UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QSB
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the quarterly period ended MARCH 31, 1996 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE
ACT OF 1934
FOR THE TRANSITION FROM TO
----------------------- --------------------
COMMISSION FILE NUMBER:
33-28809-A
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ONE UP CORPORATION
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
FLORIDA 65-0125664
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STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION
5 CAMPUS CIRCLE, SUITE 100, WESTLAKE, TEXAS 76262
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
(817)-962-9500
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ISSUER'S TELEPHONE NUMBER
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(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL
YEAR, IF CHANGE SINCE LAST REPORT)
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(D) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (R FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. Yes [ ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
CHECK WHETHER THE REGISTRANT FILED ALL DOCUMENTS AND REPORTS
REQUIRED TO BE FILED BY SECTION 12, 13
<PAGE>
OR 15(D) OF THE EXCHANGE ACT AFTER THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON EQUITY, AS OF THE LATEST PRACTICABLE DATE: As of July 7, 1996, the issuer
had 17,000,000 shares of Common Stock outstanding.
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are included in Part II, Item 6:
PAGE
----
Independent Accountant's Compilation Report F-1
Balance Sheet for the three months ended March 31, 1996 F-2
Statement of Income for the three months ended March 31, 1996 F-3
Statement of Shareholders' Equity F-4
for the three months ended March 31, 1996
Statement of Cash Flows for the three months ended March 31, 1996 F-5
Notes to financial statements F-6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
1ST QUARTER ENDED MARCH 31, 1996
OVERVIEW
One Up Corporation ("One Up", the "Company" or the "Issuer") provides system
solutions for computer platform migration. One Up's solutions are a combination
of migration service methodologies and proprietary software systems which allow
software applications written under one operating platform to migrate and
convert to a different operating platform. The Company also offers
post-conversion services including support and maintenance of both the original
and converted software applications, as well as design and implementation of
performance improvements to the applications.
Prior to December 31, 1995, the Company operated under an exclusive licensing
agreement providing migration tools and support for IBM's clients migrating from
various operating platforms to OS/2. Through the experience of assisting large
corporations with more than 350 migration projects, One Up refined its
proprietary technologies and systems into a five step "Conversion Factory"
process.
With the development of its new capabilities and the expiration of the IBM
exclusive licensing agreement, One Up changed its business strategy from a
licensor of migration software tools to offering a end-to-end system for
migration projects. Management believes the Company's Conversion Factory
approach featuring One Up's Commander(TM) toolset differentiates it from
competitors by dramatically reducing both time and man-hours required to
complete large-scale migration projects
IBM had been the exclusive provider of One Up's automated migration software
tools under an agreement that began in September 1994 and expired on December
31, 1995. The Company's revenues
3
<PAGE>
for 1995 primarily represented the contractual relationship with IBM for
approximately $10 million that was billed on an installment basis over a fifteen
month period. During the first quarter ended March 31, 1996, One Up shifted its
business strategy to that of a direct provider of automated migration services.
Revenues and booked contracts during 1996 have been received from new clients
outside of the IBM relationship with only a limited sales effort launched toward
the end of the first quarter.
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
1ST QUARTER ENDED MARCH 31, 1996 (CONTINUED)
One Up's shift in strategy related to (1) the Company's development of more
advanced migration technologies and methodologies during 1995, and; (2) the
realization of the market potential as a direct service provider to maximize the
Company's growth. To this end, the Company completed a merger with a
publicly-held corporation on February 29, 1996 to gain access to the public
markets to expand its business opportunities.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996
During the three months ended March 31, 1996, One Up posted revenues of
$459,974 and booked contracts of $1,896,000 to be completed by year end. This
compared to $4,201,277 in revenues and $3,968,000 in booked contracts for the
three months ended March 31, 1995. The temporary reduction in revenues and
bookings from the prior first quarter is primarily attributed to the Company's
transition from operating as an exclusive provider for IBM-clients to becoming a
stand-alone provider of an end-to-end migration program.
One Up was unable to make announcements or seek new business relationships
prior to the expiration of its exclusive agreement with IBM on December 31,
1995. The first quarter was spent organizing its sales and marketing efforts,
hiring industry sales professionals, and reconfiguring its internal technical
services organization. These areas have now been addressed and fully staffed by
the Company.
One Up's total operating expenses remained relatively flat at $1,203,051 and
$1,285,123 respectively for the March 31, 1995 and 1996 three month periods. As
a percentage of revenues, however, total operating expenses increased from 29%
to 279% due to the drop in revenues related to the IBM contract. For the three
months ended March 31, 1996, salaries and benefits, general and administrative
expenses, advertising and marketing and insurance were down $219,548 due to
lower staffing requirements and related general operating costs during the
period. Rent expense was up $39,930 and depreciation and amortization were up
$28,585, related to increased space, leasehold improvements and equipment added
in the second quarter of 1995. Legal and professional fees were up $220,682
related to merger expenses, legal and accounting fees, and increased management
consulting fees associated with the merger and the shift in business strategy.
Interest income, net of interest expense of $184, amounted to $21,526 in the
first quarter as opposed to $12,842 in the prior first quarter period. The
increase, in part, is related to the shareholder advance.
Other income of $16,233 represents a reclassification of prior year expense
items that never posted to the Company bank account. Sub-lease income of $7,275
reflects a portion of space sub-leased during the 1995 period. The other expense
of $25,000 relates to a prior royalty fee paid by the Company to IBM
under a contract which expired during January, 1995.
The Company recorded an income tax benefit of $259,951 for the three month
period ended March 31, 1996. This represents the amount of tax that can be
recaptured for previous taxes based on a net operating loss carryforward of
approximately $530,000 for the period and may only be realized should the loss
be carried forward to the end of the year. Current income tax expense for the
three month period ended
5
<PAGE>
March 31, 1996 was $3,343, down from $1,031,094 for the three month period ended
March 31, 1995 due to the drop in revenues related to the expiration of the IBM
agreement.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
1ST QUARTER ENDED MARCH 31, 1996 (CONTINUED)
One Up anticipated a loss for the three month period ended March 31, 1996 due
to the expiration of the IBM agreement and the nature of the costs involved in
gearing up its sales and marketing efforts. For the three month period ended
March 31, 1996, One Up lost $547,820 or $(.04) per share compared to income of
$1,997,870 or $.15 per share for the three month period ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was $517,428 related primarily to the
operating loss. The Company, however, had a net working capital surplus of
$636,569 for the period representing an increase of $50,816 from December 31,
1995. Cash was primarily generated during the three month period by decreasing
accounts receivable by $236,001, increasing financing activities through a
$109,365 rebate from its lessor for leasehold improvements, and increasing its
investing activities through the issuance of $279,000 in common stock.
At March 31, 1996 the Company had no bank financing or other debt obligations
outstanding. The Company had accounts payable of $104,482, none greater than 30
days outstanding, and accrued expenses of $230,663. Both accounts payable and
accrued expenses related to general operating costs except for $100,000 due as
an accrued expense to a third party for services which is payable when the
Company raises $500,000 through investing activities. The Company had $550,962
due for income taxes payable for 1995 operations. The Company has not presently
paid this expense but has made provisions to pay it through the conversion of
outstanding warrants.
One Up intends to fund its activities through the issuance of stock,
arranging bank financing and through cash flow from operations. The Company
believes it has sufficient financial flexibility as may be needed to support its
growth objectives.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements are included:
PAGE
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Independent Accountant's Compilation Report F-1
Balance Sheet for the three months ended March 31, 1996 F-2
Statement of Income for the three months ended March 31, 1996F-3
Statement of Shareholders' Equity F-4
for the three months ended March 31, 1996
7
<PAGE>
Statement of Cash Flows for the three months ended March 31, 1996 F-5
Notes to financial statements F-6
(b) Reports on Form 8-K
Form 8-K-A reporting acquisition of One Up and change in control of
registrant
Form 8-K-A reporting resignation of independent accountant
SIGNATURES
Pursuant with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ONE UP CORPORATION
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(registrant)
By:/s/ RICHARD DEWS
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Richard Dews, President
Dated: July 15, 1996
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8
<PAGE>
ANGEL E. LANA, P.A.
CERTIFIED PUBLIC ACCOUNTANT
[LETTERHEAD]
ACCOUNTANT'S COMPILATION REPORT
To the Board of Directors
One Up Corporation
I have compiled the accompanying consolidated balance sheet of One Up
Corporation as of March 31, 1996, and the related statements of income,
stockholders' equity, and cash flows for the three months ended March 31, 1996
and 1995, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. I have not audited or
reviewed the accompanying financial statements and, accordingly, I do not
express an opinion or any other form of assurance on them.
The balance sheet as of Decembr 31, 1995, was audited by other accountanta,
and they expressed an unquaified opinion on the statement in their report dated
March 8, 1996. They have not performed any auditing procedures on the 1995
balance sheet since that date.
ANGEL E. LANA, P.A.
CERTIFIED PUBLIC ACCOUNTANT
Ft. Lauderdale, Florida
May 31, 1996
<PAGE>
ONE UP CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<PAGE>
<TABLE>
<CAPTION>
ONE UP CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(Unaudited) (Audited)
ASSETS 03/31/96 12/31/95
<S> <C> <C>
CURRENT ASSETS
Cash ........................................................... $ 578,859 $ 713,421
Accounts receivable, net of allowance
for doubtful accounts of $0 and $85,000, respectively ......... 255,818 491,819
Shareholder advance ............................................ 434,881 345,035
Subscription proceeds receivable ............................... 10,000 -
Other receivable ............................................... 109,365 -
Deferred income taxes .......................................... 134,945 -
Other current assets ........................................... 26,302 14,984
----------- -----------
Total current assets ..................................... 1,550,170 1,565,259
PROPERTY AND EQUIPMENT, NET ...................................... 1,000,205 1,174,609
OTHER ASSETS
Shareholder advance, net of current portion .................... 620,371 690,072
Other assets ................................................... 10,941 38,098
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Total other assets ....................................... 631,312 728,170
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Total Assets ............................................. $3,181,687 $3,468,038
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable .................................................. $ 10,294 $ 10,932
Accounts payable ............................................... 104,482 176,685
Accrued expenses ............................................... 230,663 79,388
Customer deposits .............................................. 17,200 -
Current income taxes payable ................................... 550,962 603,214
Deferred income taxes .......................................... - 109,287
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Total current liabilities ................................ 913,601 979,506
LONG-TERM LIABILITIES
Long-term portion of note payable............................... 1,872
Deferred income taxes .......................................... 2,550 18,269
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Other liabilities .............................................. - 1,840
Total long-term liabilities .................................... 2,550 21,981
MINORITY INTEREST ................................................ 6,476 5,671
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Common stock; no par value; 200,000,000
shares authorized;15,720,786 and 12,997,782
shares issued and outstanding,respectively .................... 423,220 144,220
Additional paid-in capital ...................................... 144,936 77,936
Retained earnings ............................................... 1,690,904 2,238,724
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Total stockholders' equity ................................ 2,259,O60 2,460,880
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................ $3,181,687 $3,468,038
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
ONE UP CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
1996 1995
-------------------------------
<S> <C> <C>
REVENUES ............................................ $ 459,974 $ 4,201,277
COSTS AND EXPENSES
Salaries and benefits ............................... 643,615 746,039
General and administrative .......................... 63,154 98,889
Advertising and marketing ........................... 6,006 46,998
Product costs ....................................... 1,028 4,362
Travel .............................................. 59,040 41,717
Contract labor ...................................... 110,279 111,845
Rent ................................................ 87,830 47,900
Depreciation and amortization ....................... 71,185 42,600
Insurance ........................................... 3,644 44,041
Legal and professional fees ......................... 239,342 18,660
-------------------------------
Total operating expenses .......................... 1,285,123 1,203,051
-------------------------------
Income (loss) from operations ....................... (825,149) 2,998,226
OTHER INCOME (EXPENSE)
Interest income ..................................... 21,710 13,390
Interest expense .................................... (184) (548)
Sublease income ..................................... - 7,275
Other income ........................................ - 16,233
Royalty fees ........................................ - (25,000)
-------------------------------
Total other income (expense) ...................... 21,526 11,350
Minority interest in income of
consolidated subsidiary............................ (805) (612)
-------------------------------
Income (loss) before income taxes ................... (804,428) 3,008,964
Income taxes
Current income tax expense ........................ 3,343 1,031,094
Deferred income tax benefit ....................... (259,951) -
-------------------------------
(256,608) 1,031,094
-------------------------------
Net income (loss) ................................... $ (547,820) $ 1,977,870
===============================
Net income (loss) per common share .................. $ (0.04) $ (0.15)
===============================
Weighted average cimmon shares and common
equivalents outstanding ............................ 15,265,056 12,997,782
===============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ONE UP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,1996
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by One Up Corporation (the "Company") pursuant to the rules and regulations of
the Securities and Exchange Commission and reflect all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial position as of March 31,
1996, and the results of operations and cash flows for the quarters ended March
31, 1996 and 1995. The unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements (both for
New York Acquisitions, Inc. and for One Up Corporation) for the period ended
December 31, 1995, including the accompanying notes. The results of operations
for the interim periods shown are not necessarily indicative of the results for
the entire fiscal year ending December 31, 1996.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect 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 reported periods. Actual results
could differ from those estimates.
NOTE 2. BUSINESS ACTIVITY
One Up Corporation (formerly New York Acquisitions, Inc.) was organized under
the laws of the state of Florida on February 24, 1989. The Company was a
development stage enterprise until it acquired a privately-owned, Texas-based
company on February 29, 1996. The acquired entity (One Up Corporation) became a
wholly owned subsidiary of the Company through the exchange of 9,069,945 shares
of the Company's common stock for all of the outstanding stock of the acquired
subsidiary. The transaction was accounted for as a pooling of interests.
Accordingly, the accompanying financial information has been restated to include
the accounts of the acquired subsidiary for all periods presented.
One Up Corporation ("One Up") was founded January 7, 1991, by Richard G. Dews.
The initial focus of the business was to provide contract computer programming
education. A professional curriculum was developed as the foundation for these
courses. By 1992, One Up had developed and sold several software products, as
well as further diversifying into consulting services and migration assistance
for clients wishing to migrate their software from the Windows operating system
to the IBM OS/2 platform. By 1993, One Up had identified a need for an automated
migration technique and developed the first set of software tools for that
purpose. Initially, One Up licensed the tools to IBM on an exclusive basis until
December 31, 1995. During 1995, One Up developed more advanced migration
technologies and methodologies allowing clients to
<PAGE>
ONE UP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,1996
(Unaudited)
NOTE 2. BUSINESS ACTIVITY CONTINUED
migrate source code from Windows 16 bit to Windows 95 and NT, from OS/2 to
Windows 95 and NT, and enhanced its capabilities to migrate Windows source code
to OS/2. As a result of these developments, One Up decided to offer its
migration services, utilizing these new techniques, to the public beginning in
January 1996. One Up will continue to expand its migration services during 1996,
adding the ability to migrate Unix source code to Windows NT and provide
graphics, text and data migration capabilities. These services are to be
provided throughout the world, concentrated in the United States.
One Up Corporation is the parent of a majority owned foreign subsidiary, One Up
Computer Services, Ltd. One Up Computer Services, Ltd. was incorporated under
the laws of the Province of Ontario, Canada in October 1992. Its operations
primarily consist of contract computer programming education that complements
the curriculum of One Up Corporation. The operations of One Up Computer
Services, Ltd. in the past have not been significant to the operations of One
Up.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying consolidated financial statements are prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles.
The financial statements include the accounts of the Company and its majority
owned foreign subsidiary. Intercompany transactions and balances have been
eliminated in consolidation.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is provided in amounts sufficient to relate the cost
of depreciable assets to operations over their estimated service lives.
Depreciation is computed using the straightline method. Leasehold improvements
are amortized over the term of the related lease.
Major repairs or replacements of property and equipment are capitalized.
Maintenance, repairs and minor replacements are charged to operations as
incurred.
When property is retired or otherwise disposed of its cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in operations.
<PAGE>
ONE UP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,1996
(Unaudited)
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
REVENUE RECOGNITION
The Company recognizes revenue as services are performed in accordance with the
terms as set forth in their contract agreements. Contract costs which are
primarily labor intensive are matched with revenues. Losses expected to be
incurred on contracts in progress are charged to operations in the period such
losses are determined.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of income taxes currently due, plus deferred
taxes related to differences between the basis of assets and liabilities for
financial and income tax reporting purposes. The deferred tax assets and
liabilities represent the future income tax consequences of these differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled.
CURRENCY TRANSLATION
The functional currency translation of the majority owned subsidiary's assets,
liabilities, revenues and expenses was insignificant to the Company's financial
statements. Accordingly, the accompanying financial statements do not include
translation gains and losses.
INCOME PER SHARE
Income per share has been computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the respective period. Common stock equivalents include the
dilutive effect of all stock options outstanding.
NOTE 4. SHAREHOLDER ADVANCE
During the year ended December 31, 1995, One Up advanced $984,013 to its
President/CEO/ majority shareholder pursuant to provisions contained in the
President's employment agreement. The advance is subject to an annual interest
rate of 7 1/2% and is accrued as an additional advance. During the quarters
ended March 31, 1996 and 1995, the advance earned interest income of $18,450 and
$1,963, respectively. In accordance with the employment agreement, the advance
is to be repaid durin~ the three year period ended December 31, 1998. See
Note 8.
<PAGE>
ONE UP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,1996
(Unaudited)
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at March 31, 1996, and December
31, 1995:
03/31/96 12/31/95
------------ -------------
Furniture and equipment $ 863,072 $ 860,083
Vehicle 46,936 46,936
Leasehold improvements 400,971 510,336
------------ -------------
$1,310,979 $1,417,355
Less accumulated depreciation and amortization (310,774) (242,746)
------------ -------------
$1,000,205 $1,174,609
============ =============
Depreciation expense for the quarters ended March 31, 1996 and 1995, was $68,028
and $39,389, respectively.
NOTE 6. NOTE PAYABLE
In 1994 One Up entered into an installment vehicle note payable to GMAC
Financial Services. The note bears interest at 6.75%, has monthly principal and
interest payments of $955 and is scheduled to mature in February 1997. Future
maturities at March 31, 1996, relating to this note are as follows: 1996 $8,422,
1997 $1,872.
NOTE 7. INCOME TAXES
Deferred tax assets and liabilities at March 31, 1996, and December 31, 1995,
consist of the following:
3/31/96 12/31/9
----------- ----------
Current deferred tax asset $ 153,214 $$ 28,900
Current deferred tax liability (18,269) (138,187)
----------- ----------
Net current deferred tax asset $ 134,945 $(109,287)
=========== ==========
Noncurrent deferred tax asset $ -- $ --
Noncurrent deferred tax liability (2,550) (18,269)
----------- ----------
Net noncurrent deferred tax liability $ (2,550) $ (18,269)
=========== ==========
<PAGE>
ONE UP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1996
(Unaudited)
NOTE 7. INCOME TAXES
The current deferred tax assets result primarily from the timing of
deductibility of the allowance for doubtful accounts, compensation not currently
recorded for federal income tax purposes, and net operating loss carryforwards.
The noncurrent deferred tax liability arises from the use of accelerated methods
of depreciation of property and equipment for federal income tax purposes. The
current deferred tax liability results from the cash basis of accounting for
federal income tax purposes versus the accrual basis for financial accounting
purposes.
For the quarter ended March 31, 1996, the Company has generated a net operating
loss carryforward of approximately $530,000 which could be utilized by carrying
back to prior periods or be offset against future taxable income.
NOTE 8. COMMITMENTS
In May 1995, One Up leased its office facility under a noncancelable operating
lease, which expires April 2000. Future minimum commitments under this lease are
as follows:
Period ending March 31,
1997 $ 343,717
1998 $ 343,717
1999 $ 343,717
2000 $ 343,717
Thereafter 28,643
-----------
Total $ 1,403,511
============
Effective May 1, 1995, One Up entered into an employment agreement through
December 31, 1998, with its President/CEO/majority shareholder. The agreement
provides annual compensation of $600,000, an automobile allowance, and group,
life and disability insurance coverage. The agreement also provided for an
advance to the key employee of up to $ 1,000,000 prior to December 31, 1995, at
an annual interest rate of 7 1/2%. The advance amount is to be repaid during the
three year period ended December 31, 1998. See Note 4.
On February 29, 1996, the Company entered into a consulting agreement whereby
upon the consultant's completion of all services and provisions detailed
therein, the Company will issue to the consultant 300,000 shares of common
stock. As of March 31, 1996, the Company had not issued any shares pursuant to
the agreement.
<PAGE>
ONE UP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1996
(Unaudited)
NOTE 8. COMMITMENTS - CONTINUED
On March 6, 1996, the Company entered into an agreement to pay $100,000 over a
12 month period to a former employee in exchange for services rendered. An
acceleration clause requires any remaining balance to be paid in full upon the
Company raising $500,000 of capital. The March 31, 1996, balance sheet reflects
the unpaid balance as an accrued liability.
On March 25, 1996, the Board of Directors authorized a one-time grant of
restricted common stock to employees at the rate of 500 shares for each year of
service. A total of 27,962 shares will be issued if the employees of record
remain with the Company for one year from the date of the grant.
In addition to the aforementioned employment agreement with its President/CEO,
the Company has entered into employment agreements with 15 key employees for a
term of one year. The total base salary of the 15 employees is approximately
$1,155,000.
Pursuant to provisions within their employment agreements, five of the 15 key
employees of the Company may receive common stock option grants equal to their
annual base salary. Such stock options shall be valued at 85% of the market
value of the common stock on July 1, 1996. The stock options must be exercised
in the period from July 1, 1997, to June 2O, 1998. The total annual base salary
of these five employees is approximately $517,000.
NOTE 9. STOCKHOLDERS EQUITY AND STOCK OPTIONS
Effective February 29, 1996, two hundred shares were issued pursuant to two
stock option agreements dated November 1, 1995. The exercise price per share was
$335. The consideration for the shares was recorded as compensation to the
shareholders totaling $67,000 during the quarter ended March 31, 1996.
On February 29, 1996, all of the outstanding preferred stock (37 shares) was
converted to 37,018 shares of common stock on a postsplit basis.
In March 1996, the Board of Directors authorized a private placement offering of
279,000 shares of common stock at $1 per share, which converted to 418,500
shares upon the stock split referred to below. The offering was fully subscribed
as of March 31, 1996. The Company may, if necessary, complete additional private
placements to provide interim financing.
Effective March 25, 1996, the Company authorized a 1.5 for 1 common stock split.
<PAGE>
ONE UP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31,1996
(Unaudited)
NOTE 10. ESTIMATES AND CONCENTRATION OF CREDIT RISK
The Company maintains its cash balances with two institutions located in the
Dallas/Ft. Worth metroplex. The balances are insured up to $100,000 at each
institution by the Federal Deposit Insurance Corporation. At March 31, 1996,
cash amounts held in excess of FDIC insured amounts amount to approximately
$413,000.
NOTE 11. EMPLOYEE SAVINGS PLAN
Effective January 1, 1994, the Company adopted a discretionary 401(k) savings
plan ("Plan") for its employees. This Plan is available to all employees meeting
certain eligibility requirements, as further described in the Plan documents. No
discretionary employer contributions were made during the quarters ended March
31, 1996 and 1995. Participants are 100% vested in the portion of the plan
representing employee contributions. Participants vest 20% in employer
contributions after two years of service (as defined by the Plan document) and
20% each year thereafter.
NOTE 12. SUBSEQUENT EVENTS
The Company entered into various consulting agreements as follows:
i) A one-year consulting agreement whereby in exchange for financial public
relations services the Company issued a consultant 11,000 shares of common
stock and granted warrants to purchase 800,000 common shares at per share
prices ranging from $1.00 to $2.50. Currently, only 400,000 warrants have
been issued.
ii) A six-month consulting agreement whereby in exchange for legal services
the Company issued 10,000 shares of common stock.
iii) Various consulting agreements expiring on February 28, 1997, whereby
1,365,000 shares of common stock were issued to the consultants.
The Company adopted a Directors Stock Compensation Plan entitling the directors
to receive 1,700,000 shares of common stock upon the Company achieving certain
goals for the year ending December 31, 1996.
Two employees of the Company purchased 91,000 shares of restricted common stock
at per share prices ranging from $1.50 to $1.75.
<PAGE>
<TABLE>
<CAPTION>
ONE UP CORPORATION
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ........................................ $(547,820) $ 1,977,870
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization .......................... 71,185 42,600
Minority interest ...................................... 805 612
Stock compensation expense ............................. 67,00
Deferred income tax expense (benefit) .................. (259,951) -
Change in assets and liabilities:
(Increase) decrease in accounts receivable ............ 236,001 (4,464)
Increase in shareholder advance ...................... (20,145) (202,078)
Increase in subscription receivable .................. (10,000) -
Increase in other receivable ......................... (109,365) -
Increase in other current assets ..................... (11,318 (1,922)
(Increase) decrease in other assets .................. 24,000 (1,692)
Increase (decrease) in accounts payable .............. (72,203) 37,528
Increase in accrued expenses ......................... 151,275 49,298
Increase (decrease) in income taxes payable .......... (52,252) 709,449
Increase in customer deposits ........................ 17,200 4,177
Decrease in other longterm liabilities ............... (1,840) -
--------------------------
Total adjustments ........................................ 30,392 (633,508)
--------------------------
Net cash provided (used) by operating activities ......... (517,428) 2,611,378
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ...................... (2,989) (129,528)
Rebate from lessor for leasehold improvements ............ 109,365 -
--------------------------
Net cash used in investing activities .................. 106,376 (129,528)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issue of stock ............................. 279,000 -
Repayment of notes payable................................ (2,510) (2,303)
--------------------------
Net cash provided (used) in financing activities 276,490 (2,303)
--------------------------
Net increase (decrease) in cash ........................ (134,562) 2,479,547
Cash beginning ........................................... 713,421 464,036
--------------------------
Cash ending .............................................. $ 578,859 $ 2,943,583
==========================
SUPPLEMENTAL DISCLOSURES:
Interest paid .............................................. $ 184 $ 548
==========================
Income taxes paid .......................................... $ 55,594 $ 321,645
==========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
ONE UP CORPORATION
Consolidated Statements of Stockholders' Equity
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
COMMON COMMON PREFERRED PREFERRED ADDITIONAL
STOCK STOCK STOCK STOCK PAIDIN
ISSUED AMOUNT ISSUED AMOUNT CAPITAL
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995, including effect
of reverse acquisition and stock split ........... 11,337,432 $ - $ - $ - $ 67,559
Effect of reverse acquisition, including
effect of stock split ............................ 1,660,350 107,220 37 37,000 10,377
Net income ....................................... - - - - -
----------------------------------------------------------------
Balance at March 31, 1995 ........................ 12,997,782 $ 107,220 37 $ 37,000 $ 77,936
================================================================
Balance at January 1, 1996, including effect
of reverse acquisition and stock split ........... 11,337,432 $ - $ - $ - $ 67,559
Issuance of stock for services rendered,
including effect of stock split .................. 2,267,486 - - - 67,000
Effect of reverse acquisition, including
effect of stock split ............................ 1,660,350 107,220 37 37,000 10,377
Conversion of preferred stock to common
stock, including effect of stock split ........... 37,018 37,000 (37) (37,000) -
Issuance of stock private placement,
including effect of stock split .................. 418,500 279,000 - - -
Net loss ......................................... - - - - -
----------------------------------------------------------------
Balance at March 31 1996 ......................... 15,720,786 $ 423,220 - $ $ 144,936
================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ONE UP CORPORATION
Consolidated Statements of Stockholders' Equity
For the Three Months Ended March 31, 1996 and 1995
(Unaudited)
RETAINED
EARNINGS TOTAL
Balance at January 1, 1995, including effect
of reverse acquisition and stock split ........... $ 408,407 $ 475,966
Effect of reverse acquisition, including
effect of stock split ............................ (159,597 -
Net income ....................................... 1,977,870 1,977,870
------------------------------
Balance at March 31, 1995 ........................ $ 2,231,680 $2,453,836
==============================
Balance at January 1, 1996, including effect
of reverse acquisition and stock split ........... $ 2,393,321 $2,460,880
Issuance of stock for services rendered,
including effect of stock split .................. - 67,000
Effect of reverse acquisition, including
effect of stock split ............................ (154,597) -
Conversion of preferred stock to common
stock, including effect of stock split ........... - -
Issuance of stock private placement,
including effect of stock split .................. - 279,000
Net loss ......................................... (547,820) (547,820)
-----------------------------
Balance at March 31 1996 ......................... $ 1,690,904 $2,259,060
=============================
The accompanying notes are an integral part of these financial statements.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 578,859
<SECURITIES> 0
<RECEIVABLES> 255,818
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,550,170
<PP&E> 1,000,005
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,181,687
<CURRENT-LIABILITIES> 913,601
<BONDS> 0
0
0
<COMMON> 423,220
<OTHER-SE> 1,835,840
<TOTAL-LIABILITY-AND-EQUITY> 3,181,687
<SALES> 459,974
<TOTAL-REVENUES> 459,974
<CGS> 0
<TOTAL-COSTS> 1,285,123
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 184
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (804,428)
<INCOME-TAX> (547,820)
<INCOME-CONTINUING> (547,820)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (547,820)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
