U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/x/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended JUNE 30, 2001
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _________________
Commission file number 033-23138-D
HEARTSOFT, INC.
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(Name of small business issuer in its charter)
DELAWARE 87-0456766
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
or organization)
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange
on which registered
NONE NONE
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Securities registered under Section 12(g) of the Exchange Act:
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X ] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. /x/
The issuer's revenue for the year ended June 30, 2001 was $513,996.
The aggregate market value of the voting stock held by non-affiliates at June 30, 2001 was $3,207,541. This amount was computed using the average bid and ask price as of June 30, 2001. For purposes of this computation, all officers, directors and 5% beneficial owners of the issuer are deemed to be affiliates.
As of June 30, 2001, the issuer had outstanding a total of 16,167,453 shares of its $.0005 par value Common Stock.
Transitional Small Business Disclosure Format (Check one): Yes / / No /x/
HEARTSOFT, INC.
FORM 10-KSB
TABLE OF CONTENTS
ITEM NUMBER AND CAPTION PAGE NUMBER
PART I
Introduction 4
Cautionary Statement Regarding Forward-Looking Information 4
Item 1. Description of Business 4
Item 2. Description of Property 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 14
Item 6. Management's Discussion and Analysis or Plan of Operation 16
Item 7. Financial Statements 22
Item 8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure 22
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 22
Item 10. Executive Compensation 25
Item 11. Security Ownership of Certain Beneficial Owners and Management 26
Item 12. Certain Relationships and Related Transactions 27
Item 13. Exhibits and Reports on Form 8-K 27
Summary of Risk Factors 38
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PART I
INTRODUCTION
On August 4, 2000, the Board of Directors of Heartsoft, Inc. changed the Company's fiscal year from March 31 to June 30 effective for the fiscal year beginning July 1, 2000 to June 30, 2001.
THIS FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS THAT COULD DIFFER FROM ACTUAL FUTURE RESULTS.
This Form 10-KSB contains "forward-looking" statements regarding potential future events and developments affecting the business of Heartsoft, Inc., a Delaware corporation ("Heartsoft," or the "Company," including its subsidiary). Forward-looking statements may be indicated by the words "expects," "estimates," "anticipates," "intends," "predicts," "believes" or other similar expressions. Forward-looking statements appear in a number of places in this Form 10-KSB and may address the intent, belief or current expectations of Heartsoft and its Board of Directors and management with respect to Heartsoft and its business. Heartsoft's ability to predict results or the effect of any future events on Heartsoft's operating results is subject to various risks and uncertainties.
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
Heartsoft was incorporated in the State of Delaware in June 1988. Historically, Heartsoft has been engaged in the design and publishing of its own proprietary educational software products for distribution to the education market and consumer market. Its products are sold through an internal sales organization, national and international resellers, United States based catalogers with an annual aggregate circulation in excess of 5,000,000 catalogs and online through four corporate websites, www.heartsoft.com, www.internet-safari.com, www.thinkology,com, and www.isafari.com. The Company's product line is comprised of approximately 50 educational software programs that assist young children in pre-kindergarten through the 6th grade to practice and learn basic curriculum subjects.
In early 1999, Heartsoft began to evaluate potential business opportunities regarding the development and distribution of a new software product which would restrict the viewing of inappropriate material over the internet by young children. During the first calendar quarter of 1999, the Company committed to the design and development of a secure children's internet browser. On February 7, 2001, the Company released its new secure internet browser for children, INTERNET SAFARI-TM- Version 1.0. The release of INTERNET SAFARI-TM- has broadened the Company's product line to include an internet-based software solution.
Since its release, INTERNET SAFARI-TM- has been well received. Beginning in January, 2001, the Company's education group distributed thousands of copies of a demo version of INTERNET SAFARI-TM- at major education conferences in Florida, Texas, California and Illinois
and the feedback from the many educators who have seen or used the product is highly encouraging. Currently, nearly 50 school districts have expressed interest in or requested proposals for purchasing INTERNET SAFARI-TM- on a district-wide basis, and several thousand additional leads are in the sales pipeline to be worked by Heartsoft's in-house sales team.
On August 14, 2001, the Company entered into an agreement with MegaSystems, a manufacturer and distributor of educational and reference software, to provide national retail distribution of the Company's new secure internet browser for children, INTERNET SAFARI-TM-. Additionally, the Company has had initial discussions with several Internet Service Providers (ISPs) and hopes to develop an ISP distribution model in the future.
To date, the Company has received several inquiries from international distributors regarding the conversion, or localization, of INTERNET SAFARI-TM- into four foreign languages. These opportunities will be explored in the future.
The Company believes that its investment in the development of INTERNET SAFARI-TM- represents a key element of its future and that the Company can become a leading player in the children's internet market.
Subsequently, the Company concluded that in addition to the market for children's on-line internet safety, sufficient demand may also exist for certain proprietary technologies which it owns to be used in other markets. These markets include, but are not limited to, certain government agencies, corporations, professional, and educational organizations. On July 17, 2000, the Company formed a wholly owned subsidiary, Plug-Invention Technologies, Inc. to develop and market the company's proprietary pornographic image recognition and detection technology and other internet security solutions to corporations, organizations and governmental agencies throughout North America. While it has no operations to date, it is anticipated that the new entity will initially operate within the corporate infrastructure at the Company and will establish its own team of management and sales personnel as its first products are prepared for sale.
INDUSTRY BACKGROUND AND GROWTH OF THE INTERNET
The internet has emerged as a global medium enabling millions of people worldwide to share information, communicate and conduct business electronically. Estimates by the International Data Corporation ("IDC") indicate that the number of Web users could grow from approximately 150 million worldwide in 1998 to approximately 500 million worldwide by the end of 2003. A study released in 2001 estimates that nearly 65 million teens and children currently have access to the internet. Recent reports place the number of internet users in excess of 340 million.
As demand for internet access is increased by the growth in the number of businesses conducting commerce over the internet, the need for businesses to ensure that their employees operate in a safe and secure environment also increases. In addition to the increasing use of the internet at schools, homes and libraries, this growing business acceptance of the Web represents an enormous opportunity for the demand of safe and secure access to the Internet. IDC estimates that commerce over the internet will increase from approximately $40 billion worldwide in 1998 to approximately $900 billion worldwide in 2003.
THE HEARTSOFT SOLUTION
Heartsoft believes it understands the many challenges that the increased demand by schools and businesses for internet derived information will have on the marketplace. As the use of the internet increases, the probability of individuals encountering offensive material is also likely to increase.
The Company also believes the social, political and legal reactions to objectionable material on the internet will be a major impetus for both schools and businesses to protect their internet users from encountering unwanted objectionable material. Heartsoft has released a completely integrated internet security solution (INTERNET SAFARI-TM-) for use in both the classroom and at home and is now engaged in the preliminary phase of bringing this concept to the corporate workplace through the incorporation of advanced artificial intelligence technologies.
PRODUCTS
During the fiscal year ended June 30, 2001, the Company released INTERNET SAFARI-TM-, a secure internet browser for children. INTERNET SAFARI-TM- is distributed to both the consumer and educational markets. It is compatible with Microsoft's next generation operating system, Window's XP(R), and has been approved by the United Federation of ChildSafe Web Sites for ICCS (International ChildSafe Certification Standard) Certification under the iWatchDog Program.
INTERNET SAFARI-TM- is designed for children ages 4 through 12 years to help simplify their use of the internet. INTERNET SAFARI-TM- is a full-featured secure internet browser for children that utilizes the sights and sounds of a jungle safari user interface with cartoons, sounds and a host of proprietary features. INTERNET SAFARI-TM- provides a high level of internet security by combining artificial intelligence with advanced image detection and recognition software that has the capability to detect digitized pornographic images. Security is achieved through the interaction of two proprietary programs:
- An artificial intelligence based internet security software application; and
- An image detection and recognition program to detect and block pornographic imagery.
INTERNET SAFARI-TM- also features:
- Adjustable tolerance levels within security features to help allow the browser to be accommodated to the maturity of its user;
- One-click access to top on-line content providers;
- A database/portal of hand-selected children's web sites broken into content channels designed as a starting place for Internet viewing;
- Full internet URL support enabling children to have access to the entire internet; and
- Unique "Teacher's Features" to transmit the same URL to all students at once, monitor student internet activities, and configure INTERNET SAFARI-TM- security and administration all from the teacher's workstation.
Another of the Company's proprietary software products currently being marketed is its award winning THINKOLOGY-TM-, a three titled software series that facilitates learning by helping young children increase their critical thinking and higher order reasoning skills. Released in late 1998, THINKOLOGY-TM- has garnered the prestigious 1999 Media & Methods Portfolio Award. THINKOLOGY-TM- has also received several favorable reviews in top educational and consumer magazines, including FamilyPC and Multimedia Schools.
Other Heartsoft programs include: the HEARTSOFT BESTSELLER SITE LICENSE, which contains 12 of the Company's top selling titles under a license allowing the teacher to copy the software for every computer in the school, and the HEARTSOFT K-8 LIBRARY (consisting of 35 software titles in the current product line).
MARKETS
The Company believes that there are two basic markets for its current proprietary software technology: the education market and the consumer or retail market. Because the Company believes greater competition, higher barriers to entry and shorter product life exists in the consumer market, it has historically chosen to concentrate on the introduction of its products into the educational market. As noted earlier, on August 14, 2001, the Company entered into an agreement with MegaSystems, a manufacturer and distributor of educational and reference software, to provide national retail distribution of the Company's new secure internet browser for children, INTERNET SAFARI-TM-. The Company anticipates implementing an aggressive expansion program into the consumer/retail market.
EDUCATION MARKET
The education market consists of school systems, home schools and individual educators requiring core curriculum materials and supplemental materials for use in the classroom. The Company derives most of its sales revenues from this market.
In the education market, as opposed to the consumer market, products enjoy a longer life span and obsolescence is less of a concern. This difference can be attributed, in part, to the fact
that users in the education market tend to upgrade hardware less frequently than users in the consumer market. Additionally, products in the education market often have life-spans as long as seven years because such products are based on core curriculum concepts that do not change significantly from year to year.
The Company is not aware of a dominant company or companies that offer curriculum materials of the type the Company offers in the education market. The majority of the companies offering products to the education market focus on large network solutions or integrated learning systems, which result in a comprehensive curriculum-based solutions. While such building-wide curriculum solutions are comprehensive in nature, they are very expensive, often costing between $50,000 to $100,000 per building. In contrast, the Company's typical site licensing fees are less than $2,000.
CONSUMER MARKET
While the Company currently receives most of its income from sales to the education market, the Company is moving into the consumer market with the introduction of INTERNET SAFARI-TM- as evidenced by signing a National Retail Distribution Agreement with MegaSystems. The consumer market consists of individuals who purchase educational software for use in the home. The overall growth in this market is a result of several major trends, including the increasing number of computer systems in the home, the improved multimedia capabilities of these systems and the increasing demand for a greater number of high quality, affordably priced software applications. The opportunities for consumers to purchase a vast number of software products and technologies from a wide variety of sources has increased consumers' expectations for high quality multimedia software. To increase its ability to reach this market, the Company signed an agreement with MegaSystems who distributes products to retail stores nationwide including Best Buy, CompUSA, Media Play, Frys, Office Depot, BJ's Wholesale Club and others.
Additionally, the Company is evaluating the revenue potential for other consumer software distribution channels beyond traditional software retailers and computer stores which include:
- Warehouse clubs;
- Internet service providers (ISPs);
- Original equipment manufacturers (OEMs) such as Dell, Compaq, Gateway, Apple,
etc.;
- International partners for distribution/licensing agreements; and
- On-line Internet stores, also known as e-commerce solutions.
The consumer software market is extremely competitive and highly volatile as multimedia software publishers vie for a limited amount of available retail shelf space. These characteristics necessitate that companies achieve a greater sell-through of unit volumes by building brand name recognition, establish strong relationships with retailers and consistently upgrading products to offer state-of-the-art capabilities and rich content. Rapid changes in technology and customer requirements also need to be considered.
Advances in computer technology spur the introduction of newer and faster computers. As a result, publishers need to constantly introduce new software to take advantage of these improved technologies. Consumer software products become obsolete much sooner than education software, sometimes in as little as two to three years. Educational software publishers who cater to the consumer market incur substantially increased development costs because of the need for more frequent product introductions or upgrades.
MAJOR CUSTOMERS
Heartsoft markets its products nationwide to many diverse groups that are governed by unrelated buying decisions. No single customer represents a significant portion of the Company's revenues. Heartsoft most effectively strengthens relationships with existing customers by additional and upgrade sales in situations where customers can add to their Heartsoft library.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The most important raw materials purchased by the Company are computer diskettes and pre-duplicated CD-ROMs, both of which are obtained from domestic suppliers. The Company also purchases certain components from domestic manufacturers and printers for its packaging materials. The Company endeavors to obtain the lowest possible cost when purchasing raw materials and components while meeting specified quality standards. The Company is not dependent upon any one source for its raw material or the major components of its manufactured products. The Company anticipates that it will have adequate sources of supplies to meet its manufacturing requirements for the foreseeable future.
MARKETING AND DISTRIBUTION
As of June 30, 2001, the Company utilized a sales and marketing staff of 15 employees to market its products in the United States and abroad. During Fiscal Year 2001, the Company conducted direct mail marketing campaign from sales leads generated from its participation in four regional education technology conferences. The Company has also implemented direct target marketing campaigns that promoted existing product lines to education customers. Educational sales are made directly to individual teachers and to regional school systems and districts, with shipments being made from the Company's Broken Arrow office to the purchaser. The Company also advertised its products in reseller catalogs with aggregate circulations of approximately 5,000,000 in preparation of the spring buying season. As of November 8, 2001 the sales and marketing staff has been reduced as a result of delays in raising capital and consists of 1 full-time and 4 contract employees.
The Company's products and sales strategy focus on a "niche" market within the consumer and educational markets. Three of the Company's best selling products, HEARTSOFT BESTSELLER SITE LICENSE, HEARTSOFT K-8 LIBRARY, and THINKOLOGY-TM-, sell from prices ranging from approximately $400 to $1,250, depending on the configuration. Further, each product license allows multiple use of the software throughout the school. Within the consumer, or home market, the Company's products sell in the price range from
approximately $20 to over $100 depending on configuration and educational support materials. To support and service its customers, the Company supplies technical support through its in-house technical support team. The Company's warranty on its products is lifetime for content, and one year for disc errors.
The Company relies on its sales staff and contacts in the education software market to sell the Company's proprietary titles. In addition, the Company also has access to certain distribution channels through the use of Value-Added-Resellers (VARs). With respect to its publishing activities, the Company's development staff oversees the development of the software. Additionally, the Company assembles its raw materials creating a final package at its Broken Arrow, Oklahoma facilities. All of the proprietary software titles developed by the Company have been copyrighted. All of the Company's products currently in development will be copyrighted prior to release.
RESEARCH AND DEVELOPMENT
All research and development activities of the Company are company-sponsored, rather than customer-sponsored. Product development costs are capitalized as incurred once technological feasibility has been established. Ongoing work continues on Version 2 of its new secure internet browser for children, INTERNET SAFARI-TM- and the Company is evaluating the possibility of marketing its proprietary security technology as a software plug-in for other computer software applications.
BACKLOG
The Company has no current order backlog and has experienced minimal occurrences in the past. Each order is filled on demand with sophisticated, high-speed diskette duplicators that can duplicate a disk in as little as 25 seconds. The Company utilizes companies that provide CD-ROM duplication services in five to fifteen business days. Any production delays are most frequently caused by delays in raw material receipt. These delays rarely exceed 24-48 hours.
WORKING CAPITAL
To support the Company's policy of growth, and to meet working capital needs during the development of INTERNET SAFARI -TM-, the Company secured approximately $2,300,000 in funding during the year ended June 30, 2001 through private placements of debt and common stock. A breakdown of this funding is as follows:
- On July 20, 2000, the Company borrowed $125,000 under a short-term promissory note from a private investment group. The Company repaid the note in full in August, 2000.
- On August 18, 2000 the Company borrowed $100,000 under a convertible promissory note agreement. On November 8, 2000, the Company amended this agreement to issue 80,000 shares of restricted common stock in lieu of a payment of $40,000. This stock issuance reduced the promissory note to $60,000 that was due on December 31, 2000. The Investment
group has agreed to convert this debt into shares of common stock. As of June 30, 2001 the conversion has not taken place. The promissory note holder extended the payment due date of the note to December 31, 2001.
- On November 9, 2000, the Company borrowed $500,000 under two separate promissory notes, each for the principal sum of $250,000. The principal sum of both promissory notes plus interest at a per annum rate equal to 6.15% are due on the earlier of May 9, 2001 or five business days after the Company shall have received equity investments or debt financing in excess of $750,000. In order to induce the parties to enter into the promissory notes, the Company issued the holders of each of the promissory notes 125,000 shares of common stock of the Company, and Benjamin Shell, the Chairman and CEO of the Company, pledged collateral in the form of 500,000 shares of common stock of the Company owned by him to secure the amounts under the promissory notes. The Notes may be pre-paid in whole or in part at any time without penalty, but with interest to the date of payment on the amount. On May 9, 2001 the Company entered into an extension agreement with the holders of the promissory notes. Under the extension agreement, Heartsoft issued the holders of each of the promissory notes 150,000 shares of common stock of the Company. The principal sum of the original promissory notes plus interest accrued to May 9, 2001 and interest at the rate of 15% per annum is due and payable on July 9, 2001. On July 9, the Company entered into a second extension agreement and issued each promissory note holder an additional 109,000 shares of common stock. On October 15, 2001, each promissory note holder entered into an extension agreement to extend the payment date of the notes to December 31, 2001.
- On December 20, 2000, the Company received a note from a private investor for $10,000. The note bears interest at 8% and was due and payable on June 20, 2001, however the note holder extended the payment date of the note to December 31, 2001.
- On January 18, 2001, the Company borrowed $60,000 under a short-term promissory note from a private investor. The Company repaid the note in full on January 24, 2001.
- On January 24, 2001 and February 5, 2001 the Company borrowed a total of $250,000 under a convertible promissory note. The principal sum of the convertible promissory note plus interest at a per annum rate equal to 6.15% are due on the earlier of August 5, 2001 or five business days after the Company shall have received equity investments or debt financing in excess of $1,500,000. In order to induce the party to enter into the convertible promissory note, the Company issued the holder 125,000 shares of common stock of the Company and agreed to pledge as collateral certain intangible assets. The holder of the convertible promissory note may at his option convert the unpaid principal amount into such number of fully paid and non-assessable shares of common stock. The basic conversion rate shall be one (1) share of common stock for each $.666666 in principal amount of the note surrendered for conversion. The Note may be pre-paid in whole or in part at any time without penalty, but with interest to the date of payment on the amount prepaid. On June 14, 2001, the Company entered into an agreement with the note holder and borrowed an additional $50,000 and amended and restated the convertible promissory note. The $50,000 added to the convertible
promissory note bears interest at 6.15% and is due and payable on or before February 8, 2002. In order to induce the party to add the $50,000 to the convertible promissory note, the Company issued the holder 100,000 shares of common stock. On October 15, 2001, the convertible promissory note holder entered into an extension agreement to extend the payment date of the note to December 31, 2001. Additionally, the principal sum of $250,000 of the original promissory note bears interest at the rate of 15%.
- On February 01, 2001, the Company borrowed $60,000 under a verbal agreement from a private investor. The Company repaid the note in full on February 06, 2001.
- On March 1, 2001, the Company entered into a promissory note with a private investment group for $40,000. The note bears interest at 8% and is due and payable on February 28, 2002.
- On March 17, 2001, the Company borrowed $50,000 under a short-term promissory note from a private investor. The note bears interest at 8% and original maturity date was September 16, 2001. The note is in default at November 9, 2001.
- On April 17, 2001, the Company borrowed $100,000 under a short-term promissory note from a private investor. The note bears interest at 15% and was due and payable July 15, 2001. The promissory note holder extended the payment due date of the note to December 31, 2001.
- On May 01, 2001, the Company borrowed $50,000 under a short-term promissory note from a private investor. The promissory note bears interest at 15% and was due and payable May 31, 2001. The promissory note holder extended the payment due date of the note to December 31, 2001.
- On May 11, 2001, the Company borrowed $50,000 under a short-term promissory note from a private investor. The note's interest rate was 8% and maturity date June 9, 2001. The note's interest was revised to 10% starting June 1, 2001 and revised a second time to 15% starting August 15, 2001. The promissory note holder extended the payment due date of the note to December 31, 2001.
- During the year ended June 30, 2001, the Company sold 1,463,181 shares of restricted common stock. Proceeds of the sale aggregated $861,563 less offering expenses of $17,500. As of June 30, 2001 all shares have been issued.
Additionally, to meet working capital needs, certain officers of the Company loaned the Company a total of $174,300 for the year ended June 30, 2001. A total of $127,300 has been repaid to the officers. These transactions have been reflected in the officer's shareholder payable accounts. Also, on April 06, 2001, the Company received $30,000 from an investor and recorded the transaction as contributed capital.
The proceeds of the convertible debt and private placements of equity met the Company's working capital needs through June 30, 2001. The Company is currently in the process of
attempting to negotiate another private placement of equity securities that the Company anticipates will allow it to meet working capital requirements, although there is no assurance that the private placement will be consummated (See the Liquidity and Capital Resources section of Management's Discussion and Analysis or Plan of Operation).
EMPLOYEES
At June 30, 2001, the Company had 34 full-time employees, 3 part-time employees and 1 contract employee, none of whom are represented by unions. As of November 8, 2001, the Company has reduced its staff to a total of 14 which is comprised of full-time, part-time and consulting staff.
COPYRIGHTS, PATENTS, TRADEMARKS, LICENSES AND CONCESSIONS
The Company routinely copyrights its proprietary software titles. Further, the Company is in the process of securing registered trademarks on its corporate name, and its leading proprietary products. The Company has also filed a patent application in connection with its new internet browser for children, INTERNET SAFARI-TM-.
ENVIRONMENTAL MATTERS
The Company's operations are of a nature that laws concerning the environment do not substantially affect the Company's domestic operations. The Company believes that it presently complies with these laws and that future compliance will not materially adversely affect the Company's earnings or competitive position.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases its principal office location in Broken Arrow, Oklahoma, a suburb of Tulsa. The Broken Arrow office, which includes both executive offices and production space, contains approximately 8,100 square feet (1,200 sq. ft. of production/warehouse space and 6,900 sq. ft. of office space), located in a business office park at 3101 N. Hemlock Circle, Broken Arrow, Oklahoma. The lease expires December 1, 2004.
ITEM 3. LEGAL PROCEEDINGS.
INVESTIGATION BY THE FORT WORTH DISTRICT OFFICE OF THE SECURITIES AND EXCHANGE COMMISSION.
By letters dated February 23, 2000 and March 8, 2000, the Fort Worth District Office of the Securities and Exchange Commission (the "SEC") notified the Company, and two of its officers, Benjamin P. Shell ("Shell") and Jimmy L. Butler ("Butler"), of the Fort Worth District Office's intent to recommend to the SEC that a lawsuit be brought against the Company, Shell and Butler based on alleged violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b), 13(a) and 16(a) of the Securities Exchange Act of 1934, and Rules 10b-5, 13a-1, 13a-13 and 16a-3 thereunder.
The investigation by the SEC involved, among other things, allegations regarding the wording of certain press releases issued by the Company from January 1999 to March 1999. On September 5, 2000, the Company settled the action brought by the SEC. As a part of the terms of the settlement, the SEC filed a complaint against the Company in the United States District Court for the Northern District of Oklahoma on September 5, 2000. The complaint was filed with stipulations and consents and agreed final judgments that were approved by the SEC and Heartsoft. On September 15, 2000, the Court accepted these stipulations and consents and entered the agreed final judgments resolving the lawsuit and implementing the settlement.
Under the terms of the stipulations and consents and the agreed final judgments, the Company, Mr. Shell and Mr. Butler are permanently enjoined from committing violations of certain securities laws and Mr. Shell and Mr. Butler are required to individually pay disgorgement of certain trading profits, interest and civil penalties totaling $146,402.99 and $129,850.94, respectively. The Company and Messrs. Shell and Butler neither admitted nor denied any of the allegations in the complaint filed by the SEC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders, through solicitation of proxies or otherwise, during the period from July 1, 2,000 through June 30, 2001.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION:
Shares of the Company's Common Stock are traded in the over-the-counter system, through the NQB Bulletin Board under the symbol "HTSF." The range of high and low bid information for the Company's Common Stock during the last two years and the Transition Period, as reported by the NASDAQ Stock Market, Inc., was as follows:
QUARTER ENDED HIGH BID LOW BID ------------- -------- ------- June 30, 1998 $0.5313 $0.4063 September 30, 1998 $0.4375 $0.1500 December 31, 1998 $0.2500 $0.1250 March 31, 1999 $5.9375 $0.1700 June 30, 1999 $2.0000 $1.2188 September 30, 1999 $1.7813 $1.2188 December 31, 1999 $4.8438 $1.2500 March 31, 2000 $5.0000 $1.7500 |
June 30, 2000 $2.0000 $1.3750 September 30, 2000 $2.7187 $0.7500 December 31, 2000 $1.8750 $0.4688 March 31, 2001 $1.5312 $0.4688 June 30, 2001 $0.7187 $0.2200 |
The above quotes reflect inter-dealer prices without retail mark-up or markdown or commissions, and may not represent actual transactions.
HOLDERS:
As of June 30, 2001, there were 463 holders of record, and according to the Company's estimate approximately 3,000 beneficial owners, of the Company's Common Stock.
DIVIDENDS:
Since its inception, no cash dividends have been paid on the Company's Common Stock and the Company does not anticipate paying cash dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES:
During the three months ended June 30, 2001, the Company has issued the following securities without registering the securities under the Securities Act of 1933:
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Class of Persons Consideration
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Investment Partnerships A total of 300,000 shares of common
stock were issued to induce parties
to extend two separate promissory
notes.
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Individuals A total of 195,930 shares of common
stock were issued for investor
relations, marketing and financial
services as well as finder fees
associated with financing
arrangements.
--------------------------------------------------------------------------------
Investment Group A total of 717,871 shares of
common stock were issued to an
investment group for conversion of
preferred stock.
--------------------------------------------------------------------------------
Individual A total of 50,000 shares of common
stock were issued as penalty for
non-payment of debt.
--------------------------------------------------------------------------------
Individual A total of 200,000 shares of common
stock were issued to an individual
for collateral on a promissory note.
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The Company has agreed to issue a total of 180,000 shares of common stock associated with penalty provisions resulting from delays in filing a registration statement.
The Company relied on the exemption set forth in Section 4(2) of the Securities Act of 1933, as amended, in connection with the issuances of stock set forth above. All parties listed above are sophisticated persons or entities, performed services for the Company or had prior or existing relationships with members of Company's management staff at the time of the transactions listed above.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion should be read in conjunction with the audited financial statements as well as the associated Notes to the audited financial statements.
GENERAL
The Company is a provider of proprietary educational computer software products distributed to the education and consumer markets. Its products are sold through an internal sales organization, national and international resellers, United States based catalogers with an annual aggregate circulation of approximately 5,000,000 catalogs and online through four corporate websites, WWW.HEARTSOFT.COM, WWW.INTERNET-SAFARI.COM, WWW.THINKOLOGY.COM, and WWW.ISAFARI.COM.
Through the fiscal year ending June 30, 2001, the three months ended June 30, 2000, and the fiscal year ending March 31, 2000, the Company's product line was comprised of approximately 50 educational software programs that assist young children in pre-kindergarten through the 6th grade to practice and learn basic curriculum subjects. In early 1999, Heartsoft began to evaluate potential business opportunities regarding the development and distribution of a new software product that would restrict the viewing of inappropriate material over the internet by young children. During the first calendar quarter of 1999, the Company committed to the design and development of a secure children's internet browser. On February 7, 2001, the Company released its new secure internet browser for children, INTERNET SAFARI-TM- Version 1.0. The release of INTERNET SAFARITM has broadened the Company's product line to include an internet-based software solution.
The Company intends to continue to expand its traditional educational software business through internal growth as well as by reallocating some of the Company's anticipated savings obtained from staffing reductions and redistributing them on the introduction and sale of INTERNET SAFARI-TM-. During Fiscal Year 2002, the Company intends to use the internet to expand its geographic reach deeper into the consumer market both in the United States and internationally.
For the year ended March 31, 2000, the Company experienced a loss of $1,620,448 and accumulated a total deficit of $4,901,959. For the three months ended June 30, 2000, the Company experienced a loss of $494,755 and accumulated a total deficit of $5,396,714. For the year ended June 30, 2001, the Company experienced a loss of $2,969,880 and a total deficit of $8,366,594. These losses and accumulated deficit have been primarily caused by the Company's efforts in positioning itself for the release of INTERNET SAFARI-TM- and are related, for the
most part, to marketing and general and administrative expenses. The Company does not anticipate reaching profitability for at least 18 months.
To reach profitability, the Company plans, among other things, to do the following:
- Expand the marketing of all of the Company's products for the consumer and
school markets by utilizing additional marketing resources such as direct
mail, on-line purchasing, demonstration versions of key products, magazine
advertising and more;
- Develop a formal business plan for Plug Invention Technologies, Inc. and
forge an alliance with a joint venture partner having sufficient resources to
expedite the introduction of the Company's proprietary pornographic image
recognition and detection technology and other Internet security solutions to
corporations, organizations and governmental agencies throughout North
America;
- Shift marketing emphasis from the utilization of in-house sales
representatives to a greater dependence upon lower cost, strategic joint
venture partners to market the Company's product line both in the United
States and internationally;
- Expand the marketing of Internet Safari to both Original Equipment
Manufacturers (OEMs) and Internet Service Providers (ISPs); and
- Consider the sale of the Company's oldest product line to obtain the
resources to introduce Internet Safari more effectively in both the education
and the consumer markets.
The Company plans to strengthen its brand name awareness and position and to utilize its technological infrastructure and software development capabilities to continue refining and upgrading its current and future products. Accordingly, the Company intends to invest in marketing and advertising, new partnerships and strategic alliances, and its technology infrastructure. The Company also anticipates that it will continue to experience losses similar to or greater than those described above during the next 18 months. Significant increases in the Company's advertising and marketing campaigns will contribute to such loss. The Company believes that this program of expansion is necessary to continue building its brand recognition and ability to generate revenues.
Further, if the investments mentioned above are successful, the Company anticipates that it will see an increase in revenues and a narrowing of losses as percentage of revenues. The Company expects that the combination of increased revenues and decreased expenses as percentage of revenues will lead to profitability.
The Company believes that its investment in the development of INTERNET SAFARITM and the secure browser's release represents a key element of its future and that the Company can become a leading player in the children's internet market.
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 2001 VS. YEAR ENDED JUNE 30, 2000
Net Revenue
Revenue for the year ended June 30, 2001 increased to $513,996 from $341,580 for the year ended June 30, 2000, an increase of 50%. The increase resulted primarily from implementing a marketing strategy that included internal reorganization of the Company's sales and marketing division, performing an extensive analysis of product sales and rebundling products to enhance sales as well as continuing efforts to promote educational programs to schools while maintaining existing reseller business. It also included higher attendance at trade shows and increased direct mail, email and fax campaigns.
Cost of Production
Cost of production includes all costs associated with the acquisition of raw materials, assembly of finished products, warehousing, shipping, and payroll associated with production and shipping of finished products. This expense category also includes labor costs associated with maintaining and implementing enhancements to existing educational programs (software maintenance costs) as well as miscellaneous costs related to the needs of the Production Department. Cost of production for the year ended June 30, 2001 was $410,250 compared to $205,980 for the year ended June 30, 2000, an increase of $204,270 or 99%. Software maintenance costs associated with maintaining and enhancing existing educational programs increased approximately $143,390, primarily as a result of expensing Internet Safari labor costs subsequent to its release. Payroll and benefits costs increased $42,254 primarily from the addition of a technical support employee for part of the year, coupled with annual increases for existing employees as well as an increase in benefits. Expenses for office rent increased $17,152 as a result of leasing additional office space during the year.
Sales and Marketing
Sales and marketing expenses for the year ended June 30, 2001 were $903,035 versus $590,321 for the year ended June 30, 2000, an increase of $312,714 or 53%. Since late 1999, the education sales division has been reorganized and expanded. During fiscal year 2001, the Sales Department increased attendance at industry trade shows that lead to increased expenses. Additionally, the Sales Department utilized temporary personnel to fill selected positions, and then upon satisfactory completion of work assignments hired these individuals as full-time employees that lead to an increase in contract labor. An approximate breakdown by component of the major increases in sales and marketing expense follows: payroll and benefits $225,119; travel and conferences $76,636; commissions $39,438 from increased sales; and contract labor $18,185. The above increases were partially offset by a $99,893 decrease in advertising expenses.
Overall, advertising expenses for the year ended June 30, 2001 were lower due to stabilization in marketing material costs. Historically, it had been necessary to ramp-up marketing materials which included purchasing, creating and printing new sales materials and promotional items to meet the increased sales presence. Additionally, advertising cost decreased as a result of the Company experiencing delays in raising capital.
General and Administrative
Total general and administrative (G&A) expense for the twelve months ended June 30, 2001 was $1,616,813 compared to $1,217,413 for the same period in 2000, an increase of $399,400 or 33%. The primary reason for this increase relates to accruing penalties totaling $339,324. A breakdown of the major components of the penalty accrual is as follows: $227,810 in connection with amending a Stock Purchase Agreement whereby the Company agreed to issue 300,000 shares of common stock in order to eliminate any liability the Company might have under a penalty provision in that Stock Purchase Agreement; $71,602 for recording a penalty provision for late registration filing; $20,000 to extend two promissory notes; and $13,500 as a result of issuing stock for non payment of a note.
Additional factors causing the increase in G&A expense can be attributed to taking the necessary steps to build the Company's infrastructure. These factors include the addition of a Chief Financial Officer, addressing regulatory reporting issues, and strengthening strategic customer and investor relationships, all of which are critical to minimizing risks to the Company and execution of its business plan. An approximate breakdown by component (excluding the penalty accrual indicated above) of other major increases in G&A expense follows: payroll and benefits $125,564; professional costs related to legal fees, and investment service fees $107,907; and amortization of debt issuance costs of $60,979. The above G&A expense increases were partially offset with decreases resulting from a March 31, 2000 bonus expense accrual for awards relating to the issuance of stock to employees for $88,272, lower accounting and consulting fees totaling $78,888, and lower costs for seminars and travel totaling $79,525.
THREE MONTHS ENDED JUNE 30, 2000 VS. THREE MONTHS ENDED JUNE 30, 1999
(TRANSITION REPORT)
Net Revenue
Revenue for the three months ended June 30, 2000 increased to $164,307 from $117,800 for the three months ended June 30, 1999, an increase of $46,507 or 39%. The increase is primarily the result of expanding the Sales and Marketing Department in late 1999 (expanding the education sales division from five to eleven employees) and continuing the implementation of a broad-based marketing strategy. The marketing strategy focused on adding quality sales personnel and directing their efforts in promoting educational programs to schools while maintaining existing reseller business. It also included higher attendance at trade shows and increased direct mailings, both of which contributed to the increase in revenues.
Cost of Production
Cost of production includes all costs associated with the acquisition of raw materials, assembly of finished products, warehousing, shipping, and payroll associated with production and shipping of finished products. This expense category also includes labor costs associated with maintaining and implementing enhancements to existing educational programs as well as miscellaneous costs related to the needs of the Production Department. Cost of production for the three months ended June 30, 2000 was $62,322 compared to $20,783 for the three months ended June 30, 1999, an increase of $41,539 or 200%. Cost for the acquisition of raw materials increased approximately $11,887 as a result of increased sales as noted in the Net Revenue discussion above. Miscellaneous expenses for production supplies, cabling, wiring, etc.,
increased approximately $15,228. Labor costs associated with maintaining and enhancing existing educational programs increased approximately $7,124.
Sales and Marketing
Sales and marketing expenses for the three months ended June 30, 2000 were $196,814 versus $54,992 for the three months ended June 30, 1999, an increase of $141,822 or 258%. As noted previously, in the Net Revenue discussion, the Sales and Marketing Department was expanded in late 1999 and the Company's broad-base marketing strategy is continuing to be implemented. All of the above factors, coupled with direct mail campaigns targeted at schools, new advertising materials and higher attendance at industry trade-shows lead to increased expenses in sales and marketing. An approximate breakdown by component of the major increases in sales and marketing expense follows: payroll and benefits $67,160, advertising $54,737 and conferences $7,956.
General and Administrative
Total general and administrative (G&A) expense for the three months ended June 30, 2000 was $352,647 compared to $152,258 for the same period in 1999, an increase of $200,389 or 132%. The increase in G&A expense is directly attributable to building the infrastructure, assuming full reporting status to become compliant with SEC regulations, and strengthening strategic customer and investor relationships all of which are critical to minimizing risks to the Company and execution of its business plan. Additionally, on a historical basis, executive management focused primarily on the development of educational programs resulting in capitalization of appropriate executive salaries. Beginning in late 1999, this focus shifted from development to more of an administrative role resulting in an expensing of appropriate executive salaries and an increase in related G&A payroll costs. An approximate breakdown by component of the major increases in G&A expense follows: payroll and benefits $75,722, professional fees $62,196, and travel $34,368.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity include cash and accounts receivable of $10,733.
Due to operating losses resulting from execution of the Company's business plan during fiscal 2001 and continuing into fiscal 2002, the Company remains significantly reliant on external funding sources to continue operations. For the year ending June 30, 2001, the Company experienced an operating loss and negative cash flows from operating activities of $2,969,880 and $1,760,220, respectively. For the three months ended June 30, 2000, the Company experienced an operating loss and negative cash flows from operating activities of $494,755 and $375,801, respectively.
In order to finance these losses, the Company secured approximately $2,300,000 in funding for the year ending June 30, 2001 through placement of debt and common stock.
Although the Company has substantially reduced its overhead by reducing expenses across the board, including reducing its total full-time, part-time, and consulting staff from a high of 36 people during January 2001, to 14 as of November 8, 2001, the Company remains dependent on additional outside funding. Currently, the Company has outstanding obligations to its vendors, current and previous employees and consultants. While the Company remains hopeful that additional financing will be completed, any delay in completing additional financing to meet current liabilities and growth needs remains a possibility. There is no assurance that the Company will secure future financing.
Management's Plan
The Company believes that its substantial investment in the development of INTERNET SAFARI-TM- represents a key element of its future and that the Company can become a leading player in the children's Internet market once funding is obtained.
Additionally, the Company previously formed a wholly owned subsidiary, Plug-Invention Technologies, Inc. to develop and market the company's proprietary pornographic image recognition and detection technology and other internet security solutions to corporations, organizations and governmental agencies throughout North America. In September 2001, the Company entered into an agreement with SplitSecondServices, Inc. to develop a comprehensive business plan for Plug-Invention Technologies. The business plan, which is expected to be completed on or about November 30, 2001, will be used to present funding opportunities to venture capitalists and angel investors, and will clearly outline the business opportunities that exist for the Company's proprietary internet security solutions. The Company anticipates receiving approximately $1.8 million in up-front licensing revenue over a six-month period from this opportunity as well as royalties on future product sales.
In order to reach profitability, the Company plans, among other things, to do the following:
- Complete the formal business plan for Plug Invention Technologies, Inc. and forge an alliance with a joint venture partner having sufficient resources to expedite the introduction of the Company's proprietary pornographic image recognition and detection technology and other internet security solutions to corporations, organizations and governmental agencies throughout North America;
- Shift marketing emphasis from the utilization of in-house sales representatives to a greater dependence upon lower cost, strategic joint venture partners to market the Company's product line both in the United States and internationally;
- Expand the marketing of INTERNET SAFARI-TM- to both Original Equipment Manufacturers (OEMs) and Internet Service Providers (ISPs); and
- Consider the sale of the Company's oldest product lines to obtain the resources to introduce INTERNET SAFARI-TM- more effectively in both the education and the consumer markets.
To continue operations and finance the continuing costs of product development and enhancements, beginning on or around November 15, 2001, the Company shall offer a Private
Offering Memorandum consisting of a maximum of 3,000,000 shares of 10% Series B Convertible Preferred Stock at a cost of $1.00 per share. The Company anticipates receiving approximately $2.6 million, after deducting offering expenses and costs. However, the Company has no formal commitments for equity placements. The ability of the Company to implement its operating plan and to continue as a going concern depends on its ability to raise equity capital and, ultimately, to achieve profitable operations.
ITEM 7. FINANCIAL STATEMENTS.
The Financial Statements of the Company are set forth on pages F-1 through F-19 inclusive, found at the end of this report.
INDEX TO FINANCIALS STATEMENTS
Independent Auditors' Report..................................................................F-1
Balance Sheet at June 30, 2001................................................................F-2
Statements of Operations for the years ended June 30, 2001 and 2000 (unaudited) , for the
three month periods ended June 30, 2000 and 1999 (unaudited) and for the
year ended March 31, 2000.....................................................................F-4
Statements of Changes in Stockholders' Equity for the year ended June 30, 2001,
for the three month period ended June 30, 2000, and for the year ended March 31, 2000........F-5
Statements of Cash Flows for the years ended June 30, 2001 and 2000 (unaudited),
for the three month periods ended June 30, 2000 and 1999 (unaudited) and
for the year ended March 31, 2000.............................................................F-7
Notes to Financial Statements.................................................................F-8
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following sets forth information as of June 30, 2001 concerning the Company's executive officers and directors:
NAME AGE POSITION -------------------------------------------------------------------------------- |
Benjamin P. Shell, Jr. 38 Chairman of the Board, President and
Chief Executive Officer
--------------------------------------------------------------------------------
Jimmy L. Butler, Jr. 37 Director, Vice-President of
and Secretary
--------------------------------------------------------------------------------
Kathleen Hurley 55 Director
--------------------------------------------------------------------------------
Rodger Graham (1) 48 Chief Financial Officer
--------------------------------------------------------------------------------
Juanita L. Seng (2) 48 Vice President, Sales and Marketing
--------------------------------------------------------------------------------
Dana Swift (3) 49 Chief Technology Officer
--------------------------------------------------------------------------------
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(1) Joined the Company on August 28, 2000.
(2) Resignation from the Company became effective September 30, 2001.
(3) Became Chief Technology Officer effective September 1, 2000.
BENJAMIN P. SHELL, CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
As a co-founder of Heartsoft, Benjamin Shell has played a key role in the development and growth of the Company since its inception. Since 1989, Mr. Shell has served as the Company's President, Chief Executive Officer and Chairman of the Board of Directors. Not only has he overseen the development of over 60 of the Company's former and current software titles, but he is also personally responsible for programming more than 50 of those titles himself. Mr. Shell firmly believes in the principle that a strong management team augmented with a talented and highly creative staff is required to profitably compete in today's rapidly changing education technology markets.
JIMMY L. BUTLER, DIRECTOR, VICE-PRESIDENT OF DEVELOPMENT, AND SECRETARY
As a co-founder of Heartsoft, Jimmy Butler has more than ten years of educational software development experience with the Company. Mr. Butler served as Vice-President of Marketing from 1987 to 1993. His diverse exposure to the educational and software industry includes:
- designing and implementing direct mail campaigns;
- market analysis;
- telemarketing;
- direct sales to school administrators;
- new product design;
- content writing; and
- hosting dozens of national trade shows.
Mr. Butler also works in the areas of corporate imaging, marketing position, new product development, crossover markets, public relations and advertising campaigns.
Mr. Butler has held the position of Vice-President of Development since 1993. In this position, he was recently responsible for the conversion of 40 products to the Macintosh platform, from conceptualization to final release.
KATHLEEN HURLEY, DIRECTOR
Ms. Hurley is Vice-President of Marketing and Strategic Relationships for NetSchools Corporation. Prior to joining NetSchools, she was Senior Vice-President of Education Marketing for The Learning Company. Ms. Hurley serves on several industry and education advisory boards, including: the Software and Information Industry Association (SIIA), the International Society for Technology in Education (ISTE), the Council of the Great City Schools Technology Steering Committee, and the National Catholic Education Exhibitors Association. Ms. Hurley also heads up the Education Advisory Board for Target Stores. Prior to working for The Learning Company, she was the Senior Vice President of SkillsBank Corporation. Ms. Hurley has held various positions with IBM, Mindscape, Grolier, and DLM. Ms. Hurley began her career working with learning disabled students after receiving her Masters degree at the Jersey City State College. She also continues to support her undergraduate institution, the University of Dayton, by serving on the school of education's advisory board.
RODGER GRAHAM, CHIEF FINANCIAL OFFICER
Mr. Graham joined the Company as its Chief Financial Officer on August 28,
2000. Mr. Graham brings over 20 years of broad-based experience in the areas of
accounting, strategic planning, and risk management to the Company. Prior to
joining Heartsoft, Inc., Mr. Graham was Vice President, Treasurer, and
Controller for BuyItNow.com, an on-line webplaza of specialty Internet retail
stores. At BuyItNow.com, his responsibilities included:
- the evaluation and direction of financial and human resource activities;
- overseeing the budgeting process;
- implementation of cost controls; and
- reporting of financial results.
He is an internationally recognized expert in risk management and previously served as the National Director of Enterprise Risk Services for Deloitte & Touche LLP where he oversaw the design and delivery of comprehensive risk management programs for the Firm's most prestigious Fortune 500 clients and educational organizations. Prior to Deloitte & Touche, Mr. Graham served as the Director of Accounting and Finance for MAPCO, Inc. Mr. Graham is a Certified Public Account and a Certified Internal Auditor.
DANA SWIFT, CHIEF TECHNOLOGY OFFICER
Mr. Swift joined Heartsoft in 1995 and brought along over 20 years experience as a software engineer. Nearly half of that time was spent working as a contractor with the Strategic Defense Command and the Strategic Defense initiative, where he also had the opportunity to write his first browser. Previous to this, Mr. Swift had approximately 12 years experience in the area of flight simulation development. NASA, the Jet Propulsion Laboratory and the U.S. Geological Survey have also been beneficiaries of his programming expertise. Mr. Swift's most recognizable achievement in the scientific community has occurred with the software he developed to collect and organize the massive amounts of interplanetary data collected from deep space probes.
Dana has worked with Heartsoft through the last two product development cycles and will play a key role in developing new products as well as enhancing existing products.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information with respect to compensation received by the Chief Executive Officer, Vice-President of Sales and Marketing, Chief Technology Officer and Chief Financial Officer. During the past three fiscal years and the three months ended June 30, 2000, no other executive officers of Heartsoft received a total annual salary and bonus that exceeded $100,000.
SUMMARY COMPENSATION TABLE
Name and Other Annual
Principal Positions Period Salary Bonus Compensation
--------------------------------------------------------------------------------------------------------------------
Benjamin P. Shell, 2001 Fiscal Year $ 109,200 N/A $ 20,461(2)
President and Chief Transition Period $ 29,400 N/A $ 2,361(2)
Executive Officer 2000 Fiscal Year $ 70,125(1) N/A $ 9,400(2)
1999 Fiscal Year $ 46,800 N/A $ 9,444(2)
Juanita L. Seng, 2001 Fiscal Year $ 100,000 $ 6,744 $ 5,200(2)
Vice-President, Transition Period $ 26,923 $ 1,206 $ 2,563(5)
Sales and Marketing 2000 Fiscal Year(3) $ 50,000 $ 76,875(4) $ 6,752(5)
Dana Swift, 2001 Fiscal Year $ 100,000 $ 5,000 $ 4,000(2)
Chief Technology Officer
Rodger Graham, 2001 Fiscal Year $ 84,615(6) N/A $ 4,400(2)
Chief Financial Officer
--------------------------------------------------------------------------------------------------------------------
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(1) From April 1, 1999 to November 15, 1999, Mr. Shell received a base salary of
$46,800 per year. On November 15, 1999, Mr. Shell's base salary increased to
$109,000 per year.
(2) Unless otherwise specified, All Other Annual Compensation consists of a car
allowance provided by the Company.
(3) Ms. Seng was hired in October of 1999. The figures under Ms. Seng's Salary,
Bonus and Other Annual Compensation reflects payments made from October of 1999
to March 31, 2000.
(4) This figure includes a $5,000 signing bonus and a initial stock grant of
50,000 shares, both of which became due upon Ms. Seng's execution of her
Engagement Agreement with the Company. The stock was issued to Ms. Seng on
approximately October 18, 1999 when the price of the Company's Common Stock
closed at $1.4375.
(5) These figures include $5,625 paid to provide housing for Ms. Seng in Tulsa
through June of 2000. As of June of 2000, Ms. Seng has relocated to Tulsa and
will no longer receive a monthly stipend for housing. The remaining portion
under All Other Annual Compensation for 2000 for Ms. Seng consists of car
allowance provided by the Company.
(6) Mr. Graham was hired in August of 2000. The figures under Mr. Graham's
Salary and Other Annual Compensation reflects payments made from August of 2000
to June 30, 2001.
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 June 30, 2001 by (i) each director, (ii) each of the named executive officers, (iii) all executive officers and directors of the Company as a group, and (iv) all those known by the Company to be beneficial owners of more than five percent of the Company's Common Stock. This table is based upon information supplied by officers, directors and principal shareholders. Subject to community property laws where applicable, each of the shareholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned.
BENEFICIAL OWNERSHIP AS OF
JUNE 30, 2001
-----------------------------------------------------------
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF TOTAL
OF BENEFICIAL OWNERS
Benjamin P. Shell, Chairman of the Board,
President, and
Chief Executive Officer
3101 North Hemlock Circle
Broken Arrow, OK 74102 921,135 5.70%
Jimmy L. Butler, Director, Vice-President,
Development,
and Secretary
3101 North Hemlock Circle
Broken Arrow, OK 74102 754,749 4.67%
Kathleen Hurley, Director
3521 N. Military Road
Arlington, VA 22207 31,000 0.19%
Juanita L. Seng, Vice-President, Sales and
Marketing
3101 North Hemlock Circle
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Broken Arrow, OK 74102
50,000 0.31%
Dana Swift, Chief Technology Officer
3101 North Hemlock Circle
Broken Arrow, OK 74102 25,000 0.15%
---------------------- ---------------------------
All executive officers and directors as a group
(5 persons) 1,781,884 11.02%
---------------------- ---------------------------
Hi-Tel Group
2400 East Commercial Blvd., Suite 205
Ft. Lauderdale, FL 33308 947,871 5.86%
Dale Hill
5056 Westgrove Drive
Dallas, TX 75248 1,101,000 6.81%
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
EXHIBIT NO. DESCRIPTION
------------------------------------------------------------------------------------------------------------
3.1 Articles of Incorporation of the Company. (Incorporated by reference to
the Company's Form 10-KSB/A for the period ended March 31, 1999, which
was filed on January 22, 2000.)
3.2 By-Laws of the Company. (Incorporated by reference to the Company's Form
10-KSB/A for the period ended March 31, 1999, which was filed on January 22,
2000.)
4.1 Specimen of Certificate for Heartsoft, Inc. Common Stock. (Incorporated by
reference to the Company's Form 10-KSB/A for the period ended March 31, 1999,
which was filed on January 22, 2000.)
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10.1 Equipment Lease with Auto & Equipment Leasing by Flex, Inc. dated February 12,
1998. (Incorporated by reference to the Company's Form 10-KSB/A for the
period ended March 31, 1999, which was filed on January 22, 2000.)
10.2 Software Agreement dated May 16, 1997 between Heartsoft, Inc. and Heartsoft
1997 Limited Partnership. (Incorporated by reference to the Company's Form
10-KSB/A for the period ended March 31, 1999, which was filed on January 22,
2000.)
10.3 Acquisition Note dated May 16, 1997 from Heartsoft 1997 Limited Partnership.
(Incorporated by reference to the Company's Form 10-KSB/A for the period ended
March 31, 1999, which was filed on January 22, 2000.)
10.4 Assumption Agreement dated April 30, 1997 by and among Heartsoft 1997 Limited
Partnership, Heartsoft, Inc. and Limited Partners. (Incorporated by reference
to the Company's Form 10-KSB/A for the period ended March 31, 1999, which was
filed on January 22, 2000.)
10.5 Joint Venture Agreement dated May 16, 1997 between Heartsoft, Inc. and
Heartsoft 1997 Limited Partnership. (Incorporated by reference to the
Company's Form 10-KSB/A for the period ended March 31, 1999, which was filed
on January 22, 2000.)
10.6 Software Agreement dated July 30, 1997 between Heartsoft, Inc. and Heartsoft
II 1997 Limited Partnership. (Incorporated by reference to the Company's Form
10-KSB/A for the period ended March 31, 1999, which was filed on January 22,
2000.)
10.7 Acquisition Note dated July 30, 1997 from Heartsoft II 1997 Limited
Partnership. (Incorporated by reference to the Company's Form 10-KSB/A for
the period ended March 31, 1999, which was filed on January 22, 2000.)
10.8 Assumption Agreement dated July 30, 1997 by and among Heartsoft II Limited
Partnership, Heartsoft, Inc. and Limited Partners. (Incorporated by reference
to the Company's Form 10-KSB/A for the period ended March 31, 1999, which was
filed on January 22, 2000.)
10.9 Joint Venture Agreement dated July 30, 1997 between Heartsoft, Inc. and
Heartsoft II 1997 Limited Partnership. (Incorporated by reference to the
Company's Form 10-KSB/A for the period ended March 31, 1999, which was filed
on January 22, 2000.)
10.10 Software Agreement dated October 28, 1997 between Heartsoft, Inc. and
Heartsoft III 1997 Limited Partnership. (Incorporated by reference to the
Company's Form 10-KSB/A for the period ended March 31, 1999, which was filed
on January 22, 2000.)
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10.11 Acquisition Note dated October 28, 1997 from Heartsoft III 1997 Limited
Partnership. (Incorporated by reference to the Company's Form 10-KSB/A for
the period ended March 31, 1999, which was filed on January 22, 2000.)
10.12 Assumption Agreement dated July 30, 1997 by and among Heartsoft III 1997
Limited Partnership, Heartsoft, Inc. and Limited Partners. (Incorporated by
reference to the Company's Form 10-KSB/A for the period ended March 31, 1999,
which was filed on January 22, 2000.)
10.13 Joint Venture Agreement dated October 28, 1997 between Heartsoft, Inc. and
Heartsoft III 1997 Limited Partnership. (Incorporated by reference to the
Company's Form 10-KSB/A for the period ended March 31, 1999, which was filed
on January 22, 2000.)
10.14 Letter Agreement by and between Heartsoft, Inc. and the Weather Channel
Enterprises, Inc. dated September 1, 1999. (Incorporated by reference to the
Company's Form 10-KSB for the period ended March 31, 2000, which was filed on
July 14, 2000.)
10.15 Co-branding Program Agreement by and between Heartsoft, Inc. and Ask Jeeves,
Inc. dated September 16, 1999. (Incorporated by reference to the Company's
Form 10-KSB for the period ended March 31, 2000, which was filed on July 14,
2000.)
10.16 Lease dated November, 1999 for commercial office space in Broken Arrow, Oklahoma.
(Incorporated by reference to the Company's Form 10-KSB for the period ended
March 31, 2000, which was filed on July 14, 2000.)
10.17 Lease dated January, 2000 for commercial office space in Broken Arrow,
Oklahoma. (Incorporated by reference to the Company's Form 10-KSB for the
period ended March 31, 2000, which was filed on July 14, 2000.)
10.18 Stock Purchase Agreement by and between Heartsoft, Inc. and Hi-Tel Group, Inc.
dated March 1, 2000 with Certificate of Designation of the Series A
Convertible Preferred Stock attached as Exhibit A and Common Share Purchase
Warrant between Heartsoft, Inc. attached as Exhibit B. (Incorporated by
reference to the Company's Form 10-KSB for the period ended March 31, 2000,
which was filed on July 14, 2000.)
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10.19 Web Service Agreement by and between Heartsoft, Inc. and Gaggle, Inc. dated
June 9, 2000. (Incorporated by reference to the Company's Form 10-KSB for the
period ended March 31, 2000, which was filed on July 14, 2000.)
10.20 Amendment to Stock Purchase Agreement by and between Heartsoft, Inc. and Hi-Tel
Group, Inc. dated September 27, 2000. (Incorporated by reference to the Company's
Form 10-KSB for the transition period ended June 30, 2000, which was filed on
September 28, 2000.)
10.21 Amendment to Heartsoft, Inc. Common Share Purchase Warrant by and between Heartsoft,
Inc. and Hi-Tel Group, Inc. dated September 27, 2000 (Incorporated by reference to the
Company's Form 10-KSB for the transition period ended June 30, 2000, which was
filed on September 28, 2000.)
10.22 Original Equipment Manufacturing (OEM) Licensing Agreement by and between
Heartsoft, Inc. and International Academy of Science dated April 28, 2000. (Incorporated
by reference to the Company's Form 10-QSB for the period ended September 30, 2000,
which was filed on November 14, 2000.)
10.23 Co-Branding License Agreement by and between Heartsoft Inc and Merriam-Webster,
Incorporated dated August 14, 2000. (Incorporated by reference to the Company's
Form 10-QSB for the period ended September 30, 2000, which was filed on November 14,
2000.)
10.24 Promissory Note dated August 18, 2000 between Heartsoft, Inc. and Hi-Tel Group,
Inc. (Incorporated by reference to the Company's Form 10-QSB for the period ended
September 30, 2000, which was filed on November 14, 2000.)
10.25 Equipment Lease with Auto & Equipment Leasing by Flex, Inc. dated July 31, 2000.
(Incorporated by reference to the Company's Form 10-QSB for the period ended September 30,
2000, which was filed on November 14, 2000.)
10.26 Trademark License Agreement by and between Heartsoft, Inc. and Ask Jeeves dated September
8, 2000. (Incorporated by reference to the Company's Form 10-QSB for the period ended
September 30, 2000, which was filed on November 14, 2000.)
10.27 Letter Agreement granting Benjamin Shell, CEO of Heartsoft, Inc., a non-exclusive
license to use the Yahooligans logo dated
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September 19, 2000. (Incorporated by reference to the Company's Form 10-QSB for the period
ended September 30, 2000, which was filed on November 14, 2000.)
10.28 Amendment to Promissory Note between Heartsoft, Inc. and Hi-Tel Group, Inc. dated
November 8, 2000. (Incorporated by reference to the Company's Form 10-QSB for the
period ended September 30, 2000, which was filed on November 14, 2000.)
10.29 Promissory Note dated November 9, 2000 between Heartsoft, Inc. and Alan W. Carlton
Revocable Living Trust. (Incorporated by reference to the Company's Form 10-QSB for the period
ended September 30, 2000, which was filed on November 14, 2000.)
10.30 Letter Agreement dated November 9, 2000 between Heartsoft, Inc. and Alan W. Carlton Revocable
Living Trust. (Incorporated by reference to the Company's Form 10-QSB for the period
ended September 30, 2000, which was filed on November 14, 2000.)
10.31 Promissory Note dated November 9, 2000 between Heartsoft, Inc. and June Limited Partnership.
(Incorporated by reference to the Company's Form 10-QSB for the period ended September 30, 2000,
which was filed on November 14, 2000.)
10.32 Letter Agreement dated November 9, 2000 between Heartsoft, Inc. and June Limited Partnership.
(Incorporated by reference to the Company's Form 10-QSB for the period ended September 30, 2000,
which was filed on November 14, 2000.)
10.33 Joint Security Agreement dated November 9, 2000 between Heartsoft, Inc., Benjamin Shell, Alan
W. Carlton Revocable Living Trust, and June Limited Partnership. (Incorporated by reference to
the Company's Form 10-QSB for the period ended September 30, 2000, which was filed on
November 14, 2000.)
10.34 Amended and Restated Engagement Agreement by and between Heartsoft, Inc. and Juanita Seng dated
September 7, 1999. (Incorporated by reference to the Company's Form 10-QSB for the period ended
December 31, 2000, which was filed on February 14, 2001.)
10.35 Employment Agreement by and between Heartsoft, Inc. and Rodger Graham dated August 28, 2000.
(Incorporated by reference to the Company's Form 10-QSB for the period ended December 31, 2000,
which was filed on February 14, 2001.)
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10.36 Amended and Restated Engagement Agreement by and between Heartsoft, Inc. and Dana Swift dated
October 6, 2000. (Incorporated by reference to the Company's Form 10-QSB for the period
ended December 31, 2000, which was filed on February 14, 2001.)
10.37 Promissory Note by and between Benjamin P. Shell and Heartsoft, Inc., dated November 13, 2000.
(Incorporated by reference to the Company's Form 10-QSB for the period ended
December 31, 2000, which was filed on February 14, 2001.)
10.38 Electronic Agreement Summary dated November 14, 2000 granting Heartsoft, Inc. permission
to use Binney & Smith's Crayola logo and link to it's web sight. (Incorporated by
reference to the Company's Form 10-QSB for the period ended December 31, 2000, which
was filed on February 14, 2001.)
10.39 Equipment Lease with Auto & Equipment Leasing by Flex, Inc. dated November 15, 2000.
(Incorporated by reference to the Company's Form 10-QSB for the period ended December 31, 2000,
which was filed on February 14, 2001.)
10.40 Letter Agreement dated November 20, 2000 granting Heartsoft, Inc., a non-exclusive
license to use CBS Sportsline.com (SPLN) logos. (Incorporated by reference to the
Company's Form 10-QSB for the period ended December 31, 2000, which was filed on
February 14, 2001.)
10.41 Electronic Agreement Summary dated November 27, 2000 granting Heartsoft, Inc. permission
to use Timeforkids.com's logo and link to it's web sight. (Incorporated by reference
to the Company's Form 10-QSB for the period ended December 31, 2000, which was filed on
February 14, 2001.)
10.42 Non-Qualified Stock Option Agreement by and between Heartsoft, Inc. and Rodger Graham
dated December 4, 2000. (Incorporated by reference to the Company's Form 10-QSB for
the period ended December 31, 2000, which was filed on February 14, 2001.)
10.43 Non-Qualified Stock Option Agreement by and between Heartsoft, Inc. and Juanita Seng
dated December 4, 2000. (Incorporated by reference to the Company's Form 10-QSB for
the period ended December 31, 2000, which was filed on February 14, 2001.)
10.44 Non-Qualified Stock Option Agreement by and between Heartsoft, Inc. and Dana Swift dated
December 4, 2000. (Incorporated by
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reference to the Company's Form 10-QSB for the period ended December 31, 2000, which was filed
on February 14, 2001.)
10.45 Letter Agreement by and between Heartsoft, Inc., and The Glenn A. Chalker Revocable Trust dated
January 24, 2001. (Incorporated by reference to the Company's Form 10-QSB for the
period ended December 31, 2000, which was filed on February 14, 2001.)
10.46 Security Agreement by and between Heartsoft, Inc. and The Glenn A. Chalker Revocable Trust
dated January 24, 2001. (Incorporated by reference to the Company's Form 10-QSB for the
period ended December 31, 2000, which was filed on February 14, 2001.)
10.47 Convertible Promissory Note by and between Heartsoft, Inc. and The Glenn A. Chalker Revocable
Trust dated January 24, 2001. (Incorporated by reference to the Company's Form 10-QSB for the
period ended December 31, 2000, which was filed on February 14, 2001.)
10.48 Consulting Agreement by and between Heartsoft, Inc. and Intercap Funding LTD
dated September 20, 1998. (Incorporated by reference to the Company's Form 10-QSB for
the period ended March 31, 2001, which was filed on May 15, 2001.)
10.49 Non Circumvention and Consulting Agreement by and between Intercap Funding LTD dated
February 1, 1999. (Incorporated by reference to the Company's Form 10-QSB for the period
ended March 31, 2001, which was filed on May 15, 2001.)
10.50 Promissory Note by and between Heartsoft, Inc. and Greg Dhuevetter dated January 18,
2001. (Incorporated by reference to the Company's Form 10-QSB for the period ended
March 31, 2001, which was filed on May 15, 2001.)
10.51 Promissory Note by and between Heartsoft, Inc. and Hi Tel Group, Inc. dated March 1, 2001.
(Incorporated by reference to the Company's Form 10-QSB for the period ended March 31, 2001,
which was filed on May 15, 2001.)
10.52 Consulting Agreement by and between Heartsoft, Inc. and Wealth Capital Corporation dated March
6, 2001. (Incorporated by reference to the Company's Form 10-QSB for the period ended March 31,
2001, which was filed on May 15, 2001.)
10.53 Promissory Note by and between Heartsoft, Inc. and Greg Dhuevetter dated March 17,
2001. (Incorporated by reference to
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the Company's Form 10-QSB for the period ended March 31, 2001, which was filed on May 15, 2001.)
10.54 Investor Relations/Public Relations Consultant Contract by and between Heartsoft, Inc. and
Charles J. Fabiano of Strategic Initiatives dated April 2, 2001. (Incorporated by reference to
the Company's Form 10-QSB for the period ended March 31, 2001,which was filed on May 15, 2001.)
10.55 Promissory Note by and between Heartsoft, Inc. and Dale Hill dated April 17, 2001.
(Incorporated by reference to the Company's Form 10-QSB for the period ended March 31,
2001, which was filed on May 15, 2001.)
10.56 Non-Exclusive Consulting Agreement by and between Heartsoft, Inc. and Santa Fe Capital
Group dated April 23, 2001. (Incorporated by reference to the Company's Form 10-QSB for
the period ended March 31, 2001, which was filed on May 15, 2001.)
10.57 Promissory Note by and between Heartsoft, Inc. and Dale Hill dated May 1, 2001.
(Incorporated by reference to the Company's Form 10-QSB for the period ended March 31,
2001, which was filed on May 15, 2001.)
10.58 Extension Agreement and Amendment to Joint Security Agreement by and between June Limited
Partnership and Alan W. Carlton Revocable Living Trust and Heartsoft, Inc. and Benjamin P.
Shell, Jr. dated May 9, 2001. (Incorporated by reference to the Company's Form
10-QSB for the period ended March 31, 2001, which was filed on May 15, 2001.)
10.59 Promissory Note by and between Heartsoft, Inc. and George Fenimore dated May 11, 2001.
(Incorporated by reference to the Company's Form 10-QSB for the period ended March 31,
2001, which was filed on May 15, 2001.)
10.60 Consulting Agreement by and between Heartsoft, Inc. and 7th Wave Consulting dated May 17, 2001.
10.61 Consulting Agreement by and between Heartsoft, Inc. and INTERCAP FUNDING LTD dated June 1, 2001.
10.62 Investment Banking Agreement by and between Heartsoft, Inc. and First Avantus Securities, Inc.
dated June 1, 2001.
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10.63 Marketing Agreement by and between Heartsoft, Inc. and K-12 MICROMEDIA PUBLISHING, INC. dated
June 1, 2001.
10.64 Officer Payable Agreement by and between Heartsoft, Inc. and Jimmy Butler, dated June 12, 2001.
10.65 Letter Agreement amending Convertible Promissory Note and Security Agreement by and between
Heartsoft,Inc. and Glenn A. Chalker Revocable Trust dated June 14, 2001.
10.66 Amended and Restated Security Agreement by and between Heartsoft, Inc. and The Glenn A. Chalker
Revocable Trust dated June 14, 2001.
10.67 Amended and Restated Convertible Promissory Note by and between Heartsoft, Inc. and The Glenn A.
Chalker Revocable Trust dated June 14, 2001.
10.68 Finder's Fee Agreement by and between Heartsoft, Inc. and SBI Strategic Business Initiatives
dated June 28, 2001.
10.69 Second Extension Agreement to Joint Security Agreement by and between June Limited Partnership
and Alan W. Carlton Revocable Living Trust and Heartsoft, Inc. and Benjamin P. Shell
dated July 9, 2001.
10.70 Promissory Note by and between Heartsoft, Inc. and Tim Bakamjian dated July 13, 2001.
10.71 Consulting Contract by and between Heartsoft, Inc. and Wells Group, Inc. dated July 18, 2001.
10.72 Promissory Note by and between Heartsoft, Inc. and Dale Hill dated July 24, 2001.
10.73 Intentionally omitted.
10.74 Software Distribution Agreement by and between Heartsoft, Inc. and MegaSystems LP dated August
14, 2001.
10.75 Common Stock Purchase Agreement by and between Heartsoft, Inc. and Crowe & Dunlevy, a
Professional Corporation dated August 9, 2001.
10.76 Promissory Note by and between Heartsoft, Inc. and A.J. Nassif dated August 10, 2001.
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10.77 Promissory Note by and between Heartsoft, Inc. and Tim Bakamjian dated August 10, 2001.
10.78 Equipment Lease with Auto & Equipment Leasing by Flex, Inc. dated October 4, 2001.
10.79 Quotation for Services by and between Heartsoft, Inc. and SplitSecondServices, Inc. dated
September 17, 2001.
10.80 Promissory Note by and between Heartsoft, Inc. and Juanita Seng dated September 13, 2001.
21.1 Subsidiaries of Heartsoft. (Incorporated by reference to the Company's Form 10-KSB/A for
the period ended March 31, 1999, which was filed on January 22, 2000.)
23.1 Consent of Tullius Taylor Sartain & Sartain LLP.
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(b) Reports on Form 8-K:
FORM 8-K FILED ON AUGUST 15, 2000:
On August 15, 2000, the Company filed a Form 8-k reporting that on August 4, 2000, the Board of Directors of Heartsoft, Inc. (the "Company") changed the fiscal year of the Company from the period beginning April 1 and ending March 31 to the period beginning July 1 and ending June 30. Such change in the Company's fiscal year was effective commencing with the fiscal year beginning July 1, 2001. The Company filed a transition report on Form 10-KSB for the transition period from April 1, 2000 to June 30, 2000 in accordance with and within the time periods provided in Rule 15d-10 under the Securities Exchange Act of 1934.
FORM 8-K FILED ON JULY 11, 2001:
On July 11, 2001, the Company filed a Form 8-K reporting that on May 15,
2001, Heartsoft, Inc. filed its Form 10-QSB for the quarterly period ended March
31, 2001 and disclosed in Note 2 to the interim financial statements and in Item
5 - Other Information two recently discovered consulting agreements, one of
which would have an impact on the Company's financial statements. The general
information disclosed in Form 10-QSB or a corresponding press release of the
Management Discussion and Analysis of Form 10-QSB follows:
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
On September 20, 1998, Heartsoft and Intercap Funding LTD ("Intercap") entered into an agreement whereby Intercap agreed to provide consulting advisory services over a three year
period, primarily related to capital formation, in exchange for 1.2 million shares of Heartsoft's Convertible Preferred Stock. On March 16, 2001, Heartsoft issued 1.2 million shares of its common stock to satisfy the Company's obligation under the agreement.
Upon issuance of the common stock, it was determined that the Company had not previously given accounting recognition to the agreement. The Company's financial statements as of March 31, 1999 and 2000, and June 30, 2000, as well as each of the interim financial statements issued, were restated to report the accounting recognition for the agreement. The Company's independent certified public accountants advised the Company that they withdrew their previously issued opinions on Heartsoft's financial statements included in Forms 10-KSB for the above noted periods.
The value of the agreement, based on the September 20, 1998, trading price of the common stock into which the preferred stock was to have been convertible, was $240,000. This value should have been allocated to general and administrative expenses over the term of the agreement. The Company's legal counsel advised that the preferred stock called for in the agreement could not have been validly issued prior to the time the services were rendered. As a result, the obligation had to be reported as an accrued liability as it was accrued over the period October 1998 through March 2001. The Company's previously issued financial statements had to be amended to retroactively report the accrual. The accumulated deficit reported in the Company's balance sheet reflected on Form 10-QSB for the quarterly period ended March 31, 2001 was adjusted to reflect the retroactive accrual of this obligation.
A review of the consulting agreement indicated the following financial impact on the balance sheets and statement of operations presented on Form 10-KSB for the periods indicated below:
MARCH 31, 1999 MARCH 31, 2000 JUNE 30, 2000
-------------- -------------- -------------
BALANCE SHEET:
--------------
Accrued expenses previously reported $ 92,900 $ 54,052 $ 76,569
Correction to accrued expenses 50,803 147,118 171,197
---------------------------------------------------------
Restated accrued expenses $ 143,703 $ 201,170 $ 247,766
Accumulated deficit previously reported $ (3,230,708) $ (4,754,841) $(5,225,517)
Correction to accumulated deficit (50,803) (147,118) (171,197)
---------------------------------------------------------
Restated accumulated deficit $ (3,281,511) $ (4,901,959) $(5,396,714)
STATEMENT OF OPERATIONS:
------------------------
G&A expense previously reported $ 544,751 $ 925,162 $ 328,568
Correction to G&A expense 50,803 96,315 24,079
------------------------------------------------------
Restated G&A Expense $ 595,554 $ 1,021,477 $ 352,647
Net loss previously reported $ (527,081) $ (1,524,133) $ (470,676)
Correction to net loss (50,803) (96,315) (24,079)
------------------------------------------------------
Restated net loss $ (577,884) $ (1,620,448) $ (494,755)
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Earnings per share previously reported $ (0.07) $ (0.14) $ (0.04)
Correction to earnings per share (0.01) (0.01) -
------------------------------------------------------
Restated earnings per share $ (0.08) $ (0.15) $ (0.04)
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On February 1, 1999 the Company also entered into a Non Circumvention and Consulting Agreement with Intercap Funding LTD. Under the agreement, Intercap was to provide Heartsoft with various services for a period of 180 days and it automatically renewed on the first day of each month thereafter for nine months. Intercap was to receive a finder's fee in cash equal to a certain percentage of all amounts invested in the Company. In addition, the Company was to issue warrants equal to a specified percentage of the number of shares purchased by any introduced parties. In connection with this agreement the Company should have issued 178,763 warrants to Intercap. The warrants were exercisable over five years at values ranging from $1.3437 to $3.4375 per warrant. The warrants were a cost of the capital that was raised and their issuance would not have affected the Company's financial statements.
On June 1, 2001, the Company and Intercap Funding LTD entered into a new Consulting Agreement. The new agreement cancelled the Non Circumvention and Consulting Agreement, dated February 1, 1999. Pursuant to the new agreement, the Consultant also agreed to surrender any and all rights that the Consultant had to any warrants to purchase shares of common stock of the Company to which the Consultant was entitled under the Non Circumvention and Consulting Agreement.
FORM 8-K FILED ON OCTOBER 19, 2001:
On October 19, 2001, the Company filed a Form 8-k reporting that due to the press of other business and delays in completing the Company's financial statements, the Company was unable to complete its Form 10-KSB for the period ended June 30, 2001 (the "Form 10-KSB") by September 28, 2001 and, as a result, the Company filed a Form 12b-25 (Notification of Late Filing) on September 28, 2001.
SUMMARY OF RISK FACTORS
THE COMPANY'S FUTURE SUCCESS DEPENDS UPON KEY EMPLOYEES.
The Company has experienced significant changes in its business, including but not limited to, an expansion in the Company's customer base as well as its product lines. Such changes have placed and may continue to place a significant strain on the Company's employees. The Company believes that its future success may depend in part upon its ability to retain existing, as well as, attract highly skilled technical, managerial and marketing personnel. Competition for such personnel can be intense.
Additionally, the loss of one or more of senior management could have a material adverse effect upon the Company. In order to reduce the risk of losing key employees, the Company entered into employment agreements with key management personnel.
THE COMPANY'S FUTURE SUCCESS DEPENDS UPON DEVELOPMENT OF NEW PRODUCTS AND ENHANCEMENT OF EXISTING PRODUCTS.
In order to remain competitive in the educational software market, the Company must develop and introduce new products and product enhancements on a timely basis. If the Company fails to develop and introduce new products and enhancements on a timely basis, it could have a material adverse effect on the Company's financial condition and results of operations.
THE COMPANY FACES CERTAIN RISKS ASSOCIATED WITH PRODUCT DEFECTS.
Prior to release of new products or upgrades to existing products, the Company conducts exhaustive testing of those products. Despite intensive testing, new products or enhancements may contain undetected errors or "bugs" that are discovered only after a product has been installed and used by customers. There can be no assurance that such errors will not be discovered in the future.
THE COMPANY FACES CERTAIN RISKS ASSOCIATED WITH MANAGING GROWTH.
The Company is experiencing a period of transition and product introductions that has and may continue to place a significant strain on its resources. Expansion of the Company's product lines, additional product development and product introductions, or acquisitions of other technologies, may further place a strain on the Company's resources and personnel, when added to the existing management of the Company's day-to-day activities.
THE COMPANY'S SUCCESS DEPENDS IN PART ON ITS ABILITY TO ADAPT TO RAPID TECHNOLOGICAL CHANGE.
The educational software market is subject to rapid technological change, new product introductions, evolving industry standards and changes in customer demands. The introduction of new technologies and the emergence of new industry standards can render existing products obsolete and unmarketable. The Company's future success will depend in part on its ability to enhance existing products and to develop new products that meet changing client requirements.
THE COMPANY IS SUBJECT TO INTENSE COMPETITION.
The educational software market is highly competitive and rapidly changing. A number of companies offer products similar to the Company's products and target the same customers as the Company. Some of the Company's primary and potential competitors are substantially larger and have significantly greater financial, technical and marketing resources as well as established channels of distribution. As a result, these competitors may be able to respond more quickly to emerging technologies and changes in customer requirements and can devote greater resources to their businesses.
THE COMPANY MAY NOT BE ABLE TO EFFECTIVELY PROTECT ITS INTELLECTUAL PROPERTY.
The Company's success is heavily dependent upon its confidential and proprietary intellectual property. The Company relies primarily on a combination of copyright, trademark and trade secret laws. The Company has filed a preliminary patent application in connection with its new Internet browser for children, INTERNET SAFARI-TM-. Trade secret and copyright laws afford only limited protection.
THE COMPANY MAY NOT BE ABLE TO SECURE ADDITIONAL FINANCING NECESSARY TO SUSTAIN AND GROW ITS OPERATIONS.
The Company's audited financial statements for the fiscal year ended March 31, 2000, for the three months ended June 30, 2000, and for the fiscal year ended June 30, 2001 have been qualified on a going concern basis principally due to lack of long term financing to achieve its goal of effectively developing and marketing its new secure Internet browser for children, INTERNET SAFARI-TM-. To date, the Company has funded its transition period to the introduction of INTERNET SAFARI-TM- primarily through revenues generated by other products and debt and equity financings. The Company will need additional capital before INTERNET SAFARI-TM- begins generating a sufficient cash flow to sustain operations and anticipated growth.
THE COMPANY'S REVENUES DEPEND ON CONTINUED MARKET ACCEPTANCE OF PRODUCTS.
To date, the Company has derived substantially all of its revenue from the sale of approximately 50 educational programs. Accordingly, the Company's results will depend on continued market acceptance of these existing products and acceptance of its new products, including INTERNET SAFARI-TM-. Failure to achieve such acceptance could have a material adverse effect on the Company's business, financial condition and results of operations.
CERTAIN RESTRICTED SHARES OF THE COMPANY WILL BE ELIGIBLE FOR SALE IN THE FUTURE AND COULD AFFECT THE PREVAILING MARKET PRICE OF THE COMPANY'S COMMON STOCK.
Certain of the outstanding shares of Common Stock are "restricted securities" under Rule 144 of the Securities Act, and would be eligible for sale as the applicable holding periods expire. Sales or the expectation of sales of a substantial number of shares of Common Stock in the public market by selling stockholders could adversely affect the prevailing market price of the Common.
THE COMPANY'S COMMON STOCK MAY BE SUBJECT TO SECONDARY TRADING RESTRICTIONS RELATED TO PENNY STOCKS.
Certain transactions involving the purchase or sale of Common Stock of the Company may be affected by a Securities and Exchange Commission rule for "penny stocks" that imposes additional sales practice burdens and requirements upon broker-dealers that purchase or sell such securities. The penny stock rule may impede the ability of broker-dealers to purchase or sell the
Company's securities for their customers and the ability of persons now owning or subsequently acquiring the Company's securities to resell such securities.
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.
HEARTSOFT, INC.
(Registrant)
Date: 11/14/01
/s/ Benjamin P. Shell
--------------------------------------------------------
Benjamin P. Shell, Chairman of the Board, President, and
Chief Executive Officer
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In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: 11/14/01
/s/ Benjamin P. Shell
--------------------------------------------------------
Benjamin P. Shell, Chairman of the Board, President, and
Chief Executive Officer
(Principal Executive Officer)
Date: 11/14/01
/s/ Jimmy L. Butler
--------------------------------------------------------
Jimmy L. Butler, Jr., Director and Vice-President
Date: 11/14/01
/s/ Rodger Graham
---------------------------------------------------------
Rodger Graham, Chief Financial Officer
(Principal Financial Officer)
Date: 11/14/01
/s/ Kathy Howell
---------------------------------------------------------
Kathy Howell, Chief Financial Controller
(Principal Accounting Officer)
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INDEPENDENT AUDITORS' REPORT
The Board of Directors
Heartsoft, Inc.
We have audited the accompanying balance sheet of Heartsoft, Inc., as of June 30, 2001, and the related statements of operations, changes in stockholders' equity (deficiency), and cash flows for the years ended June 30, 2001 and March 31, 2000, and the three month period ended June 30, 2000. 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 auditing standards generally accepted in the United States of America. 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 financial position of Heartsoft, Inc. as of June 30, 2001, and the results of its operations and its cash flows for the years ended June 30, 2001 and March 31, 2000, and the three month period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 9 to the financial statements, the Company stockholders' deficiency is $634,448, and it has experienced recurring losses and negative cash flows from operating activities, which increased to $2,969,880 and $1,760,220 respectively, for the year ended June 30, 2001. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are also described in Note 9. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ TULLIUS TAYLOR SARTAIN & SARTAIN LLP Tulsa, Oklahoma November 8, 2001 |
HEARTSOFT, INC.
BALANCE SHEET
June 30, 2001
Assets
Current assets:
Cash $ -
Accounts receivable, trade, net of allowance
of $31,128 10,733
Note receivable-officer 260,983
Inventories, at cost 57,260
Other 48,277
-----------
Total current assets 377,253
Property and equipment, at cost:
Property and equipment 292,933
Less accumulated depreciation 155,359
-----------
Property and equipment, net 137,574
Other assets:
Developed software, net 934,823
Other 4,668
-----------
Total other assets 939,491
-----------
Total assets $ 1,454,318
===========
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See notes to financial statements.
HEARTSOFT, INC.
BALANCE SHEET
June 30, 2001
Liabilities and Stockholders' Deficiency
Current liabilities:
Accounts payable $ 493,779
Accrued expenses 334,435
Notes payable 1,232,013
-------------
Total current liabilities 2,060,227
Long-term notes payable 28,539
Commitments and contingencies -
Stockholders' deficiency:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, 642,000 shares issued 6,420
Common stock, $0.0005 par value, 30,000,000 shares
authorized, 16,167,453 shares issued 8,084
Additional paid-in capital 7,717,642
Accumulated deficit (8,366,594)
-------------
Total stockholders' deficiency (634,448)
-------------
Total liabilities and stockholders' deficiency $ 1,454,318
=============
|
See notes to financial statements.
HEARTSOFT, INC.
STATEMENTS OF OPERATIONS
Years Three month Year
ended periods ended ended
June 30, June 30, March 31,
----------------------------- ------------------------------ ------------
2001 2000 2000 1999 2000
----------------------------- ----------- --------------- --------------
(unaudited) (unaudited)
Net sales $ 513,996 $ 341,580 $ 164,307 $ 117,800 $ 315,557
Costs and expenses:
Costs of production 410,250 205,980 62,322 20,783 158,988
Sales and marketing 903,035 590,321 196,814 54,992 462,643
General and
administrative 1,616,813 1,217,413 352,647 152,258 1,021,477
Depreciation and
amortization 198,274 159,888 40,337 29,286 148,837
------------- ------------- ----------- -------------- ------------
Total operating expenses 3,128,372 2,173,602 652,120 257,319 1,791,945
------------- ------------- ----------- -------------- ------------
Operating loss (2,614,376) (1,832,022) (487,813) (139,519) (1,476,388)
Other income and expense:
Interest expense 370,237 134,073 (3,101) (12,118) (143,089)
Other, net (14,733) 3,109 (3,841) (704) (971)
------------- ------------- ------------ -------------- -------------
355,504 137,182 (6,942) (12,822) (144,060)
------------- ------------- ----------- -------------- ------------
Loss before income taxes (2,969,880) (1,969,204) (494,755) (152,341) (1,620,448)
Income taxes - - - - -
------------- ------------- ----------- -------------- --------------
Net loss $ (2,969,880) $ (1,969,204) $ (494,755) $ (152,341) $ (1,620,448)
============= ============= =========== ============== ==============
Net loss per common
share - basic and diluted $ (0.22) $ (0.27) $ (0.04) $ (0.02) $ (0.15)
============= ============= =========== ============== ==============
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See notes to financial statements.
HEARTSOFT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
Year ended June 30, 2001,
Three month period ended June 30, 2000 and Year ended March 31, 2000
Additional
Preferred Stock Common Stock Paid-in Accumulated
-----------------------------------------------
Shares Amount Shares Amount Capital Deficit Total
------------ ---------- ---------- -------- ---------- ----------- ----------
Balance, March 31, 1999 378,500 $3,785 9,169,214 $4,585 $3,239,486 $(3,281,511) $ (33,655)
Convert preferred stock
to common (326,500) (3,265) 165,200 83 3,182 - -
Sale of preferred stock 775,000 7,750 - - 689,750 - 697,500
Sale of common stock - - 1,500,000 750 1,385,271 - 1,386,021
Stock issued for
services - - 191,835 96 148,271 - 148,367
Stock issued for
debt repayment - - 140,000 70 139,930 - 140,000
Common stock issued in
lieu of preferred
dividends - - 39,088 19 (19) - -
Adjustments of
previous issuances - - (150,000) (75) 75 - -
Net loss - - - - - (1,620,448) (1,620,448)
------------ ---------- ----------- ---------- ----------- ----------- ----------
Balance, March 31, 2000 827,000 8,270 11,055,337 5,528 5,605,946 (4,901,959) 717,785
Stock issued
for services - - 25,000 125 (125) - -
Cash received for stock
unissued - - - - 247,500 - 247,500
Net loss - - - - - (494,755) (494,755)
------------ ---------- ----------- ---------- ----------- ----------- ----------
Balance, June 30, 2000 827,000 $8,270 11,080,337 $5,653 $5,853,321 $(5,396,714) $ 470,530
|
See notes to financial statements.
HEARTSOFT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) (continued)
Year ended June 30, 2001,
Three month period ended June 30, 2000 and Year ended March 31, 2000
Preferred Stock Common Stock Additional
-------------------------------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
----------------------------------------------------------------------------------------
Balance, June 20, 2000 827,000 $ 8,270 11,080,337 $ 5,653 $ 5,853,321 $ (5,396,714) $ 470,530
Convert preferred stock
to common (185,000) (1,850) 742,505 371 1,479 - -
Sale of common stock - - 1,463,181 732 860,831 - 861,563
Stock issued for
services - - 1,440,430 608 325,277 - 325,885
Stock issued as
consideration
for financings - - 880,000 440 395,200 - 395,640
Stock issued for - - 350,000 175 241,160 - 241,335
penalties
Stock issued
for compensation - - 11,000 5 10,474 - 10,479
Stock issued for - - 200,000 100 (100) - -
collateral
Capital contribution - - - - 30,000 - 30,000
Net loss - - - - - (2,969,880) (2,969,880)
----------------------------------------------------------------------------------------
Balance, June 30, 2001 642,000 $ 6,420 16,167,453 $ 8,084 $ 7,717,642 $ (8,366,594) $ (634,448)
========================================================================================
|
See notes to financial statements.
HEARTSOFT, INC.
STATEMENTS OF CASH FLOWS
Years Three month Year
ended Periods ended ended
June 30, June 30, March 31,
---------------------------- ------------------------- -----------
2001 2000 2000 1999 2000
---------------------------- ------------------------- -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,969,880) $ (1,969,204) $ (494,755) $ (152,341) $(1,620,448)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 198,274 159,888 40,337 29,286 148,836
Stock issued for services and 973,339 305,433 - - 148,268
other
Changes in:
Accounts receivable 53,679 1,816 (33,757) (19,630) 15,943
Note receivable - officer (260,983) 3,281 - - -
Inventories (10,240) - (1,328) (12,836) (25,343)
Other assets (41,218) (13,833) 2,220 2,280 5,380
Accounts payable 210,140 128,042 64,886 (32,635) 25,013
Accrued expenses 86,669 97,956 46,596 6,108 57,467
----------- ------------ ----------- ------------ -----------
Net cash used in operating activities (1,760,220) (1,286,621) (375,801) (179,768) (1,244,884)
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Capitalized software development (353,975) (253,303) (86,397) (32,378) (199,283)
costs
Payments for the purchase of property (65,189) (79,311) (8,775) (3,205) (75,554)
----------- ------------ ----------- ------------ -----------
Net cash used in investing activities (419,164) (332,614) (95,172) (35,583) (274,837)
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Capital contribution 30,000 - - - -
Proceeds from issuance of notes 1,499,172 299,543 - 79,500 -
payable
Proceeds from issuance of common 861,563 2,138,454 247,375 175,509 2,083,521
stock
Principal payments on notes payable (305,171) (729,945) (17,376) (77,070) (270,595)
----------- ------------ ----------- ------------ -----------
Net cash provided by financing 2,085,564 1,708,052 229,999 177,939 1,812,926
activities
----------- ------------ ----------- ------------ -----------
Net increase (decrease) in cash (93,820) 88,817 (240,974) (37,412) 293,205
Cash at beginning of period 93,820 5,003 334,794 41,589 41,589
----------- ------------ ----------- ------------ -----------
Cash at end of period $ - $ 93,820 $ 93,820 $ 4,177 $ 334,794
=========== ============ =========== ============ ===========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for $ 15,318 $ 53,359 $ 3,101 $ 8,112 $ 203,089
interest
=========== ============ =========== ============ ===========
Common stock issued for debt repayment $ 40,000 $ - $ - $ - $ 140,000
=========== ============ =========== ============ ===========
|
HEARTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended June 30, 2001 and 2000 (unaudited) and March 31, 2000, Three month periods ended June 30, 2000 and 1999 (unaudited)
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Heartsoft, Inc., including its subsidiary described below ("Heartsoft" or the "Company"), a publicly held Delaware corporation, was formed on January 15, 1988. On August 16, 1991, Heartsoft Software, Inc., an Oklahoma corporation, was organized as a wholly owned subsidiary of Heartsoft, in which the actual day-to-day operations of the Company are conducted. A subsidiary, Plug Invention Technologies, Inc., was formed on July 17, 2000, and had no operations during fiscal 2001.
CHANGE IN YEAR END
The Company changed its fiscal year end from March 31 to June 30 effective June 30, 2000.
NATURE OF OPERATIONS
The Company is engaged in publishing its own proprietary educational software and licensing technological products for distribution to the education market. The Company sells its products to schools and to end-users through telephone sales and direct response reseller catalogs. The Company's principal market is in the United States and Canada. Heartsoft's operations include only one business segment.
REVENUE RECOGNITION
Revenues from the sale of software products are recognized upon shipment, provided that no significant obligations remain outstanding and collection of the receivable is probable. Shipments of software previews to customers include the right of return for 30 days. Sales on these shipments are not recognized until expiration of the preview period. Allowances for estimated returns are provided at the time of sale. The Company evaluates the adequacy of allowances for returns and doubtful accounts primarily based upon its evaluation of historical and expected sales experience. The allowances for returns and doubtful accounts are based upon information available at the reporting date. To the extent the future market, customer mix, channels of distribution, product pricing and general economic and competitive conditions change, the estimated allowances required for returns and doubtful accounts may also change.
INVENTORIES
Inventories consist primarily of raw materials such as CD-ROM and floppy discs and manuals. They are stated at the lower of cost, determined by using the first-in, first-out method, or market.
ADVERTISING AND MARKETING COSTS
The Company expenses advertising costs, excluding co-operative advertising, as incurred. Co-operative advertising programs are initially capitalized and then expensed over the period of the specific contract for services. Capitalized advertising costs are not material at June 30 2001. Advertising costs totals $137,364 and $237,257 for the years ended June 30, 2001 and 2000, respectively, $74,596 and $9,040 for the periods ended June 30, 2000 and 1999, respectively, and $171,701 for the year ended March 31, 2001.
DEPRECIATION
The Company's property and equipment is carried at cost and depreciated over the estimated useful lives of the related assets. Depreciation is computed using the straight-line method over a seven-year period for both financial reporting and federal income tax purposes.
DEVELOPED SOFTWARE
Costs for new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. Once the project reaches technological feasibility, all software development costs are capitalized until the project is ready for release. Software development costs are amortized on the straight-line method over a maximum of seven years or the expected life of the product, whichever is less. Amortization expense of software development costs totals $164,530 and $135,354 for the years ended June 30, 2001 and 2000, respectively, $34,438 and $33,764 for the periods ended June 30, 2000 and 1999, respectively, and $125,401 for the year ended March 31, 2001.
INCOME TAXES
Deferred tax liabilities and assets are determined based on the differences between the financial statement basis and tax basis of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Statement of Financial Accounting Standards ("SFAS") 109, "Accounting for Income Taxes," also requires a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounts receivable, accounts payable and accrued expense amounts reported in the accompanying balance sheet approximate fair value. Accounts receivable are unsecured. Based on the borrowing
rates currently available to the Company, the carrying amounts reported in the accompanying balance sheet for notes payable approximate fair value.
CONCENTRATIONS OF CREDIT RISK
The most significant credit risk is the note receivable from an officer.
EMPLOYEE STOCK OPTIONS
When the exercise price of employee stock options equals or exceeds the market value of the stock at date of grant, the Company recognizes no compensation expense.
EARNINGS PER SHARE
Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of common stock equivalents.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions regarding items such as allowances for sales returns and uncollectible accounts, and valuation allowances for deferred tax assets that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 2 - LIMITED PARTNERSHIPS
During 1997, the Board of Directors of the Company authorized the sale of an aggregate undivided 45% interest of the Company's "K-8 Library" (the "Software Library") pursuant to the terms of a Software Agreement ("Software Agreement") entered into between the Company and Heartsoft 1997 Limited Partnership, Heartsoft II 1997 Limited Partnership, and Heartsoft III 1997 Limited Partnership, all Ontario, Canada limited partnerships (the "Partnerships"). Pursuant to the terms of the Software Agreement, the Company sold 45% interest in the Software Library for $4,940,000 (Canadian), less related expenses, which was payable 30% in cash and 70% by promissory notes (the "Acquisition Notes") bearing interest at 5%, due in 2007. The Acquisition Notes are payable from funds generated by the Partnerships through a joint venture with the Company (evidenced by a Joint Venture Agreement).
Pursuant to the Joint Venture Agreement between the Company and the Partnerships, Heartsoft retained the sole marketing rights, while Heartsoft and the Partnerships jointly share in the revenues attributable to the future sales of product utilizing the Software Library. The Partnerships are entitled to 100% of all "gross sales" each year until all interest owed to the Company under the Acquisition Notes is paid in full. After all interest has been paid, and until all principal and interest has been paid, the Partnerships and the Company each are entitled to 50% of the "gross margin" from sales attributable to the interest in the Software Library. The "gross margin" is all gross revenues generated from the interest in the Software Library, less returns, discounts and cost of goods sold. After the Acquisition Notes have been paid in full (including all accrued interest), the Company is entitled to 75% of the gross margin, and the Partnerships the remaining 25%.
The gain associated with the Acquisition Notes has been deferred because its realization depends on the Company's success in marketing the Software Library, resulting in no net carrying value for the Acquisition Notes. Such gain will be recognized as the Acquisition Notes are collected. The principal balance of the Acquisition Notes at June 30, 2001, is approximately $2,205,000.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30, 2001:
Office furniture, fixtures and equipment $ 152,407
Production and development equipment 122,669
Leasehold improvements 17,857
-----------
$ 292,933
===========
|
Depreciation expense is $33,745 and $24,534 for the years ended June 30, 2001 and 2000; $5,899 and $4,791 for the three month periods ended June 30, 2000 and 1999, and $19,164 for the year ended March 31, 2000.
NOTE 4 - NOTES PAYABLE
Notes payable consist of the following at June 30, 2001:
Notes payable to investors (A) $ 835,164
Notes payable to a finance company, $6,803
monthly, due October 2003 bearing interest at
14.82%, secured by property and equipment 65,388
Notes payable to investors, balloon payments due
December 31, 2001, bearing interest at rates
ranging from 8% to 15% 270,000
Note payable to an investment group, balloon
payment due February 28, 2002, bearing
interest at 8% 40,000
Notes payable to investors, in default, bearing
interest at 8% 50,000
----------
Total 1,260,552
Current portion 1,232,013
----------
Noncurrent portion $ 28,539
==========
|
(A) On September 1, 2001, and October 15, 2001, three noteholders entered into an extension agreement, and amended and restated note agreements and security agreements (together, the "Agreements"). Under the Agreements, the principal balances bear interest at 15% per annum. Principal and interest on each note are due December 31, 2001, which date would be accelerated upon Heartsoft's receiving aggregate cumulative proceeds of $1,000,000 from debt, equity or sale of assets. In consideration of the signed notes, the Company issued the noteholders an aggregate of 525,000 shares of common stock. In consideration of the extension agreement, the Company agreed to issue the noteholders an aggregate of 1,200,000 shares of common stock. The fair value of the common stock issued is accounted for as additional interest. The Company agreed
to file a registration statement with the SEC registering for sale all of the shares held by the noteholders. The notes are collateralized by 500,000 shares of the Company's common stock and all intangible assets of the Company including the Company's software INTERNET SAFARI-TM- and other software titles.
On November 9, 2000, the Company borrowed a total of $500,000 under two separate promissory notes, each for the principal sum of $250,000. The principal sum of both promissory notes plus interest at a per annum rate equal to 6.15% were due May 9, 2001. The Company borrowed $75,000 on January 24, 2001, $175,000 on February 5, 2001, and $50,000 on June 19, 2001, under promissory notes for the principal sum of $300,000. The principal sum of the promissory notes plus interest at 6.15% per annum were due on August 5, 2001.
Maturities of notes payable are as follows:
Year ended
June 30,
---------------
2002 $ 1,232,013
2003 22,832
2004 5,707
-------------
$ 1,260,552
=============
|
NOTE 5 - STOCKHOLDERS' DEFICIENCY
PREFERRED STOCK
As of June 30, 2001, the Company had 642,000 shares of $.01 par value preferred stock outstanding.
A total of 52,000 shares are from a 1996 private placement and are convertible into common stock at the rate of .8 shares of common stock per share of preferred stock.
During fiscal 2000, the Company sold 775,000 shares of $.01 par value preferred stock, Series A, in a private placement. Proceeds of the sale aggregated $775,000. The holders of Series A preferred stock are not entitled to receive any dividends, and are entitled to $1.00 per share preference in liquidation. Except in limited circumstances, the holders of Series A preferred stock are not entitled to any voting rights. The Series A preferred stock is convertible into common based on the average closing bid price for 20 consecutive trading days preceding conversion, times 60%. Conversion rights are at the option of the holder during the period that a registration statement relating to the common stock underlying the Series A preferred stock is effective. Conversion is automatic at the date such registration is terminated. During 2001 185,000 preferred shares were converted to 742,505 shares of common stock, leaving 590,000 shares remaining to be converted.
Purchasers of the Series A preferred stock also received warrants to purchase 200,000 shares of common stock. The warrants expire on February 1, 2005, and are exercisable at the lesser of (1) 60% of the closing bid price of the Company's common stock or (2) $3.00.
Under the terms of the Series A Preferred Stock Purchase Agreement, the Company agreed to file a registration statement with the Securities and Exchange Commission relating to the common shares into which the Series A preferred stock are convertible, and the common shares issuable upon exercise of the warrants. The Company agreed to cause such registration statement to become effective by August 1, 2000, which condition was not met. On September 26, 2000, the Company and the holders of the Series A preferred stock amended their agreement whereby the Company is to file a registration statement to become effective within a reasonable time after October 1, 2000. In addition, the Company issued 300,000 shares of common stock.
COMMON STOCK
During the years ended June 30, 2001 and 2000, the Company entered into various agreements with vendors under which the vendors received shares of Company common stock in exchange for their services. The Company issued 1,440,430 and 191,835 shares of its common stock during the years ended June 30, 2001, and March 31, 2000, respectively, under these agreements and recognized general and administrative expenses of $325,885 and $148,367, respectively. The transactions were valued based on the underlying price of the Company's common stock on the dates of issuance.
On September 20, 1998, Heartsoft and Intercap Funding LTD ("Intercap") entered into an agreement whereby Intercap agreed to provide consulting advisory services over a three year period, primarily related to capital formation, in exchange for 1.2 million shares of Heartsoft's Convertible Preferred Stock. On March 16, 2001, Heartsoft issued 1.2 million shares of its common stock to satisfy the Company's obligation under the agreement. The value of the agreement, based on the September 20, 1998, trading price of the common stock into which the preferred stock was to have been convertible, was $240,000. This value has been allocated to general and administrative expenses over the term of the agreement.
EMPLOYEE BENEFIT AND STOCK OPTION PLAN
The Heartsoft, Inc. Employee Benefit and Stock Option Plan ("Plan") was effective June 15, 1997, and terminates June 30, 2005. Awards under the Plan may be granted by the Heartsoft Board of Directors in the form of stock issuance, incentive stock options, or nonqualified stock options. The total number of shares of common stock as to which stock issuances or options may be granted under the Plan shall be 2,000,000. The option price of incentive stock options shall not be less than 100% of the fair market value of the stock on the date of grant. The option price of nonqualified stock options shall not be less than 25% of the fair market value of the stock on the date of grant. The duration of each option granted shall not exceed 10 years.
During the year ended June 30, 2001, various officers' employment agreements were amended resulting in the officers being granted non qualified stock options. The Company granted the officers a total of 1,200,000 options to purchase shares of common stock at a price of $.5312 per share. The Company also granted 10,000 options to purchase shares of common stock at a price of $1.50 per share to an employee under the Plan. The employee and officer options become vested and exercisable at different periods that range from December 31, 2000, through January 29, 2004. At June 30, 2001 none of the options had been exercised.
SFAS 123, "Accounting for Stock-Based Compensation", provides an alternative method of determining compensation cost for employee stock options, which alternative method may be adopted at the option of the Company. Had compensation cost for the options granted to employees been determined consistent with SFAS 123, the Company's net loss for the year ended June 30, 2001, would have been increased and EPS would have been reduced to the following pro forma amounts:
Net loss:
As reported $ (2,969,880)
Pro forma (3,123,839)
Basic and diluted EPS:
As reported $ (.22)
Pro forma (.23)
|
Compensation cost was based on an weighted average estimated fair value of $.53 per share, which was calculated using the Black-Scholes option pricing model with the following assumptions: weighted average exercise and stock price of $.54 per share; weighted average risk-free interest rate of 5.59%; expected dividend yield of 0.0; expected life of ten years; and estimated volatility of 146%.
A summary of the status of the Company's stock options at June 30, 2001, and changes during the year then ended is presented below:
Weighted
Average
Shares Price
-------------------------------------------
Outstanding, beginning of period - $ -
Granted 1,210,000 .54
Exercised - -
Forfeited - -
-------------------------------------------
Outstanding, June 30, 2001 1,210,000 $ 0.54
-------------------------------------------
Exercisable, June 30, 2001 400,000 $ 0.53
-------------------------------------------
Weighted average fair value of
options granted 0.54
----------------------
|
The following table summarizes information about fixed stock options outstanding at June 30, 2001:
Options Outstanding Options Exercisable
------------------------------------------------ -------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of exercise Outstanding at Contractual Exercise Exercisable at Exercise
prices 6/30/01 Life Price 6/30/01 Price
-------------------------------------------------------------------------------------------------------
$.5312 1,200,000 9.44 years $.5312 400,000 $.5312
$1.50 10,000 9.59 years $1.50 - $1.50
|
The weighted-average grant date fair value of shares issued to vendors and for extinguishments of debt during the years ended June 30, 2001, and March 31, 2000, was $.36 and $1.29, respectively.
NOTE 6 - INCOME TAXES
At June 30, 2001, the Company had approximately $8,345,000 in net operating loss carryforwards ("NOL's") expiring in 2009 through 2020. Management believes that the Company does not meet the criteria for recognizing the tax benefit of net operating loss carryforwards as a deferred tax asset and has established a valuation allowance for the entire balance of the NOL's.
There are no material temporary differences between the bases of assets and liabilities for income tax and financial reporting purposes that would give rise to deferred tax assets and liabilities. Therefore, no provision for income taxes has been reflected in the Company's statements of operations.
Note 7 - Earnings per Share
Basic and diluted EPS are computed as follows:
Three months ended
June 30
Years ended ---------------------------
June 30, June 30 March 31, 2000 1999
---------------------------------------------------------------------------
2001 2000 2000 (unaudited)
---------------------------------------------
(unaudited)
Basic and diluted EPS computation:
Net loss $ (2,969,880) $ (1,969,204) $ (1,620,448) $ (494,755) $ (152,341)
Weighted average
shares outstanding 13,553,339 11,029,555 10,739,719 11,062,480 9,944,326
Basic and diluted net loss
per share $ (0.22) $ (0.27) $ (0.15) $ (0.04) $ (0.02)
|
All options are excluded from the EPS calculation as their effect is anti-dilutive.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under an operating lease for $6,578 per month plus adjustments over the life of the lease. Rental expense was $88,205 and $71,969 for the years ended June 30, 2001 and 2000, respectively, $19,071 and $14,420 for the 3 months ended June 30, 2001 and 2000, respectively, and $67,318 for the year ended March 31, 2000. Future annual payments under operating leases are $95,604 annually for fiscal 2002 and fiscal 2003 and $39,835 for fiscal 2004.
During fiscal 2001, the SEC brought an action alleging violations of Securities laws regarding the wording of certain press releases issued by the Company from January 1999 to March 1999. On September 5, 2000, the Company settled the action brought by the SEC. As a part of the terms of the settlement, the SEC filed a complaint against the Company in the United States District Court for the Northern District of Oklahoma on September 5, 2000. The complaint was filed with stipulations and consents and agreed final judgments that were approved by the SEC and Heartsoft. On September 15, 2000, the Court accepted these
stipulations and consents and entered the agreed final judgments resolving the lawsuit and implementing the settlement. Under the terms of the stipulations and consents and the agreed final judgments, the Company and its President and Vice President are permanently enjoined from committing violations of certain securities laws. The Company's officers were required to individually pay disgorgement of certain trading profits, interest and civil penalties. The Company and its officers neither admitted nor denied any of the allegations in the complaint filed by the SEC.
NOTE 9 - UNCERTAINTIES
Due to operating losses resulting from execution of the Company's business plan
during fiscal 2001 and continuing into fiscal 2002, the Company remains
significantly reliant on external funding sources to continue operations. For
the year ending June 30, 2001, the Company experienced an operating loss and
negative cash flows from operating activities of $2,969,880 and $1,760,220,
respectively. For the three months ended June 30, 2000, the Company experienced
an operating loss and negative cash flows from operating activities of $494,755
and $375,801, respectively.
In order to finance these losses, the Company secured approximately $2,300,000 in funding for the year ending June 30, 2001 through placement of debt and common stock.
Although the Company has substantially reduced its overhead by reducing expenses across the board, including reducing its total full-time, part-time, and consulting staff from a high of 36 people during January 2001, to 14 as of November 8, 2001, the Company remains dependent on additional outside funding. Currently, the Company has outstanding obligations to its vendors, current and previous employees and consultants. While the Company remains hopeful that additional financing will be completed, any delay in completing additional financing to meet current liabilities and growth needs remains a possibility. There is no assurance that the Company will secure future financing.
MANAGEMENT'S PLAN
The Company believes that its substantial investment in the development of INTERNET SAFARI-TM- represents a key element of its future and that the Company can become a leading player in the children's internet market once funding is obtained.
Additionally, the Company previously formed a wholly owned subsidiary, Plug-Invention Technologies, Inc. to develop and market the Company's proprietary pornographic image recognition and detection technology and other internet security solutions to corporations, organizations and governmental agencies throughout North America. In September 2001, the Company entered into an agreement with SplitSecondServices, Inc. to develop a comprehensive business plan for Plug-Invention Technologies. The business plan, which is expected to be completed on or about November 30, 2001, will be used to present funding opportunities to venture capitalists and angel investors, and will clearly outline the business opportunities that
exist for the Company's proprietary internet security solutions. The Company anticipates receiving approximately $1.8 million in up-front licensing revenue over a six month period from this opportunity as well as royalties on future product sales.
In order to reach profitability, the Company plans, among other things, to do the following:
- Complete the formal business plan for Plug Invention Technologies, Inc. and forge an alliance with a joint venture partner having sufficient resources to expedite the introduction of the Company's proprietary pornographic image recognition and detection technology and other internet security solutions to corporations, organizations and governmental agencies throughout North America;
- Shift marketing emphasis from the utilization of in-house sales representatives to a greater dependence upon lower cost, strategic joint venture partners to market the Company's product line both in the United States and internationally;
- Expand the marketing of INTERNET SAFARI-TM- to both Original Equipment Manufacturers (OEMs) and Internet Service Providers (ISPs); and
- Consider the sale of the Company's oldest product lines to obtain the resources to introduce INTERNET SAFARI-TM- more effectively in both the education and the consumer markets.
To continue operations and finance the continuing costs of product development and enhancements, beginning on or around November 15, 2001, the Company shall offer a Private Offering Memorandum consisting of a maximum of 3,000,000 shares of 10% Series B Convertible Preferred Stock at a cost of $1.00 per share. The Company anticipates receiving approximately $2.6 million, after deducting offering expenses and costs. However, the Company has no formal commitments for equity placements. The ability of the Company to implement its operating plan and to continue as a going concern depends on its ability to raise equity capital and, ultimately, to achieve profitable operations.
EXHIBIT 10.60
7TH WAVE CONSULTING
Heartsoft Agreement
May 17, 2001
Heartsoft
3101 North Hemlock Circle
Broken Arrow, OK 74012
This agreement is made as of this the 17th day of May 2001, by and between 7th Wave Consulting a California based company, having an address at 1047 Gull Avenue, Foster City, CA 94404, and Heartsoft, a Oklahoma corporation, having an address at 3101 North Hemlock Circle, Broken Arrow, OK 74012.
This agreement will allow for compensation to 7th Wave Consulting for referring Heartsoft's Internet Safari product to Mega Systems for distribution into the US and/or International retail sales channel. The terms of this agreement will be based on 7th Wave consulting introducing and presenting Heartsoft's Internet Safari product to Mega Systems, working with Heartsoft during the contract stage and advising Heartsoft on the opportunity.
In consideration for this service, 7th Wave Consulting shall be paid a one-time fee of for the introduction to an entity providing the service of retail distribution. The one-time fee of is due with-in 30 days of signing the contract between Heartsoft and Mega Systems.
Accepted by / Date: /s/ Benjamin P. Shell 5/21/01
-----------------------------
Accepted by / Date: /s/ Jerry Rosenbusch 5/21/01
----------------------------
|
EXHIBIT 10.61
CONSULTING AGREEMENT
THIS AGREEMENT is dated the 1st day of June, 2001, between INTERCAP FUNDING LTD., 649 Arlington Avenue, Westfield, New Jersey 07090 (the "Consultant"); and HEARTSOFT, INC., 3101 North Hemlock Circle, Broken Arrow, Oklahoma 74012 (the "Company").
WHEREAS, pursuant to that certain Non Circumvention and Consulting Agreement by and between the Company and Consultant dated February 1, 1999 (the "Non Circumvention and Consulting Agreement"), the Company retained the Consultant to provide certain consulting services on a best efforts basis;
WHEREAS, the Company wishes to continue to retain the Consultant to provide certain consulting services on a best efforts basis and both parties desire to replace the Non Circumvention and Consulting Agreement with this Agreement; and
WHEREAS, the Company wishes to retain the Consultant to provide the services as hereinafter more specifically described and the Consultant has agreed to be so retained to provide such services on a best efforts basis during the term of this Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements hereinafter expressed, the parties agree as follows:
Section 1. TERM OF AGREEMENT. This Agreement shall begin on June 1, 2001, and remain in effect for one hundred and eighty (180) days and shall be considered renewed on the first day of each month thereafter by mutual consent for nine (9) months, unless terminated in writing by either party thirty (30) days prior to the next renewal date.
Section 2. CANCELLATION OF NON CIRCUMVENTION AND CONSULTING AGREEMENT. This Agreement replaces the Non Circumvention and Consulting Agreement. The Non Circumvention and Consulting Agreement is hereby cancelled by mutual consent of both parties and, as of the date hereof, will no longer be of any force or effect.
Section 3. SURRENDER OF RIGHTS TO WARRANTS. As partial consideration for entering into this Agreement, the Consultant agrees to surrender any and all rights the Consultant has or might have to any warrants to purchase shares of common stock of the Company to which the Consultant is or might be entitled pursuant to the Non Circumvention and Consulting Agreement.
Section 4. COMPANY OBLIGATIONS. The Company shall provide the Consultant with all applicable Company documentation reasonably necessary for the Consultant to carry out his obligation as further described in Section 5 of this Agreement. The Company is obligated to pay the agreed upon remuneration as referred to in Section 6 below, and to take all steps
necessary to assure that the Consultant and the Company comply with all applicable country, federal and/or state laws. The Company will not withhold any monies for any country, federal, state or local taxing authorities from fees/commissions earned by the Consultant pursuant to this Agreement. When applicable, the Company shall prepare and file a Form 1099 with the Internal Revenue Service (IRS), reporting compensation paid to the Consultant.
Section 5. CONSULTANT OBLIGATIONS. The Company hereby retains the Consultant to provide the following services on a best efforts basis:
(A) Provide liaison with the investment and banking community;
(B) Assist in the targeting of potential investors, mergers, acquisitions and marketing;
(C) Assist with negotiations and structuring potential business opportunities and acquisitions;
(D) Assist in promotion and advertisement;
(E) Act as liaison to negotiations when called upon; and
(F) Introduce certain persons and organizations ("Introduced Parties") with the hope and intent that the introduced parties may invest in, enter into a licensing agreement with or otherwise finance the development of the Company or any of its affiliates (as defined below - an "Investment").
(G) Assist Company in achieving all Company objectives and financial goals.
Section 6. REMUNERATION. In the event that during the term of this Agreement, the Company or any of its affiliates receives an Investment from any of the Introduced Parties, the Company shall pay to the Consultant, immediately upon the closing of such Investment, without deduction for any amounts which may be owed to other parties in connection with such Investments, a finder's fee in cash equal to 66 percent of all amounts of any cash or the fair market value of any other consideration received by the Company, or any of its affiliates, from any of the Introduced Parties during the term of the Agreement.
Section 7. AFFILIATE. For the purpose of this Agreement, the term Affiliate shall mean, with respect to any entity, any other entity that controls, is controlled by, or is under common control with such entity, where the term "control" means direct or indirect possession of at least twenty percent (20%) of the voting securities or comparable equity interest by or in such entity. Affiliate shall also include any joint venture, partnership or other similar entity, not included in the foregoing, to which or any of its affiliates, is a party and which receives an Investment from any of the Introduced Parties.
Section 8. CONFIDENTIALITY OF PROPRIETARY INFORMATION. The Consultant agrees, during or after the term of this Agreement, not to reveal confidential information or trade secrets to any person, firm, corporation or entity.
Section 9. REIMBURSEMENT OF EXPENSES. The Consultant may incur reasonable expenses in furthering the Company's business, including expenses for entertainment, travel and similar items. The Company shall reimburse the Consultant for all business expenses that have been approved after the Consultant presents an itemized account of expenditures and supporting original receipts.
Section 10. DEATH BENEFIT. Should the Consultant die during the terms of this Agreement, the Company shall pay to the Consultant's estate any fees/commissions due and all commissions earned on existing business introduced to the Company by the Consultant prior to death in accordance with this Agreement.
Section 11. ASSISTANCE IN LITIGATION. The Consultant shall upon reasonable notice furnish such information and proper assistance to the Company as it may reasonably require in connection with any litigation in which it is, or may become, a party either during or after being engaged with the Company.
Section 12. CONTROLLING LAW. This Agreement shall be controlled, construed and enforced in accordance with the laws of the state of New Jersey.
Section 13. EFFECT OF PRIOR AGREEMENTS. This Agreement supercedes any prior agreement between the Company or any predecessor of the Company and the Consultant, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to the Consultant of a kind elsewhere provided and not expressly provided in this Agreement.
Section 14. SETTLEMENT BY ARBITRATION. Any claim or controversy that arises out of or relates to this Agreement, or the breach of it, shall be settled by arbitration in accordance with the rules of the American Arbitration Association. Judgment upon the award rendered may be entered in any court with jurisdiction.
Section 15. SEVERABILITY. If any term, covenant, condition or provision of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions shall remain in full force and effect and shall in no way be affected, impaired or invalidated.
Section 16. CAPTIONS. Captions of this Agreement are for convenience and reference only, and the words contained therein shall in no way be held to explain, modify, amplify or aid in the interpretation, construction or meaning of the provisions of this Agreement.
Section 17. ASSUMPTION OF AGREEMENT BY SUCCESSORS AND ASSIGNEES. This Agreement shall not be assigned by either party without the written consent of the other party, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, the
Company and the Consultant rights and obligations under this Agreement will inure to the benefit and be binding upon their successors and assignees.
Section 18. ORAL MODIFICATIONS NOT BINDING. This instrument is the entire agreement of the Company and the Consultant. Oral changes shall have no effect. It may be altered only by a written agreement signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.
Section 19. TIME IS OF AN ESSENCE. Time is of the essence of this Agreement and each covenant and term a condition herein.
Section 20. INTEGRATION. This Agreement and any attached exhibits contain the entire agreement between parties. Any amendments to this Agreement shall be made in writing and executed by both parties.
IN WITNESS WEHREOF, the Company has caused this Agreement to be executed in its corporate name by one of its corporate officers, and the Consultant has set its hand to this Agreement as of the day and year written below.
IN WITNESS WHEREOF the parties have hereunto executed this Agreement as of the day and year above written.
ACCEPTED ON BEHALF OF: INTERCAP FUNDING LTD.
Per: /s/ Hugh P. Duddy DATE 06/01/01
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Hugh P. Duddy
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ACCEPTED ON BEHALF OF: HEARTSOFT, INC.
Per: /s/ Benjamin Shell DATE 06/01/01
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Benjamin Shell, Chairman, CEO
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EXHIBIT 10.62
INVESTMENT BANKING AGREEMENT
This Agreement is made and entered into as of the 1st day of June 2001, between Heartsoft, Inc. (the "Company") and First Avantus Securities, Inc. (the "Consultant").
WITNESSETH:
WHEREAS, The Company is a public company and its securities are traded in the over-the-counter market; and
WHEREAS, Consultant has experience in providing financial and business advice to public and private companies; and
WHEREAS, the Company is seeking and Consultant is willing to furnish business and financial related advice and services to the Company on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of, and for the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:
1) DUTIES OF CONSULTANT
a) Consultant represents and warrants to the Company that (i) it is a member in good standing of the National Association of Securities Dealers, Inc. ("NASD) and that it is engaged in the securities brokerage business; (ii) in addition to its securities brokerage business, Consultant provides consulting advisory services; and (iii) it is free to enter into this Agreement are not in conflict with any other contractual or other obligation to which Consultant is bound. The Company acknowledges that the Consultant is in the business of providing financial services and consulting advice (of the type contemplated by this Agreement) to others. Nothing herein contained shall be constructed to limit or restrict the Consultant in conducting such business with respect to others, or rendering such advice to others.
b) During the term of this Agreement, the Consultant will provide the Company with consulting advice as specified below, provided that the Consultant shall not be required to undertake duties not reasonable within the scope of the consulting advisory service in which Consultant is engaged generally. In performance of these duties, the Consultant shall provide the Company with the benefits of their best judgment and efforts. It is understood and acknowledged by the parties that the value of the Consultant's advice is not measurable in any quantitative manner, and that the amount of time spent rendering such consulting advice shall be determined according to the Consultant's discretion.
c) Subject to market conditions, the Consultant's duties, on a best efforts basis only, may include, but will not necessarily be limited to:
(1) Recommendations relating to specific business operations and investments;
(2) Advice relating to financial planning
(3) Create a wider awareness of the Company by, among other things, introducing Company to Broker-Dealers, IR/PR consulting firms, fund managers, and institutional investors.
(4) The set up and coordination of road shows and investor conferences at the Company's sole expense
2) TERM
The term of this Agreement shall be for one (1) year commencing as of the execution of this Agreement ("Commencement Date"); provided, however, that this Agreement may be renewed or extended upon such terms and conditions as may be mutually agreed upon by the parties hereto.
3) PURCHASE OF STOCK
As part of this Agreement, the Company shall sell to the Consultant or its designees shares of the Company's Common Stock ("Shares") at $.001 per share.
The Shares shall be free and clear of all liens, pledges, charges, restrictions, claims or encumbrances, and upon delivery of the certificate (s) evidencing the Shares, the Consultant or its designee (s) will acquire good and marketable title to the Shares, free and clear of all liens, pledges, charges, claims, restrictions and encumbrances, except that such Shares shall be "restricted" Common Stock within the meaning of the Securities Act of 1933 (the "Act").
The Consultant acknowledges that the certificate (s) for the Shares will be legended to indicate that the Shares represented thereby have not registered under the Act, as amended, and were acquired for investment and may not be pledged, hypothecated, publicly sold or transferred (except to officers, directors, employees, or designees of the Consultant) in the absence of a Registration Statement effective under the Act for the Shares or an opinion of counsel satisfactory to the Company that registration is not required under the Act.
If at any time following the execution of this Agreement the Company files a Registration Statement with the Securities Exchange Commission, the holder of the Shares will be entitled to include all of the Shares issued pursuant to this Agreement or any subsequent share issuance to Consultant or its designees in the registration statement. Company shall use its best efforts to make the registration statement effective as soon as is practicable after its filing.
4) GOOD FAITH PERFORMANCE
In the performance of its services, Consultant shall be obligated to act only in good faith, and shall not be liable to the Company for errors in judgment not the result of willful misconduct. Consultant may look to such others for such factual information, economic advice and/or research upon which to base its advice to the Company hereunder as Consultant shall in good faith deem appropriate.
5) MISCELLANEOUS
a) Any notice or other communication between parties hereto shall be sufficiently given if sent by certified or registered mail, postage prepaid, if to the Company, address to it at 3101 Hemlock Circle, Broken Arrow, Oklahoma 74012, or if to the Consultant, addresses to it at 9606 North Mopac, Suite 100 Austin Texas 78759, or to such addresses as may be hereafter designated in writing by one party to the other. Such notice or other communication shall be deemed to be given on the date mailed.
b) Subject to applicable state and federal securities laws, Heartsoft agrees, during the term of this Agreement, to give at least five days written notice to Consultant prior to any sale of equity securities of the Company to a single investor or a series of investors during a single placement as long as the value of such equity securities values in excess of $250,000 in the aggregate. The forgoing notwithstanding this section will in no way affect Heartsoft's right sell any of its equity securities.
c) This Agreement embodies the entire Agreement and understanding between the Company and the Consultant and supersedes any and all negotiation, prior discussions and preliminary and prior agreements and understanding related to the subject matter hereof.
d) This Agreement has been duly authorized, executed and delivered by and on behalf of the Company and Consultant.
e) This Agreement shall be constructed and interpreted in accordance with the laws of the State of Texas and venue for any dispute shall lie solely in Travis County, Texas.
f) This Agreement and the rights hereunder may not be assigned by either party (except by operation or law) and shall be binding upon and enure to the benefit of the parties and their respective successors, assigns and legal representatives.
g) If at any time while the Shares are not registered and/or are restricted the Company issues any capital stock (or any warrants, rights, options, or other securities with rights to equity ownership), other than issuances pursuant to the Company's approved employee stock option plan, without consideration or for consideration per share with a value less than the market price for the Company's common stock, the Company shall offer the Consultant the opportunity to purchase, at the same price as the new party, additional shares as is required to maintain Consultant's equity ownership percentage in Company following such issuance.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above.
HEARTSOFT, INC.
By: /s/ Benjamin P. Shell
-------------------------------------------
Chairman & CEO
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First Avantus Securities, Inc.
By: /s/ Kyle Holland
-------------------------------------------
Kyle Holland, Its Authorized Officer
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EXHIBIT 10.63
MARKETING AGENT AGREEMENT
THIS AGREEMENT is entered into as of this 1st day of June, 2001 by and between K-12 MICROMEDIA PUBLISHING, INC., a ______________________ corporation, and HEARTSOFT, INC., a Delaware corporation as follows:
WHEREAS, Heartsoft, Inc.(Heartsoft) wishes to appoint K-12 MicroMedia, Publishing, Inc. (K-12 MicroMedia) an educational reseller based in Mahwah, New Jersey, to serve as a marketing agent to New York City Board of Education (NYC BOE) for Heartsoft products covered under the New York City Board of Education contract OMA number 1Z729, item class number 6, effective March 20, 2001 through July 31, 2003, the following terms and conditions have been mutually agreed upon:
1. K-12 MicroMedia will provide the following marketing services to New York City Board of Education schools:
A. Distribute Heartsoft NYC BOE Price Lists and product
information to school and district contacts on a regular
basis, but no less than twice per school year.
B. Feature Heartsoft products, promotions and pricing in a
predominate place in K-12 MicroMedia newsletter and catalogs
distributed to NYC BOE schools.
C. Feature and demonstrate Heartsoft products in a predominate
location within the K-12 MicroMedia booth at regional
technology conferences held by the NYC BOE, at no less than
four conferences per school year.
D. Conduct product demonstration to district and school personnel
for qualified purchase opportunities.
E. Provide a link from the K-12 MicroMedia website to Heartsoft
website, including a link to promote Internet Safari
demonstration version download.
F. Other marketing activities as necessary to adequately
represent Heartsoft products and mutually agreed upon by both
parties.
G. Submit an outline of planned marketing activities for the year
at the beginning of each contract year. This report shall be
received by the 30th of the first full month of the contract
for each year of the contract.
H. Provide a quarterly report of marketing actitivies conducted
by K-12 MicroMedia in support of the NYC BOE/Heartsoft
contract. This report shall be received by the 20th of the
month following the end of the quarter. For example, for the
quarter ending June 30, 2001, the report will be received by
July 20, 2001.
2. Heartsoft, Inc will provide the following compensation and services to K-12 MicroMedia in support of their marketing activities to NYC BOE:
A. Pay K-12 MicroMedia a marketing commission of % of sales based on cash collections to Heartsoft from NYC BOE. This commission shall be paid quarterly on the 30th of the month following the end of the quarter. For example, commissions for the quarter ending June 30, 2001 will be paid on
July 30, 2001. Any outstanding balance (i.e. sales where cash
has not been collected during the month) for products will be
deducted from amount due to K-12 MicroMedia prior to payment
of marketing commissions.
B. Provide K-12 MicroMedia with monthly reports for sales to the
NYC BOE and K-12 Micromedia. These reports will be provided by
the 20th of the month following the sales month. For example,
the monthly report for April 2001 will be provided by May 20,
2001.
C. Provide product literature and demo CDs as needed to support
marketing efforts in NYC BOE schools.
D. Provide training for the staff of K-12 MicroMedia on Heartsoft
product line and selling strategies.
E. Provide personnel, as available, to support K-12 MicroMedia
staff in demonstrating Heartsoft products at technology
conferences.
F. Develop joint sales and marketing efforts to close large sales
opportunities, this may include activities such as joint sales
calls and inside sales call campaigns.
G. Provide a co-branded Internet Safari demonstration version
download web page and share all leads obtained from the
co-branded web page during the term of the contract.
H. Provide creative design service and/or electronic files of
Heartsoft products, logos, etc. as needed and mutually agreed
upon for the creation of marketing materials in support of
this contract.
3. K-12 MicroMedia, as an extension of this contract, may on occasion accept purchase orders directly from NYC BOE at the contract price and these sales will be included in the calculation of both marketing commissions and performance incentives, provided these purchase orders meet the following criteria:
A. Contain orders for products from multiple publishers;
B. Contain orders for only Heartsoft products at a limited time
special promotion pricing not covered by the NYC BOE contract
or for Heartsoft products not on covered by the NYC BOE
contract.
C. Other mutually agreed upon conditions that are beneficial to
NYC BOE, K-12 MicroMedia and Heartsoft.
For these orders, K-12 MicroMedia will order the product at their standard reseller discount. Heartsoft will drop ship the product directly to the customer or to K-12 MicroMedia as stated on the K-12 MicroMedia purchase order to Heartsoft. K-12 MicroMedia will be responsible for payment of these purchase orders under their normal reseller terms and conditions.
4. TERM OF CONTRACT: The agreement shall be valid until July 31, 2002. This agreement shall be eligible for automatic extension in 12 month periods provided K-12 MicroMedia provides proof of meeting the marketing criteria stipulated above through submission of monthly marketing reports and sales of Heartsoft products to NYC BOE meets or exceeds the following sales objectives: First contract period -
$ in sales. Each additional contract period the sales objective shall be to meet or exceed % of the previous 12 month period. Should the above stipulated criteria for automatic extension not be met, this contract may be extended for a period of 12 months upon mutual agreement of both parties.
5. REPRESENTATIONS: Should K-12 MicroMedia Publishing fail to meet the marketing terms as specified in this Agreement, Heartsoft shall provide notification in writing of the specific contract points in question and K-12 MicroMedia shall have 60 days to come into full contract compliance. In the event that K-12 MicroMedia does not meet the 60 day deadline, Heartsoft may terminate the Agreement by providing notification of contract dissolution in writing, delivered to K-12 MicroMedia via certified mail or other trackable delivery service.
6. ENTIRE AGREEMENT: This agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and there are no representations, understanding or agreement that are not fully expressed in this Agreement. The interpretation and enforcement of this Agreement shall be governed by the laws of the State of Oklahoma. In the event that any portion of this agreement shall be held by a court or other tribunal of competent jurisdiction to be unenforceable, such provision will be enforced to the maximum extent permissible and the remaining portions of this Agreement shall remain in full force and effect. Recipient may not sell, transfer, assign, sublicense or subcontract any right or obligation hereunder without the prior written consent of Heartsoft, Inc.
7. ARBITRATION: Any controversy or claim arising out of or relation to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court of competent jurisdiction. The prevailing Party in such arbitration shall be entitled to recover reasonable attorneys' feed and arbitration costs, unless otherwise decided by the arbitrators.
IN WITNESS HEREOF, the parties hereto have executed the Agreement as of the 1st day of June, 2001.
K-12 MicroMedia Publishing, Inc. Heartsoft, Inc. By: /s/ A. G. Schweikez By: /s/ Juanita L. Seng Name: Anthony G. Schweikez Name: Juanita L. Seng Title: President Title: Vice President, Sales |
EXHIBIT 10.64
OFFICER PAYABLE
JUNE 12, 2001
FOR VALUE RECEIVED, Heartsoft, Inc. agrees to pay:
Mr. Jimmy Butler 3804 West Urbana Broken Arrow, Oklahoma 74012
the sum of $43,000 (forty-three thousand dollars), with no interest from the date written above until paid. This loan was provided to the Company on December 21, 2000 and reflected in the Officer's Shareholder Payable Account.
This Officer Payable is due nine (9) months from January 1, 2001.
Heartsoft shall reserve the right to prepay this Officer Payable in whole or in part prior to its due date without premium or penalty.
Heartsoft, signers, and endorsers of this Officer Payable severally waive demand, presentment, notice of dishonor, diligence in collection and notice of protest and agree to all extensions and partial payments before or after maturity, without prejudice to the holder. This written Officer Payable represents the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties.
Heartsoft, Inc.
by: /s/ Benjamin P. Shell
Chief Executive Officer
by: /s/ Rodger Graham
Chief Financial Officer
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EXHIBIT 10.65
LETTER AGREEMENT
The Glenn A. Chalker Revocable Trust
Dated June 15, 1993 June 14, 2001
Attn: Glenn A. Chalker, Trustee
11331 South Erie
Tulsa, OK 74147
Dear Mr. Chalker:
This Letter Agreement will reflect our understanding that you have agreed to loan Heartsoft, Inc. (the "Company" or "Heartsoft") an additional $50,000 (the "Additional Loan") by amending and restating that certain Convertible Promissory Note by and between the Company and The Glenn A. Chalker Revocable Trust Dated June 15, 1993 ("Chalker") dated January 24, 2001 in principal amount of $250,000 ("Convertible Note") and the related Security Agreement by and between the Company and Chalker of even date ("Security Agreement"). In order to induce Chalker to make the Additional Loan, subject to the terms of this Letter Agreement, the Company agrees to issue to Chalker 100,000 shares of common stock (the "Additional Shares"), par value $0.0005 per share, of the Company (the "Issuance"), as provided below.
The Additional Loan and the Issuance will be made in accordance with the following terms and conditions:
1. Chalker shall delivered to the Company a check in the amount of $50,000. On receipt in full of the foregoing, the Company shall issue and deliver a certificate representing the Additional Shares to Chalker.
2. Upon and simultaneously with the deliveries described in paragraph 1 above, the Convertible Note and the Security Agreement shall be deemed to be amended and restated, without further action of the parties, in the forms attached to this Letter Agreement.
3. To induce the Company to amend and restate the Convertible Note and the Security Agreement and to issue the Additional Shares, Chalker hereby represents and warrants to the Company that:
(a) this Agreement, when executed and delivered by Chalker, will constitute a legal, valid and binding obligation enforceable against Chalker in accordance with its terms;
(b) the Additional Shares are being acquired by Chalker for investment purposes only, for the account of Chalker and not with the view to any distribution thereof;
(c) Chalker is an "accredited investor" as that term is defined in the Act; and
(d) Chalker is aware that the Additional Shares have not been
registered under the Securities Act of 1933 (the "Act") and its ability
to sell or dispose of the Additional Shares will be restricted. Chalker
is subscribing for the Additional Shares with full knowledge of such
limitation. Chalker acknowledges that it is aware that the Additional
Shares may not be resold or offered by it for sale in the absence of:
(i) an effective registration statement under the Act covering the
Additional Shares; or (ii) an opinion of counsel satisfactory to the
Company that registration under the Act is not necessary. Chalker
consents to the placing of a restrictive legend on the Additional
Shares indicating that the Additional Shares have not been registered
under the Act, and Chalker understands that the Company will notify its
transfer agent that the Additional Shares are so restricted.
4. Chalker acknowledges that:
(a) Chalker has been provided and has read the following documents:
(i) Annual Reports on Form 10-KSB dated July 14, 2000 and September 28, 2000, containing audited financial statements for the fiscal years ending March 31, 2000 and June 30, 2000;
(ii) Quarterly Report on Form 10-QSB dated November 14, 2000, containing unaudited interim financial statements for the period ending September 30, 2000;
(iii) Quarterly Report on Form 10-QSB dated February 14, 2001 containing unaudited interim financial statements for the period ending December 31, 2000; and
(iv) Quarterly Report on Form 10-QSB dated May 15, 2001 containing unaudited interim financial statements for the period ending March 31, 2001.
(b) Chalker has been provided opportunities to ask questions of representatives of the Company regarding the risks and merits of his purchase hereunder and to obtain any additional information necessary to verify the accuracy of the information contained in the above-mentioned documents and to obtain non-confidential public information about the Company, its operations and prospects from the time of such documents through the date hereof. Upon the basis of Chalker reading the above mentioned documents and Chalker's discussion with representatives of the Company, Chalker possesses sufficient information to understand the risk and merits associated with his purchase hereunder and to verify the accuracy of information received; provided,
however, that the foregoing shall not in any way waive, prejudice or otherwise adversely affect Chalker's right to rely on the Company's representations and warranties contained herein or otherwise given in connection with the purchase of the Convertible Note and the Additional Shares.
5. To induce Chalker to enter into this Agreement and to amend and restate the Convertible Note and the Security Agreement and acquire the Additional Shares, the Company hereby represents and warrants to Chalker as follows:
(a) The Company is a corporation validly existing and in good standing under the laws of the State of Delaware and has the requisite power and authority to own or lease its properties and to carry on its business as it is now being conducted. The Company has the requisite power and authority to enter into this Agreement and to perform its obligations under this Agreement.
(b) The Additional Shares, when issued and delivered pursuant to terms of this Agreement, will be duly authorized, validly issued, fully paid and nonassessable.
(c) This Agreement and the issuance of the Additional Shares contemplated hereby have been duly authorized by all necessary action on behalf of the Company. This Agreement has been duly executed and delivered by authorized officers of the Company, is a valid and binding agreement on the part of the Company and is enforceable against the Company in accordance with its terms. All actions necessary to the authorization, issuance and delivery of the Additional Shares as contemplated by this Agreement have been taken by the Company.
6. The Company agrees to take all necessary action to cause the issuance of the Additional Shares to Chalker, including the issuance of appropriate instructions to its transfer agent.
7. Chalker and the Company agree that each will execute such other documents as may be necessary or desirable in connection with the transactions contemplated hereby.
8.
(a) This Agreement shall be governed by and construed in accordance with the laws of the State of Oklahoma, without regard to the conflicts of laws principles thereunder.
(b) Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given when actually received or when sent by cable, telegraph, or telex (and confirmed by first class mail, postage prepaid) to the addresses set forth below or to such other address or addresses the parties may designate by similar notice.
If to the Company: Heartsoft, Inc.
3101 North Hemlock Circle
Broken Arrow, OK 74012
Attention: Benjamin Shell
If to Chalker: The Glenn A. Chalker Revocable Trust
dated June 15, 1993
Attn: Glenn A. Chalker, Trustee
With a Copy to: Del L. Gustafson
Hall, Estill, Hardwick, Gable, Golden & Nelson
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(c) Each party bears the cost of expenses and attorney fees in connection with this Letter Agreement.
(d) This Agreement may be executed in any number of counterparts, each signed by different persons and all of said counterparts together shall constitute one and the same instrument, and such instrument shall be deemed to have been made, executed and delivered on the date first hereinabove written, irrespective of the time or times when the same or any counterparts thereof actually may have been executed and delivered a counterpart thereof to the Company and Chalker.
(e) This Agreement, the Letter Agreement by and between the Company and Chalker dated January 24, 2001, the Amended and Restated Convertible Promissory Note by and between the Company and Chalker dated as of the date hereof, the Amended and Restated Security Agreement by and between the Company and Chalker dated as of the date hereof and the exhibits thereto contain the entire agreement of the parties hereto and may not be modified, altered or changed in any manner whatsoever, except by a written agreement signed by the parties hereto.
HEARTSOFT, INC.
By: /s/ Benjamin Shell
----------------------------------------
Benjamin Shell, Chairman and CEO
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ACCEPTED AND AGREED TO:
THE GLENN A. CHALKER REVOCABLE
TRUST DATED JUNE 15, 1993
By: /s/ Glenn A. Chalker
-------------------------------
Glenn A. Chalker, Trustee
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Date: June 14, 2001
EXHIBIT 10.66
AMENDED AND RESTATED
SECURITY AGREEMENT
THIS AMENDED AND RESTATED SECURITY AGREEMENT is made as of this 14th day of June, 2001, by Heartsoft, Inc., a Delaware corporation ("Debtor"), in favor of The Glenn A. Chalker Revocable Trust dated June 15, 1993 (the "Secured Party").
WHEREAS, the Secured Party has loaned $250,000 to Debtor pursuant to Convertible Promissory Note dated January 24, 2001;
WHEREAS, pursuant to that certain Letter Agreement by and between Debtor and Secured Party dated June 14, 2001, 2001, the Secured Party agreed to loan the Debtor an additional $50,000 (the "Additional Loan");
WHEREAS, to reflect the Additional Loan, the parties entered into that certain Amended and Restated Convertible Promissory Note dated June 14, 2001, 2001 (the "Note") which amended, restated and replaced the Convertible Promissory Note dated January 24, 2001; and
WHEREAS, in order to induce the Secured Party to loan $300,000 to Debtor, Debtor desires to pledge the Collateral to secure the Indebtedness.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, Debtor does hereby covenant and agree as follows:
1. DEFINITIONS. The terms as used herein shall be construed and controlled by the following definitions, and except as the context may otherwise require or as may be otherwise provided herein, the singular shall be deemed to include the plural and the plural shall be deemed to include the singular.
1.1 COLLATERAL. "Collateral" shall mean and include the following property: (i) all intangible property now owned or hereafter acquired by Debtor, including without limitation copyrights trademarks and patents (and related applications and registrations) held by Debtor (including without limitation those set forth on Schedule A hereto), (ii) the software product called "Internet Safari" and the source code and any related files (the "Software"), (iii) all accounts receivable of Debtor now owned or hereafter arising, (iv) all inventory of Debtor now owned or hereafter acquired, and (v) all proceeds of the foregoing property, or other property, rights or claims received upon the disposition of, collection upon, release or cancellation of, or otherwise on account of said property or any part thereof.
1.2 EVENT OF DEFAULT. "Event of Default" shall have the meaning set forth in Section 6.
1.3 INDEBTEDNESS. "Indebtedness" shall mean and include all indebtedness of Debtor to Secured Party arising out of or relating to the Note.
2. SECURITY INTEREST. Debtor hereby assigns and grants to Secured Party a security interest in the Collateral to secure the Indebtedness.
3. DELIVERY AND POSSESSION OF COLLATERAL. Prior to or contemporaneously with the execution and delivery hereof, or as soon thereafter as commercially practicable, Debtor shall deliver to Tullius Taylor Sartain & Sartain LLP the physical possession of the source code of the Software and Tullius Taylor Sartain & Sartain LLP shall agree in writing with Debtor and Secured Party to retain the source code in its possession pending receipt of written instructions signed by Debtor and Secured Party or issued by a court and Debtor shall file a financing statement with the Oklahoma County Clerk covering the Collateral. Debtor shall promptly prepare and file any other documents requested by Secured Party in order to evidence or perfect the security interest in the collateral, including without limitation a filing with the U. S. Patent and Trademark Office.
4. REPRESENTATIONS AND WARRANTIES. Debtor hereby represents and warrants to Secured Party that:
4.1 OWNERSHIP; FREE OF ENCUMBRANCES. Debtor is and will remain the legal and beneficial owner of the Collateral, free and clear of any prior liens, security interests, encumbrances or conflicting claims, or rights of any kind, except the security interest created hereby, and Debtor will not transfer or offer or attempt to transfer, by lease or sale or otherwise, any interest in the Collateral or possession thereof without the express written consent of Secured Party, except for collection of accounts receivable or sales of inventory in the ordinary course of business, and the use of proceeds thereof in the ordinary course of business. Debtor will defend the Collateral against all claims and demands of all persons at any time claiming the Collateral or any interest therein. No security agreement, financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office except such as may have been filed pursuant to this Security Agreement.
5. COVENANTS OF DEBTOR. Debtor covenants and agrees that so long as the Note shall be outstanding that:
5.1 Debtor will not create, incur, assume, guarantee or in any manner become liable in respect of any indebtedness except for (i) liabilities incurred by Debtor in the ordinary course of its business and (ii) indebtedness not exceeding $1,000,000. The term "indebtedness" shall mean and include all items which in accordance with generally accepted accounting principles would be included in determining total liabilities as shown on the liability side of a balance sheet as of the date at which indebtedness is to be determined.
5.2 Debtor shall not amend its certificate of incorporation or its bylaws, except for amendments to the bylaws which do not affect the rights of Secured Party. Debtor shall comply with all of the provisions of its certificate of incorporation and its bylaws.
5.3 Debtor shall not, by operation of law or otherwise, merge with, consolidate with, acquire all or substantially all of the assets of, acquire all or substantially all of
the securities or interests in or otherwise combine with any other entity. This Section 5.3 shall not affect the ability of Debtor to organize subsidiaries in order to acquire other businesses as long as (a) all of the equity securities and debt and other securities convertible into, or exchangeable or exercisable for equity securities are owned by Debtor and (b) such organization does not materially adversely affect the performance by Debtor under the Note.
5.4 Debtor shall not sell, convey, transfer or dispose of any of its assets other (i) than sales of its inventory to its customers in the ordinary course of its business, (ii) sales of assets at a price equal to, or greater than, their fair market value and (iii) sales of assets that do not materially adversely affect the performance by Debtor of the Note.
5.5 Debtor shall take all actions necessary to preserve and to keep in fully force and effect its corporate existence. Debtor shall not take any action or omit to take any action, which act or omission may result in the loss of such corporate existence or the dissolution, liquidation or winding up of Debtor.
5.6 Debtor shall not declare or pay any dividends or incur any liability to make any other payment or distribution of cash or other assets of Debtor in respect of any equity security of Debtor.
5.7 Debtor shall not pay any bonuses or other extraordinary payments to any officer or director of Debtor, other than salaries currently in effect or bonuses which Debtor is currently obligated to pay.
5.8 Debtor shall use the proceeds from the Note for the conduct of its business in the ordinary course.
6. DEFAULT. The term "Event of Default" for all purposes of this Security Agreement shall mean the occurrence after the date hereof of one or more of the following:
6.1 NOTE PAYMENTS. Failure to pay principal or interest under the Note when and as the same shall become due and payable, whether at the due date thereof, by acceleration or otherwise and any such failure shall continue unremedied for five (5) days.
6.2 OTHER DEFAULT IN PAYMENT OR PERFORMANCE. Default in the payment, performance or observance by Debtor of any other obligation, covenant or liability contained or referred to herein or in the Note or the Letter Agreements between Debtor and the Secured Party dated January 24, 2001 and June 14, 2001, 2001 (the "Letter Agreements") and any such default shall continue unremedied for ten (10) days after Debtor obtain notice thereof.
6.3 MATERIAL INACCURACY. Any of the representations and warranties of Debtor to Secured Party herein or in the Letter Agreements contain a material inaccuracy.
6.4 DISSOLUTION; INSOLVENCY. (i) Debtor shall commence any case, proceeding, or other action (A) under any existing or future law or any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, or relief of debtors, seeking to have an order
for relief entered with respect to it, or seeking to adjudicate it a bankrupt
or insolvent, or seeking reorganization, arrangement, adjustment, winding up,
liquidation, dissolution, composition, or other like relief with respect to it
or its debts, or (B) seeking appointment of a receiver, trustee, custodian, or
other similar official for it, or for all or any substantial part of its
assets, or make a general assignment for the benefit of its creditors; or (ii)
there be commenced against Debtor any case, proceeding or other action of a
nature referred to in clause (i) above which (A) results in the entry of an
order for relief or any such adjudication or appointment, or (B) remains
dismissed, undischarged, or unbonded for a period of thirty (30) days; or
(iii) there be commenced against Debtor any case, proceeding, or other action
seeking issuance of a warrant of attachment, execution, restraint or similar
process against all or any substantial part of its assets which results in the
entry of an order for any such relief which shall not have been vacated,
discharged, stayed or bonded pending appeal within thirty (30) days from the
entry thereof; or (iv) any action be taken by Debtor in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts
set forth in clause (i), (ii) or (iii) above.
6.5 DISCONTINUANCE OR CHANGE OF BUSINESS. Debtor shall discontinue its business or materially change the nature or scope of its business.
6.6 CESSATION OF TRADING. Shares of common stock of Debtor shall cease being listed on NASDAQ's Over the Counter Bulletin Board.
6.7 LITIGATION. There shall have been filed a lawsuit against Debtor alleging potential money damages in excess of $100,000 or any governmental agency shall have instituted proceedings against Debtor in which its total monetary exposure exceeds $100,000.
6.8 SEC ORDERS, ETC. The Securities and Exchange Commission or any other state securities agency shall have issued an order against Debtor in which it is ordered to cease and desist from engaging in any improper conduct.
7. REMEDIES. Upon the occurrence of any Event of Default and at any time thereafter, Secured Party shall have and may exercise the following rights and remedies, without further notice to Debtor:
7.1 ACCELERATION. Declare the Note to be immediately due and payable, whereupon the same shall become forthwith due and payable.
7.2 ALL LEGAL REMEDIES. Proceed to enforce and exercise any and all rights and remedies which Secured Party may have under this Security Agreement or applicable law, including, without limitation: (i) commencing one or more actions against Debtor and reducing the claims of Secured Party against Debtor to judgment, and (ii) foreclosure or other enforcement of Secured Party's security interest in the Collateral, or any portion thereof, or other enforcement of Secured Party's rights and remedies in respect of and to recover upon the Collateral, through judicial action or otherwise, including all available remedies under the applicable provisions of the Oklahoma Uniform Commercial Code.
7.3 DISPOSITION. Sell, lease or otherwise dispose of the Collateral at private or public sale, in bulk or in parcels and, where permitted by law, without having the Collateral present at the place of sale. Secured Party will give Debtor reasonable notice of the time and place of any public sale or other disposition thereof or the time after which any private sale or disposition thereof is to be made. The requirements of reasonable notice shall be met if such notice is given to Debtor at least five (5) business days before the time of any such sale or disposition. Secured Party shall not be obligated to make any such sale pursuant to any such notice. Secured Party may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned.
7.4 COSTS AND EXPENSES. Recover from Debtor an amount equal to all reasonable costs, expenses and attorney's fees incurred by Secured Party in connection with the exercise of the rights contained or referred to herein, together with interest on such sums at the post-default rate applicable to the Note from time to time.
8. APPLICATION OF PROCEEDS. All monies collected by Secured Party upon the sale of the Collateral hereunder, together with any other monies received by Secured Party hereunder, shall be applied by Secured Party to the payment of all costs and expenses reasonably incurred by Secured Party in connection with such sale, the delivery of such Collateral or the collection of any such monies (including, without limitation, reasonable attorney's fees and expenses), and the balance of such monies shall be applied by Secured Party to the payment of the Indebtedness, and the remainder, if any, shall be returned to Debtor.
9. TERMINATION. This Security Agreement shall terminate upon payment in full of the Indebtedness.
10. MISCELLANEOUS.
10.1 CUMULATIVE REMEDIES. No failure on the part of Secured Party to exercise and no delay in exercising any right under this Security Agreement shall operate as a waiver thereof, nor shall any single or partial exercise by Secured Party of any right hereunder preclude any other or further right of exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not alternative.
10.2 NOTICES. All notices, requests and demands shall be served by registered or certified mail or personal delivery as follows:
DEBTOR: Heartsoft, Inc.
3103 North Hemlock
Broken Arrow, OK 74012
Attn: Chief Executive Officer
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SECURED PARTY: The Glenn A. Chalker Revocable Trust
dated June 15, 1993
Attn: Glenn A. Chalker, Trustee
With a Copy to: Del L. Gustafson
Hall, Estill, Hardwick, Gable, Golden & Nelson
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or at such other address as Debtor or Secured Party shall designate for such purpose in a written notice to the other party hereto and shall be effective and deemed given three (3) business days after deposit in the U.S. Mail, first class postage prepaid or when personally delivered.
10.3 INTERPRETATION. This Security Agreement shall be deemed to be a contract made under the laws of the State of Oklahoma and shall be construed in accordance with the laws of said State (without regard to its conflicts of laws principles). The descriptive headings of the sections of this Security Agreement are for convenience only and shall not be used in the construction of the content of this Security Agreement.
10.4 BINDING EFFECT. This Security Agreement shall be binding on Debtor and its successors and assigns and shall be binding on and inure to the benefit of Secured Party and his respective successors and assigns.
10.5 SEVERABILITY. In the event ay one or more of the provisions contained in this Security Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof.
10.6 AMENDMENT. This Security Agreement cannot be amended except by an agreement in writing signed by the party or parties against whom enforcement of any waiver, change, modification or discharge is sought.
10.7 COUNTERPARTS. This Security Agreement shall be executed in multiple counterparts, each of which when duly executed and delivered shall be an original but such counterparts shall together constitute but one and the same instrument.
10.8 ASSIGNMENT. This Security Agreement, the Note and the Letter Agreements may not be assigned, transferred or assumed without the prior written consent of all parties hereto.
[END OF PAGE - SIGNATURES ON FOLLOWING PAGE.]
IN WITNESS WHEREOF, Debtor has executed and delivered this Security Agreement to and in favor of Secured Party on the day and year first above written.
"DEBTOR"
HEARTSOFT, INC.
By /s/ Benjamin Shell
---------------------------------------
Benjamin Shell, Chairman and CEO
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ACCEPTED AND AGREED:
"SECURED PARTY"
THE GLENN A. CHALKER REVOCABLE TRUST
DATED JUNE 15, 1993
By: /s/ Glenn A. Chalker
---------------------------------------
Glenn A. Chalker, Trustee
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EXHIBIT 10.67
AMENDED AND RESTATED
CONVERTIBLE PROMISSORY NOTE
$300,000 June 14, 2001
FOR VALUE RECEIVED, the undersigned, HEARTSOFT, INC., a Delaware corporation ("Heartsoft"), promises to pay to THE GLENN A. CHALKER REVOCABLE TRUST DATED JUNE 15, 1993 ("Holder"), on the earlier of August 5, 2001, or five (5) business days after Heartsoft shall have received total financing (debt and/or equity) subsequent to the date of this Note in an amount equal to or in excess of $1,500,000, at such place as may be designed in writing by Holder, the principal sum of Two Hundred Fifty Thousand and No/100 Dollars ($250,000), or if less, the aggregate outstanding unpaid principal amount, together with interest thereon from the date hereof until maturity at a per annum rate equal to 6.15%, and Heartsoft promises to pay to Holder on or before February 8, 2002, at such place as may be designated in writing by Holder, the sum of Fifty Thousand and no/100 Dollars ($50,000), or if less, the aggregate outstanding unpaid principal amount, together with interest thereon from the date of funding specified in that certain Letter Agreement by and between Heartsoft and Holder dated June 14, 2001, until maturity at a per annum rate equal to 6.15%.
Holder agrees to advance to the undersigned the principal sum of this Note as follows: $75,000 on January 24, 2001, $175,000 on February 5, 2001 and $50,000 on June 14, 2001.
Subject to and upon compliance with the provisions hereof, the Holder of this Note may at his option convert the unpaid principal amount of this Note, or any portion thereof, into such number of full paid and non-assessable shares of Common Stock (hereinafter defined) as are issuable pursuant to the Conversion Rate set forth below. Except as provided in (a) below, no adjustment shall be made for interest accrued on the principal of this Note or any portion thereof that shall be converted or for dividends on any shares of Common Stock that shall be issuable upon conversion, but all interest accrued but unpaid on any principal of this Note up to the date of conversion shall be paid to the converting holder.
The basic Conversion Rate shall be one (1) share of Common stock for each $0.666666 in principal amount of Note surrendered for conversion. The Conversion Rate shall be subject to adjustment from time to time as follows:
(a) In case Heartsoft shall (i) pay a dividend in shares of its Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares, or (iv) issue by reclassification of its shares of Common Stock any shares of its capital stock, the Conversion Rate in effect immediately prior thereto shall be adjusted so that the holder of the Note shall be entitled to receive upon conversion the number of shares that it would have been entitled to receive after the happening of such event had the Note been converted immediately prior to such event.
(b) In case of any consolidation of Heartsoft with or merger into another corporation, or in the case of any sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of Heartsoft to another corporation, or in case of any reorganization of Heartsoft, the Holder of this Note shall have the right thereafter to convert this Note into the kind and amount of shares of stock and other securities and properties which would have been deliverable to such holder upon such consolidation, merger, sale, conveyance, exchange, transfer or reorganization if such holder had converted this Note into Common Stock immediately prior to such event.
(c) Except with respect to any of the events referred to in paragraphs (a) and (b) above (which are herein called "Extraordinary Common Stock Events"), in the event during the period from and after the date hereof until August 5, 2001 Heartsoft shall issue Additional Shares of Common Stock (as defined below), (including Additional Shares of Common Stock deemed to be issued pursuant to paragraph (d) below), for a consideration per share less than the Conversion Rate (initially $0.666666 per share) in effect on the date of and immediately prior to such issue, then and in each such event, the Conversion Rate shall be reduced, concurrently with such issue of shares, to the consideration per share actually received by Heartsoft for such Additional Shares of Common Stock.
For purposes of this paragraph (c), the consideration received by Heartsoft for the issue (or deemed issue) of any Additional Shares of Common Stock shall be computed as follows:
(i) Insofar as it consists of cash, such consideration shall consist of the aggregate amount of cash received by Heartsoft excluding amounts paid or payable for accrued interest or accrued dividends. Insofar as it consists of property other than cash, such consideration shall be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors of Heartsoft. In the event Additional Shares of Common Stock are issued together with other securities or other assets of Heartsoft for consideration which covers both, such consideration shall be the proportion of such consideration so received, computed as determined in good faith by the Board of Directors of Heartsoft.
(ii) The consideration per share received by Heartsoft for Additional Shares of Common Stock deemed to have been issued pursuant to paragraph (d) below shall be determined by dividing the total amount, if any, received or receivable by Heartsoft as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration payable to Heartsoft upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by the maximum number of shares of Common Stock issuable
upon the exercise of such Options or the conversion or exchange of such Convertible Securities.
(d) In the event Heartsoft at any time or from time to time after the date hereof until August 5, 2001 shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the following shall apply:
(i) The maximum number of shares of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date; provided, that if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any change in the minimum amount of consideration payable to Heartsoft, or any change in the maximum number of shares of Common Stock issuable upon the exercise, conversion, or exchange thereof other than changes which may occur as a result of anti-dilution provisions (for each of which the Conversion Rate shall be readjusted based on these adjustment provisions when each such change is effective), the consideration per share for shares of Common Stock issuable pursuant to such Options or Convertible Securities shall be the minimum consideration per share that could at any time result, taking into consideration all subsequent changes in the minimum amount of consideration payable to Heartsoft and/or in the maximum number of shares of Common Stock issuable upon the exercise, conversion, or exchange; and provided further, that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share of such Additional Shares of Common Stock would be less than the Conversion Rate in effect on the date of and immediately prior to such issue or such record date.
(ii) No further adjustment in the Conversion Rate shall be made upon the subsequent issue of Convertible Securities or of shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities.
(iii) Upon the expiration, termination or cancellation (in each case without the payment of value by Heartsoft) of any such Options or any rights of conversion or exchange of such Convertible Securities which shall not have been exercised, the Conversion Rate computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed (provided that recomputation shall not affect
any shares of Common Stock issued upon the exercise of the Note prior to such exercise or expiration) as if:
(A) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by Heartsoft for the issue of all such Options that were exercised plus the consideration actually received by Heartsoft upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by Heartsoft upon such conversion or exchange; and
(B) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by Heartsoft for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by Heartsoft for the issue of all such Options that were exercised, plus the consideration deemed to have been received by Heartsoft upon the issue of the Convertible Securities with respect to which such Options were actually exercised.
(iv) If Additional Shares of Common Stock were issued between the original adjustment date and the readjustment date (other than shares of Common Stock issued upon exercise of the Options or conversion of the Convertible Securities that are the subject of the readjustment), the Conversion Rate on the readjustment date shall be recomputed by treating the readjusted Conversion Rate as the Conversion Rate in effect on the original adjustment date and adjusting such Conversion Rate for all issuances of Additional Shares of Common Stock (other than shares of Common Stock issued upon exercise of the Options or conversion of the Convertible Securities that are the subject of the readjustment) occurring between the original adjustment date and the readjustment date.
(e) As used herein, the terms set forth below shall have the following meanings:
"Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or deemed to be issued) by Heartsoft other than shares of Common Stock issued in connection with an Extraordinary Common Stock Event and other than shares of Common Stock issued or issuable at any time upon conversion of any indebtedness under this Note or pursuant to presently outstanding (i) options, warrants to purchase shares of Common Stock or (ii) Convertible Securities convertible into shares of Common Stock.
"Convertible Securities" shall mean any securities of Heartsoft convertible into or exchangeable for (through one or more conversions or exchanges) shares of Common Stock except pursuant to presently existing agreements. Convertible Securities shall include any evidences of indebtedness, any capital stock of Heartsoft or other securities convertible into or exchangeable for shares of Common Stock.
"Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either shares of Common Stock or Convertible Securities except for options currently held by or granted hereafter to employees of Heartsoft.
(f) No adjustment in the Conversion Rate shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Conversion Rate; provided, however, that any adjustments which by reason of this subparagraph (f) are not required to be, and are not made, shall be carried forward and take into account in any subsequent adjustment. All calculations under this subparagraph (f) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be.
(g) Whenever the Conversion Rate shall be adjusted as provided herein, Heartsoft shall cause a notice stating the adjustment and the new Conversion Rate to be mailed to the registered holder hereof within thirty (30) days after the end of the calendar quarter in which such adjustment occurs.
The surrender of this Note for conversion shall be made by the registered holder thereof to Heartsoft at its office in Broken Arrow, Oklahoma, and such holder shall give written notice to Heartsoft at said office that he elects to convert this Note in accordance with the provisions hereof. Such notice shall also state the name or names in which the certificate or certificates for Common Stock shall be issued. As soon as practicable after the receipt of such notice and this Note, Heartsoft shall issue and shall deliver at such office to the holder hereof a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of this Note, together with a substitute Note representing that principal portion of this Note, if any, which is not to be converted. Such conversion shall be deemed to have been effected on the date on which Heartsoft shall have received such notice and such surrender, and the person or persons in whose name or names any certificate or certificates for Common Stock shall be issuable upon such conversion shall be deemed to become on such date the holder or holders of record of the shares represented thereby.
Every notice of election to convert this Note, or any principal portion thereof, shall constitute a contract between the Holder of this Note and Heartsoft, whereby such holder shall be deemed to subscribe for the amount of Common Stock which it will be entitled to receive upon such conversion and, in payment in satisfaction of such subscription, the surrender of this Note, or a principal portion thereof, and to release Heartsoft from all obligation thereupon (except any accrued and unpaid interest) whereby Heartsoft shall be deemed to agree that the surrender of this Note, or principal portion thereof, and the extinguishment of its obligation thereon shall constitute full payment for the Common Stock so subscribed for and to be issued upon such conversion.
No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note or any portion thereof. If the conversion of this Note or any portion thereof results in a fraction, the amount equal to such fraction shall continue to represent indebtedness of Heartsoft to the holder thereof.
Heartsoft shall at all times reserve and keep available out of its authorized Common Stock the full number of shares of Common Stock deliverable upon conversion of the entire outstanding principal amount of this Note and shall take all such corporate action as may be required from time to time in order that it may validly and legally issue fully paid and non-assessable shares of Common Stock upon conversion of this Note.
For purposes of this Note, the term "Common Stock" shall mean authorized but unissued shares of Heartsoft's common stock, par value $.0005 per share. In case by reason of the operation of subparagraph (b) above, this Note shall be convertible into any other shares of stock or other securities or property of Heartsoft, or of any other corporation, any reference herein to the conversion of this Note shall be deemed to refer to and include conversion of this Note into such other shares of stock or other securities or property.
While any default exists hereunder, the entire unpaid balance of principal and accrued interest shall, from the date of such default, thereafter bear interest at 15% per annum until paid.
Upon default in any of the terms or conditions of this Note, those certain Letter Agreements dated January 24, 2001 and June 14, 2001, 2001 by and between the undersigned and Holder or of the Amended and Restated Security Agreement of even date, at the option of the Holder, the entire indebtedness hereby evidenced shall become due, payable and collectible then or thereafter as the Holder may elect, regardless of the date of maturity hereof.
The undersigned agrees that if, and as often as, this Note is placed in the hands of an attorney for collection or to defend or enforce any of the Holder's rights hereunder, the undersigned will pay to the Holder its reasonable attorney fees, together with all court costs and reasonable expenses paid by Holder.
This Note is to be construed according to the laws of the State of Oklahoma.
The makers, endorsers, sureties, guarantors and all other persons who may become liable for all or any part of this obligation severally waive presentment for payment, protest and notice of nonpayment. Said parties consent to any extension of time (whether one or more) of payment hereof, release of all or any part of the security for payment hereof, or release of any party liable for payment of this obligation. Any such extension or release may be made without notice to any such party and without discharging said party's liability hereunder.
The undersigned may prepay this Note in whole or in part at any time from time to time without premium or penalty but with interest to the date of payment on the amount prepaid. Heartsoft shall give holder at least five (5) business days advance written notice of any proposed prepayment.
This Note is secured by a security interest in certain collateral pursuant to an Amended and Restated Security Agreement of even date. This Note, the Amended and Restated Security Agreement, those certain Letter Agreements dated January 24, 2001 and June 14, 2001, 2001 by and between the undersigned and Holder shall govern the rights of the parties hereto and thereto.
This Note is registered and may be transferred only by transfer recorded on the books of Heartsoft. Heartsoft shall cooperate with the Holder in effecting any transfer which does not violate the securities laws as set forth below.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE SECURITIES LAWS. IT MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR COMPLIANCE WITH AN EXEMPTION FROM SUCH REGISTRATION. THE HOLDER, BY ACCEPTANCE HEREOF, AGREES TO PROVIDE HEARTSOFT WITH SUCH DOCUMENTS AND ASSURANCES AS HEARTSOFT MAY REQUEST WITH RESPECT TO COMPLIANCE WITH THE FOREGOING RESTRICTIONS PRIOR TO REGISTRATION OF ANY PURPORTED TRANSFER OR ASSIGNMENT OF THIS NOTE.
Executed on this 14th day of June, 2001.
"HEARTSOFT"
HEARTSOFT, INC.
By /s/ Benjamin Shell
--------------------------------
Benjamin Shell, Chairman and CEO
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ACCEPTED AND AGREED
"HOLDER"
THE GLENN A. CHALKER REVOCABLE
TRUST DATED JUNE 15, 1993
By: /s/ Glenn A. Chalker
----------------------------------------
Glenn A. Chalker, Trustee
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EXHIBIT 10.68
FINDER'S FEE AGREEMENT
COME NOW, Heartsoft, Inc. (hereinafter "Offeror"), whose address is 3101 North Hemlock Circle, Broken Arrow, OK 74012 and Eugene Targosz (hereinafter "Finder"), whose address is 2241 South 15th Place, Phoenix, AZ 85034, in furtherance of the mutual purpose of soliciting customers and marketing the products by Offeror do hereby agree, as follows:
1. REPRESENTATIONS AND AUTHORIZATION. Offeror agrees that Finder is authorized to represent Offeror to QVC-NORTH AMERICA to sell to potential customers of Offeror, its software product entitled "INTERNET SAFARI".
2. COMPENSATION. Offeror agrees to compensate Finder for such completed sales as result from any introduction, initial contact, solicitation program or other marketing effort made by Finder. In consideration for completed sales, Offeror shall compensate and pay to Finder the following fee:
A. Fixed commission of % of any sale amount to buyer that will be paid within ten (10) days at month's end.
B. Vested stock/ownership interest of % restricted Rule 144 common shares based on monthly sales of Offeror product. The execution price for calculations shall be based upon the average closing ask price of the last three trading sessions. Common shares will have piggy bank rights on the next Offeror registration.
3. EFFECTIVE DATE AND TERM. It is agreed by both parties that this Agreement is effective on and after the date both parties execute it and that it shall extend perpetually. Furthermore, Offeror agrees that any sale which is completed within ten (10) years of the termination of this Agreement and which results from Finder's efforts during the term of this Agreement shall also be subject to the compensation agreed to in Article 2 of this Agreement.
4. RIGHT TO REFUSE SALES. Offeror shall not be required to accept sales, which result from Finder's efforts, but shall pay compensation to Finder for only those sales which are accepted and which are completed.
5. ENTIRETY. This Agreement represents the entire agreement by and between the parties and may be modified only by a subsequent written agreement signed by both parties.
6. APPLICABLE LAW. The parties agree that this Agreement shall be subject to the application of the laws of the State of Arizona and shall be construed in accordance with the laws of that State.
Company Initial BPS Finder Initial ET
----------- ------------------
Date 07/10/01 Date 06/27/01
--------- ---------
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WITNESS the signatures of the parties hereto, this the 28th day of June, 2001.
Company
By: Benjamin Shell Date 07/10/01
----------------------------------- ----------------------
Name: Benjamin Shell Title: Chairman/CEO
Company: Heartsoft, Inc.
Address: 3101 North Hemlock Circle
City: Broken Arrow
State: Oklahoma Zip/Postal Code: 74012
Country: U.S.A.
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Finder
By: Eugene Targosz Date 06/27/01
--------------------------- ----------------------
Name: Eugene Targosz Title: NA
Company: SBI Strategic Business
Initiatives, Inc.
Address: 2241 South 15th Place
City: Phoenix
State: Arizona Zip/Postal Code: 85034
Country: U.S.A.
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EXHIBIT 10.69
SECOND EXTENSION AGREEMENT
This Second Extension Agreement is made and entered into this 9th day of July, 2001, by and between June Limited Partnership and the Alan W. Carlton Revocable Living Trust (collectively "Investors") and Heartsoft, Inc. ("Heartsoft") and Benjamin P. Shell, Jr. ("Shell");
WHEREAS, Investors, Heartsoft and Shell previously entered into two Promissory Notes dated November 9, 2000 (the "Promissory Notes") and a Joint Security Agreement dated November 9, 2000 (the "Joint Security Agreement"), which agreements memorialize the conditions, representations and warranties pursuant to which Investors have loaned money to or invested money in Heartsoft and certain related collateral; and
WHEREAS, Investors, Heartsoft and Shell, both individually and as a representative of Heartsoft, entered into an Extension Agreement and Amendment to Joint Security Agreement dated May 9, 2001 (the "First Extension Agreement'), which, among other things, extended the term of the Promissory Notes and the Joint Security Agreement to July 9, 2001; and
WHEREAS, Heartsoft and Shell, both individually and as a representative of Heartsoft, have requested additional time to arrange for the repayment of the Promissory Notes and to make stock registration filings with the Securities and Exchange Commission (the "SEC"); and
WHEREAS, the signatories hereto agree to such extensions on the terms and conditions stated herein.
NOW, THEREFORE, for and in consideration of the benefits to be received by Investors, Heartsoft and Shell by virtue of the terms of this Second Extension Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by all signatories, the parties agree as follows:
1. Heartsoft and Shell jointly and severally reaffirm the representations and warranties made in the Promissory Notes, and the Joint Security Agreement (as amended), and further warrant that neither of them shall take any action or commit any act from the date hereof which is in violation of any of the provisions of either the Promissory Notes, the Joint Security Agreement (as amended) or this Second Extension Agreement.
2. The payment date of the Promissory Notes and all provisions of the Joint Security Agreement (as amended) are extended and shall now be due and payable on August 9, 2001. Interest on each of the Promissory Notes is agreed to be the rate of percent ( %) per annum from and after May 9, 2001. Any future breach by either Heartsoft or Shell of the representations, warranties, covenants or terms of the Promissory Notes, the Joint Security Agreement (as amended), the First Extension Agreement or this Second Extension Agreement shall cause an immediate default of the Promissory Notes.
3. Heartsoft shall cause shares of the par value $0.0005 per share common stock of Heartsoft (the "Shares") to be issued and transferred to each of the Investors within three (3) business days of the execution of this Second Extension Agreement. Heartsoft agrees to take all necessary action to cause the issuance of the Shares, including the issuance of appropriate instructions to its transfer agent.
4. Heartsoft shall, no later than August 31, 2001, file with the SEC a registration statement of its common stock which shall include the registration of the following shares of Heartsoft common stock owned by Investors: (i) the Shares; (ii) the 150,000 shares each Investor received in conjunction with the First Extension Agreement; (iii) the 125,000 shares each Investor received in conjunction with the origination of the Promissory Notes, and (iv) the 100,000 shares each Investor acquired August 31, 2000. Upon the approval of such registration statement by the SEC, the restrictive legend shown upon the certificate for such shares shall be removed, and Investors shall be eligible to sell said shares in the open market.
5. The provisions of this Second Extension Agreement may be waived only in writing, which writing must be executed and delivered by Investors prior to any act or failure to act to which any such waiver is contended to apply.
6. This Second Extension Agreement is not a resolution or waiver of any claims which may have accrued to Investors prior to the date of this Second Extension Agreement.
7. This Second Extension Agreement and the terms and obligations hereunder shall be interpreted and construed to be applicable to all of the related entities or corporations of Heartsoft, of whatever nature, and that none of the signatories hereto will attempt to evade the spirit and purpose of this Second Extension Agreement by allowing, utilizing or encouraging any other party to institute action, legal or otherwise, regarding the subject matter of the Promissory Notes, the Joint Security Agreement (as amended), the First Extension Agreement or this Second Extension Agreement during the extension period described herein.
8. This Second Extension Agreement shall be governed by Oklahoma law. Venue for the commencement of this action shall be in any state district court for any county in Oklahoma, at the election of Investors.
9. Except as specifically modified herein, the provisions of the Promissory Notes, the Joint Security Agreement (as amended) and the First Extension Agreement remain if full force and effect.
10. This Second Extension Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof, and shall not be amended or modified without the written consent and agreement of all signatories hereto.
11. All signatories hereto expressly acknowledge that they have had the opportunity to consult with counsel of their choosing prior to the execution of this Second Extension Agreement.
12. To induce Investors to enter into this Second Extension Agreement, Heartsoft and Shell hereby represent and warrant to Investors as follows:
A. Heartsoft is a corporation validly existing and in good standing under the laws of the State of Delaware and has the requisite power and authority to own or lease its properties and to carry on its business as it is now being conducted. Heartsoft has the requisite power and authority to issue the Shares and to perform its obligations under this Second Extension Agreement.
B. The Shares, when issued and delivered pursuant to terms of this Second Extension Agreement, will be duly authorized, validly issued, fully paid and nonassessible.
C. This Second Extension Agreement and the issuance of the Shares contemplated hereby have been duly authorized by all necessary action on behalf of Heartsoft. This Second Extension Agreement has been duly executed and delivered by authorized officers of Heartsoft, is a valid and binding agreement on the part of Heartsoft and is enforceable against Heartsoft and Shell in accordance with its respective terms. All actions necessary to cause the authorization, issuance and delivery of the Shares as contemplated by this Second Extension Agreement have been taken by Heartsoft.
13. Investors, Heartsoft and Shell agree that each will execute such other documents as may be necessary or desirable in connection with the transactions contemplated hereby.
JUNE LIMITED PARTNERSHIP
By: /s/ Robert K. Pezold
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Robert K. Pezold, General Partner
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ALAN W. CARLTON REVOCABLE LIVING TRUST
By: /s/ Alan W. Carlton
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Alan W. Carlton, Trustee
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HEARTSOFT, INC.
By: /s/ Benjamin P. Shell
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Benjamin P. Shell, President
/s/ Benjamin P. Shell
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Benjamin P. Shell, Individually
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EXHIBIT 10.70
CORPORATE NOTE
JULY 13, 2001
FOR VALUE RECEIVED, the Heartsoft, Inc. promises to pay to the order of:
Mr. Tim Bakamjian Tulsa, Oklahoma
the sum of $25,000 (twenty-five thousand dollars), with interest from the date written above until paid; at the rate of eight percent (8%) per annum.
This Note, together with all interest due, is payable in thirty (30) days from the date written above.
Heartsoft shall reserve the right to prepay the principle of this Note, together with all such accrued interest at the time of prepayment in whole or in part prior to its due date without premium or penalty.
Heartsoft, signers, and endorsers of this Note severally waive demand, presentment, notice of dishonor, diligence in collection and notice of protest and agree to all extensions and partial payments before or after maturity, without prejudice to the holder. This written Note represents the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties.
Heartsoft, Inc.
by: /s/ Benjamin P. Shell
---------------------------
Chief Executive Officer
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EXHIBIT 10.71
CONTRACT
This Agreement is made and entered into this 18th day of July 2001, by and between Heartsoft, Inc. (HTSF), located at 3101 North Hemlock Circle, Broken Arrow, Oklahoma 74012 and The Wells Group, Inc. (Wells), located at 10245 E. Via Linda, Suite 225, Scottsdale, Arizona 85258.
Whereas HTSF desires to retain WELLS and WELLS agrees to provide its specialized services to HTSF for a period of six (6) months ending January 18, 2002.
Now therefore, in consideration of the promises and mutual covenants and agreements the parties agree as follows:
1. HTSF appoints WELLS to provide its services for a six (6) month period but can be cancelled any time after the second month with thirty (30) days written notice of cancellation by HTSF.
2. During the term of its retention, WELLS agrees to provide financial public relations, which duties will include, but not necessarily be limited to:
2.1 Disseminating information about (HTSF) to the investment community at large, through the preparation of company and industry reports and that inclusion of HTSF on MCNN's publications and radio broadcasts.
2.2 Assisting with the company's financial public relations and helping create an investor awareness program. Wells will assist HTSF in deploying the investor program and will field investor questions on behalf of HTSF.
2.3 Assisting in the introduction of the following:
2.3.1 Broker Syndication 2.3.2 Market Making 2.3.3 Investor Groups |
2.4 Rendering advice with regard to internal operation and structure, including:
2.4.1 Formation and implementation of corporate goals.
2.4.2 The company's financial structure, its divisions and
subsidiaries.
2.4.3 Corporate organization and personnel.
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2.5 Rendering advise with regard to corporate finance matters, including:
2.5.1 Changes in capitalization of the company.
2.5.2 Redistribution of shareholding of the company's stock.
2.5.3 Offerings of securities in public and private
transactions.
2.5.4 Structure and use of debt.
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3. COMPENSATION |
HTSF agrees to pay the full compensation to WELLS in the following manner:
3.1 Upon execution of this Agreement, shares of restricted stock will be issued immediately to the Wells Group, Inc.
3.2 Upon execution of the Agreement, and additional shares of restricted stock will be placed in escrow for a 60-day period. At HTSF's option, this escrow will be closed and these shares transferred to the Wells Group, Inc. at the beginning of the third month as payment for the last four months of this six (6) month contract. HTSF agrees to provide the Wells Group "piggy back rights" in all shares issued for payment of services.
3.3 In addition, starting on the third month and continuing for the next three months, HTSF will pay the Wells Group a cash payment of $ (totaling $ for four months).
3.4 The Wells Group will do its best to raise $250,000.00 of additional investment for HTSF and if its successful, a fee equal to % of the funds raised will be paid by HTSF to the Wells group at closing.
3.5 Reimbursement of any out of pocket expense incurred by WELLS that exceeds DOLLARS in a calendar month. (Note: HTSF must approve any individual out of pocket expense that exceeds dollars.
4. INDEMNIFICATION
4.1 HTSF hereby agrees to indemnify and hold WELLS harmless to the maximum extent permitted by applicable law and the by-laws of HTSF, against all loses, claims, liens, damages, liabilities, costs, charges and expenses, including, without limitation, the costs of investigating, preparing, defending or settling any action, suit, claim or proceeding or threatened action, suit, claim or proceeding, whether civil, criminal, administrative or investigative, including, without limitation, attorney's fees, incurred or sustained by WELLS in connection with (i) any misrepresentation of HTSF herein or breach of any covenant of HTSF, and (ii) any suit, action, claim or proceeding to which it is, or may be made, party by reason of its being a party to and performing under this Agreement; provided however, that any action, suit, claim or proceeding shall not be a result of WELLS finally adjudicated negligence or willful misconduct. If Wells is required to act on HTSF's behalf under the provisions of this agreement, it will be done so only with the express written consent of HTSF. Without such consent, Wells will not be authorized to act on behalf of HTSF.
4.2 WELLS hereby agrees to indemnify and hold HTSF, it officers, employees, directors, shareholder and agents (collectively "HTSF Indemnities") harmless to the maximum extent permitted by applicable laws against all losses, claims, liens, damages, liabilities, cost, charges and expenses, including, without limitation the costs of investigating, preparing, or defending any action, suit, claim or proceeding or threatened action, suit, claim or proceeding, whether civil, criminal, administrative or investigative, including without limitation, attorney's fees, incurred or sustained by any HTSF Indemnity in connection with (i) any misrepresentation of WELLS herein or breach of any covenant of WELLS, and (ii) any such action, suit, claim or proceeding, to which it is, or may be made, a party by reason of WELLS negligence of willful conduct in the performances of its Services under the Agreement.
5. MISCELLANIOUS
5.1 Notices All notices, requests, consents and other communications required or permitted to be given hereunder, shall be in writing and shall be deemed to have been duly given if delivered by registered or cert. First class mail, postage paid (notices dent by telegram or mailed shall be deemed to have been given on the date sent), to the parties at their respective address herein above set forth or to such other address as either party shall designate by notice in writing to the other in accordance herein.
5.2 Governing Law This Agreement shall be governed by and construed and enforced in accordance with the local laws of the State of Arizona applicable to all agreements made and performed. This Agreement shall be governed in all respects and for all purposes by the laws of the State of Arizona and the Courts of State of Arizona shall have jurisdiction to enforce any Order of award obtained in arbitration. If any provision of this Agreement shall be declared void or against public policy, such provision shall be deemed severed from its Agreement and the remaining provisions shall remain if full force and effect and unmodified.
5.3 Entire Agreement This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supercedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof. No representation, promise or inducement has been made by any party that is not embodied in this Agreement, and no party shall be bound by or liable for any alleged representation, promise or inducement not so set forth.
5.4 Assignability
This Agreement, and the various parties' rights and obligation hereunder may not be assigned without the written permission of the other party.
5.5 Amendment The Agreement may be amended, modified, supersede, renewed or extended and the terms or covenants hereof may be waived, only by written instrument executed by all parties hereto who are thereby affected, or in the case of a waiver, by the party waiving the compliance. No superseding instrument, amendment, modification, cancellation, renewal or extension hereof shall require the consent of any person other than the parties hereto. The failure by any party at any time or times to require performance of any provision hereof shall in no matter affect the right at later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.
5.6 Termination This Agreement may be terminated by either party for any reason by providing the other party with thirty (30) days written notice after the (2nd) month.
IN WITNESS WHEREOF, the parties hereto have executed the Agreement as of the day and year first above written.
For: The Wells Group, Inc. For: Heartsoft, Inc.
By: /s/ Edmond Lonergan By: /s/ Benjamin Shell, Jr.
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Chairman of the Board CEO
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EXHIBIT 10.72
CORPORATE NOTE
JULY 24, 2001
FOR VALUE RECEIVED, the Heartsoft, Inc. promises to pay to the order of:
Mr. Dale L. Hill 5056 West Grove Dallas, Texas 75248
the sum of $50,000 (fifty thousand dollars), with interest from the date written above until paid; at the rate of fifteen percent (15%) per annum.
This Note, together with all interest due, is payable in thirty (30) days from the date written above.
Heartsoft shall reserve the right to prepay the principle of this Note, together with all such accrued interest at the time of prepayment in whole or in part prior to its due date without premium or penalty.
Heartsoft, signers, and endorsers of this Note severally waive demand, presentment, notice of dishonor, diligence in collection and notice of protest and agree to all extensions and partial payments before or after maturity, without prejudice to the holder. This written Note represents the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties.
Heartsoft, Inc.
by: /s/ Benjamin P. Shell
---------------------
Chief Executive Officer
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EXHIBIT 10.73
INTENTIONALLY OMITTED
EXHIBIT 10.74
SOFTWARE DISTRIBUTION AGREEMENT
THIS AGREEMENT is by and between MegaSystems, LP (hereinafter "MEGASYSTEMS") with principle offices at 2150-A Northmont Parkway, Duluth Georgia, 30096, USA and Heartsoft, Inc. (hereinafter "HEARTSOFT"), with principal offices at 3101 North Hemlock Circle, Broken Arrow, OK 74012 USA.
WITNESSETH:
WHEREAS, HEARTSOFT has created, owns, and produces certain computer programs in the form of program packages for use on computer systems and is the owner of documentation, and related information, including the intellectual property rights pertaining thereto; and
WHEREAS, MEGASYSTEMS has successfully established a network and process for the distribution of computer software through a variety of retail channels; and
WHEREAS, HEARTSOFT desires to distribute its computer software products through the retail distribution network established by MEGASYSTEMS; and
WHEREAS, Both parties believe that the relationship established herein will be to their mutual advantage;
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:
1. SERVICES. During the term of this Agreement, MEGASYSTEMS agrees to act as the sales agent for HEARTSOFT for all retail distribution of the HEARTSOFT INTERNET SAFARI-TM- (hereinafter "Safari") software product. In its role as sales agent, MEGASYSTEMS shall actively promote Safari to its retail representatives, retail distributors and retail companies. It is explicitly acknowledged by both parties that MEGASYSTEMS shall not act as the sales agent for Safari within the educational or curriculum marketplaces.
2. TERM. This Agreement shall be for a term of one (1) year, commencing on
July 15, 2001 and ending on July 14, 2002, unless sooner terminated in
accordance with the provisions of this Agreement. Provided that neither
MEGASYSTEMS nor HEARTSOFT has delivered notice to the contrary within thirty
(30) days of the expiration date, this Agreement shall be extended automatically
at the end of the expiration date above for a period of six (6) months under the
same terms and conditions as herein stated. Thereafter, this Agreement shall be
automatically extended for successive six (6) month periods if neither
MEGASYSTEMS nor HEARTSOFT provides termination notice to the other within thirty
(30) days of each applicable extension period.
3. DUTIES OF MEGASYSTEMS. MEGASYSTEMS shall use its best efforts to promote distribution of Safari throughout its retail distribution channels. MEGASYSTEMS will act as the
primary point of contact with its network of retailers, distributors, representatives and agents (the "retail distribution network"). This would include (but not be limited to) such activities as:
a) Distribution of samples and sales literature
b) Basic product education
c) Coordination of special sales promotions (all jointly approved with
HEARTSOFT)
d) Accumulation and distribution of sales figures, whenever available
e) Obtaining approval from HEARTSOFT for any "other expenses" (noted in
Section 8 of Agreement) prior to incurring such expenses, examples
being rebate programs, marketing development funds, and promotional
items.
3.1 MEGASYSTEMS shall accept primary responsibility for the processing of orders received from its retail distribution network. MEGASYSTEMS agrees that all orders for Safari are subject to acceptance or rejection by HEARTSOFT. Accordingly, MEGASYSTEMS is hereby granted only the authority to solicit orders for Safari, and has neither expressed or implied authority to accept any order on behalf of HEARTSOFT, or to enter into any written or oral contract or agreement of any nature on behalf of HEARTSOFT, unless so authorized in writing by HEARTSOFT.
3.2 MEGASYSTEMS shall also have lead responsibility for generating invoices to and coordinating payment from the retail distribution network. MEGASYSTEMS will also coordinate and process product returns, although any shipping expense for returned product shall be the responsibility of HEARTSOFT. The goal of these activities is to provide, whenever practical, a single point-of-contact for the retail distribution network. MEGASYSTEMS agrees that any product in resalable condition will be returned to HEARTSOFT and that when Safari boxes are damaged that the media in the damaged boxes will be removed and returned to HEARTSOFT.
4. DUTIES OF HEARTSOFT. HEARTSOFT shall be responsible for all development, manufacturing and packaging of Safari. HEARTSOFT shall also be responsible for all customer support. This support shall include the operation of a toll-free customer support telephone line during published times.
4.1 HEARTSOFT shall be responsible for generating invoices to MEGASYSTEMS.
4.2 HEARTSOFT shall have the primary responsibility to develop applicable sales literature. MEGASYSTEMS shall assist in the development of such sales literature by supplying HEARTSOFT with samples of other sales literature, and by coordinating input to the sales literature from the retail distribution network.
4.3 As the manufacturer of Safari, HEARTSOFT recognizes and accepts the fact that it may, from time to time, be called upon by MEGASYSTEMS to assist MEGASYSTEMS in the execution of its duties. HEARTSOFT agrees to assist MEGASYSTEMS on a reasonable basis.
5. SHIPPING. Unless other arrangements are made beforehand, all orders for Safari shall be shipped directly from HEARTSOFT's location. HEARTSOFT shall be responsible for all shipping expense for Safari.
6. LICENSE. It is mutually acknowledged that it will be necessary to co-brand the MEGASYSTEMS name onto the Safari packaging to facilitate product distribution through the retail distribution network. MEGASYSTEMS agrees to license HEARTSOFT to add the MEGASYSTEMS name and logo onto the Safari packaging. HEARTSOFT accepts this license and agrees to add the MEGASYSTEMS name and logo to any Safari product delivered to the retail distribution network.
7. COMMISSIONS. HEARTSOFT agrees to pay to MEGASYSTEMS a commission equal to ___ percent ( %) per copy on list price of all net sales of Safari within the retail distribution network as payment for services rendered by MEGASYSTEMS under this agreement. Net Sales shall be defined for purposes of this paragraph as Total Sales of Safari, less any returns.
8. PAYMENTS. Within ten (10) business days following the receipt of payment of one or more Safari invoices, MEGASYSTEMS shall remit to HEARTSOFT the gross payment for Safari product, less an amount equal to any applicable commissions due MEGASYSTEMS, plus any accumulated shipping expenses and any other expenses that have been PRE-APPROVED by HEARTSOFT. See attached Exhibit A for current understanding of pricing, calculation of invoice, MEGASYSTEMS collection of an invoice and deduction of fees and expenses when remitting payment to HEARTSOFT. MEGASYSTEMS agrees to provide reasonable audit access to any relevant portion of its bookkeeping to HEARTSOFT for verification and validation.
9. REPORTING. MEGASYSTEMS routinely receives on a monthly basis a collection of reports from the retail distribution network that reflect "sell to" and "sell through" for certain retail channels. MEGASYSTEMS shall endeavor to forward to HEARTSOFT such information from these reports that relates to Safari within seven (7) business days of receipt by MEGASYSTEMS. Although it cannot guarantee the accuracy or completeness of these reports, MEGASYSTEMS will attempt to insure that HEARTSOFT receives the best available information.
10. TERMINATION. Either party hereto may, without prejudice to any right or remedy it may have due to any failure of the other party to perform its obligations hereunder, terminate this Agreement at any time upon sixty (60) days written notice hereof. In the event of such termination by Heartsoft, MEGASYSTEMS shall be entitled to payment for services performed, shipping charges paid or incurred, pre-approved expenses paid or incurred, commissions earned prior to the effective date of the termination as well as commissions due for a period of ninety (90) days following the effective date of termination. Additionally, HEARTSOFT shall be entitled to payment from MEGASYSTEMS until all sales conducted under the terms of this Agreement have been fully paid.
11. DEFAULT. A default by either MEGASYSTEMS or HEARTSOFT in the performance of its obligations hereunder shall be grounds for termination of this Agreement.
11.1 In the event of termination by a default on the part of Heartsoft, MEGASYSTEMS shall be entitled to payment for services performed, shipping charges paid or incurred, pre-approved expenses paid or incurred, commissions earned prior to the effective date of the termination as well as commissions due for a period of ninety (90) days following the effective date of termination.
11.2 In the event of a default on the part of MEGASYSTEMS, MEGASYSTEMS shall only be entitled to payment for services performed, shipping charges paid or incurred, pre-approved expenses paid or incurred, and commissions earned prior to the effective date of the termination.
11.3 In addition to the above, both parties shall retain all of their remedies and rights as me be afforded by law.
12. PROPRIETARY RIGHTS AND CONFIDENTIALITY. MEGASYSTEMS and its agents and employees shall maintain confidentiality of, and not disclose to others, any confidential or proprietary information of HEARTSOFT which it may now have or may hereafter obtain, including without limitation specifications, technical reports, customer lists and product plans relating to HEARTSOFT's business or products.
13. INDEPENDENT CONTRACTOR STATUS. MEGASYSTEMS, its principals, agents and employees, shall perform all services under this Agreement as "Independent Contractors" and not as employees or agents of HEARTSOFT. MEGASYSTEMS is not authorized to assume or create any obligations or responsibilities, expressed or implied, on behalf of, or in the name of HEARTSOFT, or to bind HEARTSOFT in any manner.
14. INDEMNIFICATION. HEARTSOFT hereby agrees to indemnify and hold harmless MEGASYSTEMS from any costs, expenses, claims, damages, judgments or suits (including reasonable attorney's fees) which may be asserted or levied against MEGASYSTEMS while in the performance of its obligations hereunder; provided same are not occasioned by acts or deeds of fraud or misrepresentation on the part of MEGASYSTEMS. In addition, HEARTSOFT hereby agrees to defend, indemnify and hold MEGASYSTEMS harmless from all losses, damages, liabilities, costs, and expenses (including reasonable attorney's fees) which may be incurred by MEGASYSTEMS as a result of any judgment, or proceeding against HEARTSOFT in which it is determined or alleged that the marketing or use of HEARTSOFT'S products infringe on any patent, copyright, trademark, trade secret or other proprietary or contractual right of any third party, provided that MEGASYSTEMS promptly notifies HEARTSOFT of any such claim or proceeding in writing, surrogate to HEARTSOFT their right to defend and settle such claim or proceeding at HEARTSOFT's expense. MegaSystems agrees to cooperate with HEARTSOFT in defending or settling any such claim or proceeding.
MEGASYSTEMS hereby agrees to indemnify and hold harmless HEARTSOFT from any costs, expenses, claims, damages, judgments or suits (including reasonable attorney's fees) which may be asserted or levied against HEARTSOFT while in the performance of its obligations hereunder; provided same are not occasioned by acts or deeds of fraud or misrepresentation on the part of
HEARTSOFT with the exception of costs, expenses, claims, judgments or suits that HEARTSOFT'S products infringe on any patent, copyright, trademark, trade secret or other proprietary or contractual right of any third party.
15. NOTICES. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other part at the address shown above, or at such other address or addresses as either party may designate in writing to the other in accordance with this paragraph.
16. PRONOUNS. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular shall include the plural, and vice versa.
17. ENTIRE AGREEMENT. This Agreement and the Addenda and Schedules attached hereto (if any) shall constitute the entire agreement between the parties and supercedes all prior agreements and understanding, whether written or oral, relating to the subject matter of this Agreement.
18. AMENDMENTS. This Agreement may be amended or modified only by a written instrument executed by both MEGASYSTEMS and HEARTSOFT.
19. SUCCESSORS AND ASSIGNS. This Agreement is nontransferable, without prior written consent of both parties, and may not be assigned to their respective heirs, successors or assigns without this consent.
20. GOVERNING LAW. In the event of any dispute between MEGASYSTEMS and HEARTSOFT, both parties agree that the dispute shall be resolved through arbitration in a neutral State under the auspices of the American Arbitration Association within thirty (30) days following the termination of this Agreement. Any award rendered shall be final and conclusive upon the parties.
21. MISCELLANEOUS.
21.1 No delay or omission by MEGASYSTEMS or HEARTSOFT in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by either party to the other on one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any subsequent occasion.
21.2 The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit, or affect the scope or substance of any section of this Agreement.
21.3 In the event that any provision of this Agreement shall be deemed invalid, illegal or otherwise unenforceable, the validity, legality and enforceability or the remaining provisions shall in no way be affected or impaired thereby.
IN WITNESS THEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as set forth below effective on the date written above.
MEGASYSTEMS, LP HEARTSOFT, INC.
By: /s/ Michael A. Sauter By: /s/ Benjamin P. Shell
-------------------------- ----------------------------------
Name: Michael A. Sauter Name: Benjamin P. Shell
Title: Vice President Title: CEO
Date: August 7, 2001 Date: August 14, 2001
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EXHIBIT 10.75
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT ("Agreement") is made as of the 9th day of August, 2001 by and between Heartsoft, Inc., a Delaware corporation (the "Company"), and Crowe & Dunlevy, A Professional Corporation (the "Purchaser").
WHEREAS, in exchange for a credit against certain legal fees and expenses incurred or to be incurred by the Company and payable to the Purchaser in the amount of $ (the "Legal Fees") as more fully described in a letter agreement of even date herewith between the Company and the Purchaser (the "Letter Agreement"), the Company desires to issue the Shares (as defined below) to the Purchaser; and
WHEREAS, subject to the terms of this Agreement and the Letter Agreement, Purchaser is willing to accept the Shares in full satisfaction and payment of the Legal Fees.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF COMMON STOCK.
1.1 SALE AND ISSUANCE OF COMMON STOCK. The Purchaser hereby agrees to acquire, and the Company hereby agrees to sell and issue to the Purchaser, shares of the Company's common stock, par value $.0005 per share (the "Shares"), at a purchase price of U.S. $ per share, for a total purchase price of U.S. $ (the "Purchase Price"), payable as provided in Section 1.2 below. Contemporaneously with the execution and delivery hereof, the Company shall deliver to the Purchaser a duly executed stock certificate evidencing the Shares.
1.2 CONSIDERATION. Contemporaneously with the execution and delivery hereof, and against delivery of the certificate representing the Shares as provided above, the Purchaser shall enter on its books and records a credit to the account of the Company in the amount of the Legal Fees (and such fees thereby shall be deemed to be paid in full). The entry of such credit shall constitute payment in full of the Purchaser Price hereunder.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to the Purchaser as follows:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business or properties.
2.2 AUTHORIZATION. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the Company hereunder and the authorization, issuance and delivery of the Shares has been taken, and this Agreement constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms.
2.3 VALID ISSUANCE OF SECURITIES. The Shares that are being issued to the Purchaser, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and free of preemptive rights. Based in part upon the representations of the Purchaser in this Agreement, the Shares will be issued in compliance with applicable United States federal and state securities laws.
2.4 COMMISSION DOCUMENTS AND OTHER REPORTS. Since January 1, 2000, the Company has filed all periodic reports required to be filed by it with the Commission (the "Commission Documents"). As of their respective dates, the Commission Documents complied in all material respects with the requirements of the Securities Act or the Securities Exchange Act of 1934, as amended, as the case may be, and none of the Commission Documents contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of the Company included in the Commission Documents complied as to form in all material respects with the applicable accounting requirements and the published rules and regulations of the Commission with respect thereto, were prepared in accordance with GAAP (except, in the case of the unaudited statements, as permitted by the regulations of the Commission) consistently applied throughout the periods involved (except as may be indicated therein or in the notes thereto) and fairly present in all material respects the consolidated financial position, results of operations and cash flows of the Company and its consolidated subsidiaries as of the dates or for the periods indicated therein, subject, in the case of the unaudited statements, to normal year-end audit adjustments and the absence of footnote disclosure.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby represents and warrants to the Company as follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Purchaser is a professional corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted.
3.2 AUTHORIZATION. All corporate action on the part of the Purchaser, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement and the performance of all obligations of the Purchaser hereunder has been taken, and this Agreement constitutes a valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms.
3.3 PURCHASE FOR OWN ACCOUNT; SUBSTANTIAL RISK AND ABSENCE OF LIQUIDITY. The Purchaser is acquiring the Shares solely for the Purchaser's own account, and not with a view to, or for, subdivision, resale, distribution, or fractionalization thereof, or for the account, in whole or in part, of others. The Purchaser recognizes the restrictions on the transferability of the Shares, and is able to bear the substantial economic risk of an investment in the Shares, including a complete loss thereof, for an indefinite period of time. The Purchaser has no need for liquidity in this investment and has no reason to anticipate any change in circumstances, financial or otherwise, or other particular occasion or event which might cause or require the Purchaser to attempt to sell or transfer any of the Shares.
3.4 RESTRICTIONS ON TRANSFER. The Purchaser understands that the sale of the Shares to the Purchaser is intended to be exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), by virtue of Section 4(2) of the Securities Act and applicable state securities laws. The Purchaser will not sell, hypothecate or otherwise transfer any or all of the Shares other than pursuant to a specific exemption from registration under the Securities Act and applicable state securities laws.
3.5 NOT REGISTERED. The Purchaser understands that the Shares are not registered under the Securities Act or applicable state securities laws and such securities must be held indefinitely, unless an exemption from such registration is available. The Company has not undertaken to register the Shares pursuant to the Securities Act and will have no obligation to effect on behalf of the Purchaser any registration under the Securities Act or to assist the Purchaser in complying with any exemption from registration under the Securities Act or any state securities laws.
3.6 LEGENDS. The Purchaser acknowledges that the certificates representing the Shares, and any substitutions or replacements thereof, may bear one or all of the following legends:
(a) "The Shares represented by this certificate have not been registered under the Securities Act of l933, as amended, and may not be sold, hypothecated or otherwise transferred or disposed of in the absence of such registration, unless an exemption from the requirement of such registration is available under the circumstances at the time obtaining."
(b) Any legend required by the applicable securities laws of any state to the extent such laws are applicable to the certificate so legended.
3.7 SUITABILITY. The Purchaser represents and warrants that the Purchaser has substantial knowledge and experience in the making of investments of the type contemplated by this Agreement.
3.8 NO INCONSISTENT REPRESENTATIONS. No oral or written representations have been made or oral or written information furnished to the Purchaser or the Purchaser's advisors in connection with the purchase of the Shares that were in any way inconsistent with the information provided to the Purchaser.
3.9 FORWARD-LOOKING STATEMENTS. The Purchaser understands and acknowledges that the contents of any discussions with Company management and the matters included in any information provided by the Company to the Purchaser may include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. As such, those statements involve known and unknown risks and uncertainties that may cause the actual results in future periods to be materially different from any future performance that the Company presently anticipates or predicts.
3.10 NO GENERAL SOLICITATION. The Purchaser is not purchasing the Shares as a result of or subsequent to any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or presented at any seminar or meeting, or any solicitation of a subscription by a person not previously known to the Purchaser in connection with investments in securities generally.
4. MISCELLANEOUS.
4.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in this Agreement shall survive the consummation of the transactions contemplated by this Agreement.
4.2 FURTHER ASSURANCES. Each party agrees to cooperate fully with the other parties and to execute such further instruments, documents and agreements and to give such further written assurances as may be reasonably requested by any other party to evidence and reflect the purchase and sale of the Shares and to carry into effect the intents and purposes of this Agreement.
4.3 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any right, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
4.4 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Oklahoma without giving effect to its conflict of law principles.
4.5 COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
4.6 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
4.7 NOTICES. Any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified, upon delivery by a nationally recognized overnight courier service, or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed (i) if to the Company, to the offices of the Company at 3101 North Hemlock Circle Broken Arrow, OK 74012 and (ii) if to Purchaser, to the address set forth on the signature page hereto, or, in each case, at such other address as such party may designate by written notice.
4.8 AMENDMENTS AND WAIVERS. Neither this Agreement nor any of its provisions shall be waived, modified, discharged or terminated except by an instrument in writing signed by the party against whom any such waiver, modification, discharge or termination is sought.
4.9 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provisions were so excluded and shall be enforceable in accordance with its terms.
4.10 ENTIRE AGREEMENT. This Agreement and the Letter Agreement collectively constitute the entire agreement between the parties hereto with respect to the subject matter hereof, and supercede any all other written or oral agreements existing between the parties hereto relating to the subject matter hereof.
[SIGNATURES ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
COMPANY:
HEARTSOFT, INC.
a Delaware corporation
By: /s/ Benjamin P. Shell
--------------------------------------
Benjamin P. Shell, Chief Executive
Officer, President and Chairman of the Board
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PURCHASER:
CROWE & DUNLEVY, A PROFESSIONAL
CORPORATION
By: /s/ Gary L. Betow
--------------------------------------
Name: Gary L. Betow
Title: Vice President, Tulsa Administration
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Address:
500 Kennedy Building
321 South Boston Avenue
Tulsa, OK 74103
EXHIBIT 10.76
PROMISSORY NOTE
DATE: AUGUST 10, 2001
FOR VALUE RECEIVED, the Heartsoft, Inc. promises to pay to the order of:
Mr. A.J. Nassif
7229 South 85th East Avenue
Suite 100
Tulsa, Oklahoma 74133
the sum of $3,000 (three thousand dollars), with interest from the date written above until paid; at the rate of eight percent (8%) per annum.
This Note, together with all interest due, is payable in sixty (60) days from the date written above.
Heartsoft shall reserve the right to prepay the principle of this Note, together with all such accrued interest at the time of prepayment in whole or in part prior to its due date without premium or penalty.
Heartsoft, signers, and endorsers of this Note severally waive demand, presentment, notice of dishonor, diligence in collection and notice of protest and agree to all extensions and partial payments before or after maturity, without prejudice to the holder. This written Note represents the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties.
Heartsoft, Inc.
by: /s/ Benjamin P. Shell
------------------------
Chief Executive Officer
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EXHIBIT 10.77
CORPORATE NOTE
AUGUST 10, 2001
FOR VALUE RECEIVED, Heartsoft, Inc. promises to pay to the order of:
Mr. Tim Bakamjian
the sum of $20,000 (twenty thousand dollars), with interest from the date written above until paid; at the rate of eight percent (8%) per annum.
This Note, together with all interest due, is payable in thirty (30) days from the date written above.
Heartsoft shall reserve the right to prepay the principle of this Note, together with all such accrued interest at the time of prepayment in whole or in part prior to its due date without premium or penalty.
Heartsoft, signers, and endorsers of this Note severally waive demand, presentment, notice of dishonor, diligence in collection and notice of protest and agree to all extensions and partial payments before or after maturity, without prejudice to the holder. This written Note represents the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties.
Heartsoft, Inc.
by: /s/ Benjamin P. Shell
Chief Executive Officer
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EXHIBIT 10.78
AUTO & EQUIPMENT LEASING BY FLEX, INC.
7229 SOUTH 85TH EAST AVENUE, SUITE 100
TULSA, OKLAHOMA 74133
EQUIPMENT LEASE
AUTO & EQUIPMENT LEASING BY FLEX, INC. (hereinafter called "Lessor") for valuable consideration, the receipt of which is hereby acknowledged, hereby leases to HEARTSOFT SOFTWARE, INC., AND BENJAMIN SHELL (INDIVIDUAL), 3101 N. HEMLOCK CIRCLE, BROKEN ARROW, OK 74012 (hereinafter called "Lessee"), the following described property, in Schedule "A", attached hereto and made part of this agreement (hereinafter called the "Equipment"), upon the following terms and conditions:
1. Lessee agrees that the equipment shall be delivered to Lessee and shall remain there, and not be removed by Lessee at any time during the term of this lease without the prior written consent of Lessor.
2. The title to the aforesaid described property in Schedule "A" shall remain in the Lessor, the Lessee having only the right to possession and the use thereof during the term of the lease, except as is otherwise provided herein:
3. The lease of said property shall be for a term of 24 months on the following basis:
The sum of $3,467.00 shall be paid upon execution of this lease, as payment of the first month installment. On the 15TH day of NOVEMBER, 2001 , and on the 15TH day of each and every month during the term of this lease, the sum of $3,467.00 shall be paid. Should Lessee make all the said monthly payments as required on or before the due date, with no default, then at the expiration of said term, the Lessee shall have the option to purchase the equipment for $1000.00 by notifying the Lessor of the same, not less than thirty (30) days prior to the expiration of the term of this lease.
4. Lessee promises and agrees to pay all specified lease installments in advance on the date designated for the payment herein without demand. Said lease installments shall be payable at the office of Lessor, or to such other person and/or place as Lessor may from time to time designate in writing.
5. EARLY TERMINATION AND DEFAULT.
a. Provided the lease is not in default, and has been in
effect a minimum of six months, the lease may be terminated prior to its
scheduled termination by giving a 15 day written notice and purchases the
equipment at the purchase option. Price set forth above under the terms
described below.
b. the remaining amount owed is calculated by adding any past
due monthly payments and past due interest owed; any official fees and taxes
imposed in connection with lease termination and fixed monthly lease charges for
the remaining schedule lease term, discounted to rebate any unearned lease
charges based on actuarial method which will be figured taking into
consideration depreciation charges and total lease charges.
6. Lessor may inspect the equipment at any time; and Lessee agrees to keep it in first class condition and repair at Lessee's expense and house the same in suitable shelter; and not to sell or otherwise dispose of his interest therein or in any equipment or accessories attached thereto.
7. Lessee assumes the entire risk of loss or damages to the equipment, whether or not covered by insurance, and no such loss shall relieve the Lessee of its obligations hereunder. Lessee agrees to keep the equipment insured to protect all interests of Lessor, at Lessee's expense against all risks of loss or damage from any cause whatsoever for not less than the unpaid balance of the lease payments due hereunder or the then current value of said equipment, whichever is higher, and in addition shall purchase insurance in an amount reasonable under the circumstances to cover the liability of Lessor for public
liability and property damage. Said insurance policies and the proceeds therefrom shall be the sole property of Lessor and Lessor shall be named as an insured in all said policies and as sole loss payee in the policies insuring the equipment. The proceeds of such insurance, whether resulting from loss or damage or return premium or otherwise, shall be hereunder at the option of Lessor.
8. No title or right in said equipment shall pass to Lessee except the rights herein expressly granted. Plates or other markings will be affixed to or placed on said equipment by Lessor or at Lessor's request, by Lessee at Lessee's expense indicating that Lessor is the owner thereof and Lessee will not remove the same. Said equipment shall always remain and be deemed personal property even though attached to realty. All replacements, accessories or capital improvements made to or placed in or upon said equipment shall become a component part thereof and title thereto shall be immediately vested in Lessor and shall be included under the terms hereof. The Lessee agrees that the Lessor is authorized, at its option, to file financing statement(s) or amendments thereto without the signature of the Lessee with respect to any or all of the leased property, or if a signature is required by law, then the Lessee appoints Lessor as Lessee's attorney-in-fact to execute any such financing statement(s) and further agrees to reimburse the Lessor for the expense of any such filing(s).
9. LESSOR HAS NOT AND WILL NOT MAKE ANY REPRESENTATION, WARRANTY OR COVENANT, EXPRESS OR IMPLIED ON WHICH LESSEE MAY RELY, WITH RESPECT TO THE MERCHANTABILITY, FITNESS, CONDITION, DURABILITY OR SUITABILITY FOR LESSEE'S PURPOSE OF THE EQUIPMENT IN ANY RESPECT, OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT, EXPRESS OR IMPLIED, ALL OF WHICH ARE HEREBY EXPRESSLY DISCLAIMED BY LESSOR. ALL EQUIPMENT SHALL BE ACCEPTED AND LEASED BY LESSEE "WHERE IS, AS IS AND WITH ALL FAULTS" AND LESSOR SHALL NOT BE RESPONSIBLE FOR ANY PATENT OR PATENT DEFECTS THEREIN OR ANY DAMAGES RESULTING THEREFROM. LESSOR WILL, HOWEVER, TAKE ANY STEPS REASONABLY WITHIN ITS POWER TO MAKE AVAILABLE TO LESSEE ANY MANUFACTURER'S OR SIMILAR WARRANTY APPLICABLE TO THE EQUIPMENT. IN ANY EVENT, LESSOR SHALL NOT BE LIABLE TO LESSEE FOR ANY LIABILITY, LOSS OR DAMAGE, INCLUDING CONSEQUENTIAL OR INCIDENTAL DAMAGES, CAUSED OR ALLEGED TO BE CAUSED, DIRECTLY OR INDIRECTLY, BY THE EQUIPMENT, OR ANY INADEQUACY THEREOF, OR DEFICIENCY OR DEFECT THEREIN, OR BY ANY INCIDENT WHATSOEVER IN CONNECTION THEREWITH.
10. Lessee shall not assign, mortgage or hypothecate this lease or any interest herein or sublet said equipment without the prior written consent of the Lessor. Any assignment, mortgage, hypothecation or sublease by Lessee without such consent shall be void.
11. Lessee agrees to use, operate and maintain said equipment in accordance with all laws; to pay all licensing or operating fees for said equipment; to keep the same free of levies, liens and encumbrances; to show the equipment as "leased equipment" on Lessee's personal property tax returns; to pay Lessor a sum equal to all personal property taxes assessed against the equipment, which sum Lessor shall remit to the taxing authority, to pay all other taxes, assessments, fees and penalties, which may be levied or assessed on or in respect to said equipment or its use or any interest therein, or lease payments thereon, including but not limited to all federal, state and local taxes, however, designated, levied or assessed upon the Lessee and Lessor or either of them or said equipment, or upon the sale, ownership, use or operation thereof. Lessor may pay such taxes and other amounts and may file such returns on behalf of Lessee if Lessee fails to do so as herein provided. On written request from Lessor, Lessee agrees to reimburse Lessor for reasonable costs incurred in collecting any taxes, assessments or fees for which Lessee is liable hereunder and remitting the same to the appropriate authorities.
12. In the event the Lessee shall default in the payment of any lease payments, additional lease payments, or any other sums due hereunder for a period of ten (10) days, or in the event of any default of breach of terms and conditions of this lease, or any other lease between the parties hereto, or if any execution or process shall be issued in any action or proceeding against the Lessee, whereby the said equipment may be taken or distained, or if a proceeding in bankruptcy, receivership or insolvency shall be instituted by or against the Lessee or its property, or if the Lessee shall enter into any agreement or composition with its creditors, breach any of the terms of any loan or credit agreement, or default thereunder or if the condition of the Lessee's affairs shall so change as to, in the Lessor's opinion, impair the Lessor's security or increase the credit risk involved, then and in that event the Lessor shall have the right to (1) retake immediate possession of its equipment without any Court Order or other process of law and for such purpose the Lessor may enter the same therefrom with or without notice of its intention to do same, without being liable to any suit or action or other proceedings by the Lessee. Lessor may, at its option, sell the equipment at public or private sale for cash or on credit and may become the purchaser at such sale. The Lessee shall be liable for arrears or lease payments hereunder and under any other lease between the parties, if
any; for any other charges due from Lessee hereunder and under any other lease between the parties, for expense of retaking possession, and the removal of the equipment, and court costs, in addition to the balance of the lease payments provided for herein, or in any lease payment hereof, as well as for the balance of lease payments due and to become due under any other lease between the parties, less the net proceeds of the sale of said equipment, after deducting all costs of taking, storage, repair and sale; and/or (2) accelerate the balance of lease payments payable hereunder and under any other lease between the parties, thereby requiring prepayment of this lease and any other lease between the parties with all such lease payments and charges due and payable forthwith upon such notice of acceleration and demand for payment, the Lessee nevertheless remaining and being liable for the return of the equipment and any loss or destruction of, or injury to, the equipment in the same manner as herein provided. The foregoing rights shall be in addition to and in limitation of the rights of a Secured Party, as set forth in the Uniform Commercial Code of the applicable jurisdiction. Should Lessee fail to make such payment after this notice and demand, Lessor shall be entitled to institute appropriate legal proceedings against Lessee with the Lessee being responsible for said lease payments, charges, expenses and attorney fees, if allowed by law. In the event the Lessor shall exercise any of its rights as above set forth, Lessee shall be obligated to pay, as interest, a sum equal to one and one-half (1 1/2%) percent per month, or any part thereof, on the aggregate unpaid lease payments due hereunder or under any other lease in default by reason hereof or otherwise, or until all arrears of lease payments are satisfied, provided said interest payments are allowed by law, and if not allowed by law, the maximum rate of interest permissible in the applicable jurisdiction. The rights granted the Lessor herein shall be cumulative and an action upon one shall not be deemed to constitute an election or waiver of the other right of action to which Lessor may be entitled. All sums as hereinabove stated shall become immediately due and payable to be construed as liquidated damages rather than a penalty provision. Lessee hereby waivers trial by jury.
14. The omission by the Lessor at any time to enforce any default or right reserved to it, or to require performance of any of the terms, covenants or provisions hereof by the Lessee at any time designated, shall not be a waiver of any such default or right to which the Lessee is entitled, nor shall it in any way affect the right of the Lessor to enforce such provisions thereafter. The Lessor may exercise all remedies simultaneously, pursuant to the terms hereof, and any such action shall not operate to release the Lessee until the full amount of the lease payments due and to become due and all other sums to be paid hereunder have been paid.
15. If the Lessee does not exercise its option to purchase the equipment as provide in number three above, the Lessee shall return the equipment, freight prepaid to Lessor, at the end of the term hereof, at the place from which the equipment was shipped, in as good condition as exists at the commencement of the term, reasonable wear and tear in respect thereto accepted.
WITNESS our hands and seals this 4TH day of OCTOBER, 2001
AUTO & EQUIPMENT LEASING BY FLEX, INC.
(LESSOR) BY /s/ Lee Whelpley
---------------------------
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HEARTSOFT SOFTWARE, INC. BENJAMIN SHELL (INDIVIDUAL)
(LESSEE) (LESSEE)
EQUIPMENT SCHEDULE "A"
Date: 10/4/01
This Equipment Schedule "A" is to be attached to and become part of that
Equipment Lease by and between the undersigned lessee and Auto & Equipment
Leasing by Flex, Inc.,
Tulsa, Oklahoma dated: Oct. 4, 2001
---------------------------------------------------------------------------------------------------------------------------
QUANTITY MODEL NUMBER EQUIPMENT DESCRIPTION SERIAL NO.
---------------------------------------------------------------------------------------------------------------------------
1 486 SX66Mhz PC w/240 MB Hard
Drive, 8MB RAM, 15" SVGA
Monitor, 2 Multiplexer Cards,
2SVGA Graphics Cards,
Controller Card, CD 486 DX 120
Mhz w/ 1.3 MB RAM, Triple CD
Changer,
1 17" Color Monitor
1 Hewlett Packard 4L Laser Printer
5 Discourse Technologies Studycom Concentrator
Discourse Technologies Studycom Student
20 Workstations
1 Magnavox 2 Head VCR
3 AT&T 3-Line Phones
1 Norstar Meridan 616 KSU w/4 Norstar M7208 Phones
1 Apple Macintosh Performa 630CD Computer
1 Apple Macintosh Performa 630CD Computer
1 Apple Laserwriter Select 360 Laser Printer
1 Apple Computer Speakers
3 Global Village 28.8 v.34 Data/Fax Modem
4 Oak Bookcases
2 Oak Desks
1 Oak 2 Drawer File Cabinet
1 Oak Printer Stand
1 Oak Conference Table
4 Oak Chairs
1 Oak Side Table
20 Black Stack Chairs
6 6' Folding Tables
2 Chair Mats
1 Executive Chair
1 Oak Executive Desk
|
10 6' Tables
2 30x60 cubicle w/ Binder Bin, Lights & File Drawers
48x60 cubicle w/ Binder Bin, Lights & File
1 Drawers includes 10'x15' computer lab work area
1 Printer Table
30x72 cubicle w/ Binder Bin, Lights, & File
1 Drawers
1 Privacy Panel for Manager's station
1 30x55 cubicle w/ Binder Bin, Lights & File Drawers
2 DK Series Pedestal Desk; 24x72 Dark Oak
2 Series 10600 Rt return Desk 24x48 Dark Oak
1 Series 10600 Storage Credenza 36x72 Dark Oak
2 Series 10600 Desk 36x72 Dark Oak
1 American Themes Conference Table
1 American Themes End Table
2 M7641LL/A G4 PowerMac
1 Quark Express
2 Adobe Illustrator
2 G-P3850 Epic PC System
1 128mg Memory
1 C500 Accr
2 5BW250 C700 Compaq Presario
1 P1565T HP Brio BA210
6 PL7 17" Monitors
1 Windows NT 5 Client Server
1 C6427E HP Deskjet Printer
3 G4 DIMM 128 Memory
17 G4 DIMM 128 Memory
1 Photoshop 5.5
1 PC-100 128mg DIMM
2 PowerMac G4 400 w/64mg upgrade
5 PL7 Monitors
4 USB Floppy Drive External
2 Iomega USB External Drive
1 Adobe Manager Deluxe 4.6
1 935C Deskjet
1 Flat Panel Speakers w/Subwoofer
1 250mg SUB Zip Drive
1 30.0gb External Firewire Hard Drive
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17 IMac 64mg SO-DIMM SDRAM
1 PC-100 SDRA DIMM 128mg
1 Sony PC
1 Mac G4 Cube
2 Steelcase Avenir cubicles
10 Burgundy chairs
1 Whiteboard 5ft
2 Steelcase task chairs
1 Retrospect Advanced Driver Kit
20 SDX2-50C 500/100GB AIT@ 8MM Tape Carts
1 AIT2 Sony 4-Cart Autoloader 400GB 9380264
3 DV IMac Blueberry Computers
3 Stylus Color 670 Epson Printers
1 Entra Pass Access Control System
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Auto & Equipment Leasing by Flex, Inc.
(LESSOR) /s/ Lee Whelpley
----------------
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Heartsoft Software, Inc.
(LESSEE) /s/ Benjamin Shell
------------------
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Benjamin Shell (Individual)
(LESSEE) /s/ Benjamin Shell
------------------
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ADDENDUM TO EQUIPMENT LEASE
This Addendum is a part of that certain Equipment Lease (EQUIPMENT LEASE) BETWEEN AUTO & EQUIPMENT LEASING BY FLEX, INC. ("COMPANY") and HEARTSOFT SOFTWARE, INC., AND BENJAMIN SHELL (INDIVIDUAL), 3101 NORTH HEMLOCK CIRCLE, BROKEN ARROW, OK 74012 ("LESSEE") dated OCTOBER 04, 2001 re:
That equipment which is listed on the Schedule A dated: OCTOBER 4, 2001 which correlates directly to the EQUIPMENT LEASE of the same date.
1. TRANSFERRANCE OF INTEREST. Upon termination of the EQUIPMENT LEASE (and with all monthly lease payments having been remitted without default), COMPANY may transfer its interest in the leased equipment to LESSEE for the agreed upon residual pricing as set forth in the EQUIPMENT LEASE (PARA 3). LESSEE shall notify COMPANY of its intentions and method(s) of purchasing the leased equipment no less than 30 (thirty) days prior to the termination of the EQUIPMENT LEASE. The following conditions apply:
a. LESSEE agrees to purchase leased equipment at agreed upon pricing of $1000.00 (AS SET FORTH IN THE EQUIPMENT LEASE) upon termination of the EQUIPMENT LEASE or,
b. LESSEE agrees to compensate COMPANY the difference between the repurchase price stated above (paragraph 1.a.) and FAIR MARKET VALUE at the time of EQUIPMENT LEASE termination. FAIR MARKET VALUE shall be determined by the higher value of a minimum of three (3) bids from qualified interested parties OR the price at which the leased equipment is sold (IF AT OR ABOVE QUALIFIED BIDS).
ACCEPTED AND AGREED UPON this 4TH DAY
OF OCTOBER, 2001
BY /s/ Lee Whelpley
-------------------
HEARTSOFT SOFTWARE, INC
-----------------------
(LESSEE)
BY /s/ Benjamin Shell
-------------------
BENJAMIN SHELL (INDIVIDUAL)
----------------------------
(LESSEE)
BY /s/ Benjamin Shell
-------------------
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ADDENDUM TO LEASE CONTRACT
This Addendum is a part of that certain Equipment Lease Contract between AUTO AND EQUIPMENT LEASING BY FLEX, INC., 7229 S. 85TH EAST AVENUE, SUITE 100, TULSA, OK 74133 ("LESSOR") and HEARTSOFT SOFTWARE, INC., AND BENJAMIN SHELL (INDIVIDUAL), 3101 N. HEMLOCK CIRCLE, BROKEN ARROW, OK 74012 ("LESSEE") dated OCTOBER 4, 2001.
In Accordance With the provisions of the above Equipment Lease
IT IS AGREED that the leased equipment will neither be sold nor sub-let without written notification and permission of Lessor by Lessee.
IT IS AGREED that LESSEE shall provide LESSOR with a "STATEMENT OF LOCATION" on a semi-annual basis regarding the leased equipment listed on the Schedule A. If said equipment is located at the Lessee's place of business, a simple statement to that effect will suffice. Equipment shall not be transported out of the State of Oklahoma (FOR PURPOSES OF DOING BUSINESS ON A REGULAR BASIS) without a written request from Lessee.
IT IS AGREED that LESSEE shall be responsible to provide all necessary maintenance to leased equipment (WHETHER OR NOT UNDER FACTORY OR EXTENDED WARRANTY MAINTENANCE CONTRACTS).
ACCEPTED AND AGREED UPON this 4TH DAY
OF OCTOBER, 2001
BY /s/ Lee Whelpley
--------------------
HEARTSOFT SOFTWARE, INC.
------------------------
(LESSEE)
BY /s/ Benjamin Shell
-------------------
BENJAMIN SHELL (INDIVIDUAL)
-----------------------------
(LESSEE)
BY /s/ Benjamin Shell
--------------------
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EXHIBIT 10.79
RAYMOND E. HARTFIELD
DELIVERABLES:
1. Extensive research relative to the market, competition, channels of
distribution, technology validation, patent verification, etc. (7-10 days)
2. Executive Summary specifically prepared as first article of review by
potential funding sources. (3 days)
3. A one-page summary of the proposition and highlights of the proposal. (1 day)
4. Complete Business Plan that expresses all elements of the proposed business
proposition with financials that indicate return on investment. (14 days)
5. PowerPoint presentation designed to be used in connection with forums set
up with potential funding sources. This presentation will be professionally
developed in two formats 1) 10-minute version that presents the essentials
and the need for capital, and 2) 20-minute version that discusses the
business and the deal in more detail. (7-10 days)
6. Provide the necessary material to at least 5 funding sources (venture
capitalists/angel investors with whom I have previous experience and
knowledge) with the intent of surviving their screening process and secure
a forum for presentation. (30 to 60 days...as required)*
Throughout this process the current leadership team and interested stakeholders will have visibility of the information and work in progress in an effort to create consensus for what will be proposed as the "go forward" strategy.
This effort will leverage heavily some of the current resources within Heartsoft, Inc. to assist in the development of financials, product roadmaps, marketing strategies, and channels of distribution. I will leverage my market contacts as much as I professionally can without creating project costs.
* Venture Capitalists and Angel Investors many times have their own cycles in which they consider deals. These cycles are sometimes every other month, quarterly, or semi-annually. We will have to hit their cycles as best we can when the documentation is completed and ready for review. We should consider presenting the completed message and material to the current Heartsoft, Inc. stockholders at the appropriate time.
REQUIREMENTS:
I must officially sign a Non-Disclosure Agreement with Heartsoft, Inc. I must have the ability to execute a Non-Disclosure Agreement to anyone from whom I need information to complete my work. Keep in mind that potential funding candidates (Venture Capitalists and Angel Investors) typically do not sign Non-Disclosure Agreements. Hence, the Executive Summary is developed as the first article of review and not the complete Business Plan.
I will need access to ALL documentation relative to the technology in Internet Safari. I need some status information from the Patent Attorney: How many office actions have there been? Specifically, what office actions have there been? How long has the Patent Attorney been practicing? Perhaps a CV of the Patent Attorney would be in order.
I will need office and home contact information for the leadership team at Heartsoft, Inc. I will need the ability to communicate with the members of the leadership team Monday through Saturday (8:30 a.m. to 9:30 p.m.). I do not need flawless or continuous communication ability, but merely permission to contact by phone or email (if available) and leave a voice or written message (if possible). All participants of the leadership team will have visibility of the material being constructed. They will have ample opportunity for input during the information gathering phase, the draft review phase, the dress rehearsal presentation/review, and post presentation reviews.
All documentation and material will be developed in Microsoft Binder, Microsoft Word and/or Microsoft Word Art. All presentation material will be developed in PowerPoint. All financial spreadsheets will be prepared and presented in Microsoft Excel. All material and documentation developed shall be delivered to Heartsoft, Inc. on one or more floppy disks every two weeks during this effort. Heartsoft, Inc. may secure a copy of incrementally developed material upon demand at any time between scheduled deliveries.
While trips to and from Broken Arrow, Oklahoma (home office) will be limited to control expenses. All travel and direct expenses related to the execution of this project shall be the responsibility of Heartsoft, Inc. All such expenses will be communicated to and approved by Heartsoft, Inc. authorized management prior to being incurred. Written (email or otherwise) prior approval is preferred, however verbal may be used on an exception basis to avoid additional expenses due to booking deadlines, etc.
All invoices will be presented in advance and are due net 30 days. Mutually agreed upon payment schedule may be established based on milestones.
COSTS:
Patent Verification: 5-6 hours $ Gordon Matthews
Market Research Information: $ Various Sources
New Company Valuation: $ Certified Valuator
Technical Consulting (New Products) $ Outside Talent
Preparation of Required Material $ Raymond Hartfield
----------------------------
$
Projected Expenses (Travel, etc.) $
----------------------------
Total Cost for Program $
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By affixing signatures below the undersigned do hereby accept and agree to the deliverables, requirements, and implied terms and conditions related to this quotation for services. All information contained herein is to be considered "Confidential" and subject to the terms and conditions stated in their fully executed Non-Disclosure Agreement.
Heartsoft, Inc. SplitSecondServices, Inc. /s/ Benjamin P. Shell /s/ Raymond E. Hartfield ------------------------- ------------------------- Signature Signature Benjanim P. Shell Raymond E. Hartfield ------------------------- ------------------------- Print Name Print Name President/CEO/Chairman President/CEO ------------------------- ------------------------- Title Title September 17, 2001 September 17, 2001 ------------------------- ------------------------- Date Date |
TERMS OF PAYMENT
The following terms of payment for the project defined in the Quotation for Services between Heartsoft, Inc. and Raymond E. Hartfield (SplitSecondServices, Inc.) shall be in place for the duration of the project. Should Heartsoft, Inc. not be able to make payments per these terms, at any time during the project, the project will stop at the time of non-payment and all materials/notes/work in progress shall be delivered in its current state to Heartsoft, Inc.
The first payment of $ is due upon commencement of project. The following estimates are projections of use of proceeds:
Day 1 $ Airfare from Austin to Broken Arrow Day 2 $ Gordon Matthews - Patent Work Day 5 $ Ground Transportation/Meals/4 days Day 5 $ Airfare from Broken Arrow to Austin Day 10 $ Steve Hardwick work on Technology Day 15 $ Steve Hardwick travel to Broken Arrow Day 20 $ Hardwick Expenses in Broken Arrow Day 20 $ Hardwick fees for services Day 20 $ Hartfield fees for services |
TOTAL through first 30 days: $
On or before the 25th day (October 5, 2001), Heartsoft, Inc. shall make the second payment to Raymond E. Hartfield in the amount of $ .
Projected use of proceeds:
Day 25 $ Airfare from Austin to Broken Arrow Day 30 $ Ground Transportation/Meals/5days Day 30 $ Airfare from Broken Arrow to Austin Day 35 $ Steve Hardwick work on Roadmap Day 35 $ Steve Hardwick travel expenses Day 40 $ Hartfield fees for services |
The final payment in the amount of $ shall be due upon completion of documentation and presentation modules. Forums with investors and other financial sources will be coordinated and communicated for no additional
expense to Heartsoft, Inc. The final payment of $ may be paid with $ cash and not more than $ in warrants or stock. Heartsoft, Inc. SplitSecondServices, Inc. /s/ Benjamin P. Shell /s/ Raymond E. Hartfield ------------------------- ------------------------- Signature Signature Benjamin P. Shell Raymond E.Hartfield ------------------------- ------------------------- Name Name Chairman & CEO President/CEO ------------------------- ------------------------- Title Title September 18, 2001 September 18, 2001 ------------------------- ------------------------- Date Date |
EXHIBIT 10.80
CORPORATE NOTE
SEPTEMBER 13, 2001
FOR VALUE RECEIVED, Heartsoft, Inc. promises to pay to the order of:
Ms. Juanita Seng
the sum of $22,981 (twenty-two thousand nine hundred eighty-one dollars), for past expenses with interest from September 30, 2001 until paid, at the rate of eight percent (8%) per annum.
This Note, together with all interest due, is payable on November 30, 2001.
Heartsoft shall reserve the right to prepay the principle of this Note, together with all such accrued interest at the time of prepayment in whole or in part prior to its due date without premium or penalty.
Heartsoft, signers, and endorsers of this Note severally waive demand, presentment, notice of dishonor, diligence in collection and notice of protest and agree to all extensions and partial payments before or after maturity, without prejudice to the holder. This written Note represents the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties.
Heartsoft, Inc.
by: /s/ Benjamin P. Shell
-----------------------------
Benjamin P. Shell
Chief Executive Officer
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation of our report dated November 8 2001, on the financial statements of Heartsoft, Inc. (the "Company") at June 30, 2001, and March 31, 2000, and the three month period ended June 30, 2000, included in this Annual Report on Form 10-KSB for the year ended June 30, 2001, into the Company's previously filed Registration Statement on Form S-8 (File No. 33-23138D).
/s/ TULLIUS TAYLOR SARTAIN & SARTAIN LLP Tulsa, Oklahoma November 12, 2001 |