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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended: December 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from: ---------- to ----------
Commission File Number: 0-31813
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
ONCOURSE TECHNOLOGIES, INC.
(Name of Small Business in its charter)
NEVADA 91-1922441
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3106 South 166th Street
New Berlin, WI 53151
(Address of principal executive offices)
Issuer's telephone number: (262) 860-0565
Issuer's facsimile number: (262) 860-0561
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK;
COMMON STOCK
PURCHASE WARRANTS
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy of
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
Revenues for its most recent fiscal year: December 31, 2000: $5,247,617
Aggregate market value of the voting and non-voting common equity held by non-
affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: 1,443,715 shares at $.90 per share as of
March 20, 2001 for a $1,299,344 market value.
Number of shares outstanding of each of the issuer's class of common equity, as
of March 20, 2001: 17,851,227
Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [ X ]
Page 1
ONCOURSE TECHNOLOGIES, INC.
FORM 10-SB
TABLE OF CONTENTS
ITEM PAGE
---- ----
PART I
Item 1. Description of Business 3
Item 2. Description of Property 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Common Equity and Related Shareholder Matters 13
Item 6. Management's Discussion and Analysis or Plan of Operation 14
Item 7. Financial Statements: 17
OnCourse Technologies, Inc. F-1 18
Report of Independent Public Accountants F-2 19
Consolidated Balance Sheets F-3 20
Consolidated Statements of Operations F-5 22
Consolidated Statements of Shareholders' Equity F-6 23
Consolidated Statements of Cash Flows F-7 24
Notes to Consolidated Financial Statements F-8 25
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 39
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a)
of the Exchange Act 39
Item 10. Executive Compensation 40
Item 11. Security Ownership of Certain Beneficial Owners
and Management 41
Item 12. Certain Relationships and Related Transactions 42
Item 13. Exhibits and Reports on Form 8-K 43
Page 2
PART I
ITEM 1. DESCRIPTION OF THE BUSINESS
COMPANY BACKGROUND
OnCourse Technologies, Inc. (the "Company" or "OnCourse") is a Nevada
corporation organized on May 28, 1998 to develop internet based business-to-
business ("B2B") electronic-commerce sites for use in the procurement of raw
materials and tooling for metalworking industries, to acquire specific other
businesses, and to raise capital. Metalworking is defined as the process or art
of shaping things out of metal. OnCourse currently has four wholly owned
subsidiaries. OnCourse subsidiaries develop and or sell and distribute
CAD/CAM/CAE software. Computer-Aided Engineering (CAE) is the integration of
design and manufacturing into a system under the direct control of digital
computers. Software systems written by "the subsidiaries" combine the use of
computers in industrial-design work, computer-aided design (CAD), with their use
in manufacturing operations, computer-aided manufacturing (CAM). This integrated
process is commonly called CAD/CAM. CAD systems generally consist of a computer
with one or more terminals featuring video monitors and interactive graphics-
input devices; they can be used to design such things as machine parts, patterns
for clothing, or integrated circuits. CAM Systems involve the use of numerically
controlled machine tools. In a CAE system, drawings developed and revised during
the design process are converted directly into instructions for the production
machines using computer-assisted part programming that will manufacture the
desired object. CAD/CAM systems can create or import the geometrical profile of
a required component as, for example, a series of connected points. The position
of each point, and the ways in which it can be reached by movements of the tool,
is calculated by the computer. After calculating the necessary tool movements,
the computer develops a complete machining program for the part to be
manufactured on a computer numerical control (CNC) machine tool. CNC is when a
computer is used as the controller in an NC (numerical control) machine tool
with the program actuated from computer memory. CNC systems are controlled by
dedicated mini- or microcomputers developed to enable machine tools to be
readily adapted to different jobs by altering the control program or software.
Wholly-owned subsidiaries of OnCourse and the dates of their acquisition by
OnCourse include: Micro Estimating Systems, Inc, a Wisconsin corporation ("Micro
Estimating") - July 31, 1998; CAM Solutions, Inc., a Minnesota corporation ("CAM
Solutions") - January 1, 1999; Cimtronics, Inc., an Arizona corporation
("Cimtronics") - October 1, 1999; and TekSoft, Inc, an Arizona corporation
("TekSoft") - January 31, 2000.
Micro Estimating designs, develops, and markets computer-aided-engineering
("CAE") software consisting of Windows-based estimating software products and
services, including estimating, process planning and layout software for and to
customers in diverse manufacturing businesses. Micro Estimating also
distributes under an exclusive arrangement in the U.S.A. and Canada the AutoTAS
tool management software of a Swedish developer and supplier.
CAM Solutions distributes computer-aided-design/computer-aided-manufacturing
("CAD/CAM") products developed by TekSoft and other CAD/CAM software developers;
and Machine Shop Estimating, FabPlan and LayOut Pro products developed by Micro
Estimating. CAM Solutions also sells and installs Direct Numerical Control
("DNC") systems for machine tools and systems integration between Micro
Estimating's software and other manufacturing enterprise systems. A DNC system
is another variation of a CNC system in that a DNC system involves sending part
programs over telecommunications lines from a central computer to individual
machine tools in the factory, thus eliminating the use of storing programs on
the machines.
Cimtronics distributes CAD/CAM products developed by TekSoft and other CAD/CAM
software developers; and Machine Shop Estimating, FabPlan and LayOut Pro
products developed by Micro Estimating. Cimtronics also sells and installs DNC
systems for machine tools and systems integration between Micro Estimating's
software and other manufacturing enterprise systems.
TekSoft designs, develops and markets proprietary CAD/CAM software products used
in metal manufacturing. TekSoft distributes its products using distributors
both domestically as well as internationally. TekSoft's distributors include
CAM Solutions and Cimtronics.
EMPLOYEES
OnCourse and Micro Estimating have headquarters in New Berlin, Wisconsin. Micro
Estimating has a sales office in North Carolina and other subsidiaries have
headquarters and operations in Arizona and Minnesota. The OnCourse organization
has 44 full-time employees. In addition, TekSoft uses 10 full-time and one
part-time contract programmers.
BUSINESS OF THE COMPANY
Subsidiaries of OnCourse have, for five years or more developed and or sold
CAD/CAM/CAE software to the metalworking industries. TekSoft has developed and
marketed CAD/CAM software since 1981. Micro Estimating has developed and
marketed CAE software since 1982. CAM Solutions has been selling CAD/CAM/CAE
software since 1989. Cimtronics has been selling CAD/CAM/CAE software since
1993. Both CAM Solutions and Cimtronics have had meaningful CAD/CAM/CAE sales
since the years referenced above. The principal market for the subsidiaries'
software products consists of an estimated 500,000 small to medium sized
metalworking manufacturers. These manufacturers include but are not limited to,
Original
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Equipment Manufacturers (OEM), independent machine shops, contract
manufacturers, manufacturers of aerospace, automotive, appliance, and high
technology equipment, electronics industry components, as well as other tool and
die makers. Tool and die making is the industrial art of manufacturing stamping
dies, plastics molds, and fixtures to be used in the mass production of solid
objects. Sales are made by direct sales force and subsidiaries and through
distributors. Sales made by direct sales force and subsidiaries were 45% and
66% for the years ended December 31, 2000 and 1999, respectively. Sales made by
distributors were 55% and 34% for the years ended December 31, 2000 and 1999,
respectively. Sales in North America and Europe for the years ended December
31, 2000 and 1999 were 87% and 7% and 98% and 2%, respectively.
PRINCIPAL PRODUCTS AND MARKETS
CAD/CAM
TekSoft develops and markets Windows and Windows-NT based, CAD/CAM software used
in the metal working industries. This subsidiary's flagship CAD/CAM product,
ProCAM, has a customer base in excess of 15,000 users in its nine available
languages. TekSoft has a total of over 22,000 users for all its products
installed at facilities serving the aerospace, computer, and automotive and
mold-making industries, among others. According to the 2000 Software Market
Assessment by CIMdata Inc., an independent research firm specializing in the NC
industry, TekSoft is ranked in the top five based on installed users for CAM
companies worldwide.
PROCAM
ProCAM is a CAD/CAM solution designed for use in manufacturing or machining
products for the manufacturing industry. The ProCAM for Windows product
provides a fully integrated solution for two dimension (2D) CAD/CAM applications
and three dimension (3D) applications requiring complex surface modeling and
machining. Based on past awards, ProCAM is one of the fastest, easiest to use
CAD/CAM products on the market. For example, ProCAM received a 1998 Excellence
in Manufacturing Technology Achievement Award for "Innovation" in the software
classification by the readers of American Machinist Magazine. ProCAM was also
voted a year 2000 Excellence in Manufacturing Technology Achievement Award
winner in the software classification titled "User Friendliness" by the readers
of American Machinist Magazine. Since 1877, American Machinist has covered
significant developments in manufacturing technology. The magazine is dedicated
to serving the machine tool market completely and offers readers the most up-to-
date information in the methods and practices of metalworking. American
Machinist's has a monthly subscription base of 80,000 readers consisting of
company management and manufacturing/production managers and engineers in the
Metalworking industries.
CAMWORKS
CAMWorks is a CAM application that is seamlessly integrated into, and is
operated from within a third party application called SolidWorks. According to
SolidWorks' website, SolidWorks is a CAD package developed by the SolidWorks
Corporation, a Dassault Systems S.A. (NASDAQ:DASTY) company. The SolidWorks
Corporation develops and markets 3D mechanical design solutions. CAMWorks
incorporates CAM technologies pioneered by TekSoft such as: Associative
Machining which allows a user to change the CAD drawing of a part and
automatically update the machining parameters without additional user input; and
Knowledge Based Machining which allows users to edit or update a predefined set
of operational instructions for machining a specific type of feature on a part.
This allows the CAMWorks system to automatically select the correct machining
parameters for a given feature on a part, therefore dramatically reducing the
input required by the end user.
CAMWorks is currently available for Milling and Turning applications. CAMWorks
addresses the needs of today's sophisticated manufacturing engineers by
delivering CAM solutions critical to success. OnCourse believes it's the most
advanced tool available for mainstream engineers to get products to market
faster, efficiently and within budget.
CAE
Micro Estimating offers estimating and process planning software for a broad
spectrum of the manufacturing industries.
MACHINE SHOP ESTIMATING ("MSE")
MSE is an engineering based cost estimating system for manufacturing
companies. MSE calculates machining times and total product costs according to
company specific estimating procedures. The software is comprised of 72 machine
tool and operation specific software modules to emulate actual machine tool and
production cycles. The machine emulation modules will produce calculations
within 1% of true production time. The software provides process planning,
machine process layouts and comprehensive management functions. It incorporates
on-line supplier links, graphical reports, and interfaces seamlessly to numerous
factory management and CAD/CAM programs. MSE libraries contain over 1,150 raw
materials specifications and incorporate 2 million speeds and feed tooling
combinations. The typical customer is a factory owner, estimator or an
engineering department in a larger facility. MSE received a 1998 Excellence in
Manufacturing Technology Achievement Award as "Readers Choice for User
Friendliness" in the software classification by the readers of American
Machinist Magazine.
Page 4
LAYOUT PRO ("LP")
LP serves as a process planning and machine process layout system, which
allows users to easily calculate machining or fabrication times for product
production. LP offers users the same basic functionality of the MSE product
without the pricing or quoting features. The typical customer is a process
planning engineer or manufacturer of metal working equipment. LP is a subset of
MSE and contains no manufacturing pricing functions, and is typically purchased
by machine tool builders.
FABPLAN ("FP")
FabPlan is an engineering based cost estimating system designed for
manufacturers that operate fabrication equipment. FP calculates fabrication
times and total product costs according to company specific estimating
procedures and shop equipment by simulating actual machine tool cycles. The
software facilitates process planning and machine tool process layouts, which
provides calculations for fabrication times used for production. The system
incorporates supplier links, provides graphical reports, and interfaces with
numerous factory management and CAD/CAM programs. The typical customer is a
factory owner, estimator or an engineering department in a larger facility.
AUTOTAS
Micro Estimating is the exclusive U.S. and Canadian distributor and systems
integrator for AutoTAS, a software product offered by Sandvik/Coromant of
Sweden. AutoTAS is a tooling management program that was previously only
available in Europe. Tool management software assists companies in the control
and replenishment of tooling used in the manufacturing process.
NEW PRODUCTS AND SERVICES
On behalf of the Company, Micro Estimating has begun development of a business-
to-business electronic-commerce service web site called Tools4Mfg.com. The
Tools4Mfg.com world-wide-web site is the cornerstone in its strategy to offer
the functionality of all the Company's proprietary software products to the
world-wide metal working community.
The Company anticipates that electronic-commerce, primarily the Tools4Mfg.com
web site, will expand revenues in the markets of electronic-commerce and supply
chain management. Supply chain management software provides a system comprised
of integrated networks to facilitate managing design, procurement, planning,
sales, fulfillment, and service for manufacturing and sales by providing the
technologies for communicating efficiently with customers, and suppliers. This
primary electronic-commerce revenue generating activity will sell tangible
consumable industrial products while providing the related electronic-
transaction software. Tools4Mfg.com will be an Internet-based purchasing system
for use by manufacturing firms involved in producing, processing, or purchasing
custom fabricated and machined products. The target market of Tools4Mfg.com is
the smaller manufacturer, which represents 75% of American manufacturers. These
smaller manufacturers typically have not been able to implement the expensive
and labor intensive supply chain enterprise systems used by firms like the big
three automotive companies, and will therefore benefit most from this type of
electronic-commerce program. The Company will be positioned as an electronic
middleman fulfilling orders for component parts manufacturers.
The site's overall design is substantially complete with respect to the planned
layout and functionality. The actual technological feasibility of the site is
approximately 15% complete based on its current capabilities. Completed
development on the site consists of basic site layout, a material calculation
system and the development of a tool that will allow end users the ability to
define a component part to the Tools4mfg.com site and then search for contract
machining suppliers based on a specific geographical location. These
capabilities are currently available on a non-fee basis. It is management's
belief that the Tools4Mfg.com site's functionality, when completed, will fulfill
the objective set forth in this segment of the Company's business strategy.
Neither the Company nor Micro Estimating have begun marketing or advertising any
of the functionality of this site.
The Company believes that it will offer its existing customer base the
capability to obtain raw material pricing and to place orders for raw materials
over the Tools4mfg.com site during the third quarter of 2001. This will be
funded internally by the Company. However, there is no certainty that the
Company will be able to generate any revenues from this completed phase of the
web site development.
The Company expects to continue to fund the development of the site from a
combination of internally generated funds and capital contributed by industry
partners. The time required for completion of the site will depend upon the
Company's ability to generate funds for the remainder of the project. If the
Company continues to develop the site without the aid of outside funding, the
Company anticipates completing the site in the third quarter of 2002. However,
the time line for the completion of the project could be reduced by three to six
months if additional funding is secured during the second and third quarters of
2001. To date the Company has not received any capital contributions from its
industry partners. Several revenue streams are projected from Tools4Mfg.com.
Revenues will be derived from sales commissions on raw materials, component
parts, and industrial tooling. The Company also expects to add transaction
fees, subscription fees, and online sales of manufacturing software. However,
there is significant risk in that the Company may not be able to generate any
revenue from this business strategy upon completion of the web site.
Page 5
According to an article in the October 5, 2000 edition of Purchasing magazine,
it is estimated that the annual market for production-grade and metalworking
metals is at least $900 billion. Net penetration is estimated at less than
1/100 of 1% of the estimated $900 billion annual global marketplace for
production-grade and metalworking metals. The management of OnCourse feels that
even a very small percentage of this market earned as commissions and
transactions cost would generate $90 million of material transactions in which
the Company would receive commissions and transaction fees. In addition, the
Company also believes it will be able to generate revenues from tooling and
auction sales as well.
The Company believes that revenues and transaction fees could exceed $25 million
annually within the next five years. The following table shows the revenue
stream for the $25 million of revenues and transaction fees based on
management's belief. However, there is significant risk in that the Company
may not be able to generate any revenue from this business strategy upon
completion of the web site.
RAW MATERIAL AND PERISHABLE TOOLING REVENUES (MILLIONS)
Total Tools4mfg Average
Estimated Captures 1/100% of Transaction
Revenue Source Market the Market (.001%) Fee of 2.75%
Raw Materials $900,000 $900.0 $24.8
Tooling 4,000 4.0 0.6
Total $904,000 $904.0 $25.4
RESEARCH AND DEVELOPMENT
During years ended December 31, 2000 and 1999, the subsidiaries have expended
$593,000 and $17,000, respectively, for research and development activities and
purchased in-process research and development expenses as part of the TekSoft
acquisition. The $593,000 of research and development expended during the year
ended December 31, 2000 includes $270,000 for the purchased in-process research
and development that was written off on January 31, 2000. In addition, the
subsidiaries have expended $1,268,000 and $114,000 for its capitalized software
during the years ended December 31, 2000 and 1999, respectively. There have
been no material customer sponsored research activities or expenditures.
GOVERNMENTAL REGULATION AND APPROVAL
The subsidiaries do not require governmental approval for any of its activities
and has incurred no cost or expense with respect to compliance with federal,
state and local environmental laws. Some of the subsidiaries' customers may
incur expenses for environmental compliance, but there has been no effect of any
such compliance on the subsidiaries. No single supplier or customer has a
material effect in the subsidiaries' operations.
TRADITIONAL METAL WORKING MANUFACTURERS AS THE SUBSIDIARIES'S SOFTWARE MARKET
Domestic manufacturers are estimated to conduct approximately $3.8 trillion in
annual business and these manufacturers employ 17 million people. According to
the National Institute of Standards (NIST), 75% of manufacturers employ 50
people or less. OnCourse subsidiaries individually have up to 19 years providing
that market with software to make job shops more efficient. The information
referenced below provides historical summaries of the products sold by the
OnCourse subsidiaries of Micro Estimating and TekSoft:
USERS SOLD SINCE SUBSIDIARY WAS ESTABLISHED (UNAUDITED)
Year Users
Subsidiary Established Sold
TekSoft 1981 22,000
Micro Estimating 1982 2,600
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HISTORICAL SALES BY MICRO ESTIMATING AND TEKSOFT BY YEAR (UNAUDITED)
Subsidiary/Activity 1995 1996 1997 1998 1999 2000
Micro Estimating Revenues $1,123,225 $1,517,953 $1,580,905 $1,851,151 $1,716,246 $1,770,148
New Micro Estimating Users 147 220 185 215 173 195
TekSoft Revenues $2,774,981 $2,668,804 $2,862,826 $2,859,651 $3,157,720 $3,401,076
New TekSoft Users 2,157 2,074 2,225 2,539 2,460 2,100
Total Revenue $3,898,206 $4,186,757 $4,443,731 $4,710,802 $4,873,966 $5,171,224
Total of New Users Added 2,304 2,294 2,410 2,754 2,633 2,295
CURRENT ENVIRONMENT IN THE SUBSIDIARIES'S SOFTWARE MARKET
A dramatic shift in supply chain management is underway in which manufacturers
are looking to electronic-commerce solutions for sourcing and supply. Addressing
those trends, the Company is developing an Internet-based purchasing system for
use by manufacturing firms involved in producing, processing, or purchasing
custom fabricated and machined products. The Tools4Mfg site will be positioned
as an electronic middleman fulfilling orders for component parts manufacturers.
This electronic-commerce system will process electronic Requests for Quotes
("RFQ") and Electronic Purchase requisitions for raw materials, component parts,
and related tooling products and ultimately be paid with electronic funds
transfers. Coupling this trend with use of the Internet as a software delivery
and maintenance mechanism will provide new opportunities and a more efficient
means for OnCourse to increase its value to customers.
THE COMPANY'S BUSINESS STRATEGY
The OnCourse strategy is to build a recognized and respected brand name as the
leader in providing software and services that make component manufacturers more
efficient and profitable. The Company's products, such as the award winning
software systems referenced above under the ProCAM and Machine Shop Estimating
("MSE") headings, are the base of this strategy and will be built upon to create
a broader position.
Existing subsidiaries' product lines have demonstrated sales growth over the
last five years. When including sales activity prior to OnCourse ownership, net
sales for Micro Estimating's products and services has grown from $1.12 million
for the year ended December 31, 1995 to pre-consolidated net sales of $1.77
million for the year ended December 31, 2000. When including sales activity
prior to OnCourse ownership, net sales for TekSoft's products and services has
grown from $2.77 million for the year ended December 31, 1995 to pre-
consolidated net sales of $3.40 million for the year ended December 31, 2000.
The Company believes that product sales and services will easily exceed the
sales growth in terms of dollars and percentage increases that were realized
over the previous five years.
In concert with OnCourse products is an electronic-commerce strategy. OnCourse
is creating a business-to-business electronic-commerce site for the metals
working industry to purchase products, services, and trade.
OnCourse will use the Internet as a key part of this strategy to deliver
software, provide applications while providing a focused trading site to build a
loyal customer base. Integrating OnCourse applications with the OnCourse
Internet site will lead users to take advantage of the business-to-business
electronic-commerce site. Four core internet concepts will be used:
o INTEGRATING APPLICATIONS WITH ONCOURSE PORTAL
OnCourse's subsidiaries products will have seamless interfaces to the web
portal. One of the first integrations to be done will be with Micro
Estimating's software. The MSE and FabPlan software can, via modem, dial out
to a supplier of raw materials, access their database and receive current raw
material pricing. The web portal is designed to perform this access via the
Internet, access a supplier's database, and return current raw material
pricing. When possible all OnCourse products will integrate with those areas
of the portal that perform similar or complimentary tasks.
o DRAW CUSTOMERS WITH CONTENT
OnCourse will draw customers with content by offering current industrial news
pertaining to the metal working industries, and by providing user forums to
exchange manufacturing ideas and problems, post questions, create topics,
check employment listings and find ideas for innovations and improvements.
There also will be several databases developed by OnCourse allowing easy
calculations and allowing the look up of common metal working information.
Customers will also
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be given the technology to easily exchange or share drawings and relevant
manufacturing files. Customers will also be given the opportunity to create
and use individual mailboxes and filing systems to organize any
communications and file exchanges done through the site.
o VALUE ADDED TRADING SITE
The proposed value added functionality at the OnCourse portal, Tools4Mfg.com,
is in several areas. There will be an online area for shopping for industry
leading software and finding information about software companies serving the
metal working industry. Online calculators will be provided that run in an
internet browser that will simplify some routines and time consuming
manufacturing calculations. Online databases will allow the look up of
common metal working information. There will be an online auction for
selling and buying both new and used manufacturing items. Customers will be
able to shop online for the best prices and delivery from several raw
material suppliers in real time. A facilities locator named The Machine
Shop Selector allows for detailed and specific production facilities searches
both geographically and by specific production capabilities and provides the
communication technologies to contact multiple manufacturers for pricing or
information. Manufacturer of custom components will have the ability to
receive Requests for Quotations (RFQ's) pre-defined that match their
capabilities and preferred type of work and online forums will allow the
exchange of manufacturing ideas and problems.
RISK FACTORS THAT MAY IMPACT THE SHAREHOLDERS INVESTMENT
Shareholders of the Company should be aware that the ownership of the Company's
shares involves certain investment considerations and risk factors, including
those described below and elsewhere in this annual report, which could adversely
affect the value of their holdings. Neither the Company nor any other person is
authorized to make any representations as to the future market value of the
Company's stock.
Any Forward-looking statements contained in this annual report should not be
relied upon as predictions of future events. Such statements are necessarily
dependent on assumptions, data or methods that may be incorrect or imprecise and
that may be incapable of being realized. Investors are hereby notified that
such information reflects the opinions of Company management as to the future.
Investors should use their own judgment as to the significance of this
information to their individual investment decisions.
Investment in the Company's Common Stock must be considered speculative due to a
number of risk factors including, but not limited to, the limited history of
trading in the Company's Common Stock in any Public Market.
CONTROL BY THE MANAGEMENT MIGHT LIMIT INDEPENDENT, PUBLIC SHAREHOLDER INFLUENCE
The Chief Executive Officer and the President of the Company beneficially own
approximately 60% of the outstanding common stock of the Company. The remaining
directors and other executive officers own approximately 32% of the outstanding
common stock of the Company. Accordingly, the Chief Executive Officer and
President together, or along with the Board of Directors and other executive
officers, will exercise control over the Company, including control over the
election of directors, the appointment of officers, and the business policies,
investments and future acquisitions, if any, of the Company. Public
shareholders' interests may not be fully represented alongside the differing
interests of management shareholders, if any. The large percentage of shares
owned by these persons will have a limiting effect on the number of shares
available for trading in the secondary market, which could have an adverse
effect on price and liquidity.
ABSENCE OF NECESSARY FINANCING COULD DISRUPT OPERATIONS, PRODUCT DEVELOPMEN,
GROWTH PLANS
The Company intends to obtain the necessary interim and long-term financing
necessary to continue operations, to fund present and future product
development, and to maintain the competitive position of its software products
in their manufacturing markets. There is no guarantee that the Company will
have the financial ability to meet all of those goals. The Company expects to
raise additional capital from time to time by private placements of the
Company's securities and capital contributed by industry partners. To date the
Company has not received any capital contributions from its industry partners.
There can be no assurances that there will be any market for the Company's
securities or that sufficient capital can be raised by any such private
placements. If capital is not available, it may not be possible for the
subsidiaries to develop new products, to grow existing product revenues or to
operate profitably in any market. In such event, shareholders could lose their
entire investment. See "MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF
OPERATIONS - Liquidity and Capital Resources".
ANTICIPATED REVENUES FROM PURCHASED IN-PROCESS RESEARCH & DEVELOPMENT MAY NOT BE
REALIZED
The Company acquired $270,000 of CAMWorks in-process research and development as
part of the TekSoft acquisition on January 31, 2000. It is possible that the
Company may not complete the development related to the CAMWorks project ahead
of its competition or before technology changes in the market place that may
render the technology obsolete. As a result, the Company may not realize the
expected revenues that management believes will result from this acquired in-
process technology.
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COMPETITORS'S STRENGHTS COULD FORCE PRICE REDUCTIONS, DAMAGE PROFIT PROSPECTS
The markets for the subsidiaries' products are intensely competitive. The CAM
industry for example has more than 200 competitors in which TekSoft is
referenced as one of the top five worldwide software providers according to the
above-mentioned CIMdata research. The estimating products offered by Micro
Estimating have a dramatically different number of competitors. There is only
one other competitor in the estimating field and that is Manufacturers
Technologies, Inc. Limited information is available on this company as they are
a privately held organization. Many of the subsidiaries' present or prospective
competitors have or may have substantially greater financial, technical,
marketing and sales resources than the Company. There can be no assurance that
the subsidiaries will be able to compete effectively in the future. If the
subsidiaries are unable to compete effectively, shareholders could have a lower
return on their investment or lose their entire investment.
LIMITED PRIOR PUBLIC MARKET AND RESTRICTION ON FREE SALE OF STOCK MAY ADVERSELY
AFFECT STOCK VALUE AND LIQUIDITY
There is presently a limited public market for the Company's common stock and
there can be no assurance that an active market will develop. The prices at
which the shares trade will be determined by the market place and could be
subject to significant fluctuations in response to many factors, including,
among others, variations in the Company's quarterly operating results, changing
economic conditions in the industries in which the subsidiaries participate, and
changes in government regulations. In addition, the general stock market has in
recent years experienced significant price fluctuations, often unrelated to the
operating performance of the specific companies whose stock is traded. Market
fluctuations, as well as economic conditions, may adversely affect the market
price of the Company common stock. In the event of declining stock values and
diminished liquidity, shareholders could lose their entire investment. See
"MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS."
DEPENDENCE ON OPERATING ENVIRONMENTS IMPOSES OBSOLESCENCE, DIMINISHED REVENUES
AND PROFIT EXPOSURES
The subsidiaries' software is designed for use with computers running in the
Microsoft WindowsTM and Windows NTTM operating environments. The successful
introduction of new operating systems or significant changes in existing
operating systems could adversely affect the Company's operating results.
Failure by the subsidiaries to develop new products for any such changed
operating environments could result in the Company's inability to maintain
sufficient margins in which to continue its business.
RAPID TECHNOLOGICAL CHANGE EXPOSES SUBSIDIARIES TO COMPETITIVE DISADVANTAGES,
REDUCTIONS IN SALES, PROFITS, GROWTH RATES, MARKET ACCEPTANCE
The market for the subsidiaries' products is characterized by rapid
technological advances, evolving industry standards, changes in end-user
requirements and frequent new product introductions and enhancements. The
introduction of hardware or software products embodying new technologies and the
emergence of new standards could have an adverse effect on the subsidiaries'
present products or any products under development. For instance, the Company
believes that TekSoft's CAMWorks product is an example of rapid technological
change. The CAMWorks product in the last two to three years has changed the way
CAM is being done in the manufacturing community. CAMWorks' ability to analyze
a solid model and generate machine code to produce the piece part automatically
will change the way parts will be manufactured in the future. The subsidiaries'
future success will depend upon its ability to enhance its present products as
well as introduce new products that are responsive to technological developments
and end-user requirements and development market appeal. Any failure by the
subsidiaries to develop new products and enhancements in a timely manner will
have an adverse effect on the results of the Company's operations and could
result in the Company's failure and the loss of shareholders' investment.
ABSENCE OF A MARKET FOR THE COMPANY'S ELECTRONIC-COMMERCE PRODUCTS INCREASES
RISKS OF LOSS ON INVESTMENT, FAILURE TO ACHIEVE GROWTH TARGETS, DIFFICULTING IN
MEETING DEBT SERVICE REQUIREMENTS, DIMINISHED INVESTOR CONFIDENCE
A market for the Company's electronic-commerce and other business-to-business
products may not develop. If a significant market for internet-based
electronic-commerce and business-to-business products does not develop, the
Company's business may not grow according to the Company's expectations and
shareholder's prospects for capital gain will be diminished.
COMPETITIVE PRICING PRESSURES MAY INCREASE THE RISK OF LOSS OF INVESTMENT
Competitive pricing pressures might bring about a reduction in the average price
of the subsidiaries' products, resulting in a decrease in revenues and gross
margins. Changes in product mix and other factors might also influence prices.
If price reductions occur, the Company's revenues will decline unless it is able
to offset these decreases by increasing its sales volumes. In addition, in
order to maintain its gross margins, the subsidiaries must develop and introduce
new products and product enhancements, and it must continue to reduce the
development and distribution costs of its products. There is no assurance that
the Company will succeed in implementing corrective action if any of these
declines occur. Failure by the subsidiaries to
Page 9
implement successful pricing strategies and/or to develop new products to meet
these competitive pressures and/or to increase unit volumes could result in the
Company's failure and the loss of shareholder's investment.
NEW PRODUCTS MAY CONTAIN UNDETECTED HARDWARE AND SOFTWARE ERRORS, INCRASE RISK
OF LOSS OF INVESTMENT
New products the subsidiaries develop may contain undetected hardware and
software errors, which could require significant expenditures of time and money
to correct, harm its relationships with existing customers and negatively impact
its reputation in the industry. In addition, the subsidiaries' products are
combined with products from other vendors. If such problems occur, it may be
difficult to identify the source of the problem. If such problems should occur,
and if the Company is unable to rapidly correct any such problems, there may be
consequences such as:
o Delay or loss of market acceptance of the subsidiaries' products
o Significant warranty or other liability claims
o Diversion of engineering and other resources from product development
efforts
o Significant customer relations problems
o Loss of credibility in the market
o Inability to sell its products until any errors are corrected
Any one or any combination of these consequences could result in a significant
loss in value of shareholders' investment.
QUARTERLY FLUCTUATIONS MAY PLACE ADDITIONAL BURDEN ON WORKING CAPITAL, NEED FOR
ADDITIONAL INVESTMENT
Management believes that OnCourse's sales will fluctuate based on the
manufacturing communities purchasing trends. The Company's quarterly revenues
and operating results have varied significantly in the past and are likely to
vary significantly in the future. For example using an average of the last six
years sales activity, Micro Estimating's sales on a quarterly basis has ranged
from approximately 19% of annual sales to as high as 30% of annual sales.
TekSoft's average quarterly sales for the same six-year period have fluctuated
from approximately 23% of annual sales to 27% of annual sales. A typical sales
pattern will start the year with new budget spending through the first four
months. Then there will be a three-month slowdown during the summer months,
which reflects reduced production and plant shutdowns. This is then followed by
an increase in sales volume through the end of the year as companies complete
their fiscal years, typically spending remaining budgetary monies and in some
cases, based on taxation issues, purchase smaller capital expenditures to reduce
tax liabilities. Other factors that may affect quarterly results include the
following:
o The overall strength of the economy, timing, size and terms of customer
orders
o Changes in customer buying patterns
o Uncertainties associated with the introduction of any new product or
product enhancement
o The timing of the announcement and introduction of new products by the
subsidiaries or its competitors
o The mix of products sold and the mix of distribution channels through
which products are sold
o Deferrals of customer orders in anticipation of new products, services
or product enhancement introduced by the Company or its competitors
o Technological developments affecting the electronic-commerce, business-
to-business, and manufacturing software markets
Any failure by the Company to obtain sufficient lines of credit to support these
quarterly fluctuations, if any, could result in a decline in profitability and a
loss of shareholder value.
MANAGEMENT OF FUTURE ACQUISTIONS AND GROWTH WILL REQUIRE ADDITIONAL INVESTMENT,
MAY EXCEED COMPANY'S ABILITY TO MANAGE THIS GROWTH
The Company has embarked upon an ambitious growth plan including the acquisition
of one or more businesses and the accumulation of capital to finance existing
and acquired businesses. It will be necessary for the subsidiaries to attract,
hire and maintain new employees at many levels, including senior management in
order to achieve and support growth. The Company expects to include the public
market for its securities as a basis for the development of key employee
incentive compensation, savings, investment and retirement plans. There can be
no assurance that the Company will be successful in any of these efforts, the
failure of which could result in slower growth, a decline in profitability and a
loss of shareholder value. See "MARKET FOR COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS."
LOSS OF KEY PERSONNEL OR INABILITY TO HIRE ADDITIONAL QUALIFIED PERSONNEL MIGHT
RESULT IN FAILURE OF THE COMPANY TO IMPLEMENT ITS PLANS
Loss of the services of key management employees or inability to attract and
retain qualified personnel or delays in hiring required personnel, particularly
programmers and sales personnel, could delay the development and introduction
of, and
Page 10
negatively impact the subsidiaries' ability to sell its products. In addition
to key management personnel, the Company's success depends on its ability to
attract and retain highly skilled technical, managerial, marketing and other
personnel. Competition for these personnel is intense. In recent years, there
has been a strong demand for qualified skilled and unskilled employees in the
Wisconsin, Minnesota and Arizona areas, where the subsidiaries' main operations
are located, and in other areas where it operates. There is a risk that it will
be unsuccessful in attracting and retaining the personnel it needs for its
business. Failure to attract and retain such personnel could result in a
decline in the Company's revenues and profits and a loss of investment by
shareholders.
RELIANCE ON CONTRACT PROGRAMMERS FOR DEVELOPMENT OF SUBSIDIEARIES' SOFTWARE
PRODUCTS
The subsidiaries use domestic and foreign contract programmers to program its
software products. Competition for these resources may cause a shortage of
contract programmers or increase the cost of these services to the point where
the Company's profitability declines. This decline in profitability could slow
product development efforts which in turn could prevent the subsidiaries from
being competitive in its markets.
RELIANCE ON DISTTRIBUTION CHANNEL INCREASES EXPOSURE FROM COMPETITORS STRENGTHS,
COMPANY'S FINANCIAL CONTRAINTS
The Company relies on direct sales and independent distributors to sell its
products. For the years ended December 31, 2000 and 1999, 55% and 34%,
respectively, of the Company's total revenues were generated by its independent
distributors when excluding sales of subsidiaries that were previously
independent distributors. Distributors also represent other products that may
either complement or compete directly with those of the subsidiaries.
Independent choices by distributors concerning which products receive their
principal attention, the development of new or enhanced products by competitors,
the subsidiaries' relative ability to compete effectively with others in time-
to-market comparisons and a large number of factors under the control of
competitors and independent distributors may adversely effect the Company's
future operating results. Failure to attract and retain good distributors
and/or to implement more direct marketing efforts could result in a decline in
the Company's revenues and profits and a loss of investment by shareholders.
ASSET ENCUMBRANCES, OPERATING LOSSES, CONTINGENT STOCK ISSUANCES MIGHT INCREASE
SHAREHOLDER DILUTION WHILE VALUES COULD DECLINE
Substantially all of the Company's assets are pledged to secure bank
indebtedness subject to compliance with certain financial ratio tests. The
Company's earned surplus deficit and continuing operating losses might reduce
the availability of such credit facilities in the future under those ratio
tests. At the same time, revenue and net income increases, if any, will
obligate the Company to issue additional shares under acquisition agreements.
Taken as a whole, these factors increase the risk of dilution in shareholder
value and impose a risk of complete loss of shareholder value unless those
trends are reversed or offset by the infusion of new capital.
COMPANY'S BANK INDEBTEDNESS HAS FLOATING INTEREST RATES
The Company's existing line of credit facility has interest rate pricing that
fluctuates with changes in the bank's prime rate. Significant increases in the
bank's prime interest rate could reduce the Company's operating profits. A
reduction in profitability will make it more difficult to implement the
Company's growth plans and to develop the products necessary to remain
competitive.
YEAR 2000 COMPLIANCE
During 1999 the Company had analyzed the Year 2000 readiness issues related to
its business systems. All systems critical to managing the business were Year
2000 compliant. As of the date of this annual report, the Company has not
experienced any problems with Year 2000 Compliance.
FORWARD-LOOKING STATEMENTS
This annual report of OnCourse Technologies, Inc. includes forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934 (the "1934 Act"). These statements are based on management's beliefs and
assumptions, and on information currently available to management. Forward-
looking statements include statements in which words such as "expect,"
"anticipate," "intend," "plan," "believe," "estimate," "consider," or similar
expressions are used.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions. The Company's future results and
stockholder values may differ materially from those expressed in these forward-
looking statements. Many of the factors that will determine these results and
values are beyond the Company's ability to control or predict. For these
statements, the Company claims the protection of the safe harbor for forward-
looking statements contained in Section 21E of the 1934 Act. This protection
does not apply to statements made in an initial public offering.
Page 11
REPORTS TO SECURITY HOLDERS
The Company intends to provide all of its shareholders with an annual report of
the Company's operations including comparative audited financial statements for
the years ended December 31, 2000 and 1999.
The public may read and copy any materials that the Company has on file with the
Securities and Exchange Commission ("SEC") at the SEC's Public Reference Room at
450 Fifth Street, NW, Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
(800) SEC-0330. The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding issuers that file
electronically with the SEC. The SEC's Internet site address is
http://www.sec.gov.
------------------
The Company's Internet site address is http://www.oncoursetechnologies.com.
-----------------------------------
ITEM 2. DESCRIPTION OF PROPERTY
All of the operations of the Company and its subsidiaries are conducted from
office space leased from non-related party landlords except as noted for
TekSoft. TekSoft leases office space with a related party that is renewable in
five-year increments for a period of twenty-five years. TekSoft subleases a
significant portion of this related party lease as office space to other
tenants. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
The following table sets forth information concerning the operating facilities:
MONTHLY RENT AS
SIZE IN OF
TENANT SQUARE FEET LEASE EXPIRES JANUARY 1, 2001
------ ----------- ------------- ---------------
OnCourse Technologies, Inc./ 4,672 11/30/2002 $3,335
Micro Estimating Systems, Inc.
3106 South 166th Street
New Berlin, WI 53151
CAM Solutions, Inc. (1) 1,122 1/31/2003 $1,311
1631 East 79th Street
Suite 134
Bloomington, MN 55425
CAM Solutions, Inc. (2) 413 7/16/2001 $548
2121 W. Army Trail Road
Suite 102
Addison, IL 60101
Cimtronics, Inc. 1,550 8/31/2004 $2,196
7434 East Stetson Drive
Suite C-165
Scottsdale, AZ 85251
TekSoft, Inc. 8,800 7/14/2003 $20,570
16121 North 78th Street
Scottsdale, AZ 85260
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries are involved in any legal
proceedings the resolution of which would have a material adverse effect on the
business or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
Page 12
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, at the time of this filing, is traded only in the
environment of the Pink Sheets under the OCTH symbol and has very limited
trading volume or activity. The following table sets forth, for the fiscal
quarters indicated and available, the high and low bid prices for the Company's
Common Stock as reported by the Company's market maker. The quotations reflect
inter-dealer prices without retail mark-up, markdown or commission, and may not
represent actual transactions. The prices are adjusted for the 1 for 2 reverse
stock split effective October 31, 1999. The Company intends to apply to have
the Common Stock traded on the OTC Bulletin Board immediately upon the
effectiveness of the 10-SB registration statement filed October 23, 2000, 10-SB
Amendment No. 1 filed December 29, 2000, and 10-SB Amendment No. 2 filed March
6, 2001. No assurance can be given that such application will be approved and,
if approved, that an active trading market for the Common Stock will be
established or maintained.
High Low
---- ---
Year Ended December 31, 2000
First Quarter $6.00 $4.50
Second Quarter 6.00 2.25
Third Quarter 4.00 0.25
Fourth Quarter 1.75 0.60
Year Ended December 31, 1999
July 2, 1999 (First Price Available) $5.50 $5.50
Third Quarter 6.00 0.50
Fourth Quarter 6.00 0.50
None of the holders of any shares of Common Stock of the Company are entitled to
any registration rights.
The Company has not paid any dividends on its Common Stock and intends to retain
all earnings for use in its operations and to finance the development and the
expansion of its business. It does not anticipate paying any dividends on the
Common Stock in the foreseeable future. The payment of dividends is within the
discretion of the Company's Board of Directors. Any future decision with
respect to dividends will depend on future earnings, future capital needs and
the Company's operation and financial condition, among other factors.
As of December 31, 2000, there were approximately 540 holders of record of the
Company's common stock.
During the year ended December 31, 2000, the Company offered and issued on
various dates 118,250 Units at a price of $2.00 per unit and 10,000 Units at a
price of $1.00 per unit. The units include one share of Company common stock
and one Company Class A common stock purchase warrant expiring three years from
the unit purchase date and one Company Class B common stock purchase warrant
expiring five years from the unit purchase date. These units were issued and
sold in a private placement to selected individuals deemed financially capable
of making the investment. During the year ended December 31, 2000, the Company
also offered and issued on various dates 13,484 Units at a price of $2.00 per
unit for services performed. The units were issued without registration under
1933 Act pursuant to the provisions of Section 505 of Regulation D promulgated
by the SEC and appropriate filings with regulatory agencies of the states where
the units were offered. All of the 349,878 combined Class A and Class B
common stock purchase warrants sold during the years ended December 31, 2000 and
1999 are outstanding as of December 31, 2000.
On January 31, 2000, the Company acquired all of the stock of TekSoft, Inc., in
exchange for 4,500,060 shares of Company common stock plus the contingent right
to receive 1,500,000 additional shares during the next five years if certain
revenue growth is achieved from TekSoft's CAM products. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS". See Exhibit No. 8(d) "Agreement and
Plan of Reorganization dated January 10, 2000 by and among the Company, TekSoft,
and Gary F. Fulton" for details of this agreement. These shares were issued
without registration under the 1933 Act pursuant to the exemption provided by
Section 4(2) of that Act exempting transactions not involving a public offering.
These sales were limited to a few persons who owned all the stock of the
acquired companies. No brokers or dealers were involved.
In January 2000, the Company offered and issued 19,500 shares of Company common
stock to the employees of TekSoft, Inc. as an incentive to continue employment
following the Company's acquisition of TekSoft.
During the year ended December 31, 2000, 1,071 of the 400,000 Redeemable Common
Stock Purchase Warrants issued in 1998 were exercised for a total consideration
of $1,607.
Page 13
In May 2000, the Company entered into a twelve-month contract with an unrelated
professional services firm. The Company issued 300,000 shares of common stock
at a value of $2.00 per share for financial public relations and acquisition
analysis services. Subsequent to December 31, 2000, the contract was extended to
February 19, 2001 with no additional consideration given.
During the year ended December 31, 2000, the Company offered and issued 2,500
shares of Company common stock as payment for $5,000 of outside programming
services performed. The market price of the Company common stock was $1.01 on
the date of issuance.
During the year ended December 31, 2000, the Company offered and issued 5,000
shares of Company common stock to an employee as a hiring incentive. The market
price of the Company common stock was $1.50 on the date of issuance. In
addition, the Company also awarded another employee 20,000 shares as part of
that employee's compensation package at a value of $2.00 per share.
All of the share certificates issued in the above-described transactions carry
restrictive legends and are subject to stop transfer orders. Generally,
securities issued without registration under the 1933 Act are restricted and
therefore subject to limitations on the ability of the holder to resell.
Restricted shares may be sold only upon registration under the 1933 Act,
pursuant to the provisions of Rule 144 or under some other exemption.
In general, under Rule 144, a person (or persons) whose shares are aggregated
who has beneficially owned his or her restricted shares for at least one year,
including persons who may be deemed "affiliates" of the Company, as that term is
defined under the 1933 Act, would be entitled to sell within any three month
period a number of shares that does not exceed the greater of 1% of the then
outstanding shares of the Company's Common Stock or the average weekly trading
volume in the over the counter market during the four calendar weeks preceding
such sale. The sales also would be subject to the requirement that there be
current information publicly available and that the issuer has filed all
required reports under the 1934 Act. As a reporting company when the Company's
10-SB registration statement dated October 31, 2000, 10-SB Amendment No. 1 filed
December 29, 2000, and 10-SB Amendment No. 2 dated March 6, 2001 becomes
effective, the Company will satisfy this requirement. Equivalent information
may be available through other sources (annual reports and press releases) prior
to the time the Company's securities are registered. The sales must also be
broker sales when the broker simply executes a sale, does not solicit offers to
purchase and receives no more than the normal commission. In addition, a person
who is deemed not to have been an affiliate of the Company at any time during
the 90 days preceding a sale by such person, and who has owned his or her
restricted shares for at least two years, would be entitled to sell such shares
under Rule 144 at any time without regard to the volume limitations and
availability of public information.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and notes, thereto and the other
financial information appearing elsewhere in this filing. In addition to
historical information, the following discussion and other parts of this filing
contain forward-looking information that involves risks and uncertainties. The
Company's actual results could differ materially from those anticipated by such
forward-looking information due to competitive factors, risks associated with
the Company's expansion plans and other factors discussed herein.
Since the Company's incorporation on May 28, 1998, the Company's goal has been
to become the collaborative business partner for the metal working industry by
providing technology products and services that improve the profitability and
efficiency of metal component manufacturers. This goal is carried out under
three objectives consisting of: acquiring specific other businesses; developing
Internet based, business-to-business electronic-commerce sites for use in the
procurement of customer components, raw materials, and tooling for the
metalworking industries; and raising capital and maximizing shareholder value.
The Company is on course relative to these objectives by executing strategies
that focus on a balance of three priorities: growth, profitability and
liquidity.
During the years ended December 31, 2000 and 1999, the Company acquired three
companies: TekSoft on January 31, 2000; Cimtronics on October 1, 1999; and CAM
Solutions on January 1, 1999. Each of these acquisitions has moved the Company
closer to its goal of becoming a business partner for the metal working
industry. These acquisitions also helped complement its existing product
offerings as well as broaden the base necessary for implementing its Internet
strategy utilizing a business-to-business electronic-commerce site. The
Company, through its Micro Estimating subsidiary, also forged an exclusive
arrangement to be the U.S. and Canadian distributor and systems integrator for a
tool management system offered by one of Europe's largest tooling manufacturers
that enables companies to increase machine up-time and reduce inventory.
In addition to the above acquisitions, the subsidiaries have devoted significant
management time and resources to upgrading its computer-aided-manufacturing and
computer-aided-engineering products and developing its business-to-business
electronic-commerce site. During the year ended December 31, 2000, the Company
invested over 35% of net sales or $1,861,000 in the forms of capitalized
software and purchased in-process and internally developed research and
development activities. This is a
Page 14
significant increase over the approximate 5% of net sales that the Company
invested during the year ended December 31, 1999. The percentage increase can
be largely attributed to the $1,752,000 investment level in internally developed
research and development, purchased research and development, and capitalized
software expenditures of $323,000, $270,000, and $1,159,000, respectively, made
by TekSoft since it was acquired on January 31, 2000.
The Company acquired both developed and in-process technologies as part of the
TekSoft acquisition on January 31, 2000. An appraisal was performed on the
TekSoft computer-aided-design and computer-aided-manufacturing software product
lines: ProCAM 2000, CAMWorks 99 and CAMWorks 2000. The developed technology
was valued at $4,300,000. This was comprised of $3,150,000 for the current
completed ProCAM 2000 software and $1,150,000 for the CAMWorks 1999 software.
An estimated useful life of five years was determined to be reasonable for the
TekSoft's developed technologies.
Generally, in-process research and development is distinguished from developed
technology based upon whether "technological feasibility" has been achieved.
The technological feasibility of a product is established when the enterprise
has completed all planning, designing, testing, and sampling activities that are
necessary to establish that the product can be produced to meet its design
specifications including functions, applications, and technical performance
requirements. The in-process technology was determined to be $270,000 for the
CAMWorks software. For approximately five months prior to the valuation date,
the engineering staff had begun the work on the release of version CAMWorks
2000. At the date of acquisition, the release had not yet reached the beta
stage.
At the date of acquisition, TekSoft planned the release of a new version of the
CAMWorks software for May of 2000. Very little of the code base, comprising the
existing basic infrastructure, would be rewritten for this release or for the
next several releases. The next release is scheduled for early 2001. The 2001
release will be added to the then existing core code and, based on the
historical pattern, will add an estimated 20% in features and functionality to
the base. The CAMWorks 2000 project will include 90 or more enhancements.
The significant acquisition and product development activity during the years
ended December 31, 2000 and 1999 generated significant changes in the results of
operations when comparing the years ended December 31, 2000 and 1999.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
The Company continued to focus on product development and sales growth during
the year ended December 31, 2000. The two acquisitions made on October 1, 1999
(Cimtronics) and January 31, 2000 (TekSoft) helped to increase net sales by
$2,765,000 to $5,248,000 for the year ended December 31, 2000 from $2,483,000
for the same period in 1999. This represents an increase of 111%. In addition,
the Company's deferred revenue of $1,624,000 as of December 31, 2000 reflects an
increase of $668,000 over the combination of the deferred revenues of $462,000
for OnCourse as of December 31, 1999 and the inclusion of TekSoft's $494,000
deferred revenue as of January 31, 2000.
Cost of goods sold was $1,699,000 or 32% of net sales for the year ended
December 31, 2000 as compared to the $636,000 or 26% of net sales for the year
ended December 31, 1999. The increase in cost of goods sold is largely related
to the increased sales generated from the Cimtronics acquisition on October 1,
1999 and the TekSoft acquisition on January 31, 2000. The Company's gross
margin as a percentage of net sales declined from the gross margin percentage
for the year ending December 31, 1999 largely due to the acquisitions of
TekSoft, and Cimtronics. TekSoft contributed to the decrease because of its
significant capitalized software amortization. Cimtronics, which as a
distributor has lower gross margins, had a full year of activity for the year
ended December 31, 2000 as compared to only one quarter of activity in 1999.
Selling expenses increased to $2,494,000 or 48% of net sales for the year ended
December 31, 2000 as compared to the $1,110,000 or 45% of net sales for the
year ended December 31, 1999. The increase is largely related to the additional
selling expenses for the Cimtronics and TekSoft businesses acquired. Total
advertising expenses were $342,000 for the year ended December 31, 2000 as
compared to $123,000 in 1999.
Total research and development expense was $593,000 and $17,000 for years ended
December 31, 2000 and 1999, respectively. The increase is attributed to the
research and development activities of TekSoft. Included in the $593,000 was
$270,000 of purchased in-process research and development as part of the TekSoft
acquisition. This non-recurring amount was written off immediately in
accordance with APB No. 16, "Accounting for Business Combinations."
Goodwill and other intangible amortization were $1,092,000 and $26,000 for the
years ended December 31, 2000 and 1999, respectively. The largest factor in the
increase related to the TekSoft acquisition, which contributed to $862,000 of
the goodwill and $141,000 of other intangible amortization for the year ended
December 31, 2000. Other intangible amortization was comprised of amortization
of the assembled workforce, trade names and distribution network intangible
assets. The amortization of the Cimtronics goodwill also contributed to the
increase as the year ended December 31, 2000 had a full year of amortization
expense totaling $84,000 compared to only one quarter of expense of $21,000 for
1999.
Page 15
General and administrative expense increased to $2,143,000 or 41% of net sales
for the year ended December 31, 2000 compared to the $928,000 or 37% of net
sales for the year ended December 31, 1999. The increase can be mostly
attributed to the general and administrative expenses of the Cimtronics and
TekSoft businesses since acquisition. Also contributing to the increase is the
addition of the Chief Financial Officer position and the legal and professional
expenses incurred to manage the Company's acquisitions and the preparation and
filing of the Company's 10-SB registration statement.
Operating expenses including purchased in-process research and development and
goodwill and other intangible asset amortization, were $6,322,000 for the year
ended December 31, 2000 as compared to $2,081,000 for the year ended December
31, 1999.
Interest expense increased from $31,000 in 1999 to $105,000 for the year ended
December 31, 2000. This increase is attributed to the loans acquired in the
TekSoft acquisition, rising interest rates during 2000 as well as an increase in
additional borrowings to finance the Company's research and development and
software development activities. This resulted in a pre-tax loss of $2,879,000
for the year ended December 31, 2000 as compared to the $265,000 pre-tax loss in
1999.
The net loss after tax benefits was $2,312,000 and $170,000 for the years ended
December 31, 2000 and 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
OnCourse has incurred losses over the last two years and has negative working
capital. Based upon its current plans, the Company believes it has sufficient
funds and borrowing availability to meet its operating expenses and capital
requirements through fiscal year 2001 and into fiscal year 2002. However, the
Company intends to seek such additional funding from equity offerings to
existing shareholders or other third parties during 2001. There is no assurance
that such additional funds will be available on acceptable terms, if at all.
Should the plans contemplated by management not be consummated, the Company may
have to seek alternative sources of capital, affect borrowing under its line of
credit or reevaluate its operating plans.
The Company's cash position as of December 31, 2000 was approximately $200,000
as compared to $92,000 as of December 31, 1999. During the year ended December
31, 2000, net cash provided by operating activities was $915,000 versus $88,000
for the year ended December 31, 1999.
The Company's working capital as of December 31, 2000 was a negative $971,000 as
compared to the negative working capital of $393,000 as of December 31, 1999.
The $578,000 decrease in working capital over the December 31, 1999 balance is
largely attributed to increased deferred revenues, which increased from the
$462,000 balance as of December 31, 1999 to the $1,624,000 balance as of
December 31, 2000. Offsetting the deferred revenue increase were increases in
accounts payable and accrued liabilities, which increased to $1,031,000 as of
December 31, 2000 from the $394,000 as of December 31, 1999.
On October 9, 2000, the Company consolidated its bank debt by replacing the
Micro Estimating and TekSoft lines of credit and substantially all of the
existing bank term debt. The new debt facility consists of a $400,000 term loan
due on October 1, 2005 and a $1,100,000 three-year revolving line of credit
agreement due October 9, 2003, and as such, the term debt and revolving line of
credit facilities are classified as long-term debt. The revolving line of
credit is limited to a borrowing base calculated as a specified percentage of
qualifying accounts receivable, property, plant and equipment and net
capitalized software. The interest rate for the term loan and revolving line of
credit is 9.25% and prime (9.5% at December 31, 2000), respectively. The new
debt facility is secured by all of the assets of the Company and its
subsidiaries. Management believes that the new debt facility will support its
working capital needs throughout 2001.
In addition to the above mentioned lines of credit and term debt as of December
31, 2000, the Company has several notes payable due to current and former
shareholders and employees of the Company and its subsidiaries totaling $161,000
with a current portion of $155,000 as of December 31, 2000. These notes have
interest rates that range from 7% to 16.5%. The principal and interest payment
structures vary for these notes. Please refer to the accompanying consolidated
financial statements and footnotes for details.
Shareholder's Equity increased to $10,742,000 as of December 31, 2000 compared
to $476,000 as of December 31, 1999. The increase in Shareholder's Equity since
December 31, 1999 is attributed to the acquisition of TekSoft for $11,650,000,
which includes $895,000 of contingent shares earned during the year ended
December 31, 2000, the $203,000 of additional proceeds from the sale of common
stock, $629,000 of common stock issued for services, and $94,000 of common stock
issued for employee compensation. Offsetting these increases for the year
ending December 31, 2000 was the $2,312,000 loss incurred for the year ended
December 31, 2000.
In addition, the Company recorded a $273,000 reduction to retained earnings with
an offsetting increase to additional paid-in capital to reflect the accounting
treatment for extending the expiration date of the 1998 warrants from March 31,
2000 to September 30, 2000. The same warrants were further extended to June 30,
2001 on September 12, 2000. Generally accepted accounting principles required
that the warrants be classified as equity and accreted to the estimated
redemption value based on the terms of the warrants. At the time of original
issuance the warrants were not assigned an initial value or any accretion as
their estimated fair market value approximated zero.
Page 16
The extension resulted in a new measurement date and the incremental value of
the warrants was accounted for as a dividend to the shareholders. The value of
the remeasured warrants was determined using the Black-Scholes pricing model.
The Company invested $1,268,000 in capitalized software for the year ended
December 31, 2000. This compares to $114,000 for the year ended December 31,
1999. The significant investment during the year ended December 31, 2000 can be
mostly attributed to feature enhancements to TekSoft's computer-aided-
manufacturing software. The Company also made expenditures for plant and
equipment and other assets during the year ended December 31, 2000 of $138,000
and $141,000, respectively, compared to the $81,000 and $2,000 for the year
ended December 31, 1999. The increase in other assets is largely related to
license fees for third-party technology used in TekSoft's CAM software products.
The Company intends on financing future expenditures for property and equipment,
capitalized software and sales growth using internally generated cash flows from
operations. The Company has approximately $312,000 available as of December 31,
2000 under its revolving line of credit facility. Additional sales of common
stock, if any, through private placement activities will help supplement
internally generated cash flows in meeting its operating and growth needs.
ITEM 7. FINANCIAL STATEMENTS
The following report and financial statements of the Company are contained on
the pages indicated.
OnCourse Technologies, Inc. Page F-1
Report of Independent Public Accountants Page F-2
Consolidated Balance Sheets Page F-3
Consolidated Statements of Operations Page F-5
Consolidated Statements of Shareholders' Equity Page F-6
Consolidated Statements of Cash Flows Page F-7
Notes to Consolidated Financial Statements Page F-8
Page 17
ONCOURSE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-1
Page 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
OnCourse Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of OnCourse
Technologies, Inc. (a Nevada Corporation) and subsidiaries as of December 31,
2000 and 1999, and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the years then ended. 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 that 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 financial position of OnCourse
Technologies, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
March 9, 2001
F-2
Page 19
ONCOURSE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31, 2000 and 1999
Assets 2000 1999
------ ------ ------
Current Assets:
Cash $200,411 $91,684
Accounts Receivable, Less Allowance for Doubtful 1,105,908 412,260
Accounts of Approximately $24,900 and $11,600,
Respectively
Prepaids and Other Assets 306,939 56,307
Deferred Income Tax Asset 389,670 205,193
----------- ----------
Total Current Assets 2,002,928 765,444
Note Receivable from Shareholder 45,041 41,738
Capitalized Software, Less Accumulated Amortization
of $1,422,334 and $501,166, Respectively 4,873,769 226,752
Property and Equipment, at Cost:
Computer Equipment and Purchased Software 377,217 257,515
Furniture, Fixtures and Vehicles 151,471 162,657
----------- ----------
Total Property and Equipment 528,688 420,172
Less- Accumulated Depreciation (180,126) (226,085)
----------- ----------
Net Property and Equipment 348,562 194,087
Goodwill, Less Accumulated Amortization of $976,606 7,256,424 597,263
and $25,651, Respectively
Assembled Workforce, Less Accumulated Amortization 191,190 -
of $28,810
Trade Names, Less Accumulated Amortization of 516,389 -
$33,611
Distribution Network, Less Accumulated Amortization 521,428 -
of $78,572
Other Assets 178,291 8,961
----------- ----------
Total Assets $15,934,022 $1,834,245
----------- ----------
----------- ----------
The accompanying consolidated notes to financial statements are an
integral part of these consolidated balance sheets.
F-3
Page 20
ONCOURSE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31, 2000 and 1999
Liabilities and Shareholders' Equity 2000 1999
------------------------------------ ------ ------
Current Liabilities:
Lines of Credit $ - $183,425
Current Portion of Long-Term Debt 52,318 17,200
Current Portion of Capital Leases 13,060 7,100
Accounts Payable 823,754 331,047
Accrued Income Taxes 14,833 22,699
Accrued Commissions 84,210 61,618
Accrued Wages and Other Liabilities 207,347 63,116
Notes Payable to Shareholders and Employees 154,587 10,000
Deferred Revenue 1,623,982 461,911
---------- ---------
Total Current Liabilities 2,974,091 1,158,116
Line of Credit 787,818 -
Notes Payable to Shareholders and Employees, Less 6,757 -
Current Portion
Long-Term Debt, Less Current Portion 375,914 172,912
Capital Lease Obligations, Less Current Portion 4,758 -
Deferred Income Tax Liability 1,042,770 26,796
Shareholders' Equity:
Common Stock, $0.001 Par Value, 50,000,000 17,751 11,850
Shares Authorized, and 17,751,227 and
11,850,156 Shares Issued and Outstanding,
Respectively
Additional Paid-In Capital 14,662,217 665,919
Warrants 713,886 1,864,990
Retained Deficit (4,651,940) (2,066,338)
----------- ----------
Total Shareholders' Equity 10,741,914 476,421
----------- ----------
Total Liabilities and Shareholders' Equity $15,934,022 $1,834,245
----------- ----------
----------- ----------
The accompanying consolidated notes to financial statements are an
integral part of these consolidated balance sheets.
F-4
Page 21
ONCOURSE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended December 31, 2000 and 1999
2000 1999
------ ------
Net Sales $5,247,617 $2,482,475
Cost of Sales 1,699,293 635,859
---------- ----------
Gross Profit 3,548,324 1,846,616
Selling Expenses 2,493,764 1,109,782
Research and Development 323,445 17,100
Purchased In-Process Research & Development 270,000 -
Goodwill and Other Intangible Amortization 1,091,948 25,651
General and Administrative Expenses 2,142,749 928,330
----------- ----------
Operating Loss (2,773,582) (234,247)
Interest Expense 105,235 30,748
----------- ----------
Loss Before Income Taxes (2,878,817) (264,995)
Income Tax Benefit 566,624 94,632
----------- ----------
Net Loss $(2,312,193) $(170,363)
----------- ----------
----------- ----------
Basic and Diluted Loss Per Share $(0.14) $(0.01)
----------- ----------
----------- ----------
The accompanying consolidated notes to financial statements are an
integral part of these consolidated statements.
F-5
Page 22
ONCOURSE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Deficit)
For the Years Ended December 31, 2000 and 1999
Total
Common Stock Additional Shareholders'
------------------- Paid-in Retained Equity
Shares Amount Capital Warrants Deficit (Deficit)
------ ------ ------ -------- ------- ---------
Balance, December 31, 1998 10,306,000 $10,306 $26,349 $ - $(81,575) $(44,920)
Distribution of Shares in Spin-off Upon 800,000 800 (800) - -
Expiration of Right-of-Return
Shares Issued for Acquisitions 303,846 304 674,311 - 674,615
Issuance of Common Stock 40,205 40 16,891 - 16,931
Issuance of Warrants - - (51,047) 51,047 - -
Warrants Issued as Dividends - - - 1,814,400 (1,814,400) -
Exercise of Warrants 105 - 615 (457) - 158
Contingent Shares Earned 400,000 400 (400) - - -
Net Loss - - - - (170,363) (170,363)
---------- ------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 11,850,156 11,850 665,919 1,864,990 (2,066,338) 476,421
Shares Issued for Acquisition 4,500,060 4,500 10,750,643 - - 10,755,143
Issuance of Common Stock 488,734 489 925,835 - - 926,324
Issuance of Warrants - - (220,942) 220,942 - -
Warrants Issued as Dividends - - 1,642,128 (1,368,719) (273,409) -
Exercise of Warrants 1,071 1 4,934 (3,327) - 1,608
Contingent Shares Earned 911,206 911 893,700 - - 894,611
Net Loss - - - - (2,312,193) (2,312,193)
---------- ------- ----------- ----------- ----------- -----------
Balance, December 31, 2000 17,751,227 $17,751 $14,662,217 $713,886 $(4,651,940) $10,741,914
---------- ------- ----------- ----------- ----------- -----------
---------- ------- ----------- ----------- ----------- -----------
The accompanying consolidated notes to financial statements are an integral part
of these consolidated statements.
F-6
Page 23
ONCOURSE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2000 and 1999
2000 1999
------ ------
Cash Flows from Operating Activities:
Net Loss $(2,312,193) $(170,363)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities-
Depreciation and Amortization 2,145,893 233,314
Loss on Disposal of Property and Equipment 17,786 -
Non-Cash Compensation 94,105 -
Non-Cash Consulting Services 404,493 -
Purchased In-Process Research & Development 270,000 -
Deferred Income Taxes, Net (592,264) (62,349)
Changes in Current Assets and Liabilities-
Accounts Receivable (74,297) 190,676
Prepaids and Other Current Assets (12,088) (42,607)
Accounts Payable 225,747 (23,973)
Accrued Liabilities 79,939 (36,337)
Deferred Revenue 667,565 38
----------- ---------
Net Cash Provided by Operating Activities 914,686 88,399
----------- ---------
Cash Flows From Investing Activities:
Capitalized Software Development Costs (1,268,185) (113,985)
Purchase of Property and Equipment (137,593) (81,296)
Other Assets (141,346) (1,677)
Acquisition of CAM Solutions, Inc. - 13,670
Acquisition of Cimtronics, Inc. - 27,648
Acquisition of TekSoft, Inc. 65,526 -
----------- ---------
Net Cash Used in Investing Activities (1,481,598) (155,640)
----------- ---------
Cash Flows From Financing Activities:
Proceeds (Payments) on Line of Credit, Net 604,393 (62,461)
Proceeds from Long-Term Debt 440,000 194,116
Payments on Long-Term Debt and Notes Payable
to Shareholders and Employees (567,396) (4,004)
Payments on Capital Lease Obligation, Net (2,390) (3,062)
Proceeds from Stock Issuance 202,727 16,931
Exercise of Warrants 1,608 158
Increase in Notes Receivable from Shareholder (3,303) (3,091)
----------- ---------
Net Cash Provided by Financing Activities 675,639 138,587
----------- ---------
Net Increase in Cash 108,727 71,346
Cash, Beginning of Year 91,684 20,338
----------- ---------
Cash, End of Year $200,411 $91,684
----------- ---------
----------- ---------
The accompanying consolidated notes to financial statements are an
integral part of these consolidated statements.
F-7
Page 24
ONCOURSE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Notes to Financial Statements
December 31, 2000 and 1999
(1) Description of Merger and Acquisitions-
--------------------------------------
OnCourse Technologies, Inc. ("OnCourse") was incorporated in Nevada on
May 28, 1998 as a subsidiary of Innovation International, Inc.
("Innovation"). On June 12, 1998, Innovation caused OnCourse to distribute
Innovation's 800,000 common shares of OnCourse and common stock purchase
warrants of OnCourse to Innovation's shareholders as a dividend-in-kind.
These shares were subject to a unilateral right of return through June 12,
1999, and not reflected as being issued and outstanding until the
expiration of the right of return. Effective June 12, 1998, as a result of
that distribution ("spin-off"), OnCourse became separate from and was no
longer a subsidiary of Innovation.
Following completion of the spin-off, OnCourse entered into an agreement
with the shareholders of Micro Estimating Systems, Inc. ("Micro
Estimating") pursuant to which Micro Estimating was merged into a newly
organized subsidiary, Micro Acquisition Corporation ("Acquisition"), which
immediately thereafter changed its name to Micro Estimating Systems, Inc.
Consideration for the merger included the issuance of 9,866,500 shares to
the former shareholders of Micro Estimating, plus the potential for an
additional 2,000,000 shares if certain sales growth contingencies are met
as defined in the agreement. This entire transaction became effective on
July 31, 1998.
Acquisitions and Pro Forma Information-
--------------------------------------
CAM Solutions, Inc.-
-------------------
On January 1, 1999, OnCourse entered into an agreement with the shareholder
of CAM Solutions, Inc. ("CAM Solutions") pursuant to which CAM Solutions
was acquired as a 100% owned subsidiary of OnCourse. Consideration for the
acquisition included the issuance of 150,000 shares of OnCourse stock to
the former shareholder of CAM Solutions. In addition, the former
shareholder of CAM Solutions may receive up to 150,000 additional shares of
OnCourse stock over the next five years if net income, as defined per the
agreement, increases. The acquisition was accounted for using the purchase
method of accounting. The purchase price was approximately $50,000, and
resulted in goodwill of approximately $32,000.
Cimtronics, Inc.-
----------------
On October 1, 1999, OnCourse entered into an agreement with the shareholder
of Cimtronics, Inc. ("Cimtronics") pursuant to which Cimtronics was
acquired as a 100% owned subsidiary of OnCourse. Consideration for the
acquisition included the issuance of 153,846 shares of OnCourse Stock to
the former shareholder of Cimtronics. In addition, the former shareholder
of Cimtronics may receive up to 153,846 additional shares of OnCourse stock
over the next five years if net income, as defined per the agreement,
increases. The acquisition was accounted for using the purchase method of
accounting and accordingly the accompanying consolidated financial
statements include the results of operations of Cimtronics subsequent to
the acquisition date. The purchase price was approximately $625,000, and
resulted in goodwill of approximately $591,000.
F-8
Page 25
The following unaudited pro forma information presents the results
of operations of OnCourse as if the acquisition had taken place
on January 1, 1999. The pro forma information includes an
adjustment for amortization expense as a result of goodwill. The
pro forma information is not necessarily indicative of the results
of operations that would have occurred had the purchase been made
at the beginning of the periods presented or the future results of
the combined operations had the acquisition of Cimtronics taken
place.
Year Ended
December 31, 1999
(Unaudited)
-----------------
Net Sales $3,099,480
Net Loss (138,286)
Basic and Diluted Loss Per Share $(0.01)
TekSoft, Inc.-
-------------
On January 31, 2000, OnCourse acquired TekSoft, Inc. ("TekSoft"), for
approximately 4,500,000 shares of common stock. In addition, the former
shareholders of TekSoft may receive up to 1,500,000 in additional shares
over the next five years if sales, as defined in the agreement, increase.
The acquisition was accounted for as a purchase and, accordingly, the
accompanying consolidated financial statements include the results of
operations of TekSoft subsequent to the acquisition date. The total
purchase price of $10,755,000 was allocated to the assets and liabilities
of TekSoft based upon their respective fair value, with the remainder
allocated to goodwill. The purchase price paid plus the liabilities
assumed exceeded the fair value of the tangible and other intangible assets
purchased by $5,702,000 based on the appraisal performed by an independent
appraisal firm. The final allocation of the purchase price was as follows:
Current Assets $1,034,000
Capitalized Software 4,300,000
Property and Equipment 167,000
Other Assets 51,000
Liabilities Assumed (2,139,000)
Intangible--Assembled Work Force 220,000
Intangible--Trade Names 550,000
Intangible--Distribution Network 600,000
Acquired In-Process Research and Development 270,000
Intangible--Goodwill 5,702,000
-----------
$10,755,000
-----------
-----------
The classification of complete and incomplete technology is in compliance
with SFAS No. 2 "Accounting for Research and Development Costs" and SFAS
No. 86 "Accounting for the Costs of Computer Software to Be Sold, Leased,
or Otherwise Marketed." Generally, in-process research and development is
distinguished from developed technology based upon whether "technological
feasibility" has been achieved. The technological feasibility of a product
is established when the enterprise has completed all planning, designing,
testing, and sampling activities that are necessary to establish that the
product can be produced to meet its design specifications including
functions, applications, and technical performance requirements. The in-
process technology was determined to be $270,000 of which all was
attributed to the CAMWorks 2000 software. For approximately five months
prior to the valuation date, the engineering staff had been at work on the
release version CAMWorks 2000. At the date of acquisition, the release had
not yet reached the beta
F-9
Page 26
stage. Significant assumptions were made in order to determine the value of
the above-mentioned assets. The net cash flows inflows from significant
projects were assumed to start in the first year given the stage of the in-
process product technology. Historical pricing, product margins and expense
levels were released based on the unaudited years ended October 31, 1995
through October 31, 1999. The overall weighted average cost of capital was
estimated to be approximately 20% based on a weighting of 10% debt and 90%
equity capital structure. The cost of equity capital estimated at 21% was
based on using the capital asset pricing model which reflects the risk-free
rate of return plus risk premiums. The cost of debt estimated at 9.9% was
based on the yield of BB-rated corporate debt as of the valuation date.
The following unaudited pro forma information presents the results of
operations of the Company as if the acquisition of TekSoft had taken place
on January 1, 1999. The pro forma information includes an adjustment for
amortization expense as a result of goodwill and other intangible assets.
The pro forma information is not necessarily indicative of the results of
operations that would have occurred had the purchase been made at the
beginning of the periods presented or the future results of the combined
operations had the acquisition of TekSoft taken place.
Pro Forma Pro Forma
Year Ended Year Ended
December 31, 2000 December 31, 1999
(Unaudited) (Unaudited)
----------------- -----------------
Net Sales $5,513,092 $5,333,967
Net Loss (2,083,194) (1,653,882)
Basic and Diluted Loss Per Share $(0.12) $(0.10)
OnCourse and its subsidiaries, Micro Estimating, CAM Solutions, Cimtronics
and TekSoft are hereafter referred to as the "Company".
Consolidated Pro Formas for 1999-
--------------------------------
The following unaudited pro forma information presents the results of
operations of the Company as if the acquisitions of Cimtronics and TekSoft
had taken place on January 1, 1999. The pro forma information includes an
adjustment for amortization expense as a result of goodwill and other
intangible assets and the write-off of the purchased in-process research
and development. The pro forma information is not necessarily indicative
of the results of operations that would have occurred had the purchase been
made at the beginning of the periods presented or the future results of the
combined operations had the acquisitions of Cimtronics and TekSoft taken
place.
Pro Forma
Revised
Consolidated TekSoft Cimtronics Consolidated
Year Ended For Year Ended Pro Forma Nine Months Pro Forma Year Ended
December 31, December 31, Adjustments Ended September Adjustments December 31,
1999 1999 TekSoft 30, 1999 Cimtronics 1999
-------------- -------------- ----------- --------------- ----------- ------------
Net Sales $2,482,475 $3,157,720 $(306,228) $652,555 $(35,550) $5,950,972
Cost of Sales 635,859 1,350,976 (306,228) 262,857 (35,550) 1,907,914
---------- ---------- ----------- -------- -------- ----------
Gross Profit 1,846,616 1,806,744 - 389,698 - 4,043,058
SG&A 2,055,212 1,914,601 - 293,622 - 4,263,435
Amort. Of Goodwill and Other 25,651 - 1,103,645 - 63,337 1,192,633
Intangibles
Purchased In-Process R&D - - 270,000 - - 270,000
---------- ---------- ----------- -------- -------- ----------
Operating (Loss) Income (234,247) (107,857) (1,373,645) 96,076 (63,337) (1,683,010)
Other Expense (30,748) (63,533) - (662) - (94,943)
---------- ---------- ----------- -------- -------- ----------
(Loss) Income Before Taxes (264,995) (171,390) (1,373,645) 95,414 (63,337) (1,777,953)
Income Tax Benefit 94,632 61,516 - - - 156,148
---------- ---------- ----------- -------- -------- ----------
Net (Loss) Income $(170,363) $(109,874) $(1,373,645) $95,414 $(63,337) $(1,621,805)
---------- ---------- ----------- -------- -------- ----------
---------- ---------- ----------- -------- -------- ----------
F-10
Page 27
The adjustments to TekSoft and Cimtronics' net sales and cost of sales
represent the intercompany sales and purchases between OnCourse and TekSoft
and Cimtronics during the year ended December 31, 1999. The adjustment for
the TekSoft amortization of goodwill and other intangibles is comprised of
adding twelve months of amortization expense for the goodwill and other
intangible assets resulting from the TekSoft purchase price allocation and
the acquisition expenses incurred by the Company. The adjustment for the
Cimtronics amortization of goodwill is comprised of adding nine months of
amortization expense for the goodwill resulting from the Cimtronic's
purchase price allocation.
Consolidated Pro Forma for 2000-
-------------------------------
The following unaudited pro forma information presents the results of
operations of the Company for the year ended December 31, 2000, as if the
acquisition of TekSoft had taken place on January 1, 1999. The pro forma
information includes an adjustment for amortization expense as a result of
goodwill and other intangible assets and the write-off of the purchased in-
process research and development as part of the TekSoft acquisition. The
pro forma information is not necessarily indicative of the results of
operations that would have occurred had the purchase been made at the
beginning of the periods presented or the future results of the combined
operations had the acquisition of TekSoft taken place.
Pro Forma
TekSoft Revised
Consolidated One Month Consolidated
Year Ended Ended Pro Forma Year Ended
December 31, January 31, Adjustments December 31,
2000 2000 TekSoft 2000
------------ ----------- ----------- ------------
Net Sales $5,247,617 $280,661 $(15,186) $5,513,092
Cost of Sales 1,699,293 106,840 (15,186) 1,790,947
----------- -------- -------- -----------
Gross Profit 3,548,324 173,821 - 3,722,145
SG&A 4,959,958 120,514 - 5,080,472
Amort. of Goodwill and Other 1,091,948 - 91,970 1,183,918
Intangibles
Purchased In-Process R&D 270,000 - (270,000) -
----------- -------- -------- -----------
Operating (Loss) Income (2,773,582) 53,307 178,030 (2,542,245)
Other Expense (105,235) (2,338) - (107,573)
----------- -------- -------- -----------
(Loss) Income Before Taxes (2,878,817) 50,969 178,030 (2,649,818)
Income Tax Benefit 566,624 - - 566,624
----------- -------- -------- -----------
Net (Loss) Income $(2,312,193) $50,969 $178,030 $(2,083,194)
----------- -------- -------- -----------
----------- -------- -------- -----------
The adjustments to net sales and cost of sales represent the intercompany
sales and purchases between OnCourse and TekSoft during the year ended
December 31, 2000. The adjustment for the TekSoft amortization of goodwill
and other intangibles is comprised of adding one month of amortization
expense for the goodwill and other intangible assets resulting from the
TekSoft purchase price allocation and the acquisition expenses incurred by
the Company. The reduction of in-process research and development was made
since the above presentation is as if the acquisition was made as of
January 1, 1999 and the $270,000 write-off of the in-process research and
development was already reflected in the presentation for the year ended
December 31, 1999.
F-11
Page 28
(2) Nature of Operations-
--------------------
The Company develops, produces and markets computer-aided design/computer-
aided manufacturing ("CAD/CAM"), estimating, layout, routing and direct
numerical control ("DNC") software for job shops and the machining
industry. The principal markets for the Company's software and support
services are North America and Europe. For the year ended December 31,
2000, sales in North America and Europe were 87% and 7%, respectively. For
the year ended December 31, 1999, sales in North America and Europe were
98% and 2%, respectively.
Sales to one customer totaled 14% of consolidated net sales, including
those sales deferred at December 31, 2000. There were no customers that
had sales greater than 10% of the Company's net sales for the year ended
December 31, 1999.
(3) Liquidity-
---------
OnCourse has incurred losses over the last two years and has negative
working capital. Based upon its current plans, the Company believes it has
sufficient funds and borrowing availability to meet its operating expenses
and capital requirements through fiscal year 2001 and into fiscal year
2002. However, the Company intends to seek such additional funding from
equity offerings to existing shareholders or other third parties during
2001. There is no assurance that such additional funds will be available
on acceptable terms, if at all. Should the plans contemplated by
management not be consummated, the Company may have to seek alternative
sources of capital, affect borrowing under its line of credit or reevaluate
its operating plans.
(4) Summary of Significant Accounting Policies-
------------------------------------------
(a) Basis of Presentation-
---------------------
The consolidated financial statements include the accounts of OnCourse
and its wholly owned subsidiaries. All transactions for Cimtronics
and TekSoft subsequent to the acquisition dates are included in the
consolidated financial statements. All intercompany transactions and
accounts have been eliminated in consolidation.
(b) Revenue Recognition-
-------------------
Revenue from product sales is recognized upon customer acceptance and
delivery of the product provided that no significant contractual
obligations remain. Customer acceptance is realized after either the
customer pays for the software or upon receiving a document from the
customer stating that the product has been accepted by the customer.
Included in deferred revenues as of December 31, 2000 is approximately
$684,000 of products which have been delivered and invoiced but for
which the Company has not been notified of customer acceptance.
Revenues also include separate maintenance fees whereby the Company
provides ongoing customer support and product upgrades. Such
contracts are reflected as deferred revenue and amortized ratably over
the term of the maintenance period ranging from 12 to 36 months, which
begins after the expiration of the one-year of free support included
with the initial purchase of the software for some of the Company's
products.
(c) Inventories-
-----------
The Company expenses as incurred various materials (compact disks and
manuals) and supplies used to produce, package and ship its products.
The value of supplies on hand at year-end is not material in relation
to the overall financial statements.
F-12
Page 29
(d) Software Development Costs-
--------------------------
Software development costs incurred in the research and development of
new software products and enhancements to existing software products
are expensed as incurred until technological feasibility of the
product is established. From the time technological feasibility is
established until the product is released, all software costs are
capitalized. In addition, capitalized software as of December 31,
2000 includes software acquired in the acquisition of TekSoft (see
Note 1). Capitalized costs are reported at the lower of unamortized
costs or net realizable value. The costs are amortized over the
greater of the amount computed using (a) the ratio that current gross
revenues for the product bear to the total of current and anticipated
future gross revenues for that product or (b) the straight-line method
over the remaining estimated economic life of the product. During
2000 and 1999, the Company amortized the capital software costs
straight line over five years.
Costs incurred up to technological feasibility are considered research
and development costs. These costs are expensed as incurred.
Research and development costs were approximately $323,000 and $17,000
in 2000 and 1999, respectively. In addition, the $270,000 of acquired
in-process research and development resulting from the TekSoft
acquisition was written off as of January 31, 2000.
Computer software development costs capitalized in 2000 and 1999 were
approximately $1,268,000 and $114,000, respectively. Amortization
expense for the years ended December 31, 2000 and 1999 of
approximately $921,000 and $159,000, respectively, is included in cost
of sales in the consolidated statements of operations.
(e) Property and Equipment-
----------------------
Property and equipment, which consist primarily of office and computer
equipment, is stated at cost and is depreciated over the estimated
useful lives of the assets (3 to 7 years) over straight-line and
accelerated depreciation methods.
Maintenance and repair costs are expensed as incurred. Improvements
that extend the useful life of the assets are capitalized to plant and
equipment accounts and amortized over the remaining useful life.
(f) Earnings per Share-
------------------
Basic earnings per share ("EPS") is calculated using net income (loss)
available to common shareholders divided by the weighted average
number of common shares outstanding during the year. Diluted EPS is
similar to basic EPS except that the weighted average number of common
shares outstanding is increased to include the number of additional
shares that would have been outstanding if the dilutive potential
common shares had been issued and the contingent shares earned in the
current year are adjusted as if they were outstanding the entire year.
2000 1999
------ ------
Weighted Average Shares
Outstanding--Basic EPS 16,379,120 11,306,104
Incremental Shares from
Outstanding Warrants 68,490 302,678
Contingent Shares Earned 808,170 400,000
---------- ----------
Weighted Average Shares
Outstanding--Dilutive EPS 17,255,780 12,008,782
---------- ----------
---------- ----------
For the years ended December 31, 2000 and 1999, the computation of
basic and diluted EPS are the same due to operating losses.
F-13
Page 30
(g) Offering Costs-
--------------
Costs associated with stock offerings have been recorded as a
reduction to shareholders' equity (deficit) as these costs were netted
against the proceeds of the stock offering in the period the costs
were incurred. All costs associated with aborted stock offerings have
been expensed.
(h) Advertising Costs-
-----------------
All advertising costs are expensed the first time the advertising
takes place. Advertising expenses for the years ended December 31,
2000 and 1999 were approximately $342,000 and $123,000, respectively.
(i) Other Assets-
------------
Included in Other Assets are licenses for the right to use certain
third party software in the Company's products. These licenses range
from three to five years and are amortized over the terms of these
licenses on a straight-line basis. The Company periodically evaluates
the realizability of these assets in relation to the software products
that they are used in.
(j) Use of Estimates-
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(k) Reclassification-
----------------
Certain amounts have been reclassified in the 1999 financial
statements to be consistent with the 2000 financial statement
presentation.
(5) Note Receivable from Shareholder-
--------------------------------
The note receivable is due from a shareholder of the Company. The note
earns interest at 8% and is due on April 15, 2002.
(6) Goodwill and Other Intangibles-
------------------------------
Goodwill consisting of excess of cost over fair value of the assets
acquired in the transactions described in Note 1, is being amortized on a
straight-line basis over seven years.
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Goodwill
associated with the assets reviewed will be included in determining the
recoverability based on the future undiscounted cash flows expected to be
generated from those assets. In the event that impairment exists, goodwill
shall be eliminated before reducing the carrying amount of the impaired
long-lived assets and identifiable intangibles.
Goodwill amortization for the years ended December 31, 2000 and 1999 was
approximately $951,000 and $26,000, respectively.
F-14
Page 31
The purchase price allocation relating to the assets acquired in the
January 31, 2000 acquisition of TekSoft resulted in several intangible
assets as described in Note 1. The purchase price allocation resulted in
$220,000 for Assembled Workforce, $550,000 for Trade Names and $600,000 for
Distribution Network. The amortization of the Assembled Workforce and
Distribution Network assets is being provided utilizing the straight-line
method over the estimated useful life of seven years. The amortization of
the Trade Names asset is on a straight-line basis over the estimated useful
life of fifteen years. Total amortization expense relating to these
intangible assets for the year ended December 31, 2000 was approximately
$141,000.
(7) Note Payable to Shareholders and Employees-
------------------------------------------
As of December 31, 2000 and 1999, the Company has a non-interest bearing
$10,000 demand note payable to one of its shareholders. The Company is
accruing interest expense at 7% per year. Interest has not been paid on
this note since its inception. The Company has accrued approximately
$1,500 of interest reflected as a component of Accrued Wages and Other
Liabilities on the balance sheet as of December 31, 2000. This note is
classified as a current liability.
As of December 31, 2000, the Company has several notes payable and loans to
the former shareholders and employees of TekSoft The notes bear interest
of 16.5% and are payable monthly and mature at various dates up to April
2002. These notes are secured by substantially all of TekSoft's
property and equipment. The balance of these notes totaled $119,705 as of
December 31, 2000. These notes are classified as long-term liabilities
with a current portion of $112,948 as of December 31, 2000.
The Company has a note payable to former TekSoft shareholders and current
Company shareholders who loaned money to TekSoft under a line of credit
agreement to finance the operations. This loan bears an annual interest
rate of 16.5%. This loan totaled $31,639 at December 31, 2000. This note
is due October 15, 2001.
(8) Lines of Credit-
---------------
The Company replaced its line of credit agreements and substantially all of
its bank debt (see Note 9) on October 9, 2000. The new debt facility with
a bank consists of a $400,000 term loan due on October 1, 2005 and a
$1,100,000 three-year revolving line of credit agreement due October 9,
2003. The revolving line of credit is limited to a borrowing base
calculated as a specified percentage of qualifying accounts receivable,
property and equipment and net capitalized software. The interest rate for
the revolving line of credit is at prime (9.5% at December 31, 2000). The
revolving line of credit agreement will be classified as long-term debt as
no payments are due until the end of the three-year period. The debt
facility is secured by all assets of the Company and its subsidiaries.
Borrowings under the line of credit were approximately $788,000 as of
December 31, 2000.
The Company had an additional line of credit agreement at the end of 1999
with a bank that provided for borrowings up to $225,000. The Company had
borrowings under the line of approximately $183,000 as of December 31,
1999. The outstanding liability was paid as of October 9, 2000.
F-15
Page 32
(9) Debt-
----
Long-term debt as of December 31, 2000 and 1999 consists of the following:
December 31, December 31,
2000 1999
------------ ------------
Line of Credit (see Note 8) $787,818 $ -
Note payable to bank, 9.25% interest, due
in monthly installments of $6,500 including
interest, through October 1, 2005, secured by
all assets of the Company and its subsidiaries. 392,414 -
Note payable to bank, prime (8.5% at December
31, 1999) plus 1.0% interest; paid on
October 9, 2000. - 146,296
Auto loan, 8.5% interest, due in monthly
installments of $458 including interest,
through November 18, 2004, secured by auto 18,266 22,016
Auto loan, 8.9% interest, due in monthly
installments of $543 including interest,
through January 1, 2004, secured by auto 17,552 21,800
---------- --------
Total Long-Term Debt 1,216,050 190,112
Less- Current Maturities (52,318) (17,200)
---------- --------
$1,163,732 $172,912
---------- --------
---------- --------
Approximate principle payments on long-term debt as of December 31, 2000
are as follows:
2001 $52,300
2002 57,300
2003 850,700
2004 62,300
2005 193,500
Thereafter -
(10) Lease Commitments-
-----------------
The Company leases all of its office and warehouse space under operating
leases. One of these leases is with a related party (see Note 15) that is
renewable in five-year increments for a period of twenty-five years. The
Company subleases a portion of this related party lease as office space to
other tenants on a year-to-year lease. In addition, the Company also
leases an automobile and computer equipment. Total rent expense, net of
sublease payments, was approximately $218,600 and $59,100 for the years
ended December 31, 2000 and 1999, respectively.
Property under capital leases is included in property and equipment as
follows:
December 31, December 31,
2000 1999
------------ ------------
Computer Equipment $27,014 $10,162
Less- Accumulated Depreciation (5,897) (1,016)
------- -------
Net Capital Lease Assets $21,117 $9,146
------- -------
------- -------
F-16
Page 33
Approximate minimum annual rental commitments as of December 31, 2000 are
as follows:
Capital Operating
For the Year Ending December 31: Leases Leases
------ ------
2001 $15,000 $340,300
2002 4,897 339,200
2003 - 153,600
2004 - 18,600
2005 - -
Thereafter - -
------- --------
Total Minimum Lease Payments 19,897 $851,700
--------
--------
Less Amount Representing Interest- 2,079
-------
Present Value of Minimum Lease Payments $17,818
-------
Current Portion $13,060
-------
-------
(11) Warrants-
--------
In connection with the issuance of stock during the year ended December 31,
2000, the Company issued 141,734 Class A stock purchase warrants and
141,734 Class B stock purchase warrants. The warrants were issued with
initial estimated values (based on the Black-Scholes valuation model)
ranging from $1.07 to $5.19 per Class A Warrant and $1.27 to $5.56 per
Class B Warrant. Each warrant represents the right to purchase one share
of the Company's common stock at an exercise price of $2.25. The Class A
Warrants expire in 2003, three years from the date of issuance. The Class
B Warrants expire in 2005, five years from the date of issuance. As of
December 31, 2000, all warrants issued during the year were outstanding.
In connection with the issuance of stock during 1999, the Company issued
33,205 Class A stock purchase warrants and 33,205 Class B stock purchase
warrants. The warrants were issued with initial values ranging from $1.49
to $5.19 per Class A Warrant and $1.73 to $5.57 per Class B Warrant (based
on the Black-Scholes valuation model). Each warrant represents the right
to purchase one share of the Company's common stock at an exercise price of
$2.25. The Class A Warrants expire in 2002, three years from the date of
issuance. The Class B Warrants expire in 2004, five years from the date of
issuance. As of December 31, 2000 and 1999, all warrants issued in 1999
were outstanding.
In connection with the spin-off of OnCourse by Innovation (see Note 1), the
Company granted 400,000 common stock purchase warrants to Innovation's
shareholders as a dividend in-kind. The warrants are redeemable for $.05
per warrant only at the discretion of the Company. The warrants originally
entitled the holder to purchase, on or before December 31, 1999 one share
of Company common stock per warrant at an exercise price of $1.50. On
December 23, 1999, the expiration date for these common stock purchase
warrants was extended to March 31, 2000. On March 27, 2000, the expiration
date was extended a second time to September 30, 2000. On September 12,
2000, the expiration date was extended a third time to June 20, 2001.
Generally accepted accounting principals required that the warrants be
classified as equity and accreted to the estimated redemption value based
on the terms of the warrants. At the time of original issuance the
warrants were not assigned an initial value or any accretion as their
estimated fair market value approximated zero. Under the guidelines of FASB
123, "Accounting for Stock Based Compensation," a change in the
characteristics of the warrant, such as an extension of the expiration
date, triggers a remeasurement point. Each of the extensions resulted in a
new measurement date and the incremental value of the warrants was
accounted for as a dividend to the shareholders. The incremental value
reflected as a dividend was calculated as the difference between the value
of the new warrants given by the Company, i.e., extended warrants, less the
remaining value of the warrants given up by the Shareholders, i.e., the
cancelled warrants. The value of the warrants at each remeasurement point
was determined using the Black-Scholes pricing model. A dividend was
recorded for approximately $273,000 and $1,814,000 for the years ended
December 31, 2000 and 1999, respectively. During the years ended December
31, 2000 and 1999, 1,071 and 105, respectively, of the 400,000 warrants
were exercised.
F-17
Page 34
The table below summarizes the transactions related to the Company's
warrants to purchase common stock:
Number of Weighted-Average
Warrants Exercise Price
-------- --------------
Balance at December 31, 1997 - $ -
Warrants Issued 400,000 1.50
------- -----
Balance at December 31, 1998 400,000 1.50
Warrants Sold 66,410 2.25
Warrants Exercised (105) 1.50
------- -----
Balance at December 31, 1999 466,305 $1.61
Warrants Sold 283,468 2.25
Warrants Exercised (1,071) 1.50
------- -----
Balance at December 31, 2000 748,702 $1.85
------- -----
------- -----
All warrants are exercisable as of December 31, 2000.
(12) Reverse Stock Split-
-------------------
Effective October 31, 1999, OnCourse exercised a 1-for-2 stock split by
amending the Articles of Incorporation of OnCourse so that each two (2)
authorized common shares with par value of one-tenth of one cent ($.001)
per share of the Company be converted into one (1) common share with
par value of one-tenth of one cent ($.001) per share. Effective the same
date, OnCourse reduced the total authorized shares from 100,000,000 to
50,000,000. This resulted in reducing the shares outstanding as of October
31, 1999 from 22,861,602 shares to 11,430,801 shares. All shares and per
share data have been restated to reflect the impact of the split for all
periods presented.
(13) Shareholders' Equity-
--------------------
Consideration for the TekSoft acquisition included the issuance of
approximately 4,500,000 shares to the former shareholders of TekSoft. In
addition, under the terms specified in the purchase agreement, the former
shareholders of TekSoft may receive up to 1,500,000 additional shares over
the next five years if net sales, as defined in the agreement, increases.
For the year ended December 31, 2000, the net sales increase resulted in an
additional 511,206 shares being issued to the former shareholders of
TekSoft. The shares were earned as of December 31, 2000 at a value of
$1.75 per share. An additional $894,611 was allocated to goodwill
which will be amortized over its remaining useful life.
Consideration for the CAM Solutions acquisition included the issuance of
150,000 shares to the former shareholder of CAM Solutions. In addition,
under the terms specified in the purchase agreement the former shareholder
of CAM Solutions may receive up to 150,000 additional shares over the next
five years if net income, as defined in the agreement, increases. There
were no shares earned during 2000 and 1999 under the purchase agreement
net income criteria.
Consideration for the Cimtronics acquisition included the issuance of
153,846 shares to the former shareholders of Cimtronics. In addition, the
former shareholders of Cimtronics may receive up to 153,846 additional
shares over the next five years if net income, as defined in the agreement,
increases. There were no shares earned during 2000 and 1999 under the
purchase agreement net income criteria.
Consideration in the 1998 reverse triangular merger included the issuance
of 9,866,500 shares to the former shareholders of Micro Estimating.
Accordingly, shares issued and outstanding, all historical weighted average
share and per share amounts and activity from prior periods in the
consolidated statements of shareholders' equity have been retroactively
restated. In addition, the former shareholders of Micro Estimating may
receive up to a total of 2,000,000 additional shares through 2003 if
certain targeted net sales increases, as defined, are achieved. The
targeted increase in net sales, as defined, was achieved for the years
ended December 31, 2000 and 1999,
F-18
Page 35
and as a result, an additional 400,000 shares each year have been allocated
to the former shareholders of Micro Estimating. As of December 31, 2000,
1,200,000 of the 2,000,000 additional shares have been allocated to the
former shareholders of Micro Estimating since the merger.
The 800,000 shares of common stock issued to Innovation's shareholders on
June 12, 1998 provided for a one-year right-of-return as defined per the
merger agreement. These shares were not reflected on the consolidated
statements of shareholders' equity until the right-of-return expired in
1999. No shares were returned to the Company during 1999.
During 2000 and 1999, the Company offered and issued on various dates Units
in a private placement to selected individuals deemed financially capable
of making the investment. The units include one share of Company common
stock and one Class A common stock purchase warrant and one Class B common
stock purchase warrant. The Company issued and sold 118,250 units at $2.00
per unit and 10,000 units at $1.00 per unit during 2000. During 1999, the
Company issued and sold approximately 33,000 units at $2.00 per unit.
In May 2000, the Company entered into a twelve-month contract with a
professional services firm for consulting services. The Company issued
300,000 shares of common stock for these services at a value of $2.00 per
share. The cost associated with this contract is being amortized over the
term of the agreement. Approximately $375,000 was amortized during the
year ended December 31, 2000. The balance of $225,000 is reflected as a
component of Prepaids and Other Assets on the balance sheet as of December
31, 2000. Subsequent to year end, this agreement was extended an
additional nine months to February, 2002. The unamortized balance will be
amortized over the remaining term of the agreement.
During 2000, the Company offered and issued 2,500 shares of Company common
stock as payment for $5,000 of outside programming services performed. The
market price of the company common stock was $1.01 on the date of issuance.
These services were related to software development and were capitalized.
During 2000, the Company offered and issued 13,484 shares of Company common
stock as payment of $26,968 in professional services. In addition to the
common stock being issued, 13,484 Class A stock purchase warrants and
13,484 Class B stock purchase warrants were issued. The warrants were
issued with initial estimated values (based on the Black-Scholes valuation
model) of $5.19 for each Class A warrant and $5.56 for each Class B
warrant (see Note 11).
During 2000, the Company offered and issued 19,500 shares of Company common
stock to the employees of TekSoft as an incentive to continue employment
following the Company's acquisition of TekSoft. The Company also offered
and issued 5,000 shares of Company common stock to an employee as a hiring
incentive. In addition, the Company awarded another employee 20,000
shares as a part of that employee's compensation package. The Company
recorded total compensation expense of $94,105 for these transactions.
F-19
Page 36
(14) Supplemental Disclosure of Cash Flow Information-
------------------------------------------------
Years Ended
December 31,
-----------------------
2000 1999
-------- --------
Approximate Cash Paid for:
Interest $122,500 $30,700
Income Taxes 4,500 13,300
Noncash Transactions:
Capital Leases 14,100 10,200
Compensation to Employees 94,100 -
Warrants Issued as Dividends 273,400 1,814,400
Common Stock Issued for Services (see Note 13) 404,500 -
(15) Related Party Transactions-
--------------------------
Certain owners and employees of the Company have notes and loans with the
Company (see Note 7).
A subsidiary's building that the Company occupies and leases is owned and
operated by a partnership, consisting of two former principal owners of a
subsidiary (and current Company shareholders) and a previous employee of
the subsidiary (see Note 10). The lease expense, net of sublease was
$126,200 for the year ended December 31, 2000.
The Company also has a consulting agreement with a shareholder to provide
expert advice to the company concerning business strategies. The agreement
became effective December 1, 1999 and expires December 1, 2004. The
Company pays the shareholder $4,167 per month for these services.
(16) Income Taxes-
------------
The provision for income taxes for the years ended December 31 consists of:
2000 1999
-------- --------
Current-
Federal $(1,106,110) $(71,700)
State (232,885) (16,200)
----------- --------
Total Current (1,338,995) (87,900)
Deferred Income Taxes 772,371 (6,732)
----------- --------
Total Income Tax Benefit $(566,624) $(94,632)
----------- --------
----------- --------
A reconciliation of the statutory Federal income tax rate to the
consolidated effective income tax rate is as follows:
Years Ended
December 31,
-----------------------
2000 1999
-------- --------
Statutory Federal Income Tax Rate (35)% (35)%
State Income Taxes, Net of Federal Income (5) (6)
Tax Benefit
Goodwill Amortization 12 4
Other 8 1
----- -----
Effective Income Tax Rate (20)% (36)%
----- -----
----- -----
F-20
Page 37
Temporary differences which give rise to the deferred income tax asset and
liability at December 31 are as follows:
2000 1999
-------- --------
Deferred Revenue $359,452 $200,155
Other 30,218 5,038
---------- --------
Current Deferred Income Tax Asset 389,670 205,193
Capitalized Software Costs (1,988,049) (98,256)
Book Versus Tax Depreciation Methods (31,829) (32,786)
Net Operating Loss Carryforwards 1,073,877 54,477
Other (96,769) 49,769
---------- --------
Long-Term Deferred Income Tax
Liability (1,042,770) (26,796)
---------- --------
Net Deferred Income Tax Asset
(Liability) $(653,100) $178,397
---------- --------
---------- --------
The Company generated net operating losses ("NOL") of approximately
$1,683,000 and $189,000 in 2000 and 1999, respectively. The Company also
acquired net operating losses of approximately $753,000 relating to the
acquisition of TekSoft. The annual use of the NOL carryforwards acquired
with TekSoft is limited to the lesser of the Company's taxable income or
the amount of the IRS imposed limitation pursuant to the "change in
ownership" provisions of the Tax Reform Act of 1986. These NOL
carryforwards will expire at various dates beginning in 2018 through 2020.
As of December 31, 2000, the Company has remaining NOL carryforwards of
approximately $2,481,000 and $2,553,000 available for future use against
Federal and State income tax liabilities, respectively.
(17) Deferred Savings Plan-
---------------------
TekSoft has a 401(k) deferred savings plan with a discretionary matching
feature covering substantially all employees of TekSoft. During the year
ended December 31, 2000, none of the employee's contributions to the plan
was matched by the Company.
Effective April 1, 2001, the Company will implement a 401(k) deferred
savings plan with discretionary profit sharing and matching features
covering substantially all employees of the Company's subsidiaries. This
plan will replace the TekSoft 401(k) deferred savings plan.
(18) Subsequent Events-
-----------------
Subsequent to year end, certain of the Company's vendors agreed to take
common stock and warrants in settlement of approximately $28,000 in
payables outstanding at December 31, 2000. The Company anticipates issuing
approximately 25,000 shares of Company common stock, 25,000 Class A
Warrants and 25,000 Class B Warrants. The weighted average exercise price
on the warrants is $1.90 for both classes. The Company estimated the value
of warrants issued to be from $0.85 to $1.72 for each Class A warrant and
from $0.95 to $1.90 for each Class B warrant.
Subsequent to year end, the Company also offered and issued 100,000 units
in a private placement to selected individuals deemed financially capable
of making the investment. Units include one share of Company common stock
and one Class A common stock purchase warrant and one Class B common stock
purchase warrant. The units were sold for $1.00 per unit. The exercise
price on the warrants is $1.75 for both classes. The Company estimated the
value of warrants issued to be $0.85 for each Class A warrant and $0.95 for
each Class B warrant.
F-21
Page 38
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has not changed its independent auditor within the Company's last
two fiscal years or has not experienced disagreements on any matter of
accounting principles or procedures or financial statement disclosures within
the Company's last two fiscal years.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLAINCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Company currently consists of five members. The
current members of the Board of Directors and the executive officers of the
Company are:
POSITION(S) HELD DIRECTOR TERM
NAME WITH THE COMPANY AGE SINCE EXPIRES
Bernard A. Woods, III Chairman, Director, Chief
Executive Officer and 46 1999 2001
Secretary/Treasurer of
OnCourse and Micro
Estimating
Charles W. Beyer Director and President of 49 1999 2001
OnCourse and Micro
Estimating
Kevin L. Bork Director of OnCourse, and 41 1999 2001
President of CAM
Solutions
Craig M. Hoffman Vice President of Micro 34 - -
Estimating
Michael Zaworski President of Cimtronics 58 - -
Gary L. Fulton Director of OnCourse, and 49 2000 2001
President of TekSoft
Scott R. Fulton Vice President of TekSoft 43 - -
Sky Carver Director of OnCourse, and 44 2000 2001
Consultant to TekSoft
William C. Brown Chief Financial Officer 41 - -
of OnCourse and Micro
Estimating
All Directors' terms of office extend until the annual meeting of the Company's
shareholders following their election and until successors are elected and
qualified. Executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The only family
relationship between any of the Directors and executive officers is that the
Messrs. Fulton are brothers, and there are no agreements or understandings
pursuant to which any Director or executive officer is elected.
The following is a brief description of the business experience of the directors
and executive officers of the Company:
BERNARD A. WOODS, III
CEO of OnCourse and Micro Estimating: In 1988 he purchased Micro Estimating
from its founder. From 1981 to 1994 he was Owner and officer of a precision
machine shop located in Pennsylvania.
CHARLES W. BEYER
President of OnCourse and Micro Estimating: Engaged as General Sales Manager in
September 1989; promoted to V.P., General Manager 1990, promoted to President
1997. From 1981 - 1989 employed as sales and service manager for midsize
manufacturing firms.
GARY L. FULTON
President of TekSoft, Inc.: Founded TekSoft, Inc. in 1982. Prior to founding
TekSoft, he was system manager of a large southwestern manufacturer.
Page 39
SCOTT R. FULTON
Vice President of TekSoft, Inc.: Co-founder of TekSoft in 1982. Currently a
senior programmer, systems analyst and product strategist.
SKY CARVER
Consultant to TekSoft, Private Investor, and Director of OnCourse: Prior
experience includes President of Burton Carver and Company, Inc., a
transportation company (1982 to 1985) with 200 employees and $7.5 million in
sales. He owned and was President of Peninsula Sanitation Co., Inc. (1985-1998),
a waste management company. He is currently the owner and President of Spine
Therapy Center (started in January 1996), which specializes in treatment of
lower back pain.
KEVIN L. BORK
President of Cam Solutions: Self-employed. Founded Cam Solutions as a start-up
in 1989 to $600,000 in sales.
CRAIG M. HOFFMANN
VP - Product Development of Micro Estimating: Employee of Micro Estimating
since 1986.
MICHAEL ZAWORSKI
President of Cimtronics: Self-employed. Founded Cimtronics as a start-up in
1993 to $900,000 in sales.
WILLIAM C. BROWN
CPA, Chief Financial Officer of OnCourse and Micro Estimating since February
2000: Over the last five years, he was controller of Howard Johnson's
Enterprises, Inc. (1990 to 1997), a $32 million formulator of lawn and garden
and ice melter products distributed throughout the U.S., and most recently, the
Chief Financial Officer of Herker Industries, Inc. (1997 to 2000), a $25 million
precision metal turning and assembly company. Manages all financial, treasury,
risk and benefits administration for the Company including the subsidiaries'
financial systems and activities.
BOARD COMMITTEES
The Board of Directors presently has no standing committees. The Board acts as
a whole on all matters coming before it.
COMPENSATION OF DIRECTORS
The Company presently does not compensate its Board of Directors for any
services provided as a director.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning the paid or granted
compensation to the Chief Executive Officer and President of the Company as well
as other executive officers of the Company and its subsidiaries whose annual pay
equals or exceeds $100,000. There are no other executive officers of the
Company or its subsidiaries that had an aggregate salary and bonus that will or
have exceeded $100,000 in fiscal years ended December 31, 2000 and 1999.
SUMMARY COMPENSATION TABLE
BONUS, PENSION,
ANNUAL OTHER ANNUAL EMPLOYMENT OR PROFIT
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION CONTRACTS (2) SHARING PLANS(3)
Bernard W. Woods, III 2000 $71,104 (1) No No
Director, Chairman, CEO and Secretary 1999 56,040 (1)
Treasurer of OnCourse and Micro
Estimating
Charles W. Beyer 2000 115,045 (1) No No
Director and President of OnCourse and 1999 100,551 (1)
Micro Estimating
Gary L. Fulton 2000 123,340 Yes No
Director and President of TekSoft
Michael Zaworski 2000 117,966 Yes No
President of Cimtronics, Inc. 1999 100,000
Page 40
(1) The annual compensation includes an annual automobile allowance from
Micro Estimating Systems, Inc. for Messrs. Woods, III and Beyer or
approximately $10,000 and $6,500, respectively. Neither the Company
nor its subsidiaries has any pension, profit sharing or bonus plan.
TekSoft, which has a 401(k) plan, had $0 of discretionary matching
contributions for its employees during the year ended December 31,
2000.
(2) In addition to the above executive officers, Kevin L. Bork, President
of CAM Solutions, Inc., also has an employment contract.
(3) Neither the Company nor its subsidiaries has any pension, profit
sharing or bonus plan. TekSoft, which has a 401(k) plan, had $0 of
discretionary matching contributions for its employees during the year
ended December 31, 2000.
In addition to the foregoing, the Company and subsidiaries may adopt employee
stock option or other incentive plans in the future for their key employees.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 2000, the authorized capital stock of the Company consists of
fifty million (50,000,000) shares of common stock, par value one tenth of a cent
($.001) per share, of which seventeen million seven hundred fifty-one thousand
two hundred twenty-seven (17,751,227) shares are validly issued, fully paid,
non-assessable and outstanding and none of which are issued in violation of the
preemptive rights of any shareholder.
In addition, pursuant to acquisition agreements, the Company had reserved three
million eight hundred three thousand eight hundred forty six (3,803,846) shares
of its voting common stock for issuance to management shareholders if defined
revenue and profit goals are attained. Of these shares, 911,206 and 400,000
shares were earned in the years ended December 31, 2000 and 1999, respectively,
after attaining defined revenue goals. The acquisition agreement that the
Company has with each of its subsidiaries, TekSoft, Cimtronics, CAM and Micro
Estimating, contains a change in control provision that causes the Company to
issue additional shares of common stock to the former subsidiary shareholders
should a change in control occur in the Company or that subsidiary.
The following table sets forth, as of December 31, 2000, the beneficial
ownership of the Company's outstanding shares of Common Stock by (i) the only
persons who own of record or are known to own, beneficially, more than 5% of the
Company's Common Stock; (ii) each director of the Company, (iii) each executive
officer of the Company; and (iv) all directors and executive officers as a
group. All numbers of shares set forth in the table below and elsewhere in this
Statement reflect a one-for-two split in the Company's Common Stock effective as
of October 31, 1999, the TekSoft, Inc. acquisition as of January 31, 2000, and
additional private placement share sales through December 31, 2000.
AMOUNT AND
NATURE OF
NAME OF BENEFICIAL BENEFICIAL PERCENT OF
OWNER AND ADDRESS RELATIONSHIP OWNERSHIP CLASS
Bernard A. Woods, III (1) Director, Chairman, Chief Executive Officer, Secretary 7,371,823 41.53%
and Treasurer of OnCourse and Micro Estimating Direct
Charles W. Beyer (1) Director and President of OnCourse and Micro Estimating 3,307,350 18.63%
Direct
Gary L. Fulton (2) Director and President of TekSoft 2,559,456 14.42%
Direct
Scott R. Fulton (2) Vice President of TekSoft 1,905,203 10.73%
Direct
Craig M. Hoffman (1) Vice President-Development of Micro Estimating 353,328 1.99%
Direct
Michael Zaworski (3) President of Cimtronics 153,846 0.87%
Direct
Kevin L. Bork (4) Director, and President, Secretary and Treasurer of CAM 150,000 0.84%
Solutions Direct
William C. Brown (1) Chief Financial Officer of OnCourse and Micro Estimating 5,000 0.03%
Direct
Sky Carver (5) Director of OnCourse and consultant to TekSoft 501,506 2.83%
Direct
Total Presented Above Officers and Directors as a Group (9 persons) 16,307,512 91.87%
Direct
Page 41
Total Shares Outstanding 17,751,227 100.00%
Direct
The address for each individual set forth above is noted below:
(1) OnCourse Technologies, Inc. and Micro Estimating Systems, Inc., 3106
S. 166th Street, New Berlin, WI 53151.
(2) TekSoft, Inc., 16121 North 78th Street, Scottsdale, AZ 85260
(3) Cimtronics, Inc., 7434 E. Stetson Dr., Suite C-165, Scottsdale, AZ
85251
(4) Cam Solutions, Inc., 1621 E. 79th Street, Suite 134, Bloomington, MN
55425
(5) 220 Daisy Lane, Soldotna, AK 99669
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to an Agreement, the Company may be obligated to issue up to 2 million
(2,000,000) shares combined of its voting Common Stock as contingent
consideration to Bernard A. Woods, III and Charles W. Beyer should Net Sales
increase in any of the five years immediately subsequent to the merger. See
Exhibit No. 8(a) "Agreement and Plan of Reorganization dated July 23, 1998 by
and among the Company, Micro Estimating, Frank G. Wright, Bernard A. Woods, III
and Charles W. Beyer" for details of this agreement incorporated by previous
submission with the Company's 10-SB registration statement dated October 31,
2000. Per the Agreement, Messrs. Woods and Beyer could receive up to an
aggregate of four hundred thousand 400,000 (split 70% and 30% respectively)
shares of the Company's voting Common Stock in each year. Such contingent stock
grants are in accordance with the following schedule: One hundred thousand
100,000 shares if such increase is seven percent (7%) or more but less than ten
percent (10%); one hundred fifty thousand (150,000) shares if such increase is
ten percent (10%) or more but less than fifteen percent (15%); and two hundred
thousand (200,000) shares if such increase is fifteen percent (15%) or more.
Messrs. Woods III and Beyer combined have earned 400,000 shares for each of the
years ended December 31, 2000 and 1999.
Pursuant to an Agreement, the Company may be obligated to issue up to one
hundred fifty thousand (150,000) shares of the Company's voting Common Stock as
contingent consideration to Kevin Bork. In the event that CAM Solutions, Inc.,
has Net Profits in any of the five years immediately subsequent to the merger.
Kevin Bork will receive one (1) share of the Company's voting common stock for
each two ($2.00) dollar of Net Profits, up to an aggregate of one hundred fifty
thousand (150,000) shares. See Exhibit No. 8(b) "Agreement and Plan of
Reorganization dated December 30, 1998 by and among the Company, CAM Solutions
and Kevin Bork" for details of this agreement. There were no shares earned
during 2000 or 1999 under the purchase agreement's net income criteria.
Pursuant to an Agreement, the Company may be obligated to issue up to one
hundred fifty three thousand eight hundred forty six (153,846) shares of the
Company's voting Common Stock as contingent consideration to E. Michael Zaworski
and Sherri G. Zaworski in the event that certain future annual profit goals are
met. See Exhibit No. 8(c) "Agreement and Plan of Reorganization dated September
30, 1999 by and among the Company, Cimtronics, E. Michael Zaworski and Sherri G.
Zaworski" for details of this agreement. There were no shares earned during
2000 or 1999 under the purchase agreement's net income criteria.
Pursuant to an Agreement, the Company may be obligated to issue up to one
million five hundred thousand (1,500,000) shares of the Company's voting Common
Stock as contingent consideration to former shareholders of TekSoft combined
during the next five years if certain revenue growth is achieved from TekSoft's
CAM products. See Exhibit No. 8(d) "Agreement and Plan of Reorganization dated
January 10, 2000 by and among the Company, TekSoft, and Gary F. Fulton" for
details of this agreement. There were 511,206 shares earned during 2000 under
the purchase agreement's net revenue criteria.
The Company and one of its subsidiaries had an outstanding note receivable with
an executive officer with an approximate balance of $45,000 and $41,700 for the
years ended December 31, 2000 and 1999, respectively.
The Company and its subsidiaries had outstanding notes payables to employees and
executive officers with an approximate total balance of $161,300 and $10,000 for
the years ended December 31, 2000 and 1999, respectively.
One of the Company's subsidiaries, TekSoft, leases office space from a company
that is owned by the current President and Vice President of TekSoft along with
a former TekSoft employee. The monthly rent amount as of October 1, 2000 is
$20,570. However, the actual rent paid has been lower historically due to
TekSoft's ability to sublet part of the building space to other tenants. The
net rent paid during the year ended December 31, 2000 was approximately
$126,200.
Mr. Sky Carver, Director, has a consulting agreement for business advisory
services to TekSoft that was entered into prior to the Company acquiring
TekSoft. The agreement, which became effective on December 1, 1999 and expires
December 1, 2004, pays $4,167 per month for these services.
There are no other related party transactions with the Company or its
subsidiaries.
Page 42
PART III
ITEM 13. INDEX TO EXHIBITS
-----------------
Exhibit No. Page Number Description
---------- ----------- -----------
3(a) ** Certificate of Articles of Incorporation of the
Company
3(b) ** Bylaws of the Company
8(a) ** Agreement and Plan of Reorganization dated July
23, 1998 by and among the Company, Micro, Frank G.
Wright, Bernard A. Woods, III and Charles W. Beyer
8(b) ** Agreement and Plan of Reorganization dated
December 30, 1998 by and among the Company, CAM
Solutions and Kevin L. Bork
8(c) ** Agreement and Plan of Reorganization dated
September 30, 1999 by and among the Company,
Cimtronics, E. Michael Zaworski and Sherri G.
Zaworski
8(d) ** Agreement and Plan of Reorganization dated January
10, 2000 by and among the Company, TekSoft, Inc.
and Gary F. Fulton
21 45 Subsidiaries of the registrant
23 46 Consent of Arthur Andersen LLP
No reports on Form 8-K were filed during the year ended December 31, 2000.
** Incorporated by reference in the Company's Form 10-SB filed with the
Commission on October 23, 2000.
Page 43
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized this 2nd day of April 2001.
ONCOURSE TECHNOLOGIES, INC.
By: /s/Bernard A. Woods, III 4-2-01
------------------------------------- ---------------
Bernard A. Woods, III Date
Chief Executive Officer, Treasurer, Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/Charles W. Beyer 4-2-01
------------------------------------- ---------------
Charles W. Beyer Date
President, Director
By: /s/William C. Brown 4-2-01
------------------------------------- ---------------
William C. Brown Date
Chief Financial Officer
By: /s/Kevin L. Bork 4-2-01
------------------------------------- ---------------
Kevin L. Bork Date
President of CAM Solutions, Inc., Director
By: /s/Gary L. Fulton 4-2-01
------------------------------------- ---------------
Gary L. Fulton Date
President of TekSoft, Inc., Director
Page 44