-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T5OYmQ7ztmrNsHkxBkfEHXatvMGnZGYEoyTa2Nzb+BNyn6aPugCagYExv0vc6x0N smhbnUNLmhUzUyf1Tz/Icw== 0000950117-05-002809.txt : 20050714 0000950117-05-002809.hdr.sgml : 20050714 20050714171254 ACCESSION NUMBER: 0000950117-05-002809 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050714 DATE AS OF CHANGE: 20050714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMTEC INC/NJ CENTRAL INDEX KEY: 0000005117 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 870273300 STATE OF INCORPORATION: UT FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-32789 FILM NUMBER: 05955160 BUSINESS ADDRESS: STREET 1: 817 EAST LAKE GATE DRIVE CITY: MT LAUREL STATE: UT ZIP: 08054 BUSINESS PHONE: 8013633283 MAIL ADDRESS: STREET 1: 817 EAST GATYE DRIVE CITY: MT LAUREL STATE: NJ ZIP: 08054 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN GEOLOGICAL ENTERPRISES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: NUCLEAR PROCESSING CORP DATE OF NAME CHANGE: 19820318 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN GEOTHERMAL ENERGY INC DATE OF NAME CHANGE: 19681212 10-K 1 a40171.htm EMTEC, INC.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ______________ FORM 10-K
(Mark One)
	S ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the fiscal year ended March 31, 2005

OR

	£ 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: 0-32789

EMTEC, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State of incorporation or organization)

87-0273300
(I.R.S. Employer Identification No.)

572 Whitehead Road, Bldg#1
Trenton, New Jersey 08619
(Address of principal executive offices, including zip code)

(609)-528-8500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value

————————————————

Title of class

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 S 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. £

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). £Yes S No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of September 30, 2004 was approximately $4,040,696 computed by reference to the closing price of the common stock for that date.

As of July 11, 2005, there were outstanding 7,566,888 shares of the registrant’s common stock.

EMTEC, INC. 2005 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS

PART I

Item 1.	Business	1
Item 2.	Properties	8
Item 3.	Legal Proceedings	9
Item 4.	Submission of Matters to a Vote of Security Holders	10

PART II

Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	11
Item 6.	Selected Financial Data	12
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 8.	Financial Statements and Supplementary Data	31
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	32
Item 9A.	Controls and Procedures	33
Item 9B.	Other Information	34

PART III

Item 10.	Directors and Executive Officers of the Registrant	35
Item 11.	Executive Compensation	38
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	40
Item 13.	Certain Relationships and Related Transactions	42
Item 14.	Principal Accountant Fees and Services	43

PART IV

Item 15.	Exhibits, Financial Statement Schedules	44
	Signatures	69

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References in this Annual Report to “we,” “us,” or “our” are to Emtec, Inc. and its subsidiaries, unless the context specifies or requires otherwise.

Cautionary Statement Regarding Forward-Looking Statements

You should carefully review the information contained in this Annual Report and in other reports or documents that we file from time to time with the Securities and Exchange Commission (the “SEC”). In this Annual Report, we state our beliefs of future events and of our future financial performance. In some cases, you can identify those so-called “forward-looking statements” by words such as “may,” “will,” “should,” expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of those words and other comparable words. You should be aware that those statements are only our predictions. Actual events or results may differ materially. In evaluating those statements, you should specifically consider various factors, including the risks discussed in this Annual Report for the year ended March 31, 2005 and other reports or documents that we file from time to time with the SEC. Those factors may cause our actual results to differ materially from any of our forward-looking statements. All forward-looking statements attributable to us or a person acting on our behalf are expressly qualified in their entirety by this cautionary statement.

Assumptions relating to budgeting, marketing, and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause us to alter our marketing, capital expenditure, or other budgets, which may in turn affect our business, financial position, results of operations, and cash flows.

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PART I

Item 1. Business

Introduction

Emtec (OTC: ETEC) is a systems integrator focused on providing technology solutions that enable its customers to effectively use and manage their data to grow their businesses. Our areas of specialization in information technology (“IT”) services include enterprise computing, data communications, data access, network design, enterprise backup and storage consolidation, managed services and staff augmentation. Emtec’s solutions are crafted to enable our customers to become more efficient and effective, thereby giving them a competitive advantage. To date, the most significant portion of our revenues has been derived from our activities as a reseller of IT products, such as workstations, servers, microcomputers, application software and networking and communications equipment. However, we are actively endeavoring to increase the portion of our revenues that are derived from IT services. We anticipate that an increasing percentage of our future revenues will be derived from such business.

Named to the VARBusiness 500 list of top network integrators, value added resellers, and consultants in the U.S. every year since 1995, we combine extensive experience in systems integration with premier technology elements to provide our customers with sophisticated, streamlined, truly comprehensive solutions.

Over the past two decades, we have built strong relationships with leading manufacturers, such as Cisco, HP, IBM, Microsoft, Sun Microsystems, Dell, and Veritas, thereby enabling us to provide cutting-edge, scalable, reliable and secure solutions. This, along with our background in information technology, positions us as a premier, single-source provider of information systems, and network solutions.

Our customers are primarily Fortune 2000 companies, state and local government, local school districts, and other large and mid-sized companies located principally in the New York/New Jersey Metropolitan area and the Southeastern United States. We service our customer base from leased facilities in New Jersey, New York, Georgia, and Florida.

Prior to January 17, 2001, we were engaged in the oil and gas exploration and development business under the name American Geological Enterprises, Inc. At that time our principal asset, other than cash, was a 5.49% working interest in a geothermal power unit. On January 17, 2001, we completed a merger with Emtec, Inc., a privately held New Jersey corporation (“Emtec-NJ”), which since 1980 had been engaged in the business of providing IT products and services to the computer industry. Upon the merger we retained all of our assets, subject to liabilities, and assumed all of the assets and liabilities of Emtec-NJ. In March 2005, we disposed of our geothermal investment through an assignment of our 5.49% working interest in the Roosevelt Hot Spring geothermal power unit as well as some other minor oil and gas rights to Energy Minerals, Inc., a Nevada corporation for $150,000 in cash.

Our executive offices are located at 572 Whitehead Road, Building#1, Trenton, New Jersey; telephone: (609) 528-8500. Our website is located at www.emtecinc.com. We have made available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such material was electronically filed with, or furnished to, the Securities and Exchange Commission. The information on our website is not part of this Annual Report.

Recent Development

On July 14, 2005, we announced that we had entered into a definitive agreement to merge with DARR Westwood Technology Corporation, the parent company of Westwood Computer Corporation.

Westwood Computer Corporation, headquartered in Springfield, New Jersey and established in 1964, is a privately held information technology company and a leading supplier of information technology products and services to the Federal Government. It has been recognized as one of the top 20 General Services Administration vendors in the IT industry during each of the past eight years and was named in data compiled by the GSA as the ninth largest such vendor for the Federal Government’s 2004 fiscal year. Westwood Computer has additional locations in New York and Virginia, as well as five regional offices in the South and Western United States.

Upon the effectiveness of the merger, which is expected to occur within the next several weeks, DARR Westwood’s shareholders will acquire approximately 55% of our then issued and outstanding shares of common stock and our board of directors will be comprised solely of DARR Westwood’s designees, thereby resulting in a change in our control. Dinesh Desai, Chairman of Westwood Computer Corporation, will become our Chairman and CEO. John Howlett and Ron Seitz, currently our CEO and our COO, respectively, will remain in our employ as our President, Northeast and as our President, Southeast, respectively.

The combined companies will continue to operate under our current name. Westwood Computer’s revenues for the 12 months ended August 31, 2004 were $129.87 million. Our revenues for our fiscal year ended March 31, 2005 were $112.70 million.

Completion of the merger is subject, among other matters, to regulatory filings and the expiration of a subsequent 10 day waiting period. Subject to the receipt of institutional financing, which is also a condition to the completion of the merger, we will initiate within 30 days thereafter a self-tender offer to repurchase up to 2,864,584 shares of our then issued and outstanding shares of common stock having an aggregate purchase price of up to $5.5 million at a price of $1.92 per share.

Our shareholders and other interested parties are urged to read our offer to purchase and other relevant documents filed with the SEC when they become available because they will contain important information. Our shareholders will be able to obtain such documents free of charge at the SEC’s website: www.sec.gov or from us at 572 Whitehead Road, Bldg. #1, Trenton, New Jersey 08619, Attn: Secretary.

Industry Background

The broad market in which we compete is the provision of IT services. This marketplace consists of traditional IT services such as hardware and software procurement, life-cycle services, and network consulting, as well as new and innovative Internet services such as web enablement, remote network monitoring, help desk services, and information security.

As the market for IT products has matured over the past several years, price competition has intensified. That factor, combined with abbreviated product lifecycles, has forced IT product manufacturers to pursue lower cost manufacturing and distribution strategies. Resellers who were able to serve the needs of corporate end users requiring diverse brands of products and related IT services were initial beneficiaries of this heightened competition. More recently, however, continuing competition and manufacturers’ renewed efforts to improve their cost structures have led to both consolidations and business failures among resellers. Manufacturers have shifted from exclusive distribution partners to “open sourcing” and some have begun direct selling efforts with a view toward capturing market share from resellers.

At the same time that the market for IT products is consolidating, the market for IT services is expanding. Many companies have become increasingly dependent on the use of IT as a competitive tool in today’s business environment. The need to distribute and access data on a real-time basis throughout an organization and between organizations has led to the rapid growth in network computing infrastructures that connect numerous and geographically dispersed end users through local and wide area networks. This growth has been driven by the emergence of industry standard hardware, software, and communications tools, as well as the significant improvement in the performance, capacity, and utility of such network-based equipment and applications.

The decision-making process that confronts companies when planning, selecting, and implementing IT infrastructure and services continues to grow more complex. Organizations are continually faced with technology obsolescence and must design new networks, upgrade, and migrate to new systems. As a result of the rapid changes in IT products and the risks associated with the commitment of large capital expenditures for products and services whose features and perceived benefits are not within the day-to-day expertise of operating management, many businesses increasingly are outsourcing some or all of their network management and support functions and are seeking the expertise of independent providers of IT products and services.

Our Strategy

Our primary business objective is to become a leading single-source provider of high quality and innovative IT products, services, and support. We believe that by working with a single-source provider, business organizations will be able to adapt more quickly to technological changes and reduce their overall IT costs. To this end, we are pursuing the following strategies:

Pursuing Strategic Acquisitions

We are seeking to expand our service offerings, to add to or enhance our base of technical or sales personnel, and to nurture and expand client relationships by means of acquisitions of companies whose businesses complement our businesses and, in particular, our IT consulting services. We intend to focus on companies with management teams who are willing to commit to long-term participation in our organization and who share our vision of continued growth.

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On January 9, 2002, we acquired substantially all of the assets of Devise Associates, Inc., an information technology consulting and managed services subsidiary of McLeodUSA, Inc. located in New York City.

On August 12, 2002, we acquired certain assets of Acentra Technologies, Inc., including the assumption of the State of New Jersey computer supply and services contract, for a net purchase price of $165,607 in cash.

On August 31, 2002, we acquired all of the customer contracts and certain assets of Turnkey Computer Systems, Inc. of Clifton, NJ.

Capitalizing on Existing Relationships

We have invested in training and committed resources to obtain company certifications from key industry manufacturers, and have entered into written agreements with most of these manufacturers, such as Sun, IBM, HP, Dell, CISCO, Microsoft, Novell and Citrix. These agreements grant us a nonexclusive right to purchase the manufacturer’s hardware and license its software for our internal business use and for commercial integration and resale. Typically, our agreements with such manufacturers, such as those with Sun, IBM, CISCO, Microsoft, Novell and Citrix, provide for a one-year term, renewable by the parties for successive one-year terms and are terminable by either party on prior written notice ranging from 30 to 45 days. They generally do not contain financial terms for resale of the manufacturer’s products, which terms are separately governed by purchase orders.

Moreover, we believe that our history of satisfying the IT product requirements of our larger customers is facilitating the marketing of our broad range of services to this important segment of our clientele.

Our Business

Ÿ	IT Services

Enterprise Computing Solutions: We offer a full spectrum of IT product acquisition and support services needed to support client/server environments, including product sourcing, network design and implementation, technical support, server consolidation, and clustering and load balancing for high availability.

Managed Services and Staff Augmentation Solutions: We manage and support customers’ networks through the utilization of outsourced help desk and network monitoring services as well as through our own on-site engineering resources. This allows organizations to focus the majority of their efforts on their businesses - not on managing their IT infrastructures.

Data Communications Solutions: We offer Local Area Network/ Wide Area Network and data wireless connectivity, voice over IP and structured cabling solutions that are designed to enhance communication capabilities, while decreasing costs.

Data Access Solutions: We enable on-demand access to information from anywhere over any network; our mobility, messaging, and management solutions provide secure data access, increased business productivity, and reduced IT costs for any organization.

Lifecycle Management Services: Our lifecycle management services are designed to provide customers with continuous availability of service and support throughout the lifecycle of their IT

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investments, including the full spectrum of IT product acquisition and support services needed to support server environments. Our services include:

	Ÿ	Evaluation and prioritization of business objectives to determine the best course of action for our customers;

	Ÿ	Consultation with customers to identify the right IT products and services for their needs;

	Ÿ	Leveraging our vendor relationships to quickly source the right combination of products;

	Ÿ	Providing logistical support needed to deploy a major technology roll out;

	Ÿ	Offering assistance to reduce the overall operating cost of maintaining current technology through a private label lease program; and

	Ÿ	Providing continuous support to enable a client to improve end-user satisfaction, minimize downtime, and lower the total cost of ownership.

K-12 Specialized Services for Student and Faculty Needs: We integrate top-quality curriculum software and computer products into the classroom. We have significant experience in building local area networks that link many campuses together. We also provide district-wide support and sustain Internet access to educational resources worldwide. We tailor our array of services to make the best use of limited funds.

Manufacturers Support Services Contracts: We offer manufacturer support service contracts that provide our clients with extended technical support, onsite hardware service and access to new software releases at a fixed price. Most of the revenue from this portion of our business comes from selling Sun Microsystems contracts.

Our IT services activities accounted for approximately 13.4%, 18.0%, and 17.5% of our total revenues for fiscal years 2005, 2004 and 2003, respectively.

Ÿ	IT Reseller

IT Reseller: We are an authorized reseller of the products of many leading IT manufacturers, such as 3Com, CISCO, HP, IBM, Intel, Microsoft, NEC, Veritas, Novell, Dell, and Sun. Such products include workstations, servers, networking and communications equipment, enterprise computing products, and application software. Our business depends in large part upon our ongoing access to well established aggregators, in particular GE Access, Ingram Micro, Inc. and Tech Data Corp. as well as directly with Dell Computers to enable us to acquire IT products at competitive prices and on reasonable terms for resale to our customers.

Through our alliances with GE Access, Ingram, Tech Data and Dell Computers, we provide our customers with competitive pricing and value-added services such as electronic product ordering, product configuration, testing, warehousing, and delivery. Our relationships with our aggregators and Dell Computers allow us to minimize inventory risk by ordering products primarily on an as-needed basis. We believe that in most cases our ability to acquire products on a cost-plus basis affords us the opportunity to avail ourselves of prices lower than those that could be obtained independently from manufacturers or other vendors. We utilize electronic ordering and pricing systems that provide real-time status checks on the aggregators’ inventories and maintain electronic data interchange links to other suppliers. Our sales team is

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thereby able to schedule shipments more accurately and to provide electronically-generated client price lists.

We have not entered into any long-term supply contracts with any of our suppliers, as we purchase computers, computer systems, components, and parts on a purchase order basis. Our agreements with GE Access, Ingram, Tech Data and Dell, who collectively supplied approximately 99.8%, 93.5%, and 84.7% of our resale products in the fiscal years 2005, 2004, and 2003, respectively, may be terminated by such companies at any time upon 30 days’ prior written notice.

We receive manufacturer rebates resulting from certain equipment sales. In addition, we receive volume discounts and other incentives from various suppliers. Our accounting policy is to reduce cost of revenues of procurement services for rebates, discounts, and other incentives received from these suppliers. Except for products in transit or products awaiting configuration at our facility, we generally do not maintain large inventory balances. Our primary vendors limit price protection to that provided by the manufacturer (generally less than 30 days) and they restrict product returns, other than defective returns, to a percentage (the percentage varies depending on the vendor and when the return is made) of products purchased. Those returns must occur during a defined period, at the lower of the invoiced price or the current price, subject to the specific manufacturer’s requirements and restrictions.

Our IT reseller activities accounted for approximately for 86.6% 82.0%, and 82.5% of our total revenues for the fiscal years ended March 31, 2005, 2004, and 2003, respectively.

Marketing

Our marketing efforts are focused on:

	Ÿ	Broadening our public image as an IT service provider;

	Ÿ	Promoting our offerings to current customers, prospects, partners, and investors;

	Ÿ	Maintaining a constant flow of marketing communications to increase and maintain our market presence;

	Ÿ	Driving prospects to our web site; and

	Ÿ	Increasing overall inquiries and sales from all sources.

Our marketing division is charged with sales lead generation. Through diverse efforts that include seminars, tradeshows, direct mail, telemarketing, a bi-monthly newsletter, and through our website we create multiple and frequent “touches” of our prospective customers. The primary goal – to increase the number of face to face meeting opportunities between our account team and prospective clients, and to drive additional opportunities through our sales pipeline.

Customers

Our targeted customers are primarily Fortune 2000 companies, state and local governments, local school districts, and other large and mid-sized companies located principally in the New York/New Jersey Metropolitan area and the Southeastern United States. Although we have over 150 customers, our three largest customers, Gwinnett County School System (Georgia), State of New Jersey, and Duval County School System, accounted, respectively, for approximately 24.2%, 15.2% and 10.6% of our revenues for the year ended March 31, 2005. These same three customers accounted, respectively, for approximately

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16.0%, 31.0% and 10.8% of our revenues in fiscal year 2004 and approximately 22.7%, 17.3% and 10.5% of our revenues in fiscal year 2003. The State of New Jersey computer supply and service contract was acquired in the August 12, 2002 asset acquisition from Acentra Technologies. The State of New Jersey contract is subject to annual renewals. In June 2005, the State of New Jersey extended the contract terms through June 2006. An additional seven customers, General Electric, Cingular Wireless, Cox Communications, Bell South, Tiffany & Co., MBNA America, and The Bank of New York, collectively accounted for 30.3% of our revenues for the year ended March 31, 2005. We anticipate that these customer concentrations will continue for the foreseeable future. The loss of any one of these customers may cause results of operations to vary materially from those anticipated.

Intellectual Property

Our business also includes the development of custom software applications in connection with specific client engagements. Ownership of such software is generally assigned to our client.

Competition

The IT services industry is highly competitive. Our competitors include:

	Ÿ	established computer product manufacturers (some of which supply products to us);

	Ÿ	distributors;

	Ÿ	computer resellers;

	Ÿ	systems integrators; and

	Ÿ	other IT service providers.

Many computer product manufacturers also sell to customers through their direct sales organizations and certain of them have announced their intention to enhance such direct sales efforts. Many of our current and potential competitors have longer operating histories and financial, sales, marketing, technical, and other resources substantially greater than we do. As a result, our competitors may be able to adapt more quickly to changes in client needs or to devote greater resources than we can to the sales of IT products and the provision of IT services. Such competitors could also attempt to increase their presence in our markets by forming strategic alliances with our other competitors or with our customers, offering new or improved products and services to our customers or increasing their efforts to gain and retain market share through competitive pricing. Although, we have contracts with the State of New Jersey, Gwinnett County School System, Duval County School System and Tiffany & Co., we have no ongoing written commitments from any customers to purchase products, and all product sales are made on a purchase-order basis.

We are also in direct competition with local, regional, and national distributors of microcomputer products and related services as well as with various IT consulting companies. These competitors run the gamut from new dot com consulting companies to the established consulting arms of nationwide accounting and auditing firms. Several of these competitors offer most of the same basic products as we

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do. We also encounter competition from microcomputer suppliers that sell their products through direct sales forces, rather than through resellers such as ourselves, and from manufacturers and distributors that emphasize mail order and telemarketing sales.

Depending on the customer, the principal areas of competition may include price, pre-sale and post-sale technical support and service, availability of inventory, and breadth of product line. We have an insignificant market share of sales in the microcomputer industry and of the service markets that we serve. Most of our competitors at the regional and national levels are substantially larger, have more personnel, have materially greater financial and marketing resources, and operate within a larger geographic area than we do.

Employees

As of July 5, 2005, we employed 153 individuals, including 29 sales, marketing and related support personnel, 79 service and support employees, 19 operations and administration personnel, and 14 employees in accounting, finance, and human resources. We believe that our ability to recruit and retain highly skilled technical and other management personnel will be critical to our ability to execute our business model and growth strategy. We have 12 employees in our Cabling Department who are covered by a collective bargaining agreement with the International Brotherhood of Electrical Workers (IBEW). We believe that our relations with our employees are good.

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Item 2. Properties

We lease space in seven locations. Our corporate headquarters and principal operational facilities are currently located in Trenton, New Jersey. The following table contains certain information about each of our leased facilities:

Address	Size (in square feet)		Monthly Rent	Expiration Date

572 Whitehead Road, Bldg. #1 Trenton, NJ 08619		16,000	$ 11,600		May 31, 2006

354 North Avenue East Cranford, NJ 07016		1,500	$ 3,000		May 31, 2007

500 Satellite Blvd. Suwanee, GA 30024		21,284	$ 12,416		November 30, 2009

7843 Bayberry Road, Jacksonville, FL 32256		3,340	$ 2,218		February 28, 2006

880 Third Avenue, 12^th floor New York, NY 10022		7,635	$ 24,777		June 30, 2008⁽¹⁾

116 West 23^rd Street Suite 500 New York, NY 10011		N/A	$ 2,730		February 29, 2006

572 Whitehead Road, Bldg. #5 Trenton, NJ 08619		9,582	$ 4,432		November 14, 2003⁽²⁾


⁽¹⁾	We assumed this lease on January 9, 2002 in connection with our acquisition of Devise Associates, Inc. We have sub-leased this office space though June 30, 2008 for an approximate monthly rental payment of $15,700.

⁽²⁾	This space is strictly a warehouse facility, currently on a month to month lease term.

We believe these facilities will satisfy our anticipated needs for the foreseeable future.

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Item 3. Legal Proceedings

In March 2002, Logical Business Solutions, Inc., one of our competitors, instituted an action in the Circuit Court, Fourth Judicial Circuit, in Duval County, Florida, against us and Cheryl Pullen, one of our employees, alleging that we wrongfully interfered with its contractual relationship with one of its customers. The amount of damages was not specified. The litigation is currently in the discovery stage. We believe that the claim is without merit and intend to vigorously defend against the claim.

In addition we are subject to legal proceedings that arise in the ordinary course of business, but we do not believe these claims will have a material impact on our financial position or results of operations.

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Item 4. Submission of Matters to a Vote of Security Holders

Our Annual Meeting of Shareholders (the “Meeting”) was held on March 7, 2005. There were present at the Meeting in person or by proxy shareholders holding an aggregate of 5,938,809 shares of Common Stock of a total number of 7,380,498 shares of Common Stock issued, outstanding and entitled to vote at the Meeting. The results of the vote taken at the Meeting with respect to the election of one director to Class A of the Board of Directors to serve for a three year term and the election of one director to Class B of the Board of Directors to serve for a one year term were as follows:

Nominee	For	Withhold
R. Frank Jerd – Class A	5,925,446	13,363
George F. Raymond – Class B	5,925,446	13,363

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PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is quoted on the OTC Bulletin Board under the symbol “ETEC.” The following table sets forth the high and low closing prices of our common stock for the periods indicated:

Three Months Ended	High		Low


March 31, 2005	$	3.04	$	1.32
December 31, 2004		2.80		.85
September 30, 2004		1.15		.88
June 30, 2004		1.35		.95

March 31, 2004		1.45		.80

December 31, 2003		1.20		.80
September 30, 2003		.96		.37
June 30, 2003		.52		.22

The above quotations represent prices between dealers and do not include retail mark-ups, markdowns or commissions. They do not necessarily represent actual transactions.

On November 7, 2004, we granted stock options to our non-employee directors to purchase an aggregate of 60,000 shares of common stock. The grants of stock options were not registered under the Securities Act of 1933 because such grants either did not involve an offer or sale for purposes of Section 2(a)(3) of the Securities Act of 1933, in reliance on the fact that the stock options were granted for no consideration, or were offered and sold in transactions not involving a public offering, exempt from registration under the Securities Act of 1933 pursuant to Section 4(2).

As of July 10, 2005, there were 631 record holders of our common stock, although we believe that beneficial holders approximate 850.

We have never declared any dividends on our common stock and we have no intention to do so in the foreseeable future.

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Item 6. Selected Financial Data

The following selected consolidated financial data below should be read in conjunction with our consolidated financial statements including the accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, both elsewhere in this Report. The data as of March 31, 2005 and 2004 and for each of the three years ended March 31, 2005 have been derived from, and should be read in conjunction with, our audited consolidated financial statements and accompanying notes, which are contained elsewhere in this Report. The data as of March 31, 2003, 2002, and 2001 and for each of the two years ended March 31, 2002 have been derived from our audited financial statements, which are not contained in this Report.

	YEAR ENDED MARCH 31,
		2005	2004	2003	2002	2001

Net revenues		$112,699,998	$100,171,308	$92,084,126	$62,468,218	$88,279,232

Income (loss) from continuing operations		$2,613,530	$620,105	($ 265,989)	$166,691	($1,261,910)
Net Income (loss)		$2,869,860	$642,988	($ 211,471)	$216,972	($1,321,474)
Income (loss) per common share from continuing operations (basic)		$0.35	$0.08	($0.04)	$0.02	($0.22)
Income (loss) per common share from continuing operations (diluted)		$0.34	$0.08	($0.04)	$0.02	($0.22)
Net Income (loss) per common share (basic)		$0.39	$0.09	($0.03)	$0.03	($0.23)
Net Income (loss) per common share (diluted)		$0.37	$0.09	($0.03)	$0.03	($0.23)
	AT MARCH 31,
		2005	2004	2003	2002	2001

Total assets		$30,204,457	$18,908,612	$22,334,584	$11,388,473	$18,699,032

Emtec had no long-term debt obligations or outstanding preferred stock during the five years ended March 31, 2005. In addition, no dividends were paid to common stockholders during the same period.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Reference is made to the “Risk Factors” below for a discussion of important factors that could cause actual results to differ from expectations and any of our forward-looking statements contained herein. In addition, the following discussion should be read in conjunction with our audited consolidated financial statements as of March 31, 2005 and 2004 and for the fiscal years ended March 31, 2005, and 2004 and 2003.

Critical Accounting Policies

Emtec’s financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. The methods, estimates, and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. The Securities and Exchange Commission has defined critical accounting policies as policies that involve critical accounting estimates that require (i) management to make assumptions that are highly uncertain at the time the estimate is made, and (ii) different estimates that could have been reasonably used for the current period, or changes in the estimates that are reasonably likely to occur from period to period, which would have a material impact on the presentation of our financial condition, changes in financial condition or in result of operations. Based on this definition, our most critical policies include: revenue recognition, allowance for doubtful accounts, inventory valuation reserve, the assessment of recoverability of long-lived assets, the assessment of recoverability of goodwill and intangible assets, and valuation of deferred tax assets.

Revenue Recognition

We recognize revenues when the earning process is complete, evidenced by an agreement between us and the customer, there has been delivery and acceptance, collectibility is probable, and pricing is fixed and determinable. Procurement services revenue represents sales of computer hardware and pre-packaged software. These arrangements often include software installations, configurations, and imaging, along with delivery and set-up of hardware. We follow the criteria contained in EITF 00-21 and SAB 104 in recognizing revenue associated with these transactions. We perform all software installations, configurations and imaging services at our locations prior to the delivery of the product. Some customer arrangements include “set-up” services performed at customer locations where our personnel perform the routine tasks of removing the equipment from boxes, and setting up the equipment at customer workstations by plugging in all necessary connections, etc. This service is usually done on the same day as delivery. Revenue is recognized at date of delivery, except as follows:

	Ÿ	In some instances, the “set-up” service is performed after date of delivery. We recognize revenue for the “hardware” component at date of delivery when the amount of revenue allocable to this component is not contingent upon the completion of “set-up” services and therefore, our customer has agreed that the transaction is complete as to the “hardware” component. In instances where our customer does not accept delivery until “set-up” services are completed, we defer all revenue in the transaction until customer acceptance occurs.

	Ÿ	There are occasions when a customer requests a transaction on a “bill & hold” basis. We follow the SAB 104 criteria and recognize revenue prior to date of physical delivery only when all the criteria are met as follows:

Risks of ownership have passed to our customer

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			Ÿ	The customer has made a fixed commitment, in writing.

			Ÿ	A fixed delivery schedule is established

			Ÿ	We have not retained any specific performance obligations.

			Ÿ	We segregate the customer’s ordered goods from our general inventory and the order is complete and ready for shipment.

We do not modify our normal billing and credit terms for such customers. Our customer is invoiced at the date of revenue recognition when all of the above criteria have been met.

We have experienced minimal customer returns. Since all eligible products must be returned to us within 30 days from the date of the invoice, we reduce the procurement services revenue and cost of procurement services in each accounting period based on the actual returns that occurred in the next 30 days after the close of the accounting period.

Service and consulting contracts include time billings based upon billable hours charged to the customers, fixed price short-term projects, hardware maintenance contracts, and manufacturer support service contracts. These contracts generally are task specific and do not involve multiple deliverables. Revenues from time billings are recognized as services are delivered. Revenues from short-term fixed price projects are recognized using the percentage of completion method, whenever reliable estimates of progress toward completion are available. Revenues from hardware maintenance contracts are recognized ratably over the contract period. Net revenues from manufacturer support service contracts where the manufacturer is responsible for fulfilling the service requirements of the customer are recognized immediately on their contract sale date. Manufacturer support service contracts contain cancellation privileges that allow our customers’ to terminate a contract with 90 days written notice. In this event, the customer is entitled to a pro-rated refund based on the remaining term of the contract and we would owe the manufacturer a pro-rated refund of the cost of the contract. However, we have experienced no customer cancellations of any significance during our most recent 3-year history and do not expect cancellations of any significance in the future.

Trade Receivables

We maintain allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We base our estimates on the aging of our accounts receivable balances and our historical write-off experience, net of recoveries. If the financial condition of our customers were to deteriorate, additional allowances may be required. We believe the accounting estimate related to the allowance for doubtful accounts is a “critical accounting estimate” because changes in it can significantly affect net income. Allowance for doubtful accounts was $588,415 and $363,402 as of March 31, 2005, and 2004, respectively.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market. Cost is based on standard costs generated principally by the most recent purchase prices. We provide an inventory reserve for obsolescence and deterioration based on management’s review of the current status of the excess inventory, its age, and net realizable value based upon assumptions about future demand and market condition. At March 31, 2005, and 2004, inventory reserve was $433,667 and $722,551, respectively. We disposed of $427,520 of old and obsolete inventory during this year which was charged against the inventory reserve.

- 14 -

Property and Equipment

We estimate the useful lives of property and equipment in order to determine the amount of depreciation and amortization expense to be recorded during any reporting period. The majority of our equipment is depreciated over three years. The estimated useful lives are based on the historical experience with similar assets as well as taking into account anticipated technological or other changes. If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets may need to be accelerated, resulting in the recognition of increased depreciation and amortization expense in future periods. We evaluate the recoverability of our long-lived assets (other than intangibles and deferred tax assets) in accordance with Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,”(SFAS No. 144). Long-lived assets are reviewed for impairment under SFAS No. 144 whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 144 requires recognition of impairment of long-lived assets in the event that the net book value of such assets exceeds the future undiscounted net cash flows attributable to such assets. Impairment, if any, is recognized in the period of identification to the extent the carrying amount of an asset exceeds the fair value of such asset. Property and equipment along with their components are as follows:

	Original Cost						Estimated Life

	March 2005			March 2004			(Years)

Computer equipment	$	3,831,311		$	3,643,052			3
Furniture and fixtures		357,845			357,845			5
Leasehold improvements		267,307			244,847			5
Vehicles		80,984			80,984			2

Total Property and Equipment	$	4,537,447		$	4,326,728
Less: accumulated depreciation and amortization		(4,200,279	)		(3,939,655	)

Net book value	$	337,168		$	387,073

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We invested $687,000 for the purchase of computer hardware, software and consulting services for our Network Operations Center to enhance our offerings in Managed Services during fiscal year ended March 31, 2003. We originally intended to depreciate these assets over 36 months based on the original projections of the future undiscounted net cash flows. We performed an impairment test of these assets as of December 31, 2003, and March 31, 2004. We compared our original projections of the future undiscounted cash flows with actual performance, and reviewed our current sales pipeline. Based on these impairment tests, we recorded impairment charges of $223,858, and $239,057 for December 31, 2003 and March 31, 2004, respectively. Total impairment charges of $462,915 were classified as general and administrative expense during the twelve months ended March 31, 2004. The net book value of these assets after the impairment charge was $0.

Intangible Assets

We have adopted Statement of Financial Accounting Standards No. 141 “Business Combinations” and No. 142 “Goodwill and Other Intangible Assets”. As a result, amortization of goodwill was discontinued. Based on the impairment tests performed during the fiscal year ended March 31, 2005 , we found no impairment of the remaining goodwill. The next annual impairment test shall be performed during the fourth quarter of the fiscal year 2006.

We were assigned a contract to supply computer hardware and services to the State of New Jersey in the August 12, 2002 acquisition of Acentra Technologies, Inc. This contract was valued at $100,000 in the acquisition. Amortization expense of $9,091 and $54,545 was expensed in fiscal years ended March 31, 2005 and 2004, based upon then contract term scheduled to end in May 2004. The contract is subject to annual renewals. In May of 2004, the State of New Jersey extended the contract term through December 2004. Currently, the contract is extended through June 30, 2006. The net carrying value for this contract amounted to $ 0 and $ 9,091 at March 31, 2005 and 2004, respectively.

Income Taxes

Income taxes are accounted for under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In estimating future tax consequences, we generally consider all expected future events other than the enactment of changes in tax laws or rates. A valuation allowance is recognized if, on weight of available evidence, it is more likely than not that some portion or all the deferred tax assets will not be realized. Income tax expense, as a percentage of income before taxes, increased to 27.5% for the year ended March 31, 2005 as compared to 16.4% for the year ended March 31, 2004. This increase is a result of the utilization of approximately $850,000 of federal tax loss carryovers during the year ended March 31, 2004. The Company had previously recorded significant valuation allowances for deferred tax assets, which effectively reduced the income tax expense percentage during the year ended March 31, 2004. The income tax expense of 27.5% of pre-tax income for 2005 was below the expected tax expense at U.S. statutory income tax rates due to a 2005 change in the valuation allowance estimate to reduce the beginning valuation allowance of $435,271 to zero. The change in estimate was a result of our fiscal 2005 operating results that caused us to believe that it is more likely than not that we will realize our deferred tax assets in future periods.

Results of Operations

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our Results of Operations for the fiscal years ended March 31, 2005, and 2004.

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CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended March 31,

	2005			2004			Change			%

Revenues

Procurement services	$	97,605,588		$	82,184,744		$	15,420,844			18.8	%
Service and consulting		15,094,410			17,986,564		$	(2,892,154	)		-16.1	%

Total Revenues		112,699,998			100,171,308		$	12,528,690			12.5	%


Cost of Revenues
Procurement services		85,879,341			74,282,388		$	11,596,953			15.6	%
Service and consulting		10,467,370			11,497,465		$	(1,030,095	)		-9.0	%

Total Cost of Revenues		96,346,711			85,779,853		$	10,566,858			12.3	%

Percent of revenues		85.5	%		85.6	%

Gross Profit
Procurement services		11,726,247			7,902,356		$	3,823,891			48.4	%
Service and consulting		4,627,040			6,489,099		$	(1,862,059	)		-28.7	%

Total Gross Profit		16,353,287			14,391,455		$	1,961,832			13.6	%

Percent of revenue		14.5	%		14.4	%

Operating Expenses
Sales, General & Administrative Expenses		12,532,580			13,321,726		$	(789,146	)		-5.9	%
Interest Expense		217,860			328,296		$	(110,436	)		-33.6	%
Loss on impairment, Goodwill		—			—		$	—			N/M

Total Operating Expenses		12,750,440			13,650,022		$	(899,582	)		-6.6	%

Percent of revenue		11.3	%		13.6	%

Income(Loss) From Continuing Operations Before Income Taxes		3,602,847			741,433		$	2,861,414			385.9	%
Income Tax Expense (Benefit)		989,317			121,328		$	867,989			715.4	%


Income(Loss) From Continuing Operations		2,613,530			620,105		$	1,993,425			321.5	%

Income From Discontinued Geothermal Operations, net of tax		48,052			22,883		$	25,169			110.0	%
Gain on the Sale of the Geothermal Investment, net of tax		208,278			—		$	208,278			N/M


Net Income (Loss)	$	2,869,860		$	642,988		$	2,226,872			346.3	%


Net Income (Loss) Per Share - Basic	$	0.39		$	0.09

Net Income (Loss) Per Share - Diluted	$	0.37		$	0.09


N/M = not meaningful

- 17 -

Comparison of Years Ended March 31, 2005 and 2004

Total Revenues

Total revenues, which include services and consulting revenues, and procurement revenues, increased by 12.5% or $12.53 million, to $112.70 million for the year ended March 31, 2005, compared to $100.17 million for the year ended March 31, 2004. This increase is primarily attributable to computer roll-out projects for various school districts in Georgia, and Florida as well as recent sales growth in our commercial customer base. Total revenues associated with our commercial customers and revenue associated with computer roll-out projects increased by approximately $27.00 million as compared with the prior year, this increase was off-set partially by approximately $14.60 million decrease in computer roll-out projects for the various state agencies in the State of New Jersey.

Procurement revenues increased by 18.8%, or $15.42 million, to $97.61 million for the year ended March 31, 2005. This change is primarily attributable to reasons discussed above.

Services and consulting revenue decreased by 16.1%, or $2.89 million, to $15.09 million for the year ended March 31, 2005 compared to $17.99 million for the year ended March 31, 2004. This decrease in services and consulting revenue is mainly due to overall decrease in our installation services associated with computer roll-out projects for the various state agencies in the State of New Jersey, and decrease in our manufacturers’ support service contract revenue. The decrease in manufacturers’ support service contract is mainly due to the non-renewal of an annual maintenance contract by one of our major commercial customers.

During the first quarter of our fiscal year ending March 31, 2006, our contract with the State of New Jersey was extended through June 30, 2006, and we expect our revenues from commercial customer base will continue to grow, and to continue to roll-out computers to school districts in GA and FL.

Our three largest customers, Gwinnett County School System (Georgia), State of New Jersey, and Duval County School System, accounted, respectively, for approximately 24.2%, 15.2% and 10.6% of our revenues for the year ended March 31, 2005. These same three customers accounted, respectively, for approximately 16.0%, 31.0% and 10.8% of our revenues in fiscal year 2004 and approximately 22.7%, 17.3% and 10.5% of our revenues in fiscal year 2003. We anticipate that these customer concentrations will continue for the foreseeable future. The loss of any one of these customers may cause results of operations to vary materially from those anticipated.

Gross Profit

Aggregate gross profit increased by 13.6%, or $1.96 million, to $16.35 million for the year ended March 31, 2005. This increase is mainly attributable to computer roll-out projects for various school districts in Georgia and Florida, and sales growth in our commercial customer base. Measured as a percentage of total revenues, our overall gross profit margin increased to 14.5% of total revenues for the year ended March 31, 2005 from 14.4% for the year ended March 31, 2004.

Gross profit for product sales increased by 48.4%, or $3.82 million, to $11.73 million for the year ended March 31, 2005 as compared with $7.90 million for the year ended March 31, 2004. This increase is primarily attributable to computer roll-out projects for various school districts in Georgia, and Florida as well as recent sales growth in our commercial customer base as discussed in the revenue section above. Measured as a percentage of procurement revenues, our gross profit margin increased to 12.0% of procurement revenue for the year ended March 31, 2005 from 9.6% for the year ended March 31, 2004. This percentage increase is primarily attributable to greater selling efforts and favorable price drops and

- 18 -

other incentives offered by manufacturers. We can not predict that price drops like these are going to repeat in the future.

Gross profit for service and consulting revenue decreased by 28.7%, or $1.86 million, to $4.63 million for the year ended March 31, 2005 as compared with $6.49 million for the year ended March 31, 2004. This decrease is mainly due to an over-all decrease in IT spending particularly with various state agencies in the State of New Jersey, a non-renewal of manufacturers’ support service contract sold to one customer in the prior year as discussed in the revenue section and our inability to attract new major customers. Measured as a percentage of service and consulting revenue, our gross margin attributable to service and consulting revenue decreased to 30.7% of service and consulting revenue for the year ended March 31, 2005 from 36.1% for the year ended March 31, 2004. Even though our billing rates (total revenue generated divided by total billable hours available during the period) and utilization rates (billable hours divided by paid hours) of engineers were higher during this year, this decrease was mainly due to the non-renewal of a manufacturers’ support service contract sold to one customer in the prior year as discussed in the revenue section.

We must continue to manage billing rates and utilization rates effectively to remain competitive.

Sales, General, and Administrative Expenses

Sales, general and administrative expenses decreased by 5.9%, or $789,146, to $12.53 million for the year ended March 31, 2005. This decrease includes a one-time charge of $470,000 associated with the sub-lease of our New York office located at 880 3^rd Avenue. This charge is a present value of the difference between obligations to the landlord minus the expected future rental income to be received from the sub-tenant through June 30, 2008. Without this one time charge of $470,000, our sales, general and administrative expenses would have decreased by 9.5%, or $1.26 million, to $12.06 million for the year ended March 31, 2005 as compared with $13.32 million for the year ended March 31, 2004. This decrease is primarily attributable to our continuous focus on cost containment measures and the following:

	Ÿ	Elimination of non-productive sales staff;

	Ÿ	Eliminated duplication of non-essential administrative support services.

	Ÿ	Consolidation of our operations, administrative and inventory warehousing functions from Mt. Laurel, NJ and Cranford, NJ to Trenton, NJ.

	Ÿ	Lower bonus accrual charged to sales expense due to lower earning share in connection with the earning share agreements with prior three owners of Acentra Technologies, Inc. and Turnkey Computer Systems, Inc. These earning share agreements expired on August 31, 2004.

	Ÿ	Lower depreciation expense in the current fiscal year due to write-down of NOC and Help Desk assets during fiscal 2004.

We estimate our cash flow will be improved by approximately $165,000 annually, and our net rent expense will be reduced by approximately $300,000 annually attributable to the sub-lease of our former NYC office.

In spite of our vigorous cost containment efforts, various factors, such as retention of employees, costs associated with marketing and selling activities, compliance costs associated with new Securities and

- 19 -

Exchange Commission rules, and insurance markets may increase our sales, general and administrative expenses and this could have a negative impact on fiscal year 2006.

Interest expense

Interest expense decreased by 33.6%, or $110,436, to $217,860 for the year ended March 31, 2005 as compared with $328,296 for the year ended March 31, 2004. This decrease is primarily attributable to a lower balance on our line of credit, lower days sales outstanding, and lower interest charged by the lender during the year than prior year.

Income Taxes

Income tax expense, as a percentage of income before income taxes, increased for the year ended March 31, 2005 to 27.5% or $989,317, as compared to 16.4% or $121,328 for the year ended March 31, 2004. This increase is primarily a result the $3.09 million increase in income before income taxes for the year ended March 31, 2005 compared to the year ended March 31, 2004 and the utilization of federal tax loss carryovers during the year ended March 31, 2004. We had previously recorded significant valuation allowances for deferred tax assets, which effectively reduced the income tax expense percentage during both years below the expected income tax expense at U.S. statutory rates.

Net Income

For the year ended March 31, 2005, net income was $2.87 million compared to net income of $642,988 for the comparable period in 2004, an increase of 346.3%.

As discussed, the increase in net income is mainly attributable to computer roll-out projects for various school districts in Georgia and Florida, and revenue growth in our commercial customer base as well as continuous cost containment efforts undertaken by us. The reported income from continuing operations before income taxes for the year ended March 31, 2005 includes a one-time charge of $470,000 associated with the sub-lease of our New York office. Without this one-time charge, our income from continuing operations before income taxes for the year ended March 31, 2005 would have been approximately $4.07 million, compared to a income from continuing operations before taxes of $741,433 for the year ended March 31, 2004, an increase of 449.3%.

Comparison of Years Ended March 31, 2004 and 2003

- 20 -

EMTEC, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended March 31,


	2004			2003			Change			%

Revenues

Procurement services	$	82,184,744		$	75,943,230		$	6,241,514		8.2	%
Service and consulting		17,986,564			16,140,896		$	1,845,668		11.4	%

Total Revenues		100,171,308			92,084,126		$	8,087,182		8.8	%


Cost of Revenues
Procurement services		74,282,388			67,525,430		$	6,756,958		10.0	%
Service and consulting		11,497,465			11,915,844		$	(418,379	)	-3.5	%

Total Cost of Revenues		85,779,853			79,441,274		$	6,338,579		8.0	%

Percent of revenues		85.6	%		86.3	%

Gross Profit
Procurement services		7,902,356			8,417,800		$	(515,444	)	-6.1	%
Service and consulting		6,489,099			4,225,052		$	2,264,047		53.6	%

Total Gross Profit		14,391,455			12,642,852		$	1,748,603		13.8	%

Percent of revenue		14.4	%		13.7	%

Operating Expenses
Sales, General & Administrative Expenses		13,321,726			12,533,905		$	787,821		6.3	%
Interest Expense		328,296			160,803		$	167,493		104.2	%
Loss on impairment, Goodwill		—			254,894		$	(254,894	)	N/M

Total Operating Expenses		13,650,022			12,949,602		$	700,420		5.4	%

Percent of revenue		13.6	%		14.1	%

Income(Loss) From Continuing Operations Before Income Taxes		741,433			(306,750	)	$	1,048,183		341.7	%
Income Tax Expense (Benefit)		121,328			(40,761	)	$	162,089		397.7	%


Income(Loss) From Continuing Operations		620,105			(265,989	)	$	886,094		333.1	%

Income From Discontinued Geothermal Operations, net of tax		22,883			54,518		$	(31,635	)	-58.0	%
Gain on the Sale of the Geothermal Investment, net of tax		—			—		$	—		0.0	%


Net Income (Loss)	$	642,988		$	(211,471	)	$	854,459		404.1	%


Net Income (Loss) Per Share - Basic	$	0.09		$	(0.03	)

Net Income (Loss) Per Share - Diluted	$	0.09		$	(0.03	)


N/M = not meaningful

- 21 -

Total Revenues

Total revenues, which include services and consulting revenues, and procurement revenues, increased by 8.8% or $8.09 million, to $100.17 million for the year ended March 31, 2004, compared to $92.08 million for the year ended March 31, 2003. This increase is primarily attributable to our acquisition of Acentra Technologies, Inc. and Turnkey Computer Systems, Inc. in August 2002. IT revenues associated with these acquisitions increased by $12.93 million because in the fiscal year ended March 31, 2004, we recognized a full twelve months of revenue versus eight months in the fiscal year ended March 31, 2003. Without these acquisitions, revenues associated with our IT business would have decreased by 5.26% or $4.84 million for the year ended March 31, 2004. This decrease is mainly due to an over-all decrease in our customers’ IT spending, a slow-down in the economy and our inability to attract new major customers.

Services and consulting revenue increased by 11.4%, or $1.84 million, to $17.99 million for the year ended March 31, 2004 compared to $16.14 million for the year ended March 31, 2003. This increase is also attributable to our acquisition of Acentra Technologies Inc. and Turnkey Computer Systems, Inc. Services and consulting revenues associated with these acquisitions increased by $2.65 million due to the same reasons discussed in the above paragraph. Without these acquisitions, services and consulting revenue would have decreased by 5.0% or $806,060, to $15.33 million for the year ended March 31, 2004. This decrease is mainly due to an overall decrease in the economy and our inability to attract new major customers.

Procurement revenues increased by 8.2%, or $6.24 million, to $82.18 million for the year ended March 31, 2004. This increase is also attributable to the acquisitions discussed in the above paragraph. Without these acquisitions, procurement revenue would have decreased by 5.3%, or $4.04 million, for the year ended March 31, 2004. This decrease is mainly due to reasons mentioned above regarding total IT revenues.

Gross Profit

Aggregate gross profit increased by 13.8%, or $1.75 million, to $14.39 million for the year ended March 31, 2004. This increase is mainly attributable to a 11.4% increase in our services and consulting revenues, and a 3.5% decrease in our cost of revenues for services and consulting. Measured as a percentage of total revenues, our overall gross profit margin increased to 14.4% of total revenues for the year ended March 31, 2004 from 13.7% for the year ended March 31, 2003. This increase is also mainly attributable to increase in our services and consulting revenues.

Gross profit for product sales decreased by 6.1%, or $515,444, to $7.90 million for the year ended March 31, 2004 as compared with $8.42 million for the year ended March 31, 2003. Measured as a percentage of procurement revenues, our gross profit margin decreased to 9.6% of procurement revenue for the year ended March 31, 2004 from 11.1% for the year ended March 31, 2003. This decrease is mainly due to continued downward pricing pressure on product sales from our customers.

Gross profit for service and consulting increased by 53.6%, or $2.26 million, to $6.49 million for the year ended March 31, 2004 as compared with $4.22 million for the year ended March 31, 2003. Measured as a percentage of service and consulting revenue, our gross margin attributable to service and consulting revenue increased to 36.1% of service and consulting revenue for the year ended March 31, 2004 from 26.2% for the year ended March 31, 2003. This increase in services and consulting gross profit and margin was mainly attributable to installation services associated with computer roll-out projects for the various state agencies in the State of New Jersey, and school districts in Georgia and Florida as well as

- 22 -

our ability to manage our billing rates (total revenue generated divided by total billable hours available during the period) and utilization rates (billable hours divided by paid hours) of engineers more effectively.

We must continue to manage billing rates and utilization rates effectively to remain competitive.

Sales, General, and Administrative Expenses

Sales, general and administrative expenses increased by 6.3%, or $787,821, to $13.32 million for the year ended March 31, 2004. This increase is mainly due to our acquisition of Acentra Technologies, Inc. and Turnkey Computer Systems, Inc., and an impairment charge of $462,915 associated with our investment in Network Operation Center. Sales, general and administrative expenses associated with these acquisitions increased by $1.46 million because in the fiscal year ended March 31, 2004, we recorded a full twelve months of expenses versus eight months in the fiscal year ended March 31, 2003. Without these acquisitions and impairment charge, our sales, general and administrative expenses would have decreased by approximately 8.9%, or $1.12 million, for the year ended March 31, 2004. This decrease is mainly attributable to the following:

	Ÿ	Elimination of non-productive sales staff;

	Ÿ	Reduction in sales commission compensation plans; and

	Ÿ	Eliminated duplication of non-essential administrative support services.

Interest expense

Interest expense increased by 104.2%, or $167,493, to $328,296 for the year ended March 31, 2004 as compared with $160,803 for the year ended March 31, 2003. This increase is mainly due to increased borrowings activities, higher day’s sales outstanding as well as higher interest rate charged by our lender starting October 2003.

Income Taxes

Income tax expense for the year ended March 31, 2004 was $121,328, as compared with benefit of $40,761 for the year ended March 31, 2003. For the year ended March 31, 2004, we recognized a deferred income tax benefit of $176,047 which was netted against the income tax expense of $297,375.

Net Income

Net income increased by 404.1%, or $854,459, to $642,988 or $0.09 per share for the year ended March 31, 2004 as compared with net loss of $(211,471) or $(0.03) per share for the year ended March 31, 2003.

As discussed, the increase in net income is mainly attributable to increased installation services associated with computer roll-out projects for the various state agencies in the State of New Jersey, and school districts in Georgia and Florida as well as our ability to manage utilization rates of engineers more effectively.

Recently Issued Accounting Standards

In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151, “Inventory Costs, and an Amendment of ARB No. 43, Chapter 4.” SFAS No. 151 retains the general

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principle of ARB No. 43, Chapter 4, “Inventory Pricing,” that inventories are presumed to be stated at cost; however, it amends ARB No. 43 to clarify that abnormal amounts of idle facilities, freight, handling costs and spoilage should be recognized as current period expenses. Also, SFAS No. 151 requires fixed overhead costs be allocated to inventories based on normal production capacity. The guidance in SAFS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We believe that implementing SFAS No. 151 should not have any material impact on its financial condition, results of operations or cash flows.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values, beginning with the next fiscal year that begins after June 15, 2005. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. Under SFAS 123R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption.

SFAS No. 123R will apply to awards granted or modified by us after April 1, 2006. Compensation cost will also be recorded for prior option grants that vest after that date. The effect of adopting SFAS 123 on our consolidated results of operations will depend on the level of future option grants and the fair value of the options granted at such future dates, as well as the vesting periods provided by such awards and, therefore, cannot currently be estimated. We are evaluating the requirements of SFAS 123R and have not yet determined the method of adoption or the effect of adopting SFAS 123R, and we have not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123.

Liquidity and Capital Resources

Cash and cash equivalents at March 31, 2005 of $2,357,972 represented an increase of $2,353,180 from $4,792 at March 31, 2004. We are a net borrower; consequently, we believe our cash and cash equivalents balance must be viewed along with the available balance on our line of credit. At March 31, 2005, our working capital was increased to $4.45 million from $2.08 as of March 31, 2004. This increase in working capital was primarily attributable to net earnings for the year ended March 31, 2005.

Since our inception, we have funded our operations primarily from borrowings under our credit facility. On December 10, 2004, we entered into an amendment to the Loan and Security Agreement with Bank of America Business Capital Corporation (successor by merger to Fleet Capital Corporation) (“BOA”) extending our credit facility through November 21, 2006. This amendment increased our credit facility from $10 million to $12 million. We can borrow up to a lesser of $12 million minus the outstanding letter of credit obligations or 85% of eligible accounts receivable minus the outstanding letter of credit obligations. Interest on outstanding loans under our revolving credit facility with BOA is charged monthly at a fluctuating rate per annum equal to 0.25% above the Prime Rate and, at our option, interest on the outstanding loans may be charged at LIBOR plus 2.75%. The BOA revolving credit facility is collateralized by a lien upon and security interest in substantially all of our assets. Since current credit facilities with two of our primary trade vendors (GE Access and Ingram Micro.) were also collateralized by substantially all of our assets, BOA, GE Access and Ingram Micro have entered into intercreditor agreements, which provide that as regards to these vendors, debt obligations to BOA are accorded priority.

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Effective February 11, 2005, Wells Fargo Business Credit, Inc. (“Wells Fargo”) acquired our loan from BOA. All terms and conditions remain unchanged.

As of March 31, 2005, we were in compliance with all of our financial covenants and we had a $4.65 million outstanding balance under the credit facility and an unused availability of $6.35 million and we had $1 million in outstanding letter of credit obligations.

At March 31, 2005, our credit facilities with our primary trade vendors, GE Access, Ingram Micro, and Tech Data were as follows:

	Ÿ	Our credit line with GE Access was $7.5 million, with an outstanding principal balance of $7.3 million.

	Ÿ	Our credit line with Ingram Micro was $5.5 million, with an outstanding principal balance of $4.7 million.

	Ÿ	Our credit line with Tech Data was $1.5 million, with an outstanding balance of $363,000.

Under these credit lines, we are obligated to pay each invoice within 30 days from the date of such invoice.

Capital expenditures of $215,168 during the year ended March 31, 2005 were primarily for the purchase of computer equipment for internal use, and furniture and fixtures. We anticipate our capital expenditures for fiscal year ending March 31, 2006 will be approximately $400,000.

Emtec has no arrangements or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of or requirements for capital resources.

We believe that funds generated from operations and bank borrowings should be sufficient to meet our current operating cash requirements through the next twelve months, although there can be no assurance that all of the aforementioned sources of cash can be realized.

The following are our contractual obligations associated with lease commitments. We lease warehouse and office facilities, vehicles and certain office equipment under noncancellable operating leases. Future minimum lease payments under such leases are as follows:

Fiscal Years

	2006	$	675,200
	2007		484,193
	2008		447,277
	2009		173,533
	Thereafter		2,451


	Total	$	1,782,654

We have no other long-term commitments.

Risk Factors

We cannot assure you that we can successfully increase the portion of our revenues derived from IT services. If we are unsuccessful our future results may be adversely affected.

Our transition from an emphasis on reselling IT products to an emphasis on providing IT services has placed significant demands on our managerial, administrative, and operational resources. Our ability to

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manage this transition effectively is dependent upon our ability to develop and improve operational, financial, and other internal systems, as well as our business development capabilities, and to attract, train, retain, motivate, and manage our employees. If we are unable to do so, our ability to effectively deliver and support our services may be adversely affected. Further, our transitional efforts to access higher-margin services and consulting revenues have resulted in reduced IT product sales. If we successfully expand our IT services offerings, periods of variability in utilization may continue to occur. In addition, we are likely to incur greater technical training costs during such periods. Historically, our IT reseller activities accounted for 86.6%, or $97.61 million, of our total revenue of $112.70 million for the fiscal year ended March 31, 2005, 82.0%, or $82.18 million, of our total revenue of $100.17 million for the fiscal year ended March 31, 2004, and 82.5%, or $75.94 million, of our total revenue of $92.08 million for the fiscal year ended March 31, 2003. In contrast, our IT services activities accounted for approximately 13.4%, or $15.09 million, 18.0%, or $17.99 million, and 17.5%, or $16.14 million, of our total revenue for the fiscal years ended March 31, 2005, 2004 and 2003, respectively

Our new services have not achieved widespread client acceptance. If they do not achieve market acceptance, our profit potential may be adversely affected.

While we have offered IT services to our customers since 1983, our major emphasis on IT consulting and services began in 1995 and we started focusing on our new managed services and network security during fiscal year 2002.

We have limited experience in developing, marketing, or providing these services. We cannot assure you that we will be able to successfully market such services to either new or existing customers, that our services will achieve market acceptance, or that we will be able to effectively hire, integrate, and manage additional technical personnel to enable us to perform these services to our customers’ expectations.

Our inability to maintain high personnel utilization rates may adversely impact our profit potentiality.

The most significant cost relating to the services component of our business is personnel expense, which consists of salaries, benefits, and payroll related expenses. Thus, the financial performance of our service business is based primarily upon billing margins (billable hourly rates less the costs to us of service personnel on an hourly basis) and utilization rates (billable hours divided by paid hours). The future success of the services component of our business will depend in large part upon our ability to maintain high utilization rates at profitable billing margins. The competition for quality technical personnel has continued to intensify, resulting in increased personnel costs. This intense competition has caused our billing margins to be lower than they might otherwise have been. Our utilization rates for service personnel likely will also be adversely affected during periods of rapid and concentrated hiring.

Our revenues and expenses are unpredictable. A decrease in revenues or increase in expenses could materially adversely affect our operating results.

Our operating results have been, and will continue to be, impacted by changes in technical personnel billing and utilization rates. Moreover, we expect that downward pricing pressure will persist due to the continued commoditization of computer products.

Our operating results have been, and will continue to be, impacted by changes in technical personnel billing and utilization rates. Further, there are numerous other factors, which are not within our control that can contribute to fluctuations in our operating results, including the following:

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Ÿ patterns of capital spending by customers;

Ÿ the timing, size, and mix of product and service orders and deliveries;

Ÿ the timing and size of new projects, including projects for new customers; and

Ÿ changes in trends affecting outsourcing of IT services;

We also believe that, to a limited degree, our business is seasonal with a greater proportion of our product sales occurring in the second and third quarter of our fiscal year due to the capital budgeting and spending patterns of some of our larger customers. Operating results have been, and may in the future also be, affected by the cost, timing, and other effects of acquisitions, including the mix of product and service revenues of acquired companies.

Since our inception, we have funded our operations primarily from borrowings under our credit facility.

Our lending agreement with Wells Fargo contains financial covenants that require us to maintain a maximum leverage ratio, and a minimum debt ratio on a quarterly basis. As of March 31, 2005 we were in compliance with all our financial covenants and we had a $4.65 million outstanding balance under the credit facility and an unused line of $6.35 million. However, there can be no assurance that we will be in compliance will all of our financial covenants through November 2006 and Wells Fargo will not immediately call for repayment of the outstanding borrowings under the credit facility.

We do not have long-term commitments from any of our customers and our product sales are on a purchase order basis. Our revenues are concentrated and a loss of any one of our two top customers could materially affect our operations and business.

In general, there are no ongoing written commitments by customers to purchase products from us. All product sales we make are on a purchase order basis. Moreover, our client base is highly concentrated, with our three largest customers, Gwinnett County School System (Georgia), State of New Jersey, and Duval County School System, accounted, respectively, for approximately 24.2%, 15.2% and 10.6% of our revenues for the year ended March 31, 2005. These same three customers accounted, respectively, for approximately 16.0%, 31.0% and 10.8% of our revenues in fiscal year 2004 and approximately 22.7%, 17.3% and 10.5% of our revenues in fiscal year 2003. The State of New Jersey computer supply and service contract was acquired in the August 12, 2002 asset acquisition from Acentra Technologies. The State of New Jersey contract is subject to annual renewals. In June 2005, the State of New Jersey extended the contract terms through June 2006. An additional seven customers, General Electric, Cingular Wireless, Cox Communications, Bell South, Tiffany & Co., MBNA America, and The Bank of New York, collectively accounted for 30.3% of our revenues for the year ended March 31, 2005. We anticipate that these customer concentrations will continue for the foreseeable future. The loss of any one of these customers may cause results of operations to vary materially from those anticipated.

We may not be able to compete effectively in the highly competitive IT services industry.

The IT services business is highly competitive. Our competitors include:

	Ÿ	established computer product manufacturers, some of which supply products to us;

	Ÿ	distributors;

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Ÿ computer resellers;

Ÿ systems integrators; and

Ÿ other IT service providers.

Many computer product manufacturers also sell to customers through their direct sales organizations and certain of them have announced their intentions to enhance such direct sales efforts. Many of our current and potential competitors have longer operating histories and financial, sales, marketing, technical, and other resources substantially greater than we do. As a result, our competitors may be able to adapt more quickly to changes in client needs or to devote greater resources than we can to the sales of IT products and the provision of IT services and we may not have the resources to compete effectively.

We must maintain our status as an authorized reseller/service of IT products. The loss on any one of such authorizations could have a material adverse effect on our business and operations.

We are materially dependent on our continued status as an approved reseller of IT products and our continued authorization as an IT service provider. Without such authorizations, we would be unable to provide the range of products and services we currently offer, including warranty services, and manufacturers support services contracts. Our resale agreements with manufacturers generally are terminable by manufacturers upon 30 days’ prior written notice. The loss of one or more of such authorizations could have a material adverse effect on our business and results of operations.

We have no long-term sales commitments from any of our suppliers. A loss of any of our four principal suppliers would material adversely affect our IT reseller business.

Our IT reseller business depends on large part upon our access to aggregators and manufacturers, in particular GE Access, Ingram, Tech Data, and Dell to supply us with products at competitive prices and on reasonable terms for resale by us to our customers. Our agreements with Ingram, Tech Data and Dell may be terminated by such companies upon 30 days prior written notice. Our agreement with GE Access is effective until February 28, 2006. After February 28, 2006, our agreement with GE Access can be renewed or terminated by either party. We cannot assure you that we will be able to continue to obtain products from GE Access, Ingram, Tech Data, and Dell or our other vendors at prices or on terms acceptable to us, if at all.

Reduction in or elimination of our credit facilities with our primary trade vendors could have a material adverse effect on our business and operations.

Our credit facilities as of March 31, 2005 with our primary trade vendors, GE Access, Ingram Micro, and Tech Data are $7.5 million, $5.5 million and $1.5 million, respectively. Under these credit lines, we are obligated to pay each invoice within 30 days from the date of such invoice. These credit lines could be reduced or eliminated without a notice, and this action could have a material adversely affect our business, result of operations, and financial condition.

Our client engagements entail significant risks; a failure to meet a client’s expectations could materially adversely affect our reputation and business.

Many of our engagements involve projects that are critical to the operations of our customers’ businesses and provide benefits that may be difficult to quantify. Our failure or inability to meet a client’s expectations in the performance of our services could result in a material adverse change to the client’s

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operations and therefore could give rise to claims against us or damage our reputation, adversely affecting our business, results of operations, and financial condition.

Our ability to protect our intellectual property rights is questionable. If we are unable to protect such rights, our financial condition could be materially adversely affected.

We rely upon a combination of nondisclosure and other contractual arrangements and trade secret, copyright, and trademark laws to protect our proprietary rights and the proprietary rights of third parties from whom we license intellectual property. We enter into confidentiality agreements with our employees and limit distribution of proprietary information. However, we cannot assure you that the steps taken by us in this regard will be adequate to deter misappropriation of proprietary information or that we will be able to detect unauthorized use and take appropriate steps to enforce our intellectual property rights. We are subject to the risk of litigation alleging infringement of third-party intellectual property rights. Any such claims could require us to spend significant sums in litigation, pay damages, develop non-infringing intellectual property, or acquire licenses to the intellectual property that is the subject of the alleged infringement. Our inability or failure to establish rights or to protect our rights may have a material adverse effect on our business, results of operations, and financial condition.

We intend to expand our business through acquisitions of complementary businesses. There is no certainty, however, that we will be successful in acquiring any new businesses or that any such acquisitions will help us achieve our strategic objectives.

As a part of our business development strategy, we intend to pursue acquisitions of IT product and service businesses in order to expand our service offerings, to add to or enhance our base of technical or sales personnel, or to provide desirable client relationships. The success of this strategy depends not only upon our ability to acquire complementary businesses on a cost-effective basis, but also upon our ability to integrate acquired operations into our organization effectively, to retain and motivate key personnel, and to retain customers of acquired firms. We cannot assure you that we will be able to acquire or integrate such businesses successfully. Furthermore, we cannot assure you that financing for any such acquisitions will be available on satisfactory terms, or that we will be able to accomplish our strategic objectives as a result of any such transaction or transactions. In addition, we expect to compete for attractive acquisition candidates with other companies or investors in the IT industry, which could have the effect of increasing the cost of pursuing our acquisition strategy, or it could reduce the number of attractive candidates to be acquired. Acquisitions also may involve a number of specific risks, including:

	Ÿ	possible adverse short-term effects on our operating results;

	Ÿ	dependence on retaining key customers and personnel;

	Ÿ	diversion of management’s attention;

	Ÿ	amortization or impairment of acquired intangible assets; and

	Ÿ	risks associated with unanticipated problems, liabilities, or contingencies.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We do not engage in trading market risk sensitive instruments and do not purchase hedging instruments or “other than trading” instruments that are likely to expose us to market risk, whether interest rate, foreign currency exchange, commodity price or equity price risk. We have issued no debt instruments, entered into no forward or future contracts, purchased no options and entered into no swaps. Our primary market risk exposures are those of interest rate fluctuations. A change in interest rates would affect the rate at which we could borrow funds under our revolving credit facility. Our average balance on the line of credit at March 31, 2005 was approximately $3.63 million. Assuming no material increase or decrease in such balance, a one percent change in the interest rate would change our interest expense by approximately $36,300 annually.

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Item 8. Financial Statements and Supplementary Data

Reference is made to Item 15(a)(i) herein.

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None

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Item 9A. Controls and Procedures

Our management carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of March 31, 2005. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission.

There has not been any change in our internal control over financial reporting in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the quarter ended March 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Item 9B. Other Information

Not Applicable

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PART III

Item 10. Directors and Executive Officers of the Registrant

The following table sets forth certain information as to each of our executive officers and directors:

Name	Age	Positions and Offices Presently Held

John P. Howlett	61	Chairman of the Board and Chief Executive Officer

Ronald A. Seitz	58	President and Chief Operating Officer and Director

R. Frank Jerd	63	Director

George F. Raymond	68	Director

Sam Bhatt	37	Vice President Finance and Treasurer

John P. Howlett has been our Chairman of the Board and Chief Executive Officer since January 17, 2001 and Chief Executive Officer of Emtec-NJ since August, 1997 and Chairman of Emtec-NJ since August, 1998. He has been a director of Emtec-NJ since October, 1996. Mr. Howlett was the founder (in 1983) of Cranford, New Jersey-based Comprehensive Business Systems, Inc. (CBSI). CBSI primarily provided microcomputer systems, network integration, training, and data communications to mid-size and Fortune 1000 corporations. In October 1996, CBSI merged into Emtec-NJ. Prior to founding CBSI, Mr. Howlett was with the AT&T Long Lines Division for twelve years. He earned a Bachelor of Science degree in Electrical Engineering from Rose Hulman Institute of Technology in Terre Haute, Indiana, and a Master of Business Administration degree from Fairleigh Dickinson University in New Jersey. A Vietnam veteran, Mr. Howlett served in the U.S. Army for four years.

Ronald A. Seitz has been our President and Chief Operating Officer since February 2003 and Executive Vice-President and a director since January 17, 2001 and Executive Vice President of Emtec-NJ since March, 1996. Prior to that he was the Chief Operating Officer of Emtec-NJ. He has been a director of Emtec-NJ since April, 1995. Mr. Seitz was the founder (in 1980) of Charleston, South Carolina-based Computer Source, Inc. (CSI). CSI primarily provided microcomputer systems, network integration, and data communications to mid-size and Fortune 1000 corporations. In April 1995, CSI merged with Landress Information Systems of Mt. Laurel, New Jersey to become Emtec-NJ. Prior to founding CSI, Mr. Seitz was employed for six years as an engineer with the U.S. government in Washington, DC. He graduated from North Carolina State University with a Bachelor of Science degree and from George Washington University with an MBA in computer science. Mr. Seitz also holds a DMD degree from the Dental School at the Medical University of South Carolina.

R. Frank Jerd was appointed as a director upon the consummation of our merger with Emtec-NJ. Mr. Jerd is the CEO of Viecore FSD and has been since 2002. From 1994 to 2002 he was a technology consultant for Montauk Capital in New York . He was CEO of Gandalf Systems Corporation from 1993 to 1994 From 1992 to 1993, he was CEO of Benesys, Inc. Prior to that Mr., Jerd spent 20 years with Memorex Telex as Executive VP and General Manager. Mr. Jerd earned a Bachelor of Science Degree in Mathematics at Marshall University.

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George F. Raymond was elected as a director in August 2001. Mr. Raymond has been retired from active employment since 1989. Since his retirement, he has worked as a consultant to the information technology industry. In 1972, Mr. Raymond founded Automatic Business Centers, Inc., a payroll process service company and served as its president until its sale to Automatic Data Processing in 1989. In 1965 he co-founded Computer Services Inc, a general purpose data processing service company, which was purchased by Management Data Corp. in 1969. Mr. Raymond served as the president of Computer Services Inc. until 1972. Prior thereto, Mr. Raymond was a management consultant with Touche Ross & Co. from 1961 to 1965. Currently Mr. Raymond serves on the Board of directors of five companies, four of which are publicly traded.

Sam Bhatt has been Vice President – Finance and Treasurer of Emtec since January 17, 2001 and of Emtec-NJ since July 2000. Prior to that and from July, 1997, he was Director of Accounting for Emtec-NJ. He also held the positions at Emtec-NJ of Accounting Manager (from 1994 to July, 1997) and of Senior Accountant (from 1992 to 1994). Mr. Bhatt holds a Bachelor of Science Degree in business administration from Drexel University in Pennsylvania and a Diploma in Hotel Management from the Institute of Hotel Management and Catering Technology in Bombay, India.

Our Board usually meets four times a year in regularly scheduled meetings. It may meet more often if necessary. The Board held eight meetings in fiscal 2005. Each director attended all of the meetings. The Chairman usually determines the agenda for the meetings. Board members receive the agenda and supporting information in advance of the meetings. Board members may also raise other matters at the meetings.

Since we are not a listed company, we are not required to establish an audit committee. Our board of directors believes it can conduct all the functions of an audit committee without unduly burdening the duties and responsibilities of the board members. Our board of directors has determined that Mr. George F. Raymond, an independent member of our board of directors, meets the definition of an “audit committee financial expert.”

Our Board of Directors has adopted a Code of Ethics applicable to all of its employees, including its Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer, as well as the members of its board of directors.

Currently, there is no compensation committee. The members of the entire board deliberate and decide compensation. Neither Mr. Jerd nor Mr. Raymond is or has been an employee or an officer of our company. Mr. Howlett is our Chairman, and Chief Executive Officer, and Mr, Seitz is our President and Chief Operating Officer.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Exchange Act requires our directors and executive officers and persons who own beneficially more than 10% of our common stock to file reports of ownership and changes in ownership of such common stock with the Securities and Exchange Commission, and to file copies of such reports with us. Based solely upon a review of the copies of such reports filed with Emtec, Emtec believes that during the past four fiscal years, such reporting persons complied with the filing requirements of said Section 16(a) or any filing delinquencies by such persons were reported under the Exchange Act, except that George F. Raymond did not file on a timely basis a Form 3 reflecting his initial statement of beneficial ownership and did not file on a timely basis five Form 4s reflecting one transaction, one transaction, one transaction, two transactions and three transactions, respectively, and R. Frank Jerd did not file on a

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timely basis four Form 4s reflecting one transaction, one transaction, one transaction and four transactions, respectively.

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Item 11. Executive Compensation

The following table sets forth the aggregate compensation that we paid for services rendered to us in all capacities during our fiscal years ended March 31, 2005, 2004 and 2003 by our chief executive officer and by our other executive officers whose cash compensation exceeded $100,000 per year in any such year.

Summary Compensation Table

									Long Term Compensation

		Annual Compensation							Awards		Payouts
Name and Principal Position						Other Annual Compensation
Name and Principal Position	Fiscal Year	Salary		Bonus		Other Annual Compensation			Restricted Stock Awards	Number of Options	Long Term Incentive Payouts	All Other Compensation

John P. Howlett	2005	$	229,280				—		—	—	—	$	15,250	⁽¹⁾
- Chief Executive	2004	$	216,300		—		—		—	—	—	$	18,553	⁽¹⁾
Officer	2003	$	212,000		—		—		—	—	—	$	16.750	⁽¹⁾


Ronald A. Seitz	2005	$	229,280	$	25,000		—		—	—	—	$	4,544	⁽²⁾
- Chief Operating	2004	$	216,300		—		—		—	—	—	$	6,642	⁽²⁾
Officer	2003	$	212,000		—		—		—	—	—	$	6,704	⁽²⁾
and President


Sam Bhatt	2005	$	127,300		—		—		—	—	—		—
-Vice President	2004	$	128,757		—		—		—	—	—		—
-Finance	2003	$	120,000		—		—		—	—	—		—


Guy Fessenden	2005	$	200,192	$	7,500	$	13,454	⁽³⁾	—	—	—	$	47,692	⁽⁴⁾
-Executive Vice-	2004	$	176,154		—	$	17,500	⁽³⁾	—	—	—		—
President	2003	$	150,000			$	83,330	⁽³⁾					—


_____________
	(1)	Reflects employer contributions for life insurance premiums and for disability insurance premiums.

	(2)	Reflects employer contribution for life insurance premiums.

	(3)	Reflects paid commissions during fiscal 2005, 2004 and 2003.

	(4)	Reflects severance paid to terminated officer.

Stock Options

None of the named executive officers listed in the Summary Compensation Table were granted stock options during the fiscal year ended March 31, 2005.

Set forth below is information with respect to unexercised options held by our named executive officers to purchase our common stock

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Aggregated Option Exercises in Fiscal Year 2005
and Fiscal Year End Option Values

	Number of Shares Acquired on Exercise	Value Realized	Number of Unexercised Securities Underlying Options at March 31, 2005			Value of Unexercised In-the-Money Options

Name			Exercisable		Unexercisable	Exercisable	Unexercisable

John P. Howlett	—	$ 0		0	0	$ 0	$ 0
Ronald A. Seitz	—	$ 0		0	0	$ 0	$ 0
Sam Bhatt	—	$ 0		4,877	0	$1,609	$ 0
Guy Fessenden	—	$ 0		0	0	$ 0	$ 0

Compensation of Directors

Non-employee directors receive annual compensation of $10,000. Directors also receive stock options at the discretion of the Board. Each of our non-employee directors received options to purchase an aggregate of 45,000 shares of common stock for services performed during the past three fiscal years. Non-employee directors receive reimbursement of out-of-pocket expenses incurred for each board meeting or committee meeting attended.

Compensation Committee Interlocks and Insider Participation

Currently, there is no compensation committee. The members of the entire board deliberate and decide compensation. Neither Mr. Jerd nor Mr. Raymond is or has been an employee or an officer of our company. Mr. Howlett is our Chairman, and Chief Executive Officer, and Mr. Seitz is our President and Chief Operating Officer.

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Item 12. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth, as of July 11, 2005, based on information obtained from the persons named below, with respect to the beneficial ownership of our common stock held by:

	Ÿ	each person known by us to be the owner of more than 5% of our outstanding shares;

	Ÿ	each director;

	Ÿ	each executive officer named in the Summary Compensation Table; and

	Ÿ	all executive officers and directors as a group.

Name and Address of Beneficial Owner⁽¹⁾	Amount and Percentage of Beneficial Ownership⁽²⁾

John P. and Rosemary A. Howlett	1,400,910		18.5	%
Ronald A. Seitz	829,519	⁽³⁾	11.0	%
Sam Bhatt	27,631		.4	%
R. Frank Jerd	88,030	⁽⁴⁾	1.2	%
George F. Raymond	65,000	⁽⁵⁾	0.9	%
Tom Dresser	1,029,774		13.6	%
3505 S. Ocean Boulevard
Hollywood, FL 33019
Richard Landon	955,974		12.6	%
142 York Road
Delran, NJ 08075
Carla Seitz	782,707	⁽⁶⁾	10.3	%
P.O. Box 2243
Mt. Pleasant, SC 29465
All executive officers and directors as a group (5 persons)	2,411,090	⁽³⁾⁽⁷⁾	31.4	%


⁽¹⁾	Each stockholder’s address is c/o Emtec, 572 Whitehead Road, Bldg#1, Trenton, New Jersey, unless otherwise indicated.

⁽²⁾	As used herein, beneficial ownership means the sole or shared power to vote, or direct the voting of, a security, or the sole or shared power to invest or dispose, or direct the investment or disposition, of a security. Except as otherwise indicated, all persons named herein have (i) sole voting power and investment power with respect to their shares, except to the extent that authority is shared by spouses under applicable law and (ii) record and beneficial ownership with respect to their shares; also includes any shares issuable upon exercise of options or warrants that are currently exercisable or will become exercisable within 60 days of June 30, 2005.

⁽³⁾	Excludes 782,707 shares owned by Carla Seitz, Mr. Seitz’s spouse. Mr. Seitz disclaims any beneficial interest in these shares.

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⁽⁴⁾ Includes 75,000 shares issuable upon the exercise of options.

⁽⁵⁾ Includes 45,000 shares issuable upon the exercise of options.

⁽⁶⁾ Excludes 829,519 shares owned by Ronald A. Seitz, Mrs. Seitz’s spouse. Mrs. Seitz disclaims any beneficial ownership in these shares.

⁽⁷⁾ Includes 120,000 shares issuable upon the exercise of options.

Equity Compensation Plan Information

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securites remaining available for future issuance underequity compensation plans (excluding securities reflected in column(a))
Equity compensation plans approved by security holders	—	—	—
Equity compensation plans not approved by security holders ⁽¹⁾	336,522	$0.83	551,878
Total	336,522	$0.83	551,878

⁽¹⁾

Our 1996 Stock Option Plan (the Plan) (amended in 1999) authorizes the granting of stock options to directors and eligible employees. We have reserved 1,000,000 shares of its common stock for issuance under the Plan at prices not less than 100% of the fair value of our common stock on the date of grants (110% in the case of shareholders owning more than 10% of our common stock).As of March 31, 2005, 111,600 options have been exercised under the Plan.

- 41 -

Item 13. Certain Relationships and Related Transactions

We moved our 2990 Gateway Drive, Norcross, GA office and warehouse location to 500 Satellite Blvd., Suwanee, GA on December 1, 2004. We are occupying approximately 21,000 square feet of office and warehouse space out of a total of approximately 70,000 square feet. This space is leased from GS&T Properties, LLC, in which Messrs. John Howlett and Ronald Seitz, each an executive officer and director of our company, are passive investors, each owning an approximate 10% equity interest. The lease term is for 5 years with monthly base rent of $12,500.

- 42 -

Item 14. Principal Accountants Fees and Services

Baratz & Associates, P.A. (“BA”) was retained as our independent auditors for our fiscal year ended March 31, 2005. We did not consult with BA during either the prior fiscal years or the interim period with respect to (i) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or (ii) any matter that was either the subject of a disagreement or a reportable event.

The following table sets forth the aggregate fees incurred by us for the fiscal years ended March 31, 2005 and 2004 to our principal auditing firm:

	2005		2004

Audit Fees	$	88,000	$	86,000
Audit Related Fees	$	500	$	500
Tax Fees	$	22,000	$	20,000
All Other Fees	$	8,000	$	7,000

Total	$	118,500	$	113,500

Audit Fees: The Audit Fees billed by BA for the fiscal years ended March 31, 2005 and March 31, 2004 were for professional services rendered for the audits of the financial statements of the Company, quarterly reviews, and assistance with the review of documents filed with the Securities and Exchange Commission.

Audit Related Fees: The Audit Related Fees for the fiscal years ended March 31, 2005 and March 31, 2004 were for attendance at the annual stockholders meeting.

Tax Fees: The Tax Fees billed by BA for the fiscal years ended March 31, 2005 and March 31, 2004 were for services performed in connection with income tax compliance.

All Other Fees: All Other fees billed by BA for the fiscal years ended March 31, 2005 and March 31, 2004 were for professional services rendered for the 401K audit.

Our board of directors has adopted a policy that requires advance approval of all audit, audit-related, tax services, and other services performed by our independent auditor. The policy provides for pre-approval by the board of directors of specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to that year, the board of directors must approve the permitted service before the independent auditor is engaged to perform it.

- 43 -

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) Financial Statements

Report of Independent Public Accountants		47
Consolidated Balance Sheets as of March 31, 2005 and 2004		48-49
Consolidated Statements of Operations for the Fiscal Years Ended March 2005, 2004 and 2003		50
Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended March 31, 2005, 2004 and 2003		51
Consolidated Statements of Cash Flows for the Years Ended March 2005, 2004 and 2003		52


Notes to Consolidated Financial Statements		53-68

(b) Financial Statement Schedules

None

Exhibit No.		Description

2.1		Agreement and Plan of Merger and Reorganization dated as of December 14, 2000 between Registrant, then known as American Geological Enterprises, Inc., and Emtec, Inc. ⁽¹⁾

3.1		Certificate of Incorporation, as amended⁽²⁾

3.2		Amended and Restated Bylaws⁽²⁾

4.1		Certificate evidencing shares of common stock⁽²⁾

10.1		Resale Agreement dated September 29, 1997 between Registrant and Ingram Micro, Inc.⁽²⁾

10.2		Volume Purchase Agreement dated January 28, 1998 between Registrant and Tech Data Corporation⁽²⁾

10.3		Microsoft Certified Partner Agreement, dated December 20, 2000, between Microsoft and Registrant⁽³⁾

10.4		IBM Business Partner Agreement, dated May 31, 2000, between International Business Machines Corporation and Registrant⁽³⁾

10.5		Letter Agreement, dated April 24, 2001, between Novell Inc. and Registrant⁽³⁾

10.6		Citrix Solutions Network Gold Renewal Membership Agreement, dated April 30, 2001, between Citrix Systems, Inc. and Registrant⁽³⁾

10.7		U.S. Systems Integrator Agreement, dated December 22, 1999, between Cisco System, Inc. and Registrant.⁽³⁾

10.8		Sun Microsystem, Inc. Channel Agreement, dated February 1, 2000, between Sun Microsystems, Inc. and Emtec, Inc. .⁽⁶⁾

- 44 -

Exhibit No. Description

10.9 Loan and Security Agreement, dated November 21, 2001, by and between Fleet Capital Corporation and Registrant.⁽⁴⁾

10.10 Agreement for Wholesale Financing, dated November 21, 2001, by and between IBM Credit Corporation and Registrant.⁽⁴⁾

10.11 Subordination Agreement, dated as of the 21^st day of November, 2001, among Registrant, MRA Systems, Inc. dba GE Access and Fleet Capital Corporation.⁽⁴⁾

10.12 Intercreditor Agreement, dated as of November 21, 2001, between Fleet Capital Corporation and Ingram Micro Inc. and accepted by Registrant.⁽⁴⁾

10.13 Asset Acquisition Agreement dated December 5, 2001 by and between Devise Associates, Inc. and Registrant.⁽⁵⁾

10.14 Lease Agreement dated January 9, 2002 between Registrant and Vandergrand Properties Co., L.P., for New York, New York facility.⁽⁹⁾

10.15 Lease Agreement dated March 1, 2002 between Registrant and G. F. Florida Operating Alpha, Inc.,, for Jacksonville, Florida facility.⁽⁹⁾

10.16 Lease Agreement dated November 15, 2002 between Registrant and Hamilton Transit Corporate Center, for warehouse facility in Trenton, New Jersey.⁽¹⁰⁾

10.17 Asset Acquisition Agreement dated August 12, 2002 by and between Acentra Technologies, Inc. and Registrant.⁽⁷⁾

10.18 Asset Acquisition Agreement dated August 31, 2002 by and between Turnkey Computer Systems, Inc. and Registrant.⁽⁸⁾

10.19 Assignment of State of New Jersey Contract from Acentra Technologies, Inc. to the Registrant.⁽⁷⁾

10.20 Remarketer/Integrator Agreement dated August 15, 2002 between Dell Marketing L.P. and the Registrant.⁽⁷⁾

10.21 Lease Agreement dated June 1, 2004 between Registrant and Hamilton Transit Corporate Center, for office space in Trenton, New Jersey.⁽¹¹⁾

10.22 Lease Agreement dated May 20, 2004 between Registrant and Facstore, for office space in Cranford, New Jersey. ⁽¹¹⁾

10.23 Amendment to Loan and Security Agreement, dated as of December 10, 2004 , between Bank of America Business Capital Corporation and Emtec, Inc.⁽¹²⁾

10.24 Lease Agreement dated September 2, 2004 between Registrant and GS&T Properties, LLC, for Suwanee, GA facility.

10.25 Lease Agreement dated January 1, 2005 between Registrant and Select Office Suites, for a sales office space in New York, New York.

10.26 Sub- lease Agreement dated November 24, 2004 between Registrant and vFinance, Inc., for office space in New York, New York.

10.27 1996 Stock Option Plan, as amended in 1999⁽²⁾

14.1 Code of Ethics⁽¹¹⁾

21.1 Subsidiaries⁽²⁾

23.1 Consent of Baratz & Associates, P.A.

- 45 -

Exhibit No. Description

31.1 Certification of John P. Howlett, Principal Executive Officer, of Emtec, Inc. dated July 14, 2005. Rule 13a-14(a)/15 d-14(a)

31.2 Certification of Sam Bhatt, Principal Financial Officer, of Emtec, Inc. dated July 14, 2005. Rule 13a-14(a)/15 d-14(a)

32.1 Certificate of John P. Howlett, Principal Executive Officer, of Emtec, Inc. dated July 14, 2005. Section 1350

32.2 Certificate of Sam Bhatt, Principal Financial Officer, of Emtec, Inc. dated July 14, 2005. Section 1350.

⁽¹⁾ Previously filed as an exhibit to Registrant’s Current Report on Form 8K dated January 17, 2001, filed on January 31, 2001, and incorporated herein by reference.

⁽²⁾ Previously filed as an exhibit to Registrant’s Registration Statement on Form 10 filed on May 21, 2001, and incorporated herein by reference.

⁽³⁾ Previously filed as an exhibit to Amendment No. 1 to Registration Statement on Form 10, filed on July 12, and incorporated herein by reference.

⁽⁴⁾ Previously filed as an exhibit to Registrant’s Current Report on Form 8K dated November 21, 2001, filed on November 26, 2001, and incorporated herein by reference.

⁽⁵⁾ Previously filed as an exhibit to Registrant’s Current Report on Form 8K dated December 5, 2001, filed on December 20, 2001, and incorporated herein by reference.

⁽⁶⁾ Previously filed as an exhibit to Registrant’s Form 10-K dated March 31, 2001, filed on July 12, 2001, and incorporated herein by reference.

⁽⁷⁾ Previously filed as an exhibit to Registrant’s Current Report on Form 8K dated August 12, 2002 filed on August 26, 2002, and incorporated herein by reference.

⁽⁸⁾ Previously filed as an exhibit to Registrant’s Current Report on Form 8K dated August 31, 2002 filed on September 13, 2002, and incorporated herein by reference.

⁽⁹⁾ Previously filed as an exhibit to Registrant’s Form 10-K dated March 31, 2002, filed on June 30, 2002, and incorporated herein by reference.

⁽¹⁰⁾ Previously filed as an exhibit to Registrant’s Form 10-K dated March 31, 2003, filed on July 15, 2003, and incorporated herein by reference.

⁽¹¹⁾ Previously filed as an exhibit to Registrant’s Form 10-K dated March 31, 2004, filed on July 14, 2004, and incorporated herein by reference.

⁽¹²⁾ Previously filed as an exhibit to Registrant’s Current Report on Form 8K dated December 10, 2004, filed on December 14, 2004, and incorporated herein by reference.

- 46 -

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Stockholders
Emtec, Inc.
572 Whitehead Road, Bldg #1
Trenton, New Jersey 08619

We have audited the accompanying consolidated balance sheets of Emtec, Inc. as of March 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended March 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Emtec, Inc. as of March 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, effective April 1, 2002, the Company changed its method for accounting for goodwill and other intangible assets by adopting Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”

/s/ Baratz & Associates, P.A.
Baratz & Associates, P.A.

Marlton, New Jersey
June 6, 2005
(except for Note 18, as to which the date is July 14, 2005)

EMTEC, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2005 AND 2004

	2005		2004
Assets

Current Assets

Cash and cash equivalents	$	2,357,972	$	4,792
Receivables:
Trade, net		21,396,698		15,206,972
Others		1,640,613		289,445
Inventories		2,945,018		1,599,166
Prepaid expenses		395,228		396,313
Deferred tax assets		437,923		186,368

Total Current Assets		29,173,452		17,683,056

Property and equipment, net		337,168		387,073

Investment in geothermal power unit, net		—		569,960
Deferred tax assets		359,907		103,813
Intangible assets		105,219		118,198
Restricted cash		150,534		—
Other assets		78,177		46,512


Total Assets	$	30,204,457	$	18,908,612

The accompanying notes are an integral part
of these consolidated financial statements.

EMTEC, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2005 AND 2004

	2005		2004

Liabilities and Shareholders’ Equity

Current Liabilities

Line of credit	$	4,648,559	$	2,308,416
Accounts payable		13,385,997		9,295,882
Customer deposits		1,571,274		332,667
Income taxes payable		1,400,312		279,397
Accrued liabilities		2,703,708		2,529,885
Deferred revenues		1,016,574		853,393


Total Current Liabilities		24,726,424		15,599,640



Deferred revenue		—		714,573


Deferred tax liability		—		25,924


Total Liabilities		24,726,424		16,340,137




Shareholders’ Equity

Common stock, $.01 par value; 25,000,000 shares authorized; 7,492,098 and 7,380,498 shares issued and outstanding at March 31, 2005 and 2004		74,921		73,805
Additional paid-in capital		2,333,387		2,294,805
Retained earnings		3,069,725		199,865




Total Shareholders’ Equity		5,478,033		2,568,475




Total Liabilities and
Shareholders’ Equity	$	30,204,457	$	18,908,612

The accompanying notes are an integral part
of these consolidated financial statements.

EMTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2005, 2004 AND 2003

	2005		2004		2003
Revenues:
Procurement services	$	97,605,588	$	82,184,744	$	75,943,230
Service and consulting		15,094,410		17,986,564		16,140,896

Total Revenues		112,699,998		100,171,308		92,084,126


Cost of Revenues:
Procurement services		85,879,341		74,282,388		67,525,430
Service and consulting		10,467,370		11,497,465		11,915,844


Total Cost of Revenues		96,346,711		85,779,853		79,441,274


Gross Profit:
Procurement services		11,726,247		7,902,356		8,417,800
Service and consulting		4,627,040		6,489,099		4,225,052

Total Gross Profit		16,353,287		14,391,455		12,642,852


Operating Expenses:
Selling, general and administrative		12,532,580		13,321,726		12,533,905
Interest		217,860		328,296		160,803
Loss on impairment,Goodwill		—		—		254,894

Total Operating Expenses		12,750,440		13,650,022		12,949,602


Income (loss) from continuing operations before income taxes		3,602,847		741,433		(306,750	)

Income tax expense (benefit)		989,317		121,328		(40,761	)


Income(loss) from continuing operations		2,613,530		620,105		(265,989	)

Income from discontinued geothermal operations, net of tax		48,052		22,883		54,518
Gain on sale of geothermal investment, net of tax		208,278		—		—


Net Income (Loss)	$	2,869,860	$	642,988	$	(211,471	)

Per Share:

Income (Loss) From Continuing Operations
Basic	$	0.35	$	0.08	$	(0.04	)
Diluted	$	0.34	$	0.08	$	(0.04	)
Income (Loss) From Discontinued Operations
Basic	$	0.03	$	0.00	$	0.01
Diluted	$	0.03	$	0.00	$	0.01
Net Income (Loss)
Basic	$	0.39	$	0.09	$	(0.03	)
Diluted	$	0.37	$	0.09	$	(0.03	)

Weighted Average Number of Shares
Outstanding:
Basic		7,389,798		7,380,498		7,080,498
Diluted		7,726,320		7,483,549		7,123,831

The accompanying notes are an integral part
of these consolidated financial statements.

EMTEC, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

YEARS ENDED MARCH 31, 2005, 2004 AND 2003

					Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)			Total Shareholders’ Equity

	Common Stock
	Shares		Amount

Balance, April 1, 2002		7,080,498	$	70,805	$	2,210,805	$	(231,652	)	$	2,049,958

Net loss for the year							(211,471		)	(211,471		)


Balance, March 31, 2003		7,080,498	$	70,805	$	2,210,805	$	(443,123	)	$	1,838,487

Stock issued as payment for services	300,000		3,000		84,000					87,000

Net income for the year								642,988			642,988


Balance, March 31, 2004		7,380,498	$	73,805	$	2,294,805	$	199,865		$	2,568,475


Stock issued upon exercise of options		111,600		1,116		38,582					39,698

Net income for the year							2,869,860			2,869,860


Balance, March 31, 2005		7,492,098	$	74,921	$	2,333,387	$	3,069,725		$	5,478,033

The accompanying notes are an integral part
of these consolidated financial statements.

EMTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2005, 2004 AND 2003

	2005			2004			2003
Cash Flows From Operating Activities

Net income (loss) for the year	$	2,869,860		$	642,988		$	(211,471	)

Adjustments to Reconcile Net Income
(Loss) To Net Cash Provided By (Used
In) Operating Activities
Depreciation and amortization		315,163			605,309			590,293
Impairment Charges		—			462,915			254,894
Deferred income tax benefit		(533,573	)		(176,047	)		(78,907	)
Stock issued as payment for services		—			87,000			—
Gain from sale of geothermal unit		(289,275	)		—			—

Changes In Operating Assets and
Liabilities
Increase in receivables		(7,540,893	)		(466,611	)		(8,444,852	)
(Increase) decrease in inventories		(1,345,852	)		1,282,702			(1,791,919	)
Decrease (increase) in prepaid expenses		1,084			66,515			(74,520	)
Increase in restricted cash		(150,534	)		—			—
(Increase) decrease in other assets		(31,665	)		2,313			(903	)
Increase in accounts payable		4,090,114			1,096,092			1,589,955
Increase (decrease) in customer deposits		1,238,607			(155,460	)		242,740
Increase in income taxes payable		1,120,915			253,616			23,694
Increase in accrued liabilities		173,823			1,080,759			686,931
Increase (decrease) in deferred revenues		120,731			(510,070	)		438,150


Net Cash Provided By (Used In)
Operating Activities		38,505			4,272,021			(6,775,915	)

Cash Flows From Investing Activities
Purchases of equipment		(215,168	)		(164,456	)		(1,003,962	)
Additional investment in geothermal unit		—			—			(64,978	)
Acquisition of a business unit		—			—			(100,000	)
Proceeds from sale of geothermal unit		150,000

Net Cash Used In Investing Activities		(65,168	)		(164,456	)		(1,168,940	)


Cash Flows From Financing Activities
Net increase (decrease) in line of credit		2,340,145			(5,894,874	)		8,203,290
Payment of related party debt		—			—			(19,000	)
Proceeds from issuance of stock		39,698			—			—

Net Cash Provided By (Used In)
Financing Activities		2,379,843			(5,894,874	)		8,184,290


Net Increase (Decrease) in
Cash and Cash Equivalents		2,353,180			(1,787,309	)		239,435


Beginning Cash and Cash Equivalents		4,792			1,792,101			1,552,666


Ending Cash and Cash Equivalents	$	2,357,972		$	4,792		$	1,792,101

The accompanying notes are an integral part
of these consolidated financial statements.

EMTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2005, 2004 AND 2003

1. Organization and Summary of Significant Accounting Policies

Emtec (OTC: ETEC) is a systems integrator focused on providing technology solutions that enable our customers to effectively use and manage their data to grow their businesses. Our areas of specialization in IT services include enterprise computing, data communications, data access, network design, enterprise backup and storage consolidation, managed services and staff augmentation. Emtec’s solutions are crafted to enable our customers to become more efficient and effective, thereby giving them a competitive advantage. Our customers are primarily Fortune 2000 companies, state and local governmental agencies, local school districts, and other large and mid-sized companies located principally in the New York/New Jersey Metropolitan area and the Southeastern United States. We service our customer base from leased facilities in New Jersey, New York, Georgia, and Florida.

The Company, was formed on April 1, 1995, as a result of the 1995 and 1996 mergers of three information technology companies that were originally founded between 1980 and 1983.

Principles of Consolidation

The consolidated financial statements include the accounts of the issuer and its wholly owned subsidiary. Intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (US GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts in the financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of assets and liabilities that are not readily apparent from other sources. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. However, future events are subject to change and the best estimates and judgments routinely require adjustment. US GAAP requires us to make estimates and judgments in several areas, including those related to impairment of goodwill and equity investments, revenue recognition, recoverability of inventory and receivables, the useful lives of long lived assets such as property and equipment, the future realization of deferred income tax benefits and the recording of various accruals.

Revenue Recognition

The Company recognizes revenues when the earning process is complete, evidenced by an agreement between the Company and the customer, there has been delivery and acceptance, collectibility is probable, and pricing is fixed and determinable. Procurement services revenue represents sales of computer hardware and pre-packaged software. These arrangements often include software installations, configurations, and imaging, along with delivery and set-up of hardware. The Company follows the criteria contained

in EITF 00-21 and SAB 104 in recognizing revenue associated with these transactions. The Company performs all software installations, configurations and imaging services at our locations prior to the delivery of the product. Some customer arrangements include “set-up” services performed at customer locations where the Company’s personnel perform the routine tasks of removing the equipment from boxes, and setting up the equipment at customer workstations by plugging in all necessary connections, etc. This service is usually done on the same day as delivery. Revenue is recognized at date of delivery, except as follows:

Ÿ	In some instances, the “set-up” service is performed after date of delivery. The Company recognizes revenue for the “hardware” component at date of delivery when the amount of revenue allocable to this component is not contingent upon the completion of “set-up” services and therefore, the Company’s customer has agreed that the transaction is complete as to the “hardware” component. In instances where the Company’s customer does not accept delivery until “set-up” services are completed, the Company defers all revenue in the transaction until customer acceptance occurs.

Ÿ	There are occasions when a customer requests a transaction on a “bill & hold” basis. The Company follows the SAB 104 criteria and recognizes revenue prior to date of physical delivery only when all the criteria are met as follows:

		Ÿ	Risks of ownership have passed to the customer

		Ÿ	The customer has made a fixed commitment, in writing.

		Ÿ	A fixed delivery schedule is established

		Ÿ	The Company has not retained any specific performance obligations.

		Ÿ	The Company segregates the customer’s ordered goods from its general inventory and the order is complete and ready for shipment.

The Company does not modify its normal billing and credit terms for such customers. The customer is invoiced at the date of revenue recognition when all of the above criteria have been met.

The Company has experienced minimal customer returns. Since all eligible products must be returned to the Company within 30 days from the date of the invoice, the Company reduces the procurement services revenue and cost of procurement services in each accounting period based on the actual returns that occurred in the next 30 days after the close of the accounting period.

terminate a contract with 90 days written notice. In this event, the customer is entitled to a pro-rated refund based on the remaining term of the contract and we would owe the manufacturer a pro-rated refund of the cost of the contract. However, the Company has experienced no customer cancellations of any significance during our most recent 3-year history and do not expect cancellations of any significance in the future.

Cash Equivalents

Cash equivalents include items almost as liquid as cash with maturity periods of three months or less when purchased. The carrying amount of cash and cash equivalents approximates fair value.

Trade Receivables

The Company provides an allowance for losses on trade receivables based on a review of the current status of existing receivables and management’s evaluation of periodic aging of the accounts.

Other Receivables

Other receivables represent rebates, price protection receivables and amounts due from vendors for purchase returns made in the ordinary course of business. The Company’s accounting policy is to reduce cost of revenues of procurement services for rebates, discounts and other incentives received from suppliers.

Concentration of Credit Risk

The Company provides its services to a wide variety of commercial, governmental and institutional customers. Financial instruments which potentially subject the Company to concentrations of credit risk are cash (and cash equivalents) and trade receivables. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, does not require collateral from its customers. The Company has not experienced significant credit losses. The Company maintains deposit accounts with reputable financial institutions; at times, such deposits may exceed Federal Depository Insurance Limits.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market. Cost is based on standard costs generated principally by the most recent purchase prices. The Company provides an inventory reserve for obsolescence and deterioration based on management’s review of products and sales.

Property and Equipment

Property and equipment are stated at original cost. Depreciation and amortization for financial accounting purposes are computed using the straight line method over the estimated lives of the respective assets. Accelerated methods of depreciation are used for tax purposes.

Maintenance and repair costs are charged to expense as incurred. The cost and accumulated depreciation relating to property and equipment retired or otherwise disposed of are eliminated from the accounts and any resulting gains or losses are credited or charged to income.

Valuation of Long Lived Assets

The Company evaluates the recoverability of its long-lived assets (other than intangibles and deferred tax assets) in accordance with Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,”(SFAS No. 144). Long-lived assets are reviewed for impairment under SFAS No. 144 whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 144 requires recognition of impairment of long-lived assets in the event that the net book value of such assets exceeds the future undiscounted net cash flows attributable to such assets. Impairment, if any, is recognized in the period of identification to the extent the carrying amount of an asset exceeds the fair value of such asset.

Goodwill and Intangible Assets

Goodwill is the excess of the purchase price over the fair value of the net assets acquired in a business combination accounted for under the purchase method. Beginning April 1, 2002, in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (SFAS 142), goodwill and indefinite-lived assets are no longer amortized, but instead tested for impairment at least annually. Intangible assets that have finite useful lives are amortized over their useful lives.

Income Taxes

Fair Value of Financial Instruments

The following methods and assumptions were used to estimate fair value of financial instruments at March 31, 2005 and 2004.

Short-term financial instruments (cash equivalents, receivables, payables, customer deposit and accrued liabilities) - cost approximates fair value because of the short maturity period.

Line of credit - cost approximates fair value because of the short interest-reset period.

Advertising Costs

Advertising and marketing costs are charged to expense as incurred. Advertising and marketing expenses for the years ended March 31, 2005, 2004 and 2003 were $399,682, $370,800, and $492,481, respectively.

Stock-Based Compensation

The Company did not change to the fair value based method of accounting for stock-based employees’ compensation. Accordingly, the adoption of SFAS No. 148 did not affect the Company’s financial condition or results of operations. However,SFAS No. 148 requires that information be provide as if the Company had accounted for employee stock options under the fair value method of this statement, including disclosing proforma information regarding net income (loss) and earnings (loss) per share. The Company accounts for stock based compensation in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees,” as permitted by SFAS No. 123. Accordingly, compensation cost for stock options issued to employees is measured as the excess, if any, of the quoted market price of the Company stock at the date of grant over the amount an employee must pay to acquire the stock. SFAS No. 123 requires companies that continue to follow APB No. 25 to provide a pro forma disclosure of the impact of applying the fair value method of SFAS No. 123.

Reclassifications

Certain reclassifications have been made to prior years balances in order to conform to current presentations.

Earnings (Loss) Per Share

Basic earnings (loss) per share are computed by dividing net earnings (loss) by the weighted average shares outstanding during the reporting period. Diluted earnings (loss) per share are computed similar to basic earnings (loss) per share except that the weighted average shares outstanding are increased to include additional shares from the assumed exercise of stock options, if dilutive.

New Accounting Pronouncement

In December 2004, the FASB issued Statement of Financial Accounting Standard No. 123 (Revised), “Share-Based Payments” (“SFAS 123R”), which is effective for the first annual period beginning after June 15, 2005. Under SFAS 123R, the Company will be required to measure the cost of employee service received in exchange for awards of stock options based upon the fair value of the options as of their grant date. The cost of the employee service will be recognized as compensation cost ratably over the option vesting period. Currently, the Company recognizes compensation expense pursuant to APB 25, whereby compensation expense is recognized to the extent that an option price is less than the market price of the stock at the date of the grant (the “Intrinsic Value”). Because Emtec’s practice is to set the option exercise price equal to the market price of the stock as of the date of the grant, no compensation expense is recognized for financial reporting purposes. SFAS 123R allows the use of either the Black-Scholes or a lattice option-pricing model to calculate the fair value of options. Currently, the Company is evaluating the adoption alternatives under SFAS 123R. The impact on future operating results will be dependent on the type and extent of stock-based compensation to be issued in future periods and cannot be determined at this time.

2. Trade Receivables

The Company provides an allowance for losses on trade receivables based on a review of the current status of existing receivables and management’s evaluation of periodic aging of the accounts. Trade accounts receivable

consists of the following:


Trade Receivable	$ 21,985,113		$ 15,570,374
Allowance for doubtful accounts	(588,415	)	(363,402	)
Trade Receivable, net	$ 21,396,698		$ 15,206,972

3. Inventories

Inventories are stated at lower of cost (first-in, first-out) or market. Cost is based on standard costs generated principally by the most recent purchase price. The Company provides an inventory reserve for obsolescence and deterioration based on management’s review of product sales. Inventory is recorded on the balance sheet net of allowances for inventory valuation of $433,667 and $722,551 at March 31, 2005 and March 31, 2004, respectively.

The components of inventories at March 31, are as follows:

	2005			2004
Hardware, software and accessories	$	3,246,361		$	2,151,818
Service parts		132,324			169,899

		3,378,685			2,321,717
Less inventory reserve		(433,667	)		(722,551	)


	$	2,945,018		$	1,599,166

4. Financing Arrangements

On December 10, 2004, the Company entered into an amendment to the Loan and Security Agreement with Bank of America Business Capital Corporation (successor by merger to Fleet Capital Corporation) (“BOA”) extending its credit facility through November 21, 2006. The amendment increased the Company’s credit facility from $10 million to $12 million. The Company can borrow up to a lesser of $12 million minus outstanding letter of credits or 85% of eligible accounts receivable minus the outstanding letter of credit obligations. Interest on outstanding loans under the revolving credit facility with BOA is charged monthly at a fluctuating rate per annum equal to 0.25% above the Prime Rate and, at the Company’s option, interest on the outstanding loans may be charged at LIBOR plus 2.75%. The BOA revolving credit facility is collateralized by a lien upon and security interest in substantially all of the Company assets. Since current credit facilities with two of the Company’s primary trade vendors (GE Access and Ingram Micro.) were also collateralized by substantially all of the Company’s assets, BOA, GE Access and Ingram Micro have entered into intercreditor agreements, which provide that as regards to these vendors, debt obligations to BOA are accorded priority.

Effective February 11, 2005, Wells Fargo Business Credit, Inc. (“Wells Fargo”) acquired our credit facility from BOA. All terms and conditions

remain unchanged.

As of March 31, 2005 the Company is in compliance with all its financial covenants.

At March 31, 2005, the Company had a $4.65 million outstanding balance under the credit facility and an unused availability of $6.35 million and the Company had $1.00 million in outstanding letter of credit obligations.

At March 31, 2005, the Company’s credit facilities with its primary vendors, GE Access, Ingram Micro and Tech Data were as follows: 1) Credit line with GE Access was $7.5 million, no interest charged, with an outstanding principal balance of $7.3 million. 2) Credit line with Ingram Micro was $5.5 million, at an 18% APR interest rate after 30 days from the date of the invoice, with an outstanding principal balance of $4.7 million. 3) Credit line with Tech Data was $1.5 million, no interest charged, with an outstanding principal balance of $363,000. Under these credit lines, the Company is obligated to pay each invoice within 30 days from the date of such invoice.

5. Intangible Assets

The Company adopted SFAS No. 142, effective April 1, 2002. As a result, the Company performed its initial goodwill impairment test as of April 1, 2002 and another impairment test as of March 31, 2003. Based on the impairment test performed as of March 31, 2003, the goodwill of $254,894 associated with the acquisition of Devise Associates, Inc. was determined to be fully impaired and charged to earnings. This determination was based upon the operating and cash flow losses of this business unit since the January 9, 2002 acquisition date and budgeted fiscal 2004 operating and cash flow losses for this business unit. The Company found no impairment of its remaining goodwill for the years ended March 31, 2005, 2004 and 2003, respectively.

The Company was assigned a contract to supply computer hardware and services to the State of New Jersey in the August 12, 2002 acquisition of Acentra Technologies, Inc. This contract was valued at $100,000 in the acquisition. Amortization expense of $ 9,091 and $54,545 was expensed in fiscal years ended March 31, 2005 and 2004, respectively, based upon the prior contract term that ended at May 2004. The contract is subject to annual renewals. In May of 2004, the State of New Jersey extended the contract term through December 2004. Currently, the contract is extended through June 30, 2006. The net carrying value for this contract amounted to $ 0 and $ 9,091 at March 31, 2005 and 2004, respectively.

6. Property and Equipment

The Company estimates the useful lives of property and equipment in order to determine the amount of depreciation and amortization expense to be recorded during any reporting period. The majority of our equipment is depreciated over three years. The estimated useful lives are based on the historical experience with similar assets as well as taking into account anticipated technological or other changes. If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets may need to be accelerated, resulting in the recognition of increased depreciation and amortization expense in future

periods. The Company evaluates the recoverability of its long-lived assets (other than intangibles and deferred tax assets) in accordance with Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,”(SFAS No. 144). Long-lived assets are reviewed for impairment under SFAS No. 144 whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 144 requires recognition of impairment of long-lived assets in the event that the net book value of such assets exceeds the future undiscounted net cash flows attributable to such assets. Impairment, if any, is recognized in the period of identification to the extent the carrying amount of an asset exceeds the fair value of such asset.

The Company invested $687,000 for the purchase of computer hardware, software and consulting services for its Network Operations Center to enhance its offerings in Managed Services during fiscal year ended March 31, 2003. The Company originally intended to depreciate these assets over 36 months based on the original projections of the future undiscounted net cash flows. The Company performed impairment tests of these assets as of December 31, 2003 and March 31, 2004. The company compared its original projections of the future undiscounted cash flows with actual performance, and reviewed its current sales pipeline. Based on these impairment tests, the Company recorded an impairment charge of $223,858 and $239,057 for three months ended December 31, 2003, and March 31, 2004, respectively. The total impairment charge of $462,915 was classified as general and administrative expense during the twelve months ended March 31, 2004. The net book value of this asset after impairment charge was $0 at March 31, 2004.

Property and equipment along with their components are as follows:

	Original Cost						Estimated Life

	March 2005			March 2004			(Years)

Computer equipment	$	3,831,311		$	3,643,052			3
Furniture and fixtures		357,845			357,845			5
Leasehold improvements		267,307			244,847			5
Vehicles		80,984			80,984			2

Total Property and Equipment	$	4,537,447		$	4,326,728
Less: accumulated depreciation and amortization		(4,200,279	)		(3,939,655	)

Net book value	$	337,168		$	387,073

7. Income Tax Expense (Benefit)

Deferred income taxes reflect the net tax effects of (a) temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) net operating loss carryforwards (when available).

Income tax expense (benefit) consisted of the following for the years ended March 31:

2005 2004 2003

Continuing Operations

Current taxes

Federal $ 1,124,457 $ 196,296 $ 4,870

State and local 372,509 101,078 33,276

1,496,966 297,374 38,146

Deferred taxes

Federal (393,257 ) (137,091 ) (61,616 )

State and local (114,392 ) (38,955 ) (17,291 )

(507,649 ) (176,046 ) (78,907 )

Net Income Tax Expense
(Benefit)- Continuing Operations $ 989,317 $ 121,328 $ (40,761 )

Discontinued Operations

Income tax expense-Discontinued
Operations $ 18,688 $ 4,359 $ 8,146

Income tax expense-Sale
of Geothermal Investment 80,996 — —

Total Income Tax Expense/
(Benefits) 1,089,001 125,687 (32,615 )

Reconciliation of the U.S. statutory income tax rate to our effective tax rate is as follows:

	2005			2004			2003

Expected tax expense (benefit) at statutory rates	$	1,346,013		$	261,350		$	(82,989	)
Effect of state taxes, net		275,918			63,486			19,118
Valuation allowances		(506,945	)		(212,138	)		23,927
Permanent differences		(25,985	)		12,989			7,329


Actual Income Tax Expense/ (Benefit)	$	1,089,001		$	125,687		$	(32,615	)

Significant items comprising the Company’s deferred tax assets and liability at March 31, are as follows:

	2005		2004

Deferred Tax Assets

Differences between book and tax basis:
Trade receivables	$	235,012	$	145,142
Inventories		182,636		298,477
Property and equipment		113,348		172,715
Accrued liabilities		186,804		22,301
Intangible Assets		80,030		86,817
Net Operating loss carryforwards		—		—

		797,830		725,452

Less Valuation Allowance		—		(435,271	)


Net Deferred Tax Assets	$	797,830	$	290,181

Deferred Tax Liability

Differences between book and tax basis:

Investment in geothermal
power unit $ — $ 25,924

At March 31, 2004 the Company recorded a valuation allowance against its deferred tax assets, as stated in the above table, reducing those assets to amounts which, conservatively, are more likely than not to be realized. Federal net operating loss carryovers approximated $850,000 at March 31, 2003. The federal net operating losses were utilized in their entirety in 2004 to reduce current federal income taxes payable. The Company reduced the estimated valuation allowance to zero during the fourth quarter of fiscal 2005. The change in estimate was the result of strong fiscal 2005 operating results that cause us to believe that it more likely than not that we will fully realize our deferred tax assets in future periods.

8. Major Customers

Major customers approximated 50%, 57%, and 44% of the Company’s net revenues in the years 2005, 2004 and 2003 respectively. Major customer revenues are as follows:

	% Of Total Revenues	Customers


	24%	Gwinnett County Public Schools
	15%	The State of New Jersey Contract
	11%	Duval County Public Schools

2005	50%


	31%	The State of New Jersey Contract
	16%	Gwinnett County Public Schools
	11%	Duval County Public Schools

2004	58%


	23%	Gwinnett County Public Schools
	17%	The State of New Jersey Contract
	10%	Duval County Public Schools

2003	50%

While the Company believes its relationship with these customers will continue, there can be no assurance that sales to these customers will continue at all or at the same level.

9. 401(k) Plan

The Company sponsors a 401(k) plan for all employees with at least 6 months of service and who are at least 20 years of age. Eligible employees may contribute 2% to 15% of their annual compensation to the plan. The Company matches 25% of the first 6% of employee plan contributions and may contribute additional amounts at the Company’s discretion. Participants are vested 20% for each year of service and are fully vested after 6 years. Company contributions to the plan were $107,480, $86,436, and $119,911 for the years ended March 31, 2005, 2004, and 2003, respectively.

10. Stock Option Plan

The Company’s 1996 Stock Option Plan (the Plan) (amended in 1999) authorizes the granting of stock options to directors and eligible employees. The Company has reserved 1,000,000 shares of its common stock for issuance under the Plan at prices not less than 100% of the fair value of the Company’s common stock on the date of grant (110% in the case of shareholders owning more than 10% of the Company’s common stock). The Black-Scholes option pricing model has been used to determine the fair value of options granted subsequent to January 17, 2001.

Option activity is summarized as follows:

For the year ended March 31, 2003:

Options Outstanding - April 1, 2002	381,328

Options granted	180,000
Options exercised	—
Options forfeited or expired	(99,900	)


Options outstanding - March 31, 2003	461,428

For the year ended March 31, 2004:

Options granted	—
Options exercised	—
Options forfeited or expired	(46,200	)


Options outstanding - March 31, 2004	415,228

For the year ended March 31, 2005:

Options granted	60,000
Options exercised	(111,600	)
Options forfeited or expired	(27,106	)


Options outstanding- March 31, 2005	336,522

Information with respect to stock options outstanding and exercisable at March 31, 2005 is as follows:

Options Outstanding and Exercisable

Outstanding as of 3/31/05	Weighted Avg. Remaining Life in Years	Exercise Price


56,000	2.3	$ 0.29
15,000	2.6	$ 0.44
15,000	1.6	$ 0.55
60,000	4.5	$ 0.86
39,712	1.1	$ 1.00
150,810	0.4	$ 1.03

SFAS No. 123 requires pro forma disclosure under the fair value method of net income (loss) and income (loss) per share when stock options are granted to employees and directors. The fair value for options was estimated at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. The weighted average fair value of options granted in 2005, 2004, and 2003 and the assumptions used in estimating fair value under the Black-Scholes model are as follows:

		2005		2004		2003

Estimated weighted average values of options granted	$	0.59	$	n/a	$	0.24

Principal assumptions in applying the Black-Scholes valuation model:

Expected life, in years	2.50		n/a	2.50
Risk-free interest rate	2.62	%	n/a	3.01	%
Expected volatility	1.26		n/a	1.54
Expected dividend yield	0.00	%	n/a	0.00	%

For purposes of pro forma disclosures, the estimated fair value of options granted to employees and directors is amortized to expense over the options’ vesting period and the pro forma expense is adjusted for the effect of income taxes. Had the Company adopted FASB Statement No. 123 in lieu of APB No. 25, the Company’s net income (loss) and income (loss) per share would have been the pro forma amounts indicated below:

	2005		2004		2003

Net income (loss) as reported	$	2,869,860	$	642,988	$	(211,471	)

Less: Stock-based compensation under
SFAS 123		25,843		—		21,473


Pro forma net income (loss)	$	2,844,017	$	642,988	$	(232,944	)

Pro forma net income (loss) per share:

Basic -	$	0.38	$	0.09	$	(0.03	)

Diluted -	$	0.37	$	0.09	$	(0.03	)


Net income (loss) per share as reported:

Basic -	$	0.39	$	0.09	$	(0.03	)

Diluted -	$	0.37	$	0.09	$	(0.03	)

Shares used in calculation of pro forma
per shares amounts: basic		7,389,798		7,380,498		7,080,498

diluted		7,726,320		7,483,549		7,123,831

11. Commitments and Contingencies

Leases:

The Company leases offices, warehouse facilities, vehicles and office equipment under noncancellable operating leases. Future minimum lease payments under such leases are as follows:

Fiscal Years

2006		675,200
2007		484,193
2008		447,277
2009		173,533
Thereafter		2,451

Total	$	1,782,654

Aggregate rent expense for offices and warehouse facilities amounted to $1,252,601, $1,066,962, and $920,893 for the years ended March 31, 2005, 2004, and 2003, respectively. Aggregate rent expense for vehicles and office equipment amounted to $58,946, $71,903, and $118,026 for the years ended March 31, 2005, 2004, and 2003, respectively.

Litigation:

In March 2002, a lawsuit was filed against the Company by a competitor seeking damages of an unspecified amount. The competitor is alleging that the Company illegally interfered with customer relationships of the competitor. At this time, the outcome of this litigation cannot be determined. There has been no change to this litigation matter in last twelve months. The lawsuit is still in the discovery phase.

Contingencies:

At March 16, 2005, the Company sold its 5.49% working interest in the Roosevelt Hot Springs geothermal unit to Energy Minerals, Inc. (“buyer”). As part of the transaction, the buyer assumed the remaining liability under the geothermal steam purchase agreement with Pacificorp (d/b/a Utah Power & Light Company). Under the 30-year agreement executed in 1993, a $1 million prepayment was received by the Company from Pacificorp. The agreement gives Pacificorp the right to recover a pro-rated portion of their original $1 million pre-payment should the geothermal unit fail to produce steam at levels specified under the agreement. The Company recorded the pre-payment as deferred revenue and was amortizing the amount as earned revenue over the 30-year term of the steam purchase agreement. Energy Minerals, Inc. has been assigned rights to the steam purchase agreement with Pacificorp and has assumed the remaining $672,123 deferred revenue liability as of March 16, 2005. However, should the geothermal unit fail to produce steam at levels specified under the agreement during the remaining 30 year term of the agreement, PacifiCorp could potentially make a claim against Emtec as a former owner, if the current ownership of the geothermal unit failed to satisfy PacifiCorp’s claims. The Company believes that the probability of this occurrence is remote due to the strong production and operating history of the geothermal unit.

12. Supplemental Cash Flow Information

Cash paid for interest and income taxes were as follows:

	2005		2004		2003

Interest	$	217,860	$	328,296	$	160,803
Income Taxes	$	256,225	$	50,341	$	17,128

13. Related Party Transactions

The Company moved its 2990 Gateway Drive, Norcross, GA office and warehouse location to 500 Satellite Blvd., Suwanee, GA on December 1, 2004. The Company is occupying approximately 21,000 square feet of office and warehouse space out of a total of approximately 70,000 square feet. This space is leased from GS&T Properties, LLC, in which Messrs. John Howlett and Ronald Seitz, each an executive officer and director of the Company, are passive investors, each owning an approximate 10% equity interest. The lease term is for 5 years with monthly base rent of $12,500.

14. Office Consolidation

In December 2004, the Company completed the final phase of its office consolidation plan by entering into an agreement to sub-lease its office space at 880 3^rd Avenue in New York City. The June 2008 term of the sublease coincides with the term of the Company’s underlying lease. The sublease is expected to generate approximately $15,700 in monthly rental receipts to the Company to partially offset approximately $25,000 in monthly rent payments to be made by the Company pursuant to its underlying lease commitment through June 2008.

The Company has recorded a one-time charge of $470,000 to sales, general and administrative expenses for the year ended March 31, 2005. This charge was computed based upon the net present value of the Company’s remaining lease obligation in excess of the present value of expected rental receipts under the sub-lease.

The company has moved its New York City office to a much smaller shared office space located at 116 West 23^rd Street, New York. The term of this lease is for fourteen months at monthly base rent of $1300.

15. Discontinued Operations

At March 16 2005, Emtec sold its 5.49% working interest in the Roosevelt Hot Springs geothermal unit located in Beaver County, Utah for $150,000 cash to Energy Minerals, Inc. The Company recorded a gain of $ 289,275 on the disposition as follows:

Cash proceeds	$	150,000
Deferred Revenue liability assumed in transaction		672,123


Total Consideration		822,123
Carrying Value of Investment @3/16/05		532,849

Net Gain from disposition	$	289.274

The net gain as reported in the statement of operations was reduced to

$208,278 after giving effect to income taxes of $80,996.

The operating results of the geothermal investment, net of income taxes, for the three years ended March 31, 2005, 2004 and 2003 are reclassified as discontinued operations in the statement of operations.

Continuing operations include the results of the Company’s continuing information technology business.

16. Quarterly Financial Information - (Unaudited)

	First Quarter		Second Quarter			Third Quarter		Fourth Quarter		Total Year
	2005
Revenues	$	28,564,207	$	29,083,729		$	24,959,657	$	30,092,405	$	112,699,998
Gross Profit		3,942,470		3,869,923			3,686,703		4,854,191		16,353,287
Income (Loss) From Continuing Operations	$	595,367	$	603,423		$	72,195	$	1,342,545	$	2,613,530
Net Income (Loss)	$	603,139	$	616,393		$	81,590	$	1,568,738	$	2,869,860

Per share:

Income (Loss) From Continuing Operations

Basic	$	.08	$	.08		$	0.01	$	.18	$	.35
Diluted	$	.08	$	.08		$	0.01	$	.17	$	.34

Net Income (Loss)

Basic	$	.08	$	.08		$	0.01	$	.21	$	.39
Diluted	$	.08	$	.08		$	0.01	$	.20	$	.37

	2004
Revenues	$	28,432,755	$	25,769,166		$	24,618,564	$	21,350,823	$	100,171,308
Gross Profit		3,673,482		3,265,192			3,837,011		3,615,770		14,391,455
Income (Loss) From Continuing Operations	$	347,677	$	(149,727	)	$	337,229	$	84,926	$	620,105
Net Income (Loss)	$	357,891	$	(138,948	)	$	320,326	$	103,719	$	642,988

Per share:

Income (Loss) From Continuing Operations

Basic	$	.05	$	(.02	)	$	0.04	$	.01	$	.08
Diluted	$	.05	$	(.02	)	$	0.04	$	.01	$	.08

Net Income (Loss)

Basic	$	.05	$	(.02	)	$	0.05	$	.01	$	.09
Diluted	$	.05	$	(.02	)	$	0.04	$	.01	$	.09

17. Accounts Receivable and Inventory Allowances

The following table provides information regarding accounts receivable and inventory valuation allowance activity for the three years ended March 31, 2005.

	Allowances
	Accounts Receivable			Inventory
Balance, April 1, 2002	$	152,602		$	451,715

Charged to costs and expenses		88,245			23,536
Write-offs		( —	)		(4,048	)

Balance, March 31, 2003	$	240,847		$	471,203

Charged to costs and expenses		165,054			251,348
Write-offs		(42,499	)		( —	)

Balance, March 31, 2004	$	363,402		$	722,551

Charged to costs and expenses		306,304			138,636
Write-offs		(81,291	)		(427,520	)

Balance, March 31, 2005	$	588,415		$	433,667

18. Subsequent Event

On July 14, 2005, the Company announced that it had entered into a definitive agreement to merge with DARR Westwood Technology Corporation, the parent company of Westwood Computer Corporation. Westwood Computer Corporation, headquartered in Springfield, New Jersey and established in 1964, is a privately held information technology company and a supplier of information technology products and services to the Federal Government. Westwood Computer has additional locations in New York and Virginia, as well as five regional offices in the South and Western United States.

Upon the effectiveness of the merger, which is expected to occur within the next several weeks, DARR Westwood's shareholders will acquire approximately 55% of the Company’s then issued and outstanding shares of common stock and the Company’s board of directors will be comprised solely of DARR Westwood's designees, thereby resulting in a change in the Company’s control. Dinesh Desai, Chairman and CEO of Westwood Computer, will become the Company’s Chairman and CEO. John Howlett and Ron Seitz, currently the Company’s CEO and our COO, respectively, will remain as President, Northeast and President, Southeast, respectively.

Completion of the merger is subject, among other matters, to regulatory filings and the expiration of a subsequent 10 day waiting period. Subject to the receipt of institutional financing, which is also a condition to the completion of the merger, the Company will initiate within 30 days thereafter a self-tender offer to repurchase up to 2,864,584 shares of its then issued and outstanding shares of common stock having an aggregate purchase price of up to $5.5 million at a price of $1.92 per share.

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.

Dated: July 14, 2005

	EMTEC, INC.

	By:	/s/ John P. Howlett
		John P. Howlett
		Chairman and Chief Executive Officer

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.

Signature	Title	Date

/s/John P. Howlett	Chairman and	July 14, 2005
John P. Howlett	Chief Executive Officer

/s/Sam Bhatt	Vice President-Finance	July 14, 2005
Sam Bhatt	(Principal Financial Officer)
	(Principal Accounting Officer)

/s/Ronald A. Seitz	President, Chief Operating	July 14, 2005
Ronald A. Seitz	Officer, and Director

/s/Frank Jerd	Director	July 14, 2005
Frank Jerd

/s/George F. Raymond	Director	July 14, 2005
George F. Raymond

- 69 -

EX-10 2 ex10-24.htm EXHIBIT 10.24


	EXHIBIT 10.24
STANDARD SHOPPING CENTER LEASE	(Approved October, 2002)

THIS LEASE made this ___2___ day of September , 20 04 , by and between GS&T Properties, LLC (hereinafter referred to as “Lessor”) and Emtec, Inc. (hereinafter referred to as “Lessee”) and Southprop, Inc. (hereinafter referred to as “Agent”).

1.0 LEASE SUMMARY. (summary only-see specific lease provisions herein)

Premises:	500 Satellite Blvd.
	Suwanee, GA 30024
	21,284 sq. ft. (see exhibit B attached hereto)

Lessee Billing Address:	500 Satellite Blvd.
	Suwanee, GA 30024

Permitted Use:	Computer and related items, sales, service, and warehouse

Trade Name:	Emtec, Inc.

Term:	5 years

Option:	One five year option

Base Monthly Rental:	Year 1	$ 12,416.00
	Year 2 – 5	CPI Adjustment

Other Monthly Expenses: (Estimated)

	Common Area Maintenance (CAM)	$ 621.00
	Taxes	$ 976.00
	Insurance	$ 177.00
	Water	Prorata
	Other

TOTAL MONTHLY RENTAL AND OTHER EXPENSES (Est.)		$ 14,190.00

	Security Deposit:	$ 14,190.00


	Signage: ALL EXTERIOR SIGNAGE MUST BE APPROVED IN WRITING BY LESSOR PRIOR TO INSTALLATION.

	Exterior Wiring: No exterior wiring of any type whatsoever is allowed. (See Paragraph 9.3)

	HVAC Semi-annual Inspection: See Paragraph 8.3

2.0 PREMISES.

2.1 Lessor does hereby demise, rent and lease to Lessee and Lessee from Lessor the following described space (hereinafter referred to as “Premises”):

The Premises are more particularly designated as Suite A, 500 Satellite Blvd, Suwanee, GA 30024. For all purposes under this Lease, Lessor and Lessee have agreed that the Premises shall be deemed to include 21,284 square feet of area.

No easement for light or air is included.

3.0 TERM.

3.1 To have and to hold the same for a term beginning on the day of December 1, 2004 and ending at 6:00 P.M. on November 30, 2009 unless sooner terminated as hereinafter provided.

3.2 The term of this lease shall commence as shown above, or on the commencement as hereinafter defined. The commencement shall be the date upon which the buildings and other improvements erected and to be erected consisting of the Premises shall have been substantially completed in accordance with all plans and specifications. Lessor shall notify Lessee as soon as Lessor deems said building and other improvements to be completed and ready for occupancy. Taking of possession by Lessee shall conclusively establish that said buildings and other improvements have been completed in accordance with all plans and specifications and that the Premises are in good and satisfactory condition as of the time when possession is taken.

4.0 POSSESSION.

4.1 It is agreed and understood that if Lessor is unable to deliver possession of the premises to Lessee at the commencement of the term of this lease because of the retention of possession thereof by other parties, or because the Premises are not ready for occupancy by Lessee, then Lessor shall not be liable to Lessee in damages and the term of this lease shall not be affected by such delay; however, Lessee shall have no obligation to pay rent until possession of the Premises is delivered to Lessee. Lessor shall use all reasonable diligence to deliver possession of the Premises to Lessee on or before commencement of the term hereof.

4. 2 Lessee shall be responsible for the timely performance by its architect/engineer/space designer and/or other contractors. The date of possession and commencement of rent will not be delayed if the delay is caused by Lessee’s architect/engineer/space designer and/or other contractor or any other reason beyond Lessor’s control.

5.0 RENTAL.

5.1 Lessee shall pay to Lessor “Base Rent” of $12,416.00 per month. In addition, Lessee shall pay to Lessor “Lessee’s Share of Common Area Maintenance Costs,” which shall be equal to the Total Shopping Center Rentable Area (as defined below) multiplied by a fraction the numerator of which is the Rentable Square Feet in the Premises and the denominator of which is the Total Shopping Center Rentable Area (as defined below). For purposes of this Lease, the Total Shopping Center Rentable Area is approximately 70,000 square feet and “Lessee’s Share of Common Area Maintenance Costs” equals approximately 28.5% of the Common Area Maintenance Costs. “Common Area Maintenance Costs” shall mean all actual costs paid by Lessor or on its behalf in connection with the maintenance, operation, repair, cleaning and security of the common area of the Shopping Center, reasonable costs of management fees, wages of employees, utilities, uninsured repairs or claims, and operating expenses of the Shopping Center, all as determined by Lessor in its sole discretion to be necessary or appropriate.

5.2 Upon execution of this lease, Lessee shall pay to Lessor in advance the first month’s Base Rent and the first month’s Lessee’s Share of Common Area Maintenance Costs; and a refundable security deposit equal to the last month’s Total Rent, which will be refunded if Lessee has complied with all terms and conditions of the lease, occupied the Premises for the full term of the lease and any renewals thereof, and has not damaged the Premises beyond normal wear and tear. Thereafter, monthly installments of Base Rent and Lessee’s Share of Common Area Maintenance Costs shall be due and payable without demand or notice on or before the first day of each calendar month during the term of this lease at Lessor’s address shown in Section 24.1 hereof. Provided, however, that if any portion of the lease term with respect to which any Base Rent or Common Area Maintenance Costs are payable is less than a full calendar month, the amount payable for such partial month shall be pro-rated, based on a per diem rate equal to one-thirtieth (1/30) of the month.

5.3 Lessee’s Share of Common Area Maintenance Costs for the first Lease Year and thereafter until adjusted as hereinafter provided shall be approximately $583.00 per month. If the Common Area Maintenance Costs increase, Lessor shall have the right to give to Lessee written notice of such increase and Lessee’s share thereof, in which case Lessee’s Share of Common Area Maintenance Costs shall be so increased, beginning on the first day of the next month following receipt of such notice of increase. Upon giving said notice of increase, Lessor shall send to Lessee, if so requested, by Lessee, a written report of the Common Area Maintenance Costs for the preceding period and a written estimate of said Costs for the period following the increase. Lessor shall not have the right to increase Lessee’s Share of said Costs more often than once each twelve (12) months.

5.4 Lessor shall, within one hundred twenty (120) days (or as soon thereafter as practical) after the close of each calendar year, provide Lessee an unaudited statement of previous year’s actual Common Area Maintenance Costs and the estimated Common Area Maintenance Costs used by Lessor for such year (the “Final Annual Statement of Operating Costs”). If the actual Common Area Maintenance Costs are greater than the estimated Common Area Maintenance Costs used by Lessor for such previous year, Lessee shall pay Lessor, within thirty (30) days from the date of such statement, Lessee’s Share of the difference thereof. If such year’s estimated Common Area Maintenance Costs were greater than the actual Common Area

Maintenance Costs as shown on the Final Annual Statement of Operating Costs, Lessor shall grant to Lessee a credit against Tenant’s Share of Common Area Maintenance Costs next accruing.

5.5 “Lease Year,” as used herein, shall mean the period of twelve (12) calendar months commencing with the commencement date of this lease and ending at midnight twelve months later, each successive period of twelve (12) calendar months thereafter during the lease term, and the final period of twelve (12) calendar months or less in which the lease term expires. During any Lease Year within the lease term which is less than twelve (12) full months, any amount to be paid with respect to such period shall be pro-rated, based on the actual number of days of the partial Lease Year and assuming each month to have thirty (30) days.

5.6 Effective at the end of each and every Lease Year, the Base Rent set forth in Section 5.1 above, shall be increased by the same percentage which the Consumer Price Index shall have increased since the Base Period. The “Base Period” as used herein, shall mean the first month of occupancy of this lease. Should this lease contain stipulated periodic adjustments in the base rent then the base rent shall be adjusted by the change in the CPI index twelve months after said change in the base rent. The increase at the end of each and every Lease Year shall be an amount equal to the product of the Monthly Rental of the Base Period multiplied by the difference expressed as a percentage between the “Consumer Price Index” published from the Base Period and the latest Consumer Price Index available at the then current Lease Year. “Consumer Price Index,” as used herein, shall mean the index now known as the “United States Bureau of Labor Statistics, Revised Consumer Price Index for Urban Wage Earners and Clerical Workers, All Items, Atlanta, Georgia, SMSA (1982-84=100)” for each applicable year.

5.7 If Lessee shall fail to pay, when the same is due and payable, any Rent or any Additional Rent, or amounts or charges of the character described in Section 5 and/or 6 hereof, such unpaid amounts shall bear interest from the due date thereof to the date of payment at the rate which is the greater of eighteen (18%)percent per annum or the maximum interest rate permitted by law. Lessee shall in addition, pay as Additional Rent a fee of up to Seventy Five Dollars ($75.00) plus $15 per day for the cost of processing late payments. Failure to pay such late charge shall be an event of default hereunder.

6.0 TAX, INSURANCE AND ADDITIONAL CHARGES.

6.1 Lessee agrees to pay its proportionate share of all taxes, assessments, and governmental charges of any kind and nature whatsoever (hereinafter collectively referred to as the “Taxes”, levied or assessed against the Shopping Center. During each month of the term of this Lease, Lessee shall make a monthly escrow deposit with Lessor equal to 1/12 of its proportionate share of the Taxes on the Shopping Center which will be due and payable for that particular year. Lessee authorizes Lessor to use the funds deposited by him with Lessor under this Section to pay the Taxes levied or assessed against the Shopping Center. Each Tax Escrow Payment shall be due and payable at the same time and in the same manner as the time and manner of the payment Base Rent.

6.2 Lessee agrees to pay its proportionate share of Lessor’s cost of carrying fire and extended coverage insurance (“Insurance”) on the Shopping Center. During each month of the term of this lease, Lessee shall make a monthly escrow deposit with Lessor equal to 1/12 or its proportionate share of the Insurance on the Shopping Center which will be due and payable for that particular year. Lessee authorizes Lessor to use the funds deposited by him with Lessor under this Paragraph to pay cost of such Insurance. Each Insurance Escrow Payment shall be due and payable at the same time and manner of the payment of Base Rent as provided herein.

6.3 Lessee’s share of Taxes shall be an amount equal to the Taxes multiplied by a fraction the numerator of which is the Rentable Square Feet in the Premises and the denominator of which is the Total Shopping Center Rentable. If the actual Taxes for any year are greater than the charged Taxes, Lessee shall pay Lessor, within thirty (30) days of the date Lessor sends to Lessee a statement showing the actual Taxes for the year, Lessee’s share of the difference thereof. If such year’s charged Taxes are greater than the actual Taxes, Lessor shall grant to Lessee a credit against Lessee’s Share of Taxes next accruing.

6.4 Lessee’s share of Insurance costs shall be an amount equal to the Insurance multiplied by a fraction the numerator of which is the Rentable Square Feet in the Premises and the denominator of which is the Total Shopping Center Rentable. If the actual Insurance for any year are greater than the charged Insurance, Lessee shall pay Lessor, within thirty (30) days of the date Lessor sends to Lessee a statement showing the actual Insurance for the year, Lessee’s share of the difference thereof. If such year’s charged Insurance are greater than the actual Insurance, Lessor shall grant to Lessee a credit against Lessee’s Share of Insurance next accruing.

6.5 In addition to Base Rent, Common Area Maintenance Costs, Taxes and Insurance, and all other payments to be made by Lessee to Lessor, shall be deemed to be and shall become “Additional Rent” hereunder whether or not the same be designated as such, and shall be due and payable on demand together with any interest and late charges thereon; and Lessor shall have the same remedies for failure to pay same as for a non-payment of Base Rent.

6.6 Lessor shall, within one hundred twenty (120) days (or as soon thereafter as practical) after the close of each calendar year, provide Lessee an unaudited statement of such year’s actual Insurance costs compared to the charged Insurance costs for such year (the “Final Annual Statement of Insurance Costs”). If the actual Insurance costs are greater than the charged Insurance costs, Lessee shall pay Lessor, within thirty (30) days of such statement’s receipt, Lessee’s Share of the difference

thereof. If such year’s charged Insurance costs are greater than the actual Insurance costs as shown on the Final Annual Statement of Insurance Costs, Lessor shall grant to Lessee a credit against Lessee’s share of Insurance costs next accruing.

7.0 USE AND OPERATION OF BUSINESS.

7.1 Lessee shall use the Demised Premises only for the Permitted Use set forth in said Paragraph 1.0, and Lessee shall not use or permit or suffer the use of the Demised Premises for any other Business or purpose. Lessee shall conduct its business only under its own name under Lessee’s Trade Name, set forth in said Paragraph 1.0. Lessee shall conduct its business in the Demised Premises during the regular customary days and hours for such type of business in the city or trade area in which the Shopping Center is located. Lessee shall install and maintain at all times attractive displays of merchandise in the display windows of the Premises. Lessee’s use cannot create a nuisance or trespass of other lessees’ space within the Shopping Center.

7.2 Lessor may inspect the Premises during business hours to determine whether or not Lessee is complying with the terms and provisions of this lease or to show the Premises to prospective purchasers or mortgagees of the Premises and during the last ninety (90) days of the term of this lease, to prospective Lessees. Lessee must comply at its own expense, with all municipal, county, state and federal rules, laws or regulations applicable to Lessee’s use of the Premises, including but not limited to compliance with the Americans with Disabilities Act.

7.3 Lessee shall not at any time leave the premises vacant, but shall in good faith continuously throughout the term of this Lease conduct and carry on in the premises the type of business for which the premises are leased.

8.0 REPAIRS.

8.1 Lessor shall, at its expense, maintain the roof, structural parts and outside walls. The term “walls” as used herein shall not include glass or plate glass. Lessor gives to Lessee exclusive control of the Premises and shall be under no obligation to inspect the Premises. Lessee shall immediately give Lessor written notice of any defective condition which Lessor is required to repair, after which Lessor shall have reasonable opportunity to repair same or cure such defect. Lessor shall have the right, but not the duty, to enter the Premises at any time in order to examine the Premises, or to make such repairs as required herein or which Lessor may deem necessary for the safety of, comfortable habitation in, or preservation of the Premises or the Shopping Center. Lessor may block entranceways or doorways to the Premises or the Shopping Center for reasonable periods of time in the course of making such repairs without any claim of eviction or breach of the Lease by Lessee. Nothing contained in this Lease shall require Lessor to repair any damage caused by Lessee (or Lessee’s invitees, contractors, employees or agents), and Lessee shall cause said repairs to be made at its expense.

8.2 LESSEE ACCEPTS THE PREMISES IN THEIR PRESENT CONDITION AS SUITED FOR THE USE INTENDED BY LESSEE. Lessee shall keep and maintain the Premises in good order and good repair and shall promptly make all repairs except those expressly herein required to be done by Lessor. Without limiting the generality of the foregoing, Lessee shall be responsible for all maintenance and repair of all equipment and fixtures used in connection with the Premises including heating, ventilating, air conditioning, plumbing, electric, gas, and telephone equipment and fixtures including water, gas and electrical connections to the Premises. Lessee shall at the end of the term hereof return the keys and deliver possession of the Premises to Lessor, with all of Lessee’s property removed, in the same condition as on the commencement of the term hereof, in a broom-clean condition, natural wear and tear excepted. Lessee shall not remove any fixtures, machines or equipment from the Premises unless it shall repair and restore any damage caused to Premises by the installation, removal, and/or use of said fixtures, equipment or machines. Lessee shall not remove fixtures, equipment or machines from Premises if it is in default under this lease. No area outside of Premises shall be used by Lessee for storage without Lessor’s prior written permission.

8.3 DURING THE TERM OF THIS LEASE LESSEE AGREES TO HAVE IN EFFECT A MAINTENANCE AGREEMENT COVERING THE HEATING AND AIR CONDITIONING EQUIPMENT. Such agreement shall provide for a minimum of two visits annually - - in the spring and fall - and shall be with a reputable contractor approved by Lessor. Lessee shall provide satisfactory proof of such semi-annual service satisfactory to Lessor by April 1 and October 1 then Lessor without notice to Lessee may have a reputable contractor provide said service and charge Lessee for the cost of the service as Additional Rent. Nothing contained in this paragraph shall relieve Lessee of any obligations contained elsewhere in this paragraph.

8.4 If the Premises constitutes all of the rentable area of the Shopping Center building in which the Premises are located, then Lessee shall at Lessee’s expense care for the grounds surrounding the building, including mowing the grass, care of shrubs and general landscaping. Lessee shall keep the parking areas, driveways and alleys and the whole of the Premises in a clean and sanitary condition free of any trash, scraps or any materials and products pertaining to its business. No area outside of Premises shall be used by Lessee for storage without Lessor’s prior written permission. If the Premises do not constitute all of the rentable area of the Shopping Center building in which the Premises are located, then Lessor shall care for the grounds surrounding the building, including the mowing of grass, care of shrubs and general landscaping, and the costs of such care shall be a part of the Common Area Maintenance Costs.

8.5 Lessee shall be responsible for all repairs caused by break-ins, forced entry and/or vandalism to the Premises. All personal property brought into the Premises by Lessee, its employees, licensees and invitees shall be at the sole risk of Lessee.

Lessor shall not be liable for theft thereof or of money deposited therein or for any damages thereto, such theft or damage being the sole responsibility of Lessee.

9.0 ALTERATIONS.

9.1 No alterations, additions or improvements in the Premises shall be made without the prior written consent of Lessor, which consent may be withheld by Lessor, in its sole discretion. Any such alterations, additions or improvements must comply with all applicable zoning and building codes.

9.2 At the termination of this lease, Lessee shall, if Lessor so elects, remove all alterations, additions or improvements erected by Lessee and restore the Premises to their original condition. All such removals and restoration shall be accomplished in good workman-like manner. Lessee shall keep Premises free of any mechanic’s lien or encumbrances due to Lessee’s alterations, additions, removal or improvements. If the Lessor does not so elect, all alterations, additions or improvements made in or upon the Premises, either by the Lessee or the Lessor, shall be the Lessor’s property, and shall remain upon the Premises at the termination of said term by lapse of time or otherwise, without compensation to the Lessee.

9.3 No exterior wiring of any type whatsoever serving Lessee’s premises shall be added by Lessee, Lessee’s contractors and/or utility companies to the exterior of the premises or any other part of the Shopping center. Should exterior wiring be installed in violation of this paragraph then Lessor shall have the right to immediately remove said wiring with all costs of removal and repair to be immediately paid by Lessee. Lessor shall not be liable for interruption to Lessee’s utility service caused by removal of unauthorized wiring.

10.0 DESTRUCTION OR DAMAGE.

10.1 If either the Premises or the Shopping Center containing the Premises is totally destroyed or so substantially damaged as to be determined untenantable by Lessor in its sole discretion, by fire, lightning, earthquake, windstorm or other casualty, and cannot be repaired within a reasonable time, this lease may be terminated by Lessor upon thirty (30) days written notice to the other, and rent shall be accounted for between Lessor and Lessee as of the termination date.

10.2 If the Premises or any part thereof, are damaged but not rendered untenantable, as determined by Lessor in its sole discretion, by the above mentioned casualty, Lessor shall repair the Premises within a reasonable time after receipt of written notice thereof; provided, that Lessor shall not be required to rebuild, repair or replace any part of the alterations, additions, improvements, equipment or machinery which may have been placed on the Premises by Lessee. Until such repairs shall be made, all rent shall be abated proportionately to the part of the Premises which is usable by Lessee as determined by Lessor. At the completion of such repair, all rent shall recommence.

10.3 Any insurance which may be carried by Lessor or Lessee against loss or damage to the Shopping Center and/or the Premises shall be for the sole benefit of the party carrying such insurance.

10.4 Lessee shall not make any use of the Premises which would make void or voidable any policy of fire or extended coverage insurance insuring the Premises, and if by reason of any use by Lessee of the Premises, the hazard premiums on policies maintained by Lessor shall be increased over normal rates for this type of building, the amount of the increase in the premium shall be paid by Lessee to Lessor from time to time on demand. Lessee agrees to indemnify and save harmless the Lessor against all claims for damages to persons or property by reason of Lessee’s use or occupancy of the premises and all expenses incurred by Lessor because thereof, including attorney fees and court costs.

11.0 HAZARDOUS SUBSTANCES.

11.1 Lessee hereby covenants that Lessee shall not cause or permit any “Hazardous Substances” (as hereinafter defined) to be placed, held, located or disposed of in, on or at the Premises or any part thereof and neither the Premises nor any part thereof shall ever be used as a dump site or storage site (whether permanent or temporary) for any Hazardous Substances during the Lease Term.

11.2 Lessee hereby agrees to indemnity Lessor and hold Lessor harmless from and against any and all losses, liabilities, including strict liability, damages, injuries, expenses, including reasonable attorneys’ fees, costs of any settlement or judgment and claims of any and every kind whatsoever paid, incurred or suffered by, or asserted against, Lessor by any person or entity or governmental agency for, with respect to, or as a direct or indirect result of, the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or release from, the Premises of any Hazardous Substance (including, without limitation, any losses, liabilities, including strict liabilities, damages, injuries, expenses, including reasonable attorneys’ fee, costs of any settlement or judgment or claims asserted or arising under the Comprehensive Environmental Response, Compensation and Liability Act, any so called federal, state or local “Superfund” or ”Superlien” laws, statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to or imposing liability, including strict liability, substances or standards of conduct concerning any Hazardous Substance), provided, however, that the foregoing indemnity is limited to matters arising solely from Lessee’s violation of the covenant contained in subsection (1) above.

11.3 For purposes of this Lease, “Hazardous Substances” shall mean and include those elements or compounds which are contained in the list of hazardous substances adopted by the United States Environmental Protection Agency (the ”EPA”) or the list of toxic pollutants designated by Congress or the EPA or which are defined as hazardous, toxic, pollutant, infectious or radioactive by any other Federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material, as now or at any time hereafter in effect.

11.4 Lessor shall have the right but not the obligation, and without limitation of Lessor’s rights under this Lease, to enter onto the Premises or to take such other actions as it deems necessary or advisable to cleanup, remove, resolve or minimize the impact of, or otherwise deal with, any Hazardous Substance following receipt of any notice from any person or entity (including without limitation other EPA) asserting the existence of any Hazardous Substance in, on or at the Premises or any part thereof which, if true, could result in an order, suit or other action against Lessee and/or Lessor. All reasonable costs and expenses incurred by Lessor in the exercise of any such rights, which costs and expenses result from Lessee’s violation of the covenant contained in subsection (1) above, shall be deemed Additional Rental under this Lease and shall be payable by Lessee upon demand.

11.5 This Section shall survive cancellation, termination or expiration of this Lease.

12.0 LIABILITY AND INDEMNIFICATION.

12.1 Lessee does hereby agree to indemnify and save Lessor harmless from and against any and all liability for any injury to or death of any person or persons or damage to property in any way arising out of or connected with the condition, use or occupancy of the Premises, or in any way arising out of the activities of Lessee, its agents, employees, licensees or invitees on the Premises and/or the Shopping Center and from all costs, expenses and liabilities, including but not limited to reasonable attorneys fees, incurred by Lessor in connection therewith, excepting, however, liability caused by Lessor’s negligence.

12.2 Lessee covenants and agrees that Lessor shall not be liable to Lessee for any injury or death to any person or persons or for damage to any property of Lessee, or any person claiming through Lessee, arising out of any accident or occurrence in the Shopping Center, including, without limiting the generality of the foregoing, injury, death or damage caused by the Premises or of any portions of the Shopping Center being out of repair, or caused by any defect in or failure of equipment, piper, or wiring, or caused by broken glass, or caused by the backing of drains, or caused by gas, water, steam, electricity, or oil leaking, escaping or flowing into Premises, or caused by fire or smoke, or caused by the acts or omissions of other tenants located in or about the Shopping Center.

12.3 At all times during the term of this lease, Lessee shall keep in effect with insurance companies, satisfactory to Lessor, legally authorized to transact business in Georgia and maintaining an office or agency in the State of Georgia, public liability insurance including personal injury in the name of and for the benefit of Lessor and Lessee, with limits for bodily injury or death of not less than $300,000 for each person; $500,000 for each occurrence; and for property damage not less than $500,000. All policies and certificates of insurance shall name Lessor as an additional insured and shall provide that all Lessor’s losses, to the limit of the policy, will be indemnified and all liability claims against Lessor resulting from Lessee’s business will be defended by Lessee or his insurance carrier at no cost to Lessor. Lessee shall promptly deliver to Lessor all such certificates of insurance, and they shall be held by Lessor. Lessee agrees that it shall not cancel any of the above mentioned policies, or allow any one to lapse without delivering to Lessor a certificate indicating equal or greater coverage written by an insurance company acceptable to Lessor.

12.4 Lessee shall not keep, use, sell or offer for sale in or upon the Premises any article which may be prohibited by the standard form of fire insurance policy. Lessee agrees to pay any increase in premiums for fire and extended coverage insurance that may be charged during the Lease Term on the amount of such insurance which may be carried by Lessor on the Premises or the Shopping Center, resulting from the type of merchandise sold by Lessee in the Premises, whether or not Lessor has consented to the same. In determining whether increased premiums are the result of Lessee’s use of the Premises, a schedule, issued by the organization making the insurance rate on the Premises, showing the various components of such rate, shall be conclusive evidence of the several item and charges which make up the fire insurance rate on the Premises.

In the event Lessee’s occupancy causes any increase of premium for the fire, and/or casualty rates on the Premises, Lessee shall pay the additional premium on the fire and/or casualty insurance policies by reason thereof. The Lessee also shall pay, in such event, any additional premium on the rent insurance policy that may be carried by the Lessor for its protection against rent loss through fire. Bills for such additional premiums shall be rendered by Lessor to Lessee at such times as Lessor may elect, and shall be due from, and payable by, Lessee when rendered, and the amount thereof shall be deemed to be, and be paid as, Additional Rent.

12.5 Notwithstanding any other provision of this lease, each party hereto waives any cause of action it may have against the other party hereto on account of any loss or damage which is covered by any insurance policy of which the damaged party is a beneficiary. Each party agrees that it will request its insurance carrier to endorse all applicable policies, waiving the carrier’s rights of recovery under subrogation or otherwise with said carrier would have in the absence of this Section.

13.0 DEFAULTS AND REMEDIES.

13.1 If Lessee fails to keep or perform any covenant or provision of this lease (except payment of any installment of rent or other charge or money obligation herein required to be paid by Lessee) or violates any such covenant or provision, Lessor may, in addition to all other remedies at law or in equity or elsewhere provided for in this lease, without notice, enjoin Lessee from any such failure or violation.

13.2 The occurrence of any of the following is deemed to be an event of default under this lease:

                                (a) The making by Lessee of an assignment for the benefit of its creditors.

                                (b) The levying of a writ of execution or attachment on or against the property of Lessee and the same not being released or discharged within thirty (30) days thereafter.

                                (c) The institution of proceedings for the reorganization, liquidation or involuntary dissolution of Lessee, or for its adjudication as a bankrupt or an insolvent, or for the appointment of a receiver of the property of Lessee, and said proceeding not being dismissed, and any receiver, trustee or liquidator appointed therein not discharged within thirty (30) days after the institution of such proceedings;

                                (d) The doing or permitting to be done of any act by Lessee which creates a claim or a lien therefor against the Premises and/or Shopping Center and the same not being released or otherwise provided for by indemnification satisfactory to Lessor within thirty (30) days thereafter;

                                (e) Failure of Lessee to pay any installment of Base Rent, Additional Rent or other charge or money obligation herein required to be paid by Lessee within five (5) days after the due date [WITHOUT ANY REQUIREMENT OF NOTICE OR DEMAND], or to comply with any other covenant or provision of this lease within five (5) days after written notice of such failure is given by Lessor, or if it is not possible to cure such failure within such period promptly after receipt of such notice, to advise Lessor in writing of Lessee’s intention duly to institute all steps necessary to cure such failure or violation and to begin performance of such covenant within such period and diligently to pursue performance to completion in a reasonable time thereafter; or

                                (f) The abandonment or desertion of all or substantially all of the Premises by Lessee.

13.3 In the event of default, Lessor has the option of pursuing any one or more of the following remedies without any notice or demand whatsoever:

                                (a) Terminate this lease, in which event Lessee shall immediately surrender Premises to Lessor, and if Lessee fails to do so, Lessor may, without prejudice to any other remedy which Lessor may have, enter upon and take possession of Premises and expel or remove Lessee and any other person who may be occupying Premises or any part thereof, by force, if necessary, without being liable for prosecution or any claim of damages therefor;

                                (b) Enter the Premises as agent of Lessee without the requirement of resorting to the dispossessory procedures set forth in O.C.G.A. § 44-7-50 et seq., and without being liable for any claim for trespass or damages therefor, and, in connection therewith, re-key and/or re-take possession of the Premises without terminating the Lease, remove Lessee’s effects therefrom and store the same at Lessee’s expense for sale, without being liable for any damage thereto, and, if Lessor so elects, make such alterations and repairs as may be necessary to relet the Premises, and relet the Premises as agent of Lessee, without advertisement, by private negotiations, for any term Lessor deems proper, and receive the rent therefor. Upon each such reletting all rent received by the Lessor from such reletting shall be applied first to the payment of any expenses of such reletting, including brokerage fees and attorneys fees and costs of such alterations and repairs; and second to the payment of any indebtedness other than rent due hereunder from Lessee to Lessor; third to the payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Lessor and applied in payment of future rent as the same may become due and payable hereunder. Lessee agrees to pay to Lessor on demand any deficiency that may arise by reason of such reletting. Notwithstanding any such reletting without termination, Lessor may at any time thereafter elect to terminate this lease for such previous breach.

                                (c) Lessor may, in addition to any other remedies at law or in equity or elsewhere in this lease provided, cure or prosecute the curing of such failure or violation at reasonable expenses, which expenses shall be paid to Lessor by Lessee on demand. Lessee agrees that in the event of any failure or violation covered by this Article, all rights of Lessor may be exercised by persons acting on behalf of Lessor, under authority granted by Lessor, with full right of reimbursement as provided hereunder. Lessee agrees that neither Lessor nor any such person acting on its behalf shall be liable for any damage resulting to the Lessee by the exercise of the rights granted under this Article.

13.4 In the event the Lessor elects to terminate the Lease by reason of an event of default, then notwithstanding such termination, Lessee shall be liable for and shall pay the Lessor, at the address specified for notice to Lessor herein, the sum of all rental and other indebtedness accrued to date of such termination, plus, as damages, an amount equal to the total rental hereunder for the remaining portion of the Lease term, had such term not been terminated by Lessor prior to the date of expiration, less the net proceeds of any reletting of the Premises, plus the costs and expenses incurred by Lessor in connection with such reletting.

13.5 In the event of default Lessor may elect to repossess the premises without terminating the Lease, or in the event Lessor elects to repossess and terminate the Lease, then Lessee at Lessor’s option, shall be liable for and shall pay to Lessor at the address specified for notice to Lessor herein, all rental and other indebtedness accrued to the date of repossession, plus rental

required to be paid by Lessee to Lessor during the remainder of the Lease term, until the date of expiration of the Lease as provided herein, diminished by any net sums thereafter received by Lessor through reletting the premises during said period (after deducting expenses incurred by Lessor as provided herein). In no event shall Lessee be entitled to any excess of any rental obtained by reletting over and above the rental herein reserved. Actions to collect amounts due by Lessee to Lessor under this Lease may be brought from time to time, on one or more occasions, without the necessity of Lessor waiting until the expiration of the Lease term.

13.6 In the event of termination or repossession of the premises for an event of default, Lessor shall not have any obligation to relet or to attempt to relet the premises or any portion thereof, and in the event of reletting, Lessor may relet the whole or any portion of the Premises for any period to any Lessee at whatever rent obtainable and for any use and purpose.

13.7 Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided by law, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due to Lessor hereunder or of any damages accruing to Lessor by reason of the violation of any of the covenants and provisions herein contained. Lessee and Lessor agree to waive their respective rights to a jury trial relative to any provision of this lease.

13.8 Lessee hereby appoints as its agent to receive service of all dispossessory or distress proceedings and notices thereunder the person in charge of Premises at the time, and if no person is then in charge of Premises, then such service or notice may be made by attaching the same to the entrance of Premises, provided that a copy of such proceedings or notices shall be mailed to Lessee at the Premises.

13.9 Except as expressly provided in this Lease, Lessee hereby waives any and every form of demand and notice prescribed by statute or other law, including without limitation the notice of any election of remedies made by Lessor under this Section, demand for payment of any rent, or demand for possession.

13.10 Lessee shall and hereby agrees to pay all costs and expenses incurred by Lessor, including, but not limited to, reasonable attorneys’ fees in an amount no less than fifteen percent (15%), in enforcing any of the covenants and agreements of this Lease or as a result of any action brought by Lessor against Lessee for an unlawful detainer of the Premises, and all such costs, expenses and attorneys’ fees shall be paid by Lessee to Lessor within ten (10) days after Lessor’s written demand therefor.

13.11 Lessor shall have the right to dispose of Lessee’s effects removed from the Premises (“Lessee’s Property”). Unless Lessee’s Property is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lessor will give Lessee reasonable notice of the time and place of any public sale or of the time at which any private sale or any other intended disposition of Lessee’s Property is to be made. The requirements of reasonable notice shall be met if notice is mailed, by certified mail, return receipt requested, postage prepaid, to the address of Lessee in this Lease or if personally delivered at least five (5) days before the time of sale or disposition. Expenses of retaking, holding, preparing for sale, selling or the like shall include Lessor’s reasonable attorney’s fees and legal expenses incurred. The proceeds of any sale or other disposition of Lessee’s Property shall be first applied to the expenses of such retaking, holding, preparing for sale and the sale or disposition of Lessee’s Property, including reasonable attorney’s fees in an amount no less than fifteen percent (15%), and secondly to the payment of any interest or other expenses due Lessor, and third to the principal indebtedness due Lessor; provided, however, the Lessee shall remain liable for any deficiency remaining after such sale and application of the proceeds as aforesaid. Lessor may be the purchaser at any such sale.

14.0 CANCELLATION OF LEASE.

14.1 Lessor shall have the right any time after N/A to cancel this lease provided Lessor gives Lessee six months written notice of Lessor’s decision to cancel, and further provided such decision to cancel is caused by Lessor’s decision to demolish all or part of the premises.

15.0 CONDEMNATION.

15.1 If during the term of this lease the Premises or any substantial part thereof be condemned or taken by any governmental authority or any corporation having the power of eminent domain, the court in such condemnation proceedings shall be requested to make separate awards to Lessor and Lessee, and Lessor and Lessee agree to request such action by such court; however, in the event that the court grants only one award then it shall be the sole and exclusive property of the Lessor, and Lessee shall make no claim against this award. If the entire Premises are condemned, or if the portions of the Premises remaining after such condemnation proceedings shall not be suitable for Lessee’s use as determined by Lessor, this lease shall terminate as of the date of taking. If the portion of the Premises remaining after such condemnation proceedings shall be suitable for Lessee’s use as determined by Lessor, the rent payable by Lessee to Lessor after taking shall be reduced to the proportion of the rent stipulated hereunder which the square footage of the Premises remaining after the taking bears to the square footage of the Premises immediately prior to the taking.

16.0 SUBORDINATION.

16.1 This lease and all rights of Lessee hereunder are and shall be subject and subordinate to the lien of any mortgage, deed to secure debt, deed of trust or other instrument in the nature thereof which may now or hereafter effect Lessor’s or his successor’s interest in the fee title to the Premises. In confirmation of such subordination, Lessee shall, upon demand, at any time or times execute, acknowledge and deliver to Lessor, without expense to Lessor any and all instruments that may be requested by Lessor to evidence the subordination of this lease and all rights hereunder to the lien of any such mortgage, deed to secure debt, deed of trust or other instrument in the nature thereof and each renewal, modification, consolidation, replacement, or extension thereof, and if Lessee shall fail at any time to execute, acknowledge, and deliver any such instrument, Lessor, in addition to any other remedies available to it in consequence thereof, may execute, acknowledge and deliver the same as the attorney in fact of Lessee and in Lessee’s name, place and stead, and Lessee hereby irrevocable makes, constitutes and appoints Lessor, its successors and assigns, such attorney in fact for that purpose.

16.2 Notwithstanding the foregoing of paragraph 16.1, Lessor or his successor in interest may elect to make this lease superior to the lien of any mortgage, deed to secure debt, deed of trust, or other instrument in the nature thereof. Lessee shall, upon Lessor’s request, at any time or times, execute, acknowledge and deliver to Lessor without expense to Lessor, any and all instruments that may be necessary to make this lease superior to the lien of any such mortgage, deed to secure debt, deed of trust, or other instrument in the nature thereof, and each such renewal, modification, consolidation, replacement or extension thereof, and, if Lessee shall fail at ant time to execute, acknowledge and deliver any such instrument in addition to any other remedies available in consequence thereof, Lessor may execute, acknowledge and deliver the same as the attorney in fact of Lessee and in Lessee’s name, place and stead, and Lessee hereby irrevocably makes, constitutes and appoints Lessor, his successors and assigns, such attorney in fact for that purpose.

16.3 If the holder of any mortgage, deed to secure debt, deed of trust, or other instrument in the nature thereof shall hereafter succeed to the rights of Lessor under this lease, whether through possession or foreclosure action or delivery of a new lease, at the option of such holder, Lessee shall attorn to and recognize such successor as Lessee’s Lessor under this lease, and shall promptly execute and deliver any instrument that may be necessary to evidence such attornment, and Lessee hereby irrevocably appoints Lessor the attorney in fact of Lessee to execute and deliver such instrument on behalf of Lessee should Lessee refuse or fail to do so within ten (10) days after Lessor shall give notice to Lessee requesting the execution and delivery of such instrument, which notice shall be accompanied by a draft of such instrument. Upon any such attornment, this lease shall continue in full force and effect as a direct lease between such successor Lessor and Lessee, subject to all of the terms, covenants and conditions of this lease.

16.4 Lessee shall have no authority, express or implied, to create or place any lien or encumbrance, of any kind or nature whatsoever, upon, or in any manner to bind, the interest of Lessor in the Premises or to charge the rental payable hereunder or any claim in favor of any person dealing with Lessor, the Lessee covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises for which any lien is or can be validly and legally asserted, and that it will save and hold Lessor harmless from any and all loss, cost or expense based on or arising out of asserted claims or liens against the rights, title and interest of the Lessor in the Premises or under the terms of this lease. Lessee further agrees to bond or pay every lien within thirty (30) days of the date said lien attaches to the Premises and/or Lessor’s property.

17.0 SERVICES.

17.1 Lessee agrees to pay all charges, fees and deposits incurred for any utility services used on the Premises. In the event that the Premises are jointly connected to a utility meter with other Premises or property, Lessee agrees to pay its pro rata share of the commonly metered utility. Lessee shall pay an amount equal to the metered utility charges multiplied by a fraction the numerator of which is the Rentable Square Feet in the Premises and the denominator of which is the Total Shopping Center Rentable, unless Lessee’s operations require utility use in excess of normal requirements. In such case Lessor may allocate utility charges reasonably amongst the tenants at the Shopping Center. Lessor shall in no event be liable for any interruption or failure of utility services on the Premises, but if requested by Lessee, shall make reasonable effort to secure speedy resumption of said interrupted service. Lessee shall promptly notify the proper public authorities and utility companies to provide for water, sewer, trash removal, gas and electricity service in Lessee’s name and all costs for such services shall be borne by Lessee. In the event the water and sewer connections into the Premises are jointly metered with other Premises, Lessee shall pay to Lessor its prorata share per month for the first Lease Year and thereafter until adjusted. If such water and sewer charges increase, Lessee’s share shall so increase by Lessor giving written notice of such increase and Lessee’s share shall so increase beginning the first day of the next month following receipt of such notice of increase.

17.2 Lessee agrees to keep all plumbing in good repair during the term of this lease. If the premises are jointly connected to a utility meter and should excess water be used by Lessee due to leaking sinks and/or toilets then Lessee shall be responsible for the cost of the additional water used plus the cost of repairs incurred by Lessor. Lessee should at all times monitor premises for leaks and should immediately contact Lessor concerning repairs beyond the control or responsibility of Lessee.

18.0 PERSONALTY OF LESSEE.

18.1 If Lessee shall not remove all goods, wares, equipment, fixtures, furniture inventory, accounts, contract rights, chattel paper and other personal property situated on the Premises at the termination of this lease, Lessor may, at its option, remove all or part of said property in any manner that Lessor shall choose and store the same without liability for loss thereof, and Lessee shall be liable to Lessor for all expenses incurred in such removal and storage of said property.

18.2 Upon the termination of this lease wherein Lessee shall be liable in any amount to Lessor, in addition to the statutory lien for rent in Lessor’s favor, Lessor shall have and Lessee hereby grants to Lessor a continuing security interest for all rentals and any other sums becoming due hereunder from Lessee upon all property including, but not limited to, inventory and fixtures contained in the premises as described in Paragraph 2. Such property shall not be removed from the Premises without the consent of Lessor until all arrearages in rent, as well as any and all other sums of money then due to Lessor hereunder, shall first have been paid and discharged.

18.3 Upon the occurrence of any event of default by Lessee, Lessor may, in addition to any other remedies provided herein or by law, enter upon the Premises and take possession of any and all goods, wares, equipment, fixtures, furniture and other personal property of Lessee situated on the Premises without liability for trespass or conversion, and Lessor may sell the same with or without notice of public or private sale, with or without having such property at the sale, at which Lessor or its assigns may purchase all or any part of such property, and apply the proceeds thereof less any and all expenses connected with the taking of possession and sale of the property, as a credit against any sums due by Lessee to Lessor. Any surplus shall be paid to Lessee and Lessee agrees to pay any deficiency forthwith. Alternatively, the lien hereby granted may be foreclosed in the manner and form provided by law for foreclosure of a security interest or in any other form provided by law. Lessee will execute upon Lessor’s request a financing statement and security agreement evidencing Lessor’s security interest in Lessee’s personal property and warrants to Lessor that there are no prior liens or security interests on said personal property.

20.0 SUBLETTING AND ASSIGNMENTS.

20.1 Lessee may not, without the prior written consent of Lessor assign this Lease, any option granted herein, nor any interest hereunder, nor sublet the Premises, nor any part thereof, nor permit the use of the Premises by any party other than Lessee. Notwithstanding any permitted assignment or subletting, Lessee shall at all times remain fully responsible and liable for the payment of the rent and other herein specified charges and for compliance with all of Lessee’s other obligations under the terms, provisions and covenants of this lease. Any such assignment or subletting shall be limited to the existing term of the lease, and shall not include any options to extend or renew. Lessor shall have the right, in its discretion, to substitute any such assignee or sublease for the Lessee and release Lessee from any further obligations under the lease.

20.2 Any request by Lessee for approval to sell or sublet the Premises or to transfer or assign Lessee’s interest in this lease, shall be accompanied by a processing charge in the amount of $500.

20.3 Upon the occurrence of any default by Lessee as herein defined, if the Premises or any part thereof are then assigned or sublet, Lessor, in addition to any other remedies herein provided or provided by law, may at its option collect directly from such assignee or subtenant all rents becoming due to Lessee under such assignment or sublease and apply such rent against any sum due to Lessor by Lessee hereunder, and such collection shall not be construed to constitute a notation nor a release of Lessee from the further performance of its obligations hereunder.

21.0 AGENT’S COMMISSION.

21.1 To comply with Georgia Real Estate Commission guidelines, a separate written commission agreement must be entered into between the agents involved in this transaction. Commissions shall be due and payable upon payment of the first months rent, occupancy of the premises and commencement of business by Lessee. Lessor agrees, if this lease is extended, or if a new lease is entered into between Lessor and Lessee covering the Premises, or any part thereof, and Agent has continually provided all services customarily expected of an Agent, including initiating and handling all functions of renewal, then and only

upon specific compliance with the proceeding, will additional commissions be paid as may be specified in a separate commission agreement. Agent agrees that, in the event Lessor sells or otherwise ceases to be the owner of the Premises, Lessor shall be released from any further obligations to Agent hereunder and the new owner shall be liable therefor. Lessee agrees that if this lease is validly assigned by him, he will secure from assignee an agreement in writing recognizing the rights of the Agent hereunder. Agent is a party to this lease solely for the purpose of enforcing his rights under this paragraph and it is understood by all parties hereto that Agent is acting solely in the capacity of agent for Lessor, to whom Lessee must look for performance of all covenants, agreements and warranties herein contained, and Agent shall never be liable to Lessee for any matter which may arise by virtue of this lease. Lessor’s obligation to pay Agent with regard to this lease shall exist only with respect to rent payments actually received by Lessor. All language in this lease relating to the commission will prevail if a separate commission agreement is entered into.

22.0 DISCLOSURE OF AGENT REPRESENTATION.

22.1 Southprop, Inc. have acted as agent for Lessor in this transaction and are to be paid a commission by Lessor. Southprop, Inc. has not acted as agent in this transaction for Lessee.

23.0 IDENTITY OF INTEREST.

23.1 Some or all of the partners in Glenn Equity, Inc. (Lessor) may also be owners or partners in Southprop, Inc. (Agent).

24.0 NOTICE.

24.1 All notices required to be given to Lessor hereunder shall, until contrary instructions are given to Lessee and Agent in writing, be effectively given TO LESSOR if hand delivered, via facsimile transmission (with a copy by US mail), email, or mailed, by registered or certified mail, return receipt requested or sent by a nationally-recognized overnight courier providing a written receipt of delivery to Lessor at the following address:

                                                                GS&T Properties, LLC
                                                                c/o Southprop, Inc.
                                                                6000 Lake Forrest Dr.
                                                                Suite #235
                                                                Atlanta, GA 30328

24.2 All notices required to be given to Lessee hereunder shall, until contrary instructions are given to Lessor and Agent in writing, be effectively given TO LESSEE if hand delivered, via facsimile transmission (with a copy by US mail), email, or mailed, by registered or certified mail, return receipt requested or sent by a nationally-recognized overnight courier providing a written receipt of delivery to Lessee at the following address:

                                                                Emtec, Inc.
                                                                500 Satellite Boulevard
                                                                Suite A
                                                                Suwanee, GA 30024

24.3 All notices required to be given to Agent hereunder shall, until contrary instructions are given to Lessor and Lessee in writing, be effectively given TO AGENT if hand delivered, via facsimile transmission (with a copy by US mail), email, or mailed, by registered or certified mail, return receipt requested or sent by a nationally-recognized overnight courier providing a written receipt of delivery to Agent at the following address

                                                                Southprop, Inc.
                                                                6000 Lake Forrest Dr.
                                                                Suite #235
                                                                Atlanta, GA 30328

24.4 Notices given hereunder by any party may be given by counsel for such party. Notice shall be deemed given, upon receipt, if delivered personally, upon delivery thereof.

26.0 EXCULPATION OF LESSOR

a. Notwithstanding any provision in this Lease to the contrary, Lessor and Lessor’s managing agent’s liability with respect to or arising from or in connection with this Lease shall be limited solely to Lessor’s equity interest in the Premises. Neither Lessor, any of the partners of Lessor, any officer, director, principal, trustee, policyholder, shareholder, attorney nor employee of Lessor or its managing agent shall have any personal liability whatsoever with respect to this Lease.

b. Lessor and Lessor’s managing agent shall have absolutely no personal liability with respect to any provision of this Lease or any obligation or liability arising from this Lease or in connection with this Lease. Lessee shall look solely to the equity of the Lessor in the Premises for the satisfaction of any money judgment to Lessee. Such exculpation of liability shall be absolute and without exception whatsoever.

27.0 NO SMOKING

Lessee acknowledges that “smoking” is prohibited in all areas of the Premises and the Shopping Center (including common areas and all grounds) except in areas, if any, outside the Shopping Center building (and outside any other building in the Shopping Center) that are designated by Lessor as “Designated Smoking Areas”. Lessor shall have the right, but not the obligation, to designate an area or areas outside buildings in the Shopping Center as “Designated Smoking Areas”. Lessor shall have the right from time to time to change and or limit such Designated Smoking Areas and to enact future rules and regulations concerning smoking in such Designated Smoking Areas, including the right in Lessor’s discretion, to prohibit smoking in the Designated Smoking Areas or the right to refuse to designate Designated Smoking Areas. Lessee agrees to comply in all respects with Lessor’s prohibition and regulation of smoking and to enforce compliance against its employees, agents, invitees and other persons under the control and supervision of Lessee on Premises or the Shopping Center. Any violation of this provision shall be a default under this Lease and in addition and without limiting Lessor’s rights and remedies in consequence of such default, entitle Lessor to assess a monetary fine against Lessee for each violation of this Section in the amount of $25.00. For purposes hereof, “smoking” means inhaling, exhaling, burning or carrying any lighted cigar, cigarette, pipe or other smoking equipment or device in any manner or form. Notwithstanding anything in this Lease to the contrary, no liability shall attach to the Lessor for any failure to enforce this provision (or similar provisions in other leases).

28.0 CONTROL OF COMMON AREAS AND PARKING FACILITIES

All automobile parking areas, driveways, entrances and exits thereto, and other facilities furnished by Lessor, including all parking areas, truck way or ways, loading areas, pedestrian walkways and ramps, landscaped areas, stairways, corridors, and other areas and improvements (hereinafter the “Common Areas”) provided by Lessor for the general use of tenants, their officers, agents, employees, servants, invitees, licensees, visitors, patrons and customers, shall be at all times subject to the exclusive control and management of Lessor, and Lessor shall have the right but not the obligation from time to time to establish, modify, and enforce reasonable rules and regulations with respect to the Common Areas, to police same, from time to time; Without limiting the scope of such discretion, Lessor shall have the full right and authority but not the obligation to designate a manager of the Common Areas or other facilities, who shall have full authority to make and enforce rules and regulations regarding the use of the same and to employ all personnel and to make and enforce all Rules pertaining to, and necessary for, the proper operation and maintenance of the Common Areas. Lessee shall comply (and shall require all persons within its control to comply) with such Rules.

29.0 MISCELLANEOUS.

29.1 Upon Lessor’s request, Lessee shall furnish to Lessor its most current available financial statement, provided that Lessee shall not be required to furnish more than one such statement in any calendar year.

29.2 The words “terminate” or “termination” as used herein shall refer to the end of this lease whether due to the expiration of the term hereof or the earlier ending of this lease in accordance with the terms and provisions hereof.

29.3 All rights, powers, and privileges conferred herein upon the parties hereto shall be cumulative but not restrictive of those given by law.

29.4 The captions used in this lease are for convenience only and do not in any way limit or amplify the terms and provisions hereof.

29.5 One or more waiver of any covenant, term or condition of this lease by either party shall not be construed as a waiver of subsequent breach of the same covenant, term or condition. The consent or approval by either party to or of any act by the other party requiring such consent or approval shall not be deemed to waive or, render unnecessary, consent to or approval of any subsequent similar act.

29.6 At any time and from time to time, Lessee, on or before the date specified in the request made by Lessor, which date shall not be earlier than five (5) days from the making of such request, shall execute, acknowledge and deliver at no cost to Lessor a certificate evidencing whether or not: (a) This lease is in full force and effect; (b) This lease has been amended in any way and if so how; (c) There are any existing defaults hereunder to the knowledge of Lessee and specifying the nature of such defaults, if any; and (d) The date to which rent, if any, has been paid. Each certificate delivered pursuant to this paragraph may be relied on by any prospective purchaser or transferee of Lessor’s interest hereunder and shall stop Lessee from denying the facts stated in said statement.

29.7 Security deposits referred to herein will be held in compliance with applicable Georgia Real Estate Commission rules and regulations. Should interest be earned on escrow funds, such amounts will be paid to Lessor.

29.8 This lease contains the entire agreement of the parties and no representatives or agreements, oral or otherwise, between the parties not embodied herein, shall be of any force or effect.

29.9 Time is of the essence of this agreement.

29.10 The rules and regulations attached to this instrument and any amendments and additions thereto as may be reasonably made by Lessor from time to time shall be and are hereby made a part of this lease. Lessee, its employees and agents, will perform and abide by said rules and regulations, and any amendments or additions to said rules and regulations. Failure to comply with any item in this paragraph shall constitute a default hereof

29.11 This contract shall create the relationship of landlord and tenant between Lessor and Lessee; no estate shall pass out of Lessor; Lessee has only a usufruct, not subject to levy and sale.

29.12 If Lessee remains in possession after expiration of the term hereof, with Lessor’s acquiescence and without any agreement of parties, Lessee shall be a tenant at will; and there shall be no renewal of this lease by operation of Law. Nothing herein shall be construed as constituting Lessor’s consent or approval to any such hold-over, nor operate to preclude or inhibit the exercise by Lessor of all of its rights and remedies hereunder or available under applicable law to dispossess or evict Lessee. During any such holding over, the monthly rate of Base Rent due and payable hereunder shall be increased to 150% of the rent hereunder, and otherwise on the same terms and conditions as herein provided.

29.13 The provisions of this Lease shall bind and inure to the benefit of Lessor and Lessee, and their respective successors, heirs, legal representatives and permitted assigns The term “Lessor” as used in this lease means only the owner of the Premises so that in the event of any sale or sales or foreclosure thereof, Lessor, who is grantor in any such sale or foreclosure shall be and hereby entirely relieved of all of the obligations of Lessor hereunder. Any such sale of the Premises or any interest therein shall be subject to this lease, and it shall be deemed and construed without further agreement that the purchaser shall be the owner of the Premises. Any and all references to Lessor shall equally apply to his successors in interest.

29.14 If any clause or provision of this lease is or becomes illegal, invalid, or unenforceable because of present or future laws, rule, or regulation of any governmental body, or becomes unenforceable for any reason, the intention of the parties hereto is that the remaining parts of this lease shall not be thereby affected.

29.15 Lessor reserves the right to assign and/or restrict parking spaces for tenant and employee vehicles.

29.16 Lessor hereby reserves the right at any time: (a) to make alterations or additions to and to build additional stories on the building in which the Demised Premises are contained and to build adjoining the same: (b) to construct other buildings or improvements in the Shopping Center from time to time and to make alterations thereof or additions thereto and to

build additional stories on any such building or buildings and to build adjoining same; and (c) to make any changes in the Common Areas.

29.17 The terms “Lessor” and “Lessee” and pronouns relating thereto, as used herein, shall include male, female, singular and plural, corporation, partnership or individual, as may fit the particular parties.

29.18 Should any provisions of this Lease require judicial interpretation, it is agreed that the court interpreting or construing the same shall not apply a presumption that the terms of any such provision shall be more strictly construed against one party or the other by reason of the rule of construction that a document is to be construed most strictly against the party who itself or through its agent prepared the same, it being agreed that the agents of all parties hereto have participated in the preparation of this Lease.

29.19 This Lease has been made under and shall be construed, interpreted and enforced under and in accordance with the laws of the State of Georgia with jurisdiction and venue for all matters arising from this Lease being proper only in the court system in Cobb County, Georgia.

29.20 Notwithstanding any provision in this Lease to the contrary, Lessor shall be excused for the period of any delay and shall not be deemed in default with respect to the performance of any of the terms, covenants, and conditions of this Lease when prevented from so doing by causes beyond Lessor’s control, which shall include, but not be limited to, all labor disputes, governmental regulations or controls, fire or other casualty, inability to obtain any material or services, or acts of God.

29.21 Other than specified herein Lessee accepts the Premises in “as is” condition.

30.0 SPECIAL STIPULATIONS.

Insofar as the following special stipulations conflict with any of the foregoing provisions, the following shall control:

	30.1	When the term “Shopping Center” is used in this Lease it shall also mean “Warehouse”.

	30.2	This Lease is conditioned upon Glenn Equity purchasing the building referenced herein. Should Glenn Equity not purchase this building by November 1, 2004 then Lessee shall have the right to declare this Lease null and void.

	30.3	Prior to occupancy by Lessee, Lessor, at Lessor’s expense, shall construct the following improvements:


	A.	Add a demising wall in the warehouse area of the building approximately as shown on exhibit B-Revised. The area created by construction of this demising wall will contain approximately 7,000 sq. ft. and will be separated from the remainder of the warehouse. This area will be heated and air-conditioned.

	B.	Separate electrical service and meter will be installed for Emtec, Inc.

	C.	New carpet will be installed in the office area.

	D.	The office area will be completely repainted and all wall covering removed.

	E.	Interior walls as required by Lessee will be removed to the rear of the “Chemistry Lab”.

	F.	The interior door and window between the reception area and the hallway will be removed and replaced with drywall.

	G.	All HVAC equipment in the premises will be serviced and in good operating condition on the date of occupancy by Emtec.

	30.4	Lessor anticipates that the Premises will be ready for occupancy by Lessee on or before December 1, 2004. Lessor will keep Lessee informed of the construction schedule.

	30.5	Lessee shall be responsible for payment of regularly scheduled HVAC maintenance charges. Lessee shall be responsible for payment of the first One Thousand Dollars ($1000.00) of repairs to the HVAC systems each year, and then the cost of repairs will be split 50%-50% between Lessee and Lessor. Lessor shall not be responsible for damage or repairs necessitated by Lessee’s negligence or improper use of equipment.

30.6 Section 19 of this Lease is deleted.

30.7 Section 25 of this Lease is deleted. Lessee may, subject to Lessors reasonable approval, place signage on the property and building that complies with Gwinnett County sign ordinances.

30.8 Glenn Equity anticipates assigning this Lease to an entity that will be created to purchase the property. Lessee acknowledges and agrees to this assignment.

30.9 Nothing in this Lease will restrict Lessee from granting a security lien for its personal property and/or inventory to its lenders.

30.10 If Lessee is not in default of the terms and conditions of this Lease and has continually occupied the Premises, Lessee shall have the option to renew this lease for an additional period of five (5) years at a base rental rate equal to the then prevailing market rate for similar space commencing immediately upon the expiration of the initial lease term. All other terms and conditions of the Lease will remain the same. Lessee must notify Lessor in writing per paragraph 24.1 and notice must be received by Lessor at Lessor’s office at least ninety (90) days prior to expiration of the current lease.

[SIGNATURES BEGIN ON NEXT PAGE]

IN WITNESS WHEREOF, the parties herein have hereunto set their hands and seals, in triplicate, the day and year first above written.

As to Lessor, signed, sealed and		LESSOR:
delivered in the presence of:		GS&T PROPERTIES, LLC


Witness___________________________________		By:________________________________


Notary Public_______________________________		Its:________________________________


As to Lessee, signed, sealed and		LESSEE:
delivered in the presence of:		EMTEC, INC.


Witness___________________________________		By: /s/ Ronals A. Seitz


Notary Public_______________________________		Its:________________________________


As to Agent, signed, sealed and		AGENT:
delivered in the presence of:		SOUTHPROP, INC.


Witness___________________________________		By:________________________________


Notary Public_______________________________		Its:________________________________

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EXHIBIT 10.25

Select Office Suites . . . . . . . . . . . . . . . . . . .

License Agreement for Usage of Office Space between

SELECT OFFICE SUITES, as Licensor, and

Emtec Inc. As Licensee,

DATED December 3, 2004

ITEM 1: BASIC AGREEMENT. This Agreement by and between Select Office Suites, (the “Licensor”) and Emtec Inc. (the “Licensee”) grants the Licensee the right to use and occupy Room(s) 22 at 116 West 23^rd Street, Suite 500, New York, NY 10011, upon the terms and conditions herein specified. As part of this Agreement, the Licensor shall provide the Licensee with the General Services as described in Item 5 herein, extended to all other Licensees, under the condition that the Licensee satisfies all of its requirements set forth in this Agreement.

As a matter of fair and equal access and usage of the facilities by all Licensees, the Licensor cannot enter into a License agreement with agencies, on-site recruiters, or any other business that will see numerous visitors/clients on-site on a regular basis, nor can it run advertisements that list the address of the facility so as not to attract unscheduled visitors. Furthermore, the Licensor cannot enter into a License agreement with companies that do not have an established bank account or credit card in the Licensee Company’s name to pay its initial and ongoing monthly fees. The Licensee accepts that it must pass the Licensor’s reference and background checks, and that it will not be accepted as, or considered, a Licensee, with all the rights and privileges described herein, until the Licensor approves, signs and thus executes this License agreement. If the Licensee finds that the conditions in this paragraph are not satisfied, the Licensor has the right to deny and cancel this agreement at any time before signing and executing it, even if the Licensee has completed its signatory requirements.

ITEM 2: LICENSEE REGISTRATION AND REFERENCE INFORMATION.

2.1. Registration Information. The Licensee represents that the following information is current and accurate and that it shall immediately report to the Licensor any changes to the information during the term of this Agreement.

	Emtec, Inc.		24 years
	Licensee/Organization Name		How Long Ago Was This Business Established?

	572 Whitehead Road		Trenton, N.J. 08619
	Current Business Address		City, State, Zip

	22-3386933		9 years
	Employer Identification No		Number of years


	Principal’s Name		Social Security No.


	Legal Home Address		City, State, Zip


	Home Phone No.		Alternate Phone No.


	2.2. Guest Registration. All clients, vendors, or guests of the Licensee, that intend to use the Rooms for more than three (3) consecutive days or five (5) days in total during the term of this Agreement, shall register with the Licensor, in advance, for security purposes, and shall provide the Licensor with the Registration Information set forth above. For security

Page 1 of 10

Licensee’s Initials _________

purposes, the Licensee also agrees to immediately report in writing and changes in personnel, such as termination of employment.

2.3. Business/Credit References.

1) Emtec is a public company Ticker - ETEC.OB

Company Name Account No.

Contact Name Phone No.

2)

Company Name Account No.

Contact Name Phone No.

2.4. Personal References.

1)

Name Phone No.

Address Relationship

2)

Name Phone No.

Address Relationship

2.5. Bank Information.

1) BOA Checking 355 008 130

Bank Name and Type of account Account No.

2.6 Nature Of The Business / Organization: Below describe what type of business/ organization that this office will be used for:

_____Computer Systems Sales & Services_________________________________________

2.7. Referral Source: Below indicate which source or broker you used, or referred you to The Licensor, so that it may receive the appropriate credit for it’s services. If you did not use any broker or referral service, and attained information entirely on your own (perhaps through a general search on the worldwide web without registering with any office rental search engine), please write ‘NONE’ below.

__________________Yellow Pages_____________________________________________

Licensee hereby affirms, that all the information provided in Items 2 is true and accurate. Licensor is authorized (as deemed necessary by Licensor), to verify the accuracy of the statements and information provided and to conduct a credit investigation, including without limitation, obtaining one or more credit reports from commercial credit investigations.

Page 2 of 10

Licensee’s Initials _________

/s/ John Howlett 12/3/04

Signature Date

ITEM 3: MONTHLY LICENSE FEE. This Licensee shall pay the Licensor a base monthly License amount of:

$1,300.00 for Room # 22

Plus a monthly 10% surcharge for utilities and maintenance, as described in Item 5.2 below, of $130.00 for a total of $1,430.00 per month (the “License Fee”).

ITEM 4: TERM OF THIS LICENSE.

	4.1.	Term Dates: This Agreement is for a term of 14 months, commencing on January 1, 2005 and concluding on February 29, 2006.

	4.2.	Early Termination: The Licensee may be released from this agreement on July 31, 2005 as long as it provides a written 60-day notice by 12:00 noon on June 1, 2005. If the Licensee does not exercise this option, then its next opportunity to terminate this agreement will be the actual term conclusion date of this agreement which is February 28, 2006, and will require a 60-day written notice by 12:00 noon on January 1, 2006.

	4.3.	Considerations for Pre-payment of Term: In consideration for pre-paying the first 6 months of License Fees plus monthly telecommunication and set-up charges, specifically months January 1, 2005 through June 30, 2005, the Licensee will receive the month of July 2005 free of base License and Telecommunications Fee payments.

	4.4.	Option to Pre-pay Additional 6 Months: On or before June 1, 2005, the Licensee has the option to pre-pay an additional 6 months of License Fees plus monthly telecommunication fees, specifically months August 1, 2005 through January 31, 2006, and the Licensee will receive the month of February 2006 free of base License and Telecommunications fees. If the Licensee opts not to pre-pay an additional 6-months, it may continue as a Licensee and pay its invoices on a month- to-month basis, but then it will not be eligible for free month of usage and services for the 14^th month.

	4.5.	Written Notice Required For All Agreements To Conclude: In order for the Licensor to be able to legally pursue other clients, and to sign other agreements for the room in this agreement once the Licensee terminates it’s stay, the Licensee must first deliver a written notice to the Licensor as described in the clauses above, by 12:00 Noon on the 1st day of a month that it is eligible to submit a 60-day written notice, and that satisfies the above clauses. Upon receiving the 60-day written notice, the Licensor will submit to the Licensee a counter notice acknowledging the termination date of the agreement, which will not be unreasonably withheld. This 60- day written notice requirement still holds true regardless of whether the 1^st day falls on a weekend or holiday, since the Licensee has the option to present that written notice at any time or day during the previous 30 days of occupancy. Written notices to terminate this agreement will only be honored up until 12:00 noon of the 1^st day of any month, and any written notices received after that time will be treated as if they were presented on the 1^st day of the following month.

Page 3 of 10

Licensee’s Initials _________

4.6. Exact Term Conclusion: If the Licensee does not issue the Licensor a written 60- day calendar notice on January 1, 2006 and is allowed to continue beyond the last day of the term as written in this agreement, which is February 28, 2006, without a written and executed agreement extension or renewal, including rate increase (at the Licensor’s discretion), the Licensee will automatically have this agreement extended for the same terms and conditions and is still required to provide a written 60-day calendar month notice 60 days before the end of every subsequent 6-month interval (random example of a 60-day written calendar month notice: Licensee must provide written notice on or prior to Noon on March 1, 2006 in order to be released from this agreement on April 30, 2006, presuming that those random dates coincide with the completion of a subsequent 6-month interval). In such event, the Licensee accepts that this agreement shall not be considered terminated, regardless of the term conclusion date stated above, unless and until a written notice, as explained above, is submitted by the Licensee to the Licensor. The Licensee accepts that it is responsible or paying License Fees to the Licensor up to and including the 60-day calendar month written notice period, as described above, has concluded, even if that date is after the term conclusion date stated above, and that the retainer fee/security deposit is not to be used or applied towards any outstanding invoices before the term of this license has completed. The Licensee also accepts that any partial month of occupancy will be billed as a full month of occupancy.

ITEM 5: GENERAL SERVICES.

	5.1	No Fee Services includes courteous client and guest reception during regular business hours (9:00 a.m. to 5:00 p.m., Monday Through Friday); one directory listing in the lobby, receipt of mail and packages on the Licensee’s behalf; handling of outgoing mail and parcels; free conference room usage shall be limited to six (6) hours per Room per month, available on a first-come, first-serve basis; cleaning services; trash removal; and unlimited access 24 hours a day – 7 days a week – 365 days per year. Limited staff is present during non-business hours for security purposes, and they may provide some regular services as a courtesy, but complete office services are offered during regular business hours, only.

	5.2	Fee Based Services are billed on a monthly invoice basis. Those that are optional and billed a-la-carte include black and white copies and networked printing at $.10 per page; color copies and networked printing at $.75 per page; faxes received or sent at $1.00 per page domestic or $2.00 per page international transmission; postage at cost plus a 20% per item handling charge; secretarial/clerical support at $30.00 per hour billable in quarter-hour increments; handyman assistance billed on a per-event negotiated rate basis, and monthly telecommunication services which include phone fax/modem and T-1 usage as described in Items 6 below. Additional conference room rental fees are $30.00 per hour. Additional office furniture rental is available on a per item/per month basis. Additional fee based services may be available in the future. Maintenance and utility charges are billed on a standard monthly basis for electrical usage, cleaning and maintenance/handyman services, and round-the-clock (3 shifts) of security and surveillance services, at the rate of a flat 10% of the base license fee (as described in Item 3, above).

	5.3	Furniture: A desk and a chair will be provided at no charge for up to three occupants in the Licensed Room(s).

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ITEM 6: TELECOMMUNICATIONS. Licensee is not permitted to install any telecommunication equipment, including telephone or network lines for internal or external use. All components of the phone system and/or T-1 installation software and hardware provided by Licensor and used by Licensee will remain at all times property of the Licensor.

	6.1.	Phones. The Licensor will furnish Licensee with a digital phone handset with features including call conferencing, call transfer, call forward, speed dial, speakerphone and one voicemail box. The initial set-up fee is a one-time charge of $50.00 per outgoing line. Ongoing usage fees are $50.00 per month per phone handset. Additional services are available as follows: multiple voicemail box selection option includes a one-time set-up fee of $50.00 and $50.00 per month for service. Adding or deleting other features will incur a $50.00 charge per activity. Licensee will be charged in accordance with Item 10 for opening charges.

	6.2.	Analog Lines. The Licensor will furnish Licensee an analog line for fax or modem usage. The initial set-up fee is a one-time charge of $50.00 per line. Ongoing usage fees are $50.00 per month. Licensee will be charged in accordance with schedule in Item 10 for opening and monthly ongoing charges.

	6.3.	Internet Access. The Licensor will furnish Licensee with 24-hour access to the Internet through a shared T-1 data line connection. The Licensor prohibits the Licensee from using a Mail Server, hosting internal websites; dispatching broad based e-mails (spamming), utilizing internal FTP servers or the use of any equipment or applications that the Licensor deems to utilize excessive bandwidth. The installation fee is a one-time charge of $50.00 for each RJ45 hookup. Ongoing access fees are $50.00 per month per computer. Each computer is required to have a separate IP address. Wi-Fi wireless internet hubs and Voice Over IP equipment is not permitted. Licensee will be charged in accordance with schedule in Item 10 for opening and monthly ongoing charges.

		IN ORDER TO PROTECT THE LICENSEE’S COMPUTER(S) FROM UNWANTED HACKERS AND VIRUSES, AND TO PREVENT THE INCONVENIENCING OR SLOWING DOWN OF OTHER T-1 USERS ON THE PREMISES, IT IS THE LICENSEE’S SOLE RESPONSIBILITY TO PROVIDE ITS OWN FIREWALL AND ANTI-VIRUS PROTECTION ON ITS COMPUTER(S). IN THE EVENT THAT THE LICENSEE’S COMPUTER(S) BECOMES INFECTED OR HACKED, REGARDLESS OF WHETHER IT HAS INSTALLED FIREWALL OR ANTI-VIRUS PROTECTION, THE LICENSOR IS NOT RESPONSIBLE FOR ANY DAMAGE SUFFERED TO THE LICENSEE’S COMPUTER(S).

		IF THE LICENSOR NOTICES OR SUSPECTS THAT THE LICENSEE’S COMPUTER(S) MAY BE INFECTED, THE LICENSOR RESERVES THE RIGHT TO SCHEDULE A TIME TO INSPECT THE LICENSEE’S COMPUTER(S). IF THE LICENSOR DETERMINES THAT THE LICENSEE’S COMPUTER(S) IS INFECTED AND THUS CAUSING A DISRUPTION OR SLOW DOWN TO THE SHARED PUBLIC NETWORK, THE LICENSOR RESERVES THE RIGHT TO DISCONNECT THAT COMPUTER FROM THE T-1.

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ALSO, DUE TO NUMBEROUS INCOMING SPAM ISSUES CLOGGING UP MANY EMAIL SYSTEMS, THE LICENSOR HIGHLY RECOMMENDS THAT LICENSEE INSTALL SPAM-FILTERING SOFTWARE TO HELP ELIMINATE CONGESTION AND THE SLOWING DOWN ON THE NETWORK.

6.4 Technical Support. One hour (60 minutes) of basic technical support and service for phones, T-1s and computers will be provided at no charge during regular business hours (9:00 AM to 5:00 PM, Monday through Friday, except holidays) each month per client/company, with a $60.00 per hour charge for any support and service provided thereafter, billable in ½ hour increments. This does not include time spent on any set-up and installations, nor does it include time spent on service calls or troubleshooting for phones and T-1s that were caused by any downtime or malfunction on the part of the service provider. If the Licensee selects an outside technical consultant, that consultant’s work must first be approved by the Licensor, approval of which will not unreasonably be withheld, conditioned or delayed. Technical support will be provided by an on-site, pre-approved independent technician, and any technical support that requires VPNs or copying/transferring of files must first be pre-approved by the Licensor, after a written request of the Licensee for such assistance to be provided. The Licensor will be held harmless for any work performed by the independent in-house technician or any independent outside technical consultant.

ITEM 7: MONTHLY PAYMENT OF THE LICENSE FEE AND MONTHLY CHARGES.

The Licensee shall pay and the Licensor must receive the License Fee set forth in Item 3 above, the previous month’s charges for Fee Based Services set forth in Item 5 above and the previous month’s charges for phone equipment and line access, and Internet access set forth in Item 6 above, by 12:00 noon of the 1^st day of each month during the term of this Agreement, and will provide an ongoing charge authorization in the event that the Licensee chooses to not pay its invoices by check before the 1^st day of any month.

ITEM 8: MONTHLY FEES PAID LATE. The License Fee set forth in Item 3 above, the previous month’s charges for Fee Based Services set forth in Item 5 above and the previous Month’s charges for Phones set forth in Item 6 above has not been received by the Licensor by12:00 noon on the 5^th day of the month, a late payment penalty of $50.00 will automatically be charged to the Licensee. If the Licensor has not received payment by 12:00 noon on the 15^th day of the month, the Licensee shall be considered in default (see Item 14 below) and the Licensee shall pay all late payment penalties accrued, in addition to the penalties of default. Additionally, if payment of the total monthly amount due for that month has not been received by the Licensor by 12:00 noon on the 15^th day of the month, all phone lines will be disconnected, the phone numbers will not be available for reconnecting, and new phone lines will require an additional $250.00 per line fee plus a $200.00 per line phone deposit.

ITEM 9: RETAINER FEE. The Licensee shall pay the Licensor two (2) months of the License Fee as a Services Retainer Fee, which shall be refunded to the Licensee within 30 days after the term of this agreement has concluded, provided that the Licensee is not in default, there are no outstanding fees or charges due the Licensor and, for security purposes, all keys have been returned to the Licensor. The retainer fee shall not be kept in a separate escrow fund, nor accrue interest, and may be used by the Licensor at its discretion.

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ITEM 10: FEES DUE UPON SIGNING.

Dates: December 1 through December 31, 2004
REFUNDABLE SERVICES RETAINER FEE ( 2 x Monthly License Fees)						$	2,860.00	( A )
		Cost		Quantity	Months	Total
	Monthly License Charge	$	1,300.00		1	$	1,300.00
	10% Maintenance & Utility Charge	$	130.00		1	$	130.00
	Telephone Charges Per Number	$	50.00	1	1	$	50.00
	Fax/Modem Charges Per Number	$	50.00	0	0	$	—
	T-1 Access Per IP Address	$	50.00	1	1	$	50.00


	Subtotal of Monthly Recurring Charges:					$	1,530.00	( B )

		Cost			Months
	Five additional months of Pre-Paid Fees:	$	1,530.00	x	5	$	7,650.00	( C )

One-Time Telecommunications Installation & Set-up Charges:

		Cost		Quantity		Total
	Telephone Set-up & Installation per number	$	50.00	1		$	50.00
	Fax/Modem Set-up & Installation per number	$	50.00	0		$	—
	T-1 Set-up & Installation per IP Address	$	50.00	1		$	50.00


	Subtotal of One-Time Set-up Charges:					$	100.00	( D )

Total Opening Charges, including retainer & set-up fees ( A, B, C, & D )						$	12,140.00	( E )

THE LICENSEE AGREES TO PROVIDE THE LICENSOR WITH A WRITTEN AUTHORIZATION TO CHARGE THE LICENSEE’S CREDIT CARD AT 12:00 ON THE FIRST DAY OF ANY MONTH, IN THE EVENT THAT THE LICENSEE ELECTS TO NOT PAY, USING ANY METHOD OF PAYMENT OF ITS CHOOSING, THE INVOICE THAT IT WAS PROVIDED ON THE 25^TH DAY OF THE PREVIOUS MONTH.

FEES DUE UPON SIGNING. Upon signing of this Agreement and in order to make this Agreement valid and in force, a check, charge or wire transfer totaling $12,140.00 (E), which represents the refundable Services Retainer Fee due (A), the monthly recurring charges for the first month (B), the five additional months of pre-paid fees (C) and the one-time set-up fees (D), must be received by the Licensor no later than 12:00 noon on December 10, 2004. Failure to receive these amounts in secured funds by this time may render this agreement and offer null and void, at the discretion of the Licensor.

ITEM 11: RETURNED CHECKS. All checks provided to the Licensor for any charges or fees required pursuant to this Agreement that are returned by the bank due to insufficient funds will be subject to a $30.00 surcharge in addition to the replacement of the check, unless it is due to a bank error. The surcharge and replacement check shall be paid with a certified check or money order.

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ITEM 12: RULES AND REGULATIONS.

	12.1. The Licensor shall have the right to revoke the License, immediately discontinue all accesses and service usage privileges such as for phones, T-1s, Fax lines and copier/security/entry codes, and declare the Licensee in default hereunder if the Licensee violates any of the following rules and regulations:

	A. Repeated passing of checks with insufficient funds or repeated late payment of any monthly fees (more than once during any 12-month period of the term).

	B. Excessive visitors (not more than 5 per day, unless approved in writing in advance by the Licensor), or the placement of advertisements that mention the general address of our facility and thus invites an uncontrolled flow of visitors to come to our facilities and overuse our reception area without a scheduled appointment.

	C. Excessive noise, loud music or unruly behavior, or any loud, argumentative or unprofessional interfaces with other Licensees or employees, representatives and agents of the Licensor.

	D. Entry into another Licensee’s rooms or offices of the Licensor’s employees, representatives or agents, or a restricted access areas, including the receptionist’s office or phone room, without the Licensor’s permission.

	E. Unauthorized use of or damage to property, equipment or furniture of Licensor.

	F. Any misrepresentation to the Licensor of the Licensee’s business intent or practice, or any illegal or illicit activity.


	G. Any condition which detracts from a clean, safe environment including, excessive messes in the conference rooms, common areas or bathrooms caused by the Licensee; smoking in the building; bringing pets onto the facilities; or any compromising of security locked doors or any other security features.


	H. Any unreported changes to the principal’s Registration Information, especially the nature of their business without the Licensor’s prior knowledge and written approval.

	12.2. The Licensee shall not bring into the Rooms any equipment that consumes excessive electrical demand such as copiers, air conditioners, heaters or coffee makers; however, the Licensee is permitted to use printers and fax machines in the Rooms.

	12.3. The Licensor shall have the right to show the Rooms to prospective Licensees at any time as long as the Licensor makes a reasonable attempt to not disrupt the Licensee or its business.

	12.4. The Licensee shall not make any physical alterations to Licensee’s Rooms without prior written consent of Licensor. This includes installing hooks, hanging pictures, posters, etc., and painting.

12.6. Licensee is required to notify Licensor with a minimum one day’s notice, preferably more, when Licensee will be moving furniture, equipment, files, or other substantial belongings either into or out of the Rooms and premises. Licensee must use the freight elevator when moving large boxes, equipment or furniture. Freight elevator usage hours are Monday through Friday from 8:00 a.m. to 12:00 p.m. and 1:00 p.m. to 5:00 p.m. NOTE: It is closed from 12:00 p.m. to 1:00 p.m. for lunch breaks.

ITEM 13: ASSIGNMENT. The Licensee may not assign this Agreement; sublease or contract sub-Licensees to use the Rooms or change the name or nature of its business therein without the prior written approval of the Licensor.

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ITEM 14: DEFAULT.

	14.1. The Licensee shall be in default and shall have the License revoked if it does not pay its monthly charges in full by noon on the 15^th of the applicable month or if it violates any of the rules and regulations described in item 12 above.

	14.2. If the Licensee is in default, it shall, without any notice, forfeit its License, forfeit the Retainer Fee, surrender its right to enter or use the Rooms, shall return all keys and security passes, and shall pay all money due the Licensor until the conclusion of its 60-day notice period, as described in item 4. The Licensee shall also pay for any reasonable legal fees associated with any legal action taken to remove the Licensee and its belongings from the premises, along with any storage fees that may be incurred. The Licensee acknowledges that phone lines will be disconnected, the phone numbers will not be available for reconnecting, and new phone lines will require an additional $250.00 per line fee plus a $200.00 per line phone deposit.

	14.3. Only after all of the fees and charges described herein associated with default have been paid to the Licensor by the Licensee, and the keys to the office(s) that it has occupied have been returned to The Licensor shall the property of the Licensee be returned.

	14.4. The Licensee acknowledges that this Agreement is a conditional License to use the Rooms and services herein referred to and that the License is not a lease; and, therefore, the Landlord-Tenant laws do not govern this Agreement nor can the Licensee invoke tenant rights or privileges.

ITEM 15: OFFICE AND PROPERTY ABANDONMENT. If the Licensee is in default, and for 30 days fails to respond to the default notices, fails to contact the Licensor, fails to satisfy its financial obligations to the Licensor under the stipulations of default herein, and fails to retrieve its belongings, the Licensee accepts that it will be treated as having abandoned the office and its belongings, and the Licensor will assume the ownership of this property to off-set the costs of all outstanding fees incurred, including the occupancy charges represented by that property abandonment.

ITEM 16: HOLD HARMLESS. The Licensee acknowledges that due to the imperfect nature of verbal, written and electronic communications, as well as unreliable service rendered by Utilities such as electric and phone companies, the Licensee shall hold the Licensor harmless from any failures or malfunctions relating to these factors that are beyond the Licensor’s control, nor will the Licensee pursue any claims against the Licensor to recover damages as a result of service interruptions beyond its control. The Licensee also accepts that, once this agreement is signed and executed, it will hold harmless the individual, independent agent(s) or parties that were involved in the referral, negotiation and contracting of the Licensor’s spaces to be occupied as part of this agreement, including Partners In Excellence. Inc., in the event that it is engaged in any issues, legal or otherwise, with the Licensor. The Licensee also accepts that it will hold the Licensor harmless for any technical work performed by the in-house, or approved outside independent technical contractor.

ITEM 17: INSURANCE The Licensee is responsible for obtaining and paying for business insurance including Workers’ Compensation (required for any employee(s) working out of “The Rooms” for any organization affiliated with the Licensee), General Liability, Property & Casualty, and Fire & Burglary Insurance for the Room(s) and naming Soho Office Suites, LLC dba Select

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Office Suites, Majestic Rayon Corp. and Cudge Realty, LLC as insured, and submit an Insurance Certificate as proof there of. In the event the Licensee fails or refuses to comply with the aforesaid provision, the Licensor may, if it so elects, obtain and pay for such insurance at the cost and expense of the Licensee, and such cost and expense shall be payable to the Licensor upon demand, or at the option of the Licensor, shall be added to the License Fee due immediately thereafter but in no case later than 1 month after such demand, whichever occurs sooner. This remedy shall be in addition to any other remedies that the Licensor may demand if the Licensee breaches any of the terms of this agreement The Licensee is required to submit to the Licensor, Certificates of Insurance for the above mentioned no later than 15 days after start of term or may be declared in default of its obligations and this agreement by the Licensor. The Licensor is responsible and has insurance for all common areas on the 5^th floor, and Majestic Rayon Corp., and Cudge Realty, LLC, as joint ventures, who is the Landlord of 116 West 23^rd Street, New York, New York has insurance for all common areas of the building including the elevators, lobby and stairwells.

THE LICENSOR ENCOURAGES THE LICENSEE TO REVIEW THIS AGREEMENT WITH AN ATTORNEY PRIOR TO SIGNING AND COMMITTING TO THIS LEGALLY BINDING AGREEMENT.

THE LICENSEE ACCEPTS THAT THE PRIMARY CONDITION OF THIS AGREEMENT IS THAT IT CANNOT BE IN DEBT TO THE LICENSOR FOR ANY LICENSE FEE, FEE BASED SERVICES OR TELECOMMUNICATION CHARGES THAT IT OWES TO THE LICENSOR BEYOND THE DEADLINE DATE THAT THESE FEES ARE DUE. THE LICENSEE ALSO ACCEPTS THAT ALTHOUGH IT HAS PAID THE LICENSOR A RETAINER FEE, THIS MONEY CANNOT BE USED TO OFF SET ANY PAYMENTS DUE THE LICENSOR, AND WILL BE FORFEITED BY THE LICENSEE IF THE LICENSEE IS IN DEFAULT AND OWES THE LICENSOR MONEY.

THE AUTHORIZED SIGNATURES BELOW CONSTITUTE LEGAL ACCEPTANCE OF ALL THE CONDITIONS DESCRIBED IN THIS LICENSE AGREEMENT.

LICENSOR:		LICENSEE:


Select Office Suites	Date	Emtec Inc.	Date
Avi Lazarovits		John Howlett
Vice-President		CEO

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EXHIBIT 10.26

SUBLEASE

SUBLEASE (“Sublease”), dated November 24, 2004, by and between EMTEC, INC. (“Overtenant”), and vFINANCE, INC. (“Undertenant”).

WHEREAS, pursuant to an Assignment and Assumption Agreement, dated as of __________, 2001, by and between Overtenant and Devise Associates, Inc., Overtenant assumed the lease (the “1998 Lease”), dated April 27, 1998, by and between Vandergrand Properties Co. L.P. (the “Landlord”) and Devise Associates, Inc., for the 12th floor (the “Premises”) located in the building known as 880 Third Avenue, NY, NY (the “Building”); each capitalized term not otherwise defined herein shall bear the meaning ascribed to it in the 1998 Lease; and

WHEREAS, Undertenant desires to lease from Overtenant and Overtenant desires to lease to Undertenant the Premises for use as general and executive offices.

NOW THEREFORE, Overtenant does hereby sublet to Undertenant and Undertenant does hereby rent from Overtenant the Premises from the Rent Commencement Date as defined in paragraph 3 below to June 30, 2008, to be used and occupied as general and executive offices upon the following conditions and covenants:

1. Incorporation by Reference of 1998 Lease. Except as expressly modified by this Sublease, the terms of the 1998 Lease are incorporated herein as if Overtenant were Landlord thereunder and Undertenant were Tenant thereunder; Overtenant shall have all of Landlord’s rights, powers, immunities and obligations under the 1998 Lease, and Undertenant shall have all of Overtenant’s rights under the 1998 Lease with respect to the Premises. Except as expressly modified by this Sublease, Undertenant covenants and agrees to perform Overtenant’s obligations under, and be bound by and subject to the restrictions on Overtenant in, the 1998 Lease with respect to the Premises. Undertenant shall be liable to both Landlord and Overtenant with respect to the performance of Undertenant’s obligations hereunder and under the 1998 Lease.

2. Landlord’s Consent. This Sublease is conditioned upon obtaining the Landlord’s consent to this Sublease within 30 days of execution.

3. Provision Required by 1998 Lease. In the event of a default under the 1998 Lease which results in the termination of such lease, the Undertenant shall, at the option of the Landlord, attorn to and recognize the Landlord as landlord hereunder and shall, promptly upon the Landlord’s request, execute and deliver all instruments necessary or appropriate to confirm such attornment and recognition. Notwithstanding such attornment and recognition, the Landlord shall not (a) be liable for any previous act or omission of the Overtenant under this Sublease, (b) be subject to any offset, not expressly provided for in this Sublease, which shall have accrued to the Undertenant hereunder against the Overtenant, or (c) be bound by any modification of this Sublease or by any prepayment of more than one month’s rent, unless such modification or prepayment shall have been previously approved in writing by the Landlord. The Undertenant hereunder hereby waives all rights under any present or future law to elect, by reason of the termination of the 1998 Lease, to terminate this Sublease or surrender possession of the Premises. This Sublease may not be assigned or the Premises further sublet, in whole or in part, without the prior written consent of the Landlord.

4. Term.

(a) The term of this Sublease shall commence on the date upon the later of (the “Rent Commencement Date”) (i) the date upon which Landlord consents to this Sublease and (ii) December 15, 2004. The term of this Sublease shall expire at 11:59pm on June 30, 2008.

(b) Upon the signing of this Sublease, and provided that Undertenant has delivered to Overtenant the Proof of Insurance (as hereinafter defined) and the security deposit required by Section 7 hereof, Undertenant shall be granted access to the Premises solely for the purpose of installing the improvements listed on Schedule 4.(b). Undertenant shall comply with the provisions of the 1998 Lease in installing such improvements (including without limitation Articles 3, 54 and 55 of the 1998 Lease). In the event that the Landlord does not consent to this Sublease, Undertenant shall, at its own expense and at the option of Overtenant, remove such improvements. “Proof of Insurance” shall mean proof of the insurance coverages (such proof to be reasonably satisfactory to Overtenant) to be provided by Undertenant in compliance with Article 52 of the 1998 Lease. Undertenant shall repair and restore any damage caused to the Premises as a result of entry by Undertenant or its agents or representatives, which obligations to repair and restore may be specifically enforced by Overtenant. Undertenant shall defend, indemnify and hold Overtenant harmless from and against any and all damages, losses, liabilities, costs and expenses (including, without limitation, reasonable attorneys’ fees and court costs) suffered or incurred by Overtenant with respect to all claims for personal injury, death or for loss or damage to property in connection with Undertenant’s or its agents’, representatives’, contractors’ or subcontractors’ entry onto the Premises and/or installation of such improvements. Undertenant’s indemnification obligations under this paragraph 4.(b) shall survive the termination of this Sublease.

5. Furniture. Overtenant shall leave for Undertenant’s use the furniture and telephone system (excluding computer equipment unrelated to the telephone system or its capabilities) in the Premises as of the date of this Sublease

6. Rent; Electric; Rent Concession; Escalations.

(a) Rent. In lieu of Fixed Rent, Undertenant shall pay to the Overtenant rent for and during the term hereof, which shall be payable in equal monthly installments of $15,710 (“Base Monthly Rent”), beginning on the Rent Commencement Date; Base Monthly Rental shall be pro rated for a partial month.

(b) Electric. In lieu of the Electric Factor, Undertenant shall pay to the Overtenant additional rent for electric usage for and during the term hereof, which shall be payable in equal monthly installments of $1,963.75 (“Additional Monthly Rent”), beginning on the Rent Commencement Date; Additional Monthly Rental shall be pro rated for a partial month.

(c) Base Monthly Rent Concession. Undertenant shall be relieved from paying Base Monthly Rent for the first complete calendar month of the term of this Sublease and shall be required to pay one half of the Base Monthly Rental for the third, fourth, fifth and sixth complete calendar months of the term of this Sublease.

(d) Expense Escalations. The base year for calculation of Undertenant’s share of increases in Real Estate Taxes pursuant to Article 39 of the 1998 Lease and Operating Expenses pursuant to Article 40 of the 1998 Lease shall be calendar year 2005. Said share shall be 5.57% of the increases in such expenses.

7. Security.

(a) In lieu of the security deposit required under Article 34 of the 1998 Lease, Undertenant shall deposit with Overtenant $47,130 upon the signing of this Sublease, as security for the full and faithful performance by Undertenant of all the terms, conditions and covenants of this Sublease. Undertenant shall not be entitled to any credit for interest earned on said amount. Overtenant shall have the right, after notice to Undertenant and failure to cure

within 10 days of receipt of such notice, to use, apply or retain the whole or any part of the security to the extent required for the payment of any Base Monthly Rent, Additional Monthly Rent or additional charges or any other sum Undertenant is in default of or for any sum which Overtenant may expend or may be required to expend by reason of Undertenant’s default for any of the terms, conditions and covenants of this Sublease, including any damages or deficiency in the re-letting of the Premises or other reentry by Overtenant.

(b) If Overtenant uses, applies or retains the whole or any part of the security (in the event of Undertenant’s default), Undertenant shall replenish the security to its original sum five days after notification by Overtenant of the amount due.

(c) Undertenant covenants that it shall not assign, mortgage or encumber the security deposit deposited with Overtenant and any attempt to do so shall be void. Overtenant, its successors or assigns shall not be bound by any assignment, mortgage or encumbrance of Undertenant’s security.

(d) Undertenant covenants that it shall not use the security to offset any rent or additional rent including the last month’s rent.

(e) Paragraph 61(B) of the 1998 Lease shall not be applicable to this Sublease.

(f) In the event Undertenant fully and faithfully complies with all the terms, covenants and conditions of this Sublease, any part of the security not used, applied or retained by Overtenant (as a result of Undertenant’s default hereunder), shall be returned, without interest, to Undertenant after (A) the expiration date of this Sublease and (B) delivery of exclusive possession of the Premises to Landlord.

8. Brokers. Undertenant and Overtenant acknowledge that this Sublease was brought about by the efforts of Newmark & Company Real Estate, Inc. and George Comfort & Sons, Inc., as brokers. Overtenant shall be responsible for the payment of all commissions, fees and other charges due and owing to Newmark & Company Real Estate, Inc. (who in turn shall be responsible for paying George Comfort & Sons, Inc.) Each party hereto agrees to indemnify the other for any claims, demands, damages, actions, or causes of action which may be asserted by any other broker relating to this Sublease, which claims, demands, damages, actions, or causes of action arise out of the acts of the indemnifying party.

9. Miscellaneous.

(a) Further Assurances. Each of the parties agrees to execute such other documents and perform (or cause to be performed) such other acts as the other may reasonably request in order to effectuate the provisions and intent of this Sublease.

(b) Notices. Any notice or other communication in connection with this Sublease shall be in writing and shall be deemed to have been given (i) if personally delivered, when so delivered, (ii) if by Federal Express or other recognized next day carrier, two business days after mailing, addressed, if to Overtenant, at 572 Whitehead Road, Trenton, NJ 08619, Attention: CFO and if to Undertenant, vFinance, Inc., 3010 N. Military Trail Suite 300, Boca Raton, FL 33431, or (iii) if by facsimile, once transmitted (provided that the appropriate answer back or telephonic confirmation is received), if to Overtenant, at Attention: CFO, and if to Undertenant, at 561-981-1302, provided, further, that such notice or other communication is also promptly thereafter sent in accordance with the provisions of clause (ii) above. In addition to the foregoing, a copy of said notice shall be sent by recognized “next day” carrier on the same day as the giving of the notice (for next day delivery), in the case of a notice to Overtenant, to Michael R. Spar, Esq., Goldberg, Mufson & Spar, P.A., 200 Executive Drive, West Orange, NJ 07052. Either party may change the address or facsimile number to which notices or other communications hereunder are to be delivered by giving the other party notice in the manner set forth.

(c) Conflict of Law and Consent to Jurisdiction. This Sublease shall be deemed to be a contract under the laws of the State of New York and for all purposes shall be governed by and

construed in accordance with the laws of said State, without regard to principles of conflicts of laws. Any controversy or claim arising out of or relating to this Sublease, or breach hereof, shall be settled by binding arbitration before a panel of three arbitrators to be held in New York, New York in accordance with the Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. In any such arbitration, each party hereto may select one arbitrator and the two selected arbitrators shall select the third. All arbitrators must be either attorneys at law of the State of New Jersey or New York or accountants licensed by the State of New Jersey or New York. Notwithstanding the foregoing, either party may seek permanent or temporary injunctive or mandatory relief in the courts of any appropriate jurisdiction.

(d) Severability. If any provision of this Sublease shall for any reason be held invalid or unenforceable by any court or governmental agency of competent jurisdiction, such invalidity or unenforceability shall not affect any other provision hereof or thereof, but this Sublease shall be construed as if such invalid or unenforceable provision had never been contained herein or therein, so long as the economic or legal substance of the transactions contemplated by this Sublease are not affected in any materially adverse way to any party to this Sublease. The section and other headings contained in this Sublease are for reference purposes only and shall not limit or otherwise affect the meaning of interpretation of this Sublease.

(e) Entire Agreement. This Sublease, the Exhibit(s) annexed hereto and hereby made a part hereof and other documents delivered pursuant hereto and signed by the parties hereto, (i) contain the entire agreement among the parties hereto with respect to the transactions contemplated hereby, (ii) supersede all prior agreements or understandings among the parties hereto relating to the subject matter hereof and (iii) cannot be amended, modified, changed or terminated except by a writing signed by the party against which enforcement thereof is sought.

(f) Preparation of Sublease. The parties acknowledge that this Sublease was, in effect, prepared jointly; therefore, it is the parties’ intent that the Sublease be construed without any presumption against one party or the other as the draftsman.

(g) Date of Sublease. The date of this Sublease shall be the date on which it is executed by all parties or, if not executed simultaneously, the date on which both parties have a fully executed copy of the Sublease; said date shall be inserted at the top of the first page hereof.

(h) Authority to Execute. Each of the individuals executing this Sublease, by his/her act of executing this Sublease, represents and warrants that he/she has full authority and/or has been duly authorized by his/her respective entity to do so on behalf of such entity.

(i) Parties in Interest. This Sublease shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns.

(j) Waiver. The failure of either party to insist upon a strict performance of any of the agreements, terms, covenants and conditions hereof shall not be deemed a waiver of any subsequent breach or default in any such agreements, terms, covenants and conditions.

(k) Singular/Plural, Gender. Whenever herein the singular number is used the same shall include the plural and vice versa, as the context shall require. Whenever herein the masculine gender is used the same shall include the feminine and neuter genders and vice versa, as the context shall require.

(l) Prevailing Party. The prevailing party in any dispute under this Agreement shall be entitled to receive from the losing party the prevailing party’s costs of enforcement of this Agreement (including, without limitation, its court fees and reasonable attorneys’ fees).

(m) Counterparts; facsimile and photocopy signatures. This Agreement may be executed in one or more counterparts, which shall constitute one and the same instrument; facsimile copies and photocopies of signatures shall be binding.

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals, or caused these presents to be signed by their proper corporate officers and their proper corporate seal to be hereto affixed, the day and year first above written.

EMTEC, INC., Overtenant

By:_________/s/ John p. Howlett____________

                                             , Authorized Officer

vFINANCE, INC., Undertenant

By:___________________________________

                                             , Authorized Officer

Schedule 4.(b)
Improvements

EX-23 7 ex23-1.htm EXHIBIT 23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Emtec, Inc. Registration Statement on Form S-8 (File No. 333-122609) of our report dated June 6, 2005, which is included in the Emtec, Inc. Form 10-K for the year ended March 31, 2005.

/s/ Baratz & Associates, P.A.

Baratz & Associates, P.A.
Marlton, New Jersey
July 13, 2005

EX-31 8 ex31-1.htm EXHIBIT 31.1

EXHIBIT 31.1

I, John P. Howlett, certify that:

1. I have reviewed this annual report on Form 10-K of Emtec, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: July 14, 2005

	/s/ JOHN P. HOWLETT
	John P. Howlett
	Chairman, and Chief
	Executive Officer
	(Principal Executive Officer)

EX-31 9 ex31-2.htm EXHIBIT 31.2

EXHIBIT 31.2

I, Sam Bhatt, certify that:

1. I have reviewed this annual report on Form 10-K of Emtec, Inc.;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: July 14, 2005

	/s/ SAM BHATT
	Sam Bhatt
	Vice President - Finance
	(Principal Financial Officer)

EX-32 10 ex32-1.htm EXHIBIT 32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Emtec, Inc. (the “Company”) on Form 10-K for the period ending March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John P. Howlett, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

	(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	/s/ John P. Howlett
	John P. Howlett
	Chief Executive Officer
	July 14, 2005

EX-32 11 ex32-2.htm EXHIBIT 32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Emtec, Inc. (the “Company”) on Form 10-K for the period ending March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sam Bhatt, Vice President of Finance and Operations of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

	(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	/s/ Sam Bhatt
	Sam Bhatt
	Vice President of Finance
	July 14, 2005

-----END PRIVACY-ENHANCED MESSAGE-----

	Ÿ	patterns of capital spending by customers;

	Ÿ	the timing, size, and mix of product and service orders and deliveries;

	Ÿ	the timing and size of new projects, including projects for new customers; and

	Ÿ	changes in trends affecting outsourcing of IT services;

⁽⁴⁾	Includes 75,000 shares issuable upon the exercise of options.

⁽⁵⁾	Includes 45,000 shares issuable upon the exercise of options.

⁽⁶⁾	Excludes 829,519 shares owned by Ronald A. Seitz, Mrs. Seitz’s spouse. Mrs. Seitz disclaims any beneficial ownership in these shares.

⁽⁷⁾	Includes 120,000 shares issuable upon the exercise of options.

Exhibit No.		Description

	10.9	Loan and Security Agreement, dated November 21, 2001, by and between Fleet Capital Corporation and Registrant.⁽⁴⁾

	10.10	Agreement for Wholesale Financing, dated November 21, 2001, by and between IBM Credit Corporation and Registrant.⁽⁴⁾

	10.11	Subordination Agreement, dated as of the 21^st day of November, 2001, among Registrant, MRA Systems, Inc. dba GE Access and Fleet Capital Corporation.⁽⁴⁾

	10.12	Intercreditor Agreement, dated as of November 21, 2001, between Fleet Capital Corporation and Ingram Micro Inc. and accepted by Registrant.⁽⁴⁾

	10.13	Asset Acquisition Agreement dated December 5, 2001 by and between Devise Associates, Inc. and Registrant.⁽⁵⁾

	10.14	Lease Agreement dated January 9, 2002 between Registrant and Vandergrand Properties Co., L.P., for New York, New York facility.⁽⁹⁾

	10.15	Lease Agreement dated March 1, 2002 between Registrant and G. F. Florida Operating Alpha, Inc.,, for Jacksonville, Florida facility.⁽⁹⁾

	10.16	Lease Agreement dated November 15, 2002 between Registrant and Hamilton Transit Corporate Center, for warehouse facility in Trenton, New Jersey.⁽¹⁰⁾

	10.17	Asset Acquisition Agreement dated August 12, 2002 by and between Acentra Technologies, Inc. and Registrant.⁽⁷⁾

	10.18	Asset Acquisition Agreement dated August 31, 2002 by and between Turnkey Computer Systems, Inc. and Registrant.⁽⁸⁾

	10.19	Assignment of State of New Jersey Contract from Acentra Technologies, Inc. to the Registrant.⁽⁷⁾

	10.20	Remarketer/Integrator Agreement dated August 15, 2002 between Dell Marketing L.P. and the Registrant.⁽⁷⁾

	10.21	Lease Agreement dated June 1, 2004 between Registrant and Hamilton Transit Corporate Center, for office space in Trenton, New Jersey.⁽¹¹⁾

	10.22	Lease Agreement dated May 20, 2004 between Registrant and Facstore, for office space in Cranford, New Jersey. ⁽¹¹⁾

	10.23	Amendment to Loan and Security Agreement, dated as of December 10, 2004 , between Bank of America Business Capital Corporation and Emtec, Inc.⁽¹²⁾

	10.24	Lease Agreement dated September 2, 2004 between Registrant and GS&T Properties, LLC, for Suwanee, GA facility.

	10.25	Lease Agreement dated January 1, 2005 between Registrant and Select Office Suites, for a sales office space in New York, New York.

	10.26	Sub- lease Agreement dated November 24, 2004 between Registrant and vFinance, Inc., for office space in New York, New York.

	10.27	1996 Stock Option Plan, as amended in 1999⁽²⁾

	14.1	Code of Ethics⁽¹¹⁾

	21.1	Subsidiaries⁽²⁾

	23.1	Consent of Baratz & Associates, P.A.

Exhibit No.		Description

31.1		Certification of John P. Howlett, Principal Executive Officer, of Emtec, Inc. dated July 14, 2005. Rule 13a-14(a)/15 d-14(a)

31.2		Certification of Sam Bhatt, Principal Financial Officer, of Emtec, Inc. dated July 14, 2005. Rule 13a-14(a)/15 d-14(a)

32.1		Certificate of John P. Howlett, Principal Executive Officer, of Emtec, Inc. dated July 14, 2005. Section 1350

32.2		Certificate of Sam Bhatt, Principal Financial Officer, of Emtec, Inc. dated July 14, 2005. Section 1350.

⁽¹⁾		Previously filed as an exhibit to Registrant’s Current Report on Form 8K dated January 17, 2001, filed on January 31, 2001, and incorporated herein by reference.

⁽²⁾		Previously filed as an exhibit to Registrant’s Registration Statement on Form 10 filed on May 21, 2001, and incorporated herein by reference.

⁽³⁾		Previously filed as an exhibit to Amendment No. 1 to Registration Statement on Form 10, filed on July 12, and incorporated herein by reference.

⁽⁴⁾		Previously filed as an exhibit to Registrant’s Current Report on Form 8K dated November 21, 2001, filed on November 26, 2001, and incorporated herein by reference.

⁽⁵⁾		Previously filed as an exhibit to Registrant’s Current Report on Form 8K dated December 5, 2001, filed on December 20, 2001, and incorporated herein by reference.

⁽⁶⁾		Previously filed as an exhibit to Registrant’s Form 10-K dated March 31, 2001, filed on July 12, 2001, and incorporated herein by reference.

⁽⁷⁾		Previously filed as an exhibit to Registrant’s Current Report on Form 8K dated August 12, 2002 filed on August 26, 2002, and incorporated herein by reference.

⁽⁸⁾		Previously filed as an exhibit to Registrant’s Current Report on Form 8K dated August 31, 2002 filed on September 13, 2002, and incorporated herein by reference.

⁽⁹⁾		Previously filed as an exhibit to Registrant’s Form 10-K dated March 31, 2002, filed on June 30, 2002, and incorporated herein by reference.

⁽¹⁰⁾		Previously filed as an exhibit to Registrant’s Form 10-K dated March 31, 2003, filed on July 15, 2003, and incorporated herein by reference.

⁽¹¹⁾		Previously filed as an exhibit to Registrant’s Form 10-K dated March 31, 2004, filed on July 14, 2004, and incorporated herein by reference.

⁽¹²⁾		Previously filed as an exhibit to Registrant’s Current Report on Form 8K dated December 10, 2004, filed on December 14, 2004, and incorporated herein by reference.

Differences between book and tax basis:
Investment in geothermal power unit	$	—	$	25,924

	30.6	Section 19 of this Lease is deleted.

	30.7	Section 25 of this Lease is deleted. Lessee may, subject to Lessors reasonable approval, place signage on the property and building that complies with Gwinnett County sign ordinances.

	30.8	Glenn Equity anticipates assigning this Lease to an entity that will be created to purchase the property. Lessee acknowledges and agrees to this assignment.

	30.9	Nothing in this Lease will restrict Lessee from granting a security lien for its personal property and/or inventory to its lenders.

	30.10	If Lessee is not in default of the terms and conditions of this Lease and has continually occupied the Premises, Lessee shall have the option to renew this lease for an additional period of five (5) years at a base rental rate equal to the then prevailing market rate for similar space commencing immediately upon the expiration of the initial lease term. All other terms and conditions of the Lease will remain the same. Lessee must notify Lessor in writing per paragraph 24.1 and notice must be received by Lessor at Lessor’s office at least ninety (90) days prior to expiration of the current lease.


[SIGNATURES BEGIN ON NEXT PAGE]

	purposes, the Licensee also agrees to immediately report in writing and changes in personnel, such as termination of employment.

	2.3.	Business/Credit References.


1)		Emtec is a public company	Ticker - ETEC.OB
	Company Name		Account No.


	Contact Name		Phone No.

2)
	Company Name		Account No.


	Contact Name		Phone No.


1)		BOA Checking	355 008 130
	Bank Name and Type of account		Account No.

	2.6	Nature Of The Business / Organization: Below describe what type of business/ organization that this office will be used for:

	_____Computer Systems Sales & Services_________________________________________


	2.7.	Referral Source: Below indicate which source or broker you used, or referred you to The Licensor, so that it may receive the appropriate credit for it’s services. If you did not use any broker or referral service, and attained information entirely on your own (perhaps through a general search on the worldwide web without registering with any office rental search engine), please write ‘NONE’ below.

	__________________Yellow Pages_____________________________________________

		ALSO, DUE TO NUMBEROUS INCOMING SPAM ISSUES CLOGGING UP MANY EMAIL SYSTEMS, THE LICENSOR HIGHLY RECOMMENDS THAT LICENSEE INSTALL SPAM-FILTERING SOFTWARE TO HELP ELIMINATE CONGESTION AND THE SLOWING DOWN ON THE NETWORK.

	6.4	Technical Support. One hour (60 minutes) of basic technical support and service for phones, T-1s and computers will be provided at no charge during regular business hours (9:00 AM to 5:00 PM, Monday through Friday, except holidays) each month per client/company, with a $60.00 per hour charge for any support and service provided thereafter, billable in ½ hour increments. This does not include time spent on any set-up and installations, nor does it include time spent on service calls or troubleshooting for phones and T-1s that were caused by any downtime or malfunction on the part of the service provider. If the Licensee selects an outside technical consultant, that consultant’s work must first be approved by the Licensor, approval of which will not unreasonably be withheld, conditioned or delayed. Technical support will be provided by an on-site, pre-approved independent technician, and any technical support that requires VPNs or copying/transferring of files must first be pre-approved by the Licensor, after a written request of the Licensee for such assistance to be provided. The Licensor will be held harmless for any work performed by the independent in-house technician or any independent outside technical consultant.


	EMTEC, INC., Overtenant

	By:_________/s/ John p. Howlett____________
	, Authorized Officer

	vFINANCE, INC., Undertenant

	By:___________________________________
	, Authorized Officer