SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT UNDER TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2002
OR
[ ] TRANSITION REPORT UNDER TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-15976
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MULTI SOFT, INC
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(Name of Small business issuer in its charter)
New Jersey 22-2588030
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3535 Quakerbridge Road, Hamilton, New Jersey 08619
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (609) 631-7401
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common Stock
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act, during the past 12 months (or for
such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.[X]
The Issuer's revenues for the fiscal year ended January 31, 2002 were $549,543
The aggregate market value of the voting stock held by non-affiliates (1) of the
registrant based on the average of the closing ask ($.025) and ($.02) bid price
of such stock, as of May 15, 2002 is $141,717, based upon $.0225 multiplied by
the 6,298,522 Shares of Registrant's Common Stock held by non-affiliates.
The number of shares outstanding of each of the registrant's classes of common
stock, as of May 13, 2002, is 13,709,477 shares, all of one class of $.001 par
value Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
MULTI SOFT, INC.
Form 10-KSB
Year Ended January 31, 2002
Table of Contents
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Page
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PART I........................................................................ 3
ITEM 1. BUSINESS........................................................... 3
ITEM 2. PROPERTIES......................................................... 8
ITEM 3. LEGAL PROCEEDINGS.................................................. 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................ 8
PART II....................................................................... 9
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS................................................ 9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................10
ITEM 7. FINANCIAL STATEMENTS...............................................12
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES...............................13
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.........13
PART III......................................................................13
ITEM 10. EXECUTIVE COMPENSATION.............................................15
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....17
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................18
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K...................................18
SIGNATURES....................................................................19
SUPPLEMENTAL INFORMATION......................................................20
FINANCIAL STATEMENTS..........................................................F1
PART I
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ITEM 1. BUSINESS
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General
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We were incorporated in January 1985 as a wholly owned subsidiary of Multi
Solutions, Inc. As of the date of this report, we are a 51.3% owned subsidiary
of Multi Solutions.
We produce, market and maintain the following products:
o COMRAD, which stands for Component Object Model Rapid Application
Development, for 32 bit Windows 95, 98, 2000, and NT;
o The Windows Communications LibraryTM, commonly referred to as WCL, for
Windows 3x , 95, 98 and NT; and
o INFRONT for DOS.
See the discussion below under "Our Product Line" for more details on these
products.
Our product line consists of tools for the development of client-server,
front-ending, and Internet based applications using a mainframe or an Internet
server.
There are four key elements to the real world development, delivery and
production maintenance of these applications; and our product line supports them
all:
o screen-based access to mainframe data and processes;
o message-based access to mainframe and server data and processes;
o integration of screen-based and message-based access to the mainframe
in the same application; and
o control and distribution management.
SCREEN-BASED ACCESS TO MAINFRAME DATA AND PROCESSES, which includes front
ending, allows the user to enhance existing mainframe applications through the
integration of Internet and client technologies such as GUIs (graphical user
interfaces), imaging and local data, without changing any mainframe code. This
allows companies to leverage their PC capabilities to streamline user processes
and for presenting mainframe data to users in a way that is intuitive, easy to
use and productive. Screen-based access to a host is supported by all of our
products.
MESSAGE-BASED ACCESS TO MAINFRAME DATA AND PROCESSES allows companies to
create client-server applications, where they use the PC for the client portion
of the application, which includes all user interaction, dialogue flow and
access to local data, and they use the mainframe for the server portion of the
application, which includes managing database interaction, data integrity and
security). In this architecture, only data and messages are passed between the
PC and host. This results in a streamlined and optimized production application.
WCL's WCL/Enterprise Server Option, commonly referred to as WCL/ESO, supports
message-based access to the mainframe.
3
INTEGRITY CONTROL AND DISTRIBUTION MANAGEMENT allows companies to use their
mainframe system as a central location to manage the integrity of the
workstation logic and distribute new version releases. In production
client-server applications it is important to ensure that the programs, files
and data residing on the PC are correct before the user starts the application.
When changes are made to the workstation logic, the host also can be used to
manage the distribution of these changes. WCL's WCL/Software Distribution
Option, commonly referred to as WCL/SDO, supports integrity control and
distribution management.
OUR PRODUCT LINE
----------------
Our Product line consists of three product sets:
1. COMRAD for 32 bit Windows 95, 98, 2000, and NT;
2. The WCL product set for Windows 3x, 95, 98, 2000 and NT; and
3. INFRONT for DOS and Windows 3x and 95.
COMRAD
COMRAD is a component-based development tool released in July 1998. It
takes advantage of Microsoft's COM/DCOM (common object model/distributed common
object model) technology and it generates both components and complete
applications, not just applications as currently done by WCL. COMRAD allows you
to build client server applications today and use the same code for your
Internet/Intranet applications tomorrow. COMRAD generated components that
interface with the mainframe can be used both by Visual Basic and your Internet
browsers, on individual workstations or Windows NT servers, depending on the
needs of your application. Microsoft's Internet Information Server and Active
Server Pages provide persistence and security.
WCL
WCL is a toolkit and a set of dynamic linked libraries, commonly referred
to as DLLs, that work in conjunction with Windows 3270 emulation products to
provide easy integration of data and processing between local area networks,
commonly referred to as PC/LANs, and the mainframe. Any of the standard Windows
development tools such as Visual Basic, and C++, can be used with WCL to create
the client application because WCL is an open architecture. WCL supports the
development of GUI front-ends -- client-server applications that use the
mainframe as a server and for integrity control and distribution management. The
WCL toolkit provides an automated development environment that includes, among
other things:
o a screen capture mechanism,
o screen maintenance and
o a screen matching facility.
In addition, it provides code generation to remove the complexity and
development effort associated with building GUI front-end applications. We also
have a 32-bit version of our WCL product for Windows 95, 98, 2000 and Windows
NT.
4
WCL/ESO is the host component to WCL and provides a message-based transport
layer between client PC/LANs and the mainframe. The client application is
created using any of the standard Windows tools and products, and the
server application is created using a standard language, such as COBOL. Any
mainframe file structure or database, such as VSAM, DB2, or IMS, can be
accessed using WCL/ESO through an IBM mainframe operating environment
called CICS. Client-server applications developed using WCL/ESO have the
added advantage of using a company's existing mainframe skills and
infrastructure, including:
o security,
o data integrity,
o backup and
o recovery and disaster recovery.
WCL/SDO is a WCL/ESO application created to centralize control and manage
application code, data and software for distributed client-server
applications. It allows companies to control, audit and distribute from
central host-based master libraries to distributed PCs. These PCs can be
clients and/or servers. WCL/SDO is used as a verification mechanism to
ensure that all files and appropriate versions of files are present on a PC
or in a host library. It will automatically update the PC or host with
correct versions of files if any are found to be missing or invalid. This
facility is important for the successful production management of
large-scale distributed applications.
INFRONT
INFRONT is a comprehensive and integrated development environment for
building PC front-ends and client-server applications with the mainframe. The
development environment includes:
o an intelligent forms subsystem with
o screen capture,
o screen painting,
o editing and validation assignment facilities and
o a data dictionary;
o a fourth generation language, commonly referred to as 4GL;
o an intelligent editor with language templates and reusable code
library;
o a PC-resident database, including database maintenance facilities such
as sorting and reorganizing;
o sophisticated debugging facilities, including a source-level language
debugger; and
o other utilities such as code libraries and forms libraries.
5
KEY SERVICES PROVIDED BY US
---------------------------
We offer training and consulting services designed to help our new
customers get a fast start in client/server development and to help existing
customers with additional resources to facilitate successful production
application roll-outs. We also offer contract technical consulting services.
TRAINING SERVICES include basic and advanced product training, as well as
courses such as "Design and Development Methodologies," which cover the major
issues companies need to understand for successfully developing applications
running on distributed platforms.
CONSULTING SERVICES range from human factors design and project management
to assisting licensees with application development and/or the development of
complete applications.
TECHNICAL SUPPORT SERVICES include a telephone hotline, fax, e-mail and
Internet support staffed by knowledgeable personnel trained and experienced with
Multi Soft's product line.
CONTRACT TECHNICAL CONSULTING SERVICES include services related to the
technical expertise of our staff. In the past, we have provided technical
consulting services on a contract basis to our affiliate, NetCast, and we
currently are providing technical consulting services on a contract basis to our
affiliate, FreeTrek. We hope to provide such services to unaffiliated companies
as well.
CLIENTS
Our past and current client base spans over 40,000 users throughout
approximately 125 Fortune 500 companies. Customers* that have licensed our
products include:
o American Cyanamid, o EDS,
o Bell Atlantic, o Exxon,
o ITT Hartford, o General Electric,
o Honda, o Hilton,
o Con Edison, o Lever Brothers,
o Hoechst, o Teachers Insurance,
o American International Group, o Chicago Northwestern and
o Ciba Geigy, o US West Business.
o Comdisco,
* We cannot confirm which of these clients is actively using our products.
IN-HOUSE MARKETING AND SALES
Charles Lombardo and Miriam Jarney, two of our officers and directors, are
responsible for sales and marketing of our products and services. At present,
in-house sales are generally made through telemarketing. If we obtain additional
funds from operations or otherwise, we plan to further market our products and
services through advertisements in trade publications and targeted mailings. No
assurance can be given that we will have sufficient funds to increase our
in-house sales and marketing activities.
6
DISTRIBUTORS AND VARS
---------------------
Multi Soft uses international distributors and VARs on a non-exclusive
basis to supplement its domestic sales and marketing efforts.
Employees
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We have four full time employees, including two officers and two support
personnel. We previously had four technical and engineering personnel, who have
been laid off due to our current financial situation. We also have several
independent consultants who work for us on an as needed basis. From time to time
our officers and employees devote time to our parent, Multi Solutions, and Multi
Solution's other subsidiaries.
Competition
-----------
We operate in a business composed of strong competitors, many of which have
substantially greater resources, are better established, and have a longer
history of operations than we do. In addition, many competitors have more
extensive facilities than those that now or in the foreseeable future will
become available to us.
We compete directly with computer manufacturers, large computer service
companies and independent software suppliers. We believe that hundreds of firms
that manufacture software applications products are significant competitors, and
we are one of the smaller entities in the field.
NetCast, Inc.
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NetCast, Inc. is a subsidiary of Multi Solutions and was incorporated in
April of 1996 to develop new Internet technologies to create a series of
products and businesses that would extend the power of advertising on the
Internet. We provided services and office space to NetCast at cost for which we
have billed approximately $240,000 through January 31, 2000. We charged NetCast
for this time. Multi Solutions has guaranteed NetCast's debt to us. In January
2000, Multi Solutions decided to discontinue any further operations of NetCast
and, during the year ended January 31, 2002, we recorded a valuation allowance
of $200,000 against this debt.
FreeTrek.Com, Inc.
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FreeTrek, Inc. (formerly FreeTrek.com. Inc.) is a majority owned subsidiary
of Multi Solutions that was incorporated under the laws of the state of New
Jersey in April 1999. FreeTrek.Com is a business to business to consumer
affinity group service company, commonly referred to as a B2B2C affinity group
service company, that markets its products and services to businesses, referred
to as sponsors, that want to create an Internet community of their current and
future customers. FreeTrek refers to this as a virtual private community or VPC.
FreeTrek's program, is a complete turnkey service for a sponsor which creates
and maintains the sponsor's VPC on the Internet. FreeTrek has not made any sales
to date.
We provided consulting and administrative services and office space to
FreeTrek at cost for which we have billed approximately $340,860 and $444,293
for the years ended January 31, 2002 and 2001, respectively. Since FreeTrek's
incorporation, Charles J. Lombardo, our chairman, chief executive
7
officer, chief financial officer and treasurer, has devoted and will continue to
devote a substantial amount of his time to FreeTrek activities. We charge
FreeTrek for this time.
ITEM 2. DESCRIPTION OF PROPERTIES
-------------------------
We previously subleased approximately 3,300 square feet of office space at
4262 US Route 1, Monmouth Junction, New Jersey 08852 from C&S Consulting, Inc.,
a company owned by our chairman and his wife. C&S Consulting, Inc. leases the
space from an unaffiliated party. The lease commenced on December 1, 1993 and
was terminable at any time on three months notice. Monthly rent was increased
from $5,200 to $5,600 beginning in November 1999. We were responsible for all
utilities. We terminated this lease in January 2002.
In February 2002, we entered into an office lease for a two-year term
through February 14, 2004. The lease requires monthly payments of $2,000 through
January 2003 and $2,125 from February 2003 through January 2004. The Company has
deposited $6,000 as security with the landlord.
ITEM 3. LEGAL PROCEEDINGS
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We are not presently a party to any material litigation; however, certain
federal, state taxes, interest and penalties aggregating approximately $13,000
remain unpaid at January 31, 2001. All taxes are presently paid in full.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of our security holders in the last
quarter of our fiscal year ended January 31, 2002
8
PART II
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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(a) Market Information -- Our common stock is traded in the over-the-
counter market, and are quoted on The OTC Bulletin Board (symbol: "MSOF").
The following tables set forth the range of high and low closing bid prices
for our common stock on a quarterly basis for the past two fiscal years and the
first quarter of fiscal 2003 as reported by Pink Sheets LLC (which reflect
inter-dealer prices, without retail mark-up, mark-down, or commission and may
not necessarily represent actual transactions).
Bid Prices
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Period - Fiscal Year 2001 High Low
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First Quarter ending April 30, 2000 .94 .25
Second Quarter ending July 31, 2000 .36 .15
Third Quarter ending October 31, 2000 .44 .125
Fourth Quarter ending January 31, 2001 .16 .03
Period - Fiscal Year 2002 High Low
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First Quarter ending April 30, 2001 .12 .05
Second Quarter ending July 31, 2001 .085 .05
Third Quarter ending October 31, 2001 .07 .01
Fourth Quarter ending January 31, 2002 .035 .01
Period - Fiscal Year 2003 High Low
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First Quarter ending April 30, 2002 .02 .015
(b) Holders -- There were approximately 245 holders of record of the our
common stock as of May 15, 2002, inclusive of those brokerage firms and/or
clearing houses holding our securities for their clientele (with each such
brokerage house and/or clearing house being considered as one holder).
(c) Dividends -- We have not paid or declared any dividends upon our
common stock since inception and, by reason of our present financial status and
our contemplated financial requirements, we do not contemplate or anticipate
paying any dividends upon our common stock in the foreseeable future.
9
Issuance of Unregistered Securities
-----------------------------------
We did not issue any securities during the last quarter of the year ended
January 31, 2002 or during the first three quarters of our fiscal year.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
----------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Results of Operations
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Fiscal Year Ended January 31, 2002 Compared to Fiscal Year Ended January 31,
--------------------------------------------------------------------------------
2001
----
We generated revenues for the fiscal year ended January 31, 2002 of
$549,453 compared to revenues of $598,048 in fiscal year 2001. We believe that
the decrease of $48,505, or approximately 8%, was due primarily to a decrease in
our license fees, offset in part by an increase in maintenance fees, and a
decrease in consulting fees, primarily to our affiliate, FreeTrek, Inc., for
work related to the prior and ongoing development, maintenance and enhancement
of FreeTrek's products. FreeTrek is a development stage company and, although it
is marketing its products and services, it has yet to make its first sale. Fees
paid by FreeTrek have come from the proceeds of private placements of FreeTrek's
securities and of Multi Solutions' securities. If FreeTrek is unable to generate
substantial revenues or continue to raise funds, revenues received by us from
FreeTrek most likely will continue to decrease and eventually cease. License fee
revenue decreased $41,680, or approximately 48.6%, and maintenance fees
increased $80,752, or approximately 59%. Consulting and other fees, primarily to
our affiliate, FreeTrek, Inc. decreased $76,247, or approximately 23%.
Please note that we have included income derived from consulting to our
affiliate Freetrek.Com in the amount of $258,720 in revenues for the fiscal year
ended January 31, 2002. Additionally, we have income from administrative fees in
the amount of $82,140 reported as other income. Previously this income was
reported in revenues in the Statement of Operations. We have restated our
Statement of Operations for the fiscal year ended January 31, 2001 to reflect
this change. As a result of this restatement, income derived from administrative
charges to FreeTrek in the amount of $110,626 are included in other income for
the fiscal year ended January 31, 2001.
Our principal sources of revenues from outside parties were maintenance
fees and consulting fees, which represented approximately 45% or $246,760 of
revenues for the fiscal year ended January 31, 2002. Maintenance fees and
consulting fees represented approximately 30% or $178,638 for the fiscal year
ended January 31, 2001.
We believe that the overall decrease in licensing fees was due primarily to
our inability to fund the completion of a version upgrade of COMRAD. We believe
that the increase in maintenance fees was due to renewal of maintenance
contracts by customers. We believe that the decrease in consulting and other
fees was due to the general downturn in the economy combined with the terrorist
attacks of September 11, 2001.
Our operating expenses were $1,057,911 for the fiscal year ended January
31, 2002 compared to $910,473 for the fiscal year ended January 31, 2001, an
increase of $147,438, or approximately 16%. The increase was caused by
provisions for impairment losses on our capitalized software development
10
costs and amounts due from affiliates. Exclusive of those provisions, our
regular recurring operating costs declined by $262,562 (approximately 29%) to
$647,911 from $910,473 in the previous fiscal year. We believe that the decrease
was the result of lower levels of software development costs related to both
consulting and new product development as well as lower selling and
administrative costs charged to operations as a result of our cost cutting
program for the fiscal year ended January 31, 2002.
As a result of all of the foregoing, we incurred a net loss for the fiscal
year ended January 31, 2002 of $425,419 compared to our net loss of $201,799 for
the fiscal year ended January 31, 2001, an increase in the net loss of $223,620.
Liquidity and Capital Resources
-------------------------------
At January 31, 2002, we had a working capital deficiency of ($491,646) and
we continue to experience cash flow problems.
We have taken various steps to correct this situation, including:
o extending our product line to operate within the Internet
environment;
o performing work for our affiliate, FreeTrek, related to the prior
and ongoing development, maintenance and enhancement of
FreeTrek's products;
o performing contract consulting services for others; and
o substantially reducing our regular recurring operating expenses
through an aggressive cost cutting program.
We intend to remain a technology provider of products and services and
search out multiple distribution channels, with increasing emphasis on the use
of the Internet for marketing, rather than to try and grow via an expensive
direct sales force. This allows the focus to stay on technology, with a low
overhead cost for each distribution channel used. However, if we obtain
additional funds from operations or otherwise, we plan to expand in-house
marketing activities by advertising in trade publications and by conducting
targeted mailing. For more details, see "Part I. Item 1. Description of Business
- In-House Marketing and Sales."
Working Capital and Current Ratios:
-----------------------------------
Descriptions January 31, 2002 January 31, 2001
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Working capital (deficiency) ($491,646) ($215,932)
Current ratios 0.09:1 0.38:1
Dividend Policy
---------------
We have not declared or paid any dividends on our common stock since
inception and we do not anticipate that we will be declaring or paying cash
dividends in the foreseeable future. We intend to retain earnings, if any, to
finance the development and expansion of our business. Future dividend policy
will be subject to the discretion of our Board of Directors and will be
contingent upon future earnings, if any, our financial condition, capital
requirements, general business conditions and other factors. Therefore, we
cannot assure that dividends of any kind will ever be paid.
11
Effect of Inflation
-------------------
We believe that inflation has not had a material effect on our operations
for the periods presented.
CAUTIONARY STATEMENT
--------------------
This annual report on form 10-KSB contains certain forward-looking
statements regarding, among other things, our anticipated financial and
operating results and those of our subsidiaries. For this purpose,
forward-looking statements are any statements contained in this report that are
not statements of historical fact and include, but are not limited to, those
preceded by or that include the words, "believes," " expects," or similar
expressions. In connection with the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, we are including this cautionary
statement identifying important factors that could cause our or our
subsidiaries' actual results to differ materially from those projected in
forward looking statements made by, or on behalf of, us. These factors, many of
which are beyond our control or the control of our subsidiaries, include our
ability to:
o continue to receive royalties from our existing licensing and
consulting arrangements,
o develop additional marketable software and technology,
o compete with larger, better capitalized competitors, and
o reverse ongoing liquidity and cash flow problems;
ITEM 7. FINANCIAL STATEMENTS
--------------------
The following financial statements are attached to this report and have
been prepared in accordance with the requirements of Item 310(a) of Regulation
S-B.
MULTI SOFT, INC.
FINANCIAL STATEMENTS
FISCAL YEAR ENDED January 31, 2002
INDEX
Page #
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Report of Independent Certified Public Accountants F1
Balance Sheets - January 31, 2002 and 2001 F2
Statements of Operations for Each of the Two Years in the
Period Ended January 31, 2002 F4
Statements of Changes in Stockholders' Deficiency for Each
of the Two Years in the Period Ended January 31, 2002 F5
Statements of Cash Flows for Each of the Two Years in the
Period Ended January 31, 2002 F6
Notes to Financial Statements F7
12
Schedules
---------
All schedules have been omitted because they are inapplicable or not
required, or the information is included elsewhere in the financial statements
or notes thereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
----------------------------------------------------------------------
FINANCIAL DISCLOSURES.
----------------------
There have been no changes in, or disagreements with our independent
accountants with respect to accounting and/or financial disclosure, during the
past two fiscal years. Our accounting firm is Kahn Boyd Levychin, LLP, which is
the successor to Stewart W. Robinson, CPA effective with the January 2002 merger
of the two accounting firms.
PART III
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ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
----------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
-------------------------------------------------
Name Position(s) Held
---- ----------------
Charles J. Lombardo Chairman of the Board of Directors, Chief Executive
Officer, Chief Financial Officer and Treasurer
Miriam G. Jarney Executive Vice President, Secretary and Director
Larry Spatz Director
Our directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have qualified.
Our officers are appointed to serve until the meeting of the Board of Directors
following the next annual meeting of stockholders and until their successors
have been elected and have qualified.
A summary of the business experience for each of our officers and directors
is as follows:
CHARLES J. LOMBARDO, age 59, has been our Chairman of the Board of
Directors, Chief Executive Officer, Chief Financial Officer and Treasurer since
January 1985. He has been Multi Solution's Chief Executive Officer and Treasurer
since August 1982. From 1972 to 1993, Mr. Lombardo also served as the President
of Petro-Art, Ltd., an inactive publicly owned company and its wholly owned
subsidiary JCT Enterprises, Inc. Mr. Lombardo was President of Hopewell Graphic
Industries from 1969 through 1971 and from 1967 to 1969 was associated with
Keystone Computer Associates as a staff member in the Physics Section of the
Systems Analysis Department. From 1965 to 1967, Mr. Lombardo served as a
scientist in the Plasma Physics Department of Raytheon Space and Information
Systems Division. Mr. Lombardo has a Bachelor of Science degree in Physics from
Worcester Polytechnic Institute (1964), a Master of Science degree in Physics
from Northeastern University (1966) and has continued studies toward a Ph.D. in
Theoretical Physics. Mr. Lombardo is a Member of the American Physical Society,
The American Mathematical Society, The Society for Industrial and
13
Applied Mathematics, The American Association of Physics Teachers, and the
Philosophy of Science Association.
MIRIAM G. JARNEY, age 61, has been our Executive Vice President and
Secretary and a member of our Board of Directors since January 1985. She has
been Executive Vice President, Secretary and a Director of Multi Solutions since
January 1982. From 1973 to February 1982, Ms. Jarney was a marketing
representative for National CSS, Inc., a computer services company that has
since been acquired by Dun & Cst, Inc. From 1972 through 1973, Ms. Jarney was
associated with Mathematica, Inc., which originated a Data Base Management
System called RAMIS, for which National CSS has exclusive marketing rights. Ms.
Jarney has also worked as a computer systems analyst for Western Electric
Company and Exxon Corporation. She graduated from the Hebrew University in
Jerusalem with a degree in Economics and Statistics and has a Master's degree in
Computer Science from Stevens Institute of Technology.
LARRY SPATZ, age 59, as been a member of our Board of Directors since May
12, 1986, and a director of Multi Solutions since July 14, 1989. He has been
Chief Executive Officer and Chairman of the Board of Heartthrob Enterprises,
Inc., a restaurant and night club management and development company since
September 1985. From 1982 to 1984, Mr. Spatz was President of Universal
Petroleum, Inc. From 1979 to 1982, he was Vice President and a director of
Mercantile Trading Company. Mr. Spatz is also a director of Centrex
Communications Systems, Inc. and Ultramed, Inc.
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
To our knowledge, based solely on a review of such materials as are
required by the Securities and Exchange Commission, none of our officers,
directors or beneficial holders of more than ten percent of our issued and
outstanding shares of Common Stock has failed to timely file with the Securities
and Exchange Commission any form or report required to be so filed pursuant to
Section 16(a) of the Securities Exchange Act of 1934 during the fiscal year
ended January 31, 2002.
14
ITEM 10. EXECUTIVE COMPENSATION
----------------------
The following table shows all the cash compensation paid or to be paid by
us or our parent, as well as certain other compensation paid or accrued, during
the fiscal years indicated, to the Chief Executive Officer and Executive Vice
President (collectively, "Principal Officers") for such period in all capacities
in which they served. No other Executive Officer received total annual salary
and bonus in excess of $100,000.
SUMMARY COMPENSATION TABLE
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ANNUAL COMPENSATION LONG TERM COMPENSATION
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AWARDS PAYOUTS
------------------------------------------------------------------------------------------------------------------------------------
NAME & FISCAL SALARY BONUS OTHER ANNUAL RESTRICTED OPTIONS LTIP ALL OTHER
PRINCIPLE YEAR ($) ($) COMPENSATION STOCK AWARD SARS PAYOUTS COMPENSATION
POSITION ($) ($) ($) ($)
------------------------------------------------------------------------------------------------------------------------------------
CHARLES J. 2002 $50,000 $0 (A)$16,700 $0 $0 $0 $0
LOMBARDO CEO 2001 $50,000 $0 (A) $4,167 $0 $0 $0 $0
2000 $54,167 $0 (A)$16,700 $0 $0 $0 $0
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
MIRIAM JARNEY 2002 $54,167 $0 $0 $0 $0 $0 $0
EXEC. VP 2001 $54,167 $0 $0 $0 $0 $0 $0
2000 $54,167 $0 (B)$16,000 $0 $0 $0 $0
------------------------------------------------------------------------------------------------------------------------------------
(A) Consulting fees.
(B) Common stock valued at $16,000.
The following table sets forth information with respect to the Principal
Officers concerning the grants of options and Stock Appreciation Rights ("SAR")
during the past fiscal year:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------------------------------------------------------------------------------------------------
NAME OPTIONS/SARS PERCENT OF TOTAL OPTIONS/SARS EXERCISE OR BASE EXPIRATION DATE
GRANTED GRANTED TO EMPLOYEES IN FISCAL PRICE ($/SH)
YEAR
----------------------------------------------------------------------------------------------------------------------
CHARLES J. LOMBARDO -0- - - -
----------------------------------------------------------------------------------------------------------------------
MIRIAM JARNEY -0- - - -
----------------------------------------------------------------------------------------------------------------------
15
The following table sets forth information with respect to the Principal
Officers concerning exercise of options during the last fiscal year and
unexercised options and SARs held as of the end of the fiscal year:
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUES
-----------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES VALUE UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED ON REALIZED OPTIONS/SARS AT OPTIONS/SARS
NAME EXERCISE (#) ($) FY-END (#) AT FY-END ($)
-----------------------------------------------------------------------------------------------------
CHARLES J. LOMBARDO -0- -0- -0- -0-
-----------------------------------------------------------------------------------------------------
MIRIAM JARNEY -0- -0- -0- -0-
-----------------------------------------------------------------------------------------------------
Directors' Compensation
-----------------------
Our directors are not compensated for acting in their capacity as
directors. Our directors are reimbursed for their accountable expenses incurred
in attending meetings and conducting their duties.
Employment Agreements
---------------------
On July 14, 1989, we entered into a five-year employment agreement with our
Chairman of the Board and Chief Executive Officer, Charles J. Lombardo, which is
which is automatically renewed for successive periods unless terminated by us on
twelve months notice or by Mr. Lombardo on six months notice. Mr. Lombardo is
our Chairman of the Board, Chief Executive Officer, Chief Financial Officer and
Treasurer. The agreement contains non-disclosure provisions and a one year
restrictive covenant preventing Mr. Lombardo from becoming employed by a similar
company in any state or country in which we do business, or engaging in a
competitive business for his own account. Mr. Lombardo is entitled to annual
salary increases of at least 10%, plus additional annual compensation equal to
2% of our after tax profits. Under Mr. Lombardo's contract he may assign any
part of his salary to a third party as a consulting fee.
Mr. Lombardo also is entitled to a salary from Multi Solutions of $25,000
per year, which he has agreed to forego since fiscal 1997.
On August 1, 1989, we entered into a five-year employment agreement with
Miriam Jarney, Executive Vice-President and a Director of both Multi Soft and
Multi Solutions, which is automatically renewed for additional periods, unless
terminated by us on twelve months notice or Ms. Jarney on six months notice. Ms.
Jarney is entitled to annual salary increases of at least 10%, plus additional
annual compensation equal to 1.5% of our after tax profits. The agreement also
contains non-disclosure provisions and a one year restrictive covenant
preventing Ms. Jarney from becoming employed by a similar company in any state
or country in which we do business, or engaging in any competitive business for
her own account.
16
During fiscal 1998, Mr. Lombardo and Ms. Jarney accrued a portion of their
salaries. The balance due between both officers as of January 31, 2002 is
$720,473 including deferred increases of $586,605.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
SECURITY OWNERSHIP OF MANAGEMENT -- The number and percentage of shares of our
common stock owned of record and beneficially by each owner of 5% or more of our
common stock, each of our officers and directors and by all of our officers and
directors as a group are set forth on the chart below.
----------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT AND NATURE OF PERCENT OF CLASS
BENEFICIAL
OWNERSHIP
----------------------------------------------------------------------------------------------------------
MULTI SOLUTIONS(1) 7,026,722 51.3%
4262 US ROUTE 1, MONMOUTH JUNCTION, NJ 08852
----------------------------------------------------------------------------------------------------------
CHARLES J. LOMBARDO 7,210,955(1) 52.6%
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER,
CHIEF FINANCIAL OFFICER, & TREASURER
1511 LAURIE LANE, YARDLEY, PA 19067
----------------------------------------------------------------------------------------------------------
MIRIAM G. JARNEY 7,336,722(1) 53.5%
EXECUTIVE VICE PRESIDENT, SECRETARY, DIRECTOR
21 DOERING WAY, CRANFORD, NJ 07106
----------------------------------------------------------------------------------------------------------
LARRY SPATZ 7,026,722(1)(2) 51.3%
DIRECTOR
SUITE 332, 401 EAST ILLINOIS ST., CHICAGO, IL 60611
----------------------------------------------------------------------------------------------------------
ALL EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP
(3 PERSONS) 7,410,955(1) 54.1%
----------------------------------------------------------------------------------------------------------
* Except as indicated below in the footnotes, each person has sole voting and
dispositive power over the Shares indicated. All numbers have been revised
to give retroactively effect to the one-for-three reverse stock split,
which occurred on January 31, 1996.
(1) Messrs. Lombardo and Spatz and Ms. Jarney are also officers and/or
directors of Multi Solutions. Therefore, together with the other directors
of Multi Solutions, they share the voting power of the Multi Soft shares
owned by Multi Solutions, and the shares owned by Multi Solutions have been
deemed to be owned by our officers and directors. The shares listed as
owned by Charles J. Lombardo, Miriam Jarney and Larry Spatz include the
7,026,722 shares owned by Multi Solutions.
(2) Excludes shares owned beneficially by a family trust of which Mr. Spatz'
wife is one of the beneficiaries. Mr. Spatz has confirmed to us that
neither he nor his wife has any voting or dispositive power with regard to
the shares owned by the trust.
17
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Although there is no written agreement between Multi Solutions and us
granting Multi Solutions preemptive rights with regard to Multi Solutions'
majority ownership of our common stock, in practice, Multi Solutions has and
plans to continue to acquire sufficient shares of our common stock to assure its
continued majority ownership.
We used to sublease our office space from C&S Consulting, Inc., a company
owned by our Chairman and his wife. For more information, see "Part I. Item 2.
Description of Properties").
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
---------------------------------------
Exhibits
--------
3.a Certificate of Incorporation and Certificate of Correction (1)
3.b By-Laws (1)
10.a Employment Agreement with Charles J. Lombardo (4)
10.b Employment Agreement with Miriam G. Jarney (4)
10.c New Facility lease
10.d Multi Solutions' Non-Qualified Stock Option Plan, Stock Grant Program
and Employee Incentive Stock Option Plan (2)
10.e Amendments to Multi Solutions' Non-Qualified Stock Option and Stock
Grant Program** (3)
-------------------------
(1) Previously filed as an Exhibit to our Registration Statement on Form S-1,
SEC File No. 33-3133, filed with the Commission on February 4, 1986, and
incorporated herein by reference.
(2) Previously filed as an Exhibit to Multi Solutions' Form 10-K for the fiscal
year ended January 31, 1984 as filed with the Commission on or about May
15, 1984, and incorporated herein by reference.
(3) Previously filed as part of the Multi Solutions' proxy materials for the
Annual Meeting of Stockholders held on July 9, 1985, as filed with the
Commission on or about May 24, 1985, and incorporated herein by reference.
(4) Previously filed as an Exhibit to our Form 10-K for the fiscal year ended
January 31, 1990 as filed with the Commission on or about April 29, 1990,
under SEC File No. 33-3133-NY, and incorporated herein by reference.
Reports of Form 8-K
-------------------
No reports on Form 8-K were filed during the last quarter of the fiscal
year ended January 31, 2002.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MULTI SOFT, INC.
Dated: May 16, 2002 By: /S/ Charles J. Lombardo
--------------------------
Charles J. Lombardo,
Chief Executive Officer,
Chief Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
/S/ Charles J. Lombardo May 16, 2002
----------------------------
Charles J. Lombardo Chairman of the Board of
Directors, Chief Executive
Officer, Financial Officer,
and Treasurer
/S/ Miriam Jarney May 16, 2002
-----------------------------
Miriam Jarney Executive Vice President,
Secretary, and Director
/S/ Larry Spatz May 16, 2002
----------------------------
Larry Spatz Director
19
SUPPLEMENTAL INFORMATION
Supplemental Information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act.
Not Applicable.
20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors
MULTI SOFT, INC.
We have audited the accompanying balance sheets of MULTI SOFT, INC. (a New
Jersey corporation and 51.3% owned subsidiary of Multi Solutions, Inc.) as of
January 31, 2002 and 2001 and the related statements of operations, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MULTI SOFT, INC. as of January
31, 2002 and 2001 and the results of its operations and its cash flows for the
years then ended, in conformity in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company suffered a loss from operations and has a
working capital deficiency, raising substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note A. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amounts and classifications of liabilities that might result
should the Company be unable to continue as a going concern.
KAHN BOYD LEVYCHIN, LLP
New York, New York
May 3, 2002
-F1-
MULTI SOFT, INC.
a 51.3% owned subsidiary of Multi Solutions, Inc.
BALANCE SHEETS
January 31, 2002 and 2001
2002 2001
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 3,207 $ --
Accounts Receivable (net of allowance
of $46,219 and $49,212 for 2002 and 2001 respectively) 22,117 110,224
Prepaid expenses and other current assets 22,636 21,675
------------ ------------
Total current assets 47,960 131,899
PROPERTY AND EQUIPMENT
Research and Development Equipment 8,868 8,868
Office furniture and other equipment 31,209 26,575
------------ ------------
40,077 35,443
Less: Accumulated Depreciation (24,837) (19,999)
------------ ------------
Property and equipment, net 15,240 15,444
OTHER ASSETS
Capitalized software development costs,
net of valuation allowance of $210,000 in 2002 1,492,582 1,512,489
Less accumulated amortization (1,047,052) (892,588)
------------ ------------
445,530 619,901
Due from Solutions 351,926 335,559
Due from Freetrek 215,730 7,227
Due from NetCast 234,592 234,592
------------ ------------
802,248 577,378
Less valuation allowance (200,000) --
------------ ------------
602,248 577,378
------------ ------------
$ 1,110,978 $ 1,344,622
============ ============
See notes to financial statements
-F2-
MULTI SOFT, INC.
a 51.3% owned subsidiary of Multi Solutions, Inc.
BALANCE SHEETS
January 31, 2002 and 2001
LIABILITIES AND STOCKHOLDERS' DEFICIENCY 2002 2001
------------ ------------
EQUITY
CURRENT LIABILITIES
Accrued payroll $ 81,817 $ 14,783
Payroll and other taxes payable 28,589 18,497
Accounts payable, accrued expenses and other current liabilities 169,933 66,295
Accrued officer compensation 133,868 143,042
Due to officer 52,847 --
Deferred Revenues 72,552 105,214
------------ ------------
Total current liabilities 539,606 347,831
DEFERRED COMPENSATION DUE OFFICERS/SHAREHOLDERS 586,605 586,605
------------ ------------
Total liabilities 1,126,211 934,436
COMMITMENTS AND CONTINGENCIES -- Note E
RELATED PARTY TRANSACTIONS -- Note H
SUBSEQUENT EVENT -- Note I
STOCKHOLDERS' DEFICIENCY
Common stock, authorized 30,000,000 shares
$.001 par value, issued and outstanding 13,709,477 shares 13,709 13,709
Additional paid-in capital 6,039,221 6,039,221
Accumulated deficit (6,068,163) (5,642,744)
------------ ------------
(15,233) 410,186
$ 1,110,978 $ 1,344,622
============ ============
See notes to financial statements
-F3-
MULTI SOFT, INC
a 51.3% owned subsidiary of Multi Solutions, Inc.
STATEMENTS OF OPERATIONS
Years ended January 31, 2002 and 2001
2002 2001
------------ ------------
REVENUES
License fees $ 44,063 $ 85,743
Maintenance fees 218,220 137,468
Consulting and other fees 28,540 41,170
Consulting fees from Freetrek affiliate 258,720 333,667
------------ ------------
Total revenues 549,543 598,048
EXPENSES
Software development and technical support 279,957 404,131
Selling and administrative 367,954 506,342
Provision for valuation write-down of software development costs 210,000 --
Provision for valuation write-down of amounts due from affiliates 200,000 --
------------ ------------
Total expenses 1,057,911 910,473
------------ ------------
(Loss) from operations (508,368) (312,425)
OTHER INCOME
Administrative charges to Freetrek 82,140 110,626
Interest and other income 809 --
------------ ------------
Net Loss $ (425,419) $ (201,799)
============ ============
Weighted average shares outstanding 13,709,477 13,709,477
(Loss) per share $ (0.03) $ (0.02)
See notes to financial statements
-F4-
MULTI SOFT, INC.
a 51.3% owned subsidiary of Multi Solutions, Inc.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
Years ended January 31, 2002 and 2001
Total Total
Common Stock paid in Deferred Accumulated stockholders
Shares Amount capital Compensation deficit deficiency
----------- ----------- ----------- ----------- ----------- -----------
Balance at January 31, 2000 13,709,477 $ 13,709 $ 6,039,221 ($ 25,257) ($5,440,945) $ 586,728
Amortization of deferred compensation 25,257 25,257
Net Loss (201,799) (201,799)
----------- ----------- ----------- ----------- ----------- -----------
Balance at January 31, 2001 13,709,477 13,709 6,039,221 -- (5,642,744) 410,186
Net Loss (425,419) (425,419)
----------- ----------- ----------- ----------- ----------- -----------
Balance at January 31, 2002 13,709,477 $ 13,709 $ 6,039,221 $ 0 ($6,068,163) ($ 15,233)
=========== =========== =========== =========== =========== ===========
See notes to financial statements
-F5-
MULTI -SOFT, INC.
a 51.3% owned subsidiary of Multi Solutions, Inc.
STATEMENTS OF CASH FLOWS
Years ended January 31, 2002 and 2001
2002 2001
------------ ------------
Cash flows from operating activities
Net Loss $ (425,419) $ (201,799)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization 159,302 184,373
Provision for valuation write-down of software development costs 210,000 --
Provision for valuation write-down of amounts due from affiliates 200,000 --
Changes in assets and liabilities
Due to / from Multi Solutions (16,367) 112,480
Due to/ from Freetrek (208,503) (7,227)
Accounts receivable 88,107 29,386
Prepaid expenses and other current assets (961) 23,316
Accrued payroll 67,034 --
Payroll and other taxes payable 10,092 (551)
Accounts payable and accrued expenses 103,638 16,079
Accrued officer compensation (9,174) (18,348)
Due to officer 52,847 --
Deferred revenues (32,662) (22,318)
------------ ------------
Net cash provided by operating activities 197,934 115,391
Cash flows from investing activities
Capital expenditures (4,634) (12,751)
Capitalized software development costs (190,093) (141,102)
------------ ------------
Net cash used in investing activities (194,727) (153,853)
Cash flows from financing activities
Amortization of stock grants -- 25,257
------------ ------------
Net cash provided by financing activities -- 25,257
------------ ------------
NET INCREASE (DECREASE) IN CASH 3,207 (13,205)
Cash at beginning of year -- 13,205
------------ ------------
Cash at end of year $ 3,207 $ --
============ ============
See notes to financial statements
-F6-
Multi Soft, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 2002 and 2001
NOTE A - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Multi Soft, Inc. "Company" was incorporated on January 29, 1985 under the
laws of the State of New Jersey. At January 31, 2002, the Company was 51.3%
owned by Multi Solutions, Inc. ("Solutions"). The Company is principally
involved in the design, production and delivery of computer applications
development software for sale to large corporate customers throughout the
United States and overseas.
The Company's financial statements have been presented on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The liquidity of the Company
has been adversely affected in recent years by significant losses from
operations. As of January 31, 2002, the Company's current liabilities
exceeded current assets by $491,646 and a net loss of $425,419 was incurred
for the year then ended. Additionally, these losses raise doubt that the
Company will recover its investment in software development costs
($455,530, net of valuation allowance of $210,000 as of January 31, 2002 -
See Note B-2).
The Company intends to aggressively market its new products, control
operating costs and broaden its product base through enhancements of
products. Additionally Solutions' subsidiary, FreeTrek, Inc. ("FreeTrek")
provided additional income and liquidity to support Soft. The Company also
provides consulting and administrative services to FreeTrek, providing
additional income and cash flow to defray operating costs.
The Company believes that these measures will provide sufficient liquidity
for it to continue as a going concern in its present form. Accordingly, the
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amount
and classification of liabilities or any other adjustments that might be
necessary should the Company be unable to continue as a going concern in
its present form.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets, which
range from three to seven years.
Depreciation expense was $4,643 and $4,560 for the years ended January 31,
2002 and 2001 respectively.
2. Capitalization of Computer Software
-----------------------------------
Capitalized software development costs relating to products for which
technological feasibility has been established qualify for capitalization
under Statement of Financial Accounting Standards (SFAS) No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed."
Research and development costs associated with the creation of computer
software prior to reaching technological feasibility are expensed as
incurred, except for related computer equipment expenditures such as
personal computers and other hardware components, which are capitalized and
depreciated over their useful lives if the equipment is deemed to have
alternative future use.
Capitalized software development costs are amortized to operations when the
product is available for general release to customers. Amortization is
calculated using (a) the ratio of current gross revenues for the product to
the total of current and anticipated gross revenues for the product or (b)
the straight-line method over the remaining useful life of the product,
whichever is greater.
The Company is amortizing, over a 60-month period, the capitalized software
costs for its Windows-based products. The Company's software engineers are
continually modifying and enhancing the existing software products and
developing new versions. Unamortized costs relating to Windows products as
of January 31, 2002 and 2001 are $445,530 (net of valuation allowance of
$210,000) and $619,901 respectively.
-F7-
Multi Soft, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 2002 and 2001
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Amortization expense for 2002 and 2001, for all products, was $154,464 and
$179,812 respectively. Write down for impairment of asset value charged to
operations for 2002 was $210,000.
3. Revenue Recognition
-------------------
In accordance with Statement of Position 97-2, "Software Revenue
Recognition" (SOP 97-2), the Company's policy is to recognize license and
maintenance fees when earned and consulting fee income when services are
rendered. License fees are recognized upon shipment of the software while
maintenance fees are recorded over the period covered by the related
contract.
Consulting is performed on a time and material basis.
4. Deferred Compensation
---------------------
Deferred compensation arising from the issuance of stock grants is
amortized over the term of the related grant or employment agreements (one
to five years). The amount of compensation attributable to stock grants is
determined by the market price of the Company's stock on the date of grant.
5. Loss Per Share
--------------
Loss per share is computed using the weighted average number of common
shares outstanding during the period.
6. Income Taxes
------------
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) NO. 109, "Accounting for Income
Taxes," which significantly changed the accounting for deferred income
taxes. The standard provides for a liability approach under which deferred
income taxes are provided for based upon enacted tax laws and rates
applicable to the periods in which the taxes become payable.
7. Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
8. Valuation of long-lived assets
------------------------------
The Company reviews long-lived assets held and used for possible impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company has recorded
provision for the impairment of long-lived assets at January 31, 2002 as
follows: capitalized software development costs - $210,000 and; amounts due
from affiliates - $200,000.
9. Risks, uncertainties and certain concentrations of credit risk and
----------------------------------------------------------------------
economic dependency
-------------------
The Company's future results of operations involve a number of significant
risks and uncertainties. Factors that could affect the Company's future
operating results and cause actual results to vary materially from
expectations include, but are not limited to, dependence on key personnel,
dependence on a limited number of customers, ability to design new products
and product obsolescence, ability to generate consistent sales, ability to
finance research and development, government regulation, technological
innovations and acceptance, competition, reliance on certain vendors,
credit and other risks.
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and accounts
receivable.
-F8-
Multi Soft, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 2002 and 2001
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
The Company maintains cash and cash equivalents in bank deposit and money
market accounts in one bank, which, at times, may exceed federally insured
limits or not be insured. The Company has not experienced any losses in
such accounts and does not believe it is exposed to any significant credit
risk on cash and cash equivalents.
9. New Accounting Pronouncements
-----------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), Accounting for
Derivative Instruments. SFAS No. 133, as amended, is effective for fiscal
years beginning after June 15, 2000. SFAS No. 133 established accounting
and reporting standards for derivative instruments and for hedging
activities. SFAS No. 133 requires that an entity recognize all derivatives
as either assets or liabilities and measure those instruments at fair
market value. Under certain circumstances, a portion of the derivative's
gain or loss is initially reported as a component of income when the
transaction affects earnings. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in the period of change. We
believe that the adoption of SFAS No. 133 will not have an impact on our
financial position or results of operations.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin 101, Revenue Recognition to provide
guidance on the recognition, presentation, and disclosure of revenue in
financial statements. Our policies on revenue recognition are consistent
with this bulletin.
In March 2000, the Financial Accounting Standards Board issued Financial
Interpretation No. 44 (FIN 44), Accounting for Certain Transactions
Involving Stock Compensations - and Interpretation of APB No. 25. FIN 44
clarifies the application of APB No. 25 for certain issues including: (a)
the definition of an employee for purposes of applying APB No. 25, (b) the
criteria for determining whether a plan qualifies as a non-compensatory
plan, (c) the definition of the date of granting employee stock options,
and (d) the accounting consequences of various modifications to the terms
of a previously fixed stock option or award. FIN 44 became effective July
1, 2000, except for the provisions that relate to modifications that
directly or indirectly reduce the exercise price of an award and the
definition of an employee, which became effective after December 15, 1998.
The adoption of FIN 44 had no material impact on the accompanying financial
statements.
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 141, Business
Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is
effective for all business combinations completed after June 30, 2001. SFAS
142 is effective for fiscal years beginning after December 15, 2001;
however, certain provisions of this Statement apply to goodwill and other
intangible assets acquired between July 1, 2001 and the effective date of
SFAS 142. Major provisions of these Statements and their effective dates
for the Company are as follows:
- all business combinations initiated after June 30, 2001 must use the
purchase method of accounting. The pooling of interest method of
accounting is prohibited except for transactions initiated before July
1, 2001.
- intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sold,
transferred, licensed, rented or exchanged, either individually or as
part of a related contract, asset or liability
- goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized. Effective January 1, 2002,
all previously recognized goodwill and intangible assets with
indefinite lives will no longer be subject to amortization.
- effective January 1, 2002 goodwill and intangible assets with
indefinite lives will be tested for impairment annually and whenever
there is an impairment indicator
- all acquired goodwill must be assigned to reporting units for purposes
of impairment testing and segment reporting.
Although it is still reviewing the provisions of these Statements,
management's preliminary assessment is that these Statements will not have
a material impact on the Company's financial position or results of
operations.
-F9-
Multi Soft, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 2002 and 2001
NOTE C - INCOME TAXES
As a result of losses incurred in recent years, the Company has net
operating loss carry forwards available to offset future federal taxable
income of approximately $4.6 million. These losses expire at various dates
through 2022. Therefore, there is no provision for income taxes. Because of
the uncertainty in the Company's ability to utilize the net operating loss
carryforwards, a full valuation allowance of approximately $1,598,000 has
been provided on the deferred tax asset.
Internal Revenue Code Section 382 places a limitation on the utilization of
Federal net operating loss and other credit carryforwards when an ownership
change, as defined by the tax law, occurs. Generally, this occurs when a
greater than 50 percentage point change in ownership occurs. Accordingly,
the actual utilization of the net operating loss carryforwards and other
deferred tax assets for tax purposes may be limited annually under Code
Section 382 to a percentage (about 5%) of the fair market value of the
Company at the time of any such ownership change.
Under the liability method specified by SFAS No 109, "Accounting for Income
Taxes", deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax basis of assets and
liabilities as measured by the enacted tax rates which will be in effect
when these differences reverse. Deferred tax expense is the result of
changes in deferred tax assets and liabilities. The principal types of
differences between assets and liabilities for financial statement and tax
return purposes are capitalized software development costs, deferred
compensation, deferred income and allowance for uncollectible accounts. Due
to the aforementioned net operating loss carryovers, there are no deferred
or current tax expense, tax assets or tax liabilities.
NOTE D - STOCKHOLDERS' EQUITY
1. Stock Transactions
------------------
In the past, the Company had entered into various transactions with
Solutions, which adjusted intercompany debt through the issuance of common
stock of the respective companies. There have been no transactions of that
nature during the reporting period of these financial statements.
2. Option and Stock Grant Program
------------------------------
In June 1993, the Company adopted an Employee, Consultant and Advisor Stock
and Option Compensation Plan (the Plan). Pursuant to the terms of the Plan,
an aggregate of up to 1,000,000 shares of common stock, .001 par value per
share (the common stock), and/or options to purchase common stock may be
granted to persons who are, at the time of issuance or grant, employees or
officers of, or consultants or advisors to, the Company. At January 31,
2002, an aggregate of 1,000,000 shares have been issued pursuant to the
Plan.
Amortization of deferred compensation for the stock grants to employees was
$0 and $26,257 for the years ended January 31, 2002 and 2001.
NOTE E - COMMITMENTS AND CONTINGENCIES
1. Leases
------
The Company was a subtenant (through January 31, 2002) in office space
leased by an entity substantially owned by the Company's chairman and his
wife. This lease was on a quarter-by-quarter term with a base rent of
$5,600 per month. Rental expense under the lease aggregated approximately
$67,750 and $67,200 for the years ended January 31, 2002 and 2001
respectively.
The Company is a party to equipment operating leases providing for
aggregate minimum payments of $12,825 for 2003, and $9,540 for each year
from 2004 through 2007.
-F10-
Multi Soft, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 2002 and 2001
NOTE E - COMMITMENTS AND CONTINGENCIES - Continued
2. Employment Agreements
---------------------
The Company has employment agreements with two officers which provide
aggregate minimum annual compensation of $200,000 through July 1999, and
which are automatically renewed annually.
These officers, Charles Lombardo and Miriam Jarney, have each relinquished
unpaid salaries for the years ended January 31, 2002 and 2001 as follows:
Year Ended January 31, Charles Lombardo Miriam Jarney Total Relinquished Salaries
2001 $150,000 $145,833 $295,833
2002 $133,333 $133,333 $266,666
In addition, the employment agreements entitle the two employees to 2% and
1.5% respectively, of each fiscal year's after tax profits of the Company.
Mr. Lombardo and Ms. Jarney have agreed to forego this additional
compensation since fiscal 1997.
3. Payroll Taxes
-------------
A state taxing authority has asserted a claim against the Company in the
amount of approximately $36,000. Management believes that only a small
portion has merit and intends to vigorously contest the claim. The
financial statements include a reserve of $13,000 against this claim, which
management believes is substantially higher than the expected settlement
amount.
4. Litigation
----------
The Company is a defendant in several legal actions arising in the normal
course of business. The dispositions of these actions are not expected to
have a material effect on the financial position or results of operations
of the Company taken as a whole. Management believes that the financial
statements include the full potential liabilities that may arise out of
these actions.
NOTE F - MAJOR CUSTOMERS
Except for income from services provided to the Company's affiliate
FreeTrek (see Note H - related party transactions), no individual customer
accounted for a significant total of revenue in fiscal 2002 and 2001.
NOTE G - SUPPLEMENTAL INFORMATION
Supplemental disclosures of cash flow information for the years ended
January 31, 2002 and 2001 are as follows:
2002 2001
---- ----
Cash paid during the year for interest $685 $225
Cash paid during the year for income taxes $0 $0
NOTE H - RELATED PARTY TRANSACTIONS
The Company, from time to time, pays incidental expenses of Solutions and
allocates its share of certain expenses for which it charged Solutions
$16,227 for 2002 and $24,622 for 2001. These items are charged to
intercompany receivable. The Company received no payments during the last
two fiscal years. The balance due from Multi Solutions was $351,926 and
$335,559 at January 31, 2002 and 2001 respectively.
-F11-
Multi Soft, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 2002 and 2001
NOTE H - RELATED PARTY TRANSACTIONS - continued
The Company provided certain services and office space to NetCast, Inc., a
subsidiary of Multi Solutions. The balance due from NetCast, Inc., for such
services was $234,592 as of January 31, 2002 and 2001. NetCast has
discontinued operations. Although payment of this debt is not expected from
NetCast, Multi Solutions has guaranteed this debt to the Company.
As of January 31, 2002, the Company has provided a valuation allowance for
the amounts due from Solutions and NetCast in the amount of $200,000.
The Company provides office space, consulting and administrative services
to its affiliate, FreeTrek. Inc., a Subsidiary of Solutions. The Company
billed FreeTrek of $340,860 ($258,720 in consulting fees and $82,140 in
administrative charges in 2002. In 2001, the Company billed FreeTrek
$444,293 ($333,667 in consulting fees and $110,626 in administrative
charges). These amounts are separately stated on the Statement of
Operations. Additionally, FreeTrek shared certain expenses with the Company
aggregating $21,353 in 2002 and $9,307 in 2001. In connection with these
billings, the Company collected payments of $174,100 and $415,156 for the
years ended January 31, 2002 and 2002 respectively. As of January 31, 2002
and 2001, the balance due from FreeTrek was $215,730 (of which $143,000 was
collected through April 30, 2002) and $7,227 respectively.
NOTE I - SUBSEQUENT EVENT
In February 2002, the Company entered into an office lease for a two-year
term through February 14, 2004. The lease requires monthly payments of
$2,000 through January 2003 and $2,125 from February 2003 through January
2004. The Company has deposited $6,000 as security with the landlord.
-F12-