U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: April 30, 1996
Commission file number: 0-20824
COMPUTER OUTSOURCING SERVICES, INC.
(Exact name of small business issuer as specified in its charter)
New York 13-3252333
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
360 West 31st Street New York, New York 10001
(Address of principal executive offices)
(212) 564-3730
(Issuer's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
There were 3,714,850 shares of the registrant's Common Stock, $0.01 par value,
outstanding as of June 12, 1996.
Transitional Small Business Disclosure Form (check one);
Yes [ ] No [X].
Page 1 of 15
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, October 31,
1996 1995
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................... $ 1,083,714 $ 1,406,016
Marketable securities ........................ 993 993
Trade accounts receivable, net of allowance
for doubtful accounts of $248,256 and
$265,415, respectively .................... 3,757,553 3,799,940
Prepaid and refundable income taxes .......... 380,496 414,558
Prepaid expenses ............................. 790,342 616,231
Other current assets ......................... 40,531 124,966
--------- ---------
6,053,629 6,362,704
--------- ---------
PROPERTY and EQUIPMENT, net ...................... 3,415,799 3,450,771
--------- ---------
OTHER ASSETS:
Deferred software costs, net .................. 1,452,121 1,083,051
Intangible assets, net ........................ 7,934,020 8,160,949
Due from related parties, net ................. 141,405 155,740
Cash surrender value of life insurance,
net of loans of $100,388 ................... 131,682 131,682
Security deposits and other non-current assets 505,380 579,547
---------- ----------
10,164,608 10,110,969
---------- ----------
TOTAL ASSETS ..................................... $19,634,036 $19,924,444
========== ==========
See Notes to Consolidated Financial Statements
Page 2 of 15
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
April 30, October 31,
1996 1995
------------ -----------
LIABILITIES and STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................. $ 1,758,536 $ 1,365,480
Current notes payable and current portion
of long-term debt ......................... 1,459,201 1,709,571
Current portion of capitalized
lease obligations ......................... 209,757 158,729
Accrued expenses and other accrued taxes ..... 1,458,166 1,843,881
Customer deposits and
other current liabilities ................. 108,349 123,571
--------- ---------
4,994,009 5,201,232
--------- ---------
LONG-TERM LIABILITIES:
Long-term debt, including $150,000
due to a director ......................... 2,021,321 2,352,175
Capitalized lease obligations ................ 361,404 376,293
Deferred income taxes ........................ 726,731 645,540
Stock option obligation ...................... 273,842 400,939
--------- ---------
3,383,298 3,774,947
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value;
1,000,000 shares authorized, none issued .. - -
Common stock, $0.01 par value; 7,000,000
shares authorized; shares issued and
outstanding: 3,691,405 and 3,627,499,
respectively .............................. 36,914 36,275
Common stock issuable ........................ - 153,000
Additional paid-in capital ................... 9,062,892 8,752,637
Retained earnings ............................ 2,209,620 2,076,615
Deferred costs arising from a financing
and consulting agreement .................. (52,697) (70,262)
---------- ----------
11,256,729 10,948,265
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....... $19,634,036 $19,924,444
========== ==========
See Notes to Consolidated Financial Statements
Page 3 of 15
<PAGE>
<TABLE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Six Months Ended April 30, Three Months Ended April 30,
------------------------------ ------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES ......................................... $14,317,091 $ 8,720,756 $ 7,209,976 $ 4,322,220
---------- ---------- ---------- ----------
COSTS and EXPENSES:
Data processing costs ....................... 8,218,001 4,105,261 4,160,059 1,941,902
Selling and promotion costs ................. 1,356,594 1,034,200 647,019 569,119
Shipping and delivery costs ................. 615,067 628,414 302,695 274,735
General and administrative expenses ......... 3,635,788 2,641,455 1,807,902 1,373,379
Interest expense, net of interest income ... 181,245 63,427 87,319 30,296
---------- ---------- ---------- ----------
14,006,695 8,472,757 7,004,994 4,189,431
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES ......... 310,396 247,999 204,982 132,789
PROVISION FOR INCOME TAXES ....................... 153,985 129,162 94,593 67,491
---------- ---------- ---------- ----------
NET INCOME ....................................... $ 156,411 $ 118,837 $ 110,389 $ 65,298
========== ========== ========== ==========
INCOME PER COMMON SHARE .......................... $ 0.04 $ 0.02 $ 0.03 $ 0.01
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING .... 3,775,917 3,560,213 3,791,192 3,563,201
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
Page 4 of 15
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended April 30,
-----------------------------
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ....................................... $ 156,411 $ 118,837
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization ................ 964,390 697,949
Amortization of excess of fair value of net
assets acquired over cost ................. - (13,498)
Deferred income taxes ........................ 81,191 20,733
Decrease/(increase) in:
Cash surrender value of life insurance .... - (6,864)
Trade accounts receivable ................. 42,387 (93,397)
Prepaid and refundable taxes .............. 34,062 -
Prepaid expenses .......................... (166,720) (115,943)
Other current assets ...................... 84,435 (58,443)
Security deposits and other noncurrent
assets ................................. 47,703 (168,595)
Increase/(decrease) in:
Accounts payable .......................... 393,056 157,760
Accrued expenses and taxes ................ (385,715) (108,870)
Customer deposits and other current
liabilities ............................ (15,222) (16,052)
--------- ---------
Net cash provided by operating activities ........ 1,235,978 413,617
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............... (359,569) (125,200)
Disposal of equipment ............................ 60,993 -
Redemption of marketable securities .............. - 501,942
Decrease/(Increase) in Goodwill upon
settlement of contingencies .................. (13,285) 61,579
Purchase of customer list ........................ (77,254) (93,252)
Increase in deferred software costs .............. (503,213) (282,309)
--------- ---------
Net cash (used in)/provided by investing
activities .................................. (892,328) 62,760
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt ...................... (808,479) (419,906)
Receipt of amounts due from related parties, net . 14,335 3,058
Proceeds from issuance of long-term debt ......... 227,255 -
Repayments of capital leases ..................... (99,063) (84,548)
--------- ---------
Net cash used in financing activities ............ (665,952) (501,396)
--------- ---------
Net decrease in cash and cash equivalents ........ (322,302) (25,019)
Cash and cash equivalents at the beginning of the
respective periods ........................... 1,406,016 686,286
--------- ---------
Cash and cash equivalents at the end of the
respective periods ........................... $ 1,083,714 $ 661,267
========= =========
See Notes to Consolidated Financial Statements
Page 5 of 15
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Six Months Ended April 30,
-----------------------------
1996 1995
----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ..................................... $ 216,572 $ 104,364
========= =========
Income taxes ................................. $ 1,356 $ 199,281
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITY:
New capitalized leases for data
processing equipment ..................... $ 135,202 $ 204,221
========= =========
During the six month periods ended April 30, 1996 and 1995, $23,406 and $34,417
(each net of tax benefits), respectively, were accreted through a charge to re-
tined earnings in connection with a stock option.
See Notes to Consolidated Financial Statements
Page 6 of 15
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED APRIL 30, 1996
<CAPTION>
Deferred
Costs in
Connection
with a
Financing/
Common Par Stock Paid-in Retained Consulting
Shares Value Issuable Capital Earnings Agreement Total
--------- -------- -------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances,
October 31, 1995 ....... 3,627,499 $ 36,275 $153,000 $8,752,637 $2,076,615 $ (70,262) $10,948,265
Exercises of
stock option ........... 40,000 400 157,494 157,894
Issuance of stock in
connection with the
purchase of Tru-Check .. 23,906 239 (153,000) 152,761 -
Amortization of deferred
costs in connection
with a financing and
consulting agreement ... 17,565 17,565
Accretion in connection
with a stock option
obligation, net ........ (23,406) (23,406)
Net income ................. 156,411 156,411
--------- ------- ------- --------- --------- -------- ----------
Balances,
April 30, 1996 ......... 3,691,405 $ 36,914 $ - $9,062,892 $2,209,620 $ (52,697) $11,256,729
========= ======= ======= ========= ========= ======== ==========
</TABLE>
See Notes to Consolidated Financial Statements
Page 7 of 15
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Basis of Presentation
The Consolidated Balance Sheet as of April 30, 1996, the Consolidated
Statements of Income for the three and six month periods ended April 30,
1996 and 1995, and the Consolidated Statement of Cash Flows for the six
month periods ended April 30, 1996 and 1995, have been prepared by the Com-
pany without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations, and cash flows for the periods
indicated have been made.
The results of operations for the period ended April 30, 1996 are not
necessarily indicative of the operating results for the full fiscal year.
Certain disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condens-
ed or omitted. These consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-KSB/A for October
31, 1995.
The consolidated financial statements include the accounts of Computer Out-
sourcing Services, Inc. and its wholly-owned subsidiaries (collectively,
the "Company"). All significant intercompany balances and transactions
have been eliminated.
2. Long-Term Debt
The Company is indebted to a bank for three term loans, the proceeds of
which were used to fund various acquisitions by the Company. The term
loans bear interest at the prime rate plus 1.5%. Two term loans, $450,000
and $670,000, are being repaid with monthly payments of principal and in-
terest over three years. The third term loan in the amount of $1,500,000
is being repaid with monthly payments of interest only for one year and
payments of principal and interest for three years. As of April 30, 1996,
the current balances under the three term loans aggregated $1,929,169.
Substantially all of the assets of the Company are pledged as collateral
for these term loans. No additional amounts are available to the Company
under these lending facilities.
The loan agreements contain certain financial covenants requiring the Com-
pany to, among other things, maintain various minimum financial ratios. As
of April 30, 1996, the Company was in compliance with these covenants.
As of April 30, 1996, the Company reached an agreement with "K" Line Amer-
ica, Inc. ("KLine"), to amend the terms of an $840,645 note issued in con-
nection with the purchase of MCC Corporation. This note is now payable in
four equal installments at various times from March 1, 1997 through Febru-
ary 1, 1999. Interest is payable quarterly at 7.5% per annum.
Page 8 of 15
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS of OPERATIONS
Six Months Ended April 30, 1996
as Compared to the Six Months Ended April 30, 1995:
---------------------------------------------------
The following table sets forth, for the periods indicated, the percentage
of revenues represented by selected items in the Company's Consolidated
Statements of Income.
Percentage of Total Revenues
Six Months Ended April 30,
1996 1995
-------- --------
REVENUES......................... 100.0% 100.0%
-------- --------
COSTS AND EXPENSES:
Data processing............... 57.4 47.1
Selling and promotion......... 9.5 11.9
Shipping and delivery......... 4.3 7.2
General and administrative.... 25.4 30.3
Interest expenses, net of
interest income............ 1.3 0.7
Provision for income taxes.... 0.7 1.5
-------- --------
NET INCOME....................... 1.5% 1.3%
======== ========
Revenues increased 64.2% from $8,721,000 in the six month period ended
April 30, 1995 (the "prior period") to $14,317,000 in the six month period
ended April 30, 1996 (the "current period"). Increases of $1,282,000 and
$4,449,000 were attributable to the timing of the acquisitions of Key-ACA,
Inc. ("ACA") and MCC Corporation ("MCC"), respectively. In addition, a de-
crease of $451,000 in processing revenues recorded by the Company's Out-
sourcing division was partially offset by a $316,000 increase in payroll
processing revenues recorded by the Company's Pay USA division.
Data processing costs increased from $4,105,000 in the prior period to
$8,218,000 in the current period, increasing 10.3% as a percentage of
sales. Increases of $633,000 and $3,293,000 were attributable to the tim-
ing of the acquisitions of ACA and MCC, respectively. MCC's data proces-
sing costs were 74% of their divisional revenues for the period, which
was the principal reason for the increase in the Company's data processing
costs as a percentage of sales. In addition, a $238,000 increase in pay-
roll processing costs was recorded by the Pay USA division, and a $52,000
decrease in processing costs was recorded by the Outsourcing division.
Page 9 of 15
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Selling and promotion costs increased from $1,034,000 in the prior period
to $1,357,000 in the current period, but decreased 2.4% as a percentage of
sales. Increases of $134,000 and $266,000 were attributable to the timing
of the acquisitions of ACA and MCC, respectively. Offsetting these were
decreases of $34,000 and $44,000 recorded in the Pay USA division and the
Outsourcing division, respectively.
Shipping and delivery costs decreased from $628,000 in the prior period to
$615,000 in the current period, decreasing 2.9% as a percentage of sales.
An increase of $25,000 was attributable to the timing of the acquisition of
MCC. The principal component of the decrease resulted from improvements in
pass-through billings of delivery costs.
General and administrative expenses increased from $2,641,000 in the prior
period to $3,636,000 in the current period, but decreased 4.9% as a per-
cent of sales. Increases of $445,000 and $380,000 were attributable to
the timing of the acquisitions of ACA and MCC, respectively. An increase
of $307,000 was recorded in the Pay USA division, and a decrease of
$138,000 was recorded in the Outsourcing division.
Interest expense (net of interest income) increased 0.6% as percentage of
sales from $63,000 in the prior period to $181,000 in the current period.
This was due to interest expense from the higher level of the Company's
borrowings to partially fund its acquisitions and a decrease in interest
income formerly generated by the excess proceeds from the Company's public
offering as these funds were used for acquisitions.
Page 10 of 15
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
RESULTS of OPERATIONS
Quarter Ended April 30, 1996
as Compared to the Quarter Ended April 30, 1995:
--------------------------------------------------
The following table sets forth, for the periods indicated, the percentage
of revenues represented by selected items in the Company's Consolidated
Statements of Income.
Percentage of Total Revenues
Quarters Ended April 30,
1996 1995
-------- --------
REVENUES......................... 100.0% 100.0%
-------- --------
COSTS AND EXPENSES:
Data processing............... 57.7 44.9
Selling and promotion......... 9.0 13.2
Shipping and delivery......... 4.2 6.4
General and administrative.... 25.1 31.8
Interest expenses, net of
interest income............ 1.2 0.7
Provision for income taxes.... 0.5 1.6
-------- --------
NET INCOME....................... 2.3% 1.4%
======== ========
Revenues increased 66.8% from $4,322,000 in the quarter ended April 30,
1995 (the "prior quarter") to $7,210,000 in the quarter ended April 30,
1996 (the "current quarter"). Increases of $616,000 and $2,398,000 were
attributable to the timing of the acquisitions of ACA and MCC, respective-
ly. In addition, a decrease of $318,000 in processing revenues recorded
by the Outsourcing division was partially offset by increases of $192,000
in payroll processing revenues from the Pay USA division.
Data processing costs increased from $1,942,000 in the prior quarter to
$4,160,000 in the current quarter, increasing 12.8% as a percentage of
sales. Increases of $323,000 and $1,716,000 were attributable to the tim-
ing of the acquisitions of ACA and MCC, respectively. MCC's data proces-
sing costs were 73% of its revenues for the period, which was the princi-
pal reason for the increase in the Company's data processing costs as a
percentage of sales. In addition, an increase of $204,000 was recorded by
the Pay USA division. These increases were partially offset by a $25,000
decrease in Outsourcing processing costs.
Page 11 of 15
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
Selling and promotion costs increased from $569,000 in the prior quarter to
$647,000 in current quarter, but decreased 4.2% as a percentage of sales.
Increases of $42,000 and $146,000 were attributable to the timing of the
acquisitions of ACA and MCC, respectively. Offsetting these were decreases
of $33,000 and $77,000 recorded in the Pay USA division and the Outsourcing
division, respectively.
Shipping and delivery costs increased from $275,000 in the prior quarter to
$303,000 in the current quarter, decreasing, however, 2.2% as a percentage
of sales. An increase of $9,000 was attributable to the timing of the ac-
quisition of MCC. The principal reason for the remainder of the increase
was a one-time $56,000 credit recorded by the Outsourcing division in the
prior quarter. Exclusive of the effect of this prior period credit, there
was a $37,000 decrease in overall shipping and delivery costs from the
prior quarter to the current quarter.
General and administrative expenses increased from $1,373,000 in the prior
quarter to $1,808,000 in the current quarter, but decreased 6.7% as a per-
centage of sales. Increases of $226,000 and $185,000 were attributable to
the timing of the acquisitions of ACA and MCC, respectively. Additional in-
creases of $194,000 were recorded by the Pay USA division, offset by reduc-
tions of $171,000 in the Outsourcing division.
Interest expense (net of interest income) increased 0.5% as percentage of
sales, from $30,000 in the prior quarter to $87,000 in the current quarter.
This was due to interest expense from the higher level of the Company's
borrowings to partially fund its acquisitions and a decrease in interest
income formerly generated by the excess proceeds from the Company's public
offering as these funds were used for acquisitions.
Page 12 of 15
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
LIQUIDITY and CAPITAL RESOURCES
The Company is indebted to a bank for three term loans, the proceeds of
which were used to fund various acquisitions by the Company. The term
loans bear interest at the prime rate plus 1.5%. Two term loans, $450,000
and $670,000, are being repaid with monthly payments of principal and in-
terest over three years. The third term loan in the amount of $1,500,000
is being repaid with monthly payments of interest only for one year and
payments of principal and interest for three years. As of April 30, 1996,
the current balances under the three term loans aggregated $1,929,169.
Substantially all of the assets of the Company are pledged as collateral
for these term loans. No additional amounts are available to the Company
under these lending facilities.
The loan agreements contain certain financial covenants requiring the Com-
pany to, among other things, maintain various minimum financial ratios. As
of April 30, 1996, the Company was in compliance with these covenants.
As of April 30, 1996, the Company reached an agreement with "K" Line Amer-
ica, Inc. ("KLine"), to amend the terms of an $840,645 note issued in con-
nection with the purchase of MCC Corporation. This note is now payable in
four equal installments at various times from March 1, 1997 through Febru-
ary 1, 1999. Interest is payable quarterly at 7.5% per annum.
Management believes that its cash flow from operations will be sufficient
to fund the Company's operations for the current year. It is management's
intention to focus on consolidation and integration of the acquisitions
made to date. Any significant additional acquisitions may require funding
in excess of the level of current and projected operating cash flows, and
may require additional debt and/or equity funding.
As of April 30, 1996, the Company had working capital of $1,060,000, its
current ratio (i.e., the ratio of current assets to current liabilities)
was 1.21 to 1, and its liabilities to equity ratio was 0.74 to 1.
Page 13 of 15
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibit filed herewith:
10.18 Letter agreement between the Company and "K" Line America,
Inc., amending the terms of a Note dated June 8, 1995.
(b) Reports on Form 8-K:
None
Page 14 of 15
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, there-
unto duly authorized.
COMPUTER OUTSOURCING SERVICES, INC.
June 12, 1996 Zach Lonstein
Principal Executive Officer
June 12, 1996 Roger Kaufman
Principal Financial Officer
Page 15 of 15
(Letterhead) "K" Line America, Inc.
535 Mountain Avenue
Murray Hill, New Jersey 07974
TEL: (908) 582-9000 FAX: (908) 582-9001
March 31, 1996
Private & Confidential
Mr. Robert B. Wallach
President
MCC Corporation
535 Mountain Avenue
Murray Hill, NJ 07974
Dear Bob:
This letter will serve as a Letter Agreement between MCC Corporation (MCC)
and "K" Line America, Inc. (KAM), conditioned on execution of the enclosed three
documents.
As per the attached list, total receivables due from MCC to KAM as of March
31, 1996, amount to $554,078.19. This balance does not include the principal
payment of $210,161.25 on MCC's interest-bearing note, however, it does include
the interest due on the note through January 31, 1996. Also attached is a list-
ing of outstanding invoices due from KAM to MCC in the amount of $591,711.87.
Please note an adjustment has been made for invoice #26622 to reflect accruals
for those expenses by MCC as of April 30, 1995. This amounts to a net balance
due to MCC from KAM of $69,856.82.
The reimbursement by KAM of past due accounts receivable, net of allowances
and existing as of April 30, 1995, for MCC and Themis, will be extended for an
additional fifteen months until January 31, 1997. This extension period coin-
cides with the extension of MCC's interest-bearing note. As previously noted,
MCC will provide monthly reporting of these amounts as originally stated in the
contract. The current outstanding balance is $46,144.70 pursuant to the attach-
ed schedule. Please confirm this outstanding balance is net of allowances.
Additionally, the companies agree to modify the terms of MCC's interest-
bearing note to reflect the following changes in due dates of the principal
amounts:
Original Due Date Revised Due Dates
12/01/95 03/01/97
11/01/96 02/01/98
05/01/97 08/01/98
11/01/97 02/01/99
<PAGE>
Mr. Robert B. Wallach
March 31, 1996
Page 2
KAM will agree to set aside the security deposit amount of $38,332.06 due
from MCC toward the rent, upon receipt by "K" Line Realty, Inc. of the new se-
curity deposit at the time of execution of the new lease agreement beginning
June 1, 1996.
The furniture and fixtures may be purchased by MCC as of November 1, 1995,
at a price of $150,000. KAM will accept a monthly payment of $5,000.00 for
thirty (30) months, due on the last day of each month. The furniture items cur-
rently being used by KAM are the only items that will not be sold to MCC. The
amounts due to KAM through March 31, 1996, are included in this reconciliation.
Effective April 1, 1996, MCC will purchase the telephone equipment at the
price of $8,948.80, pursuant to the lease agreement attached hereto with the
last rental payment of $2,588.00 payable on March 31, 1996, which has been in-
cluded in this reconciliation.
The mainframe computer processing agreement will be extended through October
31, 1996, and the monthly charges for the period April 1, 1996 through October
31, 1996, will be $80,000.00 for the following applications:
Corporate Accounting
Disbursement Accounting
Cargo Claims Reporting
Maintenance and Repair Accounts Receivable
Data Storge - Vessel Control Records
Data Storge - Equipment Control Records
Street Time Billing
Per Diem
Store Door
RBC Domestic
RBC OCP
EMS/cc: Mail Gateway (proactively monitored)
Chrysler EDI
Chrysler Claims
Union Carbide - Booking (Including TRAC Master Files)
EIR Index
Statistical Reports
Programming Development
Trucker Verification
Data Warehouse
<PAGE>
Mr. Robert B. Wallach
March 31, 1996
Page 3
MCC will provide to KAM for the period of June 1, 1996 through October 31,
1996, two (2) full-time individuals to provide Mainframe application and PC Pro-
gramming at the rate of $4,125.00 per week. Programming support beyond the des-
ignated full-time individuals will be on a per request basis at a rate of $65.00
per hour. The current agreement will remain in effect through May 31, 1996.
The $2,250.00 per month charge for Norton Lilly's on-line equipment connec-
tion will continue, month to month, with a 30 day cancellation notice.
MCC will continue to provide Microsystems Support services on the current
basis through the end of the current contract period and will respond to the
RFP.
MCC will continue to provide Micrographics services on the current basis,
month to month, with a 90 day cancellation notice.
The companies agree to maintain a current status of the respective accounts
and each reserves the right to offset their accounts payable to the other based
on unpaid amounts. Accounts will be considered delinquent if not paid within 45
days. Each party will give notice prior to offsetting delinquent amounts.
Please signify acceptance to all of the above by signing in the space below.
Sincerely,
David N. Mills
Senior Vice President
MCC Corporation
Accepted By:
Robert B. Wallach, President
Date: ______________________
DNM:as
