-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LCuUcxz7qdRmU7mOTiPnMgm/XAgfSo44vRsmD1ODNhrmoiCxZp1b+lmc6B8lx30o OQrsxUiAXp1eAC4FcOm6uw== 0000893816-96-000004.txt : 19960613 0000893816-96-000004.hdr.sgml : 19960613 ACCESSION NUMBER: 0000893816-96-000004 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19960612 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER OUTSOURCING SERVICES INC CENTRAL INDEX KEY: 0000893816 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 133252333 STATE OF INCORPORATION: NY FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-20824 FILM NUMBER: 96580121 BUSINESS ADDRESS: STREET 1: 360 WEST 31ST ST STREET 2: 11TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10001 BUSINESS PHONE: 2125643730 10QSB 1 U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: April 30, 1996 Commission file number: 0-20824 COMPUTER OUTSOURCING SERVICES, INC. (Exact name of small business issuer as specified in its charter) New York 13-3252333 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 360 West 31st Street New York, New York 10001 (Address of principal executive offices) (212) 564-3730 (Issuer's telephone number) Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] There were 3,714,850 shares of the registrant's Common Stock, $0.01 par value, outstanding as of June 12, 1996. Transitional Small Business Disclosure Form (check one); Yes [ ] No [X]. Page 1 of 15 PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS April 30, October 31, 1996 1995 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents .................... $ 1,083,714 $ 1,406,016 Marketable securities ........................ 993 993 Trade accounts receivable, net of allowance for doubtful accounts of $248,256 and $265,415, respectively .................... 3,757,553 3,799,940 Prepaid and refundable income taxes .......... 380,496 414,558 Prepaid expenses ............................. 790,342 616,231 Other current assets ......................... 40,531 124,966 --------- --------- 6,053,629 6,362,704 --------- --------- PROPERTY and EQUIPMENT, net ...................... 3,415,799 3,450,771 --------- --------- OTHER ASSETS: Deferred software costs, net .................. 1,452,121 1,083,051 Intangible assets, net ........................ 7,934,020 8,160,949 Due from related parties, net ................. 141,405 155,740 Cash surrender value of life insurance, net of loans of $100,388 ................... 131,682 131,682 Security deposits and other non-current assets 505,380 579,547 ---------- ---------- 10,164,608 10,110,969 ---------- ---------- TOTAL ASSETS ..................................... $19,634,036 $19,924,444 ========== ========== See Notes to Consolidated Financial Statements Page 2 of 15 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) April 30, October 31, 1996 1995 ------------ ----------- LIABILITIES and STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ............................. $ 1,758,536 $ 1,365,480 Current notes payable and current portion of long-term debt ......................... 1,459,201 1,709,571 Current portion of capitalized lease obligations ......................... 209,757 158,729 Accrued expenses and other accrued taxes ..... 1,458,166 1,843,881 Customer deposits and other current liabilities ................. 108,349 123,571 --------- --------- 4,994,009 5,201,232 --------- --------- LONG-TERM LIABILITIES: Long-term debt, including $150,000 due to a director ......................... 2,021,321 2,352,175 Capitalized lease obligations ................ 361,404 376,293 Deferred income taxes ........................ 726,731 645,540 Stock option obligation ...................... 273,842 400,939 --------- --------- 3,383,298 3,774,947 --------- --------- STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value; 1,000,000 shares authorized, none issued .. - - Common stock, $0.01 par value; 7,000,000 shares authorized; shares issued and outstanding: 3,691,405 and 3,627,499, respectively .............................. 36,914 36,275 Common stock issuable ........................ - 153,000 Additional paid-in capital ................... 9,062,892 8,752,637 Retained earnings ............................ 2,209,620 2,076,615 Deferred costs arising from a financing and consulting agreement .................. (52,697) (70,262) ---------- ---------- 11,256,729 10,948,265 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....... $19,634,036 $19,924,444 ========== ========== See Notes to Consolidated Financial Statements Page 3 of 15 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended April 30, Three Months Ended April 30, ------------------------------ ------------------------------ 1996 1995 1996 1995 ----------- ----------- ----------- ----------- REVENUES ......................................... $14,317,091 $ 8,720,756 $ 7,209,976 $ 4,322,220 ---------- ---------- ---------- ---------- COSTS and EXPENSES: Data processing costs ....................... 8,218,001 4,105,261 4,160,059 1,941,902 Selling and promotion costs ................. 1,356,594 1,034,200 647,019 569,119 Shipping and delivery costs ................. 615,067 628,414 302,695 274,735 General and administrative expenses ......... 3,635,788 2,641,455 1,807,902 1,373,379 Interest expense, net of interest income ... 181,245 63,427 87,319 30,296 ---------- ---------- ---------- ---------- 14,006,695 8,472,757 7,004,994 4,189,431 ---------- ---------- ---------- ---------- INCOME BEFORE PROVISION FOR INCOME TAXES ......... 310,396 247,999 204,982 132,789 PROVISION FOR INCOME TAXES ....................... 153,985 129,162 94,593 67,491 ---------- ---------- ---------- ---------- NET INCOME ....................................... $ 156,411 $ 118,837 $ 110,389 $ 65,298 ========== ========== ========== ========== INCOME PER COMMON SHARE .......................... $ 0.04 $ 0.02 $ 0.03 $ 0.01 ========== ========== ========== ========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING .... 3,775,917 3,560,213 3,791,192 3,563,201 ========== ========== ========== ==========
See Notes to Consolidated Financial Statements Page 4 of 15 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended April 30, ----------------------------- 1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ....................................... $ 156,411 $ 118,837 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization ................ 964,390 697,949 Amortization of excess of fair value of net assets acquired over cost ................. - (13,498) Deferred income taxes ........................ 81,191 20,733 Decrease/(increase) in: Cash surrender value of life insurance .... - (6,864) Trade accounts receivable ................. 42,387 (93,397) Prepaid and refundable taxes .............. 34,062 - Prepaid expenses .......................... (166,720) (115,943) Other current assets ...................... 84,435 (58,443) Security deposits and other noncurrent assets ................................. 47,703 (168,595) Increase/(decrease) in: Accounts payable .......................... 393,056 157,760 Accrued expenses and taxes ................ (385,715) (108,870) Customer deposits and other current liabilities ............................ (15,222) (16,052) --------- --------- Net cash provided by operating activities ........ 1,235,978 413,617 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ............... (359,569) (125,200) Disposal of equipment ............................ 60,993 - Redemption of marketable securities .............. - 501,942 Decrease/(Increase) in Goodwill upon settlement of contingencies .................. (13,285) 61,579 Purchase of customer list ........................ (77,254) (93,252) Increase in deferred software costs .............. (503,213) (282,309) --------- --------- Net cash (used in)/provided by investing activities .................................. (892,328) 62,760 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt ...................... (808,479) (419,906) Receipt of amounts due from related parties, net . 14,335 3,058 Proceeds from issuance of long-term debt ......... 227,255 - Repayments of capital leases ..................... (99,063) (84,548) --------- --------- Net cash used in financing activities ............ (665,952) (501,396) --------- --------- Net decrease in cash and cash equivalents ........ (322,302) (25,019) Cash and cash equivalents at the beginning of the respective periods ........................... 1,406,016 686,286 --------- --------- Cash and cash equivalents at the end of the respective periods ........................... $ 1,083,714 $ 661,267 ========= ========= See Notes to Consolidated Financial Statements Page 5 of 15 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Six Months Ended April 30, ----------------------------- 1996 1995 ----------- ----------- SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest ..................................... $ 216,572 $ 104,364 ========= ========= Income taxes ................................. $ 1,356 $ 199,281 ========= ========= SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY: New capitalized leases for data processing equipment ..................... $ 135,202 $ 204,221 ========= ========= During the six month periods ended April 30, 1996 and 1995, $23,406 and $34,417 (each net of tax benefits), respectively, were accreted through a charge to re- tined earnings in connection with a stock option. See Notes to Consolidated Financial Statements Page 6 of 15 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY SIX MONTHS ENDED APRIL 30, 1996
Deferred Costs in Connection with a Financing/ Common Par Stock Paid-in Retained Consulting Shares Value Issuable Capital Earnings Agreement Total --------- -------- -------- ---------- ---------- ---------- ----------- Balances, October 31, 1995 ....... 3,627,499 $ 36,275 $153,000 $8,752,637 $2,076,615 $ (70,262) $10,948,265 Exercises of stock option ........... 40,000 400 157,494 157,894 Issuance of stock in connection with the purchase of Tru-Check .. 23,906 239 (153,000) 152,761 - Amortization of deferred costs in connection with a financing and consulting agreement ... 17,565 17,565 Accretion in connection with a stock option obligation, net ........ (23,406) (23,406) Net income ................. 156,411 156,411 --------- ------- ------- --------- --------- -------- ---------- Balances, April 30, 1996 ......... 3,691,405 $ 36,914 $ - $9,062,892 $2,209,620 $ (52,697) $11,256,729 ========= ======= ======= ========= ========= ======== ==========
See Notes to Consolidated Financial Statements Page 7 of 15 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1. Basis of Presentation The Consolidated Balance Sheet as of April 30, 1996, the Consolidated Statements of Income for the three and six month periods ended April 30, 1996 and 1995, and the Consolidated Statement of Cash Flows for the six month periods ended April 30, 1996 and 1995, have been prepared by the Com- pany without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for the periods indicated have been made. The results of operations for the period ended April 30, 1996 are not necessarily indicative of the operating results for the full fiscal year. Certain disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condens- ed or omitted. These consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-KSB/A for October 31, 1995. The consolidated financial statements include the accounts of Computer Out- sourcing Services, Inc. and its wholly-owned subsidiaries (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated. 2. Long-Term Debt The Company is indebted to a bank for three term loans, the proceeds of which were used to fund various acquisitions by the Company. The term loans bear interest at the prime rate plus 1.5%. Two term loans, $450,000 and $670,000, are being repaid with monthly payments of principal and in- terest over three years. The third term loan in the amount of $1,500,000 is being repaid with monthly payments of interest only for one year and payments of principal and interest for three years. As of April 30, 1996, the current balances under the three term loans aggregated $1,929,169. Substantially all of the assets of the Company are pledged as collateral for these term loans. No additional amounts are available to the Company under these lending facilities. The loan agreements contain certain financial covenants requiring the Com- pany to, among other things, maintain various minimum financial ratios. As of April 30, 1996, the Company was in compliance with these covenants. As of April 30, 1996, the Company reached an agreement with "K" Line Amer- ica, Inc. ("KLine"), to amend the terms of an $840,645 note issued in con- nection with the purchase of MCC Corporation. This note is now payable in four equal installments at various times from March 1, 1997 through Febru- ary 1, 1999. Interest is payable quarterly at 7.5% per annum. Page 8 of 15 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS of OPERATIONS Six Months Ended April 30, 1996 as Compared to the Six Months Ended April 30, 1995: --------------------------------------------------- The following table sets forth, for the periods indicated, the percentage of revenues represented by selected items in the Company's Consolidated Statements of Income. Percentage of Total Revenues Six Months Ended April 30, 1996 1995 -------- -------- REVENUES......................... 100.0% 100.0% -------- -------- COSTS AND EXPENSES: Data processing............... 57.4 47.1 Selling and promotion......... 9.5 11.9 Shipping and delivery......... 4.3 7.2 General and administrative.... 25.4 30.3 Interest expenses, net of interest income............ 1.3 0.7 Provision for income taxes.... 0.7 1.5 -------- -------- NET INCOME....................... 1.5% 1.3% ======== ======== Revenues increased 64.2% from $8,721,000 in the six month period ended April 30, 1995 (the "prior period") to $14,317,000 in the six month period ended April 30, 1996 (the "current period"). Increases of $1,282,000 and $4,449,000 were attributable to the timing of the acquisitions of Key-ACA, Inc. ("ACA") and MCC Corporation ("MCC"), respectively. In addition, a de- crease of $451,000 in processing revenues recorded by the Company's Out- sourcing division was partially offset by a $316,000 increase in payroll processing revenues recorded by the Company's Pay USA division. Data processing costs increased from $4,105,000 in the prior period to $8,218,000 in the current period, increasing 10.3% as a percentage of sales. Increases of $633,000 and $3,293,000 were attributable to the tim- ing of the acquisitions of ACA and MCC, respectively. MCC's data proces- sing costs were 74% of their divisional revenues for the period, which was the principal reason for the increase in the Company's data processing costs as a percentage of sales. In addition, a $238,000 increase in pay- roll processing costs was recorded by the Pay USA division, and a $52,000 decrease in processing costs was recorded by the Outsourcing division. Page 9 of 15 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Selling and promotion costs increased from $1,034,000 in the prior period to $1,357,000 in the current period, but decreased 2.4% as a percentage of sales. Increases of $134,000 and $266,000 were attributable to the timing of the acquisitions of ACA and MCC, respectively. Offsetting these were decreases of $34,000 and $44,000 recorded in the Pay USA division and the Outsourcing division, respectively. Shipping and delivery costs decreased from $628,000 in the prior period to $615,000 in the current period, decreasing 2.9% as a percentage of sales. An increase of $25,000 was attributable to the timing of the acquisition of MCC. The principal component of the decrease resulted from improvements in pass-through billings of delivery costs. General and administrative expenses increased from $2,641,000 in the prior period to $3,636,000 in the current period, but decreased 4.9% as a per- cent of sales. Increases of $445,000 and $380,000 were attributable to the timing of the acquisitions of ACA and MCC, respectively. An increase of $307,000 was recorded in the Pay USA division, and a decrease of $138,000 was recorded in the Outsourcing division. Interest expense (net of interest income) increased 0.6% as percentage of sales from $63,000 in the prior period to $181,000 in the current period. This was due to interest expense from the higher level of the Company's borrowings to partially fund its acquisitions and a decrease in interest income formerly generated by the excess proceeds from the Company's public offering as these funds were used for acquisitions. Page 10 of 15 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) RESULTS of OPERATIONS Quarter Ended April 30, 1996 as Compared to the Quarter Ended April 30, 1995: -------------------------------------------------- The following table sets forth, for the periods indicated, the percentage of revenues represented by selected items in the Company's Consolidated Statements of Income. Percentage of Total Revenues Quarters Ended April 30, 1996 1995 -------- -------- REVENUES......................... 100.0% 100.0% -------- -------- COSTS AND EXPENSES: Data processing............... 57.7 44.9 Selling and promotion......... 9.0 13.2 Shipping and delivery......... 4.2 6.4 General and administrative.... 25.1 31.8 Interest expenses, net of interest income............ 1.2 0.7 Provision for income taxes.... 0.5 1.6 -------- -------- NET INCOME....................... 2.3% 1.4% ======== ======== Revenues increased 66.8% from $4,322,000 in the quarter ended April 30, 1995 (the "prior quarter") to $7,210,000 in the quarter ended April 30, 1996 (the "current quarter"). Increases of $616,000 and $2,398,000 were attributable to the timing of the acquisitions of ACA and MCC, respective- ly. In addition, a decrease of $318,000 in processing revenues recorded by the Outsourcing division was partially offset by increases of $192,000 in payroll processing revenues from the Pay USA division. Data processing costs increased from $1,942,000 in the prior quarter to $4,160,000 in the current quarter, increasing 12.8% as a percentage of sales. Increases of $323,000 and $1,716,000 were attributable to the tim- ing of the acquisitions of ACA and MCC, respectively. MCC's data proces- sing costs were 73% of its revenues for the period, which was the princi- pal reason for the increase in the Company's data processing costs as a percentage of sales. In addition, an increase of $204,000 was recorded by the Pay USA division. These increases were partially offset by a $25,000 decrease in Outsourcing processing costs. Page 11 of 15 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Selling and promotion costs increased from $569,000 in the prior quarter to $647,000 in current quarter, but decreased 4.2% as a percentage of sales. Increases of $42,000 and $146,000 were attributable to the timing of the acquisitions of ACA and MCC, respectively. Offsetting these were decreases of $33,000 and $77,000 recorded in the Pay USA division and the Outsourcing division, respectively. Shipping and delivery costs increased from $275,000 in the prior quarter to $303,000 in the current quarter, decreasing, however, 2.2% as a percentage of sales. An increase of $9,000 was attributable to the timing of the ac- quisition of MCC. The principal reason for the remainder of the increase was a one-time $56,000 credit recorded by the Outsourcing division in the prior quarter. Exclusive of the effect of this prior period credit, there was a $37,000 decrease in overall shipping and delivery costs from the prior quarter to the current quarter. General and administrative expenses increased from $1,373,000 in the prior quarter to $1,808,000 in the current quarter, but decreased 6.7% as a per- centage of sales. Increases of $226,000 and $185,000 were attributable to the timing of the acquisitions of ACA and MCC, respectively. Additional in- creases of $194,000 were recorded by the Pay USA division, offset by reduc- tions of $171,000 in the Outsourcing division. Interest expense (net of interest income) increased 0.5% as percentage of sales, from $30,000 in the prior quarter to $87,000 in the current quarter. This was due to interest expense from the higher level of the Company's borrowings to partially fund its acquisitions and a decrease in interest income formerly generated by the excess proceeds from the Company's public offering as these funds were used for acquisitions. Page 12 of 15 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) LIQUIDITY and CAPITAL RESOURCES The Company is indebted to a bank for three term loans, the proceeds of which were used to fund various acquisitions by the Company. The term loans bear interest at the prime rate plus 1.5%. Two term loans, $450,000 and $670,000, are being repaid with monthly payments of principal and in- terest over three years. The third term loan in the amount of $1,500,000 is being repaid with monthly payments of interest only for one year and payments of principal and interest for three years. As of April 30, 1996, the current balances under the three term loans aggregated $1,929,169. Substantially all of the assets of the Company are pledged as collateral for these term loans. No additional amounts are available to the Company under these lending facilities. The loan agreements contain certain financial covenants requiring the Com- pany to, among other things, maintain various minimum financial ratios. As of April 30, 1996, the Company was in compliance with these covenants. As of April 30, 1996, the Company reached an agreement with "K" Line Amer- ica, Inc. ("KLine"), to amend the terms of an $840,645 note issued in con- nection with the purchase of MCC Corporation. This note is now payable in four equal installments at various times from March 1, 1997 through Febru- ary 1, 1999. Interest is payable quarterly at 7.5% per annum. Management believes that its cash flow from operations will be sufficient to fund the Company's operations for the current year. It is management's intention to focus on consolidation and integration of the acquisitions made to date. Any significant additional acquisitions may require funding in excess of the level of current and projected operating cash flows, and may require additional debt and/or equity funding. As of April 30, 1996, the Company had working capital of $1,060,000, its current ratio (i.e., the ratio of current assets to current liabilities) was 1.21 to 1, and its liabilities to equity ratio was 0.74 to 1. Page 13 of 15 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 6 - Exhibits and Reports on Form 8-K (a) Exhibit filed herewith: 10.18 Letter agreement between the Company and "K" Line America, Inc., amending the terms of a Note dated June 8, 1995. (b) Reports on Form 8-K: None Page 14 of 15 COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there- unto duly authorized. COMPUTER OUTSOURCING SERVICES, INC. June 12, 1996 Zach Lonstein Principal Executive Officer June 12, 1996 Roger Kaufman Principal Financial Officer Page 15 of 15 EX-10.18 2 (Letterhead) "K" Line America, Inc. 535 Mountain Avenue Murray Hill, New Jersey 07974 TEL: (908) 582-9000 FAX: (908) 582-9001 March 31, 1996 Private & Confidential Mr. Robert B. Wallach President MCC Corporation 535 Mountain Avenue Murray Hill, NJ 07974 Dear Bob: This letter will serve as a Letter Agreement between MCC Corporation (MCC) and "K" Line America, Inc. (KAM), conditioned on execution of the enclosed three documents. As per the attached list, total receivables due from MCC to KAM as of March 31, 1996, amount to $554,078.19. This balance does not include the principal payment of $210,161.25 on MCC's interest-bearing note, however, it does include the interest due on the note through January 31, 1996. Also attached is a list- ing of outstanding invoices due from KAM to MCC in the amount of $591,711.87. Please note an adjustment has been made for invoice #26622 to reflect accruals for those expenses by MCC as of April 30, 1995. This amounts to a net balance due to MCC from KAM of $69,856.82. The reimbursement by KAM of past due accounts receivable, net of allowances and existing as of April 30, 1995, for MCC and Themis, will be extended for an additional fifteen months until January 31, 1997. This extension period coin- cides with the extension of MCC's interest-bearing note. As previously noted, MCC will provide monthly reporting of these amounts as originally stated in the contract. The current outstanding balance is $46,144.70 pursuant to the attach- ed schedule. Please confirm this outstanding balance is net of allowances. Additionally, the companies agree to modify the terms of MCC's interest- bearing note to reflect the following changes in due dates of the principal amounts: Original Due Date Revised Due Dates 12/01/95 03/01/97 11/01/96 02/01/98 05/01/97 08/01/98 11/01/97 02/01/99 Mr. Robert B. Wallach March 31, 1996 Page 2 KAM will agree to set aside the security deposit amount of $38,332.06 due from MCC toward the rent, upon receipt by "K" Line Realty, Inc. of the new se- curity deposit at the time of execution of the new lease agreement beginning June 1, 1996. The furniture and fixtures may be purchased by MCC as of November 1, 1995, at a price of $150,000. KAM will accept a monthly payment of $5,000.00 for thirty (30) months, due on the last day of each month. The furniture items cur- rently being used by KAM are the only items that will not be sold to MCC. The amounts due to KAM through March 31, 1996, are included in this reconciliation. Effective April 1, 1996, MCC will purchase the telephone equipment at the price of $8,948.80, pursuant to the lease agreement attached hereto with the last rental payment of $2,588.00 payable on March 31, 1996, which has been in- cluded in this reconciliation. The mainframe computer processing agreement will be extended through October 31, 1996, and the monthly charges for the period April 1, 1996 through October 31, 1996, will be $80,000.00 for the following applications: Corporate Accounting Disbursement Accounting Cargo Claims Reporting Maintenance and Repair Accounts Receivable Data Storge - Vessel Control Records Data Storge - Equipment Control Records Street Time Billing Per Diem Store Door RBC Domestic RBC OCP EMS/cc: Mail Gateway (proactively monitored) Chrysler EDI Chrysler Claims Union Carbide - Booking (Including TRAC Master Files) EIR Index Statistical Reports Programming Development Trucker Verification Data Warehouse Mr. Robert B. Wallach March 31, 1996 Page 3 MCC will provide to KAM for the period of June 1, 1996 through October 31, 1996, two (2) full-time individuals to provide Mainframe application and PC Pro- gramming at the rate of $4,125.00 per week. Programming support beyond the des- ignated full-time individuals will be on a per request basis at a rate of $65.00 per hour. The current agreement will remain in effect through May 31, 1996. The $2,250.00 per month charge for Norton Lilly's on-line equipment connec- tion will continue, month to month, with a 30 day cancellation notice. MCC will continue to provide Microsystems Support services on the current basis through the end of the current contract period and will respond to the RFP. MCC will continue to provide Micrographics services on the current basis, month to month, with a 90 day cancellation notice. The companies agree to maintain a current status of the respective accounts and each reserves the right to offset their accounts payable to the other based on unpaid amounts. Accounts will be considered delinquent if not paid within 45 days. Each party will give notice prior to offsetting delinquent amounts. Please signify acceptance to all of the above by signing in the space below. Sincerely, David N. Mills Senior Vice President MCC Corporation Accepted By: Robert B. Wallach, President Date: ______________________ DNM:as -----END PRIVACY-ENHANCED MESSAGE-----