CALIFORNIA
|
95-2873122
|
|
(STATE
OF INCORPORATION)
|
(I.R.S.
EMPLOYER IDENTIFICATION NUMBER)
|
Page
|
||||
PART I | ||||
ITEM
1
|
DESCRIPTION
OF BUSINESS
|
3
|
||
ITEM
2
|
DESCRIPTION
OF PROPERTY
|
18
|
||
ITEM
3
|
LEGAL
PROCEEDINGS
|
19
|
||
ITEM
4
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
19
|
||
PART
II
|
||||
ITEM
5
|
MARKET
FOR COMMON EQUITY/RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER
PURCHASES OF EQUITY SECURITIES
|
19
|
||
ITEM
6
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS
|
19
|
||
ITEM
7
|
FINANCIAL
STATEMENTS
|
25
|
||
ITEM
8
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
25
|
||
ITEM
8A
|
CONTROLS
AND PROCEDURES
|
25
|
||
PART
III
|
||||
ITEM
9
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION
16(a) OF THE EXCHANGE ACT
|
26
|
||
ITEM
10
|
EXECUTIVE
COMPENSATION
|
27
|
||
ITEM
11
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
30
|
||
ITEM
12
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
32
|
||
ITEM
13
|
EXHIBITS
|
32
|
||
ITEM
14
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
33
|
· |
Open
architecture and collections technology to accommodate multiple
locations
and multiple data sources without adverse impact on the
network.
|
· |
ODBC
data collector (OmniCollector) to collect and combine data from
disparate
data sources.
|
· |
System
reliability for virtually flawless
performance.
|
· |
Cross-brand
collection aggregation, alerting and reporting technology, not
centric to
any hardware or ACD manufacturer.
|
· |
Targeted
and profiled real time alerts, which provides multiple levels of
alarm
conditions.
|
· |
Combine
metrics across disparate sources for unified
viewing.
|
· British
Telecom
|
· Esso/Imperial
Oil
|
· NatWest
Bank
|
· American
Express
|
· Cable
&
Wireless
|
· Citicorp
|
· Barclays
Bank
|
· Anheuser
Busch
|
· ABN-AMRO
Bank
|
· MicroSoft
|
· Financial
|
· Internet,
e-commerce
systems
|
· Inventory
|
· Supply
chain,
MIS
|
· Sales
|
· Human
Resources
|
· CRM
|
· Any
other open data
source
|
· Business
Intelligence
|
· |
Data
collection architecture:
The
CenterStats engine has virtually no limit to the type or volume
of data it
collects. The strength of CenterStats is not only in what it collects
but
how it collects. Because it is not centric to a certain industry
or
market, there are no design limits on the type of data collected.
It can
therefore fit into virtually any
industry.
|
· |
Real
time data collector/alarms:
The CenterStats real time data collector is not only powerful,
but unique
in that it collects data in intervals as frequent as needed (or
is
available). Alarms data is taken directly from the source and is
not
impaired by having to move through duplicated databases. Real time
information is constantly updated with each refresh cycle. Furthermore,
users can set different types of data to refresh every second,
others
every hour, day, etc., since mission critical data may be needed
more
frequently than other types of information. Different individuals
can
receive different alarms.
|
· |
Refined
information databases:
The database created on the CenterStats server is comprised of
only
information that is identified as being critical to the user. Unlike
other
systems, which replicate entire databases, CenterStats only brings
together information that is already identified as being useful.
This
results in an “intelligent” database that allows faster throughput and
more refined data mining. The database created by CenterStats is
literally
a new information set, whose access can be user defined and automated.
The
result is the right information, delivered to the right individual
at the
right time.
|
· |
Expertise
in telecommunications and ACDs:
The CenterStats collectors are able to connect and extract data
from the
most popular ACD/Contact Center
systems.
|
· |
Kaiser
Permanente
|
· |
County
of Fairfax, Virginia
|
· |
Wellness
Plan
|
· |
20th
Century Fox
|
· |
CEI
|
· |
Petro
Canada
|
Distributor
|
FY2005
|
FY2004
|
|||||
Dacon
(British Telecom)
|
$
|
671,916
|
$
|
1,150,212
|
|||
Alcatel
|
82,940
|
8,160
|
|||||
Avaya
de Mexico
|
261,571
|
160,439
|
|||||
First
Point Contact/Rockwell
|
196,253
|
47,697
|
|||||
Siemens
de Mexico
|
159,371
|
267,562
|
Registered
Trademarks
|
Unregistered
Trademarks
|
Centergistic
Solutions
|
AgentView
Enterprise
|
CenterStats
|
AgentView
Enterprise EPM
|
AgentView
|
AgentView
Web
|
AgentLink
|
AgentView
WAP
|
PowerUser
|
|
Advanced
Threshold Handling
|
|
Performance
Indicator Builder
|
|
CenterStats
OmniCollector
|
· |
we
have persuasive evidence that an arrangement exists. For all sales,
we use
a binding purchase order and sales order confirmation as evidence
of an
arrangement. Sales through certain of our distributors are evidenced
by a
master agreement governing the relationship, together with binding
purchase orders on a transaction by transaction
basis;
|
· |
the
product is delivered to the customer under the terms of the arrangement
and title passes. Passage of title generally occurs when the product
is
delivered to a common carrier, but in some cases occurs when the
customer
receives the product;
|
· |
the
revenue is fixed and determinable. At the time of the transaction,
we
assess whether the fee associated with our revenue transactions
is fixed
and determinable based on the payment terms associated with the
transaction. If a significant portion of a fee is due after our
normal
payment terms, which are 30 to 75 days from invoice date, then
we account
for the fee as not being fixed and determinable. In these cases,
we
recognize revenue as the fees become due;
and
|
· |
collection
of the resulting receivable is reasonably assured. We assess collection
based on a number of factors, including past transaction history
with the
customer and the credit-worthiness of the customer. We do not request
collateral from our customers. If we determine that collection
of a fee is
not reasonably assured, then we defer the fee and recognize revenue
at the
time collection becomes reasonably assured, which generally is
upon
receipt of cash.
|
Year
Ended June 30,
(In
thousands)
|
|||||||||||||
2005
|
%
Of
Revenue
|
2004
|
%
Of
Revenue
|
||||||||||
Centergistic
Solutions
|
$
|
2,019
|
59.4
|
%
|
$
|
2,718
|
70.2
|
%
|
|||||
Mexico
and Latin America
|
$
|
1,381
|
40.6
|
%
|
$
|
1,026
|
26.3
|
%
|
|||||
Lynch
Young & Associates
|
$
|
—
|
—
|
%
|
$
|
130
|
3.3
|
%
|
|||||
Total
|
$
|
3,400
|
100.0
|
%
|
$
|
3,874
|
100.0
|
%
|
Name
|
Age
|
Office
|
||
Ricardo
G. Brutocao
|
59
|
President,
Chief Executive Officer and Director
|
||
David
M. Cunningham
|
44
|
Chief
Operating Officer, Chief Financial Officer, Secretary and
Director
|
||
Jerome
Fahey
|
77
|
Chairman
of the Board and Director
|
||
Jay
Kurtz
|
68
|
Director
|
||
William
J. Battison
|
55
|
Director
|
Annual
Compensation
|
Long
Term
Compensation
Awards
|
Name
and Principal
Position
|
Fiscal
Year
|
Salary
|
Bonus
|
Securities
Underlying
Options
|
Ricardo
G. Brutocao,
|
2005
|
$205,575
|
—
|
100,000
|
President
and Chief
|
2004
|
$185,625
|
—
|
96,000
|
Executive
Officer
|
2003
|
$185,625
|
—
|
96,000
|
David
M. Cunningham,
|
2005
|
$106,500
|
—
|
100,000
|
Chief
Operating
|
2004
|
$89,100
|
—
|
80,000
|
Officer
and Chief Financial Officer
|
2003
|
$89,100
|
—
|
80,000
|
Name
|
Number
of Securities
Underlying
Options
Granted
(#)
(1)
|
Percentage
of
Total
Options Granted
to
Employees in
Fiscal
Year (%)
|
Exercise
Price
($
per share)
|
Market
Price
($
per share) (2)
|
Expiration
Date
|
Ricardo
G. Brutocao
|
100,000
|
20%
|
$0.4538
|
$0.4125
|
10/19/2014
|
David
M. Cunningham
|
100,000
|
20%
|
$0.4125
|
$0.4125
|
10/19/2014
|
(1)
|
Both
Mr. Brutocao’s and Mr. Cunningham’s stock options become 50% vested on the
2-year anniversary of the option grant, and another 25% vested
on the
3rd
and 4th
year anniversary of the option grant.
|
(2)
|
Market
price was the fair market value of our common stock held in the
Centergistic ESOT as determined by an independent appraisal as
of June 30,
2003.
|
Name
and Address of Beneficial Owner
|
Number
of Shares of
Common
Stock
Beneficially Owned (1) |
Percentage
of Shares of
Common Stock
Outstanding
(2)
|
||
Ricardo
G. Brutocao
(President,
Chief Executive Officer and director)
2045
W. Orangewood Avenue
Orange,
California 92868
|
10,879,547
(3)(4)
|
67.3%
|
||
David
M. Cunningham
(Chief
Operating Officer, Chief Financial Officer,
Secretary
and director)
2045
W. Orangewood Avenue
Orange,
California 92868
|
2,666,819
(4)(5)
|
24.1%
|
||
Jerome
Fahey (director)
920
Spring Meadow Dr.
West
Covina, California 91791
|
230,352
(6)
|
2.1%
|
||
Jay
Kurtz (director)
2616
Queda Way
Laguna
Beach, California 92652
|
86,400
(7)
|
*
|
||
William
J. Battison (director)
334
Meadow Grove
La
Cãnada Flintridge, CA 91011
|
44,800(8)
|
*
|
||
Michael
Atlas
13036
Lake Wildwood Dr.
Penn
Valley, California 95946
|
1,962,496(9)
|
18.3%
|
||
Venture
Communications Corporation
5362
Runningbrook Road
Las
Vegas, Nevada 89120
|
6,742,776
(10)
|
43.43%
|
||
MKB
Associates, Inc.
25412
Wagon Wheel Circle
Laguna
Hills, California 92653
|
708,928
(11)
|
6.6%
|
||
All
executive officers and directors as
a group (5 persons)
|
11,847,318(4)(12)
|
70.7%
|
*
|
Less
than 1%
|
(1)
|
Beneficial
ownership is determined in accordance with the rules of the Securities
and
Exchange Commission and generally includes voting or investment
power with
respect to securities. Shares of common stock subject to options,
warrants
and convertible notes currently exercisable or convertible, or
exercisable
or convertible within 60 days after June 30, 2005, are deemed beneficially
owned and outstanding for computing the percentage of the person
holding
such securities, but are not considered outstanding for computing
the
percentage of any other person.
|
(2)
|
Percentage
of ownership is based on 10,699,312 shares of common stock outstanding
on
June 30, 2005.
|
(3)
|
Includes
628,000 shares subject to options currently exercisable or exercisable
within 60 days after June 30, 2005. Includes 55,555 shares issuable
upon
exercise of warrants for guarantee of line of credit. Includes
707,416
shares owned by MKB Associates, Inc., a corporation owned by Mr.
Brutocao’s children and of which Mr. Brutocao’s wife is president , and
also includes 1,512 shares issuable upon exercise of warrants held
by MKB
Associates, Inc. Mr. Brutocao disclaims beneficial ownership of
such
securities held by MKB Associates, Inc. Includes 1,894,776 shares
owned
and 4,848,000 shares issuable upon exercise of warrants held by
Venture
Communications Corporation of which Mr. Brutocao is a director.
Mr.
Brutocao disclaims beneficial ownership of such securities held
by Venture
Communications Corporation, except to the extent of his pecuniary
interest
therein. Does not include 198,104 shares held by the Centergistic
ESOT for
the benefit of Mr. Brutocao, since these shares are already included
in
the total number of shares held in the Centergistic ESOT and deemed
to be
beneficially owned by him by virtue of his shared voting power
as
described in footnote (4) to this table.
|
(4)
|
Includes
2,060,600 shares held by the Centergistic ESOT, of which Mr. Brutocao
and
Mr. Cunningham are co-trustees and have shared voting power as
to certain
matters, including election of the Centergistic Board of Directors.
Messrs. Brutocao and Cunningham disclaim beneficial ownership of
the
shares held by the Centergistic ESOT except to the extent of their
respective pecuniary interests therein.
|
(5)
|
Includes
352,000 shares subject to options, and 1,512 shares subject to
warrants
exercisable or convertible within 60 days after June 30, 2005.
Includes
55,555 shares issuable upon exercise of warrants for guarantee
of line of
credit. Does not include 72,936 shares held by the Centergistic
ESOT for
the benefit of Mr. Cunningham, since these shares are already included
in
the total number of shares held in the Centergistic ESOT and deemed
to be
beneficially owned by him by virtue of his shared voting power
as
described in footnote (4) to this table.
|
(6)
|
Includes
108,800 shares subject to options currently exercisable or exercisable
within 60 days after June 30, 2005.
|
(7)
|
Includes
86,400 shares subject to options currently exercisable or exercisable
within 60 days after June 30, 2005.
|
(8)
|
Includes
44,800 shares subject to options currently exercisable or exercisable
within 60 days after June 30, 2005.
|
(9)
|
Includes
1,768,176 shares held by the Atlas Family Trust and 3,776 shares
issuable
upon exercise of warrants held by The Atlas Family Trust. Also
includes
181,072 shares held by the Centergistic ESOT for the benefit of
Mr. Atlas
and 9,472 shares held by the Centergistic ESOT for the benefit
of Mr.
Atlas’ wife.
|
(10)
|
Includes
4,848,000 shares subject to warrants currently
exercisable.
|
(11)
|
Includes
1,512 shares issuable upon exercise of warrants that are currently
convertible or exercisable, or convertible or exercisable within
60 days
after June 30, 2005.
|
(12)
|
Includes
an aggregate of 1,274,400 shares subject to options, warrants and
convertible notes held by all executive officers and directors
that are
currently exercisable or convertible or exercisable or convertible
within
60 days after June 30, 2005. Includes 111,110 shares issuable upon
exercise of warrants for guarantee of line of credit. Includes
the 707,416
shares owned and 1,512 shares issuable upon exercise of the warrants
held
by MKB Associates, Inc., as to which Mr. Brutocao disclaims beneficial
ownership. Includes the 1,894,776 shares owned and 4,848,000 shares
issuable upon exercise of warrants held by Venture Communications
Corporation, as to which Mr. Brutocao disclaims beneficial ownership,
except to the extent of his pecuniary interest therein. Does not
include
an aggregate of 271,040 shares held by the Centergistic ESOT for
the
benefit of our executive officers since these shares are already
included
in the total number of shares held in the Centergistic ESOT and
deemed to
be beneficially owned by Messrs. Brutocao and Cunningham by virtue
of
their shared voting power as described in footnote (4) to this
table.
Messrs. Brutocao and Cunningham disclaim beneficial ownership of
the
shares held by the Centergistic ESOT except to the extent of their
respective pecuniary interests
therein.
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted
average exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future issuance
|
|||
Equity
compensation plans approved by security holders
|
2,623,400
|
$
0.53
|
976,600
|
|||
Equity
compensation plans not approved by security holders
|
—
|
—
|
—
|
|||
Total
|
2,623,400
|
$
0.53
|
976,600
|
(a)
|
Exhibit
Index:
|
EXHIBIT
NO.
|
TITLE
|
|
3.1
|
Articles
of Incorporation of the Registrant.*
|
|
3.1
|
Articles
of Incorporation of the Registrant.*
|
|
3.2
|
Certificate
of Amendment of Articles of Incorporation of the
Registrant.*
|
|
3.3
|
Certificate
of Amendment of Articles of Incorporation of the
Registrant.*
|
|
3.4
|
Certificate
of Amendment of Articles of Incorporation of the
Registrant.*
|
|
3.5
|
Certificate
of Amendment of Articles of Incorporation of the
Registrant.*
|
|
3.6
|
Certificate
of Amendment of Articles of Incorporation of the
Registrant.*
|
|
3.7
|
Certificate
of Amendment of Articles of Incorporation of the
Registrant.*
|
|
3.8
|
Certificate
of Amendment of Articles of Incorporation of the
Registrant.*
|
|
3.9
|
Certificate
of Amendment of Articles of Incorporation of the
Registrant.*
|
|
3.9.1
|
Certificate
of Amendment of Articles of Incorporation of the
Registrant.*
|
|
3.10
|
Bylaws
of the Registrant*
|
|
10.1
|
Lease
Agreement with Park Orangewood LLC dated June 17,
2003.*
|
|
10.2
|
Consulting
Agreement with Hanover Capital Corp dated July 1,
2003.*
|
|
10.3
|
Consulting
Agreement with Hanover Capital Corp. dated July 1,
2003.*
|
|
10.4
|
Consulting
Agreement with The Bosphorous Group, Inc. dated August 1,
2002.*
|
|
10.5
|
Consulting
Agreement with The Bosphorous Group, Inc. dated October 1,
2003.*
|
|
10.6
|
Common
Stock Purchase Warrant with The Bosphorous Group dated September
1,
2003.*
|
|
10.7
|
Common
Stock Purchase Warrant with Venture Communications Corporation
dated June
26, 1998.*
|
|
10.8
|
Common
Stock Purchase Warrant with Lenawee Trust dated June 26,
1998.*
|
|
10.9
|
Common
Stock Purchase Warrant with Venture Communications Corporation
dated
September 27, 2000.*
|
|
10.10
|
1996
Stock Option Plan and First Amendment thereto.*
|
|
10.11
|
1998
Non-Employee Directors Stock Option Plan.*
|
|
10.12
|
Executive
Employment Agreement with Ricardo G. Brutocao dated May 1,
1988.*
|
|
10.13
|
Form
of Convertible Subordinated Promissory Note of the Registrant dated
September 1, 2003 issued to certain lenders to evidence loans in
the
aggregate principal amount of $490,000.*
|
|
10.14
|
Form
of Common Stock Purchase Warrant of the Registrant dated September
1, 2003
issued to holders of the Registrant’s Convertible Subordinated Promissory
Notes to purchase an aggregate of 74,016 shares of the Registrant’s common
stock.*
|
|
10.15
|
Secured
Promissory Note of the Registrant dated July 1, 2003 payable to
Al Wild in
the principal amount of $44,220.28.*
|
|
10.16
|
Secured
Promissory Note of the Registrant dated December 31, 2002 payable
to
Ricardo G. Brutocao in the principal amount of
$16,875.*
|
10.17
|
Secured
Promissory Note of the Registrant dated December 31, 2002 payable
to David
M. Cunningham in the principal amount of $8,100.*
|
|
10.18†
|
Distribution
Agreement with Dacon Electronics Limited dated August 1,
2000.*
|
|
10.19
|
Judgment
Purchase Agreement with Venture Communications Corporation dated
September
27, 2000.*
|
|
10.20
|
Agreement
between Lynch, Young & Co. and Los Angeles Department of Water and
Power dated September 1, 2002.*
|
|
10.21
|
Entry
into Material Definitive Agreement**
|
|
21
|
Subsidiaries
of the Registrant.*
|
|
31.1
|
Certification
of the President and Chief Executive Officer
|
|
31.2
|
Certification
of the Chief Financial Officer
|
|
32.1
|
Certificate
of the President and Chief Executive Officer pursuant to 18 U.S.C
§1350
|
|
32.2
|
Certificate
of the Chief Financial Officer pursuant to 18 U.S.C
§1350
|
*
|
Incorporated
by reference to exhibits of the same number filed with our Registration
Statement on Form SB-2 (File No. 333-111378), which became effective
on
April 28, 2004.
|
**
|
Incorporated
by reference to exhibit file as Form 8-K on September 7,
2005.
|
†
|
We
obtained confidential treatment from the Securities and Exchange
Commission with respect to certain portions of this exhibit. A
complete
version of this exhibit has been filed separately with the
Commission.
|
REGISTRANT | ||
|
|
|
Date: October 12, 2005 | By: | /s/ Ricardo G. Brutocao |
President and Chief Executive Officer |
||
Date: October 12, 2005 | By: | /s/ Ricardo G. Brutocao |
President and Chief Executive Officer |
Date: October 12, 2005 | By: | /s/ David M. Cunningham |
Chief Financial Officer (Chief Accounting Officer) |
Date: October 12, 2005 | By: | /s/ Jerome C. Fahey |
Director |
Date: October 12, 2005 | By: | /s/ G. J. Kurtz |
Director
|
Date: October 12, 2005 | By: | /s/ William J. Battison |
Director
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated
Financial Statements
|
|
Consolidated
Balance Sheet as of June 30, 2005
|
F-3
|
Consolidated
Statements of Operations and Comprehensive Income (Loss) for the
Years
Ended June 30, 2005 and 2004
|
F-5
|
Consolidated
Statements of Stockholders’ Equity (Deficit) for the Years Ended June 30,
2005 and 2004
|
F-6
|
Consolidated
Statements of Cash Flows for the Years Ended June 30, 2005 and
2004
|
F-7
|
Notes
to Consolidated Financial Statements
|
F-10
|
ASSETS
|
||||
Current
|
||||
Cash
and cash equivalents
|
$
|
80,486
|
||
Trade
receivables, less allowance for doubtful
|
||||
accounts
of $30,500
|
558,915
|
|||
Inventories
|
155,136
|
|||
Prepaid
expenses
|
63,678
|
|||
Miscellaneous
receivables
|
32,750
|
|||
Total
current assets
|
890,965
|
|||
Property,
equipment, and leasehold
|
||||
improvements,
net of accumulated depreciation of $676,196
|
118,050
|
|||
Capitalized
software development costs,
|
||||
net
of accumulated amortization of $1,741,487
|
112,100
|
|||
Other
assets
|
||||
Deferred
offering costs
|
554,334
|
|||
Other
|
29,689
|
|||
Total
other assets
|
584,023
|
|||
$
|
1,705,138
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
||||
Current
liabilities
|
||||
Notes
payable - related parties
|
$
|
45,247
|
||
Line
of credit - related party
|
319,000
|
|||
Accounts
payable
|
473,677
|
|||
Accrued
expenses
|
129,202
|
|||
Deferred
income
|
181,617
|
|||
Total
liabilities, all current
|
1,148,743
|
|||
Commitments
and contingencies
|
||||
(Notes
4 through 7)
|
||||
Stockholders’
equity (deficit)
|
||||
Common
stock, no par value, 80,000,000 shares authorized;
|
||||
10,699,312
shares issued and outstanding
|
3,058,510
|
|||
Additional
paid-in capital
|
291,462
|
|||
Accumulated
deficit
|
(2,754,165
|
)
|
||
Unearned
stock compensation
|
(13,654
|
)
|
||
Common
stock to be redeemed
|
(25,758
|
)
|
||
Total
stockholders’ equity (deficit)
|
556,395
|
|||
Total
liabilities and stockholders’equity (deficit)
|
$
|
1,705,138
|
Years
Ended June 30,
|
|||||||
2005
|
2004
|
||||||
Revenues:
|
|||||||
Software
and service revenues
|
$
|
3,018,436
|
$
|
2,752,153
|
|||
Professional
services
|
16,560
|
129,680
|
|||||
Hardware
sales
|
365,366
|
991,904
|
|||||
Total
revenues
|
3,400,362
|
3,873,737
|
|||||
Cost
of revenues:
|
|||||||
Software
and service costs
|
674,708
|
527,861
|
|||||
Professional
services
|
4,780
|
105,840
|
|||||
Hardware
costs
|
348,858
|
764,591
|
|||||
Total
cost of revenues
|
1,028,346
|
1,398,292
|
|||||
Gross
profit
|
2,372,016
|
2,475,445
|
|||||
Operating
expenses:
|
|||||||
Selling
and marketing
|
737,764
|
806,211
|
|||||
Research
and development
|
397,815
|
430,603
|
|||||
General
and administrative
|
1,862,192
|
1,895,967
|
|||||
Total
operating expenses
|
2,997,771
|
3,132,781
|
|||||
Operating
loss
|
(625,755
|
)
|
(657,336
|
)
|
|||
Other
expense
|
(5,130
|
)
|
(5,300
|
)
|
|||
Interest
expense
|
(27,982
|
)
|
(208,837
|
)
|
|||
Loss
before income taxes
|
(658,867
|
)
|
(871,473
|
)
|
|||
Income
tax provision
|
(3,200
|
)
|
(3,200
|
)
|
|||
Net
loss
|
(662,067
|
)
|
(874,673
|
)
|
|||
Other
comprehensive income, net of tax
|
—
|
3,834
|
|||||
Comprehensive
loss
|
$
|
(662,067
|
)
|
$
|
(870,839
|
)
|
|
Basis
and diluted net loss per share
|
$
|
(0.06
|
)
|
$
|
(0.09
|
)
|
|
Weighted-average
number of common shares outstanding
|
10,555,389
|
9,188,603
|
Accumulated
|
|||||||||||||||||||||||||||||||
Items
of
|
|||||||||||||||||||||||||||||||
Other
|
Ttoal
|
||||||||||||||||||||||||||||||
Common
|
Common
|
Additional
|
Unearned
|
Comprehensive
|
Stockholders'
|
||||||||||||||||||||||||||
Common
Stock
|
Stock
|
Stock
to be
|
Paid-In
|
Stock
|
Accumulated
|
Income
|
Notes
|
Equity
|
|||||||||||||||||||||||
Shares
|
Amount
|
Issuable
|
Redeemed
|
Capital
|
Compensation
|
Deficit
|
(Loss)
|
Receivable
|
(Deficit)
|
||||||||||||||||||||||
Balance,
June 30, 2003
|
9,221,416
|
$
|
2,455,781
|
$
|
—
|
$
|
—
|
$
|
181,132
|
$
|
(28,558
|
)
|
$
|
(1,217,425
|
)
|
$
|
(3,834
|
)
|
$
|
(5,358
|
)
|
$
|
1,381,738
|
||||||||
Warrants
issued in connection with issuance of convertible promissory
notes payable
(Note 7)
|
—
|
—
|
—
|
—
|
12,533
|
—
|
—
|
—
|
—
|
12,533
|
|||||||||||||||||||||
Beneficial
conversion feature on promissory notes payable (Note 7)
|
—
|
—
|
—
|
—
|
8,618
|
—
|
—
|
—
|
—
|
8,618
|
|||||||||||||||||||||
Stock
compensation
|
—
|
—
|
—
|
—
|
—
|
7,452
|
—
|
—
|
—
|
7,452
|
|||||||||||||||||||||
Change
in unrealized loss on securities available for sale, net
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
3,834
|
—
|
3,834
|
|||||||||||||||||||||
Note
receivable reduction
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
2,518
|
2,518
|
|||||||||||||||||||||
Stock
redemption payable
|
—
|
—
|
—
|
(44,220
|
)
|
—
|
—
|
—
|
—
|
—
|
(44,220
|
)
|
|||||||||||||||||||
Redemption
of shares
|
(78,552
|
)
|
(23,585
|
)
|
—
|
23,585
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||
Repricing
of warrants (Note 7)
|
—
|
—
|
—
|
—
|
82,609
|
—
|
—
|
—
|
—
|
82,609
|
|||||||||||||||||||||
Common
stock issuable (Note 7)
|
—
|
—
|
634,375
|
—
|
—
|
—
|
—
|
—
|
—
|
634,375
|
|||||||||||||||||||||
Net
loss for the year
|
—
|
—
|
—
|
—
|
—
|
—
|
(874,673
|
)
|
—
|
—
|
(874,673
|
)
|
|||||||||||||||||||
Balance,
June 30, 2004
|
9,142,864
|
2,432,196
|
634,375
|
(20,635
|
)
|
284,892
|
(21,106
|
)
|
(2,092,098
|
)
|
—
|
(2,840
|
)
|
1,214,784
|
|||||||||||||||||
Warrants
issued in connection with related party line of credit
|
—
|
—
|
—
|
—
|
6,570
|
—
|
—
|
—
|
—
|
6,570
|
|||||||||||||||||||||
Note
receivable reduction
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
2,840
|
2,840
|
|||||||||||||||||||||
Stock
compensation
|
—
|
—
|
—
|
—
|
—
|
7,452
|
—
|
—
|
—
|
7,452
|
|||||||||||||||||||||
Redemption
of shares
|
(26,184
|
)
|
(8,061
|
)
|
—
|
8,061
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||
Stock
buy—back payable
|
—
|
—
|
—
|
(13,184
|
)
|
—
|
—
|
—
|
—
|
—
|
(13,184
|
)
|
|||||||||||||||||||
Common
stock issuable (Note 7)
|
1,582,632
|
634,375
|
(634,375
|
)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||
Net
loss for the year
|
—
|
—
|
—
|
—
|
—
|
—
|
(662,067
|
)
|
—
|
—
|
(662,067
|
)
|
|||||||||||||||||||
Balance,
June 30, 2005
|
10,699,312
|
$
|
3,058,510
|
$
|
—
|
$
|
(25,758
|
)
|
$
|
291,462
|
$
|
(13,654
|
)
|
$
|
(2,754,165
|
)
|
$
|
—
|
$
|
—
|
$
|
556,395
|
CENTERGISTIC
SOLUTIONS, INC.
|
||||||||||||
Consolidated
Statements of Cash Flows
|
Years
Ended June 30,
|
|||||||
2005
|
2004
|
||||||
Cash
flows from operating activities
|
|||||||
Net
loss
|
$
|
(662,067
|
)
|
$
|
(874,673
|
)
|
|
Adjustments
to reconcile net loss to
|
|||||||
net
cash (used) provided by operating activities:
|
|||||||
Depreciation
and amortization
|
177,225
|
205,889
|
|||||
Provision
for doubtful accounts
|
(29,700
|
)
|
24,215
|
||||
Write-off
of goodwill
|
-
|
23,600
|
|||||
Stock
compensation
|
7,452
|
7,452
|
|||||
Non-cash
interest expense
|
6,570
|
178,125
|
|||||
Loss
on sale of securities
|
|||||||
available
for sale
|
—
|
2,657
|
|||||
Increase
(decrease) from changes
|
|||||||
in
assets and liabilities:
|
|||||||
Trade
receivables
|
134,904
|
187,276
|
|||||
Inventories
|
23,491
|
(14,619
|
)
|
||||
Prepaid
expenses
|
12,840
|
(1,561
|
)
|
||||
Miscellaneous
receivables
|
(8,591
|
)
|
51,498
|
||||
Other
|
—
|
(4,468
|
)
|
||||
Accounts
payable
|
59,839
|
224,428
|
|||||
Accrued
expenses
|
(19,681
|
)
|
25,188
|
||||
Deferred
income
|
24,235
|
11,526
|
|||||
Net
cash (used) provided by operating activities
|
(273,483
|
)
|
46,533
|
||||
Cash
flows from investing activities
|
|||||||
Proceeds
from sale of securities
|
—
|
4,798
|
|||||
Additions
to capitalized software development costs
|
—
|
(11,500
|
)
|
||||
Purchase
of equipment
|
(23,193
|
)
|
(30,758
|
)
|
|||
Net
cash used by investing activities
|
(23,193
|
)
|
(37,460
|
)
|
CENTERGISTIC
SOLUTIONS, INC.
|
||||||||||||
Consolidated
Statements of Cash Flows
(continued)
|
Years
Ended June 30,
|
|||||||
2005
|
2004
|
||||||
Cash
flows from financing activities
|
|||||||
Deferred
offering costs
|
(86,463
|
)
|
(275,172
|
)
|
|||
Principal
payments on term loan and
|
|||||||
notes
payable
|
—
|
(60,000
|
)
|
||||
Borrowings
on short-term debt
|
319,000
|
465,000
|
|||||
Repurchase
of common stock
|
(8,061
|
)
|
(23,585
|
)
|
|||
Payments
received on note receivable
|
2,840
|
2,518
|
|||||
Net
cash provided by financing activities
|
227,316
|
108,761
|
|||||
Net
(decrease) increase in cash and cash equivalents
|
(69,360
|
)
|
117,834
|
||||
Cash
and cash equivalents, beginning
of period
|
149,846
|
32,012
|
|||||
Cash
and cash equivalents, end
of period
|
$
|
80,486
|
$
|
149,846
|
|||
Supplemental
Disclosures of Cash Flow
|
|||||||
Information:
|
|||||||
Cash
payments for:
|
|||||||
Interest
|
$
|
28,187
|
$
|
19,852
|
|||
Income
tax payments
|
$
|
3,997
|
$
|
3,997
|
Centergistic
Solutions
|
$
|
4,163,620
|
||
Centergistic
Solutions - Mexico
|
646,970
|
|||
4,810,590
|
||||
Eliminations
|
(3,105,452
|
)
|
||
Total
consolidated assets
|
$
|
1,705,138
|
Year
Ended
|
Year
Ended
|
||||||
June
30, 2005
|
June
30, 2004
|
||||||
Centergistic
Solutions
|
|||||||
Revenues
|
$
|
2,019,384
|
$
|
2,717,284
|
|||
Gross
profit
|
$
|
1,662,200
|
$
|
1,952,693
|
|||
Net
income (loss)
|
$
|
(712,539
|
)
|
$
|
(773,158
|
)
|
|
Centergistic
Solutions - Mexico
|
|||||||
Revenues
|
$
|
1,380,978
|
$
|
1,026,773
|
|||
Gross
profit
|
$
|
709,816
|
$
|
498,912
|
|||
Net
income (loss)
|
$
|
50,472
|
$
|
(95,026
|
)
|
||
LYA
|
|||||||
Revenues
|
$
|
—
|
$
|
129,680
|
|||
Gross
profit
|
$
|
—
|
$
|
23,840
|
|||
Net
income (loss)
|
$
|
—
|
$
|
(6,489
|
)
|
Office
and computer equipment
|
3 - 7 years
|
Trade
show equipment
|
5
-
10 years
|
Date
Technological
|
|||
Feasibility
|
Estimated
|
||
Established
|
Life
|
||
CenterStats
|
December
2001
|
5
years
|
|
AgentView
|
June
1999
|
5
years
|
June
30, 2005
|
||||
CenterStats
|
$
|
401,498
|
||
AgentView
(fully amortized)
|
307,476
|
|||
Other
fully amortized products
|
1,144,613
|
|||
1,853,587
|
||||
Accumulated
amortization
|
(1,741,487
|
)
|
||
$
|
112,100
|
Years
Ended June 30,
|
|||||||
2005
|
2004
|
||||||
Net
loss, as reported
|
$
|
(662,067
|
)
|
$
|
(874,673
|
)
|
|
Add:
Stock compensation
|
|||||||
expense
recorded in
|
|||||||
accordance
with APB
|
|||||||
Opinion
No. 25
|
7,452
|
7,452
|
|||||
Deduct:
Total stock-based
|
|||||||
employee
compensation
|
|||||||
expense
determined under
|
|||||||
fair
value based method
|
|||||||
for
all stock options, net of
|
|||||||
related
tax effects
|
(23,644
|
)
|
(105,318
|
)
|
|||
Pro
forma net loss
|
$
|
(678,259
|
)
|
$
|
(972,539
|
)
|
§ |
Software
license fees for site licenses and master license agreements are
recognized as revenue upon delivery of the software, and when remaining
obligations are not significant. The Company’s software licensing
agreement provides the customer with a 90-day warranty and return
provision, including a limited time to test the software. If the
customer
can prove that the software is not functioning, the Company has
the
opportunity to remedy the problem and, if not resolved, the customer
may
return the software. The Company considers the need for a reserve
for
warranty and returns on a quarterly basis; however, such occurrences
have
historically not been significant.
|
§ |
Advance
contract payments for software services, consisting primarily of
software
maintenance and support, are recorded as deferred income until
the
services are provided. After the expiration of the software license
warranty period, the Company commences recognition of the contract
payments ratably over the term of the maintenance period. All subsequent
software maintenance and support is billed separately and recognized
ratably over the life of the maintenance period.
|
§ |
Revenues
from software sold to distributors are recognized upon delivery
since
title passes upon delivery. The distributor is subject to a restocking
fee
of 10%-25% if an order is returned; however, historically, such
returns
have been insignificant. Special orders are
non-cancelable.
|
§ |
Software
and service revenues include services related to maintenance, time
and
materials contracts, installation and training. Such revenues are
recognized as the services are
rendered.
|
§ |
Revenues
from the sale of computer and display hardware are recognized upon
shipment, which is generally concurrent with the passage of
title.
|
§ |
Professional
services revenues are derived from the services provided by the
Company’s
consulting business. Such revenues are recognized as the services
are
rendered.
|
Deferred
tax liabilities:
|
||||
Capitalized
software development costs
|
$
|
(48,000
|
)
|
|
Deferred
tax assets:
|
||||
Net
operating loss carryforwards
|
1,474,200
|
|||
State
taxes
|
1,100
|
|||
Accrued
expenses
|
26,000
|
|||
Allowance
for doubtful accounts
|
13,100
|
|||
Stock-based
compensation
|
70,100
|
|||
Depreciation
and amortization
|
21,000
|
|||
1,605,500
|
||||
Less
valuation allowance
|
(1,557,500
|
)
|
||
Net
deferred tax assets (liabilities)
|
$
|
—
|
2005
|
2004
|
||||||
Current:
|
|||||||
Federal
|
$
|
—
|
$
|
—
|
|||
State
|
3,200
|
3,200
|
|||||
3,200
|
3,200
|
||||||
Deferred:
|
|||||||
Federal
|
$
|
—
|
$
|
—
|
|||
State
|
—
|
—
|
|||||
|
—
|
—
|
|||||
$
|
3,200
|
$
|
3,200
|
2005
|
2004
|
|||||||
Computed
expected statutory expense (benefit)
|
$
|
(225,100
|
)
|
$
|
(297,400
|
)
|
||
Increase
in rate resulting from:
|
||||||||
State
income taxes, net of federal benefit
|
2,100
|
2,100
|
||||||
Change
in valuation allowance
|
172,600
|
331,100
|
||||||
Other
|
53,600
|
(32,600
|
)
|
|||||
$
|
3,200
|
$
|
3,200
|
Year
Ending June 30,
|
||||
2006
|
$
|
108,276
|
||
2007
|
105,900
|
|||
2008
|
105,865
|
|||
2009
|
5,496
|
|||
2010
|
4,122
|
|||
$
|
329,659
|
2005
|
2004
|
||||||||||||
Fixed
Options
|
Shares
|
Weighted
Average Exercise Price |
Shares
|
Weighted
Average Exercise Price |
|||||||||
Outstanding
at beginning of
period
|
2,418,800
|
$
|
0.56
|
2,006,000
|
$
|
0.56
|
|||||||
Granted
|
537,200
|
0.42
|
412,800
|
0.41
|
|||||||||
Expired
|
(332,600
|
)
|
(0.42
|
)
|
—
|
—
|
|||||||
Outstanding
at end of period
|
2,623,400
|
$
|
0.53
|
2,418,800
|
$
|
0.54
|
|||||||
Exercisable
at end of period
|
1,638,600
|
$
|
0.61
|
1,551,400
|
$
|
0.63
|
|||||||
Weighted
average fair value of options granted during the period
|
$
|
0.42
|
$
|
0.41
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||
Fixed
Options
|
Number
Outstanding |
Weighted
Average Remaining Contractual Life |
Weighted
Average Exercise
Price
|
Number
Exercisable |
Weighted
Average Exercise Price |
|||||||||||
$0.30
to $0.47
|
1,410,600
|
7.96
|
$
|
0.39
|
425,800
|
$
|
0.37
|
|||||||||
$0.52
to $0.79
|
1,212,800
|
2.70
|
0.69
|
1,212,800
|
0.69
|
|||||||||||
2,623,400
|
$
|
0.53
|
1,638,600
|
$
|
0.61
|