U. S. Securities and Exchange Commission
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM 10-SB
OneSource Technologies, Inc.
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(Name of Small Business Issuer in its charter)
Delaware 65-0691963
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7419 East Helm Drive
Scottsdale, Arizona 85260
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (800) 279-0859
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class to be registered
None None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
------------------------------------------
(Title of class)
Copies of Communications Sent to:
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Tel: (561) 832-5696
Fax: (561) 659-5371
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Item 1: Description of Business:
(a) Business Development
OneSource Technologies, Inc. ("the Company" or "OS") is incorporated in the
state of Delaware. The Company was originally incorporated as LW Global
(U.S.A.), Inc. in September 1996, changed its name to Micor Technologies, Inc.
in July 1997 and then finally to OneSource Technologies, Inc. in August 1997.
The Company's Common Stock is currently quoted on the National Quotation
Bureau's "Pink Sheets" and the Company intends to request quotation on the Over
the Counter Bulletin Board. There is no assurance that the Company's application
will be accepted. Its executive offices are presently located at 7419 East Helm
Drive, Scottsdale, AZ 85260. Its telephone number is (800) 279-0859 and its
facsimile number is (480) 889-1166.
The Company is filing this Form 10-SB on a voluntary basis so that the
public will have access to the required periodic reports on OS's current status
and financial condition. The Company will file periodic reports in the event its
obligation to file such reports is suspended under the Securities and Exchange
Act of 1934 (the "Exchange Act".)
Although the Company was initially engaged in the office supply and
equipment business, operations did not commence until July 1997 at the time it
acquired Micor Technologies, Inc., an Arizona corporation ("Micor") as a
wholly-owned subsidiary. Micor was originally incorporated as Micor Financial
Systems, Inc. in April 1990 and is now also known as OneSource Technologies,
Inc.
The Company's founding philosophy arose from the diversified experience of
its management in the equipment sales, service, banking and related industries.
See Part I, Item 1. "Description of the Business - (b) Business of Issuer."
In November 1995, Micor, signed a promissory note in favor of William
Meger, a current Director of the Company, in the principal amount of $40,000,
which note bore interest a rate of six percent (6%) per annum. The note had a
term of five (5) years, for which interest was payable monthly and the principal
was payable as a balloon payment at the end of the term. In April 2000, the
Company issued 60,000 shares of its Common Stock to William Meger as full and
final payment of such note. For such offering, the Company relied upon Section
4(2) of the Securities Act of 1933, as amended (the "Act"), Rule 506 of
Regulation D promulgated thereunder ("Rule 506") and Section R14-4-140 of the
Arizona Code. See Part I, Item 1. "Employees and Consultants"; Part I, Item 4.
"Security Ownership of Certain Beneficial Owners and Management"; Part I, Item
5. "Directors, Executive Officer, Promoters and Control Persons"; Part I, Item
6. "Executive Compensation"; Part I, Item 7. "Certain Relationships and Related
Transactions"; and Part II, Item 4. "Recent Sales of Unregistered Securities."
Beginning in September 1996 and prior to its acquisition of Micor, the
Company sold 1,500,000 shares of its Common Stock to one hundred three (103)
investors for $15,000. For such offering, the Company relied upon Section 3(b)
of the Act, Rule 504 of Regulation D, promulgated
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thereunder ("Rule 504"), Section 517.061(11) of the Florida Code, Section
10-5-9(13) of the Georgia Code, Section 4[5/4](G) of the Illinois Code, Section
90.530(11) of the Nevada Code, Section 59.035(12) of the Oregon Code, Section
35-1-320(9) of the South Carolina Code, Section 48-2- 103(b)(4) of the Tennessee
Code and Section 5[581-5]I(c) of the Texas Code. See Part II, Item 4.
"Recent Sales of Unregistered Securities."
In the first quarter of 1997, the board of directors of PF Holdings,
Inc., an Arizona corporation ("PF") decided to sell and spin off its wholly
owned subsidiary, Micor. The board offered Micor to the then current management
team of Micor. In July 1997, Jerry Washburn, Micor and four (4) others signed a
promissory note in favor of PF in the principal amount of $285,000. The term of
the note was through April 15, 2003. In March 2000, the Company and a group of
investors (the "Investors") purchased the note, which had $285,000 in principal
outstanding and an additional $36,972 of interest outstanding, from PF for
$150,000 in cash provided by the Investors and 175,000 shares of the Company's
Common Stock issued by the Company. The Investors had the option to convert the
note to shares of the Company's Common Stock in their sole discretion. They
exercised such option, converting the full amount of the note (principal and
interest) to 643,944 shares of the Common Stock of the Company. For such
offering, the Company relied upon Section 4(2) of the Act, Rule 506 and Section
R14-4-140 of the Arizona Code. See Part I, Item 1. "Employees and Consultants";
Part I, Item 4. "Security Ownership of Certain Beneficial Owners and
Management"; Part I, Item 5. "Directors, Executive Officer, Promoters and
Control Persons"; Part I, Item 6. "Executive Compensation"; Part I, Item 7.
"Certain Relationships and Related Transactions"; and Part II, Item 4. "Recent
Sales of Unregistered Securities."
In July 1997, the Company entered into a share exchange agreement with
Micor and its shareholders. The exchange was made whereby the Company issued
8,500,000 shares of its restricted Common Stock to the shareholders of Micor for
all of the issued and outstanding stock of Micor. Jerry Washburn, the current
President, Chief Executive Officer and Chairman of the Company, received
3,300,000 shares in connection with such exchange. William B. Meger, a Director
of the Company, received 3,285,287 shares. This offering was conducted pursuant
to Section 4(2) of the Act, Rule 506, Section 44-1844(6) of the Arizona Code,
Section 25103(c) of the California Code, Section 90.530(17) of the Nevada Code
and Section 61-1-14(2)(p) of the Utah Code. See Part I, Item 1. "Employees and
Consultants"; Part I, Item 4. "Security Ownership of Certain Beneficial Owners
and Management"; Part I, Item 5. "Directors, Executive Officer, Promoters and
Control Persons"; Part I, Item 6. "Executive Compensation"; Part I, Item 7.
"Certain Relationships and Related Transactions"; and Part II, Item 4. "Recent
Sales of Unregistered Securities."
In July 1997, 1,035 shares of the Company's Common Stock were
cancelled.
In February and March 1998, the Company sold 14,400 shares of its
Common Stock pursuant to an Offering Memorandum dated September 17, 1997 to six
(6) investors for a total of $7,200. For such offering, the Company relied upon
Section 3(b) of the Act, Rule 504, Section 517.061(11) of the Florida Code,
Section 502.203(9) of the Iowa Code, Section 80A.15 Subd.2(a)(1) of the
Minnesota Code, Section 48-2-103(b)(4) of the Tennessee Code, Section
5[581-5]I(c) of the Texas
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Code and Section 551.23(11) of the Wisconsin Code. See Part II, Item 4. "Recent
Sales of Unregistered Securities."
In July 1998, the Company sold 32,000 shares of its Common Stock to two
(2) investors for a total of $8,000. No offering memorandum was utilized in
connection with this offering. For such offering, the Company relied upon
Section 3(b) of the Act, Rule 504, Section 517.061(11) of the Florida Code and
Section 90.530(11) of the Nevada Code. See Part II, Item 4. "Recent Sales of
Unregistered Securities."
In August 1998, the Company issued 100,000 shares of its Common Stock
to one (1) person for legal services performed on behalf of the Company. For
such offering, the Company relied upon Section 3(b) of the Act, Rule 504 and
Section 517.061(11) of the Florida Code. See Part II, Item 4.
"Recent Sales of Unregistered Securities."
In September 1998, the Company issued 750,000 shares of its Common
Stock to two (2) persons for services rendered to the Company. Donald C. Gause,
who currently serves as a Director, received 250,000 of the shares issued. For
such offering, the Company relied upon Section 4(2) of the Act, Rule 506,
Section 14-4-126(f) of the Arizona Code and Section 11-51-308(1)(j) of the
Colorado Code. See Part I, Item 1. "Employees and Consultants"; Part I, Item 4.
"Security Ownership of Certain Beneficial Owners and Management"; Part I, Item
5. "Directors, Executive Officer, Promoters and Control Persons"; Part I, Item
6. "Executive Compensation"; Part I, Item 7. "Certain Relationships and Related
Transactions"; and Part II, Item 4. "Recent Sales of Unregistered Securities."
In September 1998, Micor entered into a flat rate blanket contract to
provide equipment service to King Soopers stores at seventy-two (72) locations.
While the contract includes items such as: A) labor for: adjustments, repairs
and replacement necessitated by normal use of the equipment, lubrication and
cleaning; B) replacement parts required by normal use of the equipment; and C)
transportation and travel costs, it does not include replacement of consumable
items or damage to equipment items. The term of the contract was for a period of
one (1) year and was automatically renewable. The estimated annual total fees to
be received by Micor was $420,408.
The King Soopers contract was extended in September 1999 for a period
three (3) years. The total fees for all three (3) years is estimated to be
$1,979,867.36 or $54,996.32 per month.
In October 1998, the Company sold 10,000 shares to one (1) investor for
$5,000, although the shares were not issued until December 2000. For such
offering, the Company relied upon Section 4(2) of the Act, Rule 506 and no state
exemption, as the investor was Canadian. See Part II, Item 4. "Recent Sales of
Unregistered Securities."
In April 1999, the Company issued 500,000 shares of its Common Stock to
one (1) entity for services rendered to the Company. For such offering, the
Company relied upon Section 3(b) of the Act, Rule 504 and Section 517.061(11) of
the Florida Code. See Part II, Item 4. "Recent Sales of Unregistered
Securities."
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In April 1999, the Company sold 2,624,672 shares of its Common Stock to
two (2) investors for a total of $800,000. The Company accepted a note
receivable from each of the two (2) investors, which notes receivable were due
one hundred eighty (180) days from their date of issuance. In July 1999, the
Company agreed to extend the repayment term for one (1) investor for an
additional three hundred sixty (360) days, which note shall accrue interest at a
rate of six percent (6%) annually. In January 2000, the Company agreed to extend
the repayment for the other investor such that the note is now payable on demand
and bears interest a rate of six percent (6%) annually. For such offering, the
Company relied upon Section 3(b) of the Act, Rule 504, Section 25102(f) of the
California Code and Section 90.530(11) of the Nevada Code. See Part I, Item 2.
"Management's Discussion and Analysis of Operations" and Part II, Item 4,
"Recent Sales of Unregistered Securities"
In April 1999, the Company entered into a share exchange agreement with
the shareholders of Net Express, Inc., an Arizona corporation ("NE"), whereby
the Company exchanged 727,946 shares of its Common Stock for one hundred percent
(100%) of the issued and outstanding stock of NE such that NE became a
wholly-owned subsidiary of the Company. The shares in connection with such
exchange were not issued until December 1999. For such offering, the Company
relied upon Section 4(2) of the Act, Rule 506 and Section 44-1844(6) of the
Arizona Code. See Part I, Item 7. "Certain Relationships and Related
Transactions"; and Part II, Item 4. "Recent Sales of Unregistered Securities".
Contemporaneously with execution of the share exchange with NE, the
Company signed a redemption agreement which effectively allowed either party to
the transaction to rescind the transaction without penalty at any time on or
before July 1, 1999. Neither party elected to redeem and the redemption
agreement has since expired. Additionally, at the time of the NE share exchange,
the Company entered into an employment agreement with Ahlawyss Fulton, which has
since expired.
In May 1999, the Company entered into a Stock Purchase Agreement with
Blackwater Capital Partners II, L.P., a Delaware limited partnership
("Blackwater") wherein Blackwater agreed to purchase 2,905,828 shares of the
Company's Common Stock for a total of $750,000. Payments were to be made: A)
$105,000 at closing; B) in five (5) monthly installments of $105,000 beginning
July 1, 1999 and the first of each month thereafter; and C) a final installment
of $120,000. Although Blackwater missed each payment deadline, $620,000 has been
funded to date, including $250,000 which Blackwater assigned to a third party
investor. To date, only 968,609 shares have been issued to the third party
assignee. No shares have yet been issued to Blackwater. Blackwater's shares
carry certain registration rights. For such offering, the Company relied upon
Section 4(2) of the Act, Rule 506 and Section 517.061(11) of the Florida Code.
See Part II, Item 4. "Recent Sales of Unregistered Securities."
In July 1999, 500,000 shares of the Company's Common Stock were
cancelled by the Company pursuant to an agreement between the Company and that
shareholder.
In July 1999, the Company sold 50,000 shares of its Common Stock to
three (3) investors for a total of $10,000. The Company relied upon Section 4(2)
of the Act, Rule 506 and Section 30- 1433A(2) of the Idaho Code. See Part II,
Item 4. "Recent Sales of Unregistered Securities."
In September 1999, the Company entered into a share exchange agreement
with the shareholders of Cartridge Care, Inc., an Arizona corporation ("CC"),
whereby the Company exchanged 1,887,500 shares of its Common Stock for one
hundred percent (100%) of the issued and outstanding stock of CC such that CC
became a wholly-owned subsidiary of the Company. Of the 1,887,500 shares to be
issued in connection with the exchange, 1,125,000 shares are subject to a two
(2) year "lock-up" provision (the "LU Shares") and the remaining 762,500 shares
are not contractually restricted (but are restricted by Rule 144). 562,500 of
the LU Shares and 381,250 of the remaining shares are beneficially owned by
Maurice Mallette, a current Director of the Company and the President of CC. In
June 2000, the Company entered into a letter agreement with Maurice Mallette,
Judith Mallette and Pasquale Rizzi to escrow 723,612 shares of the Common Stock
of the Company issued in connection with the acquisition of Cartridge Care, Inc.
in September 1999. The escrowed shares will be held pending an investigation by
OneSource into the books and records of Cartridge Care. Whereas, all shares have
now been issued and none are contingently issuable shares, it is contemplated
that some shares may be cancelled and returned to the authorized but unissued
capital stock of OneSource should the valuation of Cartridge Care conducted at
the time of acquisition by OneSource found to be overstated. For such offering
the Company relied upon Section 4(2) of the Act, Rule 506 and Section 44-1844(6)
of the Arizona Code. See Part I, Item 1. "Employees and Consultants"; Part I,
Item 4. "Security Ownership of Certain Beneficial Owners and Management"; Part
I, Item 5. "Directors, Executive Officer, Promoters and Control Persons"; Part
I, Item 6. "Executive Compensation"; Part I, Item 7. "Certain Relationships and
Related Transactions"; and Part II, Item 4. "Recent Sales of Unregistered
Securities."
In September 1999, the Company entered into a lease with EJM
Development Co., a California limited partnership for property located at 7419
East Helm Drive, Scottsdale, AZ 85260. This property serves as the Company's
headquarters, service dispatch and parts center for all the Company's
operations. The lease is for a term of five (5) years, two (2) months, for which
the Company pays rent in the amount of $9,025 for the first fourteen (14)
months, $9,370 for months fifteen (15) to twenty-six (26), $9,715 for months
twenty-seven (27) through thirty-eight (38), $9,995 for months thirty-nine (39)
through fifty (50) and $10,270 for months fifty-one (51) through sixty-two (62).
See Part I, Item 1. "Facilities"; and Part I, Item 3. "Description of Property".
In April 2000, the Company issued 305,000 shares of its Common Stock to
four (4) employees as signing bonuses to attract them to the Company. For such
offering the Company relied upon Section 4(2), Rule 506, Section R14-4-140 of
the Arizona Code and Section 11-51-308(1)(p) of the Colorado Code. See Part I,
Item 1. "Employees and Consultants"; Part I, Item 7. "Certain Relationships and
Related Transactions"; and Part II, Item 4. "Recent Sales of Unregistered
Securities."
In April 2000, the Company issued 97,374 shares of its Common Stock to
eighteen (18) current or former employees to compensate them for past salary
reductions or in lieu of past salary increases for their services as employees
during periods since 1997. Donald Gause, a Director, received 4,000 shares in
connection with such issuance. For such offering the Company relied upon
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Section 4(2), Rule 506, Section R14-4-140 of the Arizona Code, Section 25102(f)
of the California Code, Section 11-51-308(1)(p) of the Colorado Code, Section
90.532 of the Nevada Code, Section 58-13B-24(R) of the New Mexico Code and
Section 61-1-15.5(2)&R164-15-2 of the Utah Code. See Part I, Item 1. "Employees
and Consultants"; Part I, Item 4. "Security Ownership of Certain Beneficial
Owners and Management"; Part I, Item 5. "Directors, Executive Officer, Promoters
and Control Persons"; Part I, Item 6. "Executive Compensation"; Part I, Item 7.
"Certain Relationships and Related Transactions"; and Part II, Item 4. "Recent
Sales of Unregistered Securities."
In June 2000, the Company granted XCEL ASSOCIATES, Inc., a New Jersey
corporation ("XAI") an option to purchase two million (2,000,000) shares of the
Common Stock of the "freely tradeable shares" of the Company at a price of $0.50
per share. The option is for a period of one (1) year unless XAI introduces or
arranges for an acceptable "secondary offering" approved by the Company, and in
which case the term of the option is extended until June 1, 2003. The option has
since been terminated by mutual agreement of the parties. For such offering, the
Company relied upon Section 4(2) of the Act, Rule 506 and Section 49:3-50(b)(9)
of the New Jersey Code. See Part I, Item 1. "Employees and Consultants"; Part I,
Item 7. "Certain Relationships and Related Transactions"; and Part II, Item 4.
"Recent Sales of Unregistered Securities."
In June 2000, the Company entered into a agreement wherein the Company
agreed to pay a finder's fee to XAI for any debt or equity investment,
acquisition, consolidation, merger or purchase of assets between the Company and
any contact of XAI brought to the Company's attention by XAI, which was
consummated within a period of twenty-four (24) months thereafter. The finder's
fee is as follows: a) five percent (5%) of the first million dollars
($1,000,000) raised; b) four percent (4%) of the second million dollars
($1,000,000) raised; c) three percent (3%) of the third million dollars
($1,000,000) raised; d) two percent (2%) of the fourth million dollars
($1,000,000) raised; and one percent (1%) of the all additional monies raised.
In the event fees are due XAI by the Company, the Company and XAI may mutually
agree to accept and pay the fee in shares of the Company's stock priced at
eighty percent (80%) of the most recent bid price. This agreement was terminated
in November 2000 by mutual agreement of the parties. For such offering the
Company relied upon Section 4(2) of the Act, Rule 506 and Section 49:3-50(b)(9)
of the New Jersey Code. See Part I, Item 1. "Employees and Consultants"; Part I,
Item 7. "Certain Relationships and Related Transactions"; and Part II, Item 4.
"Recent Sales of Unregistered Securities."
In June 2000, the Company entered into a consulting agreement with XAI
to provide consultation and advisory services relating to business management
and marketing in exchange for issuance of 100,000 shares of the Company's stock
each to Edward Meyer, Jr. and Edward T. Whelan. The contract is for a period of
one (1) year. The consulting agreement has been terminated by mutual agreement
of the parties. For such offering, the Company relied upon Section 4(2) of the
Act, Rule 506 and Section 49:3-50(b)(9) of the New Jersey Code. See Part I, Item
1. "Employees and Consultants"; Part I, Item 7. "Certain Relationships and
Related Transactions"; and Part II, Item 4. "Recent Sales of Unregistered
Securities."
In June 2000, the Company borrowed $50,000 from Grace Holdings, Inc.
("GHI"). The term of the note is for a period of one (1) year or upon subsequent
financing by XAI. The note bears
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interest at a rate of prime plus three percent (prime+3%) per annum.
Additionally, the Company granted GHI warrants to purchase 166,666 shares of the
Company's Common Stock at a price of $0.30 per share. The warrants have no
expiration date. In November 2000, the Company repaid the $50,000 owed to GHI in
advance of its due date, in exchange for a general release with regard to the
note and warrants, the finder's fee agreement, the consulting service contract,
the option agreement and all other agreements between the Company and both XAI
and GHI. For such offering, the Company relied upon Section 4(2) of the Act,
Rule 506 and Section 11.602 of the Maryland Code. See Part I, Item 7. "Certain
Relationships and Related Transactions"; and Part II, Item 4. "Recent Sales of
Unregistered Securities."
In July 2000, the Company entered into an Installment Agreement with
the Department of the Treasury of the Internal Revenue Service (the "IRS") to
make monthly payments in the amount of $10,000 to the IRS for past payroll taxes
due and penalties relating thereto. The IRS will continue to charge the Company
penalties and interest until the past due amount is paid in full. Additionally,
a Federal Tax Lien has been filed. The Company estimates that approximately
$120,000 is outstanding to date. The Company has made all installment payments
timely.
In July 2000, the Company issued 10,000 shares of its Common Stock to
one (1) individual in exchange for a client list of computer service customers,
the remainder of the previously contracted for but unissued shares (943,750) in
connection with the CC acquisition, 13,166 shares to one (1) past employee for
out-of-pocket expenses, 90,000 shares to one (1) investor for $30,000, 8,319
shares to one (1) individual for past accounting services rendered, 40,000
shares to one (1) individual who is an active employee as a signing bonus,
58,333 shares to Maurice Mallette, the Company's current Interim Vice President,
President of CC and a Director in exchange for $17,500 and 75,000 shares to one
(1) individual for his services as a headhunter who brought potential employees
to the Company. For such offering, the Company relied upon Section 4(2) of the
Act, Rule 506, Section R14-4-140 of the Arizona Code, Section 25102(f) of the
California Code, Section 90.532 of the Nevada Code and Section 211(b) of the
Pennsylvania Code. See Part I, Item 1. "Employees and Consultants"; Part I, Item
4. "Security Ownership of Certain Beneficial Owners and Management"; Part I,
Item 5. "Directors, Executive Officer, Promoters and Control Persons"; Part I,
Item 6. "Executive Compensation"; Part I, Item 7. "Certain Relationships and
Related Transactions"; and Part II, Item 4. "Recent Sales of Unregistered
Securities."
In August 2000, Steven Green, a Director of the Company resigned. Mr.
Green did not resign because of a disagreement with the registrant on any matter
relating to the registrant's operations, policies or practices. Mr. Green did
not furnish the registrant with a letter describing any disagreement, nor did he
request that any matter be disclosed. Mr. Green resigned on August 18, 2000. The
registrant believes it has disclosed all pertinent information and the filing of
a Current Report on Form 8-K as instructed by Item 6 is not required. See Part
I, Item 1. "Employees and Consultants"; Part I, Item 4. "Security Ownership of
Certain Beneficial Owners and Management"; Part I, Item 5. "Directors, Executive
Officer, Promoters and Control Persons"; Part I, Item 6. "Executive
Compensation"; and Part I, Item 7. "Certain Relationships and Related
Transactions."
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In November 2000, the Company issued 206,500 shares of its restricted
Common Stock to four (4) persons. Two (2) of the persons receiving a total of
200,000 shares, were given the shares as a hiring bonus. The other two (2)
persons receiving a total of 6,500 shares, were given the shares in lieu of
salary. For such offering the Company relied upon Section 4(2) of the Act, Rule
506, Section R14-4-140 of the Arizona Code. See Part I, Item 1. "Employees and
Consultants"; Part I, Item 7. "Certain Relationships and Related Transactions";
and Part II, Item 4. "Recent Sales of Unregistered Securities."
See (b) "Business of Issuer" immediately below for a description of the
Company's business.
(b) Business of Issuer.
General
The Company was formed in September 1996 and had little or no
operations until July 1997 when the Company entered into a reverse merger
transaction wherein it issued 8,500,000 shares of stock in exchange for one
hundred percent (100%) of the issued and outstanding shares of Micor. Micor
started business in 1984 as a small banking equipment sales and service company
and was incorporated in 1990 as Micor Financial Systems, Inc. Its name was
changed to Micor Technologies, Inc. in December 1994 and finally to OneSource
Technologies, Inc in August 1997.
OneSource is engaged in three (3) closely related and complimentary
lines of business, 1) renewable contract equipment maintenance services, 2)
equipment sales and integration services and 3) value added equipment supply
sales. The Company is primarily focused on the 1) banking and financial services
and 2) retail industries even though its service and product offerings can be
readily applied in any industry. These two (2) are emphasized because of the
significantly greater number of equipment items used in banking, financial
service and retail enterprises compared to other businesses. Like companies in
other industries, banking and retail enterprises use large numbers of general
business equipment items such as copiers, facsimiles, PCs and peripherals, but
in addition they also utilize significant quantities of industry specific
machines like coin/currency counting and handling machines, check processing and
encoding equipment and ATMs in banking and point-of- sale ("POS") scanner and
register systems in the retail industry.
The Company's customers at the end of 1999 were primarily banking (25%)
and retail (74%) companies located in Arizona, California, Colorado, Nevada, New
Mexico, Utah, Texas and Wyoming. Approximately forty-eight percent (48%) of the
Company's revenue was generated from four (4) customers through December 31,
1999, the largest of which contributed approximately twenty-three percent (23%).
Maintenance Services
In Maintenance Services, OneSource has pioneered a patent pending
"flat-rate blanket discount service" approach in these industries covering a
broad array of general business and industry specific equipment. The Company's
patent pending service program is unique because it takes a "horizontal"
approach to equipment maintenance rather than the typical "vertical" approach
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traditionally offered. In so doing so, it creates wide based savings by being
able to service multiple equipment items for a flat fee, which constitutes the
basis for a package pricing to customers. Equipment Maintenance service is
delivered on-site to customers by Company employed virtual field service
technicians operating from their homes throughout the Company's territorial
reach, which presently includes the states of Arizona, northern California,
Colorado, Nevada, New Mexico, Utah and parts of Wyoming and Texas. All
supporting services, including call center dispatching and control, parts
procurement and logistics are centrally housed in the Company's Phoenix, Arizona
corporate facilities. Communication and field service connectivity is realized
through the utilization of a number of communication technology devices, e.g.,
wireless telephones, pagers, the Internet and Company Intranet services.
Maintenance has historically been the Company's primary business focus.
Now, with its added Integration and Supplies capabilities, OneSource will
prospectively be less dependent on this aspect of its business. For the twelve
months ended December 1999, Maintenance revenues constituted approximately
seventy-nine percent (79%) of total consolidated revenues. Integration revenues
were introduced in April 1999 and Supplies capabilities were added in October
1999.
Integration Services
The Company is engaged in a number of network and Internet related
integration products and services including, network (LAN and WAN)
implementation, remote network support services, web hosting and e-commerce
services, DSL and other high speed and broadband Internet connectivity services,
and wireless Internet connectivity. All of these capabilities are in present
high demand. They also readily compliment the Company's Maintenance and Supplies
operations by being able to support these divisions' customer base with IT
products and services. These capabilities were acquired in 1999 through the
Company's acquisition of an Arizona based information technology ("IT") company.
Accordingly, Integration services are presently being delivered in only the
Company's Arizona territory. The Company intends to expand this capability
throughout all its geographic locations. Integration services therefore
represent a major component of the Company's forward growth strategies.
The Integration division operates as a value-added reseller ("VAR") for
a number of computer and peripheral product OEM's and distributors related to
its LAN and WAN integration services, e.g., PC's, servers, communication
equipment, printers, and etc. The division also has a number of agent agreements
in place with high speed Internet and virtual private Network ("VPN") suppliers
to supply these services to the Company's Integration customers. All Integration
products and services are delivered to customers by Company employed systems
engineers and/or outside project specific contract engineers.
Supplies Services
The Supplies segment is focused on delivering equipment supplies and
part requirements to the Company's Maintenance and Integration customers on a
single-source basis. The Company is presently a supplier for a number of
equipment consumable supply items, e.g., ribbons, toner, and
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OEM and remanufactured toner cartridges for copiers, faxes and laser printers.
Since toner cartridges represent the Company's largest demand supply item, the
Company acquired an Arizona based high quality toner cartridge remanufacturing
company in order to expand this products distribution throughout the Company's
Maintenance and Integrations customer base.
Internet Services
A number of the Company's products and services can be readily
distributed and/or serviced via the Internet on both a retail consumer as well
as a business to business ("B2B") basis. In this regard, the Company launched
its initial on-line Internet distribution channel, (GOINK.com) to supply and
distribute its remanufactured printer and copier toner cartridge products. GOINK
is presently directed toward individual and small business retail customers, but
prospectively will be directed toward the Company's existing Maintenance,
Integration customers. These products are delivered via on-line private catalogs
within GOINK on a true Internet B2B basis.
At year-end 1999 the Company had fifty-two (52) full-time employees and
one (1) part-time employee.
Status of Publicly Announced Products and Services
The Company is primarily focused on its maintenance, integration and
supplies services at this time. However, an increasing number of the Company's
products and services can be distributed and/or serviced via the Internet. The
Company's GOINK.com website was designed with this trend in mind.
Competition
The Company faces competition from large, well-established companies
with considerably greater financial, marketing, sales and technical resources
than those available to the Company. The Company's training and services could
be rendered obsolete or made uneconomical by the development of new products,
technological advances or pricing actions by one or more of the Company's
competitors. The Company's business, financial condition or results of
operations could be materially adversely affected by one or more of such
developments. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competition will not
have an material adverse effect on the Company's business, financial condition
or results of operations.
The equipment sales and service industry as well as the equipment
supplies industry are highly competitive and consist of numerous independent and
competing companies large and small throughout the Company's operating
territory. Any organization, supplier, or equipment sales and service provider
is technically a OS competitor. The differentiating factor between competitors
and the Company is the limited line(s) of service generally provided by
competing companies. Most of these companies are vertical suppliers who focus
primarily on one or a few types of equipment sales with service offered
secondarily as an inducement for increased sales. Further such competitors tend
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to be involved with a limited number of equipment types and brands. The Company
offers its customers equipment service with Company employed field service
technicians on a broad horizontal basis wherein multiple types and manufacture's
brands are covered under a single maintenance contract known as the OneSource
Flat-Rate Blanket Maintenance System(TM).
Sources and Availability of Raw Materials
The materials needed to service office machinery are widely available
from numerous third parties. No shortage of materials is expected in the
foreseeable future.
Dependence on one or few customers
The Company will rely heavily on its few customers' accounts for the
majority of its business. A change in the relationship of the Company to any one
(1) of its major customers could have a material adverse affect on the Company's
business.
Research and Development
The Company believes that research and development is an important
factor in its future growth. The equipment supply industry is closely linked to
technological advances, which constantly produces new machinery for use by the
public. Therefore, the Company must continually invest in training on the latest
technological advances and the newest office machinery to effectively compete
with other companies in the industry. No assurance can be made that the Company
will have sufficient funds to fund such training efforts to match technological
advances as they become available. Additionally, due to the rapid advance rate
at which technology advances, the Company's equipment and inventory may be
outdated quickly, preventing or impeding the Company from realizing its full
potential profits.
Patents, Copyrights and Trademarks
The Company intends to protect its original intellectual property with
patents, copyrights and/or trademarks as appropriate.
The Company's only trademark extends to its unique flat-rate blanket
maintenance service program. The Company presently has a "business apparatus and
methods" patent application pending with the United States Patent Office for the
Company's OneSource Flat-Rate Blanket Maintenance System(TM), but otherwise the
Company has no other patents, trademarks, royalty agreements, franchises,
concessions or labor contracts in effect.
While a patent of the Company's systems would be beneficial for
allowing the Company to license it to others, it is not essential to the
Company's operations and would therefore not have a significant detrimental
effect if it were not granted.
Governmental Regulation
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There are no government approvals required to conduct business and no
regulatory issues other than usual and customary corporate, tax and business
licensing with which the Company is current in all its operating jurisdictions.
State and Local Licensing Requirements
Currently there are no state or local licensing requirements which
apply to the Company's business or to its products
Effect of Probable Governmental Regulation on the Business
Currently there is no government regulation of the Company's business
nor of the Company's products. However, new laws are emerging which regulate
commerce over the internet and the way data and information may be transmitted
over the Internet. Should the Company engage in activities involving the
Internet in the future, it may be subject to these laws and/or regulations.
As the Company's products and services are available over the Internet
in multiple states and foreign countries, these jurisdictions may claim that the
Company is required to qualify to do business as a foreign corporation in each
such state and foreign country. New legislation or the application of laws and
regulations from jurisdictions in this area could have a detrimental effect upon
the Company's business.
A governmental body could impose sales and other taxes on the provision
of the Company's products and services, which could increase the costs of doing
business. A number of state and local government officials have asserted the
right or indicated a willingness to impose taxes on Internet-related services
and commerce, including sales, use and access taxes; however, no such laws have
become effective to date. The Company cannot accurately predict whether the
imposition of any such taxes would materially increase its costs of doing
business or limit the services which it provides, since it may be possible to
pass on some of these costs to the consumer and continue to remain competitive.
If, as the law in this area develops, the Company becomes liable for
information carried on, stored on, or disseminated through its website, it may
be necessary for the Company to take steps to reduce its exposure to this type
of liability through alterations in its equipment, insurance or other methods.
This may require the Company to spend significant amounts of money for new
equipment or premiums and may also require it to discontinue offering certain of
its products or services.
Due to the increasing popularity and use of the Internet, it is
possible that additional laws and regulations may be adopted with respect to the
Internet, covering issues such as content, privacy, access to adult content by
minors, pricing, bulk e-mail (spam), encryption standards, consumer protection,
electronic commerce, taxation, copyright infringement and other intellectual
property issues. P&G cannot predict the impact, if any, that future regulatory
changes or developments may have on the Company's business, financial condition,
or results of operation.
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Cost of Research and Development
For fiscal year 1998 and 1999, the Company expended no measurable
amount of money on research and development efforts. At the current time, none
of the costs associates with research and development are bourne directly by the
customer; however there is no guarantee that such costs will not be bourne by
customers in the future and, at the current time, the Company does not know the
extent to which such costs will be bourne by the customer, if at all.
Cost and Effects of Compliance with Environmental Laws
The Company's business is not subject to regulation under the state and
Federal laws regarding environmental protection and hazardous substances
control. The Company is unaware of any bills currently pending in Congress which
could change the application of such laws so that they would affect the Company.
Employees and Consultants
At October 12, 2000, the Company employed forty-six (46) persons. None
of these employees are represented by a labor union for purposes of collective
bargaining. The Company considers its relations with its employees to be
excellent.
In November 1995, Micor, signed a promissory note in favor of William
Meger, a current Director of the Company, in the principal amount of $40,000,
which note bore interest a rate of six percent (6%) per annum. The note had a
term of five (5) years, for which interest was payable monthly and the principal
was payable as a balloon payment at the end of the term. In April 2000, the
Company issued 60,000 shares of its Common Stock to William Meger as full and
final payment of such note. For such offering, the Company relied upon Section
4(2) of the Act, Rule 506 and Section R14-4-140 of the Arizona Code. See Part I,
Item 4. "Security Ownership of Certain Beneficial Owners and Management"; Part
I, Item 5. "Directors, Executive Officer, Promoters and Control Persons"; Part
I, Item 6. "Executive Compensation"; Part I, Item 7. "Certain Relationships and
Related Transactions"; and Part II, Item 4. "Recent Sales of Unregistered
Securities."
In the first quarter of 1997, the board of directors of PF decided to
sell and spin off its wholly owned subsidiary, Micor. The board offered Micor to
the then current management team of Micor. In July 1997, Jerry Washburn, Micor
and four (4) others signed a promissory note in favor of PF in the principal
amount of $285,000. The term of the note was through April 15, 2003. In March
2000, the Company and the Investors purchased the note, which had $285,000 in
principal outstanding and an additional $36,972 of interest outstanding, from PF
for $150,000 in cash provided by the Investors and 175,000 shares of the
Company's Common Stock issued by the Company. The Investors had the option to
convert the note to shares of the Company's Common Stock in their sole
discretion. They exercised such option, converting the full amount of the note
(principal and interest) to 643,944 shares of the Common Stock of the Company.
For such offering, the Company relied upon Section 4(2) of the Act, Rule 506 and
Section R14-4-140 of the Arizona Code. See Part I, Item 4. "Security Ownership
of Certain Beneficial Owners and Management"; Part I, Item 5.
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"Directors, Executive Officer, Promoters and Control Persons"; Part I, Item 6.
"Executive Compensation"; Part I, Item 7. "Certain Relationships and Related
Transactions"; and Part II, Item 4. "Recent Sales of Unregistered Securities."
In July 1997, the Company entered into a share exchange agreement with
Micor and its shareholders. The exchange was made whereby the Company issued
8,500,000 shares of its restricted Common Stock to the shareholders of Micor for
all of the issued and outstanding stock of Micor. Jerry Washburn, the current
President, Chief Executive Officer and Chairman of the Company, received
3,300,000 shares in connection with such exchange. William B. Meger, a Director
of the Company, received 3,285,287 shares. This offering was conducted pursuant
to Section 4(2) of the Act, Rule 506, Section 44-1844(6) of the Arizona Code,
Section 25103(c) of the California Code, Section 90.530(17) of the Nevada Code
and Section 61-1-14(2)(p) of the Utah Code. See Part I, Item 4. "Security
Ownership of Certain Beneficial Owners and Management"; Part I, Item 5.
"Directors, Executive Officer, Promoters and Control Persons"; Part I, Item 6.
"Executive Compensation"; Part I, Item 7. "Certain Relationships and Related
Transactions"; and Part II, Item 4. "Recent Sales of Unregistered Securities."
In September 1998, the Company issued 750,000 shares of its Common
Stock to two (2) persons for services rendered to the Company. Donald C. Gause,
who currently serves as a Director, received 250,000 of the shares issued. For
such offering, the Company relied upon Section 4(2) of the Act, Rule 506,
Section 14-4-126(f) of the Arizona Code and Section 11-51-308(1)(j) of the
Colorado Code. See Part I, Item 4. "Security Ownership of Certain Beneficial
Owners and Management"; Part I, Item 5. "Directors, Executive Officer, Promoters
and Control Persons"; Part I, Item 6. "Executive Compensation"; Part I, Item 7.
"Certain Relationships and Related Transactions"; and Part II, Item 4. "Recent
Sales of Unregistered Securities."
In September 1999, the Company entered into a share exchange agreement
with the shareholders of CC, whereby the Company exchanged 1,887,500 shares of
its Common Stock for one hundred percent (100%) of the issued and outstanding
stock of CC such that CC became a wholly-owned subsidiary of the Company. Of the
1,887,500 shares to be issued in connection with the exchange, 1,125,000 shares
are subject to a two (2) year "lock-up" provision and the remaining 762,500
shares are not contractually restricted (but are restricted by Rule 144).
562,500 of the LU Shares and 381,250 of the remaining shares are beneficially
owned by Maurice Mallette, a current Director of the Company and the President
of CC. In June 2000, the Company entered into a letter agreement with Maurice
Mallette, Judith Mallette and Pasquale Rizzi to escrow 723,612 shares of the
Common Stock of the Company issued in connection with the acquisition of
Cartridge Care, Inc. in September 1999. The escrowed shares will be held pending
an investigation by OneSource into the books and records of Cartridge Care.
Whereas, all shares have now been issued and none are contingently issuable
shares, it is contemplated that some shares may be cancelled and returned to the
authorized but unissued capital stock of OneSource should the valuation of
Cartridge Care conducted at the time of acquisition by OneSource found to be
overstated. For such offering the Company relied upon Section 4(2) of the Act,
Rule 506 and Section 44-1844(6) of the Arizona Code. See Part I, Item 4.
"Security Ownership of Certain Beneficial Owners and Management"; Part I, Item
5. "Directors, Executive Officer, Promoters and Control Persons"; Part I, Item
6. "Executive
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Compensation"; Part I, Item 7. "Certain Relationships and Related Transactions";
and Part II, Item 4. "Recent Sales of Unregistered Securities."
In April 2000, the Company issued 305,000 shares of its Common Stock to
four (4) employees as signing bonuses to attract them to the Company. For such
offering the Company relied upon Section 4(2), Rule 506, Section R14-4-140 of
the Arizona Code and Section 11-51-308(1)(p) of the Colorado Code. See Part I,
Item 7. "Certain Relationships and Related Transactions"; and Part II, Item 4.
"Recent Sales of Unregistered Securities."
In April 2000, the Company issued 97,374 shares of its Common Stock to
eighteen (18) current or former employees to compensate them for past salary
reductions or in lieu of past salary increases for their services as employees
during periods since 1997. Donald Gause, a Director, received 4,000 shares in
connection with such issuance. For such offering the Company relied upon Section
4(2), Rule 506, Section R14-4-140 of the Arizona Code, Section 25102(f) of the
California Code, Section 11-51-308(1)(p) of the Colorado Code, Section 90.532 of
the Nevada Code, Section 58-13B-24(R) of the New Mexico Code and Section
61-1-15.5(2)&R164-15-2 of the Utah Code. See Part I, Item 4. "Security Ownership
of Certain Beneficial Owners and Management"; Part I, Item 5. "Directors,
Executive Officer, Promoters and Control Persons"; Part I, Item 6. "Executive
Compensation"; Part I, Item 7. "Certain Relationships and Related Transactions";
and Part II, Item 4. "Recent Sales of Unregistered Securities."
In June 2000, the Company granted XAI an option to purchase two million
(2,000,000) shares of the Common Stock of the "freely tradeable shares" of the
Company at a price of $0.50 per share. The option is for a period of one (1)
year unless XAI introduces or arranges for an acceptable "secondary offering"
approved by the Company, and in which case the term of the option is extended
until June 1, 2003. The option has since been terminated by mutual agreement of
the parties. For such offering, the Company relied upon Section 4(2) of the Act,
Rule 506 and Section 49:3-50(b)(9) of the New Jersey Code. See Part I, Item 7.
"Certain Relationships and Related Transactions"; and Part II, Item 4. "Recent
Sales of Unregistered Securities."
In June 2000, the Company entered into a agreement wherein the Company
agreed to pay a finder's fee to XAI for any debt or equity investment,
acquisition, consolidation, merger or purchase of assets between the Company and
any contact of XAI brought to the Company's attention by XAI, which was
consummated within a period of twenty-four (24) months thereafter. The finder's
fee is as follows: a) five percent (5%) of the first million dollars
($1,000,000) raised; b) four percent (4%) of the second million dollars
($1,000,000) raised; c) three percent (3%) of the third million dollars
($1,000,000) raised; d) two percent (2%) of the fourth million dollars
($1,000,000) raised; and one percent (1%) of the all additional monies raised.
In the event fees are due XAI by the Company, the Company and XAI may mutually
agree to accept and pay the fee in shares of the Company's stock priced at
eighty percent (80%) of the most recent bid price. This agreement was terminated
in November 2000 by mutual agreement of the parties. For such offering the
Company relied upon Section 4(2) of the Act, Rule 506 and Section 49:3-50(b)(9)
of the New Jersey Code. See Part I, Item 7. "Certain Relationships and Related
Transactions"; and Part II, Item 4. "Recent Sales of Unregistered Securities."
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In June 2000, the Company entered into a consulting agreement with XAI
to provide consultation and advisory services relating to business management
and marketing in exchange for issuance of 100,000 shares of the Company's stock
each to Edward Meyer, Jr. and Edward T. Whelan. The contract is for a period of
one (1) year. The consulting agreement has been terminated by mutual agreement
of the parties. For such offering, the Company relied upon Section 4(2) of the
Act, Rule 506 and Section 49:3-50(b)(9) of the New Jersey Code. See Part I, Item
7. "Certain Relationships and Related Transactions"; and Part II, Item 4.
"Recent Sales of Unregistered Securities."
In July 2000, the Company issued 10,000 shares of its Common Stock to
one (1) individual in exchange for a client list of computer service customers,
the remainder of the previously contracted for but unissued shares (943,750) in
connection with the CC acquisition, 13,166 shares to one (1) past employee for
out-of-pocket expenses, 90,000 shares to one (1) investor for $30,000, 8,319
shares to one (1) individual for past accounting services rendered, 40,000
shares to one (1) individual who is an active employee as a signing bonus,
58,333 shares to Maurice Mallette, the Company's current Interim Vice President,
President of CC and a Director in exchange for $17,500 and 75,000 shares to one
(1) individual for his services as a headhunter who brought potential employees
to the Company. For such offering, the Company relied upon Section 4(2) of the
Act, Rule 506, Section R14-4-140 of the Arizona Code, Section 25102(f) of the
California Code, Section 90.532 of the Nevada Code and Section 211(b) of the
Pennsylvania Code. See Part I, Item 4. "Security Ownership of Certain Beneficial
Owners and Management"; Part I, Item 5. "Directors, Executive Officer, Promoters
and Control Persons"; Part I, Item 6. "Executive Compensation"; Part I, Item 7.
"Certain Relationships and Related Transactions"; and Part II, Item 4. "Recent
Sales of Unregistered Securities."
In August 2000, Steven Green, a Director of the Company resigned. Mr.
Green did not resign because of a disagreement with the registrant on any matter
relating to the registrant's operations, policies or practices. Mr. Green did
not furnish the registrant with a letter describing any disagreement, nor did he
request that any matter be disclosed. Mr. Green resigned on August 18, 2000. The
registrant believes it has disclosed all pertinent information and the filing of
a Current Report on Form 8-K as instructed by Item 6 is not required. See Part
I, Item 4. "Security Ownership of Certain Beneficial Owners and Management";
Part I, Item 5. "Directors, Executive Officer, Promoters and Control Persons";
Part I, Item 6. "Executive Compensation"; and Part I, Item 7. "Certain
Relationships and Related Transactions."
In November 2000, the Company issued 206,500 shares of its restricted
Common Stock to four (4) persons. Two (2) of the persons receiving a total of
200,000 shares, were given the shares as a hiring bonus. The other two (2)
persons receiving a total of 6,500 shares, were given the shares in lieu of
salary. For such offering the Company relied upon Section 4(2) of the Act, Rule
506, Section R14-4-140 of the Arizona Code. See Part I, Item 7. "Certain
Relationships and Related Transactions"; and Part II, Item 4. "Recent Sales of
Unregistered Securities."
Currently, the Company has no employment agreements with its officers
and directors. OS intends to enter into such agreements upon the effectiveness
of its Form10SB.
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Facilities
In September 1999, the Company entered into a lease with EJM
Development Co., a California limited partnership for property located at 7419
East Helm Drive, Scottsdale, AZ 85260. This property serves as the Company's
headquarters, service dispatch and parts center for all the Company's
operations. The lease is for a term of five (5) years, two (2) months, for which
the Company pays rent in the amount of $9,025 for the first fourteen (14)
months, $9,370 for months fifteen (15) to twenty-six (26), $9,715 for months
twenty-seven (27) through thirty-eight (38), $9,995 for months thirty-nine (39)
through fifty (50) and $10,270 for months fifty-one (51) through sixty-two (62).
See Part I, Item 3. "Description of Property".
Risk Factors
Before making an investment decision, prospective investors in the
Company's Common Stock should carefully consider, along with other matters
referred to herein, the following risk factors inherent in and affecting the
business of the Company.
1. History of Losses. As of December 31, 1998, the Company had total
assets of $530,480, a net loss of $51,614, net revenues of $1,380,041 and
stockholders deficit of $473,318. As of December 31, 1999, the Company had total
assets of $1,715,486, a net loss of $185,341 on net revenues of $2,476,884 and
stockholders equity of $335,880. Due to the Company's operating history and
limited resources, among other factors, there can be no assurance that
profitability or significant revenue will occur in the future. Moreover, the
Company expects to continue to incur operating losses through at least the
fiscal year 2000 and there can be no assurance that losses will not continue
thereafter. The ability of the Company to establish itself as a going concern is
dependent upon the receipt of additional funds from operations or other sources
to continue those activities.
2. Minimal Assets. Working Capital and Net Worth. As of December 31,
1999, the Company's total assets in the amount of $1,715,486, consisted,
principally, of accounts receivable in the amount of $460,121, $368,898 in
inventories, $220,000 in stock subscription receivable and $34,061 in other
assets. Further, there can be no assurance that the Company's financial
condition will improve.
3. Need for Additional Capital. Without an infusion of capital or
profits from operations, the Company is not expected to grow and to further
expand its operations. Accordingly, the Company is not expected to overcome its
history of losses unless additional equity and/or debt financing is obtained.
Further, the Company may incur significant unanticipated expenditures which
deplete its capital at a more rapid rate because of among other things, the
stage of its business and its lack of a widespread client base and market
recognition. Because of these and other factors, management is presently unable
to predict what additional costs might be incurred by the Company beyond those
currently contemplated. The Company has not identified sources of additional
capital funds, and there can be no assurance that resources will be available to
the Company when needed.
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4. Dependence on Management. The possible success of the Company is
expected to be largely dependent on the continued services of its current
President, Jerry Washburn. Virtually all decisions concerning the Company will
be made or significantly influenced by Mr. Washburn. The loss of the services of
Mr. Washburn, would adversely affect the conduct of the Company's business and
its prospects for the future. The Company presently has no employment agreements
with any of its officers and holds no key-man life insurance on the lives of,
and has no other agreement with any of these officers.
5. Limited Distribution Capability. The Company's success depends in
large part upon its ability to distribute its products and services. As compared
to the Company, which lacks the financial, personnel and other resources
required to compete with its larger, better-financed competitors, virtually all
of the Company's competitors have much larger budgets for securing customers.
Depending upon the level of operating capital or funding obtained by the
Company, management believes, without assurance, that it will be possible for
the Company to attract service personnel for its products and services. However,
in the event that only limited funds are available from operations or obtained,
the Company anticipates that its limited finances and other resources may be a
determinative factor in the decision to continue its operations. Until such
time, if ever, as the Company is successful in generating sufficient cash flow
from operations or securing additional capital, of which there is no assurance,
it intends to continue to operate at its current stage.
6. High Risks and Unforeseen Costs Associated with the Company's
Expanded Entry into the Equipment Service Industry. There can be no assurance
that the costs for the establishment of a service network will not be
significantly greater than those estimated by Company management or that
significant expenditures will not be needed to perform service and repair with
the speed necessary to satisfy its clients. Therefore, the Company may expend
significant unanticipated funds or significant funds may be expended by the
Company without development of a network of clients to financial support the
Company. There can be no assurance that cost overruns will not occur or that
such cost overruns will not adversely affect the Company. Further, unfavorable
general economic conditions and/or a downturn in customer acceptance and appeal
could have an adverse affect on the Company's business. Additionally,
competitive pressures and changes in customer mix, among other things, which
management expects the Company to experience, could reduce the Company's gross
profit margin from time to time. Accordingly, there can be no assurance that the
Company will be capable of establishing itself in a commercially viable position
in local, state, nationwide markets.
7. Few Clients Under Contract or Customer Base. While the Company has
signed several clients for service and repair contracts, the Company presently
has a limited customer base. The Company will be dependent upon its President,
Mr. Jerry Washburn, to select new potential clients. Mr. Washburn will utilize
the contacts with banks and others which he has developed in the equipment
service and supply business to select and target potential clients to be signed
by the Company, there can be no assurance that any such clients will engage the
Company's services.
8. Dependency on Securing a Suitable Strategic Partner. The Company's
ability to establish an adequate customer base at a level sufficient to meet the
larger competition depends in part upon
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the ability of the Company to capitalize on agreements not yet in place and may
include the necessity to establish a joint venture agreement with a suitable
partner for its future endeavors. There can be no assurance that a qualified
strategic arrangement will be found at the levels which management believes are
possible. Further, even if the Company receives sufficient cash flow from
operations or proceeds from equity and/or debt financing or otherwise, thus
enabling it to go forward with its planned expansion, it will nevertheless be
dependent upon the availability of a qualified strategic partner to progress at
the levels which the Company believes are necessary.
9. Fluctuations in Results of Operations. The Company has experienced
and may in the future experience significant fluctuations in revenues, gross
margins and operating results. In addition, a single client currently represents
a significant portion of the Company's revenues. As with many developing
businesses, the Company expects that some contracts with clients may not meet
management's expectations or expansion into new territories may have to be
deferred as a result of changes in internal schedules, among other factors. As a
result, the Company's operating results for a particular period to date have
been and may in the future be materially adversely affected by delays in
inventory shipping, problems with technicians or cancellation of even one
service contract.
A large portion of the Company's expenses are variable but difficult to
reduce should revenues not meet the Company's expectations, thus magnifying the
material adverse effect of any revenue shortfall. Additional factors that may
cause the Company's revenues, gross margins and results of operations to vary
significantly from period to period include: inventory production costs, patent
processing, mix of products sold, manufacturing efficiencies, costs and
capacity, price discounts, market acceptance and the timing of availability of
new products by the Company and general economic and political conditions. In
addition, the Company's results of operations are influenced by competitive
factors, including the pricing and availability of and demand for volume
discounts for clients with more than one (1) service location. All of the above
factors are difficult for the company to forecast, and these or other factors
could materially adversely affect the Company's business, financial condition
and results of operations. As a result, the Company believes that
period-to-period comparisons are not necessarily meaningful and should not be
relied upon as indications of future performance. See Part I, Item. 2.
"Management's Discussion and Analysis of Financial Condition or Plan of
Operation."
10. Potential for Unfavorable Interpretation of Future Government
Regulation. The Company is not subject to regulations governing its products at
the present time. The Company may be subject to regulation if it elects to
distribute its products through means such as the Internet, in which case the
Company will be required to comply with new and emerging laws, the
interpretation of which will be uncertain and unclear. In such event the Company
shall have all of the uncertainties such laws present including the risk of loss
of substantial capital in the event the Company is unable to comply with the law
or is unable to utilize the method of distribution it thinks will best serve the
Company's products and services.
11. No Assurance of Product or Service Quality, Performance and
Reliability. The Company expects that its customers will continue to establish
demanding policies for quality,
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performance and reliability. Although the Company will attempt to purchase
inventory from manufacturers who adhere to good manufacturing practice
standards, there can be no assurance that problems will not occur in the future
with respect to quality, performance, reliability and price. If such problems
occur, the Company could experience increased costs, delays in or cancellations
or rescheduling of orders or shipments and product returns and discounts, any of
which would have a material adverse effect on the Company's business, financial
condition or results of operations.
12. Future Capital Requirements. The Company's future capital
requirements will depend upon many factors, including the cost of production of
the Company's inventory, requirements to either rent or construct adequate
facilities for storage of inventory. The Company believes that it will require
additional funding in order to fully exploit its plan of operations. There can
be no assurance, however, that the Company will secure such additional
financing. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, or at all. If additional funds are
raised by issuing equity securities, further dilution to the existing
stockholders will result. If adequate funds are not available, the Company may
be required to delay, scale back or even eliminate its new territories or obtain
funds through arrangements with partners or others that may require the Company
to relinquish rights to certain of its existing or potential products or other
assets. Accordingly, the inability to obtain such financing could have a
material adverse effect on the Company's business, financial condition and
results of operations. See Part I, Item 2. "Management's Discussion and Analysis
of Financial Condition or Plan of Operation."
13. Uncertainty Regarding Protection of Proprietary Rights. The Company
will attempt to protect its intellectual property rights through patents,
trademarks, secrecy agreements, trade secrets and a variety of other measures.
However, there can be no assurance that such measures will provide adequate
protection for the Company's intellectual property, that additional disputes
with respect to the ownership of its intellectual property rights will not arise
between the Company and its competitors, that the Company's products will not
otherwise be copied by competitors or that the Company can otherwise
meaningfully protect its intellectual property rights. There can be no assurance
that any copyright owned by the Company will not be invalidated, circumvented or
challenged, that the rights granted thereunder will provide competitive
advantages to the Company or that any of the Company's pending or future
applications will be issued with the scope of the claims sought by the Company,
if at all. Furthermore, there can be no assurance that others will not develop
similar intellectual property which appeal to the same clients or duplicate the
Company's services or that third parties will not assert intellectual property
infringement claims against the Company. In addition, there can be no assurance
that foreign intellectual property laws will adequately protect the Company's
intellectual property rights abroad. The failure of the Company to protect its
proprietary rights could have a material adverse effect on its business,
financial condition and results of operations.
Litigation may be necessary to protect the Company's intellectual
property rights, to determine the validity of and scope of the proprietary
rights of others or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that
infringement, invalidity, right to use or ownership
20
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claims by third parties or claims for indemnification resulting from
infringement claims will not be asserted in the future. If any claims or actions
are asserted against the Company, the Company may seek to obtain a license under
a third party's intellectual property rights. There can be no assurance,
however, that a license will be available under reasonable terms or at all. In
addition, should the Company decide to litigate such claims, such litigation
could be extremely expensive and time consuming and could materially adversely
affect the Company's business, financial condition and results of operations,
regardless of the outcome of the litigation. See Part I, Item 1. Description of
Business - (b) Business of Issuer - Patents, Copyrights and Trademarks."
14. Ability to Grow. The Company expects to grow through one (1) or
more strategic alliances, acquisitions, internal growth and by establishing
client relationships. There can be no assurance that the Company will be able to
create a greater market presence, or if such market is created, to expand its
market presence or successfully enter other markets. The ability of the Company
to grow will depend on a number of factors, including the availability of
working capital to support such growth, existing and emerging competition, one
(1) or more qualified strategic alliances and the Company's ability to achieve
and maintain sufficient profit margins in the face of pricing pressures. The
Company must also manage costs in an environment which is notorious for
unforeseen and underestimated costs and adapt its infrastructure and systems to
accommodate growth within the niche market which it hopes to create.
The Company also plans to expand its business, in part, through
acquisitions. Although the Company will continuously review potential
acquisition candidates, it has not entered into any agreement, understanding or
commitment with respect to any additional acquisitions at this time. There can
be no assurance that the Company will be able to successfully identify suitable
acquisition candidates, complete acquisitions on favorable terms, or at all, or
integrate acquired businesses into its operations. Moreover, there can be no
assurance that acquisitions will not have a material adverse effect on the
Company's operating results, particularly in the fiscal quarters immediately
following the consummation of such transactions, while the operations of the
acquired business are being integrated into the Company's operations. Once
integrated, acquisitions may not achieve comparable levels of revenues,
profitability or productivity as the then existing Company products and services
or otherwise perform as expected. The Company is unable to predict whether or
when any prospective acquisition candidate will become available or the
likelihood that any acquisitions will be completed. The Company will be
competing for acquisition and expansion opportunities with entities that have
substantially greater resources than the Company. In addition, acquisitions
involve a number of special risks, such as diversion of management's attention,
difficulties in the integration of acquired operations and retention of
personnel, unanticipated problems or legal liabilities, and tax and accounting
issues, some or all of which could have a material adverse effect on the
Company's results of operations and financial condition.
15. Competition. The equipment service and repair industry in general
is highly competitive, with several major companies involved. The Company will
be competing with larger competitors in international, national, regional and
local markets. In addition, the Company may encounter substantial competition
from new market entrants. Many of the Company's competitors have significantly
greater name recognition and have greater marketing, financial and other
resources than
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<PAGE>
the Company. Further, competition for client contracts has meant the expenditure
of additional monies in the training of its technicians on new products and
services. There can be no assurance that the Company will be able to complete
effectively against such competitors in the future.
The market for online commerce is extremely competitive, and the
Company believes that competition, particularly in connection with online office
machinery consumable sales, will continue to grow and intensify. Although the
Company's primary focus is on its service contracts, rather than consumable
sales, the Company may ultimately compete with existing online websites that
provide equipment parts and consumables on the Internet. Online competitors
include a number of small and large Internet based enterprises offering similar
products and services. The primary competitive factor is price as price
sensitivity is the single greatest consideration of most Internet buyers. Most
competing suppliers though are dealer/distributors and not remanufactures.
Accordingly a differentiating factor for the Company's on-line business is that
it is a manufacturer as well as a distributor and therefore has a greater degree
of control over pricing of its product offerings.
In addition to competition encountered on the Internet, the Company
faces competition from traditional supply chains and office megastores such as
Office Max, Office Depot, Staples, Comp USA, mass merchandisers, consumer
electronics stores and a number of small custom start-up companies.
16. Dependence on the Growth of Online Commerce. Purchasing products
and services over the Internet is a new and emerging market. The Company's
future revenues and profits may become substantially dependent upon widespread
consumer acceptance and use of the internet and other online services as a
medium for commerce. Rapid growth of the use of the internet and other online
services is a recent phenomenon. This growth may not continue. A sufficiently
broad base of consumers may not adopt, or continue to use, the internet as a
medium of commerce. Demand for and market acceptance of recently introduced
products and services over the internet are subject to a high level of
uncertainty, and there are few proven products and services. For the Company to
grow, consumers who have historically used traditional means of commerce may
instead need to purchase products and services online, which may not be viable
without the growth of internet commerce.
17. Dependence on improvement of the Internet. The Internet has
experienced, and is expected to continue to experience, significant growth in
the number of users and amount of traffic. The Company's success will partially
depend upon the development and maintenance of the Internet's infrastructure to
cope with this increased traffic. This will require a reliable network backbone
with the necessary speed, bandwidth, data capacity and security. Improvement of
the Internet's infrastructure will also require the timely development of
complementary products, such as high-speed modems, to provide reliable Internet
access and services.
18. Requirement for Response to Rapid Technological Change and
Requirement for Frequent New Product Introductions. The equipment supply and
service market is subject to rapid technological change, frequent new equipment
and product introductions and enhancements, product obsolescence and changes in
end-user requirements. The Company's ability to be competitive in
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<PAGE>
this market will depend in significant part upon its ability to successfully
obtain, utilize and train employees on new products and services on a timely and
cost-effective basis that are based upon this new technology. Any success of the
Company in implementing new and enhanced products and services will depend upon
a variety of factors, including new product selection, timely and efficient
completion of training schedules, performance, quality and reliability of
competitive products and services by competitors. The Company may experience
delays from time to time in completing training and introduction of new products
and services. Moreover, there can be no assurance that the Company will be
successful in selecting and implementing new products, or in training employees
to utilize new products and services. There can be no assurance that defects
will not be found in the products and services utilized by the Company after
introduction of these products to the Company's clients, which could result in
harm to client or even the loss of a client. The inability of the Company to
introduce in a timely manner new products and services that contribute to
revenues could have a material adverse effect on the Company's business,
financial condition and results of operations.
19. Possible Adverse Affect of Fluctuations in the General Economy and
Business of Customers. Historically, the general level of economic activity has
significantly affected the businesses who would engage the services of the
Company, such as supermarkets, retail store chains, etc. This, in turn, can
cause a downsizing of the Company's clients and can ultimately affect the need
for the Company's services. There can be no assurance that an economic downturn
would not adversely affect the demand for the Company's products and services.
There can be no assurance that such economic factors will not adversely affect
the Company's planned products and services.
20. Lack of Working Capital Funding Source. Other than revenues from
the anticipated sale of its remanufactured cartridge products and the service
contracts currently in existence, the Company has no current source of working
capital funds, and should the Company be unable to secure additional financing
on acceptable terms, its business, financial condition, results of operations
and liquidity would be materially adversely affected.
21. Dependence on Contract Manufacturers and Lease of Equipment;
Reliance on Sole or Limited Sources of Supply. As of the date hereof, the
Company has no internal manufacturing/production capacity, nor does it own the
equipment necessary to produce its own inventory, other than its recently
acquired CC subsidiary. The Company will also indirectly rely on raw material
suppliers to provide the materials necessary for the Company's suppliers to
manufacture the inventory. Certain necessary components and services anticipated
to be necessary for the manufacture and production of the Company's inventory
could be required to be obtained from a sole supplier or a limited group of
suppliers. There can be no assurance that the Company's suppliers, will be
sufficient to fulfill the Company's orders.
Should the Company be required to rely solely on a limited group of
suppliers, such increasing reliance involves several risks, including a
potential inability to obtain an adequate supply of finished products and
required components, and reduced control over the price, timely delivery,
reliability and quality of finished products and components. The Company does
not believe that it is currently necessary to have any long-term supply
agreements with its suppliers but this may
23
<PAGE>
change in the future. The Company may experience delays in the delivery of and
quality problems with its inventory. Certain of the Company's suppliers may have
relatively limited financial and other resources. Any inability to obtain timely
deliveries of acceptable quality or any other circumstances that would require
the Company to seek alternative sources of supply, or to manufacture its
inventory internally, could delay the Company's ability to ship its products
which could damage relationships with current or prospective clients and have a
material adverse effect on the Company's business, financial condition and
operating results.
22. No Dividends. While payments of dividends on the Common Stock rests
with the discretion of the Board of Directors, there can be no assurance that
dividends can or will ever be paid. Payment of dividends is contingent upon,
among other things, future earnings, if any, and the financial condition of the
Company, capital requirements, general business conditions and other factors
which cannot now be predicted. It is highly unlikely that cash dividends on the
Common Stock will be paid by the Company in the foreseeable future. See Part I,
Item 8. "Description of Securities - Description of Common Stock - Dividend
Policy."
23. No Cumulative Voting. The election of directors and other questions
will be decided by a majority vote. Since cumulative voting is not permitted and
a majority of the Company's outstanding Common Stock constitute a quorum,
investors who purchase shares of the Company's Common Stock may not have the
power to elect even a single director and, as a practical matter, the current
management will continue to effectively control the Company. See Part I, Item 8.
"Description of Securities - Description of Common Stock."
24. Control by Present Shareholders. The present shareholders of the
Company's Common Stock will, by virtue of their percentage share ownership and
the lack of cumulative voting, be able to elect the entire Board of Directors,
establish the Company's policies and generally direct its affairs. Accordingly,
persons investing in the Company's Common Stock will have no significant voice
in Company management, and cannot be assured of ever having representation on
the Board of Directors. See Part I, Item 4. "Security Ownership of Certain
Beneficial Owners and Management."
25. Potential Anti-Takeover and Other Effects of Issuance of Preferred
Stock May Be Detrimental to Common Shareholders. Potential Anti-Takeover and
Other Effects of Issuance of Preferred Stock May Be Detrimental to Common
Shareholders. The Company is authorized to issue shares of preferred stock.
("Preferred Stock") although none has been issued to date. The issuance of
Preferred Stock may not require approval by the shareholders of the Company's
Common Stock. The Board of Directors, in its sole discretion, may have the power
to issue shares of Preferred Stock in one or more series and to establish the
dividend rates and preferences, liquidation preferences, voting rights,
redemption and conversion terms and conditions and any other relative rights and
preferences with respect to any series of Preferred Stock. Holders of Preferred
Stock may have the right to receive dividends, certain preferences in
liquidation and conversion and other rights; any of which rights and preferences
may operate to the detriment of the shareholders of the Company's Common Stock.
Further, the issuance of any shares of Preferred Stock having rights superior to
those of the Company's Common Stock may result in a decrease in the value of
market price of the Common Stock provided a market exists, and additionally,
could be used by the Board of Directors
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as an anti-takeover measure or device to prevent a change in control of the
Company. See Part I, Item 1. "Description of Securities - Description of
Preferred Stock."
26. No Secondary Trading Exemption. Secondary trading in the Common
Stock will not be possible in each state until the shares of Common Stock are
qualified for sale under the applicable securities laws of the state or the
Company verifies that an exemption, such as listing in certain recognized
securities manuals, is available for secondary trading in the state. The Company
is currently listed in Standard & Poor's Standard Corporation Manuals, although
this exemption is only recognized in a limited number of states. There can be no
assurance that the Company will be successful in registering or qualifying the
Common Stock for secondary trading, or availing itself of an exemption for
secondary trading in the Common Stock, in any state. If the Company fails to
register or qualify, or to obtain or verify an exemption for the secondary
trading of, the Common Stock in any particular state, the shares of Common Stock
could not be offered or sold to, or purchased by, a resident of that state. In
the event that a significant number of states refuse to permit secondary trading
in the Company's Common Stock, a public market for the Common Stock will fail to
develop and the shares could be deprived of any value.
27. Possible Adverse Effect of Penny Stock Regulations on Liquidity of
Common Stock in any Secondary Market. The Company's Common Stock is currently
subjected to the "penny stock" rules under 17 CAR 240.3a51-1 because such shares
are issued by a small company; are priced under five dollars ($5); and are not
and will not traded on NASDAQ or on a national stock exchange. The SEC has
established risk disclosure requirements for broker-dealers participating in
penny stock transactions as part of a system of disclosure and regulatory
oversight for the operation of the penny stock market. Rule 15g-9 under the
Securities Exchange Act of 1934, as amended, obligates a broker- dealer to
satisfy special sales practice requirements, including a requirement that it
make an individualized written suitability determination of the purchaser and
receive the purchaser's written consent prior to the transaction. Further, the
Securities Enforcement Remedies and Penny Stock Reform Act of 1990 require a
broker-dealer, prior to a transaction in a penny stock, to deliver a
standardized risk disclosure instrument that provides information about penny
stocks and the risks in the penny stock market. Additionally, the customer must
be provided by the broker-dealer with current bid and offer quotations for the
penny stock, the compensation of the broker-dealer and the salesperson in the
transaction and monthly account statements showing the market value of each
penny stock held in the customer's account. For so long as the Company's Common
Stock is considered penny stock, the penny stock regulations can be expected to
have an adverse effect on the liquidity of the Common Stock in the secondary
market, if any, which develops.
Item 2. Management's Discussion and Analysis of Operations - Full Fiscal Years
Introduction
The financial results discussed herein include the consolidated
operations of the Company and its wholly owned subsidiaries Net Express, Inc.
and Cartridge Care, Inc. In August 1997 the Company's management team completed
a leveraged buyout ("LBO") of Micor, an Arizona corporation engaged in the
equipment maintenance and service industry. Following the LBO
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management entered into a merger agreement with a dormant Delaware public shell
corporation wherein all of Micor's then outstanding stock was exchanged for 85%
of the Delaware company. Following the merger management of the shell company
was replaced by Micor's management team and both Micor's and the Delaware
corporation's names were changed to OneSource Technologies, Inc.
Overview
The Company's business plan contemplates an increase in the Company's
business and scope of practice over the next five (5) years. This will be
accomplished through a combination of internal expansion as well as acquisitions
of enterprises engaged in the same and/or complementary lines of business. Year
to date 1999 financial results show the Company has achieved solid gains toward
these goals through increased internal growth as well as through the successful
completion of two (2) acquisitions during the second and third quarters of 1999.
In April 1999 the Company acquired all the outstanding stock of Net
Express, Inc., an Arizona corporation engaged in the LAN and WAN (local and wide
area network) integration business. In September the Company acquired all the
outstanding stock of Cartridge Care, Inc., an Arizona corporation engaged in the
remanufacturing of printer/copier toner cartridges. Both acquisitions were
effected with issuance of stock. Net Express was accounted for as pooling of
interests and Cartridge Care was accounted for as a purchase. Accordingly the
results of Net Express' operations and financial condition are included in the
Company's consolidated results for the full two (2) years ended December 31,
1999. The results of operations of Cartridge Care are only included from the
date of purchase, September 1999.
Both acquisitions are logical "fits" for the Company and offer
additional product and service categories that can be readily leveraged and
expanded throughout the Company's current and future customer list. They also
bring an existing customer base that can be leveraged into the Company's core
equipment maintenance services. Accordingly, management intends to significantly
expand both companies' operations by introducing their product and service
offerings into existing OneSource customers as well as add the Company's
equipment maintenance capabilities to their customer base.
These acquisitions contributed approximately twenty-two percent (22%)
of the Company's 1999 revenues and about fourteen percent (14%) of 1998
consolidated revenues. On a pro forma basis, including Cartridge Care's results
as though this subsidiary was purchased at the beginning of 1998, the
acquisitions contributed thirty-eight percent (38%) and forty-nine percent (49%)
of total consolidated revenues in 1999 and 1998 respectively. The proportion of
acquisition revenue contributions though will not necessarily remain constant as
future expansion continues. The Company will continue to expand both internally
as well as through acquisitions and accordingly, timing of new business and/or
acquisitions can have a significant effect on the proportionate relationship of
each to total consolidated revenues.
In July 1999 the Company successfully filed a "business process
apparatus" patent application (S/N 09/395,071) with the United States Patent
Office for its OneSource Flat-Rate Blanket
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Maintenance System[TM]. The application consists of eight (8) claims that
document the unique processes and methodologies the Company has developed and
documented over the past four (4) years in demonstrating the Company's
successfully delivering equipment maintenance services in a horizontal fashion
versus the vertical approach that has been traditionally followed by the
industry over the past fifty (50) to sixty (60) years.
Results of Operations
The Company is engaged in three (3) complimentary lines of business, 1)
equipment maintenance services, 2) equipment sales and integration services and
3) equipment supply sales. The Company is primarily focused on the 1) banking
and financial services and 2) retail industries even though its service and
product offerings can be readily applied in any industry. These two are
emphasized because of the significantly greater number of equipment items used
in banking and retail compared to other businesses. Like companies in other
industries, banking and retail enterprises use large numbers of general business
equipment items such as copiers, facsimiles, PCs and peripherals, but in
addition they also utilize significant quantities of industry specific machines
like coin/currency counting and handling machines, check processing and encoding
equipment and ATMs in banking and point-of-sale (POS) scanner and register
systems in retail.
In the Company's core equipment maintenance operations its OneSource
Flat-Rate Blanket Maintenance System[TM] is uniquely suited for delivering
equipment service solutions to businesses in these industries. To take advantage
of the Company's unique system, management initiated a direct sales program in
the second half of 1998 to focus on adding new equipment service customers in
these industries. This new function was able to add a number of new accounts in
Colorado, a new territory for the Company. This new territory was opened in 1998
so the Company could prove it could implement its unique service system in new
areas the Company hadn't previously operated in and/or where its business
concept was unknown. Management deemed this crucial in as much as most of the
expansion expected in the Company's business plan is anticipated in geographic
areas outside the Company's present operational territory.
Although the historical financial picture has not been especially
positive, current period operating results are improved in most areas.
Similarly, LAN and WAN systems integration and equipment supplies volumes also
showed increased gains. Further on a percentage basis most cost categories are
approaching the hurdle rate levels envisioned in the Company's business plan.
Operating results improved in most financial categories during the year
ended December 31, 1999. Historically the Company had limited systems and
processes for controlling and managing company operations. The Company has
successfully implemented a completely integrated and automated information
system that covers every facet of its operations from customer contracting
through dispatch, service delivery, billing and collections. The final phase of
this effort will be implemented in 2000 and consists of interfacing field
technicians to corporate host systems on a real- time, three dimensional and
paperless basis.
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To make good use of the improved quality and timeliness of information
management has aggressively focused on documenting all its new processes and
systems in order to facilitate monitoring and controlling all operational
functions of service delivery, parts/inventory acquisition and control and
customer relations. This new information and management infrastructure has
contributed to the improved operational results. Moreover, management believes
this new foundation is sufficient to support the much larger operational volume
management intends to grow to in future periods.
The following table sets forth selected consolidated operating results
of the Company for the years ended December 31, 1999 and 1998. The consolidated
results include the operations of OneSource Technologies and it's wholly owned
subsidiary Net Express that was acquired in 1999 and accounted for as a pooling
of interests. The consolidated results also include the operations of Cartridge
Care for the last three months of 1999 following purchase in September 1999.
Income Statement 1999 1998
------------------------------------------------- ----------------- -----------
Operating Revenues $2,476,884 $ 1,380,041
------------------------------------------------- ----------------- -----------
Cost of Revenues 1,484,096 755,461
------------------------------------------------- ----------------- -----------
Gross Margins 992,788 624,580
------------------------------------------------- ----------------- -----------
Selling, General and Administrative Expenses 1,171,874 620,637
------------------------------------------------- ----------------- -----------
Operating Income (Loss) (179,086) 3,943
------------------------------------------------- ----------------- -----------
Other Income and (Expense) (24,021) (55,557)
------------------------------------------------- ----------------- -----------
Net Income (Loss) (185,341) (51,614)
------------------------------------------------- ----------------- -----------
Operating Revenues
Total consolidated revenues increased $1,096,843 or 79.5% in the year
ended December 31, 1999 compared to 1998 and $190,464 or 16% for the year ended
December 31, 1998 compared to 1997. Revenues increased in each business category
as compared to the same period in the prior year. Half, (50%) of the 1999
increase in consolidated revenues was from in-house generated sales and
marketing efforts with the other half coming from acquired operations. This is
consistent with the Company's business plan expectations and similar ratios of
in-house generated volume increases and acquisition contributed amounts are
anticipated on a year-to-year basis prospectively.
On a pro forma basis, including the results of operations of Cartridge
Care in the consolidated results as though this division was purchased at the
beginning of 1998, shows the following results for the years ended December 31,
1999 and 1998.
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Consolidated Pro Forma Revenues 1999 1998
------------------------------------------------------ ------------ -----------
Consolidated Operating Revenues $2,476,884 $1,380,041
Add Results of Cartridge Care Prior to Purchase Date 709,128 964,929
---------- -----------
Fro Forma Operating Revenues $3,186,012 $2,344,970
The pro forma amounts are more representative and consistent with
management's anticipated contribution of revenues from acquired operations in
2000 and beyond than the non-pro forma 1999 consolidated results. This is
because management intends to expand acquired companies' product and service
offerings to the Company's core contract maintenance customers. Doing so will
also increase the proportion of non-service revenues of total revenues in future
periods.
The following table shows the amounts each line of business contributed
to total revenues for the years ended December 31, 1999 and 1998.
Business Line Revenue Contributions 1999 1998
---------------------------------------------------- ---------- ------------
Equipment Maintenance and Service Revenues $1,966,114 $1,016,372
---------------------------------------------------- ---------- ------------
Equipment Sales and Integration Service Revenues 341,548 323,132
---------------------------------------------------- ---------- ------------
Equipment Supplies and Parts Sales 169,222 40,537
---------------------------------------------------- ---------- ------------
Equipment maintenance services accounted for fully seventy-nine percent
(79%) of total revenues in 1999 and seventy-four percent (74%) in 1998.
Equipment sales and integration services contributed fourteen percent (14%) and
twenty-three percent (23%) in 1999 and 1998 respectively. Equipment parts and
supplies sales contributed seven percent (7%) of total revenues in 1999 and
three percent (3%) in 1998.
However, on a pro forma basis, the proportionate percentages are
sixty-five percent (65%) and forty-eight percent (48%) for equipment maintenance
services in 1999 and 1998 respectively and equipment sales and integration
services contributed about eleven percent (11%) in 1999 and fourteen percent
(14%) in 1998 and value added equipment supplies and parts sales accounted for
twenty-four percent (24%) and thirty-eight percent (38%) in 1999 and 1998
respectively as shown in the following table.
Pro Forma Equipment Service Revenue 1999 1998
----------------------------------------------------- ------------ ------------
Equipment Maintenance and Service Revenues $1,983,166 $1,,016,372
----------------------------------------------------- ------------ ------------
Add Results of Cartridge Care Prior to Purchase Date 125,984 104,247
------------ ------------
Fro Forma Equipment Service Revenue $2,109,150 $1,120,619
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Pro Forma Equipment Sales & Integration Revenue 1999 1998
----------------------------------------------------- --------- ----------
Equipment Sales and Integration Revenues 341,548 323,132
----------------------------------------------------- --------- ----------
Add Results of Cartridge Care Prior to Purchase Date -0000 000000
--------- ----------
Pro Forma Equipment Sales Revenue 341,548 323,132
Pro Forma Parts and Supplies Revenue 1999 1998
----------------------------------------------------- --------- ----------
Equipment Supplies and Parts Sales 152,170 40,537
----------------------------------------------------- --------- ----------
Add Results of Cartridge Care Prior to Purchase Date 583,144 860,682
--------- ----------
Pro Forma Equipment Supplies Revenue $735,314 $901,219
Equipment Maintenance and Service Revenues
Most of the ninety one percent (91%) increase in service volumes in
1999 compared to 1998 is the result of internally generated new business from
existing as well as new customer accounts. Only about ten percent (10%) of the
increase in service revenues was contributed by acquired operations.
Substantially all this increase was derived from the Company's new sales
programs initiated in 1998. The Company's annualized contract service revenues
grew from approximately $1.2 million at the end of 1998 to almost $2.6 million
at December 31, 1999. Retail industry customers accounted for about seventy-four
percent (74%) of equipment maintenance revenues with about twenty-three percent
(23%) and two percent (2%) coming from banking and other industry clients
respectively. In 1998 substantially all service revenues were derived about
equally from retail and banking industry accounts.
In early 1999 management engaged an outside consultant to evaluate its
in-house sales program. As a result the Company adopted a two-tier sales program
featuring a limited number of in-house Regions Account Executives supported by
an outside contract sales organization already positioned in the retail
industry. This organization has an extensive "black book" of existing clients in
retailing and accordingly management believes penetration into national accounts
in this industry can be accelerated using this two-tier program. The
disproportionate increase in retail industry service volumes is indicative of
this strategy.
Prospectively, the Company also intends to expand service revenues
through its newly acquired network integration and cartridge remanufacturing
divisions and is in the process of implementing a coordinated sales effort to
expand this service at existing client situations. The new divisions' present
Arizona only territory will also be expanded into all the Company's operating
territories.
The Company ended 1999 with a total backlog of renewable contract
service revenues of approximately $4.1 million with an annualized book of
contract revenue of $2.6 million. In addition
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to contract equipment service the Company also performs on-call time and
materials service work which amounted to less than 10% of total service revenues
in 1999 and 1998. This reflects the Company's continuing focus on increasing
renewable contract services at the expense of unsolicited on call work.
Equipment Sales and Integration Service Revenues
The small six percent (6%) increase in equipment sales and integration
service revenues for the year ended December 31, 1999 compared to 1998 reflects
the historical incidental nature of equipment sales that has existed in the
past. Historically, equipment sales consisted primarily of banking machine sales
to the Company's existing bank customers. In late 1998 and throughout 1999
though, as the Company focused its limited sales resources on expanding service
operations, equipment sales contribution to total consolidated revenues
declined. Sales of this type of equipment decreased fifty-five percent (55%) in
1999 compared to 1998.
The new LAN/WAN integration acquisition picked up the slack in
equipment sales accounting for about eighty-four percent (84%) of total 1999
equipment sales versus only thirty-eight percent (38%) in 1998. While this
division will contribute additional sales of PCs/Servers and peripherals
prospectively, this type of equipment generally yields very low margins, (5 to
10% on average). Accordingly management is emphasizing the network support and
integration services portion of this business with their attendant much higher
profit margins. Management is committed to increasing sales of industry specific
equipment however in both its retail and financial service industry markets
through its emerging in-house equipment sales function and through alliances
with equipment dealer/distributor organizations in these industries. Margins on
this type of equipment are generally double to triple the margins on PC and
peripheral sales.
Equipment Supplies and Parts Sales
As noted, historically the Company hasn't focused on supplies and parts
sales but prospectively management intends to expand this portion of the
business. This in fact was the impetuous for the cartridge remanufacturing
company's acquisition in September 1999. The increase in 1999 supply sales
compared to 1998 totals is all the result of including the cartridge sales of
Cartridge Care from the date of purchase.
On a pro forma basis, supplies and parts sales actually declined
sixteen percent (16%) for the year ended December 31, 1999 compared to 1998 and
1998 supply revenues were level with 1997 amounts. The new cartridge
remanufacturing acquisition accounts for about ninety-five percent (95%) of
total pro forma supply and part sales in both 1999 and 1998. The pro forma
decline in 1999 compared to 1998 reflects the Company's changed focus away from
selling to tiny businesses and individuals; emphasizing large multi-location
accounts instead like the Company's core service customers. During the
transition overall sales volumes from small accounts were permitted to drop in
anticipation of replacing them with larger volume transactions in 2000 and
beyond.
Management intends to substantially expand this division because it's
equipment contract maintenance customer have thousands of laser printers under
contracts with existing customers, all
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of which utilize toner cartridges. In this regard management has incorporated a
new e-commerce company, GOINK.com, Inc., to be the cartridge divisions on-line
Internet fulfillment delivery system. This site will be available to anyone on
the Internet in addition to the Company's customer base. The GOINK.com site will
be launched in the first quarter of 2000.
Profit Margins
While overall gross margins remained steady in 1999 compared to 1998,
profit margins improved in each business unit over the past two years compared
to previous periods except in 1999 equipment sales where profit margins declined
compared to 1998.
Gross Profit 1999 1998
---------------------------------------------- ---------- ----------
Service Operations $892,058 $409,722
---------------------------------------------- ---------- ----------
Equipment Sales and Integration Operations 36,186 194,678
---------------------------------------------- ---------- ----------
Equipment Supplies and Parts Sales 64,544 20,180
---------------------------------------------- ---------- ----------
Consolidated gross margin percentages were forty five percent (45%) for
both years ended December 31, 1999 and 1998 respectively. This is lower than the
Company's target margin rate of fifty percent (50%). The decreased margin
percentage reflects the Company's aggressive expansion activities from both
in-house generated expansion as well as from acquisitions. The increase in
overall gross margin dollars is the result of the Company's expanded level of
business volume.
Service gross margin percentages were 45.3% for the year ended December
31, 1999 compared to only forty percent (40%) in 1998. While service margins
increased in 1999 compared to 1998 and 1997's forty percent (40%) rate, they
were still below the Company's hurdle rate of fifty percent (50%) that is the
Company's business plan model. This is a function of the Company's significant
expansion in service volumes in late 1998 and throughout 1999. To support the
higher service volumes the Company invested in additional supervisory staff
resources in the second half of 1999 and incurred higher than anticipated new
contract startup costs in connection with expanded work for the Company's large
Colorado grocery chain, both of which depressed 1999 service margins.
Management believes service margins higher than the Company's fifty
percent (50%) hurdle rate can be prospectively achieved as the business matures.
As roll out continues and new business is added, it's not always possible to
sustain the fifty percent (50%) hurdle rate. Timing of new business as well as
the amount of required spares and parts to support new contracts are variables
that directly impact service gross margins. The Company's service model however
is based on a fifty percent (50%) service gross margin and management is
committed to achieving this rate.
Equipment gross profit was only 10.8% for the year ended December 31,
1999 compared to 60.2% and 40% in 1998 and 1997 respectively. The 10.8% margin
is a function of 1) lower
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equipment sales in the Company's core banking and retail customer sector in 1999
compared to 1998 and 2) low margin PC and peripheral equipment sales of the
newly acquired network integration division. With limited resources since the
LBO management has focused on expanding its contract service business and
accordingly hasn't aggressively pursued equipment sales. The combination of
these factors is the primary reason for the unusually low equipment margin in
1999. Prospectively, management anticipates a gross margin rate closer to the
Company's historical 30% equipment gross profit.
As the table bellow shows, on a pro forma basis, supplies margins for
the year ended December 31, 1999 were 39.6% compared to 43.2% and 38.9% in 1998
and 1997 respectively. The lower margin rate in 1999 is the result of greater
numbers of in-house remanufactured shipments versus purchased products in 1998
versus 1999. Margins on purchased cartridges average thirty to thirty-five
percent (30 to 35%) whereas margins on in-house produced ones average forty to
fifty percent (40% to 50%). Resulting margins therefore are a function of the
product mix between in- house versus outside purchased cartridge shipments.
Anticipated future margins in the cartridge division are expected to be closer
to the thirty to thirty-five percentile as expansion continues. Management
believes a greater proportion of purchased cartridges will be required to
support the expected expansion of this division, particularly in the on-line
Internet fulfillment GOINK.com site.
Pro Forma Parts and Supplies Margins 1999 1998
---------------------------------------------------- ---------- -----------
Equipment Supplies and Parts Margins $ 64,544 $ 20,180
---------------------------------------------------- ---------- -----------
Add Results of Cartridge Care Prior to Purchase Date 237,933 368,962
---------- -----------
Fro Forma Equipment Supplies Margins $302,477 $389,142
General and Administrative Costs
With an eighty-five percent (85%) increase in G&A costs for the year
ended December 31, 1999 compared to 1998 this is the one category where costs
are significantly out of step with forecasts. Most, approximately seventy-seven
percent (77%) of the general and administrative cost increases for the year
ended December 31, 1999 compared to 1998 were incurred at OneSource corporate.
G&A costs between periods from acquired operations only contributed (23%) in
1999 results and most of these costs were in the new cartridge supplies
division. Most of the dollar increases therefore in both periods is the result
of added costs in corporate operations incurred in anticipation of supporting
the expected higher level of consolidated operations.
Administrative Costs 1999 1998
-------------------------------------- ---------- ---------
Officer and Administrative Payroll $486,034 $220,170
-------------------------------------- ---------- ---------
Facilities 149,704 52,403
-------------------------------------- ---------- ---------
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-------------------------------------- ---------- ---------
Medical and Casualty Insurance 71,641 51,532
-------------------------------------- ---------- ---------
Travel and Entertainment 66,098 25,597
-------------------------------------- ---------- ---------
Legal and Professional Fees 69,453 54,644
-------------------------------------- ---------- ---------
Other 99,482 77,441
-------------------------------------- ---------- ---------
Total $942,412 $481,774
Four (4) cost categories account for most of the increase above
forecast levels in general and administrative costs, 1) officers' and
administrative compensation, 2) facilities, 3) travel and entertainment expenses
and 4) other costs. Because of the "turnaround" situation following the LBO in
1997, owner officers of the Company didn't draw their full salaries until the
second quarter of 1999. A number of additional senior level managers and staff
were also added in 1999 as a result of acquisitions and additional staff to
support present and anticipated increases in business volumes.
Much of the increase in facilities costs in 1999 compared to 1998 is
due to costs related to relocating and combining all the Company's operations
into new facilities in the Scottsdale Airpark. Onetime costs related to the
relocation totaled approximately $40 thousand. Higher rents and related
utilities associated with the larger facilities also contributed to the
increase.
Additional travel and entertainment cost increases of $34 thousand for
the year ended December 31, 1999 compared to 1998 are a function of expanded
participation in business development activities in 1999. A number of business
development trips that were made during 1999 in anticipation of forging certain
new business venture relationships and service industry alliances.
All the increase in "other" expenses in 1999 compared to 1998 is due to
costs incurred in integrating acquired operations into the consolidated group
and costs related to relocating. One time costs related to assimilating acquired
operations amounted to approximately $30 thousand.
Selling Expenses
Substantially all the cost increases in this category are the result of
the Company's implementation of its first selling organization in the second
quarter of 1998. During most of 1997 the Company operated without the benefit of
any sales effort. An experienced outside sales person was recruited in early
1998 in Colorado to open that territory and in the fourth quarter of 1998 the
Company's founder was hired as a sales person for Arizona. The newly acquired
cartridge division also hired a salesperson in the second quarter of 1999.
Another Southwest Region Account Executive was added in the June of 1999 as well
as an outside contract sales firm. The contract sales organization is
compensated on a commission only basis whereas employee salespeople are
compensated via salary plus commission arrangements. Management anticipates this
cost category will continue to increase proportionally as the Company builds its
internal expansion momentum.
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Operating Income
The significant decrease (360%) in operating income for the year ended
December 31, 1999 compared to 1998 is the result of higher costs incurred in
expanding the overall volume of business operations as well as costs incurred in
building the corporate infrastructure need to support the larger and more
complex business.
Other Income and Expenses
Income and (Expenses) 1999 1998
--------------------------------- ------------ -------------
Interest Expense $ (34,590) $ (55,557)
--------------------------------- ------------ -------------
Other Income 174 0
--------------------------------- ------------ -------------
Interest expense decreased for the year ended December 31, 1999
compared to 1998 because of declines in outstanding interest bearing debt. Also
contributing to the decline was a decrease in payment penalties and interest
charges associated with vendor purchases. During 1999 the Company focused on
improving its procurement systems to assure more timely vendor payments compared
to the prior periods and with additional investment capital in 1999 was able to
do so and eliminate much of this cost.
Financial Condition
In addition to improved operations since the LBO in 1997 the Company
significantly improved its financial condition during 1999, ending the period
with a positive equity position and/or positive working capital balance for the
first time since the buy-out.
To further strengthen the Company's financial condition management has
initiated a number of activities to further improve its financial condition. In
April 1999, management received word its application for quotation of the
Company's Common Stock had been approved by the National Association of
Securities Dealers. In May, the Company entered into a private placement
agreement with a Chicago based investment firm for an infusion of $750 thousand
in equity funding over a one (1) year period. The initial advance pursuant to
this agreement was received in June 1999 and a second payment was received in
August. At December 31, 1999 $300,000 of this commitment was yet unfunded. With
this funding commitment as well as interest in the Company from other investment
groups and the Company's tradable stock and improving operational results, the
Company is better positioned to aggressively pursue its business plan
opportunities that it has been at any time in its past.
The following sets forth selected financial condition information as of
December 31 1999 and 1998:
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Balance Sheet - 1999 1998
Working Capital $ 115,567 $ (224,374)
----------------------------------- ---------------- -------------
Total Assets 1,697,720 530,480
----------------------------------- ---------------- -------------
Debt Obligations 316,246 322,894
----------------------------------- ---------------- -------------
Shareholders' Equity (Deficit) 369,632 (473,318)
----------------------------------- ---------------- -------------
As the above table illustrates, with the enhanced operational
improvements implemented since the buy-out, each category of the Company's
financial condition improved as of December 31, 1999 compared to prior periods.
While cash flow from operations decreased in 1999 compared to 1998, the decrease
resulted largely from increased Accounts Receivables and Inventories at December
31, 1999 compared to the same date in 1998 and reflects the Company's increased
level of operations in 1999 compared to 1998. Investments from financing
activities during the year ended December 31, 1999 enabled the Company to
finance this decrease in cash from operations as well as improve the Company's
current ratio to a positive 1.12 as of December 31, 1999, up from the December
1998 negative ratio of .68. Total assets tripled in the same period and
stockholders equity improved substantially to a positive balance of $369,932 as
of December 31, 1999.
To further improve the Company's financial position the Company and a
group of investors executed an agreement on March 4, 2000 with PF to purchase
the promissory note held by PF with a face value of $285,000 and accrued
interest of $36,972 for $150,000 in cash provided by the investors and 175,000
shares of the Company's Common Stock with a fair market value on March 4 of
$93,438.00. The investor group exchanged the promissory note for 643,944 shares
of OneSource stock. The investor's are restricted from selling the combined
818,944 shares of stock for a period of one (1) year. Completion of this
transaction enables the Company to now pursue traditional stand-by credit
facility financing arrangements with banking institutions.
As of December 31, 1999, the Company has accrued delinquent payroll
taxes, penalties and interest of approximately $210,000. The Company is
corresponding with the IRS and attempting to negotiate payment terms. The
Company has committed to making certain scheduled payments based on the
availability of funds. There can be no assurance however that the IRS will not
take other action should the Company fail to make committed payments. Based on
present arrangement with the IRS, management believes that the Company will be
able to successfully liquidate this liability without incurring any adverse
effects on the Company's financial condition from actions of the IRS.
During 1999, the Company successfully completed two (2) acquisitions
with the issuances of shares of the Company's Common Stock. While both
transactions were completed with stock the Company did incur significant
non-operating costs of approximately $90,000 for facility relocation and other
costs of integrating the operations into the consolidated group. The Company
intends to acquire additional companies in the future and will attempt to do so
with issuances of the Company's Common
36
<PAGE>
Stock. To the extent cash is required to finance acquisitions, the Company will
seek outside capital from investors rather than attempt to finance the cash
component from operations.
Results of Operations - June 30, 2000 and June 30, 1999
Introduction
The interim financial results discussed herein include the financial
results of OneSource and its wholly owned subsidiaries Net Express, Inc. and
Cartridge Care, Inc.
In 1999, the Company acquired all the outstanding stock of Net Express,
Inc., an Arizona corporation engaged in the LAN and WAN (local and wide area
network) integration and other information technology ("IT") business. In
September, the Company acquired all the outstanding stock of Cartridge Care,
Inc., an Arizona corporation engaged in the remanufacturing of printer/copier
toner cartridges. While both acquisitions were effected with issuance of stock,
Net Express was accounted for as pooling of interests and Cartridge Care was
accounted for as a purchase. Accordingly, the interim results of Net Express'
operations are included in the Company's consolidated results for the both
interim six-month periods ended June 30, 2000. The interim results of operations
and cash flows of Cartridge Care are only included in the consolidated results
for the six-month period ended June 30, 2000.
Overview
Both companies were acquired because they represent logical "fits" for
expanding the Company's historical equipment maintenance business into other
product and service categories that can be leveraged and expanded throughout the
Company's current and future customer base. Net Express adds an array of IT
capabilities to the Company that can be directed to existing customer situations
as well as new markets. The scope of Net Express' IT practice embraces a number
of technologies and services that are in great demand in corporate America that
the Company intends to exploit and substantially expand in future periods,
including network (LAN and WAN) implementation, remote network maintenance, web
hosting, high speed and broadband Internet connectivity and related services.
All of these services compliment the Company's maintenance service operations
and represent significant sources of potential new revenue streams for the
Company.
Cartridge Care's core business is remanufacturing of laser printer and
copier/fax toner cartridges for a number of popular and high demand printer and
copier/fax machines. This is a rapidly growing industry that has gained
acceptance during the past ten (10) years as a viable alternative to OEM
cartridges. The division's cartridges are environmentally friendly, less costly
and of equal to superior quality compared to new OEM units. This product
category can be readily added to the Company's maintenance customer base that
includes hundreds of printers, copiers and faxes presently under contract.
These acquisitions contributed approximately twenty-seven percent (27%)
of the Company's 2000 interim year-to-date revenues and Net Express contributed
about nineteen percent (19%) of 1999 interim year-to-date consolidated revenues.
The Company will continue to expand both internally as well as through
acquisitions and accordingly, timing of new business and/or acquisitions can
have a significant effect on the proportionate relationship of each to total
consolidated revenues.
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<PAGE>
Results of Operations
First half 2000 results were mixed. Revenue growth flattened in the
first half of the year and net results were marked by a number of unfavorable
circumstances that contributed to operating losses in each of the Company's
three (3) operating divisions, Maintenance, Integration and Supplies.
Specifically, the doubling of contract maintenance services in the last quarter
of 1999 stressed the Company's service delivery systems that continued into
2000. Integration service operations were stunted by decreased new business
commitments for integration equipment and services during the first quarter of
2000 and problems in assimilating the cartridge operations into the Company.
In the late third quarter and early fourth quarter of 1999 the Company
added a number of new maintenance contract commitments that had the effect on an
annualized basis of doubling the volume of service operations and revenues. This
sudden influx of new business severely taxed field service's limited management
resources and procurement and delivery systems. While management had anticipated
a rapid ramp up of maintenance services, it wasn't until late fourth quarter
that the Company was able to put in place two (2) new senior managers to assist
in managing maintenance operations. Further, the doubling of service demands
also brought to light certain problems in the parts procurement and logistics
department that contributed to higher than budgeted costs in the quarter.
Operational and financial reporting problems encountered in integrating
the cartridge division into combined operations continued into 2000. A number of
production scheduling, billing and personnel issues were encountered in late
1999 and the first half of 2000 related to the transfer of Cartridge Care's
accounting and information systems into the Company's systems. Operational and
invoicing problems resulting from the changeover resulted in lower shipments in
the quarter and increased operational costs beyond those forecasted.
Further contributing to first and second quarters' and year-to-date
loss were increased administrative costs associated with the Company's expanded
maintenance supervisory staff and professional fees related to year-end
independent audit work and the Company's pending filing with the SEC .
The following table sets forth selected consolidated operating results
of the Company for the six- months ended June 30, 2000 and 1999. The
consolidated results of both periods include the operations of OneSource
Technologies and Net Express that was acquired in 1999 and accounted for as a
pooling of interests. The consolidated results also include the operations of
Cartridge Care for the six-months ended June 30, 2000.
Income Statement 2000 1999
-------------------------------------------------- ------------ -----------
Operating Revenues $1,716,292 $1,051,626
Cost of Revenues 1,080760 632,917
Gross Margins 635,532 418,709
Selling, General and Administrative Expenses 850,014 448,713
Operating (Loss) Before Extraordinary Gain (214,482) (30,004)
Other (Expense) (30,648) (12,673)
Extraordinary Gain 63,375
Net Income (Loss) Income (181,755) (42,677)
-------------------------------------------------- ------------ -----------
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Operating Revenues
Total consolidated revenues increased $664,666 or 63.2% in the
six-months ended June 2000 compared to the same period in1999. Revenues for the
three (3) months ended June 30, 2000 also increased over the same period in 1999
by $277,750 or 50.6%. As noted above, the 1999 first half figures don't include
the revenues of the cartridge division since Cartridge Care was purchased
October 1, 1999. Accordingly, the Maintenance division contributed substantially
all of the increase in 2000 consolidated revenues compared to 1999. Total
revenues of the Integration division were down twenty percent (20%) and
sixty-four percent (64%) for the three (3) months and six (6) months ended June
30, 2000 respectively compared to the same periods in 1999.
Going forward into the third quarter, the Company anticipates that
total maintenance revenues will decrease due to a) one (1) of the Company's
major accounts electing to exit out of its OneSource contract in order to
provide its own in-house service effective June 2000 and b) the decision by
management to discontinue an alliance effective September 2000 with a
traditional service provider wherein OneSource delivered subcontract service
work. The total impact of these two (2) circumstances will be a drop in monthly
revenues of approximately $50,000 per month.
The following table shows the amounts each division contributed to
total revenues for the six (6) months ended June 30, 2000 and 1999.
Business Line Revenue Contributions 2000 1999
------------------------------------- ----------- ----------
Maintenance Services $1,247,473 $840,245
Integration Services 68,544 191,629
Supplies 400,276 19,752
------------------------------------- ----------- ----------
Maintenance services continued to account for the lion's share of total
revenues in the quarter and the first six (6) months, accounting for seventy-two
percent (72%) and eighty percent (80%) of the total six (6) months amounts in
2000 and 1999 respectively. For the three (3) months ended June 30, 2000
maintenance services contributed $586,668 or seventy-one (71%) for the three (3)
months ended June 30, 2000 and 1999. Integration services accounted for only
four percent (4%) of total revenues in 2000 but eighteen percent (18%) for the
six (6) months ended June 30, 1999. Similar percentages of Integration revenue
contributions resulted in the three (3) months ended June 30, 2000. The Supplies
division accounted for twenty-three percent (23%) and two percent (2%) of total
revenues in both the three (3) months and six (6) months ended June 30, 2000 and
1999 respectively.
Maintenance Revenues
Most of the increase in service volumes in the quarter ended and
year-to-date 2000 compared to the same periods in 1999 is the result of
internally generated new business from existing as well as new customer
accounts. Less than five percent (5%) of the increase in service revenues was
contributed by acquired operations. At June 30, 2000 retail customers accounted
for about eighty percent (80%) of
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<PAGE>
equipment maintenance revenues with about nineteen percent (17%) and three
percent (3%) coming from banking and other industry clients respectively.
Roll out of the Company's in-house sales program was delayed in the
last quarter of 1999 due to demands placed on organization resources by the
cartridge division acquisition and the significant service volumes added in the
last four months of the year. Further, since some of these problems spilled over
into the first half of 2000, the in-house initiative has yet to get started.
Management is satisfied with the final planning for the in-house roll out and in
light of the expected decrease in near term service revenues management is
determined to have a new sales executive recruited and installed before the end
of the third quarter.
The new in-house sales program is designed to aggressively expand each
division's business on a backfill basis by focusing on local and regional
accounts, leaving the outsourced sales company to cover national account
selling. Management believes this new sales initiative will stem the pending
decline in service volumes as well as increase sales volumes of the other
divisions. Prospectively this new program will also emphasize expanding
maintenance revenues through the newly acquired network integration and
cartridge remanufacturing divisions' customer bases. The new divisions' present
Arizona only territory will also be expanded to include all the Company's
operating territories.
Integration Service Revenues
The sixty-four percent (64%) decline in Integration revenues for the
six (6) months ended June 30, 2000 compared to 1999 occurred as a result of
fewer equipment sales at both OneSource and Net Express in the quarter this year
compared to last. This trend reflects the historical incidental nature of
equipment sales that has existed in the past at OneSource. In 1999, as the
Company focused its limited sales resources on expanding service operations, the
equipment sales contribution to total consolidated revenues declined.
Equipment sales and integration services from Net Express increased in
the quarter ended June 30, 2000 compared to the first quarter of 2000 by $40,925
or almost three hundred percent (300%). The increase is a function of the
division completing an integration project that had been pushed back from the
first quarter.
The in-house sales program should help in this regard as it will focus
on products and services that don't require significant forward capital
commitments. Doing so will mitigate the division's historical reliance on
network installation services and network equipment placement. The division will
continue to contribute additional sales of PCs/Servers and peripherals
prospectively, but this type of equipment generally yields very low margins,
[five percent (5%) to ten percent (10%) on average]. Accordingly, management is
emphasizing the network support, Internet connectivity and remote network
support services portion of this business with their attendant much higher
profit margins and/or higher volume opportunities.
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Supplies Revenues
Historically the Company hasn't focused on supplies and parts sales but
prospectively management intends to significantly expand this portion of the
business. This in fact was the impetuous for the cartridge remanufacturing
company's acquisition in September 1999. The $380,524 increase in supply sales
for the six (6) months ended March 30, 2000 compared to the same period in 1999
is substantially all due to the cartridge sales of this division. Supply sales
were down about $28,236 or thirteen percent (13%) in the second quarter compared
to the first quarter of 2000 as a reflection of the Company's decision to
channel the division's product offerings through the Company's new Internet
distribution channel, GOINK.com.
Management intends to substantially expand this product line because
it's equipment contract maintenance customer base has thousands of laser
printers under contracts, all of which utilize toner cartridges. In this regard
management has incorporated a new e-commerce company, GOINK.com, Inc., to be the
cartridge divisions on-line Internet fulfillment delivery system. This site will
be available to anyone on the Internet in addition to the Company's customer
base. The GOINK.com site was launched in beta test mode in late March and went
live in August 2000.
Profit Margins
Gross margins in each division were mixed for the six months ended June
30, 2000 compared to those of the same period in 1999 as shown in the following
table:
Gross Profit 2000 % 1999 %
------------------------ ---------- -------- ---------- -------
Maintenance Services $546,913 43.8 $414,546 49.3
Integration Services (21,896) (31.9) 23,145 12.1
Supplies 110,515 27.6 (18,962) (96)
------------------------ ---------- -------- ---------- -------
Maintenance gross margin percentage of 43.8% for the six (6) months
ended June 30, 2000 is down from the forty nine percent (49%) rate for the same
period in 1999 which approximated the Company's target 50% hurdle rate for
Maintenance services. This is a function of the Company's significant expansion
in service volumes in the second half of 1999 and parts procurement and
logistics problems encountered in the last few weeks of 1999 that persisted
through the first quarter of 2000. To support the higher service volumes the
Company invested in additional supervisory staff resources in the second half of
1999 and incurred higher than anticipated new contract startup costs in
connection with expanded work at a couple of the Company's largest customers
which adversely impacted first half 2000 service margins. Also contributing to
the lower margin was a higher than budgeted parts usage rate in the first
quarter of almost seventeen percent (17%), which is substantially above the
Company's normal six percent (6%) to eight percent (8%) rate. Appropriate
process changes were identified and implemented in the latter month of the first
quarter to fix the parts usage situation and management is confident Maintenance
margins will elevate to the higher historical rates in the future. Management is
also looking for the new in-house sales program backfill additional Maintenance
volumes in areas where the Company isn't fully utilizing field service
professionals to further increase Maintenance margins toward its target fifty
percent (50%) rate.
Management believes service margins higher than the Company's fifty
percent (50%) hurdle rate can also be prospectively achieved as the business
matures. As new business is added, it's not always
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<PAGE>
possible to sustain the fifty percent (50%) hurdle rate. Timing of new business
as well as the amount of required spares and parts to support new contracts are
variables that directly impact service gross margins. The Company's Maintenance
service model however is based on a fifty percent (50%) service gross margin and
management is committed to achieving this rate.
The drop in equipment sales and delays in new Integration projects in
the first quarter discussed above, account for the negative margin in
Integration division operations. Prospectively, management anticipates a gross
margin rate closer to the Company's historical thirty percent (30%) equipment
gross profit for Integrations operations as volumes pick up in succeeding
quarters.
General and Administrative Costs
G&A costs for the quarter and six (6) months ended June 30, 2000
compared to the same periods in 1999 continued to increase reaching their peak
at the end of June 2000. In light of the coming decrease in service revenues and
the problems encountered in the Integration division, management embarked on a
cost control and cutting program to in the second quarter arrest all cost
categories, particularly G&A costs.
Most of the general and administrative cost increases for the first
half of 2000 compared to 1999 were incurred at OneSource corporate. G&A costs
between periods from acquired operations only contributed about thirteen percent
(13%) of the 2000 increase compared to 1999 and most of these costs were in the
new cartridge supplies division.. Most of the dollar increases therefore in both
periods is the result of added costs in corporate operations incurred in
anticipation of supporting the expected higher level of consolidated operations.
The following table shows these costs for the six months ended June 30 2000 and
1999.
Administrative Costs 2000 1999
-------------------------------------------------- ------------ -----------
Officer and Administrative Payroll $276,132 $158,754
Facilities 100,020 57,093
Employee Benefits and Medical and Casualty 55,833 28,724
Insurance
Travel and Entertainment 44,083 21,712
Legal and Professional Fees 100,730 79,862
Other 163,589 24,069
------------ -----------
Total $740,144 $370,214
-------------------------------------------------- ------------ -----------
The increase in administrative costs between periods reflects the
Company's expanded infrastructure in support of the increase in Company
operations. The greater administrative cost also contributed most of the loss in
the quarter and year-to-date periods. Administrative costs of $409,130 in the
three-month period ended March 31, 2000 represented about forty-six percent
(46%) of total revenues versus twenty-eight (28%) for the same period in 1999.
During the second quarter of 2000 management was able to trim total G&A costs to
$331,014 or forty percent (40%) of total revenues in the quarter by terminating
some G&A positions and related benefits as well as by reducing expenses in all
cost categories
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<PAGE>
Substantially all the increase in facility costs is the result of the
relocation and consolidation of all Company operations into new facilities in
November 1999. The new location is larger and better able to accommodate present
as well as future space requirements. Total rents and related utility costs are
significantly higher than the combined smaller locations of the three divisions'
prior facilities. The larger facilities were required to permit consolidation of
all the Company's operations under one roof, a function that will save costs
prospectively. Further, the cartridge division's facility costs for 1999 are not
included in the figures for the six-months ended June 30, 1999 since Cartridge
Care wasn't acquired until September 1999.
While employee benefits and insurance expense for the six-months ended
June 30, 2000 increased compared to the same period in 1999 they we down in the
second quarter of 2000 compared to the quarter ended March 31, 2000 because of
the reduced administrative employee count and their related benefits. Legal and
professional expenses increased one hundred and seventy percent (170%) during
the first quarter of 2000 compared to the same period in 1999 but during the
second quarter 2000 these costs were lowered approximately $10,000 or twenty
percent (20%) from the amount incurred in the first quarter ended March 31,
2000.
Much of the historical increase in administrative costs resulted from
the increased infrastructure of the Company in support of the planned future
level of operations. During the second quarter management moved to reverse this
trend in light of the anticipated near term decline in revenues and the delay
encountered in initiating the Company's in-house sales program. Until revenues
are increased, management is committed to reduce costs so they are more in line
with present revenues. Doing so will burn less capital and afford the Company
with sufficient capital to successfully roll out the sales plan. It is also
anticipated that new revenues will absorb administrative costs over time and
bring the percentage of G&A costs more in line with planned results.
Selling Expenses
Selling expenses of $49,542 for the three (3) months ended June 30,
2000 are down about eighteen percent (18%) from first quarter 2000 selling costs
of $60,328. This is a function of the delay that continued through the second
quarter of initiating the Company's in-house sales program. Substantially all
the cost increases in this category as of the six (6) months ended June 30, 2000
compared to the same period in 1999 are the result of a) the newly acquired
cartridge division and b) commissions paid in connection with the increased new
business generated in the fourth quarter of 1999 The contract sales organization
is compensated on a commission only basis whereas employee salespeople are
compensated via salary plus commission arrangements. Management anticipates this
cost category will increase proportionally as the Company builds its internal
expansion momentum.
Operating Loss
The increase in operating loss for the three (3) months and six (6)
months ended June 30, 2000 compared to the same period in 1999 is the result of
a) higher costs incurred in expanding the overall volume of business operations,
b) costs incurred in fully assimilating new acquisitions and c) higher than
anticipated Maintenance service delivery costs and parts usage rates.
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<PAGE>
Other Income and Expenses
Income and (Expenses) 2000 1999
-------------------------------- ------------ -----------
Interest Expense $ (24,279) $ (14,162)
Other Income (Expense) (6,369) 1,489
-------------------------------- ------------ -----------
Interest expense increased in the quarter ended June 30, 2000 compared
to March 31, 2000, because of an increase in outstanding interest bearing debt
of the two (2) acquired subsidiaries. The extraordinary gain in the Statement of
Operations in the first quarter of 2000 was the result of the cancellation and
satisfaction of the outstanding debt incurred in the leveraged buyout in July
1997.
Financial Condition
While financing initiatives initiated in 1999 helped the Company, it
continued to operate in a tight cash position as of June 30, 2000. The Company
is working with a number of investment professionals to secure additional
capital funding commitments in support of the Company's capital requirements.
Management is confidant suitable funding sources will be obtained in 2000.
The following sets forth selected financial condition information at
June 30, 2000 compared to December 31, 1999:
Balance Sheet - 2000 1999
------------ ----------
Working Capital $ (26,668) $(157,963)
Total Assets 1,629,958 773,779
Debt Obligations 165,892 459,165
Shareholders' Equity 609,827 (301,393)
------------------------- ------------ ----------
Operating account balances in a number of balance sheet accounts
increased in the quarter ended June 30, 2000 compared to the corresponding
amounts at December 31, 1999. Payables, and inventories are up and accruals,
receivables and deferred revenues decreased. The decrease in deferred revenue
reflects the slow down of expansion in maintenance service volumes and the
decrease in accruals is largely due to payments made for outstanding payroll
taxes accrual. The size of increase in payables and inventories is not
significant and also reflects the slowing nature of the Company's service
volumes, pending the ramp up of the new in-house sales program. The Company's
current ratio slipped at June 30, 2000 to .97 compared to 1.12 as of December
31. Total assets dropped slightly at June 30, 2000 compared to December 31, 1999
and stockholders equity remained a positive balance as of June 30, 2000.
To further improve the Company's financial position, the Company and a
group of investors executed an agreement on March 4, 2000 with PF to purchase
the promissory note held by PF with a face value of $285,000 and accrued
interest of $36,972 for $150,000 in cash provided by the investors and 175,000
shares of the Company's common stock with a fair market value on March 4 of
$93,438.00. The investor group exchanged the promissory note for 643,944 shares
of OneSource stock. The investor's are restricted from selling the combined
818,944 shares of stock for a period of one (1) year. Completion of this
transaction enables the Company to now pursue traditional stand-by credit
facility financing
44
<PAGE>
arrangements with banking institutions. The Company realized and recorded an
extraordinary gain on this transaction of $63,375.
At June 30, 2000 the accrual for delinquent payroll taxes, penalties
and interest was paid down to approximately $120,000. In July 2000 the Company
successfully negotiated and memorialized an installment agreement with the IRS
wherein the Company agreed to make monthly payment of $10,000 until the balance
is satisfied.
During 1999, the Company successfully completed two (2) acquisitions
with the issuances of shares of the Company's Common Stock. While both
transactions were completed with stock, the Company did incur significant
non-operating costs for facility relocation and other costs of integrating the
operations into the consolidated group. The Company intends to acquire
additional companies in the future and will attempt to do so with issuances of
the Company's Common Stock. To the extent cash is required to finance
acquisitions, the Company will seek outside capital from investors rather than
attempt to finance the cash component from operations.
Forward-Looking Statements
This Form 10-SB includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, included or incorporated by reference in
this Form 10-SB which address activities, events or developments which the
Company expects or anticipates will or may occur in the future, including such
things as future capital expenditures (including the amount and nature thereof),
demand for the Company's products and services, expansion and growth of the
Company's business and operations, and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and its perception of historical
trends, current conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However, whether
actual results or developments will conform with the Company's expectations and
predictions is subject to a number of risks and uncertainties, general economic
market and business conditions; the business opportunities (or lack thereof)
that may be presented to and pursued by the Company; changes in laws or
regulation; and other factors, most of which are beyond the control of the
Company. Consequently, all of the forward-looking statements made in this Form
10-SB 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 or, even if substantially realized, that they will have the expected
consequence to or effects on the Company or its business or operations.
Item 3. Description of Property
In September 1999, the Company entered into a lease with EJM
Development Co., a California limited partnership for property located at 7419
East Helm Drive, Scottsdale, AZ 85260. This property serves as the Company's
headquarters, service dispatch and parts center for all the Company's
operations. The lease is for a term of five (5) years, two (2) months, for which
the Company pays rent in the amount of $9,025 for the first fourteen (14)
months, $9,370 for months fifteen (15) to twenty-six (26), $9,715 for
45
<PAGE>
months twenty-seven (27) through thirty-eight (38), $9,995 for months
thirty-nine (39) through fifty (50) and $10,270 for months fifty-one (51)
through sixty-two (62).
The Company owns no real property and its personal property consists of
furniture and fixtures, computer, peripheral and other general business
equipment utilized in the conduct of the Company's business. The Company also
has certain manufacturing equipment it uses in connection with its cartridge
remanufacturing operations.
Item 4. Security Ownership of Certain Beneficial Owners and Management:
The following table sets forth information as of December 13, 2000,
regarding the ownership of the Company's Common Stock by each shareholder known
by the Company to be the beneficial owner of more than five percent (5%) of its
outstanding shares of Common Stock, each director and all executive officers and
directors as a group. Except as otherwise indicated, each of the shareholders
has sole voting and investment power with respect to the share of Common Stock
beneficially owned.
Name and Address of Title of Amount and Nature of Percent of
Beneficial Owner Class Beneficial Owner Class
Jerry M. Washburn(3)(4) Common 3,150,000 16.4%
William B. Meger(2)(4) Common 3,345,287 17.4%
Joseph Umbach Common 968,609 5.0%
Maurice Mallette(6)(8) Common 1,002,083 5.2%
Donald C. Gause(5)(7) Common 254,000 1.3%
Norman E. Clarke Common 2,085,732 10.9%
Ford L. Williams Common 200,000 1.0%
All Executive Officers and Common 10,037,102 52.3%
Directors as a Group
(Seven (6) persons)
----------
(1) The address for each of the above is c/o OneSource Technologies, Inc.,7419
East Helm Drive, Scottsdale, AZ 85260.
(2) In November 1995, Micor, signed a promissory note in favor of William
Meger, a current Director of the Company, in the principal amount of
$40,000, which note bore interest a rate of six percent (6%) per annum. The
note had a term of five (5) years, for which interest was payable monthly
and the principal was payable as a balloon payment at the end of the term.
In April
46
<PAGE>
2000, the Company issued 60,000 shares of its Common Stock to William Meger
as full and final payment of such note. For such offering, the Company
relied upon Section 4(2) of the Act, Rule 506 and Section R14-4-140 of the
Arizona Code. See Part I, Item 1. "Employees and Consultants"; Part I, Item
4. "Security Ownership of Certain Beneficial Owners and Management"; Part
I, Item 5. "Directors, Executive Officer, Promoters and Control Persons";
Part I, Item 6. "Executive Compensation"; Part I, Item 7. "Certain
Relationships and Related Transactions"; and Part II, Item 4. "Recent Sales
of Unregistered Securities."
(3) In the first quarter of 1997, the board of directors of PF decided to sell
and spin off its wholly owned subsidiary, Micor. The board offered Micor to
the then current management team of Micor. In July 1997, Jerry Washburn,
Micor and four (4) others signed a promissory note in favor of PF in the
principal amount of $285,000. The term of the note was through April 15,
2003. In March 2000, the Company and the Investors purchased the note,
which had $285,000 in principal outstanding and an additional $36,972 of
interest outstanding, from PF for $150,000 in cash provided by the
Investors and 175,000 shares of the Company's Common Stock issued by the
Company. The Investors had the option to convert the note to shares of the
Company's Common Stock in their sole discretion. They exercised such
option, converting the full amount of the note (principal and interest) to
643,944 shares of the Common Stock of the Company. For such offering, the
Company relied upon Section 4(2) of the Act, Rule 506 and Section R14-4-140
of the Arizona Code. See Part I, Item 5. "Directors, Executive Officer,
Promoters and Control Persons"; Part I, Item 6. "Executive Compensation";
Part I, Item 7. "Certain Relationships and Related Transactions"; and Part
II, Item 4. "Recent Sales of Unregistered Securities."
(4) In July 1997, the Company entered into a share exchange agreement with
Micor and its shareholders. The exchange was made whereby the Company
issued 8,500,000 shares of its restricted Common Stock to the shareholders
of Micor for all of the issued and outstanding stock of Micor. Jerry
Washburn, the current President, Chief Executive Officer and Chairman of
the Company, received 3,300,000 shares in connection with such exchange.
William B. Meger, a Director of the Company, received 3,285,287 shares.
This offering was conducted pursuant to Section 4(2) of the Act, Rule 506,
Section 44-1844(6) of the Arizona Code, Section 25103(c) of the California
Code, Section 90.530(17) of the Nevada Code and Section 61-1-14(2)(p) of
the Utah Code. See Part I, Item 5. "Directors, Executive Officer, Promoters
and Control Persons"; Part I, Item 6. "Executive Compensation"; Part I,
Item 7. "Certain Relationships and Related Transactions"; and Part II, Item
4. "Recent Sales of Unregistered Securities."
(5) In September 1998, the Company issued 750,000 shares of its Common Stock to
two (2) persons for services rendered to the Company. Donald C. Gause, a
Director, received 250,000 of the shares issued. For such offering, the
Company relied upon Section 4(2) of the Act, Rule 506, Section 14-4-126(f)
of the Arizona Code and Section 11-51-308(1)(j) of the Colorado Code. See
Part I, Item 5. "Directors, Executive Officer, Promoters and Control
Persons"; Part I, Item 6. "Executive Compensation"; Part I, Item 7.
"Certain Relationships and Related Transactions"; and Part II, Item 4.
"Recent Sales of Unregistered Securities."
(6) In September 1999, the Company entered into a share exchange agreement with
the shareholders of CC, whereby the Company exchanged 1,887,500 shares of
its Common Stock for one hundred
47
<PAGE>
percent (100%) of the issued and outstanding stock of CC such that CC
became a wholly-owned subsidiary of the Company. Of the 1,887,500 shares to
be issued in connection with the exchange, 1,125,000 shares are subject to
a two (2) year "lock-up" provision and the remaining 762,500 shares are not
contractually restricted (but are restricted by Rule 144). 562,500 of the
LU Shares and 381,250 of the remaining shares are beneficially owned by
Maurice Mallette, a current Director of the Company and the President of
CC. In June 2000, the Company entered into a letter agreement with Maurice
Mallette, Judith Mallette and Pasquale Rizzi to escrow 723,612 shares of
the Common Stock of the Company issued in connection with the acquisition
of Cartridge Care, Inc. in September 1999. The escrowed shares will be held
pending an investigation by OneSource into the books and records of
Cartridge Care. Whereas, all shares have now been issued and none are
contingently issuable shares, it is contemplated that some shares may be
cancelled and returned to the authorized but unissued capital stock of
OneSource should the valuation of Cartridge Care conducted at the time of
acquisition by OneSource found to be overstated. For such offering the
Company relied upon Section 4(2) of the Act, Rule 506 and Section
44-1844(6) of the Arizona Code. See Part I, Item 5. "Directors, Executive
Officer, Promoters and Control Persons"; Part I, Item 6. "Executive
Compensation"; Part I, Item 7. "Certain Relationships and Related
Transactions"; and Part II, Item 4. "Recent Sales of Unregistered
Securities."
(7) In April 2000, the Company issued 97,374 shares of its Common Stock to
eighteen (18) current or former employees to compensate them for past
salary reductions or in lieu of past salary increases for their services as
employees during periods since 1997. Donald Gause, a Director, received
4,000 shares in connection with such issuance. For such offering the
Company relied upon Section 4(2), Rule 506, Section R14-4-140 of the
Arizona Code, Section 25102(f) of the California Code, Section
11-51-308(1)(p) of the Colorado Code, Section 90.532 of the Nevada Code,
Section 58-13B-24(R) of the New Mexico Code and Section
61-1-15.5(2)&R164-15-2 of the Utah Code. See Part I, Item 5. "Directors,
Executive Officer, Promoters and Control Persons"; Part I, Item 6.
"Executive Compensation"; Part I, Item 7. "Certain Relationships and
Related Transactions"; and Part II, Item 4. "Recent Sales of Unregistered
Securities."
(8) In July 2000, the Company issued 10,000 shares of its Common Stock to one
(1) individual in exchange for a client list of computer service customers,
the remainder of the previously contracted for but unissued shares
(943,750) in connection with the CC acquisition, 13,166 shares to one (1)
past employee for out-of-pocket expenses, 90,000 shares to one (1) investor
for $30,000, 8,319 shares to one (1) individual for past accounting
services rendered, 40,000 shares to one (1) individual who is an active
employee as a signing bonus, 58,333 shares to Maurice Mallette, the
Company's current Interim Vice President, President of CC and a Director in
exchange for $17,500 and 75,000 shares to one (1) individual for his
services as a headhunter who brought potential employees to the Company.
For such offering, the Company relied upon Section 4(2) of the Act, Rule
506, Section R14-4-140 of the Arizona Code, Section 25102(f) of the
California Code, Section 90.532 of the Nevada Code and Section 211(b) of
the Pennsylvania Code. See Part I, Item 5. "Directors, Executive Officer,
Promoters and Control Persons"; Part I, Item 6. "Executive Compensation";
Part I, Item 7. "Certain Relationships and Related Transactions"; and Part
II, Item 4. "Recent Sales of Unregistered Securities."
48
<PAGE>
(9) In August 2000, Steven Green, a Director of the Company resigned. Mr. Green
did not resign because of a disagreement with the registrant on any matter
relating to the registrant's operations, policies or practices. Mr. Green
did not furnish the registrant with a letter describing any disagreement,
nor did he request that any matter be disclosed. Mr. Green resigned on
August 18, 2000. The registrant believes it has disclosed all pertinent
information and the filing of a Current Report on Form 8-K as instructed by
Item 6 is not required. See Part I, Item 5. "Directors, Executive Officer,
Promoters and Control Persons"; Part I, Item 6. "Executive Compensation";
and Part I, Item 7. "Certain Relationships and Related Transactions."
There are no arrangements which may result in the change of control of
the Company.
Item 5. Directors, Executive Officers, Promoters and Control Persons:
Executive Officers and Directors
Set forth below are the names, ages, positions, with the Company and
business experiences of the executive officers and directors of the Company.
Name Age Position(s) with Company
------------------- ---- --------------------------------------
Jerry M. Washburn 56 Chairman, President, CEO
Ford L. Williams 47 Director, Treasurer and Secretary
Maurice E. Mallette 64 Director, President of Subsidiary, Interim VP
Norman E. Clarke 47 Director
Donald C. Gause 41 Director
William B. Meger 53 Director
All directors hold office until the next annual meeting of the
Company's shareholders and until their successors have been elected and qualify.
Officers serve at the pleasure of the Board of Directors. The officers and
directors will devote such time and effort to the business and affairs of the
Company as may be necessary to perform their responsibilities as executive
officers and/or directors of the Company.
In November 1995, Micor, signed a promissory note in favor of William
Meger, a current Director of the Company, in the principal amount of $40,000,
which note bore interest a rate of six percent (6%) per annum. The note had a
term of five (5) years, for which interest was payable monthly and the principal
was payable as a balloon payment at the end of the term. In April 2000, the
Company issued 60,000 shares of its Common Stock to William Meger as full and
final payment of such note. For such offering, the Company relied upon Section
4(2) of the Act, Rule 506 and Section R14-4-140 of the Arizona Code. See Part I,
Item 6. "Executive Compensation"; Part I, Item 7. "Certain Relationships and
Related Transactions"; and Part II, Item 4. "Recent Sales of Unregistered
Securities."
In the first quarter of 1997, the board of directors of PF decided to
sell and spin off its wholly owned subsidiary, Micor. The board offered Micor to
the then current management team of Micor. In July 1997, Jerry Washburn, Micor
and four (4) others signed a promissory note in favor of PF in the principal
amount of $285,000. The term of the note was through April 15, 2003. In March
2000, the
49
<PAGE>
Company and the Investors purchased the note, which had $285,000 in principal
outstanding and an additional $36,972 of interest outstanding, from PF for
$150,000 in cash provided by the Investors and 175,000 shares of the Company's
Common Stock issued by the Company. The Investors had the option to convert the
note to shares of the Company's Common Stock in their sole discretion. They
exercised such option, converting the full amount of the note (principal and
interest) to 643,944 shares of the Common Stock of the Company. For such
offering, the Company relied upon Section 4(2) of the Act, Rule 506 and Section
R14-4-140 of the Arizona Code. See Part I, Item 6. "Executive Compensation";
Part I, Item 7. "Certain Relationships and Related Transactions"; and Part II,
Item 4. "Recent Sales of Unregistered Securities."
In July 1997, the Company entered into a share exchange agreement with
Micor and its shareholders. The exchange was made whereby the Company issued
8,500,000 shares of its restricted Common Stock to the shareholders of Micor for
all of the issued and outstanding stock of Micor. Jerry Washburn, the current
President, Chief Executive Officer and Chairman of the Company, received
3,300,000 shares in connection with such exchange. William B. Meger, a Director
of the Company, received 3,285,287 shares. This offering was conducted pursuant
to Section 4(2) of the Act, Rule 506, Section 44-1844(6) of the Arizona Code,
Section 25103(c) of the California Code, Section 90.530(17) of the Nevada Code
and Section 61-1-14(2)(p) of the Utah Code. See Part I, Item 6. "Executive
Compensation"; Part I, Item 7. "Certain Relationships and Related Transactions";
and Part II, Item 4."Recent Sales of Unregistered Securities."
In September 1998, the Company issued 750,000 shares of its Common
Stock to two (2) persons for services rendered to the Company. Donald C. Gause,
a Director, received 250,000 of the shares issued. For such offering, the
Company relied upon Section 4(2) of the Act, Rule 506, Section 14-4- 126(f) of
the Arizona Code and Section 11-51-308(1)(j) of the Colorado Code. See Part I,
Item 6. "Executive Compensation"; Part I, Item 7. "Certain Relationships and
Related Transactions"; and Part II, Item 4. "Recent Sales of Unregistered
Securities."
In September 1999, the Company entered into a share exchange agreement
with the shareholders of CC, whereby the Company exchanged 1,887,500 shares of
its Common Stock for one hundred percent (100%) of the issued and outstanding
stock of CC such that CC became a wholly-owned subsidiary of the Company. Of the
1,887,500 shares to be issued in connection with the exchange, 1,125,000 shares
are subject to a two (2) year "lock-up" provision and the remaining 762,500
shares are not contractually restricted (but are restricted by Rule 144).
562,500 of the LU Shares and 381,250 of the remaining shares are beneficially
owned by Maurice Mallette, a current Director of the Company and the President
of CC. In June 2000, the Company entered into a letter agreement with Maurice
Mallette, Judith Mallette and Pasquale Rizzi to escrow 723,612 shares of the
Common Stock of the Company issued in connection with the acquisition of
Cartridge Care, Inc. in September 1999. The escrowed shares will be held pending
an investigation by OneSource into the books and records of Cartridge Care.
Whereas, all shares have now been issued and none are contingently issuable
shares, it is contemplated that some shares may be cancelled and returned to the
authorized but unissued capital stock of OneSource should the valuation of
Cartridge Care conducted at the time of acquisition by OneSource found to be
overstated. For such offering the Company relied upon Section 4(2) of the Act,
Rule 506 and Section 44-1844(6) of the Arizona Code. See Part I, Item 6.
"Executive Compensation"; Part I, Item 7. "Certain Relationships and Related
Transactions"; and Part II, Item 4. "Recent Sales of Unregistered Securities."
50
<PAGE>
In April 2000, the Company issued 97,374 shares of its Common Stock to
eighteen (18) current or former employees to compensate them for past salary
reductions or in lieu of past salary increases for their services as employees
during periods since 1997. Donald Gause, a Director, received 4,000 shares in
connection with such issuance. For such offering the Company relied upon Section
4(2), Rule 506, Section R14-4-140 of the Arizona Code, Section 25102(f) of the
California Code, Section 11-51- 308(1)(p) of the Colorado Code, Section 90.532
of the Nevada Code, Section 58-13B-24(R) of the New Mexico Code and Section
61-1-15.5(2)&R164-15-2 of the Utah Code. See Part I, Item 6. "Executive
Compensation"; Part I, Item 7. "Certain Relationships and Related Transactions";
and Part II, Item 4."Recent Sales of Unregistered Securities."
In July 2000, the Company issued 10,000 shares of its Common Stock to
one (1) individual in exchange for a client list of computer service customers,
the remainder of the previously contracted for but unissued shares (943,750) in
connection with the CC acquisition, 13,166 shares to one (1) past employee for
out-of-pocket expenses, 90,000 shares to one (1) investor for $30,000, 8,319
shares to one (1) individual for past accounting services rendered, 40,000
shares to one (1) individual who is an active employee as a signing bonus,
58,333 shares to Maurice Mallette, the Company's current Interim Vice President,
President of CC and a Director in exchange for $17,500 and 75,000 shares to one
(1) individual for his services as a headhunter who brought potential employees
to the Company. For such offering, the Company relied upon Section 4(2) of the
Act, Rule 506, Section R14-4-140 of the Arizona Code, Section 25102(f) of the
California Code, Section 90.532 of the Nevada Code and Section 211(b) of the
Pennsylvania Code. See Part I, Item 6. "Executive Compensation"; Part I, Item 7.
"Certain Relationships and Related Transactions"; and Part II, Item 4. "Recent
Sales of Unregistered Securities."
In August 2000, Steven Green, a Director of the Company resigned. Mr.
Green did not resign because of a disagreement with the registrant on any matter
relating to the registrant's operations, policies or practices. Mr. Green did
not furnish the registrant with a letter describing any disagreement, nor did he
request that any matter be disclosed. Mr. Green resigned on August 18, 2000. The
registrant believes it has disclosed all pertinent information and the filing of
a Current Report on Form 8-K as instructed by Item 6 is not required. See Part
I, Item 6. "Executive Compensation"; and Part I, Item 7. "Certain Relationships
and Related Transactions."
Family Relationships
There are no family relationships between or among the executive
officers and directors of the Company.
Business Experience
Jerry Washburn, age 56, has over thirty (30) years of financial and
administrative experience in a variety of business situations. Jerry, a CPA,
spent ten (10) years with Arthur Andersen & Co., LLC where among other things he
managed two (2) of that firm's Fortune 200 audit clients. Following Andersen,
Mr. Washburn served as President of Total Information Systems, Inc., ("TIS") for
eight (8) years, during which time he successfully guided this vertical market
computer software company from its inception and startup through eventual sale
in 1989. At the time of its sale TIS had over three hundred (300) customer
installations in forty-one (41) states and five (5) provinces. Prior to joining
the Company, he worked for a number of closely held business owners as an
advisor on a variety of financial and operational matters. Mr. Washburn has a BS
degree in Accounting from Brigham Young University.
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<PAGE>
Ford L. Williams, age 47, serves as OneSource's Controller, Secretary/
Treasurer and a Director. Mr. Williams has twenty-three (23) years of
progressively challenging experience in a variety of senior financial positions.
He was Corporate Controller for First Interstate Bank's (now Wells Fargo Bank)
Arizona operations. Other noteworthy positions include deputy CFO for a $660
million business bank, international finance controller for Security Pacific
Corporation and division auditor with RCA. Mr. Williams holds a BA in Economics
from the University of California at Santa Barbara and a Masters in Business
Administration from University of Southern California with an emphasis in
financial administration.
Maurice Mallette, age 64, has over thirty years (30) of administration
and operational experience. Maurice, and engineer spent thirty (30) years with
Avon Products Inc. where, among other things, he was responsible for the
company's Asian, Latin American and European operations. Maurice has a BS degree
in Engineering from the University of Montreal.
Norman Clarke, age 47, has a diversified background in finance, sales
and marketing, specializing in technology companies. Clarke has over twenty
years (20) experience in turnaround, venture capital fund-raising and pre IPO
situations. Mr. Clarke has held management positions with MCI Corporation, AT&T
Corporation, ICOT Corporation and Phoenix based Three-Five Systems, Inc. While
at Three-Five Systems Clarke was a key management team member that initiated the
company's rapid growth and initial public offering. Clarke has a BA degree from
Michigan State University and an MBA from Wayne State University.
Donald Gause, age 41, has over fourteen years (14) of experience, seven
(7) years of which were with Clifton, Gunderson & Co., a regional CPA firm. Don
also spent three (3) years as Controller of Blockbuster Video's largest Arizona
Franchisee prior to its sale to Blockbuster Corporate. Prior to joining
OneSource in the summer of 1998, Don spent three (3) years as Managing Director
of a multi- location franchisee of Blimpie Subs & Salads. Gause has a BS degree
in Accounting from Arizona State University.
William Meger, age 53, has over twenty-seven (27) years of experience
in the electronics and equipment service industry gained through several
positions with a number of business equipment manufacturers prior to founding
OneSource in 1984. In addition to assisting with new business development in the
banking and retail industries, Meger provides a valuable wealth of knowledge and
experience in all facets of the equipment service industry. He is also well
known and respected in the banking industry and has a significant network of
contacts in that industry.
Item 6. Executive Compensation
The following sets forth the compensation paid to the Company's executive
officers.
52
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<TABLE>
<CAPTION>
Long-term Compensation
Annual Compensation Awards Payouts Other
------------------------- ------------------------------ ------
Fiscal Restricted Number of LTIP All Other
Name & Position Year Salary Bonus Other Stock Securities/ Payments Compen-
Awards SARs sation
------------------------- ----- ------- ------ ----- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jerry M. Washburn, 1999 $51,000 $ 0.00 $0.00 $60,000 200,000 $0.00 $ 0.00
CEO & President 1998 $25,457 $ 0.00 $0.00 $0.00 None $0.00 $ 0.00
1997 $56,708 $ 0.00 $0.00 $0.00 None $0.00 $ 0.00
Donald C. Gause, 1999 $46,200 $ 0.00 $0.00 $75,000 250,000 $0.00 $ 0.00
Director (former Secretary 1998 $12,250 $ 0.00 $0.00 $0.00 None $0.00 $ 0.00
and Treasurer)
William B. Meger, 1999 $24,792 $ 0.00 $0.00 $0.00 None $0.00 $ 0.00
Director and sales person 1998 $ 5,833 $ 0.00 $3,933 $0.00 None $0.00 $ 0.00
Maurice E. Mallette 1999 37,500 $ 0.00 $0.00 $0.00 None $0.00 $ 0.00
Daniel C. Webb 1999 41,500 $ 0.00 $79,800 $0.00 None $0.00 $ 0.00
Vice President - Sales 1998 $6,000 $ 0.00 $13,138 $0.00 None $0.00 $ 0.00
</TABLE>
(1) All other compensation includes certain health and life insurance benefits
paid by the Company on behalf of its employee.
(2) Mr. Gause started with the Company in June 1998.
(3) During 1998, Mr. Washburn and Mr. Washburn were not paid regular salaries
but took draws in lieu thereof as cash flows permitted. The amounts shown
as "salaries" represent the total of each officer's draws for 1998.
(4) In addition to his Director position, Meger was employed by the Company as
a sales person in 1998 and 1999. Meger's "other compensation" consisted of
sales commissions paid for services rendered.
(5) Mallette is President of the Company's wholly owned subsidiary, Cartridge
Care, Inc. and a Director of the Company.
(6) Webb started with the Company in mid 1998 and was an officer and director
in 1998 and part of 1999 but as of December 31, 1999, he was a commission
sales person only. Webb's "other" compensations consisted of sales
commissions paid in 1998 and 1999 for services.
(7) None of the Directors are compensated for their Director activities on
behalf of the Company.
(8) In November 1995, Micor, signed a promissory note in favor of William
Meger, a current Director of the Company, in the principal amount of
$40,000, which note bore interest a rate of six percent (6%) per annum. The
note had a term of five (5) years, for which interest was payable monthly
and the principal was payable as a balloon payment at the end of the term.
In April 2000, the Company issued 60,000 shares of its Common Stock to
William Meger as full and final payment of such note. For such offering,
the Company relied upon Section 4(2) of the Act, Rule
53
<PAGE>
506 and Section R14-4-140 of the Arizona Code. See Part I, Item 1.
"Employees and Consultants"; Part Part I, Item 7. "Certain Relationships
and Related Transactions"; and Part II, Item 4. "Recent Sales of
Unregistered Securities."
(9) In the first quarter of 1997, the board of directors of PF decided to sell
and spin off its wholly owned subsidiary, Micor. The board offered Micor to
the then current management team of Micor. In July 1997, Jerry Washburn,
Micor and four (4) others signed a promissory note in favor of PF in the
principal amount of $285,000. The term of the note was through April 15,
2003. In March 2000, the Company and the Investors purchased the note,
which had $285,000 in principal outstanding and an additional $36,972 of
interest outstanding, from PF for $150,000 in cash provided by the
Investors and 175,000 shares of the Company's Common Stock issued by the
Company. The Investors had the option to convert the note to shares of the
Company's Common Stock in their sole discretion. They exercised such
option, converting the full amount of the note (principal and interest) to
643,944 shares of the Common Stock of the Company. For such offering, the
Company relied upon Section 4(2) of the Act, Rule 506 and Section R14-4-140
of the Arizona Code. See Part I, Item 7. "Certain Relationships and Related
Transactions"; and Part II, Item 4. "Recent Sales of Unregistered
Securities."
(10) In July 1997, the Company entered into a share exchange agreement with
Micor and its shareholders. The exchange was made whereby the Company
issued 8,500,000 shares of its restricted Common Stock to the shareholders
of Micor for all of the issued and outstanding stock of Micor. Jerry
Washburn, the current President, Chief Executive Officer and Chairman of
the Company, received 3,300,000 shares in connection with such exchange.
William B. Meger, a Director of the Company, received 3,285,287 shares.
This offering was conducted pursuant to Section 4(2) of the Act, Rule 506,
Section 44-1844(6) of the Arizona Code, Section 25103(c) of the California
Code, Section 90.530(17) of the Nevada Code and Section 61-1-14(2)(p) of
the Utah Code. See Part I, Item 7. "Certain Relationships and Related
Transactions"; and Part II, Item 4. "Recent Sales of Unregistered
Securities."
(11) In September 1998, the Company issued 750,000 shares of its Common Stock to
two (2) persons for services rendered to the Company. Donald C. Gause, a
Director, received 250,000 of the shares issued. For such offering, the
Company relied upon Section 4(2) of the Act, Rule 506, Section 14-4-126(f)
of the Arizona Code and Section 11-51-308(1)(j) of the Colorado Code. See
Part I, Item 7. "Certain Relationships and Related Transactions"; and Part
II, Item 4. "Recent Sales of Unregistered Securities."
(12) In September 1999, the Company entered into a share exchange agreement with
the shareholders of CC, whereby the Company exchanged 1,887,500 shares of
its Common Stock for one hundred percent (100%) of the issued and
outstanding stock of CC such that CC became a wholly-owned subsidiary of
the Company. Of the 1,887,500 shares to be issued in connection with the
exchange, 1,125,000 shares are subject to a two (2) year "lock-up"
provision and the remaining 762,500 shares are not contractually restricted
(but are restricted by Rule 144). 562,500 of the LU Shares and 381,250 of
the remaining shares are beneficially owned by Maurice Mallette, a current
Director of the Company and the President of CC. In June 2000, the Company
entered into a letter agreement with Maurice Mallette, Judith Mallette and
Pasquale Rizzi to escrow
54
<PAGE>
723,612 shares of the Common Stock of the Company issued in connection with
the acquisition of Cartridge Care, Inc. in September 1999. The escrowed
shares will be held pending an investigation by OneSource into the books
and records of Cartridge Care. Whereas, all shares have now been issued and
none are contingently issuable shares, it is contemplated that some shares
may be cancelled and returned to the authorized but unissued capital stock
of OneSource should the valuation of Cartridge Care conducted at the time
of acquisition by OneSource found to be overstated. For such offering the
Company relied upon Section 4(2) of the Act, Rule 506 and Section
44-1844(6) of the Arizona Code. See Part I, Item 7. "Certain Relationships
and Related Transactions"; and Part II, Item 4. "Recent Sales of
Unregistered Securities."
(13) In April 2000, the Company issued 97,374 shares of its Common Stock to
eighteen (18) current or former employees to compensate them for past
salary reductions or in lieu of past salary increases for their services as
employees during periods since 1997. Donald Gause, a Director, received
4,000 shares in connection with such issuance. For such offering the
Company relied upon Section 4(2), Rule 506, Section R14-4-140 of the
Arizona Code, Section 25102(f) of the California Code, Section
11-51-308(1)(p) of the Colorado Code, Section 90.532 of the Nevada Code,
Section 58-13B-24(R) of the New Mexico Code and Section
61-1-15.5(2)&R164-15-2 of the Utah Code. Part I, Item 7. "Certain
Relationships and Related Transactions"; and Part II, Item 4. "Recent Sales
of Unregistered Securities."
(14) In July 2000, the Company issued 10,000 shares of its Common Stock to one
(1) individual in exchange for a client list of computer service customers,
the remainder of the previously contracted for but unissued shares
(943,750) in connection with the CC acquisition, 13,166 shares to one (1)
past employee for out-of-pocket expenses, 90,000 shares to one (1) investor
for $30,000, 8,319 shares to one (1) individual for past accounting
services rendered, 40,000 shares to one (1) individual who is an active
employee as a signing bonus, 58,333 shares to Maurice Mallette, the
Company's current Interim Vice President, President of CC and a Director in
exchange for $17,500 and 75,000 shares to one (1) individual for his
services as a headhunter who brought potential employees to the Company.
For such offering, the Company relied upon Section 4(2) of the Act, Rule
506, Section R14-4-140 of the Arizona Code, Section 25102(f) of the
California Code, Section 90.532 of the Nevada Code and Section 211(b) of
the Pennsylvania Code. See Part I, Item 7. "Certain Relationships and
Related Transactions"; and Part II, Item 4. "Recent Sales of Unregistered
Securities."
(15) In August 2000, Steven Green, a Director of the Company resigned. Mr. Green
did not resign because of a disagreement with the registrant on any matter
relating to the registrant's operations, policies or practices. Mr. Green
did not furnish the registrant with a letter describing any disagreement,
nor did he request that any matter be disclosed. Mr. Green resigned on
August 18, 2000. The registrant believes it has disclosed all pertinent
information and the filing of a Current Report on Form 8-K as instructed by
Item 6 is not required. See Part I, Item 7. "Certain Relationships and
Related Transactions."
The following table sets forth the officers and Directors that were
granted stock options in 1999 for share of the Company's Common Stock:
55
<PAGE>
<TABLE>
<CAPTION>
Option/SAR Grants in 1999
Individual Grants
% of Total Options/SARs
Number of Securities Granted to Employees in Exercise or Base
Name & Position Options/SARs Granted Fiscal Year Price per share Expiration Date)
------------------- -------------------- ----------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Jerry M. Washburn, 200,000 28.6% $0.55 15 October 2002
John L. Day 250,000 35.7% $0.55 15 October 2002
(former off/dir)
Donald C. Gause, 250,000 35.7% $0.55 15 October 2002
</TABLE>
Employee Contracts and Agreements
The Company has not entered into Employee Agreements with its officers
and directors, but intends to enter into formal contracts with each of them in
the near future.
Key Man Life Insurance
The Company intends to apply for Key Man Life Insurance and
Officer/Director Insurance upon becoming a reporting company under the 1934 Act.
Employee and Consultants Stock Option Plans
There is currently no employee nor consultant stock option plan in
place, although the Company plans to submit such a plan or plans to the
shareholders in the future.
Compensation of Directors
The Company has no standard arrangements for compensating the directors
of the Company for their attendance at meetings of the Board of Directors.
Item 7. Certain Relationships and Related Transactions
In November 1995, Micor, signed a promissory note in favor of William
Meger, a current Director of the Company, in the principal amount of $40,000,
which note bore interest a rate of six percent (6%) per annum. The note had a
term of five (5) years, for which interest was payable monthly and the principal
was payable as a balloon payment at the end of the term. In April 2000, the
Company issued 60,000 shares of its Common Stock to William Meger as full and
final payment of such note. For such offering, the Company relied upon Section
4(2) of the Act, Rule 506 and Section R14-4-140 of the Arizona Code. See Part
II, Item 4. "Recent Sales of Unregistered Securities."
In the first quarter of 1997, the board of directors of PF decided to
sell and spin off its wholly owned subsidiary, Micor. The board offered Micor to
the then current management team of Micor.
56
<PAGE>
In July 1997, Jerry Washburn, Micor and four (4) others signed a promissory note
in favor of PF in the principal amount of $285,000. The term of the note was
through April 15, 2003. In March 2000, the Company and the Investors purchased
the note, which had $285,000 in principal outstanding and an additional $36,972
of interest outstanding, from PF for $150,000 in cash provided by the Investors
and 175,000 shares of the Company's Common Stock issued by the Company. The
Investors had the option to convert the note to shares of the Company's Common
Stock in their sole discretion. They exercised such option, converting the full
amount of the note (principal and interest) to 643,944 shares of the Common
Stock of the Company. For such offering, the Company relied upon Section 4(2) of
the Act, Rule 506 and Section R14-4-140 of the Arizona Code. See Part II, Item
4. "Recent Sales of Unregistered Securities."
In July 1997, the Company entered into a share exchange agreement with
Micor and its shareholders. The exchange was made whereby the Company issued
8,500,000 shares of its restricted Common Stock to the shareholders of Micor for
all of the issued and outstanding stock of Micor. Jerry Washburn, the current
President, Chief Executive Officer and Chairman of the Company, received
3,300,000 shares in connection with such exchange. William B. Meger, a Director
of the Company, received 3,285,287 shares. This offering was conducted pursuant
to Section 4(2) of the Act, Rule 506, Section 44-1844(6) of the Arizona Code,
Section 25103(c) of the California Code, Section 90.530(17) of the Nevada Code
and Section 61-1-14(2)(p) of the Utah Code. See Part II, Item 4. "Recent Sales
of Unregistered Securities."
In September 1998, the Company issued 750,000 shares of its Common
Stock to two (2) persons for services rendered to the Company. Donald C. Gause,
a Director, received 250,000 of the shares issued. For such offering, the
Company relied upon Section 4(2) of the Act, Rule 506, Section 14-4- 126(f) of
the Arizona Code and Section 11-51-308(1)(j) of the Colorado Code. See Part II,
Item 4. "Recent Sales of Unregistered Securities."
In April 1999, the Company entered into a share exchange agreement with
the shareholders of NE, whereby the Company exchanged 727,946 shares of its
Common Stock for one hundred percent (100%) of the issued and outstanding stock
of NE such that NE became a wholly-owned subsidiary of the Company. The shares
in connection with such exchange were not issued until December 1999. For such
offering, the Company relied upon Section 4(2) of the Act, Rule 506 and Section
44-1844(6) of the Arizona Code. See Part II, Item 4. "Recent Sales of
Unregistered Securities".
Contemporaneously with execution of the share exchange with NE, the
Company signed a redemption agreement which effectively allowed either party to
the transaction to rescind the transaction without penalty at any time on or
before July 1, 1999. Neither party elected to redeem and the redemption
agreement has since expired. Additionally, at the time of the NE share exchange,
the Company entered into an employment agreement with Ahlawyss Fulton, which has
since expired.
In September 1999, the Company entered into a share exchange agreement
with the shareholders of CC, whereby the Company exchanged 1,887,500 shares of
its Common Stock for one hundred percent (100%) of the issued and outstanding
stock of CC such that CC became a wholly-owned subsidiary of the Company. Of the
1,887,500 shares to be issued in connection with the exchange, 1,125,000 shares
are subject to a two (2) year "lock-up" provision and the remaining 762,500
shares are not contractually
57
<PAGE>
restricted (but are restricted by Rule 144). 562,500 of the LU Shares and
381,250 of the remaining shares are beneficially owned by Maurice Mallette, a
current Director of the Company and the President of CC. In June 2000, the
Company entered into a letter agreement with Maurice Mallette, Judith Mallette
and Pasquale Rizzi to escrow 723,612 shares of the Common Stock of the Company
issued in connection with the acquisition of Cartridge Care, Inc. in September
1999. The escrowed shares will be held pending an investigation by OneSource
into the books and records of Cartridge Care. Whereas, all shares have now been
issued and none are contingently issuable shares, it is contemplated that some
shares may be cancelled and returned to the authorized but unissued capital
stock of OneSource should the valuation of Cartridge Care conducted at the time
of acquisition by OneSource found to be overstated. For such offering the
Company relied upon Section 4(2) of the Act, Rule 506 and Section 44-1844(6) of
the Arizona Code. See Part II, Item 4. "Recent Sales of Unregistered
Securities."
In April 2000, the Company issued 305,000 shares of its Common Stock to
four (4) employees as signing bonuses to attract them to the Company. For such
offering the Company relied upon Section 4(2), Rule 506, Section R14-4-140 of
the Arizona Code and Section 11-51-308(1)(p) of the Colorado Code. See Part II,
Item 4. "Recent Sales of Unregistered Securities."
In April 2000, the Company issued 97,374 shares of its Common Stock to
eighteen (18) current or former employees to compensate them for past salary
reductions or in lieu of past salary increases for their services as employees
during periods since 1997. Donald Gause, a Director, received 4,000 shares in
connection with such issuance. For such offering the Company relied upon Section
4(2), Rule 506, Section R14-4-140 of the Arizona Code, Section 25102(f) of the
California Code, Section 11-51- 308(1)(p) of the Colorado Code, Section 90.532
of the Nevada Code, Section 58-13B-24(R) of the New Mexico Code and Section
61-1-15.5(2)&R164-15-2 of the Utah Code. See Part II, Item 4. "Recent Sales of
Unregistered Securities."
In June 2000, the Company granted XAI an option to purchase two million
(2,000,000) shares of the Common Stock of the "freely tradeable shares" of the
Company at a price of $0.50 per share. The option is for a period of one (1)
year unless XAI introduces or arranges for an acceptable "secondary offering"
approved by the Company, and in which case the term of the option is extended
until June 1, 2003. The option has since been terminated by mutual agreement of
the parties. For such offering, the Company relied upon Section 4(2) of the Act,
Rule 506 and Section 49:3-50(b)(9) of the New Jersey Code. See Part II, Item 4.
"Recent Sales of Unregistered Securities."
In June 2000, the Company entered into a agreement wherein the Company
agreed to pay a finder's fee to XAI for any debt or equity investment,
acquisition, consolidation, merger or purchase of assets between the Company and
any contact of XAI brought to the Company's attention by XAI, which was
consummated within a period of twenty-four (24) months thereafter. The finder's
fee is as follows: a) five percent (5%) of the first million dollars
($1,000,000) raised; b) four percent (4%) of the second million dollars
($1,000,000) raised; c) three percent (3%) of the third million dollars
($1,000,000) raised; d) two percent (2%) of the fourth million dollars
($1,000,000) raised; and one percent (1%) of the all additional monies raised.
In the event fees are due XAI by the Company, the Company and XAI may mutually
agree to accept and pay the fee in shares of the Company's stock priced at
eighty percent (80%) of the most recent bid price. This agreement was terminated
in November 2000 by mutual agreement
58
<PAGE>
of the parties. For such offering the Company relied upon Section 4(2) of the
Act, Rule 506 and Section 49:3-50(b)(9) of the New Jersey Code. See Part II,
Item 4. "Recent Sales of Unregistered Securities."
In June 2000, the Company entered into a consulting agreement with XAI
to provide consultation and advisory services relating to business management
and marketing in exchange for issuance of 100,000 shares of the Company's stock
each to Edward Meyer, Jr. and Edward T. Whelan. The contract is for a period of
one (1) year. The consulting agreement has been terminated by mutual agreement
of the parties. For such offering, the Company relied upon Section 4(2) of the
Act, Rule 506 and Section 49:3-50(b)(9) of the New Jersey Code. See Part II,
Item 4. "Recent Sales of Unregistered Securities."
In June 2000, the Company borrowed $50,000 from GHI. The term of the
note is for a period of one (1) year or upon subsequent financing by XAI. The
note bears interest at a rate of prime plus three percent (prime+3%) per annum.
Additionally, the Company granted GHI warrants to purchase 166,666 shares of the
Company's Common Stock at a price of $0.30 per share. The warrants have no
expiration date. In November 2000, the Company repaid the $50,000 owed to GHI in
advance of its due date, in exchange for a general release with regard to the
note and warrants, the finder's fee agreement, the consulting service contract,
the option agreement and all other agreements between the Company and both XAI
and GHI. For such offering, the Company relied upon Section 4(2) of the Act,
Rule 506 and Section 11.602 of the Maryland Code. See Part II, Item 4. "Recent
Sales of Unregistered Securities."
In July 2000, the Company issued 10,000 shares of its Common Stock to
one (1) individual in exchange for a client list of computer service customers,
the remainder of the previously contracted for but unissued shares (943,750) in
connection with the CC acquisition, 13,166 shares to one (1) past employee for
out-of-pocket expenses, 90,000 shares to one (1) investor for $30,000, 8,319
shares to one (1) individual for past accounting services rendered, 40,000
shares to one (1) individual who is an active employee as a signing bonus,
58,333 shares to Maurice Mallette, the Company's current Interim Vice President,
President of CC and a Director in exchange for $17,500 and 75,000 shares to one
(1) individual for his services as a headhunter who brought potential employees
to the Company. For such offering, the Company relied upon Section 4(2) of the
Act, Rule 506, Section R14-4-140 of the Arizona Code, Section 25102(f) of the
California Code, Section 90.532 of the Nevada Code and Section 211(b) of the
Pennsylvania Code. See Part II, Item 4. "Recent Sales of Unregistered
Securities."
In August 2000, Steven Green, a Director of the Company resigned. Mr.
Green did not resign because of a disagreement with the registrant on any matter
relating to the registrant's operations, policies or practices. Mr. Green did
not furnish the registrant with a letter describing any disagreement, nor did he
request that any matter be disclosed. Mr. Green resigned on August 18, 2000. The
registrant believes it has disclosed all pertinent information and the filing of
a Current Report on Form 8-K as instructed by Item 6 is not required.
In November 2000, the Company issued 206,500 shares of its restricted
Common Stock to four (4) persons. Two (2) of the persons receiving a total of
200,000 shares, were given the shares as a hiring bonus. The other two (2)
persons receiving a total of 6,500 shares, were given the shares in lieu of
salary. For such offering the Company relied upon Section 4(2) of the Act, Rule
506, Section R14-4-140 of the Arizona Code. See Part II, Item 4. "Recent Sales
of Unregistered Securities."
59
<PAGE>
Item 8. Description of Securities
Description of Capital Stock
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, $0.001 par value per share and 1,000,000 shares of Preferred
Stock, $0.001 par value per share. As of December 13, 2000, the Company had
19,209,178 shares of its Common Stock outstanding and none of its Preferred
Stock outstanding.
Description of Common Stock
All shares of Common Stock have equal voting rights and, when validly
issued and outstanding, are entitled to one vote per share in all matters to be
voted upon by shareholders. The shares of Common Stock have no preemptive,
subscription, conversion or redemption rights and may be issued only as fully-
paid and non-assessable shares. Cumulative voting in the election of directors
is not permitted; which means that the holders of a majority of the issued and
outstanding shares of Common Stock represented at any meeting at which a quorum
is present will be able to elect the entire Board of Directors if they so choose
and, in such event, the holders of the remaining shares of Common Stock will not
be able to elect any directors. In the event of liquidation of the Company, each
shareholder is entitled to receive a proportionate share of the Company's assets
available for distribution to shareholders after the payment of liabilities and
after distribution in full of preferential amounts, if any, to be distributed to
holders of the Preferred Stock. All shares of the Company's Common Stock issued
and outstanding are fully-paid and nonassessable.
Dividend Policy
Holders of shares of Common Stock are entitled to share pro rata in
dividends and distribution with respect to the Common Stock when, as and if
declared by the Board of Directors out of funds legally available therefore,
after requirements with respect to preferential dividends on, and other matters
relating to, the Preferred Stock, if any, have been met. The Company has not
paid any dividends on its Common Stock and intends to retain earnings, if any,
to finance the development and expansion of its business. Future dividend policy
is subject to the discretion of the Board of Directors and will depend upon a
number of factors, including future earnings, capital requirements and the
financial condition of the Company.
Description of Preferred Stock
Shares of Preferred Stock may be issued from time to time in one or
more series as may be determined by the Board of Directors. The voting powers
and preferences, the relative rights of each such series and the qualifications,
limitations and restrictions thereof shall be established by the Board of
Directors, except that no holder of Preferred Stock shall have preemptive
rights.
60
<PAGE>
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Company's Common Stock is
Interwest Transfer Co., Inc. which is located at 1981 East Murray Holliday Road,
Suite 100, Salt Lake City, Utah 84117, telephone (801) 272-9294 and facsimile
(801) 277-3147. There is no transfer agent for shares of the Company's preferred
stock.
PART II.
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
a) Market Information.
The Company's Common Stock is presently quoted on the National
Quotation Bureau's "Pink Sheets", but it intends to apply to have its Common
Stock quoted on the Over the Counter Bulletin Board. There can be no assurance
that such application will be accepted.
The Common Stock of the Company currently is quoted under the symbol
"OSTK" and has been since May 1999. The high, low and average bid information
for each quarter since May 1999 to the present are as follows:
Quarter High Bid Low Bid Average Bid
Second Quarter 1999 .63 .25 .44
Third Quarter 1999 .88 .38 .63
Fourth Quarter 1999 .69 .16 .42
First Quarter 2000 1.88 .25 1.06
Second Quarter 2000 .67 .20 .44
Third Quarter 2000 .59 .11 .33
Please note that over-the-counter market quotations have been provided
herein. The quotations reflect inter-dealer prices, without retail markup,
mark-down or commission and may not represent actual transactions.
(b) Holders.
As of December 13, 2000, the Company had 174 shareholders of record of
its 19,209,178 outstanding shares of Common Stock, 13,732,359 of which are
restricted Rule 144 shares and 5,476,819 of which are free-trading. Of the Rule
144 shares, 6,685,287 shares have been held by affiliates of the Company for
more than one (1) year.
(c) Dividends.
The Company has never paid or declared any dividends on its Common
Stock and does not anticipate paying cash dividends in the foreseeable future.
61
<PAGE>
Item 2. Legal Proceedings
No legal proceedings have been initiated either by or against the
Company to date.
Item 3. Changes in and Disagreements with Accountants
None.
Item 4. Recent Sales of Unregistered Securities
The Company relied upon Section 4(2) of the Act and Rule 506 for
several transactions regarding the issuance of its unregistered securities. In
each instance, such reliance was based upon the fact that (i) the issuance of
the shares did not involve a public offering, (ii) there were no more than 35
investors (excluding "accredited investors"), (iii) each investor who was not an
accredited investor either alone or with his purchaser representative(s) has
such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the prospective investment, or the
issuer reasonably believes immediately prior to making any sale that such
purchaser comes within this description, (iv) the offers and sales were made in
compliance with Rules 501 and 502, (v) the securities were subject to Rule 144
limitation on resale and (vi) each of the parties is a sophisticated purchaser
and had full access to the information on the Company necessary to make an
informed investment decision by virtue of the due diligence conducted by the
purchaser or available to the purchaser prior to the transaction.
The Company relied upon Section 3(b) of the Act and Rule 504 for
several transactions regarding the issuance of its unregistered securities. In
each instance, such reliance was based on the following: (i) the aggregate
offering price of the offering of the shares of Common Stock and warrants did
not exceed $1,000,000, less the aggregate offering price for all securities sold
with the twelve months before the start of and during the offering of shares in
reliance on any exemption under Section 3(b) of, or in violation of Section 5(a)
of the Act; (ii) no general solicitation or advertising was conducted by the
Company in connection with the offering of any of the shares; (iii) the fact the
Company has not been since its inception (a) subject to the reporting
requirements of Section 13 or 15(d) of the Securities Act of 1934, as amended,
(b) and "investment company" within the meaning of the Investment Company Act of
1940, as amended, or (c) a development stage company that either has no specific
business plan or purpose or has indicated that its business plan is to engage in
a merger or acquisition with an unidentified company or companies or other
entity or person.
The Company relied upon Florida Code Section 517.061(11) for several
transactions. In each instance, such reliance is based on the following: (i)
sales of the shares of Common Stock were not made to more than 35 persons; (ii)
neither the offer nor the sale of any of the shares was accomplished by the
publication of any advertisement; (iii) all purchasers either had a preexisting
personal or business relationship with one or more of the executive officers of
the Company or, by reason of their business or financial experience, could be
reasonably assumed to have the capacity to protect their own interests in
connection with the transaction; (iv) each purchaser represented that he was
purchasing for his own account and not with a view to or for sale in connection
with any distribution of the shares; and (v) prior to sale, each purchaser had
reasonable access to or was furnished all material books and records of the
Company, all material contracts and documents relating to the proposed
transaction, and had an
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opportunity to question the executive officers of the Company. Pursuant to Rule
3E-500.005, in offerings made under Section 517.061(11) of the Florida Statutes,
an offering memorandum is not required; however each purchaser (or his
representative) must be provided with or given reasonable access to full and
fair disclosure of material information. An issuer is deemed to be satisfied if
such purchaser or his representative has been given access to all material books
and records of the issuer; all material contracts and documents relating to the
proposed transaction; and an opportunity to question the appropriate executive
officer. In the regard, the Company supplied such information and was available
for such questioning (the "Florida Exemption").
The Company relied upon Geogia Code Section 10-5-9(13) for several
transactions. In each instance such reliance is based on the following: (i) the
number of Georgia purchasers did not exceed fifteen (15); (ii) the securities
were not offered for sale by means of any form of general or public
solicitations or advertisements; (iii) a legend was placed upon the
certificates; and (iv) each purchaser represented that he purchased for
investment. (the "Georgia Exemption").
The Company relied upon Nevada Code Section 90.530(11) for several
transactions. In each instance, such reliance is based on the following: the
following transactions are exempt from NRS 90.460 and 90.560, except as
otherwise provided in this subsection, a transaction pursuant to an offer to
sell securities of an issuer if: (a) the transaction is part of an issue in
which there are no more than 25 purchasers in this state, other than those
designated in subsection 10, during any 12 consecutive months; (b) no general
solicitation or general advertising is used in connection with the offer to sell
or sale of the securities; (c) no commission or other similar compensation is
paid or given, directly or indirectly, to a person, other than a broker-dealer
licensed or not required to be licensed under this chapter, for soliciting a
prospective purchaser in this state; and (d) one of the following conditions is
satisfied: (1) the seller reasonably believes that all the purchasers in this
state, other than those designated in subsection 10, are purchasing for
investment; or (2) immediately before and immediately after the transaction, the
issuer reasonably believes that the securities of the issuer are held by 50 or
fewer beneficial owners, other than those designated in subsection 10, and the
transaction is part of an aggregate offering that does not exceed $500,000
during any 12 consecutive months. The administrator may by rule or order as to a
security or transaction or a type of security or transaction, may withdraw or
further condition the exemption set forth in this subsection or waive one or
more of the conditions of the exemption. (the "Nevada Exemption").
In November 1995, Micor, signed a promissory note in favor of William
Meger, a current Director of the Company, in the principal amount of $40,000,
which note bore interest a rate of six percent (6%) per annum. The note had a
term of five (5) years, for which interest was payable monthly and the principal
was payable as a balloon payment at the end of the term. In April 2000, the
Company issued 60,000 shares of its Common Stock to William Meger as full and
final payment of such note. For such offering, the Company relied upon Section
4(2) of the Act, Rule 506 and Section R14-4-140 of the Arizona Code.
The facts upon which the Company relied upon for purposes of Section
14-4-140 of the Arizona Code are: (i) offers by the issuer were made only by the
Company's employees, officers and directors who were not retained for the
primary purpose of making offers; (ii) the sale of securities did not exceed
$1,000,000; (iii) the Company was not a development stage company with no
specific business plan or a development stage company that has indicated that
its business plan is to engage in a merger or
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acquisition with an unidentified company or companies, or other entity or
person; (iv) offers specified that they would be made only to accredited
investors and sales were made only to accredited investors; (v) a legend was
placed on all offering documents; and (vi) the issuer, any of its predecessors,
affiliates, directors, officers, beneficial owners of ten percent (10%) or more
of any class of its equity securities did not fall within the disqualification
provisions.
Beginning in September 1996 and prior to its acquisition of Micor, the
Company sold 1,500,000 shares of its Common Stock to one hundred three (103)
investors for $15,000. For such offering, the Company relied upon Section 3(b)
of the Act, Rule 504, the Florida Exemption, the Georgia Exemption, Section
4[5/4](G) of the Illinois Code, the Nevada Exemption, Section 59.035(12) of the
Oregon Code, Section 35-1-320(9) of the South Carolina Code, Section
48-2-103(b)(4) of the Tennessee Code and Section 5[581-5]I(c) of the Texas Code.
The facts upon which the Company relied in Oregon are as follows: (A)
The transaction resulted in not more than ten (10) purchasers in Oregon of
securities of the Company during any twelve (12) consecutive months; (B) No
commission or other remuneration was paid or given directly or indirectly in
connection with the offer or sale of the securities; (C) No public advertising
or general solicitation was used in connection with the offer or sale of the
securities; (D) At the time of the transaction, the Company did not have under
the Oregon Securities Law, an application for registration or an effective
registration of securities which were part of the same offering.
The facts upon which the Company relied in South Carolina are as
follows: (A) The transaction was pursuant to an offer directed by the Company to
not more than twenty-five persons in South Carolina during any period of twelve
consecutive months; (B) The Company reasonably believed that all the buyers in
South Carolina purchased for investment; and (C) No commission or other
remuneration was paid or given directly or indirectly for soliciting any
prospective buyer in South Carolina. The Company failed to file with the state
securities bureau as mandated by the state statute.
The facts upon which the Company relied in Tennessee are as follows:
(A) The aggregate number of persons in Tennessee purchasing the securities from
the Company and all affiliates of the Company pursuant to this exemption during
the twelve month period ending on the date of such sale did not exceed fifteen
(15) persons, exclusive of persons who acquired the securities in transactions
which were not subject to this exemption or which were otherwise exempt from
registration under the provisions of this exemption or which have been
registered pursuant to Sec. 48-2-105 or Sec. 48-2-106. (B) The securities were
not offered for sale by means of publicly disseminated advertisements or sales
literature; and (C) All purchasers in Tennessee purchased such securities with
the intent of holding such securities for investment for their own accounts and
without the intent of participating directly or indirectly in a distribution of
such securities.
The facts upon which the Company relied in Texas are as follows: The
sale during the period of twelve (12) months ending with the date of the sale in
question was to not more than fifteen (15) persons and such persons purchased
such securities for their own account and not for distribution.
In the first quarter of 1997, the board of directors of PF decided to
sell and spin off its wholly owned subsidiary, Micor. The board offered Micor to
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the then current management team of Micor. In July 1997, Jerry Washburn, Micor
and four (4) others signed a promissory note in favor of PF in the principal
amount of $285,000. The term of the note was through April 15, 2003. In March
2000, the Company and the Investors purchased the note, which had $285,000 in
principal outstanding and an additional $36,972 of interest outstanding, from PF
for $150,000 in cash provided by the Investors and 175,000 shares of the
Company's Common Stock issued by the Company. The Investors had the option to
convert the note to shares of the Company's Common Stock in their sole
discretion. They exercised such option, converting the full amount of the note
(principal and interest) to 643,944 shares of the Common Stock of the Company.
For such offering, the Company relied upon Section 4(2) of the Act, Rule 506 and
Section R14-4-140 of the Arizona Code.
The facts upon which the Company relied upon for purposes of Section
14-4-140 of the Arizona Code are: (i) offers by the issuer were made only by the
Company's employees, officers and directors who were not retained for the
primary purpose of making offers; (ii) the sale of securities did not exceed
$1,000,000; (iii) the Company was not a development stage company with no
specific business plan or a development stage company that has indicated that
its business plan is to engage in a merger or acquisition with an unidentified
company or companies, or other entity or person; (iv) offers specified that they
would be made only to accredited investors and sales were made only to
accredited investors; (v) a legend was placed on all offering documents; and
(vi) the issuer, any of its predecessors, affiliates, directors, officers,
beneficial owners of ten percent (10%) or more of any class of its equity
securities did not fall within the disqualification provisions.
In July 1997, the Company entered into a share exchange agreement with
Micor and its shareholders. The exchange was made whereby the Company issued
8,500,000 shares of its restricted Common Stock to the shareholders of Micor for
all of the issued and outstanding stock of Micor. Jerry Washburn, the current
President, Chief Executive Officer and Chairman of the Company, received
3,300,000 shares in connection with such exchange. William B. Meger, a Director
of the Company, received 3,285,287 shares. This offering was conducted pursuant
to Section 4(2) of the Act, Rule 506, Section 44-1844(6) of the Arizona Code,
Section 25103(c) of the California Code, Section 90.530(17) of the Nevada Code
and Section 61-1-14(2)(p) of the Utah Code.
The facts upon which the Company relied in Arizona are: The transaction
was incident to a statutorily or judicially approved reorganization, merger,
triangular merger, consolidation, or sale of assets, incident to a vote by
securities holders pursuant to the articles of incorporation, the applicable
corporate statute or other controlling statute, a partnership agreement or the
controlling agreement among securities holders.
The facts upon which the Company relied in California are: (A) The
transaction was an exchange incident to a merger, or sale of assets in
consideration of the issuance of securities of another issuer; (B) Less than
twenty-five percent (25%) of the outstanding securities of any class, any
holders of which received securities in the exchange, were held by persons who
had addresses in California, according to the records of Micor; (C) The
transaction was not a rollup transaction as defined by Section 25014.6, nor was
it a transaction excluded from the definition of rollup transaction by virtue of
paragraph (5) or (6) of subdivision (b) of Section 25014.6.
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The facts upon which the Company relied in Nevada are: (A) The
transaction involved the distribution of the securities of an issuer to the
security holders of another person in connection with a merger, consolidation,
exchange of securities, sale of assets or other reorganization to which the
issuer and the other person were parties; and (B) The securities distributed
were not required to be registered under the Securities Act of 1933, 15 U.S.C.
sections 77a et seq. The Company did not file notice, a copy of the materials by
which approval of the transaction was solicited or a fee with the Nevada
administrator as required by the statute.
The facts upon which the Company relied in Utah are: (A) The
transaction involved a merger, consolidation, reorganization, recapitalization,
reclassification, or sale of assets; and (B) The consideration for which, in
whole or in part, was the issuance of securities of a person or persons; and (C)
The transaction was incident to a vote of the securities holders of each person
involved or by written consent or resolution of some or all of the securities
holders of each person involved; and (D) The vote, consent, or resolution was
given under a provision in: (a) the applicable corporate statute or other
controlling statute; (b) the controlling articles of incorporation, trust
indenture, deed of trust, or partnership agreement; (c) the controlling
agreement among securities holders; and (E) All persons involved in the
transaction were exempt from filing under Section 12(g)(1) of the Securities
Exchange Act of 1934. The persons did not, however, file with the division any
proxy or informational material, nor did it distribute such materials to the
securities holders entitled to vote in the transaction as mandated by the
statute.
In February and March 1998, the Company sold 14,400 shares of its
Common Stock pursuant to an Offering Memorandum dated September 17, 1997 to six
(6) investors for a total of $7,200. For such offering, the Company relied upon
Section 3(b) of the Act, Rule 504, the Florida Exemption, Section 502.203(9) of
the Iowa Code, Section 80A.15 Subd.2(a)(1) of the Minnesota Code, Section 48-2-
103(b)(4) of the Tennessee Code, Section 5[581-5]I(c) of the Texas Code and
Section 551.23(11) of the Wisconsin Code.
The facts upon which the Company relied in Iowa are: (1) Sales were
made to less than thirty-five (35) purchasers in Iowa, exclusive of purchasers
by bona fide institutional investors for their own account for investment in a
period of twelve (12) consecutive months; (2) The issue was not an issue of: (a)
fractional undivided interests in oil, gas, or other mineral leases, rights, or
royalties or (b) interests in a partnership organized under the laws of or
having its principal place of business in a foreign jurisdiction; (3) The issuer
reasonably believed that all buyers in Iowa purchased for investment; (4)
Commission or other remuneration was not paid or given, directly or indirectly,
for the sale, except as was permitted by the administrator by rule; and (4) The
issuer or a person acting on behalf of the issuer did not offer or sell the
securities by any form of general solicitation or advertising.
The facts upon which the Company relied in Minnesota are: (1) No more
than ten (10) sales were made pursuant to this exemption, exclusive of sales
pursuant to 80A.15 Subd.2(a)(2) during any period of twelve (12) consecutive
months except sales registered under the Act or sales exempted by 3(b) of the
Act; (2) The seller reasonably believed that all buyers purchased for
investment; and (3) the securities were not advertised for sale to the general
public in newspapers or other publications of general circulation or otherwise,
or by radio, television, electronic means or similar communications media, or
through a program of general solicitation by means of mail or telephone.
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The facts upon which the Company relied in Tennessee are as follows:
(A) The aggregate number of persons in Tennessee purchasing the securities from
the Company and all affiliates of the Company pursuant to this exemption during
the twelve month period ending on the date of such sale did not exceed fifteen
(15) persons, exclusive of persons who acquired the securities in transactions
which were not subject to this exemption or which were otherwise exempt from
registration under the provisions of this exemption or which have been
registered pursuant to Sec. 48-2-105 or Sec. 48-2-106. (B) The securities were
not offered for sale by means of publicly disseminated advertisements or sales
literature; and (C) All purchasers in Tennessee purchased such securities with
the intent of holding such securities for investment for their own accounts and
without the intent of participating directly or indirectly in a distribution of
such securities.
The facts upon which the Company relied in Texas are as follows: The
sale during the period of twelve (12) months ending with the date of the sale in
question was to not more than fifteen (15) persons and such persons purchased
such securities for their own account and not for distribution.
The facts upon which the Company relied in Wisconsin are: (1) The
transaction was pursuant to an offer directed by the offeror to not more than
ten (10) persons in Wisconsin, excluding persons exempt under subsection eight
(8) of this section but including persons exempt under subsection ten (10)
during any period of twelve (12) consecutive months, whether or not the offeror
or any of the offerees was present in Wisconsin; (2) The offeror reasonably
believed that all persons in Wisconsin purchased for investment; and (3) no
commission or other remuneration was paid or given directly or indirectly for
soliciting any person in Wisconsin other than those exempt by subsection eight
(8).
In July 1998, the Company sold 32,000 shares of its Common Stock to two
(2) investors for a total of $8,000. No Offering Memorandum was utilized in
connection with this offering. For such offering, the Company relied upon
Section 3(b) of the Act, Rule 504, the Florida Exemption and the Nevada
Exemption.
In August 1998, the Company issued 100,000 shares of its Common Stock
to one (1) person for legal services performed on behalf of the Company. For
such offering, the Company relied upon Section 3(b) of the Act, Rule 504 and the
Florida Exemption.
In September 1998, the Company issued 750,000 shares of its Common
Stock to two (2) persons for services rendered to the Company. Donald C. Gause,
a Director, received 250,000 of the shares issued. For such offering, the
Company relied upon Section 4(2) of the Act, Rule 506, Section 14-4- 126(f) of
the Arizona Code and Section 11-51-308(1)(j) of the Colorado Code.
For purposes of Section 14-4-126(f) of the Arizona Code, the facts upon
which the Company relied are: (i) units were sold to less than thirty-five (35)
persons; (ii) each purchaser who was not an accredited investor either alone or
with purchaser representative had such knowledge and experience in financial and
business matters sufficient to evaluate the merits and risks of the prospective
investment; (iii) the bad boy provisions of the rule apply to neither the
Company nor its predecessors or affiliates; and (iv) neither the issuer nor any
person acting on its behalf offered or sold the securities by any form of
general solicitation or general advertising. Although a filing was required by
the Rule, none was made.
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For purposes of Section 11-51-308(1)(j) of the Colorado Code, the facts
upon which the Company relied are: (i) the offering was directed to not more
than twenty (20) persons in Colorado; (ii) the securities were sold to not more
than ten (10) buyers in Colorado; (iii) all purchasers represented that they
purchased for investment; (iv) no commission or other remuneration was paid or
given for soliciting any prospective buyer in Colorado.
In October 1998, the Company sold 10,000 shares to one (1) investor for
$5,000, although the shares were not issued until December 2000. For such
offering, the Company relied upon Section 4(2) of the Act, Rule 506 and no state
exemption, as the investor was Canadian.
In April 1999, the Company issued 500,000 shares of its Common Stock to
one (1) entity for services rendered to the Company. For such offering, the
Company relied upon Section 3(b) of the Act, Rule 504 and the Florida Exemption.
In April 1999, the Company sold 2,624,672 shares of its Common Stock to
two (2) investors for a total of $800,000. The Company accepted a note
receivable from each of the two (2) investors, which notes receivable were due
one hundred eighty (180) days from their date of issuance. In July 1999, the
Company agreed to extend the repayment term for one (1) investor for an
additional three hundred sixty (360) days, which note shall accrue interest at a
rate of six percent (6%) annually. In January 2000, the Company agreed to extend
the repayment for the other investor such that the note is now payable on demand
and bears interest a rate of six percent (6%) annually. For such offering, the
Company relied upon Section 3(b) of the Act, Rule 504, Section 25102(f) of the
California Code and the Nevada Exemption.
For purposes of Section 25102(f) of the California Code, the facts upon
which the Company relied are: (i) units were sold to not more than thirty-five
(35) persons, including persons not in California; (ii) all purchasers had a
preexisting relationship with the offeror or its officers, directors or by
reason of business or financial experience or by reason of their professional
advisors had the capacity to protect their own interests; (iii) each purchaser
represented that they were purchasing for their own account and with a view to
or for sale in connection with any distribution; and (iv) the offer and sale
were not accomplished by the publication of any advertisement. Although the Rule
required the filing of notice, none was filed. Failure to file notice did not
affect the applicability of the exemption.
In April 1999, the Company entered into a share exchange agreement with
the shareholders of NE, whereby the Company exchanged 727,946 shares of its
Common Stock for one hundred percent (100%) of the issued and outstanding stock
of NE such that NE became a wholly-owned subsidiary of the Company. The shares
in connection with such exchange were not issued until December 1999. For such
offering, the Company relied upon Section 4(2) of the Act, Rule 506 and Section
44-1844(6) of the Arizona Code.
Contemporaneously with execution of the share exchange with NE, the
Company signed a redemption agreement which effectively allowed either party to
the transaction to rescind the transaction without penalty at any time on or
before July 1, 1999. Neither party elected to redeem and the redemption
agreement has since expired. Additionally, at the time of the NE share exchange,
the Company entered into an employment agreement with Ahlawyss Fulton, which has
since expired.
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The facts upon which the Company relied in Arizona are: The transaction
was incident to a statutorily or judicially approved reorganization, merger,
triangular merger, consolidation, or sale of assets, incident to a vote by
securities holders pursuant to the articles of incorporation, the applicable
corporate statute or other controlling statute, a partnership agreement or the
controlling agreement among securities holders.
In May 1999, the Company entered into a Stock Purchase Agreement with
Blackwater wherein Blackwater agreed to purchase 2,905,828 shares of the
Company's Common Stock for a total of $750,000. Payments were to be made: A)
$105,000 at closing; B) in five (5) monthly installments of $105,000 beginning
July 1, 1999 and the first of each month thereafter; and C) a final installment
of $120,000. Although Blackwater missed each payment deadline, $620,000 has been
funded to date, including $250,000 which Blackwater assigned to a third party
investor. To date, only 968,609 shares have been issued to the third party
assignee. No shares have yet been issued to Blackwater. Blackwater's shares
carry certain registration rights. For such offering, the Company relied upon
Section 4(2) of the Act, Rule 506 and the Florida Exemption.
In July 1999, the Company sold 50,000 shares of its Common Stock to
three (3) investors for a total of $10,000. The Company relied upon Section 4(2)
of the Act, Rule 506 and Section 30-1433A(2) of the Idaho Code.
The Company relied upon Section 30-1433A(2) of the Idaho Code, although
it failed to file a Form D, consent to service of process and to pay the fee
required in connection with the filing.
In September 1999, the Company entered into a share exchange agreement
with the shareholders of CC, whereby the Company exchanged 1,887,500 shares of
its Common Stock for one hundred percent (100%) of the issued and outstanding
stock of CC such that CC became a wholly-owned subsidiary of the Company. Of the
1,887,500 shares to be issued in connection with the exchange, 1,125,000 shares
are subject to a two (2) year "lock-up" provision and the remaining 762,500
shares are not contractually restricted (but are restricted by Rule 144).
562,500 of the LU Shares and 381,250 of the remaining shares are beneficially
owned by Maurice Mallette, a current Director of the Company and the President
of CC. In June 2000, the Company entered into a letter agreement with Maurice
Mallette, Judith Mallette and Pasquale Rizzi to escrow 723,612 shares of the
Common Stock of the Company issued in connection with the acquisition of
Cartridge Care, Inc. in September 1999. The escrowed shares will be held pending
an investigation by OneSource into the books and records of Cartridge Care.
Whereas, all shares have now been issued and none are contingently issuable
shares, it is contemplated that some shares may be cancelled and returned to the
authorized but unissued capital stock of OneSource should the valuation of
Cartridge Care conducted at the time of acquisition by OneSource found to be
overstated. For such offering the Company relied upon Section 4(2) of the Act,
Rule 506 and Section 44-1844(6) of the Arizona Code.
The facts upon which the Company relied in Arizona are: The transaction
was incident to a statutorily or judicially approved reorganization, merger,
triangular merger, consolidation, or sale of assets, incident to a vote by
securities holders pursuant to the articles of incorporation, the applicable
corporate statute or other controlling statute, a partnership agreement or the
controlling agreement among securities holders.
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In April 2000, the Company issued 305,000 shares of its Common Stock to
four (4) employees as signing bonuses to attract them to the Company. For such
offering the Company relied upon Section 4(2), Rule 506, Section R14-4-140 of
the Arizona Code and Section 11-51-308(1)(p) of the Colorado Code.
The facts upon which the Company relied upon for purposes of Section
14-4-140 of the Arizona Code are: (i) offers by the issuer were made only by the
Company's employees, officers and directors who were not retained for the
primary purpose of making offers; (ii) the sale of securities did not exceed
$1,000,000; (iii) the Company was not a development stage company with no
specific business plan or a development stage company that has indicated that
its business plan is to engage in a merger or acquisition with an unidentified
company or companies, or other entity or person; (iv) offers specified that they
would be made only to accredited investors and sales were made only to
accredited investors; (v) a legend was placed on all offering documents; and
(vi) the issuer, any of its predecessors, affiliates, directors, officers,
beneficial owners of ten (10) percent or more of any class of its equity
securities did not fall within the disqualification provisions.
For purposes of Section 11-51-308(1)(p) of the Colorado Code, the facts
upon which the Company relied are: (1) The transaction was in compliance with an
exemption from registration with the Securities and Exchange Commission under
section 3(b) or 4(2) of the Act pursuant to regulations adopted thereunder by
the Securities and Exchange Commission; and (2) The Company filed notice with
the securities commissioner of Colorado and paid an exemption fee.
In April 2000, the Company issued 97,374 shares of its Common Stock to
eighteen (18) current or former employees to compensate them for past salary
reductions or in lieu of past salary increases for their services as employees
during periods since 1997. Donald Gause, a Director, received 4,000 shares in
connection with such issuance. For such offering the Company relied upon Section
4(2), Rule 506, Section R14-4-140 of the Arizona Code, Section 25102(f) of the
California Code, Section 11-51- 308(1)(p) of the Colorado Code, Section 90.532
of the Nevada Code, Section 58-13B-24(R) of the New Mexico Code and Section
61-1-15.5(2)&R164-15-2 of the Utah Code.
The facts upon which the Company relied upon for purposes of Section
14-4-140 of the Arizona Code are: (i) offers by the issuer were made only by the
Company's employees, officers and directors who were not retained for the
primary purpose of making offers; (ii) the sale of securities did not exceed
$1,000,000; (iii) the Company was not a development stage company with no
specific business plan or a development stage company that has indicated that
its business plan is to engage in a merger or acquisition with an unidentified
company or companies, or other entity or person; (iv) offers specified that they
would be made only to accredited investors and sales were made only to
accredited investors; (v) a legend was placed on all offering documents; and
(vi) the issuer, any of its predecessors, affiliates, directors, officers,
beneficial owners of ten (10) percent or more of any class of its equity
securities did not fall within the disqualification provisions.
For purposes of Section 25102(f) of the California Code, the facts upon
which the Company relied are: (i) shares were sold to not more than thirty-five
(35) persons, including persons not in California; (ii) all purchasers had a
preexisting relationship with the offeror or its officers, directors or by
reason of business or financial experience or by reason of their professional
advisors had the capacity to
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protect their own interests; (iii) each purchaser represented that they were
purchasing for their own account and with a view to or for sale in connection
with any distribution; and (iv) the offer and sale were not accomplished by the
publication of any advertisement.
For purposes of Section 11-51-308(1)(p) of the Colorado Code, the facts
upon which the Company relied are: (1) The transaction was in compliance with an
exemption from registration with the Securities and Exchange Commission under
section 3(b) or 4(2) of the Act pursuant to regulations adopted thereunder by
the Securities and Exchange Commission; and (2) The Company filed notice with
the securities commissioner of Colorado and paid an exemption fee.
For purposes of Section 90.532 of the Nevada Code, the facts upon which
the Company relied are: (1) The securities were those set forth is Section
18(b)(4)(D) of the Act; and (2) The Company filed notice with the State of
Nevada and a fee.
For purposes of Section 58-13B-24(R) of the New Mexico Code and New
Mexico Rule 12NMAC11.4.11.2, the facts upon which the Company relied are: The
Company filed notice with the New Mexico administrator, a consent to service of
process and a fee.
For purposes of Section 61-1-15.5(2)&R164-15-2 of the Utah Code, the
facts upon which the Company relied are: The Company filed notice, a consent to
service of process and a fee as proscribed by the statute.
In June 2000, the Company granted XAI an option to purchase two million
(2,000,000) shares of the Common Stock of the "freely tradeable shares" of the
Company at a price of $0.50 per share. The option is for a period of one (1)
year unless XAI introduces or arranges for an acceptable "secondary offering"
approved by the Company, and in which case the term of the option is extended
until June 1, 2003. The option has since been terminated by mutual agreement of
the parties. For such offering, the Company relied upon Section 4(2) of the Act,
Rule 506 and Section 49:3-50(b)(9) of the New Jersey Code.
For purposes of Section 49:3-50(b)(9) of the New Jersey Code, the facts
upon which the Company relied are: (i) the sale was to not more than ten (10)
persons during any period of twelve (12) consecutive months; (ii) the Company
reasonably believed that all buyers purchased for investment; (iii) no
commission or other remuneration was paid for soliciting any prospective buyer;
and (iv) the sale was not offered or sold by general solicitation or any general
advertisement.
In June 2000, the Company entered into a agreement wherein the Company
agreed to pay a finder's fee to XAI for any debt or equity investment,
acquisition, consolidation, merger or purchase of assets between the Company and
any contact of XAI brought to the Company's attention by XAI, which was
consummated within a period of twenty-four (24) months thereafter. The finder's
fee is as follows: a) five percent (5%) of the first million dollars
($1,000,000) raised; b) four percent (4%) of the second million dollars
($1,000,000) raised; c) three percent (3%) of the third million dollars
($1,000,000) raised; d) two percent (2%) of the fourth million dollars
($1,000,000) raised; and one percent (1%) of the all additional monies raised.
In the event fees are due XAI by the Company, the Company and XAI may mutually
agree to accept and pay the fee in shares of the Company's stock priced at
eighty percent (80%)
71
<PAGE>
of the most recent bid price. This agreement was terminated in November 2000 by
mutual agreement of the parties. For such offering the Company relied upon
Section 4(2) of the Act, Rule 506 and Section 49:3-50(b)(9) of the New Jersey
Code.
For purposes of Section 49:3-50(b)(9) of the New Jersey Code, the facts
upon which the Company relied are: (i) the sale was to not more than ten (10)
persons during any period of twelve (12) consecutive months; (ii) the Company
reasonably believed that all buyers purchased for investment; (iii) no
commission or other remuneration was paid for soliciting any prospective buyer;
and (iv) the sale was not offered or sold by general solicitation or any general
advertisement.
In June 2000, the Company entered into a consulting agreement with XAI
to provide consultation and advisory services relating to business management
and marketing in exchange for issuance of 100,000 shares of the Company's stock
each to Edward Meyer, Jr. and Edward T. Whelan. The contract is for a period of
one (1) year. The consulting agreement has been terminated by mutual agreement
of the parties. For such offering, the Company relied upon Section 4(2) of the
Act, Rule 506 and Section 49:3-50(b)(9) of the New Jersey Code.
For purposes of Section 49:3-50(b)(9) of the New Jersey Code, the facts
upon which the Company relied are: (i) the sale was to not more than ten (10)
persons during any period of twelve (12) consecutive months; (ii) the Company
reasonably believed that all buyers purchased for investment; (iii) no
commission or other remuneration was paid for soliciting any prospective buyer;
and (iv) the sale was not offered or sold by general solicitation or any general
advertisement.
In June 2000, the Company borrowed $50,000 from GHI. The term of the
note is for a period of one (1) year or upon subsequent financing by XAI. The
note bears interest at a rate of prime plus three percent (prime+3%) per annum.
Additionally, the Company granted GHI warrants to purchase 166,666 shares of the
Company's Common Stock at a price of $0.30 per share. The warrants have no
expiration date. In November 2000, the Company repaid the $50,000 owed to GHI in
advance of its due date, in exchange for a general release with regard to the
note and warrants, the finder's fee agreement, the consulting service contract,
the option agreement and all other agreements between the Company and both XAI
and GHI. For such offering, the Company relied upon Section 4(2) of the Act,
Rule 506 and Section 11.602 of the Maryland Code.
The facts relied upon to make the Maryland Exemption available include
the following: (i) the Company submitted a manually signed SEC Form D, Notice of
Sale of Securities Pursuant to Regulation D with the Securities Division; (ii)
the form was filed no later than 15 days after the securities were first sold in
Maryland; (iii) the Company submitted a Form U-2, Uniform Consent to Service of
Process, and a Form U-2A, Uniform Corporate Resolution consenting to service of
process in Maryland; (iv) the Company provided the Securities Division with the
date of the first sale of the securities in Maryland under the offering; (v) the
Company provided the Securities Division with the name and CRD number, if any,
of at least one broker-dealer or issuer agent that will effect transactions in
the securities in Maryland; and (vi) the Company paid the appropriate fee of
$100 to the State of Maryland. Despite the requirement to file notice with the
State of Maryland, the Company made no filing.
72
<PAGE>
In July 2000, the Company issued 10,000 shares of its Common Stock to
one (1) individual in exchange for a client list of computer service customers,
the remainder of the previously contracted for but unissued shares (943,750) in
connection with the CC acquisition, 13,166 shares to one (1) past employee for
out-of-pocket expenses, 90,000 shares to one (1) investor for $30,000, 8,319
shares to one (1) individual for past accounting services rendered, 40,000
shares to one (1) individual who is an active employee as a signing bonus,
58,333 shares to Maurice Mallette, the Company's current Interim Vice President,
President of CC and a Director in exchange for $17,500 and 75,000 shares to one
(1) individual for his services as a headhunter who brought potential employees
to the Company. For such offering, the Company relied upon Section 4(2) of the
Act, Rule 506, Section R14-4-140 of the Arizona Code, Section 25102(f) of the
California Code, the Nevada Exemption and Section 211(b) of the Pennsylvania
Code.
The facts upon which the Company relied upon for purposes of Section
14-4-140 of the Arizona Code are: (i) offers by the issuer were made only by the
Company's employees, officers and directors who were not retained for the
primary purpose of making offers; (ii) the sale of securities did not exceed
$1,000,000; (iii) the Company was not a development stage company with no
specific business plan or a development stage company that has indicated that
its business plan is to engage in a merger or acquisition with an unidentified
company or companies, or other entity or person; (iv) offers specified that they
would be made only to accredited investors and sales were made only to
accredited investors; (v) a legend was placed on all offering documents; and
(vi) the issuer, any of its predecessors, affiliates, directors, officers,
beneficial owners of ten (10) percent or more of any class of its equity
securities did not fall within the disqualification provisions.
For purposes of Section 25102(f) of the California Code, the facts upon
which the Company relied are: (i) shares were sold to not more than thirty-five
(35) persons, including persons not in California; (ii) all purchasers had a
preexisting relationship with the offeror or its officers, directors or by
reason of business or financial experience or by reason of their professional
advisors had the capacity to protect their own interests; (iii) each purchaser
represented that they were purchasing for their own account and with a view to
or for sale in connection with any distribution; and (iv) the offer and sale
were not accomplished by the publication of any advertisement.
The facts relied upon to make the Pennsylvania Exemption include the
following: (i) the Company filed a completed SEC Form D with the Pennsylvania
Securities Commission, Division of Corporate Finance; (ii) the Form was filed
not later than fifteen (15) days after the first sale; and (iii) the Company
paid an appropriate filing fee.
In November 2000, the Company issued 206,500 shares of its restricted
Common Stock to four (4) persons. Two (2) of the persons receiving a total of
200,000 shares, were given the shares as a hiring bonus. The other two (2)
persons receiving a total of 6,500 shares, were given the shares in lieu of
salary. For such offering the Company relied upon Section 4(2) of the Act, Rule
506, Section R14-4-140 of the Arizona Code.
The facts upon which the Company relied upon for purposes of Section
14-4-140 of the Arizona Code are: (i) offers by the issuer were made only by the
Company's employees, officers and directors who were not retained for the
primary purpose of making offers; (ii) the sale of securities did not exceed
73
<PAGE>
$1,000,000; (iii) the Company was not a development stage company with no
specific business plan or a development stage company that has indicated that
its business plan is to engage in a merger or acquisition with an unidentified
company or companies, or other entity or person; (iv) offers specified that they
would be made only to accredited investors and sales were made only to
accredited investors; (v) a legend was placed on all offering documents; and
(vi) the issuer, any of its predecessors, affiliates, directors, officers,
beneficial owners of ten (10) percent or more of any class of its equity
securities did not fall within the disqualification provisions.
Item 5. Indemnification of Directors and Officers
The Company's Articles of Incorporation provide that: To the fullest
extent permitted by law, no director or officer of the Corporation shall be
personally liable to the Corporation or its shareholders for damages for breach
of any duty owed to the Corporation or its shareholders. In addition, the
Corporation shall have the power, in its Bylaws or in any resolution of its
stockholders or directors, to undertake to indemnify the officers and directors
of this Corporation against any contingency or peril as may be determined to be
in the best interests of this Corporation, and to procure policies of insurance
at this Corporation's expense.
The Corporation shall, to the fullest extent permitted by the
provisions of ss.145 of the General Corporation law of the State of Delaware, as
the same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all
expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall insure to
the benefit of the heirs, executors, and administrators of such a person.
The Company's Bylaws provide that: The Corporation hereby indemnifies
each person (including the heirs, executors, administrators, or estate of such
person) who is or was a director or officer of the Corporation to the fullest
extent permitted or authorized by current or future legislation or judicial or
administrative decision against all fines, liabilities, costs and expenses,
including attorneys' fees, arising out of his or her status as a director,
officer, agent, employee or representative. The foregoing right of
indemnification shall not be exclusive of other rights to which those seeking an
indemnification may be entitled. The Corporation may maintain insurance, at its
expense, to protect itself and all officers and directors against fines,
liabilities, costs and expenses, whether or not the Corporation would have the
legal power to indemnify them directly against such liability.
The Delaware Corporation Law provides inss.145. Indemnification of
Officers, Directors, Employees and Agents; Insurance that:
(a) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation as a
director, officer, employee or agent of the corporation) by reason of the fact
that he is or was a director,
74
<PAGE>
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorney's fees), judgements, fines and amounts paid or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and with respect
to any criminal action or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or
is a party or is threatened to made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue, or matters as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under subsections (a) and (b), (unless ordered
by a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b). Such
determination shall be made (1) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(2) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director on defending any civil, criminal, administrative, or investigative
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this Section. Such expenses (including attorneys' fees) incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, other subsections of the section shall not be deemed
exclusive of any other rights to which those seeking
75
<PAGE>
indemnification or advancement of expenses may be entitled under any by-law,
agreement , vote of stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office.
(g) A corporation shall power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee of agent or the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this section.
(h) For purposes of this Section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Section with respect to the resulting or
surviving corporation as he would have with respect to such constitutent
corporation if its existence had continued.
(i) For purposes of this Section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes a duties on, or involves services by, such director, officer, employee,
or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner be
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
Section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any by-law, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees). (As amended by Ch. 186, Laws of 1967, Ch. 421, Laws of 1970, Ch. 437,
Laws of 1974, Ch. 25, Laws of 1981, Ch. 112, Laws of 1983, Ch. 289, Laws of
1986, Ch. 376, Laws of 1990, and Ch. 261, Laws of 1994.)
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<PAGE>
PART F/S
The Financial Statements of the Company required by Regulation S-X
commence on page F-1 hereof in response to Part F/S of this Registration
Statement on Form 10-SB and are incorporated herein by this reference.
77
<PAGE>
ONESOURCE TECHNOLOGIES, INC.
Consolidated Financial Statements as of
December 31, 1999 and 1998
And Independent Auditors' Report
<PAGE>
ONESOURCE TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998 F-2
CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE YEARS ENDED DECEMBER 31, 1999 AND 1998 F-3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (DEFICIT) FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998 F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE YEARS ENDED DECEMBER 31, 1999 AND 1998 F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED DECEMBER 31, 1999 AND 1998 F-7
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders and Board of Directors of
OneSource Technologies, Inc.:
We have audited the accompanying balance sheet of OneSource Technologies, Inc.
as of December 31, 1999 and the related statements of operations, stockholders'
deficit and cash flows for each of the two years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OneSource Technologies, Inc. as
of December 31, 1999, and the results of its operations and cash flows for each
of the two years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles.
As discussed in Note 9 to the financial statements, the presentation for the
year ended December 31, 1998 is restated to reflect the retroactive result of
the acquisition of Net Express, Inc. under pooling of interests accounting.
/s/ King, Weber & Associates, P.C.
Tempe, Arizona
April 21, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31____________________________________ 1999 1998
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 37,692 $ 49,544
Accounts receivable 460,121 220,282
Inventories 368,898 165,905
Stock subscription receivable 220,000 -
Other current assets 34,061 20,799
Total current assets 1,120,772 456,530
PROPERTY AND EQUIPMENT, net of accumulated depreciation 218,753 53,258
DEFERRED INCOME TAXES 17,766 -
GOODWILL, net of accumulated amortization of $4,763 269,901 -
OTHER ASSETS 88,294 20,692
------------ ----------
TOTAL ASSETS $1,715,486 $ 530,480
============ ==========
LIABILITIES AND STOCKHOLDERS" EQUITY (DEFICIT):
CURRENT LIABILITIES:
Accounts payable $ 345,718 $ 129,700
Accrued expenses and other liabilities 338,593 281,223
Deferred revenue 210,036 182,018
Bank lines of credit 88,837 87,963
Current portion capital leases 5,496
Current portion of long-term debt 68,043
------------ ----------
Total current liabilities 1,056,723 680,904
CAPITAL LEASES -- LONG TERM PORTION 6,637
NOTES PAYABLE -- LONG-TERM PORTION (Note 5) 316,246 322,894
------------ ----------
Total liabilities 1,379,606 1,003,798
------------ ----------
STOCKHOLDERS" EQUITY (DEFICIT):
Preferred Stock, $.001 par value, 1,000,000 shares authorized,
none issued
Common Stock, $.001 par value, 20,000,000 shares authorized,
14,549,230 and 11,623,281 issued at December 31, 1999 and 1998,
respectively, and 3,876,802 subscribed but not issued shares at
December 31, 1999
Paid in capital 14,549 11,623
Treasury stock, 500,000 shares at $0 cost 1,687,877 (358,736)
Stock subscription (1,055,000)
Accumulated deficit (311,546) (126,205)
------------ ----------
TOTAL EQUITY $ 335,880 ($473,318)
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS" EQUITY $1,715,486 $ 530,480
============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
1999 1998
(Note 9)
<S> <C> <C>
REVENUE, net $2,476,884 $1,380,041
COST OF REVENUE 1,484,096 755,461
------------ -------------
GROSS PROFIT 992,788 624,580
GENERAL AND ADMINISTRATIVE EXPENSES 942,412 481,774
SELLING AND MARKETING EXPENSES 229,462 138,863
OPERATING (LOSS) INCOME (179,086) 3,943
OTHER INCOME (EXPENSE)
Interest expense (24,195) (55,557)
Other income 174 0
------------ -------------
Total other (expense) (24,021) (55,557)
LOSS BEFORE INCOME TAXES (203,107) (51,614)
INCOME TAX BENEFIT 17,766 0
------------ -------------
NET LOSS ($185,341) ($51,614)
============ =============
(0) $( * )
=== ======
(0) $( * )
=== ======
Weighted Average Shares Outstanding:
Basic 11,878,710 11,007,952
Diluted 11,878,710 11,007,952
* Less than $(0.01) per share.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE YEARS ENDED DECEMBER 31
1999 1998
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES: (Note 9)
<S> <C> <C>
Net loss ($185,341) ($51,614)
Adjustments to reconcile net loss to net cash provided (used) by operations
Depreciation and amortization 30,514 22,068
Miscellaneous noncash income (5,000)
Stock issued for legal fees 12,500
Stock issued to employees as compensation 25,125
Deferred Income taxes (17,766) -
Changes in assets and liabilities (net of acquisitions):
Accounts receivable (163,382) (43,101)
Inventories (151,109) (83,011)
Deposits (8,440)
Other current assets (77,100) (13,798)
Accounts payable 146,041 23,510
Accrued expenses and other liabilities 32,267 112,910
Deferred revenue 11,681 64,138
------------ -------------
Net cash (used) provided by operating activities (387,635) 68,727
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (44,919) (23,999)
------------ -------------
Net cash (used) by investing activities (44,919) (23,999)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 24,000 40,500
Payments on notes payable and capital leases (73,737) (46,618)
Net receipts on line of credit 65,837
Issuance of common stock (net of capital placement fees) 404,602 8,000
------------ -------------
Net cash provided by financing activities 420,702 1,882
------------ -------------
(DECREASE) INCREASE IN CASH (11,852) 46,610
CASH, January 1 49,544 2,934
------------ -------------
CASH, December 31 $37,692 $49,544
============ =============
SUPPLEMENTAL CASH FLOW INFORMATION: 1999 1998
------------ -------------
Interest paid $ 16,989 $ 22,870
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Fair value of Cartridge Care net assets Acquired for common stock $369,937
Property and equipment acquired under capital leases and notes payable $ 65,567
Sale of vehicle at net book value to employee in exchange for note.
Basis of vehicle $20,650, accumulated depreciation $14,176 $ 6,474
Common stock issued in exchange for legal services and trade debt $ 33,000
Common stock issued to employees ascompensation $ 25,125
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS" EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 and 1998
Stock Paid-in
Common Stock Subscription Capital Accumulated
Shares Amount Receivable (Deficit) Deficit Total
----------- ------------ ------------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE
DECEMBER 31, 1997 (Note 9) 10,726,881 $10,727 ($423,165) ($74,591) ($487,029)
Stock issued for cash 14,400 14 7,186 7,200
Stock issued for trade payables 32,000 32 7,968 8,000
Stock issued for legal services 100,000 100 24,900 25,000
Stock issued to employee as compensation 750,000 750 24,375 25,125
Net Loss (51,614) (51,614)
------------ -------------- -------------
DECEMBER 31, 1998 11,623,281 $11,623 ($358,736) ($126,205) ($473,318)
----------- --------- ------------ ------------ ------------
Stock for acquired companies 1,163,888 1,164 368,773 369,937
Stock Subscribed for Notes Receivable 3,124,672 3,125 (925,000) 921,875
Stock issuances for cash 108,333 108 29,892 30,000
Investment Group Funding subscription - 2,905,828 2,906 (750,000) 747,094
Funded subscriptions 400,000 400,000
Subscriptions funded after December 31, 1999 220,000 220,000
Stock subscribed not issued (3,876,772) (3,877) 3,877
Capital placement fees (25,398) (25,398)
Net loss (185,341) (185,341)
Reacquired shares (500,000) (500) 500
------------- --------- ------------- ------------ ------------ ------------
BALANCE, December 31, 1999 14,549,230 $14,549 ($1,055,000) $1,687,877 ($311,546) $335,880
============= ========= ============= ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ONESOURCE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
OneSource Technologies, Inc. (the "Company") is a general office and
industry specific equipment repair and maintenance service company.
Service work is performed pursuant to renewable term contracts and on-call
relationships with customers. The Company's customers are primarily in
banking and retail businesses located in the western and southwestern
United States.
The accompanying financial statements represent the financial position and
results of operations of OneSource Technologies, Inc., Cartridge Care,
Inc. and Net Express, Inc. on a consolidated basis. The 1998 consolidated
amounts have been restated to include the figures of Net Express.
Operating results of Cartridge Care for the period from October 1, 1999
(acquisition date) to December 31, 1999 are included in OneSource's
operating results for the year ended December 31, 1999 (Note 9).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash includes all short-term highly liquid investments that are readily
convertible to known amounts of cash and have original maturities of three
months or less.
Inventories consist primarily of used equipment, new and used parts and
supplies and are stated at the lower of cost (specific identification) or
market. Cartridge Care inventories consist of raw materials and finished
goods, consisting of remanufactured toner cartridges. Cartridge Care
inventories are stated on a FIFO basis.
Property and equipment is recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets ranging
from 3 to 10 years.
Goodwill - Costs in excess of the fair values assigned to the underlying
net assets of acquired companies are being amortized on the straight-line
method over fifteen (15) years.
Revenue recognition - The Company recognizes revenue on contracts pro rata
over the term of the contract or when the service is performed depending
on the terms of the agreement with customers. Sales of parts and equipment
are recognized when shipped or installed. Deferred revenue is recorded for
advanced billings and cash receipts prior to revenue recognition under a
pro rata basis under the terms of service contracts.
Income taxes - The Company provides for income taxes based on the
provisions of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, which among other things, requires that
recognition of deferred income taxes be measured by the provisions of
enacted tax laws in effect at the date of financial statements.
Advertising expenses- The Company expenses advertising costs as incurred.
Advertising expenses for the years ended December 31, 1999 and 1998 were
$18,001 and $0 respectively.
F-6
<PAGE>
Financial Instruments - Financial instruments consist primarily of cash,
accounts receivable, stock subscription receivable and obligations under
accounts payable, accrued expenses, debt and capital lease instruments.
The carrying amounts of cash, accounts receivable, accounts payable,
accrued expenses and short-term debt approximate fair value because of the
short maturity of those instruments. The carrying value of the Company's
capital lease arrangements approximates fair value because the instruments
were valued at the retail cost of the equipment at the time the Company
entered into the arrangements.
Principles of Consolidation - The accompanying financial statements
include the accounts and balances of OneSource Technologies, Inc. and its
two subsidiaries Cartridge Care and Net Express. All significant
intercompany balances and transactions have been eliminated.
Net Loss per share - Net loss per share is calculated using the weighted
average number of shares of Common Stock outstanding during the year. Debt
convertible to 570,140 shares of Common Stock and partially paid Common
Stock subscriptions of 5,449,334 shares were excluded from the computation
of diluted loss per share because the inclusion of such would be
anti-dilutive.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
3. INVENTORIES
<TABLE>
<CAPTION>
Inventories consisted of the following at December 31: 1999 1998
---- ----
<S> <C> <C>
Finished Goods (toner cartridges) $ 4,867
Equipment 55,429 $ 51,404
Parts 308,558 103,158
Supplies 16,584 18,961
Less: Allowance for obsolescence (16,540) (7,618)
-------- -------
Total inventory $ 368,898 $ 165,905
======== =======
</TABLE>
There are slow-moving inventories, which consist primarily of parts
removed from larger pieces of equipment and stored until needed for future
jobs. Costs are allocated to these items as components of the larger piece
of equipment from which they were removed. Much of this inventory has been
allocated minimum costs and management believes market value exceeds
recorded costs.
F-7
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<S> <C> <C>
1999 1998
---- ----
Equipment $ 113,715 $ 41,044
Furniture, fixtures and other 100,527 32,978
Vehicles 75,363 40,932
Leasehold improvements 10,816 8,397
-------- ------
Total 300,421 123,351
Less accumulated depreciation (81,668) (70,093)
-------- -------
Property, machinery and equipment - net $ 218,753 $ 53,258
= ======= = ======
</TABLE>
Depreciation expense for the years ended December 31, 1999 and 1998 was $
25,751 and $17,050 respectively.
5. NOTES PAYABLE
Notes payable at December 31consisted of the following:
<TABLE>
<S> <C> <C>
1999 1998
----------- ------------
(Note 9)
Bank note payable, collateralized by accounts receivable, inventories and
property and equipment, interest at prime plus 2% (9.75% at December 31, 1999)
principal payments of $2,778 plus interest are due monthly, due August 2000 $ 30,554 $ 58,335
Notes payable, collateralized by vehicles, interest from 8% to 12%, total
monthly installments of $2,058 from April 2000 through May 2002 46,948 21,067
Notes payable, unsecured, interest at 9% to 10%, convertible to stock,
due on demand 24,000 38,668
Note payable to shareholder, unsecured, interest at 6%, monthly interest
payments only, converted to 60,000 shares of OneSource stock April 2000 30,000 40,000
Note payable to Company's former parent company in connection with the
management buy-out of the Company. Stated face value, $285,000; stated
interest rate of 5%. The note was discounted at 9% and based on the
scheduled principal and interest payments. The discounted value of the
note was determined to be $252,787. The debt was
extinguished March 4, 2000 (see Note 15 - Subsequent event) 252,787 252,787
Total 384,289 410,857
Less current portion 68,043 87,963
Long-term portion $ 316,246 $ 322,894
========= =========
</TABLE>
The bank note payable is personally guaranteed by the Company's officers. Future
maturities of principal at December 31, 1999 are as follows:
2000 $ 68,043
2001 7,919
2002 17,890
2003 4,079
2004 286,358
----------
Total $384,289
6. LINES OF CREDIT
The company has various revolving line of credit agreements with banks
totaling $100,000 with interest ranging from 9.75% to 18%. At December 31,
1999 the Company had utilized $88,837 of the total $100,000 credit
facility.
F-9
<PAGE>
7. INCOME TAXES
The Company recognizes deferred income taxes for the differences between
financial accounting and tax bases of assets and liabilities. Income taxes
for the years ended December 31, consisted of the following:
1999 1998
--------- --------
Current tax provision (benefit) $ (67,948) $(9,645)
Deferred tax provision (benefit) 50,182 9,645
--------- --------
Total income tax provision (benefit) $ (17,766) $ 0
--------- --------
Deferred tax assets of $194,000 and $122,000 at December 31, 1999 and 1998
respectively relate primarily to federal net operating loss carryforwards
of $485,000, and state operating loss carryforwards of $585,000 at
December 31, 1999, and $305,000 and $406,000 respectively at December 31,
1998. The carry forwards expire from 2000 through 2019. Approximately
$17,000 of the deferred tax asset at December 31, 1999 relates to
allowances on accounts receivable and inventories. At December 31, 1999
there is a deferred income tax liability of $2,689 that relates to book
and tax differences for property, equipment and intangibles. The net
deferred income tax asset of $191,000 at December 31, 1999 is partially
offset by valuation allowance of $174,000. The valuation allowance on the
net deferred income tax asset increased by $52,000 and $11,000 in the
years ended December 31, 1999 and 1998 respectively.
Reconciliation of statutory and effective tax rates:
1999 1998
----------- -------------
Federal $(64,420) (31%) $(7,742) (15%)
State (16,240) ( 8%) (4,129) ( 8%)
Valuation allowance 51,928 25% 11,410 22%
Miscellaneous 10,966 5% 461 1%
========= ====== ====== ====
$(17,766) (9)% $ 0 0%
8. LEASES
Operating Leases
The Company leases its facilities under long-term operating leases that
expire through 2004. Rent expense under these leases was $98,577 for the
year ended December 31, 1999. Minimum annual lease payments under these
agreements are as follows:
Years ended December 31:
2000 $122,788
2001 117,330
2002 117,140
2003 120,490
2004 102,700
-----------
$580,448
F-10
<PAGE>
Capital leases
The Company entered into several capital leases for equipment. The
following presents future minimum lease payments under capital leases by
year and the present value of minimum lease payments as of December 31,
1999:
Year ended December 31, 1999:
2000 $ 6,770
2001 4,791
2002 2,693
--------------------------------------------------
Total minimum lease payments 14,254
Less amount representing interest 2,121
---------
Present value of minimum lease payments 12,133
Current portion 5,496
---------
Long-term portion $ 6,637
=========
Assets capitalized under the capital lease total $16,098 and related
accumulated amortization of $1,610.
9. BUSINESS ACQUISITIONS
The Company acquired Net Express, Inc. ("Net Express") on April 15, 1999
by issuing 727,946 shares of the Company's common stock for 100% of the
outstanding stock of Net Express. The transaction is accounted for as a
pooling of interests. Accordingly, the Company's consolidated financial
statements have been restated for all periods prior to the combination to
include the combined financial position and operating results of the
Company and Net Express. The officers and management of Net Express remain
with the Company. Net Express is a computer equipment reseller and network
integration company.
The following table presents a reconciliation of the net revenues and net
loss previously reported by the Company and for the current period prior
to the combinations:
Period January 1, 1999
Year ended to April 15, 1999
December 31, 1998 (Unaudited)
Net Revenues:
OneSource Technologies, Inc. $ 1,191,068 $ 472,197
Net Express 188,973 98,888
Combined $ 1,380,041 $ 571,085
=========== ===========
Net (Loss) Income:
OneSource Technologies, Inc. $ (55,766) $ 936
Net Express 4,152 3,632
Combined $ (51,614) $ 4,568
============= ===========
For the period prior to the merger there were no inter-company
transactions that required elimination from the combined consolidated
results of operations and there were no adjustments necessary to conform
the accounting practices of the two companies.
The Company acquired Cartridge Care, Inc. ("Cartridge Care") on September
30, 1999. The Company issued 1,163,888 shares of common stock for all the
outstanding stock of Cartridge Care. The acquisition of Cartridge Care was
accounted for under the purchase method. The $369,937, ($0.318 per share)
value of the transaction was determined on the basis of recent private
placements of the Company's common stock, taking into consideration
contractual and legal restrictions related to these private transactions
and management's present assessment of the affect on the value of this
transaction of post purchase adjustments
F-11
<PAGE>
currently being negotiated. Following the close of the purchase, OneSource
agreed to assume additional liabilities arising from operational losses
and relocation costs of Cartridge Care in exchange for the return of a
portion of the shares originally tendered, see Note 12. Goodwill of
$274,664 associated with the purchase is being amortized over fifteen (15)
years. Officers and management of Cartridge Care remain with the Company
and Cartridge Care is being operated as a separate subsidiary of
OneSource. Cartridge Care is a toner cartridge re-manufacturer.
The purchase price contains a contingency whereby the sellers may receive
an additional 723,612 shares of the Company's common stock (see Note 12).
Those shares are non-voting and are being held in escrow pending the
resolution of the contingency.
Had the Cartridge Care acquisition occurred at the beginning of 1999,
revenues and net loss would have been $3,186,012 and $191,237 ($0.01 per
share) as of December 31, 1999 (unaudited).
10. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily accounts receivable.
Approximately $ 244,500 of the accounts receivable balance at December 31,
1999 is due from five (5) customers.
11. EMPLOYEE BENEFIT PLAN
The Company provides benefits through a 401(k) plan for all full time
employees who have completed six months of service and are at least 21
years of age. Contributions to the plan are at the discretion of the Board
of Directors. The Company made no contributions to the plan for the years
ended December 31, 1999 and 1998.
12. COMMITMENTS AND CONTINGENCIES
A former employee has filed a complaint against the Company for a claim of
allegedly unpaid sales commissions of $25,620. The Company has attempted
to settle with this former employee but believes the individual has
significantly inflated the claim and that the former employee cannot
substantiate the amount of the claim. The Company and its counsel believe
that it has a substantial defense due to numerous inconsistencies and the
former employee's lack of substantiation. The Company intends to
vigorously defend this case. The Company and its counsel do not believe
that the outcome of this case can yet be determined. The Company has
accrued $2,300 with respect to this claim. If the court determines that
the Company did not act in good faith with respect to this former
employee's claim, the potential damages may be trebled.
The purchase agreement for Cartridge Care contains a contingency for an
additional 723,612 shares of the Company's common stock to be issued
pending resolution of the contingency. The Company is pursuing legal
remedies against the original owners for misrepresentations made that
materially affect the value of Cartridge Care. The sellers of Cartridge
Care have agreed to escrow the 723,612 shares of the Company's stock on
the pending the results of the litigation. The ultimate resolution of this
matter could result in an increase of the purchase price of Cartridge
Care, which would increase the basis of the net assets acquired. The
recorded purchase price reflects management's current best estimates of
what the final figure will be.
The Company has accrued delinquent payroll taxes, penalties and interest of
approximately $210,000 at December 31, 1999. The Company is corresponding
with the IRS and is attempting to negotiate payment terms. The Company has
committed to making certain scheduled payments based on the availability of
funds. There
F-12
<PAGE>
can be no assurance however that the IRS will not take other action should
the Company fail to make committed payments.
13. MAJOR CUSTOMERS
Approximately 50% of the Company's revenue was generated from six
customers for the year ended December 31, 1999, the largest customer accounting
for approximately 25%. For the year ended December 31, 1998 about 38% of the
Company's total revenues were derived from eight customers with the largest
contributing approximately 9%.
14. BUSINESS SEGMENTS
The Company's revenues are derived from three closely related and
complimentary service and product categories, 1) renewable contract
equipment maintenance services, 2) equipment sales and integration services
and 3) value added equipment supply sales. The following table sets forth
the salient operating contributions of each for the year ended December 31,
1999:
<TABLE>
<S> <C> <C> <C> <C> <C>
Maintenance Integration Supplies Internal Total
Revenues $1,973,036 $341,548 $169,222 $ (6,922) $2,476,884
Operating (loss) income $ (130,028) $ 13,376 $(62,434) $ (179,086)
Depreciation $ 18,100 $ 60,241 $ 54,780 $ 460,121
Interest $ 20,017 $ 2,803 $ 1,375 $ 24,195
Property & Equipmt Purch $ 44,919 $ 0 $ 0 $ 44,919
Total assets $1,545,991 $ 81,873 $478,593 $(390,971) $1,715,486
</TABLE>
15. SUBSEQUENT EVENT
On March 4, 2000 the Company and a group of investors executed an
agreement with PF Holdings, Inc. ("PF") to purchase the promissory note
held by PF with a face value of $285,000.00 and accrued interest of $36,
972 for $150,000 in cash provided by the investors and 175,000 shares of
the Company's common stock with an estimated fair market value on March 4,
2000 of $93,438. Following the purchase and assumption of the note the
investor group exercised the conversion feature in the note for 643,944
shares of the Company's Common stock. The investor's are restricted from
selling any of the combined 818,944 shares of stock for a period of one
year.
16. STOCKHOLDERS' DEFICIT
The Company reacquired 500,000 shares from one of the founding shareholders
and former controller of the Company. The shares were reacquired in
settlement of a dispute over the length of service of the former
shareholder and the transaction was recorded at the Company's cost. Shares
issued to employees and others for services are valued based on
consideration of the value of the stock issued and/or the service rendered.
The following table shows the number of shares issued, the amount recorded
as expense and basis of valuation for shares issed for services in 1998:
<TABLE>
<S> <C> <C> <C>
Description Shares Cost Per Valuation Basis
Issued Share
Issued for trade payables 32,000 $0.25 Invoice cost of purchases
Issued for legal services 100,000 $0.25 Invoice cost of services
Issed for employee compensation 750,000 $0.04 Value of forfeited salary adjustments
</TABLE>
The Company obtained several subscriptions for its common stock totaling
6,030,500 shares during the year ended December 31, 1999. Subsequent to
December 31, 1999, $220,000 of the subscriptions were funded representing
payment for 852,376 shares. The remaining balance of 3,656,000 shares is
subscribed for $1,055,000, of which $800,000 is represented by two notes
receivable in the amount of $400,000. The notes mature in July 200 with
interest at 6% per annum.
* * * * * *
F-13
<PAGE>
PROFORMA INFORMATION (UNAUDITED)
The accompanying Pro Forma information is presented for illustrative purposes
only and is not necessarily indicative of the results of operations that would
have actually been reported had this transaction occurred at the beginning of
the period presented. The accompanying Pro Forma Condensed Consolidated
Statement of Operations should be read in conjunction with the historical
financial statements and related footnotes of OneSource Technologies, Inc.
In September 1999 the Company purchased all the outstanding stock of Cartridge
Care, Inc., (Cartridge Care) in exchange for 1,887,500 shares of OneSource
Technologies, Inc. common stock. The transaction was accounted for as a
purchase. Since the date of acquisition the Company has funded the facilities
relocation costs and operating losses of Cartridge Care. It is anticipated that
these costs as well as ongoing funding requirements will result in an adjustment
of the purchase price of the acquisition.
In as much as the Company's stock was thinly traded at the time of the purchase,
the underlying value, ($369,937 or $0.318 per share) ascribed to the shares
tendered was based on share values utilized in a number of independently
negotiated capital funding transactions with third party investors. At December
1999 the value assigned to the purchase reflects management's current best
estimate of what the adjusted purchase price will be based on all presently
available facts.
<TABLE>
<CAPTION>
Pro Forma Condensed Consolidated Statements of Operations
For the year ended September 30, 1999 Unaudited
Cartidge Care
OneSource January 1, through Pro Forma Pro Forma
December 31, 1999 September 30, 1999 Adjustments Combined
---------------- ------------------- --------------- --- ---------------
<S> <C> <C> <C> <C>
REVENUE, net $ 2,476,884 $ 687,132 $ (21,996) (3) $ 749,769
COST OF SERVICE 1,484,096 402,981 (19,524) (3) 1,867,553
GROSS PROFIT 992,788 284,151 (2,472) 1,274,447
---------------- ---------------- --------------- ---------------
OPERATING EXPENSES 1,171,874 322,866 1,497,740
Amortization of goodwill 14,289 (1) 14,289
Depreciation on increased basis of
equipment 5,322 (2) 5,322
Operating loss (179,086) (38,715) (22,083) (239,884)
---------------- ---------------- --------------- ---------------
OTHER INCOME (EXPENSE)
Interest (income) expense 24,195 (396) 23,799
Other (income) expense (174) (27,109) (27,283)
---------------- ---------------- --------------- ---------------
Total other expense 24,021 (27,505) (3,484)
NET LOSS before TAXES $ (203,107 $ (11,210) $ (22,083) $ (236,400)
================ ================ =============== ===============
TAX BENEFIT 17,776 20,685
NET LOSS (185,341) (215,715)
Net Loss Per Share:
Basic $(0.02) $(0.02)
Diluted $(0.02) $(0.02)
Weighted Average Shares
Basic 11,878,710 13,094,150
Diluted 11,878,710 13,094,150
</TABLE>
Note1: Pro Forma Adjustments
The following is a description of each of the pro forma adjustments: (1)
Amortization of goodwill over 15 years (2) Depriciation on adjusted basis of
equipment purchased (3) Elimination of inter-company revenues and profits
F-14
<PAGE>
CARTRIDGE CARE, INC.
Financial Statements as of
December 31, 1998
And Independent Auditors' Report
F-15
<PAGE>
CARTRIDGE CARE, INC.
TABLE OF CONTENTS
Page
AUDITORS' REPORT F-17
BALANCE SHEET AS OF DECEMBER 31,1998 F-18
STATEMENT OF OPERATIONS FOR
THE YEAR ENDED DECEMBER 31,1998 F-19
STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEAR ENDED DECEMBER 31 1998 F-20
STATEMENT OF CASH FLOWS FOR
THE YEAR ENDED DECEMBER 31,1998 F-21
NOTES TO FINANCIAL STATEMENTS F-22
F-16
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders of
Cartridge Care, Inc.:
We have audited the accompanying balance sheet of Cartridge Care, Inc. as of
December 31, 1998 and the related statements of operations, stockholders'
deficit and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cartridge Care, Inc. as of
December 31, 1998, and the results of its operations and cash flows for the year
then ended in conformity with generally accepted accounting principles.
/s/ King, Weber & Associates, P.C.
Tempe, Arizona
May 25, 2000
F-17
<PAGE>
<TABLE>
<CAPTION>
CARTRIDGE CARE, INC.
BALANCE SHEET
DECEMBER 31, 1998
------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C>
Cash $100
Accounts receivable 49,797
Inventories 34,985
Other current assets 5,249
--------------
Total current assets 90,131
PROPERTY AND EQUIPMENT, net of depreciation 69,444
OTHER ASSETS 9,569
TOTAL ASSETS $169,144
---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $86,071
Accrued expenses and other liabilities 19,927
Deferred revenue 15,805
Bank lines of credit 39,983
Current portion of notes payable 3,218
Income taxes payable 13,655
Deferred income taxes 4,292
---------------
Total current liabilities 182,951
NOTES PAYABLE - LONG-TERM PORTION 1,346
===============
Total liabilities 184,297
-------
STOCKHOLDERS' EQUITY
Common Stock, no par value, 150 shares issued and authorized, 38,663
Accumulated deficit (53,816)
---------------
Total stockholders' equity (15,153)
LIABILITIES AND STOCKHOLDERS' EQUITY $169,144
---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
<TABLE>
<CAPTION>
CARTRIDGE CARE, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------
<S> <C>
REVENUE, net $964,930
COST OF REVENUE 565,090
-----------------
GROSS PROFIT 399,840
GENERAL AND ADMINISTRATIVE EXPENSES 306,878
SELLING AND MARKETING EXPENSES 61,481
-----------------
Operating income 31,481
OTHER INCOME (EXPENSE)
Other income 14,570
Interest (expense) (5,136)
-----------------
Total other income 9,434
-----------------
NET INCOME BEFORE TAXES 40,915
PROVISION FOR INCOME TAXES 12,057
NET INCOME $ 28,858
=================
Basic Net Income Per Common Share $ 192.39
=================
Weighted Average Shares Outstanding 150
=================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-19
<PAGE>
<TABLE>
<CAPTION>
CARTRIDGE CARE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------
Common Stock Accumulated Total
Shares Amount Deficit Equity
------ ------- ------
<S> <C> <C> <C> <C>
BALANCE
DECEMBER 31, 1997 150 $38,663 $(82,674) $(44,011)
NET INCOME 28,858 28,858
BALANCE
DECEMBER 31, 1998 150 $38,663 ($53,816) $(15,153)
--------- ------------ ----------------- ----------
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-20
<PAGE>
<TABLE>
<CAPTION>
CARTRIDGE CARE, INC.
STATEMENT OF CASH FLOWS FOR
THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Net income $28,858
Adjustments to reconcile net income to net cash
provided by operations
Gain on disposition of equipment (13,792)
Depreciation 22,453
Deferred income taxes 2,097
Changes in assets and liabilities
Accounts receivable (4,759)
Inventory 4,028
Other current assets (427)
Other assets 1,388
Accounts payable 18,828
Accrued expenses and other liabilities (7,808)
Deferred revenue 39,611
Income taxes payable 6,058
Net cash provided by operating activities 58,172
---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (3,018)
Net cash used by investing activities (3,018)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of loans from shareholders (50,460)
Principle payments on loans (5,394)
Net borrowings on line of credit 800
Net cash used by financing activities (55,054)
---------------
INCREASE IN CASH 100
CASH BALANCE, January 1, 1998 0
CASH BALANCE, December 31, 1998 $100
===============
Supplemental Cash Flow Information:
Interest paid $18,055
===============
Income taxes paid $5,995
===============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-21
<PAGE>
CARTRIDGE CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
Cartridge Care, Inc. (the "Company") is a remanufacturer of laser printer,
copier and facsimile cartridges. The Company also operates an equipment
repair and maintenance service company. Service work is performed pursuant
to renewable term contracts and on-call relationships with customers. The
Company's customers are primarily in located in Arizona.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash includes all short-term highly liquid investments that are readily
convertible to known amounts of cash and have original maturities of three
months or less.
Inventories consist primarily of new parts and toner cartridges, including
used components of same. Inventories are stated at the lower of cost or
market on a first-in, first-out (FIFO) basis. Remanufactured cartridges
generally are completed by at the end of the day and therefore no work in
progress exists.
Property and equipment is recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets ranging
from 3 to 10 years.
Revenue recognition - The Company recognizes revenue on service contracts
pro rata over the term of the contract or when the service is performed
depending on the terms of the agreement with customers.
Deferred revenue is recorded for advanced billings and cash receipts
prior to revenue recognition under a pro rata basis under the terms of
service contracts. Sales of parts and equipment are recognized when
shipped or installed.
Income taxes - The Company provides for income taxes based on the
provisions of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, which among other things, requires that
recognition of deferred income taxes be measured by the provisions of
enacted tax laws in effect at the date of financial statements.
Advertising expenses- The Company expenses advertising costs as incurred.
Advertising expense for the year ended December 31, 1998 was $21,010.
Financial Instruments - Financial instruments consist primarily of cash,
accounts receivable, and obligations under accounts payable, accrued
expenses, debt and capital lease instruments. The carrying amounts of
cash, accounts receivable, accounts payable, accrued expenses and
short-term debt approximate fair value because of the short maturity of
those instruments. The carrying value of the Company's capital lease
arrangements approximates fair value because the instruments were valued
at the retail cost of the equipment at the time the Company entered into
the arrangements.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the
F-22
<PAGE>
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net Income Per Share - Net income per share is calculated using the
weighted average number of shares of common stock outstanding during the
year. The Company had a simple capital structure and no potentially
dilutive securites outstanding at December 31, 1998.
3. INVENTORIES
Inventories consisted of the following at December 31, 1998:
Finished goods $ 5,155
New parts and supplies 24,579
Used cartridge components 5,251
-----
Total $34,985
-------
Labor costs associated with finished goods inventory is typically not
significant.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1998:
Equipment $ 99,966
Furniture, fixtures and other 40,300
Vehicles 14,776
Leasehold improvements 17,144
---------
Total 172,186
Less accumulated depreciation (102,742)
-------
Property, machinery and equipment - net $ 69,444
=========
Depreciation expense for the year ended December 31, 1998 was $22,453.
5. LINES OF CREDIT
The company has a revolving line of credit agreement with a bank totaling
$40,000 with interest at the prime rate plus 3% (10.75% at December 31,
1998). At December 31, 1998 the company had drawn $39,983.
6. NOTES PAYABLE
Notes payable at December 31, 1998 consisted of the following:
Note payable, collateralized by vehicle, interest at 10.25%, monthly payments of
$293 due through October 2000 $ 4,564
Less current portion 3,218
------------
Long-term portion $ 1,346
============
F-23
<PAGE>
Future maturities of principal at December 31, 1998 are as follows:
1999 $ 3,218
2000 1,346
----------
Total $ 4,564
=========
7. LEASES
Operating Leases
The Company leases its office space over a long term operating lease
expiring in September 1999. Rent expense was $46,361 for the year ended
December 31, 1998. Future minimum lease payments under that lease at
December 31, 1998 were:
1999 $65,621
------
8. INCOME TAXES
The Company recognizes deferred income taxes for the differences between
financial accounting and tax bases of assets and liabilities. Income taxes
for the year ended December 31, 1998 consisted of the following:
Current tax provision $ 9,960
Deferred tax provision 2,097
---------
Total income tax provision $ 12,057
=========
The deferred income tax liability at December 31, 1998 of $4,292
relates to temporary differences in book and tax depreciation methods for
property and equipment.
Reconciliation of statutory and effective tax rates:
Federal $ 6,137 15%
State 3,273 8%
Other 2,647 6%
------- -----
$12,057 29%
======= =====
9. MAJOR CUSTOMERS
Approximately 20% of the Company's revenue was generated from three
customers for the year ended December 31, 1998, the largest customer
accounting for approximately 10%.
10. SUBSEQUENT EVENTS
In March of 1999 all of the outstanding stock of the Company was sold to
two individuals for cash and notes totaling approximately $610,000. These
two individuals exchanged 100% of their stock in the Company for stock of
OneSource Technologies, Inc., a Delaware corporation in September 1999.
11. RELATED PARTY TRANSACTION
During 1998 cash advances of $50,460 were made to the principle
shareholders of the company who in turn repaid the advances as of
December 31, 1999.
F-24
<PAGE>
ONESOURCE TECHNOLOGIES, INC.
Consolidated Financial Statements as of
March 31, 2000 and 1999
(Unaudited)
F-25
<PAGE>
ONESOURCE TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 F-27
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 2000 AND 1999 F-28
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THREE MONTHS ENDED MARCH 31, 2000 AND 1999 F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THREE MONTHS ENDED MARCH 31, 2000 AND 1999- F-30
F-26
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31______________________________________________________
(Unaudited)
ASSETS 2000
----------------
<S> <C>
CURRENT ASSETS:
Cash $50,333
Accounts receivable 409,957
Stock subscription receivable 25,000
Inventories 379,028
Other current assets 24,702
-----------------
Total current assets 889,020
PROPERTY AND EQUIPMENT, net of accumulated depreciation 272,405
GOODWILL, net of accumulated amortization of $9,526 265,138
OTHER ASSETS 115,994
-----------------
TOTAL ASSETS $1,542,557
=================
LIABILITIES AND STOCKHOLDERS" EQUITY (DEFICIT):
CURRENT LIABILITIES:
Accounts payable $246,343
Accrued expenses and other liabilities 213,201
Deferred revenue 261,797
Bank lines of credit (Note 6) 127,950
Current portion capital leases 4,803
Current portion of long-term debt (Note 5) 54,085
-----------------
Total current liabilities 908,159
CAPITAL LEASES -- LONG TERM PORTION 5,961
NOTES PAYABLE - LONG-TERM PORTION 31,853
-----------------
Total liabilities 945,993
=================
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $.001 par value, 1,000,000 shares authorized, none issued
Common Stock, $.001 par value, 20,000,000 shares authorized, 15,478,174 15,478
and 11,623,281 issued at March 31, 2000 and 1999, respectively, and
3,876,802 subscribed but not issued shares at March 31, 2000
Paid in capital 1,978,386
Stock subscription (1,055,000)
Treasury stock (500,000 shares at $0 cost) 0
Accumulated deficit (342,300)
-----------------
Total stockholders' equity 596,564
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,542,557
=================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31
(Unaudited) (Unaudited)
2000 1999
------------- ------------------
<S> <C> <C>
REVENUE, net $890,545 $503,628
COST OF REVENUE 540,636 305,958
------------- ------------------
GROSS PROFIT 349,909 197,670
GENERAL AND ADMINISTRATIVE EXPENSES 409,130 144,623
SELLING AND MARKETING EXPENSES 60,328 38,803
------------- ------------------
Operating (loss) income (119,549) 14,244
OTHER INCOME (EXPENSE)
Interest expense (11,265) (7,698)
Other income 2,933 3,955
------------- ------------------
Total other (expense) (8,332) (3,743)
NET LOSS BEFORE EXTRAORDINARY (127,881) 10,501
ITEM
Extraordinary item -- Gain on extinguishments 63,375 0
of debt
NET (LOSS) INCOME ($64,506) $10,501
============= ==================
NET Loss Per Share:
Basic, before extraordinary item $( * ) $ *
after extraordinary item $( * ) $ *
Diluted, before extraordinary item $( * ) $ *
after extraordinary item $( * ) $ *
Weighted Average Shares Outstanding:
Basic 15,772,402 11,623,281
Diluted 15,772,402 11,623,281
</TABLE>
* Less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE THREE MONTHS ENDED MARCH 31
(Unaudited) (Unaudited)
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($64,506) ($51,614)
Adjustments to reconcile net loss to net cash provided (used) by operations
Depreciation and goodwill amortization 12,653 22,068
Gain on retirement of debt (63,375)
Stock issued for legal fees 12,500
Stock issued to employees as compensation 25,125
Changes in assets and liabilities (net of acquisitions):
Accounts receivable 38,164 (43,101)
Inventory (10,130) (83,011)
Other current assets (18,341) (13,798)
Accounts payable (99,375) 23,510
Accrued expenses and other liabilities (14,847) 112,910
Deferred revenue 51,761 64,138
Net cash provided (used) by operating activities (167,996) 68,727
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (61,542) (23,999)
Net cash provided (used) by investing activities (61,542) (23,999)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 40,500
Payments on notes payable and capital leases (166,934) (46,618)
Net receipts on line of credit 39,113
Funds received for stock subscriptions 220,000
Issuance of common stock (net of capital placement fees) 150,000 8,000
Net cash provided (used) by financing activities 242,179 1,882
INCREASE (DECREASE) IN CASH 12,641 46,610
CASH, January 1 37,692 2,934
CASH, March 31 $50,333 $49,544
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $5,578 $22,870
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Common stock subscribed in exchange for notes receivable $278,438
Common stock issued in exchange for note payable $30,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STAEMENTST STATEMENTS FOR
THE THREE MONTHS ENDED MARCH 31, 2000
1. BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared by the
Company without audit, pursuant the rules and regulations for financial
information. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted. These unaudited
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company"s audited financial
statements as of December 31, 1999. In the opinion of management, these
unaudited financial statements reflect all adjustments which are necessary
to present fairly the financial position and results of operations of the
Company for such interim period. Operating results for the interim period
are not necessarily indicative of results that may be expected for the
entire year
2. EXTINGUISHMENT OF DEBT
On March 4, 2000 the Company and a group of investors executed an agreement
with PF Holdings, Inc. ("PF") to purchase the promissory note held by PF
with a face value of $285,000.00 and accrued interest of $36,972 for
$150,000 in cash provided by the investors and 175,000 shares of the
Company"s common stock with an estimated fair market value on March 4, 2000
of $93,438. Following the purchase and assumption of the note the investor
group exercised the conversion feature in the note for 643,944 shares of
the Company's Common stock. The investor's are restricted from selliing any
of the combined 818,944 shares of stock for a period of one year.
3. CONTINGENTLY ISSUABLE SHARES
The purchase agreement for Cartridge Care contains a contingency for an
additional 723,612 shares of the Company's common stock to be issued
pending resolution of the contingency. The Company is pursuing legal
remedies against the original owners for misrepresentations made that
materially affect the value of Cartridge Care. The sellers of Cartridge
Care have agreed to escrow the 723,612 shares of the Company"s stock
pending the results of the litigation. The ultimate resultion of this
matter could result in an increase of the purchase price of Cartridge Care,
which would increase the basis of the net assets acquired The recorded
purchase price reflects management's current best estimates of what the
final figure will be.
4. BUSINESS SEGMENTS
The Company"s revenues are derived from three closely related and complimentary
service and product categories, 1) renewable contract equipment maintenance
services, 2) equipment sales and integration services and 3) value added
equipment supply sales. The following table sets forth the salient
operating contributions of each for the year ended March 31, 2000:
<TABLE>
<S> <C> <C> <C> <C> <C>
March 2000, Three Months Maintenance Integration Supplies Internal Total
------------ -------------- --------- --------- -----------
Revenues $645,887 $49,028 $204,535 ($8,905) $890,545
Operating (loss) income (40,122) (11,505) (12,879) (64,506)
Depreciation 12,653 0 0 12,653
Interest 7,267 1,879 2,119 11,265
Property & equipment purchases 46,202 (1,924) 17,264 61,542
Total assets $1,321,938 $98,984 $512,606 ($390,971) $1,542,557
</TABLE>
F-30
<PAGE>
ONESOURCE TECHNOLOGIES, INC.
Consolidated Financial Statements as of
June 30, 2000 and 1999
(Unaudited)
F-31
<PAGE>
ONESOURCE TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 F-32
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED JUNE 30, 2000 AND 1999 F-33
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THREE MONTHS ENDED JUNE 30, 2000 AND 1999 F-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THREE MONTHS ENDED JUNE 30, 2000 AND 1999- F-35
F-32
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000______________________________________________________
(Unaudited)
ASSETS 2000
--------------
<S> <C>
CURRENT ASSETS:
Cash ($35,174)
Accounts receivable 415,569
Inventories 399,808
Other current assets 186,205
--------------
Total current assets 966,409
PROPERTY AND EQUIPMENT, net of accumulated depreciation 254,443
GOODWILL, net of accumulated amortization of $13,530 254,241
OTHER ASSETS 154,865
-------------
TOTAL ASSETS $1,629,958
=============
LIABILITIES AND STOCKHOLDERS" EQUITY (DEFICIT):
CURRENT LIABILITIES:
Accounts payable $353,768
Accrued expenses and other liabilities 227,794
Deferred revenue 243,411
Bank lines of credit (Note 6) 110,903
Current portion capital leases 17,890
Current portion of long-term debt 39,312
Total current liabilities 993,077
CAPITAL LEASES -- LONG TERM PORTION 11,377
NOTES PAYABLE - LONG-TERM PORTION (Note 5) 15,677
-------------
Total liabilities 1,020,131
==============
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $.001 par value, 1,000,000 shares authorized, none issued
Common Stock, $.001 par value, 20,000,000 shares authorized, 15,772,402 15,860
and 14,297,953 issued at June 30, 2000 and 1999 respectively, and 3,124,747
subscribed but not issued shares at June 30, 2000
Paid in capital 2,181,934
Stock subscription (1,055,000)
Accumulated deficit (532,967)
--------------
Total stockholders' equity 609,827
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,629,958
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
2nd QTR 2nd QTR YTD YTD
2000 1999 2000 1999
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUE, net $825,748 $547,998 $1,716,292 $1,051,626
COST OF REVENUE 540,125 326,959 1,080,760 632,917
------------- ------------- ------------- ------------
GROSS PROFIT 285,623 221,039 635,532 418,709
GENERAL AND ADMINISTRATIVE EXPENSES 331,014 225,591 740,144 370,214
SELLING AND MARKETING EXPENSES 49,542 39,696 109,870 78,499
------------- ------------- ------------- ------------
Operating income (94,932) (44,248) (214,482) (30,004)
------------- ------------- ------------- ------------
OTHER INCOME (EXPENSE)
Interest expense (13,014) (6,464) 24,279 (14,162)
Other income (9,302) (2,933) (6,369) 1,489
------------- ------------- ------------- ------------
Total other (expense) (22,316) (8,930) (30,648) (12,673)
Net Loss before ExtraOrdinary Item (117,248) (53,178) (245,130) (42,677)
Extraordinary item -- Gain on
extinguishments of debt 0 0 63,375 0
------------- ------------- ------------- ------------
NET LOSS ($117,248) ($53,178) ($181,755) ($42,677)
============= ============= ============= ============
NET Loss Per Share:
Basic, before extraordinary item ($0.01) $ * ($0.01) $ *
======= = = ======= = =
after extraordinary item ($0.01) $ * ($0.01) $ *
======= = = ======= = =
Diluted, before extraordinary item ($0.01) $ * ($0.01) $ *
======= = = ======= = =
after extraordinary item ($0.01) $ * ($0.01) $ *
======= = = ======= = =
Weighted Average Shares Outstanding:
Basic 15,917,738 13,884,902 15,917,738 13,884,902
Diluted 15,917,738 13,884,902 15,917,738 13,884,902
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE SIX MONTHS ENDED JUNE 30, 2000
(Unaudited) (Unaudited)
YTD YTD
2000 1999
-------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($181,755) ($42,677)
Adjustments to reconcile net loss to net cash provided (used) by operations
Depreciation and amortization 31,746 (9,298)
Loss on retirement of debt (63,375) (5,000)
Changes in assets and liabilities (net of acquisitions):
Accounts receivable (32,552) 43,102
Inventory (30,910) (73,056)
Other current assets (154,844) (35,035)
Accounts payable 8,050 34,486
Accrued expenses and other liabilities (254) 100,698
Deferred revenue 33,375 44,470
-------------- -----------
Net cash provided (used) by operating activities (325,415) (28,251)
-------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (164,067) (69,466)
Merger related expenses 3,506
-------------- -----------
Net cash provided (used) by investing activities (164,067) (65,960)
-------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable and capital leases (179,380) (41,479)
Net receipts on line of credit 22,066 37,549
Funds received for stock subscriptions 220,000 105,000
Issuance of common stock (net of capital placement fees) 353,930 0
-------------- -----------
Net cash provided (used) by financing activities 416,616 101,000
INCREASE (DECREASE) IN CASH (72,866) 6,859
CASH, January 1 37,692 18,798
CASH, June 30 ($35,174) $25,657
============== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $18,634 $8,444
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Common stock subscribed in exchange for notes payable $278,438
</TABLE>
* Less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
ONESOURCE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STAEMENTST STATEMENTS FOR
THE SIX MONTHS ENDED JUNE 30, 2000
1. BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared by the
Company without audit, pursuant the rules and regulations for financial
information. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted. These unaudited
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company"s audited financial
statements as of December 31, 1999. In the opinion of management, these
unaudited financial statements reflect all adjustments which are necessary
to present fairly the financial position and resultts of operations of the
Company for such interim period. Operating results for the interim period
are not necessarily indicativeof results that may be expected for the
entire year
2. EXTINGUISHMENT OF DEBT
On March 4, 2000 the Company and a group of investors executed an agreement
with PF Holdings, Inc. ("PF") to purchase the promissory note held by PF
with a face value of $285,000.00 and accrued interest of $36,972 for
$150,000 in cash provided by the investors and 175,000 shares of the
Company"s common stock with an estimated fair market value on March 4, 2000
of $93,438. Following the purchase and assumption of the note the investor
group exercised the conversion feature in the note for 643,944 shares of
the Company's Common stock. The investor's are restricted from selliing any
of the combined 818,944 shares of stock for a period of one year.
3. CONTINGENTLY ISSUABLE SHARES
The purchase agreement for Cartridge Care contains a contingency for an
additional 723,612 shares of the Company's common stock to be issued
pending resolution of the contingency. The Company is pursuing legal
remedies against the original owners for misrepresentations made that
materially affect the value of Cartridge Care. The sellers of Cartridge
Care have agreed to escrow the 723,612 shares of the Company"s stock
pending the results of the litigation. The ultimate resultion of this
matter could result in an increase of the purchase price of Cartridge Care,
which would increase the basis of the net assets acquired The recorded
purchase price reflects management's current best estimates of what the
final figure will be.
4. BUSINESS SEGMENTS
The Company"s revenues are derived from three closely related and complimentary
service and product categories, 1) renewable contract equipment maintenance
services, 2) equipment sales and integration services and 3) value added
equipment supply sales. The following table sets forth the salient
operating contributions of each for the year ended June 30, 2000:
<TABLE>
<S> <C> <C> <C> <C> <C>
June 2000, Six Months Maintenance Integration Supplies Internal Total
-------------- ------------ ------------ ------------- ---------------
Revenues $1,178,991 $ 157,944 $397,640 ($18,283) $ 1,716,292
Operating (loss) income (79,183) (60,027) (42,545) (181,755)
Depreciation 20,180 316 11,250 31,746
Interest 7,762 5,555 5,313 18,630
Property & equipment purchases 178,707 (1,924) (12,716) 164,067
(retirements)
Total assets $1,511,763 $ 99,399 $ 447,840 ($429,044) $ 1,629,958
</TABLE>
F-36
<PAGE>
ONESOURCE TECHNOLOGIES, INC.
Consolidated Financial Statements as of
September 30, 2000 and 1999
(Unaudited)
F-37
<PAGE>
TABLE OF CONTENTS PAGE
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 F-39
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 F-40
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THREE
MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 F-41
NOTES TO CONSOLIDATED INTRIM FINANCIAL STATEMENTS F-43
F-38
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2000
------------------------------------------------------------------------
(Unaudited)
ASSETS 2000
<S> <C>
CURRENT ASSETS:
Cash $0
Accounts receivable 315,416
Inventories 280,774
Other current assets 166,793
Total current assets 762,983
PROPERTY AND EQUIPMENT, net of accumulated depreciation 267,113
GOODWILL, net of accumulated amortization of $13,530 249,858
OTHER ASSETS 197,303
TOTAL ASSETS $1,477,257
===========
LIABILITIES AND STOCKHOLDERS" EQUITY (DEFICIT):
CURRENT LIABILITIES:
Accounts payable $240,944
Accrued expenses and other liabilities 168,659
Deferred revenue 150,380
Bank overdraft 14,144
Bank lines of credit 142,176
Current portion capital leases 12,897
Current portion of long-term debt 314,353
Total current liabilities 1,043,553
CAPITAL LEASES -- LONG TERM PORTION 11,377
NOTES PAYABLE - LONG-TERM PORTION (Note 5) 157,677
Total liabilities $1,212,607
-----------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $.001 par value, 1,000,000 shares authorized, none issued $0
Common Stock, $.001 par value, 50,000,000 shares authorized, 19,473,467 and
14,297,953 issued at September 30, 2000 and 1999 respectively, and 1,892,010
subscribed but not issued shares at September 30, 2000. 17,609
Paid in capital 2,152,921
Stock subscription (1,055,000)
Accumulated deficit (850,880)
Total stockholders' equity 264,650
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,477,257
===========
</TABLE>
See accompanying notes and accountants' report.
F-39
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
3rd QTR 3rd QTR YTD YTD
2000 1999 2000 1999
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
REVENUE, net $710,415 $648,142 $2,426,707 $1,699,768
COST OF REVENUE 562,186 349,100 1,642,946 982,017
------------ ------------ ----------- ------------
GROSS PROFIT 148,229 299,042 783,761 717,751
GENERAL AND ADMINISTRATIVE EXPENSES 450,204 210,439 1,190,347 580,653
SELLING AND MARKETING EXPENSES 43,798 80,920 153,668 159,419
------------ ------------ ----------- ------------
Operating income (345,773) 7,683 (560,254) (22,321)
------------ ------------ ----------- ------------
OTHER INCOME (EXPENSE)
Interest expense (7,067) (3,529) (31,346) (17,691)
Other income (4,741) 13,360 (11,110) 14,849
------------ ------------ ----------- ------------
Total other (expense) (11,808) 9,831 (42,456) (2,842)
Net Loss before ExtraOrdinary Item (357,581) 17,514 (602,710) (25,163)
Extraordinary item -- Gain on
extinguishments of debt 0 0 63,375 0
------------ ------------ ----------- ------------
NET ($357,581) $17,514 ($539,335) ($25,163)
============ ============ =========== ============
LOSS
</TABLE>
<TABLE>
<CAPTION>
NET Loss Per Share: 3mos 9mos
------------------------- -----------------------
2000 1999 2000 1999
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Basic, before extraordinary item ($0.02) * ($0.04) *
======= =======
Extraordinary item - - $0.01 -
After extraordinary item ($0.02) * ($0.03) *
======= =======
Diluted, before extraordinary item ($0.02) * ($0.04) *
======= =======
Extraordinary item - - $0.01 -
After extraordingary item ($0.02) * ($0.03) *
======= =======
Weighted Average Shares Outstanding:
Basic 17,749,885 13,363,306 15,927,669 13,327,436
Diluted 17,749,885 13,363,306 15,927,669 13,327,436
</TABLE>
Note *, Less than $0.01 per share.
See accompanying notes and accountants'report.
F-40
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited) (Unaudited)
YTD YTD
2000 1999
------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss before extraordinary gain ($473,178) ($ 25,163)
Extraordinary gain (66,156)
Net loss after extraordinary gain (539,334) (25,163)
Adjustments to reconcile net loss to net cash provided (used) by operations
Depreciation 23,030 5,309
Amortization 20,043 0
Non-cash stock issuance to consultants for services 60,000
Non-cash stock issuance to employees for services 66,358
Gain on sale of equipment 2,300
Deferred taxes 17,766
Changes in assets and liabilities (net of acquisitions):
Accounts receivable 144,705 (138,473)
Inventory 88,124 (161,108)
Other current assets (132,732) (17,668)
Accounts payable ( 97,298) 3,901
Accrued expenses and other liabilities (110,907) 118,067
Other assets changes in support of the operation (109,009)
Deferred revenue (59,656) 31,556
------------ --------------
Net cash provided (used) by operating activities ($626,610) ($183,579)
------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ( 91,672) (189,972)
Gain on sale of equipment 1,500
Merger related expenses 0 3,506
------------ --------------
Net cash provided (used) by investing activities ($ 90,172) ($186,466)
------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank lines of credit advances 105,495
Bank lines of credit payments (52,156)
Bank overdraft 14,144
Capital leases payments (2,667)
Funds received for stock subscriptions 220,000 471,653
Long term debt payments (72,235) (100,159)
Long term debt additions 466,509
Payment of PF Holdings note (150,000)
Issuance of common stock (net of capital placement fees) 150,000 8,822
------------ --------------
Net cash provided (used) by financing activities $679,090 $380,316
INCREASE (DECREASE) IN CASH (37,692) 10,271
CASH, January 1 37,692 48,890
CASH, September 30 $0 $59,161
===
</TABLE>
See accompanying notes and accountants' report.
F-41
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited) (Unaudited)
2000 1999
----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 31,594 $ 17,692
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Common stock subscribed in exchange for notes payable $ 278,438
===========
</TABLE>
See accompanying notes and accountants' report.
F-42
<PAGE>
ONESOURCE TECHNOLOGIES, INC.
NOTE TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2000
1. BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared by the
Company without audit, pursuant the rules and regulations for financial
information. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted. These unaudited
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company"s audited financial
statements as of December 31, 1999. In the opinion of management, these
unaudited financial statements reflect all adjustments which are necessary
to present fairly the financial position and results of operations of the
Company for such interim period. Operating results for the interim period
are not necessarily indicative of results that may be expected for the
entire year
2. CHANGES IN STOCKHOLDERS' EQUITY
During the nine month period ended September 30, 2000, the Company entered into
several transactions involving the issuances of its common stock. The
following is summary of those transactions:
Cash $150,000
Exchange of PF Holdings debt 93,438
Stock exchanged as payment for trade payables 46,445
Stock issued to consultants for services 60,000
Stock issued to settle notes payable 51,863
Stock issued to employees 66,358
------
$468,104
3. EXTINGUISHMENT OF DEBT
On March 4, 2000 the Company and a group of investors executed an agreement
with PF Holdings, Inc. ("PF") to purchase the promissory note held by PF
with a face value of $285,000.00 and accrued interest of $36,972 for
$150,000 in cash provided by the investors and 175,000 shares of the
Company"s common stock with an estimated fair market value on March 4, 2000
of $93,438. Following the purchase and assumption of the note the investor
group exercised the conversion feature in the note for 643,944 shares of
the Company's Common stock. The investor's are restricted from selliing any
of the combined 818,944 shares of stock for a period of one year.
4. CONTINGENTLY ISSUABLE SHARES
The purchase agreement for Cartridge Care contains a contingency for an
additional 723,612 shares of the Company's common stock to be issued
pending resolution of the contingency. The Company is pursuing legal
remedies against the original owners for misrepresentations made that
materially affect the value of Cartridge Care. The sellers of Cartridge
Care have agreed to escrow the 723,612 shares of the Company"s stock
pending the results of the litigation. The ultimate resultion of this
matter could result in an increase of the purchase price of Cartridge Care,
which would increase the basis of the net assets acquired The recorded
purchase price reflects management's current best estimates of what the
final figure will be.
5. BUSINESS SEGMENTS
The Company"s revenues are derived from three closely related and complimentary
service and product categories, 1) renewable contract equipment maintenance
services, 2) equipment sales and integration services and 3) value added
equipment supply sales. The following table sets forth the salient
operating contributions of each for the year ended September 30, 2000:
F-43
<PAGE>
ONESOURCE TECHNOLOGIES, INC.
NOTE TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000(Cont.)
<TABLE>
<S> <C> <C> <C> <C> <C>
September 2000, Nine Months Maintenance Integration Supplies Internal Total
Revenues $1,603,265 $236,951 $ 610,774 ($24,283) $2,426,707
Operating (loss) income (378,847) (107,414) (53,074) (539,335)
Depreciation 17,403 473 18,304 36,180
Interest 15,412 7,578 8,356 31,346
Property & equipment purchases 105,002 (3,532) (9,798) 91,672
Total assets $1,449,378 $61,342 $ 420,282 ($453,745) $1,477,257
</TABLE>
F-44
<PAGE>
PART III
<TABLE>
<CAPTION>
Exhibit No. Description
---------- ------------------------------------------------------------
<S> <C> <C>
3.(i).1 [1] Certificate of Incorporation of L W Global (U.S.A.), Inc. filed August 27, 1996.
3.(i).2 [1] Certificate of Amendment of Certificate of Incorporation filed January 16, 1997.
3.(i).3 [1] Certificate of Amendment of Certificate of Incorporation changing name to Micor
Technologies, Inc. dated July 28, 1997.
3.(i).4 [1] Certificate of Amendment of Certificate of Incorporation changing name to
OneSource Technologies, Inc. dated August 22, 1997.
3.(ii).1 [1] Bylaws of L W Global (U.S.A.), Inc.
4.1 [1] Form of Private Placement Offering of 1,200,000 common shares at $0.01 per share
dated September 10, 1996.
4.2 [1] Form of Private Placement Offering of 300,000 common shares at $0.01 per share
dated July 14, 1997.
4.3 [1] Form of Private Placement Offering of 575,000 common shares at $0.50 per share
dated September 17, 1997.
10.1 [1] Share Exchange Agreement between L W Global (U.S.A.), Inc. and Micor
Technologies, Inc. dated July 15, 1997.
10.2 [1] King Soopers Agreement dated September 1, 1998.
10.3 [1] Attachment B to King Soopers Agreement dated September 1, 1998.
10.4 [1] King Soopers Contract Renewal and Extension dated September 8, 1999.
10.5 [1] Promissory Note by Cossack Financial, LLC in favor of the Company dated March
31, 1999.
10.6 [1] Agreement to Extend Promissory Note by Cossack Financial, LLC in favor of the
Company dated January 3, 2000.
10.7 [1] Promissory Note by Titan Capital Partners, LLC in favor of the Company dated
March 31, 1999.
10.8 [1] Agreement to Extend Promissory Note by Titan Capital Partners, LLC in favor of the
Company dated January 4, 2000.
10.9 [1] Share Exchange Agreement with Net Express, Inc. dated April 15, 1999.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.10 [1] Stock Redemption Agreement (Exhibit A to Net Express Share Exchange).
10.11 [1] Employment Agreement (Exhibit B to Net Express Share Exchange).
10.12 [1] Stock Purchase Agreement with Blackwater Capital Partners II, L.P. dated May 26,
1999.
10.13 [1] Investor Rights Agreement with Blackwater Capital Partners II, L.P. dated May 26,
1999.
10.14 [1] Share Exchange Agreement with Cartridge Care, Inc. dated September 1, 1999.
10.15 [1] Lease of Scottsdale, Arizona property dated September 20, 1999.
10.16 [2] Promissory Note by Micor Technologies, Inc. in favor of William Meger dated
November 28, 1995.
10.17 [2] Promissory Note by Jerry Washburn and others in favor of PF Holdings, Inc. dated
July 31, 1997.
10.18 [2] Form of Note Modification Agreement dated February 2000.
10.19 [2] Installment Agreement between the Company and the Department of the Treasury of
the Internal Revenue Service dated July 2000.
10.20 [2] Option Agreement between the Company and XCEL ASSOCIATES, Inc. dated June
1, 2000.
10.21 [2] Agreement For A Finder's Fee between the Company and XCEL ASSOCIATES, Inc.
dated June 1, 2000.
10.22 [2] Business Consulting Agreement between the Company and XCEL ASSOCIATES,
Inc. dated June 1, 2000.
10.23 [2] Term Sheet for loan by the Company from Grace Holdings, Inc. dated June 29, 2000.
10.24 [2] Letter Agreement between the Company and Maurice Mallette,
Judith Mallette and Pasquale Rizzi to escrow shares of the
Company dated June 8, 2000.
27.1 * Financial Data Schedule.
-------------------------------
</TABLE>
[1] Filed as an exhibit to the Company Registration Statement on Form 10SB
filed July 10, 2000.
[2] Filed as an exhibit to the Company's first amended Registration Statement
on Form 10SB filed October 13, 2000.
(* Filed herewith)
<PAGE>
Item 2. Description of Exhibits
The documents required to be filed as Exhibits Number 2 and 6 and in
Part III of Form 1-A filed as part of this Registration Statement on Form 10-SB
are listed in Item 1 of this Part III above. No documents are required to be
filed as Exhibit Numbers 3 , 5 or 7 in Part III of Form 1-A and the reference to
such Exhibit Numbers is therefore omitted. The following additional exhibits are
filed hereto:
None
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
One Source Technologies, Inc.
(Registrant)
Date: December 18, 2000 By: /s/ Jerry M. Washburn
------------------------------------
Jerry M. Washburn, Chairman, President and CEO
By: /s/ Ford L. Williams
------------------------------------
Ford L. Williams, Director, Secretary and Treasurer
By: /s/ Donald C. Gause
-------------------------------------
Donald C. Gause, Director
