SCOTTSDALE, Ariz., April 22, 2003 (PRIMEZONE) -- OneSource Technologies, Inc., (OTCBB:OSRC) reported consolidated revenues of $2.9 million for the year ended December 31, 2001, a 7% increase over year-end 2001 revenues of $2.8 million. Operating Profit and Net Profit of $193 thousand (less than $0.00 per share) and $16 thousand (less than $0.00 per share) respectively were also reported for the year-ended December 31, 2002 compared to Operating Losses and Net Losses of $556 thousand ($0.03 per share) and $1.5 million ($0.07 per share) respectively for the year ended December 31, 2001.
"Annual 2002 results now confirm the Company has turned the corner and returned to profitability", said Michael Hirschey, CEO of the Company. "Operational problems in the Company's maintenance and installation division have been rectified and the Company's supplies distribution division continued to contribute positive cash flow and profits for the year," continued Hirschey. "These results also reflect the constructive effects of restructuring and realignment changes management has implemented to forge a solid foundation for the future," added Hirschey. "We will continue to enhance these improved infrastructure, management and operational processes in 2003 so the Company can regain the momentum it enjoyed in the late '90s ", concluded Hirschey.
About OneSource
OneSource is engaged in three closely related and complimentary lines of IT and business equipment support services and products, 1) equipment maintenance services, 2) equipment installation services, and 3) value added equipment supplies distribution. OneSource is in the technology equipment maintenance and service industry and is the inventor of the unique OneSource Flat-Rate Blanket Maintenance System(TM). This patent pending program provides customers with a Single Source for all general office, computer and peripheral and industry specific equipment technology maintenance and installation services.
OneSource's Cartridge Care division provides remanufactured toner cartridges in the south and mountain west and is the supplier of choice for a number of Fortune 1000 companies in those regions. OneSource has realigned this division and invested in eCommerce initiatives to stage the division for substantial expansion over the next two years to enable Cartridge Care to extend its reputation beyond its southwestern regional roots.
This press release may contain forward-looking information within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as amended, and is subject to the safe harbors created by those sections.
Independent Auditor's Report
To the Stockholders and Board of Directors of OneSource Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of OneSource Technologies, Inc. as of December 31, 2002 and related consolidated statements of operations, stockholders' deficit and cash flows for each of the two years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of OneSource Technologies, Inc. as of December 31, 2002, and the consolidated results of its operations and cash flows for each of the two years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.
/s/ Epstein, Weber & Conover, P.L.C.
Scottsdale, Arizona
February 6, 2003
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2001
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ASSETS
CURRENT ASSETS:
Cash $ 75,433
Accounts receivable 311,995
Inventories 209,045
Other current assets 24,052
-----------
Total current assets 620,525
PROPERTY AND EQUIPMENT, net of
accumulated depreciation $158,529 210,918
GOODWILL 235,074
DEFERRED INCOME TAXES 140,187
OTHER ASSETS 1,323
===========
TOTAL ASSETS $ 1,208,027
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable 356,159
Accrued expenses and other liabilities 326,228
Deferred revenue 139,626
Bank lines of credit 50,000
Current portion capital leases and
installment notes 9,212
Current portion of debt 882,170
-----------
Total current liabilities 1,763,395
INSTALLMENT NOTES - LONG-TERM PORTION 11,469
-----------
Total liabilities 1,774,864
-----------
STOCKHOLDERS' DEFICIT
Preferred Stock, $.001 par value,
1,000,000 shares authorized,
none issued
Common Stock, $.001 par value,
50,000,000 shares authorized,
26,853,317 issued and outstanding
at December 31, 2001 24,963
Paid in capital 2,685,004
Accumulated deficit (3,276,804)
-----------
(566,837)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 1,208,027
===========
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31 2002 & 2001
---------------------------------------------------------------------
2002 2001
----------- -----------
REVENUE, net $ 2,958,871 $ 2,774,947
COST OF REVENUE 1,928,071 1,854,820
----------- -----------
Gross Profit 1,030,800 920,127
GENERAL AND ADMINISTRATIVE EXPENSES 816,953 1,319,877
SELLING AND MARKETING EXPENSES 21,923 156,396
----------- -----------
Operating Income (Loss) 191,924 (556,146)
OTHER INCOME (EXPENSE):
Interest expense (140,883) (158,921)
Other income (expense) (35,427) 5,782
----------- -----------
Total other expense (176,310) (153,139)
----------- -----------
INCOME(LOSS) BEFORE
EXTRAORDINARY ITEMS,
DISCONTINUED OPERATIONS AND
INCOME TAXES 15,614 (709,285)
EXTRAORDINARY ITEMS:
Gain on extinguishment of debt,
no income tax effect -- 62,650
Loss from default of subscription
receivable -- (800,000)
----------- -----------
Total extraordinary items -- (737,350)
----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 15,614 (1,446,635)
DISCONTINUED OPERATIONS:
Loss from discontinued operations
of integration segment -- (73,260)
=========== ===========
NET INCOME (LOSS) $ 15,614 $(1,519,895)
=========== ===========
EARNINGS PER SHARE :
Basic, before extraordinary items and
loss from discontinued operations $ (Note A) $ (0.03)
Extraordinary items n/a $ (0.04)
Loss from discontinued operations n/a (Note A)
----------- -----------
Net income (Loss) $ (Note A) $ (0.07)
=========== ===========
Diluted, before extraordinary items
and loss form discontinued operations $ (Note A) $ (0.03)
Extraordinary items n/a $ (0.04)
Loss from discontinued operations n/a (Note A)
----------- -----------
Net income (loss) $ (Note A) $ (0.07)
=========== ===========
Weighted Average Shares Outstanding:
Basic 25,705,509 22,045,674
Diluted 25,705,509 22,045,674
Note A: Less than $0.01 per share
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
Stock
Common Stock Subscription Paid-in
Shares Amount Receivable Capital
----------- ---------- ----------- ----------
BALANCE,
DEC. 31, 2000 $17,525,566 $ 17,526 $ (806,250) $1,784,104
----------- ---------- ----------- ----------
Stock issued
for services 961,667 962 -- 61,213
Stock issued
to employees 500,000 500 -- 62,817
Stock issued
for note
conversions 936,667 937 -- 14,063
Receipt of
service for
stock sub-
scription -- -- 6,250 --
Stock sub-
scription
write-off -- -- 800,000 --
Shares returned
per rescission
agreement (1,016,666) (1,018) (121,841) --
Previously
unissued
shares, issued
in 2001 6,056,083 6,056 -- 884,648
Net loss (1,519,895) --
----------- ---------- ----------- ----------
BALANCE,
DEC. 31, 2001 $24,963,317 $ 24,963 $ -- $2,685,004
----------- ---------- ----------- ----------
Stock issued
for services 1,800,000 1,800 -- 18,700
Stock issued
for note
conversion 90,000 90 -- 90
Net income -- -- -- --
----------- ---------- ----------- ----------
BALANCE,
DEC. 31,2002 $26,853,317 $ 26,853 $ -- $2,703,794
=========== ========== =========== ==========
Accumulated
Deficit Total
----------- ----------
BALANCE, DEC. 31, 2000 $(1,756,909) $ (761,529)
----------- ----------
Stock issued for services -- 62,100
Stock issued to employees -- 63,317
Stock issued for note conversions -- 15,000
Receipt of service for stock subscription -- 6,250
Stock subscription write-off (800,000)
Shares returned per rescission agreement (122,859)
Previously unissued shares, issued in 2001 -- 890,704
Net loss
----------- ----------
BALANCE, DEC. 31, 2001 $(3,276,804) $ (566,837)
----------- ----------
Stock issued for services -- 20,500
Stock issued for note conversion -- 180
Net income 15,614 15,614
----------- ----------
BALANCE, DEC. 31,2002 $(3,261,190) $ (530,543)
=========== ==========
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
FOR THE YEARS ENDED DECEMBER 31 2002 & 2001
---------------------------------------------------------------------
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 15,614 $(1,519,895)
Extraordinary gain -- (62,650)
Rescission of stock subscription
agreement -- (39,660)
Loss from discontinued operation -- 73,260
Loss on disposal of fixed assets 24,494 --
Depreciation and amortization 69,639 69,359
Amortization of deferred
financing costs -- 99,979
Stock issued for services 20,500 68,350
Stock issued as incentives to
employees -- 63,317
Stock subscription write-off -- 800,000
Changes in assets and
liabilities:
Accounts receivable (138,434) (55,973)
Inventory 1,373 1,286
Other current assets 13,548 (8,052)
Other assets (1,705) --
Accounts payable (147,397) (2,613)
Accrued expenses and
other liabilities 36,149 75,708
Deferred revenue 60,745 (4,465)
----------- -----------
Net cash used in continuing
operating activities (45,475) (442,049)
----------- -----------
Net cash used in discontinued
operating activities -- (48,812)
----------- -----------
Net cash used in operating
activities (45,475) (490,861)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment (5,269) (18,622)
Proceeds from disposal of
equipment 5,500 8,219
----------- -----------
Net cash provided by (used in)
investing activities 231 (10,403)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on bank lines of credit -- (100,913)
Cash proceeds from borrowings -- 479,290
Proceeds from notes payable 69,000 --
Principal payments on
notes payable (43,922) (13,161)
----------- -----------
Net cash provided by
financing activities 25,078 365,216
----------- -----------
NET DECREASE IN CASH (20,166) (136,048)
CASH, beginning of year 75,433 211,481
----------- -----------
CASH, end of year $ 55,267 $ 75,433
=========== ===========
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------
2002 2001
---- ----
SUPPLEMENTAL CASH FLOW INFORMATION
Interest Paid $ 44,208 $ 58,952
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Common stock issued for services $ 20,500 $131,667
======== ========
Common stock issued for note conversion $ 180 $ 15,000
======== ========
Debt extinguished in exchange for property $ 12,771 $ --
======== ========
Accounts payable conversion to debt $ 20,334 $ --
======== ========
Assumption of debt $ -- $ 7,007
======== ========
ONESOURCE TECHNOLOGIES, INC.
Management Comments
December 31, 2002
Introduction
The financial results discussed herein include the consolidated operations of OneSource Technologies, Inc, (hereinafter "OneSource" and/or "the Company") for the years ended December 31, 2002 and 2001. OneSource is engaged in two closely related and complimentary lines of technology and business equipment support activities; 1) equipment maintenance services, ("Maintenance") 2) value added equipment supply sales, ("Supplies"). OneSource is in the technology equipment maintenance and service industry and is the inventor of the OneSource Flat-Rate Blanket Maintenance System(TM). This program provides customers with a Single Source for all general office, computer and peripheral and industry specific equipment technology maintenance, installation and supply products.
In April 2001 as part of management's refocused emphasis on its core business opportunities the Company discontinued the operations of its wholly owned subsidiary Net Express, Inc., (NEI). For comparative purposes the consolidated financial statements of the Company for the year ended December 31, 2001 have been presented to show the costs incurred in shutting down the segment separately as discontinued operations in the following tables of financial data as of December 31, 2001. Fiscal 2001 financial results have also been restated to correct certain errors that were made a) in the amount of expense that was attributed to Common Stock of the Company that was issued for legal and other services, b) the application of cash received for Common Stock subscribed and c) other accounting errors that came to light during the Company's conversion of its accounting and information systems conversion in 2001. The effect of these restatements was to increase the Net Loss for the year ended December 31, 2001 by $161,936 ($0.01 per share) and to increase Subscriptions Funded After December 31, 1999 by $130,000. These adjustments were recorded in the consolidated financial statements as of December 31, 2001.
Summary of Operations
Operating results have improved in the year ended December 31, 2002 compared to the year ended December 31, 2001. The following table summarizes the comparative operating results for the two periods:
Summary of Operations 2002 2001
----------- -----------
Revenues $ 2,958,871 $ 2,774,947
Cost of Revenue 1,928,071 1,854,820
Gross Margin 1,030,800 920,127
Selling, General and
Administrative Costs 838,876 1,476,273
Operating Income (Loss) before
Discontinued Operation 191,924 (556,146)
Other Income (Expense) (176,311) (153,139)
Subscription Receivable Write-off,
net of income tax -- (800,000)
Extraordinary Gain -- 62,650
Loss from discontinued operations -- (73,260)
----------- -----------
Net Income (Loss) $ 15,614 $(1,519,895)
----------- -----------
Fiscal 2002 results reflect management's changed focus and strategic emphasis for the Company. Operations for the year ended December 31, 2002 show significantly improved results with Net Income of $15,614 compared to a Net Loss of $1,519,895 for the year ended December 31, 2001.
While consolidated revenues increased slightly by about six percent (6%) in 2002 compared to 2001, consolidated cost of revenues increased only four percent (4%) resulting in a twelve percent (12%) increase in gross profit for the year ended December 31, 2002 compared to the year ended December 31, 2001. Changes implemented early in the second quarter of 2002 started to show improvement by the end of the year as gross margins of the maintenance division had increased significantly to 34% by the end of 2002 versus 23% during the first quarter of 2002. Management will continue to focus on this aspect of the service operations in order to continue to bring down parts usage costs. To further control costs of the maintenance operations the Company eliminated certain non-profitable contracts during the year ended December 31, 2002.
The most significant factor contributing to the improved overall operating results is the forty-three percent (43%) decrease in selling, general and administrative costs for the year ended December 31, 2002 compared to 2001. While the approximately $637,000 decrease is substantial, the Company continues to incur high selling, general and administrative costs as a percent of revenues and management continues to focus on implementing measures to bring these costs more in line with the Company's business model.
In April 2001 the Company discontinued the operations of its integration subsidiary because its activities were concentrated in the highly competitive and low margin network hardware sales and integration industry, and drained resources from the Company's core equipment maintenance and installation divisions. The net effects of discontinued operations are shown separately in the Consolidated Statement of Operations for the years ended December 31, 2002 and 2001.
Revenues
Consolidated revenues increased slightly in the year ended December 31, 2002 compared to the same period in 2001 as a result of increased revenues in the maintenance divisions. Supply division revenues fell nine (9%) compared to 2001, below forecasted results in 2002, although the maintenance division met forecasted expectations. The following table details maintenance and supply division revenues for 2002 & 2001:
Revenues 2002 2001
---------- ----------
Maintenance $2,137,754 $1,872,471
Supplies 821,117 902,476
---------- ----------
Total $2,958,871 $2,774,947
---------- ----------
The final phase of the Company's restructuring and realignment of its maintenance division was implemented in the fourth quarter of 2001. The full benefit of these changes, while not fully evident yet, are showing very positive trends as of the end of 2002. As part of this restructuring, the General Manager (GM) of the supply division assumed oversight responsibility for all maintenance operations in the first quarter of 2002 in addition to his supply division responsibilities. Management believes the focus the GM put on restructuring the maintenance division adversely impacted supply division sales early in the year. However, supply division revenues began to return to their historical higher levels in the fourth quarter.
The fourteen percent (14%) increase in maintenance revenues during 2002 is the result of added service commitments from existing customers and reflects the positive benefits of changes the Company has implemented that have improved maintenance customer satisfaction levels to the highest in the Company's history. This added business increased the concentration of the Company's revenues with the Kroger Corporation to fifty-seven (57%) percent of total revenues.
Installation services were suspended in early fiscal 2001 so management could focus the Company's limited resources on improving and strengthening the Company's core maintenance and supplies division operations. To the degree installation opportunities arise in line with present geographic and staffing resources the Company will pursue and engage them but in the near-term management is concentrating on the maintenance and supplies divisions. Now that operational efficiencies and customer satisfaction levels are substantively improved management is focusing greater attention growing revenues of these divisions via both current account extensions as well as through out-bound sales and marketing efforts.
Supply division revenues decreased nine percent (9%) in 2002 compared to 2001, which was significantly less than management had forecasted for the division. In addition to the added responsibilities of the division's GM noted above, supply division revenues were also adversely affected by pricing errors of newly added products during the period. These pricing problems have been corrected and additional controls put in place so results should improve in prospective quarters. By the end of June, the division's web-based distribution delivery system was completely on line and will significantly enhance division revenue expansion to existing as well as potential new accounts. In early September, the division acquired the business of EON Supply, a large new customer , which also entered into a service agreement with the company's maintenance division. Although it is too early to see the full impact of this new account, management believes it will contribute significantly to revenues and cash flow.
Cost of Revenues and Gross Margins
Consolidated gross margins for the year ended December 31, 2002 were slightly higher compared to 2001. Gross margins for 2002, while slightly increased from 2001, improved significantly from the first quarter to the fourth quarter to thirty five percent (35%) versus twenty-eight percent (28%). Inventory control and management issues related to the continuing restructuring changes in the maintenance division and problems with inventory and remanufacturing controls in the supply division accounted for the lower margins early in 2002 versus 2001. However, the improvement in gross margins towards the end of the year confirms the positive effects of the restructuring changes. Once the effects of these changes are fully rooted management believes margins will return to their historically higher levels. These improvements focus on strengthening management oversight and information system and process infrastructures to assure better inventory control in the supply division and more efficient call routing and dispatch controls in the maintenance division.
Selling, General and Administrative Costs
Improvements continued in this category of costs in 2002 as management continued to reduce these costs to levels more in line with the Company's present level of operations. Consolidated S, G&A costs decreased approximately $637,000 over prior year, a forty-three percent (43%) decrease. These costs were twenty-eight percent (28%) of gross revenues in 2002 compared to fifty-three percent (53%) in 2001 and were slightly below the Company's forecasted thirty percent (30%). This was achieved through strict cost controls and reductions implemented during the later part of 2002.
Even though significant reductions have already been achieved in each expense category, management believes there are additional opportunities for further cuts. Management is focused, however, on growing revenues while holding the present level of overhead costs steady. The following table details the significant components of general and administrative costs:
General and Administrative 2002 2001
---------- ----------
Salaries, Wages and Benefits $ 469,659 $ 744,288
Facilities 153,571 200,876
Legal and Professional 97,536 142,005
Telecommunication Costs 72,334 63,341
Travel and Entertainment 22,626 33,042
Other 1,226 136,325
---------- ----------
Total $ 816,953 $1,319,877
---------- ----------
All cost categories are lower for the year ended December 31, 2002 compared to the same period in 2001 except telecommunication costs. The two most significant areas of savings were salaries and facilities costs. Salary, wages and benefits costs in fiscal 2001 included a $68,000 charge for payroll trust fund taxes related to periods prior to 2001. The remaining difference reflects staff reductions that were made in the latter half of 2001, and first half of 2002. Company staff has been reduced to 34 employees in 2002 from 56 at the beginning of 2001 with most of the reductions being made in the administrative area.. All other general and administrative costs are down reflecting improvements and cuts that management implemented during the latter part of 2001 and early part of 2002 to reduce operating costs, with the exception of a 14% increase in telecommunications costs resulting from an increase in cell phones placed in use for additional service technicians. These cost reductions reflect the positive effects of management's restructuring and operational changes.
Sales and Marketing 2002 2001
-------- --------
Salaries, Commissions and Benefits $ 14,016 $104,424
Advertising and Promotion 6,067 39,460
Travel and Entertainment 1,841 12,512
-------- --------
Total $ 21,923 $156,396
-------- --------
The decline in sales and marketing personnel costs is largely the result of the Company's restructuring activities. The paramount objective of that effort was to streamline overall operations and redirect corporate resources toward improving the Company's core maintenance and supplies division operations and management. Consequently sales and marketing became a casualty of this redirected focus and accordingly, expenditures in this area were significantly reduced. Now that operational and management changes are largely in place and the attendant infrastructure improved, management is concentrating on implementing and significantly supporting the sales and marketing plans that have been heretofore on hold.
Other Income (Expense)
Other Income (Expense) 2002 2001
-------- ---------
Interest expense $(140,883) $(158,921)
Other (35,428) 5,782
--------- ---------
Total $(176,311) $(153,139)
--------- ---------
Interest costs declined in 2002 by 11% mainly because of the absence of investment "sweeteners" that were paid in 2001 to secure funding. No such charges were incurred in 2002, although additional debt of $69,000 was incurred by the during 2002. Also contributing to the decline in interest cost is the Company's decision in 2001 to discontinue granting stock incentives to lenders for debt funding.
Liquidity and Capital Resources
The following table sets forth selected financial condition information as of December 31, 2002 compared to December 31, 2001:
Balance Sheet 2002 2001
----------- -----------
Working Capital $(1,007,838) $(1,129,210)
Total Assets 1,205,944 1,208,027
Debt Obligations 985,310 952,851)
Shareholders' (Deficit) $(530,543) $(566,837)
While operationally things have improved since 2001, liquidity and financing continued to be a problem during 2002. Total costs continued to exceed revenues throughout the first five months of 2002; however, in the last month of the second quarter revenues exceeded costs and contributed to a pre-tax profit in the second quarter of 2002. The Company remained profitable through the remainder of the year. Management expects cash flows to continue to improve through 2003. Short-term obligations remained consistent with their year-end 2001 levels. This is a primary reason for the decline in the Company's current ratio at December 31, 2002 to 0.42% compared to 0.44% at December 31, 2001.
During the last quarter of 2001 cash flow improved significantly with the addition of new maintenance business. Monthly cash deficiencies during the first quarter remained at approximately $25,000 versus the $85-$100,000 a month negative cash flow throughout most of 2001. By the end of June 2002, however, monthly cash flow had turned positive for the first time in two and half years. Management believes that cash flow should continue to improve with additional new business pending and the Company's pursuit of additional funding opportunities intended to recapitalize the Company.
In March 2001 the Company and holders of four of the Company's notes payable that were due in March and September of 2001 entered into Note Deferral and Extension Agreements wherein each note holder agreed to defer all principal payments until July 15, 2001. The Company agreed to make a twenty-five percent (25%) principal payment to each note holder on July 15, 2001. The notes' due dates were subsequently extend to July 15, 2002, but by that date the Company was unable to make the scheduled partial principle payments or commence making level monthly principal and interests payments over the remaining twelve-month period of the notes.
As part of the agreement, the Company also agreed to increase the interest rates of the notes from their stated twelve to fourteen percent (12% to 14%) to eighteen percent (18%). The Company has continued to make timely monthly interest payments to the note holders. Further the Company is in communication with the note holders and believes it will be able to restructure or renegotiate the terms in a manner that will not adversely impact the Company's continuing operations. The Company is also engaged in negotiations with other lenders and investors for the acquisition of outside financing in case it is not able to satisfactorily restructure the debt of the present note holders.
At December 31, 2002, the Company had accrued approximately $47 thousand of unpaid payroll taxes, interest and penalties due the IRS. At the end of June 2002, the Company submitted required documentation in support of its "Offer In Compromise" previously filed in 2001 to the IRS. Management believes the Company will be able to successfully liquidate this liability and that the ultimate outcome will not have an adverse impact on the Company's financial position or results of operations.