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|UNITED STATESSECURITIES AND EXCHANGE COMMISSION 
    WASHINGTON, DC 20549
|______________                                                           

FORM 10-K

|(MARK ONE)
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| | For the fiscal year ended August 31, 2005
| | -----------------------------------------

OR

| | o                       TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | ----------------------------------------------------------------------------------------------------------------

| | For the transition period from.to
| | ------------------------------------

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| | Delaware
    (State of incorporation or organization) |  | 87-0273300
    (I.R.S. Employer Identification No.) | 
| | ----------------------------------------------------- |  | --------------------------------------------------- | 
| |                                                       |  |                                                     | 

| | 572 Whitehead Road, Bldg#1
      Trenton, New Jersey 08619
      (Address of principal executive offices, including zip code) | 
| | ----------------------------------------------------------------------------------------------------------------------------- | 
| |                                                                                                                               | 
| |                                                                                                                               | 
| | (609)-528-8500
      (Registrants telephone number, including area code)                                                     | 
| |                                                                                                                               | 
| | Securities registered pursuant to Section 12(b) of the Act: None                                                              | 
| |                                                                                                                               | 
| | Securities registered pursuant to Section 12(g) of the Act:                                                                   | 
| |                                                                                                                               | 

| | Common Stock, $0.01 par value | 
| | ----------------------------- | 
| | Title of  class               | 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.  Yes  o  No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13
or Section 15(d) of the Act.  Yes  o  No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.   ̈

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).  Yes  o  No  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the
registrant as of February 28, 2005 was approximately $10,912,085 computed by reference to the closing
price of the common stock for that date.

As of November 7, 2005, there were outstanding 14,381,286 shares of the registrants common stock.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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EMTEC, INC.2005 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1.
    Business
    1Item 1A.
    Risk Factors
    12Item 1B.
    Unresolved Staff Comments
    18Item 2.
    Properties
    19Item 3.
    Legal Proceedings
    21Item 4.
    Submission of Matters to a Vote of Security Holders
    22PART II
Item 5.
    Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    23Item 6.
    Selected Financial Data
    25Item 7.
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    27Item 7A.
    Quantitative and Qualitative Disclosures About Market Risk
    44Item 8.
    Financial Statements and Supplementary Data
    45Item 9.
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    46Item 9A.
    Controls and Procedures
    47Item 9B.
    Other Information
    48PART III
Item 10.
    Directors and Executive Officers of the Registrant
    49Item 11.
    Executive Compensation
    52Item 12.
    Security Ownership of Certain Beneficial Owners and Management and  Related Stockholder Matters
    55Item 13.
    Certain Relationships and Related Transactions
    57Item 14.
    Principal Accountant Fees and Services
    59PART IV
Item 15.
    Exhibits, Financial Statement Schedules
    61Signatures
    89- i -
References in this Annual Report to we, us, or our are to Emtec,
Inc. and its subsidiaries, unless the context specifies or requires otherwise.
Cautionary Statement Regarding Forward-Looking Statements
You should carefully review the information contained in this Annual Report and in other reports or
documents that we file from time to time with the Securities and Exchange Commission (the SEC).
In this Annual Report, we state our beliefs of future events and of our future financial performance.
In some cases, you can identify those so-called forward-looking statements by words such
as may, will, should, expects, plans, anticipates,
believes, estimates, predicts, potential, or continue
or the negative of those words and other comparable words. You should be aware that those statements
are only our predictions. Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks discussed in this Annual Report
for the year ended August 31, 2005 and other reports or documents that we file from time to time
with the SEC. Those factors may cause our actual results to differ materially from any of our forward-looking
statements. All forward-looking statements attributable to us or a person acting on our behalf are
expressly qualified in their entirety by this cautionary statement.
Assumptions relating to budgeting, marketing, and other management decisions are subjective in many
respects and thus susceptible to interpretations and periodic revisions based on actual experience
and business developments, the impact of which may cause us to alter our marketing, capital expenditure,
or other budgets, which may in turn affect our business, financial position, results of operations,
and cash flows.
- ii -
PART I
Item 1.   BusinessIntroduction
Emtec, Inc. is an information technology company, providing services and products to commercial, federal,
education, state and local verticals. Areas of specific practices include communications, data availability,
enterprise computing, managed services, storage and data center planning and development. Emtecs
solutions are crafted to enable our customers to become more efficient and effective, thereby giving
them a competitive advantage. To date, the most significant portion of our revenues has been derived
from our activities as a reseller of IT products, such as workstations, servers, microcomputers,
application software and networking and communications equipment. However, we are actively endeavoring
to increase the portion of our revenues that are derived from IT services.
Named to the VARBusiness 500 list of top network integrators, value added resellers, and consultants in the U.S. every year
since 1995, we combine extensive experience in systems integration with premier technology elements
to provide our customers with sophisticated, streamlined, truly comprehensive solutions.
Over the past two decades, we have built strong relationships with leading manufacturers, such as Cisco,
HP, IBM, Microsoft, Sun Microsystems, Dell, and Veritas, thereby enabling us to provide cutting-edge,
scalable, reliable and secure solutions. This, along with our background in information technology,
positions us as a premier, single-source provider of information systems, and network solutions.
Our
  clients are primarily large business organizations, federal, state and local
  government, local school districts, and other large and mid-sized companies
  located principally in the New York/New Jersey Metropolitan area and the southeastern
  United States. We service our client base from leased facilities in New Jersey,
  New York, Virginia, Georgia, and Florida as well as five regional offices
  in the South and western United States. We provide products to federal government
  civilian and military locations throughout the United States.
Prior to January 17, 2001, we were engaged in the oil and gas exploration and development business
under the name American Geological Enterprises, Inc. At that time our principal asset, other than
cash, was a 5.49% working interest in a geothermal power unit. On January 17, 2001, we completed
a merger with Emtec, Inc., a privately held New Jersey corporation (Emtec NJ), which
since 1980 had been engaged in the business of providing IT products and services to the computer
industry. Upon the merger we retained all of our assets, subject to liabilities, and assumed all
of the assets and liabilities of Emtec-NJ. In March 2005, we disposed of our geothermal investment
through an assignment of our 5.49% working interest in the Roosevelt Hot Spring geothermal power
unit as well as some other minor oil and gas rights to Energy Minerals, Inc., a Nevada corporation
for $150,000 in cash.
Our executive offices are located at 572 Whitehead Road, Building #1, Trenton, New Jersey; telephone:
(609) 528-8500. Our website is located at www.emtecinc.com. We have made available free of charge through our website our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable
after such material was electronically filed with, or furnished to, the Securities and Exchange Commission.
The information on our website is not part of this Annual Report.
Recent Developments
The Merger
On August 5, 2005, we completed our merger under the Agreement and Plan of Merger dated as of July
14, 2005 (the Merger Agreement), by and among us, Emtec Viasub LLC, a Delaware limited
liability company and our wholly-owned subsidiary (MergerCo), and Darr Westwood Technology
Corporation, a Delaware corporation (Darr). Pursuant to the terms of the Merger Agreement,
Darr merged with and into MergerCo, with MergerCo remaining as the surviving company (the Surviving
Company) and a wholly-owned subsidiary of Emtec (the Merger).
Upon completion of the Merger, all of the shares of Darr common stock issued and outstanding immediately
prior to the merger were exchanged for 9,528,110 shares of our common stock and the former Darr shareholders
were issued warrants to purchase an additional 10% of our common stock calculated on a fully diluted
basis for an aggregate exercise price of $3,645,752, measured on a post exercise basis. Additional
terms of the Merger included the following:

Commencement of a self tender offer to repurchase up to 2,864,584 shares of our issued and outstanding
common stock having an aggregate purchase price of up to $5.50 million at a price of $1.92 per share.
Only pre-merger Emtecs shareholders participated in the tender offer.
Employment agreements dated as of July 14, 2005, were entered into between us and each of Messrs. John
P. Howlett, and Ronald A. Seitz. Messrs. Howlett and Seitz are to serve as the President of Northeast
Operations and President of Southeast Operations, respectively, for a period commencing on August
5, 2005 and terminating on August 31, 2008, although this term may be extended annually for additional
one-year periods with the mutual consent of the parties.
Our subsidiaries, Emtec Inc., a New Jersey corporation (Emtec NJ) and Westwood Computer
Corporation (Westwood together with Emtec NJ , the Borrower), entered into
a Business Financing Agreement with GE Commercial Distribution Finance Corporation (Lender)
pursuant to which the Lender agreed to provide to Borrower an accounts receivable facility (the Credit
Facility). The Credit Facility provides for maximum aggregate borrowings of the lesser of $35
million or 85% of eligible accounts receivable, plus 100% of unsold inventory financed by the lender,
minus a $3.15 million reserve. The Credit Facility includes certain financial covenants that we must
maintain on a quarterly basis and we are also subject to certain mandatory prepayments upon the occurrence
of certain events.
Emtec NJ and Westwood (together, the Dealer) also entered into the Agreement for Wholesale
Financing with the Lender (the Wholesale Agreement). The Wholesale Agreement provides
for an extension of credit subject to the maximum aggregate borrowings set forth in the Credit Facility
by the Lender to the Dealer from time to time to purchase inventory from approved vendors and for
other purposes.
Each of John P. Howlett, Ronald A. Seitz, George Raymond, R. Frank Jerd resigned as our directors.
Effective as of August 5, 2005, Dinesh Desai, Keith Grabel, Brian McAdams and Gregory Chandler were
appointed as our directors.- 2 -
The Darr/Westwood
Acquisition
Prior to the Merger, Darr was a holding company formed in April 2004 in order to effectuate the purchase
of all of the outstanding capital stock of Westwood. Darrs acquisition of Westwoods capital
stock was completed on April 16, 2004 (the Westwood Acquisition). Westwood is engaged
in the sale and service of computers and peripherals to customers which include departments of the
United States, state and local governments and commercial businesses throughout the United States.
Westwood is headquartered in Springfield, New Jersey and was established in 1964. It is a supplier
of information technology products and services primarily to the Federal Government. It has been
recognized as one of the top 20 General Services Administration vendors in the IT industry during
each of the past eight years and was named in data compiled by the GSA as the ninth largest such
vendor for the Federal Governments 2004 fiscal year. Westwood has additional locations in New
York and Virginia, as well as five regional offices in the South and Western United States.
The majority of Westwoods sales are drawn from various civilian and military U.S. governmental
departments and agencies. These customers include the Department of Defense, Department of Justice,
Department of Homeland Security, Department of Health and Human Services, Department of Agriculture,
Department of Commerce and the GSA. During the last three fiscal years ended on August 31, 2005,
2004, and 2003, U.S. governmental department and agency related accounts for approximately 76.1%,
75.6%, and 75.7%, respectively. The federal government business typically experiences increased activity
during the months August through November.
The government utilizes a variety of contracting methods, including negotiated bids, pre-negotiated
blanket purchase agreement contracts and open market procurements when purchasing from Westwood.
We participate in formal government bids for all contract types, and also process orders received
against existing contracts on an ongoing basis.
Substantially, all of these bids are awarded on a best value to the government basis (which
depending on the bid can be a combination of price, technical expertise, past performance on other
government and commercial contracts and other factors). Westwood seeks to use our partner contacts,
purchasing power, distribution strength, value-added services and procurement expertise to compete
successfully on these bids. These major procurements can generate millions of dollars in annual revenue,
span multiple years and provide government personnel with an expedited method of purchasing from
Westwood.
Westwood
  holds a GSA designated Schedule 70 contract for the sale of IT products and
  services. Schedule 70 contracts are multi-award schedule contracts managed by
  the GSA IT Acquisition Center. The current contract is valid through March 31,
  2007 with two five-year renewals. Additionally, Westwood holds an Electronic
  Commodity Store III (ECS III) prime contract which also provides various governmental
  agencies with an efficient cost-effective means for buying commercial products.
  The ECS-III contract is valid through December 2011. GSA contracts provide all
  government agencies, and non governmental agencies authorized by GSA, with an
  efficient cost-effective means for buying commercial products. GSA and ECS III
  purchasers may place unlimited orders for products under GSA and ECS III contracts.
  These GSA contracts contain a most favored customer clause requiring us to provide
  GSA our best pricing.
Individual
  GSA eligible ordering agencies may enter into GSA-authorized Blanket Purchase
  Agreements (BPAs) with GSA contract holders. BPAs are similar to
  second-tier contracts under a
- 3 -
contractors GSA contract. BPAs enable agencies to obtain better pricing based on volume ordering
and they decrease an agencys administrative costs by streamlining the ordering process.
Westwood maintains many Federal Supply Schedule BPAs that are authorized under its GSA Schedule 70
contract. GSA authorized BPAs typically include the same terms and conditions as those applied to
standard GSA orders, with agency specific additions. The products offered on the BPAs are typically
a subset of the products offered on Westwoods GSA Schedule, often at prices which are pre-negotiated
to be lower than those available on the standard GSA schedules, in return for volume purchasing commitments
by the customer. Westwood normally enter into separate agreements with partners to offer reduced
BPA prices to the government. The BPAs are agency specific and allow us to focus specific partner
relationships on specific customers.
Westwood maintains a Small business designation with the Federal government under its GSA Schedule,
ECS III and several BPAs held based upon our size status (headcount based) at the time of the contracts
original award date. As a small business, Westwood enjoys a number of benefits, including being able
to compete for small business orders, qualifying as a small business subcontractor, bidding pursuant
to small purchase procedures directed to non-manufacturer small business, and offering government
agencies an avenue to meet their internal small business purchase goals.
In addition, Westwood owns a 100% of the membership interests in Westwood Solutions, LLC (Solutions).
Prior to the Westwood Acquisition, Westwood owned an 80% membership interest in Solutions and Westwoods
President owned the remaining 20% interest. Concurrent with the Westwood Acquisition, Westwood acquired
the remaining 20% membership interest in Solutions. Solutions has not engaged in any operating activity
since 2003. Accordingly, the accompanying consolidated statements of income do not reflect any minority
interest in earnings of the subsidiary. The Company considers all of its operating activity to be
generated from a single operating segment.
Accounting
Treatment
The issuance of our common stock in connection with the Merger gave the former Darr shareholders shares

equal to approximately 55.7% of our total outstanding common stock post-merger and resulted in
a
change of control for us. Accordingly, for financial reporting purposes, the Merger was treated
as
an acquisition of Emtec by Darr and a recapitalization of Darr and the registrants historical

financial statements for periods prior to the Merger become those of Darr. In addition, for financial

accounting purposes, the Westwood Acquisition was treated as an acquisition of Darr by Westwood
with
the result that the pre-Westwood Acquisition financial statements of Darr, and therefore,
the Registrant
are those of Westwood. As a result, the consolidated financial statements included
in this Form 10-K
include (i) the accounts and transactions for Westwood for the year ended August
31, 2003, (ii) the
accounts and transactions of Westwood for the period from September 1, 2003
to April 16, 2004 (Darr
Predecessor Period) and for Westwood and Darr for the period from April
17, 2004 to August 31, 2004
(Darr Successor Period) and (iii) the accounts and transactions of
Darr for the period from September
1, 2004 to August 31, 2005 and including the accounts and transactions
of Emtec for the period from
August 6, 2005 to August 31, 2005.
Industry Background
The broad market in which we compete is the provision of IT services and products. This marketplace
consists of traditional IT services such as hardware and software procurement, life-cycle
- 4 -
services, and network consulting, as well as internet services such as web enablement, remote network
monitoring, help desk services, and information security.
As the market for IT products has matured over the past several years, price competition has intensified.
That factor, combined with abbreviated product lifecycles, has forced IT product manufacturers to
pursue lower cost manufacturing and distribution strategies. Resellers who were able to serve the
needs of corporate end users requiring diverse brands of products and related IT services were initial
beneficiaries of this heightened competition. More recently, however, continuing competition and
manufacturers renewed efforts to improve their cost structures have led to both consolidations
and business failures among resellers. Manufacturers have shifted from exclusive distribution partners
to open sourcing and some have begun direct selling efforts with a view toward capturing
market share from resellers.
At the same time that the market for IT products is consolidating, the market for IT services is expanding.
Many companies have become increasingly dependent on the use of IT as a competitive tool in todays
business environment. The need to distribute and access data on a real-time basis throughout an organization
and between organizations has led to the rapid growth in network computing infrastructures that connect
numerous and geographically dispersed end users through local and wide area networks. This growth
has been driven by the emergence of industry standard hardware, software, and communications tools,
as well as the significant improvement in the performance, capacity, and utility of such network-based
equipment and applications.
The decision-making process that confronts companies when planning, selecting, and implementing IT
infrastructure and services continues to grow more complex. Organizations are continually faced with
technology obsolescence and must design new networks, upgrade, and migrate to new systems. As a result
of the rapid changes in IT products and the risks associated with the commitment of large capital
expenditures for products and services whose features and perceived benefits are not within the day-to-day
expertise of operating management, many businesses increasingly are outsourcing some or all of their
network management and support functions and are seeking the expertise of independent providers of
IT products and services.
Regarding
  the federal government business, the US federal government is the largest purchaser
  of IT products and services in the world and the largest user of outside contractors.
  The use of outside contractors is driven primarily by an effort to address specific
  skills needed by the federal government. There is high demand requirement for
  certain service capabilities such as security, storage, networking and integration.
  Engagements support mission specific goals rather than routine and deferrable
  office automation efforts. While the government will likely always support small
  and disadvantaged businesses, efforts toward shared data and IT functions across
  agencies should increase the need for vendors with scale as prime contractors.
  Federal IT spending growth is expected to outpace the growth of private sector
  spending. It is expected that federal IT spending will grow from $70 billion
  in FY 2005 to $87.7 billion in FY 2009.
Our Strategy
Our primary business objective is to become a leading single-source provider of high quality and innovative
IT products, services, and support. We believe that by working with a single-source provider, organizations
will be able to adapt more quickly to technological changes and reduce their overall IT costs. To
this end, we are pursuing the following strategies:
- 5 -
Pursuing Strategic AcquisitionsWe are seeking to expand our service offerings, to add to or enhance our base of technical or sales
personnel, and to nurture and expand client relationships by means of acquisitions of companies whose
businesses complement our businesses and, in particular, our IT consulting services. We intend to
focus on companies with management teams who are willing to commit to long-term participation in
our organization and who share our vision of continued growth.
- 6 -
Capitalizing on Existing RelationshipsWe have invested in training and committed resources to obtain company certifications from key industry
manufacturers, and have entered into agreements with most of these manufacturers, such as Sun, IBM,
HP, Dell, CISCO, Microsoft, Novell and Citrix. These agreements grant us a nonexclusive right to
purchase the manufacturers hardware and license its software for our internal business use
and for commercial integration and resale. Typically, our agreements with such manufacturers, such
as those with Sun, IBM, CISCO, Microsoft, Novell and Citrix, provide for a one-year term, renewable
by the parties for successive one-year terms and are terminable by either party on prior written
notice ranging from 30 to 45 days. They generally do not contain financial terms for resale of the
manufacturers products, which terms are separately governed by purchase orders.
Moreover, we believe that our history of satisfying the IT product requirements of our larger customers
is facilitating the marketing of our broad range of services to this important segment of our clientele.
Our Business

    IT ResellerWe are an authorized reseller of the products of many leading IT manufacturers, such as 3Com, CISCO,
HP, IBM, Intel, Microsoft, NEC, Veritas, Novell, Dell, and Sun. Such products include workstations,
servers, networking and communications equipment, enterprise computing products, and application
software. Our business depends in large part upon our ongoing access to well established aggregators, as
well as directly with manufacturers to enable us to acquire IT products at competitive prices and
on reasonable terms for resale to our customers. Typically, we have not entered into any long-term
supply contacts with any of our suppliers, as we purchase computers, computer systems, components,
and parts on a purchase order basis. Typically, our agreements with any of our suppliers including
manufacturers can be terminated by such companies at any time upon 30 days prior notice.
Through our vendor alliances, we provide our customers with competitive pricing and value-added services
such as electronic product ordering, product configuration, testing, warehousing, and delivery. Our
relationships with our suppliers allow us to minimize inventory risk by ordering products primarily
on an as-needed basis. We believe that in most cases our ability to acquire products on a cost-plus
basis affords us the opportunity to avail ourselves of prices lower than those that could be obtained
independently from manufacturers or other vendors. We utilize electronic ordering and pricing systems
that provide real-time status checks on the aggregators inventories and maintain electronic
data interchange links to other suppliers. Our sales team is thereby able to schedule shipments more
accurately and to provide electronically-generated client price lists.
We receive manufacturer rebates resulting from certain equipment sales. In addition, we receive volume
discounts and other incentives from various suppliers. Our accounting policy is to reduce cost of
revenues for rebates, discounts, and other incentives received from these suppliers. Except for products
in transit or products awaiting configuration at our facility, we generally do not maintain large
inventory balances. Our primary vendors limit price protection to that provided by the manufacturer
(generally less than 30 days) and they restrict product returns, other than defective returns, to
a percentage (the percentage varies depending on the vendor and when the return is made) of products
purchased. Those returns must occur during a defined period, at the lower of the invoiced price or
the current price, subject to the specific manufacturers requirements and restrictions.
- 7 -
Our
  IT reseller activities accounted for approximately 89.9%, 93.0%, 96.0%, and
  96.2% of our total revenues for the twelve months ended August 31, 2005, the
  period ending August 31, 2004 (successor period), the period ending April 16,
  2004 (predecessor period), and the twelve months ended August 31, 2003, respectively.
IT Services
Enterprise
Computing Solutions: We offer a full spectrum of IT product acquisition and support services needed to support client/server
environments, including product sourcing, network design and implementation, technical support, server
consolidation, and clustering and load balancing for high availability.
Managed
Services and Staff Augmentation Solutions: We manage and support customers networks through the utilization of help desk and network monitoring
services as well as through our own on-site engineering resources. This allows organizations to focus
the majority of their efforts on their businesses - not on managing their IT infrastructures.
Data
  Communications Solutions: We offer Local Area Network/Wide Area Network
  and data wireless connectivity, voice over IP and structured cabling solutions
  that are designed to enhance communication capabilities, while decreasing costs.
Data
Access Solutions: We enable on-demand access to information from anywhere over any network; our mobility, messaging,
and management solutions provide secure data access, increased business productivity, and reduced
IT costs for any organization.
Data Storage Solutions:We offer storage needs assessments, solution recommendations with hardware, software and implementation
project requirements, implementation and integration services, post-sales training, maintenance and
support services.
Data Center: We consult and design a Data Center plan that addresses facility needs. We organize servers
and workstations with modular universal racking systems that take into consideration long-term needs
for air flow, security, power distribution and cable management.
Lifecycle
Management Services:Our lifecycle management services are designed to provide customers with continuous availability of
service and support throughout the lifecycle of their IT investments, including the full spectrum
of IT product acquisition and support services needed to support server environments. Our services
include:

Evaluation and prioritization of business objectives to determine the best course of action for our
customers;
  Consultation with customers to identify the right IT products and services for their needs;
  Leveraging our vendor relationships to quickly source the right combination of products;
  Providing logistical support needed to deploy a major technology roll out; and
  Providing continuous support to enable a client to improve end-user satisfaction, minimize downtime, and lower the total cost of ownership.- 8 -
K-12 Specialized Services for Student and Faculty Needs:We integrate top-quality curriculum software and computer products into the classroom. We have significant
experience in building local area networks that link many campuses together. We also provide district-wide
support and sustain Internet access to educational resources worldwide. We tailor our array of services
to make the best use of limited funds.
Manufacturers Support Services Contracts: We offer manufacturer support service contracts that provide our clients with extended technical
support, onsite hardware service and access to new software releases at a fixed price.
Backlog
Since
  the majority of our sales are on a purchase order basis, we do not have a significant
  backlog of business. Accordingly, backlog is not material to our business or
  indicative of future sales.
Distribution
Through our vendor alliances, we provide our customers with competitive pricing and value-added services
such as electronic product ordering, product configuration, testing, warehousing, and delivery. Our
relationships with our suppliers allow us to minimize inventory risk by ordering products primarily
on an as-needed basis. We believe that in most cases our ability to acquire products on a cost-plus
basis affords us the opportunity to avail ourselves of prices lower than those that could be obtained
independently from manufacturers or other vendors. We utilize electronic ordering and pricing systems
that provide real-time status checks on the aggregators inventories and maintain electronic
data interchange links to other suppliers. Our sales team is thereby able to schedule shipments more
accurately and to provide electronically-generated client price lists. Typically, our agreements
with any of our suppliers including manufacturers can be terminated by such companies at any time
upon 30 days prior notice.
Marketing
Our marketing efforts are focused on:

  Broadening our public image as an IT service provider;
  Promoting our offerings to current customers, prospects, partners, and investors;
Maintaining a constant flow of marketing communications to increase and maintain our market presence;
  Driving prospects to our web site; and
  Increasing overall inquiries and sales from all sources.Our marketing division is charged with sales lead generation. Through diverse efforts that include
seminars, tradeshows, direct mail, telemarketing, a bi-monthly newsletter, and through our website
we create multiple and frequent touches of our prospective customers. The primary goal
 to increase the number of face to face meeting opportunities between our account team and
prospective clients, and to drive additional opportunities through our sales pipeline.
- 9 -
Customers
Our
  clients are primarily large business organizations, federal, state and local
  government, local school districts, and other large and mid-sized companies
  located principally in the New York/New Jersey Metropolitan area and the southeastern
  United States. The majority of our sales are drawn from various civilian and
  military U.S. governmental departments and agencies. We service our client base
  from leased facilities in New Jersey, New York, Virginia, Georgia, and Florida
  as well as five regional offices in the South and western United States. We
  provide products to federal government civilian and military locations throughout
  the United States.
Our governmental agency customers include the Department of Defense, Department of Justice, Department
of Homeland Security, Department of Health and Human Services, Department of Agriculture, Department
of Commerce and the GSA. During the last three fiscal years ended on August 31, 2005, 2004, and 2003,
U.S. governmental departments and agencies accounts for approximately 76.1%, 75.6%, and 75.7% respectively.
The federal government business typically experiences increased activity during the months August
through November.
Our
  largest federal governmental agency, United States Department of Agriculture
  (USDA), accounted for approximately 13.4%, 1.2%, and 1.1% of our total revenues
  for the years ended August 31, 2005, 2004 and 2003, respectively.
Competition
The IT services industry is highly competitive. Our competitors include established computer product
manufacturers (some of which supply products to us), distributors, computer resellers, systems integrators,
and other IT service providers. In addition, many computer product manufacturers also sell to customers
through their direct sales organizations and certain of them have announced their intention to enhance
such direct sales efforts.
Many of our current and potential competitors have longer operating histories and financial, sales,
marketing, technical, and other resources substantially greater than we do. As a result, our competitors
may be able to adapt more quickly to changes in client needs or to devote greater resources than
we can to the sales of IT products and the provision of IT services. Such competitors could also
attempt to increase their presence in our markets by forming strategic alliances with our other competitors
or with our customers, offering new or improved products and services to our customers or increasing
their efforts to gain and retain market share through competitive pricing. Although, we hold a GSA
designated Schedule 70 contract, an Electronic Commodity Store III (ECS III) prime contract and have
contracts with the State of New Jersey, Gwinnett County School System, Duval County School System
and Tiffany & Co., we typically have no ongoing written commitments from any customers to purchase
products, and all product sales are made on a purchase-order basis.
We are also in direct competition with local, regional, and national distributors of microcomputer
products and related services as well as with various IT consulting companies. These competitors
run the gamut from consulting companies to the established consulting arms of nationwide accounting
and auditing firms. Several of these competitors offer most of the same basic products as we do.
We also encounter competition from microcomputer suppliers that sell their products through direct
sales forces, rather than through resellers such as ourselves, and from manufacturers and distributors
that emphasize mail order and telemarketing sales.
- 10 -
Depending on the customer, the principal areas of competition may include price, pre-sale and post-sale
technical support and service, availability of inventory, and breadth of product line. We have an
insignificant market share of sales in the microcomputer industry and of the service markets that
we serve. Most of our competitors at the regional and national levels are substantially larger, have
more personnel, have materially greater financial, technological and marketing resources, and operate
within a larger geographic area than we do.
Employees
As of November 18, 2005, we employed 230 individuals, including 85 sales, marketing and related support
personnel, 85 service and support employees, 36 operations and administration personnel, and 24 employees
in accounting, finance, and human resources. We believe that our ability to recruit and retain highly
skilled technical and other management personnel will be critical to our ability to execute our business
model and growth strategy. We believe that our relations with our employees are good.
Available Information
The public may read and copy any materials filed by us with the SEC at the SECs public reference
room at 100 F Street, N.E., Washington D.C. 20549. The public may obtain information about the operation
of the SECs public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains
a website at http://www.sec.gov that contains reports, proxy and information statements and other
information about issuers such as us that file electronically with the SEC.
In addition, we make available free of charge on our website at www.emtecinc.com our annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) under the Exchange Act as soon as reasonably
practical after we electronically file such material with, or furnish it to, the SEC.
- 11 -
Item 1A.     Risk FactorsWe cannot assure you that we can successfully increase the portion of our revenues derived from IT
services. If we are unsuccessful our future results may be adversely affected.
Our transition from an emphasis on reselling IT products to an emphasis on providing IT services has
placed significant demands on our managerial, administrative, and operational resources. Our ability
to manage this transition effectively is dependent upon our ability to develop and improve operational,
financial, and other internal systems, as well as our business development capabilities, and to attract,
train, retain, motivate, and manage our employees. If we are unable to do so, our ability to effectively
deliver and support our services may be adversely affected. Further, our transitional efforts to
access higher-margin services and consulting revenues may result in reduced IT product sales. If
we successfully expand our IT services offerings, periods of variability in utilization may continue
to occur. In addition, we are likely to incur greater technical training costs during such periods.
Historically, our IT reseller activities accounted for approximately for 89.9%, 93.0%, 96.0%, and
96.2% of our total revenues for the twelve months ended August 31, 2005, the period ending August
31, 2004 (the Darr successor period), the period ending April 16, 2004 (the Darr predecessor period),
and the twelve months ended August 31, 2003, respectively. In contrast, our IT services activities
accounted for approximately for 10.1%, 7.0%, 4.0%, and 3.8% of our total revenues for the twelve
months ended August 31, 2005, the period ending August 31, 2004 (the Darr successor period), the
period ending April 16, 2004 (the Darr predecessor period), and the twelve months ended August 31, 2003, respectively.
Difficulties with the integration of the historical Darr business with the historical Emtec business
may impose substantial costs and delays and cause other unanticipated problems for us.
The Merger involves a number of risks relating to our ability to integrate the historical Darr and
historical Emtec businesses into one combined operation. The process of integrating these operations,
particularly their personnel, could cause interruptions to our business. Some of the risks we face
include:

  retention of key personnel, customers and vendors of both businesses;
the occurrence of a material adverse effect on the existing business relationships with customers or
vendors, or both, could lead to a termination of or otherwise affect each businesses relationships
with such customers or vendors;
  impairments of goodwill and other intangible assets; and
  contingent and latent risks associated with the past operations of, and other unanticipated costs and problems arising in either of the historical businesses.If we are unable to successfully integrate, we could be required to undertake unanticipated charges.
These charges could have a material adverse effect on our business.
Our new services have not achieved widespread client acceptance. If they do not achieve market acceptance,
our profit potential may be adversely affected.
We have limited experience in developing, marketing, or providing these services. We cannot assure
you that we will be able to successfully market such services to either new or existing customers,
that our services will achieve market acceptance, or that we will be able to effectively hire, integrate,
and manage additional technical personnel to enable us to perform these services to our customers
expectations.
- 12 -
Our revenues are derived from a few major customers, the loss of any of which could cause our results
of operations to be adversely affected.
A large potion of Westwoods revenues is drawn from various civilian and military U.S. governmental
departments and agencies. These customers include the Department of Defense, Department of Justice,
Department of Homeland Security, Department of Health and Human Services, Department of Agriculture,
Department of Commerce and the GSA. During the last three fiscal years ended on August 31, 2005,
2004, and 2003, U.S. governmental department and agency related accounts represented approximately
79%, 78%, and 76%, respectively. The federal government business typically experiences increased activity
during the months August through November.
Our inability to maintain high personnel utilization rates may adversely impact our profit potentiality.
The most significant cost relating to the services component of our business is personnel expense,
which consists of salaries, benefits, and payroll related expenses. Thus, the financial performance
of our service business is based primarily upon billing margins (billable hourly rates less the costs
to us of service personnel on an hourly basis) and utilization rates (billable hours divided by paid
hours). The future success of the services component of our business will depend in large part upon
our ability to maintain high utilization rates at profitable billing margins. The competition for
quality technical personnel has continued to intensify, resulting in increased personnel costs. This
intense competition has caused our billing margins to be lower than they might otherwise have been.
Our utilization rates for service personnel likely will also be adversely affected during periods
of rapid and concentrated hiring.
Our revenues and expenses are unpredictable. A decrease in revenues or increase in expenses could materially
adversely affect our operating results.
Our operating results have been, and will continue to be, impacted by changes in technical personnel
billing and utilization rates. Moreover, we expect that downward pricing pressure will persist due
to the continued commoditization of computer products. Further, there are numerous other factors,
which are not within our control that can contribute to fluctuations in our operating results, including
the following:
patterns of capital spending by customers;the timing, size, and mix of product and service orders and deliveries;the timing and size of new projects, including projects for new customers; andchanges in trends affecting outsourcing of IT services;We also believe that, to a limited degree, our business is seasonal with a greater proportion of our
product sales occurring in the first quarter of our fiscal year due to the capital budgeting and
spending patterns of some of our larger customers. Operating results have been, and may in the future
also be, affected by the cost, timing, and other effects of acquisitions, including the mix of product
and service revenues of acquired companies.
Since our inception, we have funded our operations primarily from borrowings under our credit facility.
Our lending agreement with GE Commercial Distribution Finance Corporation contains financial covenants.
As of August 31, 2005 we were in compliance with all our financial covenants and we had a $4.41 million
outstanding balance under the working capital credit facility, $10.95 outstanding under wholesale
financing credit facility and an unused line of $11.16 million. However, there can be no assurance
that we will be in compliance will all of our financial covenants through November 2005 and GE CDF
will not immediately call for repayment of the outstanding borrowings under the credit facility.

- 13 -
In general, there
  are no ongoing commitments by customers to purchase products from us. All product
  sales we make are on a purchase order basis. Moreover, prior to the Merger,
  Emtec had a client base which was and continues to be highly concentrated, with
  Emtecs three largest pre-Merger customers, Gwinnett County School System
  (Georgia), State of New Jersey, and Duval County School System, accounting,
  respectively, for approximately 24.2%, 15.2% and 10.6% of Emtecs pre-Merger
  revenues for the year ended March 31, 2005. These same three customers
  accounted, respectively, for approximately 16.0%, 31.0% and 10.8% of Emtecs
  pre-Merger revenues in fiscal year 2004 and approximately 22.7%, 17.3% and 10.5%
  of Emtecs pre-Merger revenues in fiscal year 2003. The State of New Jersey
  computer supply and service contract was acquired in the August 12, 2002 asset
  acquisition from Acentra Technologies and is subject to annual renewals. In
  June 2005, the State of New Jersey extended the contract terms through June
  2006. An additional seven customers, General Electric, Cingular Wireless, Cox
  Communications, Bell South, Tiffany & Co., MBNA America, and The Bank of
  New York, collectively accounted for 30.3% of our revenues for the year ended
  March 31, 2005. We anticipate that these customer concentrations will continue
  for the foreseeable future.
The loss of any
  one of these customers could result in a material adverse effect on our business.
A large portion of our sales are drawn from various civilian and military U.S. governmental departments
and agencies. These customers include the Department of Defense, Department of Justice, Department
of Homeland Security, Department of Health and Human Services, Department of Agriculture, Department
of Commerce and the GSA.
During the last
  three fiscal years ended on August 31, 2005, 2004, and 2003, U.S. governmental
  departments and agencies related accounts for approximately 76.1%, 75.6%, and
  75.7%, respectively. Any of the following additional risk factors could have
  a material negative impact on our business:

Seasonality of federal government related business makes future financial results less predictable;
    Dependent
      on governments demand for IT products. A material decline in overall sales
      to the government as a whole, or to a certain key agency thereof, could
      have a material adverse effect on our results of operations. Amongst the
      key factors in maintaining our relationships with the federal government
      agencies are:
  Our performance on individual contracts and delivery orders
  The strength of our professional reputation
  The relationships of our key executives with customer personnel
Our compliance with complex procurement laws and regulations related to the formation, administration
and performance of federal government contracts;
Adverse changes in federal government fiscal spending could have a negative effect on our business;
Changes in federal government spending policies or budget priorities could directly affect our financial
performance. Among the factors that could materially harm our business are:
Significant decline in spending by the federal government in general or by specific departments or
agencies in particular
  Changes in the structure, composition and/or buying patterns of the government
  The adoption of new laws or regulations changing procurement practices
  Delays in the payment of our invoices by government payment offices.- 14 -
We may not be able to compete effectively in the highly competitive IT services industry.
The IT services business is highly competitive. Our competitors include established computer product
manufacturers, some of which supply products to us, distributors, computer resellers, systems integrators;
and other IT service providers.
Many computer product manufacturers also sell to customers through their direct sales organizations
and certain of them have announced their intentions to enhance such direct sales efforts. Many of
our current and potential competitors have longer operating histories and financial, sales, marketing,
technical, and other resources substantially greater than we do. As a result, our competitors may
be able to adapt more quickly to changes in client needs or to devote greater resources than we can
to the sales of IT products and the provision of IT services and we may not have the resources to
compete effectively.
We must maintain our status as an authorized reseller/service of IT products. The loss on any one of
such authorizations could have a material adverse effect on our business and operations.
We are materially dependent on our continued status as an approved reseller of IT products and our
continued authorization as an IT service provider. Without such authorizations, we would be unable
to provide the range of products and services we currently offer, including warranty services, and
manufacturers support services contracts. Our resale agreements with manufacturers generally are
terminable by manufacturers upon 30 days prior written notice. The loss of one or more of such
authorizations could have a material adverse effect on our business and results of operations.
We have no long-term sales commitments from any of our suppliers. A loss of any of our principal supplier
would material adversely affect our IT reseller business.
Our IT reseller business depends on large part upon our access to aggregators and manufacturers, to
supply us with products at competitive prices and on reasonable terms for resale by us to our customers.
Certain agreements may be terminated by such companies upon 30 days prior written notice. We cannot
assure you that we will be able to continue to obtain products from the aggregators and manufacturers
at prices or on terms acceptable to us, if at all.
Reduction in or elimination of our credit facilities with our primary trade vendors could have a material
adverse effect on our business and operations.
As of August 31, 2005, our open terms credit lines with our primary trade vendors, including aggregators
and manufacturers was $20.75 million. Under these credit lines, we are obligated to pay each invoice
within 30-45 days from the date of such invoice. These credit lines could be reduced or eliminated
without a notice, and this action could have a material adversely affect our business, result of
operations, and financial condition.
Our client engagements entail significant risks; a failure to meet a clients expectations could
materially adversely affect our reputation and business.
Many of our engagements involve projects that are critical to the operations of our customers
businesses and provide benefits that may be difficult to quantify. Our failure or inability to meet
a clients expectations in the performance of our services could result in a material adverse
change to the clients operations and therefore could give rise to claims against us or damage
our reputation, adversely affecting our business, results of operations, and financial condition.
- 15 -
We intend to expand our business through acquisitions of complementary businesses. There is no certainty,
however, that we will be successful in acquiring any new businesses or that any such acquisitions
will help us achieve our strategic objectives.
As a part of our business development strategy, we intend to pursue acquisitions of IT product and
service businesses in order to expand our service offerings, to add to or enhance our base of technical
or sales personnel, or to provide desirable client relationships. The success of this strategy depends
not only upon our ability to acquire complementary businesses on a cost-effective basis, but also
upon our ability to integrate acquired operations into our organization effectively, to retain and
motivate key personnel, and to retain customers of acquired firms. We cannot assure you that we will
be able to acquire or integrate such businesses successfully. Furthermore, we cannot assure you that
financing for any such acquisitions will be available on satisfactory terms, or that we will be able
to accomplish our strategic objectives as a result of any such transaction or transactions. In addition,
we expect to compete for attractive acquisition candidates with other companies or investors in the
IT industry, which could have the effect of increasing the cost of pursuing our acquisition strategy,
or it could reduce the number of attractive candidates to be acquired. Acquisitions also may involve
a number of specific risks, including:
possible adverse short-term effects on our operating results;dependence on retaining key customers and personnel;diversion of managements attention;amortization or impairment of acquired intangible assets; andrisks associated with unanticipated problems, liabilities, or contingencies.Acquisitions may also cause us to:
issue common stock or preferred stock or assume stock option plans that would dilute current shareholders
percentage ownership;
  use cash, which may result in reduction of our liquidity
  assume liabilities;
record goodwill and non-amortizable intangible assets that would be subject to impairment testing and
potential periodic impairment charges;
  incur amortization expenses related to certain intangible assets;
  incur large and immediate write-offs; and
  become subject to litigation.- 16 -
Shareholders of our common stock may face a lack of liquidity.
Our common stock is currently traded on the Over the Counter Bulletin Board. Given the fact that our
common stock is thinly traded, there can be no assurance that the desirable characteristics of an
active trading market for such securities will ever develop or be maintained. Therefore, each investors
ability to control the timing of the liquidation of the investment in our common stock will be restricted
and an investor may be required to retain his investment in our common stock indefinitely.
The market price of our common stock has been and is likely to continue to be volatile, which may make
it difficult for shareholders to resell common stock when they want to and at prices they find attractive.
Our share price has been volatile due, in part, to the general volatile securities market. Factors
other than our operating results may affect our share price may include the level of perceived growth
of the industries in which we participate, market expectations of our performance success of the
partners, and the sale or purchase of large amounts of our common stock.
- 17 -
Item 1B.     Unresolved Staff Comments
Not applicable.
- 18 -
Item 2.    Properties
We lease space in eleven locations. Our corporate headquarters and principal operational facilities
are currently located in Trenton, New Jersey. The following table contains certain information about
each of our leased facilities:
Address
    
    Size
      (in square feet)
    
    Monthly Rent
    
    Expiration Date572 Whitehead Road, Bldg. #1
      Trenton, NJ  08619
    
    16,000
    
    $11,600
    
    May 31, 2006354 North Avenue East
      Cranford, NJ  07016
    
    1,500
    
    $3,000
    
    May 31, 2007500 Satellite Blvd.
      Suwanee, GA 30024
    
    21,284
    
    $12,416
    
    November 30, 20097843 Bayberry Road, 
    Jacksonville, FL 32256
    
    3,340
    
    $2,218
    
    February 28, 2006880 Third Avenue, 12th   floor 
    New York, NY 10022
    
    7,635
    
    $24,777
    
    June 30, 2008(1)116 West 23rd Street Suite 500 
    New York, NY 10011
    
    N/A
    
    $2,730
    
    February 29, 2006572 Whitehead Road, Bldg. #5 
    Trenton, NJ 08619
    
    9,582
    
    $4,432
    
    November 14, 2003(2)11 Diamond Road
      Springfield, NJ  07081
    
    42,480
    
    $15,000
    
    April 30, 200914121 Parke Long Court Suite 200
      Chantilly, VA 20151
    
    5,837
    
    $8,610.
    
    August 31, 2010352 Seventh Avenue, 17th floor
      New York, NY 10001
    
    1,600
    
    $7,000
    
    May 31, 200720 Keyland Court 
    Bohemia, NY  11716
    
    3,500
    
    $1,833
    
    February 28, 2006- 19 -
(1)
We assumed this lease on January 9, 2002 in connection with our acquisition of Devise Associates, Inc.
We have sub-leased this office space though June 30, 2008 for an approximate monthly rental payment
of $15,700.(2)
This space is strictly a warehouse facility, currently on a month to month lease term.We believe these facilities will satisfy our anticipated needs for the foreseeable future.
- 20 -
Item 3.  Legal Proceedings
In March 2002, Logical Business Solutions, Inc., one of our competitors, instituted an action in the
Circuit Court, Fourth Judicial Circuit, in Duval County, Florida, against us and Cheryl Pullen, one
of our employees, alleging that we wrongfully interfered with its contractual relationship with one
of its customers. The amount of damages was not specified. The litigation is currently in the discovery
stage. We believe that the claim is without merit and intend to vigorously defend against the claim.
In
  addition we are subject to legal proceedings that arise in the ordinary course
  of business, but we do not believe these claims will have a material adverse
  impact on our financial position or results of operations.
- 21 -
Item 4.  Submission of Matters to a Vote of Security Holders
Not Applicable.- 22 -
PART II
Item 5.  Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is quoted on the Over The Counter Bulletin Board under the symbol ETEC. The
following table sets forth the high and low closing prices of our common stock for the periods indicated:
Three Months Ended
    High
    
    LowAugust 31, 2005
    $2.85
    
    $1.60May 31, 2005
    $2.00
    
    $1.32February 28, 2005
    $3.04
    
    $1.70November 30, 2004
    $2.25
    
    $0.88August 31, 2004
    $1.15
    
    $0.91May 31, 2004
    $1.45
    
    $0.99February 29, 2004
    $1.25
    
    $0.82November
      30, 2003
    $1.20
    
    $0.77The above quotations represent prices between dealers and do not include retail mark-ups, markdowns
or commissions. They do not necessarily represent actual transactions.
As of November 7, 2005, there were 612 record holders of our common stock, although we believe that
beneficial holders approximate 850.
We
  have not previously declared any dividends. It is not likely that dividends
  on the shares will be declared in the forseeable future. Under our current loan
  agreement, we may not declare any dividends without the consent of our lenders.
  However, even if our lenders consented, the determination and payment of dividends
  with respect to the shares in the future will be within the discretion of our
  board of directors and will depend on our earnings, capital requirements and
  operating and financial condition, among other factors.
Equity Compensation Plan Information
Plan category
    
    Number of securities to be 
issued upon exercise of 
outstanding options, warrants 
and rights
    
    Weighted-average exercise 
price of outstanding options, 
warrants and rights
    
    Number of securities remaining available for future 
      issuance under equity compensation plans (excluding 
securities reflected in column(a))(a)
    
    (b)
    
    (c)Equity compensation plans
      approved by security holders
    
    
    
    
    
    Equity compensation plans not
      approved by security holders (1)
    
    92,453
    
    $1.22
    
    639,058Total
    
    92,453
    
    $1.22
    
    639,058- 23 -
(1)
  Our 1996 Stock Option Plan (the Plan) (amended in 1999) authorizes
  the granting of stock options to directors and eligible employees. We have reserved
  1,000,000 shares of our common stock for issuance under the Plan at prices not
  less than 100% of the fair value of our common stock on the date of grants (110%
  in the case of shareholders owning more than 10% of our common stock). As of
  August 31, 2005, 268,489 options have been exercised under the Plan. Because
  we are not including a consent of an independent registered accounting firm
  with respect to our audited financial statements, we will not be able to incorporate
  those reports by reference to our current registration statement on Form S-8. As a result, we will not be granting any options to purchase
  our common stock until the receipt of a consent and the Form S-8 is complete.
Recent Sales of Unregistered Securities
In connection with the Merger, all of the shares of Darr common stock issued and outstanding were exchanged
for 9,528,110 shares of our common stock and warrants to purchase an additional 10% of our common
stock, measured on a post exercise basis. Neither the shares issued nor the shares underlying the
warrant were registered in connection with the closing of the Merger. The new issuance of common
stock represented approximately 55.7% of the issuers total outstanding common stock post-merger
and resulted in a change of control of the registrant.
The
  warrants to purchase our common stock issued to Darrs former shareholders
  evidences our obligation to issue a variable number of shares, in the aggregate,
  equal to 10% of the total issued and outstanding shares of the Companys
  stock, measured on a post exercise basis, at any date during the 5 year term
  of the warrants ending August 5, 2010. The aggregate exercise price of these
  warrants is fixed at $3,645,752. The exercise price per warrant shall vary based
  upon the number of shares issuable under the warrants. As of August 31, 2005,
  the aggregate number of shares issuable under these warrants totaled 1,914,682
  with an exercise price per share of $1.90. In addition, Darr issued a promissory
  note with a face value of $1,102,794 at an 8% annual interest rate in full redemption
  of its outstanding $1 million of preferred stock previously issued by Darr in
  connection with the Westwood Acquisition and in payment of $102,794 of dividends
  payable on preferred stock at the merger date.
Pursuant
  to the Merger, we initiated a self tender offer on September 7, 2005. When the
  tender offer closed on October 4, 2005, 4,984,185 shares had been properly tendered
  and not withdrawn. Because the number of shares of common stock tendered exceeded
  the number of shares that we offered to purchase, 57.473 percent of the shares
  that were tendered were repurchased. We funded the payment for the shares of
  our common stock from borrowings of $5.5 million under our revolving credit
  facility.
- 24 -
Item 6. Selected Financial Data
The issuance of our common stock in connection with the Merger gave the former Darr shareholders shares

equal to approximately 55.7% of our total outstanding common stock post-merger and resulted in
a
change of control for us. Accordingly, for financial reporting purposes, the Merger was treated
as
an acquisition of Emtec by Darr and a recapitalization of Darr and the registrants historical

financial statements for periods prior to the Merger become those of Darr. In addition, for financial

accounting purposes, the Westwood Acquisition was treated as an acquisition of Darr by Westwood
with
the result that the pre-Westwood Acquisition financial statements of Darr, and therefore,
the Registrant
are those of Westwood. As a result, the consolidated financial statements included
in this Form 10-K
include (i) the accounts and transactions for Westwood for the year ended August
31, 2003, (ii) the
accounts and transactions of Westwood for the period from September 1, 2003
to April 16, 2004 (Darr
Predecessor Period) and for Westwood and Darr for the period from April
17, 2004 to August 31, 2004
(Darr Successor Period) and (iii) the accounts and transactions of
Darr for the period from September
1, 2004 to August 31, 2005 and including the accounts and transactions
of Emtec for the period from
August 6, 2005 to August 31, 2005.
The following selected consolidated financial data below should be read in conjunction with our consolidated
financial statements including the accompanying notes and Managements Discussion and Analysis
of Financial Condition and Results of Operations, both elsewhere in this Report. The data as of August
31, 2005 and 2004 and for the year ended August 31, 2005, and for the periods from September 1, 2003
to April 16, 2004 (Darr Predecessor Period) and from April 17, 2004 to August 31, 2004 (Darr Successor
Period) have been derived from, and should be read in conjunction with, our audited consolidated
financial statements and accompanying notes, which are contained elsewhere in this Report. The data
as of August 31, 2003 and for the year ended August 31, 2003 have been derived from and should be
read in conjunction with our unaudited consolidated financial statements and accompanying notes,
which are contained elsewhere in this Report. The data as of August 31, 2002, and 2001 and for each
of the two years in the period ended August 31, 2002 have been derived from our unaudited financial
statements, which are not contained in this Report.
YEAR
      ENDED AUGUST 31,(Successor
      Period)
    
    (Predecessor
      Period)2005
    
    2004
    
    2004
    
    2003
    
    2002
    
    2001(unaudited)
    
    (unaudited)
    
    (unaudited)Net revenues
    $
    162,632,042
    
    $
    41,641,604
    
    $
    88,229,719
    
    $
    97,449,611
    
    $
    94,165,222
    
    $
    80,184,220Net Income
      (loss)
    $
    826,985
    
    $
    122,281
    
    $
    885,837
    
    $
    467,390
    
    $
    549,605
    
    $
    612,757Net Income
      (loss) per 
      common share (basic & diluted)
    $
    0.08
    
    $
    0.01
    
    $
    0.09
    
    $
    0.05
    
    $
    0.06
    
    $
    0.06AT
      AUGUST 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(unaudited)
    
    (unaudited)
    
    (unaudited)Total assets
    $
    70,009,919
    
    $
    21,737,638
    
    $
    22,984,079
    
    $
    23,060,145
    
    $
    14,038,416Total long-term
      debt
    $
    3,010,219
    
    $
    2,405,084
    
    
    
    
    $
    351,112
    
    $
    404,445Total preferred
      stock *
    
    
    
    $
    1,030,000Total redeemable
      common stock
    $
    5,500,000
    
    $
    0
    
    $
    0
    
    $
    0
    
    $
    0*Liquidation value of $1,030,00.00
- 25 -
There
  was a dividend in the form of the distribution of a note receivable in the amount
  of $399,958 paid to the shareholders of Westwood on April 15, 2004. There were
  no other dividends paid to common stockholders during the five year period ended
  on August 31, 2005.
- 26 -
Item 7.  Managements Discussion and Analysis of Financial Condition and Results of Operations
Reference is made to the Risk Factors outlined in Item 1A for a discussion of important
factors that could cause actual results to differ from expectations and any of our forward-looking
statements contained herein. The following discussion as of August 31, 2005 and 2004 and the corresponding
data for (i) the year ended August 31, 2005, and (ii) for the periods from (a) September 1, 2003
to April 16, 2004 (Darr Predecessor Period) and (b) from April 17, 2004 to August 31, 2004 (Darr
Successor Period) have been derived from, and should be read in conjunction with, our audited consolidated
financial statements and accompanying notes, which are contained elsewhere in this Report. The data
as of August 31, 2003 and for the year ended August 31, 2003 have been derived from and should be
read in conjunction with our unaudited consolidated financial statements and accompanying notes,
which are contained elsewhere in this Report.
Overview
We are an information technology company, providing services and products to commercial, federal,
education, state and local verticals. Areas of specific practices include communications, data availability,
enterprise computing, managed services, storage and data center planning and development. Our solutions
are crafted to enable our customers to become more efficient and effective, thereby giving them a
competitive advantage. To date, the most significant portion of our revenues has been derived from
our activities as a reseller of IT products, such as workstations, servers, microcomputers, application
software and networking and communications equipment. However, we are actively endeavoring to increase
the portion of our revenues that are derived from IT services.
Merger with Darr
On August 5, 2005, we completed our merger under the Agreement and Plan of Merger dated as of July
14, 2005 (the Merger Agreement), by and among us, Emtec Viasub LLC, a Delaware limited
liability company and our wholly-owned subsidiary (MergerCo), and Darr Westwood Technology
Corporation, a Delaware corporation (Darr). Pursuant to the terms of the Merger Agreement,
Darr merged with and into MergerCo, with MergerCo remaining as the surviving company (the Surviving
Company) and a wholly-owned subsidiary of Emtec (the Merger).
The Merger has been accounted for as a capital transaction followed by a recapitalization. Our management
concluded that the transaction resulted in a change in control of the Company and that the Merger
should be accounted for as a reverse acquisition. Accordingly, Darr is deemed to be the acquiring
company for financial reporting purposes in the reverse acquisition. The reverse merger was treated
as an acquisition of Emtec by Darr and a recapitalization of Darr. Consequently, Emtecs historical
financial statements for periods prior to the Merger become those of Darr.
Furthermore, in connection with the closing of the Merger, Emtec changed its fiscal year end from March
31 to August 31, effective as of August 5, 2005.
Darr and Its 2004 Merger with Westwood
Prior to the Merger, Darr was a holding company formed in April 2004 in order to effectuate the purchase
of all of the outstanding capital stock of Westwood. Darrs acquisition of Westwoods capital
stock was completed on April 16, 2004. Westwood is engaged in the sale and service of computers and
- 27 -
peripherals to customers which include departments of the United States, state and local governments
and commercial businesses throughout the United States.
We refer to Darrs acquisition of Westwood as the Westwood Acquisition. Darr
is referred to as Darr Predecessor for the periods prior to the Westwood Acquisition
and Darr for the periods following the Westwood Acquisition. Similarly to the Emtec-Darr
Merger, in the Westwood Acquisition, Westwood was deemed to be the acquiring company for financial
reporting purposes in the reverse acquisition. Consequently, Westwoods historical financial
statements for periods prior to the Westwood Acquisition become those of Darr. For the discussion
and analysis in this Report we have combined Westwoods period from September 1, 2003 to April
16, 2004 (Darr Predecessor Period) and Darrs period from April 17, 2004 to August 31, 2004
(Darr Successor Period).
Westwood
  is engaged in the sale and service of computers and peripherals to customers
  which include departments of the United States, state and local governments
  and commercial businesses throughout the United States. Westwood is a supplier
  of information technology products and services primarily to the Federal Government.
  It has been recognized as one of the top 20 General Services Administration
  vendors in the IT industry during each of the past eight years and was named
  in data compiled by the GSA as the ninth largest such vendor for the Federal
  Governments 2004 fiscal year. Westwood has additional locations in New
  York and Virginia, as well as five regional offices in the South and western
  United States.
The majority of Westwoods sales are drawn from various civilian and military U.S. governmental
departments and agencies. These customers include the Department of Defense, Department of Justice,
Department of Homeland Security, Department of Health and Human Services, Department of Agriculture,
Department of Commerce and the GSA. During the last three fiscal years ended on August 31, 2005,
2004, and 2003, U.S. governmental departments and agencies accounts for approximately 76.1%, 75.6%,
and 75.7%, respectively. The federal government business typically experiences increased activity
during the months August through November.
Overview of Financial Statements Presented Herein
As previously noted, the Merger was treated as an acquisition of Emtec by Darr
  and a recapitalization of Darr and the registrant. Darr is deemed to be the
  acquiring company for financial reporting purposes and Emtecs historical
  financial statements for periods prior to the Merger become those of Darr.
In evaluating our results of operations and financial performance, our management has used combined
results for the fiscal year ended August 31, 2005 as a single measurement period. Due to the Merger,
we believe that comparisons between the eleven months ended August 5, 2004 and either Darrs
results for the period from September 1, 2004 to August 5, 2005 or Emtecs results for the period
from August 6, 2005 through August 31, 2005 may impede the ability of users of our financial information
to understand our operating and cash flow performance. Consequently, in order to enhance an analysis
of our operating results and cash flows, we have presented our operating results and cash flows on
a combined basis for the fiscal year ended August 31, 2005. This combined presentation for the fiscal
year ended August 31, 2005 simply represents the mathematical addition of the pre-acquisition results
of operations of Darr for the period from September 1, 2004 through August 5, 2005 and the results
of operations of Emtec, following the Merger, for the period from August 6, 2005 through August 31, 2005.
Therefore, the financial statements presented in this Report consist of the following financial statements:
- 28 -
1. Westwood
      for the fiscal year ended August 31, 2003;2. Westwood
      for the period from September 1, 2003 to April 16, 2004 (the Darr Predecessor
      Period);3.  Darr
      (following the Westwood Merger on April 16, 2004) for the period from April
      17, 2004 to August 31, 2004 (Darr Successor Period);4.  Darr
      for the fiscal year ended August 31, 2005 (including Emtec, following the
      Merger, for the period from August 6, 2005 to August 31, 2005).As mentioned above, for the discussion and analysis in this Report we have combined Westwoods
period from September 1, 2003 to April 16, 2004 (Darr Predecessor Period) and Darrs period
from April 17, 2004 to August 31, 2004 (Darr Successor Period) and our period from September 1, 2004
to August 31, 2005 represents the financial statements of Darr for the 2005 fiscal year plus the
financial statements of Emtec for the period from August 6, 2005 to August 31, 2005.
Results of Operations
The
  following discussion and analysis provides information that management believes
  is relevant to an assessment and understanding of our Results of Operations
  for the fiscal years ended August 31, 2005 and 2004. For this discussion and
  analysis we have combined the periods from September 1, 2003 to April 16, 2004
  (Darr Predecessor Period) and from April 17, 2004 to August 31, 2004 (Darr Successor
  Period and our period from September 1, 2004 to August 31, 2005 represents the
  results of operations of Darr for the 2005 fiscal year plus the financial statements
  of Emtec for the period from August 6, 2005 to August 31, 2005.
Our Report on Form 10-Q that will be filed for the quarter ended November 30, 2005, will be our first
quarterly report that will include full three months of results of operations of the combined company.
- 29 -
Comparison of Years Ended August 31, 2005 and 2004
EMTEC,
      INC. CONSOLIDATED STATEMENTS OF OPERATIONSYears Ended August 31,2005
    
    2004
    
    Change
    
    %Revenues
    $
    162,632,042
    
    $
    129,871,323
    
    $
    32,760,719
    
    25.2
    %Cost of revenues
    
    148,587,442
    
    $
    117,214,228
    
    
    31,373,214
    
    26.8
    %Gross profit
    
    14,044,600
    
    
    12,657,095
    
    
    1,387,505
    
    11.0
    %Percent of
      revenues
    
    8.6
    %
    
    9.7
    %Operating
      expenses:Selling,
      general, and administrative expenses
    
    11,872,766
    
    $
    10,711,020
    
    
    1,161,746
    
    10.8
    %Management
      fee  related party
    
    350,000
    
    
    116,664
    
    
    233,336
    
    200.0
    %Rent
      expense  related party
    
    180,000
    
    $
    215,333
    
    
    (35,333
    )
    -16.4
    %Depreciation
      and amortization
    
    174,944
    
    $
    75,005
    
    
    99,939
    
    133.2
    %Total operating
      expenses
    
    12,577,710
    
    
    11,118,022
    
    
    1,459,688
    
    13.1
    %Pecent of
      revenues
    
    7.7
    %
    
    8.6
    %
    
    
    
    0.0
    %Operating
      income
    
    1,466,890
    
    
    1,539,073
    
    
    (72,183
    )
    -4.7
    %Percent of
      revenues
    
    0.9
    %
    
    1.2
    %Other expense
      (income):Forgiveness
      of debt
    
    
    ($405,652)
    
    405,652
    
    -100.0
    %Interest
      income  related party
    
    
    ($21,483)
    
    21,483
    
    -100.0
    %Interest
      income  other
    
    (120,520
    )
    
    ($ 70,262
    )
    
    (50,258
    )
    71.5
    %Interest
      expense
    
    611,479
    
    $
    257,484
    
    
    353,995
    
    137.5
    %Other
      expense (income)
    (303,604
    )
    
    
    (303,604
    )
    N/ALoss
      on sales of land and building
    
    
    
    
    
    
    N/AIncome before
      income taxes
    
    1,279,535
    
    
    1,778,986
    
    
    (499,451
    )
    28.1
    %Provision
      for income taxes
    
    452,550
    
    $
    770,868
    
    
    (318,318
    )
    -41.3
    %Net income
    $
    826,985
    
    $
    1,008,118
    
    $
    (181,133
    )
    -18.0
    %Percent of
      revenues
    
    0.5
    %
    
    0.8
    %- 30 -
Total Revenues
Total
  revenues increased by 25.2% or $32.76 million to $162.63 million for the year
  ended August 31, 2005, compared to $129.87 million for the year ended August
  31, 2004. This increase is primarily attributable to an increase in the federal
  government business including significant one-time sale to a federal government
  customer - the United States Department of Agriculture (USDA) of approximately
  $21.79 million which represented approximately 66% of our total increase in
  revenue. Additionally, our revenue increased as a result of our merger with
  Emtec on August 5, 2005. Revenues associated with this merger equaled $6.26
  million for the year ended August 31, 2005 which represents approximately 19%
  of the total revenue increase. Other factors which increased revenue include
  increased service revenue and higher selling efforts.
The
  federal government business typically experiences increased activity during
  the months of August through November. We do not expect that significant one-time
  sales like one discussed above will continue to occur in the future periods.
Gross Profit
Aggregate
  gross profit increased by 11.0% or $1.39 million to $14.04 million for the year
  ended August 31, 2005, as compared to $12.66 million for the year ended August
  31, 2004. This increase is primarily attributable to a significant sale to a
  federal government customer- the USDA discussed above in the revenue section,
  and the gross profit associated with Emtec post-merger, (Old Emtec) revenues.
  Gross profits associated with USDA sales approximated $814,000, and gross profit
  associated with merger equaled approximately $772,000. Without this one-time
  sale and the Merger, our aggregate gross profit would have decreased by approximately
  $200,000. Measured as a percentage of revenues, our gross profit margin decreased
  to 8.6% of total revenues for the year ended August 31, 2005 from 9.7% for the
  year ended August 31, 2004. Both of these decreases are mainly due to competitive
  pressures and aggressive pricing strategies which lowered our gross margins.
Factors that may affect gross margins in the future include changes in product margins, changes in
technical employee utilization rates, the mix of products and services sold, and the decision to
aggressively price certain products and services.
Selling, General, and Administrative Expenses
Selling,
  general and administrative expenses increased by 10.8% or $1.16 million to $11.87
  million for the year ended August 31, 2005, compared to $10.71 million for the
  year ended August 31, 2004. This increase is mainly due to the Merger with Emec
  on August 5, 2005. Selling, general and administrative expenses associated with
  Emtec post-merger (Old Emtec) approximated $857,000. Our increase in head count
  company-wide and the corresponding compensation and benefits expense associated
  with our long-term investment in new employees also factored into the to increase
  of our selling, general and administrative expenses. Selling, general and administrative
  expenses as a percentage of sales decreased to 7.3% from 8.2%.
Factors that may in the future have a negative impact on our selling, general and administrative costs
include costs associated with marketing and selling activities, compliance costs associated with
Securities and Exchange Commission rules and insurance markets.
Management Fee-Related Party
- 31 -
Management
  fee related-party increased by 200% or $233,336 to $350,000 for the year ended
  August 31, 2005 compared to $116,664 for the year ended August 31, 2004. The
  increase in the management fee-related party is due to a full year of management
  fees paid to DARR Global Holdings, Inc. as compared with only a partial year
  of management fees in 2004. DARR Global Holdings, Inc. is a management consulting
  company owned by Dinesh Desai, our Chief Executive Officer.
Rent Expense-Related Party
Rent
  Expense-Related Party decreased by 16.4% or $35,333 to $180,000 for the year
  ended August 31, 2005 compared to $215,333 for the year ended August 31, 2004.
  The decrease in Rent Expense-Related Party is due to the decrease in rent for
  the Springfield, NJ office and warehouse space.
We occupy approximately 43,000 square feet of office and warehouse space in Springfield, New Jersey

This space is leased from Westwood Property Holdings, LLC, in which Mr. Keith Grabel, our director

and an executive officer, Mrs. Mary Margaret Grabel, spouse of our director and an executive officer,

and Mr. David Micales, our Vice President of Operations are members. The lease term is through
April
2009 with monthly base rent of $15,000.Depreciation and Amortization
Depreciation
  and Amortization expense increased by 133.2% or $99,939 to $174,944 for the
  year ended August 31, 2005 compared to $75,005 for the year ended August 31,
  2004. This increase is attributable to the merger with Emtec acquisition on
  August 5. Old Emtecs post-merger depreciation and amortization accounted
  for approximately for $52,000 of the increase. Additionally, we made fixed asset
  acquisitions of $491,310 during the year ended August 31, 2005. These capital
  assets acquisitions were primarily for the purchase of computer equipment for
  internal use, purchase of software licenses to upgrade our computer systems,
  and for furniture and fixtures, which increased our depreciation expense.
On
  August 5, 2005, the Company recorded an Intangible asset, ascribed to customer
  relationship of $8,378,166 in connection with the acquisition of Old Emtec.
  Intangible assets at August 31, 2005 and 2004 consisted of the value ascribed
  to customer relationships of $8,661,712 less accumulated amortization of $68,868
  and $283,546 less accumulated amortization of $7,270, respectively. The assets
  ascribed to customer relationships are being amortized on a straight-line basis
  over 13-15 years. Amortization expense was $61,598 and $7,270 for the periods
  ended August 31, 2005 and August 31, 2004, respectively. Amortization expense
  of $580,356 is expected to be recorded each year through August 31, 2016, $573,085
  for the year ended August 31, 2017, $558,544 for the years ended August 31,
  2018, and 2019, and $518,755 for the year ended August 31, 2020.
Interest expense
Interest
  expense increased by 137.5% or $353,995 to $611,479 for the year ended August
  31, 2005, compared to $257,484 for the year ended August 31, 2004. This is mainly
  due to a full year of interest expense on notes payable to former stockholders
  of Westwood, DARR Westwood LLC, and Four Kings Management, LLC, which were associated
  with the April 2004 acquisition of Westwood by Darr.
Other expense (income)
- 32 -
Other income of $303,604 recorded on August 31, 2005, was due to the change in the value of the put
options issued on August 5, 2005 using a Black-Scholes option pricing model. Under the Black-Scholes
model, the total value of the put options was $315,104. As of August 31, 2005, the total value of
the put options was $11,500.
Income Taxes
Income
  taxes decreased by 41.3% or $318,318 to $452,550 for the year ended August 31,
  2005, compared to $770,868 for the year ended August 31, 2004. This decrease
  is primarily attributable to the decrease in taxable income. Taxable income
  decreased by 28.19% or $499,451 to $1.28 million for the year ended August 31,
  2005, compared to $1.78 million for the year ended August 31, 2004.
- 33 -
Comparison of Years Ended August 31, 2004 and 2003
The following discussion and analysis provides information that management believes is relevant to
an assessment and understanding of our Results of Operations for the fiscal years ended March 31,
2004, and 2003. For this discussion and analysis we have combined the periods from September 1, 2003
to April 16, 2004 (Darr Predecessor Period) and from April 17, 2004 to August 31, 2004 (Darr Successor
Period).
EMTEC,
      INC. CONSOLIDATED STATEMENTS OF OPERATIONSYears Ended August 31,2004
    
    2003
      (unaudited)
    
    Change
    
    %Revenues
    $
    129,871,323
    
    $
    97,449,611
    
    $
    32,421,712
    
    33.3
    %Cost of revenues
    $
    117,214,228
    
    
    87,843,440
    
    
    29,370,788
    
    33.4
    %Gross profit
    
    12,657,095
    
    
    9,606,171
    
    
    3,050,924
    
    31.8
    %Percent of
      revenues
    
    9.7
    %
    
    9.9
    %Operating
      expenses:Selling,
      general, and administrative expenses
    $
    10,711,020
    
    
    8,623,016
    
    
    2,088,004
    
    24.2
    %Management
      fee  related party
    
    116,664
    
    
    
    
    
    116,664
    
    N/ARent
      expense  related party
    $
    215,333
    
    
    
    
    
    215,333
    
    N/ADepreciation
      and amortization
    $
    75,005
    
    
    125,054
    
    
    (50,049
    )
    -40.0
    %Total operating
      expenses
    
    11,118,022
    
    
    8,748,070
    
    
    2,369,952
    
    27.1
    %Pecent of
      revenues
    
    8.6
    %
    
    9.0
    %Operating
      income
    
    1,539,073
    
    
    858,101
    
    
    680,972
    
    79.4
    %Percent of
      revenues
    
    1.2
    %
    
    0.9
    %Other expense
      (income):Forgiveness
      of debt
    
    ($ 405,652
    )
    
    
    
    
    (405,652
    )
    N/AInterest
      income  related party
    
    ($ 21,483
    )
    
    
    
    
    (21,483
    )
    N/AInterest
      income  other
    
    ($ 70,262
    )
    
    (48,613
    )
    
    (21,649
    )
    44.5
    %Interest
      expense
    $
    257,484
    
    
    42,324
    
    
    215,160
    
    508.4
    %Loss
      on sales of land and building
    
    
    
    
    102,253
    
    
    
    
    N/AIncome before
      income taxes
    
    1,778,986
    
    
    762,137
    
    
    1,016,849
    
    133.4
    %Provision
      for income taxes
    $
    770,868
    
    
    294,747
    
    
    476,121
    
    161.5
    %Net income
    $
    1,008,118
    
    $
    467,390
    
    $
    540,728
    
    115.7
    %Percent of
      revenues
    
    0.8
    %
    
    0.5
    %- 34 -
Total RevenuesTotal
  revenues increased by 33.3% or $32.42 million, to $129.87 million for year ended
  August 31, 2004, compared to $97.45 for the year ended August 31, 2003. Of this
  $32.42 million increase, $24.31 million, representing 75.0% of the increase,
  was attributable to a substantial increase in federal government related business.
  The increase was amongst various military and civilian departments and agencies
  including sizable increases in sales to the Department of Defense and the Department
  of Justice which amounted to approximately $3.23 million and $5.71 million,
  respectively, for the year ended August 31, 2004. In addition to our federal
  government related business, our overall revenues from our commercial customer
  base increased by approximately $8.0 million for the fiscal year ended August
  31, 2004 as compared with the year ended August 31, 2003. This is mainly attributable
  to an overall increase in our commercial customers IT spending.
Gross Profit
Aggregate
  gross profit increased by 31.8%, or $3.05 million, to $12.66 million for the
  year ended August 31, 2004, compared to $9.61 million for the year ended August
  31, 2003. This was primarily attributable to an increase in our overall revenues
  as discussed in the total revenue section above. Measured as a percentage of
  product revenues, our gross profit margin decreased to 9.7% of revenue for the
  year ended August 31, 2004, as compared with 9.9% for the year ended August
  31, 2003. This decrease is mainly due to continued downward pricing pressure
  on product sales from our customers.
Selling, General, and Administrative Expenses
Selling,
general and administrative expenses increased by 26.7%, or $2.33 million to $11.02 million for the
year ended August 31, 2004, compared to $8.7 million for the year ended August 31, 2003. This increase
was mainly due to payroll and benefits costs associated with increase in employee headcount company-wide,
increased management related compensation, increased sales commission expense related to increased
revenue and gross profits and increased professional fees as a result of the April 16, 2004 acquisition
of Westwood by Darr.
Depreciation and Amortization
Depreciation and Amortization expense decreased by 40.0% or $50,049 to $75,005 for the year ended August
31, 2004 as compared to $125,054 for year ended August 31, 2003
Interest expense
Interest
  expense increased by 508.4%, or $215,160, to $257,484 for the year ended August
  31, 2004, compared to $42,324 for the year ended August 31, 2003. This is primarily
  attributable to the interest expense on the notes payable to former stockholders
  of Westwood, the note payable to DARR Westwood LLC, and the note payable to
  Four Kings Management, LLC. Partial year interest expense was recorded in 2004.
  These notes did not exist in 2003.
Income Taxes
Income
  tax expense increased by 161.5%, or $476,121, to $770,868 for the year ended
  August 31, 2004, compared to $294,747 for the year ended August 31, 2003. This
  increase is primarily attributable to the increase in taxable income. Taxable
  income increased by 133.4% or $1.02 million to $1.78 million for the year ended
  August 31, 2004, compared to $762,137 for the year ended August 31, 2004.
- 35 -
Recently Issued Accounting Standards
In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151,
Inventory Costs, and an Amendment of ARB No. 43, Chapter 4. SFAS No. 151 retains the
general principle of ARB No. 43, Chapter 4, Inventory Pricing, that inventories
are presumed to be stated at cost; however, it amends ARB No. 43 to clarify that abnormal amounts of idle facilities, freight,
handling costs and spoilage should be recognized as current period expenses. Also,
SFAS No. 151 requires that fixed overhead costs be allocated to inventories based on normal production
capacity. The guidance in SAFS No. 151 is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. We believe that implementing SFAS No. 151 should not have any material
impact on our financial condition, results of operations or cash flows.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R), which replaces SFAS No.
123, Accounting for Stock-Based Compensation (SFAS 123) and supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123R requires all share-based payments
to employees, including grants of employee stock options, to be recognized in the
financial statements based on their fair values, beginning with the next fiscal
year that begins after June 15, 2005. The pro forma disclosures previously permitted under SFAS 123 will
no longer be an alternative to financial statement recognition. Under SFAS 123R, we
must determine the appropriate fair value model to be used for valuing
share-based payments, the amortization method for compensation cost and the transition method to
be used at date of adoption.
SFAS No. 123R will apply to awards granted or modified by us after August 31, 2005. Compensation
cost will also be recorded for prior option grants that vest after that date. The effect of adopting
SFAS 123 on our consolidated results of operations will depend on the level of future option
grants and the fair value of the options granted at such future dates, as well as
the vesting periods provided by such awards and, therefore, cannot currently be estimated.
We are evaluating the requirements of SFAS 123R and have not yet determined
the method of adoption or the effect of adopting SFAS 123R, and we have not determined
whether the adoption will result in amounts that are similar to the current pro forma disclosures
under SFAS 123.
- 36 -
Liquidity and Capital Resources
Cash
  and cash equivalents at August 31, 2005 of $1.02 million represented a decrease
  of $194,680 from $1.22 million at August 31, 2004. Outstanding borrowings under
  our line of credit at August 31, 2005 represented an increase of $4.11 million
  from $299,290 at August 31, 2004. At August 31, 2005, our working capital was
  decreased by $901,605 to $2.90 million from $3.80 million as of August 31, 2004.
The
  Merger was treated as a purchase by Darr of Emtec. Working capital of Emtec
  acquired by Darr amounted to $5.49 million at August 5, 2005. Darr incurred
  merger transaction costs of $521,134 that reduced its working capital. Pursuant
  to the merger terms, we executed a self tender offer to purchase up to 2,864,584
  shares of its outstanding common stock from pre-merger Emtec stockholders at
  a price per share of $1.92. We recorded a current liability of $315,104 at August
  5, 2005 related to the fair value of the put options granted in the self tender
  offer. We borrowed $5.5 million on August 5, 2005 under our revolving credit
  facility with GE Commercial Distribution Finance Corporation; this amount is
  classified as restricted cash on the balance sheet as a non-current asset and
  therefore, reduced our working capital. We initiated this self tender offer
  on September 7, 2005 and closed on October 4, 2005. The net effect of the Merger
  and related aforementioned transactions reduced the overall working capital
  of Darr by $846,728 exclusive of post-merger interest costs related to the $5.5
  million borrowing.
The March 1, 2005 acquisition of Proven Technology business was done at a cost of $162,610 which reduced
working capital. Earnings from operations for the year ended August 31, 2005 added approximately
$1.0 million to our working capital, whereas capital expenditures of $491,000 and debt repayments
of $449,000 reduced working capital as of August 31, 2005.
Since
  our inception, we have funded our operations primarily from borrowings under
  our credit facility. On August 5, 2005, our subsidiaries, Emtec NJ and Westwood
  (together, the Borrower), entered into a Business Financing Agreement
  with GE Commercial Distribution Finance Corporation (Lender) pursuant
  to which the Lender has agreed to provide to Borrower an accounts receivable
  facility (the Credit Facility). The Credit Facility provides for
  aggregate borrowings of the lesser of $35.0 million or 85% of eligible accounts
  receivable, plus 100% of unsold inventory financed by the Lender, minus a $3.15
  million reserve. The Credit Facility includes certain financial covenants that
  we must maintain on a quarterly basis and we are also subject to certain mandatory
  prepayments upon the occurrence of certain events, subject to certain exceptions,
  set forth in the Business Financing Agreement.
Borrowings under the Credit Facility will bear interest at an annual rate equal to the greater of (i)
the rate of interest which JP Morgan Chase Bank (or its successor) publicly announces from time to
time as its prime rate or reference rate or (ii) four percent (4%). Interest will be calculated by
multiplying (i) the annual rate divided by 360 and (ii) the amount of the outstanding principal balance
under the Credit Facility at the end of each day.
To secure the payment of the obligations under the Credit Facility, Borrower granted to Lender a security
interest in all of Borrowers interests in certain of its assets, including inventory, equipment,
fixtures, accounts, chattel paper, instruments, deposit accounts, documents, general intangibles,
letter of credits rights, and all judgments, claims and insurance policies.
In connection with the Credit Facility, Emtec NJ and Westwood (together, the Dealer) entered
into the Agreement for Wholesale Financing with the Lender on August 5, 2005 (the Wholesale
- 37 -
Agreement). The Wholesale Agreement provides for an extension of credit by the Lender to the
Dealer from time to time, subject to the maximum aggregate borrowings set forth in the Credit Facility,
to purchase inventory from approved vendors and for other purposes. The financial terms of any advance
by the Lender are not set forth in the Wholesale Agreement because such terms depend upon many variable
factors, including availability of vendor discounts, payment terms or other incentives and purchase
volume. The Wholesale Agreement contains certain customary representations and warranties and events
of default, including the failure to pay interest, principal or fees, any material inaccuracy of
any representation and warranty, bankruptcy and insolvency events.
Since
  our current credit facility with one of our primary trade vendors MRA Systems,
  Inc dba GE Access was also collateralized by substantially all of our assets,
  the Lender and GE Access entered into an intercreditor agreement in which the
  lender agreed to give GE Access first lien position on all future unbilled service
  maintenance billings and which provide that as regards to GE Access, all debt
  obligations to the Lender are accorded priority.
As
  of August 31, 2005, we were in compliance with all of our financial covenants
  and we had a $4.41 million outstanding balance under the credit facility and
  an unused availability of $11.16 million.
On November 22, 2005, the Lender increased our total credit facility from $35.0 million to $48.0 million.
This is a temporary increase available to us only through December 15, 2005.
Our open terms credit facilities at August 31, 2005 with our primary trade vendors, including aggregators
and manufacturers was $20.75 million with outstanding principal of approximately $13.67 million.
Under these credit lines, we are obligated to pay each invoice within 30-45 days from the date of
such invoice. These credit lines could be reduced or eliminated without a notice, and this action
could have a material adversely affect our business, result of operations, and financial condition.
Capital
  expenditures of $491,310 during the year ended August 31, 2005 were primarily
  for the purchase of computer equipment for internal use, purchase of software
  licenses to upgrade our computer systems, and for furniture and fixtures. We
  anticipate our capital expenditures for fiscal year ending August 31, 2006 will
  be approximately $650,000. Approximately $540,000 will primarily be for the
  upgrade of our computer system across the organization, as well as implementation
  and data conversion costs, and remaining $110,000 will primarily be for the
  purchase of computer equipment for internal use.
The
  following are our long-term contractual obligations for leases, debt and other
  long term liabilities as of August 31, 2005. Other long-term liabilities consists
  of accrued severance.
Payments due by period:Contractual Obligations:
    Total
    
    less
      than
      1 year
    
    1-3 years
    
    4-5 years
    
    more than 5 yearsLong-term debt obligations
    
    3,535,093
    
    
    524,874
    
    
    1,223,027
    
    
    1,787,192
    
    
    Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    3,010,259
    
    
    973,463
    
    
    1,498,299
    
    
    538,497
    
    
    Purchase obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities
    
    380,356
    
    
    130,150
    
    
    235,900
    
    
    14,306
    
    
    Total
    $
    6,925,708
    
    $
    1,628,487
    
    $
    2,957,226
    
    $
    2,339,995
    
    $
    - 38 -
We will need to generate cash flow from operations at a sufficient enough level through fiscal 2009
to finance anticipated capital expenditures and service our current outstanding debt.
Cash generated from operations may be negatively affected by a number of factors. See Forward
Looking Statements and Business Risk Factors for a discussion of the factors that
can negatively impact the amount of cash we generate from our operations.
We anticipate that our primary sources of liquidity in fiscal 2006 will be cash generated from operations,
trade vendor credit and cash available to us under our revolving credit facility. Our future financial
performance will depend on our ability to continue to reduce and manage operating expenses, as well
as our ability to grow revenues. Our revenues will continue to be impacted by the loss of customers
due to price competition and technological advances. Our future financial performance could be negatively
affected by unforeseen factors and unplanned expenses. See Forward Looking Statements
and Business  Risk Factors.
Although we have no definite plans to undertake any future debt or equity financing, we will continue
to pursue all potential funding alternatives. Among the possibilities for raising additional funds
are issuances of debt or equity securities, and other borrowings under secured or unsecured loan
arrangements. There can be no assurances that additional funds will be available to us on acceptable
terms or in a timely manner.
We have no arrangements or other relationships with unconsolidated entities or other persons that are
reasonably likely to materially affect liquidity or the availability of or requirements for capital
resources.
We believe that funds generated from operations, trade vendor credit and bank borrowings should be
sufficient to meet our current operating cash requirements through the next twelve months, although
there can be no assurance that all of the aforementioned sources of cash can be realized.
Critical Accounting Policies
Our
  financial statements are prepared in accordance with accounting principles that
  are generally accepted in the United States. The methods, estimates, and judgments
  we use in applying our most critical accounting policies have a significant
  impact on the results we report in our financial statements. The Securities
  and Exchange Commission has defined critical accounting policies as policies
  that involve critical accounting estimates that require (i) management to make
  assumptions that are highly uncertain at the time the estimate is made, and
  (ii) different estimates that could have been reasonably used for the current
  period, or changes in the estimates that are reasonably likely to occur from
  period to period, which would have a material impact on the presentation of
  our financial condition, changes in financial condition or in result of operations.
  Based on this definition, our most critical policies include: revenue recognition,
  allowance for doubtful accounts, inventory valuation reserve, the assessment
  of recoverability of long-lived assets, the assessment of recoverability of
  goodwill and intangible assets, and valuation of deferred tax assets.
Revenue RecognitionWe recognize revenue from the sales of products when risk of loss and title passes which is upon customer
acceptance.
- 39 -
Revenue from the sale of warranties and support service contracts is recognized on a straight-line
basis over the term of the contract, in accordance with Financial Accounting Standards Board Technical
Bulleting No. 90-1, Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts (FTB 90-1).
We may also enter into sales arrangements with customers that contain multiple elements. We recognize
revenue from sale arrangements that contain both products and manufacturer warranties in accordance
with Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables, based on the relative fair value of the individual components. The relative fair
value of individual components is based on historical sales of the components sold separately.
Product revenue represents sales of computer hardware and pre-packaged software. These arrangements
often include software installations, configurations, and imaging, along with delivery and set-up
of hardware. We follow the criteria contained in EITF 00-21 and SAB 104 in recognizing revenue associated
with these transactions. We perform software installations, configurations and imaging services at
our locations prior to the delivery of the product. Some customer arrangements include set-up
services performed at customer locations where our personnel perform the routine tasks of removing
the equipment from boxes, and setting up the equipment at customer workstations by plugging in all
necessary connections. This service is usually performed the same day as delivery. Revenue is recognized
on the date of acceptance, except as follows:

    In some instances,
      the set-up service is performed after date of delivery. We recognizes
      revenue for the hardware component at date of delivery when
      the amount of revenue allocable to this component is not contingent upon
      the completion of set-up services and therefore, our customer
      has agreed that the transaction is complete as to the hardware
      component. In instances where our customer does not accept delivery until
      set-up services are completed, we defer all revenue in the transaction
      until customer acceptance occurs.
    There are
      occasions when a customer requests a transaction on a bill & hold
      basis. We follow the SAB 104 criteria and recognize revenue from these sales
      prior to date of physical delivery only when all the criteria of SAB 104
      are met. At August 31, 2005, accounts receivable related to bill and hold
      sales totaled $221,255. Total revenue from bill and hold sales were $768,726
      with a gross profit of $86,860 which was included in the results of operations
      for the year ended August 31, 2005. We do not modify our normal billing
      and credit terms for these customers. The customer is invoiced at the date
      of revenue recognition when all of the criteria have been met.We have experienced minimal customer returns. Since all eligible projects must be returned to us within
30 days from the date of the invoice, we reduce the product revenue and cost of goods in each accounting
period based on the actual returns that occurred in the next 30 days after the close of the accounting
period.
Service and consulting revenue include time billings based upon billable hours charged to the customers,
fixed price short-term projects, hardware maintenance contracts, and manufacturer support service
contracts. These contracts generally are task specific and do not involve multiple deliverables.
Revenues from time billings are recognized as services are delivered. Revenues from short-term fixed
price projects are recognized using the proportionate performance method by determining the level
of service performed based upon the amount of labor cost incurred on the project versus the total
labor costs to perform the project because this is the most readily reliable measure of output. Revenues
from hardware maintenance contracts are recognized ratably over the contract period.
- 40 -
Revenues from manufacturer support service contracts where the manufacturer is responsible for fulfilling
the service requirements of the customer are recognized immediately on their contact sale date. Manufacturer
support service contracts contain cancellation privileges that allow our customers to terminate
a contract with 90 days written notice. In this event, the customer is entitled to a pro-rated refund
based on the remaining term of the contract and we would owe the manufacturer a pro-rated refund
of the cost of the contract. However, we have experienced no customer cancellations of any significance
during our most recent 3-year history and do not expect cancellations of any significance in the future.
Trade Receivables
We maintain allowance for doubtful accounts for estimated losses resulting from the inability of our
customers to make required payments. We base our estimates on the aging of our accounts receivable
balances and our historical write-off experience, net of recoveries. If the financial condition of
our customers were to deteriorate, additional allowances may be required. We believe the accounting
estimate related to the allowance for doubtful accounts is a critical accounting estimate
because changes in it can significantly affect net income. Allowance for doubtful accounts was $225,000
and $225,000 as of August 31, 2005, and 2004, respectively.
Inventories
Inventory is stated at the lower of average cost (specific identification) or market. Inventory is
entirely finished goods purchased for resale and consists of computer hardware, computer software,
computer peripherals and related supplies. We provide an inventory reserve for products it determines
are obsolete or where salability has deteriorated based on managements review of products and sales.
The components of inventory at August 31 are as follows:
Hardware,
      software, accessories, and parts
    $
    6,070,728
    
    $
    644,262Less: Inventory
      reserve
    $
    (300,138
    )
    $
    (120,000
    )Net Inventory
    $
    5,770,590
    
    $
    524,262Property and Equipment
We
  estimate the useful lives of property and equipment in order to determine the
  amount of depreciation and amortization expense to be recorded during any reporting
  period. The majority of our equipment is depreciated over a three-five year
  period. The estimated useful lives are based on the historical experience with
  similar assets as well as taking into account anticipated technological or other
  changes. If technological changes were to occur more rapidly than anticipated
  or in a different form than anticipated, the useful lives assigned to these
  assets may need to be accelerated, resulting in the recognition of increased
  depreciation and amortization expense in future periods. We evaluate the recoverability
  of our long-lived assets (other than intangibles and deferred tax assets) in
  accordance with Statement of Financial Accounting Standard No. 144, Accounting
  for the Impairment or Disposal of Long-Lived Assets, (SFAS No. 144). Long-lived
  assets are reviewed for impairment under SFAS No. 144 whenever events or changes
  in circumstances indicate that the carrying amount of an asset may not be recoverable.
  SFAS No. 144 requires recognition of impairment of long-lived assets in the
  event that the net book value of such assets exceeds the future undiscounted
  net cash flows attributable to such assets. Impairment, if any, is recognized
- 41 -
in the period of identification to the extent the carrying amount of an asset exceeds the fair value
of such asset.
Property and equipment along with their components are as follows:
2005
    
    2004
    
    Estimated Life
    YearsLeasehold improvements
    $
    197,903
    
    $
    132,018
    
    4.67Computer equipment
    
    572,728
    
    
    199,504
    
    3 to 5Furniture and fixtures
    
    31,156
    
    
    7,738
    
    3 to 5Automobiles
    
    72,956
    
    
    27,445
    
    3 to 5Software
    
    172,410
    
    
    
    
    3 to 5Total Property Plant & Equipment
    $
    1,047,153
    
    $
    366,705Less accumulated depreciation
    
    (129,994
    )
    
    (16,469
    )$
    917,159
    
    $
    350,236Goodwill and Intangible Assets
We have adopted Statement of Financial Accounting Standards No. 141 Business Combinations
  and No. 142 Goodwill and Other Intangible Assets. As a result, amortization of goodwill
  was discontinued. Goodwill is the excess of the purchase price over the fair value of the net assets
  acquired in a business combination accounted for under the purchase method. At August 31, 2005, we
  recorded goodwill related to the acquisition of Old Emtec of $8,974,610. We test goodwill and indefinite-lived
  assets for impairment at least annually in accordance with Statement of Financial Accounting Standards
  No. 142, Goodwill and Other Intangible Assets, (SFAS 142). Intangible assets that have
  finite useful lives are amortized over their useful lives.
Intangible
  assets at August 31, 2005 and 2004 consisted of the value ascribed to customer
  relationships of $8,661,712 less accumulated amortization of $68,868 and $283,546
  less accumulated amortization of $7,270, respectively. The assets ascribed to
  customer relationships are being amortized on a straight-line basis over 13-15
  years. Amortization expense was $61,598 and $7,270 for the periods ended August
  31, 2005 and August 31, 2004, respectively. Absent any further acquisitions,
  amortization expense of $580,356 is expected to be recorded each year through
  August 31, 2016, $573,085 for the year ended August 31, 2017, $558,544 for the
  years ended August 31, 2018, and 2019, and $518,755 for the year ended August
  31, 2020.
Property and equipment and customer relationship intangible assets are tested for recoverability whenever
events or changes in circumstances indicate that their carrying amount may not be recoverable in
accordance with Statement of Financial Accounting Standards (SFAS) No. 144 Accounting
for the Impairment or Disposal of Long-Lived Assets. Recoverability of long-lived assets
is assessed by a comparison of the carrying amount to the estimated undiscounted future net cash
flows expected to result from the use of the assets and their eventual disposition. If estimated
undiscounted future net cash flows are less than the carrying amount, the asset is considered impaired and a loss would be recognized
based on the amount by which the carrying value exceeds the fair value of the asset.
- 42 -
Rebates
Rebates are recorded in the accompanying consolidated statements of income as a reduction of the cost
of revenues in accordance with Emerging Issues Task Force Abstract No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor (EITF 02-16). At August 31, 2005 and August 31, 2004, approximately $2,117,290 and $1,009,000, respectively,
of rebates receivable are recorded in accounts-receivable-other in the accompanying consolidated
balance sheets.
Income Taxes
Income taxes are accounted for under an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences of events that have
been recognized in our financial statements or tax returns. In estimating future tax consequences,
we generally consider all expected future events other than the enactment of changes in tax laws
or rates. A valuation allowance is recognized if, on weight of available evidence, it is more likely
than not that some portion or all the deferred tax assets will not be realized.
Off-Balance Sheet Arrangements
Under SEC regulations, in certain circumstances, we are required to make certain disclosures regarding
the following off-balance sheet arrangements, if material:

  Any obligation under certain guarantee contracts;
Any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement
that serves as credit, liquidity or market risk support to that entity for such assets;
  Any obligation under certain derivative instruments; and
  Any obligation arising out of a material variable interest held by the Company in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company, or engages in leasing, hedging or research and development services with the Company.We do not have any off-balance sheet arrangements that are required to be disclosed pursuant to these
regulations.
- 43 -
Item 7A.         Quantitative and Qualitative Disclosures About Market Risk
We do not engage in trading market risk sensitive instruments and do not purchase hedging instruments
or other than trading instruments that are likely to expose us to market risk, whether
interest rate, foreign currency exchange, commodity price or equity price risk. We have issued no
debt instruments, entered into no forward or future contracts, purchased no options and entered into
no swaps. Our primary market risk exposures are those of interest rate fluctuations. A change in
interest rates would affect the rate at which we could borrow funds under our revolving credit facility.
Our balance on the line of credit at August 31, 2005 was approximately $4.4 million. Assuming no
material increase or decrease in such balance, a one percent change in the interest rate would change
our interest expense by approximately $44,000 annually.
- 44 -
Item 8.  Financial Statements and Supplementary Data
Reference
  is made to Item 15(a)(i) herein.
- 45 -
Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
As previously disclosed, the Merger is being treated as a reverse acquisition for accounting
purposes. As such, the historical financial statements of the accounting acquirer, Darr, become the
historical financial statements of Emtec. Because Darrs independent registered public accounting
firm, Ernst & Young LLP (E&Y), was different from Emtecs independent
registered public accounting firm, Baratz and Associates, P.A. (Baratz), there has been
a change in our independent registered public accounting firm as a result of the Merger. Our board
of directors formally authorized our change in independent registered public accounting firm from
Baratz to E&Y.
Baratzs reports on our financial statements for the fiscal years ended March 31, 2005 and
2004 did not contain an adverse opinion or disclaimer of opinion, nor were such reports qualified
or modified as to uncertainty, audit scope or accounting principles. During those two fiscal years
and through the subsequent period ended August 19, 2005 (the date upon which Baratz completed
its SAS 100 review for our June 30, 2005 Form 10-Q) there were no disagreements with Baratz
on any matter of accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreement, if not resolved to the satisfaction of Baratz, would have
caused Baratz to make reference to the subject matter of the disagreement in connection with its reports.
As a result of being the independent auditors of Darr, E&Y consulted with Darr regarding the Merger,
however, prior to the engagement of E&Y as our independent accountants, neither Darr nor pre-Merger
Emtec consulted with E&Y regarding any of the matters described in Item 304(a)(2)(i) or 304(a)(2)(ii)
of Regulation S-K.
E&Y
  became Darrs independent accountants on June 17, 2004. Prior to that
  time, the financial statements of Westwood (the historical financial statements
  of which became Darrs historical financial statements when Darr acquired
  Westwood in April, 2004), were audited by Glassel & Bonfiglio LLC (Glassel),
  an independent accounting firm that is not registered with the SEC. Glassel
  was dismissed as the independent accountants of Darr on June 17, 2004.
  Glassels reports on Darrs financial statements for the fiscal years
  ended August 31, 2003 and 2002 did not contain an adverse opinion or disclaimer
  of opinion, nor were such reports qualified or modified as to uncertainty, audit
  scope or accounting principles. During those two fiscal years and through the
  subsequent period ended June 17, 2004 there were no disagreements with
  Glassel on any matter of accounting principles or practices, financial statement
  disclosure, or auditing scope or procedure, which disagreement, if not resolved
  to the satisfaction of Glassel, would have caused Glassel to make reference
  to the subject matter of the disagreement in connection with its reports.
Prior to the engagement of E&Y by Darr on June 17, 2004, Darr did not consult with E&Y
regarding any of the matters described in Item 304(a)(2)(i) or 304(a)(2)(ii) of Regulation S-K.
- 46 -
Item 9A.      Controls and Procedures
Our management carried out an evaluation, with the participation of our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of August
31, 2005. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective to ensure that information required to
be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported, within the time periods specified in the rules and
forms of the Securities and Exchange Commission.
There has not been any change in our internal control over financial reporting in connection with the
evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the quarter ended
August 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
- 47 -
Item 9B.      Other Information
Not Applicable.
- 48 -
PART III
Item 10.  Directors and Executive Officers of the Registrant
The following table sets forth certain information as to each of our executive officers and directors:
Name
    
    Age
    
    Positions
      and
      Offices Presently HeldDinesh
      R. Desai
    
    55
    
    Chairman
      of the Board and Chief Executive OfficerBrian McAdams
    
    63
    
    Vice Chairman
      and DirectorGregory
      Chandler
    
    38
    
    DirectorKeith Grabel
    
    53
    
    President
      - Westwood Operations and DirectorStephen
      C. Donnelly
    
    47
    
    Chief Financial
      OfficerJohn P.
      Howlett
    
    61
    
    PresidentRonald
      A. Seitz
    
    58
    
    PresidentDINESH
  DESAI -- From 1986 to the present, Mr. Desai has been the Chairman
  and CEO of DARR Global Holdings, Inc., a management consulting
  firm. Since 2004, he has served as Chairman on the Board of Directors of
  two private corporations, Westwood Computer Corporation and DARR Westwood Technology
  Corporation. Mr. Desai has also served as a member of the Board of Directors
  of the Enterprise Center, a Nonprofit Organization. Mr. Desai holds a Bachelor
  of Science Degree in chemical engineering from the Indian Institute of Technology
  in Bombay, India, and a Masters of Science Degree in both chemical and industrial
  engineering from Montana State University. He earned a Masters in Business Administration
  from Temple University in 1978.
BRIAN
MCADAMS -- Director and Vice Chairman. In the last five years, Mr. McAdams has served as a Senior
Partner with DARR Global Holdings, as the Vice Chairman of Westwood Computer Corporation, the CEO
of Passport Express Services, Inc., and the CEO of My Help Desk, Inc. He has held prior positions
as director at two public companies: Crusader Bank Corporation and National Media Corporation, where
he served as both Chairman and CEO.
GREGORY
  CHANDLER -- Director. Mr. Chandler currently works as the Managing Director
  of the Business and IT Services Investment Banking Practice at Janney Montgomery
  Scott LLC, where he has been employed since 1999. Prior to this, he worked as
  a manager in the Office of the CFO consulting practice at PricewaterhouseCoopers.
  He has also worked in the Business Assurance Practice at Coopers & Lybrand,
  and served as an officer in the United States Army. Mr. Chandler received his
  undergraduate degree from the United States Military Academy at West Point and
  a Masters in Business Administration from Harvard University.
KEITH
GRABEL -- Since 2000, Mr. Grabel has held the positions of president and director of Westwood
Computer Corporation. For the past year, he has also served as president and director of DARR Westwood Technology
Corp. Mr. Grabel graduated from the University of Miami School of Business in 1974.
- 49 -
STEPHEN DONNELLY
-- Since 2002, Mr. Donnelly has been the Chief Financial Officer of DARR Global Holdings, Inc.
a management consulting firm. Since 2004, he has served as an officer for Westwood Computer Corporation.
Between 1993 and 2002, Mr. Donnelly worked as a Manager and Managing Director for Acquisition Management Services, Inc.,
a merger and acquisition advisory firm. Prior to that, he has worked as
a Director of Operations for a privately-held human resource and employee
benefits software developer and as a Financial Manager for a healthcare organization. Mr. Donnelly
began his career with the accounting firm of PriceWaterhouse. He is a Certified Public Accountant
with a Bachelors degree in Accounting from Villanova University (in 1980).
JOHN P. HOWLETT  Since August 5, 2005, John P. Howlett has been President of Emtec 
North East Region. Prior to August 5, 2005 he was our Chairman of the Board and Chief Executive
Officer since January 17, 2001 and Chief Executive Officer of Emtec-NJ since August, 1997 and Chairman
of Emtec-NJ since August, 1998. He has been a director of Emtec-NJ since October, 1996. Mr. Howlett
was the founder (in 1983) of Cranford, New Jersey-based Comprehensive Business Systems, Inc. (CBSI).
CBSI primarily provided microcomputer systems, network integration, training, and data communications
to mid-size and Fortune 1000 corporations. In October 1996, CBSI merged into Emtec-NJ. Prior to founding
CBSI, Mr. Howlett was with the AT&T Long Lines Division for twelve years. He earned a Bachelor
of Science degree in Electrical Engineering from Rose Hulman Institute of Technology in Terre Haute,
Indiana, and a Master of Business Administration degree from Fairleigh Dickinson University in New
Jersey. A Vietnam veteran, Mr. Howlett served in the U.S. Army for four years.
RONALD A. SEITZ  Since August 5, 2005, Ronald A. Seitz has been President of Emtec  South
East Region. Prior to August 5, 2005 he was our President and Chief Operating Officer since February
2003 and Executive Vice-President and a director since January 17, 2001 and Executive Vice President
of Emtec-NJ since March, 1996. Prior to that he was the Chief Operating Officer of Emtec-NJ. He has
been a director of Emtec-NJ since April, 1995. Mr. Seitz was the founder (in 1980) of Charleston,
South Carolina-based Computer Source, Inc. (CSI). CSI primarily provided microcomputer systems, network
integration, and data communications to mid-size and Fortune 1000 corporations. In April 1995, CSI
merged with Landress Information Systems of Mt. Laurel, New Jersey to become Emtec-NJ. Prior to founding
CSI, Mr. Seitz was employed for six years as an engineer with the U.S. government in Washington,
DC. He graduated from North Carolina State University with a Bachelor of Science degree and from
George Washington University with an MBA in computer science. Mr. Seitz also holds a DMD degree from
the Dental School at the Medical University of South Carolina.
Since
  August 5, 2005 the board held two meetings. Each director attended both of the
  meetings. The Chairman usually determines the agenda for the meetings. Board
  members receive the agenda and supporting information in advance of the meetings.
  Board members may also raise other matters at the meetings.
Since we are not a listed company, we are not required to establish an audit committee. Our board of
directors believes it can conduct all the functions of an audit committee without unduly burdening
the duties and responsibilities of the board members. Our board of directors has determined that
Mr. Gregory Chandler, an independent member of our board of directors, meets the definition of an
audit committee financial expert.
Our Board of Directors has adopted a Code of Ethics applicable to all of its employees, including its
Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer, as well
as the members of its board of directors.
- 50 -
Currently,
  we do not have a compensation committee. The members of the entire board deliberate
  and decide compensation. Mr. Chandler is not nor has he been an employee or
  an officer of our company. Mr. Desai is our Chairman and Chief Executive Officer,
  and Mr. Grabel is the President of Westwood Operations.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires our directors and executive officers and persons who own
beneficially more than 10% of our common stock to file reports of ownership and changes in ownership
of such common stock with the Securities and Exchange Commission, and to file copies of such reports
with us. Based solely upon a review of the copies of such reports filed with Emtec, Emtec believes
that during the past four fiscal years, such reporting persons complied with the filing
requirements of said Section 16(a) or any filing delinquencies by such persons were reported
under the Exchange Act, except that Dinesh Desai, Brian McAdams, Keith Grabel, Stephen Donnelly and
Gregory Chandler did not file on a timely basis a Form 3 reflecting their initial statement of beneficial
ownership and John Howlett and Ronald Seitz did not file on a timely basis Form 4s reflecting one
transaction, respectively.
- 51 -
Item 11.   Executive Compensation
The following table sets forth the aggregate compensation that we paid for services rendered to our
executive officers during our fiscal years ended August 31, 2005, 2004 and 2003 and to our former
chief executive officer and president:
SUMMARY COMPENSATION TABLE
Long Term CompensationAnnual Compensation
    
    
    
    Awards
    
    PayoutsName and 
        Principal Position
    
    
    Fiscal Year
    
    
    
    Other Annual 
        Compensation
    
    
    
    
    
    All Other 
      CompensationRestricted Stock 
      Awards
    
    Number of 
      Options
    Long Term 
      Incentive PayoutsSalary
    
    BonusDinesh R. Desai
    
    (1)
    2005
    
    $
    19,731
    
    
    
    
    
    
    
    
    
    
    
    (4)
    $
    350,000Chief Executive Officer
    
    
    2004
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    (4)
    $
    116,6642003
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    Brian McAdams
    
    (1)
    2005
    
    $
    13,846Vice Chairman
    
    
    2004
    
    $
    2003
    
    $
    Keith Grabel
    
    (2)
    2005
    
    $
    258,654
    
    $
    381,250President - Westwood Operations
    
    
    2004
    
    $
    192,074
    
    $
    498,7502003
    
    $
    161,408
    
    $
    217,275Mary Grabel
    
    (3)
    2005
    
    $
    258,654
    
    $
    38,2012004
    
    $
    124,901
    
    $
    542,0002003
    
    $
    58,672
    
    $
    245,000Stephen C. Donnelly
    
    (1)
    2005
    
    $
    12,462Chief Financial Officer
    
    
    2004
    
    $
    2003
    
    $
    John P. Howlett
    
    (5)
    2005 (August)
    
    $
    94,310
    
    
    
    
    
    
    
    
    
    
    
    (6)
    $
    6,354Former Chief Executive Officer and Current President, Northeast Operations
    
    (5)
    2005 (March)
    
    $
    229,280
    
    
    
    
    
    
    
    
    
    
    
    (6)
    $
    15,250(5)
    2004 (March)
    
    $
    216,300
    
    
    
    
    
    
    
    
    
    
    
    (6)
    $
    18,553Ronald A. Seitz
    
    (5)
    2005 (August)
    
    $
    94,310
    
    
    
    
    
    
    
    
    
    
    
    (7)
    $
    1,893Former Chief Operating Officer
    
    (5)
    2005 (March)
    
    $
    229,280
    
    $
    25,000
    
    
    
    
    
    
    
    
    (7)
    $
    4,544and Former President, Current President, Southeast Operations
    
    (5)
    2004 (March)
    
    $
    216,300
    
    
    
    
    
    
    
    
    
    
    
    (7)
    $
    6,642_______________(1)
    Members of
      the new executive management team as of August 5, 2005 pursuant to the merger
      with Darr. These individuals were not employed by the Company or its predecessors
      before August 5, 2005.(2)
    Member of
      the new executive management team as of August 5, 2005 pursuant to the merger
      with Darr. President of Darr since April 16, 2004. President of Westwood
      during the entire three year period ended August 31, 2005.(3)
Spouse of Keith Grabel(4)
    Management
      fees accrued to DARR Global Holdings, Inc. at an annual rate of $350,000
      beginning April 16, 2004.- 52 -
(5)
Former executive officers of Emtec, Inc. prior to August 5, 2005. Compensation amounts for the two
earliest years are based upon former March fiscal year end of Emtec. Compensation amount for the
current year is for the period of April 1, 2005 through August 31, 2005. John Howlett is president
of Emtecs Northeast region effective August 5, 2005. Ron Seitz is president of Emtecs
Southeast region effective August 5, 2005.(6)
  Reflects employer contributions for life insurance premiums and for disability insurance premiums.(7)
  Reflects employer contribution for life insurance premiums.Stock Options
None of the named executive officers listed in the Summary Compensation Table were granted stock options
during the fiscal year ended August 31, 2005 nor did any such officers hold any stock options as
of August 31, 2005.
Employment Agreements
John Howlett.  We entered an employment agreement, dated as of July 14, 2005, with Mr. Howlett, pursuant to
which Mr. Howlett is to serve as our President of Northeast Operations for a period commencing on
the effective date of the Merger (the Effective Date) and terminating on August 31, 2008,
although this term may be extended annually for additional one-year periods with the mutual consent
of the parties. Under the terms of this agreement, Mr. Howlett is entitled to receive a base salary
of $230,000, which shall be increased by 5% each year of the initial term of employment. In addition,
Mr. Howlett is eligible to receive both an annual bonus of $100,000 and a bonus targeted at 50% of
his base salary based upon the achievement by Emtec of performance criteria set forth in the employment
agreement.
Mr. Howletts employment is subject to early termination in the event of his death or disability
or in the event that either he or Emtec elect to terminate his employment. In the event his employment
is terminated for any reason during the term of the agreement, Mr. Howlett will be entitled to any
earned or accrued but unpaid base salary through the date of termination and to all amounts payable
and benefits accrued under any applicable plan, policy, program, or practice of Emtec in which he
was a participant during his employment with Emtec in accordance with the terms of the employment
agreement. In the case that Mr. Howletts employment is terminated by us without cause or his
employment terminates in the event of death or disability, he will be entitled to his base salary
for the entire initial term of employment and to a pro-rata bonus payment for the year of his termination,
as set forth in the employment agreement.
Ronald Seitz.  We entered an employment agreement, dated as of July 14, 2005, with Mr. Seitz, pursuant to
which Mr. Seitz is to serve as our President of Southeast Operations for a period commencing on the
Effective Date and terminating on August 31, 2008, although this term may be extended annually for
additional one-year periods with the mutual consent of the parties. Under the terms of this agreement,
Mr. Seitz is entitled to receive a base salary of $230,000, which shall be increased by 5% each year
of the initial term of employment. In addition, Mr. Seitz is eligible to receive both an annual bonus
of $100,000 and a bonus targeted at 50% of his base salary based upon the achievement by Emtec of
performance criteria set forth in the employment agreement.
Mr. Seitzs employment is subject to early termination in the event of his death or disability
or in the event that either he or Emtec elect to terminate his employment. In the event his employment
is terminated for any reason during the term of the agreement, Mr. Seitz will be entitled to any
earned or accrued but unpaid base salary through the date of termination and to all amounts payable
and benefits
- 53 -
accrued under any applicable plan, policy, program, or practice of Emtec in which he was a participant
during his employment with Emtec in accordance with the terms of the employment agreement. In the
case that Mr. Seitzs employment is terminated by us without cause or his employment terminates
in the event of his death or disability, he will be entitled to his base salary for the entire initial
term of employment and a pro-rata bonus payment for the year of his termination, as set forth in
the employment agreement.
Keith Grabel.  Westwood entered an employment agreement, dated as of April 16, 2004, with Mr. Grabel, pursuant
to which Mr. Grabel is to serve as president of that company, for an initial period commencing on
April 16, 2004, and terminating on April 16, 2009, which will automatically be extended for one (1)
additional year at the end of the initial five (5) year term, and again each successive year thereafter.
Such annual extensions may cease by either party delivering written notice of such cessation to the
other party with at least sixty (60) days notice. Under the terms of this agreement, Mr. Grabel is
entitled to receive an annual base salary of (i) $250,000 in the first year of the term of employment,
(ii) $275,000 in the second year of the term of employment, (iii) $300,000 in the third year of the
term of employment, and (iv) $325,000 in the fourth year of the term of employment. Mr. Grabels
base salary for each year will be increased to 200% of his then-current salary in the event that
Westwood terminates its employment agreement with Margaret Grabel. In addition, Mr. Grabel is to
receive an annual bonus of (i) $375,000 in the first year of the term of employment, (ii) $400,000
in the second year of the term of employment, (iii) $440,000 in the third year of the term of employment,
and (iv) $400,000 in the fourth year of the term of employment, payable in quarterly installments in each year.
Mr. Grabels employment is subject to early termination in the event of his death or disability
or in the event that either he or Westwood elect to terminate his employment under certain circumstances.
In the event his employment is terminated by Mr. Grabel during the term of the agreement, Mr. Grabel
will be entitled to (i) any earned but unpaid base salary through the date of termination, (ii) a
pro rata portion of his termination salary, which shall be (a) $150,000 for the first year of the
term of employment, (b) $200,000 for the second year of the term of employment, (c) $250,000 for
the third year of the term of employment, (d) $300,000 for the fourth year of the term of employment,
and (v) $350,000 for the fifth year of the term of employment, (iii) payment for accrued vacation
days, (iv) any bonus payments, and (v) all amounts payable and benefits accrued under any applicable
plan, or arrangements of the company. In the event Westwood terminates Mr. Grabels employment
for any reason, Mr. Grabel will be entitled to (i) all amounts due to him under the agreement, (ii)
all amounts due and owing under the note made by Westwood in the amount of $750,000 in favor of Four
Kings Management LLC and (iii) all amounts due and owing under the 5% note and 8% note made by Westwood
in favor of Mr. Grabel.

Mr Desai, Mr. McAdams, and Mr. Donnelly are currently paid a salary of
$285,000, $200,000 and $180,000, respectively on an annual basis. The
Board of Directors intends to put employment contracts in place in 2006
for these three executives.


Compensation of Directors
Our
  two former independent directors each received $15,000 and received 15,000 stock
  options for service to the Board during the period of April 1, 2005 through
  August 5, 2005. Each of our former independent directors received options to
  purchase an aggregate of 45,000 shares of common stock for services performed
  during the three year period ended March 31, 2005. Mr. Chandler, as our independent
  director, shall receive an annual fee of $20,000, plus stock options at amount
  to be determined by board. The independent directors receive reimbursement of
  out-of-pocket expenses incurred for each board meeting or committee meeting
  attended and any other expenses incurred while working in his capacity as a
  Board Member.
Compensation Committee Interlocks and Insider Participation
Currently, there is no compensation committee. The members of the entire board deliberate and decide
compensation.
- 54 -
Item 12.  Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of November , 2005, based on information obtained from the persons named below, with respect to the beneficial ownership of our common stock held by:each person known by us to be the owner of more than 5% of our outstanding shares;each director;each executive officer named in the Summary Compensation Table; andall executive officers and directors as a group.Name
      and Address of
      Beneficial Owner (1)
    
    Amount
      and Nature of 
      Beneficial Ownership(2)
    
    Percent of
      ClassDinesh R. Desai
    
    8,900,825
    (3)
    
    
    56.8
    %Brian McAdams
    
    0
    
    
    
    0.0
    %Keith Grabel
    
    1,905,622
    (4)
    
    
    13.3
    %Stephen C. Donnelly
    
    0
    
    
    
    0.0
    %John P. and Rosemary
      A. Howlett
    
    595,759
    (5)
    
    
    4.1
    %Ronald A. Seitz
    
    352,765
    (6)
    
    
    2.5
    %Gregory Chandler
    
    0
    
    
    
    0.0
    %Mary Margaret Grabel
    
    2,225,206
    (7)
    
    
    15.1
    %Carla Seitz
      P.O. Box 2243
      Mt. Pleasant, SC 29465
    
    332,858
    (8)
    
    
    2.3
    %All executive officers
      and directors as a group (7 persons)
    
    9,849,349
    
    
    
    62.9
    %(1)
Each stockholders address is c/o Emtec, 572 Whitehead Road, Bldg. #1, Trenton, New Jersey, unless
otherwise indicated.(2)
As used herein, beneficial ownership means the sole or shared power to vote, or direct the voting of,
a security, or the sole or shared power to invest or dispose, or direct the investment or disposition,
of a security. Except as otherwise indicated, all persons named herein have (i) sole voting
power and investment power with respect to their shares, except to the extent that authority is shared
by spouses under applicable law and (ii) record and beneficial ownership with respect to their
shares; also includes any shares issuable upon exercise of options or warrants that are currently
exercisable or will become exercisable within 60 days of August 31, 2005.(3)
Held by Mr. Desai through DARR Westwood LLC. Includes 1,278,337 shares issuable upon exercise of a
warrant equal to 8% of outstanding common stock of the Company.(4)
    Includes
      1,905,622 shares owned by Mary Margaret Grabel, Mr. Grabels spouse.
      Mr. Grabel disclaims any beneficial ownership in these shares.- 55 -
(5)
  Owned jointly with Rosemary Howlett, Mr. Howletts spouse.(6)
Excludes 332,858 shares owned by Carla Seitz, Mr. Seitzs spouse. Mr. Seitz disclaims any beneficial
interest in these shares.(7)
Includes 319,584 shares issuable upon exercise of a warrant equal to 2% of outstanding common stock
of the Company.(8)
Excludes 352,765 shares owned by Ronald A. Seitz, Mrs. Seitzs spouse. Mrs. Seitz disclaims any
beneficial ownership in these shares.- 56 -
Item 13.  Certain Relationships and Related Transactions
During the
period ended April 16, 2004, Westwood held a note receivable from a company controlled by its former
stockholders which was repaid through periodic payments. In connection with the Westwood Acquisition,
the note receivable was distributed to the former stockholders of Westwood through a dividend in
the amount of $399,958. Interest income recorded on this note for the period ended April 16, 2004
totaled $21,483. There were no other dividends paid to common stockholders during the five year period
ended on August 31, 2005.Pursuant
      to a Management Services Agreement dated April 16, 2004 by and between DARR
      Global Holdings, Inc. and Westwood, Westwood, is being charged a monthly
      management fee of $29,166 by DARR Global Holdings, Inc. DARR Global Holdings,
      Inc. is a management consulting firm, which is 100% owned by Mr. Dinesh
      Desai, our Chairman and Chief Executive Officer. The initial term of this
      agreement runs through April 2009.We occupy approximately 43,000 square feet of office and warehouse space in Springfield, New Jersey

This space is leased from Westwood Property Holdings, LLC, in which Mr. Keith Grabel, our director

and an executive officer, Mrs. Mary Margaret Grabel, spouse of our director and an executive officer,

and Mr. David Micales, our Vice President of Operations are members. The lease term is through
April
2009 with monthly base rent of $15,000.We are occupying approximately 21,000 square feet of office and warehouse space out of a total of approximately
70,000 square feet. This space is leased from GS&T Properties, LLC, in which Messrs. John Howlett
and Ronald Seitz, each an executive officer of our company, are passive investors, each owning an
approximate 10% equity interest. The lease term is through November 2009 with monthly base rent of
$15,000.Mr.Gregory
  Chandler, our independent director is employed by Janney Montgomery Scott (Janney)
  as a Managing Director. Janney has acted as Investment Advisor to Darr in the
  Merger. Janney received a $10,000 retainer and was paid $250,000 by Darr upon
  the closing of the Merger.
In connection with our self tender offer, two of our current officers, John Howlett and Ronald Seitz, tendered shares. After accounting for proration, 805,152 shares were accepted for tender from Mr. Howlett, with an aggregate purchase price of $1,545,891 and 476,754 shares were accepted for tender from Mr. Seitz, with an aggregate purchase price of $915,367.
Other Agreements
Subordinated Note held by Darr Westwood LLCWestwood has issued a promissory note dated April 16, 2004 to Darr Westwood LLC, a Delaware limited
liability company, of which Mr. Desai is the sole member, or permitted assigns, whereby it promises
to pay to the holder of such note the principal sum of $750,000. Interest on the unpaid balance of
the principal amount of the note is calculated at a floating rate per month equal to the prime rate
as published in the Wall Street Journal under Money Rates plus four percent (4%), up
to a maximum of ten percent (10%). The note reaches maturity on April 16, 2009. Until that date,
Westwood must pay to the holder of the note (i) $194,482 on April 16, 2007, (ii) $323,859 on April
16, 2008, and (iii) $231,659 on April 16, 2009, the date the note matures. Accrued interest from
April 16, 2004, until March 28, 2007, is due on March 28, 2007. Accrued interest from March 28, 2007,
until March 28, 2008, is due on March 28, 2008. Accrued interest from March 28, 2008, until April
16, 2009, is due on April 16, 2009. In addition, the holder of the note is entitled to a quarterly
revenue participation fee of 0.0875% of the gross revenue of Westwood, subject to annual adjustments
which are capped at $30,000 for any quarter.
Subordinated Note held by Four Kings Management LLC.Westwood has issued a promissory note dated April 16, 2004 to Four Kings Management LLC, a Delaware
limited liability company, which is an affiliate of Keith Grabel, or permitted assigns, whereby it
promises to pay to the holder of such note the
- 57 -
principal sum of $750,000. Interest on the unpaid balance of the principal amount of the note is calculated
at a floating rate per month equal to the prime rate as published in the Wall Street Journal under
Money Rates plus four percent (4%), up to a maximum of ten percent (10%). The note reaches
maturity on April 16, 2009. Until that date, Westwood must pay to the holder of the note a principal
monthly repayment beginning on May 16, 2005 of $9,000 until the note has matured. Interest is payable
on the last business day of each month beginning on April 30, 2004. In addition, the holder of the
note is entitled to a quarterly revenue participation fee of 0.0875% of the gross revenue of Westwood,
subject to annual adjustments which are capped at $30,000 for any quarter.
5% Junior Subordinated Note held by Keith GrabelWestwood has issued certain promissory notes dated April 16, 2004 to Keith Grabel and certain of his
family members, whereby it promises to pay to the holders of the notes the aggregate principal sum
of $313,695. Interest on the unpaid balance of the aggregate principal amount of the notes is payable
at a rate of five percent (5%) per annum. The notes reach maturity on April 16, 2009. Until that
date, Westwood must pay to the holders of the notes (i) thirty percent (30%) of the principal amount
on April 16, 2006, (ii) thirty percent (30%) of the principal amount on April 16, 2007, (iii) twenty
percent (20%) of the principal amount on April 16, 2008, and (iv) twenty percent (20%) of the principal
amount on April 16, 2009. Each principal payment is accompanied by all interest then accrued and
unpaid on the notes.
8% Junior Subordinated Note held by Keith GrabelWestwood has issued certain promissory notes dated April 16, 2004 to Keith Grabel and certain of his
family members, whereby it promises to pay to the holders of the notes the aggregate principal sum
of $941,083. Interest on the unpaid balance of the aggregate principal amount of the notes is payable
at a rate of eight percent (8%) per annum. The notes reach maturity on April 16, 2007. Until the
date of maturity, Westwood must pay to the holders of the notes 16.67% of the aggregate principal
amount due every six months. The first such payment took place on October 16, 2004, and the last
payment is scheduled for April 16, 2007, the date the notes mature. Each principal payment is accompanied
by all interest then accrued and unpaid on the notes.
8% Subordinated Promissory Note held by Darr Westwood LLC In connection with the Merger and in exchange for certain preferred stock in Darr held by Darr Westwood
LLC, Darr issued a promissory note dated August 5, 2005 to Darr Westwood LLC whereby it promises
to pay to the holder of such note the principal sum of $1.102,794. Interest on the unpaid balance
of the principal amount of the note is payable at a rate of eight percent (8%) per annum. The note
matures on April 16, 2009. Principal on the note is due in a single payment on the maturity date.
Interest is payable annually beginning on August 5, 2008.
Family Relationships
Mary
  Margaret Grabel, the spouse of Keith Grabel, is an employee of Westwood and
  is the owner of fifteen percent (15%) of our outstanding common stock. There
  are no other family relationships among our director or officers.
- 58 -
Item 14. Principal Accountants Fees and Services
As
  previously disclosed, as a result of the Merger, the shareholders of Darr became
  the majority shareholders of Emtec. The Merger with Darr is being treated as
  a reverse acquisition for accounting purposes.
As such, the historical financial statements of the accounting acquirer, Darr, have become our historical
financial statements. Because Darrs independent registered public accounting firm, E &Y,
was different from our independent registered public accounting firm, Baratz, there has been a change
in our independent registered public accounting firm as a result of the Merger. Our board of directors
formally authorized a change in our independent registered public accounting firm from Baratz to
E&Y.
E&Y was retained as our independent auditors for our fiscal year ended August 31, 2005 and
2004. We did not consult with E&Y during either the prior fiscal years or the interim period
with respect to (i) either the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be rendered on our financial
statements, or (ii) any matter that was either the subject of a disagreement or a reportable
event.
The following table sets forth the aggregate fees incurred by us for the fiscal years ended August
31, 2005 and 2004 to our principal auditing firm:
2005
    
    
    2004Audit Fees
    $
    300,000
    
    $
    115,000Audit Related Fees
    $
    0
    
    
    Tax Fees
    $
    0
    
    $
    15,000All Other Fees
    $
    145,000
    
    $
    10,000Total
    $
    445,000
    
    $
    140,000Audit Fees: The Audit Fees billed by E&Y for the fiscal years ended August 31, 2005 and August 31, 2004 were
for professional services rendered for the audits of the financial statements of the Company, quarterly
reviews, and assistance with the review of documents filed with the Securities and Exchange Commission.
Audit Related Fees: The Audit Related Fees for the fiscal years ended August 31, 2005 and August 31, 2004 were for attendance
at the annual stockholders meeting.
Tax Fees: The Tax Fees billed by E&Y for the fiscal years ended August 31, 2005 and August 31, 2004 were
for services performed in connection with income tax compliance.
All Other Fees:
  All Other fees billed by E&Y for the fiscal years ended August 31, 2005
  and August 31, 2004 were for professional services rendered relating to acquisitions
  and other technical services.
Our
  board of directors has adopted a policy that requires advance approval of all
  audit, audit-related, tax services, and other services performed by our independent
  auditor. The policy provides for pre-approval
- 59 -
by the board
  of directors of specifically defined audit and non-audit services. Unless the
  specific service has been previously pre-approved with respect to that year,
  the board of directors must approve the permitted service before the independent
  auditor is engaged to perform it.
- 60 -
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Financial StatementsReport
      of Independent Registered Public Accounting Firm
    66Consolidated Balance Sheets as of August 31, 2005 and 2004
    67Consolidated Statements of Operations for the periods 
  ended August 31, 2005, August 31, 2004, April 16, 
  2004 and August 31, 2003(unaudited)
    68Consolidated Statements of Cash Flows for the periods 
  ended August 31, 2005, August 31,  2004, April 16, 
  2004 and August 31, 2003(unaudited)
    69Consolidated
      Statements of Changes in Shareholders Equity for the 
  periods ended August 31, 2005, August 31, 2004, April 
  16, 2004 and August 31, 2003(unaudited)
    70Notes to Consolidated Financial Statements
    71-88(b) Financial Statement Schedules
None.
(c) Exhibits:
Exhibit No.
    
    Description2.1
    
    
    Agreement and Plan of Merger and Reorganization, dated as of December 14, 2000, between Registrant, then known as American Geological Enterprises, Inc., and Emtec, Inc.(1)2.2
    
    
    Agreement and Plan of Merger, dated as of March 15, 2004, by and among DARR Westwood Technology Corporation, DARR Westwood Acquisition Corporation, the Shareholders of Westwood Computer Corporation Named, Westwood Computer Corporation, and Keith Grabel, as Shareholders Agent.2.3
    
    
    Agreement and Plan of Merger, dated as of July 14, 2005, by and among the Registrant, Emtec Viasub LLC, and Darr Westwood Technology Corporation.(14)3.1
    
    
    Certificate of Incorporation, as amended.(2)3.2
    
    
    Amended and Restated Bylaws.(2)4.1
    
    
    Certificate evidencing shares of common stock.(2)10.1
    
    
    Resale Agreement, dated September 29, 1997, between Registrant and Ingram Micro, Inc.(2)10.2
    
    
    Volume Purchase Agreement, dated January 28, 1998, between Registrant and Tech Data Corporation.(2)10.3
    
    
    1996 Stock Option Plan, as amended in 1999.(2)10.4
    
    
    U.S. Systems Integrator Agreement, dated December 22, 1999, between Cisco System, Inc. and Registrant.(3)10.5
    
    
    Sun Microsystem, Inc. Channel Agreement, dated February 1, 2000, between Sun Microsystems, Inc. and Registrant.(5)- 61 -
Exhibit No.
    
    Description10.6
    
    
    IBM Business Partner Agreement, dated May 31, 2000, between International Business Machines Corporation and Registrant.(3)10.7
    
    
    Microsoft Certified Partner Agreement, dated December 20, 2000, between Microsoft and Registrant.(3)10.8
    
    
    Letter Agreement, dated April 24, 2001, between Novell Inc. and Registrant.(3)10.9
    
    
    Citrix Solutions Network Gold Renewal Membership Agreement, dated April 30, 2001, between Citrix Systems, Inc. and Registrant.(3)10.10
    
    
    Loan and Security Agreement, dated November 21, 2001, by and between Fleet Capital Corporation and Registrant.(12)10.11
    
    
    Agreement for Wholesale Financing, dated November 21, 2001, by and between IBM Credit Corporation and Registrant.(12)10.12
    
    
    Subordination Agreement, dated as of November 21, 2001, among Registrant, MRA Systems, Inc., dba GE Access, and Fleet Capital Corporation.(12)10.13
    
    
    Intercreditor Agreement, dated as of November 21, 2001, between Fleet Capital Corporation and Ingram Micro, Inc., and accepted by Registrant.(12)10.14
    
    
    Asset Acquisition Agreement, dated December 5, 2001, by and between Devise Associates, Inc. and Registrant.(4)10.15
    
    
    Lease Agreement, dated January 9, 2002, between Registrant and Vandergrand Properties Co., L.P., for New York, New York facility.(8)10.16
    
    
    Lease Agreement, dated March 1, 2002, between Registrant and G. F. Florida Operating Alpha, Inc., for Jacksonville, Florida facility.(8)10.17
    
    
    Asset Acquisition Agreement, dated August 12, 2002, by and between Acentra Technologies, Inc. and Registrant.(6)10.18
    
    
    Remarketer/Integrator Agreement, dated August 15, 2002, between Dell Marketing L.P. and Registrant.(6)10.19
    
    
    Asset Acquisition Agreement, dated August 31, 2002, by and between Turnkey Computer Systems, Inc. and Registrant.(7)10.20
    
    
    Lease Agreement, dated November 15, 2002, between Registrant and Hamilton Transit Corporate Center, for warehouse facility in Trenton, New Jersey.(9)10.21
    
    
    Lease Agreement, dated April 21, 2003, between V-Sullyfield Properties II LLC and Westwood Computer Corporation, for Chantilly, Virginia facility.10.22
    
    
    Lease Agreement, dated July 1, 2003, between Westwood Property Holdings LLC and Westwood Computer Corporation, for Springfield, New Jersey facility.10.23
    
    
    Amendment to Lease Agreement, dated July 14, 2003, between V-Sullyfield Properties II LLC and Westwood Computer Corporation, for Chantilly, Virginia facility.10.24
    
    
    Management Services Agreement, dated April 16, 2004, by and between DARR Global Holdings, Inc., and Westwood Computer Corporation.10.25
    
    
    Employment Agreement, dated as of April 16, 2004, by and between Keith Grabel and Westwood Computer Corporation.10.26
    
    
    Employment Agreement, dated as of April 16, 2004, by and between Mary Margaret Grabel and Westwood Computer Corporation.- 62 -
Exhibit No.
    
    Description10.27
    
    
    Separation Agreement, dated April 16, 2004, between Westwood Computer Corporation and Joyce Tischler.10.28
    
    
    Subordinated Note, dated April 16, 2004, in the amount of $750,000, made by DARR Westwood Acquisition Corporation in favor of DARR Westwood LLC.(17)10.29
    
    
    Subordinated Note, dated April 16, 2004, in the amount of $750,000, made by DARR Westwood Acquisition Corporation in favor of Four Kings Management LLC.(17)10.30
    
    
    5% Junior Subordinated Note, dated April 16, 2004, in the amount of $7,771.63, made by Westwood Computer Corporation in favor of Michael John Grabel.10.31
    
    
    5% Junior Subordinated Note, dated April 16, 2004, in the amount of $12,588.89, made by Westwood Computer Corporation in favor of Megan Patricia Grabel.10.32
    
    
    5% Junior Subordinated Note, dated April 16, 2004, in the amount of $132,183.32, made by Westwood Computer Corporation in favor of Mary Margaret Grabel.10.33
    
    
    5% Junior Subordinated Note, dated April 16, 2004, in the amount of $161,151.16, made by Westwood Computer Corporation in favor of Keith Grabel.(17)10.34
    
    
    8% Junior Subordinated Note, dated April 16, 2004, in the amount of $23,314.84, made by Westwood Computer Corporation in favor of Michael John Grabel.10.35
    
    
    8% Junior Subordinated Note, dated April 16, 2004, in the amount of $37,766.58, made by Westwood Computer Corporation in favor of Megan Patricia Grabel.10.36
    
    
    8% Junior Subordinated Note, dated April 16, 2004, in the amount of $396,549.13, made by Westwood Computer Corporation in favor of Mary Margaret Grabel.10.37
    
    
    8% Junior Subordinated Note, dated April 16, 2004, in the amount of $483,452.45, made by Westwood Computer Corporation in favor of Keith Grabel.(17)10.38
    
    
    First Amendment to Lease Agreement, dated April 16, 2004, between Westwood Property Holdings LLC and Westwood Computer Corporation, for Springfield, New Jersey facility.10.39
    
    
    Lease Agreement, dated May 20, 2004, between Registrant and Facstore, for office space in Cranford, New Jersey.(10)10.40
    
    
    Lease Agreement, dated June 1, 2004, between Registrant and Hamilton Transit Corporate Center, for office space in Trenton, New Jersey.(10)10.41
    
    
    Lease Agreement, dated September 2, 2004, between Registrant and GS&T Properties, LLC, for Suwanee, Georgia facility.(11)10.42
    
    
    Sublease Agreement, dated November 24, 2004, between Registrant and vFinance, Inc., for office space in New York, New York.(11)10.43
    
    
    Amendment to Loan and Security Agreement, dated as of December 10, 2004, between Bank of America Business Capital Corporation and Registrant.(13)10.44
    
    
    Lease Agreement, dated January 1, 2005, between Registrant and Select Office Suites, for a sales office space in New York, New York.(11)10.45
    
    
    Lease Agreement, dated March 1, 2005, between Twenty Keyland Corporation and Westwood Computer Corporation, for Bohemia, New York facility.- 63 -
Exhibit
      No.
    
    Description10.47
    
    
    Revocable
      License Agreement, dated June 1, 2005, between A.M. Property Holding Corporation
      and Westwood Computer Corporation, for New York, New York facility.10.48
    
    
    Employment
      Agreement, dated as of July 14, 2005, between Registrant and John Howlett.(14)10.49
    
    
    Employment
      Agreement, dated as of July 14, 2005, between Registrant and Ronald Seitz.(14)10.50
    
    
    Form of
      Guaranty issued by Registrant in favor of Four Kings Management LLC, Keith
      Grabel, Mary Margaret Grabel, Megan Patricia Grabel, Michael John Grabel,
      Darr Westwood LLC, and Joyce Tischler, dated September, 2005.10.51
    
    
    Business
      Financing Agreement, dated August 5, 2005, by and between GE Commercial
      Distribution Finance Corporation and subsidiaries of Registrant.(15)10.52
    
    
    Agreement
      for Wholesales Financing, dated August 5, 2005, by and between GE Commercial
      Distribution Finance Corporation and subsidiaries of Registrant.(15)10.53
    
    
    Addendum
      to Agreement for Wholesales Financing and Business Financing Agreement,
      dated August 5, 2005, by and between GE Commercial Distribution Finance
      Corporation and subsidiaries of Registrant.(15)10.54
    
    
    Common
      Stock Purchase Warrant between Registrant and DARR Westwood LLC, dated August
      5, 2005.(16)10.55
    
    
    Common
      Stock Purchase Warrant between Registrant and Margaret Grabel, dated August
      5, 2005.(16)10.56
    
    
    8% Subordinated
      Promissory Note, dated August 5, 2005, issued by Darr Westwood Technology
      Corporation in favor of Darr Westwood LLC.(17)10.57
    
    
    Assignment
      of State of New Jersey Contract from Acentra Technologies, Inc. to Registrant.(6)14.1
    
    
    Code of
      Ethics.(10)21.1
    
    
    List of
      Subsidiaries.31.1
    
    
    Certification
      of Dinesh R. Desai, Principal Executive Officer of Registrant, dated December
      14, 2005. Rule 13a-14(a)/15 d-14(a).31.2
    
    
    Certification
      of Stephen C. Donnelly, Principal Financial Officer of Registrant, dated
      December 14, 2005. Rule 13a-14(a)/15 d-14(a).32.1
    
    
    Certificate
      of Dinesh R. Desai, Principal Executive Officer of Registrant, dated December
      14, 2005. Section 1350.32.2
    
    
    Certificate
      of Stephen C. Donnelly, Principal Financial Officer of Registrant, dated
      December 14, 2005. Section 1350.(1)
Previously filed as an exhibit to Registrants Current Report on Form 8-­K, dated January 17,
2001, filed on January 31, 2001, and incorporated herein by reference.(2)
Previously filed as an exhibit to Registrants Registration Statement on Form 10, filed on
May 21, 2001, and incorporated herein by reference.- 64 -
(3)
Previously filed as an exhibit to Amendment No. 1 to Registration Statement on Form 10, filed
on July 12, and incorporated herein by reference.(4)
Previously filed as an exhibit to Registrants Current Report on Form 8-K, dated December 5, 2001,
filed on December 20, 2001, and incorporated herein by reference.(5)
Previously filed as an exhibit to Registrants Form 10-K dated March 31, 2001, filed on July 12,
2001, and incorporated herein by reference.(6)
Previously filed as an exhibit to Registrants Current Report on Form 8-K, dated August 12, 2002, filed
on August 26, 2002, and incorporated herein by reference.(7)
Previously filed as an exhibit to Registrants Current Report on Form 8-K, dated August 31, 2002,
filed on September 13, 2002, and incorporated herein by reference.(8)
Previously filed as an exhibit to Registrants Form 10-K, dated March 31, 2002, filed on June
30, 2002, and incorporated herein by reference.(9)
Previously filed as an exhibit to Registrants Form 10-K, dated March 31, 2003, filed on July
15, 2003, and incorporated herein by reference.(10)
Previously filed as an exhibit to Registrants Form 10-K, dated March 31, 2004, filed on July
14, 2004, and incorporated herein by reference.(11)
Previously filed as an exhibit to Registrants Form 10-K, dated March 31, 2005, filed on July
14, 2005, and incorporated herein by reference.(12)
  Previously filed as an exhibit to Registrants Current Report on Form 8-K, dated November 21, 2001, filed on November 26, 2001, and incorporated herein by reference.(13)
Previously filed as an exhibit to Registrants Current Report on Form 8-K, dated December 10,
2004, filed on December 14, 2004, and incorporated herein by reference.(14)
Previously filed as an exhibit to Registrants Current Report on Form 8-K, dated July 14, 2005,
filed on July 20, 2005, and incorporated herein by reference.(15)
Previously filed as an exhibit to Registrants Quarterly Report on Form 10-Q, dated June 30, 2005,
filed on August 19, 2005, and incorporated herein by reference.(16)
Previously filed as an exhibit to Registrants Tender Offer Statement on Form SC TO-I, filed September
7, 2005, and incorporated herein by reference.(17)
Previously filed as an exhibit to Amendment to Registrants Tender Offer Statement on Form SC
TO-I/A, filed September 22, 2005, and incorporated herein by reference.- 65 -
Report of Independent Registered Public Accounting Firm
Board of Directors
  Emtec, Inc.
We have audited
  the accompanying consolidated balance sheets of Emtec, Inc. as of August 31,
  2005 and 2004, and the related consolidated statements of operations, cash flows
  and changes in stockholders equity, for the year ended August 31, 2005,
  the period from April 17, 2004 to August 31, 2004 (Successor Period)
  and the period from September 1, 2003 to April 16, 2004 (Predecessor
  Period). These financial statements are the responsibility of the Companys
  management. Our responsibility is to express an opinion on these financial statements
  based on our audits.
We conducted our audits in accordance with the standards of The Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Emtec, Inc at August 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for the year ended August 31, 2005, the period from April 17, 2004 to August 31, 2004 (Successor Period) and the period from September 1, 2003 to April 16, 2004 (Predecessor Period), in conformity with U.S. generally accepted accounting principles.

/s/  ERNST & YOUNG  LLP
Philadelphia, PADecember 2, 2005
66
EMTEC, INC.CONSOLIDATED BALANCE SHEETS
      AUGUST 31, 2005 and 2004**2005**
    
    
    **2004**AssetsCurrent
      AssetsCash
      & cash equivalents
    $
    1,021,237
    
    $
    1,215,917Receivables:Trade,
      less allowance
              for doubtful accounts
    
    34,541,373
    
    
    17,732,321Others
    
    3,385,891
    
    
    1,191,658Inventories,
      net
    
    5,770,590
    
    
    524,262Prepaid
      expenses
    
    433,238
    
    
    79,388Deferred
      tax asset - current
    
    603,533
    
    
    172,232Total
      Current Assets
    
    45,755,862
    
    
    20,915,778Net
      property and equipment
    
    917,159
    
    
    350,236Deferred
      tax asset - long term
    
    
    
    
    154,344Customer
      relationships, net
    
    8,592,844
    
    
    276,276Goodwill
    
    8,974,610
    
    
    Restricted
      cash
    
    5,650,000
    
    
    Other
      assets
    
    119,443
    
    
    41,004Total Assets
    $
    70,009,918
    
    $
    21,737,638Liabilities
      and Shareholders EquityCurrent
      LiabilitiesLine
      of credit
    
    4,412,526
    
    
    299,250Accounts
      payable - trade
    
    29,738,061
    
    
    14,259,738Accounts
      payable - related party
    
    133,333
    
    
    33,333Current
      portion of long term debt - related party
    
    524,874
    
    
    349,694Income
      taxes payable
    
    828,659
    
    
    97,786Accrued
      liabilities
    
    4,190,728
    
    
    1,021,994Due
      to former stockholders
    
    631,415
    
    
    664,567Customer
      deposits
    
    1,268,672
    
    
    Deferred
      revenue
    
    1,125,205
    
    
    385,422Total
      Current Liabilities
    
    42,853,473
    
    
    17,111,784Accrued
      severance
    
    380,356
    
    
    473,489Deferred
      tax liability
    
    2,838,298
    
     
    Long
      term debt - related party
    
    3,010,219
    
    
    2,405,084Total Liabilities
    
    49,082,346
    
    
    19,990,357Shareholders
      EquityRedeemable
      preferred stock,$0.01 par value
    
    
    
    
    10Common
      Stock $0.01 par value; 25,000,000 shares
            authorized; 17,232,134 and 9,528,110
      shares issued and 
           outstanding at August 31, 2005 and 2004
    
    172,321
    
    
    95,281Additional
      paid-in capital
    
    19,908,779
    
    
    1,529,709Retained
      earnings
    
    846,472
    
    
    122,281Total Shareholders
      Equity
    
    20,927,572
    
    
    1,747,281Total Liabilities
      and Shareholders Equity
    $
    70,009,918
    
    $
    21,737,638The accompanying notes are an integral part of these consolidated financial statements.67
EMTEC, INC.CONSOLIDATED STATEMENTS OF OPERATIONSPeriods Ended August 31, 2005, 2004 and 2003Year
      Ended
      August 31, 2005
    
    Period
      from
      April 17, 2004 to
      August 31, 2004
        (Successor Period)
    
    Period
      from
      September 1, 2003 to
      April 16, 2004
      (Predecessor Period)
    
    (Unaudited)
      Year Ended
      August 31, 2003Revenues
    $
    162,632,042
    
    $
    41,641,604
    
    $
    88,229,719
    
    $
    97,449,611Cost of revenues
    
    148,587,442
    
    
    37,617,860
    
    
    79,596,368
    
    
    87,843,440Gross profit
    
    14,044,600
    
    
    4,023,744
    
    
    8,633,351
    
    
    9,606,171Operating
      expenses:Selling,
      general, and administrative expenses
    
    11,872,766
    
    
    3,418,755
    
    
    7,292,265
    
    
    8,623,016Management
      fee  related party
    
    350,000
    
    
    116,664
    
    
    
    
    
    Rent
      expense  related party
    
    180,000
    
    
    60,000
    
    
    155,333
    
    
    Depreciation
      and amortization
    
    174,944
    
    
    23,739
    
    
    51,266
    
    
    125,054Total operating
      expenses
    
    12,577,710
    
    
    3,619,158
    
    
    7,498,864
    
    
    8,748,070Operating
      income
    
    1,466,890
    
    
    404,586
    
    
    1,134,487
    
    
    858,101Other
      expense (income):Forgiveness
      of debt
    
    
    
    
    
    
    
    (405,652
    )
    
    Interest
      income  related party
    
    
    
    
    
    
    
    (21,483
    )
    
    Interest
      income  other
    
    (120,520
    )
    
    (25,783
    )
    
    (44,479
    )
    
    (48,613
    )Interest
      expense
    
    611,479
    
    
    184,665
    
    
    72,819
    
    
    42,324Other
      expense (income)
    
    (303,604
    )
    
    
    
    
    
    
    
    Loss
      on sales of land and building
    
    
    
    
    
    
    
    
    
    
    102,253Income before
      income taxes
    
    1,279,535
    
    
    245,704
    
    
    1,533,282
    
    
    762,137Provision
      for income taxes
    
    452,550
    
    
    123,423
    
    
    647,445
    
    
    294,747Net
      income
    
    826,985
    
    
    122,281
    
    
    885,837
    
    
    467,390Preferred
      stock dividends
    
    (72,794
    )
    
    (30,000
    )
    
    
    
    
    Net
      income allocable to
              common stockholders
    $
    754,191
    
    $
    92,281
    
    $
    885,837
    
    $
    467,390Net income
      per common shareBasic
      and Diluted
    $
    0.08
    
    $
    0.01
    
    $
    0.09
    
    $
    0.05Weighted
      Average Shares OutstandingBasic
    
    10,075,520
    
    
    9,528,110
    
    
    9,528,110
    
    
    9,597,871Diluted
    
    10,108,803
    
    
    9,528,110
    
    
    9,528,110
    
    
    9,597,871The accompanying notes are an integral part of these consolidated financial statements.68
Emtec Inc.Consolidated Statements of Cash Flows
      Periods Ended August 31, 2005, 2004 and 2003Year
      Ended
      August 31, 2005
    
    
    Period
      from
      April 17, 2004 to
      August 31, 2004
      (Successor Period)
    
    Period
      from
      September 1, 2003 to
      April 16, 2004
      (Predecessor Period)
    
    (Unaudited)
      Year Ended
      August 31, 2003Cash Flows
      From Operating ActivitiesNet
      income for the year
    $
    826,985
    
    
    $
    122,281
    
    $
    885,837
    
    $
    467,390Adjustments
      to Reconcile Net Income to Net
      Cash (Used In) Provided by Operating ActivitiesForgiveness
      of debt
    
    
    
    
    
    
    
    
    (405,652
    )
    
    Depreciation
      and amortization
    
    196,755
    
    
    
    23,739
    
    
    51,266
    
    
    125,054Loss on sale
      of land and building
    
    
    
    
    
    
    
    
    
    
    
    102,253Deferred
      income tax (benefit) expense
    
    (147,382
    )
    
    
    50,578
    
    
    58,303
    
    
    (203,517
    )Put option
      valuation
    
    (303,604
    )
    
    
    
    
    
    
    
    
    Changes
      In Operating Assets and LiabilitiesReceivables
    
    (2,118,382
    )
    
    
    (6,854,567
    )
    
    579,725
    
    
    4,918,052Inventories
    
    (3,090,989
    )
    
    
    (75,838
    )
    
    622,947
    
    
    1,290,429Prepaid expenses
      and other assets
    
    (21,380
    )
    
    
    7,706
    
    
    (22,063
    )
    
    45,233Accounts
      payable
    
    5,875,608
    
    
    
    8,707,348
    
    
    (1,238,723
    )
    
    (1,056,019
    )Customer
      deposits
    
    (43,935
    )
    
    
    
    
    
    
    
    
    Income Taxes
      Payable
    
    148,501
    
    
    
    
    
    
    
    
    
    Accrued liabilities
    
    1,362,375
    
    
    
    (637,962
    )
    
    765,315
    
    
    149,630Deferred
      compensation
    
    
    
    
    
    
    
    
    
    
    
    489,465Deferred
      revenue
    
    (74,611
    )
    
    
    16,815
    
    
    (125,914
    )
    
    291,583Net Cash
      (Used In) Provided By
      Operating Activities
    $
    2,609,941
    
    
    $
    1,360,100
    
    $
    1,171,041
    
    $
    6,619,553Cash
      Flows From Investing ActivitiesPurchases
      of property and equipment
    $
    (491,310
    )
    
    $
    (147,705
    )
    $
    (45,616
    )
    $
    (67,593
    )Repurchase
      of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    (13,670
    )Payments
      from note receivable
    
    
    
    
    
    
    
    
    
    
    
    (2,706
    )Acquisition
      of businesses, net of cash acquired
    
    (678,875
    )
    
    
    (4,917,499
    )
    
    
    
    
    Net Cash
      Used In Investing Activities
    $
    (1,170,185
    )
    
    $
    (5,065,204
    )
    $
    (45,616
    )
    $
    (83,969
    )Cash Flows
      From Financing ActivitiesNet Increase
      (decrease) in line of credit
    $
    4,054,524
    
    
    $
    299,250
    
    $
    (7,121,955
    )
    $
    Proceeds
      from issuance of common stock
    
    16,671
    
    
    
    625,000
    
    
    
    
    
    Proceeds
      from issuance of preferred stock
    
    
    
    
    
    1,000,000
    
    
    
    
    
    Proceeds
      from long-term debt
    
    
    
    
    
    1,500,000
    
    
    
    
    
    Repayment
      of amount due to former stockholders
    
    (33,152
    )
    
    
    
    
    
    
    
    
    Increase
      in restricted cash
    
    (5,350,000
    )
    
    
    
    
    
    
    
    
    Repayment
      of debt
    
    (322,479
    )
    
    
    
    
    
    
    
    
    (44,445
    )Net Cash
      Provided By (Used In)
       Financing Activities
    $
    (1,634,436
    )
    
    $
    3,424,250
    
    $
    (7,121,955
    )
    $
    (44,445
    )Net (decrease)
      increase in Cash and Cash Equivalents
    $
    (194,680
    )
    
    $
    (280,854
    )
    $
    (5,996,530
    )
    $
    6,491,139Beginning
      Cash and Cash Equivalents
    $
    1,215,917
    
    
    $
    1,496,771
    
    $
    7,493,301
    
    $
    1,002,162Ending
      Cash and Cash Equivalents
    $
    1,021,237
    
    
    $
    1,215,917
    
    $
    1,496,771
    
    $
    7,493,301The accompanying notes are an integral part of these consolidated financial statements.69
Emtec
      Inc.Consolidated Statement of Changes in Shareholders
      EquityPreferred Stock
    
    Common Stock
    
    Additional
      Paid-in
      Capital
    
    Retained 
      Earnings
    
    Treasury
      Stock, at
      Cost
    
    Total
      Stockholders 
      EquityShares
    
    Amount
    
    Shares
    
    AmountPredecessor periodBalance at September 1, 2002 (Unaudited)
    
    
    
    
    
    
    9,667,645
    
    $
    96,676
    
    $
    770,285
    
    $
    3,664,339
    
    $
    (1,767
    )
    $
    4,529,533Purchase of treasury stock
    
    
    
    
    
    
    (139,535
    )
    
    (1,395
    )
    
    1,395
    
    
    
    
    
    (13,670
    )
    
    (13,670
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    467,390
    
    
    
    
    
    467,390Balance at August 31, 2003 (Unaudited)
    
    
    
    
    
    
    9,528,110
    
    $
    95,281
    
    $
    771,680
    
    $
    4,131,729
    
    $
    (15,437
    )
    $
    4,983,253Capital contribution
    
    
    
    
    
    
    
    
    
    
    
    
    903,811
    
    
    
    
    
    
    
    
    903,811Noncash distribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (399,587
    )
    
    
    
    
    (399,587
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    885,837
    
    
    
    
    
    885,837Balance at April 16, 2004
    
    
    
    
    
    
    9,528,110
    
    $
    95,281
    
    $
    1,675,491
    
    $
    4,617,979
    
    $
    (15,437
    )
    $
    6,373,314Successor periodBalance at April 17, 2004
    
    1,000
    
    $
    10
    
    9,528,110
    
    $
    95,281
    
    $
    1,529,709
    
    
    
    
    
    
    
    $
    1,625,000Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,281
    
    
    
    
    
    122,281Balance at August 31, 2004
    
    1,000
    
    $
    10
    
    9,528,110
    
    $
    95,281
    
    $
    1,529,709
    
    $
    122,281
    
    $
    
    
    $
    1,747,281Common stock deemed to be issued in reverse merger
    
    
    
    
    
    
    7,676,024
    
    
    76,760
    
    
    19,362,670
    
    
    
    
    
    
    
    
    19,439,430Dividends
      on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102,794
    )
    
    
    
    
    (102,794
    )Conversion of preferred stock into debt
    
    (1,000
    )
    
    (10
    )
    
    
    
    
    
    
    (999,990
    )
    
    
    
    
    
    
    
    (1,000,000
    )Common stock issued upon exercise of options- post merger
    
    
    
    
    
    
    28,000
    
    
    280
    
    
    16,390
    
    
    
    
    
    
    
    
    16,670Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    826,985
    
    
    
    
    
    826,985Balance at August 31, 2005
    
    
    
    $
    
    
    17,232,134
    
    $
    172,321
    
    $
    19,908,779
    
    $
    846,472
    
    $
    
    
    $
    20,927,572The accompanying notes are an integral part of these consolidated financial statements.70
Emtec, Inc.Notes to Consolidated Financial StatementsAugust 31, 2005
1. Organization
Business
On August 5, 2005, Emtec, Inc. (Old Emtec) completed a merger with Darr Westwood Technology Corporation
(Darr) pursuant to which the two companies merged and now operate as a consolidated entity that has
retained the name Emtec, Inc. (the Company or Emtec) (the August 5, 2005 merger). Management concluded
that the transaction resulted in a change in control of the Company and that the transaction should
be accounted for as a reverse merger, whereby Darr was considered the accounting acquirer of Old
Emtec for financial reporting purposes. In what was regarded as a recapitalization, the historical
stockholders equity of Darr, the accounting acquirer, prior to the merger, was retroactively
restated for the equivalent number of shares received in the merger after giving effect to any difference
in the par value of Old Emtecs and Darrs stock with an offset to paid-in capital. Retained
earnings of Darr are carried forward after the merger. Operations prior to the merger are those of
Darr. Earnings per share for periods prior to the merger were restated to reflect the equivalent number of shares.
Accordingly, the historical financial statements of Emtec are considered to be those of Darr for all
periods presented. The consolidated financial statements include the accounts and transactions of
Darr for the year ended August 31, 2005 (and including the accounts and transactions of Emtec for
the period from August 6, 2005 to August 31, 2005), the periods from September 1, 2003 to April 16,
2004 (Predecessor Period) and from April 17, 2004 to August 31, 2004 (Successor Period) and for the
year ended August 31, 2003 and the accounts and transactions of Old Emtec for the period from August
5, to August 31, 2005. The notes to the consolidated financial statements refer to the following
defined periods ended: August 31, 2005, August 31, 2004, April 16, 2004 and August 31, 2003.
The Company is a systems integrator focused on providing technology solutions that enable its
customers to use and manage their data to grow their businesses. The Companys customer base
is comprised of departments of the United States, state and local governments, education and commercial
businesses throughout the United States. Emtec specializes in information technology services
including: enterprise computing, data communications, data access, network design, enterprise backup
and storage consolidation, managed services and staff augmentation. The most significant portion
of the Companys revenue is derived from activities as a reseller of IT products, such as workstations,
servers, microcomputers, and application software and networking and communications equipment.
The Company considers all of its operating activity to be generated from a single operating segment.

71
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary,
Westwood, and Westwoods wholly owned subsidiary, Solutions. Significant intercompany account
balances and transactions have been eliminated in consolidation.

Unaudited Financial Statements

The results of operations and cash flows for the year ended August 31,
2003 are considered to be unaudited because they were not audited by a
registered public accounting firm. The Company is in the process of
resolving the matter and intends to amend its form 10-K upon the
completion of the audit of the financial statements for the year ended
August 31, 2003, by a firm that is a registered public accounting firm.



Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual results could differ
from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less
to be cash equivalents. The Company typically maintains cash at major financial institutions. At
times throughout the year, bank account balances exceed FDIC insurance limits, which are up to $100,000
per account.
The Company has restricted cash from time to time during the year that represents amounts collected
on accounts receivable that have not been released to the Company by its financing company. At August
31, 2005 cash that has not been released by the finance company totaled $476,290. In addition, the
Company recorded $5,650,000 of restricted cash at August 31, 2005 that represents cash earmarked
to fund a self tender offer of $5,500,000 that begins September 7, 2005, and $150,000 to obtain a
letter of credit required as a security deposit for a real estate lease.
Concentration of Credit Risk and Significant Customers
Other financial instruments that potentially subject the Company to a concentration of credit risk
consist principally of accounts receivable. A substantial portion of the Companys customer
base is related departments of the United States government and state and local governments. The
Company does not require collateral or other security to support credit sales, but provides an allowance
for doubtful accounts based on historical experience and specifically identified risks. Accounts
receivable are considered delinquent when payment is not received within standard terms of sale and
are charged off against the allowance for doubtful accounts when management determines that recovery
is unlikely and the Company ceases its collection efforts.
The Companys revenues comprised of the following customer types for the periods ended:
August 31, 2005
    
    August 31, 2004
    
    April 16, 2004
    
    August 31, 2003Departments of the United 
      States Government
    $
    123,823,906
    
    $
    31,463,023
    
    $
    66,663,466
    
    $
    73,816,257State and Local Governments
    
    17,625,586
    
    
    3,571,827
    
    
    7,567,943
    
    
    11,691,527Commercial Companies
    
    12,338,163
    
    
    4,580,576
    
    
    9,705,269
    
    
    9,880,240Education and other
    
    8,844,387
    
    
    2,026,178
    
    
    4,293,041
    
    
    2,061,587Total Revenues
    $
    162,632,042
    
    $
    41,641,604
    
    $
    88,229,719
    
    $
    97,449,61172
The United States Department
  of Agriculture (USDA), accounted for approximately 13.4%, 1.2%, 1.1% and 1.1%
  of our total revenues for the periods ended August 31, 2005, August 31 2004,
  April 16, 2004 and 2003, respectively.
As of August 31, 2005 and 2004, trade accounts receivable are comprised of the following:
August
      31, 2005
    
    August
      31, 2004Trade
      receivables
    $
    34,766,373
    
    $
    17,957,321Allowance
      for doubtful account
    
    (225,000
    )
    
    (225,000
    )Trade receivables,
      net
    $
    34,541,373
    
    $
    17,732,321Fair Value of Financial Instruments
The carrying amounts of accounts receivable, other receivables accounts payable, accrued expenses and
customer deposits approximate fair value because of their short-term nature. The carrying amount
of the line of credit and long-term debt approximates their fair value because the interest rates
reflect rates the Company would be able to obtain on debt with similar terms and conditions.
Revenue Recognition
The Company recognizes revenue from the sales of products when risk of loss and title passes which
is upon customer acceptance.
Revenue from the sale of warranties and support service contracts is recognized on a straight-line
basis over the term of the contract, in accordance with Financial Accounting Standards Board Technical
Bulleting No. 90-1, Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts (FTB 90-1).
The Company may also enter into sales arrangements with customers that contain multiple elements. The
Company recognizes revenue from sale arrangements that contain both products and manufacturer warranties
in accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements
with Multiple Deliverables, based on the relative fair value of the individual components.
The relative fair value of individual components is based on historical sales of the components sold
separately.
Product revenue represents sales of computer hardware and pre-packaged software. These arrangements
often include software installations, configurations, and imaging, along with delivery and set-up
of hardware. The Company follows the criteria contained in EITF 00-21 and SAB 104 in recognizing
revenue associated with these transactions. The Company performs software installations, configurations
and imaging services at its locations prior to the delivery of the product. Some customer arrangements
include set-up services performed at customer locations where the Companys personnel
perform the routine tasks of removing the equipment from boxes, and setting up the equipment at customer
workstations by plugging in all necessary connections. This service is usually performed the same
day as delivery. Revenue is recognized on the date of acceptance, except as follows:
73

In some instances, the set-up service is performed after date of delivery. The Company
recognizes revenue for the hardware component at date of delivery when the amount of
revenue allocable to this component is not contingent upon the completion of set-up services
and therefore, the Companys customer has agreed that the transaction is complete as to the
hardware component. In instances where the Companys customer does not accept delivery
until set-up services are completed, the Company defers all revenue in the transaction
until customer acceptance occurs.
There are occasions when a customer requests a transaction on a bill & hold basis.
The Company follows the SAB 104 criteria and recognizes revenue from these sales prior to date of
physical delivery only when all the criteria of SAB 104 are met. At August 31, 2005, accounts receivable
related to bill and hold sales totaled $221,255. Total revenue from bill and hold sales were $768,726
with a gross profit of $86,860 which was included in the results of operations for the year ended
August 31, 2005. The Company does not modify its normal billing and credit terms for these customers.
The customer is invoiced at the date of revenue recognition when all of the criteria have been met.The Company has
  experienced minimal customer returns. Since all eligible products must be returned
  to the Company with 30 days from the date of the invoice, the Company reduces
  the product revenue and cost of goods in each accounting period based on the
  actual returns that occurred in the next 30 days after the close of the accounting
  period.
Service and consulting revenue include time billings based upon billable hours charged to the customers,
fixed price short-term projects, hardware maintenance contracts, and manufacturer support service
contracts. These contracts generally are task specific and do not involve multiple deliverables.
Revenues from time billings are recognized as services are delivered. Revenues from short-term fixed
price projects are recognized using the proportional performance method by determining the level
of service performed based upon the amount of labor cost incurred on the project versus the total
labor costs to perform the project because this is the most readily reliable measure of output. Revenues
from hardware maintenance contracts are recognized ratably over the contract period.
Revenues from manufacturer support service contracts where the manufacturer is responsible for fulfilling
the service requirements of the customer are recognized immediately on their contact sale date. Manufacturer
support service contracts contain cancellation privileges that allow our customers to terminate
a contract with 90 days written notice. In this event, the customer is entitled to a pro-rated refund
based on the remaining term of the contract and we would owe the manufacturer a pro-rated refund
of the cost of the contract. However, the Company has experienced no customer cancellations of any
significance during our most recent three-year history and do not expect cancellations of any significance
in the future.
Rebates
Rebates received
  on products purchased are recorded in the accompanying consolidated statements
  of operations as a reduction of the cost of revenues in accordance with Emerging
  Issues Task Force Abstract No. 02-16, Accounting by a Customer (Including
  a Reseller) for Certain Consideration Received from a Vendor (EITF 02-16).
  At August 31, 2005 and August 31, 2004, approximately $2,117,290 and $1,009,000,
  respectively, of rebates receivable were recorded in accounts-receivable-other
  in the accompanying consolidated balance sheets.
74
Inventory
Inventory is stated at the lower of average cost (specific identification) or market. Inventory is
entirely finished goods purchased for resale and consists of computer hardware, computer software,
computer peripherals and related supplies. The Company provides an inventory reserve for products
it determines are obsolete or where salability has deteriorated based on managements review of products
and sales. The components of inventory at August 31 are as follows:
2005
    
    2004Hardware, software, accessories, and parts
    $
    6,070,728
    
    $
    644,262Less: Inventory reserve
    $
    (300,138
    )
    $
    (120,000
    )Net Inventory
    $
    5,770,590
    
    $
    524,262Property and
  Equipment
Property and equipment
  are recorded at cost. Depreciation and amortization are provided on a straight-line
  basis over the estimated useful lives of the assets, which generally are three
  to five years. Maintenance and repair costs are charged to expense as incurred.
  The cost and accumulated depreciation relating to property and equipment retired
  or otherwise disposed of are eliminated from the accounts and any resulting
  gains or losses are credited or charged to income.
Goodwill
Goodwill is the excess of the purchase price over the fair value of the net assets acquired in a business
combination accounted for under the purchase method. On August 5, 2005, the Company recorded goodwill
related to the acquisition of Old Emtec equal to $8,817,231. On March 1, 2005, the Company recorded
goodwill related to the acquisition of Proven Technologies, Inc. equal to $157,739. Total Goodwill
at August 31, 2005 is $8,974,610. The Company tests goodwill and indefinite-lived assets for impairment
at least annually in accordance with Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets, (SFAS 142). The Companys annual impairment test is made
on June 1 of each year. Intangible assets that have finite useful lives are amortized over their
useful lives.
Identifiable Intangible Asset
On August 5, 2005, the Company ascribed $8,378,166 of the purchase price associated with the acquisition
of Old Emtec to customer relationships. Intangible assets at August 31, 2005 and 2004 consisted of
the value ascribed to customer relationships of $8,661,712 less accumulated amortization of $68,868
and $283,546 ascribed to customer relationships less accumulated amortization of $7,270, respectively.
The assets ascribed to customer relationships are being amortized on a straight-line basis over 13-15
years. Amortization expense was $61,598 and $7,270 for the periods ended August 31, 2005 and August
31, 2004, respectively. Amortization expense of $580,356 is expected to be recorded each year through
August 31, 2016, $573,085 for the year ended August 31, 2017, $558,544 for the years ended August
31, 2018, and 2019, and $518,755 for the year ended August 31, 2020.
75
Property and equipment and customer relationship intangible assets are tested for recoverability whenever
events or changes in circumstances indicate that their carrying amount may not be recoverable in
accordance with Statement of Financial Accounting Standards (SFAS) No. 144 Accounting
for the Impairment or Disposal of Long-Lived Assets. Recoverability of long-lived assets
is assessed by a comparison of the carrying amount to the estimated undiscounted future net cash
flows expected to result from the use of the assets and their eventual disposition. If estimated
undiscounted future net cash flows are less than the carrying amount, the asset is considered impaired
and a loss would be recognized based on the amount by which the carrying value exceeds the fair value
of the asset.
Advertising
Advertising costs are expensed as incurred. Advertising expense was $551,065, $200,690, $217,557, and
$320,196 for the periods ending August 31, 2005, August 31, 2004, April 16, 2004 and August 31, 2003,
respectively, and is included in selling, general and administrative expenses in the consolidated
statements of operations. Marketing development funds received from various manufacturers are
included in selling, general and administrative expense.
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic value method of accounting in
accordance with Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees
(APB 25) and related Interpretations. Accordingly, no compensation cost for stock options granted
to employees is reflected in net income, since all options granted had an exercise price equal to
the fair market value of the Companys common stock on the date of the grant. Stock options
in the Company are fully vested and were granted by Old Emtec prior to the August 5, 2005 merger.
In December 2004, the FASB issued Statement of Financial Accounting Standard No. 123 (Revised), Share-Based
Payments (SFAS 123R), which is effective for the Company beginning December 15,
2005. Under SFAS 123R, the Company will be required to measure the cost of employee service received
in exchange for awards of stock options based upon the fair value of the options as of their grant
date. The cost of the employee service will be recognized as compensation cost ratably over the option
vesting period. Currently, the Company recognizes compensation expense pursuant to APB 25, whereby
compensation expense is recognized to the extent that an option price is less than the market price
of the stock at the date of the grant (the Intrinsic Value). SFAS 123R allows the use
of either the Black-Scholes or a lattice option-pricing model to calculate the fair value of options.
Currently, the Company is evaluating the adoption alternatives under SFAS 123R. There will be no impact on future
operating results until the Company issues stock options in future periods.
Income Taxes
The Company provides for income taxes in accordance with Statement of Financial Accounting Standards
No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109 requires the recognition of deferred tax liabilities and assets for the expected future
tax consequences of temporary differences between financial statement carrying amounts and the tax
basis of assets and liabilities.
76
Earnings Per Share
Basic earnings/(loss)
  per share is computed based on the weighted average shares outstanding during
  the reporting period without considering any dilutive effects. Diluted earnings
  (loss) per share is computed similar to basic earnings (loss) per share except
  that the weighted average shares outstanding reflects all shares that could
  be issued, including options and warrants.
3. Acquisition
On August 5, 2005, Old Emtec and Darr completed a transaction pursuant to which the two companies merged
and will operate as a new consolidated entity that retains the name Emtec, Inc. Under the terms of
the merger agreement all shares Darr common stock that were issued and outstanding immediately prior
to the merger were exchanged for 9,528,110 shares of Old Emtecs common stock plus warrants
to purchase an additional 10% of the Company, measured on a post exercise basis. Immediately following
the merger, Darrs stockholders owned approximately 55.7% of the outstanding shares of the Companys
common stock. In addition, as a condition of the transaction, the Company was required to initiate
a self tender offer to repurchase issued and outstanding shares of the Company for an aggregate purchase
price up to $5,500,000 at a fixed price of $1.92 per share. The Company believes that the merger
transaction will allow the Company to expand its service offerings, add to or enhance its base of
technical or sales personnel, and nurture and expand existing client relationships. The anticipated
synergies from the merger include enhanced buying power, cross utilization of resources, and cross
selling into existing client relationships.
Management concluded that the transaction resulted in a change in control of the Company and that the
transaction should be accounted for as a reverse merger, whereby Darr is considered the accounting
acquirer and the purchase price is allocated to the net tangible and intangible assets of Old Emtec
(hereinafter net assets) based on their underlying fair values.
The aggregate purchase price was $20,275,670 based on the fair value of the consideration, which consisted
of: $19,266,820 for 7,676,024 shares of common stock of Old Emtec deemed to be issued at $2.51 per
share, $172,612 for stock options deemed to be issued, $315,104 for put warrants issued under a self
tender offer and $521,134 of acquisition costs incurred by Darr. The Company accounted for the acquisition
under the purchase method, whereby, amounts were assigned to assets acquired and liabilities assumed
based on their respective fair values, on the date of merger. Management determined the fair value
of Old Emtecs net assets on August 5, 2005 was $11,458,800, which resulted in an excess purchase
price over fair value of net assets acquired of $8,816,870, which was recognized as goodwill.
77
The allocation of purchase price by significant component is as follows:
Accounts and other receivables
    $
    16,884,901Inventories
    
    2,155,339Deferred
      tax asset-current
    
    267,574Prepaid expenses
    
    354,260Property and equipment
    
    210,770Customer relationships
    
    8,378,166Other assets
    
    356,651Accounts payable
    
    (9,702,715
    )Other current liabilities
    
    (4,469,849
    )Deferred tax liabilities
    
    (2,976,297
    )Fair value of net assets acquired
    $
    11,458,800Purchase price
    
    20,275,670Excess purchase price
    $
    8,816,870The value of the put options issued was estimated on the date of grant (August 5, 2005) using a Black-Scholes
option pricing model. Under the Black-Scholes model, the total value of the put options was $315,104.
Key assumptions used in the model included: exercise price - $1.92 per share, stock price- $2.15
per share, expected volatility of 0.869; risk free rate of 4.5% and dividend yield of 0.0%. At August
31, 2005, the value of the put options was estimated to be $11,500 and was determined based on the
same key assumptions with a stock price of $2.40 per share. In connection with the change in value,
the Company recorded other income of $303,600 in the consolidated statement of operation.
On April 16, 2004,
  Darr purchased substantially all of the net assets of Westwood for $6,697,816.
  Prior to the acquisition, the Company had no operating history. The acquisition
  was accounted for under the purchase method of accounting and allowed the Company
  to enter into the computer and peripheral sales and service industry. The accompanying
  financial statements present the results of operations for the period from September
  1, 2003 to April 16, 2004 under the Predecessors basis of accounting (Predecessor
  Period) and for the period from April 17, 2004 to August 31, 2004 under the
  Companys basis of accounting (Successor Period). The purchase price consisted
  of cash of $5,245,222, assumed liabilities of $1,254,778 and related acquisition
  costs of $197,816.
78
The purchase price was allocated to the assets acquired and liabilities assumed based on their respective
fair values, on the date of purchase, as follows:
Current assets
    $
    14,152,360Customer relationships
    
    283,546Property and equipment
    
    188,420Deferred tax asset
    
    377,154Other assets
    
    58,038Current liabilities
    
    (7,853,970
    )Accrued severance
    
    (507,732
    )Net assets acquired
    $
    6,697,816On March 1, 2005,
  Old Emtec acquired selected assets of Proven Technology LLC, a provider of data
  storage solutions including hardware, software and support services for $162,610.
  The acquisition was accounted for under the purchase method of accounting and
  allowed the Company to enter into the data storage market. The purchase price
  was allocated to assets acquired, which consisted of property and equipment
  of $4,871 based on their respective fair values on the date of purchase. There
  were no liabilities assumed in the transaction and the excess of purchase price
  over the estimated fair value of assets acquired totaled $157,740 and is recorded
  as goodwill.
Unaudited pro forma condensed results of operations for the year ended August 31, 2005 and the twelve
month (predecessor and successor combined) period ended August 31, 2004 are presented as if the August
5, 2005 merger and the March 1, 2005 asset acquisition had been completed at the beginning of each
year as follows:
2005
    
    2004Net revenues
    $
    267,658,142
    
    $
    235,794,558Gross profit
    
    29,839,291
    
    
    28,664,004Income from continuing operations
    $
    1,984,942
    
    $
    892,829Income from continuing operations per share
      (basic and diluted)
    $
    0.12
    
    $
    0.0579
4. Property, Plant and Equipment
Property and equipment consisted of the following at August 31:
Estimated Life2005
    
    2004
    
    YearsLeasehold improvements
    $
    197,903
    
    $
    132,018
    
    4.67Computer equipment
    
    572,728
    
    
    199,504
    
    3 to 5Furniture and fixtures
    
    31,156
    
    
    7,738
    
    3 to 5Automobiles
    
    72,956
    
    
    27,445
    
    3 to 5Software
    
    172,410
    
    
    
    
    3 to 5Total Property
      and Equipment
    $
    1,047,153
    
    $
    366,705Less accumulated depreciation
    
    (129,994
    )
    
    (16,469
    )$
    917,159
    
    $
    350,236Depreciation expense was $113,525, $16,469, $51,266 and $125,054 for the periods ended, August 31,
2005, August 31, 2004, April 16, 2004 and August 31, 2003, respectively.
5. Line of Credit
The Company maintains
  a credit facility under two agreements with a financing company. The credit
  facility finances purchases from specified vendors, as defined, and allows for
  borrowings based on a percentage of eligible accounts receivable, as defined.
  Borrowings under both agreements are limited to an aggregate of $35,000,000
  and bear interest at the greater of the prime rate as published by JP Morgan
  Chase Bank or 4.0%. The underlying agreements allow for an increased borrowing
  base during periods of high seasonal activity. At August 31, 2005 and 2004,
  there were $4,412,526 and $299,250 of borrowings outstanding under this facility.
  The credit facility was amended on August 5, 2005 and expires on August 31,
  2006.
The credit facility is secured by substantially all of the Companys assets and the underlying
agreements contain certain restrictive covenants that limit dividends to stockholders and require
the Company to meet defined financial covenants. In addition, the credit facility requires that the
Company maintain a lock-box for all cash receipts related to trade accounts receivable, from which
the financing company releases funds to the Company for operations pursuant to terms identified in
the underlying agreements.
6. Commitments
The Company leases
  its operating facilities, certain sales offices and transportation equipment
  under noncancelable operating lease agreements that expire on various dates
  through August 31, 2010. Rent expense was $385,990, $118,958, $222,329 and $149,291
  for the periods ending August 31, 2005, August 31, 2004, April 16, 2004, and
  August 31, 2003, respectively, and is recorded in general and administrative
  expenses on the consolidated statements of operations.
The following are our contractual obligations associated with lease commitments. We lease warehouse
and office facilities, vehicles and certain office equipment under noncancellable operating leases.
Future minimum lease payments under such leases are as follows:
80
Fiscal Years2006
    
    $
    975,7432007
    
    
    810,2492008
    
    
    688,4302009
    
    
    383,4282010
    
    
    155,069Total
    
    $
    3,012,919The Company is occasionally involved in various lawsuits, claims, and administrative proceedings arising
in the normal course of business. The Company believes that any liability or loss associated with
such matters, individually or in the aggregate, will not have a material adverse effect on the Companys
financial condition or results of operations.
In March 2002,
  a lawsuit was filed against the Company by a competitor seeking damages of an
  unspecified amount. The competitor is alleging that the Company illegally interfered
  with customer relationships of the competitor. There has been no change to this
  litigation matter in the last twelve months. The lawsuit is still in the discovery
  phase.
At March 16, 2005, Old Emtec sold its 5.49% working interest in the Roosevelt Hot Springs geothermal
unit to Energy Minerals, Inc. (buyer). As part of the transaction, the buyer assumed
the remaining liability under the geothermal steam purchase agreement with Pacificorp (d/b/a Utah
Power & Light Company). Under the 30-year agreement executed in 1993, a $1 million prepayment
was received by Old Emtec from Pacificorp. The agreement gives Pacificorp the right to recover a
pro-rata portion of their original $1 million pre-payment should the geothermal unit fail to produce
steam at levels specified under the agreement. Old Emtec recorded the pre-payment as deferred revenue
and was amortizing the amount as earned revenue over the 30-year term of the steam purchase agreement.
Energy Minerals, Inc. has been assigned rights to the steam purchase agreement with Pacificorp and
assumed the remaining $672,123 deferred revenue liability as of March 16, 2005. However, should the
geothermal unit fail to produce steam at levels specified under the agreement during the remaining
30 year term of the agreement, PacifiCorp could potentially make a claim against the Company as a
former owner, if the current ownership of the geothermal unit failed to satisfy Pacificorps
claims. The Company believes that the probability of this occurrence is remote due to the strong
production and operating history of the geothermal unit.
The Company was counterparty to deferred compensation arrangements with a spouse (as beneficiary) of
a former officer and a former stockholder of Westwood during the periods ended April 16, 2004 and
August 31, 2003. Commensurate with the acquisition of Westwood on April 16, 2004, the arrangement
with the spouse was forfeited in exchange for a separation agreement. The agreement provides quarterly
severance payments to the beneficiary of $22,000 to $33,900 through February 2009. In connection
with the exchange, the Company recorded forgiveness of debt of $405,652 for the difference between
the estimated present value of future cash flows of the forfeited deferred compensation arrangement
and the separation agreement during the period ended April 16, 2004. The Companys liability
at August 31, 2005 and 2004 was $380,356 and $473,489, respectively for the separation agreement.
The deferred compensation arrangement between the Company and former stockholder of Westwood was
forfeited without recompense. In
81
connection with this forfeiture, the Company recorded a contribution to capital of $1,507,181, net
of income tax effect, during the period ended April 16, 2004.
7. Long-Term Debt
The Companys long-term debt at August 31, consists of the following:
2005
    
    
    20045%
      junior subordinated notes payable to former stockholders of
      Westwood
    $
    313,695
    
    $
    313,6958% junior
      subordinated notes payable to former stockholders of
      Westwood
    
    627,389
    
    
    941,0838%
      junior subordinated note payable to Darr Westwood LLC,
      a related entity
    
    1,102,794
    
    
    Subordinate
      note payable to Darr WestwoodSubordinate note payable to Darr Westwood LLC, a related entity
    
    750,000
    
    
    750,000Subordinate
      note payable to Four Kings Management, a related entity
    
    714,000
    
    
    750,000GMAC
    
    27,215
    
    
    Total
      debt
    
    3,535,093
    
    
    2,754,778Less current
      portion
    
    (524,874
    )
    
    (349,694
    )Long-term
      debt, net of current portion
    $
    3,010,219
    
    $
    2,405,084The 5% junior subordinated notes payable to the former stockholders of Westwood requires annual principal
payments of $94,108 plus accrued interest in April 2006 and April 2007. Annual principal payments
of $62,739 plus accrued interest are due in April 2008 and April 2009.
The 8% junior subordinated notes payable to the former stockholders of Westwood require principal payments
of $156,847 plus accrued interest due semiannually commencing October 2004.
The 8% junior notes payable to Darr Westwood LLC is due in April 2009 with accrued interest payable
annually in August of 2008 and annually thereafter. These notes were issued in exchange for 1,000
shares outstanding of series A redeemable preferred stock of Darr in conjunction with the August
5, 2005 merger.
The subordinated note payable to Darr Westwood LLC bears interest at a rate equal to the prime rate,
as published in the Wall Street Journal, plus 4%, not to exceed 10%. Annual principal payments are
due in April 2007 ($194,482), April 2008 ($323,859) and April 2009 ($231,659). Accrued interest is
payable annually beginning in March 2007 through April 2009. The Company is obligated under this
note to pay additional interest in the form of a fee based on achieving certain levels of revenue,
as defined. The fee, if any, is limited to $30,000 per quarter and is payable in March 2008 and April
2009. Interest expense was $202,870 and $69,879 for the periods ended August 31, 2005 and August
31, 2004, respectively, all of which is accrued at the end of each respective period.
82
The subordinated note payable to Four Kings Management, LLC (Four Kings) bears interest at a rate equal
to the prime rate, as published in the Wall Street Journal, plus 4%, not to exceed 10%. Interest
is payable monthly. Monthly principal payments of $9,000 began in May 2005 and continue through March
2009. The remaining balance plus accrued interest is due in April 2009. The Company is obligated
under this note to pay additional interest in the form of a fee based on achieving certain levels
of revenue, as defined. The fee, if any, is limited to $30,000 per quarter and is payable quarterly.
Officers of Westwood own membership interests in Four Kings. Interest expense was $202,203 and $69,879
for the periods ended August 31, 2005 and 2004, respectively, of which $32,198 and $27,217 is accrued
at the end of the respective period.
Principal maturities
  of long-term debt at August 31, 2005 are as follows $524,874, $719,357, $503,670
  and $1,787,192 for the respective years ended August 31, 2006 through August
  31, 2009.
**8. Income
  Taxes**
Income tax expense (benefit)
  for the periods ended August 31, 2005, August 31, 2004, April 16, 2004, and
  August 31, 2003 consists of the following:
Year
        Ended 
        August 31, 2005
    Successor
        
        Period
    Predecessor
        
        Period
    Year
        Ended 
        August 31, 
        2003(unaudited)Current
      provision:Federal
    
    
    $
    499,144
    
    $
    56,208
    
    $
    454,620
    
    $
    381,382State
    
    
    
    136,284
    
    
    16,637
    
    
    134,522
    
    $
    116,882635,428
    
    
    72,845
    
    
    589,142
    
    $
    498,264Deferred
      provision (benefit):Federal
    
    
    
    (141,485
    )
    
    39,029
    
    
    45,019
    
    $
    (157,047
    )State
    
    
    
    (41,393
    )
    
    11,549
    
    
    13,284
    
    $
    (46,470
    )(182,878
    )
    
    50,578
    
    
    58,303
    
    $
    (203,517
    )$
    452,550
    
    $
    123,423
    
    $
    647,445
    
    $
    294,747A
  reconciliation of the federal statutory provision to the provision for financial
  reporting purposes is as follows:
Year
        
        Ended 
        August 31, 
        2005
    
    Successor 
        Period
    
    Predecessor
        
        Period
    
    Year
        Ended 
        August 31, 2003
        (unaudited)Statutory
      federal tax Provision
    
    
    $
    435,043
    
    $
    83,539
    
    $
    521,316
    
    $
    259,127State income
      taxes net of federal
    
    
    
    69,696
    
    
    14,823
    
    
    92,503
    
    
    46,441Fair value
      adjustment of put options
    
    
    
    (103,225
    )
    
    
    
    
    
    
    
    Other permanent
      difference
    
    
    
    51,036
    
    
    25,061
    
    
    33,626
    
    
    (10,821
    )Provision
      for income taxes
    
    
    $
    452,550
    
    $
    123,423
    
    $
    647,445
    
    $
    294,747The tax effects of temporary
  differences that give rise to significant portions of deferred tax assets and
  deferred tax liabilities at August 31, 2005 and 2004 are as follows:


83
Deferred Tax Assets/(Liabilities)
    
    
    
    2005
    
    
    
    2004Differences
      between book and tax basis:Deferred
      tax assets:Trade
      receivables
    
    
    $
    249,595
    
    
    $
    90,074Inventories
    
    
    
    358,996
    
    
    
    36,548Accrued
      liabilities
    
    
    
    80,726
    
    
    
    45,609Goodwill
    
    
    
    74,998
    
    
    
    Property
      and equipment
    
    
    
    44,113
    
    
    
    Accrued
      Liabilities
    
    
    
    372,939
    
    
    
    189,551$
    1,181,367
    
    
    $
    411,784Deferred
      tax liabilities:Customer
      Relationships
    
    
    $
    (3,330,347
    )
    
    $
    Property
      and equipment
    
    
    
    
    
    
    
    (35,208
    )Deferred
      revenue
    
    
    
    (85,785
    )
    
    
    $
    (3,416,134
    )
    
    $
    (35,208
    )Net Deferred
      tax (liability) asset
    
    
    $
    (2,234,765
    )
    
    $
    376,5769. Retirement PlanThe Company maintains a defined contribution 401(k) pension plan. Contributions are based on up to
1% of each covered employees salary and totaled $50,448, $13,317, 19,333, and $22,989 for the periods
ending August 31, 2005, August 31, 2004, April 16, 2004 and August 31, 2003, respectively. The expense
is included in selling, general and administrative expenses in the consolidated statement of operations.The Company sponsors a 401(k) plan for all employees who are at least 20 years of age with at least
6 months of service. Eligible employees may contribute 2% to 15% of their annual compensation to
the plan. The Company matches 25% of the first 6% of employee plan contributions and could contribute
additional amounts at its discretion. Participants are vested 20% for each year of service and are
fully vested after 5 years. The Company adopted the provisions of this plan in conjunction with the
August 5, 2005 merger. There were contributions to this plan during the period ended August 31, 2005.10.      Stock Option Plan
The Companys
  1996 Stock Option Plan (amended in 1999) (the Plan) authorizes the granting
  of stock options to directors and eligible employees. The Company has reserved
  1,000,000 shares of its common stock for issuance under the Plan at prices not
  less than 100% of the fair value of the Companys common stock on the date
  of grant over a 4 year period (110% in the case of shareholders owning more
  than 10% of the Companys common stock). Options under the plan typically
  terminate after 5 years and vest over a four year period. Options were issued
  by Old Emtec and no other options were issued by the Company. Options outstanding
  and exercisable at August 31, 2005 total 92,453 and their estimated weighted
  average value is $1.22.
84
11. EquityIn connection with the August 5, 2005 merger, the 500 aggregate shares of outstanding Darr class A
and B common stock were exchanged for 9,528,110 shares of the Companys common stock. The accompanying
consolidated financial statements reflect the retroactive effects of the recapitalization.Concurrent
      with the purchase of Westwood, Darr authorized 5,000 shares and issued 1,000
      shares of series A redeemable preferred stock for $1,000,000. Series A redeemable
      preferred stock was senior to all securities outstanding. The holders of
      series A redeemable preferred stock were entitled to dividends at a rate
      of 8% per annum. Dividends were cumulative and were due and payable after
      April 2008. The series A redeemable preferred stock had no voting rights
      and was redeemable at the option of the Company commencing April 17, 2009
      at 100% of its liquidation value. The liquidation value of series A redeemable
      preferred stock was equal to $1,000 plus accumulated but unpaid dividends.
      The outstanding shares of series A redeemable preferred stock were exchanged
      for notes payable in connection with the August 5, 2005 acquisition, total
      notes payable issued was $1,102,794, which represented the carrying value
      of preferred stock on that date.12. Supplemental Cash Flow InformationCash paid for interest and income taxes for the periods ended August 31, 2005, August 31, 2004, April
16, 2004, and August 31, 2003 were as follows:
Interest               $355,474;
  $52,500; $28,000; $42,324
Income
  Taxes     $417,056; $433,000; $345,000; $318,800
Supplemental noncash investing and financing activities for the periods ended August 31, 2005, August
31, 2004, April 16, 2004 and August 31, 2003 were as follows:
Capital contribution:
  The deferred compensation arrangement between the Company and former stockholder
  of Westwood was forfeited without recompense. In connection with this forfeiture,
  the Company recorded a contribution to capital of $1,507,181, net of income
  tax effect $603,370, during the period ended April 16, 2004.
Notes Receivable Distributed:
  Note receivable distributed to the former stockholders in the amount of $399,587
  during the period ended April 16, 2004.
Issuance of long-term
  debt: Issuance of long-term debt with a face value of $1,102,794 at
  an 8% annual rate to former preferred stockholders in full redemption of preferred
  stock previously issued by Darr during the period ended August 31, 2005. Issuance of
  $664,567 of notes payable to former stockholders during the period ended August 31, 2004, in connection with the April 16, 2004
  acquisition of Westwood.

13. Related Party TransactionsDuring the period ended April 16, 2004, the Company held a note receivable from a company controlled
by former stockholders of Westwood which was repaid through periodic payments.85
The note receivable was distributed to the former stockholders of Westwood through a dividend on April
16, 2004. Interest income recorded on this note for the period ended April 16, 2004 totaled $21,483.Beginning April
      17, 2004, the Company is charged a monthly management fee of $29,166 by
      Darr Global Holdings, Inc. Darr Global Holdings, Inc is a management consulting
      company 100% owned by the majority stockholder of Darr Westwood LLC. For
      the periods ended August 31, 2005, and August 31, 2004, the Company recorded
      $350,000 and $116,664, respectively for this management fee in the accompanying
      consolidated statements of operations. At August 31, 2005, and August 31,
      2004 $133,333 and $33,333 of the fee is included in accounts payable 
      related party.One of the
      Companys facilities is leased under a non-cancelable operating lease
      agreement with an entity that is owned by officers of Westwood. Rent expense
      recorded for the period ended August 31, 2005, August 31, 2004, April 16,
      2004 and August 31, 2003 totaled $180,000, $60,000, $155,333 and $38,833,
      respectively.The Company is occupying approximately 21,000 square feet of office and warehouse space out of a total
of approximately 70,000 square feet. This space is leased from GS&T Properties, LLC, in which
officers of the Company are passive investors, owning approximately 20% equity interest. The lease
term is for 5 years with monthly base rent of $12,500. During the period ended August 31, 2005, the
Company recorded $14,190 in expense under this lease.14. Accrued ExpensesAccrued expenses consisted of the following at August 31:2005
    
    2004Accrued payroll
    $
    1,042,864
    
    $
    263,952Accrued commissions
    
    511,858
    
    
    334,551Accrued state sales taxes
    
    579,056
    
    
    Accrued third party service fees
    
    627,526
    
    
    Industrial funding fee
    
    216,126
    
    
    Other accrued expenses
    
    1,213,298
    
    
    423,491$
    4,190,728
    
    $
    1,021,99486
15. Quarterly Financial Information  (Unaudited)
Period
        ended August 31, 2005FirstQuarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth Quarter
    
    
    Fiscal 2005Revenue
    
    
    $
    45,528,612
    
    $
    45,177,383
    
    $
    29,414,963
    
    $
    36,898,839
    
    $
    155,813,976Gross Profit
    
    
    $
    3,753,505
    
    $
    3,419,976
    
    $
    3,036,804
    
    $
    3,157,129
    
    $
    13,271,832Net Income
      (Loss)
    
    
    $
    472,110
    
    $
    246,022
    
    $
    70,142
    
    $
    (143,705
    )
    $
    600,083Net Income
      (Loss) per share:Basic
      and Diluted
    
    
    $
    0.05
    
    $
    0.02
    
    $
    0.01
    
    
    0.01
    
    $
    0.08Predecessor
        and Successor periods ended April 16, 2004 and August 31, 2004FirstQuarter
    
    
    Second Quarter
    
    
    Third Quarter
    
    
    Fourth Quarter
    
    
    Fiscal 2004Revenues
      - Predecessor
    
    
    $
    54,525,132
    
    $
    21,989,226
    
    $
    11,715,361
    
    $
    
    
    $
    88,229,719Revenues
      - Successor
    
    
    $
    
    
    $
    
    
    $
    12,313,070
    
    $
    29,328,534
    
    $
    41,641,604Gross Profit
      - Predecessor
    
    
    $
    4,834,128
    
    $
    2,619,462
    
    $
    1,179,761
    
    $
    
    
    $
    8,633,351Gross Profit-
      Successor
    
    
    $
    
    
    $
    
    
    $
    1,389,473
    
    $
    2,634,271
    
    $
    4,023,744Net Income
      (Loss) - Predecessor
    
    
    $
    683,152
    
    $
    46,507
    
    $
    156,178
    
    $
    
    
    $
    885,837Net Income
      (Loss) - Successor
    
    
    $
    
    
    $
    
    
    $
    44,606
    
    $
    77,675
    
    $
    122,281Combined
      net income
    
    
    $
    683,152
    
    $
    46,507
    
    $
    200,784
    
    $
    77,675
    
    $
    1,008,118Net Income(Loss)
      per share:Basic
      and Diluted
    
    
    $
    0.07
    
    $
    0.00
    
    $
    0.02
    
    
    0.01
    
    $
    0.11Earnings
      per share for the third quarter ended May 31, 2004 is calculated based on
      the combined net income from the predessor and successor periods for the
      quarter.87
16.      Accounts Receivable and Inventory Allowances
The following table provides information regarding accounts receivable and inventory valuation allowance
activity for the periods ending August 31, 2005, August 31, 2004, April 16, 2004 and August 31, 2003:Receivable
      Allowance
    
    Inventory
      AllowanceBalance,September
      1, 2002
    $
    180,000
    
    $
    Charged to
      costs and expenses
    
    20,000
    
    
    Write-offs
    
    
    
    
    Balance,
      August 31, 2003
    $
    200,000
    
    
    Charged to
      costs and expenses
    
    25,000
    
    
    120,000Write-offs
    
    
    
    
    Balance,
      April 16, 2004
    $
    225,000
    
    $
    120,000Charged to
      costs and expenses
    
    
    
    
    Write-offs
    
    
    
    
    Balance,
      August 31, 2004
    $
    225,000
    
    $
    120,000Charged to
      costs and expenses
    
    
    
    
    180,138Write-offs
    
    
    
    
    Balance,
      August 31, 2005
    $
    225,000
    
    $
    300,13817.      Subsequent Event
Pursuant to the
  August 5, 2005 merger agreement, the Company initiated a self tender offer on
  September 7, 2005 to repurchase up to 2,864,584 shares of its then issued and
  outstanding common stock having an aggregate purchase price of up to $5.5 million
  at a price of $1.92 per share. The tender offer closed on October 4, 2005. In
  the tender offer 4,984,185 shares were properly tendered and not withdrawn.
  Because the number of shares of common stock tendered exceeded the number of
  shares that the Company offered to purchase 57.473 percent of the shares that
  were tendered were repurchased by the Company. The Company funded the payment
  for the 2,864,584 shares of common stock validly tendered and accepted under
  the tender offer from borrowings of $5.5 million under its revolving credit
  facility made prior to August 31, 2005.
88
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated:    December 14, 2005
EMTEC, INC.By:
    /s/ Dinesh R. DesaiDinesh R. DesaiChairman and Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
    
    Title
    
    Date/s/Dinesh R. Desai
          Dinesh R. Desai
    
    Chairman and
      Chief Executive Officer
    
    December 14, 2005/s/Brian McAdams
         Brian McAdams
    
    Vice Chairman, Director
    
    December 14, 2005/s/Stephen C. Donnelly
         Stephen C. Donnelly
    
    Chief Financial Officer
      (Principal Financial Officer)
    
    December 14, 2005/s/Keith Grabel
                Keith Grabel
    
    Director, President -Westwood Division
    
    December 14, 2005/s/Gregory Chandler
       Gregory Chandler
    
    Director
    
    December 14, 200589