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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
MARK ONE
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-6920
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0553110
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
4900 HOPYARD ROAD, SUITE 200
PLEASANTON, CALIFORNIA 94588
(925) 251-0000
(Address, including zip code, area code with phone number
of the registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
$0.001 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant at March 27, 2000, based on the $8.84 per share
closing price for the registrant's common stock on the NASDAQ National Market
was approximately $76,395,581. For purposes of this computation, all officers,
directors and 10% beneficial owners of the registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
officers, directors or 10% beneficial owners are, in fact, affiliates of the
registrant.
The number of shares of the registrant's common stock outstanding as of
March 27, 2000 was 8,642,034.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive proxy statement in connection with the Annual
Meeting of Stockholders to be held in June 2000, to be filed with the Commission
pursuant to Regulation 14A, is incorporated by reference into Part III of this
Report.
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PART I
ITEM 1: BUSINESS
THE COMPANY
BrightStar Information Technology Group, Inc. ("BrightStar" or the
"Company") is a leading e-business solutions and application service provider
(ASP) to Global 2000 companies and public sector organizations. BrightStar's
rapidly deployed solutions for e-commerce, supply chain management (SCM),
customer relationship management (CRM), enterprise resource planning (ERP),
corporate portal and application outsourcing help companies transform themselves
into successful e-businesses and achieve a competitive advantage by delivering
superior service to their customers while improving operational efficiencies.
BrightStar has approximately 650 employees in offices throughout North America
and Australia.
BrightStar's e-commerce practice leverages our extensive experience in
implementing enterprise applications to help companies develop, rapidly deploy,
and support business-to-business and business-to-consumer commerce sites, as
well as traditional Internet information publishing sites, that are tightly
integrated with existing information systems. Our partnerships with BroadVision,
Microsoft and other technology companies, combined with our expertise in
enterprise application integration, web site design and Internet information
security issues enable the Company to put in place comprehensive e-commerce
solutions tailored to the specific needs of our clients.
BrightStar's Customer Relationship Management (CRM) practice assists
companies in attaining competitive advantage by improving their visibility into
all the varied contacts made with their customers. To accomplish this, we
implement from Siebel Systems, applications enabling organizations to optimize
their resources and offer superior service to their customers through the
integrated management of traditional, as well as web-based, channels for sales,
marketing, and customer service.
For Enterprise Resource Planning (ERP), BrightStar implements SAP,
PeopleSoft and J.D. Edwards applications, covering a complete range of business
processes, from manufacturing and finance to human resources, procurement and
supply chain planning. BrightStar ERP solutions are tailored to fit the specific
needs of individual organizations, helping them to automate business processes
across the enterprise through the creation of a single data environment that
spans departments and job functions.
BrightStar's Supply Chain Management (SCM) practice utilizes applications
from i2 Technologies, Netscape and other software vendors to automate and
optimize the numerous interactions, such as forecasting, procurement,
manufacturing, distribution and delivery that take place between an enterprise
and the members of its trading communities. This not only increases
opportunities for conducting business through a myriad of affinity relationships
but also extends the cost savings and operational efficiencies of
business-to-business commerce to all members of a company's supply chain.
To help companies provide universal access to their information resources,
BrightStar's Corporate Portal practice implements Plumtree Software's
market-leading packaged application and provides the necessary enterprise
application integration required to provide employees with personalized, secure,
web-based access to the knowledge and information systems necessary to make
faster, more informed decisions.
In addition to providing the expertise and experience required to implement
e-business solutions, BrightStar offers a comprehensive suite of application
outsourcing services, from remote production support to hosting and application
management, all the way to leasing applications on a per user or per transaction
basis over a contracted period of time. Outsourcing lets companies focus on
their core business objectives and gives them a viable alternative to building
the infrastructure and trying to hire and retain all of the skilled
professionals required to implement and maintain the sophisticated applications
that they've come to rely on to run their operations. Finally, through our
partnership with Exodus Communications, BrightStar is able to offer our clients
access to the highest levels of security, back-up capabilities, 24 x 7 support
and virtually limitless bandwidth -- all of which translates into maximum uptime
and reliability for our clients.
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To provide its services, the Company recruits and employs project managers,
skilled senior-level consultants, engineers and other technical personnel with
both business as well as technical expertise. The Company believes this
combination of business and technical expertise, the breadth and depth of its
solution offerings and its ability to deliver these solutions in both the
traditional consulting and implementation model as well as the emerging ASP
model are sources of differentiation for the Company in the Internet Services
Market and critical factors in its success.
INFORMATION ABOUT OPERATING SEGMENT
BrightStar operates in a single business segment: Internet Services. An
independent research organization (IDC Corp.) estimates that the global market
for Internet services to grow from $7.8 billion in 1998 to $78 billion in 2003
and spending for ASP services will reach $7.7 billion in 2004.
Among the leading factors driving the growth in the Internet Services
market is the transition to packaged software solutions, the emergence of new
technologies and the increased bandwidth and usability of the Internet through
the Web. These new technologies enable the creation and utilization of more
functional and flexible applications that can increase productivity, reduce
costs and improve customer service.
Managing the transition to a new generation of e-business applications is
placing a severe burden on many corporate IT departments. Many organizations do
not have the expertise to implement the new technologies and they are reluctant
or unable to expand their IT departments and re-deploy their in-house personnel.
Consequently, many organizations are outsourcing the design, implementation and
hosting of their new applications to acquire the necessary expertise and
accelerate deployment.
CUSTOMERS AND MARKETS
BrightStar's marketing efforts focus on mid to large companies, as well as,
emerging companies in the Internet marketplace, who have a need for rapid
deployment of e-business applications as well as a wide range of other
technology consulting services. The Company serves customers in a broad range of
industries, including communications, consumer products, energy, financial
services, healthcare, industrial, insurance, media, professional services,
retail and technology. Many of these relationships have existed over several
years and involved numerous projects.
SALES AND MARKETING
BrightStar sells and delivers its services through a direct sales force in
the U.S. and Australia. As of December 31, 1999, the Company sales force
consisted of 59 employees worldwide of which 42 were employed in the U.S. and 17
were employed in Australia.
The Company maintains a network of U.S. sales offices located in the cities
of Atlanta, Georgia; Austin, Texas; Boston, Massachusetts; Chicago, Illinois;
Dallas, Texas; Denver, Colorado; Foster City, California; Houston, Texas;
Irvine, California; Lafayette, Louisiana; Overland Park, Kansas; Little Rock,
Arkansas; New Orleans, Louisiana; Scottsdale, Arizona; and New York, New York.
The Company has significant foreign operations in Australia through its six
branch offices in Adelaide, Canberra, Melbourne, Perth, Sydney, and Victoria.
Revenues from foreign operations accounted for $34.2 million, representing
approximately 33% of the consolidated total of $103.4 million for the year ended
December 31, 1999.
CONSULTING
As of December 31, 1999, BrightStar employed approximately 550 consultants,
supported by a staff of approximately 100 sales, marketing and administrative
personnel. The Company's success depends in large part upon its ability to
attract, train, motivate and retain highly skilled technical employees.
Qualified technical employees are in great demand and are likely to remain a
limited resource for the foreseeable future. The Company dedicates significant
resources to recruiting professionals with both IT and internet consulting
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and industry experience, and maintains a staff of 7 full-time recruiters to aid
in this effort. None of the Company's employees are subject to a collective
bargaining arrangement. The Company considers its relationships with its
employees to be good.
COMPETITION
Market share in the IT industry was initially concentrated among large
computer manufacturers but the industry has become increasingly competitive and
fragmented. IT services are provided by numerous firms including multinational
accounting firms, systems consulting and implementation firms, software
application vendors, general management consulting firms and data processing
outsourcing companies.
OTHER INFORMATION
BrightStar began operations as a global provider of strategic information
technology business solutions through seven subsidiary companies. The Company's
management has reorganized the Company by integrating the operations of its
subsidiaries into a single operating entity. This new structure has been in
place since January 1, 1999. This is the latest step in the Company's evolution
to streamline operations, increase leverage of sales staff, and improve focus on
targeted market opportunities. The new organization provides for a consolidated
finance group, a consolidated sales organization, and the six operating
divisions discussed previously.
EXECUTIVE OFFICERS OF BRIGHTSTAR
The following table and notes thereto identify and set forth information
about the Company's three executive officers:
NAME OF INDIVIDUAL CAPACITIES IN WHICH SERVED
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George M. Siegel(1)............................. Chairman of the Board of Directors
Michael A. Ober(2).............................. President and Chief Executive Officer
Donald W. Rowley(3)............................. Chief Financial Officer and Secretary
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1) Mr. Siegel, age 61, has served as Chairman of the Board of Directors of
BrightStar since its inception. Mr. Siegel co-founded Mindworks, a Founding
Company, and has served as its chairman since 1995. In 1990, he founded
Dynamex Inc. (formerly Parcelway Courier Systems, Inc.), a messenger and
delivery service company, and served as its President and Chief Executive
Officer until 1995. Mr. Siegel co-founded Pentegra Dental Group, Inc., a
public company engaged in the consolidation and management of dental
practices, and he is currently a director and member of the Executive
Committee and Compensation Committee of its board of directors.
2) Mr. Ober, age 43, has served as the Company's President since September 1998
and was named Chief Executive Officer in February 1999. In 1995, Mr. Ober
founded SCS America, a Founding Company, and served as President and Chief
Executive Officer through September, 1998. Mr. Ober has worked in the
software and computing industries for over 20 years. Prior to founding SCS
America, Mr. Ober was a Director of Marketing for Novell, Inc.
3) Mr. Rowley, age 48, joined the Company in February 1999, when he was elected
its Chief Financial Officer and Secretary. Prior to that appointment, Mr.
Rowley was interim Chief Financial Officer and a director of PetroChemNet,
Inc., an Internet based electronic distributor and communications network
serving the petrochemical and petroleum segments of the energy industry,
from 1998 to 1999. From 1995 to 1998, he was an independent management
consultant and worked with several companies, which included serving as
interim Chief Financial Officer of Norand Corporation, a public company
engaged in the design and development of mobile computing systems and
wireless data networks. From 1994 to 1995, Mr. Rowley was President and a
director of VTX Electronics Corporation, a public company engaged in the
distribution of electronic components and cable, and manufacturer of
electronic cable assemblies.
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ITEM 2: PROPERTIES
BrightStar's principal executive offices are located at 4900 Hopyard Road,
Suite 200, Pleasanton, California 94588. The Company's lease on these premises
covers approximately 5,600 square feet and expires December 31, 2003.
The Company also operates through leased facilities in:
U.S. Leased Facilities
- Atlanta, GA
- Dallas, TX
- New Orleans, LA
- Austin, TX
- Denver, CO
- Irvine, CA
- Foster City, CA
- Lafayette, LA
- Boston, MA
- Scottsdale, AZ
- Chicago, IL
- Houston, TX
- Little Rock, AR
- New York, NY
- Overland Park, KS
International Leased Facilities
- Adelaide, Australia
- Canberra, Australia
- Melbourne, Australia
- Perth, Australia
- Sydney, Australia
- Victoria, Australia
Substantially all of the Company's services are performed on-site at
customer locations. BrightStar anticipates that additional space will be
required as its business expands, and believes that it will be able to obtain
suitable space as needed.
ITEM 3: LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings that the Company
believes could have a material adverse effect on the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS IN FOURTH QUARTER OF
1999
None.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ National Market under
the symbol "BTSR". The following table sets forth for the quarterly periods
indicated the range of high and low sales prices for the Company's Common Stock
since its initial public offering ("IPO") effective as of April 17, 1998.
1998 1999
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HIGH LOW HIGH LOW
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First Quarter...................................... $11.00 $3.688
Second Quarter..................................... $20.75 $10.00 $5.844 $3.125
Third Quarter...................................... $14.25 $ 5.50 $ 5.00 $2.875
Fourth Quarter..................................... $10.50 $ 5.00 $10.50 $ 3.00
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The Company has never declared nor paid cash dividends on its Common Stock.
The Company's credit facility contains restrictions on the Company's ability to
pay cash dividends. The Company currently intends to retain future earnings, if
any, to fund the development and growth of its business and does not anticipate
paying any cash dividends in the foreseeable future.
As of March 26, 2000, there were 129 shareholders of record of the
Company's Common Stock.
RECENT SALES OF UNREGISTERED SECURITIES.
On March 10, 2000, pursuant to an agreement with Strong River Investments,
Inc. and Montrose Investments Ltd. (collectively, the "Purchasers"), the Company
sold to the Purchasers 709,555 shares of the Company's common stock (the
"Shares") for $7.5 million, or $10.57 per share (the "Transaction"). Net
proceeds to the Company amounted to $7.2 million after related issuance costs.
Proceeds were applied to the Company's borrowings under its Credit Facility. In
connection the purchase of the Shares, the Company issued two warrants to the
Purchasers. One warrant has a five-year term during which the Purchasers may
purchase up to 157,500 shares of the Company's common stock at a price of $12.00
per share. The second warrant covers an adjustable amount of shares of the
Company's common stock at an adjustable exercise price, based on the market
price of the Company's common stock during three (3) separate periods of thirty-
one (31) trading days commencing 270 calendar days after the date of the
Transaction. The Company also issued to Wharton Capital Partners Ltd.
("Wharton"), as compensation for Wharton's services in completing the
Transaction, a warrant which has a five-year term during which Wharton may
purchase up to 45,000 shares of the Company's common stock at a price of $12.00
per share. The Company anticipates registering the Shares sold to Purchaser in
April 2000. The Company and the Purchaser further agreed that the Company will
sell and the Purchaser will purchase up to an additional $7.5 million worth of
the Company's common stock six months following the Transaction subject to
certain conditions.
ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for BrightStar is
derived from the Company's Financial Statements and related notes thereto. The
following selected consolidated financial data should be read in connection with
and is qualified in its entirety by BrightStar's Financial Statements and
related notes thereto and other financial information included elsewhere in this
Form 10-K report.
BrightStar was organized in July 1997 and completed its initial public
offering (IPO) April 16, 1998. Concurrent with the IPO, Brightstar acquired (a)
the outstanding capital stock of Brian R. Blackmarr and Associates, Inc.
("Blackmarr"), Integrated Controls, Inc. ("ICON"), Mindworks Professionals
Education Group, Inc. ("Mindworks"), Software Innovators, Inc. ("SII"), Zelo
Group, Inc. ("ZELO") and (b) substantially all the net assets of Software
Consulting Services America, LLC ("SCS America") and SCS Unit Trust ("SCS
Australia") and together with Blackmarr, ICON, Mindworks, SII, Zelo, SCS America
and SCS Australia , the "Founding Companies" and (c) executed a share exchange
with BIT Investors, LLC ("BITI") and senior management of BrightStar for all
outstanding common stock of BIT Group Services, Inc. ("BITG"). BrightStar and
the Founding Companies are hereinafter collectively referred to as the
"Company." The acquisitions were accounted for using the purchase method of
accounting, with Blackmarr being reflected as the "accounting acquirer."
The following tables present selected historical data for Blackmarr, the
accounting acquirer, for the years 1994 through 1997. The 1998 data presented in
the following table for the Company is comprised of (i) the results of operation
of Blackmarr for the year ending December 31, 1998, (ii) the results of
operations of the Founding Companies for the periods subsequent to their
acquisitions and (iii) the results of the operations of companies acquired by
BrightStar after the initial public offering.
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The Blackmarr results have been derived from (i) the audited financial
statements of Blackmarr for the years ended and as of September 30, 1995, 1996
and 1997 and the year ended December 31, 1998.
YEAR ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
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HISTORICAL OPERATIONS DATA: 1995 1996 1997 1998 1999
- --------------------------- ------ ------ ------- ---------- ----------
(IN THOUSANDS)
Revenue.................................. $7,043 $9,227 $12,190 $ 63,584 $ 103,449
Cost of revenue.......................... 5,592 7,659 10,063 45,409 76,476
Selling, general and administrative
expenses............................... 1,413 1,555 1,668 15,445 26,797
Stock compensation expense............... -- -- 305 6,766 468
In process research & development........ -- -- -- 3,000 --
Restructure charge....................... -- -- -- 7,614 --
Depreciation and amortization............ 78 101 135 1,652 3,056
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Income (loss) from operations....... (40) (88) 19 (16,302) (3,348)
Other income, net........................ 186 124 33 158 (15)
Interest expense......................... (66) (67) (96) (66) (518)
Income tax provision (benefit)........... 40 -- 6 612 (1,313)
Income (loss) on discontinued
operations............................. -- -- -- 278 (7,447)
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Net income (loss).............. $ 40 $ (31) $ (50) $ (16,544) $ (10,015)
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Average common shares:
Basic and diluted...................... -- -- -- 6,275,031 8,642,034
SEPTEMBER 30, DECEMBER 31,
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HISTORICAL BALANCE SHEET DATA: 1994 1995 1996 1997 1998 1999
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(IN THOUSANDS)
Working capital......................... $ 134 $ 284 $ 233 $ 337 $14,348 $10,409
Total assets............................ 1,923 1,609 1,926 3,501 92,401 85,008
Stockholders' equity.................... 342 396 423 682 70,074 60,451
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in connection with BrightStar's
Consolidated Financial Statements and related notes thereto and other financial
information included elsewhere in the Form 10-K report.
ACQUISITIONS
Concurrent with and as a condition to the closing of the Company's initial
public offering in April 1998, BrightStar acquired all of the outstanding
capital stock or substantially all the net assets of Brian R. Blackmarr and
Associates, Inc. ("Blackmarr"), Integrated Controls, Inc. ("ICON"), Mindworks
Professionals Education Group, Inc. ("Mindworks"), Software Innovators, Inc.
("SII"), Zelo Group, Inc. ("Zelo"), Software Consulting Services America, LLC
("SCS America") and SCS Unit Trust ("SCS Australia") representing the "Founding
Companies". The acquisitions have been accounted for using the purchase method
of accounting with Blackmarr being treated as the accounting acquirer, in
accordance with Staff Accounting Bulletin No. 97 ("SAB 97").
On June 30, 1998, the Company completed the acquisition of Cogent
Technologies, LLC (Cogent), a provider of PeopleSoft and Platinum consulting and
implementation services.
On August 31, 1998, the Company completed the acquisition of Total Business
Quality Associates, Inc. (TBQ), a provider of SAP consulting and implementing
services.
Effective September 30, 1998, the Company completed the acquisition of
PROSAP Australia Pty. LTD (PROSAP), a SAP certified National Implementation
Partner located in Sydney, Australia.
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On May 28, 1999, the Company completed the acquisition of Integrated
Services Consulting LLP (ISC), a provider of SAP consulting services.
RESULTS OF OPERATIONS
The Company reported net losses of $1.16 and $2.64 per basic and diluted
share for the years ended December 31, 1999 and 1998. The results of operations
for 1999 and 1998 reflect the impact of the following items:
Goodwill Amortization
In July of 1996, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin No. 97 ("SAB 97") relating to business combinations
immediately prior to an initial public offering. SAB 97 requires that these
combinations be accounted for using the purchase method of accounting and
requires that one of the companies be designated as the accounting acquirer.
Accordingly, for financial statement purposes, Blackmarr has been designated as
the acquiring company because its current shareholders, in the aggregate,
acquired more common stock than the former shareholders of any of the other
Founding Companies in conjunction with the acquisitions. The excess of the
aggregate purchase price paid for the Founding Companies other than Blackmarr
over the fair value of the net assets to be acquired by BrightStar was recorded
as goodwill. In addition, goodwill of $4.6 million was recorded attributable to
the issuance of 437,681 shares of Common Stock to BITI unit holders. Together
the goodwill listed above, and the goodwill associated with the acquisition of
COGENT, TBQ and PROSAP, are being amortized over a 40-year period. Goodwill
associated with the purchase of ISC is being amortized over a 20-year period.
Discontinued Operations
During the fourth quarter of 1999, the Company recorded losses related to
the discontinuance of its Training, Controls, and Infrastructure Support
businesses. The loss on discontinued operations of $7.4 million includes; 1)
$5.8 million (including $0.7 million of taxes) recorded to writedown the
Company's net investment in its Controls business and to record $0.8 million of
estimated operating losses to be incurred after the decision to dispose of the
business; 2) $1.0 million (including $0.1 million of taxes) recorded upon the
sale of the Mindworks division of the Company's training business and; 3) $0.6
million (net of $0.3 million of tax benefits) of operating losses from
discontinued operations incurred during 1999. The Company recorded no gain or
loss on the discontinuance of its Texas training business or its infrastructure
support business. The Company has made necessary reclassifications to properly
reflect the discontinued operations in its 1999 and 1998 consolidated financial
statements.
Restructuring Charge
During the fourth quarter of 1998, the Company completed a review of each
of its businesses and the services it provides. At the completion of this review
the Company developed and the Board approved a reorganization plan (the "Plan")
with strategic actions to:
- Consolidate the sales, finance, and administrative functions at the
BrightStar level forming a consolidated sales force and consolidated
finance group; and
- Realign the operations of each of the individual wholly owned
subsidiaries into operating divisions consistent with the Company's lines
of businesses:
The Plan included relocating the Company's corporate offices from Houston,
Texas to Pleasanton, California, eliminating certain positions and personnel,
closing certain businesses and writing-off related assets, and terminating and
consolidating leased facilities. In the fourth quarter of 1998, the Company
recorded a $7.6 million charge for these restructuring actions.
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The Company completed the objectives of its plan of restructuring in 1999.
Remaining amounts recorded as accrued restructuring costs at December 31, 1999
relate to ongoing severance and lease obligations which have extended payment
terms.
The categories of the 1998 restructuring charge and the subsequent
utilization is summarized below:
AMOUNTS AMOUNTS TO
CHARGED TO BE PAID
EARNINGS IN BEYOND
1998 1999
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(IN THOUSANDS)
Workforce severance......................................... $4,960 $1,209
Asset impairment............................................ 1,171 --
Lease and other contract obligations........................ 1,483 552
------ ------
$7,614 $1,761
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Stock Compensation Expense
In connection with the offering and acquisition of the Founding Companies,
certain directors and members of management received 648,126 shares of common
stock. These shares, valued at $11.70, were recorded as deferred compensation
and were charged to stock compensation expense over a one-year period based upon
the terms of a stock repurchase agreement between the Company and related
shareholders. Total stock compensation expense recorded during 1999 and 1998 in
connection with the above was $468,000 and $6.8 million. At December 31, 1998,
certain members of management were terminated in connection with the
restructuring plan described above. As a result, the remaining deferred
compensation totaling $2.1 million, attributable to the shares held by these
terminated employees was charged to expense and is included in the 1998
restructuring charge.
Revenue
The Company provides services to its customers for fees that are based on
time and materials or fixed fee contracts. Accordingly, revenue is recognized as
consulting services are performed. Unbilled revenue is recorded for contract
services provided for which a billing has not been rendered. Deferred revenue
represents the excess of amounts billed over contract costs and expenses
incurred.
The timing of revenue is difficult to forecast because the Company's sales
cycle for certain of its services can be relatively long and is subject to a
number of uncertainties, including customers' budgetary constraints, the timing
of customers' budget cycles, customers' internal approval processes and general
economic conditions. In addition, as is customary in the industry, the Company's
engagements, generally, are terminable without a customer penalty. The Company's
revenue and results of operations may fluctuate significantly from quarter to
quarter or year to year because of a number of factors, including, but not
limited to, the rate of hiring and the productivity of revenue generating
personnel; the availability of qualified IT professionals; the significance of
customer engagements commenced and completed during a quarter; the number of
business days in the quarter; changes in the relative mix of the Company's
services; changes in the pricing of the Company's services; the timing and the
rate of entrance into new geographic or IT specialty markets; departures or
temporary absences of key revenue-generating personnel; the structure and timing
of acquisitions; changes in the demand for IT services; and general economic
factors.
Revenue increased $39.9 million or 63% for the year ended December 31, 1999
compared to 1998 as a result of (i) a full years operations of the Founding
Companies acquired on April 16, 1998 at the time of the initial public offering,
(ii) four additional companies acquired subsequent to the initial public
offering and (iii) new customer contracts for implementation of ERP systems and
development of e-commerce applications. The increase in revenues attributed to
factors described above was partially offset by a reduced revenue stream from
all existing businesses during the second half of 1999 attributable to executing
the Company's plan for reorganizing and the impact of reduced demand for
services offered by the Company due to the Year 2000. The Company expects to
continue to generate lower revenues through the first half of 2000.
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Revenue increased, for the twelve months ended December 31, 1998, compared
to the prior periods primarily as a result of (i) the acquisition of the
Founding Companies on April 16, 1998 at the time of the initial public offering,
(ii) the acquisition of three additional companies subsequent to the initial
public offering and (iii) new customer contracts for implementation of ERP
systems and development of custom applications.
Cost of Revenue
Cost of revenue primarily consists of salaries (including non-billable and
training time) and benefits for consultants. The Company generally strives to
maintain its gross profit margins by offsetting increases in salaries and
benefits with increases in billing rates.
Cost of revenue increased, for the twelve months ended December 31, 1999
and 1998 compared to the respective prior periods due to an increase in variable
costs associated with the increased revenue described above.
Cost of revenue for 1999 reflects costs associated with two fixed fee
contracts in Dallas, Texas which exceeded related revenues by $3.2 million in
1999 ($1.6 million in the fourth quarter of 1999) compared to gross margins
recorded on the same contracts in 1998. The Company does not believe that any
additional losses associated with the two contracts will be incurred in the year
2000.
Operating Expenses
Selling, general and administrative expenses primarily consist of costs
associated with (i) corporate overhead, (ii) sales and account management, (iii)
telecommunications, (iv) human resources, (v) recruiting and training, and (vi)
other administrative expenses.
Selling, general and administrative expenses increased $11.4 million or 74%
in 1999 compared to 1998 as a result of personnel added to support the increased
volume of business described in the revenue discussion above.
Selling, general and administrative expenses increased, for the twelve
months ended December 31, 1998 compared to the prior periods due primarily to
additional support personnel added through the Company's acquisitions.
MARKET RISK
Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of the Company due to adverse
changes in market prices and rates.
The Company is exposed to market risk because of changes in foreign
currency exchange rates as measured against the U.S. dollar and currencies of
the Company's subsidiaries and operations in Australia.
Revenues from these operations are typically denominated in Australian
dollars thereby potentially affecting the Company's financial position, results
of operations, and cash flows due to fluctuations in exchange rates. The Company
does not anticipate that near-term changes in exchange rates will have a
material impact on future earnings, fair values or cash flows of the Company.
However there can be no assurance that a sudden and significant decline in the
value of the Australian Dollar would not have a material adverse effect on the
Company's financial condition and results of operations.
The Company's long-term debt bears interest at variable rates; therefore,
the Company's results of operations would only be affected by interest rate
changes to the long-term debt outstanding. An immediate 10 percent change in
interest rates would not have a material effect on the Company's results of
operations over the next fiscal year.
9
11
LIQUIDITY AND CAPITAL RESOURCES
Effective March 29, 1999, the Company established a $15 million credit
facility (the "Credit Facility") with Comerica Bank. Under terms of the
agreement, the Credit Facility will be used for working capital needs, including
issuance of letters of credit, and for general corporate purposes. Borrowings
under the Credit Facility bear an interest rate of prime plus .25%, or the
Eurodollar rate plus 2.5%. The Company pays a commitment fee on unused amounts
of the Credit Facility amounting to .375% per annum based on the average daily
amount by which the commitment amount exceeds the principal amount outstanding
during the preceding month. Interest is payable monthly on prime rate borrowings
and quarterly or at the end of the applicable interest period for the Eurodollar
rate borrowings.
The Credit Facility is secured by liens on substantially all the Company's
assets (including accounts receivable) and a pledge of all of the outstanding
capital stock of the Company's domestic operating subsidiaries. The Credit
Facility also requires that the Company comply with various loan covenants,
including (i) maintenance of certain financial ratios, (ii) restrictions on
additional indebtedness and (iii) restrictions on liens, guarantees and payments
of dividends. As of, and during the quarters ended September 30, 1999 and
December 31, 1999, the Company was not in compliance with a certain financial
covenant. Comerica Bank has agreed to waive the default for both periods.
The Credit Facility contains provisions requiring mandatory prepayment of
outstanding borrowings from the issuance of debt or equity securities for cash,
excluding certain equity issued in connection with future acquisitions, and cash
realized in connection with permitted asset sales outside of the ordinary course
of business. Borrowings outstanding under the Credit Facility amounted to $8.6
million at December 31, 1999. As of March 28, 2000 the Company has reduced its
borrowings under the Credit Facility to approximately $2 million. The Credit
Facility expires on March 30, 2001.
On March 10, 2000, pursuant to an agreement with Strong River Investments,
Inc. and Montrose Investments Ltd. (collectively the "Purchasers"), the Company
sold to the Purchasers 709,555 shares of the Company's common stock for $7.5
million or $10.57 per share. Net proceeds to the Company amounted to $7.2
million after related issuance costs. The Company expects to register the common
shares sold to the Purchasers in April 2000. The Company and the Purchasers
further agreed that the Company will sell and the Purchaser will purchase up to
an additional $7.5 million worth of the Company's common stock six months
following the initial transaction, subject to certain conditions.
The Company is required to make payments in 2000 amounting to $2.0 million
related to prior acquisitions. The Company has the option to issue common stock
to satisfy up to $1.0 million of the amounts due. In addition, the Company
expects to make contingent payments to the prior owners of Cogent and ISC
related to earn out agreements. The amount of the contingent payments is
expected to be in a range from $1.5-$2.8 million. The Company expects that a
significant portion of the amounts due will be satisfied upon the issuance of
common stock.
The Company's principal sources of ongoing liquidity are the cash flows of
its subsidiaries and the cash available from the Credit Facility.
The Company intends to continue to pursue acquisition opportunities. The
timing, size or success of any acquisition effort and the associated potential
capital commitments are unpredictable. The Company expects to fund future
acquisitions through the issuance of additional equity, as well as through a
combination of working capital, cash flow from operations and borrowings under
the Credit Facility.
The Company believes that cash flow from operations, proceeds from the
issuance of stock and borrowings under the Credit Facility will be sufficient to
fund its requirements for the foreseeable future.
INFLATION
Due to the relatively low levels of inflation experienced in the last three
years, inflation did not have a significant effect on the results of operations
of any of the Founding Companies in those periods.
10
12
UNCERTAINTIES
Nature of Projects
Many of the Company's projects are billed on a fixed fee basis. The
Company's failure to estimate accurately the resources and related expenses
required for a fixed fee project or failure to complete contractual obligations
in a manner consistent with the project plan upon which the fixed fee contract
is based could have a material adverse effect on the Company.
Many of the Company's engagements involve projects that are critical to the
operations of its clients' businesses and provide benefits that may be difficult
to quantify. The Company's failure or inability to meet a client's expectations
in the performance of its services could result in a material adverse change to
the client's operations and therefore could give rise to claims against the
Company or damage the Company's reputation. In addition, the Company is exposed
to various risks and liabilities associated with placing its employees and
consultants in the workplaces of others, including possible claims of errors and
omissions, misuse of client proprietary information, misappropriation of funds,
discrimination and harassment, theft of client property, other criminal activity
or torts and other claims. Although BrightStar has not experienced any material
claims of these types, there can be no assurance that the Company will not
experience such claims in the future. If claims are successfully brought against
the Company as a result of the Company's performance on a project, or if the
Company's reputation is damaged, there could be a material adverse effect on the
Company. Additionally, the Company could continue to experience adverse effects
resulting from the integration of acquired companies.
Reorganization
The Company has undergone significant managerial and operational change in
connection with its corporate reorganization. Although the Company believes the
reorganization will provide long-term benefits, there can be no assurance that
these efforts will be successful. In addition, although the Company believes it
has recognized substantially all of the costs of the reorganization, additional
costs may be incurred as the reorganization proceeds.
Reorganization's Effect on Sales
The Company began to execute its Plan for reorganizing BrightStar on
January 1, 1999. As part of the Plan, the individual sales groups from the
BrightStar subsidiaries were combined into a consolidated BrightStar sales
group. Prior to January 1, 1999 most of these salespeople sold only a subset of
BrightStar's service offerings and in many cases only a single service. The
Company has undertaken a training program to train these salespeople to sell all
of the BrightStar service offerings. However, there can be no assurance that
these salespeople have the expertise and ability to successfully sell the entire
portfolio of BrightStar services. Any disruption to the BrightStar sales group
caused by the reorganization could disrupt the Company's ability to generate
revenues and could have a material adverse effect on the Company.
Decrease in the Market for Services Due to the Year 2000
The purchasing patterns of clients were affected by Year 2000 issues as
companies expended significant resources to correct their current systems for
Year 2000 compliance. These expenditures resulted in reduced funds available to
purchase services offered by the Company, which had an adverse effect on the
Company in the second half of 1999 and is expected to continue through the first
half of 2000.
FORWARD-LOOKING INFORMATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements, other than statements of historical facts,
included in this MD&A regarding the Company's financial position, business
strategy and plans, and objectives of management of the Company for future
operations are forward-looking statements. These
11
13
forward-looking statements rely on a number of assumptions concerning future
events and are subject to a number of uncertainties and other factors, many of
which are outside of the Company's control, that could cause actual results to
materially differ from such statements. While the Company believes that the
assumptions concerning future events are reasonable, it cautions that there are
inherent difficulties in predicting certain important factors, especially the
timing and magnitude of technological advances; the performance of recently
acquired businesses; the prospects for future acquisitions; the possibility that
a current customer could be acquired or otherwise be affected by a future event
that would diminish their information technology requirements; the competition
in the information technology industry and the impact of such competition on
pricing, revenues and margins; the degree to which business entities continue to
outsource information technology and business processes; uncertainties
surrounding budget reductions or changes in funding priorities or existing
government programs and the cost of attracting and retaining highly skilled
personnel.
UNAUDITED QUARTERLY DATA
1999 1998
-------------------------------------- ----------------------------------------
FOURTH THIRD SECOND FIRST FOURTH(A) THIRD SECOND(B) FIRST
-------- ------- ------- ------- --------- ------- --------- ------
Revenue............................ $ 21,608 $26,830 $29,511 $25,500 $ 24,524 $20,965 $ 14,009 $4,086
Gross profit....................... 5,736 6,758 8,715 $ 5,764 4,828 6,547 5,386 $1,414
Income (loss) from continuing
operations....................... (2,653) 488 429 (832) (12,212) (1,315) (3,417) 122
Income (loss) from discontinued
operations....................... (7,473) (123) (93) 242 (91) 196 16 157
Net income (loss).................. (10,126) 365 336 (590) (12,303) (1,119) (3,401) 279
Per share basis: basic and diluted
Continuing operations.............. $ (0.31) $ 0.05 $ 0.05 $ (0.10) $ (1.95) $ (0.15) $ (0.47) $ 0.12
Discontinued operations............ (0.86) (0.01) (0.01) 0.03 (0.01) 0.02 -- 0.16
-------- ------- ------- ------- -------- ------- --------- ------
$ (1.17) $ 0.04 $ 0.04 $ (0.07) $ (1.96) $ (0.13) $ (0.47) $ 0.28
======== ======= ======= ======= ======== ======= ========= ======
- ---------------
(a) Included in the fourth quarter 1998 is a restructuring charge of $7,614.
(b) Included in the second quarter 1998 is the initial public offering
concurrent with the acquisitions of the Founding Companies.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of the Company due to adverse
changes in market prices and rates. The Company is exposed to market risk
because of changes in foreign currency exchange rates as measured against the
U.S. dollar and currencies of the Company's subsidiaries and operations in
Australia.
Foreign Currency Exchange Rate Risk. The Company has a wholly owned
subsidiary in Australia. Revenues from these operations are denominated in
Australian Dollars respectively, thereby potentially affecting the Company's
financial position, results of operations and cash flows due to fluctuations in
exchange rates. The Company does not anticipate that near-term changes in
exchange rates will have a material impact on future earnings, fair values or
cash flows of the Company. There can be no assurance that a sudden and
significant decline in the value of the Australian Dollar will not have a
material adverse effect on the Company's financial condition and results of
operations.
The Company's long-term debt bears interest at variable rates; therefore,
the Company's results of operations would only be affected by interest rate
changes to the long-term debt outstanding. An immediate 10 percent change in
interest rates would not have a material effect on the Company's results of
operations over the next fiscal year.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements are included as an exhibit as
described in Item 14.
12
14
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Incorporated by reference in the proxy statement for the 2000 Annual
Meeting of Stockholders.
PART III
Pursuant to Paragraph G(3) of the General Instructions to Form 10-K,
portions of the information required by Part III of Form 10-K are incorporated
by reference from the Company's Proxy Statement to be filed with the Commission
in connection with the 2000 Annual Meeting of Stockholders ("the Proxy
Statement").
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
a) Information concerning directors of the Company appears in the Company's
Proxy Statement, under Item 1 -- "Election of Directors." This portion of the
Proxy Statement is incorporated herein by reference.
b) For information with respect to Executive Officers, see Part I of this
Annual Report on Form 10-K.
ITEM 11: EXECUTIVE COMPENSATION
Incorporated by reference in the proxy statement for the 2000 Annual
Meeting of Stockholders.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference in the proxy statement for the 2000 Annual
Meeting of Stockholders.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference in the proxy statement for the 2000 Annual
Meeting of Stockholders.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1.A Consolidated Financial Statements
The following financial statements and notes thereto, and related
Independent Auditors Report, are filed as part of this Form 10-K as follows:
Independent Auditors' Reports
Consolidated Balance Sheets at December 31, 1999 and 1998.
Consolidated Statements of Operations for the Year Ended September 30,
1997, the Three Months Ended December 31, 1997 and the years ended December
31, 1998 and 1999.
Consolidated Statement of Stockholders' Equity for the Year Ended
September 30, 1997, the Three Months Ended December 31, 1997 and the Years
Ended December 31, 1998 and 1999.
Consolidated Statements of Cash Flows for the Year Ended September 30,
1997, the Three Months Ended December 31, 1997 and the Years Ended December
31, 1998 and 1999.
Notes to Consolidated Financial Statements.
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15
2. Financial Statement Schedule
The following financial statement schedule of the Company and the related
Independent Auditors Report are filed as part of this Form 10-K.
[X] Schedule II -- Valuation And Qualifying Accounts
All other financial statement schedules have been omitted because such
schedules are not required or the information required has been presented in the
aforementioned financial statements.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K on November 16, 1999,
which disclosed the resignation of Deloitte & Touche LLP, its independent
accountants, on November 8, 1999.
The Company filed a current report on Form 8-K on November 30, 1999
which provided information with respect to the resignation of Deloitte &
Touche LLP, by report on Form 8-K filed on November 16, 1999.
The Company filed a current report on Form 8-K on January 14, 2000
which disclosed that the Company engaged Grant Thornton LLP as its
independent accountants, effective January 10, 2000.
14
16
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.
BRIGHTSTAR INFORMATION
TECHNOLOGY GROUP, INC.
By /s/ MICHAEL A. OBER
-----------------------------------
Michael A. Ober
President and Chief Executive
Officer
Dated: March 30, 2000
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.
NAME TITLE DATE
---- ----- ----
/s/ MICHAEL A. OBER Chief Executive Officer March 30, 2000
- -----------------------------------------------------
Michael A. Ober
/s/ DONALD W. ROWLEY Chief Financial Officer and March 30, 2000
- ----------------------------------------------------- Secretary (Principal
Donald W. Rowley Financial Officer)
/s/ DAVID L. CHRISTESON Controller and Assistant March 30, 2000
- ----------------------------------------------------- Secretary (Principal
David L. Christeson Accounting Officer)
Directors:
George M. Siegel* Chairman of the Board and Director
Jennifer T. Barrett* Director
Brian R. Blackmarr* Director
Michael A. Ober* Director
Donald W. Rowley* Director
*By: /s/ MICHAEL A. OBER
-----------------------------------------------
Michael A. Ober,
Attorney-in-Fact **
** By authority of the power of attorney filed herewith.
March 30, 2000
15
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
BrightStar Information Technology Group, Inc.
We have audited the accompanying consolidated balance sheet of BrightStar
Information Technology Group, Inc. (the "Company"), a Delaware corporation, as
of December 31, 1999, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The consolidated financial statements of the
Company, as of and for the year ended December 31, 1998, were audited by other
auditors whose report dated March 30, 1999, expressed an unqualified opinion on
those statements. As discussed in Note 3, the Company has restated its 1998
consolidated financial statements to reflect its discontinued operations. The
other auditors reported on the 1998 financial statements before the restatement.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial position of BrightStar
Information Technology Group, Inc. as of December 31, 1999, and the consolidated
results of its operations and its consolidated cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States.
We also audited the adjustments described in Note 3 to the consolidated
financial statements that were applied to restate the 1998 consolidated
financial statements. In our opinion, such adjustments are appropriate and have
been properly applied.
/s/ GRANT THORNTON LLP
San Jose, California
March 28, 2000
16
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors BrightStar Information Technology Group, Inc.,
Pleasanton, California
We have audited the accompanying consolidated balance sheet as of December
31, 1998 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows of BrightStar Information Technology Group,
Inc. ("the Company") for the year ended September 30, 1997, the three months
ended December 31, 1997 and the year ended December 31, 1998 (of which the 1998
financial statements have been restated and are no longer presented herein).
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free or 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 audits provide a reasonable basis for our opinion.
In our opinion such financial statements present fairly, in all material
respects, the consolidated balance sheet as of December 31, 1998 and the results
of its operations and its cash flows for the year ended September 30, 1997, the
three months ended December 31, 1997 and the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 30, 1999
17
19
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
ASSETS
Current assets:
Cash...................................................... $ 973 $ 3,122
Trade accounts receivables, net of allowance for doubtful
accounts of $1,987 in 1999 and $1,296 in 1998.......... 16,127 17,140
Unbilled revenue.......................................... 1,591 2,238
Deferred tax asset........................................ 1,712 785
Income tax receivable..................................... 810 --
Prepaid expenses and other................................ 1,166 1,070
Net assets of discontinued operations..................... 4,000 12,260
-------- --------
Total current assets.............................. 26,379 36,615
Property and equipment...................................... 6,736 3,513
Less-accumulated depreciation............................. (2,720) (1,207)
-------- --------
Property and equipment, net............................... 4,016 2,306
Goodwill.................................................... 56,848 53,940
Less-accumulated amortization............................. (2,284) (873)
-------- --------
Goodwill, net............................................. 54,564 53,067
Other....................................................... 49 413
-------- --------
Total............................................. $ 85,008 $ 92,401
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,063 $ 3,542
Acquisition payables...................................... 2,000 4,784
Restructuring reserve..................................... 1,761 4,383
Accrued salaries and other expenses....................... 8,105 5,936
Income taxes payable...................................... -- 1,791
Deferred revenue.......................................... 41 1,831
-------- --------
Total current liabilities......................... 15,970 22,267
Line of credit.............................................. 8,579 --
Other liabilities........................................... 8 60
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value; 35,000,000 shares
authorized; 8,642,034 and 7,989,059 shares issued and
outstanding in 1999 and 1998, respectively............. 9 8
Additional paid-in capital................................ 89,693 82,818
Common stock payable...................................... -- 6,875
Common stock warrant and option........................... 100 100
Deferred stock compensation............................... -- (468)
Accumulated other comprehensive income.................... 171 248
Retained earnings (deficit)............................... (29,522) (19,507)
-------- --------
Total stockholders' equity........................ 60,451 70,074
-------- --------
Total............................................. $ 85,008 $ 92,401
======== ========
See notes to consolidated financial statements.
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20
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR END
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1999 1998 1997 1997
------------ ------------ ------------ -------------
Revenue..................................... $ 103,449 $ 63,584 $ 6,623 $12,190
Cost of revenue............................. 76,476 45,409 5,810 10,063
--------- --------- --------- -------
Gross profit................................ 26,973 18,175 813 2,127
Operating expenses:
Selling, general and administrative....... 26,797 15,445 817 1,668
Stock compensation........................ 468 6,766 -- 305
In process research & development......... -- 3,000 -- --
Restructuring charge...................... -- 7,614 -- --
Goodwill amortization..................... 1,423 883 -- --
Depreciation and amortization............. 1,633 769 31 135
--------- --------- --------- -------
Total operating expenses.......... 30,321 34,477 848 2,108
Income (loss) from operations............. (3,348) (16,302) (35) 19
Other income (expense).................... (15) 158 7 33
Interest expense, net..................... (518) (66) (31) (96)
--------- --------- --------- -------
Loss from continuing operations before
income taxes........................... (3,881) (16,210) (59) (44)
Income tax provision (benefit).............. (1,313) 612 (22) 6
--------- --------- --------- -------
Loss from continuing operations............. (2,568) (16,822) (37) (50)
Discontinued operations:
Income (loss) from discontinued
operations, net of tax................. (648) 278 -- --
Loss on disposal of discontinued
operations, net of tax................. (6,799) -- -- --
--------- --------- --------- -------
Total discontinued operations............. (7,447) 278
--------- ---------
Net income (loss)................. $ (10,015) $ (16,544) $ (37) $ (50)
========= ========= ========= =======
Net income (loss) per share (basic and
diluted):
Income (loss) from continuing
operations............................. $ (0.30) $ (2.68) $ (0.04) $ (0.06)
Loss from discontinued operations......... (0.86) 0.04 -- --
--------- --------- --------- -------
Net loss.................................. $ (1.16) $ (2.64) $ (0.04) $ (0.06)
========= ========= ========= =======
Shares outstanding (basic and diluted):..... 8,642,034 6,275,031 1,012,306 893,475
========= ========= ========= =======
See notes to consolidated financial statements
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21
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK COMMON
------------------ ADDITIONAL COMMON STOCK WARRANT
SHARES AMOUNT PAID-IN-CAPITAL STOCK PAYABLE AND OPTION
--------- ------ --------------- ------------- -------------
Balance, September 30, 1996........................ 10,000 $ 10 -- -- --
Issuance of common stock......................... 3,068 308
Net loss and comprehensive loss..................
--------- ----- ------- ------- -----
Balance, September 30, 1997........................ 13,068 318 -- -- --
Net loss and comprehensive loss..................
--------- ----- ------- ------- -----
Balance, December 31, 1997......................... 13,068 318 -- -- --
Issuance of common stock in public offering...... 4,887,500 5 $58,635 $ 450
Stock used for acquisition of Founding
Companies...................................... 1,408,120 1 15,934 $ 5,300
Common stock issued to management and
promoters...................................... 648,126 1 7,582
Stock split to conform Blackmarr................. 999,238 (317) 317
Exercise of stock warrants....................... 33,007 -- 350 (350)
Common stock granted to employees................ 1,575
Amortization of deferred compensation............
Write-off of deferred compensation of terminated
employees......................................
Net loss.........................................
Other comprehensive income (loss)................
--------- ----- ------- ------- -----
Balance, December 31, 1998......................... 7,989,059 8 $82,818 $ 6,875 100
Stock issued to owners of Founding Company....... 441,400 1 5,300 (5,300)
Common stock issued to directors and
management..................................... 11,575
Common stock issued to employees................. 200,000 1,575 (1,575)
Common stock issued to management and
promoters......................................
Amortization of deferred compensation............
Net loss.........................................
Other comprehensive income (loss)................
--------- ----- ------- ------- -----
Balance, December 31, 1999......................... 8,642,034 $ 9 $89,693 $ -- $ 100
========= ===== ======= ======= =====
ACCUMULATED
OTHER
COMPREHENSIVE RETAINED TOTAL
UNEARNED INCOME EARNINGS STOCKHOLDERS' COMPREHENSIVE
COMPENSATION (LOSS) (DEFICIT) EQUITY INCOME (LOSS)
------------ ------------- --------- ------------- -------------
Balance, September 30, 1996..................... -- -- $ 413 $ 423
Issuance of common stock...................... 308
Net loss and comprehensive loss............... (50) (50) $ (50)
------- ---- -------- -------- ========
Balance, September 30, 1997..................... -- -- 363 681
Net loss and comprehensive loss............... (36) (36) $ (36)
------- ---- -------- -------- ========
Balance, December 31, 1997...................... -- -- 327 645
Issuance of common stock in public offering... 59,090
Stock used for acquisition of Founding
Companies................................... (3,290) 17,945
Common stock issued to management and
promoters................................... (7,583) --
Stock split to conform Blackmarr.............. --
Exercise of stock warrants....................
Common stock granted to employees............. 1,575
Amortization of deferred compensation......... 5,055 5,055
Write-off of deferred compensation of
terminated employees........................ 2,060 2,060
Net loss...................................... (16,544) (16,544) $(16,544)
Other comprehensive income.................... 248 248 248
------- ---- -------- -------- --------
Balance, December 31, 1998...................... (468) 248 (19,507) 70,074 $(16,296)
Stock issued to owners of Founding Company.... 1
Common stock issued to directors and
management.................................. --
Common stock issued to employees.............. --
Amortization of deferred compensation......... 468 468
Net loss...................................... (10,015) (10,015) $(10,015)
Other comprehensive income (loss)............. (77) (77) (77)
------- ---- -------- -------- --------
Balance, December 31, 1999...................... $ -- $171 $(29,522) $ 60,451 $(10,092)
======= ==== ======== ======== ========
See notes to consolidated financial statements
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BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE
THREE MONTHS MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1999 1998 1997 1997
------------ ------------ ------------ -------------
Operating activities:
Net loss...................................... $(10,015) $(16,544) $ (37) $ (50)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Restructuring charge........................ -- 6,443
Write down of certain intangible and other
assets.................................... -- 841
In process research and development
expense................................... -- 3,000
(Income) loss from discontinued
operations................................ 7,447 (278)
Depreciation and amortization............... 3,056 1,652 31 135
Effect of exchange rate on cash............. (77) 248
Additions to allowance for doubtful
accounts.................................. 691 857 15 (5)
Deferred income taxes....................... (1,944) (1,311) (22) 8
Compensation expense on issuance of common
stock..................................... 468 6,766 305
Changes in operating working capital:
Trade accounts receivable................. 322 (4,137) (1,451) (1,632)
Income tax refund receivable.............. (810) 38 -- --
Unbilled revenue.......................... 647 (672) (501) 133
Prepaid and other assets.................. 268 (167) 2 (24)
Accounts payable.......................... 521 (299) 2 (3)
Restructuring reserve..................... (2,622)
Accrued salaries other accrued expenses... 2,340 (3,061) 1,928 448
Income taxes payable...................... (1,791) 1,509 57 (33)
Deferred revenue.......................... (1,790) 1,210 -- 462
Discontinued operations................... 813 (149) -- --
-------- -------- ------- -------
Net cash provided by (used in)
operating activities................. (2,476) (4,054) 24 (256)
Investing activities:
Cash paid to acquire founding companies....... -- (32,576)
Cash paid to retire debt of founding
companies................................... -- (9,865)
Cash paid for acquisitions.................... (4,898) (6,106)
Redemption of certificate of deposit.......... -- -- -- 60
Capital expenditures.......................... (3,354) (997) (15) (112)
-------- -------- ------- -------
Net cash used in investing
activities........................... (8,252) (49,544) (15) (52)
Financing activities:
Net borrowings under line of credit........... 8,579 -- 25 223
Proceeds from (payments on) term loan......... -- -- (33) 142
Payments on note payable and capital lease
obligations................................. -- (2,373) (18) (57)
Net proceeds from issuance of common stock.... -- 59,090 -- 3
-------- -------- ------- -------
Net cash provided by (used in)
financing activities................. 8,579 56,717 (26) 311
Net increase (decrease) in cash................. (2,149) 3,119 (17) 3
Cash:
Beginning of period........................... 3,122 3 20 17
-------- -------- ------- -------
End of period................................. $ 973 $ 3,122 $ 3 $ 20
======== ======== ======= =======
Supplemental information:
Interest paid................................. $ 518 $ 73 $ 31 $ 96
======== ======== ======= =======
Income taxes paid............................. $ 2,747 -- $ -- $ 50
======== ======== ======= =======
See notes to consolidated financial statements
21
23
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation -- BrightStar Information Technology Group, Inc.,
(the "Company" or "BrightStar") is a leading international e-business solutions
and applications service provider (ASP). BrightStar conducted no operations
prior to April 16, 1998 when it completed its initial public offering ("IPO").
The accompanying historical consolidated financial statements for the year ended
December 31, 1999 and the period from the IPO to December 31, 1998 includes the
accounts of all BrightStar subsidiaries. The accompanying financial statements
for all periods prior to the IPO include only the historical financial
information for Blackmarr the "accounting acquirer," which elected to change its
fiscal year-end from September 30 to December 31 prior to the IPO. See note 2
for further discussion of the IPO, and the definition of the "accounting
acquirer."
The preparation of the consolidated 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
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
Revenue recognition -- The Company provides services to customers for fees
that are based on time and materials or fixed fee contracts. Accordingly,
revenue is recognized as consulting services are performed. Unbilled revenue is
recorded for contract services provided for which a billing has not been
rendered. Revenue related to the sale of hardware is recognized when the
hardware is shipped. Deferred revenue primarily represents the excess of amounts
billed over contract costs and expenses incurred.
Concentration of credit risk is limited to trade receivables and unbilled
revenue and is subject to the financial conditions of certain major clients. The
Company does not require collateral or other security to support client's
receivables. The Company conducts periodic reviews of its clients' financial
conditions and vendor payment practices to minimize collection risk on trade
receivables.
Property and equipment -- Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives of 3
years for computer equipment and software and 5 years for furniture and
fixtures. Leasehold improvements are amortized over the shorter of the lease
term or the assets useful life. Expenditures for repairs and maintenance that do
not improve or extend the life of assets are expensed as incurred.
Goodwill -- Goodwill is the cost in excess of tangible assets acquired.
Goodwill recorded in conjunction with the Founding Companies and all other
acquisitions in 1998 is being amortized over 40 years on a straight-line basis.
Goodwill associated with the acquisition of ISC is being amortized over 20 years
on a straight-line basis. The realizability and period of benefit of goodwill is
evaluated periodically to assess recoverability, and, if warranted, impairment
or adjustments to the period benefited would be recognized. Total amortization
of goodwill from continuing operations for 1999 and 1998 amounted to $1,423 and
$833, respectively.
Cumulative translation adjustment -- Cumulative translation adjustment in
stockholders' equity reflects the unrealized adjustments resulting from
translating the financial statements of foreign subsidiaries. The functional
currency of the Company's foreign subsidiaries is the local currency of that
country. Accordingly, assets and liabilities of the foreign subsidiaries are
translated to U.S. dollars at year-end exchange rates. Income and expense items
are translated at the average rates prevailing during the year. Changes in
exchange rates that affect cash flows and the related receivables or payables
are recognized as transaction gains and losses in the determination of net
income.
Income taxes -- The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income
Taxes." SFAS No. 109 requires an asset and
22
24
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liability approach to accounting for income taxes. The Company provides deferred
income taxes for temporary differences that will result in taxable or deductible
amounts in future years. A valuation allowance is recognized if it is
anticipated that some or all of a deferred tax asset may not be realized.
Earnings per share (EPS) -- EPS is based on Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share." Accordingly, Basic
EPS is calculated using income available to common shareholders divided by the
weighted average number of common shares outstanding during the year. Diluted
EPS is similar to Basic EPS except that it is based on the weighted average
number of common and potentially dilutive shares, from dilutive stock options
and warrants, outstanding during each year. The weighted average shares used to
calculate earnings per share on the statements of operations prior to the IPO
has been determined by converting the number of outstanding shares of Blackmarr
during the periods presented, based upon the ratio of approximately 77 to 1,
which was the ratio received by Blackmarr as a result of the offering. Common
shares issuable upon exercise of common stock options and convertible debt
instruments are anti-dilutive (decreases net loss per share) for the periods
presented.
Stock based compensation -- the Company utilizes Accounting Principles
Board Opinion No. 25 ("APB No. 25") in its accounting for stock options issued
to employees. No compensation expense is recognized for stock options issued to
employees under the Company's stock option plan as the option price equals or
exceeds the fair market value of the Company's Common Shares at the date of
grant. In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation." The accounting method as provided in
the pronouncement is not required to be adopted; however, it is encouraged. The
Company has adopted the disclosure-only provisions of SFAS No. 123 with respect
to options issued to employees. Compensation expense associated with stock
options and warrants issued to non-employees and non-directors is recognized in
accordance with SFAS No. 123.
Reclassifications -- Certain reclassifications have been made to conform
the prior years' financial statement amounts to the current year
classifications.
(2) ACQUISITIONS
Concurrent with and as a condition to the closing of the IPO, BrightStar
acquired all of the outstanding capital stock or substantially all the net
assets of Brian R. Blackmarr and Associates, Inc. ("Blackmarr"), Integrated
Controls, Inc. ("ICON"), Mindworks Professionals Education Group, Inc.
("Mindworks"), Software Innovators, Inc. ("SII"), Zelo Group, Inc. ("Zelo"),
Software Consulting Services America, LLC ("SCS America") and SCS Unit Trust
("SCS Australia")(the "Founding Companies"). The acquisitions have been
accounted for using the purchase method of accounting with Blackmarr being
treated as the accounting acquirer, in accordance with Staff Accounting Bulletin
No. 97. The purchase method of accounting requires that the results of
operations of the acquired companies only be included in the consolidated
financial statements subsequent to their respective acquisition dates. At the
acquisition date, the purchase price was allocated to assets acquired, and
liabilities assumed based on their fair market values. The excess of the total
purchase price over the fair value of the net assets acquired represents
goodwill.
23
25
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the consideration paid in cash and shares of
common stock. For purposes of computing the estimated purchase price for
accounting purposes, the value of the shares was determined using an estimated
fair value of $11.70 per share, which represents a discount of 10% from the
initial public offering price of $13.00 per share, due to restrictions on the
resale and transferability of the shares issued in the acquisitions. The
estimated purchase price for each acquisition is subject to certain purchase
price adjustments.
AMOUNT IN COMMON
COMMON STOCK
CASH STOCK SHARES
------- --------- ---------
(DOLLARS IN THOUSANDS)
FOUNDING COMPANIES:
ICON................................................ $ 6,224 $ 4,149 319,197
Mindworks........................................... 445 1,052 80,894
SCS America......................................... 11,000 5,000 384,615
SCS Australia(1).................................... 9,815 5,889 452,976
SII................................................. 450 2,413 185,633
Zelo................................................ 375 1 100
------- ------- ---------
Subtotal.................................... 28,309 18,504 1,423,415
Blackmarr........................................... 3,290 13,160 1,012,306
------- ------- ---------
Total....................................... $31,599 $31,664 2,435,721
======= ======= =========
- ---------------
(1) Common stock shares were issued in 1999. Such shares are included in common
stock payable at December 31, 1998.
The following is the calculation of goodwill arising from the acquisitions
of the Founding Companies and BITG (in thousands):
Cash paid to Founding Companies............................. $ 31,599
Stock issued to Founding Companies (valued at $11.70 per
share).................................................... 28,498
Cash paid to Blackmarr, charged to retained earnings........ (3,290)
Discounted value of stock issued to Blackmarr included in
amount of stock issued to Founding Companies above........ (11,844)
--------
Total consideration (purchase price) attributable to
acquisition of the Founding Companies and BITI by
Blackmarr, the accounting acquirer........................ 44,963
Pro forma combined net assets of all Founding Companies and
BITI...................................................... (1,216)
Net assets of Blackmarr..................................... 1,107
Deferred offering costs at BITI............................. 4,907
Other acquisition costs..................................... 1,366
Goodwill at ICON............................................ 94
In-process research and development......................... (3,000)
--------
Total............................................. $ 48,221
========
Additionally, 437,681 shares of common stock were issued as consideration
for class A units at BITI. These shares were valued at a discount of 10% to the
initial public offering price of $13. These shares, less 46,153 shares issued to
affiliated parties charged to paid-in capital, have been included in goodwill in
the amount of $4,581, as a cost of the acquisition of the Founding Companies.
24
26
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Since the IPO Brightstar has completed three acquisitions which were
accounted for as purchase business combinations as follows:
- On June 30, 1998, the Company completed the acquisition of Cogent
Technologies, LLC, for $250 and certain costs, resulting in total
goodwill of approximately $254. The Company will be required to provide
additional consideration in 2000 related to an earnout agreement with the
prior owners.
- On August 31,1998, the Company completed the acquisition of Total
Business Quality Associates, Inc. (TBQ), a provider of SAP consulting and
implementing services for $1,450 and certain costs, resulting in total
goodwill of approximately $1,478.
- Effective September 30, 1998, the Company completed the acquisition of
PROSAP Australia Pty. LTD (PROSAP), a SAP certified National
Implementation Partner located in Sydney, Australia for $8,884 and
certain acquisition costs resulting in total goodwill of approximately
$8,525; $4,100 was paid at closing, $4,284 was paid in 1999. The
remaining amount of $500 is recorded as an acquisition payable at
December 31, 1999.
- On May 28, 1999, the Company purchased Integrated Systems Consultants,
LLC ("ISC") pursuant to an Asset Purchase Agreement (the "Agreement"),
dated as of April 1, 1999. ISC is a provider of SAP consulting services
based in Phoenix, Arizona. The aggregate consideration for this
transaction was $3,000; of which $500 was paid in cash upon closing;
$1,000 will be paid on June 1, 2000 in up to 255,183 shares of common
stock, or a combination of cash and stock as defined in the Agreement;
$500 was financed by a Convertible Subordinated Promissory Note due
August 1, 2000; and, the remaining $1,000 of contingent consideration
will be recorded as additional goodwill paid subject to the achievement
of ISC earnings during the twelve months ending March 31, 2000. The
Company has allocated the entire purchase price and certain other
acquisition costs to goodwill. The pro forma results of operations
assuming the acquisition occurred on January 1, 1999, would not be
materially different than the operating results reported.
(3) DISCONTINUED OPERATIONS
In October 1999, the Company's management approved a plan to discontinue
the operations of its Training, Controls and Infrastructure Support businesses.
Each of the underlying businesses were acquired by BrightStar as part of its IPO
in April 1998. The Company believes that the continued investment in the
Training, Controls, and Infrastructure Support businesses is not consistent with
its long-term strategic objectives. Accordingly, these businesses are reported
as discontinued operations and the consolidated financial statements have been
reclassified to segregate operating results and net assets of the businesses.
Managements' plan to discontinue the operations of each of the businesses
includes the following:
Training Business
The completed sale and closure of the training business -- the Company:
- Sold Mindworks Professional Education Group, Inc. (Mindworks) to its
former owners. The sale of Mindworks was completed in December, 1999 for
approximately $1,100. The Company recorded a pre-tax loss on the sale of
Mindworks of $900, ($1,000, or $0.12 per share including taxes), the loss
includes the associated write-off of net goodwill totaling $1,600.
- Closed its training business in Texas in October 1999. The Company
recorded no gain or loss upon closing the Texas training operations.
25
27
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Controls Business
The planned sale of the Controls Business within Integrated Controls,
Inc. -- while the Company has had discussions with potential buyers, no formal
sales agreement has been reached as of March, 2000. The Company expects to sell
its Control's business during the first half of 2000. The Company recorded an
estimated loss on the disposal of the Controls business of $5.1 million ($5.8
million including taxes, or $0.67 per share) including provision of $800 for
estimated operating losses until disposal. The amount of operating losses and
the amount the Company will ultimately realize upon the sale could significantly
differ from the amount assumed in arriving of the estimated operating losses
until disposal and estimated proceeds upon disposal.
Infrastructure Support Business
The discontinuance of its Infrastructure Support Business in December
1999 -- the Infrastructure Support Business was engaged in hardware sales and
consulting services relative to systems infrastructure and security. The Company
recorded no gain or loss on the discontinuance of the business.
Summary operating results and financial data for the discontinued
operations for 1999 and 1998 are as follows:
1999 1998
---------------------------------------------- ----------------------------------------------
INFRASTRUCTURE INFRASTRUCTURE
TRAINING CONTROLS SUPPORT TOTAL TRAINING CONTROLS SUPPORT TOTAL
-------- -------- -------------- ------- -------- -------- -------------- -------
Net revenue................... $ 4,477 $11,064 $8,635 $24,176 $4,465 $ 9,795 $3,084 $17,344
Cost of revenue............... 3,156 8,145 8,678 19,979 3,288 6,971 2,501 12,760
Operating expenses............ 1,582 3,303 70 4,955 1,208 2,908 -- 4,116
------- ------- ------ ------- ------ ------- ------ -------
Operating income (loss)....... (261) (384) (113) (758) (31) (84) 583 468
Loss on discontinued
operations, net of tax...... $(1,173) $(6,206) $ (68) $(7,447) $ (22) $ (50) $ 350 $ 278
Current assets................ $ 1,542 $ 1,542 $ 263 $ 3,122 $ 3,385
Property and equipment, net... 720 720 244 996 1,240
Deferred income taxes......... 320 320 -- --
Goodwill, net................. 3,234 3,234 1,667 7,046 8,713
Other assets.................. 19 19 36 49 85
------- ------- ------ ------- -------
Total assets.......... 5,835 5,835 2,210 11,213 13,423
Provision for loss until
disposal.................... 800 800 -- -- --
Other current liabilities..... 1,035 1,035 214 949 1,163
------- ------- ------ ------- -------
Total liabilities..... 1,835 1,835 214 949 1,163
------- ------- ------ ------- -------
Net assets of discontinued
operations.................. $ 4,000 $ 4,000 $1,996 $10,264 $12,260
======= ======= ====== ======= =======
(4) BUSINESS RESTRUCTURING
During the fourth quarter of 1998, the Company announced a plan to
restructure its operations and recorded a restructuring charge of $7,614. The
plan provided for the following:
- Reorganizing the operations of its wholly owned subsidiaries into one
operation that will result in an integrated sales force, focused
operating divisions and consolidated finance and administrative functions
- Realignment into separate operating divisions/consulting service lines
- Relocation of its corporate office
- Reduction of workforce of 13 employees, all of which have been
terminated.
26
28
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- The write-down of certain property and equipment and other assets as a
result of business closures and termination of service lines.
- Contract terminations and other obligations.
The major categories of the 1998 charges are summarized below:
AMOUNTS AMOUNTS TO
CHARGED TO BE PAID
EARNINGS IN BEYOND
1998 1999
----------- ----------
Workforce severance obligations............................. $4,960 $1,209
Asset impairment............................................ 1,171 --
Lease and other contract obligations........................ 1,483 552
------ ------
Total............................................. $7,614 $1,761
====== ======
As of December 31, 1999, the Company had expended $5,853 of the charge. The
remaining $1,761 reserved as of December 31, 1999 pertains to 1) remaining
severance obligations which will be paid through the April 2001, and 2)
remaining lease obligations which continue to extend past one year.
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
-----------------
1999 1998
------- -------
Computer equipment and software............................. $ 5,099 $ 2,325
Furniture, fixtures and office equipment.................... 1,294 944
Leasehold improvements...................................... 343 244
------- -------
Total............................................. 6,736 3,513
Accumulated depreciation and amortization................... (2,720) (1,207)
------- -------
Property and equipment, net....................... $ 4,016 $ 2,306
======= =======
(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses consist of the following:
DECEMBER 31,
----------------
1999 1998
------ ------
Accrued payroll and payroll taxes........................... $3,901 $4,895
Accrued operating losses on discontinued operations......... 800 --
Accrued losses on fixed fee contract........................ 1,263 --
Other accrued expenses...................................... 2,141 1,041
------ ------
Total accrued expenses............................ $8,105 $5,936
====== ======
(7) CREDIT FACILITY
Effective March 29, 1999, the Company established a $15 million credit
facility (the "Credit Facility") with Comerica Bank. Under terms of the
agreement, the Credit Facility will be used for working capital needs, including
issuance of letters of credit, and for general corporate purposes. Borrowings
under the Credit Facility bear an interest rate of prime plus .25%, or the
Eurodollar rate plus 2.5%. The Company pays a commitment
27
29
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fee on unused amounts of the Credit Facility amounting to .375% per annum based
on the average daily amount by which the commitment amount exceeds the principal
amount outstanding during the preceding month. Interest is payable monthly on
prime rate borrowings and quarterly or at the end of the applicable interest
period for the Eurodollar rate borrowings.
The Credit Facility is secured by liens on substantially all the Company's
assets (including accounts receivable) and a pledge of all of the outstanding
capital stock of the Company's domestic operating subsidiaries. The Credit
Facility also requires that the Company comply with various loan covenants,
including (i) maintenance of certain financial ratios, (ii) restrictions on
additional indebtedness and (iii) restrictions on liens, guarantees and payments
of dividends. As of, and during the quarters ended September 30, 1999 and
December 31, 1999, the Company was not in compliance with a certain financial
covenant. Comerica Bank has agreed to waive the defaults for both periods.
The Credit Facility contains provisions requiring mandatory prepayment of
outstanding borrowings from the issuance of debt or equity securities for cash,
excluding certain equity issued in connection with future acquisitions, and cash
realized in connection with permitted asset sales outside of the ordinary course
of business. Borrowings outstanding under the Credit Facility amounted to $8.6
million at December 31, 1999. As of March 28, 2000 the Company had reduced
amounts borrowed under the Credit Facility to approximately $2 million. The
Credit Facility expires on March 30, 2001.
(8) STOCKHOLDERS' EQUITY AND OTHER STOCK RELATED INFORMATION
Capital Stock
Authorized capital shares of the company include 3,000,000 shares of
preferred stock, 2,000,000 shares of restricted stock and 35,000,000 shares of
common stock. Rights, preferences and other terms of the preferred stock will be
determined by the board of directors at the time of issuance; no preferred stock
was issued at December 31, 1999.
Common Stock Payable
Common stock payable at December 31, 1998 represented stock issuable under
the terms based upon of the purchase agreement between the Company and SCS
Australia, achieving certain 1998 revenue targets. Upon the final settlement of
the purchase price, the unit holders of SCS Unit Trust received 441,400 common
shares during the first quarter of 1999, with the difference of 11,575 shares
issued to certain directors and members of management under the terms of the
original exchange agreement. As a result, a charge to stock compensation expense
in the amount of $135 was recorded in 1998.
Other Common Stock Warrants and Options
In 1997, the Company entered into an advisory agreement with an investment
banking firm, and issued a warrant to that firm for $100. The warrant provides
for the purchase of 50,000 shares of common stock at an exercise price of $6 per
share, and is exercisable at any time prior to August 14, 2004.
Also in 1997, the Company entered into an agreement for corporate
development services and issued a common stock option to the consulting firm.
The option grants the holder the option to purchase 14,285 shares.
The estimated combined fair value of the warrant and the option of $450
were recorded as offering costs. The common stock warrant was exercised during
1998, with the holder surrendering approximately 17,000 common shares in lieu of
payment for 33,000 common shares, and $350 was charged against paid-in capital.
Stock Options -- During 1998 a stock option plan (The 1997 Plan) was
established, which provides for the issuance of incentive and non-qualified
stock options, restricted stock awards, stock appreciation rights or
28
30
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
performance stock awards. The total number of shares that may be issued under
the Plan is 2,000,000 shares, of which only 1,930,000 shares may be granted for
incentive stock options. Options, which constitute the only issuance under the
incentive plans, have been generally granted at fair value of the company's
common stock on the date of grant. The following table summarizes the plan's
stock option activity:
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE REMAINING
SHARES PRICE LIFE
--------- -------- ----------
Options outstanding at December 31, 1997............. --
Granted in 1998...................................... 603,402 $13.00 5.07 years
Exercised............................................ --
Cancelled............................................ --
---------
Options outstanding at December 31, 1998............. 603,402 $13.00 9.75 years
=========
Granted in 1999...................................... 1,428,750 $ 6.88
Exercised............................................ -- --
Cancelled............................................ (218,664) $ 9.96
Options outstanding at December 31, 1999............. 1,813,448 $ 8.50
---------
Exercisable at December 31, 1999..................... 413,929(a)
=========
- ---------------
(a) 400,179 and 13,750 options are exercisable at $13.00 and $6.00-$7.50,
respectively.
Pro forma disclosures as if the Company had applied the cost recognition
requirements under SFAS No. 123 in 1998 are presented below. The pro forma
compensation cost may not be representative of that expected in future years.
1999 1998
-------- --------
Net loss (in thousands)
As reported............................................... $(10,015) $(16,544)
Pro Forma................................................. $(12,048) $(17,622)
Loss per share -- basic and diluted
As reported............................................... $ (1.16) $ (2.64)
Pro Forma................................................. $ (1.39) $ (2.81)
Weighted average fair value of options granted.............. $ 4.39 $ 9.71
Compensation cost for 1999 and 1998 was calculated in accordance with the
binomial model, using the following weighted average assumptions: (i) expected
volatility of 110% and 60%; (ii) expected dividend yield of 0% in both years;
(iii) expected option term of 10 years in both years; (iv) risk-free rate of
return of 5.86% and 5.60%; and expected (v) a forfeiture rate of 11%.
Recent Sales of Unregistered Securities.
On March 10, 2000, pursuant to an agreement with Strong River Investments,
Inc. and Montrose Investments Ltd. (collectively, the "Purchasers"), the Company
sold to the Purchasers 709,555 shares of the Company's common stock (the
"Shares") for $7.5 million, or $10.57 per share (the "Transaction"). Net
proceeds to the Company amounted to $7.2 million after related issuance costs.
Proceeds were applied to the Company's borrowings under its Credit Facility. In
connection the purchase of the Shares, the Company issued two warrants to the
Purchasers. One warrant has a five-year term during which the Purchasers may
purchase up to 157,500 shares of the Company's common stock at a price of $12.00
per share. The second warrant covers an adjustable amount of shares of the
Company's common stock at an adjustable exercise price, based on the market
price of the Company's common stock during three (3) separate periods of thirty-
29
31
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
one (31) trading days commencing 270 calendar days after the date of the
Transaction. The Company also issued to Wharton Capital Partners Ltd.
("Wharton"), as compensation for Wharton's services in completing the
Transaction, a warrant which has five-year term during which Wharton may
purchase up to 45,000 shares of the Company's common stock at a price of $12.00
per share. The Company anticipates registering the Shares sold to Purchaser in
April 2000. The Company and the Purchaser further agreed that the Company will
sell and the Purchaser will purchase up to an additional $7.5 million worth of
the Company's common stock six months following the Transaction subject to
certain conditions.
(9) STOCK COMPENSATION EXPENSE
In connection with the offering and acquisition of the Founding Companies,
certain directors and members of management received 648,126 shares of common
stock. These shares, valued at $11.70, were recorded as deferred compensation
and were amortized to stock compensation expense over a one year period based
upon the terms of a stock repurchase agreement between the Company and related
shareholders. Total stock compensation expense recorded during 1999 and 1998 in
connection with the above was $468 and $5,055, respectively. At December 31,
1998, certain members of management that had received substantially all of these
shares were terminated in connection with the Company's restructuring. As a
result, the remaining deferred compensation totaling $2,060, attributable to the
shares held by these terminated employees was charged to expense and included in
the restructuring charge.
In connection with the terms of the acquisition of SCS Unit Trust, certain
key employees were granted 200,000 shares of common stocks under an incentive
stock bonus plan. Based on the share price of $7.88 per share on the date of the
grant, the Company recorded stock compensation expense of $1,575. At December
31, 1998 these common shares had not been formally issued, and accordingly, are
recorded in common stock payable. The shares were issued in 1999.
During March 1997, the Company issued 3,068 shares of common stock with an
estimated fair value of approximately $100 per share to certain employees for $1
per share. Compensation expense totaling $305 was recognized during the year
ended September 30, 1997.
(10) INCOME TAXES
The components of income (loss) before income taxes from continuing
operations and the related income taxes provided for the years ended December
31, 1999, 1998 and 1997, are presented below:
1999 1998 1997
------- -------- ----
Income (loss) before income taxes:
Domestic................................................ $(5,803) $(17,916) $(44)
Foreign:................................................ 1,922 1,706 --
------- -------- ----
$(3,881) $(16,210) $(44)
======= ======== ====
1999 1998 1997
------- ----- ----
Provision (benefit) for income taxes:
Current:
Domestic............................................ $ (156) $ 707 $(2)
Foreign............................................. 787 528 --
Deferred:
Domestic............................................ (1,721) (623) 8
Foreign............................................. (223) -- --
------- ----- ---
Total.......................................... $(1,313) $ 612 $ 6
======= ===== ===
30
32
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's deferred tax assets are reflected below as of December 31,
1999 and 1998, respectively:
1999 1998
------ -------
Bad debt reserves........................................... $ 628 $ 387
Restructure reserve......................................... 669 1,665
Accrued compensation........................................ 422
Losses on discontinued operations........................... 304
Foreign tax assets.......................................... 223 --
Change in accounting method................................. (151)
Other....................................................... 154 120
------ -------
Net deferred tax asset...................................... 2,249 2,172
Valuation allowance......................................... (537) (1,387)
------ -------
$1,712 $ 785
====== =======
The table below reconciles the expected U.S. federal statutory tax to the
recorded income tax:
1999 1998 1997
------- ------- ----
Provision (benefit) at statutory tax rate.................. $(2,031) $(6,270) $(15)
State income taxes, net of federal benefit................. 103 (111) (1)
Goodwill amortization...................................... 498 361
Foreign tax................................................ 564 527 --
Deferred compensation...................................... 164 3,041 --
Goodwill writeoff.......................................... -- 1,506 --
Valuation allowance........................................ (850) 1,386 --
Other, net................................................. 239 172 22
------- ------- ----
Total............................................ $(1,313) $ 612 $ 6
======= ======= ====
(11) EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan that covers substantially all U.S. employees.
If applicable, employees would vest in Company contributions evenly over five
years from their date of employment. The Company may provide matching
contributions of up to 6% of the employees base salary. Employer matching and
profit sharing contributions are discretionary, and, to date, no matching or
profit sharing contributions have been made.
(12) COMMITMENTS AND CONTINGENCIES
The Company leases office space, computer and office equipment under
various operating lease agreements that expire at various dates through December
31, 2004. Minimum future commitments under these agreements for the years ending
December 31 are; 2000, $2,641; 2001, $2,240; 2002, $1,625; 2003, $511; and 2004,
$758.
Rent expense was $394, $113, $1,636, $4,048 during the periods ended
September 30, 1997, December 31, 1997 and December 31, 1998, and 1999
respectively.
Employment Agreements -- As of December 31, 1999, the Company had entered
into employment agreements with certain key management personnel which provided
for minimum compensation levels and incentive bonuses, along with provisions for
termination of benefits in certain circumstances and for certain severance
payments in the event of a change in control.
31
33
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company did not have any customer, individually or considered as a
group under common ownership that accounted for 10% of revenues or accounts
receivable for the periods presented.
The Company operates in a single segment, as a provider of internet
services. Since April 16, 1998, the Company has primarily operated in two
geographic regions. Prior to April 16, 1998, the Company primarily operated in
the United States. Specific information related to the Company's geographic
areas are found in the following table:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1999 1998
---------------------------------------- ----------------------------------------
UNITED STATES AUSTRALIA CONSOLIDATED UNITED STATES AUSTRALIA CONSOLIDATED
------------- --------- ------------ ------------- --------- ------------
Revenue............................. $69,119 $34,250 $103,449 $ 45,607 $17,977 $ 63,584
Income (loss) from continuing
operations before income taxes.... (5,803) 1,922 (3,881) (18,146) 1,936 (16,210)
Long-lived assets................... 57,601 1,028 58,629 54,951 835 55,786
Total assets........................ 77,133 7,875 85,008 81,889 10,512 92,401
32
34
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- ---------- ----------- --------------
ADDITIONS
----------
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
----------- ---------- ---------- ----------- --------------
Allowance deducted from assets to which it
applies:
Allowance for doubtful accounts:
Year ended December 31, 1998................... $ 439 -- $ 857 $1,296
Year ended December 31, 1999................... 1,296 $1,926 1,235 1,987
Accrued Restructuring Charge:
Year ended December 31, 1998................... -- 7,614 3,231 4,383
Year ended December 31, 1999................... 4,383 2,622 1,761
Tax valuation allowance:
Year ended December 31, 1998................... -- 1,387 -- 1,387
Year ended December 31, 1999................... 1,387 -- 850 537
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Stockholders
BrightStar Information Technology Group, Inc.
In connection with our audit of the consolidated financial statements of
BrightStar Information Technology Group, Inc. referred to in our report dated
March 28, 2000, which is included in the annual report on Form 10-K, we have
also audited Schedule II for the years ended December 31, 1999 and 1998. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ Grant Thornton LLP
San Jose, California
March 28, 2000
33
35
INDEX TO EXHIBITS
These Exhibits are numbered in accordance with the Exhibit Table of Item
601 of Regulation S-K:
(a) The following documents are filed as part of this report:
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 -- Certificate of Incorporation, as amended (Incorporated by
reference from Exhibit 3.1 to Amendment No. 1 to
BrightStar's Registration Statement on Form S-1 filed
February 27, 1998 (File No. 333-43209)).
3.2 -- Bylaws, as amended (Incorporated by reference from
Exhibit 3.2 to Amendment No. 3.2 to BrightStar's
Registration Statement on Form S-1 filed April 14, 1998
(File No. 333-43209)).
4.1 -- Specimen Common Stock Certificates (Incorporated by
reference from Exhibit 4.1 to Amendment No. 1 to
BrightStar's Registration Statement on Form S-1 filed
February 27, 1998 (File No. 333-43209)).
4.2 -- Agreement and Plan of Exchange dated December 15, 1997
among BrightStar, BITG, BITI and the holders of the
outstanding capital stock of BITG (Incorporated by
reference from Exhibit 4.2 to Amendment No. 1 to
BrightStar's Registration Statement on Form S-1 filed
February 27, 1998 (File No. 333-43209)).
4.3 -- Option Agreement dated as of December 16, 1997 between
BrightStar and Brewer-Gruenert Capital Advisors, LLC
(Incorporated by reference from Exhibit 4.4 to Amendment
No. 1 to BrightStar's Registration Statement on Form S-1
filed February 27, 1998 (File No. 333-43209)).
10.1 -- BrightStar 1997 Long-Term Incentive Plan (Incorporated by
reference from Exhibit 10.1 to Amendment No. 1 to
BrightStar's Registration Statement on Form S-1 filed
February 27, 1998 (File No. 333-43209)).
10.2 -- Agreement and Plan of Exchange by and among BrightStar
and the holders of the outstanding capital stock of Brian
R. Blackmarr and Associates, Inc. (Incorporated by
reference from Exhibit 10.2 to BrightStar's Registration
Statement on Form S-1 filed December 24, 1997 (File No.
333-43209)).
10.3 -- Agreement and Plan of Exchange by and among BrightStar
and the holders of the outstanding capital stock of
Integrated Controls, Inc. (Incorporated by reference from
Exhibit 10.3 to BrightStar's Registration Statement on
Form S-1 filed December 24, 1997 (File No. 333-43209)).
10.4 -- Agreement and Plan of Exchange by and among BrightStar
and the holders of the outstanding capital stock of
Mindworks Professional Education Group, Inc.
(Incorporated by reference from Exhibit 10.4 to
BrightStar's Registration Statement on Form S-1 filed
December 24, 1997 (File No. 333-43209)).
10.5 -- Agreement and Plan of Exchange by and among BrightStar,
Software Consulting Services America, LLC and the holders
of the outstanding ownership interests of Software
Consulting Services America, LLC. (Incorporated by
reference from Exhibit 10.5 to BrightStar's Registration
Statement on Form S-1 filed December 24, 1997 (File No.
333-43209)).
10.6 -- Agreement and Plan of Exchange by and among BrightStar
and Software Consulting Services Pty. Ltd. in its
capacity as Trustee of the Software Consulting Services
Unit Trust and the holders of all of the outstanding
ownership interests in the Software Consultants Unit
Trust (Incorporated by reference from Exhibit 10.6 to
BrightStar's Registration Statement on Form S-1 filed
December 24, 1997 (File No. 333-43209)).
36
EXHIBIT
NO. DESCRIPTION
------- -----------
10.7 -- Agreement and Plan of Exchange by and among BrightStar
and The holders of the outstanding capital stock of
Software Innovators, Inc. (Incorporated by reference from
Exhibit 10.7 to BrightStar's Registration Statement on
Form S-1 filed December 24, 1997 (File No. 333-43209)).
10.8 -- Agreement and Plan of Exchange by and among BrightStar
and the holder of the outstanding capital stock of Zelo
Group, Inc. and Joel Rayden (Incorporated by reference
from Exhibit 10.8 to BrightStar's Registration Statement
on Form S-1 filed December 24, 1997 (File No.
333-43209)).
10.9 -- Form of Employment Agreement between BrightStar and
Marshall G. Webb, Thomas A. Hudgins and Daniel M. Cofall
(Incorporated by reference from Exhibit 10.9 to Amendment
No. 1 to BrightStar's Registration Statement on Form S-1
filed February 27, 1998 (File No. 333-43209)).*
10.10 -- Employment Agreement between Software Consulting Services
America, Inc. and Michael A. Ober.*
10.11 -- Office Lease dated November 11, 1998, between Principal
Life Insurance Company and BrightStar.
10.12 -- Employment Agreement dated Jan. 31, 1999 between
BrightStar and Donald Rowley.*
10.13 -- Employment Agreement between Brian R. Blackmarr and
Associates, Inc. and Brian R. Blackmarr (Incorporated by
reference from Exhibit 10.10 to Amendment No. 1 to
BrightStar's Registration Statement on Form S-1 filed
February 27, 1998 (File No. 333-43209)).*
10.14 -- Letter Agreement dated August 14, 1997 between BITG and
McFarland, Grossman and Company, Inc., and amended as of
March 17, 1998 (Incorporated by reference from Exhibit
10.11 to Amendment No. 2 to BrightStar's Registration
Statement on Form S-1 filed March 24, 1998 (File No.
333-43209)).
10.15 -- Letter Agreement dated September 26, 1997 between BITG
and Brewer-Gruenert Capital Advisors, LLC, and amended as
of December 15, 1997 (Incorporated by reference from
Exhibit 10.12 to BrightStar's Registration Statement on
Form S-1 filed December 24, 1997 (File No. 333-43209)).
10.16 -- Loan Agreement dated October 16, 1997 between BITI and
BITG (Incorporated by reference from Exhibit 10.13 to
Amendment No. 1 To BrightStar's Registration Statement on
Form S-1 filed February 27, 1998 (File No. 333-43209)).
10.17 -- Stock Repurchase Agreement between BrightStar and
Marshall G. Webb, Daniel M. Cofall, and Thomas A.
Hudgins.*
10.18 -- Agreement Regarding Repurchase of Stock by and among
BrightStar, George M. Siegel, Marshall G. Webb, Thomas A.
Hudgins, Daniel M. Cofall, Mark D. Diggs, Michael A.
Sooley, Michael B. Miller, and Tarrant Hancock.*
10.19 -- Amendment to Agreement and Plan of Exchange dated as of
June 5, 1998 by and BrightStar and the holder of the
outstanding capital stock of Zelo Group, Inc. and Joel
Rayden.
10.20 -- Deed of Variation dated as of April 17, 1998 by and among
BrightStar and Software Consulting Services Pty. Ltd. and
Kentcom Pty. Ltd., Salvatore Fazio, Pepper Tree Pty.
Ltd., Christopher Richard Banks, Cedarman Pty. Ltd,
Stephen Donald Caswell, Quicktrend Pty. Ltd., Desmond
John Lock, Kullamurra Pty. Ltd., Robert Stephen Langford,
and KPMG Information Solutions Pty. Ltd. and Data
Collection Systems Integration Pty. Ltd.
37
EXHIBIT
NO. DESCRIPTION
------- -----------
10.21 -- Asset Purchase Agreement dated as of June 30, 1998 among
BrightStar, Cogent Acquisition Corp., Cogent
Technologies, LLC and the holders of all of all the
outstanding membership interest of Cogent Technologies,
LLC.
10.22 -- Asset Purchase Agreement dated as of August 31, 1998
among BrightStar, Software Consulting Services America,
Inc., TBQ Associates, Inc. and the holders of all the
outstanding capital stock of TBQ Associates, Inc.
10.23 -- Stock Purchase Agreement dated effective as of September
30, 1998 among BrightStar, BrightStar Group
International, Inc. and the holders of the outstanding
capital stock of PROSAP AG (Incorporated by reference
from Exhibit 2.1 to the Current Report On Form 8-K of
BrightStar dated November 10, 1998.
10.24 -- Factoring Agreement and Security Agreement dated January
22, 1999 among Metro Factors, Inc. dba Metro Financial
Services, Inc., Brian R. Blackmarr and Associates, Inc.,
Software Consulting Services America, Inc., Software
Innovators, Inc., and Integrated Controls, Inc.
10.25 -- Guaranty dated January 22, 1999 by BrightStar for the
benefit Of Metro Factors, Inc. dba Metro Financial
Services, Inc.
10.26 -- Severance Agreement and Release effective November 20,
1998 between BrightStar and Thomas A. Hudgins.
10.27 -- Severance Agreement and Release effective January 31,
1999 between BrightStar and Daniel M. Cofall.
10.28 -- Severance Agreement and Release effective January 31,
1999 between Marshall G. Webb.
10.29 -- Revolving Credit Agreement dated March 29,1999 between
BrightStar and Comerica Bank
10.30 -- Form of subsidiaries guaranty dated March 29,1999 between
BrightStar subsidiaries and Comerica Bank
10.31 -- Security Agreement (Negotiable collateral) dated March
29,1999 between BrightStar and Comerica Bank
10.32 -- Security Agreement (All assets) dated March 29, 1999
between BrightStar and Comerica Bank
10.33 -- $15,000,000 Revolving Note dated March 29, 1999 from
BrightStar To Comerica Bank
10.34 -- Asset Purchase Agreement Among BrightStar Information
Technology Group, Inc., Software Consulting Services
America, Inc., Integrated Systems Consulting, LLC and the
Individuals Owning All Of The Membership Interests of
Integrated Systems Consulting, LLC dated as of April 1,
1999.
10.35 -- Securities Purchase Agreement Among BrightStar
Information Technology Group, Inc. and Strong River
Investments, Inc. and Montrose Investments LTD
21.1 -- List of Subsidiaries of the Company.
24.1 --
27.1 -- Financial Data Schedule
- ---------------
* Management Contract or Compensatory Plan required to be filed as an exhibit to
this form pursuant to Item 14(c) of Form 10-K.
Reports on Item 10-K.