $ 45,070
Accrued expenses 1,318 117,640
--------- ----------
18,332 162,710
Valuation allowance (17,014) (125,070)
--------- ----------
1,318 37,640
--------- ----------
Liabilities:
Depreciation (11,164) (19,354)
--------- ----------
$ (9,846) $ 18,286
========= ==========
</TABLE>
At December 31, 1999 and 1998, a valuation allowance was provided for the
portion of the deferred tax asset for which realization was not reasonably
assured. The amount of the deferred tax asset recorded is approximately equal
to the amount of income taxes paid in 1999 and 1998. The valuation allowance was
established due to the operating losses reported in 1999 and 1998 and the impact
of expected future investments in infrastructure in the short-term.
F-14
<PAGE>
The components of the benefit (provision) for income taxes consist of the
following:
<TABLE>
<CAPTION>
Year ended
December 31,
------------------
1998 1999
-------- ---------
<S> <C> <C>
Current:
Federal $(6,129) $(24,716)
State (3,269) (9,405)
-------- ---------
(9,398) (34,121)
-------- ---------
Deferred:
Federal $ 1,997 $ 21,802
State 580 6,330
-------- ---------
2,577 28,132
-------- ---------
$(6,821) $ (5,989)
======== =========
</TABLE>
A reconciliation of the federal statutory rate and the effective income tax rate
is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1998 1999
---------- -----------
<S> <C> <C>
Federal income taxes at the statutory rate $ 1,809 $ 130,569
State income taxes, net of federal benefit 319 23,042
Effect of permanent differences (4,647) (68,907)
Change in valuation allowance (17,014) (108,056)
Other 12,712 17,363
---------- -----------
$ (6,821) $ (5,989)
=======================
</TABLE>
The permanent differences in 1999 relate primarily to compensation expense
recorded for financial statement purposes for stock grants made during the year.
At December 31, 1999, eStorefronts had available a net operating loss carry
forward of approximately $113,000 available to offset future taxable income, if
any, expiring beginning in 2018.
Income taxes for the quarters ended March 31, 1999 and 2000 have been
provided at the effective income tax rate expected for the calendar year
(unaudited).
F-15
<PAGE>
(9) Commitments and Contingencies
-------------------------------
Lease -
In March, 2000, the Company entered into an agreement to lease office space
under a non-cancelable lease arrangement. The future minimum lease payments
required under this lease are as follows:
2000 . . . . . . . . . . . . . . . . . $ 90,376
2001 . . . . . . . . . . . . . . . . . 147,740
2002 . . . . . . . . . . . . . . . . . 166,012
2003 . . . . . . . . . . . . . . . . . 172,104
2004 . . . . . . . . . . . . . . . . . 172,104
Thereafter . . . . . . . . . . . . . 143,420
-------
$891,756
========
Consulting -
During April, 2000, the Company entered into a 12 month non-cancelable
consulting agreement requiring monthly payments of $10,000.
(10) Business Segments
------------------
The Company operates in two business segments: e-commerce/retail and strategic
internet services. The Company's reportable segments are strategic business
units that offer different products and services. They are managed separately
because each segment requires different technology, strategic competencies and
marketing strategies.
A summary of the Company's two business segments are as follows:
Year ended December 31, 1998:
<TABLE>
<CAPTION>
Strategic
e-commerce/ Internet
Retail Services Corporate
------------- ---------- ---------
<S> <C> <C> <C>
Revenue $ 2,671,593 $ 216,776 $ -
Income (loss) from operations 110,643 (96,885) (7,500)
Depreciation and amortization 6,357 5,296 7,500
Identifiable assets 258,811 67,153 378,991
Capital expenditures 20,125 37,120 144,442
Year ended December 31, 1999:
Strategic
e-commerce/ Internet
Retail Services Corporate
------------- ----------- ----------
Revenue $ 3,668,069 $ 614,098 $ -
Income (loss) from operations 122,208 20,470 (492,708)
Depreciation and amortization 5,617 9,297 8,500
Identifiable assets 921,773 215,214 372,498
Capital expenditures 29,351 13,722 17,973
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
Quarter ended March 31, 1999 (unaudited):
Strategic
e-commerce/ Internet
Retail Services Corporate
------------- ----------- ----------
<S> <C> <C> <C>
Revenue $550,719 $80,320 $ -
Income (loss) from operations 4,026 (37,000) (2,148)
Depreciation and amortization 2,167 2,531 2,148
Identifiable assets 347,314 91,700 410,953
Capital expenditures - 1,245 2,344
</TABLE>
Quarter ended March 31, 2000 (unaudited):
<TABLE>
<CAPTION>
Strategic
e-commerce/ Internet
Retail Services Corporate
------------- ----------- -----------
<S> <C> <C> <C>
Revenue $ 924,520 $ 266,721 $ -
Income (loss) from operations (32,088) 61,910 (3,986)
Depreciation and amortization 27,627 2,707 3,986
Identifiable assets 2,890,817 222,500 6,091,492
Capital expenditures 8,042 13,489 -
</TABLE>
For 1999, the portion of the loss from operations attributable to corporate
activity includes the $150,000 stock compensation charge as well as special
executive compensation expenses of $334,200, paid in conjunction with the merger
transactions consummated in March, 2000.
The loss in e-commerce/retail in the quarter ended March, 2000 includes $22,000
of goodwill amortization and is also impacted by seasonably low sales in the
first quarter and the cost of additional sales staff hired during the quarter,
who were being trained.
The large increase in identifiable assets in the e-commerce/retail segment as of
March 31, 2000 is due to the recording of goodwill of $1,980,000 from the
purchase of the 44% minority interest in eStorefronts.
The corporate assets consist primarily of cash and cash equivalents, the note
receivable arising from the March, 2000 merger transactions, deferred tax
assets, the Company's building and land located in Fairport, NY and certain
equipment that is not allocated to the business segments.
(11) Related Party Transactions
----------------------------
In 1999, an officer and stockholder of the Company loaned $12,000 to LCP
bearing interest at 10%. The total amount borrowed plus applicable interest
was repaid in full in the quarter ended March 31, 2000. The amount
outstanding at December 31, 1999 is included under the caption "Note payable -
officer" in the accompanying balance sheet.
At December 31, 1999 and 1998, the Company had $6,909 and $9,751,
respectively, due from an officer.
F-17
<PAGE>
(12) Concentrations
--------------
Revenue from one customer accounted for 20% of total revenue in 1999. Accounts
receivable included approximately $597,000 due from this customer at December
31, 1999.
Revenue from one customer accounted for 15% and revenue from two customers
individually accounted for 12% of total revenue in the quarters ended March 31,
2000 and 1999, respectively (unaudited).
(13) Note Receivable (unaudited)
----------------------------
At March 31, 2000, the Company has a non-interest bearing $720,000 note
receivable from the sale of a laboratory business by LogiSoft on March 7, 2000,
prior to the merger transactions. This note is payable in twelve equal monthly
installments of $60,000 and is collateralized by the assets of the business
sold.
PRO FORMA FINANCIAL DATA
(Unaudited)
Pro Forma Combined and Consolidated Statements of Income and Operations
-----------------------------------------------------------------------
The following unaudited pro forma combined and consolidated statements of income
and operations have been derived from the statements of income and operations of
the Company for the year ended December 31, 1999 and the quarter ended March 31,
2000 and adjust such information to give effect to the merger transactions as if
the merger transactions occurred on January 1, 1999. The pro forma combined and
consolidated statements of income and operations are presented for informational
purposes only and do not purport to be indicative of the results of operations
that actually would have resulted if the merger transaction had been consummated
on January 1, 1999 nor which may result from future operations.
A pro forma balance sheet has not been presented here because the merger
transactions are reflected in the Company's consolidated balance sheet as of
March 31, 2000 contained elsewhere in this Form 8-K.
The Pro Forma Combined and Consolidated Statements of Income and Operations
should be read in conjunction with the notes thereto and the Company's combined
and consolidated financial statements and related notes thereto contained
elsewhere in this Form 8-K.
F-18
<PAGE>
<TABLE>
<CAPTION>
Year Ended Quarter Ended
December 31, 1999 March 31, 2000
-------------------------------------------------- ---------------------------------------
Pro Forma Pro Forma
Actual Adjustments Pro Forma Actual Adjustments Pro Forma
------------------- ---------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
E-commerce/retail $ 3,668,069 $ - $3,668,069 $ 924,520 $ - $ 924,520
Strategic internet services 614,098 - 614,098 266,721 - 266,721
------------------- ---------------- ----------- ----------- ------------- -----------
Total revenue 4,282,167 - 4,282,167 1,191,241 - 1,191,241
------------------- ---------------- ----------- ----------- ------------- -----------
COST OF REVENUE:
E-commerce/retail 3,195,703 - 3,195,703 800,259 - 800,259
Strategic internet services 332,967 - 332,967 107,228 - 107,228
------------------- ---------------- ----------- ----------- ------------- -----------
Total cost of revenue 3,528,670 - 3,528,670 907,487 - 907,487
------------------- ---------------- ----------- ----------- ------------- -----------
Gross profit 753,497 - 753,497 283,754 - 283,754
------------------- ---------------- ----------- ----------- ------------- -----------
OPERATING EXPENSES:
Sales and marketing 306,237 - 306,237 108,411 - 108,411
General and administrative 623,876 - 623,876 115,187 - 115,187
Stock based compensation 150,000 - 150,000 - -
Depreciation 22,657 - 22,657 11,931 - 11,931
Amortization 757 396,000(1) 396,757 22,389 77,000(1) 99,389
------------------- ---------------- ----------- ----------- ------------- -----------
Total operating expenses 1,103,527 396,000 1,499,527 257,918 77,000 334,918
------------------- ---------------- ----------- ----------- ------------- -----------
Income (loss) from operations (350,030) (396,000) (746,030) 25,836 (77,000) (51,164)
------------------- ---------------- ----------- ----------- ------------- -----------
OTHER INCOME (EXPENSE):
Interest expense (34,030) - (34,030) (13,495) - (13,495)
Interest income - - - 21,188 - 21,188
Other 35 - 35 83 - 83
------------------- ---------------- ----------- ----------- ------------- -----------
(33,995) - (33,995) 7,776 - 7,776
------------------- ---------------- ----------- ----------- ------------- -----------
Income (loss) before income
taxes and minority interest (384,025) (396,000) (780,025) 33,612 (77,000) (43,388)
INCOME TAXES (5,989) - (5,989) (12,212) - (12,212)
------------------- ---------------- ----------- ----------- ------------- -----------
NET INCOME (LOSS) BEFORE
MINORITY INTEREST (390,014) (396,000) (786,014) 21,400 (77,000) (55,600)
MINORITY INTEREST 96,926 (96,926) (2) - 1,002 (1,002)(2) -
------------------- ---------------- ----------- ----------- ------------- -----------
NET INCOME (LOSS) $ (293,088) $ (492,926) $ (786,014) $ 22,402 $ (78,002) $ (55,600)
=================== ================ =========== =========== ============= ===========
NET INCOME (LOSS) PER
COMMON SHARE - BASIC AND DILUTED $ (0.03) $ -
=========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING (3) 30,293,728 30,434,553
=========== ===========
</TABLE>
Notes to Pro Forma Consolidated and Combined Statement of Operations
(1) Reflects amortization of goodwill of $1,980,000 resulting from the
acquisition of the 44% minority interest in eStorefronts over five (5)
years.
(2) Reflects elimination of minority interest in eStorefronts.
(3) Reflects adjustment for the number of shares issued in the merger
transactions (18,434,553).
F-19
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
(1) Merger Agreement and Plan of Reorganization, ("Agreement") dated
March 10, 2000, by and between LogiSoft and LCP, incorporated herein by
reference to LogiSoft 8-K, filed March 27, 2000.
(2) Agreement and Plan of Reorganization, dated March 10, 2000, by and
between LogiSoft and eStorefronts, incorporated herein by reference to LogiSoft
8-K, filed March 27, 2000.
(3) Stock Purchase Agreement, dated March 7, 2000, by and between
LogiSoft and Mr. Joel Holt, incorporated herein by reference to LogiSoft 8-K,
filed March 27, 2000.
(4) Voting Agreement, dated March 10, 2000, by and among Robert Lamy,
William Lamy, Robert Ballard, Michael Pruitt, Bruce Goldfarb, Darin Road, Ltd.,
Michael Cimino, Corsica Marketing, Inc., Avenel Financial Group and LogiSoft is
incorporated herein by reference to the Robert Lamy's Form 13D filed on March
20, 2000.
(5) Second Voting Agreement, dated as of March 10, 2000, by and between
David Wilkerson, Walter Robb, Scott Fox, David White, Van Ernst Jakobs
Securities, Carl Mozak, Robert Lamy, William Lamy and Robert Ballard.
ITEM 8. CHANGE IN FISCAL YEAR
LogiSoft has a fiscal year that ends on June 30. LCP, the issuer of stock
for accounting purposes, has a fiscal year that ends on December 31. Therefore,
as of the date of the merger, March 10, 2000, the fiscal year end for reporting
purposes is that of LCP, or December 31. LogiSoft will report on Form 10-QSB as
of and for the quarters ending June 2000 and September 2000 and LogiSoft's next
Form 10-KSB will be filed for the year ending December 31, 2000.
40
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LOGISOFT CORP.
Dated: May __, 2000 By: /s/ Robert E. Lamy
--------------------------------------
Robert E. Lamy
President
41
<PAGE>
LOGISOFT CORP.
SECOND VOTING AGREEMENT
Agreement made as of March 10, 2000 by and among Robert Lamy, William Lamy
and Robert Ballard, all of whom have a business address at 6805
Pittsford-Palmyra Road, Fairport, NY 14450 (collectively, the "Holders"), Scott
-------
Fox, David White, Walter Robb, Carl Mosack, Van Ernst Jakobs Securities, and
David Wilkerson (collectively, the "Shareholders") and Logisoft Corp. a Delaware
------------
corporation (the "Corporation").
-----------
R E C I T A L S :
- - - - - - - -
I. The Holders have executed a Voting Agreement dated March 10, 2000
(the "Initial Agreement") with Michael Pruitt, Bruce Goldfarb, Darian Road,
Ltd., Michael Cimino, Corsica Marketing, Inc., Avenel Financial Group
(collectively, the "Initial Shareholders") pursuant to which, among other things
--------------------
(a) the Holders agree to vote certain of their shares of the $.0001 par value
common stock of the Corporation ("Common Stock") as directed by the Initial
Shareholders; and (b) the Initial Shareholders agree to vote certain of their
shares of Common Stock as directed by the Holders.
II. Each of the Shareholders now owns that number of the issued and
outstanding shares (the "Shares") of Common Stock set forth on Exhibit A to this
---------
Agreement.
III. The Shareholders, with a view to securing and retaining competent
management of the Corporation and in the best interests of all stockholders of
the Corporation, desire to enter into this Agreement with the Holders.
NOW, THEREFORE, pursuant to Section 218(c) of the General Corporation Law
of the State of Delaware, the parties agree as follows:
1. Term. This Agreement shall terminate and be of no further force or
----
effect from and after the earliest of (a) the date on which the Initial
Agreement is terminated pursuant to the terms thereof, or (b) such time as none
of the Shareholders owns any Shares.
2. Legend. During the term of this Agreement, there shall be placed
------
upon every certificate representing the Shares the following legend:
This certificate and the shares represented hereby are subject to, and
Transfer of such shares is restricted by, the provisions of an
agreement among the issuing corporation and certain of its
shareholders dated as of March 10, 2000, and any amendments thereto,
a copy of which agreement is on file at the principal office of
the corporation.
<PAGE>
Such legend will be removed in the case of the sale or transfer of any or
all of either the Shares of a Shareholder or the shares of Common Stock of a
Holder, unless such sale or transfer shall be to an Affiliate, as such term is
defined in Section 5.
3. Voting of Shares. During the term of this Agreement, each of the
------------------
Shareholders shall vote, or cause such Shareholder's proxies to vote, his or its
Shares (i) to maintain the number of Directors as designated by the Holders and
(ii) in favor of the election, removal or replacement of those nominees for
directors who are designated to the Shareholders in writing by the Holders.
Each Shareholder shall be present in person, by proxy or by other authorized
representative if permitted, at any properly noticed meeting of the
Corporation's stockholders or Board of Directors and shall execute any and all
written consents as requested by the Holders, in each case for the purpose of
complying with his or its obligations under this Agreement.
4. Exercise by Holders. The manner in which any of the rights of the
---------------------
Shareholders, including the rights to elect, remove and replace directors, are
to be exercised, shall be determined by the holders of a majority of the
aggregate number of shares of Common Stock owned by the Holders.
5. Transfer. Nothing in this Agreement shall prohibit the transfer or
--------
sale of any or all of the shares of Common Stock held by any Shareholder (a
"Transferor"). However, if such transfer or sale is made to an Affiliate of the
Transferor, the Affiliate shall assume the obligations of the Transferor
hereunder. An Affiliate shall mean (a) any person that directly or indirectly
through one or more intermediaries controls or is controlled by or is under
common control with the Transferor; (b) any Person which is an officer,
director, partner or trustee of, or serves in a similar capacity with respect
to, the Transferor; (c) any Person which is directly or indirectly the owner of
more than ten percent (10%) of any class of equity securities of the Transferor;
or (iv) the parents, siblings, children, stepchildren or spouse of the
Transferor, or any trust for the benefit of such Person or Persons. For
purposes of this Agreement, "Person" shall mean any individual, corporation,
business trust, estate, trust, partnership, limited partnership, association,
joint venture, limited liability company, governmental subdivision, agency or
instrumentality or any other legal or commercial entity.
6. Notices. Any notice required or permitted to be given under this
-------
Agreement shall be in writing and shall be to have been duly given (i) upon hand
delivery, or (ii) on the third day following delivery to the U.S. Postal Service
as certified or registered mail, return receipt requested and postage prepaid,
or (iii) on the first day following delivery to a nationally recognized United
States overnight courier service, fee prepaid, return receipt or other
confirmation of delivery requested. Any such notice or communication shall be
delivered or directed to the other parties at their addresses first set forth
above or at such other address as may be designated by a party in a notice given
to the other parties in accordance with the provisions of this paragraph.
7. Specific Performance. The parties hereto declare that it is
---------------------
impossible to measure in money the damages which will accrue to a party hereto,
or to such party's successors, assigns or legal or personal representatives, by
reason of the failure to perform any of the obligations under this Agreement.
Therefore, if any party, his successors, assigns or legal or personal
representatives, shall institute any action or proceeding, to enforce the
provisions of this Agreement, any person or entity against whom such action or
proceeding is brought hereby waives the claim or defense that money damages are
<PAGE>
an adequate remedy and that therefore the party instituting the action or
proceeding is not entitled to specific performance of the terms of this
Agreement.
8. Miscellaneous.
-------------
8.1 This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their personal representatives, heirs, legatees,
successors and assigns, to the extent permitted or provided hereunder.
8.2 No waiver of any of the provisions of this Agreement or any of the
rights or remedies of the parties hereto shall be valid except if same be in
writing and signed by the party charged therewith. A waiver of any one or more
of the provisions hereof shall be limited to the particular instance specified
in such writing, and shall not be deemed a continuing waiver of such provision
or of any subsequent breach.
8.3 This Agreement constitutes the entire agreement of the parties and
may not be modified except by a written agreement signed by each of the parties
hereto. This Agreement supersedes any and all prior arrangements or agreements
among the parties with respect to the subject matter hereof. All remedies
provided herein shall be deemed to be in addition to and not in substitution for
any other remedies provided by law.
8.4 If any provision of this Agreement shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
portion of this Agreement which shall be enforceable and carried out as if the
unenforceable or invalid provisions were not contained herein.
8.5 The headings of the paragraphs herein are inserted for convenience
only and do not constitute part of the Agreement.
8.6 This Agreement may be executed in several counterparts, each of
which shall be deemed an original and all of which shall be deemed to constitute
a single Agreement.
8.7 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to its conflicts
of laws principles.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
March 10, 2000.
HOLDERS:
/s/ Robert Lamy
-------------------------------
Robert Lamy
/s/ William Lamy
-------------------------------
William Lamy
/s/ Robert Ballard
-------------------------------
Robert Ballard
<PAGE>
CORPORATION: SHAREHOLDERS:
/s/ Scott Fox
Logisoft Corp. -------------------------------
Scott Fox
/s/ Robert Lamy
- ------------------------------- /s/ David White
By: Robert Lamy, President -------------------------------
David White
/s/ Walter Robb
-------------------------------
Walter Robb
/s/ Carl Mosack
-------------------------------
Carl Mosack
Van Ernst Jakobs Securities
/s/
By: --------------------------
/s/ David Wilkerson
-------------------------------
David Wilkerson
<PAGE>
EXHIBIT A
Shareholders
Name of Shareholder Number of Shares
- --------------------- ------------------
Scott Fox 873,250
Van Ernst Jakobs Securities 1,324,000
Carl Mosack 200,000
Walter Robb 225,000
David White 537,344
David Wilkerson 303,750
<PAGE>
