-----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, AnV3TEZPb7rEBZCEkqgY5SMpwVUUx6zWveZgPoJRj9FDeE/HV4s/QT+gPTBpnmHv 4IZEk3Qld4PN6uzwJDynlA== 0000893816-98-000003.txt : 19980304 0000893816-98-000003.hdr.sgml : 19980304 ACCESSION NUMBER: 0000893816-98-000003 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19980302 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER OUTSOURCING SERVICES INC CENTRAL INDEX KEY: 0000893816 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 133252333 STATE OF INCORPORATION: NY FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-20824 FILM NUMBER: 98554791 BUSINESS ADDRESS: STREET 1: 360 WEST 31ST ST STREET 2: 11TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10001 BUSINESS PHONE: 2125643730 10KSB/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: October 31, 1997 Commission file number: 0-20824 COMPUTER OUTSOURCING SERVICES, INC. (Exact name of the registrant as specified in its Charter) New York 13-3252333 (State of Incorporation) (IRS Employer I.D. number) 360 West 31st Street, New York, New York 10001 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 564-3730 Securities registered pursuant to Section 12(b) of the Exchange Act: None Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.01 Par Value per Share (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days: [X] Yes [ ] No. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB [x]. For the fiscal year ended October 31, 1997, registrant's consolidated revenues from continuing operations were $24,395,644. On January 16, 1998, the aggregate market value of the outstanding shares of voting stock held by non-affiliates of the registrant was approximately $17,235,102. On January 16, 1998, 3,835,727 shares of the registrant's Common Stock, $0.01 par value, were outstanding. Transitional Small Business Disclosure Format: [ ] Yes [X] No This amendment is for the purpose of adding Items 9 through 12 of Part III. PART III Item 9. DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT -------------------------------- The name, principal occupation of, and certain information concerning each of the Executive Officers and Directors of the Company are set forth in the table below. Also set forth, following the table, is certain additional information regarding these individuals. Director Name Positions with the Company Age Since - ------------------------------------------------------------------------------ Zach Lonstein Chairman of the Board of Directors and Chief Executive Officer 53 1984 Robert B. Wallach President and a Director 58 1992 James D. Gerson Director 54 1993 Howard Waltman Director 65 1997 Jeffrey Millman Executive Vice President, Secretary and a Director 45 1992 John C. Platt Vice President, Treasurer, and a Director 44 1996 Eugene Monosson Vice President of a subsidiary of the Company and a Director 65 1995 Anton P. Donde Vice President of the Company and a Director 42 1994 Zach Lonstein has been the Company's Chairman of the Board and Chief Executive Officer since he organized the Company in 1984, and President from 1984 to May 1996. From 1981 to 1984, Mr. Lonstein was Vice President and General Manager of the Commercial On-Line division of Informatics General Corporation ("Informatics" - subsequently renamed Sterling Federal Systems, Inc.), a computer software and services company listed on the New York Stock Exchange. In 1970, Mr. Lonstein was a founder and President of Transportation Computing Services Corp. ("TCS"). In 1981, TCS was sold to Informatics and eventually became the basis for the Commercial On-Line division, which the Company purchased in 1984. Robert B. Wallach was appointed President of the Company on May 1, 1996, and has been a Director of the Company since 1992. Prior to June 1995, he was sole proprietor of Horizons Associates, a consulting firm he founded in 1985. Mr. Wallach has more than 20 years of operating experience including senior management positions with Boeing Computer Services from 1970 to 1972 and Informatics from 1972 to 1982 and, from 1982 to 1985, as President of the Financial Information Services Group/Strategic Information division of Ziff Communications, which provided computer services to companies in the financial industry. Page 2 of 9 James D. Gerson has been Senior Vice President of Fahnestock & Co., Inc. since 1993, and Portfolio Manager of the Hudson Capital Appreciation Fund since October 1995. From January 1992, Mr. Gerson served as Senior Vice President and Managing Director of Corporate Finance at Reich & Co., Inc., an investment banking and brokerage firm which served as the Company's underwriter for its initial public offering completed in January 1993. Mr. Gerson is also a member of the Boards of Directors of Ag Services of America, Inc., American Power Conversion Corporation, Arguss Holdings, Inc., Energy Research Corporation, and Hilite Industries, Inc. Howard Waltman is Chairman of Express Scripts, Inc. ("ESI"), a Company he formed in 1986 as a subsidiary of Sanus Corp., a national health maintenance organization of which he was also the founder and former Chairman. Sanus Corp. was acquired by New York Life Insurance Company in 1987. ESI, which provides mail order pharmacy services and pharmacy claims processing services, was spun out of Sanus Corp. and taken public in June 1992. Mr. Waltman also founded Bradford National Corp., which was sold to McDonnell Douglas Corporation. Mr. Waltman also serves on the Board of Directors of qmed, Inc., and several privately-held companies. Jeffrey Millman has been Executive Vice President since 1988, Secretary and a Director since 1992, and has been with the Company since it was founded in 1984, previously holding positions of Vice President and Director of Systems and Programming with Informatics beginning in 1983. From 1979 to 1983, Mr. Millman was Director of Theatrical Computer Systems for Columbia Pictures Industries, Inc. John C. Platt has been an employee of the Company since it was founded 1984, and has been a Vice President of the Company since 1986, its Treasurer beginning in 1992, and a Director since 1996. Prior to 1984, Mr. Platt held various positions with Informatics and TCS. Eugene Monosson has been a Director of the Company and Vice President of Key-ACA, Inc. ("ACA") since that corporation was acquired by the Company as of May 1, 1995. ACA was sold as part of the Pay USA Division on December 19, 1997, and Mr. Monosson resigned as a Director at that time. Prior to the acquisition, Mr. Monosson had been President of ACA since 1987. Mr. Monosson also had 18 years of experience with ADP, Inc. in various capacities, the last of which was as Vice President of Operations, Northeast Division. Anton P. Donde is a Director and Vice President of the Company, and was President of the Pay USA Division of the Company until it was sold on December 19, 1997. From 1985 to 1994, Mr. Donde was a founder of and principal in Daton Pay USA, Inc., a corporation acquired by the Company in 1994. Section 16(a) of the Securities Exchange Act - Beneficial Ownership Compliance Reporting ---------------------------------------------- Section 16(a) of the Securities Exchange Act of 1934 requires the Executive Officers and Directors of the Company, and persons who beneficially own more than ten percent of the Company's Common Stock, to file reports of ownership of Company securities and changes of ownership with the Securities and Exchange Commission. Copies of those reports must also be furnished to the Company. Page 3 of 9 Based solely on a review of the copies of reports furnished to the Company or representations of the Company's Directors and Executive Officers that no additional reports were required, the Company believes that during the fical year ended October 31, 1997 the Executive Officers, Directors, and other persons beneficially owning more than ten percent of the Company's Common Stock complied with all applicable Section 16(a) filing requirements. Item 10. EXECUTIVE COMPENSATION ---------------------- COMPENSATION OF DIRECTORS During fiscal year 1997, each of the members of the Board of Directors who were not full-time employees of the Company were granted non-qualified options to purchase 1,250 shares of the Company's Common Stock for each meeting attended. COMPENSATION OF EXECUTIVE OFFICERS The Summary Compensation Table below includes, for each of the fiscal years ended October 31, 1997, 1996, and 1995, individual compensation for services to the Company and its subsidiaries as paid to the Chief Executive Officer and all those executive officers of the Company whose salary exceeded $100,000 in the most recent fiscal year (together, the "Named Executives"). SUMMARY COMPENSATION TABLE - ----------------------------------------------------------------------------- Long-Term Compensation Annual Compensation - Awards ------------------- ------------ Securities All Other Name and Principal Fiscal Salary Bonus Underlying Compensation Position Year ($) ($) Options (#) ($) - -------------------- ------ ---------- ------- ------------ ------------ Zach Lonstein, Chief 1997 $240,666 - 25,000 $30,000 (a) Executive Officer 1996 230,023 - 25,000 30,000 (a) & Chairman of the 1995 250,000 - 25,000 8,333 (a) Board of Directors Robert B. Wallach, 1997 200,000 $55,000 100,000 - President 1996 166,667 35,000 - - 1995 62,500 - 150,000 - Jeffrey Millman, 1997 124,628 - - - Executive Vice 1996 106,923 - - - President & Secretary 1995 115,000 - - - Anton P. Donde, Vice 1997 125,000 - - - President of the 1996 125,000 - - - Company 1995 125,000 - - - (a) Fee relating to Mr. Lonstein's guarantee of the Company's obligations relating to the purchase of MCC Corporation. (See Item 12: "Certain Relationships and Related Transactions") Page 4 of 9 OPTION/SAR GRANTS IN THE LAST FISCAL YEAR The following table sets forth, for the Chief Executive Officer and the Named Executives, all grants of stock options made during the fiscal year ended October 31, 1997. Executives not listed did not receive grants of stock options during the fiscal year. The Company did not award any stock appreciation rights or reprice any stock options during fiscal 1997. OPTION GRANTS IN THE LAST FISCAL YEAR - ------------------------------------------------------------------------------- Number of % of Total Securities Options Underlying Granted to Exercise Options Employees in Price Expiration Name Granted Fiscal Year ($/share) Date - ---------------- ---------- ------------ --------- ------------ Zach Lonstein 25,000 (1) 15% $3.781 Dec 31, 2001 Robert Wallach 50,000 (2) 30% $5.250 Aug 5, 2007 Robert Wallach 50,000 (3) 30% $3.250 Jun 1, 2005 (1) Become exercisable as to 5,000 shares in each of five years beginning January 1, 1997. (2) Become exercisable as to 16,666 shares in each of three years beginning August 5, 1997. (3) Become exercisable as to 20,000 shares on December 17, 1996 and become exercisable as to 15,000 shares in each of two years beginning December 17, 1997. AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES The following table contains information concerning the unexercised stock options held by the Chief Executive Officer and the Named Executives as of October 31, 1997. No stock appreciation rights have been granted by the Company. AGGREGATED FISCAL YEAR-END OPTION VALUES - --------------------------------------------------------------------------------------------------------------------
Securities Received from Number of Securities Under- Value of Unexercised Exercise of Options during the lying Unexercised Options at In-the=Money Options at Year ended October 31, 1997 October 31, 1997 (#) October 31, 1997 ($) (2) ------------------------------ ---------------------------- -------------------------- Net Value Number of Received Un- Un- Name Shares ($)(1) Exercisable exercisable Exercisable exercisable - ---------------- --------- --------- ----------- ------------- ----------- ----------- Zach Lonstein - - 155,000 45,000 $1,133,510 $ 217,315 Robert Wallach - - 201,666 48,334 1,138,952 214,298 Jeffrey Millman 2,052 $7,962 7,448 3,000 23,744 17,784 Anton P. Donde - - 60,000 40,000 247,380 164,920
Page 5 of 9 (1) The amount shown represents the aggregate excess of the market value of the shares of common stock as of the date of the exercise over the exercise price paid. (2) The amounts shown represent the aggregate excess of the market value of shares of common stock underlying options at October 31, 1997 over the exercise price of those options. AGREEMENTS WITH CERTAIN EXECUTIVE OFFICERS In 1992, Mr. Lonstein entered into an employment agreement with the Company. This agreement was renewed on January 1, 1995 for a term of five years, will be subject to further renewal annually beginning January 1, 2000, and provides for a base annual salary of $250,000 and an annual bonus equal to 5% of the amount by which the Company's yearly pretax net income (as defined therein) exceeds 150% of the pretax net income for the fiscal year ended October 31, 1992. Additionally, beginning on January 1, 1995, and on each of the four succeeding anniversaries thereof, the Company agreed to grant an option to Mr. Lonstein to purchase 25,000 shares of the Company's Common Stock at an exercise price equal to 110% of the market value of the stock on that date, in accordance with the 1992 Stock Option and Stock Appreciation Rights Plan. As of October 31, 1997, three such grants have been made. In addition, the agreement requires that the Company provide Mr. Lonstein a current model automobile, pay for all repairs, maintenance, and business related expenses thereon, and to also purchase a health club membership for Mr. Lonstein and pay related expenses. The Company is the beneficiary of a $1,000,000 "key-man" life insurance policy which it maintains on Mr. Lonstein. During fiscal 1996 and 1997, Mr. Lonstein voluntarily elected to reduce his annual compensation below the amount called for in his employment agreement. The Company and Mr. Millman entered into an employment agreement dated November 1, 1992. This agreement had a term of five years, and provided for a base annual salary of $115,000, with adjustments for increases in the cost of living index subject to a review by the Compensation Committee of the Board of Directors. This agreement was not renewed. During fiscal 1996, Mr. Millman voluntarily elected to reduce his annual compensation below the amount called for in his employment agreement. In 1994, the Company and Mr. Donde entered into a five-year employment agreement which provides for an annual base salary of $125,000 and the use, at the Company's expense, of a current model automobile. In May 1995, the Company and Mr. Monosson entered into a five-year employment agreement which called for an annual base salary of $100,000, the use at the Company's expense of a current model automobile, and the possibility of a bonus based on ACA earnings, as defined. No bonus was earned for fiscal years ended October 31, 1997 and 1996. The Company has agreed that the Company will pay for any portion of the term of this agreement during which Mr. Monosson is not employed by the buyers of the Pay USA division. Page 6 of 9 Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of October 31, 1997 by all current Directors of the Company, the Chief Executive Officer and Named Executives, all directors and executive officers as a group, and any other person known by the Company to be the beneficial owner of more than 5% of its Common Stock. Beneficial ownership includes shares which the beneficial owner has the right to acquire within sixty days of the above date from the exercise of options, warrants, or similar obligations. If no address is shown, the address of the beneficial owner is in care of the Company. BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK - ------------------------------------------------------------------------------ Number of Shares Percentage Name and Address of Beneficial Owner Beneficially Owned of Class - -------------------------------------- ------------------ ---------- Zach Lonstein (1) 1,681,788 42% Robert B. Wallach (2) 203,166 5% Howard Waltman (3) 62,250 2% James D. Gerson (4) 49,000 1% Jeffrey Millman (5) 9,500 * John C. Platt (6) 8,500 * Eugene Monosson (7) 48,731 1% Anton P. Donde (8) 308,864 8% All Directors and Executive Officers as a group (8 persons) (9) 2,371,799 55% * Less than 1% of Class (1) Includes 155,000 shares of Common Stock issuable upon exercise of options held by Mr. Lonstein. Also, includes 34,367 shares held by Mr. Lonstein as custodian for the benefit of one of his children under the New York Uniform Gift to Minors Act, as to which shares Mr. Lonstein disclaims beneficial ownership, and 310,000 shares pledged as a guarantee of the Company's obligations to the seller of MCC Corporation in June 1995 (See Item 12: "Certain Relationships and Related Transactions"). (2) Includes 201,666 shares of Common Stock issuable upon exercise of an option held by Mr. Wallach. (3) Includes 3,750 shares of Common Stock issuable upon exercise of options held by Mr. Waltman. Page 7 of 9 (4) Includes 15,000 shares of Common Stock issuable upon exercise of options and 19,000 shares issuable upon exercise of a warrant held by Mr. Gerson. (5) Includes 7,448 shares of Common Stock issuable upon exercise of options held by Mr. Millman. (6) Includes 8,500 shares of Common Stock issuable upon exercise of options held by Mr. Platt. (7) Includes 20,000 shares of Common Stock issuable upon exercise of options held by Mr. Monosson. (8) Includes 248,864 shares of Common Stock held by Mr. Donde as Trustee of the Anton and Detta Donde Trust dated November 21, 1988. Also includes 60,000 shares of Common Stock issuable upon exercise of options held by Mr. Donde. (9) Includes 471,364 shares of Common Stock issuable upon exercise of options and 19,000 shares issuable upon exercise of warrants collectively held by all directors and executive officers of the Company. Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- As of October 31, 1997, Mr. Lonstein was indebted to the Company in the amount of $81,443. This indebtedness is payable on demand and bears interest at the prime rate plus 1% per annum. In connection with the Company's acquisition of MCC Corporation ("MCC") as of June 1, 1995, the Company gave the sellers a note for $840,645 (the "Purchase Note"), to be repaid at stated times with interest over two years, and a second note for $753,544, which was repaid in equal monthly amounts over one year without interest. As collateral for the notes, Mr. Lonstein pledged and placed in escrow 310,000 shares of the Company's Common Stock owned by him. As compensation for providing this collateral, Mr. Lonstein was granted a per annum fee of 5% of the value of such shares ($1,000,000 on the date of the purchase) for such period as the guarantee is in effect. The guarantee fee is being paid to Mr. Lonstein in the form of a monthly reduction in his indebtedness to the Company. In April 1996, the payment dates of the Purchase Note were extended by the seller of MCC through 1999. Effective for fiscal year 1996 and subsequent fiscal years, Mr. Lonstein and the Company agreed to reduce the annual guarantee fee to 3%, payable in the same manner as above. In connection with the acquisition of Key-ACA, Inc. ("ACA"), effective May 1, 1995, the Company was obligated to Eugene Monosson and the other sellers for certain contingent payments based on earnings (as defined) of the Company's two payroll operations in New England for five years. For the fiscal years ended October 31, 1997 and 1996, no contingent payments were earned. The two Page 8 of 10 Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (cont'd) ---------------------------------------------- New England companies were included in the sale of the Payroll Division. On December 24, 1997, the Company paid Mr. Monosson $75,540 as part of payments aggregating $300,000 to the former stockholders of ACA in return for a release from any further liability under the earnings contingencies. The Company also guaranteed that the market value of the 113,636 shares of common stock issued in connection with this acquisition will be at least $5.50 per share on April 30, 2000. In connection with the acquisition by the Company of Daton Pay USA, Inc. ("Daton") in June 1994, the Anton and Detta Donde Trust ("the Trust"), of which Mr. Donde is trustee, received 264,084 shares of the Company's Common Stock. Also, the Company repaid a $670,000 loan owed by Daton to Mr. Donde. In addition, Mr. Donde had the opportunity to earn contingent payments based on the earnings of the Pay USA Division (as defined) for a five-year period. As of October 31, 1997, no contingent payments had been earned. On December 19, 1997, the Company sold the Pay USA Division. Also as a result of the acquisition of Daton, the Trust has the right to receive a payment equal to 1% of any consideration paid by the Company to purchase any company not engaged in providing payroll services. Such payment is to be made in shares of the Company's Common Stock at a value of $5.00 per share. Pursuant to this provision, and in connection with the acquisition by the Company of MCC Corporation in June 1995, the Company issued 2,052 shares of Common Stock to the Trust. The Company has guaranteed that the market value of the shares issued to Mr. Donde, the Trust, and the other sellers of Daton will be no less than $5.00 per share on July 31, 2000. In connection with his initial election to the Company's Board of Directors, Mr. Waltman agreed to, and subsequently did, purchase at least 25,000 shares of the Company's Common Stock in the open market, and has also purchased 25,000 restricted shares from Mr. Lonstein. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COMPUTER OUTSOURCING SERVICES, INC. /s/ February 28, 1998 --------------------------------------- Zach Lonstein - Chief Executive Officer Page 9 of 9 -----END PRIVACY-ENHANCED MESSAGE-----