<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 000-22715
FUTUREONE, INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C>
NEVADA 84-1383677
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4250 E. Camelback Rd., Suite K-124 85018-2751
Phoenix, Arizona (Zip Code)
(Address of Principal Executive
Offices)
</TABLE>
(602) 852-9725
Registrant's Telephone Number, Including Area Code
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 periods that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practical date: As of May 10, 2000, there were 12,833,651
shares of Common Stock, $.001 par value per share, outstanding.
<PAGE> 2
FUTUREONE, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I: Financial Information (unaudited) ........... 3
Item 1. Financial Statements ........................ 3
Condensed consolidated balance sheets -
March 31, 2000 and September 30, 1999 ....... 3
Condensed consolidated statements of
operations - Three months ended
March 31, 2000 and 1999 ..................... 4
Condensed consolidated statements of
operations - Six months ended
March 31, 2000 and 1999...................... 4
Condensed consolidated statements of cash
flows - Six months ended March 31,
2000 and 1999 ............................... 5
Notes to condensed consolidated financial
statements - March 31, 2000 ................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations ............................... 10
Part II: Other Information ........................... 15
Item 1. Legal Proceedings ........................... 15
Item 2. Changes in Securities and Use of Proceeds ... 15
Item 3. Defaults Upon Senior Securities ............. 16
Item 4. Submission of Matters to a Vote of Security
Holders ..................................... 16
Item 5. Other Information ........................... 16
Item 6. Exhibits and Reports on Form 8-K ............ 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
I. ITEM 1. FINANCIAL STATEMENTS
FUTUREONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
---- ----
(UNAUDITED) (NOTE 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 226,988 $ 160,032
Available for sale securities 249,340 --
Trade accounts receivable, net of allowance for doubtful accounts of
approximately $110,000 and $140,000 at March 31, 2000 and
September 30, 1999, respectively 2,692,256 2,671,164
Cost and estimated earnings in excess of billings on uncompleted contracts 1,045,222 717,548
Inventory 44,694 2,701,096
Prepaid expenses and other assets 211,705 147,286
Net current assets of discontinued operations -- 26,631
------------ ------------
Total current assets 4,470,205 6,423,757
Property and equipment, net 2,986,797 3,672,716
Available for sale securities 219,134 --
Notes receivable 60,507 62,906
Intangible assets, net 6,092,835 6,513,049
Other assets 64,084 --
Net long-term assets of discontinued operations -- 898,979
------------ ------------
$ 13,893,562 $ 17,571,407
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Credit lines payable $ 480,000 $ 480,000
Notes payable to stockholders 171,450 171,450
Trade accounts payable 3,320,128 5,556,062
Accrued expenses 868,976 382,627
Taxes payable 294,238 294,973
Billings in excess of cost and estimated earnings on uncompleted contract 294,984 66,861
Current portion of long term debt and capital leases 1,511,627 1,429,799
Other liabilities 404,188 25,970
------------ ------------
Total current liabilities 7,345,591 8,407,742
Notes payable, less current portion net of $25,417 discount at March 31, 2000
and $0 at September 30, 1999 2,070,166 2,603,848
Capital lease payable, less current portion 98,381 67,786
Stockholders' equity:
Common stock, $.001 par value, 50,000,000 shares authorized and 12,833,651
and 12,891,028 shares issued at March 31, 2000 and September 30, 1999,
respectively 12,834 12,891
Additional paid-in capital 14,174,673 14,050,433
Unearned compensation (161,894) (481,187)
Other comprehensive loss (16,035) --
Treasury stock, 292,850 and 108,850 shares at March 31, 2000 and
September 30, 1999, respectively (434,573) (250,573)
Accumulated deficit (9,195,581) (6,839,533)
------------ ------------
Total stockholders' equity 4,379,424 6,492,031
------------ ------------
$ 13,893,562 $ 17,571,407
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
FUTUREONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 SIX MONTHS ENDED MARCH 31
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Internet services business $ 279,039 $ 53,407 $ 522,097 $ 90,944
Communication equipment sales 505,387 843,870 922,478 1,472,082
Broadband communications engineering and
construction services 3,234,182 1,192,689 6,894,760 2,865,614
------------ ------------ ------------ ------------
Total Revenues 4,018,608 2,089,966 8,339,335 4,428,640
Costs of sales:
Internet services business 189,987 53,025 399,926 108,578
Communication equipment sales 489,625 714,780 887,186 1,273,093
Broadband communications engineering and
construction services 3,189,447 1,241,047 6,631,042 2,532,661
------------ ------------ ------------ ------------
Total Costs of Sales 3,869,059 2,008,852 7,918,154 3,914,332
------------ ------------ ------------ ------------
Gross profit 149,549 81,114 421,181 514,308
Operating expenses:
General and administrative 1,371,475 757,609 2,896,953 1,306,572
Depreciation and amortization 282,799 244,819 548,280 493,112
Unusual loss -- 120,175 -- 120,175
------------ ------------ ------------ ------------
Loss from operations (1,504,725) (1,041,488) (3,024,052) (1,405,551)
Other income (expense):
Interest expense (264,565) (47,993) (505,464) (77,805)
Interest income 2,310 10,579 3,862 11,524
Gain (loss) on sale of stock (9,528) (2,908) 118,224 28,018
Gain (loss) on sale of property and equipment (166,566) 4,693 (192,206) (1,878)
Other (9,235) 2,033 (6,012) 14,784
------------ ------------ ------------ ------------
Net loss from continuing operations (1,952,309) (1,075,084) (3,605,648) (1,430,908)
Discontinued operations:
Loss from operations -- (263,479) (68,987) (557,068)
Gain on disposal 72,523 -- 1,318,587 --
------------ ------------ ------------ ------------
Net loss $ (1,879,786) $ (1,338,563) $ (2,356,048) $ (1,987,976)
============ ============ ============ ============
Basic and diluted net loss per common share:
Loss from continuing operations $ (.16) $ (.09) $ (.28) $ (.12)
Gain/(Loss) from discontinued operations .01 (.02) .10 (.05)
------------ ------------ ------------ ------------
Net loss per common share $ (.15) $ (.11) $ (.18) $ (.17)
============ ============ ============ ============
Basic and diluted weighted average shares: 12,888,940 11,944,517 12,909,250 11,520,372
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
FUTUREONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,356,048) $(1,987,976)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 892,603 787,238
Provision for doubtful accounts (credit) (30,000) --
Amortization of unearned compensation 133,809 31,258
Accretion of debt discount 220,250 --
Stock compensation 64,000 42,358
Realized and unrealized (gain) loss on investments 9,528 (28,018)
Gain on disposal of discontinued operations (1,318,587) --
Loss on sale of assets 192,206 1,878
Changes in operating assets and liabilities:
Available for sale securities 179,639
Trade accounts receivable 8,908 (51,325)
Costs and estimated earnings in excess of billings on
uncompleted contracts (327,674) 144,394
Inventory 2,960,402 --
Prepaid expenses and other assets (64,419) (243,922)
Trade accounts payable (2,235,934) 207,541
Accrued expenses 182,349 51,104
Accrued bonus -- (500,000)
Accrual for loss contract -- (100,000)
Taxes payable (735) 21,137
Billings in excess of cost and estimated earnings on
uncompleted contracts 228,123 (38,231)
Other liabilities 18,077 (97,442)
----------- -----------
Net cash provided by (used in) operating activities 3,159 (1,580,367)
INVESTING ACTIVITIES
Purchases of property and equipment (361,625) (665,696)
Proceeds from sale of property and equipment 439,395 48,088
Purchase of trademark (779) --
Change in other assets (61,685) 40,649
Net cash provided from discontinued operations activities -- 170,154
----------- -----------
Net cash provided by (used in) investing activities 15,306 (406,805)
FINANCING ACTIVITIES
Net proceeds (repayments) under credit lines -- 227,332
Principal payments under capital lease obligations (78,366) (8,982)
Proceeds from issuance of common stock -- 1,969,250
Debt issuance costs (55,667) --
Proceeds from borrowings 1,178,800 675,357
Principle payments of notes payable (996,276) (305,175)
----------- -----------
Net cash provided by financing activities 48,491 2,557,782
----------- -----------
Increase (decrease) in cash and cash equivalents 66,956 570,610
Cash and cash equivalents at beginning of period 160,032 570,979
----------- -----------
Cash and cash equivalents at end of period $ 226,988 $ 1,141,589
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Assets acquired under capital lease obligation $ -- $ 51,370
=========== ===========
Exchange of available for sale securities for common stock $ 184,000 $ --
=========== ===========
Retirement of debt with available for sale securities $ 500,000 $ --
=========== ===========
Available for sale securities received for assets
of discontinued operations $ 2,604,000 $ --
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
FUTUREONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six-month periods ended March
31, 2000 are not necessarily indicative of the results that may be expected for
the year ended September 30, 2000.
The balance sheet at September 30, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-KSB for the fiscal year ended September 30, 1999, as filed
with the Securities and Exchange Commission on January 13, 2000.
2. DISCONTINUED OPERATIONS
Networld.com Inc. - Internet access business
On November 19, 1999, the Company sold its Internet access business, including
all of its personal and business Internet access customers in Phoenix,
Flagstaff, Tucson, Lake Havasu City, Prescott, Florence, Wickenburg and Payson,
Arizona and all of the equipment related to providing Internet access to the
Company's current Internet subscribers to RMI.NET, Inc. ("RMI.NET") for RMI.NET
common stock valued at approximately $2.75 million on the closing date of the
transaction. Under terms of the asset purchase agreement (the "Agreement"), 50
percent of the stock was immediately available for sale, 20 percent will be
available for sale six months after the transaction, 20 percent will be
available for sale one year after the transaction and 10 percent will be held in
escrow for 18 months after the transaction to cover any adverse claim that may
be made against the acquired assets. The Company sold approximately 50 percent
of the RMI.NET common stock for approximately $1.5 million. Additionally,
63,052, shares of RMI.NET common stock have been exchanged for full satisfaction
of the note described in Note 8 and 43,004 shares have been exchanged for Common
Stock of the stock under the severance agreement described in Note 9.
Accordingly, the Internet access business was accounted for as a discontinued
operation in the accompanying consolidated financial statements. A gain on the
sale of approximately $1.2 million was realized by the Company.
Under terms of the Agreement, the Company agreed to fully satisfy outstanding
amounts payable on certain equipment leases and other liabilities related to the
acquired assets by January 18, 2000. Pursuant to the terms of the Agreement,
RMI.NET is under no obligation to deliver 10 percent of the total shares which
are to be held in escrow for 18 months following the transaction if the Company
does not satisfy such outstanding liabilities in a timely manner. In addition,
if RMI.NET must assume such equipment leases and other liabilities related to
the acquired assets, then the Company is obligated to return an additional
number of shares of RMI.NET common stock so that the total of such shares and
the final disbursement shares and escrow shares withheld by RMI.NET as set forth
above equals two times the total amount due on such liabilities. The Company has
paid approximately $136,000 to partially satisfy the equipment leases and other
liabilities and is currently negotiating for the settlement of approximately
$392,000 of such liabilities.
Networld.com Inc. - PrimeServ Virtual Telephone Service
On August 10, 1999, the Company adopted a plan to sell and signed a letter of
intent to sell the assets and customer list of its PrimeServ operating division.
On December 6, 1999, the Company closed the sale for consideration of $17,800
cash and a $30,000 note receivable which resulted in a net loss of $66,615 which
was included as a loss on disposal under discontinued operations for the year
ended September 30, 1999.
6
<PAGE> 7
The following represents the combined results of operations of the Company's
discontinued operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 SIX MONTHS ENDED MARCH 31
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ -- $ 384,132 $ 240,988 $ 771,992
Cost of sales -- (408,787) (229,031) (819,731)
General and administrative expense -- (177,605) (26,913) (388,589)
Depreciation and amortization expense -- (57,739) (48,453) (113,912)
Interest expense -- (3,480) (5,578) (6,828)
--------- --------- --------- ---------
Net loss $ -- $(263,479) $ (68,987) $(557,068)
========= ========= ========= =========
</TABLE>
Costs and expenses, including interest, have been allocated to discontinued
operations for all applicable periods based on management's estimates of those
costs directly related to the discontinued operations.
3. AVAILABLE FOR SALE SECURITIES
Available for sale securities consist of RMI.Net, Inc. common shares and are
carried at fair value with the unrealized gains and losses reported in
shareholders' equity. Realized gains and losses are included in other income.
Securities restricted for future sale for periods longer than one year have been
classified as long-term.
4. INVENTORY
Inventory consisted of the following at:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
Finished goods $44,694 $ 3,005,096
Valuation allowance -- (304,000)
------- -----------
Total inventory $44,694 $ 2,701,096
======= ===========
</TABLE>
The Company's inventory held for sale on September 30, 1999 was acquired through
a preferred vendor relationship with Lucent Technologies Internet Working
Systems (formally Ascend Communications, Inc.). Under the terms of the
arrangement, the Company received favorable pricing terms and has the right to
return inventory. In March 2000, the Company returned approximately $2,400,000
of product to Lucent Technologies. Estimated losses on disposal of the inventory
and restocking charges of $304,000 which were recorded as a valuation allowance
at September 30, 1999 have been reclassified to accrued expenses at March 31,
2000.
5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts consist of the following
at:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
<S> <C> <C>
Costs incurred on uncompleted
contracts $ 6,102,169 $ 2,337,185
Estimated earnings 1,226,752 1,107,910
----------- -----------
7,328,921 3,445,095
Less billings to date (6,578,683) (2,794,408)
----------- -----------
$ 750,238 $ 650,687
=========== ===========
</TABLE>
Included in the accompanying balance sheet under the following captions:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 1,045,222 $ 717,548
Billings in excess of costs and estimated
earnings on uncompleted contracts (294,984) (66,861)
----------- ---------
$ 750,238 $ 650,687
=========== =========
</TABLE>
7
<PAGE> 8
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
Furniture and fixtures $ 139,696 $ 148,328
Computers and other equipment 147,333 157,008
Construction equipment 2,090,697 2,708,636
Software 230,150 168,183
Vehicles 1,225,717 1,046,432
Leasehold improvements 62,514 59,092
----------- -----------
3,896,107 4,287,679
Less accumulated depreciation and
amortization (909,310) (614,963)
----------- -----------
$ 2,986,797 $ 3,672,716
=========== ===========
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets consist of the following at:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
Goodwill $ 6,933,986 $ 6,933,986
Trademarks 2,800 2,021
Debt issuance costs 214,000 158,333
CLEC certification 279,030 279,030
----------- -----------
7,429,816 7,373,370
Less amortization (1,336,981) (860,321)
----------- -----------
$ 6,092,835 $ 6,513,049
=========== ===========
</TABLE>
8. NOTES PAYABLE AND LONG TERM DEBT
In October 1999, the Company issued detachable warrants to purchase 250,000
shares of its Common Stock at $1.00 per share and a promissory note in
consideration for $250,000. The note bears interest at 15% annually and matured
February 8, 2000. The offering of such warrants, promissory note and underlying
shares of Common Stock was made pursuant to an exemption from registration under
Section 4(2) of the Securities Act as private transactions not involving a
public distribution. The warrants have a determined value of $47,500 which has
been recorded as a discount to the debt issued and will be accreted to interest
expense over the term of the note. In February 2000, the Company amended the
note to (i) provide for an extension of the note to August 8, 2000 and (ii)
include a conversion feature to Common Stock at an exercise price of $1.00 per
share.
Effective as of October 22, 1999, the Company issued detachable warrants to
purchase 500,000 shares of its Common Stock a $0.75 per share and a promissory
note convertible into 500,000 shares of Common Stock in consideration for
$500,000. The note bears interest at 12% annually and matures April 22, 2000.
The offering of such warrants, promissory note and underlying shares of Common
Stock was made pursuant to an exemption from registration under Section 4(2) of
the Securities Act and Rule 506 of Regulation D promulgated under the Securities
Act as private transactions not involving a public distribution. The warrants
have a determined value of $195,000 that has been recorded as a discount to the
debt issued and will be accreted to interest expense over the term of the note.
On March 28, 2000, the Company entered into an agreement to repay the $500,000
note by transferring 63,052 shares of RMI. NET, Inc to the holder of the note.
This transaction is reflected in the second quarter financial statements.
9. EMPLOYMENT AGREEMENT
Effective January 1, 2000, Mr. Alan P. Hald became the Chairman of the Company's
Board of Directors. In consideration for his service to the Company as Chairman,
Mr. Hald received a one-time bonus of $20,000 and receives $10,000 per month and
warrants to purchase 70,000 shares of the Company's Common Stock with an
Exercise Price of $1.00 per share for each of the first six months of Mr. Hald's
service to the Company. In addition, Mr. Hald shall receive a transaction bonus
if the Company closes a public or private offering or a sale or merger of the
Company valued in excess of $10,000,000. The transaction bonus will include cash
equal to one percent of the value of the transaction and warrants to purchase a
number of shares of Common Stock equal to one percent of the value of the
transaction divided by the warrant strike price of $1.00. Mr. Hald's agreement
with the Company was amended in March, 2000 to extend the agreement for an
additional six months and to provide for the issuance of warrants to purchase
70,000 shares of the Company's Common Stock with an exercise price of $1.00 per
share for each of the first twelve months of Mr. Hald's service to the Company.
8
<PAGE> 9
10. SEVERANCE AGREEMENT
On November 23, 1999, the Company entered into a Severance Agreement with
Kendall Q. Northern, the Company's then president and chief executive officer.
Pursuant to the Severance Agreement, Mr. Northern's employment contract with the
Company was terminated by mutual consent and Mr. Northern resigned as an officer
and director of the Company and all of its affiliates and agreed not to compete
with the Company for a period of one year. In consideration for executing the
Severance Agreement, the Company agreed to immediately pay a one-time sum of
$50,000 and a one-year separation payment of $100,000 to be paid in equal
monthly installments. In addition, the Company is further obligated to pay for
Mr. Northern's auto rental, auto insurance and medical insurance for one year.
The Company also allowed Mr. Northern to retain certain Company property,
already in his possession, valued at approximately $17,500 and to exchange
200,000 shares of the Company's Common Stock owned by Mr. Northern for 47,031
shares of RMI.NET, Inc. stock obtained by the Company from the sale of its
Internet access business. On March 27, 2000, the Company entered into an
agreement with Mr. Northern which amended the terms of the severance agreement
to provide for the exchange of 184,000 shares of the Company's stock for 43,004
shares of RMI.NET. Inc Common Stock. The exchange transaction is reflected in
the second quarter financial statements.
11. LEASES
The Company is currently negotiating with certain third parties to fully satisfy
certain outstanding equipment leases and other liabilities related to the assets
acquired from the Company by RMI.NET in an approximate amount of $392,000. The
Company may be subject to certain penalties under the terms of the agreement
between RMI.NET and the Company if it does not fully satisfy such liabilities in
a timely manner.
12. SEGMENT INFORMATION
The Company operates its business under Internet services, communication
equipment sales services, broadband communications engineering and construction
services and convergence technology and telecommunications. Management evaluates
the performance of the segments based upon revenues, gross margin, pre-tax
income and long-lived assets. For the three- and six-months ended March 31, 2000
and 1999, this information has been provided by segment. The Company's sales are
primarily in the western United States with no international sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 SIX MONTHS ENDED MARCH 31
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues from external customers:
Internet services business $ 279,039 $ 53,407 $ 522,097 $ 90,944
Communication equipment sales 505,387 843,870 922,478 1,472,082
Broadband communications engineering and
construction Services 3,234,182 1,192,689 6,894,760 2,865,614
----------- ----------- ----------- -----------
$ 4,018,608 $ 2,089,966 $ 8,339,335 $ 4,428,640
=========== =========== =========== ===========
Gross profit (loss):
Internet services business $ 89,052 $ 382 $ 122,171 $ (17,634)
Communication equipment sales 15,762 129,090 35,292 198,989
Broadband communications engineering and
construction Services 44,735 (48,358) 263,718 332,953
----------- ----------- ----------- -----------
$ 149,549 $ 81,114 $ 421,181 $ 514,308
=========== =========== =========== ===========
Depreciation and amortization expense:
Internet services business $ 21,541 $ -- $ 42,837 $ --
Communication equipment sales 16,175 57,086 32,350 118,934
Broadband communications engineering and
construction Services 169,911 157,889 339,822 313,135
Convergence technology and telecommunications 8,815 -- 8,815 --
Unallocated corporate 66,357 29,844 124,456 61,043
----------- ----------- ----------- -----------
$ 282,799 $ 244,819 $ 548,280 $ 493,112
=========== =========== =========== ===========
Net loss from continuing operations:
Internet services business $ (83,645) $ (1,171) $ (209,446) $ (19,413)
Communication equipment sales (38,668) (84,637) (124,331) (246,337)
Broadband communications engineering and
construction Services (923,169) (488,840) (1,425,338) (425,294)
Convergence technology and telecommunications (45,051) -- (144,922) --
Unallocated corporate (861,776) (500,436) (1,701,611) (739,864)
----------- ----------- ----------- -----------
$(1,952,309) $(1,075,084) $(3,605,648) $(1,430,908)
=========== =========== =========== ===========
</TABLE>
9
<PAGE> 10
13. SUBSEQUENT EVENTS
The Company has entered into a Letter of Intent dated February 20, 2000 with
Abcon Inc. ("Abcon") and a former owner of Abcon to sell Abcon, which includes
certain assets and certain liabilities relating to the Company's drilling and
boring operations. The parties are currently negotiating the specific terms of
the transaction. As of May 11, 2000, definitive agreements have not been
finalized.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
All statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Report, other than
statements of historical facts, which address activities, events or developments
that the Company expects or anticipates will or may occur in the future,
including such things as future capital expenditures, growth, product
development, sales, business strategy and other such matters are forward-looking
statements. These forward-looking statements are based largely on the Company's
expectations and assumptions and are subject to a number of risks and
uncertainties, many of which are beyond the Company's control. Actual results
could differ materially from the forward-looking statements set forth herein as
a result of a number of factors, including, but not limited to, the Company's
limited operating history, unpredictability of operating results, intense
competition in various aspects of its business, the risks of rapid growth, the
Company's dependence on key personnel, uncertainty of product acceptance,
changes in laws and regulations, changes in economic conditions, an inability to
obtain financing and other risks described in the Company's reports on file with
the Securities and Exchange Commission. In light of these risks and
uncertainties, all of the forward-looking statements made herein are qualified
by these cautionary statements and there can be no assurance that the actual
results or developments anticipated by the Company will be realized. The Company
undertakes no obligation to update or revise any of the forward looking
statements contained herein.
This discussion and analysis of financial condition and results of
operations should be read in conjunction with the unaudited condensed
consolidated financial statements and the related disclosures included elsewhere
herein and Management's Discussion and Analysis of Financial Condition and
Results of Operations included as part of the Company's Annual Report on Form
10-KSB for the year ended September 30, 1999.
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenues represented
by specific expense and income items for continuing operations for the
three-month and six-month periods ending March 31, 2000 and 1999. The prior
period revenues and related items have been adjusted for the effects of
reclassifying the revenues and associated costs of the Internet access
operations and virtual telephone services that have now been recorded as
discontinued operations in 2000 and 1999. See Footnote 2 to the "Condensed
Consolidated Financial Statements," which indicates the amounts from each
category that were reclassified to discontinued operations.
<TABLE>
<CAPTION>
THREE MONTH PERIOD SIX MONTH PERIOD
ENDING MARCH 31 ENDING MARCH 31
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Internet Services Business 6.9% 2.5% 6.2% 2.1%
Communication Equipment Sales 12.6 40.4 11.1 33.2
Broadband Communications Engineering and
Construction Services 80.5 57.1 82.7 64.7
-------- -------- -------- --------
TOTAL REVENUES 100.0 100.0 100.0 100.0
-------- -------- -------- --------
COSTS OF SALES:
Internet Services Business 4.7 2.5 4.8 2.5
Communication Equipment Sales 12.2 34.2 10.6 28.7
Broadband Communications Engineering and
Construction Services 79.4 59.4 79.5 57.2
-------- -------- -------- --------
TOTAL COST OF SALES 96.3 96.1 94.9 88.4
-------- -------- -------- --------
GROSS PROFIT 3.7 3.9 5.1 11.6
OPERATING EXPENSES:
General and Administrative 34.1 36.2 34.8 29.5
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C> <C> <C> <C>
Depreciation and Amortization 7.0 11.7 6.6 11.1
Unusual loss - 5.8 - 2.7
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 41.1 53.7 41.4 43.3
-------- -------- -------- --------
LOSS FROM OPERATIONS (37.4) (49.8) (36.3) (31.7)
OTHER INCOME (LOSS), NET (11.1) (1.6) (7.0) (0.6)
-------- -------- -------- --------
NET LOSS FROM CONTINUING OPERATIONS (48.5) (51.4) (43.3) (32.3)
DISCONTINUED OPERATIONS:
Loss from Operations 1.8 (12.6) -- (12.6)
Gain on disposal -- -- 15.0 --
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (46.7) (64.0) (28.3) (44.9)
-------- -------- -------- --------
NET LOSS (46.7)% (64.0)% (28.3)% (44.9)%
======== ======== ======== ========
</TABLE>
The Company's operating loss was $1,952,000 and $1,075,000 and its net loss
was $1,880,000 and $1,339,000 for the three months ended March 31, 2000 and
1999, respectively.
The following table sets forth comparative cash flows of the Company for the
periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31
2000 1999
---- ----
<S> <C> <C>
Net Cash Provided by (Used in) Operating
Activities $ 3,000 $(1,580,000)
Net Cash Provided by (Used) in Investing
Activities 15,000 (407,000)
Net Cash Provided by Financing Activities 48,000 2,558,000
Ending Cash Balance 227,000 1,142,000
Working Capital (Deficit) (2,875,000) 298,000
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999
REVENUES
Total revenues, excluding revenues attributable to discontinued operations,
were $4,019,000 for the three months ended March 31, 2000, an increase of 92%
from $2,090,000 for the three months ended March 31, 1999.
Internet services business revenues increased $226,000, or 426%, from
$53,000 in the three months ended March 31, 1999 to $279,000 in the three months
ended March 31, 2000. This increase is primarily attributable to additional web
service revenues resulting from the Company's acquisition of an advertising
company and an e-commerce company in March and July 1999, respectively.
Communications equipment sales and services revenues decreased $339,000, or
40%, from $844,000 in the three months ended March 31, 1999 to $505,000 in the
three months ended March 31, 2000. The decrease in revenue resulted from the
sale of the retail computer division, which was sold effective June 15, 1999,
and the liquidation of inventory at cost to remove inventory on-hand. The
Company anticipates that revenues from this division will continue to decline in
the future because the Company anticipates winding down operations in this line
of business. The Company anticipates that revenues from this division will be
less than $200,000 for the balance of fiscal year 2000.
The Company's broadband communications engineering and construction services
revenues increased $2,041,000, or 171%, from $1,193,000 in the three months
ended March 31, 1999 to $3,234,000 in the three months ended March 31, 2000. The
Company believes that the increase in broadband communications engineering and
construction services revenue is primarily attributable to the Company obtaining
additional large contracts to provide underground construction services,
establishing a new splicing division and the Company's expansion of its
underground construction services into Arizona. The Company believes that
revenues from this division are currently at the maximum level based on existing
personnel, equipment and capital resources. The Company anticipates closing its
splicing division and selling its drilling & boring division in the third
quarter, accordingly future revenues are expected to decline.
COSTS OF REVENUES
Cost of sales in the Internet services division includes the direct cost of
labor for programmers, supplies and contract services. Cost of sales increased
$137,000, or 258%, from $53,000 in the three months ended March 31, 1999 to
$190,000 in the three months ended March 31, 2000. This increase is attributable
to acquisitions of an advertising company and e-commerce company in March and
July 1999, respectively, which resulted in increased revenues. Gross margins
increased from 0.7% in the three months ended March 31, 1999 to 31.9% for the
three months ended March 31, 2000. The increase in gross margin is due to
billing rate and business volume increases.
11
<PAGE> 12
Cost of sales in the communication equipment sales division, which includes
cost of parts and direct labor to assemble parts and provide service labor,
decreased by $225,000, or 31%, from $715,000 in the three months ended March 31,
1999 to $490,000 in the three months ended March 31, 2000. This decrease is
directly attributable to the sale of the Company's retail computer division
effective June 15, 1999 and the liquidation of inventory in the Company's
communications products division. Gross margins decreased from 15.3% in the
three months ended March 31, 1999 to 3.1% in the three months ended March 31,
2000. This decrease is the result of liquidating on-hand inventory at cost in
order to reduce inventory levels in anticipation of winding down operations in
this line of business.
Cost of sales for the Company's underground construction operations, which
includes materials, direct labor costs and depreciation, was $3,189,000 during
the three months ended March 31, 2000 compared to $1,156,000 for the three
months ended March 31, 1999. The increase is attributable to additional large
contracts to provide underground construction services and the Company's
expansion of its underground construction services into Arizona. Gross margins
have improved from a negative 4.0% for the three months ended March 31, 1999 to
1.4% for the three months ended March 31, 2000. The lower margins are the result
of the Company focusing its resources on larger projects that typically yield
lower margins. Additionally, two large projects exceeded cost estimates
impacting gross margins for this period. This division will no longer focus on
larger construction contracts and will concentrate on management and service
contracts, which tend to have higher gross margins. See "Revenue Recognition
Estimates."
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased $613,000, or 81%, from
$758,000 in the three months ended March 31, 1999 to $1,371,000 in the three
months ended March 31, 2000. Approximately $475,000 of this increase is directly
related to business growth, acquisitions and new business, $150,000 for Internet
services, $289,000 for broadband communications engineering and construction
services, $36,000 for convergence technology and telecommunications, while
communication equipment sales administrative expenses decreased $114,000. Other
corporate expenses, which increased $253,000, are generally due to increased
growth, including, additional professional fees of $109,000, increases in
management personnel of $67,000, and increased facilities expenses of $77,000.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased from $245,000 in the three months
ended March 31, 1999 to $283,000 in the three months ended March 31, 2000. This
increase is attributable to acquisitions made by the Company.
INTEREST EXPENSE
Interest expense increased from $48,000 in the three months ended March 31,
1999 to $265,000 in the three months ended March 31, 2000. Interest expense
increased $62,000 due to increased debt for equipment and working capital in the
broadband communications engineering and construction division and $125,000
associated with accretion of debt discount from working capital loans obtained
by the Company.
DISCONTINUED OPERATIONS
During the period ended March 31, 2000, the Company recognized a one-time
gain of $73,000 related to operations of its discontinued Internet access
business. This operation was identified and accounted for as a discontinued
operation for the year ended September 30, 1999.
SIX MONTHS ENDED MARCH 31, 2000 COMPARED WITH SIX MONTHS ENDED MARCH 31, 1999
Total revenues, excluding revenues attributable to discontinued operations,
were $8,339,000 for the six months ended March 31, 2000, an increase of 88% from
$4,429,000 for the six months ended March 31, 1999.
Internet services business revenues increased $431,000, or 474%, from
$91,000 in the six months ended March 31, 1999 to $522,000 in the six months
ended March 31, 2000. This increase is primarily attributable to additional web
service revenues resulting from the Company's acquisition of an advertising
company and an e-commerce company in March and July 1999, respectively.
Communications equipment sales and services revenues decreased $550,000, or
37%, from $1,472,000 in the six months ended March 31, 1999 to $922,000 in the
six months ended March 31, 2000. The decrease in revenue resulted from the sale
of the retail computer division, which was sold effective June 15, 1999 and
liquidation of inventory at cost in order to reduce the scope of this
12
<PAGE> 13
operation. The Company anticipates that revenues from this division will
continue to decline in the future because the Company anticipates winding down
operations in this line of business. The Company anticipates that revenues from
this division will be less than $200,000 for the balance of fiscal year 2000.
The Company's broadband communications engineering and construction services
revenues increased $4,029,000, or 141%, from $2,866,000 in the six months ended
March 31, 1999 to $6,895,000 in the six months ended March 31, 2000. The Company
believes that the increase in broadband communications engineering and
construction services revenue is primarily attributable to the Company obtaining
additional large contracts to provide underground construction services and the
Company's expansion of its underground construction services into Arizona. The
Company believes that revenues from this division are currently at the maximum
level based on existing personnel, equipment and capital resources. The Company
anticipates closing its splicing division and selling its drilling & boring
division in the third quarter, accordingly future revenues are expected to
decline.
COSTS OF REVENUES
Cost of sales in the Internet services division includes the direct cost of
labor for programmers, supplies and contract services. Cost of sales increased
$291,000, or 267%, from $109,000 in the six months ended March 31, 1999 to
$400,000 in the six months ended March 31, 2000. This increase is attributable
to acquisitions of an advertising company and e-commerce company in March and
July 1999, respectively, which resulted in increased revenues. Gross margins
increased from negative 19.4% in the six months ended March 31, 1999 to 23.4%
for the six months ended March 31, 2000. The increase in gross margin is due to
billing rate and business volume increases.
Cost of sales in the communication equipment sales division, which includes
cost of parts and direct labor to assemble parts and provide service labor,
decreased by $385,000, or 30%, from $1,273,000 in the six months ended March 31,
1999 to $887,000 in the six months ended March 31, 2000. This decrease is
directly attributable to the sale of the Company's retail computer division
effective June 15, 1999 and the liquidation of inventory in the Company's
communication equipment division. Gross margins decreased from 13.5% in the six
months ended March 31, 1999 to 3.8% in the six months ended March 31, 2000. This
decrease is the result of liquidation of inventory on-hand at cost in order to
reduce inventory levels in anticipation of winding down operations in this line
of business.
Cost of sales for the Company's underground construction operations, which
includes materials, direct labor costs and depreciation, was $6,631,000 during
the six months ended March 31, 2000 compared to $2,533,000 for the six months
ended March 31, 1999. The increase is attributable to additional revenues being
earned by this division. Gross margins have declined from 11.6% for the six
months ended March 31, 1999 to 3.8% for the six months ended March 31, 2000. The
lower margins are the result of the Company focusing its resources on larger
projects that typically yield lower margins. Additionally two large projects
exceeded cost estimates impacting gross margins for this period. This division
will no longer focus on large construction contracts and will concentrate on
management and service contracts, which tend to have higher gross margins. See
"Revenue Recognition Estimates."
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased $1,590,000, or 122%, from
$1,307,000 in the six months ended March 31, 1999 to $2,897,000 in the six
months ended March 31, 2000. Approximately $973,000 of this increase is directly
related to business growth, acquisitions and new business, $287,000 for Internet
services, $550,000 for broadband communications engineering and construction
services, $136,000 for convergence technology and telecommunications, while
communication equipment sales administrative expenses decreased $194,000. Other
corporate expenses, which increased $811,000, are generally due to increased
growth, including, additional professional fees of $353,000, increases in
management personnel of $189,000, and increased facilities expenses of $88,000.
Non-recurring, executive severance expense of $181,000 was also incurred in the
six months ended March 31, 2000.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased from $493,000 in the six months
ended March 31, 1999 to $548,000 in the six months ended March 31, 2000. This
increase is attributable to acquisitions made by the Company.
INTEREST EXPENSE
Interest expense increased from $78,000 in the six months ended March 31,
1999 to $505,000 in the six months ended March 31, 2000. Interest expense
increased $152,000 due to increased debt for equipment and working capital in
the broadband communications engineering and construction division and $220,000
associated with accretion of debt discount from working capital loans obtained
by
13
<PAGE> 14
the Company during the six months ended March 31, 2000.
DISCONTINUED OPERATIONS
During the six month period ended March 31, 2000, the Company recognized a
one-time gain of $1,319,000 related to disposal of its Internet access business.
This operation was identified and accounted for as a discontinued operation for
the year ended September 30,1999. In addition, the company recognized a gain of
approximately $118,000 during the six months ended March 31, 2000, on the sale
of the RMI.NET stock received in the sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net cash provided from operating activities of $3,000 for
the six months ended March 31, 2000 compared to $1,580,000 net cash used for
operating activities for the six months ended March 31, 1999. Net cash used in
operating activities was less during the six months ended March 31, 2000
primarily due to proceeds received from the sale of the Company's Internet
access operations. The Company's investment activities provided $15,000 and
required $407,000, during 2000 and 1999, respectively. The primary reason for
the change in cash used from investing activities in 2000 was a change in
proceeds from the sale of equipment of $391,000, a decrease in purchase of
equipment of $304,000 and a decrease in cash provided from discontinued
operations of $170,000. Financing activities provided $48,000 in 2000 and
$2,558,000 in 1999. All of the cash proceeds from financing activities in 2000
and 1999, except for $1,969,000 in 1999 from the issuance of common stock, were
attributable to net debt proceeds.
The Company has commitments for equipment and expenses related to its
convergence technology and telecommunications operations of approximately
$250,000 to engineer, install and test equipment. The Company has a further
commitment for approximately $750,000 of equipment that is expected to be
obtained by the Company under operating leases. The Company believes that
expenditures not covered by operating leases will be obtained from the proceeds
of certain equity or debt financings. The Company believes that cash on hand at
March 31, 2000 is not sufficient to meet the Company's working capital demands
for the next six months and accordingly the Company plans on obtaining cash and
working capital by obtaining loans and leases, some of which has been obtained
and others which are anticipated to be obtained, all as described below. The
Company also plans to continue to expand its NeighborComm and Telecommunications
business operations in fiscal 2000, which will require more resources than
are currently available to the Company. In the event the Company is unable to
obtain additional financing, the Company will not be able to fully undertake
its business expansion and will attempt to reduce costs and possibly
liquidate assets to permit existing sources of capital to finance the operations
of the Company until such time as additional sources of financing become
available.
The Company has an existing line of credit with a bank that was in place
prior to the Company's acquisition of OPEC CORP. in July 1998. The amount
available under this line of credit is $480,000, which has been fully drawn by
the Company as of March 31, 2000. This line of credit was extended until
September 15, 2000.
The Company is required to repay certain capital lease obligations prior to
their regularly scheduled maturity dates as part of its sale of the Company's
Internet access business to RMI.NET. The balances subject to such accelerated
repayment amounted to approximately $392,000 at March 31, 2000. The Company is
actively seeking additional financial resources to repay these amounts.
The Company's business plan includes pursuing additional debt and equity
financing with financial institutions or strategic partners. In October 1999,
the Company obtained a bridge loan in the amount of $250,000. Such loan bears
interest at a rate of 15% per annum and the principal and interest due
thereunder was payable February 8, 2000. The Company has extended the due date
of this loan to August 8, 2000. The Company also obtained a bridge loan in
December 1999 in the amount of $50,000. Such loan bears interest at a rate of
12% per annum and the principal and interest are due and payable on June 28,
2000. The note is convertible into shares of the Company's Common Stock at $1.00
per share at the option of the holder. The Company anticipates obtaining further
loans or private placement equity financing in the aggregate amount of
$1,000,000 to $3,000,000 during the third quarter of fiscal year 2000. There is
no assurance that the Company will receive all or any additional portion of the
funding it is seeking in a timely manner or on terms that are favorable to the
Company.
The Company has sold the registered shares of RMI.NET, Inc. common stock
received in consideration of substantially all of the Company's assets relating
to its Internet access business. As of January 31, 2000, the Company had sold
all of the 176,000 shares of RMI.NET common stock that were immediately
transferable, which provided the Company with approximately $1,500,000, which
has been used for working capital. An additional 28,000 shares of RMI.NET stock
may be sold by the Company after May 19, 2000. It is anticipated that these
shares will be sold immediately to provide additional working capital. The
Company also has a stock purchase
14
<PAGE> 15
agreement with Blackwater Capital Partners, L.P., which expires July 2000. Under
the terms of this agreement, Blackwater had agreed to purchase shares of the
Company's Common Stock in sufficient amounts to provide funding to the Company
in four equal traunches of $2,500,000, as requested by the Board of Directors of
the Company. Alternatively, Blackwater had the right to provide funding for the
remaining $7,000,000 through a public offering of the Company's Common Stock.
The Company is negotiating to restructure the terms of this agreement and does
not anticipate that Blackwater will provide additional funding beyond the
approximately $3,000,000 that was received prior to March 31, 2000.
The Company anticipated receiving additional loans or equity financing
during the second quarter and had negotiated a bridge loan prior to the recent
stock market decline. However, the Company was unable to complete a financing
during the second quarter and now believes that obtaining additional capital
equity or debt financing on terms favorable to the Company, if at all, will be
much more difficult if current stock market and business conditions persist.
Although the Company has obtained additional funds from the sale of
substantially all of the assets of its internet access business and certain
bridge and working capital loans, the Company is still dependent upon
additional capital resources to enable it to carry out its business plan and
obtain profitability. This lack of profitable operations and the need for
additional capital have resulted in the report of the independent auditors for
the years ended September 30, 1999 and 1998, containing an uncertainties
paragraph with respect to the ability of FutureOne to continue as a going
concern.
REVENUE RECOGNITION ESTIMATES
The Company recognizes revenues for projects in process within the broadband
communications engineering and construction division using the percentage of
completion accounting method. Under this method, revenues are recognized based
on the ratio that costs incurred to date bear to the total estimated costs to
complete the project. Estimated losses on contracts are recognized in full when
the Company determines that a loss will be incurred. The Company frequently
reviews and revises revenue and total cost estimates as work progresses on a
contract and as contracts are modified. Accordingly, revenue adjustments based
upon the revised completion percentage are reflected in the period that
estimates are revised. Although revenue estimates are based upon management
assumptions supported by historical experience, these estimates could vary
materially from actual results. To the extent percentage of completion
adjustments reduce previously reported revenues, the Company would recognize a
charge against operating results, which could have a material adverse effect on
the Company's results of operations for the applicable period.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
All legal proceedings and actions involving the Company are of an ordinary
and routine nature incidental to the operations of the Company. Management
believes that such proceedings should not, individually or in the aggregate,
have a material adverse effect on the Company's business or financial condition
or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In October 1999, the Company issued a warrant to purchase 250,000 shares of
Common Stock at a price of $1.00 per share and a promissory note in
consideration for $250,000. The promissory note bears interest at a rate of 15%
per annum and the principle and interest due thereunder were payable February 8,
2000. The Company has negotiated an extension on this promissory note until
August 8, 2000 by making the note, at the option of the holder, convertible into
shares of the Company's common stock at a conversion price of $1.00 per share.
The offering of such warrants, promissory note and underlying shares of Common
Stock was made pursuant to an exemption from registration under Section 4(2) of
the Securities Act as private transaction not involving a public distribution.
During three-month period ending March 31, 2000, the Company cancelled
109,377 shares of non-vested Common Stock issue to employees in previous
quarters. The stock cancellations were the result of employee terminations or
resignations.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
15
<PAGE> 16
None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
10.34 15% Convertible Promissory Note payable to the order of
Richard B. McCulloch dated February 9, 2000, as amended
and restated.
10.35 First Amendment to Employment Agreement of Alan P. Hald
27 Financial Data Schedule
(b) No reports on Form 8-K were filed under the Securities and Exchange Act
of 1934 during the quarter ended March 31, 2000.
16
<PAGE> 17
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FUTUREONE, INC.
Date: May 10, 2000 By: /s/ Earl J. Cook
-------------------------------
Earl J. Cook
Chief Executive Officer
Date: May 10, 2000 By: /s/ Ralph R. Zanck
--------------------------------
Ralph R. Zanck
Vice President Finance
17
<PAGE> 18
Exhibit Index
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
10.34 15% Convertible Promissory Note payable to the order of
Richard B. McCulloch dated February 9, 2000, as amended
and restated
10.35 First Amendment to Employment Agreement of Alan P. Hald
27 Financial Data Schedule
18
<PAGE> 1
Exhibit 10.34
THIS PROMISSORY NOTE AND THE UNDERLYING COMMON STOCK ("COMMON STOCK") OF
FUTUREONE, INC. (THE "COMPANY") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND ANY REGULATIONS PROMULGATED THEREUNDER
(COLLECTIVELY, THE "SECURITIES ACT") OR WITH THE SECURITIES AUTHORITIES OF ANY
STATE UNDER ANY STATE SECURITIES LAWS AND ANY REGULATIONS PROMULGATED THEREUNDER
(COLLECTIVELY, "STATE SECURITIES LAWS"). AS A CONSEQUENCE, NEITHER THIS
PROMISSORY NOTE NOR COMMON STOCK MAY BE SOLD, TRANSFERRED, ASSIGNED, MORTGAGED,
PLEDGED, LIENED, HYPOTHECATED OR OTHERWISE ENCUMBERED OR DISPOSED OF
(COLLECTIVELY, A "TRANSFER") EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT
REQUIRED.
15% CONVERTIBLE
PROMISSORY NOTE
$250,000.00 Phoenix, Arizona
As of February 9, 2000
FOR VALUE RECEIVED, FUTUREONE, INC., a Nevada corporation with an office at 4250
East Camelback Road, Suite K-192, Phoenix, Arizona 85018-2751 (including its
successors and assigns, "Borrower"), hereby promises to pay to the order of
Richard B. McCulloch ("Lender"), the principal sum of Two Hundred Fifty Thousand
Dollars ($250,000) (the "Principal Amount"), with interest on any unpaid balance
of such amount at the rate of interest specified herein, in lawful money of the
United States of America and in immediately available funds in accordance with
the terms hereof. The unpaid Principal Amount of this 15% Convertible Promissory
Note (this "Note"), together with all accrued and unpaid interest hereunder,
shall be due and payable on the Maturity Date (as defined below), unless this
Note is prepaid in accordance with Section 3 hereof or converted in accordance
with Section 4 hereof. This Note evidences a loan (the "Loan") made by Lender to
Borrower in the Principal Amount. This Note is issued in replacement of, and in
full substitution for, the promissory note dated October 8, 1999 issued by
Borrower to Lender in the principal amount of $250,000. Accordingly, interest on
the Principal Amount will accrue effective as of October 8, 1999.
1. Definitions.
1.1. Certain Defined Terms. As used in this Note, the following
terms have the meanings indicated below:
"Business Day" means a day other than Saturday, Sunday or other day on
which commercial banks in Phoenix, Arizona are authorized or required by law or
executive order to close.
"Common Stock" means the $0.001 par value common stock of Borrower.
<PAGE> 2
"Conversion Price" means One Dollar ($1.00) per share of Common Stock
subject to adjustment as provided in Section 4.
"Default" means any event which, with the passage of time or the giving
of notice, or both, could become an Event of Default.
"Default Rate" means a rate of interest equal to the Stated Interest
Rate plus three (3) percentage points per annum.
"Disbursement Date" means October 8, 1999.
"Dollars" or "$" mean lawful currency of the United States of America
and, in relation to any amount to be disbursed or paid under this Note,
immediately available funds or such other funds as may be acceptable to Lender
in its sole discretion.
"Event of Default" has the meaning set forth in subsection 6.1.
"Indebtedness" of any Person means as of the date of any determination
thereof, (i) all indebtedness for borrowed money or purchase money financing,
(ii) all indebtedness evidenced by a note, bond, debenture or similar instrument
(but only to the extent actually disbursed), (iii) the face amount of all
letters of credit and, without duplication, all unreimbursed amounts drawn
thereunder, (iv) all payment obligations under any interest rate protection
agreements and currency swaps and similar agreements, (v) all indebtedness under
capitalized leases, (vi) all obligations to pay money or assume indebtedness in
respect of the acquisition of property, securities and other assets, (vii) all
obligations in respect of guaranties, (viii) all obligations to purchase,
repurchase or otherwise acquire, to supply or advance funds or to become liable
(directly or indirectly) with respect to any indebtedness or obligation of any
Person and (ix) all refundings, renewals, extensions or restatements of any of
the foregoing.
"Maturity Date" is defined in Section 2.2.
"Person" means an individual, a corporation, an association, a joint
stock company, a business trust, a partnership, a joint venture, a limited
liability company, an unincorporated organization, or a government or any agency
or political subdivision thereof.
"Securities Act" means, collectively, the Securities Act of 1933, as
amended, and any regulations promulgated thereunder.
"State Securities Act" means, collectively, the securities law of any
State that is applicable to this Note or the Common Stock and any regulations
promulgated thereunder.
"Stated Interest Rate" means simple interest at the rate of fifteen
percent (15%) per annum.
"Taxes" means any and all present and future taxes, levies, imposts,
duties, fees, deductions, withholdings or charges of a similar nature imposed or
assessed by any country or any political subdivision or taxing authority thereof
(but not including any income or franchise taxes of Lender), together with any
interest thereon and any penalties with respect thereto.
- 2 -
<PAGE> 3
1.2. Computation of Time Periods. Unless otherwise provided herein,
with respect to the computation of periods of time from a specified date to a
later specified date herein, the word "from" means "from and including" and each
of the words "to" and "until" means "to but excluding".
1.3. Dollar Amounts. All dollar amounts used herein shall mean
Dollars.
1.4. Construction. In this Note, the singular includes the plural,
the plural includes the singular, and the word "or" is used in the inclusive
sense.
2. The Loan.
2.1. Use of Loan Proceeds. The proceeds of the Loan shall be used
for the general working capital needs of Borrower.
2.2. Maturity Date. The Maturity Date for the Loan shall be (i)
April 9, 2000, or (ii) such other date as the Principal Amount shall become due
and payable pursuant to the terms and provisions of this Note shall have been
prepaid or converted in full in accordance with the provisions hereof; provided,
however, Borrower may extend the Maturity Date at any time with the prior
consent of Lender.
3. Payments.
3.1. Payment of Interest.
3.1.1. Interest Rate; Interest Payment. Interest shall
accrue on any unpaid balance of the outstanding Principal Amount at the Stated
Interest Rate: (a) from and including the Disbursement Date through the Maturity
Date, and (b) shall be due and payable on the Maturity Date. All interest and
fees accruing under the Note shall be computed on the basis of a 360-day year
and the actual number of days elapsed.
3.1.2. Default Interest. Notwithstanding anything to the
contrary contained in this Note, if Borrower shall fail to make any payment when
due of principal, interest or any other amount owing under this Note, then such
principal, interest or other amount shall accrue interest thereon at a rate
equal to the Default Rate to the fullest extent permitted by law from the date
such payment was due until payment in full of the amount overdue plus such
interest thereon.
3.1.3. Maximum Interest. Anything in this Note to the
contrary notwithstanding, the interest rate on the Loan shall in no event be in
excess of any maximum interest rate permitted by applicable law; provided,
however, that, to the extent permitted by applicable law, in the event that
interest is not collected as a result of the operation of this subsection and
interest thereafter payable pursuant to this Note shall be less than such
maximum amount, then such interest thereafter payable shall be increased up to
such maximum amount to the extent necessary to recover the amount of interest,
if any, theretofore uncollected as a result of the operation of this subsection.
In determining whether or not any interest payable under this Note exceeds the
maximum rate permitted by applicable law, any non-principal payment, except
payments specifically stated to be "interest", shall be deemed, to the extent
permitted by applicable law, to be a fee, expense reimbursement or penalty,
rather than interest.
- 3 -
<PAGE> 4
3.2. Payments of Principal.
3.2.1. Maturity. Subject to subsection 3.6 hereof, the
unpaid balance of the Principal Amount, together with all accrued and unpaid
interest, and all other amounts payable under the Note, shall be due and payable
in full on the Maturity Date.
3.2.2. Prepayment. Subject to subsection 3.6 hereof, (i)
Borrower may at any time prior to the Maturity Date prepay all or any portion of
the Principal Amount without penalty, upon ten (10) days advance notice to
Lender specifying the date and amount of such repayment; and (ii) Borrower's
notice of prepayment, once given, shall obligate Borrower either (a) to make the
prepayment on the date specified therein or (b) pay Lender's reasonable
out-of-pocket costs and damages incurred as a result of Borrower's failure to
make such prepayment on the date specified for such prepayment.
3.3. Manner of Payments. Each payment of principal of and interest
on this Note shall be made by check of Borrower or by transferring the amount
thereof in Dollars in immediately available funds via the Fedwire or intra-bank
account transfer, not later than 5:00 p.m., Phoenix, Arizona time, on the date
on which such payment shall be due. Each such payment shall be made without
setoff, offset, deduction or counterclaim.
3.4. Extension of Payments. If any payment from Borrower to Lender
under this Note shall become due on a day which is not a Business Day, the due
date thereof shall be extended to the next following day which is a Business Day
and such additional time shall be included in the computation of interest.
3.5. Application of Payments. Lender shall have the absolute right
to determine the order in which payments received by Lender under this Note
shall be applied to the amounts which are then due and payable under the Note,
regardless of any application designated by Borrower; provided, however, that,
unless and until the occurrence of an Event of Default hereunder, all payments,
including, without limitation, all prepayments, shall be applied first against
any fees or expenses due and payable to Lender under this Note, second, to the
payment of delinquency or late charges, third, to interest due and payable on
the Loan, and fourth to repay the Principal Amount.
3.6. Optional Conversion of Note and Notice Thereof. Anything
contained in this Section 3 to the contrary notwithstanding, in the event that
Borrower shall give Lender notice of prepayment, Lender may, within five (5)
Business Days following the giving of such notice, elect to convert the entire
unpaid Principal Amount of this Note and any accrued interest outstanding
pursuant to Section 4 hereof.
4. Conversion.
4.1. Conversion Privilege. Prior to the Maturity Date, Lender may,
subject to subsection 3.6 hereof, at any time convert all or part of the
indebtedness evidenced by this Note, including accrued interest, into Common
Stock (a "FutureOne Common Stock Conversion"). The number of shares of Common
Stock issuable upon a FutureOne Common Stock Conversion shall be determined as
follows: Divide the Principal Amount and accrued interest to be converted by the
Conversion Price in effect as of the date of such FutureOne Common Stock
Conversion. Borrower will deliver to a holder so converting a check in payment
for any fractional share of Common Stock.
- 4 -
<PAGE> 5
4.2. Conversion Procedure. To effect any FutureOne Common Stock
Conversion, Lender shall (i) provide Borrower with ten (10) business days
advance written notice to Borrower specifying the date and amount of such
conversion and the name in which the Common Stock shall be issued (if the name
is other than that of Lender), (ii) furnish any appropriate endorsements and
transfer documents reasonably requested by Borrower, (iii) pay any documentary,
stamp, transfer or similar tax if required and (iv) deliver a certificate to
Borrower in which Lender certifies that (a) Lender is an "accredited investor"
as defined in the Securities Act, (b) Lender acknowledges that the Common Stock
to be issued to Lender have not been registered under the Securities Act or any
State Securities Laws and (c) Lender is acquiring the Common Stock to be issued
to Lender for investment and not with a view to the resale, subdivision,
distribution or fractionalization thereof and that Lender agrees that such
Common Stock may not be sold, transferred, assigned, mortgaged, pledged, liened,
hypothecated or otherwise encumbered or disposed of (collectively, a "transfer")
except pursuant to an effective Registration Statement under the Securities Act
of 1933, as amended, or an opinion of counsel satisfactory to Borrower to the
effect that such registration is not required.
4.3. Adjustment for Change in Common Stock. If Borrower:
(i) pays a dividend or makes a distribution on its Common
Stock in Common Stock;
(ii) subdivides its outstanding Common Stock into a
greater number of Common Stock;
(iii) combines its outstanding Common Stock into a smaller
number of Common Stock;
(iv) makes a distribution on its Common Stock in property
other than cash;
(v) issues by reclassification of its Common Stock any
additional Common Stock; or
(vi) Borrower grants rights or warrants to all holders of
Common Stock entitling them to subscribe for or purchase Common Stock at a price
less than the Conversion Price;
then the conversion privilege and the Conversion Price in effect immediately
prior to such action shall be adjusted so that Lender thereafter may receive the
number of shares of Common Stock which Lender would have owned immediately
following such action if Lender had converted the Loan immediately prior to such
action.
The adjustment shall become effective immediately after the record date
in the case of a dividend or distribution and immediately after the effective
date in the case of a subdivision, combination, reclassification or grant of
rights or warrants.
If after an adjustment Lender upon any such conversion receives
securities of two or more series or classes of securities of Borrower, Borrower
shall determine the allocation of the adjusted Conversion Price between the
series or classes of securities. After such allocation, the conversion
- 5 -
<PAGE> 6
privilege and the Conversion Price of each series or class of Common Stock shall
thereafter be subject to adjustment on terms comparable to those applicable to
Common Stock in this Section 4.
4.4. When Adjustment May Be Deferred. No adjustment in the
Conversion Price need be made unless the adjustment would require an increase or
decrease of at least five percent (5%) in the Conversion Price. Any adjustments
that are not made shall be carried forward and taken into account in any
subsequent adjustment.
All calculations under this Section 4 shall be made to the nearest cent
or to the nearest 1/100th of a Common Stock, as the case may be.
4.5. When No Adjustment Required. No adjustment need be made for a
transaction referred to in subsection 4.3 if Lender is to participate in the
transaction on a basis and with notice that Borrower determines to be fair and
appropriate in light of the basis and notice on which holders of Common Stock
participate in the transaction.
No adjustment need be made for rights to purchase Common Stock pursuant
to a plan for reinvestment of dividends or interest.
4.6. Notice of Adjustment. Whenever the Conversion Price is
adjusted Borrower shall promptly mail to Lender a notice of the adjustment.
4.7. Voluntary Reduction. Borrower from time to time may reduce the
Conversion Price by any amount for any period of time if the period is at least
twenty (20) days and if the reduction is irrevocable during the period.
Whenever the Conversion Price is reduced, Borrower shall mail to Lender
a notice of the reduction. Borrower shall mail the notice at least fifteen (15)
days before the date the reduced Conversion Price takes effect. The notice shall
state the reduced Conversion Price and the period it will be in effect.
A reduction of the Conversion Price does not change or adjust the
Conversion Price otherwise in effect for purposes of subsection 4.4.
4.8. Reorganization of Borrower. If Borrower is a party to a
consolidation or a merger, or if Borrower transfers or leases all or
substantially all of its assets, which event reclassifies or changes Borrower's
outstanding Common Stock, Lender will have the right to convert the Loan only
into the kind and amount of securities, cash or other assets which Lender would
have owned immediately after the consolidation, merger, transfer or lease if
Lender had converted the Loan immediately before the effective date of the
transaction.
4.9. Borrower's Determination Final. Any determination that
Borrower must make pursuant to subsections 4.4, 4.5, 4.6 or 4.9 is conclusive.
5. Defaults.
5.1. Events of Default. The occurrence of any one or more of
following shall constitute an "Event of Default."
- 6 -
<PAGE> 7
5.1.1. Borrower shall fail to pay any interest or principal
under this Note within ten (10) business days following the date such amount was
due, whether at maturity, by acceleration or otherwise.
5.1.2. Borrower shall fail to pay any other amount (whether
fees, Taxes or otherwise) payable to Lender or any other party under or as
required by this Note within ten (10) business days after demand therefor or
receipt of notice that such amount was due, whether at maturity, by acceleration
or otherwise.
5.1.3. Borrower shall fail to perform or observe any
material obligations, covenants, terms, agreements or undertakings contained in
this Note (other than obligations, covenants, terms, agreements or undertakings
set forth in subsections 5.1.1 and 5.1.2), and such default shall continue
unremedied for a period of thirty (30) days after notice of such default is
delivered by Lender to Borrower; provided, however, that if Borrower commences
to cure such default during such thirty (30) day period but such default is not
susceptible to cure within such thirty (30) day period, such thirty (30) day
period shall be extended so long as Borrower is at all times diligently pursuing
the cure thereof.
6. Remedies After Default. Upon maturity of this Note and/or the failure
to pay the Principal Amount, interest or any other sums due hereunder after the
expiration of any applicable notice and/or cure period and/or the occurrence of
any other Event of Default, Lender may, at its option, exercise all rights and
remedies to which it may be entitled under this Note at law or in equity,
including, without limitation, the right to declare the Principal Amount, all
interest thereon and all other amounts payable under this Note to be immediately
due and payable.
7. General Provisions.
7.1. Assignment. This Note is a continuing obligation and shall be
binding upon and shall inure to the benefit of Borrower, Lender and their
respective successors and assigns. Notwithstanding the preceding sentence,
Lender may not sell, transfer, assign, mortgage, pledge, lien, hypothecate or
otherwise encumber or dispose of this Note or any Common Stock into which this
Note is convertible, except pursuant to the terms, provisions and conditions of
this Note.
7.2. Costs; Expenses. Borrower agrees to pay on demand all
reasonable costs and expenses, if any (including, without limitation, reasonable
fees and expenses of counsel of and for Lender) in connection with the
amendment, modification, extension, or enforcement of this Note and any other
documents to be delivered hereunder.
7.3. Severability. Every provision of this Note is intended to be
severable, and if any term or provision hereof shall be invalid, illegal, or
unenforceable for any reason, the validity, legality, and enforceability of the
remaining provisions hereof shall not be affected or impaired thereby, and any
invalidity, illegality, or unenforceability in any jurisdiction shall not affect
the validity, legality, or enforceability of any such term or provision in any
other jurisdiction.
7.4. Governing Law. This Note shall be governed by, and construed
in accordance with, the laws of the State of Arizona without regard to the
principles of conflicts of laws.
- 7 -
<PAGE> 8
7.5. Entire Agreement. This Note and any other documents executed
in connection herewith and therewith contain the entire understanding of and
supersede all prior representations, warranties, agreements, arrangements,
understandings and negotiations, written and oral, between Lender and Borrower
with respect to the subject matter hereof and shall not be modified except in
writing executed by the parties hereto.
7.6. Waivers. Borrower waives presentment, demand for payment,
notice of dishonor and any or all notices or demands (other than any notices or
demands which cannot be waived by operation of law) in connection with the
delivery, acceptance, performance, default or enforcement of this Note and
consents to any or all delays, extensions of time, renewals, release of any
party, and of any available security therefor, and any and all waivers that may
be granted or consented to by Lender with regard to the time of payment or with
respect to any other provision of this Note, and agrees that no such action,
delay or failure to act on the part of Lender shall be construed as a waiver by
Lender of, or otherwise affect, in whole or in part, its right to avail itself
of any remedy with respect thereto.
7.7. Amendment; Waiver. No amendment, modification or waiver of any
provision of this Note, and no consent to any departure by Borrower therefrom,
shall in any event be effective unless the same be in writing and signed by
Lender and Borrower. Any waiver of any provision of this Note, and any consent
to any departure by Borrower or Lender therefrom, shall be effective only in the
specific instance and for the specific purpose for which given. Neither failure
nor delay on the part of Lender to exercise any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or remedy hereunder preclude any other or further exercise
thereof or the exercise of any right, power or remedy. No notice to or demand on
Borrower in any case shall entitle Borrower to any other or further notice or
demand in similar or other circumstances. The rights herein provided are
cumulative and not exclusive of any rights provided by law.
7.8. Notices, Etc. All notices, approvals, demands, consents and
other communications ("notices") provided for or otherwise given hereunder shall
be in the English language, in writing, and shall have been duly given and shall
be effective (i) when delivered, (ii) when transmitted via telecopy with
electronic confirmation to the numbers set forth below, (iii) the day following
the day on which the same has been delivered prepaid to a reputable national
overnight courier service or (iv) the third Business Day following the day on
which the same is sent by certified or registered mail, postage prepaid and
return receipt requested, as follows:
To Borrower: FutureOne, Inc.
4250 East Camelback Road, Suite K-192
Phoenix, Arizona 85018-2751
Attention: President
Telephone: (602) 852-9725
Telecopier: (602) 522-8714
- 8 -
<PAGE> 9
To Lender: Richard B. McCulloch
-------------------------------
-------------------------------
Telephone: ( ) -
Telecopier: ( ) -
or, as to each party, at such other address or telecopier number as shall be
designated by such party in a written notice to the other party. All such
notices shall be effective as set forth above and shall be effective against the
party to which it is sent irrespective of whether copies have been sent to other
parties.
7.9. Headings. The headings contained in this Note are for
convenience of reference only and shall not affect the construction hereof.
7.10. Drafting. Borrower acknowledges that Borrower and Lender and
their respective counsel have reviewed and revised this Note, and Borrower
agrees that any rule of construction to the effect that ambiguities are to be
resolved against the drafting party shall not apply in the interpretation of any
of this Note.
7.11. No Third Party Beneficiaries. Nothing in this Note shall
confer upon any Person, other than the parties hereto and their respective
successors and permitted assigns, any rights or remedies under or by reason of
this Note.
7.12. Non-Recourse. Notwithstanding anything to the contrary
contained in this Note, no individual member, partner, officer, or director of
Borrower or the manager or managers of Borrower shall have any personal
liability for the obligations of Borrower hereunder, but, rather, the terms,
covenants, provisions and obligations contained in this Note as made are only
intended to bind Borrower and the assets of Borrower as the same may exist from
time to time. The foregoing shall not diminish or release any of the obligations
of Borrower hereunder.
IN WITNESS WHEREOF, Borrower has executed this Note as of the date
first above written.
FUTUREONE, INC.,
A NEVADA CORPORATION
By:
--------------------------------
Its:
-------------------------------
ACCEPTED, ACKNOWLEDGED AND
AGREED THIS _______ DAY OF
____________, 2000.
- -----------------------------
Richard B. McCulloch
- 9 -
<PAGE> 1
Exhibit 10.35
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This amendment shall change and amend that certain Employment Agreement between
FutureOne, Inc., a Nevada corporation and Alan Hald, dated January 1, 2000 (the
"Original Agreement").
1) The parties hereby agree to extend the Term of the Original Agreement as
defined in Section 1 of the Original Agreement to include the Subsequent
Employment Term, which shall extend the Original Agreement to December 31,
2000, based on the following compensation:
a. Employee shall continue to be paid the Base Salary ($10,000
per month) as defined in Section 4A for the additional six
month period.
b. Employee shall continue to receive the Warrants as defined in
Section 4C, (70,000 warrants per month) for the additional six
month period and the Warrants shall be in the form of the
original Warrant as indicated on Exhibit A.
These are the only changes to the Employment Agreement and all other terms and
conditions of the Employment Agreement shall remain in full force and effect.
Agreed as of the __ day of March, 2000.
FutureOne, Inc. Employee
By _____________________________ _____________________________
President
1
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<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 226,988
<SECURITIES> 249,340
<RECEIVABLES> 2,802,256
<ALLOWANCES> 110,000
<INVENTORY> 44,694
<CURRENT-ASSETS> 4,470,205
<PP&E> 3,896,107
<DEPRECIATION> 909,310
<TOTAL-ASSETS> 13,893,562
<CURRENT-LIABILITIES> 7,345,591
<BONDS> 3,680,174
0
0
<COMMON> 12,834
<OTHER-SE> 4,366,590
<TOTAL-LIABILITY-AND-EQUITY> 13,893,562
<SALES> 922,478
<TOTAL-REVENUES> 8,339,335
<CGS> 887,186
<TOTAL-COSTS> 7,918,154
<OTHER-EXPENSES> 3,445,233
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 505,464
<INCOME-PRETAX> (3,605,648)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,605,648)
<DISCONTINUED> 1,249,600
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,356,048)
<EPS-BASIC> (0.18)
<EPS-DILUTED> (0.18)
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