As filed with the Securities and Exchange Commission on February 13, 2001.
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________________
INSYNQ, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2964608
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1101 BROADWAY PLAZA
TACOMA, WASHINGTON 98402
(Address of Principal Executive Offices) (Zip Code)
_________________________
STOCK OPTION AGREEMENT FOR DAVID S. WOLFE
(Full Title of the Plans)
_________________________
JOHN P. GORST
INSYNQ, INC.
1101 BROADWAY PLAZA
TACOMA, WASHINGTON 98402
(Name and Address of Agent for Service)
with a copy to:
STEPHEN L. SAPP
LOCKE LIDDELL & SAPP LLP
2200 ROSS AVENUE, SUITE 2200
DALLAS, TEXAS 75201
(253) 284-2000
(Telephone Number, Including Area Code, of Agent for Service)
================================================================================
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Title of Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered/(1)/ Per Share/(2)/ Offering Price Registration Fee
==============================================================================================
Common Stock, 500,000 $0.45 $22,000 $59.40
$.001 par value
==============================================================================================
(1) Represents the maximum number of shares of Common Stock of the Registrant
which are required to be registered pursuant to the grant of 500,000
exercised options under the Stock Option Agreement for David S. Wolfe (the
"Wolfe Agreement").
(2) Estimated solely for the purpose of calculating the registration fee. This
fee was calculated pursuant to Rule 457(c) under the Securities Act of 1933,
as amended (the "Act"), on the basis of the average of the bid and asked
prices for the Common Stock reported on the OTC Bulletin Board on February
9, 2001 for the 500,000 shares of Common Stock which have been exercised
pursuant to the Wolfe Agreement.
PART I
INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS
ITEM 1. PLAN INFORMATION.
The information specified by Item 1 of Part I of Form S-8 is omitted from
this filing in accordance with the provisions of Rule 428 under the Act and the
introductory note to Part I of Form S-8.
ITEM 2. REGISTRANT INFORMATION AND EMPLOYEE PLAN ANNUAL INFORMATION.
The information specified by Item 2 of Part I of Form S-8 is omitted from
this filing in accordance with the provisions of Rule 428 under the Act and the
introductory note to Part I of Form S-8.
REOFFER AND RESALE PROSPECTUS
500,000 Shares of Common Stock
INSYNQ, INC.
1101 Broadway Plaza
Tacoma, Washington 98402
Telephone Number: (253) 284-2000
The Selling Stockholder identified in this prospectus may offer and resell
up to 500,000 shares of our common stock under this prospectus. These shares
have been acquired by the Selling Stockholder pursuant to the terms of a stock
option agreement with David S. Wolfe.
We will not receive any proceeds from the sales of shares by the Selling
Stockholder. The Selling Stockholder may sell his shares of common stock through
public or private transactions, in the over-the-counter market with buyers, or
otherwise. He may sell his shares at prevailing market prices or at prices
privately negotiated with buyers. The Selling Stockholder will be responsible
for any commissions or discounts due brokers or dealers. The amount of those
commissions will be negotiated before the sales. We have agreed to pay all other
offering expenses.
Our common stock is quoted on the over-the-counter bulletin board under the
symbol "ISNQ." The average bid and asked price of our common stock on February
9, 2001 was $0.45 per share.
An investment in our common stock involves a high degree of risk. You
should carefully consider the matters set forth under "Risk Factors" starting on
page 1 of this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February 13, 2001
TABLE OF CONTENTS
Page
----
RISK FACTORS................................................ 1
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS.. 12
THE COMPANY................................................. 12
USE OF PROCEEDS............................................. 15
SELLING STOCKHOLDERS........................................ 15
PLAN OF DISTRIBUTION........................................ 15
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES.............................. 16
EXPERTS..................................................... 17
LEGAL MATTERS............................................... 17
WHERE YOU CAN FIND MORE INFORMATION......................... 17
INCORPORATION OF DOCUMENTS BY REFERENCE..................... 18
RISK FACTORS
An investment in our stock involves a high degree of risk. The following
information discusses certain significant factors that make an investment in our
common stock risky or speculative. However, the risks and uncertainties
described below are not the only ones we face, and certain other risks may
develop with the passage of time. Other risks, including those we do not
consider material, may impair our business. You should carefully consider the
following information in conjunction with the other information contained or
incorporated by reference in this prospectus, including the risks described in
our subsequent securities filings, before making a decision to invest in our
common stock.
Risks Particular to Insynq, Inc.
We have historically operated at a loss, have experienced negative
operating cash flows, and anticipate that losses will continue.
We have experienced net losses and negative cash flows since we began
implementing our current business plan. We expect that the ongoing
implementation of our current business plan will increase our net losses and our
negative cash flows for the foreseeable future as we continue to incur
significant operating expenses and make capital investments in our business. We
may never generate sufficient revenues to achieve profitability, and if we are
unable to make a profit, we may not be able to continue to operate our business.
Even if we do become profitable, we may not be able to sustain or increase
profitability on a quarterly or annual basis.
Our limited operating history makes evaluating our business difficult.
Insynq-WA commenced operations in September 1998. Accordingly, we have only
a very limited operating history upon which you can evaluate our business and
prospects. We face the risks, expenses and difficulties frequently encountered
by early-stage companies in new and rapidly evolving markets, including on-line
companies which host hardware and software applications for other companies. Our
past financial results may not be representative of our future financial
results.
There is substantial doubt about our ability to continue as a going
concern.
Due to our limited operations, we currently do not have sufficient revenue
to cover our operating costs to allow us to continue as a going concern
indefinitely. We are currently late in the payment of a number of our trade
payables, and our inability to raise additional capital to pay these payables,
along with our day to day operating expenses, could have a material adverse
effect on our operations and ability to continue as a business. We plan to
continue to raise funds through public and private debt and equity financings
and, consistent with this approach, have entered into several non-exclusive
financial advisory agreements.
Our quarterly results of operations fluctuate, which could result in a
lower price for our common stock.
Our quarterly results may be affected by factors that may be beyond our
control, including, but not limited to, the following:
. Introduction of new products or pricing programs by our competitors;
. Changes in pricing for, and changes in the gross margins of, certain
products, services, or lines of business as our business model
continues to develop;
. Difficulty managing growth;
. Technical difficulties or systems downtime affecting our services and
products;
. Variations in spending patterns by companies;
. Other business interruptions;
. Increases in necessary operating expenses;
. The amount and timing of costs associated with the development and
maintenance of new hardware and software products;
. Economic conditions specific to the Internet or to the hardware and
software hosting business, as well as general economic conditions;
. Customer acceptance of our products and business model;
. Costs and risks associated with potential acquisitions;
. Inability to acquire or lack of availability of necessary hardware or
software components, or difficulties in manufacturing; and
. Inability to provision additional bandwidth to adequately service
customer growth.
In addition, a substantial portion of our expenses, including most product
development and selling and marketing expenses, must be incurred in advance of
revenue generation. If our actual revenue does not meet our expectations, then
our operating profit, if any, may fall short of our expectations. Further, we
may change our pricing strategy for our products due to the rapidly evolving
market for hosting hardware and software applications, and this may affect our
quarterly results. Any one or more of these factors could affect our business,
financial condition, and results of operations, and this makes the prediction of
results of operations on a quarterly basis unreliable. As a result, period-to-
period comparisons of our historical results of operations may not be meaningful
and should not be relied on as an indication of our future performance. Also,
due to these and other factors, it is possible that our quarterly results of
operations may fall below the expectations of public market analysts and
investors. This could adversely affect the trading price of our common stock.
We will require additional capital and/or vendor credit in the future,
which may not be available to us.
In order to execute our short-term and long-term strategic plans, we need
to continue to raise funds through public or private debt or equity financing
and obtain and improve credit from key vendors. If we raise additional funds by
issuing equity securities, our stockholders may suffer material dilution in
their holdings of our common stock. Also, as a result of cash flow shortages
that have caused or may cause us to be delinquent on operating payments,
adequate funds and credit may not be available to us when we need them, or may
not be available to us on favorable terms. In this case, we may be not be able
to obtain or maintain key vendor products and services, develop or enhance our
products or services, take advantage of business opportunities, or respond to
competitive pressures, any of which could harm our business. If we are unable to
raise additional capital or maintain vendor credit, we will not be able to
achieve the goals set forth in our strategic plan and may be unable to continue
to operate our business.
Our future capital requirements and vendor relationships will depend upon
many factors, including the following:
. Costs to develop and maintain our on-line hosting of hardware and
software;
. The rate at which we expand our operations;
. Our ability to pay timely outstanding amounts to key vendors and
improve our credit rating;
. The extent to which we develop and upgrade our technology;
2
. The occurrence, timing, size and success of acquisitions; and
. The response of competitors to our service offerings.
Future demand for ASP services is highly uncertain.
The market for ASP services has only recently begun to develop and is
evolving rapidly. Future demand for these services is highly uncertain. We
believe that many of our potential customers are not fully aware of the benefits
of ASP services. We must educate potential customers regarding these benefits
and convince them of our ability to provide complete and reliable services. The
market for ASP services may never become viable or grow further. If the market
for our ASP services does not grow or grows more slowly than we currently
anticipate, our business, financial condition and operating results will be
materially adversely affected.
Our internal accounting and financial controls have weaknesses due
primarily to the lack of qualified accounting and financial staff prior to June
2000, and we are unable to determine to what extent these weaknesses have had on
our management systems and financial reporting.
From our inception through June 5, 2000, our controller and principal
accounting officer was also the owner and principal accounting officer of
Interactive Information Systems Corporation, or Interactive, a Washington
corporation, during which time an undetermined number of related party
transactions occurred between Insynq and Interactive.
When preparing for the audit of our consolidated financial statements for
the year ended May 31, 2000, our then chief financial officer and our in-house
financial team reported to us conditions they believed to be material weaknesses
in our system of internal accounting and financial controls related to the
financial statement process and reconciliation and analysis of general ledger
account balances. In response to this, we hired additional subsidiary accounting
personnel. We have begun to identify measures to improve our system of internal
controls, implement more rigorous internal accounting policies, procedures and
controls, and conduct accounting systems training. Further, we have selected a
more robust and capable accounting system and are planning its implementation.
However, these measures may not be successful in correcting the noted
deficiencies and we may experience similar or other deficiencies in the future
as we continue to expand our operations. If we are unable to establish and
maintain effective internal accounting and financial controls, we will not be
able to timely and accurately account for and monitor the operations of our
business and we therefore may not be able to properly execute our strategic
plan, which could have a material adverse affect on our business, results of
operations and financial condition.
We rely on technology and channel alliances and ISVs to refer many of our
clients to us.
We rely on referrals from channel alliances for a portion of our business.
Companies with whom we have strategic alliances, including Remedy and Macola,
refer their customers to us because we can provide an array of services that
complement the products and services they offer. However, these companies may
stop or substantially reduce referring business to us or they may decide to
cooperate with our competitors and thereby adversely impact or eliminate the
amount of referrals made to us. If these third party referrals cease or
materially decrease, our sales will materially decline and our business, results
of operations, and financial condition will be materially adversely affected.
If we are unable to obtain key software applications and hardware
components from certain vendors, we will be unable to deliver our services.
We rely on third-party suppliers, including Microsoft, Citrix, and Cisco to
provide us with key software applications and hardware components for our
infrastructure. Certain components or applications are only available from
limited sources. Our inability to obtain these products or other services,
including connectivity services, in a timely manner at an acceptable cost or at
all, may substantially inhibit our ability to deliver our services, and
consequently, our business, results from operations and financial condition will
be materially adversely affected.
3
Some of our ASP service contracts guarantee certain service levels.
Some of our ASP contracts contain service guarantees that obligate us to
provide our hosted applications at a guaranteed level of performance. To the
extent we fail to meet those service levels we may be obligated to provide our
customers certain services free of charge. If we continue to fail to meet these
service levels, our ASP customers have the right to cancel their contracts with
us. These credits or cancellations will cost us money, damage our reputation
with our customers and prospective customers, and could materially adversely
affect our business, results of operations and financial condition.
Rapid growth in our business due to an increase in the number of customers
purchasing our products and services could strain our operational and financial
resources and cause us to lose customers and increase our operating expenses.
Any increase in the volume of users of our computer systems could strain
the capacity of our software or hardware, which could lead to slower response
times or system failures. Any future growth may require us, among other things,
to:
. Expand and upgrade our hardware and software systems;
. Expand and improve our operational and financial procedures, systems
and controls;
. Improve our financial and management information systems;
. Expand, train and manage a larger workforce; and
. Improve the coordination among our product development, sales and
marketing, financial, accounting and management personnel.
We cannot assure you that our current level of personnel, systems, and
controls will be adequate to support future growth. Our inability to manage
growth effectively or to maintain the quality of our products and services could
cause us to lose customers and could materially increase our operating expenses.
If we do not increase awareness of our products and services, our ability
to reach new customers will be limited.
Our future success will depend, in part, on our ability to increase
awareness of our products and services. To do so, we must succeed in our
marketing efforts, provide high-quality products and services, and increase
traffic to our Website. If our marketing efforts are unsuccessful, or if we
cannot increase our brand awareness, we may not be able to attract new customers
and increase our revenues.
We depend heavily on our management team that has little experience working
together or managing a public company. We have also experienced turnover in our
management team, and this turnover could be disruptive to our abilities to work
together.
Our success depends, to a significant extent, upon the efforts and
abilities of John P. Gorst, chairman of the board and chief executive officer,
as well as on the efforts of other officers and senior management. Loss of the
services of any or all of the members of our executive management team, or
continued turnover in these positions, could have a material adverse affect our
business, results of operations, and financial condition and could cause us to
fail to successfully implement our business plan. Also, our executive management
team has worked together for less than one year, in part due to turnover in the
president and chief financial officer positions. The short period of time that
they have worked together, or their inability to work successfully together,
and/or continued turnover may adversely affect our ability to manage growth.
Moreover, our executive management team has a limited amount of experience
managing a public company. Our executive management team may not be able to
manage future growth, if any, or the demands of successfully operating a public
company.
There is intense competition for qualified technical professionals and
sales and marketing personnel, and our failure to attract and retain these
people could affect our ability to respond to rapid technological change and to
increase our revenues.
4
Our future success also depends upon our ability to attract and retain
qualified technical professionals and sales and marketing personnel. Competition
for talented personnel, particularly technical professionals, is intense. This
competition could increase the costs of hiring and retaining personnel. We may
not be able to attract, retain, and adequately motivate our personnel or to
integrate new personnel into our operations successfully.
We may not be able to protect our patents, copyrights, trademarks and
proprietary and/or non-proprietary technology, and we may infringe upon the
patents, copyrights, trademarks and proprietary rights of others.
Our services are highly dependent upon proprietary technology, including,
for example, our IQ Delivery System, which allows us to upgrade and manage the
customer's computing environment, both at the data center and customer level. In
addition, we rely on contracts, confidentiality agreements, and copyright,
patent, trademark, and trade-secrecy laws to protect our proprietary rights in
our technology. We have also obtained, or are pursuing, several trademark,
copyright, and patent registrations for our various product names. The
protective steps we have taken may not be adequate to deter misappropriation of
our proprietary information. In addition, some end-user license provisions
protecting against unauthorized use, copying, transfer and disclosure of a
licensed program may be unenforceable under the laws of certain jurisdictions
and foreign countries. In addition, the laws of some foreign countries do not
protect proprietary rights to the same extent as the laws of the United States.
Failure to adequately protect our intellectual property could harm our brand
name, devalue our proprietary content, and affect our ability to compete
effectively. Furthermore, defending our intellectual property rights could
result in the expenditure of significant financial and managerial resources,
which could materially adversely affect our business, results of operations and
financial condition. Also, it is possible that our competitors or others will
adopt product or service brands similar to ours, possibly leading to customer
confusion.
We utilize open source services and code for some products. While we can
modify open source and charge for it, we must release certain changes back to
the open source community, which may include competitors. This could negatively
affect our ability to compete effectively, and have a material adverse affect on
our financial condition and results of operations.
Some of our technology, including our proprietary code, performs functions
similar to technology available from third parties. Therefore, we could be
subject to claims that our technology infringes the proprietary rights of third
parties. Claims against us, even if without merit, could subject us to costly
litigation and could divert the time and attention of our technical and
management teams. A claim of infringement may require us, and our customers, to
obtain one or more licenses from third parties. We cannot assure you that we or
our customers will be able to obtain necessary licenses from third parties at a
reasonable cost or at all. Any failure to obtain a required license could have a
material adverse effect on our business, results of operations and financial
condition.
Disruptions to our data center, or to the offsite backup storage facilities
of third parties with whom we do business, could materially affect our business.
The continued and uninterrupted performance of our computer systems, and of
the backup storage facilities of third parties with whom we do business, is
critical to our success. Any system failure that causes interruptions in our
ability to deliver our products and services to our customers, including
failures that affect our customers' abilities to access our hosted hardware,
software, and stored data, could reduce customer satisfaction and, if sustained
or repeated, would reduce the attractiveness of our services or result in
material liabilities or costs.
Our hardware and software hosting business strategy, including data backup
and storage, depends on the consistent performance of our data center and those
of third parties. We offer offsite back-up storage of data for all customers.
Our current data center, and those of third parties, is vulnerable to
interruption from fire, earthquake, flood, power loss, connectivity failures,
vandalism and other malicious acts, and other events beyond our control,
including natural disasters. If the data center is damaged in any way, a
customer whose data is stored there may lose some or all data, despite routine
backup procedures. Our operations are dependent on our ability to protect our
computer system, and customer systems, applications and data against damages,
including, but not limited to those from computer viruses, fire, earthquake,
flood, power loss, connectivity failures, vandalism and other malicious acts,
and other events beyond our control, including natural disasters. Damage to our
computer system, or to the systems, applications, or data of our customers,
could delay or prevent delivery of our products and result in the loss of our
5
customers or in material liabilities. In addition, a failure of our
telecommunication providers to provide the data communications capacity in the
time frame required by us for any reason could cause interruptions in the
delivery of our products. Substantially all of our computer and communications
hardware is located at a single facility, and the loss of this hardware or the
data it contains would cause severe business interruptions. In the event that we
experience significant disruptions that affect our data center, we could lose
customers or fail to attract new customers, and our business, results of
operations and financial condition would be materially adversely affected.
We could experience breaches of security when transmitting data to or from
our customers, including the use of third-party vendor security technologies and
methodologies.
Our business depends upon our ability to securely transmit confidential
information between our data center, third-party backup locations, and the
servers of our customers, including the use of third-party vendor security
technologies and methodologies. Despite our physical design and setup, and the
implementation of a variety of security measures, there exists the risk that
certain unauthorized access, computer viruses, accidental or intentional
disturbances could occur. We may need to devote substantial capital and
personnel resources to protect against the threat of unauthorized penetration of
our delivery system or to remedy any problems that such penetration might cause.
The occurrence of any of these events could cause us to lose customers, cause
harm to our reputation, and expose us to material liability, all of which could
have a material adverse effect on our financial condition and results of
operations.
We depend on licensed software applications.
We depend on contracts with third-party software manufacturers to allow
their software applications to be hosted or run at our data center and provided
to our customers. We have entered into non-exclusive agreements with third-party
companies, including, but not limited to, Microsoft and Citrix that allow us to
host some of their software applications at our data center or re-license their
software applications to our customers. Under most of these agreements, the
software manufacturer can terminate its relationship with us for any reason by
giving us as little as 30 days notice. In these instances, the software
manufacturer is not liable to us, or to our customers, for any damages resulting
from termination. If our relationships with these software manufacturers are
terminated, or if these or other software manufacturers do not allow our
customers to obtain a license to operate the software application on our data
centers, our business, operating results and financial condition could be
materially adversely affected.
The hardware and software we use is complex and may contain defects.
Our service offerings depend on complex hardware and software that may
contain defects, particularly when initially introduced or when new versions are
released. Although we test internal and third party software applications prior
to deployment, we may not discover software defects that could affect our new or
current services or enhancements until deployed. These defects could cause
service interruptions or the loss of data, which could damage our reputation,
increase our operating costs, impair our ability to generate or collect revenue,
delay market acceptance or divert our management and technical resources. Any
software modifications we perform as part of our integration services could
cause problems in application delivery. Also, because we offer an open-source
software solution to our customers, they are likely to hold us accountable for
any problems associated with their software, even if the manufacturer caused the
problem or defect. Typically, software manufacturers disclaim liability for any
damages suffered as a result of software defects and provide only limited
warranties. As a result, we may have no recourse against the providers of
defective software applications.
Operating margins on certain products or lines of business may decline over
time.
Operating margins may be adversely affected by increases in material or
labor costs, heightened price competition, changes in channels of distribution,
or in the mix of products sold. We have recently introduced several new products
and services, and we plan to release additional new products or services in the
future. If warranty costs associated with new products or services are greater
than we have experienced historically, operating margins may be adversely
affected. Geographic mix, as well as the mix of configurations within each
product or service group may also impact our operating margins. We continue to
expand third party and indirect distribution channels, which generally result in
reduced operating margins. In addition, increasing third party and indirect
distribution channels
6
generally results in greater difficulty in forecasting the mix of our products,
and to a certain degree, the timing of our orders.
We also expect that our operating margins may decrease as we continue to
hire additional personnel and increase other operating expenses to support our
business. Because these expenses are relatively fixed in the short term, a
shortfall in revenue could lead to operating results that fall below
expectations.
We are involved in, and may become involved in, legal proceedings with
former employees, consultants, and other third parties that, if determined
against us, could require us or one or more of our executives, to issue or
transfer a significant amount of our shares of common stock and perhaps pay
damages. The issuance of a significant number of shares of our common stock,
especially if at a large discount to the then-current market price, will dilute
our stockholders, and the payment of damages could materially adversely affect
our financial condition, results of operations, and therefore, our ability to
achieve our business plan.
We were party to a lawsuit in which the plaintiff, who is the widow of a
former principal and shareholder of Insynq-WA, sought the rescission of an
agreement pursuant to which our chief executive officer purchased 2,500,000
shares from her, a decision from the court that the agreement is unenforceable,
and damages in an unspecified amount. We have settled this lawsuit.
We were party to a lawsuit in which our former president and chief
operating officer sought damages in excess of $3,000,000 for various claims,
including breach of contract of employment, regarding the termination of his
employment agreement. We have settled this lawsuit.
We have received correspondence from a shareholder which appears to
threaten litigation against us. The allegations against us are vague, but appear
to relate to the shareholder's belief that we have not timely registered
warrants held by the shareholder.
Certain of our Series A and Series B warrant holders have also indicated
that they might file suit against us if they do not receive registration rights
satisfactory to them.
In the past, we have negotiated with third parties and entered into
contracts, in the normal course of our business, with advisors, consultants and
others based on business plans and strategies that we may no longer be pursuing.
We believe that such negotiations were terminated and that those contracts are
no longer effective. However, it is possible that the other parties to those
negotiations and contracts could claim that we did not fulfill our obligations.
If a court found that we are obligated under any of those contracts,
arrangements or otherwise, we could be liable for an undeterminable amount of
compensation or stock or both.
Our stockholders may suffer material dilution if a material number of
options are awarded. If any such litigation occurs, it is likely to be expensive
for us. If such suits are determined against us, and a court awards a material
amount of cash damages, our business, results of operations and financial
condition will be materially adversely affected. In addition, any such
litigation could divert management's attention and resources.
We plan to grow, in part, through mergers with and acquisitions of other
companies. However, we may not be able to identify, acquire, and successfully
integrate future acquisitions into our own operations, which could materially
adversely affect our growth and our operating results.
Our business strategy contemplates that we will seek a number of
significant acquisitions within the next few years. While we have initiated
discussions with several acquisition targets, there is no assurance that we will
complete any such acquisitions or, if we do complete acquisitions, whether we
will successfully integrate these acquisitions into our business. In addition,
there is no assurance that if we acquire any businesses, we will achieve
anticipated revenue and earnings. Our failure to acquire suitable companies or
to successfully integrate any acquired companies into our operations could have
a material adverse effect upon our business, operating results, and financial
condition.
7
Many of our installations, testing agreements, and consulting contracts
have fixed prices, which expose us to cost overruns. If we are not able to
control cost overruns, our operating results could be materially adversely
affected.
We undertake certain projects on a fixed-price basis rather than billing on
a time-and-materials basis, or on a per employee or user basis. Projects with
cost overruns would cause our expenses to increase, and would materially
adversely affect our business, operating results, and financial condition.
Many companies use names similar in sound or spelling to "Insynq."
Intellectual property infringement claims against us for the use of the name
"Insynq," or one similar in sound or spelling, even if without merit, could be
expensive to defend and divert management's attention from our business. If a
claim to stop us from using our name is successful, we will have to either buy
the right to use our name, which may be expensive, or change our name, which may
also be expensive.
We are aware that other companies have claimed use of names similar to
"Insynq" for products or services similar to our own. We are in the process of
investigating the rights, if any, others may have to the name. In addition, we
are attempting to register "Insynq" as a trademark in the United States, Europe,
and Canada. However, we may not be able to obtain proprietary rights to the use
of this name. We will incur expenses if called to defend our use of the "Insynq"
name. Any such litigation, even if without merit, may be time consuming and
expensive to defend. It also could divert management's attention and resources
and require us to enter into costly royalty or licensing agreements. In
addition, if any company in our industry is able to establish a use of the
"Insynq" name that is prior to our use, we could be liable for damages and could
be forced to stop using the name unless we are able to buy the right to use the
name. If we are unable to buy the right to use our name after we lose an
infringement claim, we would have to change our name, which may require us to
spend money to build new brand recognition and incur other costs. Third parties
may assert other infringement claims against us. Any of these events could have
a material adverse effect on our business, financial condition, and results of
operations.
Others may seize the market opportunity we have identified because we may
not efficiently execute our strategy.
If we fail to execute our strategy in a timely or effective manner, our
competitors may be able to seize the marketing opportunities we have identified.
Our business strategy is complex and requires that we successfully and
simultaneously complete many tasks. In order to be successful, we will need to:
. Negotiate effective strategic alliances and develop economically
attractive service offerings;
. Attract and retain customers;
. Attract and retain highly skilled employees;
. Integrate acquired companies into our operations; and
. Evolve our business to gain advantages in an increasingly
competitive environment.
In addition, although some of our management team has worked together for
approximately one year, there can be no assurance that we will be able to
successfully execute all elements of our strategy.
Our industry is characterized by rapidly changing technology with
continuous improvements in both computer hardware and software, and rapid
obsolescence of current systems. If we do not respond effectively and on a
timely basis to rapid technological change in our industry, we will not be able
to effectively sell our services and our sales will materially adversely
decline.
We must continually buy new computer hardware and license new computer
software systems to effectively compete in our industry. Our software delivery
methodologies must be able to support changes in the underlying software
applications that are delivered to our customers. The rapid development of new
technologies increases the risk that current or new competitors could develop
products or services that would reduce the competitiveness of our products or
services. We rely on software providers to produce software applications that
keep pace with our customers' demands.
8
There is no assurance that we will successfully develop or adopt new
technologies, introduce new services or enhance our existing services on a
timely basis, or that new technologies, new services or enhancements we use or
develop will achieve market acceptance. If we fail to address these
developments, we will lose sales to our competitors, and our business, operating
results and financial condition will be materially adversely affected.
Although our current operations include operating as a technology-focused
company, our previous business activities included gaming, natural resource
mining, and exploration. As a result, we may be exposed to unknown
environmental and other liabilities that could require us to expand our
financial resources and materially adversely affect our financial condition.
The assets of a predecessor company were acquired by a publicly-traded
company that was engaged, prior to August 1999, in gaming, and prior to 1993, in
natural resource exploration and development, including mining, and oil and gas.
We no longer own any mining, oil and gas, or gaming-related assets. The mining,
mineral processing, and oil and gas industries are subject to extensive
governmental regulations for the protection of the environment, including
regulations relating to air and water quality, site reclamation, solid and
hazardous waste handling and disposal and the promotion of occupational safety.
We could be held responsible for any liabilities relating to our previous
involvement in gaming, mining or oil and gas exploration and development, which
liabilities would result in our spending our cash resources and could have a
material adverse effect on our business, financial condition and results of
operations.
Reliability Of Market Data
Market data used within this report was obtained from internal sources and
from industry publications. Such industry publications typically contain a
statement to the effect that the information contained therein was obtained from
sources considered to be reliable, but that the completeness and accuracy of
such information is not guaranteed. While we believe that the market data
presented herein is reliable, we have not independently verified such data.
Similarly, market data supplied by internal sources, which we believe to be
reliable, has not been verified by independent sources.
Third Party Reports and Press Releases
We do not make financial forecasts or projections, nor do we endorse the
financial forecasts or projections of third parties or comment on the accuracy
of third party reports. We do not participate in the preparation of the reports
or the estimates given by analysts. Analysts who issue financial reports are not
privy to non-public financial information. Any purchase of our securities based
on financial estimates provided by analysts or third parties is done entirely at
the risk of the purchaser.
We periodically issue press releases to update stockholders on new
developments relating to Insynq and our business. These releases may contain
certain statements of a forward-looking nature relating to future events or our
future financial performance within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and which are intended to be covered by the safe harbors created
thereby.
Readers are cautioned that such statements are only predictions, and that
actual events or results may materially differ with those statements. In
evaluating such statements, readers should specifically review the various risk
factors described herein, among others we identify in documents we file with the
SEC, which could cause actual results to differ materially from those indicated
by such forward-looking statements.
Risks Related to Our Industry
The failure of the Internet to grow or to remain a viable commercial medium
could harm our growth.
Our success depends in large part on the maintenance of the Internet
infrastructure as a reliable network backbone that provides adequate speed, data
capacity, and security. Our success also depends on the timely development of
products, such as high-speed modems, that enable reliable Internet access and
services. The Internet
9
may continue to experience significant growth in the number of users, frequency
of use and amount of data transmitted. The Internet infrastructure may not be
able to support the demands placed on it and the performance or reliability of
the Internet may be adversely affected by this continued growth. In addition,
the Internet could lose its commercial viability if the number of people who use
the Internet does not continue to grow. A number of factors, including
unreliable service, unavailability of cost-effective, high-speed access to the
Internet or concerns about security, could impede this growth. The
infrastructure or complementary products and services necessary to maintain the
Internet as a viable commercial medium may not be developed, and, as a result,
the Internet may not continue to be a viable commercial medium for us.
If the government adopts regulations that charge Internet access fees or
impose taxes on subscriptions to our Web-based products, our operating expenses
will increase.
Currently, there are few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted that address issues such as pricing and the characteristics of products
and services. In addition, several connectivity companies have petitioned the
Federal Communications Commission to regulate Internet and on-line service
providers in a manner similar to long-distance telephone carriers and to impose
access fees on them. This regulation, if imposed, could increase the cost of
transmitting data over the Internet. Moreover, it may take years to determine
the extent to which existing laws relating to issues such as intellectual
property ownership and infringement, libel, obscenity and personal privacy are
applicable to the Internet. Finally, state tax laws and regulations relating to
the provision of products and services over the Internet are still developing. A
few states have tried to impose taxes on products and services provided over the
Internet. If additional states try to do so, our operating costs may increase
and we may not be able to increase the price that we charge for our products to
cover these costs. Any new laws or regulations or new interpretations of
existing laws and regulations relating to the Internet could decrease the growth
in the use of the Internet, decrease the demand for traffic on our Website,
increase our operating expenses, or otherwise adversely affect our business.
Our industry is rapidly changing.
Our industry is characterized by rapidly changing technology with
continuous improvements in both computer hardware and software. If we do not
respond effectively and on a timely basis to rapid technological change in our
industry, we will not be able to effectively sell our services and our sales
will materially decline. We must continually purchase new computer hardware and
license new computer software systems to effectively compete in our industry. In
addition, our software delivery methodologies must be able to support changes in
the software applications that are delivered to our customers. The rapid
development of new technologies increases the risk that current or new
competitors could develop products or services that would reduce the
competitiveness of our products or services. And moreover, we rely on software
providers to produce software that keeps pace with our customers' demands.
We may not successfully develop or adopt new technologies, introduce new
services or enhance our existing services on a timely basis; in addition, new
technologies, services, or enhancements we use may never achieve market
acceptance. If we fail to address these developments, we will lose sales to our
competitors and our business, operating results, and financial condition will be
materially adversely affected.
Risks Related to Our Common Stock
Anti-takeover actions and/or provisions could prevent or delay a change in
control.
Provisions of our certificate of incorporation and bylaws and Delaware law
may make it more difficult for a third party to acquire us, even if so doing
would be beneficial to our stockholders. These include the following:
. Our board of directors is authorized to issue of up to 10,000,000
shares of preferred stock and to fix the rights, preferences,
privileges and restrictions of those shares without any further vote
or action by the stockholders, which may be used by the Board to
create voting impediments or otherwise delay or prevent a change in
control or to modify the rights of holders of our common stock;
10
. Our board of directors is authorized to issue of up to 10,000,000
shares of class A common stock pursuant to which the holders of such
stock are entitled to three (3) votes for each share held, on all
matters submitted to stockholders, which voting power may be used by
the holders of such stock to create voting impediments or otherwise
delay or prevent a change in control or to modify the rights of
holders of our common stock;
. A prohibition on cumulative voting in the election of directors,
which would otherwise allow less than a majority of stockholders to
elect directors;
. Our articles of incorporation provide that Section 203 of the
Delaware General Corporation Law, an anti-takeover law, will not
apply to us. In general, this statute prohibits a publicly held
Delaware corporation from engaging in a business combination with an
interested stockholder for a period of three years after the date of
the transaction by which that person became an interested
stockholder, unless the business combination is approved in a
prescribed manner. For purposes of Section 203, a business
combination includes a merger, asset sale of other transaction
resulting in a financial benefit to the interested stockholder, and
an interested stockholder is a person who, together with affiliates
and associated, owns, or within three years prior, did own, 15% or
more of our voting stock; and
. Limitations on who may call annual and special meetings of
stockholders.
Control by officers and directors could have an adverse effect on our
stockholders.
As of February 9, 2001, our directors, executive officers, and their
affiliates beneficially owned approximately 60.3% of our outstanding common
stock. John P. Gorst, our chairman of the board and chief executive officer,
beneficially owns approximately 37.2% of our outstanding common stock and M.
Carroll Benton, our chief administrative officer, secretary and treasurer
beneficially owns approximately 21.2% of our outstanding common stock. As a
result, these stockholders, acting together, have the ability to control
substantially all matters submitted to our stockholders for approval, including
the election and removal of directors and any merger, consolidation, takeover or
other business combination involving us, and to control our management and
affairs. This may discourage a potential acquirer from making a tender offer or
otherwise attempting to obtain control of us, which could materially adversely
affect the market price of our common stock.
The volatility of our stock price could adversely affect our stockholders.
There currently is a public market for our common stock, but there is no
assurance that there will always be such a market. The trading price of our
common stock is highly volatile and could be subject to wide fluctuations in
response to factors such as:
. Actual or anticipated variations in quarterly operating results;
. Announcements of technological innovations;
. New sales methodologies, contracts, products or services by us or our
competitors;
. Changes in financial estimates by securities analysts;
. Announcements of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
. Additions or departures of key personnel;
. Sales of common stock; or
. Other general economic or stock market conditions, many of which are
beyond our control.
In addition, the stock market in general, and the market for Internet-
related and technology companies in particular, have experienced extreme price
and volume fluctuations that have often been unrelated or disproportionate to
the operating performance of such companies. The trading prices of many
technology companies' stock have, during the last year, been at or near
unprecedented levels. There can be no assurance that these trading prices and
price-to-earnings predictions will be repeated. These broad market and industry
factors may materially adversely affect the market price of our common stock,
regardless of our operating performance. Historically, following periods of
volatility in the market price of a company's securities, securities class
action
11
litigation has often been instituted against that company. The institution of
similar litigation against us could result in substantial costs and a diversion
of management's attention and resources, which could have a material adverse
effect on our business, financial condition, and results of operations.
You should not expect to receive dividends from us.
We currently do not anticipate paying any cash dividends on our common
stock in the foreseeable future and we intend to retain our earnings, if any, to
finance the expansion of our business and for general corporate purposes. Any
payment of future dividends will be at the discretion of our board of directors
and will depend upon, among other things, our earnings, financial condition,
capital requirements, level of indebtedness, contractual restrictions, and other
factors that our board of directors deems relevant.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
----------------------------------------------------------
We have made forward-looking statements in this prospectus and in the
documents incorporated by reference in this prospectus that are based upon the
beliefs and assumptions of, and on information available to, management, and are
subject to risks and uncertainties. Forward-looking statements include the
information concerning our possible or assumed future results of operations,
capital resources and portfolio performance, and those statements preceded by,
followed by or that include the words "may," "will," "could," "should,"
"believes," "expects," "plans," "seeks," intends," "estimates," "anticipates" or
similar expressions, or by discussions of strategy, plans or intentions.
You should not rely on forward-looking statements because they are subject
to known and unknown risks, uncertainties and other factors that may cause our
actual results to differ materially from those contemplated by the forward-
looking statements. These include, but are not limited to, the following:
. general economic and business conditions, both nationally and in our
markets;
. assumed growth in usage of the Internet;
. assumed growth in the number of lawyers;
. our expectations and estimates concerning future financial
performance, financing plans and the impact of competition;
. anticipated trends in our business;
. existing and future regulations affecting our business; .
. our acquisition opportunities; and
. other risk factors set forth under "Risk Factors" in this prospectus.
You are cautioned not to place undue reliance on forward-looking
statements, which reflect management's analysis only as of the date of this
prospectus. We assume no obligation to update forward-looking statements.
THE COMPANY
General
We are a Delaware corporation that was formerly known as Xcel Management,
Inc. We are a provider of Internet computer appliances, operating systems,
computer/ Internet related telephony requirements and services, access to web
services of all kinds, access to Internet marketing assistance and related
equipment and services. We offer these as an integrated whole. In other words,
we are an on-line provider of hardware and software in a hosted environment,
together with related support services, on a rental, fee or sales basis. We
target small and medium
12
sized businesses and high-end home offices for the sale of hosted hardware and
software and access to related services. We provide these products and services
not in a retail setting, but by developing a customer subscriber base that
adopts a cost effective on-line solution to building and maintaining an
information technology system through the adoption of a "web-based" computing as
an alternative to both local area networks (LAN's) and traditional client/server
implementations. We attempt to concentrate on the small and medium sized
business and high-end home office user ("SOHO") and market ourselves as an
"Internet utility company" that can provide cost-effectively all of the computer
software, hardware, telecommunication and Internet needs for those markets, on a
subscription basis.
Corporate History
We became a public company effective as of February 18, 2000 when we
entered into an asset purchase agreement with Insynq, Inc. a closely-held
Washington company. As a result of that transaction, Xcel Management, Inc.
became fully-engaged in the business of Insynq. On August 3, 2000, Xcel
completed a reincorporation merger whereby it merged with and into its wholly-
owned subsidiary, Insynq, Inc., a Delaware company, thus changing its name to
"Insynq, Inc."
What We Provide
We are a provider of Internet computer appliances, operating systems,
computer/ Internet related telephony requirements and services, access to web
services of all kinds, access to Internet marketing assistance and related
equipment and services. We offer these as an integrated whole. In other words,
we are an on-line provider of hardware and software in a hosted environment,
together with related support services, on a rental, fee or sales basis.
We target small and medium sized businesses and high-end home offices for
the sale of hosted hardware and software and access to related services. We
provide these products and services not in a retail setting, but by developing a
customer subscriber base that adopts a cost effective on-line solution to
building and to maintain an information technology system through the adoption
of a "web-based" computing as an alternative to both local area networks (LAN's)
and traditional client/server implementations. We attempt to concentrate on the
small and medium sized business and high-end home office user ("SOHO") and
market ourself as an "Internet utility company" that can provide cost-
effectively all of the computer software, hardware, telecommunication and
Internet needs for those markets, on a subscription basis.
We believe our core competency is providing products and services related
to server-based and hosted computing. We believe we have gained credibility in
the industry with strategic relationships with companies such as Hewlett-Packard
Company, Citrix Systems, Inc., and Global Crossing Ltd. We believe these
companies have chosen to strategically align with us in various capacities that
combine the hardware, software, and access required to build a successful
delivery mechanism for our hosted services.
The Company's Proprietary IQ Delivery System Network and Computing
Utilities System
Our Internet Utility service and our IQ delivery system were originally
developed by Interactive, a computer integration company located in Tacoma,
Washington. The early state of the IQ delivery system was purchased by Insynq-
WA in September 1998, and was subsequently assumed by Xcel as part of the
Insynq-WA asset purchase agreement in February 2000. The complete IQ Delivery
System includes managed network and application services, and can span from a
customer's keyboard to the Insynq Data Center. Insynq provides certain
equipment, which is kept on its customer's premises, including a simplified,
diskless workstation or thin client, and multi-function router that we manage
and maintain. The system can also include Internet-access services provided by
Global Crossing or another provider. The final piece of the system is the Insynq
Data Center, which is located at the Tacoma Technology Center, and is managed by
us. This facility, with redundant power, bandwidth, and cooling, houses our
Hewlett-Packard server equipment and Cisco routers. While we recommend that
customers use the full IQ Delivery System, they are free to choose which
components they use.
In the process of developing the IQ Delivery System, we believe we acquired
valuable technological expertise. We have created new methodologies and produced
proprietary hardware and software that we believe is essential to the
configuration and effective management of Internet-based networks and outside
deployment of
13
shared software applications. Some of our key employees are certified as
Microsoft Systems Engineers, Microsoft Certified Professionals, Certified
Netware Administrators, Certified Citrix Administrators, Certified Netware
Engineers and Certified Cisco Architects.
To support Microsoft Corporation's Windows-based applications, the IQ
Delivery System uses proprietary Citrix Systems, Inc., independent computer
architecture protocol to increase end-user performance and reduce a customer's
total cost of owning and maintaining computer hardware and software. Our
technology utilizes a simple appliance at the client site that allows us to
manage all hosted application processing functions. The centrally managed
servers also house customers' data, provide storage and backup, file and
directory security, and anti-virus protection.
The IQ Delivery System receives and transmits information in the form of
images rather than data, requiring less bandwidth than traditional client-server
configurations. Customers may connect to the IQ Delivery System via a variety of
carriers and connectivity technologies, including public access over the
Internet with encryption, through private connections, or other available access
methods. Properly scaled and provisioned connections, whether public or private,
generally provide a quality end-user experience.
A thin client is a type of simplified, diskless workstation. Internet
browser-based Thin Client devices, also called Internet appliances, allow a user
to interact with Internet content using only a monitor, keyboard, and a mouse.
The Internet appliance actually does very little since its functions are limited
to sending user instructions to an outsourced provider. Using the IQ Delivery
System, an Internet appliance communicates the user's data-entry and retrieval
commands to servers located at the Insynq Data Center, where all computing
functions are performed. Internet appliances do not have disk or tape drives,
which generally increases customer productivity by restricting users' ability to
install extraneous software applications, such as computer games, or tamper with
a computer's operating system. This access device imposes a singleness of
purpose upon the operation, and improves manageability, simplicity, and
reliability. This is the user option recommended by us.
The traditional workstation, utilizing a central processing unit, or CPU
and disk resources, constitutes the second type of customer configuration.
These customers may need to use fully equipped workstations for certain
individual seats that utilize non-Windows software applications or very
specialized, complex applications such as computer aided design, or CAD
programs. This is not our recommended option because it does not free the
customer from the technical problems and service costs associated with
maintaining this type of configuration. Customers may choose to use existing
workstations to connect to the IQ Delivery System, and can be accomplished by
using a Citrix independent computer architecture software client and a standard
network interface card, or NIC. However, because this machine uses an operating
system that Insynq does not manage, the workstation may be more susceptible to
various failures.
Once connected to the IQ Delivery System, users can acquire any of the
following computer services.
Virtual Office - We can establish a virtual office for a customer, allowing
professionals, employers, employees, clients, and customers to utilize a wide
variety of software applications and/or interact directly in a network
environment. This office is always open, irrespective of the time of day or the
user's location.
Office Suite - Customers may select from one of three (3) Office Suites as
part of the virtual desktop subscription. Customers may also select from a wide
variety of fully supported Windows-based software. We serve some vertical
markets and in many cases incorporate specialized software for these customers.
We regularly test new applications and make them available to our customers. If
a customer wishes to use Windows-based software that is not already offered for
use with our service, we may test, and subsequently configure, load, and
maintain compatible applications for an additional monthly fee.
Internet Connection - We may provide customers with connectivity to the
Internet at a discounted rate as part of our service.
Web Site Hosting - For an additional fee, we may put the customer's
Internet Web site on one of our servers and host the site for them. Further, we
can assist our customer in performing Web site changes and updates.
14
Data Back-up and Storage - The IQ Delivery System provides daily automatic
backup of customer data on high-speed tape and logs the backups. Upon request, a
customer can receive their backup data and related backup logs. On average we
provide one (1) gigabyte of data storage with each business subscription. For
larger customers, we tailor storage requirements to the customers' needs and
price it accordingly.
Security - Our IQ Delivery System generally raises the level of a
customer's computer security in several ways. First, our servers are located in
biometrically secured rooms, with keycard access. Second, customers utilizing
thin client technology additionally prevent unauthorized disk installation and
installation of extraneous software, both of which can introduce computer
corruptions and viruses. Third, access to customer data is restricted through
the use of secured application servers located at the Insynq Data Center, which
is protected by firewall filters and Internet protocol based networking rules.
Last, customer data is rarely transmitted; transmissions between the customer's
site and the servers located in the Insynq Data Center generally occur in the
form of indecipherable, encrypted images.
Redundancy - Our IQ Delivery System secures customer data on redundant disk
arrays with ready spare disk drives. We make a best effort to assure
application redundancy so that if one server fails, we can reroute customers to
similar servers, thereby minimizing customer downtime.
Our principal executive offices are located at 1101 Broadway Plaza, Tacoma,
Washington, 98402. Our telephone number at that location is (253) 284-2000.
Our web site is www.insynq.com.
USE OF PROCEEDS
The shares of common stock offered by this reoffer prospectus are being
registered for the account of the Selling Stockholder who will receive all
proceeds from the sale of Common Stock hereunder.
SELLING STOCKHOLDER
The common stock offered by this prospectus has been acquired by the
Selling Stockholder pursuant to the exercise of stock options granted under a
stock option agreement with David S. Wolfe, the Company's Director of Mergers
and Acquisitions, which is attached as an exhibit to the registration statement
of which this prospectus is a part. The Selling Stockholder will receive all of
the net proceeds from the sale of his shares of common stock.
The following table sets forth information regarding shares of our common
stock beneficially owned by the Selling Stockholder as of February 9, 2001.
Since the Selling Stockholder may sell all, some or none of his shares, no
estimate can be made of the total number of shares that are to be offered by the
Selling Stockholder under this prospectus or that will be beneficially owned by
the Selling Stockholder upon the completion of the offering to which this
prospectus relates.
Number of Shares of Maximum Number of
Common Stock Shares of Common Stock
Name Beneficially Owned Offered Hereby
---- ------------------ ----------------------
David S. Wolfe 825,000* 500,000
* Includes 300,000 options with an exercise price of $0.81 per share
and 25,000 options with an exercise price of $2.00.
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling Stockholder.
As used herein, "Selling Stockholder" includes donees and pledgees selling
shares received from the named Selling Stockholder after the date of this
prospectus. All costs, expenses and fees in connection with the registration of
the Shares offered hereby will be borne by the Company. Brokerage commissions
and similar selling expenses, if any, attributable to the sale
15
of Shares will be borne by the Selling Stockholder. Sales of Shares may be
effected by the Selling Stockholder from time to time in one or more types of
transactions (which may include block transactions) in the over-the-counter
market, in negotiated transactions, through put or call options transactions
relating to the Shares, through short sales of Shares, or a combination of such
methods of sale, at market prices prevailing at the time of sale, or at
negotiated prices. Such transactions may or may not involve brokers or dealers.
The Selling Stockholder has advised the Company that he has not entered into any
agreements, understandings or arrangements with any underwriters or broker-
dealers regarding the sale of his securities, nor is there an underwriter or
coordinating broker acting in connection with the proposed sale of Shares by the
Selling Stockholder.
The Selling Stockholder may effect such transactions by selling Shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Stockholder and/or the
purchasers of Shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both (which compensation as to a particular broker-
dealer might be in excess of customary commissions).
The Selling Stockholder and any broker-dealers that act in connection with
the sale of Shares might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act, and any commissions received by such
broker-dealers and any profit on the resale of the Shares sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act. The Selling Stockholder may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving sales
of the Shares against certain liabilities, including liabilities arising under
the Securities Act.
Because the Selling Stockholder may be deemed to be an "underwriter" within
the meaning of Section 2(11) of the Securities Act, the Selling Stockholder will
be subject to the prospectus delivery requirements of the Securities Act. The
Selling Stockholder also may resell all or a portion of the Shares in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
it meets the criteria and conforms to the requirements of such Rule. Upon the
Company being notified by the Selling Stockholder that any material arrangement
has been entered into with a broker-dealer for the sale of Shares through a
block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, a supplement to this prospectus will be
filed, if required, pursuant to Rule 424(b) under the Act, disclosing (i) the
name of each such selling shareholder and of the participating broker-dealer(s),
(ii) the number of shares involved, (iii) the price at which such shares were
sold, (iv) the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not
conduct any investigation to verify the information set out or incorporated by
reference in this prospectus and (vi) other facts material to the transaction.
In addition, upon the company being notified by the Selling Stockholder that a
donee or pledgee intends to sell more than 500 shares, a supplement to this
prospectus will be filed.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation contains a provision eliminating the monetary
liability of a director for breach of fiduciary duty, subject to certain
exceptions. The provision does not eliminate a director's liability for (i)
breaches of the director's duty of loyalty to the Company or its shareholders,
(ii) acts or omissions not in good faith or involving intentional misconduct or
a knowing violation of law, (iii) the payment of unlawful dividends or unlawful
stock repurchases or redemptions, or (iv) any transaction from which the
director derived an improper personal benefit. Furthermore, the provision does
not limit equitable remedies, such as an injunction or rescission for breach of
a director's fiduciary duty of care.
The Delaware General Corporation Law permits, and in some cases requires, a
corporation to indemnify directors and officers who are or have been a party or
are threatened to be made a party to litigation against certain expenses,
judgments, fines, settlements, and other amounts under certain circumstances.
Article IX of the Company's Bylaws provides for indemnification of and
advancement of expenses to directors, officers, employees, and agents to the
fullest extent authorized or permitted by the Delaware General Corporation Law.
16
The Company has in force an officers' and directors' liability insurance
policy insuring, up to specified amounts and with specified exceptions,
directors and officers and former directors and officers of the Company and its
subsidiaries against damages, judgments, settlements and costs for which they
are not indemnified by the Company that any such persons may become legally
obligated to pay on account of claims made against them for any error,
misstatement or misleading statement, act or omission, or neglect or breach of
duty committed, attempted or allegedly committed or attempted by such persons in
the discharge of their duties to the Company in their capacities as directors or
officers, or any matter claimed against them solely by reason of their serving
in such capacities.
We hereby undertake to insofar as indemnification for liabilities arising
under the Act may be permitted to our directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by us of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
EXPERTS
Our audited financial statements included in our Annual Report on Form 10-
KSB/A for the year ended May 31, 2000 have been audited by G. Brad Beckstead,
CPA, independent auditor, as indicated in the report included therein. Such
consolidated financial statements are incorporated herein by reference in
reliance upon the authority of G. Brad Beckstead, CPA, as an expert in giving
said report.
LEGAL MATTERS
Particular legal matters, including the legality of the shares of common
stock offered hereby, will be passed upon by Locke Liddell & Sapp LLP, Dallas,
Texas.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement of which this prospectus forms a
part. The registration statement, including the attached exhibits and
schedules, contain additional relevant information about us. The rules and
regulations of the SEC allow us to omit some of the information included in the
registration statement from this prospectus. You may inspect or obtain a copy
of the registration statement, including the exhibits and schedules, as
described below.
In addition, we have filed reports and other information with the SEC under
the Securities Exchange Act of 1934. You may read and copy any of this
information at the following locations of the SEC:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
You may obtain information on the operation of the SEC's Public Reference
Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet web site that contains reports, proxy
statements and other information regarding issuers, like ourselves, that file
electronically with the SEC. The address of that site is
17
http://www.sec.gov. The SEC file number for our documents filed under the
Securities Exchange Act of 1934 is 000-22814.
-
Our web site address is http://www.insynq.com. Our common stock is quoted on
the over-the-counter bulletin board under the symbol "ISNQ."
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus and the information we file later with
the SEC will automatically update and supersede this information. We
incorporate by reference the following documents listed below and any future
filings made with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the date of this prospectus and
prior to the termination of this offering of shares of our common stock. The
documents we are incorporating by reference are:
(1) The Company's Annual Report on Form 10-KSB for the fiscal year ended
May 31, 2000, as amended by Form 10-KSB/A filed on December 6, 2000.
(2) The Company's Quarterly Reports on Form 10-QSB for the quarters ended
August 31, 2000 and November 30, 2000.
(3) The Company's Current Reports on Form 8-K dated June 29, 2000, August
17, 2000, September 27, 2000 and October 13, 2000, as amended.
(4) The Company's Registration Statement on Form SB-2 dated January 9,
2001.
(5) The description of the Company's Common Stock contained in the
Company's Form S-1/A Registration Statement dated December 3, 1993 and
filed with the Securities and Exchange Commission (the "Commission"),
including any amendments or reports filed for the purposes of updating
such description.
(6) All other reports filed pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended.
You may request a copy of these filings at no cost by writing or
telephoning M. Carroll Benton at:
Insynq, Inc.
1101 Broadway Plaza
Tacoma, Washington 98402
Telephone Number: (253) 284-2000
18
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The documents set forth below are hereby incorporated by reference in this
Registration Statement. All documents subsequently filed by Insynq, Inc. (the
"Company") pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), prior to the filing of a
post-effective amendment which indicates that all securities offered hereby have
been sold or which deregisters the securities offered hereby then remaining
unsold, shall be deemed to be incorporated by reference in this Registration
Statement and to be a part hereof commencing on the respective dates on which
such documents are filed. Any statement contained in a document incorporated or
deemed to be incorporated by reference in this Registration Statement shall be
deemed to be modified or superseded for purposes of this Registration Statement
to the extent that a statement contained in this Registration Statement or in
any other subsequently filed document which also is or is deemed to be
incorporated by reference in this Registration Statement modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed to constitute a part of this Registration Statement, except as such
statement is so modified or superceded.
(1) The Company's Annual Report on Form 10-KSB for the fiscal year ended
May 31, 2000, as amended by Form 10-KSB/A filed on December 6, 2000.
(2) The Company's Quarterly Reports on Form 10-QSB for the quarters ended
August 31, 2000 and November 30, 2000.
(3) The Company's Current Reports on Form 8-K dated June 29, 2000, August
17, 2000, September 27, 2000 and October 13, 2000, as amended.
(4) The Company's Registration Statement on Form SB-2 dated January 9,
2001.
(5) The description of the Company's Common Stock contained in the
Company's Form S-1/A Registration Statement dated December 3, 1993 and
filed with the Securities and Exchange Commission (the "Commission"),
including any amendments or reports filed for the purposes of updating
such description.
(6) All other reports filed pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended.
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation contains a provision eliminating the monetary
liability of a director for breach of fiduciary duty, subject to certain
exceptions. The provision does not eliminate a director's liability for (i)
breaches of the director's duty of loyalty to the Company or its shareholders,
(ii) acts or omissions not in good faith or involving intentional misconduct or
a knowing violation of law, (iii) the payment of unlawful dividends or unlawful
stock repurchases or redemptions, or
II-1
(iv) any transaction from which the director derived an improper personal
benefit. Furthermore, the provision does not limit equitable remedies, such as
an injunction or rescission for breach of a director's fiduciary duty of care.
The Delaware General Corporation Law permits, and in some cases requires, a
corporation to indemnify directors and officers who are or have been a party or
are threatened to be made a party to litigation against certain expenses,
judgments, fines, settlements, and other amounts under certain circumstances.
Article IX of the Company's Amended and Restated Bylaws provides for
indemnification of and advancement of expenses to directors, officers,
employees, and agents to the fullest extent authorized or permitted by the
Delaware General Corporation Law.
The Company has in force an officers' and directors' liability insurance
policy insuring, up to specified amounts and with specified exceptions,
directors and officers and former directors and officers of the Company and its
subsidiaries against damages, judgments, settlements and costs for which they
are not indemnified by the Company that any such persons may become legally
obligated to pay on account of claims made against them for any error,
misstatement or misleading statement, act or omission, or neglect or breach of
duty committed, attempted or allegedly committed or attempted by such persons in
the discharge of their duties to the Company in their capacities as directors or
officers, or any matter claimed against them solely by reason of their serving
in such capacities. The officers' and directors' liability insurance policy
also insures the Company, up to specified amounts and with specified exceptions,
against any indemnification payments made by the Company to directors and
officers and former directors and officers.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
The Registrant is relying on Sections 4(2) and 4 (6) of the Securities Act.
It was conducted in a private offer not involving only one (1) accredited
investor.
ITEM 8. EXHIBITS.
Exhibit No. Description
- ----------- -----------
5.1* Opinion of Locke Liddell & Sapp LLP.
23.1* Consent of G. Brad Beckstead CPA for Financial Statements for the
years ended May 31, 1999 and May 31, 2000.
23.2* Consent of Locke Liddell & Sapp LLP (included in opinion filed as
Exhibit 5.1).
99.1* Stock Option Agreement dated November 29, 2000, as amended,
between Insynq, Inc. and David S. Wolfe.
______________
* Filed herewith.
ITEM 9. UNDERTAKINGS.
(a) The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
II-2
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished
to the Commission by the Company pursuant to Section 13 or Section 15(d) of
the Exchange Act that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Act, each
filing of the Company's annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John P. Gorst as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, to execute in the name and on behalf of such person, in any and
all capacities, any or all amendments (including post-effective amendments) to
this Registration Statement now or hereafter filed by or on behalf of Insynq,
Inc. (the "Company") covering securities issued or issuable under or in
connection with the Stock Option Agreement with David S. Wolfe (as now or
hereafter amended) and to file the same, with all exhibits thereto, and other
documents required in connection therewith, with the Securities and Exchange
Commission and any state or other securities authority, granting unto said
attorneys-in-fact and agents, and each of them or any of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
such person might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, and each of them or any one of them, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
SIGNATURES
Pursuant to the requirements of the Act, the Company certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing
on Form S-8 and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Tacoma,
State of Washington, on the 9th day of February, 2001.
INSYNQ, INC.
By: /s/ John P. Gorst
---------------------------------
John P. Gorst
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Act, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signature Title
- --------- -----
/s/ John P. Gorst Chairman of the Board, Chief Executive
- ---------------------------- Officer and Director
John P. Gorst
/s/ M. Carroll Benton Chief Administrative Officer, Secretary,
- ---------------------------- Treasurer and Director
M. Carroll Benton
/s/ David D. Selmon Director
- ----------------------------
David D. Selmon
/s/ Stephen C. Smith Interim Chief Financial Officer
- ----------------------------
Stephen C. Smith
II-4