1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Period Ended November 30, 2002.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period from ______________________ to
_________________________.
Commission file number 0-22814
---------------
INSYNQ, INC.
---------------
(Exact name of registrant as specified in its charter)
NEVADA 74-2964608
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
1127 BROADWAY PLAZA, SUITE 202
TACOMA, WASHINGTON 98402
(Address of Principal Executive Office)(Zip Code)
TELEPHONE NUMBER (253) 284-2000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.001 Par Value 14,154,244 as of January 20, 2003
INSYNQ, INC.
INDEX
PAGE
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PART I FINANCIAL INFORMATION 3
Item 1. Condensed Financial Statements of Insynq, Inc. 3
Condensed Balance Sheets - November 30, 2002 (unaudited) and
May 31, 2002 3
Condensed Statements of Operations - Three and six months 4
ended November 30, 2002 and 2001 (unaudited)
Condensed Statement of Stockholders' Deficit - Six months 5
ended November 30, 2002 (unaudited)
Condensed Statements of Cash Flows - Six months 6
ended November 30, 2002 and 2001 (unaudited)
Notes to the Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II OTHER INFORMATION 22
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 24
PART I - FINANCIAL INFORMATION
ITEM I CONDENSED FINANCIAL STATEMENTS
Insynq, Inc.
Condensed Balance Sheets
November 30, 2002 May 31, 2002
----------------- ------------
ASSETS (unaudited)
Current assets
Cash .................................................... $ 34,523 $ 9,760
Restricted cash ......................................... -- 10,355
Accounts receivable, net of allowance for doubtful
accounts of $25,000 at November 30, 2002 and
May 31, 2002, respectively .......................... 44,673 21,964
Related party receivables ............................... 88,221 68,601
Prepaid expenses ........................................ 228,849 238,715
------------ ------------
Total current assets .................... 396,266 349,395
------------ ------------
Equipment, net .............................................. 352,770 485,617
------------ ------------
Other assets
Interest and other receivables - related party .......... 9,953 3,604
Intangible assets, net .................................. 13,585 26,585
Deposits ................................................ 7,595 6,345
------------ ------------
Total other assets ............................... 31,133 36,534
------------ ------------
Total assets ..................................... $ 780,169 $ 871,546
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Notes payable ........................................... $ 21,175 $ 19,833
Related party notes payable ............................. 1,307,274 1,315,429
Accounts payable ........................................ 841,147 983,516
Accrued liabilities ..................................... 1,993,545 1,845,099
Convertible debentures, net of discount of $325,645
and $458,971, respectively ........................... 1,498,305 969,479
Customer deposits ....................................... 42,724 33,070
Deferred compensation ................................... 82,042 61,043
Capital lease obligations ............................... 877,213 818,840
------------ ------------
Total current liabilities ........................ 6,663,425 6,046,309
------------ ------------
Commitments and contingencies ............................... -- --
Stockholders' deficit
Preferred stock, $0.001 par value, 10,000,000 shares
authorized, 1,331,411 issued and outstanding ......... 1,331 --
Class A common stock, $0.001 par value, 10,000,000 shares
authorized, 50,000 issued and outstanding at May 31,
2002 and no shares outstanding at November 30, 2002 .. -- 50
Common stock, $0.001 par value, 250,000,000 shares
authorized, 715,275 issued, and 590,134 outstanding as
of November 30, 2002; 594,570 shares issued and
outstanding as of May 31, 2002 ....................... 590 595
Additional paid-in capital .............................. 18,098,544 17,654,731
Notes receivable from officers .......................... (90,000) (90,000)
Unearned compensation and services ...................... (46,217) (143,149)
Accumulated deficit ..................................... (23,847,504) (22,596,990)
------------ ------------
Total stockholders' deficit ...................... (5,883,256) (5,174,763)
------------ ------------
Total liabilities and stockholders' deficit ...... $ 780,169 $ 871,546
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
Insynq, Inc.
Condensed Statements of Operations
(unaudited)
Three months ended Six months ended
November 30, November 30,
------------------------------ ------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues .......................... $ 251,942 $ 227,729 $ 486,104 $ 422,294
----------- ----------- ----------- -----------
Costs and expenses
Direct cost of services ........ 187,654 338,534 379,310 658,401
Selling, general and
administrative
Non-cash compensation ......... 121,201 261,974 252,562 778,642
Other ......................... 286,332 538,409 612,065 1,264,407
Network and infrastructure costs -- 3,458 1,802 32,785
Research and development ....... -- 36,250 -- 95,231
----------- ----------- ----------- -----------
595,187 1,178,625 1,245,739 2,829,466
----------- ----------- ----------- -----------
Loss from operations .............. (343,245) (950,896) (759,635) (2,407,172)
----------- ----------- ----------- -----------
Other income (expense)
Other income .................... 7,742 2,247 11,113 3,024
Forgiveness and settlements of
debts ............................. 404,265 77,610 404,266 113,610
Gain (loss) from disposal of
assets ............................ (26,267) 1,285 (32,739) (45,612)
Interest expense
Non-cash ...................... (409,213) (243,416) (827,210) (347,394)
Other ......................... (19,424) (94,168) (46,309) (180,632)
----------- ----------- ----------- -----------
Total other income (expense) .... (42,897) (256,442) (490,879) (457,004)
----------- ----------- ----------- -----------
Net loss .......................... $ (386,142) $(1,207,338) $(1,250,514) $(2,864,176)
=========== =========== =========== ===========
Net loss per share, basic and
diluted ......................... $ (0.62) $ (3.09) $ (1.98) $ (7.67)
=========== =========== =========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
Insynq, Inc.
Condensed Statement of Stockholders' Deficit
(unaudited)
Six Months Ended November 30, 2002
Preferred Stock Class A Common Common Stock
Stock
Shares Amount Shares Amount Shares Amount
---------------------------------------------------------------------
Balance, May 31, 2002 ............... -- $ -- 50,000 $ 50 594,570 $ 595
--------- ---------- ------ ------ ------- -----
Issuance of common stock in
conjunction with exercise of options -- -- -- -- 10,705 11
Issuance of common stock in
conjunction with exercise of warrants -- -- -- -- 2,500 2
Issuance of common stock for
consulting and marketing services ... 80,000 80 -- -- 9,000 9
Issuance of common stock for employee
compensation ........................ -- -- -- -- 12,500 12
Issuance of common stock in
conjunction with conversion of
debentures .......................... -- -- -- -- 36,000 36
Issuance of common stock in
conjunction with the conversion of
class A common stock ................ -- -- (50,000) (50) 50,000 50
Issuance of convertible preferred in
conjunction with exchange of common
stock ............................... 1,251,410 1,251 -- -- (125,141) (125)
Amortization of unearned compensation -- -- -- -- -- --
Allocation of discount on convertible
debentures .......................... -- -- -- -- -- --
Issuance of stock options to non
employees ........................... -- -- -- -- -- --
Net loss, six months ended November
30, 2002 ............................ -- -- -- -- -- --
--------- ---------- ------- --- ------- -----
Balance, November 30, 2002 .......... 1,331,410 $ 1,331 -- $ -- 590,134 $ 590
========= ========== ======= === ======= =====
(Continued from table above, first column repeated)
Additional Notes Unearned Accumulated Total
Paid-In Receivable Compensation Deficit Stockholders'
Capital From Deficit
Officers
------------------------------------------------------------------------------
Balance, May 31, 2002 ............... $ 17,654,731 $ (90,000) $ (143,149) $(22,596,990) $ (5,174,763)
------------ ------------ ------------ ------------ ------------
Issuance of common stock in
conjunction with exercise of options 3,329 -- -- -- 3,340
Issuance of common stock in
conjunction with exercise of warrants (2) -- -- -- --
Issuance of common stock for
consulting and marketing services ... 2,961 -- -- -- 3,050
Issuance of common stock for employee
compensation ........................ 3,737 -- -- -- 3,749
Issuance of common stock in
conjunction with conversion of
debentures .......................... 4,464 -- -- -- 4,500
Issuance of common stock in
conjunction with the conversion of
class A common stock ................ -- -- -- -- --
Issuance of convertible preferred in
conjunction with exchange of common
stock ............................... (1,126) -- -- -- --
Amortization of unearned compensation -- -- 96,932 -- 96,932
Allocation of discount on convertible
debentures .......................... 400,000 -- -- -- 400,000
Issuance of stock options to non
employees ........................... 30,450 -- -- -- 30,450
Net loss, six months ended November
30, 2002 ............................ -- -- -- (1,250,514 (1,250,514)
------------ ------------ ------------ ------------ ------------
Balance, November 30, 2002 .......... $ 18,098,544 $ (90,000) $ (46,217) $(23,847,504) $ (5,883,256)
============ ============ ============ ============ ============
The accompanying notes are an integral part of this condensed financial
statement.
Insynq, Inc.
Condensed Statements of Cash Flows
(unaudited)
Six Months Ended November 30,
-------------------------------------------
2002 2001
---- ----
Cash flows from operating activities
Net loss ..................................................... $(1,250,514) $(2,864,176)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ............................ 113,108 122,697
Loss on disposal of assets ............................... 32,739 121,648
Gain on forgiveness and settlement of debts .............. (403,833) (113,610)
Issuance of common stock for services .................... 10,139 96,381
Issuance of options and warrants for services ............ 30,450 --
Amortization off unearned compensation ................... 96,932 569,277
Discount on capital lease ................................ 15,734 15,733
Warrants and beneficial conversion features of debentures 533,326 439,462
Capitalized interest on leased assets and notes receivable 42,776 43,245
Changes in assets and liabilities:
Accounts receivable - trade .......................... (22,835) (18,253)
Related party receivables ............................ (19,620) 34,686
Prepaid expenses ..................................... 9,866 10,792
Accounts payable ..................................... 119,459 190,951
Accrued liabilities .................................. 250,951 183,864
Customer deposits .................................... 9,654 (10,712)
Deferred compensation ................................ 60,500 11,188
----------- -----------
Net cash used in operating activities ............. (371,168) (1,166,827)
----------- -----------
Cash flows from financing activities
Proceeds on notes payable .................................... 4,887 1,900
Proceeds from related party notes payable .................... 1,684 80,056
Payments on notes payable .................................... (13,872) (24,574)
Proceeds from issuance of common stock and exercise of options
and warrants ............................................. -- 35,526
Proceeds from convertible debentures ......................... 400,000 1,200,000
Payments on capital lease obligations ........................ (5,873) (11,270)
Proceeds from restricted cash released from escrow ........... 10,355 --
Deposits ..................................................... (1,250) (6,345)
----------- -----------
Net cash provided by financing activities ......... 395,931 1,275,293
----------- -----------
Net increase in cash ............................................. 24,763 108,466
Cash at beginning of period ...................................... 9,760 26,900
----------- -----------
Cash at end of period ............................................ $ 34,523 $ 135,366
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
Insynq, Inc.
Notes to Condensed Financial Statements
November 30, 2002
(unaudited)
Note 1 - Business and Significant Accounting Policies
Business
- --------
Insynq, Inc. (the Company) is a Nevada corporation headquartered in Tacoma,
Washington. The Company is an application hosting and managed software service
provider that provides server-based computing access and services to customers
who decide to augment all or part of their information technology requirements.
Customers pay a monthly fee for their services and connect to Company's server
farm primarily through either the Internet, wireless or DSL connection.
On July 25, 2002, the Board of Directors approved the Company to a
re-incorporation merger with its wholly owned subsidiary, Insynq, Inc., a Nevada
corporation, and to effectuate a 100:1 common stock exchange of the Company's
currently issued and outstanding shares of common stock. December 23, 2002, the
effective date of the re-incorporation, resulted in the exchange of 59,013,393
common shares of the terminating entity for 590,134 common shares of the
surviving entity, Insynq, Inc. (Nevada).
All shares and per share amounts have been retroactively restated to reflect
this transaction.
Fair Value of financial Instruments
- -----------------------------------
Financial instruments, consists principally of cash, accounts and related party
receivables, trade and related party payables, accrued liabilities, short and
long-term obligations. The carrying amounts of such financial instruments in the
accompanying balance sheet approximate their fair values. It is management's
opinion that the Company is not exposed to significant currency or credit risks
arising from these financial instruments
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
- -----------------------------
In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS
145 rescinds the provisions of SFAS No. 4 that requires companies to classify
certain gains and losses from debt extinguishments as extraordinary items,
eliminates the provisions of SFAS No. 44 regarding transition to the Motor
Carrier Act of 1980 and amends the provisions of SFAS No. 13 to require that
certain lease modifications be treated as sale leaseback transactions. The
provisions of SFAS 145 related to classification of debt extinguishments are
effective for fiscal years beginning after May 15, 2002. Earlier application is
encouraged. The Company does not believe the adoption of this standard will have
a material impact the financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Restructuring
Costs." SFAS 146 applies to costs associated with an exit activity (including
restructuring) or with a disposal of long-lived assets. Those activities can
include eliminating or reducing product lines, terminating employees and
contracts and relocating plant facilities or personnel. Under SFAS 146, the
Company will record a liability for a cost associated with an exit or disposal
activity when that liability is incurred and can be measured at fair value. SFAS
146 will require the Company to disclose information about its exit and disposal
activities, the related costs, and changes in those costs in the notes to the
interim and annual financial statements that include the period in which an exit
activity is initiated and in any subsequent period until the activity is
completed. SFAS 146 is effective prospectively for exit or disposal activities
initiated after December 31, 2002, with earlier adoption encouraged. Under SFAS
146, a company cannot restate its previously issued financial statements and the
new statement grandfathers the accounting for liabilities that a company had
previously recorded under Emerging Issues Task Force Issue 94-3. The Company
does not believe the adoption of this standard will have a material impact the
financial statements.
In October 2002, the FASB issued Statement No. 147 ("SFAS 147), "Acquisitions of
Certain Financial Institutions." SFAS 147 addresses financial accounting and
reporting for the acquisition f all or part of a financial institution, except
for a transaction between two or more mutual enterprises. SFAS 147 also provides
guidance on the accounting for the impairment or disposal of acquired long-term
customer-relationship intangible assets of financial institutions, including
those acquired in transactions between two or more mutual enterprises. The
provisions of the statement will be effective for acquisitions on or after
October 1, 2002.
In December 2002, the Financial Accounting Standards Board Issued Statement No.
148, "Accounting for Stock-Based Compensation-Transition and Disclosure-an
amendment of FASB Statement No. 123", ("SFAS 148"). SFAS 148 amends FASB
Statement No. 123, "Accounting for Stock Based Compensation" ("SFAS 123") and
provides alternative methods for accounting for a change by registrants to the
fair value method of accounting for stock-based compensation. Additionally, SFAS
148 amends the disclosure requirements of SFAS 123 to require disclosure in the
significant accounting policy footnote of both annual and interim financial
statements of the method of accounting for stock-based compensation and the
related pro-forma disclosures when the intrinsic value method continues to be
used. The statement is effective for fiscal years beginning after December 15,
2002, and disclosures are effective for the first fiscal quarter beginning after
December 15, 2002.
Interim Condensed Financial Statements
- --------------------------------------
The condensed financial statements as of November 30, 2002 and for the three
months and six months ended November 30, 2002 and 2001 are unaudited. In the
opinion of management, such condensed financial statements include all
adjustments (consisting only of normal recurring accruals) necessary for the
fair presentation of the financial position and the results of operations. The
results of operations for the three and six months ended November 30, 2002 and
2001 are not necessarily indicative of the results to be expected for the full
year. The condensed balance sheet information as of May 31, 2002 was derived
from the audited financial statements included in the Company's annual report
Form 10-KSB. The interim condensed financial statements should be read in
conjunction with that report.
Note 2 - Going Concern and Management Plans
The Company's financial statements for the three and six months ended November
30, 2002 have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and commitments in the
normal course of business. For the six months ended November 30, 2002, the
Company had a net loss of $1,250,514 and a negative cash flow from operations of
$371,168. The Company had a working capital deficit of $6,267,159 and a
stockholders' deficit of $5,883,256 at November 30, 2002. The Company's working
capital deficit as of November 30, 2002 may not enable it to meet certain
financial objectives as presently structured.
As of November 30, 2002, the Company is in default on its capitalized lease
obligations, six related party notes payable and four convertible debentures.
The assets of an underlying computer equipment lease are critical to the
Company's operations. The Company has initiated contact to restructure the most
significant lease obligation, and, due to the current economic climate and
current market for the equipment, the Company anticipates that it can
successfully restructure this obligation. As a contingency plan for the backup
of this equipment, the Company entered into another equipment lease agreement in
August 2001 for similar equipment to support its customer base. The Company is
past due on six related party notes payable with principal totaling
approximately $1,307,300, and four convertible debentures with a face value of
$1,123,950. Total accrued interest related to these obligations is approximately
$423,100 at November 30, 2002. In addition, the Company has a letter of intent
from one related party to convert approximately $1,300,000 of principle and
accrued interest into preferred stock.
The development and marketing of the Company's technology and products will
continue to require a commitment of substantial funds. Currently, pursuant to
Item 303(b)(1) and (3) of Regulation SB, the Company has no material capital
commitments. However, should the Company be forced to seek other equipment in
the open market, based on its inability to restructure its capital lease
obligation, the Company would attempt to raise the necessary finances. These
amounts, however, are currently not quantifiable, and there is no assurance that
the Company will be successful in obtaining additional financing.
The Company has retained legal counsel for representation in current
negotiations with the Internal Revenue Service (IRS) regarding an Offer In
Compromise and eventually structuring a payment plan for past due taxes. The IRS
has required the Company to meet certain conditions in order to proceed with the
offer and negotiations, one of which is to be current on all payroll tax
deposits and reporting. If the Company is unsuccessful in its offer, the IRS
could seize and sell some, if not all, the assets of the Company or the Company
will be forced to file for bankruptcy.
The condensed financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
The Company is devoting its efforts into establishing a business in the new
emerging Managed Services Provider industry. The Company is establishing
alliances with Independent Software Vendors and Internet Service Providers to
provide access to their applications for their customers and building new
channels for marketing products to potential customers. As a result of these new
alliances and products, the Company believes it will be able to provide
additional and enhanced services to customers. The Company is continuing to
develop new products to enable the deployment of and on going management of the
Company services.
The Company successfully implemented cost containment strategies and continues
to devote significant efforts in the development of new products and opening new
markets. Also, the Company continues to contact vendors with past due account
balances with the intention of settling the balance due for cash at either less
than face or structure a long-term payment plan. To date, Company negotiations
to settle creditors' debts have been very favorable and well received.
However, the rate at which the Company expends its resources is variable, may be
accelerated, and will depend on many factors. The Company will need to raise
substantial additional capital to fund its operations and may seek such
additional funding through public or private equity or debt financing. There can
be no assurance that such additional funding, if any, will be available on
acceptable terms. The Company's continued existence as a going concern is
ultimately dependent upon its ability to secure additional funding for
completing and marketing its technology and products, and, therefore, the
success of its future operations.
Note 3 - Loss Per Common Share
Basic loss per share is computed by dividing the net loss by the weighted
average number of common shares outstanding available to common stockholders
during the period. The weighted average number of common shares outstanding for
basic and diluted loss per share was 627,274 and 390,288 for the three months
ended November 30, 2002 and 2001, respectively, and, 632,058 and 373,368 for six
months ended November 30, 2002 and 2001, respectively. Common stock equivalents
have been excluded from the computation of diluted loss per share for the
periods presented, as their effect would be anti-dilutive.
Note 4 - Notes Receivables - Officers
In January 2002, the Company entered into two promissory notes totaling $90,000
with two of its officers in conjunction with the exercising of non qualified
Class A Common Stock options. Each note bears interest at 12% per annum, payable
on or before June 2003 and is secured with shares of Series A Convertible
Preferred Stock and common stock. As of November 30, 2002 total accrued interest
is approximately $9,400.
Note 5 - Notes Payable
The Company has the following notes payable:
November 30, May 31,
2002 2002
----------------- -----------------
Note payable to bank, $15,000 revolving line of $ 13,156 $ 13,277
credit, bearing interest at prime plus 6.0% and is
unsecured. Prime rate of interest at November 30,
2002 is 4.25%
Note payable to corporation owned by corporate
officer. Past due, originally due on October 23,
2002, bearing interest at 10% and is unsecured. 2,000 --
Two notes payable to vendors. Both notes are past
due. One note is due on demand; the other note is
serviced at $25 per month. Interest ranges from 18%
to 21%, and both are unsecured 6,019 6,556
----------- -----------
$ 21,175 $ 19,833
=========== ===========
Note 6 - Related Party Notes Payable
The Company has short-term promissory notes with stockholders, a corporate
officer, and a prior employee. All related party notes, plus accrued interest,
are generally due within one year of issuance or on demand and consist of the
following at:
November 30, 2002 May 31, 2002
----------------- ------------
Note payable to stockholder, past due, originally $ 1,162,000 $ 1,162,000
due November 2, 2001, plus accrued interest; bearing
interest at 10% and is unsecured. The Company has
received a letter of intent to convert the principle
and accrued interest, totaling approximately
$1,300,000, into preferred stock
Various notes payable to related parties, past due,
with various due dates ranging through April 20, 2002;
bearing default interest ranging from 18% to
21%, and are unsecured 145,274 153,429
------------- -----------
$ 1,307,274 $ 1,315,429
============== ===========
Note 7- Accrued Liabilities
Accrued liabilities consist of the following as of:
November 30, 2002 May 31,
2002 2002
----------------- -------
Salaries and benefits ........ $ 214,874 $ 290,759
Taxes
Payroll ................. 461,772 515,182
Business ................ 64,428 109,683
Penalties and interest .. 263,374 233,296
Interest ..................... 473,050 272,506
Licenses, consulting and other 516,047 423,673
---------- ----------
$1,993,545 $1,845,099
========== ==========
As of November 30, the Company was delinquent on approximately $778,800 of its
payroll and business taxes and related penalties and interest. The majority of
the past due amount, or approximately $684,500, is for payroll taxes, penalties
and interest due to the Internal Revenue Service (IRS). In April 2002, the IRS
filed a Federal Tax Lien on the assets of the Company for all past due
employment taxes, penalties and accrued interest. The Company has submitted an
OFFER IN COMPROMISE (OIC) to the Internal Revenue Service seeking relief on a
portion of its overall obligation and structure a payment plan on the settled
amount of taxes due. The OIC is subject to the Company remaining current on all
current and future payroll tax deposits and reporting. Unless the Company and
the IRS agree to a mutually agreeable workout, the IRS could take possession of
the Company's assets or the Company will be forced to file for bankruptcy.
The Company has consummated workout arrangements with four state taxing agencies
for past due taxes. As of November 30, 2002, the Company owes approximately
$29,300 pursuant to these workout agreements. Terms of these workouts require
monthly payments ranging from $290 to $1,500, to include varying rates of
interest, over periods ranging from ten to twenty-four months. Three of the
above state taxing agencies filed either a warrant or a lien with local county
authorities to protect its position during their respective workout periods.
Additionally, two liens have been filed by two other states for past due taxes,
plus accrued penalties and interest. One lien, for approximately $28,000, is to
a state for prior year's income taxes assessed to the predecessor company of
Insynq, Inc. This amount has been disputed and amended returns to correct this
deficiency have been filed, but not yet approved. The second lien is to another
state for payroll taxes, penalties and interest totaling approximately $30,100.
The Company has submitted a proposal for a workout settlement on this state's
payroll taxes but has not yet received either acceptance or rejection of its
offer.
Note 8 - Convertible Debentures
On June 29, 2001, the Company entered into a private financing transaction with
three investors for a total of $1,200,000, 12% convertible debentures. The
debentures are convertible into shares of common stock at the lesser of (i)
$18.00 or (ii) the average of the lowest three trading prices in the twenty-day
trading period immediately preceding the notice to convert, discounted by fifty
percent (50%). The convertible debentures carry attached warrants that allow the
investor, under the terms of the warrants, to purchase up to 24,000 shares of
common stock at $4.00 per share. The terms of the debentures provide for full
payment on or before one year from the date of issuance, plus accrued interest
at 12% per annum. Pursuant to the agreement, the Company may not, without
consent, (i) engage in any future equity financing involving the issuance of
common stock for a period of six months from the date of closing, and (ii) may
not engage in such transactions for a period of two years without first giving
the investors the opportunity to purchase shares on a pro-rata basis. As of
November 30, 2002 four separate issuances of convertible debentures with
principal totaling $1,123,950 plus accrued interest of approximately $148,000
matured. These obligations were to be converted into cash and/or common stock on
or before the conversion (maturity) date. These four financial instruments are
in default and are subject to default interest at fifteen percent (15%) per
annum.
On January 24, 2002, the Company entered into a second agreement to issue
$550,000, 12% convertible debentures, and 22,000 warrants. The debentures are
convertible into shares of common stock at the lesser of (i) $0.80 or (ii) the
average of the lowest three trading prices in the twenty-day trading period
immediately preceding the notice to convert, discounted by 50%. The convertible
debentures carry attached warrants that allow the investor, under the terms of
the warrants, to purchase up to 22,000 shares of common stock at the lesser of
$0.70 per share or the average of the lowest three trading prices during the
twenty trading days immediately prior to exercise. Terms of the debentures
provide for full payment on or before one year from the date of issuance, plus
accrued interest at 12% per annum. Pursuant to the agreement, the Company may
not, without consent, (i) engage in any future equity financing involving the
issuance of common stock for a period of six months from the date of closing,
and (ii) may not engage in such transactions for a period of two years without
first giving the investors the opportunity to purchase shares on a pro-rata
basis. In July 2002 the Company received $250,000 of debentures from this
agreement and issued 10,000 warrants. The Company also recorded discounts of
$250,000, equal to the fair value of the convertible debentures and warrants as
determined using the Black Scholes pricing model and the intrinsic value of the
beneficial conversion features. As of November 30, 2002, the Company has
received $550,000 from the issuance of these secured convertible debentures.
However, $300,000 of this convertible debenture matures on January 24, 2003. The
Company does not anticipate it will be able to pay off this obligation plus the
accrued interest pursuant to the terms of this agreement. The Company
anticipates negotiations with the investors about amending the terms of the
agreement.
On September 27, 2002, the Company entered into a third agreement to issue
$450,000, 12% convertible debentures, and 9,000 warrants. The debentures are
convertible into shares of common stock at the lesser of (i) $3.00 or (ii) the
average of the lowest three trading prices in the twenty-day trading period
immediately preceding the notice to convert, discounted by 50%. The convertible
debentures carry attached warrants that allow the investor, under the terms of
the warrants, to purchase up to 9,000 shares of common stock at $1.00 per share
for an exercise period up to five years from the date of issuance. Terms of the
debentures provide for full payment on or before one year from the date of
issuance, plus accrued interest at 12% per annum. Pursuant to the agreement, the
Company may not, without consent, (i) engage in any future equity financing
involving the issuance of common stock for a period of six months from the date
of closing, and (ii) may not engage in such transactions for a period of two
years without first giving the investors the opportunity to purchase shares on a
pro-rata basis. On September 30 and November 6, 2002 the Company received
$120,000 and $30,000, respectively, of debentures from this agreement and issued
a total of 3,000 warrants. On December 6, 2002, the Company received an
additional $30,000 from this convertible debenture. The Company also recorded
discounts totaling of $150,000, equal to the fair value of the convertible
debentures and warrants as determined using the Black Scholes pricing model and
the intrinsic value of the beneficial conversion features.
As of November 30, 2002, investors have purchased a total of $1,900,000 of
convertible debentures, and have converted $76,050 of debentures and $27,993 of
accrued interest into 193,232 shares of common stock.
For the six months ended November 30, 2002, the Company recognized $533,326 of
interest expense on the discounts of the convertible debentures. The unamortized
discount at November 30, 2002 is $325,645.
Note 9 - Capital Lease Obligation
As of November 30, 2002, the Company was in default on four capital lease
obligations. Accordingly, the leases have been classified as a current
obligation. One lease was paid off in December 2002. (Also see Note 2)
Note 10 - Preferred Stock
On July 25, 2002, the Board of Directors authorized the issuance of a series of
preferred stock designated Series A Convertible Preferred in the amount
2,100,000 shares with a par value of $0.001, which designation was filed and
became effective in October 2002. Each share is entitled to vote 50 times the
number of common stock, and, is convertible upon the merger, initially, at the
rate of 10 shares of common stock for each full share of convertible preferred
stock. On October 16 ,2002, Directors, Officers, employees and one investor
executed Exchange Agreements under which they exchanged 10 shares of common
stock for 1 share of Series A Convertible Preferred Stock. A total of 12,514,110
shares of common stock were exchanged for 1,251,410 shares of preferred stock.
Under the Plan of Merger, effective December 23, 2002, all the preferred shares
were converted into 12,514,110 shares of common stock of the Nevada corporation.
Note 11 - Stock Options
On March 31, 2000, the Company's Board of Directors adopted two long-term
incentive plans (Plans), the 2000 Long Term Incentive Plan (LTIP) and the 2000
Executive Long Term Incentive Plan (Executive LTIP). As of November 30, 2002 the
LTIP had 111,875 options available for issuance and outstanding option granted
totaled 125,355. As of November 30, 2002 the Executive LTIP had 4,000 shares of
Class A Common Stock available for issuance and had no outstanding options.
On July 25, 2002, the Board of Directors adopted a third incentive plan, the
2002 Directors, Officers and Consultants Stock Option, Stock Warrant and Stock
Award Plan (2002 SP). The 2002 SP provides for the issuance of incentive and
non-qualified deferred stock incentives to certain executives, directors and key
employees of the Company who contribute significantly to the long-term
performance and growth of the Company. The Company may make awards in form of
options, warrants, restricted common or convertible preferred or unrestricted
common or convertible preferred and other awards, or any combination thereof.
The Company has set aside 16,000,000 shares of common stock under this plan at
its adoption. As of November 30, 2002, 3,200,000 shares of common stock under
the 2002 SP have been set aside for consultants in conjunction with agreements
yet to be performed.
Note 12 - Warrants
For the six-month period ended November 30, 2002, the Company issued 13,000
warrants to purchase common stock in connection with the sale of the Company's
convertible debentures. Warrants outstanding to purchase common stock as of
November 30, 2002 totaled 175,053. (See also Note 8 - Convertible Debentures).
Note 13 - Contingencies and Commitments
On September 6, 2001, the Company was served with a summons and complaint by its
former landlords, asserting: (a.) a breach of a settlement agreement entered
into in May 2001 to register 5,000 shares of common stock, valued at $80,000, in
partial settlement of its then existing lease, and, (b.) a default by the
Company on two new long-term lease obligations. Terms of the first lease call
for base monthly payments of $12,046 for the period of August 1, 2001 to July
31, 2006, plus triple net charges estimated at approximately $3,038 per month
and beginning in year two, an increase equal to the change in the annual
consumer price index but not less than annual increase of 3%. Minimum aggregate
lease payments and triple net charges approximate $954,500 over the term of the
lease. Terms of the second lease call for monthly payments, beginning in June
2001 of approximately $4,000 per month, or a total of $80,000 for the remaining
term of the lease from August 1, 2001 to May 31, 2003. On October 4, 2001, the
Company's former landlords filed a summons and complaint with local
jurisdictional court for a summary judgment motion on all claims. All claims
under this motion were initially denied. However, on May 10, 2002, the Court
awarded a partial summary judgment in favor of the former landlords for
approximately $170,000. The Company has previously recorded approximately
$170,000 of expense related to this award. The Company anticipates filing a
motion to request the Court to vacate the partial summary judgment in light of
new evidence and/or appeal the Court's decision.
It is the opinion of management and its legal counsel that the settlement
agreement signed in May 2001 requiring the signing of the two new leases was
entered into under economic duress, based on misrepresentation, and, was signed
in bad faith on the part of the former landlords. As such, it is management's
opinion that the settlement agreement and the two lease agreements are void.
Management believes that the ultimate outcome of this litigation will be that
the former landlords will not be successful in their assertions under their
claim(s). Any additional claim under this dispute is not recognized in the
accompanying condensed financial statements. The Company denies the allegations
under this claim and believes this claim is without merit and intends to
continuously and vigorously defend itself against this lawsuit.
On October 9, 2002, the Company settled an alleged grievance filed by a former
employee for $30,000. As of November 30, 2002, the Company recorded an expense
of $30,000 and made two monthly payments of $1,500 pursuant to terms of the
settlement.
Note 14 - Other Disclosures
Forgiveness and Settlements of Debts
The Company has executed complete settlements and reductions of the outstanding
obligations due certain creditors and employees. For the six months ended
November 30, 2002 the Company has settled approximately $414,000 of obligations
for $10,550. Settlements are generally in the form of cash, common stock,
repriced warrants or a combination thereof. In connection with the forgiveness
and settlements, the Company recorded other income of $404,265 and $404,266 for
the three and six months ended November 30, 2002.
Non-cash Investing and Financing
Non-cash investing and financing activities included the following for the six
months ended:
November 30,
2002 2001
--------------- ----------------
Discount on convertible debentures ............... $ 400,000 $1,142,549
Convertible debentures converted into common stock 4,500 36,750
Accrued liabilities converted into common stock .. -- 69,036
Accounts payable converted into common stock ..... -- 2,000
Notes payable converted into warrants ............ -- 14,000
Accrued liabilities converted into warrants ...... -- 3,500
Cash paid for interest ........................... $ 11,584 $ 23,646
Selling, general and administrative expenses for the six months ended are:
November 30,
2002 2001
------------------- ---------------
Salaries $ 327,088 $ 447,722
Benefits 4,806 26,234
Rent 10,756 142,182
Consulting 214,082 965,265
Legal, accounting and professional 145,248 296,235
Telephone and utilities 10,292 26,714
Taxes (9,063) 51,168
Administration, supplies and repairs 11,963 23,864
Travel and entertainment 7,500 19,992
Insurance 2,305 (1,318)
Other and settlements 139,650 44,991
------------------- ---------------
Total $ 864,627 $ 2,043,049
=================== ===============
Non-cash compensation $ 252,562 $ 778,642
Other 612,065 1,264,407
------------------- ---------------
Total $ 864,627 $ 2,043,049
=================== ===============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the condensed financial statements and including notes thereto, appearing in
this Form 10-QSB and in our May 31, 2002 annual report on Form 10-KSB.
Except for the historical information contained herein, this Quarterly
Report contains forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Securities Exchange Act.
The statements contained in this report that are not historical facts,
including, without limitation, statements containing the words "believes,"
"anticipates," "estimates," "expects," and words of similar import, constitute
"forward-looking statements." Forward-looking statements are made based upon our
management's current expectations and beliefs concerning future developments and
their potential effects upon us. Our actual results could differ materially from
those anticipated for many reasons. Factors that could cause or contribute to
the differences include, but are not limited to, availability of financial
resources adequate for short-, medium- and long-term needs, demand for our
products and services and market acceptance, as well as those factors discussed
in the "Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this report.
Our management disclaims any obligation to update any forward-looking
statements whether as a result of new information, future events or otherwise.
A more detailed discussion of these factors is presented in our May 31,
2002 annual report on Form 10-KSB.
OVERVIEW
We were originally incorporated as Ward's Gas & Oil in the state of Utah on
May 22, 1980, to engage in the oil and gas business, which business was
terminated a few years after operations commenced. Ward then changed its name to
Palace Casinos, Inc. and from November 1992 until approximately 1995, it was
engaged, through its wholly owned subsidiary, in the development of a dockside
gaming facility in Biloxi, Mississippi. Subsequently, Palace Casinos, Inc.
changed its name to Xcel Management, Inc. On December 1, 1994, Xcel and its
wholly owned subsidiary each filed voluntary petitions for bankruptcy under
Chapter 11 of the federal bankruptcy laws. On June 16, 1999, the bankruptcy
court confirmed a plan of reorganization whereby the obligations of Xcel's
creditors were satisfied. On February 18, 2000, Xcel and Insynq, Inc. a
Washington company formed on August 31, 1998, closed an asset purchase
transaction in which Xcel acquired substantially all of the assets of Insynq.
Subsequent to the asset purchase transaction, Xcel continued to develop the
business of Insynq. On August 3, 2000, at a special meeting of Xcel's
stockholders, Xcel completed a re-incorporation merger with its wholly owned
subsidiary, Insynq, Inc., a Delaware corporation. On July 25, 2002, the Board of
Directors approved the re-incorporation merger with its wholly owned subsidiary,
Insynq, Inc., a Nevada corporation, and to effectuate a 100:1 common stock
exchange of the Company's currently issued and outstanding shares of common
stock. Subsequent to the end of the quarter ending November 30, 2002, Insynq,
Inc. re-incorporated in the State of Nevada upon entering into the Plan and
Agreement of Merger entered into with its wholly-owned subsidiary, Insynq, Inc.,
a Nevada corporation. On December 23, 2002, the effect of the re-incorporation,
resulted in the exchange of 59,013,393 common shares of the terminating entity
for 590,134 common shares of the surviving entity, Insynq, Inc. (Nevada).
Today, as the combined and surviving entity, Insynq, Inc. continues to
develop the IQ Utility Service while incorporating the customer premise
equipment developed as part of the IQ Delivery System.
We provide Internet appliances, known as customer premise equipment,
managed and hosted software services, Web hosting services, Web-based local and
wide area networks, and access to Internet marketing assistance and related
equipment and services. These products and services are offered as components or
as an integrated whole, either sold directly or on a fee or subscription basis.
We target small and medium enterprises and the high-end segment of the
small office and home office market for the sale of hardware and hosted software
and access to Internet-related services. We provide products and services to our
customer subscriber base, which allows our customers to adopt "Web-based"
computing that serves as an alternative to both traditional local wide area
networks and traditional client-server implementations. Generally, we market
ourself as an Internet utility company that can provide all of the computer
software, hardware, connectivity and Internet-access needs for its customers on
a cost effective basis.
We currently have several independent software vendors' products on line
using the IQ Data Utility Service computing services and anticipate signing
various agreements with additional organizations in the next few months. We
expect to increase the subscriber base through these respective sales channels.
..
The complete IQ Delivery System and Internet Utility Service include
managed network and application services, which can span from a customer's
keyboard to the data center. We provide certain equipment, which is kept on our
customer's premises, including a simplified, diskless workstation or thin
client, and a multi-function router, our IQ Delivery System, which is entirely
managed and maintained by us. The system can also include Internet-access
services provided by us or by a user selected telecommunications
partner/provider. The final piece of the system is the data center, which is
located in Bellingham, Washington. This facility, with redundant power,
bandwidth, and cooling, house the servers and routers and equipment. While this
is the recommended configuration for customer use to take advantage of the full
services offered, customers are free to choose which components they would like
to use.
In fiscal 2003 (fiscal year ending May 31, 2003), we plan to focus on
sales growth, controlling expenses and restructure the debt and equity. We will
strive to build on our core value of customer service and delivery of our hosted
services at a competitive price.
RESULTS OF OPERATIONS
We incurred a net loss of $386,142 and $1,250,514 for the three months and six
months ended November 30, 2002, respectively, as compared to a net loss of
$1,207,338 and $2,864,176 for the three and six months ended November 30, 2001.
The net loss for the three and six months ended November 30, 2002 resulted
primarily from:
o discounted or free services as we marketed our products and services,
o professional and consulting fees,
o issuance and amortization of common stock, warrants and options for
services,
o contract settlements, and
o interest expense.
The decrease in the net loss for the six months ended November 30, 2002 of
$1,613,661 as compared to the six months ended November 30, 2001 resulted
primarily from:
o increase in net revenue,
o decrease in legal and consulting fees,
o decrease in wages and related taxes and benefits,
o decrease in rent, and
o decrease in abandoned leasehold improvements
Total revenue for three months ended November 30, 2002 and 2001 was
$251,942 and $227,729, respectively, representing an increase of $24,213. The
primary sources of revenue during the three month period ended November 30,
2002: (1) seat subscription revenue of $187,030, net of discounts, (2) managed
software and support service revenue of $17,376, and (3) licensing and other
revenue of $47,536. Total revenue for the six months ended November 30, 2002 and
November 30, 2001 was $486,104 and $422,294, respectively. Primary revenue
sources for the six month period ended November 30, 2002 are: (1) seat
subscription revenue of $376,566, net of discounts; (2) managed software service
revenue of $22,934; and, (3) licensing and services revenue of $86,604. Seat
revenue for the six months ended November 30, 2002 increased approximately 15.5%
over the same period ended November 30, 2001. For the six months ended November
30, 2002, seat revenue accounted for approximately 77.5% of total revenue. While
we have experienced growth in revenue in recent periods, prior growth rates
should not be considered as necessarily indicative of future growth rates or
operating results for fiscal ending 2003. We expect future revenue from all
sources to trend away from our practice of providing discounts and free
offerings experienced in first and second quarters of Fiscal 2003, because we
are continuing to develop our sales programs, implement our sales and marketing
strategies, increase consumer understanding and awareness of our technology, and
prove our business model.
Our continued growth is significantly dependent upon our ability to
generate sales relating to our subscription and managed software services. Our
main priorities relating to revenue are:
o increase market awareness of our products and services through our strategic
marketing plan,
o growth in the number of customers and seats per customer,
o continue to accomplish technological economies of scale, and
o continue to streamline and maximize efficiencies in our system implementation
model.
COSTS AND EXPENSES
During the three months ended November 30, 2002, we incurred direct costs
of services provided of $187,654. This represents a decrease of $150,880 as
compared to the same three month period ended November 30, 2001. For the
six-month periods ended November 30, 2002 and November 30, 2001, we incurred
$379,310 and $658,401 in direct costs, and, $1,802 and $32,785 in network and
infrastructure costs, respectively.
Selling and general and administrative expenses were $407,533 and $800,383
the three months ended November 30, 2002 and 2001, respectively. The decrease in
these expenses can be directly attributed to our managements' committed efforts,
beginning in the fall of 2000, to restructure our operations and reduce our
expenses, primarily professional and consulting fees. Of significance for the
three months ended November 30, 2002, is a $140,773 decrease of comparable
period expenses requiring non-cash compensation. Non-cash compensation is
generally representative of the fair value of common stock, options and warrants
issued for services, and the amortization of unearned compensation. Cash
expenses for the three months ended November 30, 2002 and 2001 were $286,332 and
$538,409, respectively.
For the six months ended November 30, 2002 and 2001, selling, general and
administrative expenses were $864,627 and $2,043,049, respectively, a positive
change of $1,178,422. Non-cash compensation for the six months ended November
30, 2002 and 2001 was $252,562 and $778,642, respectively. Cash compensation for
the six months ended November 30, 2002 and 2001 was $612,065 and $1,264,407,
respectively.
Of significance is the reduction of the professional and consulting fees.
These specific expenses accounted for approximately 42% and 62% of the total
selling, general and administrative expenses for the six months ended November
30, 2002 and 2001, respectively. Accordingly, there was over a $902,000
reduction in these expenses as recorded between these two periods. This
reduction accounts for approximately 76.5% of the total selling, general and
administrative reduction between these two respective periods. This is a direct
result from management's concerted efforts to reduce and control these expenses.
Overall, we reduced total operating expenses for the three and six months
ended November 30, 2002, as compared to the three and six months ended November
30, 2001, by over $583,400 and $1,583,700, respectively, but maintained an
average consistent growth rate in total revenue of approximately 14% for the six
months ended November 30, 2002 as compared to November 30, 2001.
Interest expense was $428,637 for the three months ended November 30, 2002
as compared to $337,584 for the same period ended November 30, 2001. The
increase of $91,053 was due primarily to the recognition in the current period:
(a) accruing interest on the related party promissory notes, convertible
debentures, and capitalized leases, and, (b) accounting for non-cash interest
recognized on the fair value of convertible debentures and warrants issued.
Interest expense for the six months ended November 30, 2002 and 2001 was
$873,519 and $528,026, respectively.
Accounting for non-cash interest resulted in $409,213 and $243,416 of
reported expense for the three months ended November 30, 2002 and 2001,
respectively, and, $827,210 and $347,394 for the six month periods ended
November 30, 2002 and 2001, respectively. Non-cash interest expense for the six
months ended November 30, 2002 included $533,326 related to discount
amortization of the 12% convertible debentures. Cash interest decreased $74,744
and $134,323 for the three and six month periods ended November 30, 2002 as
compared to November 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial statements for the three and six months ended
November 30, 2002 have been prepared on a going concern basis, which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. For the six months ended November
30, 2002, the Company had a net loss of $1,250,514 and a negative cash flow from
operations of $371,168. The Company had a working capital deficit of $6,267,159
and a stockholders' deficit of $5,883,256 at November 30, 2002. The Company's
working capital deficit as of November 30, 2002 may not enable it to meet
certain financial objectives as presently structured.
We had cash and cash equivalents of $34,523 as of November 30, 2002, and a
deficit in working capital of $6,267,159 at the same date. For the six months
ended November 30, 2002, we used cash in our operating activities totaling
$371,168 as compared to the same period one year ago of $1,166,827. The decrease
in our usage of cash of over $795,000 was the result of managements' expense
reduction plan, while increasing sales and maintaining customer service.
We finance our operations and capital requirements primarily through
private debt and equity offerings. For the six months ended November 30, 2002,
we received cash totaling $416,926 from:
o borrowing on our credit line - $2,887,
o release of restricted cash held in escrow $10,355,
o issuance of convertible debentures totaling $400,000,
o issuance of short term notes payable totaling $2,000, and
o advance from officer/stockholder $1,684
As of November 30, 2002, we had approximately $6,663,425 in current
liabilities and past due debt. Of the total current debt, approximately $403,400
is deemed as a current trade payable, accrual or taxes due.
We are late in payment of certain creditor trade payables of approximately
$696,150.
Recently, management has initiated re-negotiations with many of its
creditors, by offering them cash payments for substantially less than the
amounts due, or request a total forgiveness of the debt. We believe by
continuing this important effort with a high degree of intensity, we will be
able to reduce a significant part our past due creditor trade obligations.
However, if we are not able to negotiate and execute payment plans or complete
cash settlements with these creditors/vendors, we could experience a severe
negative impact on our business resources and we may be forced to cease
operations.
We lease equipment under four capital leases, each expiring in 2003. As of
November 30, 2002, our principal capital lease obligation for computer hardware,
printers and related infrastructure is in default in the amount of approximately
$877,213. In December 2002 we settled one lease for approximately $9,500 in
cash. We have initiated discussions to restructure these remaining obligations,
and, given the current market conditions, believe we will be successful in such
attempts. If we are unable to successfully restructure these obligations,
options remain open to us including, for example, returning the equipment and
purchasing new equipment on the open market. As a precautionary measure, in
fiscal 2002, we signed an additional operating lease agreement for similar
equipment to support our current customer base. If negotiations do not go as
planned, there still is no assurance that we would be able to locate other
similar and necessary equipment or raise the funds necessary to make such
further purchases or execute new leases. If all other methods fail, we might be
able to outsource our data center function; however, there is no assurance that
such methods will be available to us on favorable terms, or at all. If this were
to occur then we may be unable to deliver to our customers their contracted
services.
As of January 20, 2003, we are delinquent in the payment of approximately
$510,000 of business and payroll taxes, plus an estimated $263,375 of related
assessed penalties and interest. The majority of the past due amount is for
payroll taxes, penalties and interest due to the Internal Revenue Service. In
April 2002, the Internal Revenue Service filed a federal tax lien for the past
due employment related taxes, penalties and interest. We have retained legal
counsel to represent us in our current negotiations with the Internal Revenue
Service and we have submitted an offer in compromise, seeking relief on a
portion of our overall obligation and structure a payment plan on the settled
amount of taxes due. The Internal Revenue Service has imposed certain conditions
on us in order to proceed with negotiations, one of which requires us to remain
current on all future payroll tax deposits and reporting.
We have executed workout agreements for past due taxes with four other
respective taxing authorities. As of January 20, 2003 total principal balance
due for these workouts is approximately $25,051. Terms of these four workouts
require us to pay between $290 and $1,500 per month until the respective tax
obligation is fulfilled. Three of the taxing agencies have either filed a lien
or a warrant with the local county authorities to protect its position during
the respective workout periods.
Additionally, two liens have been filed by two other states for past due
taxes, plus accrued interest and penalties. One lien was filed by the State of
Utah for approximately $28,000 for prior year's income taxes assessed to our
predecessor company. This amount is in dispute and amended returns to correct
this deficiency have been filed, but not yet approved or denied. The second lien
was filed by the State of California for past due payroll taxes, assessed
penalties and accrued interest. Recently, the Company submitted a proposal for a
long-term workout of the tax debt. We believe the proposal is currently in
review and under consideration with the state authorities.
There can be no assurances, however, that we will be able to agree or
commit to any proposed terms set forth by the Internal Revenue Service or
favorably negotiate terms with any of the other taxing authorities. If we are
unsuccessful in our negotiations or fail to make our workout payments timely,
the taxing authorities could take possession of some or all of our assets.
Should this occur, we likely would be forced to cease our operations.
As of November 30, 2002, we have approximately $257,325 of employee
agreement related obligations in the form of accrued and deferred salaries.
These obligations are primarily a result of applying the terms of existing
employment agreements against that which we actually paid. In July 2002, an
officer forgave $24,501 of deferred compensation in consideration for 3,500
shares of common stock with a market value of $1,050.
As of November 30, 2002, we have approximately $1,582,350 in short-term
related party promissory notes, loans and accrued interest. All these
obligations are past due. In settlement of these debts, our board of directors
may authorize the issuance of a class of preferred stock. To-date, we have
received a letter of intent to convert approximately $1,300,000 of this debt
into preferred stock.
As of November 30, 2002, we have also recorded outstanding convertible
debentures of $1,823,950 plus related accrued interest of approximately $194,800
and unamortized discounts of $325,645.
On June 29, 2001, we entered into a private financing transaction with
three investors under which the investors initially purchased $550,000 from a
total of $1,200,000 of our 12% convertible debentures. Investors purchased an
additional $100,000 on August 15, 2001, $150,000 on October 17, 2001, and,
$400,000 on November 2, 2001 under this financing agreement. The debentures are
convertible into shares of our common stock at the lesser of (i) $18.00 or (ii)
the average of the lowest three trading prices on the twenty trading days prior
to the notice of such conversion, discounted by 50%. The convertible debentures
carry attached warrants that allow the investor, under the terms of the
warrants, to purchase up to 24,000 shares of common stock at an exercise price
per share equal to the lesser of (i) $4.00 and (ii) the average of lowest three
(3) trading prices during the twenty (20) trading days immediately prior to
exercise of the warrants. If the 24,000 warrants were exercised on January 20,
2003, the warrant conversion price would be $0.05. Terms of the debentures
provide for full payment on or before one year from the date of issuance, plus
accrued interest of 12% per annum. January 20, 2003, the total unredeemed
principal from this financing aggregating $1,123,950 was due, plus total
combined accrued interest of approximately $148,006. Currently, these financial
instruments are in default and are subject to certain default provisions under
the respective agreements.
On January 24, 2002, we entered into a second private financing transaction
to sell our 12% convertible debentures, to four investors, under which, the
investors initially purchased $300,000. Proceeds from this initial transaction,
net of fees and expenses, were $221,000, of which $77,000 was specifically
escrowed and reserved for selected vendor settlements. The conversion price of
the debentures is the lesser of $0.80, the fixed conversion price, or, the
average of the lowest three intra-day trading prices during the twenty days
immediately prior to the conversion date, discounted by 50%. The convertible
debentures carry attached warrants that allow the investor, under the terms of
the warrants, to purchase up to 22,000 shares of common stock at the lesser of
$0.70 per share or the average of the lowest three trading prices during the
twenty trading days immediately prior to exercise. The warrants are exercisable
from time to time up to two (2) years from date of issuance, at an exercise
price equal to the lesser of $0.70 or the average of the three lowest inter-day
trading prices during the twenty days immediately prior to the exercise. On July
10, 2002 we received the remaining $250,000 from issuance of convertible
debentures related to this private financing, and issued an additional 10,000
warrants. If the 22,000 warrants were exercised on January 20, 2003, the warrant
conversion price would be $0.05. However, $300,000 of this convertible debenture
matures on January 24, 2003. The Company does not anticipate it will be able to
pay off this obligation plus the accrued interest pursuant to the terms of this
agreement. The Company anticipates negotiations with the investors about
amending the terms of the agreement.
On September 27, 2002, we entered into a third private financing
transaction to sell $450,000 of 12% convertible debentures, to two investors,
under which, the investors initially purchased $120,000. Proceeds from this
initial transaction, net of fees and professional expenses, were $50,481.
Maturity date of this issuance is the one-year anniversary date. The conversion
price of the debentures is the lesser of $3.00, the fixed conversion price, or,
the average of the lowest three intra-day trading prices during the twenty days
immediately prior to the conversion date, discounted by 50%. The convertible
debentures carry attached warrants that allow the investor, under the terms of
the warrants, to purchase up to 9,000 shares of common stock at $1.00 per share
for an exercise period up to five years from the date of issuance. The warrants
are exercisable from time to time up to five (5) years from date of issuance, at
an exercise price of $1.00. Pursuant to terms of the agreement, additional
investments in $30,000 increments will be made every thirty-days until a total
of $450,000 has been invested. As of January 20, 2003, we have received a total
of $180,000 and issued 3,600 warrants.
On June 29, 2002, August 14, 2002, October 17, 2002 and November 2, 2002
we were obligated to repay any unconverted funds plus accrued interest pursuant
to our June 29, 2001 financing transaction, and through December 6, 2003, we
will be obligated to repay all unconverted remaining funds pursuant to our June
29, 2001, January 24, 2002 and September 27, 2002 debenture agreements. We do
not currently have the funds to repay the amounts that are due and we may not
have the funds available to meet those requirements when they come due. Pursuant
to the June 2001, the January 2002 and the September 2002 debenture agreements,
any amount of principal and / or interest which is not paid when due is in
default, and shall bear interest at the rate of fifteen percent (15%) per annum
from the due date thereof until the same is paid. Management anticipates
negotiations with the investors about amending the terms of the agreements.
Our continuation as a going concern is dependent on our ability to obtain
additional financing, and, generate sufficient cash flow from operations to meet
our obligations on a timely basis. Our ability to raise capital in the future
will be difficult because our securities purchase agreements with our debenture
investors prohibit us from entering into any financial arrangement, which would
involve the issuance of common stock for a period of two years without offering
a right of first refusal to the debenture investors. Moreover, our ability to
raise capital would also be difficult because our debentures issued in
connection with the June 29, 2001, January 24, 2002 and September 27, 2002
private placements have floating conversion features which, when converted,
would cause purchasers of our common stock to experience a substantial dilution
of their investment.
On September 6, 2001, we were served with a summons and complaint by our
former landlords, asserting: (a.) a breach of a settlement agreement entered
into in May 2001 to register 5,000 shares of common stock, valued at $80,000, in
partial settlement of the then existing lease, and, (b.) a default by us on two
new long-term lease obligations. Terms of the first lease call for base monthly
payments of $12,046 for the period of August 1, 2001 to July 31, 2006, plus
estimated triple net charges currently at $3,038 per month and beginning in year
two, annual consumer price index with a minimum annual increase of 3%. Minimum
aggregate lease payments and triple net charges approximate $954,500 over the
term of the lease, excluding late fees, interest, legal fees and other charges.
Terms of the second lease called for monthly payments, beginning in June 2001 of
approximately $4,000 per month, or a total of $80,000 for the remaining term of
the lease from August 1, 2001 to May 31, 2003. On October 4, 2001, our former
landlords filed a summons and complaint with the Superior Court of Washington
for Pierce County for a summary judgment motion on all claims. All claims under
this motion were denied. On May 10, 2002, the Court awarded a partial summary
judgment in favor of the former landlords for approximately $170,000. We
anticipate filing a motion requesting the court to vacate the summary judgment
in light of new evidence and/or appeal the court's decision.
We deny the allegations under this claim and believe it is without merit.
It is the opinion of our management and our legal counsel that the settlement
agreement signed in May 2001 that required the signing of the new leases were
entered into under economic duress, based on misrepresentation and fraud and
were signed in bad faith on the part of the former landlords. As such, it is our
managements' opinion that the settlement agreement and the lease agreement are
void. We intend to continue to vigorously defend against this lawsuit.
We currently have no material commitments for capital requirements. If we
were forced to purchase new equipment to replace the equipment we currently
lease, any new leases would constitute a material capital commitment; however,
we are currently unable to quantify such amounts. If this occurs, we will
attempt to raise the necessary finances to make such purchases, but there is no
assurance that we will be able to do so. Without the ability to quantify these
amounts, we nonetheless believe that it would have a material impact on our
business and our ability to maintain our operations.
Since September 2000, we began the implementation of an internal cost
restructuring of our operations, both in sales and marketing, as well in our
executive management team, and other critical cost cutting measures. In June
2001, we negotiated with many of our vendors to materially reduce amounts owed
or attain more favorable long-term payment terms. Between October 2001 and June
2002, we further reduced our staffing requirements and as a result of these
measures, we have tightened the controls over our use of cash and, additionally,
have taken steps to improve the billing and collection process. In addition to
these changes, we have implemented a marketing program through our recently
developed accounting vertical, which has dramatically reduced customer
acquisition costs. The combination of the internal restructuring efforts and
increased operational efficiencies will allow us to move toward profitability
and to achieve our business plan and goals. We are also pursuing opportunities
to merge and/or acquire compatible companies with which to leverage management,
financial and operational resources. We believe these changes and strategies
will position us well for future opportunities.
We have recently signed several sales and marketing agreements. In
particular, effective December 21, 2002, we renewed our contract for another
year with a large U.S. telecommunication firm who will re-market, via private
label, hosted software applications and managed services, such as, MS Exchange,
virus protection, data storage and other products and services to be bundled
with broadband solutions. These bundled services or products will be delivered
on a subscription basis.
We have recently launched our e-Accounting Center portal located at
WWW.CPA-ASP.COM, which has been designed to help the accounting professional
manage and expand their business. It includes resources for marketing,
promotion, professional education, and web design, as well as, step-by-step tips
for transforming a traditional accounting business into an e-Accounting
practice. In addition, we host the Intuit QuickBooks software application in our
secure Data Center for CPA firms throughout the country. By centrally hosting
the application and data in our Data Center, we give the CPA secure central
access to all his remote customers' data. This gives the CPA the ability to
manage more customers with fewer staff and, thereby, generating greater
profitability for the CPA firm.
This, in addition to an agreement with an accounting affiliation of
approximately 60,000 subscribers, and the adoption of the IQ Data Utility
Service solution by these and other accountants is providing access to
professional accounting organizations and their client bases. Other services
include business functions such as e-commerce, sales force automation, customer
support, human resource and financial management, messaging and collaboration,
and professional services automation. We believe that technology outsourcing,
focused on these business fundamentals, will be the primary adopters of
application service providers and managed service solutions in the next year. We
are focusing all possible resources in developing our domain expertise in these
areas to gain additional leverage and build broader service offerings that
compliment our current services already being delivered to those markets. There
can be no assurances, however, that we will substantially increase our monthly
recurring revenues.
We currently have no arrangements or commitments for accounts receivable
financing. We believe our need for additional capital going forward will be met
from private debt and equity offerings, and, increasingly, from revenues from
operations as we continue to implement our strategic plan; however, future
operations will be dependent upon our ability to secure sufficient sources of
financing and adequate vendor credit. However, there can be no assurance that we
will achieve any or all of these requirements.
We are currently developing and refining our acquisition and expansion
strategy. If we expand more rapidly than currently anticipated, if our working
capital needs exceed our current expectations, or if we consummate acquisitions,
we will need to raise additional capital from equity or debt sources. We cannot
be sure that we will be able to obtain the additional financings to satisfy our
cash requirements or to implement our growth strategy on acceptable terms or at
all. Our ability to raise capital in the future will be difficult because our
securities purchase agreements with our debenture investors prohibit us from
entering into any financial arrangement which would involve the issuance of
common stock for a period of two years from the date this registration statement
becomes effective without offering a right of first refusal to the debenture
investors. If we cannot obtain such financings on terms acceptable to us, our
ability to fund our planned business expansion and to fund our on-going
operations will be materially adversely affected. If we incur debt, the risks
associated with our business and with owning our common stock could increase. If
we raise capital through the sale of equity securities, the percentage ownership
of our stockholders will be diluted. In addition, any new equity securities may
have rights, preferences, or privileges senior to those of our common stock.
New Accounting Pronouncements
- -----------------------------
In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS 145 rescinds the provisions of SFAS No. 4 that requires companies to
classify certain gains and losses from debt extinguishments as extraordinary
items, eliminates the provisions of SFAS No. 44 regarding transition to the
Motor Carrier Act of 1980 and amends the provisions of SFAS No. 13 to require
that certain lease modifications be treated as sale leaseback transactions. The
provisions of SFAS 145 related to classification of debt extinguishments are
effective for fiscal years beginning after May 15, 2002. Earlier application is
encouraged. The Company does not believe the adoption of this standard will have
a material impact the financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Restructuring
Costs." SFAS 146 applies to costs associated with an exit activity (including
restructuring) or with a disposal of long-lived assets. Those activities can
include eliminating or reducing product lines, terminating employees and
contracts and relocating plant facilities or personnel. Under SFAS 146, the
Company will record a liability for a cost associated with an exit or disposal
activity when that liability is incurred and can be measured at fair value. SFAS
146 will require the Company to disclose information about its exit and disposal
activities, the related costs, and changes in those costs in the notes to the
interim and annual financial statements that include the period in which an exit
activity is initiated and in any subsequent period until the activity is
completed. SFAS 146 is effective prospectively for exit or disposal activities
initiated after December 31, 2002, with earlier adoption encouraged. Under SFAS
146, a company cannot restate its previously issued financial statements and the
new statement grandfathers the accounting for liabilities that a company had
previously recorded under Emerging Issues Task Force Issue 94-3. The Company
does not believe the adoption of this standard will have a material impact the
financial statements.
In October 2002, the FASB issued Statement No. 147 ("SFAS 147),
"Acquisitions of Certain Financial Institutions." SFAS 147 addresses financial
accounting and reporting for the acquisition f all or part of a financial
institution, except for a transaction between two or more mutual enterprises.
SFAS 147 also provides guidance on the accounting for the impairment or disposal
of acquired long-term customer-relationship intangible assets of financial
institutions, including those acquired in transactions between two or more
mutual enterprises. The provisions of the statement will be effective for
acquisitions on or after October 1, 2002.
In December 2002, the Financial Accounting Standards Board Issued Statement
No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure-an
amendment of FASB Statement No. 123", ("SFAS 148"). SFAS 148 amends FASB
Statement No. 123, "Accounting for Stock Based Compensation" ("SFAS 123") and
provides alternative methods for accounting for a change by registrants to the
fair value method of accounting for stock-based compensation. Additionally, SFAS
148 amends the disclosure requirements of SFAS 123 to require disclosure in the
significant accounting policy footnote of both annual and interim financial
statements of the method of accounting for stock-based compensation and the
related pro-forma disclosures when the intrinsic value method continues to be
used. The statement is effective for fiscal years beginning after December 15,
2002, and disclosures are effective for the first fiscal quarter beginning after
December 15, 2002.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 6, 2001, the Company was served with a summons and complaint
by its former landlords, asserting: (a.) a breach of a settlement agreement
entered into in May 2001 to register 5,000 shares of common stock, valued at
$80,000, in partial settlement of its then existing lease, and, (b.) a default
by the Company on two new long-term lease obligations. Terms of the first lease
call for base monthly payments of $12,046 for the period of August 1, 2001 to
July 31, 2006, plus triple net charges estimated at approximately $3,038 per
month and beginning in year two, an increase equal to the change in the annual
consumer price index but not less than annual increase of 3%. Minimum aggregate
lease payments and triple net charges approximate $954,500 over the term of the
lease. Terms of the second lease call for monthly payments, beginning in June
2001 of approximately $4,000 per month, or a total of $80,000 for the remaining
term of the lease from August 1, 2001 to May 31, 2003. On October 4, 2001, the
Company's former landlords filed a summons and complaint with local
jurisdictional court for a summary judgment motion on all claims. All claims
under this motion were initially denied. However, on May 10, 2002, the Court
awarded a partial summary judgment in favor of the former landlords for
approximately $170,000. The Company has previously recorded approximately
$170,000 of expense related to this award. The Company anticipates filing a
motion to request the Court to vacate the partial summary judgment in light of
new evidence and/or appeal the Court's decision.
It is the opinion of management and its legal counsel that the settlement
agreement signed in May 2001 requiring the signing of the two new leases was
entered into under economic duress, based on misrepresentation, and, was signed
in bad faith on the part of the former landlords. As such, it is management's
opinion that the settlement agreement and the two lease agreements are void.
Management believes that the ultimate outcome of this litigation will be
that the former landlords will not be successful in their assertions under their
claim(s). Any additional claim under this dispute is not recognized in the
accompanying condensed financial statements. The Company denies the allegations
under this claim and believes this claim is without merit and intends to
continuously and vigorously defend itself against this lawsuit.
On October 9, 2002, the Company settled an alleged grievance filed by a
former employee for $30,000. As of November 30, 2002, the Company recorded an
expense of $30,000 and made two monthly payments of $1,500 pursuant to terms of
the settlement.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of November 30, 2002, we have approximately $1,582,350 in short-term
related party promissory notes, loans and accrued interest. All these
obligations are past due. In settlement of these debts, our board of directors
may authorize the issuance of a class of preferred stock. To-date, we have
received a letter of intent to convert approximately $1,300,000 of this debt
into preferred stock.
On June 29, 2001, we entered into a private financing transaction with
three investors under which the investors initially purchased $550,000 from a
total of $1,200,000 of our 12% convertible debentures. Investors purchased an
additional $100,000 on August 15, 2001, $150,000 on October 17, 2001, and,
$400,000 on November 2, 2001 under this financing agreement. The debentures are
convertible into shares of our common stock at the lesser of (i) $18.00 or (ii)
the average of the lowest three trading prices on the twenty trading days prior
to the notice of such conversion, discounted by 50%. The convertible debentures
carry attached warrants that allow the investor, under the terms of the
warrants, to purchase up to 24,000 shares of common stock at an exercise price
per share equal to the lesser of (i) $4.00 and (ii) the average of lowest three
(3) trading prices during the twenty (20) trading days immediately prior to
exercise of the warrants. If the 24,000 warrants were exercised on January 20,
2003, the warrant conversion price would be $0.05. Terms of the debentures
provide for full payment on or before one year from the date of issuance, plus
accrued interest of 12% per annum. January 20, 2003, the total unredeemed
principal from this financing aggregating $1,123,950 was due, plus total
combined accrued interest of approximately $148,006. Currently, these financial
instruments are in default and are subject to certain default provisions under
the respective agreements.
On June 29, 2002, August 14, 2002, October 17, 2002 and November 2, 2002 we
were obligated to repay any unconverted funds plus accrued interest pursuant to
our June 29, 2001 financing transaction, and through December 6, 2003, we will
be obligated to repay all unconverted remaining funds pursuant to our June 29,
2001, January 24, 2002 and September 27, 2002 debenture agreements. We do not
currently have the funds to repay the amounts that are due and we may not have
the funds available to meet those requirements when they come due. Pursuant to
the June 2001, the January 2002 and the September 2002 debenture agreements, any
amount of principal and / or interest which is not paid when due is in default,
and shall bear interest at the rate of fifteen percent (15%) per annum from the
due date thereof until the same is paid. Management anticipates negotiations
with the investors about amending the terms of the agreements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In October 2002, the Company received written consents in lieu of a meeting
from stockholders representing a majority of the Company's outstanding shares of
voting stock approving the reincorporation of the Company in Nevada by merger
with and into the Company's wholly owned subsidiary, Insynq, Inc., a Nevada
corporation, pursuant to a Plan and Agreement of Merger. The reincorporation,
which was effective in December 2002 resulted in:
o the Company being governed by the laws of the State of Nevada;
o the shareholders of the Company right to receive one share of common stock
of Insynq Nevada for each one hundred shares of common stock of the Company
owned;
o the persons serving presently as officers and directors of the Company to
serve in their respective capacities after the reincorporation;
o the outstanding shares of Series A Convertible Preferred Stock of the
Company being converted into approximately 13,314,110 shares of Insynq
Nevada common stock;
o the Company's Certificate of Incorporation authorizing the issuance of
500,000,000 shares of common stock and 10,000,000 shares of preferred
stock;
o the authorization of the adoption of the 2002 Directors, Officers and
Consultants Stock Option, Stock Warrant and Stock Award Plan; and
o the board of directors being divided into three classes which shall be as
nearly equal in number as possible.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
- ---------------- ------------------------------------------------------------------------------------------------
EXHIBIT
NUMBER DESCRIPTION
- ---------------- ------------------------------------------------------------------------------------------------
4.1* Stock Purchase Warrant dated November 5, 2002 between AJW Offshore Ltd. and Insynq,
Inc.
- ---------------- ------------------------------------------------------------------------------------------------
4.2* Stock Purchase Warrant dated November 5, 2002 between AJW Qualified Partners, LLC and Insynq,
Inc.
- ---------------- ------------------------------------------------------------------------------------------------
4.3* Secured Convertible Debenture dated November 5, 2002 between AJW Offshore, Ltd. and Insynq,
Inc.
- ---------------- ------------------------------------------------------------------------------------------------
4.4* Secured Convertible Debenture dated November 5, 2002 between AJW Qualified Partners, LLC and
Insynq, Inc.
- ---------------- ------------------------------------------------------------------------------------------------
4.5* Stock Purchase Warrant dated December 6, 2002 between AJW Offshore, Ltd and Insynq, Inc.
- ---------------- ------------------------------------------------------------------------------------------------
4.6* Stock Purchase Warrant dated December 6, 2002 between AJW Qualified Partners, LLC and Insynq,
Inc.
- ---------------- ------------------------------------------------------------------------------------------------
4.7* Stock Purchase Warrant dated December 6, 2002 between AJW Partners, LLC and Insynq, Inc.
- ---------------- ------------------------------------------------------------------------------------------------
4.8* Secured Convertible Debenture dated December 6, 2002 between AJW Qualified Partners, LLC and
Insynq, Inc.
- ---------------- ------------------------------------------------------------------------------------------------
4.9* Secured Convertible Debenture dated December 6, 2002 between AJW Offshore, Ltd. and Insynq,
Inc.
- ---------------- ------------------------------------------------------------------------------------------------
4.10* Secured Convertible Debenture dated December 6, 2002 between AJW Partners, LLC and Insynq, Inc.
- ---------------- ------------------------------------------------------------------------------------------------
99.1* Certification of the Chief Executive Officer of Insynq, Inc. Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- ---------------- ------------------------------------------------------------------------------------------------
99.2* Certification of the Treasurer of Insynq, Inc. Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- ---------------- ------------------------------------------------------------------------------------------------
* Filed herewith
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form 10-QSB and has duly caused this Quarterly
Report to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Tacoma, State of Washington, on January 23, 2003.
INSYNQ, INC.
By: /S/ JOHN P. GORST
------------------
John P. Gorst
Chief Executive Officer
By: /S/ M. CARROLL BENTON
----------------------
M. Carroll Benton
Secretary and Treasurer
CERTIFICATION
I, John Gorst, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Insynq, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
January 23, 2003
/S/ JOHN P. GORST
Name: John P. Gorst
Title: Chief Executive Officer
CERTIFICATION
I, M. Carroll Benton, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Insynq, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
January 23, 2003
/S/ M. CARROLL BENTON
Name: M. CARROLL BENTON
Title: Secretary and Treasurer