<PAGE>
As filed with the Securities and Exchange Commission on October 4, 2000.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________
INSYNQ, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2964608
(State or Other Jurisdiction of incorporation (I.R.S. Employer
or Organization) Identification Number)
1101 BROADWAY PLAZA
TACOMA, WASHINGTON 98402
(Address of Principal Executive Offices) (Zip Code)
______________
CONSULTING AGREEMENT FOR MQ HOLDINGS, INC.
(Full Title of the Plans)
______________
JOHN P. GORST
INSYNQ, INC.
1101 BROADWAY PLAZA
TACOMA, WASHINGTON 98402
(Name and Address of Agent for Service)
(253) 284-2000
(Telephone Number, Including Area Code, of Agent for Service)
================================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Title of Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered/(1)/ Per Share/(2)/ Offering Price Registration Fee
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 40,000 $ 1.02 $ 40,800 $ 10.77
$.001 par value
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</TABLE>
(1) Represents the maximum number of shares of Common Stock of the Registrant
which are required to be registered pursuant to the grant of 40,000 shares
under the Consulting Agreement for MQ Holdings, Inc. ("MQ Agreement").
(2) Estimated solely for the purpose of calculating the registration fee. This
fee was calculated pursuant to Rule 457(c) under the Securities Act of 1933,
as amended (the "Act"), on the basis of the average of the bid and asked
prices for the Common Stock reported on the OTC Bulletin Board on October 2,
2000 for the 40,000 shares of Common Stock which have been granted pursuant
to the MQ Agreement.
<PAGE>
PART I
INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS
ITEM 1. PLAN INFORMATION.
The information specified by Item 1 of Part I of Form S-8 is omitted from
this filing in accordance with the provisions of Rule 428 under the Act and the
introductory note to Part I of Form S-8.
ITEM 2. REGISTRANT INFORMATION AND EMPLOYEE PLAN ANNUAL INFORMATION.
The information specified by Item 2 of Part I of Form S-8 is omitted from
this filing in accordance with the provisions of Rule 428 under the Act and the
introductory note to Part I of Form S-8.
<PAGE>
REOFFER AND RESALE PROSPECTUS
40,000 Shares of Common Stock
INSYNQ, INC.
1101 Broadway Plaza
Tacoma, Washington 98402
Telephone Number: (253) 284-2000
The Selling Stockholders identified in this prospectus may offer and resell
up to 40,000 shares of our common stock under this prospectus. These shares
have been acquired by the Selling Stockholders pursuant to the terms of a
consulting agreement with MQ Holdings, Inc.
We will not receive any proceeds from the sales of shares by the Selling
Stockholder. The Selling Stockholder may sell its shares of common stock
through public or private transactions, in the over-the-counter market with
buyers, or otherwise. It may sell its shares at prevailing market prices or at
prices privately negotiated with buyers. The Selling Stockholder will be
responsible for any commissions or discounts due brokers or dealers. The amount
of those commissions will be negotiated before the sales. We have agreed to pay
all other offering expenses.
Our common stock is quoted on the over-the-counter bulletin board under the
symbol "ISNQ." The closing average bid and asked price of our common stock on
October 2, 2000 was $1.02 per share.
An investment in our common stock involves a high degree of risk. You
should carefully consider the matters set forth under "Risk Factors" starting on
page 4 of this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this prospectus is October 4, 2000
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS................................................ 4
THE COMPANY................................................. 19
USE OF PROCEEDS............................................. 22
SELLING STOCKHOLDERS........................................ 22
PLAN OF DISTRIBUTION........................................ 22
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES.............................. 23
EXPERTS..................................................... 24
LEGAL MATTERS............................................... 24
WHERE YOU CAN FIND MORE INFORMATION......................... 24
INCORPORATION OF DOCUMENTS BY REFERENCE..................... 24
</TABLE>
3
<PAGE>
RISK FACTORS
An investment in our stock involves a high degree of risk. The following
information discusses certain significant factors that make an investment in our
common stock risky or speculative. However, the risks and uncertainties
described below are not the only ones we face. Other risks, including those not
considered material, may impair our business. If any of the risks discussed
below actually occur, our business, financial condition, operating results or
cash flows could be materially adversely affected, which could cause the trading
price of our common stock to decline.
Risks Particular to Insynq, Inc.
We have historically operated at a loss, have experienced negative
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operating cash flows, and anticipate that losses will continue.
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We have experienced net losses and negative cash flows since we began
implementing our current business plan. We expect that the ongoing
implementation of our current business plan will increase our net losses and our
negative cash flows for the foreseeable future as we continue to incur
significant operating expenses and make capital investments in our business. We
may never generate sufficient revenues to achieve profitability, and if we are
unable to make a profit, we may not be able to continue to operate our business.
Even if we do become profitable, we may not be able to sustain or increase
profitability on a quarterly or annual basis.
Our limited operating history makes evaluating our business difficult.
----------------------------------------------------------------------
Insynq-WA commenced operations in September 1998. Accordingly, we have only
a very limited operating history upon which you can evaluate our business and
prospects. We face the risks, expenses and difficulties frequently encountered
by early-stage companies in new and rapidly evolving markets, including on-line
companies which host hardware and software applications for other companies. Our
past financial results may not be representative of our future financial
results.
Our quarterly results of operations fluctuate, which could result in a
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lower price for our common stock.
---------------------------------
Our quarterly results may be affected by factors that may be beyond our
control, including, but not limited to, the following:
. Introduction of new products or pricing programs by our competitors;
4
<PAGE>
. Changes in pricing for, and changes in the gross margins of, certain
products, services, or lines of business as our business model
continues to develop;
. Difficulty managing growth;
. Technical difficulties or systems downtime affecting our services and
products;
. Variations in spending patterns by companies;
. Other business interruptions; Increases in necessary operating
expenses; Year 2000 problems with our technology or with the
technology of third parties with whom we do business;
. The amount and timing of costs associated with the development and
maintenance of new hardware and software products;
. Economic conditions specific to the Internet or to the hardware and
software hosting business, as well as general economic conditions;
. Customer acceptance of our products and business model;
. Costs and risks associated with potential acquisitions;
. Inability to acquire or lack of availability of necessary hardware or
software components, or difficulties in manufacturing; and
. Inability to frame additional bandwidth to adequately service customer
growth.
In addition, a substantial portion of our expenses, including most product
development and selling and marketing expenses, must be incurred in advance of
revenue generation. If our actual revenue does not meet our expectations, then
our operating profit, if any, may fall short of our expectations. Further, we
may change our pricing strategy for our products due to the rapidly evolving
market for hosting hardware and software applications, and this may affect our
quarterly results. Any one or more of these factors could affect our business,
financial condition, and results of operations, and this makes the prediction of
results of operations on a quarterly basis unreliable. As a result, period-to-
period comparisons of our historical results of operations may not be meaningful
and should not be relied on as an indication of our future performance. Also,
due to these and other factors, it is possible that our quarterly results of
operations may fall below the expectations of public market analysts and
investors. This could adversely affect the trading price of our common stock.
We will require additional capital and/or vendor credit in the future,
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which may not be available to us.
---------------------------------
In order to execute our short-term and long-term strategic plans, we need
to continue to raise funds through public or private debt or equity financing
and obtain credit from key vendors. If we raise additional funds by issuing
equity securities, our stockholders may suffer material dilution in their
holdings of our common stock. Also, as a result of cash flow shortages that have
caused or may cause us to be delinquent on operating payments, adequate funds
and credit may not be available to us when we need them, or may not be available
to us on favorable terms. In this case, we may be not be able to obtain or
maintain key vendor products and services, develop or enhance our products or
services, take advantage of business opportunities, or respond to competitive
pressures, any of which could harm our business. If we are unable to raise
additional capital or maintain vendor credit, we will not be able to achieve the
goals set forth in our strategic plan and may be unable to continue to operate
our business.
5
<PAGE>
Our future capital requirements and vendor relationships will depend upon
many factors, including the following:
. Costs to develop and maintain our on-line hosting of hardware and
software;
. The rate at which we expand our operations;
. Our ability to timely pay key vendors and improve our credit rating;
. The extent to which we develop and upgrade our technology;
. The occurrence, timing, size and success of acquisitions; and
. The response of competitors to our service offerings.
Future demand for ASP services is highly uncertain.
----------------------------------------------------
The market for ASP services has only recently begun to develop and is
evolving rapidly. Future demand for these services is highly uncertain. We
believe that many of our potential customers are not fully aware of the benefits
of ASP services. We must educate potential customers regarding these benefits
and convince them of our ability to provide complete and reliable services. The
market for ASP services may never become viable or grow further. If the market
for our ASP services does not grow or grows more slowly than we currently
anticipate, our business, financial condition and operating results will be
materially adversely affected.
Our internal accounting and financial controls have weaknesses due
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primarily to the lack of qualified accounting and financial staff and resources
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prior to June 2000, and we are unable to determine to what extent these
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weaknesses have had on our management systems and financial reporting.
----------------------------------------------------------------------
From our inception through June 5, 2000, M. Carroll Benton was our
controller and principal accounting officer. During this time period Ms. Benton
was also the owner and principal accounting officer of Interactive during which
time an undetermined number of related party transactions occurred between
Insynq and Interactive.
When preparing for the audit of our consolidated financial statements for
the year ended May 31, 2000, our then Chief Financial Officer and our in-house
financial team reported to us conditions they believed to be material weaknesses
in our system of internal accounting and financial controls related to the
financial statement process and reconciliation and analysis of general ledger
account balances. In response to this, we hired additional subsidiary accounting
personnel. We have begun to identify measures to improve our system of internal
controls, implement more rigorous internal accounting policies, procedures and
controls, and conduct accounting systems training. Further, we have selected and
begun implementation of more robust and capable accounting systems. However,
these measures may not be successful in correcting the noted deficiencies and we
may experience similar or other deficiencies in the future as we continue to
expand our operations. If we are unable to establish and maintain effective
internal accounting and financial controls, we will not be able to timely and
accurately account for and monitor the operations of our business and we
therefore may not be able to properly execute our strategic plan, which could
have a material adverse affect on our business, results of operations and
financial condition.
6
<PAGE>
We rely on technology and channel alliances and ISVs to refer many of our
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clients to us.
--------------
We rely on referrals from channel alliances for a portion of our business.
Companies with whom we have strategic alliances, including Remedy and Macola,
refer their customers to us because we can provide an array of services that
complement the products and services they offer. However, these companies may
stop or substantially reduce referring business to us or they may decide to
cooperate with our competitors and thereby adversely impact or eliminate the
amount of referrals made to us. If these third party referrals cease or
materially decrease, our sales will materially decline and our business, results
of operations, and financial condition will be materially adversely affected.
If we are unable to obtain key software applications and hardware
-----------------------------------------------------------------
components from certain vendors, we will be unable to deliver our services.
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We rely on third-party suppliers, including Microsoft, Citrix, and Cisco to
provide us with key software applications and hardware components for our
infrastructure. Certain components or applications are only available from
limited sources. If we are unable to obtain these products or other services,
including connectivity services, in a timely manner at an acceptable cost or at
all, may substantially inhibit our ability to deliver our services, and
consequently, our business, results from operations and financial condition will
be materially adversely affected.
Some of our ASP service contracts guarantee certain service levels.
-------------------------------------------------------------------
Some of our ASP contracts contain service guarantees that obligate us to
provide our hosted applications at a guaranteed level of performance. To the
extent we fail to meet those service levels we may be obligated to provide our
customers certain services free of charge. If we continue to fail to meet these
service levels, our ASP customers have the right to cancel their contracts with
us. These credits or cancellations will cost us money, damage our reputation
with our customers and prospective customers, and could materially adversely
affect our business, results of operations and financial condition.
Rapid growth in our business due to an increase in the number of customers
--------------------------------------------------------------------------
purchasing our products and services could strain our operational and financial
-------------------------------------------------------------------------------
resources and cause us to lose customers and increase our operating expenses.
-----------------------------------------------------------------------------
Any increase in the volume of users of our computer systems could strain
the capacity of our software or hardware, which could lead to slower response
times or system failures. Any future growth may require us, among other things,
to:
. Expand and upgrade our hardware and software systems;
. Expand and improve our operational and financial procedures, systems
and controls;
. Improve our financial and management information systems;
. Expand, train and manage a larger workforce; and
7
<PAGE>
. Improve the coordination among our product development, sales and
marketing, financial, accounting and management personnel.
We cannot assure you that our current level of personnel, systems, and
controls will be adequate to support future growth. Our inability to manage
growth effectively or to maintain the quality of our products and services could
cause us to lose customers and could materially increase our operating expenses.
If we do not increase awareness of our products and services, our ability
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to reach new customers will be limited.
---------------------------------------
Our future success will depend, in part, on our ability to increase
awareness of our products and services. To do so, we must succeed in our
marketing efforts, provide high-quality products and services, and increase
traffic to our Website. If our marketing efforts are unsuccessful, or if we
cannot increase our brand awareness, we may not be able to attract new customers
and increase our revenues.
We depend heavily on our management team that has little experience working
---------------------------------------------------------------------------
together or managing a public company. We have also experienced turnover in our
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management team, and this turnover could be disruptive to our abilities to work
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together.
---------
Our success depends, to a significant extent, upon the efforts and
abilities of John P. Gorst, President, Chairman of the Board and Chief Executive
Officer, as well as on the efforts of other officers and senior management. Loss
of the services of any or all of the members of the executive management team,
or continued turnover in these positions, could have a material adverse affect
our business, results of operations and financial condition, and could cause us
to fail to successfully implement our business plan. Also, our executive
management team has worked together for less than one year. The short period of
time that they have worked together, or their inability to work successfully
together, and/or continued turnover may adversely affect our ability to manage
growth. Moreover, our executive management team has a limited amount of
experience managing a public company. Our executive management team may not be
able to manage future growth, if any, or the demands of successfully operating a
public company.
There is intense competition for qualified technical professionals and
----------------------------------------------------------------------
sales and marketing personnel, and our failure to attract and retain these
--------------------------------------------------------------------------
people could affect our ability to respond to rapid technological change and to
-------------------------------------------------------------------------------
increase our revenues.
----------------------
Our business could be adversely affected if the systems on which we depend
to conduct our operations, or the systems of third parties on whom we depend,
are not, or do not remain, Year 2000 compliant. Our potential areas of exposure
include products purchased from third parties, computers, software, telephone
systems, and other equipment developed and used internally. If any of our
significant hardware or software is not, or does not remain, Year 2000
compliant, our Web site could become unavailable, and we would not be able to
deliver products or services to our customers over the Internet. In addition,
improper results or failures caused by Year 2000 problems could expose us to
material liabilities. Any failure by us to address our Year 2000 compliance
issues successfully, or of our suppliers or other third parties with whom we
conduct business to address their Year 2000 issues successfully, could cause
harm to our reputation, result in the loss of customers, and adversely affect
our revenues and operating expenses.
We may not be able to protect our patents, copyrights, trademarks and
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proprietary and/or non-proprietary technology, and we may infringe upon the
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patents, copyrights, trademarks and proprietary rights of others.
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8
<PAGE>
Our services are highly dependent upon proprietary technology, including,
for example, our IQ Delivery System, which allows us to upgrade and manage the
customer's computing environment, both at the data center and customer level. In
addition, we rely on contracts, confidentiality agreements, and copyright,
patent, trademark, and trade-secrecy laws to protect our proprietary rights in
our technology. We have also obtained, or are pursuing, several trademark,
copyright, and patent registrations for our various product names. The
protective steps we have taken may not be adequate to deter misappropriation of
our proprietary information. In addition, some end-user license provisions
protecting against unauthorized use, copying, transfer and disclosure of a
licensed program may be unenforceable under the laws of certain jurisdictions
and foreign countries. In addition, the laws of some foreign countries do not
protect proprietary rights to the same extent as the laws of the United States.
Failure to adequately protect our intellectual property could harm our brand
name, devalue our proprietary content, and affect our ability to compete
effectively. Furthermore, defending our intellectual property rights could
result in the expenditure of significant financial and managerial resources,
which could materially adversely affect our business, results of operations and
financial condition. Also, it is possible that our competitors or others will
adopt product or service brands similar to ours, possibly leading to customer
confusion.
We utilize open source services and code for some products. While we can
modify open source and charge for it, we must release certain changes back to
the open source community, which may include competitors. This could negatively
affect our ability to compete effectively, and have a material adverse affect on
our financial condition and results of operations.
Some of our technology, including our proprietary code, performs functions
similar to technology available from third parties. Therefore, we could be
subject to claims that our technology infringes the proprietary rights of third
parties. Claims against us, even if without merit, could subject us to costly
litigation and could divert the time and attention of our technical and
management teams. A claim of infringement may require us, and our customers, to
obtain one or more licenses from third parties. We cannot assure you that we or
our customers will be able to obtain necessary licenses from third parties at a
reasonable cost or at all. Any failure to obtain a required license could have a
material adverse effect on our business, results of operations and financial
condition.
Potential difficulties caused by Year 2000 problems, or future Year 2000-
------------------------------------------------------------------------
related problems, may decrease use of Internet services, may cause harm to our
------------------------------------------------------------------------------
reputation and may adversely affect our revenues and operating expenses.
------------------------------------------------------------------------
The Year 2000 issue is caused by computer programs or systems that store or
process date-related information using only two (2) digits, instead of four (4)
digits, to designate the year. The Year 2000 issue causes a problem when a
computer program or system fails to properly differentiate between a year in the
1900s and a year in the 2000s. Such failure to make a proper distinction could
cause the programs or systems to yield improper results or even fail.
Our business could be adversely affected if the systems on which we depend
to conduct our operations, or the systems of third parties on whom we depend,
are not, or do not remain, Year 2000 compliant. Our potential areas of exposure
include products purchased from third parties, computers, software, telephone
systems, and other equipment developed and used
9
<PAGE>
internally. If any of our significant hardware or software systems is not, or
does not remain, Year 2000 compliant, our Web site could become unavailable, and
we would not be able to deliver products or services to our customers over the
Internet. In addition, improper results or failures caused by Year 2000 problems
could expose the Company to material liabilities. Any failure by us to address
our Year 2000 compliance issues successfully, or of our suppliers or other third
parties with whom we conduct business to address their Year 2000 issues
successfully, could cause harm to our reputation, result in the loss of
customers, and adversely affect our revenues and operating expenses.
Disruptions to our data center, or to the offsite backup storage facilities
---------------------------------------------------------------------------
of third parties with whom we do business, could materially affect our business.
--------------------------------------------------------------------------------
The continued and uninterrupted performance of our computer systems, and of
the backup storage facilities of third parties with whom we do business, is
critical to our success. Any system failure that causes interruptions in our
ability to deliver our products and services to our customers, including
failures that affect our customers' abilities to access our hosted hardware,
software, and stored data, could reduce customer satisfaction and, if sustained
or repeated, would reduce the attractiveness of our services or result in
material liabilities or costs.
Our hardware and software hosting business strategy, including data backup
and storage, depends on the consistent performance of our data center and those
of third parties. We offer offsite back-up storage of data for all customers.
Our current data center, and those of third parties, is vulnerable to
interruption from fire, earthquake, flood, power loss, connectivity failures,
vandalism and other malicious acts, and other events beyond our control,
including natural disasters. If the data center is damaged in any way, a
customer whose data is stored there may lose some or all data, despite routine
backup procedures. Our operations are dependent on our ability to protect our
computer system, and customer systems, applications and data against damages,
including, but not limited to those from computer viruses, fire, earthquake,
flood, power loss, connectivity failures, vandalism and other malicious acts,
and other events beyond our control, including natural disasters. Damage to our
computer system, or to the systems, applications, or data of our customers,
could delay or prevent delivery of our products and result in the loss of our
customers or in material liabilities. In addition, a failure of our
telecommunication providers to provide the data communications capacity in the
time frame required by us for any reason could cause interruptions in the
delivery of our products. Substantially all of our computer and communications
hardware is located at a single facility, and the loss of this hardware or the
data it contains would cause severe business interruptions. In the event that we
experience significant disruptions that affect our data center, we could lose
customers or fail to attract new customers, and our business, results of
operations and financial condition would be materially adversely affected.
We could experience breaches of security when transmitting data to or from
--------------------------------------------------------------------------
our customers, including the use of third-party vendor security technologies and
--------------------------------------------------------------------------------
methodologies.
--------------
Our business depends upon our ability to securely transmit confidential
information between our data center, third-party backup locations, and the
servers of our customers,
10
<PAGE>
including the use of third-party vendor security technologies and methodologies.
Despite our physical design and setup, and the implementation of a variety of
security measures, there exists the risk that certain unauthorized access,
computer viruses, accidental or intentional disturbances could occur. We may
need to devote substantial capital and personnel resources to protect against
the threat of unauthorized penetration of our delivery system or to remedy any
problems that such penetration might cause. The occurrence of any of these
events could cause us to lose customers, cause harm to our reputation, and
expose us to material liability, all of which could have a material adverse
effect on our financial condition and results of operations.
We depend on licensed software applications.
--------------------------------------------
We depend on contracts with third-party software manufacturers to allow
their software applications to be hosted or run at our data center and provided
to our customers. We have entered into non-exclusive agreements with third-party
companies, including, but not limited to, Microsoft and Citrix that allow us to
host some of their software applications at our data center or re-license their
software applications to our customers. Under most of these agreements, the
software manufacturer can terminate its relationship with us for any reason by
giving us as little as 30 days notice. In these instances, the software
manufacturer is not liable to us, or to our customers, for any damages resulting
from termination. If our relationships with these software manufacturers are
terminated, or if these or other software manufacturers do not allow our
customers to obtain a license to operate the software application on our data
centers, our business, operating results and financial condition could be
materially adversely affected.
The hardware and software we use is complex and may contain defects.
--------------------------------------------------------------------
Our service offerings depend on complex hardware and software that may
contain defects, particularly when initially introduced or when new versions are
released. Although we test internal and third party software applications prior
to deployment, we may not discover software defects that could affect our new or
current services or enhancements until deployed. These defects could cause
service interruptions or the loss of data, which could damage our reputation,
increase our operating costs, impair our ability to generate or collect revenue,
delay market acceptance or divert our management and technical resources. Any
software modifications we perform as part of our integration services could
cause problems in application delivery. Also, because we offer an open-source
software solution to our customers, they are likely to hold us accountable for
any problems associated with their software, even if the manufacturer caused the
problem or defect. Typically, software manufacturers disclaim liability for any
damages suffered as a result of software defects and provide only limited
warranties. As a result, we may have no recourse against the providers of
defective software applications.
We cannot predict the impact of recent actions and comments by the SEC.
------------------------------------------------------------------------
The Financial Accounting Standards Board ("FASB") has announced that it is
reviewing the current accounting rules associated with stock options. The FASB
is concerned that current
11
<PAGE>
practice, as outlined in Accounting Principles Board No. 25, does not accurately
reflect appropriate compensation expense under a variety of scenarios, including
the assumption of option plans from acquired companies. The changes proposed
could make it more difficult to attract and retain qualified personnel and could
unfavorably impact operating results
Gross margins on certain products or lines of business may decline over
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time.
-----
Gross margins may be adversely affected by increases in material or labor
costs, heightened price competition, changes in channels of distribution, or in
the mix of products sold. We have recently introduced several new products, and
we plan to release additional new products in the future. If warranty costs
associated with new products are greater than we have experienced historically,
gross margins may be adversely affected. Geographic mix, as well as the mix of
configurations within each product group may also impact our gross margins. We
continue to expand third party and indirect distribution channels, which
generally result in reduced gross margins. In addition, increasing third party
and indirect distribution channels generally results in greater difficulty in
forecasting the mix of our products, and to a certain degree, the timing of our
orders.
We also expect that our operating margins may decrease as we continue to
hire additional personnel and increase other operating expenses to support our
business. Because these expenses are relatively fixed in the short term, a
shortfall in revenue could lead to operating results that fall below
expectations.
We are involved in, and may become involved in, legal proceedings with
----------------------------------------------------------------------
former employees, consultants, and other third parties that, if determined
--------------------------------------------------------------------------
against us, could require us or one or more of our executives, to issue or
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transfer a significant amount of our shares of common stock and perhaps pay
---------------------------------------------------------------------------
damages. The issuance of a significant number of shares of our common stock,
----------------------------------------------------------------------------
especially if at a large discount to the then-current market price, will dilute
-------------------------------------------------------------------------------
our stockholders, and the payment of damages could materially adversely affect
------------------------------------------------------------------------------
our financial condition, results of operations, and therefore, our ability to
-----------------------------------------------------------------------------
achieve our business plan.
--------------------------
We are party to a lawsuit in which the plaintiff, who is the widow of a
former principal and shareholder of Insynq-WA, seeks the rescission of an
agreement pursuant to which our Chief Executive Officer purchased 2,500,000
shares from her, a decision from the court that the agreement is unenforceable,
and damages in an unspecified amount.
We are also in negotiations with our former President and Chief Operating
Officer regarding his demands for additional compensation under his employment
agreement. Certain of our Series A and Series B warrant holders have also
indicated that they might file suit against us if they do not receive
registration rights satisfactory to them.
In the past, we have negotiated with third parties and entered into
contracts, in the normal course of our business, with advisors, consultants and
others based on business plans and strategies that we may no longer be pursuing.
We believe that such negotiations were terminated and that those contracts are
no longer effective. However, it is possible that the other parties to those
negotiations and contracts could claim that we did not fulfill our obligations.
If a court found that we are obligated under any of those contracts,
arrangements or otherwise, we could be liable for an undeterminable amount of
compensation or stock or both.
12
<PAGE>
Our stockholders may suffer material dilution if a material number of
options are awarded. If any such litigation occurs, it is likely to be expensive
for us. If such suits are determined against us, and a court awards a material
amount of cash damages, our business, results of operations and financial
condition will be materially adversely affected. In addition, any such
litigation could divert management's attention and resources.
We plan to grow, in part, through mergers with and acquisitions of other
------------------------------------------------------------------------
companies. However, we may not be able to identify, acquire, and successfully
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integrate future acquisitions into our own operations, which could materially
-----------------------------------------------------------------------------
adversely affect our growth and our operating results.
-----------------------------------------------------
Our business strategy contemplates that we will seek a number of
significant acquisitions within the next few years. While we have initiated
discussions with at least one acquisition target, there is no assurance that we
will complete any such acquisition or, if we do complete acquisitions, whether
we will successfully integrate these acquisitions into our business. In
addition, there is no assurance that if we acquire any businesses, we will
achieve anticipated revenue and earnings. Our failure to acquire suitable
companies or to successfully integrate any acquired companies into our
operations could have a material adverse effect upon our business, operating
results, and financial condition.
Many of our installation, testing agreements, and consulting contracts have
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fixed prices, which expose us to cost overruns. If we are not able to control
------------------------------------------------------------------------------
cost overruns, our operating results could be materially adversely affected.
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We undertake certain projects on a fixed-price basis rather than billing on
a time-and-materials basis, or on a per employee or user basis. Projects with
cost overruns would cause our expenses to increase, and would materially
adversely affect our business, operating results, and financial condition.
Many companies use names similar in sound or spelling to "Insynq."
-----------------------------------------------------------------
Intellectual property infringement claims against us for the use of the name
----------------------------------------------------------------------------
"Insynq", or one similar in sound or spelling, even if without merit, could be
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expensive to defend and divert management's attention from our business. If a
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claim to stop us from using our name is successful, we will have to either buy
------------------------------------------------------------------------------
the right to use our name, which may be expensive, or change our name, which may
--------------------------------------------------------------------------------
also be expensive.
-----------------
We are aware that other companies have claimed use of names similar to
"Insynq" for products or services similar to our own. We are in the process of
investigating the rights, if any, others may have to the name. In addition, we
are attempting to register "Insynq" as a trademark in the United States, Europe,
and Canada. However, we may not be able to obtain proprietary rights to the use
of this name. We will incur expenses if called to defend our use of the "Insynq"
name. Any such litigation, even if without merit, may be time consuming and
expensive to defend. It also could divert management's attention and resources
and require us to enter into costly royalty or licensing agreements. In
addition, if any company in our industry is able to establish a use of the
"Insynq" name that is prior to our use, we could be liable for damages and could
be forced to stop using the name unless we are able to buy the right to use the
name. If we
13
<PAGE>
are unable to buy the right to use our name after we lose an infringement claim,
we would have to change our name, which may require us to spend money to build
new brand recognition and incur other costs. Third parties may assert other
infringement claims against us. Any of these events could have a material
adverse effect on our business, financial condition, and results of operations.
Others may seize the market opportunity we have identified because we may
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not efficiently execute our strategy.
------------------------------------
If we fail to execute our strategy in a timely or effective manner, our
competitors may be able to seize the marketing opportunities we have identified.
Our business strategy is complex and requires that we successfully and
simultaneously complete many tasks. In order to be successful, we will need to:
. Negotiate effective strategic alliances and develop economically
attractive service offerings;
. Attract and retain customers;
. Attract and retain highly skilled employees;
. Integrate acquired companies into our operations; and
. Evolve our business to gain advantages in an increasingly competitive
environment.
In addition, although some of our management team has worked together for
approximately one year, there can be no assurance that we will be able to
successfully execute all elements of our strategy.
Our industry is characterized by rapidly changing technology with
-----------------------------------------------------------------
continuous improvements in both computer hardware and software, and rapid
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obsolescence of current systems. If we do not respond effectively and on a
---------------------------------------------------------------------------
timely basis to rapid technological change in our industry, we will not be able
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to effectively sell our services and our sales will materially adversely
------------------------------------------------------------------------
decline.
-------
We must continually buy new computer hardware and license new computer
software systems to effectively compete in our industry. Our software delivery
methodologies must be able to support changes in the underlying software
applications that are delivered to our customers. The rapid development of new
technologies increases the risk that current or new competitors could develop
products or services that would reduce the competitiveness of our products or
services. We rely on software providers to produce software applications that
keep pace with our customers' demands.
There is no assurance that we will successfully develop or adopt new
technologies, introduce new services or enhance our existing services on a
timely basis, or that new technologies, new services or enhancements we use or
develop will achieve market acceptance. If we fail to address these
developments, we will lose sales to our competitors, and our business, operating
results and financial condition will be materially adversely affected.
14
<PAGE>
Although our current operations include operating as a technology-focused
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company, our previous business activities included gaming, natural resource
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mining, and exploration. As a result, we may be exposed to unknown
-------------------------------------------------------------------
environmental and other liabilities that could require us to expand our
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financial resources and materially adversely affect our financial condition.
---------------------------------------------------------------------------
The assets of a predecessor company were acquired by a publicly-traded
company that was engaged, prior to August 1999, in gaming, and prior to 1993, in
natural resource exploration and development, including mining, and oil and gas.
We no longer own any mining, oil and gas, or gaming-related assets. The mining,
mineral processing, and oil and gas industries are subject to extensive
governmental regulations for the protection of the environment, including
regulations relating to air and water quality, site reclamation, solid and
hazardous waste handling and disposal and the promotion of occupational safety.
We could be held responsible for any liabilities relating to our previous
involvement in gaming, mining or oil and gas exploration and development, which
liabilities would result in our spending our cash resources and could have a
material adverse effect on our business, financial condition and results of
operations.
Reliability Of Market Data
--------------------------
Market data used within this report was obtained from internal sources and
from industry publications. Such industry publications typically contain a
statement to the effect that the information contained therein was obtained from
sources considered to be reliable, but that the completeness and accuracy of
such information is not guaranteed. While we believe that the market data
presented herein is reliable, we have not independently verified such data.
Similarly, market data supplied by internal sources, which we believe to be
reliable has not been verified by independent sources.
Third Party Reports and Press Releases
--------------------------------------
We do not make financial forecasts or projections, nor do we endorse the
financial forecasts or projections of third parties or comment on the accuracy
of third party reports. We do not participate in the preparation of the reports
or the estimates given by analysts. Analysts who issue financial reports are not
privy to non-public financial information. Any purchase of our securities based
on financial estimates provided by analysts or third parties is done entirely at
the risk of the purchaser.
We periodically issue press releases to update stockholders on new
developments relating to Insynq and our business. These releases may contain
certain statements of a forward-looking nature relating to future events or our
future financial performance within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and which are intended to be covered by the safe harbors created
thereby.
Readers are cautioned that such statements are only predictions, and that
actual events or results may materially differ with those statements. In
evaluating such statements, readers should specifically review the various risk
factors described herein, among others we identify in documents we file with the
SEC, which could cause actual results to differ materially from those indicated
by such forward-looking statements.
Risks Related to Our Industry
The failure of the Internet to grow or remain a viable commercial medium
------------------------------------------------------------------------
could harm our growth.
----------------------
Our success depends in large part on the maintenance of the Internet
infrastructure as a reliable network backbone that provides adequate speed, data
capacity, and security. Our success also depends on the timely development of
products, such as high-speed modems, that enable reliable Internet access and
services. The Internet may continue to experience significant growth in the
number of users, frequency of use and amount of data transmitted. The Internet
infrastructure may not be able to support the demands placed on it and the
performance or reliability of the Internet may be adversely affected by this
continued growth. In addition, the Internet could lose its commercial viability
if the number of people who use the Internet does not continue to grow. A number
of factors, including unreliable service, unavailability of cost-effective,
high-speed access to the Internet or concerns about security, could impede this
growth. The infrastructure or complementary products and services necessary to
maintain the Internet, as a viable commercial medium may not be developed, and,
as a result, the Internet may not continue to be a viable commercial medium for
us.
15
<PAGE>
If the government adopts regulations that charge Internet access fees or
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impose taxes on subscriptions to our Web-based products, our operating expenses
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will increase.
-------------
Currently there are few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted that address issues such as pricing and the characteristics of products
and services. In addition, several connectivity companies have petitioned the
Federal Communications Commission to regulate Internet and on-line service
providers in a manner similar to long-distance telephone carriers and to impose
access fees on them. This regulation, if imposed, could increase the cost of
transmitting data over the Internet. Moreover, it may take years to determine
the extent to which existing laws relating to issues such as intellectual
property ownership and infringement, libel, obscenity and personal privacy are
applicable to the Internet. Finally, state tax laws and regulations relating to
the provision of products and services over the Internet are still developing. A
few states have tried to impose taxes on products and services provided over the
Internet. If additional states try to do so, our operating costs may increase
and we may not be able to increase the price that we charge for our products to
cover these costs. Any new laws or regulations or new interpretations of
existing laws and regulations relating to the Internet could decrease the growth
in the use of the Internet, decrease the demand for traffic on our Website,
increase our operating expenses, or otherwise adversely affect our business.
Our industry is rapidly changing.
---------------------------------
Our industry is characterized by rapidly changing technology with
continuous improvements in both computer hardware and software. If we do not
respond effectively and on a timely basis to rapid technological change in our
industry, we will not be able to effectively sell our services and our sales
will materially decline. We must continually purchase new computer hardware and
license new computer software systems to effectively compete in our industry. In
addition, our software delivery methodologies must be able to support changes in
the software applications that are delivered to our customers. The rapid
development of new technologies increases the risk that current or new
competitors could develop products or services that would reduce the
competitiveness of our products or services. And moreover, we rely on software
providers to produce software that keeps pace with our customers' demands.
We may not successfully develop or adopt new technologies, introduce new
services or enhance our existing services on a timely basis; in addition, new
technologies, services, or enhancements we use may never achieve market
acceptance. If we fail to address these developments, we will lose sales to our
competitors and our business, operating results, and financial condition will be
materially adversely affected.
Risks Related to our Common Stock
Anti-takeover actions and/or provisions could prevent or delay a change in
--------------------------------------------------------------------------
control.
--------
Provisions of our certificate of incorporation and bylaws and Delaware law
may make it more difficult for a third party to acquire us, even if so doing
would be beneficial to our stockholders. These include the following:
16
<PAGE>
. Our Board of Directors is authorized to issue of up to 10,000,000
shares of preferred stock and to fix the rights, preferences,
privileges and restrictions of those shares without any further vote
or action by the stockholders, which may be used by the Board to
create voting impediments or otherwise delay or prevent a change in
control or to modify the rights of holders of our common stock;
. Our Board of Directors is authorized to issue of up to 10,000,000
shares of Class A common stock pursuant to which the holders of such
stock are entitled to three (3) votes for each share held, on all
matters submitted to stockholders, which voting power may be used by
the holders of such stock to create voting impediments or otherwise
delay or prevent a change in control or to modify the rights of
holders of our common stock;
. A prohibition on cumulative voting in the election of directors, which
would otherwise allow less than a majority of stockholders to elect
directors;
. Our articles of incorporation provide that Section 203 of the Delaware
General Corporation Law, an anti-takeover law, will not apply to us.
In general, this statute prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years after the date of the
transaction by which that person became an interested stockholder,
unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a business combination includes a merger,
asset sale of other transaction resulting in a financial benefit to
the interested stockholder, and an interested stockholder is a person
who, together with affiliates and associated, owns, or within three
years prior, did own, 15% or more of our voting stock; and
. Limitations on who may call annual and special meetings of
stockholders.
Control by officers and directors could have an adverse effect on our
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stockholders.
-------------
As of October 2, 2000, our directors, executive officers, and their
affiliates beneficially owned approximately 62.2% of our outstanding common
stock. John P. Gorst, our Chairman of the Board, Chief Executive Officer and
President, beneficially owns approximately 40.7% of our outstanding common stock
and M. Carroll Benton, our Chief Administrative Officer, Secretary and Treasurer
beneficially owns approximately 25.3% of our outstanding common stock. As a
result, these stockholders, acting together, have the ability to control
substantially all matters submitted to our stockholders for approval, including
the election and removal of directors and any merger, consolidation, takeover or
other business combination involving us, and to control our management and
affairs. This may discourage a potential acquirer from making a tender offer or
otherwise attempting to obtain control of us, which could materially adversely
affect the market price of our common stock.
17
<PAGE>
The volatility of our stock price could adversely affect our stockholders.
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There currently is a public market for our common stock, but there is no
assurance that there will always be such a market. The trading price of our
common stock is highly volatile and could be subject to wide fluctuations in
response to factors such as:
. Actual or anticipated variations in quarterly operating results;
. Announcements of technological innovations;
. New sales methodologies, contracts, products or services by us or our
competitors;
. Changes in financial estimates by securities analysts;
. Announcements of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
. Additions or departures of key personnel;
. Sales of common stock; or
. Other general economic or stock market conditions, many of which are
beyond our control.
In addition, the stock market in general, and the market for Internet-
related and technology companies in particular, have experienced extreme price
and volume fluctuations that have often been unrelated or disproportionate to
the operating performance of such companies. The trading prices of many
technology companies' stock have, during the last year, been at or near
unprecendented levels. There can be no assurance that these trading prices and
price-to-earnings predictions will be repeated. These broad market and industry
factors may materially adversely affect the market price of our common stock,
regardless of our operating performance. Historically, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against that company. The
institution of similar litigation against us could result in substantial costs
and a diversion of management's attention and resources, which could have a
material adverse effect on our business, financial condition, and results of
operations.
You should not expect to receive dividends from us.
---------------------------------------------------
We currently do not anticipate paying any cash dividends on our common
stock in the foreseeable future and we intend to retain our earnings, if any, to
finance the expansion of our business and for general corporate purposes. Any
payment of future dividends will be at the discretion of our board of directors
and will depend upon, among other things, our earnings, financial condition,
capital requirements, level of indebtedness, contractual restrictions, and other
factors that our board of directors deems relevant.
18
<PAGE>
THE COMPANY
General
We are a Delaware corporation that was formerly known as Xcel Management,
Inc. We are a provider of Internet computer appliances, operating systems,
computer/ Internet related telephony requirements and services, access to web
services of all kinds, access to Internet marketing assistance and related
equipment and services. We offer these as an integrated whole. In other words,
we are an on-line provider of hardware and software in a hosted environment,
together with related support services, on a rental, fee or sales basis. We
target small and medium sized businesses and high-end home offices for the sale
of hosted hardware and software and access to related services. We provide these
products and services not in a retail setting, but by developing a customer
subscriber base that adopts a cost effective on-line solution to building and
maintaining an information technology system through the adoption of a "web-
based" computing as an alternative to both local area networks (LAN's) and
traditional client/server implementations. We attempt to concentrate on the
small and medium sized business and high-end home office user ("SOHO") and
market ourselves as an "Internet utility company" that can provide cost-
effectively all of the computer software, hardware, telecommunication and
Internet needs for those markets, on a subscription basis.
Corporate History
We became a public company effective as of February 18, 2000 when we
entered into an asset purchase agreement with Insynq, Inc. a closely-held
Washington company. As a result of that transaction, Xcel Management, Inc.
became fully-engaged in the business of Insynq. On August 3, 2000, Xcel
completed a reincorporation merger whereby it merged with and into its wholly-
owned subsidiary, Insynq, Inc., a Delaware company, thus changing its name to
"Insynq, Inc."
What We Provide
We are a provider of Internet computer appliances, operating systems,
computer/ Internet related telephony requirements and services, access to web
services of all kinds, access to Internet marketing assistance and related
equipment and services. It offers these as an integrated whole. In other
words, we are an on-line provider of hardware and software in a hosted
environment, together with related support services, on a rental, fee or sales
basis.
We target small and medium sized businesses and high-end home offices for
the sale of hosted hardware and software and access to related services. It
provides these products and services not in a retail setting, but by developing
a customer subscriber base that adopt a cost effective on-line solution to
building and to maintain an information technology system through the adoption
of a "web-based" computing as an alternative to both local area networks (LAN's)
and traditional client/server implementations. We attempt to concentrate on the
small and medium sized business and high-end home office user ("SOHO") and
markets itself as an "Internet utility company" that can provide cost-
effectively all of the computer software, hardware, telecommunication and
Internet needs for those markets, on a subscription basis.
The server-based computing model has already grown dramatically and has
shown an outcropping of competitors to Insynq, Inc. We currently have several
companies on line using our server-based computing services and have signed
contracts with a number of additional companies to come on board in the next few
months. In addition, we have letters of intent with several organizations.
We believe our competency is providing products and services related to the
Internet Utility Company paradigm. This entails IT outsourcing service,
including telecommunications, hardware, software and maintenance services for
small-to-medium companies and the high-end home office, also known by the term
SOHO market. We believe we have gained credibility in the industry with
strategic relationships such as Hewlett-Packard, Citrix Systems and Global
Crossings. These companies have chosen to partner with us in various capacities
that combines the hardware, software and telecommunications required to build a
successful delivery mechanism.
Our Proprietary IQ Delivery System
Our Internet Utility service and the IQ delivery system ("IQ Delivery
System") were originally developed by Interactive, a computer integration
company located in Tacoma, Washington. The IQ Delivery System was purchased by
Insynq-WA in September 1998, and was subsequently assumed by Xcel as part of the
Asset Purchase Agreement in February 2000. The complete IQ Delivery System
includes managed network and application services, and can span from a
customer's keyboard to the Insynq data center (the "Insynq Data Center").
Insynq's CPE includes a simplified, diskless workstation or "Thin Client," and
multi-function router, that we manage and maintain. The system can also include
Internet-access services provided by Global Crossing or another provider. The
final piece of the system is the Insynq Data Center, which is located at the
Tacoma Technology Center, and is managed by us. This facility, with redundant
power, bandwidth, and cooling, houses our HP server equipment and Cisco routers.
While we recommend that customers use the full IQ Delivery System, they are free
to choose which components they use.
In the process of developing the IQ Delivery System, we believe we acquired
valuable technological expertise. We have created new methodologies and produced
proprietary hardware and software that we believe is essential to the
configuration and effective management
19
<PAGE>
of Internet-based networks and outside deployment of shared software
applications. Some of our key employees are certified as Microsoft Systems
Engineers, Microsoft Certified Professionals, Certified Netware Administrators,
Certified Citrix Administrators, Certified Netware Engineers and Certified Cisco
Architects.
To support Microsoft Corporation's ("Microsoft") Windows-based
applications, the IQ Delivery System uses proprietary Citrix Systems, Inc.
("Citrix"), independent computer architecture ("ICA") protocol to increase end-
user performance and reduce a customer's total cost of owning and maintaining
computer hardware and software. Our technology requires a simple appliance at
the client site that allows us to manage all hosted application processing
functions. The centrally managed servers also house customers' data, provide
storage and backup, file and directory security, and anti-virus protection.
The IQ Delivery System receives and transmits information in the form of
images rather than data, requiring less bandwidth than traditional client-server
configurations. Customers may connect to the IQ Delivery System via a variety of
carriers and connectivity technologies, including public access over the
Internet or encryption, through private connections, or other available access
methods. Properly scaled and provisioned connections, whether public or private,
generally provide a quality end-user experience.
A Thin Client is a type of simplified, diskless workstation. Internet
browser-based Thin Client devices, also called Internet appliances ("Internet
Appliances"), allow a user to interact with Internet content using only a
monitor, keyboard, and a mouse. The Internet Appliance actually does very little
since its functions are limited to sending user instructions to an outsourced
provider. Using the IQ Delivery System, an Internet Appliance communicates the
user's data-entry and retrieval commands to servers located at the Insynq Data
Center, where all computing functions are performed. This is the user option
recommended by us. Internet Appliances do not have disk or tape drives, which
generally increases customer productivity by restricting users' ability to
install extraneous software applications, such as computer games, or tamper with
a computer's operating system. This access device imposes a singleness of
purpose upon the operation, and improves manageability, simplicity, and
reliability.
The traditional workstation, utilizing a central processing unit ("CPU")
and disk resources, constitutes the second type of customer configuration. These
customers may need to use fully equipped workstations for certain individual
seats that utilize non-Windows software applications or very specialized,
complex applications such as computer aided design ("CAD") programs. This is not
our recommended option because it does not free the customer from the technical
problems and service costs associated with maintaining this type of
configuration. Customers may choose to use existing workstations to connect to
the IQ Delivery System, and can be accomplished by using a Citrix ICA software
client and a standard network interface card ("NIC"). However, because this
machine uses an operating system that Insynq does not manage, the workstation
may be more susceptible to various failures.
20
<PAGE>
Once connected to the IQ Delivery System, users can acquire any of the
following computer services.
Virtual Office - We can establish a virtual office for a customer, allowing
professionals, employers, employees, clients, and customers to utilize a wide
variety of software applications and/or interact directly in a network
environment. This office is always open, irrespective of the time of day or the
user's location.
Office Suite - Customers may select from one of three (3) Office Suites as
part of the virtual desktop subscription. Customers may also select from a wide
variety of fully supported Windows-based software. We serve some vertical
virtual markets and in many cases incorporate specialized software for these
customers. We regularly test new applications and make them available to our
customers. If a customer wishes to use Windows-based software that is not
already offered for use with our service, we may test, and subsequently
configure, load, and maintain compatible applications for an additional monthly
fee.
Internet Connection - We may provide customers with connectivity to the
Internet at a discounted rate as part of our service.
Web Site Hosting - For an additional fee, we may put the customer's
Internet Web site on an Insynq server and host the site for them. Further, we
can assist the customer in performing Web site changes and updates.
Data Back-up and Storage - The IQ Delivery System provides daily automatic
backup of customer data on high-speed tape and logs the backups. Upon request, a
customer can receive their backup data and related backup logs. On average we
provide one (1) gigabyte of data storage with each business subscription. For
larger customers, we tailor storage requirements to the customers' needs and
price it accordingly.
Security - Our IQ Delivery System generally raises the level of a
customer's computer security in several ways. First, our servers are located in
biometrically secured rooms, with keycard access. Second, customers utilizing
Thin Client technology additionally prevent unauthorized disk installation and
installation of extraneous software, both of which can introduce computer
corruptions and viruses. Third, access to customer data is restricted through
the use of secured application servers located at the Insynq Data Center, which
is protected by firewall filters and Internet protocol ("IP") based networking
rules. Last, customer data is rarely transmitted; transmissions between the
customer's site and the servers located in the Insynq Data Center generally
occur in the form of indecipherable, encrypted images.
Redundancy - Our IQ Delivery System secures customer data on redundant disk
arrays with ready spare disk drives. We make a best effort to assure application
redundancy so that if one server fails, we can reroute customers to similar
servers, thereby minimizing customer downtime.
21
<PAGE>
USE OF PROCEEDS
The shares of common stock offered by this reoffer prospectus are being
registered for the account of the Selling Stockholders, and we will not receive
any proceeds from the sale of common stock by the Selling Stockholders.
SELLING STOCKHOLDERS
The common stock offered by this prospectus has been acquired by the
Selling Stockholders pursuant to a consulting agreement with MQ Holdings, Inc.,
which is attached as an exhibit to the registration statement of which this
prospectus is a part. The Selling Stockholders will receive all of the net
proceeds from the sale of their respective shares of common stock.
The following table sets forth information regarding shares of our common
stock beneficially owned by the Selling Stockholders as of October 2, 2000.
Since the Selling Stockholders may sell all, some or none of their shares, no
estimate can be made of the total number of shares that are to be offered by the
Selling Stockholders under this prospectus or that will be beneficially owned by
the Selling Stockholders upon the completion of the offering to which this
prospectus relates.
<TABLE>
<CAPTION>
Number of Shares of Maximum Number of
Common Stock Shares of Common Stock
Name Beneficially Owned Offered Hereby
---- ----------------------- ----------------------
<S> <C> <C>
MQ Holdings, Inc. 20,000 20,000
T.J. Jesky 20,000 20,000
</TABLE>
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Stockholders. As used herein, "Selling Stockholders" includes donees and
pledgees selling shares received from the named Selling Stockholders after the
date of this prospectus. All costs, expenses and fees in connection with the
registration of the Shares offered hereby will be borne by the Company.
Brokerage commissions and similar selling expenses, if any, attributable to the
sale of Shares will be borne by the Selling Stockholders. Sales of Shares may be
effected by the Selling Stockholders from time to time in one or more types of
transactions (which may include block transactions) in the over-the-counter
market, in negotiated transactions, through put or call options transactions
relating to the Shares, through short sales of Shares, or a combination of such
methods of sale, at market prices prevailing at the time of sale, or at
negotiated prices. Such transactions may or may not involve brokers or dealers.
The Selling Stockholders have advised the Company that they have not entered
into any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities, nor is there an
underwriter or coordinating broker acting in connection with the proposed sale
of Shares by the Selling Stockholders.
The Selling Stockholders may effect such transactions by selling Shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Stockholders and/or the
purchasers of Shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both (which compensation as to a particular broker-
dealer might be in excess of customary commissions).
The Selling Stockholders and any broker-dealers that act in connection
with the sale of Shares might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act, and any commissions received by such
broker-dealers and any profit on the resale of the Shares sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act. The Selling Stockholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving sales
of the Shares against certain liabilities, including liabilities arising under
the Securities Act.
22
<PAGE>
Because Selling Stockholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the Selling Stockholders
will be subject to the prospectus delivery requirements of the Securities Act.
The Selling Stockholders also may resell all or a portion of the Shares in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
it meets the criteria and conforms to the requirements of such Rule. Upon the
Company being notified by the Selling Stockholders that any material arrangement
has been entered into with a broker-dealer for the sale of Shares through a
block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, a supplement to this prospectus will be
filed, if required, pursuant to Rule 424(b) under the Act, disclosing (i) the
name of each such selling shareholder and of the participating broker-dealer(s),
(ii) the number of shares involved, (iii) the price at which such shares were
sold, (iv) the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not
conduct any investigation to verify the information set out or incorporated by
reference in this prospectus and (vi) other facts material to the transaction.
In addition, upon the company being notified by the Selling Stockholders that a
donee or pledgee intends to sell more than 500 shares, a supplement to this
prospectus will be filed.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation contains a provision eliminating the monetary
liability of a director for breach of fiduciary duty, subject to certain
exceptions. The provision does not eliminate a director's liability for (i)
breaches of the director's duty of loyalty to the Company or its shareholders,
(ii) acts or omissions not in good faith or involving intentional misconduct or
a knowing violation of law, (iii) the payment of unlawful dividends or unlawful
stock repurchases or redemptions, or (iv) any transaction from which the
director derived an improper personal benefit. Furthermore, the provision does
not limit equitable remedies, such as an injunction or rescission for breach of
a director's fiduciary duty of care.
The Delaware General Corporation Law permits, and in some cases
requires, a corporation to indemnify directors and officers who are or have been
a party or are threatened to be made a party to litigation against certain
expenses, judgments, fines, settlements, and other amounts under certain
circumstances.
Article IX of the Company's Bylaws provides for indemnification of and
advancement of expenses to directors, officers, employees, and agents to the
fullest extent authorized or permitted by the Delaware General Corporation Law.
The Company has in force an officers' and directors' liability
insurance policy insuring, up to specified amounts and with specified
exceptions, directors and officers and former directors and officers of the
Company and its subsidiaries against damages, judgments, settlements and costs
for which they are not indemnified by the Company that any such persons may
become legally obligated to pay on account of claims made against them for any
error, misstatement or misleading statement, act or omission, or neglect or
breach of duty committed, attempted or allegedly committed or attempted by such
persons in the discharge of their duties to the Company in their capacities as
directors or officers, or any matter claimed against them solely by reason of
their serving in such capacities.
We hereby undertake to insofar as indemnification for liabilities
arising under the Act may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, we have
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
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indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
EXPERTS
Our audited financial statements included in our Annual Report on Form
10-KSB for the year ended May 31, 2000 have been audited by G. Brad Beckstead,
CPA, the independent auditor, as indicated in the report included therein. Such
consolidated financial statements are incorporated herein by reference in
reliance upon the authority of G. Brad Beckstead, CPA as an expert in giving
said report.
LEGAL MATTERS
Particular legal matters, including the legality of the shares of common
stock offered hereby, will be passed upon by Locke Liddell & Sapp LLP, Dallas,
Texas.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement of which this prospectus forms a
part. The registration statement, including the attached exhibits and schedules,
contain additional relevant information about us. The rules and regulations of
the SEC allow us to omit some of the information included in the registration
statement from this prospectus. You may inspect or obtain a copy of the
registration statement, including the exhibits and schedules, as described
below.
In addition, we have filed reports and other information with the SEC under
the Securities Exchange Act of 1934. You may read and copy any of this
information at the following locations of the SEC:
<TABLE>
<CAPTION>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may obtain information on the operation of the SEC's Public Reference
Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet web site that contains reports, proxy
statements and other information regarding issuers, like ourselves, that file
electronically with the SEC. The address of that site is http://www.sec.gov. The
SEC file number for our documents filed under the Securities Exchange Act of
1934 is 000-22814.
Our web site address is http://www.insynq.com. Our common stock is quoted on the
over-the-counter bulletin board under the symbol "ISNQ."
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus and the information we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the following documents listed below and any
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<PAGE>
future filings made with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the date of this prospectus and
prior to the termination of this offering of shares of our common stock. The
documents we are incorporating by reference are:
(a) Our Annual Report on Form 10-KSB, including any amendments thereto,
for the fiscal year ended May 31, 2000;
(b) Our Quarterly Reports on Form 10-QSB, including any amendments
thereto, for the quarters ended August 31, 1999 November 30, 1999 and
February 29, 2000;
(c) Our Current Reports on Form 8-K, including any amendments thereto,
filed on March 3, 2000, April 6, 2000, June 29, 2000, August 17, 2000
and September 27, 2000; and
(d) The description of our capital stock contained in our registration
statement on Form S-1/A, including any amendments thereto, filed on
December 3, 1993.
You may request a copy of these filings at no cost by writing or
telephoning M. Carroll Benton at:
Insynq, Inc.
1101 Broadway Plaza
Tacoma, Washington 98402
Telephone Number: (253) 284-2000
25
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The documents set forth below are hereby incorporated by reference in
this Registration Statement. All documents subsequently filed by Insynq, Inc.
(the "Company") pursuant to Sections 13(a), 13(c), 14 and 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), prior to the
filing of a post-effective amendment which indicates that all securities offered
hereby have been sold or which deregisters the securities offered hereby then
remaining unsold, shall be deemed to be incorporated by reference in this
Registration Statement and to be a part hereof commencing on the respective
dates on which such documents are filed. Any statement contained in a document
incorporated or deemed to be incorporated by reference in this Registration
Statement shall be deemed to be modified or superseded for purposes of this
Registration Statement to the extent that a statement contained in this
Registration Statement or in any other subsequently filed document which also is
or is deemed to be incorporated by reference in this Registration Statement
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed to constitute a part of this Registration
Statement, except as such statement is so modified or superceded.
(1) The Company's Annual Report on Form 10-KSB for the fiscal year ended
May 31, 2000.
(2) The Company's Quarterly Reports on Form 10-QSB for the quarters ended
August 31, 1999, November 30, 1999 and February 29, 2000, as amended.
(3) The Company's Current Reports on Form 8-K dated March 3, 2000, April
6, 2000, June 29, 2000, August 17, 2000 and September 27, 2000, as
amended.
(4) All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since the end of the fiscal year covered by the Annual
Report referred to in (1) above.
(5) The description of the Company's Common Stock contained in the
Company's Form S-1/A Registration Statement dated December 3, 1993 and
filed with the Securities and Exchange Commission (the "Commission"),
including any amendments or reports filed for the purposes of updating
such description.
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation contains a provision eliminating the monetary
liability of a director for breach of fiduciary duty, subject to certain
exceptions. The provision does not eliminate a director's liability for (i)
breaches of the director's duty of loyalty to the Company or its shareholders,
(ii) acts or omissions not in good faith or involving intentional misconduct or
a knowing violation of law, (iii) the payment of unlawful dividends or unlawful
stock repurchases or redemptions, or (iv) any transaction from which the
director derived an improper personal benefit. Furthermore, the provision does
not limit equitable remedies, such as an injunction or rescission for breach of
a director's fiduciary duty of care.
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<PAGE>
The Delaware General Corporation Law permits, and in some cases requires, a
corporation to indemnify directors and officers who are or have been a party or
are threatened to be made a party to litigation against certain expenses,
judgments, fines, settlements, and other amounts under certain circumstances.
Article IX of the Company's Bylaws provides for indemnification of and
advancement of expenses to directors, officers, employees, and agents to the
fullest extent authorized or permitted by the Delaware General Corporation Law.
The Company has in force an officers' and directors' liability insurance
policy insuring, up to specified amounts and with specified exceptions,
directors and officers and former directors and officers of the Company and its
subsidiaries against damages, judgments, settlements and costs for which they
are not indemnified by the Company that any such persons may become legally
obligated to pay on account of claims made against them for any error,
misstatement or misleading statement, act or omission, or neglect or breach of
duty committed, attempted or allegedly committed or attempted by such persons in
the discharge of their duties to the Company in their capacities as directors or
officers, or any matter claimed against them solely by reason of their serving
in such capacities.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
All shares of common stock issued under the MQ Agreement were believed
issued pursuant to an exemption to registration provided under Section 4(2) of
the Act.
ITEM 8. EXHIBITS.
Exhibit No. Description
----------- -----------
5.1* Opinion of Locke Liddell & Sapp LLP.
23.1* Consent of G. Brad Beckstead CPA for Financial Statements for the
years ended May 31, 1999 and May 31, 2000.
23.2* Consent of Locke Liddell & Sapp LLP (included in opinion filed as
Exhibit 5.1).
24* Power of Attorney (included on the signature page of this
Registration Statement).
99.1* Consulting Agreement dated May 25, 2000 between Xcel Management,
Inc. and MQ Holdings, Inc.
______________
* Filed herewith.
ITEM 9. UNDERTAKINGS.
(a) The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
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<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished
to the Commission by the Company pursuant to Section 13 or Section 15(d) of
the Exchange Act that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Act, each
filing of the Company's annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John P. Gorst as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, to execute in the name and on behalf of such person, in any and
all capacities, any or all amendments (including post-effective amendments) to
this Registration Statement now or hereafter filed by or on behalf of Insynq,
Inc. (the "Company") covering securities issued or issuable under or in
connection with the MQ Agreeement (as now or hereafter amended) and to file the
same, with all exhibits thereto, and other documents required in connection
therewith, with the Securities and Exchange Commission and any state or other
securities authority, granting unto said attorneys-in-fact and agents, and each
of them or any of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, and each of them or any one of them, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Act, the Company certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing
on Form S-8 and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Tacoma,
State of Washington, on the 4 day of October, 2000.
INSYNQ, INC.
By: /s/ John P. Gorst
-----------------
John P. Gorst
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Act, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signature Title
--------- -----
/s/ John P. Gorst Chairman of the Board, Chief Executive Officer
----------------------- and Director
John P. Gorst
/s/ M. Carroll Benton Director, Secretary and Treasurer
-----------------------
M. Carroll Benton
/s/ David D. Selmon Director
-----------------------
David D. Selmon
/s/ Stephen C. Smith Chief Financial Officer
-----------------------
Stephen C. Smith
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