RESOURCEPHOENIX COM
10-Q/A, 2000-12-07
COMPUTER PROGRAMMING SERVICES
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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                 ---------------

                                   FORM 10-Q/A


[X]     QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

                For the quarterly period ended September 30, 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 000-27449

                               RESOURCEPHOENIX.COM
             (Exact name of registrant as specified in its charter)

            Delaware                                52-2190830
            --------                                ----------
     State of Jurisdiction               I.R.S. Employer Identification No.


2401 Kerner Boulevard, San Rafael, California                   94901-5527
----------------------------------------------                  ----------
   Address of Principal Executive Offices                        Zip Code

       Registrant's telephone number, including area code: (415) 485-4600

        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 preceding requirements for the past 90 days.

                                 Yes [X] No [ ]

        The number of shares outstanding of the Registrant's  Common Stock as of
November 30, 2000 was 11,799,692.

        This  Amendment No. 1 to Quarterly  Report on Form 10-Q/A is being filed
solely for the purpose of  amending  Part I, Item 1 in the  Company's  Quarterly
Report of Form 10-Q for the period ended  September  30,  2000,  which was filed
with the Securities and Exchange Commission on November 14, 2000 (the "September
30 10-Q") to  correct  typographical  errors in the "Net cash used in  operating
activities  for the nine  months  ended  September  30,  2000"  reported  in the
"Condensed  Consolidated Statements of Cash Flows" and in footnote 6, "Financing
Arrangements   with  Torneaux  Ltd."  contained   therein.   Item  I  "Financial
Statements"  set  forth in the  September  30,  10-Q is  hereby  deleted  in its
entirety and the following is substituted therefor.


<PAGE>

                                     PART I

                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                               RESOURCEPHOENIX.COM
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                     SEPTEMBER 30,      DECEMBER 31,
                                                                         2000               1999
                                                                     ------------       ------------
                                                                     (UNAUDITED)
<S>                                                                  <C>                <C>
                                     ASSETS
Current Assets:
   Cash and cash equivalents                                         $      5,131       $     15,780
   Accounts receivable, net of allowance                                    1,318                948
   Prepaid expenses and other current assets                                  906                762
                                                                     ------------       ------------

     Total current assets                                                   7,355             17,490

   Property and equipment                                                  10,331              7,669
   Accumulated depreciation                                                (3,271)            (1,382)
                                                                     ------------       ------------
     Net property and equipment                                             7,060              6,287

   Loan fees                                                                1,716                 --
   Other assets                                                               516                276
                                                                     ------------       ------------

   Total assets                                                      $     16,647       $     24,053
                                                                     ============       ============


                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable                                                  $      2,736       $      1,455
   Accrued liabilities                                                      1,913              1,655
   Deferred revenue                                                         1,584                306
   Other liabilities                                                          411                 --
   Notes payable - bank                                                       958                 --
   Notes payable -- affiliate                                                 700                 --
                                                                     ------------       ------------
     Total current liabilities                                              8,302              3,416

   Notes payable -- affiliate                                               5,933                 --
   Deferred revenue                                                         1,216                688
                                                                     ------------       ------------
     Total long term liabilities                                            7,149                688
                                                                     ------------       ------------

     Total Liabilities                                                     15,451              4,104
Stockholders' Equity:
   Preferred Stock, $.001 par value:  5,000,000 shares                         --                 --
     authorized
   Class A Common Stock, $.001 par value:  37,800,000 shares               31,903             32,869
     authorized, 4,420,359 and 4,028,000 issued and outstanding
     at September 30, 2000 and December 31, 1999, respectively

   Warrants                                                                 3,711                 --

   Class B Common Stock, $.001 par value:  7,200,000 shares
     authorized, 7,172,000 issued and outstanding at September
     30, 2000 and December 31, 1999                                         9,957              9,957

   Accumulated deficit                                                    (44,375)           (22,877)
                                                                     ------------       ------------
     Total stockholders' equity                                             1,196             19,949
                                                                     ------------       ------------

     Total liabilities and stockholders' equity                      $     16,647       $     24,053
                                                                     ============       ============
</TABLE>


        The accompanying notes are an integral part of these statements.


                                      -2-


<PAGE>
                               RESOURCEPHOENIX.COM
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED              NINE MONTHS ENDED
                                                             SEPTEMBER 30,                   SEPTEMBER 30,
                                                     ---------------------------       ---------------------------
                                                        2000             1999             2000             1999
                                                     ----------       ----------       ----------       ----------
<S>                                                  <C>              <C>              <C>              <C>
Revenue:
   Contract service revenue                          $    2,092       $      953       $    5,124       $    2,694
   Contract service revenue - affiliate                     829              800            2,790            1,713
   Software revenue                                         323              557            1,125            2,064
                                                     ----------       ----------       ----------       ----------

   Total revenue                                          3,244            2,310            9,039            6,471

Operating Expenses:
   Cost of providing services                             3,273            1,423           10,030            3,829
   Cost of providing software revenue                       198              231              811              633
   General and administrative                             2,225            1,470            7,275            2,469
   Research and development                                 259            1,022            2,057            2,373
   Client acquisition costs                               2,578            1,384            8,308            2,473
   Depreciation and amortization                            679              251            1,948              479
   Stock-related compensation                                --           (3,335)              --            1,956
                                                     ----------       ----------       ----------       ----------

   Total operating expenses                               9,212            2,446           30,429           14,212

Loss from operations                                     (5,968)            (136)         (21,390)          (7,741)

Other income (expense)                                     (169)             (27)              21              (11)
                                                     ----------       ----------       ----------       ----------

Net loss before change in accounting principal           (6,137)            (163)         (21,369)          (7,752)
                                                     ----------       ----------       ----------       ----------

   Cumulative effect on prior years                          --               --             (129)              --
                                                     ----------       ----------       ----------       ----------

Net loss                                             $   (6,137)      $     (163)      $  (21,498)      $   (7,752)
                                                     ==========       ==========       ==========       ==========

Basic and diluted net loss per share:
   Net loss before effect of accounting change       $    (0.54)      $    (0.02)      $    (1.89)      $    (1.08)
   Cumulative effect of accounting change                    --               --            (0.01)              --
                                                     ----------       ----------       ----------       ----------

   Net loss                                          $    (0.54)      $    (0.02)      $    (1.90)      $    (1.08)
                                                     ==========       ==========       ==========       ==========

Shares used in computing basic and                       11,456            7,200           11,325            7,200
   diluted net loss per share

Proforma amounts assuming accounting change had
   been in effect during the three and nine months
   ended September 30, 1999:

   Net Loss                                          $   (6,137)      $     (163)      $  (21,369)      $   (7,752)
                                                     ----------       ----------       ----------       ----------
   Basic and diluted net loss per share              $    (0.54)      $    (0.02)      $    (1.89)      $    (1.08)
                                                     ----------       ----------       ----------       ----------
</TABLE>


        The accompanying notes are an integral part of these statements.


                                      -3-


<PAGE>
                               RESOURCEPHOENIX.COM
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                           NINE MONTHS ENDED
                                                                             SEPTEMBER 30,
                                                                       ---------------------------
                                                                          2000             1999
                                                                       ----------       ----------
<S>                                                                    <C>              <C>
OPERATING ACTIVITIES
   Net income (loss)                                                   $  (21,498)      $   (7,752)
   Loss on disposal of assets                                                 100               --
   Adjustments to reconcile  net income (loss) to net cash
     provided by (used in) operating activities:
     Depreciation and amortization                                          1,995              480
     Loan fee, discount and prepaid amortization related to                   139               --
     warrants
     Stock compensation expense                                                --            1,956
     Change in operating assets and liabilities:
        Accounts receivable, net                                             (370)            (391)
        Prepaid expenses and other assets                                    (136)            (240)
        Accounts payable and accrued liabilities                            1,539              545
        Deferred revenue                                                    1,806               65
        Other                                                                 411            4,691
                                                                       ----------       ----------
          Net cash used in operating activities                           (16,014)            (646)

INVESTING ACTIVITIES
   Purchase of equipment, furniture and fixtures                           (2,810)          (2,423)
                                                                       ----------       ----------
          Net cash used in investing activities                            (2,810)          (2,423)

FINANCING ACTIVITIES
   Proceeds from capital contributions from stockholder                        --            2,603
   Proceeds from sale of stock                                                771               --
   Offering costs                                                            (316)              --
   Bank credit facility, net                                                  958               --
   Notes payable -- affiliate                                               6,803               --
                                                                       ----------       ----------
          Net cash provided by financing activities                         8,216            2,603
                                                                       ----------       ----------

   Net decrease in cash and cash equivalents                              (10,649)            (466)

   Cash and cash equivalents, beginning of period                          15,780              503
                                                                       ----------       ----------

   Cash and cash equivalents, end of period                            $    5,131       $       37
                                                                       ==========       ==========

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
   Issuance of warrants in connection with affiliate note payable      $    1,924              $--
   Issuance of warrants in connection with bank credit facility               149               --
   Issuance of warrants in connection with equity financing                 2,330               --
   Issuance of warrants in connection with a service provider                 197               --
   Contribution of fixed assets from affiliate                                 --            1,474
   Declaration of dividend                                                     --            1,000

SUPPLEMENTAL DISCLOSURE OF INTEREST PAID IN CASH                              102               --
</TABLE>


        The accompanying notes are an integral part of these statements.


                                      -4-


<PAGE>
                               RESOURCEPHOENIX.COM
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000
                                   (UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

        The accompanying  condensed  consolidated financial statements have been
prepared without audit by ReSourcePhoenix.com (the "Company") in accordance with
generally accepted  accounting  principles for interim financial  statements and
pursuant to the rules of the Securities  and Exchange  Commission for Form 10-Q.
Certain  information  and footnotes  required by generally  accepted  accounting
principles  for  complete  financial  statements  have been  omitted.  It is the
opinion of management that all adjustments are of a normal and recurring nature.
For further information, refer to the audited financial statements and footnotes
included in the Company's  Annual  Report on Form 10-K dated  December 31, 1999.
Reclassification of certain prior year balances have been made to conform to the
September 30, 2000 presentation.

NOTE 2. CHANGE IN ACCOUNTING PRINCIPLE

        In  December  1999,  the  Securities  and  Exchange  Commission  ("SEC")
released Staff  Accounting  Bulletin  ("SAB") No. 101,  "Revenue  Recognition in
Financial  Statements" which provides guidance on the recognition,  presentation
and  disclosure  of  revenue  in  financial   statements  filed  with  the  SEC.
Subsequently,  the SEC SAB 101A and SAB 101B,  which delayed the  implementation
date of SAB 101 for registrants  with fiscal years that begin after December 15,
1999 to the  fourth  quarter  of their  fiscal  year.  The  Company  elected  to
implement  SAB No.  101 the  first  quarter  of  2000,  the  effect  of which is
described as follows:


        Effective  January 1, 2000, we deferred  recognition  of  implementation
fees for our Financial  Outsourcing  services and for our S.T.A.R.  and M.A.R.S.
hosting  services,  and will amortize such fees ratably over a three-year period
as client services are performed.  Prior to January 1, 2000, implementation fees
were recognized when the work was completed on a percentage of completion basis.
The cumulative effect of the change in the method of recognizing  implementation
revenue on prior years' income was a one-time charge of $129,000.  Costs related
to client implementation are expensed as incurred.

        Set forth below is a comparison of operating results for the nine months
ended September 30, 2000:


<TABLE>
<CAPTION>
                                                     Assuming SAB 101
                                                       had not been
                          September 30, 2000     adopted September 30, 2000
                          ------------------     --------------------------
<S>                           <C>                      <C>
Revenue                       $      9,039             $      9,917
Operating Expenses                  30,429                   30,429
Net Loss from Operations           (21,343)                 (20,512)
</TABLE>


NOTE 3. BASIC AND DILUTED NET LOSS PER SHARE

        Shares used in computing  basic and diluted net loss per share are based
on the weighted  average shares  outstanding in each period.  Basic net loss per
share excludes any dilutive  effects of stock options and warrants.  Diluted net
loss per share  includes  the dilutive  effect of the assumed  exercise of stock
options  using the  treasury  stock  method.  However,  the effect of  2,214,000


                                      -5-


<PAGE>
                               RESOURCEPHOENIX.COM
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000
                                   (UNAUDITED)

outstanding stock options and 3,361,000  outstanding warrants have been excluded
from the  calculation of diluted net loss per share as their  inclusion would be
antidilutive.

NOTE 4. LEGAL PROCEEDINGS

        We are not currently involved in any material legal proceedings. We are,
however, party to various legal proceedings and claims from time to time arising
in the ordinary  course of business.  We do not expect that the results from any
of these legal proceedings will have a material effect on our financial position
or results of operations.

NOTE 5. GOING CONCERN

        We believe that we have sufficient  capital to fund  operations  through
December  31,  2000,  but will  need to raise  additional  capital  to  continue
operations  beyond that point.  In late April, we began to implement a number of
steps aimed at reducing our operating  costs,  which,  prior to that point,  had
been  predicated on higher  anticipated  revenue  levels.  Those steps included,
among other things,  staff reductions amounting to approximately 15% of our work
force and cessation of certain  development efforts that reduce expenditures for
outside consulting expertise.  We recorded a charge of approximately $800,000 in
the  second  quarter  of 2000  related to these  reductions.  Despite  these and
continuing  efforts in the third quarter just ended, we will continue to operate
at a significant cash negative level.  Absent additional  financing,  we may not
have  sufficient  resources  to continue as a going  concern  beyond our current
fiscal year. We may sell additional debt or equity  securities or enter into new
credit  facilities  to meet our cash  needs.  To that end,  we  entered  into an
agreement  with  Torneaux Ltd. to provide us with equity  financing.  During the
third quarter, we raised $300,000 under this facility.  (See Note 6 -- Financing
Arrangement  with  Torneaux  Ltd.) Our ability to raise funds through the equity
facility with Torneaux is subject to certain conditions at the time of each sale
of our Class A common stock. Presently, we are unable to sell our Class A common
stock to Torneaux Ltd. because we do not satisfy certain  conditions,  and we do
not expect to be able to satisfy these  conditions  in the future.  Since we are
unable to draw down under the equity  facility,  we may need to raise additional
money  from other  sources in order to  continue  to fund our  operations.  Such
alternative funding may not be available.

        The factors  discussed above create  substantial doubt about our ability
to continue as a going concern and an uncertainty as to the  recoverability  and
classification  of recorded asset amounts and the amounts and  classification of
liabilities.   The  accompanying   financial   statements  do  not  include  any
adjustments  relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
we be unable  to  continue  as a going  concern.  In  connection  with  filing a
registration statement, our independent auditors,  Arthur Andersen LLP, reissued
their auditors'  report on our financial  statements for the year ended December
31,  1999.  They  modified  their  report to reflect  their view that we require
additional  funding to  continue  our  operations  and their view that we may be
unable to continue our operations  absent  receiving  additional  funding.  More
specifically,  the modified opinion, among other things,  recognizes substantial
doubt about our ability to continue as a going concern.


                                      -6-


<PAGE>
                               RESOURCEPHOENIX.COM
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000
                                   (UNAUDITED)

NOTE 6. FINANCING ARRANGEMENT WITH TORNEAUX LTD.

        On June 6, 2000, we entered into a common stock purchase  agreement with
Torneaux Ltd.  Pursuant to the  agreement,  we may issue and sell,  from time to
time,  up to  7,000,000  shares  of our  Class A common  stock,  subject  to the
satisfaction of certain conditions.

        Beginning on August 25, 2000 and continuing for 14 months thereafter, we
may, in our sole discretion  sell, or put, shares of our Class A common stock to
Torneaux.  The 14-month period is divided into pricing periods,  each consisting
of 20 trading days on the Nasdaq National Market.

From time to time during the 14-month term we may make 12 monthly draw downs, by
giving  notice and requiring  Torneaux to purchase  shares of our Class A common
stock, for the draw down amount.  Torneaux's  purchase price may fluctuate based
upon the daily volume weighted average price over a 20 day trading period. Prior
to each draw down,  we will provide  Torneaux  with a notice that sets forth the
number of shares of Class A common stock we will sell, the commencement  date of
the pricing period, and the threshold price, which is the lowest price per share
at which we will issue new shares of Class A common  stock.  We may issue a draw
down notice for up to $1,500,000  if the threshold  price is equal to or exceeds
$1.00,  and an  additional  $500,000 for every $1.00  increase of the  threshold
price above $1.00 up to $21.00,  for a maximum draw down amount of  $11,500,000.
If we set the threshold price between $1.00 and $10.00,  then the purchase price
to be paid by Torneaux is 94% of the daily volume  weighted  average  price over
the pricing  period.  If we set the threshold  price between  $10.00 and $21.00,
then for each $1.50 increase in the threshold  price above $10.00,  the purchase
price to be paid by Torneaux is increased by 0.10%. If the daily volume weighted
average price on a given trading day is less than the threshold price set by us,
then the amount  that we can draw down will be reduced by 1/20 for that  pricing
period.  In addition,  if trading in our Class A common  stock is suspended  for
more than three hours in any trading day, then the daily volume weighted average
price  for that  trading  day is deemed to be below  the  threshold  price  and,
consequently, reduces the draw down amount by 1/20. We incurred cash expenses of
approximately  $516,000 in connection  with our sale of shares to Torneaux,  and
these costs are being amortized based on dollars raised divided by total dollars
estimated  to be raised from the sale of shares to Torneaux.  We  completed  our
first draw down period on September 28, 2000 during which we raised  $300,000 in
exchange for 158,279 shares of our Class A common stock. We completed our second
draw down during  which we raised  $225,000 in  exchange  for 207,333  shares in
October  2000.  Our ability to raise  funds  through  the equity  facility  with
Torneaux is subject to certain  conditions at the time of each sale of our Class
A common  stock.  In early  October,  the price of our Class A common stock fell
below $1.00 per share,  which prevents us from satisfying the conditions to draw
down under the facility.  We will not be able to satisfy these conditions in the
future  given our current  stock price and the likely  delisting  of our Class A
common stock from The Nasdaq National Market, discussed below.

        On June 6, 2000,  we also issued  warrants to Torneaux to purchase up to
1,800,000  shares of our Class A common  stock at exercise  prices  ranging from
$2.50 to $7.00 per share.  Torneaux may  exercise  the warrants  through June 5,
2003.  The first  warrant,  Warrant A, is  immediately  exercisable  for 125,000
shares  of  Class A  common  stock.  Thereafter,  Warrant  A is  exercisable  in
increments  of 125,000  shares  upon the sale of the 125,000  shares  previously
issued. 500,000 shares of Class A common stock are issuable to Torneaux at $2.50
per share upon the  exercise  of Warrant A. Once all of the shares  issued  upon
exercise  of  Warrant A have been  sold,  then  Warrant  B may be  exercised  in
increments  of 125,000  shares  upon the sale of the 125,000  shares  previously
issued.  500,000 warrant shares are issuable to Torneaux at $4.00 per share upon
the  exercise  of  Warrant B. After the  Warrant B shares  have been sold,  then
Torneaux may exercise  Warrant C for up to 400,000  warrant  shares at $6.00 per
share.  Warrant C may be exercised in increments of 100,000 shares upon the sale



                                      -7-


<PAGE>
                              RESOURCEPHOENIX.COM
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2000
                                  (UNAUDITED)

of the 100,000  shares  previously  issued.  Upon the sale of all shares  issued
under Warrant C, then Torneaux may exercise  Warrant D for up to 400,000  shares
of Class A common  stock at $7.00  per  share.  Warrant  D may be  exercised  in
increments  of 100,000  shares  upon the sale of the 100,000  shares  previously
issued.  The warrants contain  provisions that protect Torneaux against dilution
by adjustment of the exercise price and the number of shares issuable thereunder
upon the occurrence of specified events,  such as a merger,  stock split,  stock
dividend,  recapitalization,  and  additional  issuances  of common  stock.  The
exercise price for the warrant shares is payable in cash.

        In connection  with the Torneaux  stock purchase  agreement,  on June 6,
2000,  the  Company  issued a warrant to Peter Benz  ("Benz")  to purchase up to
75,000  shares of our  Class A common  stock at an  exercise  price of $2.81 per
share.

        The value of the  warrants,  determined  at date of  issuance  using the
Black-Scholes   Model,  was  $2,226,445  and  $103,356  for  Torneaux  and  Benz
respectively  and are carried in equity.  The  balances  are being  amortized as
stock  offering  cost and are  charged  against  Class A common  stock  based on
dollars raised divided by total  estimated  dollars to be raised from the shares
to be sold to  Torneaux.  The  unamortized  balance at  September  30,  2000 was
$868,313 and $40,308 for Torneaux and Benz respectively.

NOTE 7. DEBT FINANCING

        On June 7,  2000,  we entered  into a line of  credit,  in the form of a
factoring  arrangement,  for up to $2,000,000 with Pacific Business  Funding,  a
division of Cupertino  National Bank.  Pursuant to the credit agreement,  we may
borrow up to 80% against all  eligible  receivables  due within 90 days,  and we
will pay interest at a rate of 15% per annum on the average daily balance of the
amount borrowed,  and an  administration  fee of 1/2% of the face amount of each
invoice financed.  In addition, we paid a commitment fee of 1% of the commitment
amount.  The line of credit is  secured  by our  accounts  receivable.  Eligible
receivables are expected to yield actual  borrowing  capacity under the facility
in the  $500,000  to  $900,000  range  over the  balance of the  calender  year.
Borrowings  are  made  against  specific  receivables  and  then  repaid  as the
receivables are collected by the Company.  As such, most borrowings are made and
repaid within the same month. The Company had a balance of $0.9 million and $0.2
million  outstanding  under the facility at  September  30, 2000 and October 31,
2000, respectively. In connection with the credit agreement, we issued a warrant
to Pacific  Business  Funding  to  purchase  up to 85,715  shares of our Class A
common stock at $1.75 per share, which is the average closing price of our Class
A common stock on the Nasdaq National Market, for the five trading days prior to
Pacific  Business  Funding's  credit  commitment.  The  value  of the  warrants,
determined at date of issuance using the  Black-Scholes  Model, was $149,000 and
is classified as a loan fee in other current  assets on the balance  sheet.  The
balance is being  amortized to interest  expense  over the one-year  term of the
line of credit. The unamortized balance at September 30, 2000 was $102,000.

        On June 23, 2000, our wholly owned  subsidiary,  ReSource/Phoenix,  Inc.
entered  into a  senior  loan  and  security  agreement  with  Lease  Management
Associates,  Inc., or LMA, an affiliate of Gus Constantin,  our Chairman,  Chief
Executive  Officer  and  majority  stockholder,  for a  loan  in the  amount  of
$3,000,000.  The full  amount of the loan was drawn down by the  Company on June
23, 2000. During the term of the loan, we will make thirty-six  monthly payments



                                      -8-


<PAGE>
                               RESOURCEPHOENIX.COM
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000
                                   (UNAUDITED)

of $90,000 and a final payment of $600,000. ReSource/Phoenix, Inc. granted LMA a
security interest in specific equipment,  machinery, furniture and fixtures. The
interest rate on the loan is  approximately  15% per annum. We issued a guaranty
to LMA in connection with the loan to our wholly owned subsidiary.  In addition,
we issued a  warrant  to LMA to  purchase  up to  150,000  shares of our Class A
common stock at $2.07 per share.  The value of the warrants,  determined at date
of issuance using the  Black-Scholes  Model, was $187,000 and is classified as a
discount  to the  note  payable  on the  balance  sheet.  The  balance  is being
amortized  to  interest  expense  over  the  three-year  term of the  note.  The
unamortized balance at September 30, 2000 was $170,000.

        On August 31, 2000, our wholly owned subsidiary,  ReSource/Phoenix, Inc.
entered into a senior loan and  security  agreement  with LMA for an  additional
credit line facility of  $7,000,000.  $4,000,000 was drawn under the facility at
September 30, 2000 leaving  $3,000,000  of available  credit.  Amounts  borrowed
under the facility  earn  interest at 12% per annum with the principal due in 60
months.  We issued a guaranty to LMA in  connection  with the loan to our wholly
owned  subsidiary.  In  addition,  we issued a warrant to LMA to  purchase up to
1,050,000  shares of our Class A common  stock at $1.92 per share.  The value of
the warrants,  determined at date of issuance using the Black-Scholes Model, was
$1,737,000 and is classified as a loan fee on the balance sheet.  The balance is
being  amortized to interest  expense over the five-year  term of the note.  The
unamortized balance at September 30, 2000 was $1,716,000.

NOTE 8. WARRANTS ISSUED IN CONNECTION WITH A SERVICE AGREEMENT

        In addition to the warrants  issued in  connection  with equity and debt
financing,  we issued 200,000 warrants on July 6, 2000 to Continental  Capital &
Equity Corporation exercisable in increments as follows:


        50,000 warrants at $2.50
        50,000 warrants at $3.50
        50,000 warrants at $4.50
        50,000 warrants at $5.50


        The value of the  warrants,  determined  at date of  issuance  using the
Black-Scholes  Model, was $197,000 and is classified as a prepaid expense on the
balance  sheet.  The balance is being  amortized  to general and  administrative
expense over the one-year term of the agreement.  The agreement requires certain
performance  standards to be met in January 2001.  Until that date, the warrants
are revalued at each  reporting  date to reflect  changes in the stock price and
bond rate, with the amortization expense adjusted accordingly.  The valuation of
the warrants at September  30, 2000 is $217,000 with an  unamortized  balance of
$163,000 reflected in the balance sheet.


                                       -9-


<PAGE>

                                   SIGNATURES

        Pursuant to the requirements 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.


                                             RESOURCEPHOENIX.COM
                                                 (Registrant)


DATED:  December   , 2000                    BY:  /s/ Neal Divver
        -----------------                         ---------------------------
                                                  Neal Divver
                                                  Chief Financial Officer
                                                  (Principal Accounting Officer)

                                      -10-


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