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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OSAGE SYSTEMS GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-22808 95-4374983
(State of Incorporation) (Commission (IRS Employer
File No.) Identification No.)
1661 EAST CAMELBACK ROAD
SUITE 245
PHOENIX, ARIZONA 85016
(Address of principal executive office)
(602) 274-1299
(Registrant's telephone number, including area code)
Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
(1) Yes [X] No [ ]
(2) Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the Registrant's sole class of common stock
as of August 10, 2000 was 12,213,318 shares.
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OSAGE SYSTEMS GROUP, INC.
INDEX
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PART I FINANCIAL INFORMATION*
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000
(unaudited) and December 31, 1999 1
Unaudited Condensed Consolidated Statements of Operations for the Three and Six
Months ended June 30, 2000 and June 26,1999 2
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended
June 30, 2000 and June 26, 1999 3
Notes to Unaudited Condensed Consolidated Financial Statements 4 - 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations. 10 - 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 20
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21 - 23
Item 6. Exhibits and Reports on Form 8-K 23
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* The accompanying financial information is not covered by an Independent
Certified Public Accountant's Report.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OSAGE SYSTEMS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ In Thousands)
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JUNE 30, 2000
(UNAUDITED) DECEMBER 31, 1999
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,017 $ 2,546
Accounts receivable - net of allowance for doubtful
accounts of $241 in 2000 and $203 in 1999 24,063 23,198
Inventories 549 534
Prepaid expenses and other current assets 523 700
Deferred income taxes 568 568
-------- --------
Total current assets 27,720 27,546
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FURNITURE AND EQUIPMENT - net 1,752 1,804
GOODWILL, less accumulated amortization of $1,919 in 2000 and $1,110
in 1999 14,418 14,577
DEFERRED INCOME TAXES 2,768 2,140
OTHER ASSETS 460 443
-------- --------
TOTAL $ 47,118 $ 46,510
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 4,925 4,356
Accounts payable 11,512 7,507
Accrued expenses 2,050 2,732
Accrued restructuring 428 1,287
Deferred revenue 146 190
-------- --------
Total current liabilities 19,061 16,072
LONG-TERM DEBT 14,764 14,952
CONVERTIBLE SUBORDINATED DEBENTURES 2,080 1,745
SERIES D CONVERTIBLE PREFERRED STOCK, ISSUED AND OUTSTANDING, 1000
SHARES IN 1999; TOTAL LIQUIDATION PREFERENCE, $1,000 1,200
SERIES E CONVERTIBLE PREFERRED STOCK, ISSUED AND OUTSTANDING, 2,000
SHARES IN 1999; TOTAL LIQUIDATION PREFERENCE, $2,000 1,713
STOCKHOLDERS' EQUITY:
Series A Preferred, $100 stated value - authorized, issued and outstanding,
10 shares in 2000 and 1999; total liquidation preference, $300 1 1
Common stock, $.01 par value - authorized, 100,000,000 shares; issued and
outstanding, 12,193,924 shares on June 30, 2000 and 10,334,976 on December 31,
1999 121 103
Additional paid-in-capital 24,668 21,495
Retained earnings (deficit) (13,577) (10,771)
-------- --------
Total stockholders' equity 11,213 10,828
-------- --------
TOTAL $ 47,118 $ 46,510
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</TABLE>
See notes to unaudited condensed consolidated financial statements.
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OSAGE SYSTEMS GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands except per share amounts)
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THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30, 2000 JUNE 26, 1999 JUNE 30, 2000 JUNE 26, 1999
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REVENUE:
Hardware and Software sales $ 24,718 $ 22,847 $ 46,742 $ 46,470
Service and consulting revenues 4,782 3,773 8,728 7,242
-------- -------- -------- --------
NET SALES 29,500 26,620 55,470 53,712
COST OF SALES 25,537 21,230 47,436 43,300
-------- -------- -------- --------
Gross profit 3,963 5,390 8,034 10,412
-------- -------- -------- --------
OPERATING EXPENSES:
Selling, general and administrative expenses 4,178 5,463 8,110 10,293
Depreciation and amortization 531 375 1,021 730
-------- -------- -------- --------
Total operating expenses 4,709 5,838 9,131 11,023
-------- -------- -------- --------
OPERATING LOSS (746) (448) (1,097) (611)
INTEREST - net (1,134) (219) (1,577) (382)
-------- -------- -------- --------
LOSS BEFORE BENEFIT FOR INCOME TAXES (1,880) (667) (2,674) (993)
BENEFIT FOR INCOME TAXES (353) (205) (613) (265)
-------- -------- -------- --------
NET LOSS (1,527) (462) (2,061) (728)
SERIES E EMBEDDED DIVIDENDS (687)
-------- -------- -------- --------
NET LOSS ATTRIBUTABLE TO -
COMMON SHAREHOLDERS $ (1,527) $ (462) $ (2,748) $ (728)
======== ======== ======== ========
LOSS PER COMMON SHARE
BASIC AND DILUTED $ (0.13) $ (0.05) $ (0.24) $ (0.08)
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 12,032 9,488 11,448 9,494
======== ======== ======== ========
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OSAGE SYSTEMS GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in Thousands)
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SIX MONTHS ENDED
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JUNE 30, 2000 JUNE 26, 1999
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OPERATING ACTIVITIES:
Net loss $(2,061) $ (728)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 1,021 730
Deferred income taxes (627) (265)
Noncash interest 1,045 33
Changes in operating assets and liabilities:
Accounts receivable (865) (4,850)
Inventories (15) (518)
Prepaid expenses and other assets (79) 93
Accounts payable 4,004 6,477
Accrued expenses (1,326) 322
Deferred revenue (44) (957)
Income taxes payable (70)
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Net cash provided by operating activities 1,053 267
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INVESTING ACTIVITIES:
Capital expenditures (216) (636)
Acquisition costs, net of cash received of $185 in 1999 (55)
------- -------
Net cash used in investing activities (216) (691)
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FINANCING ACTIVITIES:
Payments under line of credit agreement (144) (750)
Payments on executive officers notes payable (91) (610)
Principal payments on long-term debt (1,978) (580)
Borrowings on long-term debt 3,000 0
Dividends paid on Series E preferred stock (176) 0
Net proceeds from sale of common stock and preferred shares 263 1,915
Payments for redemption of Series E preferred stock (2,240) 0
Net increase in note receivable 3
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Net cash used in financing activities (1,366) (22)
------- -------
NET DECREASE IN CASH (529) (446)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,546 3,152
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,017 $ 2,706
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OSAGE SYSTEMS GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position of the
Company and the results of its operations and its cash flows for the periods
reported. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the entire year. The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of 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.
The consolidated financial statements include the accounts of Osage
Systems Group, Inc. ("Osage") and its wholly-owned subsidiaries, Osage Computer
Group, Inc. ("Osage Computer"), Solsource Computers, Inc. ("Solsource"), H.V.
Jones, Inc. ("HV Jones"), Open System Technologies, Inc. ("OST"), Open Business
Systems, Inc. ("OBS"), Osage Systems Group Minnesota, Inc. and Osage Support
Center, Inc. (collectively, the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation. Certain
reclassifications have been made to the prior financial statements to conform to
the current classifications.
The information presented within the accompanying unaudited condensed
consolidated financial statements should be read in conjunction with the
Company's audited Financial Statements for the fiscal years ended December 31,
1999 and 1998 and "Management's Discussion and Analysis or Plan of Operation"
from the 1999 Annual Report on Form 10-KSB.
2. Earnings Per Share.
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings per Share.
Net loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding during the period after giving
effect to stock options and the conversion of preferred shares considered to be
dilutive. Because the Company incurred a loss for the three and six months ended
June 30, 2000 and June 26, 1999, the effects of the potential dilutive
securities are not included in the calculations.
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3. New Accounting Pronouncements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
effective for transactions entered into in fiscal quarters of fiscal years that
begin after June 15, 2000. This statement establishes standards for the
accounting and reporting for derivative instruments and for hedging activities.
SFAS No. 133, as amended, will be adopted by the Company on January 1, 2001. The
future effect on the Company's financial position and the results of operations
has not been determined.
4. Income Taxes.
The Company accounts for income taxes using the asset and liability
approach, which can result in recording tax provisions or benefits in periods
different than the periods in which such taxes are paid or benefits realized.
Deferred income taxes are recorded for the difference between the book and tax
basis of various assets and liabilities that can provide for current recognition
of expected tax benefits from temporary differences that will result in
deductible amounts in future years.
The deferred income tax asset at June 30, 2000 and December 31, 1999 is
comprised of the following: ($ In Thousands)
OSAGE SYSTEMS GROUP, INC.
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2000 1999
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Use of cash basis of accounting for income tax purposes $ 30 30
Allowance for doubtful accounts 68 68
Compensation 470 470
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Net current assets $ 568 568
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Net operating loss carryforwards $ 3,431 3,056
Goodwill (101) (102)
Property 9 9
Discount on subordinated debt (202) (477)
Other (119) (96)
Valuation allowance on net loss carryforwards (250) (250)
------- ------
Net noncurrent assets $ 2,768 2,140
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5. Convertible Preferred Stock and Capital Stock.
During 1998, the Company completed a private placement offering for 1,000
shares of Series D Preferred shares (the "Series D Shares"). In connection with
the private placement, warrants to purchase 100,000 shares of the Company's
Common Stock at an exercise price of $5.97 per share were granted to the
investor. The holder of the Series D Shares had the right at any time following
the 90th day after the issuance date to convert the $1,000,000 principal amount
of the shares, plus any and all accrued dividends therein, into shares of Common
Stock at the Series D conversion rate of $4.975 per share. The Series D
conversion rate was subject to adjustment if the Company failed to comply with
certain redemption provisions described below. As so adjusted, the conversion
rate was equal to the lesser of $4.975 or 80 percent of the three lowest closing
bid prices of the Common Stock during the five trading days immediately
preceding the conversion date. The Series D Shares could be redeemed at the
option of the holder upon 10 business days written notice after the first
anniversary of the issuance date, if the closing bid price calculated as of the
first anniversary of the issuance date was less than the conversion price as of
the issuance date. The redemption price was 120% of the stated value ($1,000 per
share) plus accrued and unpaid dividends. At the date of issuance, the carrying
amount of the redeemable preferred stock was decreased by $154,000, the fair
value of the common stock warrants, with a credit to additional paid-in capital.
As of December 31, 1999 the preferred stock became redeemable at the option of
the holder. Therefore, the preferred stock was accreted to its redemption value
with an increase to the net loss in the consolidated statement of operations to
arrive at the amount of loss attributable to common shareholders. On January 18,
2000, the holder of the Series D Shares converted 500 shares, at a conversion
price of $1.07, into 468,736 shares of Common Stock. On February 10, 2000, the
remaining 500 Series D Shares were converted, at a conversion price of $1.73,
into an additional 288,468 shares of Common Stock.
During 1999, the Company completed a private placement offering for 2,000
shares of Series E Preferred shares (the "Series E Shares"). In connection with
the private placement, warrants to purchase 100,000 shares of the Company's
Common Stock at an exercise price of $7.875 per share were granted to the
investor. The holder of the Series E Shares had the right at any time following
the 90th day after the issuance date to convert the $2,000,000 principal amount
of the shares, plus any and all accrued dividends therein, into shares of Common
Stock at the Series E conversion rate of $6.5625 per share. The Series E
conversion rate was subject to adjustment if the Company failed to comply with
certain redemption provisions described below. As so adjusted, the conversion
rate was equal to the lesser of $6.5625 or 80 percent of the three lowest
closing bid prices of the Common Stock during the five trading days immediately
preceding the conversion date. The Series E Shares could be redeemed at the
option of the holder upon 10 business days written notice after the first
anniversary of the issuance date if the closing bid price calculated as of the
first anniversary of the issuance date was less than the conversion price as of
the issuance date. The redemption price was 120% of the stated value ($1,000 per
share) plus accrued and unpaid dividends. At the date of issuance, the carrying
amount of the
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redeemable preferred stock was decreased by $180,000, the fair value of the
common stock warrants, with a credit to additional paid-in capital. During the
three months ended March 31, 2000, the preferred stock became redeemable at the
option of the holder. Therefore, the preferred stock was accreted to its
redemption value with an increase to the net loss in the consolidated statement
of operations to arrive at the amount of loss attributable to common
shareholders. On February 22, 2000, the holder of the Series E Preferred Stock
converted 133 shares of preferred stock into 20,267 shares of Common Stock of
the Company at a conversion price of $6.5625 per common share. On March 17, 2000
the Company redeemed the remaining shares of Series E Preferred Stock at the
redemption price of $1,200 per preferred share. To redeem the Series E Preferred
Stock, the Company obtained $3,000,000 from the holders of the Long-Term
Warrants (see Note 6) pursuant to an unsecured interest-free demand note. The
advance is included in current portion of long-term debt at June 30, 2000.
6. Convertible Subordinated Debentures.
On November 22, 1999, the Company completed a private placement offering
for $3 million principal amount 10% Convertible Subordinated Debentures (the
"Debentures"). In connection with the private placement, common stock purchase
warrants were granted to the investors and to the broker of the transaction. The
principal amount of the Debentures is payable on November 22, 2001 with interest
payable at the rate of ten percent (10%) per annum on a quarterly basis
commencing December 31, 1999. Interest may be paid in cash, or at the option of
the holder, in shares of the Company's Common Stock priced at the "Conversion
Price" of the Debentures. At the option of the holder, the Debentures are
convertible into shares of the Company's Common Stock at the Conversion Price
per share at any time prior to maturity. The shares of Common Stock issuable
upon the conversion of the Debentures may be resold under an effective
registration statement filed with the Securities and Exchange Commission, at
which point the Debentures shall automatically convert into shares of the
Company's Common Stock at the Conversion Price. The Conversion Price shall be
$.30 per share of Common Stock (reflective of a twenty percent (20%) discount to
the closing bid price of the Common Stock on October 8, 1999).
The Debentures have a beneficial conversion feature that reflects a
conversion price that was a discount to the price of the Company's Common Stock
on the date the Debentures were priced. The beneficial conversion feature was
valued at $750,000 at the date of issuance. Since the debt is convertible at any
time after the Company's stockholders approve the conversion feature, this
amount was charged to interest expense in May 2000 when stockholder approval was
obtained.
The Debentures were privately offered as a Unit, together with warrants
that, subject to certain vesting provisions, entitled the holders to
contingently purchase 20,000,000 shares of Common Stock of the Company at an
exercise price of $.30 per share. The warrants consist of 5-year warrants to
purchase 10,000,000 shares of Common Stock of the Company (the "Long-
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Term Warrants") and 90-day warrants to purchase 10,000,000 shares of Common
Stock of the Company (the "Short-Term Warrants"). All of the Short-Term Warrants
expired on February 22, 2000. The Long-Term Warrants vested in May 2000 when
stockholder approval of the exercise feature of these warrants was obtained.
The carrying amount of the Debentures has been decreased by $1,325,840,
the fair value of the common stock warrants issued to the holder. This amount
will be amortized as interest expense over the term of the convertible debt.
During the fourth quarter of 1999 and the first six months of 2000, the Company
amortized $70,711 and $334,822 respectively as interest expense.
As is discussed above, at the Company's annual meeting of stockholders,
which was held on May 31, 2000, the stockholders approved the conversion and
exercise feature of the Debentures and the Long-Term Warrants. As a result, the
Company may be caused to issue approximately 20,000,000 shares of its Common
Stock to the holders of the Debentures and the Long-Term Warrants, which would
have an extremely dilutive effect on the existing stockholders. Furthermore,
holders of the Debentures and the Long-Term Warrants would beneficially own
approximately 69% of the Company's Common Stock, thereby securing majority
voting control of the Company's stock.
7. Contingencies.
The Company is involved in litigation and various other legal matters that
have arisen in the ordinary course of business. The Company does not believe
that the ultimate resolution of existing matters will have a material adverse
effect on its financial condition, results of operations, or cash flows.
On or about March 7, 2000, Halifax Fund, L.P. commenced an action against
the Company, as well as Michael Lauer and three investment funds managed by him,
Lancer Offshore, Inc., Lancer Partners, L.P. and Orbiter Fund, Ltd.
(collectively "Lancer") in the Supreme Court of the State of New York (the
"Court") captioned Halifax Fund, L.P. v. Osage Systems Group, Inc., Michael
Lauer, Lancer Offshore, Inc., Lancer Partners, L.P. and Orbiter Fund, Ltd.,
Supreme Court of the State of New York, County of New York (Index No.
600993/00). In its complaint, Halifax alleges that the Company breached a
contractual obligation to offer Halifax a right of first refusal to participate
in a financing transaction the Company completed with Lancer in November 1999
(see Note 6). Halifax also alleges that the Company breached a contractual
obligation to register securities issuable upon the conversion of preferred
stock Halifax purchased from the Company in February 1999. Halifax seeks: (i)
monetary damages in excess of $23 million for the alleged breaches of contract;
(ii) specific performance of the right of first refusal; (iii) injunctive relief
preventing the Company from issuing shares of its Common Stock to Lancer upon
the conversion of debentures and the exercise of warrants granted in the Lancer
financing; and (iv) injunctive relief preventing the Company from soliciting
stockholder approval for the Lancer financing, which was a necessary condition
precedent for the issuance of the Company's Common Stock under the Debentures
and the Long-Term Warrants issued to
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Lancer. As to the remainder of the substantive claims, the Company is in the
process of investigating the matter and has tentatively concluded that no breach
of contract occurred. It has arrived at this conclusion in reliance on
information provided by its investment bankers that they provided Halifax with
the requisite written right of first refusal offer in compliance with the
Company's contractual obligation to do so. Accordingly, the Company intends to
vigorously defend the matter.
Since the Company's investigation of the matter has not yet been
completed, and since no assurances can be provided as to the ultimate outcome of
litigation, particularly where fact-based disputes may arise, the Company cannot
assure that it will not be subject to any liability thereunder. In the event
that it is successful in asserting its claims, Halifax may be awarded relief
consisting of, among others, the right to purchase securities of the Company on
the same terms as the Debentures and the Long-Term Warrants offered to Lancer
(in which case the Company may be caused to issue additional securities
convertible into up to 13,333,333 shares of the Company's Common Stock) or
monetary damages which may, if fully awarded, exceed the Company's current asset
value. Due to the Company's belief that the claims are without merit, no
provision has been established for any potential liability arising out of the
litigation.
On October 29, 1999, John E. Udelhofen and E. Michael Durbin filed an
action in the United States District Court for the Northern District of Illinois
against the Company. The Plaintiffs are former shareholders of Open Business
Systems, Inc. ("OBS"). On June 22, 1998 The Company purchased all of the
outstanding shares of OBS and the Plaintiffs entered into employment contracts
with the Company. On August 17, 1999, the Company terminated the Plaintiffs'
employment contracts. In the lawsuit the Plaintiffs claim their employment
contracts were wrongfully terminated and seek damages in excess of $75,000 as
well as declaratory relief. The Plaintiffs also claim that the Company breached
the Registration Rights Agreement entered into by the parties in connection with
the sale of the stock of OBS. The Plaintiffs claim that the Company failed to
timely file the necessary registration statement with the Securities and
Exchange Commission with respect to the registration for resale of the Company's
Common Stock distributed to plaintiffs in connection with the transaction.
Plaintiffs also claim that they are owed additional sums pursuant to the
"earnout" provisions of the Agreement by which the Company purchased OBS. The
Company has answered Plaintiffs' claims denying that they are entitled to any
relief. Additionally Osage is asserting counterclaims against certain of the
Plaintiffs for violation of provisions of both the Purchase Agreement and their
employment agreements. The Company accordingly believes it has valid defenses to
all of the Plaintiffs' claims and intends to vigorously defend the matter.
8. Segment Reporting.
The Company engages in business activities in one operating segment that
provides network computers solutions through information technology services.
The chief operating decision-makers are provided information about the revenues
generated in key client industries. The
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resources needed to deliver the Company's services are not separately reported
by industry. The Company's services are delivered to clients primarily in the
United States and the Company's long-lived assets are all located in the United
States.
9. Subsequent Event.
On July 21, 2000 the Company completed a private placement offering for $4
million principal amount 10% Convertible Subordinated Debentures (the
"Debentures"). The principal amount of the Debentures is payable on July 15,
2001 with interest payable at the rate of ten percent (10%) per annum commencing
July 25, 2000. Principal and interest may be paid in cash, or at the option of
the Company, in shares of the Company's subsidiary Osage iXi's Common Stock
priced at $1 per share. Such a conversion, assuming the full $4 million is
converted, would convert into 40% of Osage iXi's stock. No interest is due if
the Note is converted. Osage iXi began business on August 1, 2000. At that time,
Osage iXi received certain assets and retained the services of certain
individuals now utilized by other subsidiaries. For additional information refer
to Part II, Item 5 "Other Information".
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
When used in this Report on Form 10-Q, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "intend," and similar expressions are
intended to identify forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934 regarding events, conditions and financial trends which may affect the
Company's future plans of operations, business strategy, operating results and
financial position. Such statements are not guarantees of future performance and
are subject to risks and uncertainties and actual results may differ materially
from those included within the forward-looking statements as a result of various
factors. Such factors include, among others: (i) risks related to the
restructuring program being undertaken by the Company; (ii) risks related to the
Company's acquisition strategy; (iii) the Company's ability to secure adequate
financing to implement its business strategies; (iv) uncertainty as to whether
the Company can achieve integration of acquired companies in a manner intended
to take advantage of overall corporate synergies and result in an accretion to
consolidated earnings; (v) the uncertainty of future trading prices for the
Company's Common Stock and the impact such trading prices may have upon the
Company's ability to utilize its Common Stock to facilitate its acquisition
strategy; (vi) the uncertain effect of the additional dilution associated with
the future issuance of outstanding convertible securities, as well as the
dilution associated with the Company's acquisition strategy;
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(vii) the Company's dependence on certain large customers and suppliers; (viii)
the Company's dependence on certain key personnel; and (ix) the competitive
market for technical personnel. Additional factors are described in the
Company's other public reports and filings with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date made. The Company
undertakes no obligation to publicly release the result of any revision of these
forward-looking statements to reflect events or circumstances after the date
they are made or to reflect the occurrence of unanticipated events.
OVERVIEW
Through its operating subsidiaries, the Company markets a broad range of
integrated information technology products and professional consulting services,
intended to address all phases of a customer's information technology needs. The
Company's ability to deliver integrated solutions is principally attributable to
its technical expertise and its value-added reseller agreements with
industry-leading vendors of information technology products such as Sun
Microsystems, Inc., Cisco Systems, Inc., Oracle Corporation, Netscape
Communications Corporation, Check Point Software Technologies, Ltd. and Veritas
Software Corporation, with Sun Microsystems accounting for approximately 70% of
the Company's hardware sales. The Company has also established relationships
with leading aggregators of computer hardware and software products. These
agreements enable the Company to provide its clients with competitive product
pricing, ready product availability and services.
The Company realizes revenues from the sale of products and services.
Professional services are provided to customers on a time and material basis at
hourly rates or on fixed contract basis that are established based upon the
skill level, experience and type of service being performed. Support contract
revenue is recognized over the term of the contract. Historically, most of the
Company's revenues have been derived from the resale of computer and network
hardware and software products. However, in recognition that market demand is
evolving toward higher margin complete information technology solutions, the
Company has adopted the expansion of its service offerings to the marketplace as
one of its business strategies. Management expects its consulting and service
revenue to increase as a percentage of net sales as it expands its service
offerings to new and existing customers.
As announced on July 18, 2000, the Company is now organized into two
strategic business units, Osage iXi and Osage Systems Integration. System
Integration customers include both our traditional base and the emerging market
of Internet related companies. In 1999 Osage had in excess of 70 customers whose
principal business related to the Internet such as internet service providers
"ISPs", "application service providers "ASPs", business to business "B2B"
commerce sites and business to consumer "B2C"commerce sites. Most of the
services provided to these customers involve the basic infrastructure of their
Internet installations.
Osage iXi, which originally focused exclusively on business intelligence
and eCommerce
11
<PAGE> 14
solutions for the middle market, will now also encompass the
eIntegrator Alliance Program and the newly launched Professional Services
organization. A core component of the Professional Services organization has
been the development of the Internet Data Center Solution Stacks, a set of
packaged solutions with defined service deliverables in the areas of Storage,
Security, Availability, Assurance, and Operations. These solutions can be
deployed in individual client environments, or customized for use in specific
eIntegrator partnerships. The expansion of the professional service offerings is
in response to expanding market opportunities created by web-enabled
technologies.
12
<PAGE> 15
RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS
ENDED JUNE 26, 1999
The following table sets forth for the periods indicated certain financial data
as a percentage of net sales: ($ In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------
JUNE 30 2000 JUNE 26, 1999
% OF % OF
AMOUNT NET SALES AMOUNT NET SALES
------ --------- ------ ---------
<S> <C> <C> <C> <C>
REVENUE:
Hardware and software sales $ 24,718 83.8% $ 22,847 85.8%
Services and consulting revenues 4,782 16.2% 3,773 14.2%
-------- ----- -------- -----
Total revenue 29,500 100.0% 26,620 100.0%
COST OF SALES 25,537 86.6% 21,230 79.8%
-------- ----- -------- -----
Gross profit 3,963 13.4% 5,390 20.2%
-------- ----- -------- -----
OPERATING EXPENSES:
Selling, general and administrative expenses 4,178 14.2% 5,463 20.5%
Depreciation and amortization 531 1.8% 375 1.4%
-------- ----- -------- -----
Total operating expenses 4,709 16.0% 5,838 21.9%
-------- ----- -------- -----
LOSS FROM OPERATIONS (746) -2.6% (448) -1.7%
INTEREST - NET (1,134) -3.8% (219) -0.8%
-------- ----- -------- -----
LOSS BEFORE BENEFIT FOR INCOME TAXES (1,880) -6.4% (667) -2.5%
BENEFIT FOR INCOME TAXES (353) -1.2% (205) -0.8%
-------- ----- -------- -----
NET LOSS $ (1,527) -5.2% $ (462) -1.7%
======== ===== ======== =====
BASIC AND DILUTED LOSS PER SHARE: $ (0.13) $ (0.05)
======== ========
BASIC AND DILUTED SHARES OUTSTANDING: 12,032 9,488
-------- --------
</TABLE>
13
<PAGE> 16
Revenues. Net sales increased by 10.8%, or approximately $2.9 million, to $29.5
million for the three months ended June 30, 2000 as compared to $26.6 million
for the same prior year period. This increase in net sales was attributable to
an increase in the Company's focus on service sales as well as an increase in
demand for the products the Company offers. The level of change is larger than
the comparative results depict as the Company discontinued the Solsource and
E-comm operations in the fourth quarter of 1999. Management expects service
revenues to continue to increase as new opportunities associated with the
Company's iXi initiative are realized. The Company's net sales are expected to
slow somewhat during 2000 as the Company emphasizes improving operating margins.
Gross Profit. The Company's cost of sales consists primarily of the cost
to the Company of products acquired for resale and salaries of certain technical
personnel. The Company's gross profit decreased by 26.5% or $1.4 million to $4.0
million for the three months ended June 30, 2000 as compared to $5.4 million for
the prior year. Increased competition, redeployed resources for iXi development,
and product availability in the hardware and software markets were primarily
responsible for the decline. Gross profit margin decreased to approximately
13.4% during the three months ended June 30, 2000 as compared to approximately
20.2% during the prior year. The decrease in gross profit margins was
attributable to increased competition, resource redeployment, the sale of more
expensive product, with higher dollar profitability but lower margins and the
lack of availability of certain products. With respect to the sale of hardware,
management believes that in the long run, gross profit margins on these sales
will decrease. As a consequence, the Company intends to continue growing its
services and consulting business at a rate in excess of the growth of its
hardware and software business. Also, the Company believes that, as one of the
larger systems integrators competing in its markets, it can obtain economies of
scale, which will allow it to compete profitably in spite of any deterioration
of gross profit margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist primarily of salaries, sales person
compensation, employee benefits, professional fees, travel, marketing and
facility costs. Selling, general and administrative expenses decreased by 23.5%
or $1.3 million to $4.2 million for the three months ended June 30, 2000 as
compared to $5.5 million for the same period last year. As a percentage of
sales, these costs decreased from 20.5% for the three months ended June 26, 1999
to 14.2% for the same period this year. The decrease is primarily attributable
to the restructuring program initiated in the third quarter of 1999. The
restructuring activity included the reduction in levels of management, the
elimination of approximately forty-five positions, including several senior
executive personnel, vacating certain leased facilities and canceling certain
contracts.
Depreciation and Amortization. Depreciation and amortization of $531,000
for the three months ended June 30, 2000 reflected an increase of 41.6%, or
$156,000, as compared to the same prior year period. The increase was primarily
due to the effect of amortization of goodwill and depreciation of assets
acquired in connection with acquisitions as well as the depreciation associated
with the Company's enterprise software system.
14
<PAGE> 17
Interest Expense. Interest expense for the three months ended June 30,
2000 of $1.1 million includes interest charges associated with the Company's
line of credit and term loan agreement along with interest accretion related to
the common stock warrants issued to the holder of the Debentures. Also included
as interest expense is $750,000 associated with the beneficial conversion
feature of the Debentures due to the conversion price reflecting a discount to
the price of the Company's Common Stock on the date the Debentures were priced.
This amount was recognized in May 2000 when approval by the Company's
stockholders was obtained for the issuance of shares associated with the
Debenture.
Income Taxes. The Company's effective tax rate benefit for the three
months ended June 30, 2000 was 18.8% which is primarily attributable to the net
operating loss generated during the year offset by nondeductible goodwill and
interest expense.
15
<PAGE> 18
RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX
MONTHS ENDED JUNE 26, 1999
The following table sets forth for the periods indicated certain financial data
as a percentage of net sales:
($ In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------------------------------------------
JUNE 30, 2000 JUNE 26, 1999
% OF % OF
AMOUNT NET SALES AMOUNT NET SALES
------ --------- ------ ---------
<S> <C> <C> <C> <C>
REVENUE:
Hardware and software sales $ 46,742 84.3% $ 46,470 86.5%
Services and consulting revenues 8,728 15.7% 7,242 13.5%
-------- ----- -------- -----
Total revenue 55,470 100.0% 53,712 100.0%
COST OF SALES 47,436 85.5% 43,300 80.6%
-------- ----- -------- -----
Gross profit 8,034 14.5% 10,412 19.4%
-------- ----- -------- -----
OPERATING EXPENSES:
Selling, general and administrative expenses 8,110 14.6% 10,293 19.2%
Depreciation and amortization 1,021 1.8% 730 1.4%
-------- ----- -------- -----
Total operating expenses 9,131 16.5% 11,023 20.6%
-------- ----- -------- -----
LOSS FROM OPERATIONS (1,097) -2.0% (611) -1.2%
INTEREST - NET (1,577) -2.8% (382) -0.7%
-------- ----- -------- -----
LOSS BEFORE BENEFIT FOR INCOME TAXES (2,674) -4.8% (993) -1.9%
BENEFIT FOR INCOME TAXES (613) -1.1% (265) -0.5%
-------- ----- -------- -----
NET LOSS (2,061) -3.7% (728) -1.4%
SERIES E EMBEDDED DIVIDENDS (687) -1.2%
-------- ----- -------- -----
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS $ (2,748) -4.9% $ (728) -1.4%
======== ===== ======== =====
BASIC AND DILUTED LOSS PER SHARE: $ (0.24) $ (0.08)
======== ========
BASIC AND DILUTED SHARES OUTSTANDING: 11,448 9,494
======== ========
</TABLE>
16
<PAGE> 19
Revenues. Net sales increased by 3.3%, or approximately $1.8 million, to
$55.5 million for the six months ended June 30, 2000 as compared to $53.7
million for the same prior year period. This increase in net sales was
attributable to an increase in the Company's focus on service sales as well as
an increase in demand for the products the Company offers. The level of change
is larger than the comparative results depict as the Company discontinued the
Solsource and E-comm operations in the fourth quarter of 1999. Management
expects service revenues to continue to increase as new opportunities associated
with the Company's iXi initiative are realized. The Company's net sales are
expected to slow somewhat during 2000 as the Company emphasizes improving
operating margins.
Gross Profit. The Company's cost of sales consists primarily of the cost
to the Company of products acquired for resale and salaries of certain technical
personnel. The Company's gross profit decreased by 22.8% or $2.4 million to $8.0
million for the six months ended June 30, 2000 as compared to $10.4 million for
the prior year period. Product availability and increased competition in the
hardware and software markets was primarily responsible for the decline. Gross
profit margin decreased to approximately 14.5% during the six months ended June
30, 2000 as compared to approximately 19.4% during the prior year period. The
decrease in gross profit margins was attributable to increased competition and
the lack of availability of certain products and the sale of more expensive
product, with higher dollar profitability but lower margins. With respect to the
sale of hardware, management believes that in the long run, gross profit margins
on these sales will decrease. As a consequence, the Company intends to continue
growing its services and consulting business at a rate in excess of the growth
of its hardware and software business. Also, the Company believes that, as one
of the larger systems integrators competing in its markets, it can obtain
economies of scale, which will allow it to compete profitably in spite of any
deterioration of gross profit margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist primarily of salaries, sales person
compensation, employee benefits, professional fees, travel, marketing and
facility costs. Selling, general and administrative expenses decreased by 21.2%
or $2.2 million to $8.1 million for the six months ended June 30, 2000 as
compared to $10.3 million for the same period last year. As a percentage of
sales, these costs decreased from 19.2% for the six months ended June 26, 1999
to 14.6% for the same period this year. The decrease is primarily attributable
to the restructuring program initiated in the third quarter of 1999. The
restructuring activity included the reduction in levels of management, the
elimination of approximately forty-five positions, including several senior
executive personnel, vacating certain leased facilities and canceling certain
contracts.
Depreciation and Amortization. Depreciation and amortization of $1.0
million for the six months ended June 30, 2000 reflected an increase of 39.9%,
or $291,000, as compared to the same prior year period. The increase was
primarily due to the effect of amortization of goodwill and depreciation of
assets acquired in connection with acquisitions as well as the depreciation
associated with the Company's enterprise software system.
17
<PAGE> 20
Interest Expense. Interest expense for the six months ended June 30, 2000
of $1.6 million includes interest charges associated with the Company's line of
credit and term loan agreement along with interest accretion related to the
common stock warrants issued to the holder of the Debentures. Also included as
interest expense is $750,000 associated with the beneficial conversion feature
of the Debentures due to the conversion price reflecting a discount to the price
of the Company's Common Stock on the date the Debentures were priced. This
amount was recognized in May 2000 when approval by the Company's stockholders
was obtained for the issuance of shares associated with the Debenture.
Income Taxes. The Company's effective tax rate benefit for the six months
ended June 30, 2000 was 22.9% which is primarily attributable to the net
operating loss generated during the year offset by nondeductible goodwill and
interest expense.
VARIABLE OPERATING RESULTS
The Company's historical operating results have varied from quarter to
quarter, and the Company expects that they will continue to do so. Due to the
relatively fixed nature of certain of the Company's costs, including personnel
and facilities costs, a decline in revenue in any fiscal quarter would result in
lower profitability in that quarter. A variety of factors, many of which are not
within the Company's control, influence the Company's quarterly operating
results, including availability of product, the closings of acquisitions,
seasonal patterns of capital spending by customers, information technology
outsourcing trends, the timing, size and stage of projects, new service
introductions by the Company or its competitors, levels of market acceptance for
the Company's products or services or the hiring of additional staff. Operating
results may also be impacted by the timing of billings and changes in the
Company's billing and utilization rates. The Company believes, therefore, that
past operating results and period-to-period comparisons should not be relied
upon as an indication of future performance. The Company anticipates that its
business will continue to be subject to such seasonal variations.
Backlog
The Company normally ships systems promptly after receiving an order and
therefore does not customarily have a significant backlog.
Liquidity And Capital Resources
Historically, the Company has funded its operations primarily from cash
generated by operations and, to a lesser extent, with funds from borrowings
under the Company's credit facility. For the six months ended June 30, 2000,
cash flow provided by operations was $1.0 million as compared to cash provided
by operations of $.3 million during the same period in the prior year. The
Company's cash flow from operations was positively affected by vendor purchases
with credit extending beyond our normal experience offset by growth in
receivables.
18
<PAGE> 21
The Company's working capital was $8.7 million at June 30, 2000, as
compared to the working capital of $11.5 million at December 31, 1999. The
decrease in the Company's working capital during such period is principally
attributable to the increase in obligations to our vendors.
Capital expenditures, which totaled $216,000 during the first six months
of 2000, were principally for computer hardware and software to support the
Company's expanding operations.
Cash flow from financing activities was unfavorably impacted by the $2.2
million redemption of Series E preferred stock as well as $2.1 million of net
repayments of debt partially offset by a $3.0 million interest free advance (see
below).
In March 2000, the Company received $3.0 million as an interest-free
advance under common stock purchase warrants issued as part of the Debenture.
The advance was used to redeem the Company's outstanding shares of Series E
Convertible Preferred Stock.
At the Company's annual meeting of stockholders held on May 31, 2000, the
stockholders voted on the conversion and exercise feature of the convertible
debentures and Common stock purchase warrants (collectively, the "Debenture")
sold by the Company to Michael Lauer and three investment funds managed by him
(collectively, Lancer") in November 1999 (the "Lancer Financing"). The
stockholders approved the conversion and exercise features of the Derivative
Securities and as a result, the Company may be caused to issue approximately
20,000,000 shares of its Common Stock to Lancer or its designees, which would
have an extremely dilutive effect on the existing stockholders. Furthermore,
Lancer and its designees would beneficially own approximately 69% of the
Company's Common Stock, thereby securing majority voting control of the
Company's stock.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective for transactions entered into in
fiscal quarters of fiscal years that begin after June 15, 2000. This statement
establishes standards for the accounting and reporting for derivative
instruments and for hedging activities. SFAS No. 133, as amended, will be
adopted by the Company on January 1, 2001. The future effect on the Company's
financial position and the results of operations has not been determined.
19
<PAGE> 22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of June 30, 2000, the Company had approximately $15.3 million
floating-rate debt outstanding. The Company's management believes the interest
rate risk represented by this debt is not material. The Company has not, and
does not plan to, enter into any derivative financial instruments for hedging or
speculative purposes. As of June 30, 2000, the Company had no other significant
material exposure to market risk.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On January 6, 2000, the Company issued 500,000 shares of Common Stock in
connection with the acquisition of the e-publishing and systems integration
practice groups of Sharon O'Reilly and Michael Lowther. Of these shares, each of
Sharon O'Reilly and Michael Lowther received 250,000 shares. In addition, the
Company may, at its option, issue additional shares of Common Stock in lieu of
cash payments of $220,000 for deferred acquisition consideration. The issuance
of these securities was exempt from registration pursuant to Section 4(2) of the
Act and Rule 506 of Regulation D as an issuer transaction not involving a public
offering.
On December 17, 1999, the Company issued 54,545 shares of Common Stock to
Risch + Darlington, Inc., an executive search firm, as payment for services
rendered under a retained search agreement. The issuance of these securities was
exempt from registration pursuant to Section 4(2) of the Act and Rule 506 of
Regulation D as an issuer transaction not involving a public offering.
On March 10, 2000, the Company issued 15,000 shares of Common Stock to
Harbour International, Inc. in consideration of a general release given pursuant
to the terms of a settlement agreement between Harbour International and the
Company. The issuance of these securities was exempt from registration pursuant
to Section 4(2) of the Act and Rule 506 of Regulation D as an issuer transaction
not involving a public offering.
The Company's stockholders approved an amendment to the Company's
Certificate of Incorporation to increase the number of shares of Common Stock
the Company is authorized to issue from 50,000,000 to 100,000,000.
20
<PAGE> 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 31, the Company held its Annual Meeting whereby the holders of the
Company's Common Stock voted to approve each of the following proposals:
(1) The issuance of more than 20% of the Company's outstanding Common
Stock upon the conversion of outstanding debentures and the exercise
of outstanding warrants at below-market prices (the debentures and
warrants are collectively referred to as the "Debentures") related
to the November 22, 1999 private placement offering for $3 million;
(2) Re-elected the current directors and elected Edward Stead, a new
director to serve until the 2003 Annual Meeting of Stockholders or
until their successors are elected and qualified;
(3) An amendment to the Company's Certificate of Incorporation (the
"Certificate") to increase the number of shares of Common Stock the
Company is authorized to issue from 50,000,000 to 100,000,000;
(4) Ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the year ending December 31, 2000; and
At the Annual Meeting, the holders of the Company's Common Stock did not approve
the following proposals:
(1) An amendment to the Certificate to eliminate the classification of
the Board of Directors into three different classes.
(2) An amendment to the Certificate eliminating a supermajority voting
requirement for the stockholders to amend the Certificate.
ITEM 5. OTHER INFORMATION.
Osage Systems Group, Inc. ("Osage") has obtained $4,000,000 of new funding
as a result of the following transaction. The proceeds will be used for the
operational and capital needs of Osage and its subsidiaries.
As a requirement for the funding, Osage formed a new wholly-owned
subsidiary called Osage iXi, Inc. ("Osage iXi"), a Delaware corporation.
Effective as of August 1, 2000, pursuant to an Assignment and Assumption
Agreement dated July 21, 2000 among Osage, Osage iXi and the other Osage
subsidiaries (the "Other Osage Subsidiaries"), Osage caused the Other Osage
Subsidiaries to transfer to Osage iXi the assets held by them which were
primarily associated
21
<PAGE> 24
with their information technology consulting business (the "Consulting
Business"). In addition, the Other Osage Subsidiaries transferred to Osage iXi
their employees which will be primarily associated with the Consulting Business.
In consideration for such transfers, Osage iXi agreed to assume the liabilities
and obligations of the Other Osage Subsidiaries primarily relating to the
Consulting Business and to employ such employees (with such employees being
leased by the Other Osage Subsidiaries to Osage iXi until December 31, 2000, at
which time they will become employees of Osage iXi).
SPH Investments, Inc. ("SPH") and HMA Associates, Inc. (HMA")
(collectively, the "Lenders") entered into a certain Convertible Promissory Note
Purchase Agreement (the "Note Purchase Agreement") with Osage and Osage iXi
dated July 21, 2000 pursuant to which the Lenders committed to purchase a total
of $4,000,000 of Convertible Senior Subordinated Notes (the "Notes") (each
Lender is committed to purchase $2,000,000 of the Notes). On July 25, 2000 the
Lenders purchased a total of $2,000,000 of such Notes. Pursuant to the Note
Purchase Agreement, the Lenders are required to purchase an additional
$2,000,000 of such Notes, with $1,000,000 of such Notes to be purchased on or
before September 30, 2000 and $1,000,000 of such Notes to be purchased on or
before November 30, 2000.
The Notes bear interest at the rate of ten percent (10%) per annum and
have a maturity date of July 15, 2001. In addition to the interest, if the Notes
are neither prepaid prior to July 15, 2001 nor converted into shares of stock
(as described below), Osage is required to pay a redemption fee equal to ten
percent (10%) of the principal amount of the Notes.
Pursuant to two letter Agreements dated July 24, 2000 and July 26, 2000
between Osage and SPH, in consideration of services rendered by SPH to Osage in
connection with this financing, Osage agreed to pay SPH an amount equal to five
percent (5%) of the amount of the original Notes which is repaid (the "Service
Fee"). Osage also agreed that it would advance to SPH the amount of the Service
Fee which will be payable in the event that Osage repays $2,000,000 of the
Notes.
Repayment of the Notes is subordinated to Osage's obligations for
repayment of its obligations to Coast Business Credit and GE Access. The Notes
are secured by a security interest on all of the assets of Osage and its
subsidiaries (which are subordinated to the security interests granted by Osage
and its subsidiaries in favor of Coast Business Credit and GE Access).
In the event that the Notes have not been repaid in full on or before
January 15, 2001, Osage agreed under the Note Purchase Agreement to declare a
dividend of 600,000 shares of the Common Stock of Osage iXi to its shareholders
and to pursue a separate listing of Osage iXi on either the American Stock
Exchange or the NASDAQ market.
In the event that the Notes are not repaid prior to July 15, 2001, unless
there is then an outstanding Event of Default (as defined under the Notes), on
such date the Notes shall automatically be converted into shares of common stock
of Osage iXi at the rate of one (1) share
22
<PAGE> 25
for each one ($1.00) dollar of the outstanding principal amount of the Notes.
Assuming that all $4,000,000 of the Notes are converted into shares of common
stock of Osage iXi, based on the current number of such shares outstanding, the
Lenders will own forty (40%) percent of the then issued and outstanding stock of
Osage iXi.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number
(referenced
to Item 601
of Reg. S-K) Description Method of Filing
------------ ----------- ----------------
<S> <C> <C>
27 Financial Data Schedule Filed herewith
</TABLE>
(b) Reports on Form 8-K
The company did not issue any reports on Form 8-K during the quarter
ended June 30, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on by the undersigned,
thereunto duly authorized
OSAGE SYSTEMS GROUP, INC.
Date: August 14, 2000 By: /s/ Phil Carter
Phil Carter
Chairman of the Board and Chief Executive Officer
Date: August 14, 2000 By: /s/ Robert T. Peterson
Robert T. Peterson
Chief Financial Officer/Principal Accounting Officer
23
