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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, 1998
[ ] 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 26, 1999, based on the $5.75 per share
closing price for the registrant's common stock on the NASDAQ National Market
was approximately $42,621,150. 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
26, 1999 was 8,442,034.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's definitive proxy statement in connection with the Annual Meeting
of Stockholders to be held on or about June 17, 1999, 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
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ITEM 1: BUSINESS
The Company
BrightStar Information Technology Group, Inc. ("BrightStar" or the "Company")
provides information technology ("IT") services that improve its customers'
productivity and competitive position. The Company offers its customers a
single source for a comprehensive range of services required to successfully
design, develop and implement integrated solutions on an enterprise-wide basis.
The Company provides these services through five operating divisions:
Enterprise Applications, Web Applications, Custom Applications, Hosted
Applications, and Applications Support. Among the services offered are
implementations services for enterprise resource planning ("ERP") packages from
SAP, PeopleSoft, J.D.Edwards, and Platinum Software; implementation services
for Web-based e-commerce, extranet, and intranet systems; network and security
consulting; operational applications support and training on the internal
networks required to run and maintain these advanced systems.
Information About Operating Segment
BrightStar operates in a single business segment: IT Services. An independent
research organization that reports specifically on the IT industry estimates
that the market for IT consulting, design, implementation, management, and
outsourcing was $124.0 billion in 1996 and will increase to $303.1 billion by
2002, representing an approximate compounded annual growth rate of 16%.
Among the leading factors driving the growth in the IT services market is the
transition to packaged software solutions and the emergence of new technologies
like the Internet and 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 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 and implementation
of their new applications to acquire the necessary expertise and accelerate
deployment.
Services
BrightStar provides a wide range of services through its five operating
divisions. Enterprise Applications provides implementation services for ERP
packages from the leading ERP software vendors. Web Applications designs and
develops e-commerce systems, extranet systems for supply chain communications
and intranet systems to automate internal business processes. Hosted
Applications hosts ERP and Web applications from BrightStar's secure,
high-performance hosting facility in Dallas. Application Support helps
customers develop the necessary infrastructure to support mission-critical ERP
and Web systems.
BrightStar helps its customers use software technology as a tool to improve
their business. To provide this service, 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 is a
source of differentiation for the Company in the IT services market and a
critical factor in the successful delivery of its services.
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Throughout the various phases of its projects, the Company collaborates closely
with a wide range of personnel within the customer's organization including
executives, lines of business and functional managers, expert users, and IT
staff. Many of the Company's projects involve project teams that are comprised
of personnel from both the Company and the customer's organization. The Company
typically provides training to various personnel within the customer's
organization during the project to ensure high levels of self-sufficiency among
its customer's end-users and internal IT personnel.
Customers and Markets
BrightStar's marketing efforts focus on the middle- and upper-market companies
ranging from $50 million and up in annual revenues, and divisions and
departments of Fortune 1000 companies and other large organizations. 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.
The Company employs consultants with business experience in these areas to
enhance its ability to provide services in an industry-specific manner.
Sales and Marketing
BrightStar sells and delivers its services through a direct sales force in the
U.S. and Australia. As of December 31, 1998, the Company sales force
consisted of 80 employees worldwide of which 70 were employed in the U.S. and
10 were employed in Australia.
The Company maintains a network of U.S. sales offices located in the seventeen
(17) cities of Atlanta, Georgia, Austin, Texas, Baton Rouge, Louisiana, Boston,
Massachusetts, Chicago, Illinois, Dallas, Texas, Denver, Colorado, Foster City,
California, Houston, Texas, Irvine, California, Lafayette, Louisiana, Lake
Charles, Louisiana, Little Rock, Arkansas, New Orleans, Louisiana, Overland
Park, Kansas, Philadelphia, Pennsylvania, and Scottsdale, Arizona.
The Company has significant foreign operations in Australia through its five
(5) branch offices in Adelaide, Canberra, Melbourne, Perth, and Sydney.
Revenues from foreign operations accounted for $18.0 million, representing
approximately 22% of the consolidated total of $80.9 million for the year ended
December 31, 1998.
Consulting
As of December 31, 1998, BrightStar employed more than 700 consultants,
supported by a staff of approximately 140 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 consulting and
industry experience, and maintains a staff of 10 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.
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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 five operating divisions:
Enterprise Applications, Web Applications, Custom Applications, Hosted
Applications and Applications Support. The restructuring will result in a
one-time charge of $7.6 million in the fourth quarter of 1998. See the
Management Discussion and Analysis for further details.
Executive Officers of BrightStar
The following table and notes thereto identify and set forth information about
the Company's four executive officers:
NAME OF INDIVIDUAL CAPACITIES IN WHICH SERVED
------------------ --------------------------
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
Brian R. Blackmarr(4)....... Executive Vice President of Sales and Marketing
1) Mr. Siegel, age 60, 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 42, 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 47, 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
4) Mr. Blackmarr, age 56, was elected Executive Vice President of Sales and
Marketing in December 1998. He has served as President of Brian R.
Blackmarr & Associates since its inception in 1979.
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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
o ATLANTA o DALLAS o PHILADELPHIA o NEW ORLEANS
o AUSTIN o DENVER o IRVINE o OVERLAND PARK
o BATON ROUGE o FOSTER CITY o LAFAYETTE
o BOSTON o SCOTTSDALE o LAKE CHARLES
o CHICAGO o HOUSTON o LITTLE ROCK
International Leased Facilities
o ADELAIDE, o CANBERRA, o MELBOURNE, o PERTH,
AUSTRALIA AUSTRALIA AUSTRALIA AUSTRALIA
o SYDNEY,
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 FISCAL
QUARTER OF 1998
None.
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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.
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Fiscal 1998: HIGH LOW
Second Quarter $20.75 $10.00
Third Quarter $14.25 $ 5.625
Fourth Quarter $10.50 $ 5.00
1999:
First Quarter (through March 26, 1999) $10.50 $ 5.375
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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, 1999, there were approximately 133 shareholders of record of the
Company's Common Stock.
The Company has entered into standstill agreements with the principals of the
Founding Companies that received Restricted Stock at the time of the initial
public offering. These standstill agreements expire on April 16, 1999. No
prediction can be made as to the effect, if any, that future sales of Common
Stock, or availability of shares for future sales, will have on the market price
of the Common Stock prevailing from time to time. Sales of substantial amounts
of Common Stock, or the perception that such sales could occur, could adversely
affect prevailing market prices for the Common Stock.
RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is certain information concerning all sales of securities by
Brightstar that were not registered under the Securities Act.
Effective October 17, 1997, BrightStar issued and sold 1,000 shares of Common
Stock to BIT Group Services, Inc. ("BITG") for $1,000.
Concurrently with the closing of its initial public offering ("IPO") and
pursuant to the Agreement and Plan of Exchange (the "Share Exchange") dated as
of December 15, 1997 among BrightStar, BITG, BIT Investors, LLC ("BITI"), and
the holders of the outstanding capital stock of BITG, (i) the Company issued to
BITI an aggregate of 739,007 shares of Common Stock in exchange for all the
shares of common stock of BITG held by BITI and (ii) the Company issued an
aggregate of 346,800 shares of Common Stock in exchange for all the shares of
common stock of BITG held by members of BrightStar's management, as follows:
42,900 shares to George M. Siegel; 70,000 shares to Marshall G. Webb; 60,000
shares to Thomas A. Hudgins; 60,000 shares to Daniel M. Cofall; 60,000 shares to
Michael A. Sooley, 33,900 shares to Tarrant Hancock; and 20,000 shares to Mark
D. Diggs. In connection with the Share Exchange, BrightStar assumed all
obligations of the issuer pursuant to an option issued by BrightStar to
Brewer-Gruenert Capital Advisors, LLC, which provides for the purchase of up to
14,285 shares of Common Stock at an exercise price of $6.00 per share. Effective
April 20, 1998, BrightStar issued 33,008 shares of Common Stock upon the
exercise of a warrant held by McFarland, Grossman & Company. Pursuant to the
Share Exchange, on January 11, 1999, the Company issued 11,575 shares of Common
Stock to the holders of the Series A-1 Class A units of BITI.
Concurrently with the closing of the IPO, the Company issued to Software
Consulting Services America, LLC ("SCS America") and the Stockholders of the
other companies acquired concurrently with the closing of the IPO (the
"Founding Companies") an aggregate of 1,982,645 shares of Common Stock in
connection with the acquisition of the Founding Companies in consideration of
substantially all the assets of SCS America and all of the outstanding capital
stock of the other Founding Companies, other than SCS Unit Trust. On January
11, 1999, the Company issued to the beneficiaries of the SCS Unit Trust an
aggregate of 441,400 shares of Common Stock in consideration of substantially
all of the assets of the SCS Unit Trust.
The sales and issuances of the securities by BrightStar, by BITG to BITI and to
BrightStar's management and by BITI to its members, referenced above were
exempt from registration under the Securities Act of 1933 pursuant to Section
4(2) thereof as transactions not involving any public offerings, with the
recipients representing their intentions to acquire the securities for their
own accounts and not with a view to the distribution thereof.
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 (b) 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 Decemeber 31, 1998, 1998, (ii) the results of
operation of the Founding Companies for the periods and (iii) the results of the
operation of companies acquired by BrightStar after the initial public offering
subsequent to their acquisitions.
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, and (ii) from the unaudited
financial statements of Blackmarr for the year ended and as of September 30,
1994, which have been prepared on the same basis as the audited statements and,
in the opinion of Blackmarr and BrightStar management, reflect all adjustments,
consisting of normal recurring adjustments necessary for a fair presentation of
that information.
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Year Ended Year Ended
Historical Operations Data: September 30 December 31
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(In thousands)
1994 1995 1996 1997 1998
-------- -------- -------- -------- -------------
Revenue $ 7,451 $ 7,043 $ 9,227 $ 12,190 $ 80,928
Cost of revenue 5,917 5,592 7,659 10,063 62,072
Selling, general and administrative
expenses 1,325 1,413 1,555 1,668 15,445
Stock compensation expense -- -- -- 305 6,766
In process research & development 3,000
Restructure charge 7,614
Depreciation and amortization 87 78 101 135 1,863
-------- -------- -------- -------- -------------
Income (loss) from operations 122 (40) (88) 19 (15,832)
Interest expense (45) (66) (67) (96) (70)
Other income, net 186 124 33 155
Income tax provision 19 40 -- 6 797
-------- -------- -------- -------- -------------
Net income(loss) $ 58 $ 40 $ (31) $ (50) $ (16,544)
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Average common shares:
Basic and diluted -- -- -- -- 6,275,031
Historical Balance Sheet Data: September 30 December 31,
(In thousands) ----------------------------------------- -------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- -------------
Working capital $ 134 $ 284 $ 233 $ 337 $ 4,981
Total assets 1,923 1,609 1,926 3,501 93,564
Long-term debt, net of current maturities 497 42 42 17 181
Stockholders' equity 342 396 423 682 70,073
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, 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, 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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RESULTS OF OPERATIONS
The Company reported a loss of $2.64 per basic and diluted share for the year
ended December 31, 1998.
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.
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 aproved a reorganization plan (the "Plan") with
strategic actions to:
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o Consolidate the sales, finance, and administrative functions at a the
BrightStar level forming a single, combined sales force and finance group
o Realign the operations of each of the individual wholly owned subsidiaries
into the following operating divisions:
Enterprise Applications
Custom Applications
Web Applications
Hosted Applications
Applications Support
The Plan includes relocating the Company's corporate offices from Houston, Texas
to Pleasanton, California; eliminating certain positions and personnel, closing
certain businesses and writing-off assets; and terminating and consolidating
leased facilities. These actions began in the fourth quarter of 1998 and will
continue through the fourth quarter of 2000. In the fourth quarter of 1998, the
Company recorded a $7.6 million charge for these restructuring actions.
The categories of the 1998 Charges and their subsequent utilization are
summarized below:
Amounts Amounts to
Charged to be Utilized
Earnings in Beyond
1998 1998
Workforce severance 4,960,015 2,900,057
Asset impairment 1,171,151 1,266,512
Lease and other contract obligations 1,482,691 1,482,691
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 are being 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 1998 in
connection with the above was $ 6,765,811. At December 31, 1998, certain members
of management were terminated in connection with the Plan. As a result, the
remaining deferred compensation totaling $2,059,958, attributable to the shares
held by these terminated employees was charged to expense and is included in the
restructure charge.
Local Currency Results
The following discussion of Revenue, Cost of Revenue, and Operating Expenses
includes reference to revenue, margins, and expenses in "local currencies". For
comparability of financial results, the foreign currency balances, in all
periods presented, are translated at actual rates of exchange.
Revenue
The Company provides services to its customers for fees that are based on time
and materials or fixed fees. 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, for the twelve months ended December 31, 1998 compared to the
prior periods primarily resulted from (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.
Revenue increased $2.9 million, or 32.1%, for the year ended September 30, 1997
compared to the year ended September 30, 1996. The increase primarily resulted
from the addition of new customer contracts representing revenue of
approximately $2.0 million in the consulting division and an increase of
approximately $900,000 from the education division, which expanded its course
offerings from the previous year.
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, 1998
compared to the prior periods primarily resulted from an increase in variable
costs associated with the increased revenue described above.
Cost of revenue increased $2.4 million, or 31.4%, for the year ended September
30, 1997 compared to the year ended September 30, 1996. The increase was
directly proportional to the increase in revenue and was comprised of additional
operational personnel added to support increased client contracts.
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 increase, for the twelve months
ended December 31, 1998 compared to the prior periods resulted primarily from
additional support personnel added through the Company's acquisitions.
Selling, general and administrative expenses increased approximately $100,000,
or 7.3%, for the year ended September 30, 1997 compared to the year ended
September 30, 1996. As a percentage of revenue, selling, general and
administrative expenses decreased from 16.9% to 13.7% for the year ended
September 30, 1997 compared to the year ended September 30, 1996. The
percentage decrease was attributable to the Company increasing revenue without
substantial additions in the number of support personnel.
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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 as
of December 31, 1998. 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. Due to the short-term nature and
insignificant amount of the Company's notes payable, 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.
LIQUIDITY AND CAPITAL RESOURCES
Subsequent to December 31, 1998, the Company changed lenders and established a
$15 million credit facility ("Credit Facility") with Comerica Bank. Under terms
of the agreement, the Revolving Credit Facility will be used for working capital
needs, including issuance of letters of credit, and for general corporate
purposes. The Company expects that borrowings under the Revolving Credit
Facility will bear an interest rate of prime plus .25%.
The Credit Facility will be secured by liens on substantially all the Company's
assets (including accounts receivables) and a pledge of the Company to 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. The Company anticipates that the
Revolving Credit Facility will be available for advances and repayments through
April 2001 and that, unless such facility is extended or renewed, all
outstanding principal and accrued and unpaid interest under the Revolving Credit
Facility will be due on such date. The Credit Facility will contain 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.
The Company's principal sources of liquidity are the cash flows of its
subsidiaries and the cash available from the Credit Facility.
As of December 31, 1998, and as a result of the successful completion of a
public offering on April 16, 1998, BrightStar had $3.6 million in cash and cash
equivalents and no borrowings outstanding from commercial lenders other than
$300,000 of capital lease obligations. Subsequent to December 31, 1998 the
Company was obligated to pay $4.784 million in cash payable in three
installments on January 1, 1999 and April 1, 1999 and June 1999, in connection
with the acquisition of PROSAP.
The Company expects to install or upgrade its accounting and management
information systems and to install an internal network and communications system
to facilitate exchange of information among the Founding Companies. Management
presently anticipates that expenditures for these items will total approximately
$500,000 over the next year; however, no assurance can be made with respect to
the actual timing and amount of such expenditures.
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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, borrowings under the Credit
Facility and the unallocated net proceeds of the offering 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.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 problem. The Year 2000
problem arises from the way dates are recorded and computed in most
applications, operating systems, hardware and embedded chips. If the problem is
not corrected, systems that use a date in its prescribed function may fail or
produce erroneous results before, on and after the year 2000.
The Company is completing an extensive review of its businesses to determine
whether or not purchased and internally developed computer programs are Year
2000 compliant, as well as determine the extent of any remedial action and
associated costs. Management believes it has substantially completed the review
of the Company's internal computer systems and either substantially made
modifications or purchased new hardware and software to make the Company's
internal computer systems Year 2000 compliant. The Company is now involved in
the testing phase of its computer modifications and new system purchases to
determine its ability to handle Year 2000 related date calculations.
The Company plans to complete all remediation efforts for its critical systems
prior to year 2000. The financial impact of the Year 2000 reviews,
modifications, testing, replacements or related purchases are not expected to
have a material adverse effect on the Company's business or its consolidated
financial position, results of operations or cash flows. The Company is also
contacting its key suppliers and customers to determine their Year 2000
readiness in order to ensure a steady flow of goods and services to the Company
and continuity with respect to customer service.
The costs of the readiness program for products are primarily costs of existing
internal resources largely absorbed within existing spending levels. These costs
were incurred primarily in 1998. No future material product readiness costs are
anticipated. The costs of the readiness program for internal information and
other systems are a combination of incremental external spending and use of
existing internal resources and expertise.
EURO CURRENCY CONVERSION
Companies conducting business in or having transactions denominated in certain
European currencies are facing the European Union's conversion to a new common
currency, the "Euro". This conversion is expected to be implemented over a
three-year period. On January 1, 1999, the Euro became the official currency
for accounting and tax purposes of several countries of the European Union and
the exchange rate between the Euro and local currencies was fixed. In 2002, the
Euro will replace the individual nation's currencies. The Company is currently
considering the specific nature of the impact of the conversion on its
operations, but management currently believes that there will be no material
adverse impact of the conversion on its operations or financial performance.
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.
Reorganization
The Company is undergoing 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.
Potential Decrease in the Market for ERP Services
During the last six months of 1998, most providers of ERP software experienced
slowing software license sales. This slowing rate of growth for ERP software
providers may result in lowered demand for ERP services in 1999. The Company
derives a significant percentage of its revenues from ERP implementation
services and a significant slowdown in the market for these services would have
a material adverse effect on the Company.
Potential Decrease in the Market for Services Due to the Year 2000
The purchasing patterns of clients may be affected by Year 2000 issues as
companies expand significant resources to correct their current systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase services offered by the Company, which could have a material
adverse effect on the Company.
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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 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
1998 1997
--------------------------------------------------------- -----------------------------------------------------
Fourth (a) Third Second (b) First Fourth Third Second First
------------ ------------ ------------ ------------ ------------ ------------ ------------ ----------
Revenue $ 30,524,537 $ 26,737,895 $ 18,556,833 $ 5,108,881 $ 6,622,811 $ 3,635,179 $ 3,452,623 $ 3,003,438
Gross profit $ 4,827,942 $ 7,233,115 $ 5,690,890 $ 1,103,725 $ 812,863 $ 572,942 $ 881,325 $ 603,189
Income (loss)
from operations $(12,686,339)$ (643,179) $ (2,908,751) $ 406,374 $ (34,635) $ 145,827 $ 421,953 $ (88,642)
Net income $(12,303,391)$ (1,118,760) $ (3,401,195) $ 279,327 $ (36,822) $ (3,929) $ 353,384 $ (100,788)
Per share basis:
Basic $ (1.46)$ (0.13) $ (0.47) $ .28 $ (.04) $ (0.01) $ 0.35 $ (.13)
Diluted $ (1.46)$ (0.13) $ (0.47) $ .28 $ (.04) $ (0.01) $ 0.35 $ (.13)
(a) Included in the fourth quarter 1998 is a restructuring charge of
$7,613,857.
(b) Included in the second quarter 1998 is the initial public offering
concurrent with the acquisitions of the Founding Companies.
14
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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 and the
United Kingdom.
FOREIGN CURRENCY EXCHANGE RATE RISK
Foreign Currency Exchange Rate Risk. The Company has a wholly owned subsidiary
in Australia and conducts operations in the United Kingdom through an U.S.
incorporated subsidiary. Revenues from these operations are typically
denominated in Australian Dollars or British Pounds, 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 as of December 31,
1998. There can be no assurance that a sudden and significant decline in the
value of the Australian Dollar or British Pound will not have a material adverse
effect on the Company" 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. Due to the short-term nature and
insignificant amount of the Company's notes payable, 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.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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 1999 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.
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ITEM 11: EXECUTIVE COMPENSATION
Incorporated by reference in the proxy statement for the June 17, 1999 Annual
Meeting of Stockholders.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference in the proxy statement for the June 17, 1999 Annual
Meeting of Stockholders.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference in the proxy statement for the June 17, 1999 Annual
Meeting of Stockholders.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(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' Report
Consolidated Balance Sheets at December 31, 1997 and 1998.
Consolidated Statements of Operations for the years ended September 30,
1996 and 1997 and the three months and the year ended December 31, 1998.
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1996 and 1997 and the three months and the year ended
December 31, 1998.
Consolidated Statements of Cash Flows for the years ended September 30,
1996 and 1997 and the three months and the year ended December 31, 1998.
Notes to Consolidated Financial Statements.
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 on pages ____
and ____:
[X] Schedule II - Validation 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.
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 Report on Form 8-K on November 25, 1998, disclosing the
Company's purchase on November 10, 1998, of all of the outstanding capital stock
of PROSAP AG, a Swiss holding company that owns all of the outstanding capital
stock of PROSAP Australia Pty. Ltd. An amendment to that Report was filed on
January 22, 1999.,
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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
17
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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)).
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.*
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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.
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
21.1 -- List of Subsidiaries of the Company.
24.1 -- Power of Attorney
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.
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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 31, 1999
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 31, 1999
- - ---------------------------------------
Michael A. Ober
/s/ DONALD W. ROWLEY Chief Financial Officer and March 31, 1999
- - --------------------------------------- Secretary
Donald W. Rowley (Principal Financial Officer)
/s/ PATRICK R. QUINN Controller an Assistant Secretary March 31, 1999
- - --------------------------------------- (Principal Accounting Officer)
Patrick R. Quinn
Directors:
George M. Siegel* Chairman of the Board and Director
Jennifer T. Barrett* Director
Brian R. Blackmarr* Director
Michael A. Ober* Director
David A. Reamer* Director
Donald W. Rowley* Director
William A. Sitter* Director
* By /s/ MICHAEL A. OBER
------------------------------------
Michael A. Ober, Attorney-in-Fact **
** By authority of the power of attorney filed herewith.
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
BrightStar Information Technology Group, Inc:
We have audited the accompanying consolidated balance sheets of BrightStar
Information Technology Group, Inc. (the "Company") as of December 31, 1997 and
1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years ended September 30, 1996 and 1997,
the three months ended December 31, 1997 and the year ended December 31, 1998.
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 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 that 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 audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of BrightStar Information
Technology Group, Inc. at December 31, 1997 and 1998, and the results of their
operations and their cash flows for the years ended September 30, 1996 and 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
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BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31
----------- -----------
1997 1998
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,994 $ 3,672,103
Trade accounts receivables, net of allowance for doubtful
accounts of $451,534 and $1,316,106 4,205,535 20,296,989
at December 31, 1997 and 1998, respectively
Income tax receivable 37,515 --
Unbilled revenue 652,711 2,238,429
Deferred tax asset 161,564 784,986
Prepaid and other current assets -- 1,297,490
----------- -----------
Total current assets 5,060,319 28,289,997
PROPERTY AND EQUIPMENT, NET 276,753 3,546,005
DEFERRED TAX ASSET 31,541 --
GOODWILL, NET OF ACCUMULATED AMORTIZATION -- 61,230,088
OTHER ASSETS 56,759 497,638
----------- -----------
Total assets $ 5,425,372 $93,563,728
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 423,143 $ 3,920,502
Acquisition payable -- 4,784,000
Line of credit 847,764 --
Notes payable 213,185 --
Current maturities of capital lease obligations 64,322 167,201
Accrued restructure charge 4,382,748
Accrued salaries and other accrued expenses 2,610,929 6,327,709
Income tax payable -- 1,790,979
Deferred revenue 621,329 1,935,770
----------- -----------
Total current liabilities 4,780,672 23,308,909
LONG-TERM LIABILITIES:
Capital lease obligations, net of current portion -- 129,057
Other non-current liabilities -- 52,244
----------- -----------
Total long-term liabilities -- 181,301
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY:
Common stock, no par value - 13,068 no par value shares
issued and outstanding at December 31, 1997;
7,989,059, .001 par value shares issued and
outstanding at December 31, 1998 318,068 7,989
Additional paid in capital -- 82,818,042
Common stock payable -- 6,874,819
Common stock warrants -- 100,000
Deferred stock compensation -- (467,734)
Accumulated other comprehensive income -- 247,813
Retained earnings (deficit) 326,632 (19,507,411)
----------- -----------
Total stockholders' equity 644,700 70,073,518
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,425,372 $93,563,728
=========== ===========
See notes to consolidated financial statements.
22
22
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------ ------------ ------------ ------------
REVENUE $ 9,226,955 $ 12,189,942 $ 6,622,811 $ 80,928,146
COST OF REVENUE 7,659,342 10,063,300 5,809,948 62,072,474
------------ ------------ ------------ ------------
GROSS PROFIT 1,567,613 2,126,642 812,863 18,855,672
OPERATING EXPENSES:
Selling, general and administrative 1,554,926 1,667,897 816,942 15,445,080
Stock compensation expense -- 305,000 -- 6,765,811
In process research & development -- -- -- 3,000,000
Restructuring charge -- -- -- 7,613,857
Goodwill amortization -- -- -- 1,030,616
Depreciation and amortization 100,661 134,689 30,556 832,206
------------ ------------ ------------ ------------
Total operating expenses 1,655,587 2,107,586 847,498 34,687,570
INCOME (LOSS) FROM OPERATIONS (87,974) 19,056 (34,635) (15,831,898)
OTHER INCOME 124,412 33,414 6,956 154,471
INTEREST EXPENSE (67,178) (96,020) (30,741) (69,504)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (30,740) (43,550) (58,420) (15,746,931)
INCOME TAX EXPENSE (BENEFIT) 106 6,466 (21,598) 797,090
------------ ------------ ------------ ------------
NET LOSS $ (30,846) $ (50,016) $ (36,822) $(16,544,021)
============ ============ ============ ============
Shares outstanding (Note 1)
Basic and Diluted 774,645 893,475 1,012,306 6,275,031
============ ============ ============ ============
Loss per share
Basic and Diluted $ (0.04) $ (0.06) $ (0.04) $ (2.64)
============ ============ ============ ============
See notes to consolidated financial statements
23
23
BRIGHTSTAR INFORMATION TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
-----------------------------
Additional Common Common
Shares Amount Paid-In-Capital Stock Payable Stock Warrant
----------- ------------ --------------- ------------- -------------
BALANCE, OCTOBER 1, 1995 10,000 $ 10,000 $ $ $
Net loss
----------- ------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 1996 10,000 10,000 -- -- --
Issuance of common stock 3,068 308,068
Net loss and comprehensive loss
----------- ------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 1997 13,068 318,068 -- -- --
Net loss and comprehensive loss
----------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 13,068 318,068 -- -- --
Issuance of common stock in public
offering 4,887,500 4,888 58,634,987 450,000
Stock used for acquisition of Founding
Companies 1,408,120 1,408 15,933,606 5,299,819
Common stock issued to
management and promoters 648,126 648 7,582,426
Stock split (to conform Blackmarr (Note 2) 999,238 (317,056) 317,056
Exercise of stock warrants 33,007 33 349,967 (350,000)
Common stock granted to employees (Note 11) 1,575,000
Amortization of deferred compensation
Write-off of deferred compensation
of terminated employees
Net loss and comprehensive loss
Other comprehensive income (loss) -
cumulative translation
----------- ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 7,989,059 $ 7,989 $ 82,818,042 $ 6,874,819 $ 100,000
=========== ============ ============ ============ ============
Accumulated
Other Retained Total
Unearned Comprehensive Earnings Stockholders' Comprehensive
Compensation Income (Deficit) Equity Loss
------------ ------------- ------------ ------------ -------------
BALANCE, OCTOBER 1, 1995 $ $ $ 444,316 $ 454,316
Net loss and comprehensive loss (30,846) (30,846) $ (30,846)
------------ ------------ ------------ ------------ ============
BALANCE, SEPTEMBER 30, 1996 -- -- 413,470 423,470
Issuance of common stock 308,068
Net loss and comprehensive loss (50,016) (50,016) $ (50,016)
------------ ------------ ------------ ------------ ============
BALANCE, SEPTEMBER 30, 1997 -- -- 363,454 681,522
Net loss and comprehensive loss (36,822) (36,822) $ (36,822)
------------ ------------ ------------ ------------ ============
BALANCE, DECEMBER 31, 1997 -- -- 326,632 644,700
Issuance of common stock in public
offering 59,089,875
Stock used for acquisition of Founding
Companies (3,290,022) 17,944,811
Common stock issued to
management and promoters (7,583,074) --
Stock split (to conform Blackmarr Note 2) --
Exercise of stock warrants
Common stock granted to employees 1,575,000
Amortization of deferred compensation 5,055,382 5,055,382
Write-off of deferred compensation
of terminated employees 2,059,958 2,059,958
Net loss (16,544,021) (16,544,021) $(16,544,021)
Other comprehensive income (loss) -
cumulative translation 247,813 247,813 247,813
------------
Comprehensive loss $(16,296,203)
------------ ------------ ------------ ------------ ============
BALANCE, DECEMBER 31, 1998 $ (467,734) $ 247,813 $(19,507,411) $ 70,073,518
============ ============ ============ ============
See notes to consolidated financial statements
24
24
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------- ----------- ------------- ------------
OPERATING ACTIVITIES:
Net loss $ (30,846) $ (50,016) $ (36,822) $(16,544,021)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Restructure charge 6,442,706
Write down of certain intangible and other assets 841,496
In process research and development expense 3,000,000
Depreciation and amortization 100,661 134,689 30,556 1,905,105
Other 247,813
Additions to allowance for doubtful accounts 464,510 (5,425) 14,521 864,572
Deferred income taxes (32,503) 8,113 (21,598) (1,311,138)
Compensation expense on issuance of common stock 305,000 6,765,811
Changes in operating working capital:
Trade accounts receivable (352,655) (1,632,114) (1,451,265) (4,757,221)
Income tax refund receivable -- -- -- 37,515
Unbilled revenue (158,693) 133,342 501,007 (672,147)
Prepaid and other assets 12,740 (24,143) 2,086 5,769
Accounts payable (300,708) (2,584) 1,850 (441,342)
Accrued salaries other accrued expenses 226,170 447,536 1,928,223 (2,921,026)
Income taxes payable (83,417) (32,609) 57,342 1,509,322
Deferred revenue 76,043 462,018 -- 1,210,049
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities (78,698) (256,193) 23,886 (3,816,737)
INVESTING ACTIVITIES:
Cash paid to acquire founding companies (32,026,000)
Cash paid to retire debt of Founding Companies (9,864,581)
Cash paid for acquisitions (6,106,405)
Redemption of (investment in) certificate of deposit (60,000) 60,000 -- --
Capital Expenditures (150,576) (111,612) (14,826) (1,162,373)
----------- ----------- ----------- -----------
Net cash used in investing activities (210,576) (51,612) (14,826) (49,159,359)
FINANCING ACTIVITIES:
Borrowings under (payments on) line of credit 599,764 223,000 25,000 --
Proceeds from (payments on) term loan (357,900) 141,679 (32,694) --
Payments on note payable and capital lease obligations (5,068) (57,070) (18,149) (2,444,669)
Net proceeds from issuance of common stock -- 3,068 -- 59,089,875
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities 236,796 310,677 (25,843) 56,645,206
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (52,478) 2,872 (16,783) 3,669,110
CASH AND CASH EQUIVALENTS:
Beginning of period 69,383 16,905 19,777 2,994
----------- ----------- ----------- -----------
End of period $ 16,905 $ 19,777 $ 2,994 $ 3,672,104
=========== =========== =========== ===========
SUPPLEMENTAL INFORMATION:
Interest paid $ 67,178 $ 96,020 $ 30,741 $ 73,052
=========== =========== =========== ===========
Income taxes paid $ -- $ 50,000 $ -- $ --
=========== =========== =========== ===========
Equipment financed through capital leases $ 34,548 $ 47,923 $ -- $ --
=========== =========== =========== ===========
See notes to consolidated financial statements
25
25
BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation - BrightStar Information Technology Group, Inc.,
(the "Company" or "BrightStar") is an international provider of
information technology ("IT") consulting services. BrightStar conducted
no operations prior to April 16, 1998 when it completed its initial
public offering ("IPO"). The accompanying historical consolidated
financial statements 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, and
the "Founding Companies" from May 1, 1998 through December 31, 1998.
See note 2 for further discussion of the IPO, the definition of the
"Founding Companies" and the "accounting acquirer".
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Investments in
nonconsolidated companies that are at least 20 percent owned are stated
at cost plus equity in undistributed net income (loss). All significant
intercompany account balances and transactions have been eliminated in
consolidation.
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 can differ from these estimates.
Revenue recognition - The Company provides its services to customers
for fees that are based on time and materials or fixed fees.
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 from the sale of
training kits and tuition received from training seminars is recognized
as product is shipped or services are performed. Deferred revenue
primarily represents the excess of amounts billed over contract costs
and expenses incurred.
The Company performs ongoing credit evaluations of its major customers
and reserves for potential credit losses.
Cash equivalents - Cash equivalents represent all liquid investments
purchased with original maturities of three months or less.
26
26
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
and is being amortized over 40 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
adjustment of the period benefited would be recognized. Accumulated
amortization of goodwill at December 31, 1998 was $1.03 million.
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 the 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.
Deferred income taxes - Deferred income taxes are provided under the
asset and liability method for temporary differences in recognition of
income and expense and financial reporting purposes. A valuation
allowance is established for any portion of the deferred tax asset for
which realization is more likely than not.
Fair values of financial investments are estimated to approximate the
related book values, unless otherwise indicated, based on market
information available to the Company.
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, outstanding during each year. The
weighted average shares used to calculate earnings per share on the
historical statement of operations 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 are anti-dilutive
(decreases net loss per share) for the periods presented.
Stock based compensation - Stock based compensation arising from stock
option grants and awards are accounted for by the intrinsic value
method under Accounting Principals Board (APB) Opinion No. 25.
"Accounting for Stock Issued to Employees." See Note 9.
Accounting standards changes - In 1998, the Company adopted the
following Statements of Financial Accounting Standards ("SFAS"):
o SFAS 130, "Reporting Comprehensive Income", which requires the
components of comprehensive income to be disclosed in the
consolidated financial statements.
27
27
o SFAS 131, "Disclosure about Segments of an Enterprise and
Related Information", which require disclosures of certain
information about the Company's operating segments on a basis
consistent with the way in which the Company is managed and
operated.
Adoption of these new standards required that the Company reclassify
prior year's information and make certain new disclosures in the notes
to the consolidated financial statements.
New pronouncements - In 1998, SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities", was issued. This standard, which
establishes new accounting and reporting standards for derivative
financial instruments, must be adopted no later than 2000. The Company
is currently analyzing the effect of this standard and does not expect
it to have a material effect on the Company's consolidated financial
position, results of operations or cash flows.
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, including identifiable tangibles, and
liabilities assumed based on their fair market values. The excess of
the total purchase prices over the fair value of the net assets
acquired represents goodwill.
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
---------- ---------- ----------
Founding Companies:
(Dollars in thousands)
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 have not yet been issued and are included in
common stock payable at December 31, 1998.
28
28
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 $13.00. These
shares, less 46, 153 shares issued to affiliated parties charged to
paid-in capital, have been included in goodwill in the amount of
$4,580,878, as a cost of the acquisition of the Founding Companies.
Since the IPO Brightstar has completed three acquisitions which were
accounted for as purchase business combinations as follows:
o On June 30, 1998, the Company completed the acquisition of
Cogent Technologies, LLC, for $250,000 and certain costs,
resulting in total goodwill of approximately $254,000.
o 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 $1,450,000 and
certain costs, resulting in total goodwill of approximately
$1,478,000.
o 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 $8,884,000 and certain acquisition costs
resulting in total goodwill of approximately $8,525,000;
$4,100,000 was paid at closing and the remaining purchase
price is to be paid over approximately nine months. See
Note 6.
The following table presents unaudited pro forma results of operations
of the Company as if the above described acquisitions had occurred at
January 1, 1997 for the years ended December 31(in thousands, except
per share data):
1997 1998
--------- ---------
Revenues $ 65,678 $ 110,973
========= =========
Loss before income taxes $ (7,682) $ (8,589)
========= =========
Net loss $ (8,250) $ (9,386)
========= =========
Basic and diluted Loss per share: $ (.98) $ (1.11)
========= =========
The unaudited pro forma results of operations are not necessarily
indicative of what the actual results of operations of the Company
would have been had the acquisitions occurred at the beginning of 1997,
nor do they purport to be indicative of the future results of
operations of the company.
29
29
3) BUSINESS RESTRUCTURING
During the fourth quarter of 1998, the Company announced a plan to restructure
its operations. The Company recorded a charge totaling $7,613,857 during 1998.
The plan includes the following:
o Reorganize 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
o Realignment into five separate operating divisions/consulting service
lines
o Relocation of its corporate office
o Reduction of workforce of approximately 11 employees
o The write-down of certain property and equipment and other assets as a
result of business closures and termination of service lines.
o Contract terminations and other obligations.
The major categories of the 1998 charges are summarized below:
Workforce severance obligations $4,960,015
Asset impairment 1,171,151
Lease and other contract obligations 1,482,691
----------
Total $7,613,857
==========
The following is a summary of the types and amounts of accrued charges at
December 31, 1998;
Workforce severance obligations $2,900,057
Lease and other contract obligations 1,482,691
----------
Total $4,382,748
==========
4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
1997 1998
---------- ----------
Computer equipment and software $ 737,189 $3,499,675
Furniture, fixtures and office equipment 244,638 1,306,515
Leasehold improvements 244,515
---------- ----------
Total 981,827 5,056,705
Accumulated depreciation and amortization 705,074 1,504,701
---------- ----------
Property and equipment, net $ 276,753 $3,546,004
========== ==========
5) OTHER ASSETS
Other assets consist of the following:
December 31,
1997 1998
---------- ----------
Deposits $ 50,083 $ 197,715
Notes receivable and other 6,676 299,923
---------- ----------
Total $ 56,759 $ 497,638
========== ==========
6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses consist of the following:
December 31,
1997 1998
---------- ----------
Accrued payroll and payroll taxes $ 675,669 $5,286,189
Other accrued expenses 1,935,260 1,041,520
---------- ----------
Total accrued expenses $2,610,929 $6,327,709
========== ==========
7) ACQUISITION PAYABLE
In connection with the acquisition of PROSAP (see Note 2), the Company
is required to pay the remaining purchase price of $4,784,000 as
follows: $1,534,000 payable on January 1, 1999; $1,250,000 payable on
April 1, 1999; and $2,000,000 payable on June 30, 1999.
The amounts due on January 1, 1999 and April 1, 1999 are secured by an
irrevocable bank letter of credit.
8) LINE OF CREDIT AND NOTES PAYABLE
30
30
Line of credit and notes payable consist of the following:
1997
Line of Credit, interest accruing prime plus 1% $ 847,764
==========
Note payable, monthly principal payments of $10,898
Plus accrued interest at prime plus 0.5% $ 108,985
Note payable, payable on demand, interest
at 10% per annum 104,200
----------
$ 213,185
==========
The outstanding balances related to the above items were paid off
during 1998 with proceeds from the IPO.
9) REVOLVING CREDIT FACILITY
In April 1998, The Company received a commitment from a lender to
provide its revolving credit facility, however, the Company did not
enter into this credit facility.
Effective March 29, 1999 the Company entered into a Revolving Credit
Agreement with another lender that provides a line of credit of up to
$15 million. This facility expires March 30, 2001.
Amounts outstanding under the revolving credit agreement will bear
interest at a rate per annum equal to one of the following rates, at
the Company's option: (i) Eurodollar rate plus 2.5% or (ii) prime rate
plus 1/4%. The Company will pay a commitment on unused amounts of the
revolving credit facility of 3/8% 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 revolving credit facility is secured by liens on substantially all
of the Company's assets (as defined in the agreement) and contains
various financial and other restrictive covenants and requirements
including (i) maintenance of certain financial ratios, (ii)
restrictions on additional indebtedness and (iii) restrictions on
liens, guarantee and payments of dividends.
10) 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, 1998.
Common Stock Payable
Common stock payable represents additional 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 to be 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 $135,429 was recorded.
Common stock warrant and option
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, 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
$450,000 were recorded as offering costs, and charged against
paid-in capital.
The common stock warrant was exercised during 1998, with the holder
surrendering approximately 17,000 common shares in lieu of payment for
33,008 common shares.
31
31
The following table reconciles the numerators and denominators used in
the computation of both basic and diluted EPS:
1996 1997 1998
-------- -------- --------
Basic EPS and diluted computation:
Numerator:
Net income (loss) $ (50) $ (37) $(16,544)
Denominator:
Weighted average shares outstanding (000's) 893 1,012 6,275
---------- -------- --------
Basic and diluted EPS $ (0.06) $ (0.04) $ (2.64)
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 performance stock awards. The total number of
shares that may be issued the Plan is 1,000,000 shares, of which only
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:
Shares Exercise
---------- Price
-------------
Options outstanding at December 31, 1997 -- $
Granted in 1998 603,402 13.00
Exercised --
Expired --
----------
Options outstanding at December 31, 1998 603,402 $ 13.00
==========
Exercisable at December 31, 1998 98,950
==========
32
32
STOCK-BASED COMPENSATION - The Company applies Accounting Principles
Board Option No. 25 and related interpretations in accounting for its
stock option plans. No compensation cost (generally measured as the
excess, if any, of the quoted market price of the common stock at the
date of the grant over the amount an employee must pay to acquire the
common stock) has been recognized for the Company's stock option plans.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", issued by the Financial Accounting Standards
Board in 1995, prescribed a method to record compensation cost for
stock-based employee compensation plans at fair value, but allowed
disclosure as an alternative. Pro forma disclosures as if the Company
had adopted 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.
1998
-----------
Net loss (in thousands)
As reported $(16,544)
Pro Forma $(17,622)
Earnings per share - diluted
As reported $(2.64)
Pro Forma $(2.81)
Stock options issued 333,402
Weighted average value of options $ 9.71
Average compensation value of options granted per option $ 3.29
Compensation cost (for the current-year grants) was calculated in
accordance with the binomial model, using the following assumptions:
(i) expected volatility computed using the monthly average of the
Company's common stock market price as listed on the NASDAQ National
Market for the period April 16, date of the Company's initial public
offering, through December 31, 1998, and the nolatility of comparable
companies, which market price volatility averaged 60%; (ii) expected
dividend yield of 0%; (iii) expected option term of 10 years; and (iv)
risk-free rate of return as of the date of the grant, of 5.60%, based
on extrapolated yield of 10 year U.S. Treasury securities.
11) 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 are being 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 1998 in connection
with the above was $ 5,055,382 . At December 31, 1998, certain members
of management that had received substantially all of these shares were
terminated in connection with the Restructure. As a result, the
remaining deferred compensation totaling $2,059,958, attributable to
the shares held by these terminated employees was charged to expense
and is included in the Restructure 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 $1,575,000. At December 31, 1998 these common
shares had not been formally issued, and accordingly, are recorded in
common stock payable.
33
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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 $305,000 was
recognized during the year ended September 30, 1997.
12) INCOME TAXES
The components of income before income taxes and the related income
taxes for the years ended December 31, 1996, 1997 and 1998, as
presented below:
1998
----------
Income (loss) before income taxes: (17,453,175)
Domestic 1,706,244
-----------
Foreign (15,746,931)
===========
The Company had no Foreign income in the years ended December 31, 1996
and 1997.
1996 1997 1998
---------- ---------- -----------
Provision for income taxes:
Current:
Federal $ 32,609 $ (1,647) 784,986
State 108,144
Foreign 527,382
Deferred:
Federal (32,503) 8,113 (623,422)
Foreign --
---------- ---------- -----------
Total $ 106 6,466 $ 797,090
========== ========== ===========
The Company's deferred tax assets are reflected below as of
December 31, 1997 and 1998, respectively:
1997 1998
---------- ----------
Bad debt reserves $ 161,564 $ 387,317
Restructure reserve 1,665,444
Fixed asset depreciation 9,943 30,923
Other -- 87,960
---------- -----------
Net deferred tax asset $ 171,507 2,171,644
==========
Valuation allowance (1,386,658)
------------
$ 784,986
============
The table below reconciles the expected U.S. federal statutory tax to
the recorded income tax rate:
1996 1997 1998
---------- ---------- ----------
Provision (benefit) at statutory tax rate $ (10,759) $ (14,807) $(6,108,611)
State income taxes, net of federal benefit 6 (1,293) (88,397)
Goodwill amortization 360,716
Foreign Tax -- -- 527,382
Deferred Compensation -- -- 3,041,619
Goodwill Writeoff -- -- 1,505,833
Valuation Allowance -- -- 1,386,658
Other, net 10,859 22,566 171,890
---------- ---------- -----------
Total $ 106 $ 6,466 $ 797,090
========== ========== ===========
13) EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan that covers substantially all employees.
Employees vest in Company contributions evenly over five years. 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 nor profit sharing
contributions have been made.
34
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14) COMMITMENTS AND CONTINGENCIES
The Company leases office space, computer and office equipment under
various capital and operating lease agreements that expire at various
dates through December 31, 2003. Minimum future commitments under these
agreements at December 31, 1998 are as follows (in thousands):
Capital Operating
1999 $198,890 $2,950,119
2000 140,275 2,421,793
2001 5,251 1,865,797
2002 1,153,907
2003 336,115
-------- ----------
Total minimum lease payments 344,416 $8,727,731
==========
Less amounts representing interest 48,158
--------
Present value of capital lease
obligation 296,258
Less current portion of capital
lease obligations. 167,201
--------
Long-term portion of capital
lease obligations. $129,057
========
Rent expense was $372,271, $394,123, $113,111, and $1,636,387 during the periods
ended September 30, 1996 and 1997, December 31, 1997 and December 31, 1998,
respectively, and is included in selling, general and administrative expense.
EMPLOYMENT AGREEMENTS - As of December 31, 1998, 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.
15) 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.
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The Company operates in a single industry, as a provider of information
technology 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:
For Year Ended December 31, 1998
================================
(dollars in thousands) Revenues Income (Loss) From Long Lived Assets
Operations Assets
-------- -------------------------------- -------
United States $ 62,951 $ (17,768) 64,438 $83,052
------- ------------------------------- -------
Australia $ 17,977 $ 1,936 835 $10,512
------- ------------------------------- ------
Other $ -- $ -- $ --
------- ------------------------------- -------
Consolidated $ 80,928 $ (15,832) 65,273 $93,564
------- ------------------------------- -------
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INDEX TO EXHIBITS
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
37
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)).
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.*
38
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.
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
21.1 -- List of Subsidiaries of the Company.
24.1 -- Power of Attorney
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.