SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-KSB



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|[X] | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
	 EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 1999



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|[   ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For the transition period from
               ,               to

               ,

Commission
 File Number: 0-22808

OSAGE SYSTEMS GROUP, INC.


(Name of small business issuer in its charter)


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|Delaware                                                        |  | 95-4374983                          
|(State or other jurisdiction of
	incorporation or organization) |  | (I.R.S. Employer Identification No.)

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|1661 East Camelback Road, Suite 245, Phoenix, Arizona |  | 85016     
|(Address of Principal Executive Offices)              |  | (Zip Code)

Issuers telephone number: (602) 274-1299

Securities registered pursuant to Section 12(b) of the
Act:


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|Title of Each Class          |  | Name of Exchange on which Registered
|                             |  |                                     
|Common Stock, $.01 par value |  | American Stock Exchange             

Securities registered under Section 12(g) of the Exchange
 Act:

Common Stock, $.01 par value


(Title of Class)


Check whether the Registrant
(1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
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. (1) Yes  [X]  No 
[   ]  (2) Yes  [X]  No 
[   ]

Check if there is no disclosure of
delinquent filers in response to Item 405 of Regulation S-B
contained in this form, and will not be contained, to the best of
 Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB.
[   ]

Registrants revenues for the
year ended December 31, 1999: $114,720,435.

The aggregate market value of the
voting stock held by non-affiliates of the Registrant, as of
March 31, 2000 was approximately $69,962,819 based upon the
closing sale price of the Registrants Common Stock on the
American Stock Exchange of $7.125 per share of Common Stock on
such date. See Footnote (1) below.

Applicable Only to Corporate Registrants

The number of shares outstanding of
 the Registrants sole class of Common Stock as of
March 31, 2000 was 11,325,543 shares.

Transitional Small Business
Disclosure Format (check one) Yes 
[   ]  No  [X]

Documents Incorporated by Reference:  None.




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|(1) | The information provided shall in no way be
	construed as an admission that any person whose holdings are
	excluded from the figure is not an affiliate or that any person
	whose holdings are included is an affiliate and any such
	admission is hereby disclaimed. The information provided is
	included solely for recordkeeping purposes of the Securities and
	Exchange Commission.









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PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT

When used in this Annual Report on Form 10-KSB and in
other public statements by the Company and Company officers, the
words expect, estimate,
project, intend, and similar expressions
are intended to identify forward-looking statements regarding
events and financial trends which may affect the Companys
future operating results and financial condition. Such statements
 are subject to risks and uncertainties that could cause the
Companys actual results and financial condition to differ
materially. Such factors include, among others, the risk factors
described under Item 1 in this Annual Report. Additional
factors are described in the Companys other public reports
filed with the Securities and Exchange Commission. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date made. The Company
undertakes no obligation to publicly release the result of any
revision of these forward-looking statements to reflect events or
 circumstances after the date they are made or to reflect the
occurrence of unanticipated events.

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PART I

Item 1.  Description of Business.

Description of the Business

Osage Systems Group, Inc. (the Company) is a national
 provider of computing solutions for the Internet and e-business
through its ten (10) offices located in eight states. The Company
 provides these solutions by deploying a life-cycle methodology
that addresses all phases of a customers information
technology needs. This includes business needs analysis, systems
architecture design, systems implementation, and ongoing systems
management and support. Solutions are developed and delivered by
the Companys technical consultants, who are skilled in
specialized practice areas such as enterprise infrastructure,
enterprise resource planning, electronic commerce, java
application development, web solutions, electronic publishing and
 network support services. The Companys solutions integrate
 products that feature state of the art technology from
industry-leading vendors of information technology products, such
 as, Sun Microsystems, Inc., IBM Corporation, Cisco Systems,
Inc., Oracle Corporation, EMC Corporation, Lawson Software, Check
 Point Software Technologies, Ltd., and Veritas Software
Corporation.

The Companys business strategy has three components. The
first component is to provide services to customers requiring our
 systems integration expertise. These customers include both our
traditional base and the emerging market of Internet related
companies. In 1999 Osage had in excess of 70 customers whose
 principal business related to the Internet such as Internet
service providers (ISPs), application service providers (ASPs),
business to business (B2B) commerce sites and business to
consumer (B2C) commerce sites. Most of the services provided to
these customers involve the basic infrastructure of their
Internet installations.

One of the primary objectives of Osage is to take advantage of
the business opportunities afforded by recent trends in
conducting business over the internet, or e-business. The Company
 has identified two key types of functional roles that have begun
 to emerge in the e-business space; that of web content providers
 (Influencers) and that of infrastructure providers. Content
providers primarily work with clients to develop an Internet
strategy and create the visage that will be seen on the World
Wide Web. Each of these Internet projects additionally involve
foundational infrastructure development for hardware, software,
and service support. Osage has developed a National Influencer
Alliances program to establish partnerships with Influencer
organizations. Through the Alliances program, Osage assumes the
role of the infrastructure provider by integrating the
technologies upon which the content, as recommended by the
Influencer, will be deployed.

The Company has also developed an operational business unit,
Osage iXi, to concentrate efforts on e-commerce and
business intelligence opportunities. The group was formed to
design and deliver high-level business intelligence capability
for those engaged in or planning to engage in business on the
Internet. Osage iXi uses a proprietary business discovery
methodology to offer clients a packaged solution set that quickly
 moves their business to successful and profitable commerce on
the Internet. Beyond achieving an e-commerce presence, the
proprietary Osage methodology delivers a sophisticated
information stream that enables companies to engage in e-commerce
 at higher levels and utilize the information stream to increase
customer loyalty and gain a sustainable competitive advantage in
the new Internet economy. The packaged solution set also fully
integrates the planning, creative, technical and management
aspects of successful Internet operations.

The Companys ultimate objective is to be recognized as one
of the leading solutions providers of a customers
e-business and Internet computing needs. It intends to fulfill
this objective by, among other things, continuing its growth
strategy and shifting the focus of its product and service
offerings to the development of specialized practice areas.

In keeping with the e-business strategy to develop specialized
practice areas, the Company made one additional acquisition in
1999, the acquisition of the business intelligence practice of
Leveraged Solutions, Inc. The acquisition did not materially
contribute to Company revenues in 1999.

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The Company was originally incorporated as Pacific Rim
Entertainment, Inc. under the laws of Delaware in 1992.
From 1992 through 1996, the Company had been engaged principally
in the animated film production business. After several years of
losses following its initial public offering in 1993, the Company
 suspended its business operations in 1996 and remained inactive
while it sought to identify a strategic business combination with
 a private operating company. The Company acquired, and
thereafter, assumed the historic business of Osage Computer
Group, Inc. (Osage) in a merger transaction (the
Merger) that became effective on December 22,
1997. Osage had been a provider of network computing solutions
since 1989.

The Company changed its name to Osage Systems Group, Inc. on
March 11, 1998. The executive offices of the Company are
located at 1661 East Camelback Road, Suite 245,
Phoenix, Arizona, and its telephone number is
(602) 274-1299.

Industry Background

In just a few years, the Internet has been the catalyst for
fundamental changes in the way the majority of companies do
business. The networked computer has made the exchange of
information virtually instantaneous. In todays economy,
web-enabled transactions, integration with customers and
suppliers, and a focus on the customer, rather than the product,
has become commonplace. Those who do not participate in the
e-business revolutions can quickly be left behind, therefore
losing valuable market share.

The increasingly complex nature and rapid change taking place in
the e-business sector has produced a demand for companies with
the expertise to design, integrate, implement and manage the
technologies. This requires the services of a systems integrator
that has the proper blend of vendor relationships, resources,
technical expertise, products and services to integrate these
technologies. In recognition of the increasing complexity of
computer systems and technologies, growing numbers of technology
users have been utilizing systems integrators to coordinate
information technology services and products. According to
industry sources, 39 million people shopped online in 1999, up
129% from 17 million in 1998. By 2005, sales of consumable items
over the Internet is estimated to reach $119 billion. In the
business-to-business sector, revenues are expected to climb to
$7.29 trillion by 2004, representing 7% of the total global sales
 transactions.

Management believes that the relationships of e-business
integrators with industry-leading technology vendors provide them
 with access to resources such as technical training, technical
documentation, evaluation units and leading-edge industry
information. These resources represent significant value to large
 and mid-sized companies that typically do not maintain such
in-house resources. Management also believes that reduced cost,
increased productivity and broader sales coverage, particularly
in the burgeoning middle market, is motivating technology vendors
 to sell their products through the value-added channel. Given
these market forces, management believes that e-business
integrators such as the Company will be well positioned to
capitalize on anticipated growth in the industry.

Business Strategy

The Companys objective is to be one of the leading
solutions providers for a customers Internet infrastructure
 and e-business requirements. The Company intends to fulfill this
 objective through a business strategy, which includes the
following:



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| |  | Use Strategic Acquisitions to Solidify the Companys
	Ability to Provide Services on a National Basis

The Company is currently pursuing a strategic acquisition plan to
 establish operations in key geographic markets and to add to its
 technical resource pool. The Company is targeting acquisition
candidates that have substantial market share in their geographic
 markets. The Company has the goal of being one of the three
largest systems integrators in each of its target markets. Given
the size and highly fragmented composition of the industry, the
Company believes that there is opportunity to become the dominant
 infrastructure systems integrator in the industry.

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| | - | ---------------------------------------
| |  | Focus on Professional Service Component

The Company intends to shift the blend of its product and service
 offerings to establish a greater focus on the development of
professional service offerings within specialized practice areas.
 This is primarily in recognition of two factors: first, the
increasing demand for experienced information technology
consultants, primarily in recognition of the rapid evolution of
increasingly complex computing systems; and second, to secure the
 increased profit margins for professional consulting services.



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| | - | -------------------------
| |  | Establish the Osage Brand

The Company believes that it can gain significant advantages from
 developing a highly identifiable national brand focused around
its ability to provide the intelligent path for
businesses to follow when choosing an e-business solution. The
Company has recently adopted a new logo, illustrating the
intelligent path, and incorporated the slogan into
its marketing materials.

Osage has also developed the proprietary I4 methodology,
incorporating the specialized areas of Infrastructure,
Integration, Information, and Intelligence. The Infrastructure
component is comprised of hardware and software from industry
leading vendors that form the basis of the technology solution.
This involves products from companies such as Sun Microsystems,
Cisco, Check Point, IBM, Veritas, and others. These products,
used in conjunction with the technical skills and knowledge of
Osage personnel, then become a component of the Integration
phase. This allows companies to easily migrate legacy systems
into newly added technologies. The Information step stems from
the ability to gather infinite amounts of data about business
transactions and customer behavior. Finally, the Information is
transformed into Intelligence. The Intelligence is used to
generate meaningful business data that can guide business
strategy and impact the bottom line.



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| | - | ----------------------------------
| |  | Leveraging Strategic Relationships

The Company intends to utilize its strong relationships with
industry leading technology vendors. These relationships provide
the Company with opportunities to develop joint marketing
programs, technical education, access to advanced releases of new
 technology, and joint sales opportunities. The Company currently
 has partner relationships with Sun Microsystems, Inc., Cisco
Systems, Inc., Oracle Corporation, Netscape Communications
Corporation, IBM Corporation, EMC Corporation, Microsoft
Corporation, Lawson Software, Check Point Software Technologies,
Ltd., Inktomi Corporation and Veritas Software Corporation.



| |   |                               
| | - | ------------------------------
| |  | Enhancing Annuity Service Base

The Company intends to focus heavily on expanding its service
revenue base through marketing initiatives as well as through
expanded service offerings, such as e-business consulting
services. A major objective of the Company is to provide
follow-on professional services to its customers in the years
subsequent to its initial contract. These efforts provide an
annuity revenue stream that is highly profitable and predictable

Acquisition Strategy

The Company believes there are many attractive acquisition
candidates in its industry because of the highly fragmented
composition of the marketplace, the industry participants
need for capital and their owners desire for liquidity. The
 Company is pursuing an acquisition program to consolidate and
enhance its position in its current market and to acquire
operations in new markets.

The Company is targeting acquisition candidates that are system
integrators with substantial market share in their geographic
markets. In particular, the Company intends to focus its
acquisition strategy on candidates that have proven management,
strong relationships with key technology vendors, substantial
technical resources, and an existing customer base of mid-sized
companies. The Company is also seeking to acquire e-business
consulting practices, which would complement its e-business
segment. These practices would generally be smaller companies
which would provide technical and sales capabilities in new
markets, both geographic and industry specific.

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The Company believes it can successfully implement its
acquisition strategy due to: (i) the highly fragmented
composition of the market; (ii) its strategy for creating a
national company, which should enhance the acquired
companys ability to compete in its local and regional
markets; (iii) the potential for increased profitability as
a result of the Companys centralization of certain
administrative functions, greater purchasing power, and economies
 of scale; (iv) the Companys status as a public
corporation; and (v) the ability to utilize its experienced
management in identifying acquisition opportunities. However, due
 to limited financial resources, there could be certain risks or
limitations on the Companys ability to implement its
acquisition strategy. See Risk Factor 6.

Acquisition Program

During 1999, the Company completed the acquisition of one company
 with revenues of approximately $1.2 million in the fiscal year
prior to the acquisition. During 1998, the Company completed the
acquisition of six companies with combined revenues of
approximately $48.4 million in their respective fiscal years
prior to the acquisition. In 1999, two of these acquisitions were
 shut down due to a business restructuring.

These acquisitions are intended to shift the Companys
business toward the higher margin consultative and service
oriented information technology solutions. These acquisitions
also increased the Companys geographic presence in the
Southeast, Southwest, Midwest and Southern regions of the United
States, thereby allowing the Company to more effectively provide
services to large regional and national accounts while at the
same time utilizing skill sets from other parts of the country
that may not have otherwise been available.

The following information provides a summary of the acquisitions
completed by the Company during 1998 and 1999:



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| | Leveraged Solutions, Inc.(LSI): On
	August 11, 1999, Osage acquired the business intelligence
	and data warehousing practice of LSI pursuant to an asset
	purchase agreement for a purchase price of $740,000, consisting
	of $240,000 in cash and a $500,000 promissory note.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | Solsource Computers, Inc.(Solsource): On
	March 17, 1998, the Company acquired Solsource pursuant to
	the terms of an Agreement and Plan of Merger. Upon closing,
	through a wholly-owned subsidiary, the Company acquired 100% of
	the outstanding capital stock of Solsource for merger
	consideration of $1.1 million; consisting of $200,000 in cash and
	 $900,000 in newly issued common shares priced at $6.00 per share
	 and certain earnout provisions. Solsource generated pro forma
	revenues of approximately $6.5 million during the year ended
	December 31, 1998. Solsource provided specialized services
	for security audits, firewall penetration testing and anti-virus
	protection. This business was closed in 1999 as part of the
	restructuring plan (see Note 2 to the financial statements).                                                                                                                                                                                                                                                                                                   
|
| | H.V. Jones, Inc.(HV Jones): On March 17,
	 1998, the Company also completed the acquisition of
	HV Jones pursuant to the terms of an Agreement and Plan of
	Merger dated February 27, 1998. Upon closing, through a
	wholly-owned subsidiary, the Company acquired 100% of the
	outstanding capital stock of HV Jones for merger
	consideration of $1,975,000, consisting of $395,000 in cash,
	$1.58 million (105.3 shares) in Series C Convertible
	Preferred Stock and a two-year earnout based upon the gross
	profit and net income of HV Jones payable in additional
	shares of Common Stock. On July 6, 1999, the Company issued
	144,535 shares of common stock valued at $1,000,000 to the former
	 shareholder of HV Jones as HV Jones achieved certain
	performance targets. HV Jones generated pro forma revenues
	of approximately $14.9 million during the year ended
	December 31, 1998. HV Jones provides proprietary
	services and turnkey technology infrastructure solutions in the
	areas of business assessment, enterprise resource planning,
	interoperability, database, networking and security.
|
| | Open System Technologies, Inc.(OST): On
	April 24, 1998, the Company completed the acquisition of
	100% of the outstanding capital stock of OST for merger
	consideration of $5.26 million; consisting of $2.76 million in
	cash, $2.0 million in newly issued common shares priced at $6.00
	per share and $500,000 in a key employee retention program. OST
	generated pro forma revenues of approximately $10.5 million
	during the year ended December 31, 1998. OST installs
	open-system computer products that provide businesses with
	comprehensive solutions for network integration, internet access,
	 system                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
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| | security, network and systems management, including
	enterprise-wide backup. OST offers Lawson Software, a
	comprehensive package that streamlines business operations
	through integrated financial, human resources, procurement, and
	supply chain management software.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | Open Business Systems, Inc.(OBS): On
	June 22, 1998, the Company completed the acquisition of 100%
	 of the outstanding capital stock of OBS for merger consideration
	 of $4.0 million; consisting of $2.0 million in cash, $2.0
	million in newly issued common shares priced at $5.52 per share
	and a three-year earnout based on the sales revenues and net
	income of OBS payable in additional shares of Common Stock. On
	September 29, 1999, the Company issued 579,710 shares of
	common stock valued at $500,000 to the former shareholders of OBS
	 as OBS achieved certain performance targets. OBS generated pro
	forma revenues of approximately $17.9 million during the year
	ended December 31, 1998. OBS is known nationwide for its
	expertise in Java technology, a universal language that operates
	on any platform. OBS was the first reseller in North America to
	be named an Authorized Java Center by Sun Microsystems. In
	addition, OBS furnishes comprehensive enterprise wide networking
	and security solutions, with a specialty in the fields of web
	design and electronic commerce.
|
| | Electronic Commerce Network Solutions Corporation
	(E-Comm): On October 8, 1998, Osage acquired
	E-Comm pursuant to the terms of an Agreement and Plan of Merger.
	Upon closing, through a wholly-owned subsidiary, Osage acquired
	100% of the outstanding stock of E-Comm for merger consideration
	of $1.25 million; consisting of $232,500 in cash, $930,000 in
	newly issued common shares priced at $6.21 per share, $87,500 in
	a key employee retention program and a two-year earnout based
	upon the consulting revenues of E-Comm payable in cash and
	additional shares of Common Stock. E-Comm generated proforma
	revenues of approximately $1.9 million during the year ended
	December 31, 1998. A system and infrastructure
	integration-consulting firm, E-Comm also designed and implemented
	 mission-critical solutions including systems management, remote
	and mobile computing, process and workflow consulting, and
	distributed computing. This business was closed in 1999 as part
	of the restructuring plan (see Note 2 to the financial
	statements).                                    
|
| | IntraNet Solutions, Inc.(IntraNet): On
	October 15, 1998, the Company completed the acquisition of
	the systems integration business of IntraNet pursuant to an asset
	 purchase agreement for a purchase price of $1.6 million,
	consisting of $1.535 million in cash, $100,000 in a key employee
	retention program and a two-year earnout based upon the net
	revenues and gross profit generated by the former IntraNet
	employees retained by the Company payable in additional shares of
	 Common Stock. This business generated pro forma revenues of
	approximately $13.9 million during the year ended
	December 31, 1998.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

Through its internal and acquisition growth, the Company expanded
 its operations from Phoenix, Arizona to Houston, Texas, Austin,
Texas, San Antonio, Texas, Ft. Lauderdale, Florida, Chicago,
Illinois, Minneapolis, Minnesota, Madison, Wisconsin,
Washington D.C., and New York, New York.

Products and Services

The Company has developed solutions in a number of focused
practice areas. Each of these practice areas uses the system
life-cycle approach to develop and deploy solutions.

Enterprise Infrastructure

The enterprise infrastructure practice provides solutions
relative to a customers overall computer systems and
network infrastructure needs. In general, the overall focus of
this practice is to provide a computing infrastructure that meets
 the customers business requirements with respect to
reliability, availability, and serviceability. Specific solutions
 address custom needs such as: network security, electronic
messaging, systems and network design and integration, and
database and application integration. The enterprise
infrastructure practice partners with several industry-leading
vendors of information technology products, such as Sun
Microsystems, Inc., Cisco Systems, Inc., Oracle Corporation,
Veritas Software Corporation, Check Point Software Technologies,
Ltd., Inktomi Corporation, and Netscape Communications
Corporation, to deliver solutions.

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Network Security

The growth in Internet activity and connections has provided a
huge opportunity for business; however, at the same time it has
exposed businesses to risk through unauthorized access to
corporate data that is mission-critical and confidential. It is
essential to ensure that customer networks and data are secure.
The Company has built a practice around data and network
security, which is a rapidly growing market. The service and
product offerings in this area are numerous. From a product
standpoint, the Company offers software for firewalls, virus
protection, attack recognition, content protection, network
monitoring, data encryption, and user authentication. From a
services perspective, the Companys offerings include
services to build a security policy, design and implement
security solutions, perform penetration testing, carry out
security audits, and provide training and support.

Network Design and Integration

As the business communitys use of and dependence upon
computer networks increases, it becomes more important to
implement networks that are designed to be scaleable and
reliable. The Company has gained significant experience in
designing and implementing both local area and wide area network
architectures for its customers.

Additionally, management believes there is an increasing demand
for system integrators in view of the split in the business
community over the use of UNIX and Microsoft NT computer
operating systems. UNIX appears to have captured a larger share
of the enterprise-computing environment, whereas Windows NT has a
 larger percentage of the workgroup server and desktop market.
The traditional enterprise application such as financial
applications, distribution, manufacturing and order entry are
typically run in a UNIX or mainframe environment, whereas the
workgroup technologies that have been commonly deployed on the
internet have been typically rendered on the Windows NT platform.
 In order for applications such as SAP, BAAN and Peoplesoft to be
 made available over the Internet, UNIX and Windows NT must be
effectively integrated to a reliable and stable computing
infrastructure. This creates tremendous opportunities for systems
 integrators such as the Company to provide network
interoperability services to middle market and Fortune 1000
companies.

Electronic Messaging

The advent of the Internet has brought electronic messaging
(e-mail) to virtually every aspect of business. While growth in
this area has paved the way for companies to do business over the
 Internet (inter-company communication as well as business to
business electronic commerce), it has also created a technology
management nightmare for corporations around the world. Products
from a multitude of hardware and software vendors have created a
mixture of incompatible technologies. The Company helps these
customers design and build messaging networks that will become
the infrastructure for their e-mail systems. E-mail is no longer
considered a novelty. It is now viewed by many medium and
large-sized companies as a necessity. Unfortunately, these
systems have not been designed with the features that are
necessary to achieve compatibility among systems. The Company
provides the correct mix of computer hardware, software and
expertise to design and implement messaging networks and systems.
 The Company can help evaluate, select, test, design, implement,
and support networks for a variety of end users from small single
 location users to large industrial multi-location users.

Database and Application
Integration

As data has proliferated within corporations, it has done so
using many formats, technologies, and system platforms. For
example, manufacturing and distribution information may be stored
 on a mainframe or enterprise UNIX system while sales and
marketing information is likely stored on personal computers in
small departmental networks and product information is being
stored on UNIX based engineering workstations and networks. This
data is often fragmented, stored in many different products and
formats, and can be difficult to access and consolidate. Data
needs to be integrated with information that is currently
available on a companys web-site, and made accessible in a
secure manner. This has created a need to develop systems that
will

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Enterprise Resource Planning

Enterprise resource planning (ERP) systems are being viewed
by many organizations as integral components of their business
operations. ERP systems allow an organization to organize,
manage, and distribute mission critical data throughout their
organization. In response to this market need, the Company has
organized an ERP practice which is capable of delivering a
complete ERP solution to its customers. The ERP practice aligned
with Lawson, a leading supplier of ERP software to the middle
market, provides solutions in business functional areas such as
integrated financial accounting, human resources and supply chain
 management.

Java Development

Sun Microsystems Java programming language is rapidly
gaining market share and momentum as the software development
platform of choice for Internet applications. The Company
believes that there is a tremendous emerging opportunity in the
Java development market. The Companys Java development
practice provides customers with custom developed application
solutions. Through its authorized Java center facility, the Java
development practice has delivered customized applications
solutions for a number of customer business needs including:
electronic bill presentment and payment, customer information
management, and freight forwarding.

Electronic Commerce

As businesses are becoming more comfortable with the stability,
reliability, and security of the Internet, there is a sharp
increase in both the number and size of business transactions
being conducted across this medium. The Companys electronic
 commerce practice addresses customers requirements to
utilize the World Wide Web as a vehicle for transacting business
both internally and externally. The electronic commerce practice
leverages its partnership with leading suppliers of electronic
commerce software, such as Sun/ Netscape and IBM, to deliver a
complete electronic commerce solution.

Web Solutions

An organizations presence on the World Wide Web is no
longer viewed as insignificant, but rather as an important
marketing and brand development tool. The Companys web
solutions practice has the skills necessary to assists customers
in developing their World Wide Web strategy as well as the
content required for an impactful web site. The web solutions
practice also offers services in web site hosting and
maintenance, which allows a customer to completely outsource
their web site operations.

Electronic Publishing

As the number of electronic documents within an organization
grows, the problem of how to manage these documents as corporate
assets arises. The Companys electronic publishing practice
assists its customers in developing a strategy for the management
 and distribution of its documents. The electronic publishing
practice partners with product companies such as Adobe and
Intranet Solutions to deliver complete electronic publishing
solutions.

Sales and Marketing

During the past two years, the Company has significantly
diversifies its historically concentrated customer base. In 1997,
 the Company had several large customers who accounted for
approximately 71.2% of net sales. This included one Fortune 500
corporation that alone accounted for 64.8% of net sales. That
same customer accounted for 16.7% of net sales in 1998. As the
Companys revenues have increased and the geographic scope
of its business has expanded, the Companys dependence on
its largest customers has substantially diminished.

8



---





The Company benefits from the name recognition of the products
that it sells and has successfully utilized its relationships
with vendors and manufacturers to build strong product and
service sales. The Company currently maintains value-added
reseller relationships with its major suppliers: Sun
Microsystems, Inc., Oracle Corporation, Cisco Systems, Inc.,
Veritas Software Corporation, Netscape Communications
Corporation, Check Point Software Technologies, Ltd., Inktomi
Corporation, IBM Corporation, EMC Corporation, Lawson Software,
Adobe Systems, Inc and Access Graphics. Management expects to
continue to utilize these relationships.

The Company believes it can gain significant advantage from
developing a highly identifiable national brand focused around
its ability to be a complete solutions provider. Toward this end,
 the Company has commenced a rapid transition of its acquisitions
 from their original operating names and logos to the Osage name
and logo. The Company also has developed marketing collateral,
customer seminar programs and joint marketing programs with its
strategic partners and suppliers.

Competition

The e-business integrator channel is comprised of a large number
of participants and is subject to rapid change and intense
competition. The Company will face competition from system
integrators, value-added resellers, local and regional network
services firms, telecommunications providers, network equipment
vendors and computer system vendors, many of which have
significantly greater financial, technical and marketing
resources, greater name recognition and generate greater revenue
than the Company does. The Company expects to continue to face
additional competition from new entrants into its markets.
Increased competition may result in price reductions, fewer
client projects, under-utilization of Company personnel, reduced
operating margins and loss of market share, any of which could
materially adversely effect its business, operating results and
financial condition. There can be no assurance that the Company
will be able to compete successfully against current or future
competitors. The failure of the Company to compete successfully
would have a material adverse effect on its business, operating
results and financial condition.

Personnel

As of March 31, 2000, the Company employed 120 persons, of
whom 45 were engaged in sales and marketing, 45 were engaged in
providing the Companys technical and consulting services
and 30 were engaged in finance, administration and management
functions.

None of the Companys employees are covered by a collective
bargaining agreement. There is increasing competition for
experienced technical professionals and sales and marketing
personnel. The Companys future success will depend in part
on its ability to continue to attract, retain and motivate highly
 qualified personnel. The Company considers relations with its
employees to be good.

Risk Factors

1.  Recent Net Losses

The Company incurred a net loss before income taxes of $7.1
million for the year ended December 31, 1999, of which $4.4
million of the loss represented restructuring and impairment
charges incurred during the

9



---







|   |                                                                                                       
|-- | ------------------------------------------------------------------------------------------------------
|2. | Additional Dilution Associated with Existing Convertible
	Securities and Possible Future Acquisitions.

The Company is presently authorized to issue 50,000,000 shares of
 Common Stock, of which 11,325,543 are outstanding as of
March 31, 2000. The Company may in the future be caused to
issue up to approximately 10,000,000 shares of its Common Stock
upon the conversion of its outstanding 10% Convertible
Subordinated Debentures and an additional 10,000,000 shares upon
the exercise of common stock purchase warrants (the
Warrants) sold to Michael Lauer and three investment
funds managed by him (collectively Lancer). The
Company may also in the future be caused to issue up to
approximately 4,907,939 shares of its Common Stock upon the
exercise of outstanding stock options and additional warrants.
Issuance of this many shares is likely to be extremely dilutive
to the existing stockholders.

The Company may also be caused to issue additional shares of
Common Stock in the future in connection with earn-out provisions
 of certain prior acquisitions, payment of purchase price
consideration for future acquisitions, or for other valid
business purposes within the discretion of the Board of
Directors.



|   |                                                                                
|-- | -------------------------------------------------------------------------------
|3. | Possible Significant Dilution or Repayment Obligations Under
	Lancer Financing.

At the Companys next annual meeting of stockholders
scheduled to be held during May 1999, the stockholders will vote
on the conversion and exercise feature of the Debentures and the
Warrants (collectively, the Derivative Securities)
sold by the Company to Lancer in November 1999 (the Lancer
Financing). If the stockholders approve the conversion and
exercise features of the Derivative Securities, the Company may
be caused to issue approximately 20,000,000 shares of its Common
Stock to Lancer or its designees, which would have an extremely
dilutive effect on the existing stockholders. Furthermore, Lancer
 and its designees would beneficially own approximately 69% of
the Companys Common Stock, thereby securing majority voting
 control of the Companys stock. In the event that the
stockholders do not approve the conversion and exercise features
of the Derivative Securities, the Company will have the
obligation to repay Lancer or its designees $6,000,000 together
with interest at the rate of up to 18% per annum until repayment.
 Lancer will not require the Company to make payment of the
$6,000,000 until the earlier of the Company securing alternative
financing or until January 2, 2001. Since the Company does
not presently have sufficient liquid assets to repay the funds
advanced by Lancer and its designees under the Derivative
Securities, the failure of the stockholders to approve the
conversion and exercise features of the Derivative Securities may
 have a material adverse effect on the Companys financial
condition, liquidity and operations.

4.  Potential Liability in Pending Litigation

Halifax Fund, L.P., formerly the owner of the Companys
Series E Convertible Preferred Stock, recently commenced a
lawsuit against the Company alleging, among others, that the
Company failed to offer it a right of first refusal to
participate in the Lancer Financing. Based upon its limited
review of the matter to date, the Company believes that Halifax
was aware of, and had been provided with notice of, the Lancer
Financing. Accordingly, the Company believes that Halifaxs
claims are without merit. If Halifax is successful in asserting
its claims, however, Halifax may be awarded relief that could
have a material adverse effect on the Companys financial
condition and operations. See Item 3 Legal
Proceedings.

5.  Risks Associated with Growth Strategy

One of the central elements of the Companys business
strategy is to focus future growth on the higher margin services
segment of its operations. Further development of the
Companys services will require the hiring of substantial
numbers of technical personnel. There is no assurance that the
Company will be able to attract and retain those personnel.
Additionally development of the Companys iXi suite of
e-business products will require substantial investment without
any assurance that the products will be successful in the
marketplace.

10



---



6.  Need for Additional Financing; Risks
Related to Acquisition Financing

In order to pursue an acquisition strategy in the long term, the
Company will require additional financing, which it will attempt
to secure through a combination of traditional debt financing,
the issuance of its shares and the placement of debt and equity
securities. To the extent acquisitions can be financed through
the issuance of Company securities, the need for cash resources
is somewhat mitigated. In the event that the Companys
Common Stock does not attain or maintain a sufficient market
value, or potential acquisition candidates are otherwise
unwilling to accept Common Stock as part of the consideration for
 the sale of their businesses, the Company will be required to
utilize more of its cash resources, if available, in order to
maintain its acquisition program. If the Company does not have
sufficient cash resources, its ability to grow through
acquisitions could be limited unless it is able to obtain
additional capital through debt or equity financing.

7.  Influx of Shares Eligible for Sale

Sales of substantial amounts of the Companys Common Stock
in the public market could have an adverse effect on the market
price of the Companys Common Stock and make it more
difficult for the Company to sell its equity securities in the
future at prices it deems appropriate. By virtue of registration
rights granted in connection with recent private placement
transactions and acquisitions, and as a result of the lapse of
the holding period for restricted securities under Rule 144
of the Securities Act of 1933, a significant number of shares of
Common Stock will become eligible for public resale during the
summer of 2000, which may include the shares of Common Stock
issuable upon the conversion and exercise of the Derivative
Securities sold in the Lancer Financing. The sale of these shares
 in the public market, or the perception that such future sales
could occur, may adversely affect the market price of the
Companys Common Stock and could impair the Companys
ability to obtain capital through offerings of equity securities.

8.  Classified Board; Delaware Anti-Takeover
Law

The Company has classified the Board of Directors into three
classes, with the members of one class (or approximately
one-third of the Board) elected each year to serve a three-year
term. A director may be removed only for cause by a vote of the
holders of two-thirds of the Companys outstanding
securities. The classified Board of Directors makes it more
difficult to change majority control of the Board, which may
discourage attempts by third parties to make a tender offer or
otherwise obtain control of the Company, even if such attempt
would be beneficial to the Company and its stockholders. At the
Companys next annual meeting of stockholders, the
stockholders will vote on the elimination of the Classified
board.

The Company is governed by the provisions of Section 203 of
the General Corporation Law of the State of Delaware (the
GCL), an anti-takeover law. In general, the law
prohibits a public Delaware corporation from engaging in a
business combination with an interested
stockholder for a period of three years after the date of
the transaction in which the person became an interested
stockholder, unless the business combination is approved in a
prescribed manner. Business combination includes
mergers, asset sales and other transactions resulting in a
financial benefit to the stockholder. An interested
stockholder is a person who, together with its affiliates
and associates, owns (or, within three years, did own) 15% or
more of the corporations voting stock. The supermajority
voting provisions in the Companys bylaws and the provisions
 regarding certain business combinations under the GCL could have
 the effect of delaying, deferring or preventing a change in
control of the Company or the removal of existing management. A
takeover transaction frequently affords stockholders the
opportunity to sell their shares at a premium over current market
 prices. At the Companys next annual meeting, the
stockholders will vote on the elimination of the supermajority
voting provisions in the Companys bylaws. If the
stockholders approve the elimination of the classified board and
the supermajority voting provisions, the Company could be more
vulnerable to hostile takeovers. In addition, if the stockholders
 also approve the conversion and exercise of the Derivative
Securities purchased by Lancer in the Lancer Financing (See
Risk Factor 3), Lancer would have the ability to elect all of
 the Companys directors and control the Companys
management and policies. In that case, Lancer would not be
subject to the provisions of Section 203 of the GCL because
the Lancer Financing was approved by the Board of Directors.

11



---



9.  Substantial Reliance on Key Customers

The Companys dependence on its largest customers has
diminished as revenues have increased and the geographic scope of
 its business has expanded. The largest customer, who in 1997
accounted for 64.8% of net sales accounted for 16.7% and 15.4% of
 net sales in 1998 and 1999, respectively. No other customer
accounted for more than 3% of net sales for the year ended
December 31, 1999. Based upon historical and recent results
and existing relationships with customers, although the
Companys dependence on its largest customers has been
reduced, management believes that a substantial portion of its
net sales and gross profits will continue to be derived from
sales to the Companys largest customers.

10.  Substantial Variability of Quarterly
Operating Results

In the past, the Companys operating results have varied
substantially from quarter to quarter, and management expects
that they will continue to do so. The Companys quarterly
operating results are influenced by, among others:



| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | the timing, size and stage of projects;                                                                                 
|
| |  | new service introductions by the Company or its competitors;                                                            
|
| |  | availability of products from key vendors;                                                                              
|
| |  | the hiring of additional staff and increased selling and
	administrative expenses associated with the Companys
	growth;
|
| |  | changes in the Companys billing and employee utilization
	rates; and                                                   
|
| |  | incurring costs for projects in periods prior to recognizing
	revenues for such contracts.                              

The Company plans its operating expenditures based on revenue
forecasts, and a revenue shortfall below such forecast in any
quarter would likely adversely effect the Companys
operating results for the quarter. Management believes,
therefore, that past operating results and period-to-period
comparisons should not be relied upon as an indication of future
performance.

11.  Highly Competitive Information
Technology Services Industry

The Companys business is highly competitive. Many of the
Companys competitors have longer operating histories,
possess greater industry and name recognition and have
significantly greater financial, technical and marketing
resources. Additionally, the Company expects to continue to face
additional competition from new entrants into its markets.

12.  Competitive Market for Technical
Personnel

The Companys success on a longer-term basis will depend
upon its ability to attract, retain, train and motivate highly
skilled employees, particularly project managers and other senior
 technical personnel. Such qualified personnel are in great
demand, there is significant competition for such employees and
it is likely that access to such personnel will remain limited
for the foreseeable future. There can be no assurance that the
Company will be successful in attracting a sufficient number of
such personnel in the future, or that it will be successful in
retaining, training and motivating the employees it is able to
attract.

13.  Dependence on Key Management Personnel

Our future success depends in part on the continued service of
key management personnel, particularly Phil Carter, Chief
Executive Officer. While Mr. Carter has entered into a
two-year employment agreement with the Company, he is entitled to
 terminate that agreement and receive severance payments in the
event of certain events, including a change of control of the
Company.

12



---



14.  Rapid Technological Change; Dependence
on New Solutions

The Companys success depends in part on its ability to
develop solutions that keep pace with continuing changes in
information technology, evolving industry standards, and changing
 customer objectives and preferences. There can be no assurance
that the Company will be successful in adequately addressing
these developments on a timely basis. Even if these developments
are addressed, the Company may not be successful in the
marketplace. In addition, competitors products or
technologies may make the Companys services non-competitive
 or obsolete. The Companys failure to address these
developments could have a material adverse effect on its
business.

15.  Dependence on Suppliers

The Companys business depends upon an adequate supply of
hardware, software products and computer systems at competitive
prices and on reasonable terms. Consequently, the Companys
results of operations are dependent, in part, upon the demand
for, price of, technical capabilities of, and quality of the
products available for resale. The Companys principal
supplier is Sun Microsystems, Inc. Additionally, the Company
obtains the largest part of its Sun equipment and other inventory
 from GE Access Graphics, Inc., a Sun master reseller.

To mitigate the risk of product shortage, the Company attempts,
when possible, to procure some hardware and software products
from multiple sources. Some products are available from only a
single source, as manufacturers elect to provide a direct
relationship with system integrators. The Company has supply
contracts with its vendors and purchases hardware and software
products, and computer systems on a purchase order basis. As a
result, there can be no assurance that such products will
continue to be available as required at acceptable prices or on
acceptable terms.

16.  Dividends

No dividends have been paid by the Company since inception and
the payment of dividends on the Companys Common Stock is
not contemplated in the foreseeable future. The payment of future
 dividends on the Companys Common Stock will be directly
dependent upon our earnings, our financial needs and other
similarly unpredictable factors. Earnings, if any, are expected
to be retained to finance and develop the Companys
business.

17.  Availability of Credit

In order to obtain necessary working capital, the Company relies
primarily on a line of credit that is collateralized by
substantially all of its assets. As of December 31, 1999,
total outstanding borrowings under the Companys $20 million
 credit facility were $14.8 million.

The amount of credit available to the Company may be adversely
affected by delays in collection, deterioration in the quality of
 our receivables or a change in the lending policies of our
lender. Any decrease or material limitation on the amount of
capital available to us under our line of credit or other
financing arrangements will limit our ability to fill existing
sales orders or expand our sales levels, and, therefore, would
have a material adverse effect on our business. Our inability to
have continuous access to necessary financing at reasonable costs
 would materially and adversely impact our business, financial
condition, and results of operations and cash flows.

18.  Potential Volatility of Stock Price

The market price of the shares of Common Stock has been and in
the future may be highly volatile. Some factors that may affect
the market price include:



| |   |                                                         
| | - | --------------------------------------------------------
| |  | actual or anticipated fluctuations in operating results;
|
| |  | product supply shortages;                               
|
| |  | price competition and/or change in the product mix;     

13



---





| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | announcements of technological innovations or new commercial
	products or services by the Company or its competitors;      
|
| |  | market conditions in the computer software and hardware
	industries generally;                                             
|
| |  | changes in recommendations or earnings estimates by securities
	analysts;                                                  
|
| |  | actual or anticipated quarterly fluctuations in financial
	results; and                                                    
|
| |  | sale of large blocks of previously restricted shares or shares
	obtained in the conversion of debt or exercise of warrants.

Furthermore, the stock market historically has experienced
volatility which has particularly affected the market prices of
securities of many technology companies and which sometimes has
been unrelated to the operating performances of such companies.

Item 2.  Description of Properties.

The Company owns no real property and currently leases all of its
 office facilities. The Companys executive and
administrative offices consist of approximately 8,800 square feet
 of leased office space at 1661 East Camelback Road, Phoenix,
Arizona. These offices are leased for an annual rental of
$174,000, subject to a lease that expires in August 2004.

In addition to its executive and administrative offices, the
Company leases office locations for each of its operating
subsidiaries on the terms summarized below:

|                                                             |  |                      |  |               |         |            |  |                                       |            |  |  | 
|------------------------------------------------------------ |  | -------------------- |  | ------------- | ------- | ---------- |  | ------------------------------------- | ---------- |  |  | 
|                                                             |  |                      |  |               |         | Lease     
|Location                                                     |  | Square Feet          |  | Annual Rental |         | Expiration
|                                                             |  |                      |  |               |         |           
|Texas Locations (offices in Houston, Austin and San Antonio) |  | Approximately 7,000  |  | $             | 82,000  |            |  | Various dates from 10/31/99-3/15/2002
|                                                            
|                                                            
|                                                            
|                                                            
|Carlsbad, CA                                                 |  | Approximately 6,000  |  | $             | 86,000  |            |  |                                       | 8/31/2000  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Pompano Beach, FL                                            |  | Approximately 9,600  |  | $             | 102,000 |            |  |                                       | 5/31/2000  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Wooddale, IL                                                 |  | Approximately 19,000 |  | $             | 249,000 |            |  |                                       | 8/31/2004  | 
|                                                            
|                                                            
|                                                            
|                                                            
|St. Paul, MN                                                 |  | Approximately 10,000 |  | $             | 103,000 |            |  |                                       | 10/31/2004 | 
|                                                            
|                                                            
|                                                            
|                                                            
|Vienna, VA                                                   |  | Approximately 3,000  |  | $             | 70,000  |            |  |                                       | 9/20/2003  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Madison, WI                                                  |  | Approximately 1,000  |  | $             | 13,000  |            |  |                                       | 10/01/2001 | 

The Company believes that it has sufficient space for its current
 and anticipated near-term needs. Even when and if certain of the
 Companys leases expire, the Company believes there is an
adequate supply of suitable leased office facilities at
reasonable rates in the markets in which it currently operates or
 in which it contemplates expansion.

Item 3.  Legal Proceedings.

1.  Halifax Proceeding

On or about March 7, 2000, Halifax Fund, L.P. commenced an
action against the Company, as well as Michael Lauer and three
investment funds managed by him, Lancer Offshore, Inc., Lancer
Partners, L.P. and Orbiter Fund, Ltd. (collectively
Lancer) in the Supreme Court of the State of New York
 (the Court) captioned Halifax Fund, L.P. v. Osage
 Systems Group, Inc., Michael Lauer, Lancer Offshore, Inc.,
Lancer Partners, L.P. and Orbiter Fund, Ltd.,Supreme Court of
 the State of New York, County of New York (Index

14



---





The Company is in the process of investigating the matter and has
 tentatively concluded that no breach of contract occurred. The
Company believes that Halifax was aware of, and had been provided
 with the right of first refusal offer with respect to, the
Lancer Financing. Accordingly, the Company believes that
Halifaxs claims are without merit. The Company believes
that the Halifax claims in large part have been motivated by the
improvement in the Companys operating results and trading
price since November 1999. The Company intends to vigorously
defend the matter.

Since the Companys investigation of the matter has not yet
been completed, and since no assurances can be provided as to the
 ultimate outcome of litigation, particularly where fact-based
disputes may arise, the Company cannot assure that it will not be
 subject to any liability thereunder. In the event that it is
successful in asserting its claims, Halifax may be awarded relief
 consisting of, among others, the right to purchase securities of
 the Company on the same terms as the Derivative Securities
offered to Lancer (in which case the Company may be caused to
issue additional securities convertible into up to 13,333,333
shares of the Companys Common Stock at prices significantly
 below the present trading value) or monetary damages which may,
if fully awarded, exceed the Companys current asset value.
Due to the initial stage of the proceedings, neither the Company
nor its legal representatives are able to provide any definitive
guidance on this matter.

2.  Udelhofen, et.al. v. Osage Systems Group

On October 29, 1999 John E. Udelhofen and E. Michael
Durbin filed an action in the United States District Court for
the Northern District of Illinois against the Company. The
Plaintiffs are former shareholders of Open Business Systems, Inc.
 (OBS). On June 22, 1998 the Company purchased
all of the outstanding shares of OBS and the Plaintiffs entered
into employment contracts with the Company. On August 17,
1999, the Company terminated the Plaintiffs employment
contracts for cause by virtue of their failure to meet threshold
performance targets contained in the employment contracts. In the
 lawsuit, the Plaintiffs claim their employment contracts were
wrongfully terminated and seek damages in excess of $75,000 as
well as declaratory relief that the contracts are still in force.
 The Plaintiffs also claim that the Company breached its
obligations to register securities issued to them in
consideration of their OBS stock. Plaintiffs also claim that they
 are owed additional sums pursuant to the earnout
provisions of the Agreement by which the Company purchased OBS.
The Company has answered Plaintiffs claims denying that
they are entitled to any relief. Additionally, the Company is
asserting counterclaims against certain of the Plaintiffs for
violation of provisions of both the stock purchase agreement and
their employment agreements. The Company accordingly believes it
has valid defenses to all of the Plaintiffs claims and
intends to vigorously defend the matter.

Item 4.  Submission of Matters to a Vote of
Security Holders.

On November 10, 1999, the Company mailed to all holders of
record of its Common Stock as of November 5, 1999 an
Information Statement pursuant to Section 14(f) of the
Securities Exchange Act of 1934 and Rule 14(f)-1 thereunder.
 The Information Statement was furnished in connection with a
proposed change in the majority of the Companys Board of
Directors. The change in the Board of Directors occurred
simultaneously with a sale of the personal stock holdings of Jack
 Leadbeater and David Olson involved and

15



---





PART II

Item 5.  Market for Common Equity and Related
Stockholder Matters.

Since November 20, 1998, the Companys Common Stock has
 been listed on the American Stock Exchange under the symbol
OSE. For all other prior periods covered by this
Item, the Companys Common Stock was listed on the OTC
Bulletin Board under the symbol OSGE.

The following table sets forth the range of high and low prices
of the Companys Common Stock by fiscal quarters for the
periods indicated. As to periods prior to November 20, 1998,
 prices are based on high and low closing bid prices as reported
by National Quotation Bureau, LLC. Commencing November 20, 1998
and thereafter, prices are based on high and low closing sales
prices as reported by the American Stock Exchange.

|            |  |                 |       |     |  |   |      | 
|----------- |  | --------------- | ----- | --- |  | - | ---- | 
|            |  |                
|            |  | Common Stock(1)
|            |  |                
|            |  | High            |       | Low
|            |  |                 |       |    
|1998        |  |                 |       |     |  |   |      | 
|           
|           
|           
|           
|1st Quarter |  | $               | 6.87  | 5   |  | $ | 4.00 | 
|           
|           
|           
|           
|2nd Quarter |  | $               | 7.50  |     |  | $ | 4.50 | 
|           
|           
|           
|           
|3rd Quarter |  | $               | 7.43  |     |  | $ | 6.00 | 
|           
|           
|           
|           
|4th Quarter |  | $               | 6.75  |     |  | $ | 4.50 | 
|           
|           
|           
|           
|1999        |  |                 |       |     |  |   |      | 
|           
|           
|           
|           
|1st Quarter |  | $               | 8.00  |     |  | $ | 4.50 | 
|           
|           
|           
|           
|2nd Quarter |  | $               | 7.69  |     |  | $ | 5.00 | 
|           
|           
|           
|           
|3rd Quarter |  | $               | 5.13  |     |  | $ | 0.63 | 
|           
|           
|           
|           
|4th Quarter |  | $               | 1.63  |     |  | $ | 0.44 | 
|           
|           
|           
|           
|2000        |  |                 |       |     |  |   |      | 
|           
|           
|           
|           
|1st Quarter |  | $               | 13.00 |     |  | $ | 1.13 | 




|    |                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Prices reflected prior to November 20, 1998 are inter-dealer
	 prices without retail mark-ups or commissions and may not
	represent actual transactions.

The last reported sales price of the Common Stock was $7.125 as
reported on the American Stock Exchange on March 31, 2000.

Record Holders

As of March 31, 2000, there were approximately 300 holders
of record of the Common Stock. Based upon depository requests in
connection with the distribution of its most recent Proxy
Statement, the Company believes the number of beneficial owners
of its Common Stock exceeds 5,000.

Dividends

The Company has not paid any cash dividends, to date, and has no
intention to pay any cash dividends on its Common Stock in the
foreseeable future. The declaration and payment of dividends is
subject to the discretion of the Board of Directors and to
certain limitations under the General Corporation Law of the
State of Delaware. The timing, amount and form of dividends, if
any, will depend, among other things, on the Companys
results of operations, financial condition, cash requirements and
 other factors deemed relevant by the Board of Directors.

16



---



Recent Sales Of Unregistered Securities

1.  In June 1997, the Company sold $450,000 principal
amount of Senior Secured Notes and warrants to purchase 135,000
shares of Common Stock at an exercise price of $.10 per share, in
 a private placement transaction exempt under Section 4(2).
The Warrants were subsequently canceled in December 1997 in
exchange for shares of Common Stock as set forth below:

|                                                             |  |               |         |          |  |              |         |  |  |  |         | 
|------------------------------------------------------------ |  | ------------- | ------- | -------- |  | ------------ | ------- |  |  |  | ------- | 
|                                                             |  |               |         |          |  | Common      
|                                                             |  | Amount of     |         |          |  | Stock       
|                                                             |  | 8% Senior     |         |          |  | Exchanged   
|Name                                                         |  | Secured Notes |         | Warrants |  | for Warrants
|                                                             |  |               |         |          |  |             
|Elliot Braun                                                 |  |               | 25,000  |          |  |              | 7,500   |  |  |  | 7,200   | 
|                                                            
|                                                            
|                                                            
|                                                            
|Robert Brvenik                                               |  |               | 20,000  |          |  |              | 6,000   |  |  |  | 5,800   | 
|                                                            
|                                                            
|                                                            
|                                                            
|Bernard Buchwalter                                           |  |               | 40,000  |          |  |              | 12,000  |  |  |  | 11,500  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Dune Holdings, Inc.                                          |  |               | 100,000 |          |  |              | 30,000  |  |  |  | 29,250  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Bermuda Trust Company, Trustee for
	The Elanken Family Trust |  |               | 65,000  |          |  |              | 19,500  |  |  |  | 18,900  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Robert Friedman                                              |  |               | 75,000  |          |  |              | 22,500  |  |  |  | 21,500  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Anthony Kamin                                                |  |               | 50,000  |          |  |              | 15,000  |  |  |  | 14,650  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Jeffrey Markowitz                                            |  |               | 75,000  |          |  |              | 22,500  |  |  |  | 22,100  | 
|                                                             |  |               |         |          |  |              |         |  |  |  |         | 
|TOTAL                                                        |  |               | 450,000 |          |  |              | 135,000 |  |  |  | 130,900 | 

2.  During the period from May 1997 to
October 1997, the Company issued in the aggregate 172,183
shares of Common Stock in consideration for services rendered,
release of debt and various other claims which the parties may
have had against the Company in transactions exempt under
Section 4(2) of the Act, as a transaction by an issuer not
involving a public offering, as set forth below:

|                                                             |  |                  |        |               |  |   |         |  
|------------------------------------------------------------ |  | ---------------- | ------ | ------------- |  | - | ------- | -
|                                                             |  | Number of Shares |        |              
|Name                                                         |  | Common Stock     |        | Consideration
|                                                             |  |                  |        |              
|Paul Jeffrey Adelizzi                                        |  |                  | 10,500 |               |  | $ | 50,000  |  
|                                                            
|                                                            
|                                                            
|                                                            
|Burt Ahrens                                                  |  |                  | 3,293  |               |  | $ | 32,932  |  
|                                                            
|                                                            
|                                                            
|                                                            
|Arthur Anderson                                              |  |                  | 2,267  |               |  | $ | 45,349  |  
|                                                            
|                                                            
|                                                            
|                                                            
|Robert Brvenik                                               |  |                  | 5,000  |               |  | $ | 5,000   |  
|                                                            
|                                                            
|                                                            
|                                                            
|Bernard Buchwalter                                           |  |                  | 6,500  |               |  | $ | 5,000   |  
|                                                            
|                                                            
|                                                            
|                                                            
|Catalina Plastics                                            |  |                  | 3,500  |               |  | $ | 40,826  |  
|                                                            
|                                                            
|                                                            
|                                                            
|Mark Dutton                                                  |  |                  | 7,500  |               |  | $ | 25,000  |  
|                                                            
|                                                            
|                                                            
|                                                            
|Bermuda Trust Company, Trustee for
	The Elanken Family Trust |  |                  | 31,100 |               |  | $ | 85,000  |  
|                                                            
|                                                            
|                                                            
|                                                            
|Stan Freberg                                                 |  |                  | 1,000  |               |  |   | (1      | )
|                                                            
|                                                            
|                                                            
|                                                            
|Richard Friedman                                             |  |                  | 5,000  |               |  | $ | 5,000   |  
|                                                            
|                                                            
|                                                            
|                                                            
|Anthony Kamin                                                |  |                  | 5,000  |               |  | $ | 5,000   |  
|                                                            
|                                                            
|                                                            
|                                                            
|Sy Leslie                                                    |  |                  | 3,293  |               |  | $ | 32,932  |  
|                                                            
|                                                            
|                                                            
|                                                            
|Alan Livingston                                              |  |                  | 21,730 |               |  | $ | 217,298 |  
|                                                            
|                                                            
|                                                            
|                                                            
|Christopher Livingston                                       |  |                  | 2,500  |               |  |   | (2      | )
|                                                            
|                                                            
|                                                            
|                                                            
|Jeffrey Markowitz                                            |  |                  | 5,000  |               |  | $ | 5,000   |  
|                                                            
|                                                            
|                                                            
|                                                            
|Frank Piazza                                                 |  |                  | 2,500  |               |  |   | (2      | )
|                                                            
|                                                            
|                                                            
|                                                            
|Jason Rabinovitz                                             |  |                  | 1,500  |               |  | $ | 15,000  |  
|                                                            
|                                                            
|                                                            
|                                                            
|R.R. Donnelly & Sons Company                                 |  |                  | 11,000 |               |  | $ | 203,168 |  
|                                                            
|                                                            
|                                                            
|                                                            
|Rubin Baum Levin Constant & Friedman                         |  |                  | 7,500  |               |  | $ | 115,000 |  
|                                                            
|                                                            
|                                                            
|                                                            
|Richard Someck                                               |  |                  | 6,500  |               |  | $ | 5,000   |  

17



---



|               |  |                  |         |               |  |   |         | 
|-------------- |  | ---------------- | ------- | ------------- |  | - | ------- | 
|               |  | Number of Shares |         |              
|Name           |  | Common Stock     |         | Consideration
|               |  |                  |         |              
|Ike Suri       |  |                  | 15,000  |               |  | $ | 50,000  | 
|              
|              
|              
|              
|Robert Poulson |  |                  | 15,000  |               |  | $ | 15,000  | 
|               |  |                  |         |               |  |   |         | 
|TOTAL          |  |                  | 172,183 |               |  | $ | 957,505 | 




|    |                                                  
|--- | -------------------------------------------------
|(1) | In consideration for certain rights to copyright.
|   
|(2) | In consideration for certain music rights.       

3.  In November 1997, the Company sold 3,185,080 shares
 of Common Stock to accredited investors in a private placement
transaction exempt from registration pursuant to Rule 506 of
 Regulation D. In connection with this transaction, no
brokerage commissions were paid. The following persons purchased
shares at $.10 per share.

|                                                                                   |  |              |           | 
|---------------------------------------------------------------------------------- |  | ------------ | --------- | 
|                                                                                   |  | Shares of   
|Name                                                                               |  | Common Stock
|                                                                                   |  |             
|101 Investments, Inc.                                                              |  |              | 5,000     | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Howard & Shari Borenstein                                                          |  |              | 15,000    | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Capital Growth Trust                                                               |  |              | 180,000   | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Clifton Capital                                                                    |  |              | 170,000   | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Cecile T. Coady                                                                    |  |              | 10,000    | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|David M. Daniels                                                                   |  |              | 200,000   | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Diversified Investment Fund L.P.                                                   |  |              | 50,000    | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Jere Dumanic                                                                       |  |              | 50,000    | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Bermuda Trust Company for The Elanken Family Trust Trustee                         |  |              | 20,000    | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|El Paso Holdings Ltd.                                                              |  |              | 125,000   | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Bruce Ginsburg                                                                     |  |              | 15,000    | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Godwin Finance Ltd.                                                                |  |              | 350,000   | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|KAB Investments, Inc.                                                              |  |              | 100,000   | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Michael Dane Ibsen                                                                 |  |              | 20,000    | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Interbanc Mortgage Services, Inc.                                                  |  |              | 200,000   | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Steven D. Levin                                                                    |  |              | 15,000    | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Millworth Investments Inc.                                                         |  |              | 175,000   | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Keith E. Myers                                                                     |  |              | 30,000    | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|PRE Investors L.P.                                                                 |  |              | 641,692   | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Steven B. Rosner                                                                   |  |              | 190,000   | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|SPH Equities, Inc.                                                                 |  |              | 73,388    | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Chad Shusman                                                                       |  |              | 10,000    | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|SPH Investments, Inc. Profit Sharing Plan dtd 12/1/92 f/b/o
	Stephen P. Harrington |  |              | 50,000    | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|SPH Investments, Inc.                                                              |  |              | 50,000    | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Harvey Sternberg                                                                   |  |              | 15,000    | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Synergy Group, Inc.                                                                |  |              | 250,000   | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|West Tropical Investments Corp.                                                    |  |              | 175,000   | 
|                                                                                   |  |              |           | 
|TOTAL                                                                              |  |              | 3,185,080 | 

4.  In December 1997, the Company sold 122 shares of
Series A $3.00 Convertible Preferred Stock at a purchase
price of $30,000 per share to accredited investors in a private
placement transaction exempt from registration pursuant to
Rule 506 of Regulation D. Each Series A Share was
convertible into 10,000 shares of Common Stock. All of the
Series A Shares were converted as of December 31, 1999.
 In connection with this

18



---





|                                                            |  |                |        | 
|----------------------------------------------------------- |  | -------------- | ------ | 
|                                                            |  | Shares of     
|Name                                                        |  | Series A Stock
|                                                            |  |               
|Phil Albrecht, Jr.                                          |  |                | 2      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Myles Bass                                                  |  |                | 9.333  | 
|                                                           
|                                                           
|                                                           
|                                                           
|Paul Beenan                                                 |  |                | 2      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Timothy Paul Buck                                           |  |                | 1      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Bernard Cohen                                               |  |                | 2      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Commonwealth Insurance Company Profit Sharing Plan          |  |                | 1      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Frank DeLuca                                                |  |                | 2      | 
|                                                           
|                                                           
|                                                           
|                                                           
|DeSilva & Partners, Inc. Self Directed Retirement Fund      |  |                | 1      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Dewey Investment Partnership Ltd.                           |  |                | 10     | 
|                                                           
|                                                           
|                                                           
|                                                           
|EquiTech, Inc.                                              |  |                | 1      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Hamid Ebrahimi                                              |  |                | 2      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Bermuda Trust Company, Trustee for The Elanken Family Trust |  |                | 16.667 | 
|                                                           
|                                                           
|                                                           
|                                                           
|Daniel Gooze                                                |  |                | 4      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Bernard Hollander Family Trust                              |  |                | 1      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Richard Joyce                                               |  |                | 17     | 
|                                                           
|                                                           
|                                                           
|                                                           
|Eckard Kirsch                                               |  |                | 1.5    | 
|                                                           
|                                                           
|                                                           
|                                                           
|Douglas Martin                                              |  |                | 1      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Morris Asset Management, Inc.                               |  |                | .5     | 
|                                                           
|                                                           
|                                                           
|                                                           
|Torrey Mosvold                                              |  |                | 4      | 
|                                                           
|                                                           
|                                                           
|                                                           
|MSB Research Inc.                                           |  |                | 8      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Chaim Rajchenbach                                           |  |                | .5     | 
|                                                           
|                                                           
|                                                           
|                                                           
|Moshe Rajchenbach                                           |  |                | .5     | 
|                                                           
|                                                           
|                                                           
|                                                           
|Naomi Treger Rajchenbach                                    |  |                | 1      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Louis Rambler                                               |  |                | 1      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Sherwin and Helen Ray                                       |  |                | 1      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Gary Rein                                                   |  |                | 1      | 
|                                                           
|                                                           
|                                                           
|                                                           
|James C. and Patricia J. Rives                              |  |                | 3      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Ira Saligman                                                |  |                | 1      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Pinchas and Nahma Schwartz                                  |  |                | 1      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Jonathan Shecter                                            |  |                | 1      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Leonard Silvestri                                           |  |                | 1      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Jeff Sokolin                                                |  |                | 1      | 
|                                                           
|                                                           
|                                                           
|                                                           
|John N. Straub Ltd., a Professional Medical Corporation     |  |                | 1      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Al Terrell                                                  |  |                | .334   | 
|                                                           
|                                                           
|                                                           
|                                                           
|Burton Turk                                                 |  |                | 1      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Roderic S. Ware                                             |  |                | 2      | 
|                                                           
|                                                           
|                                                           
|                                                           
|Wills Wei Corp.                                            |  |                | 16.666 | 
|                                                           
|                                                           
|                                                           
|                                                           
|Kevin Wyllie                                                |  |                | 1      | 
|                                                            |  |                |        | 
|TOTAL                                                       |  |                | 122    | 

5.  As of December 22, 1997, the Company issued a total
 of 1,100,000 shares of Common Stock (the Merger
Shares), 50 shares of Series B $3.00 Convertible
Preferred Stock and 800,000 options (the Merger
Options) to the stockholders set forth below in exchange
for 100% of the stock of Osage Computer Group, Inc., an Arizona
corporation.

19



---



The Merger Options were granted at an exercise price equal to the
 lower of $3.00 or the average of the closing bid and ask prices
of the shares for the 15 trading days prior to the date any
segment of the Merger Options vest. The Merger Options vest once
the future earnings of the Company attain certain agree upon
levels, and are contingent upon the holders continued
employment by the Company.

|                               |  |              |           |          |  |         |       |  |  |  |         | 
|------------------------------ |  | ------------ | --------- | -------- |  | ------- | ----- |  |  |  | ------- | 
|                               |  | Shares of    |           | Series B |  |        
|Name                           |  | Common Stock |           | Shares   |  | Options
|                               |  |              |           |          |  |        
|Jack Leadbeater                |  |              | 456,500   |          |  |         | 20.75 |  |  |  | 332,000 | 
|                              
|                              
|                              
|                              
|David Olson                    |  |              | 456,500   |          |  |         | 20.75 |  |  |  | 332,000 | 
|                              
|                              
|                              
|                              
|Steven Rigby                   |  |              | 55,000    |          |  |         | 2.5   |  |  |  | 40,000  | 
|                              
|                              
|                              
|                              
|Chris Donahue                  |  |              | 55,000    |          |  |         | 2.5   |  |  |  | 40,000  | 
|                              
|                              
|                              
|                              
|Dale Van De Vrede Family Trust |  |              | 55,000    |          |  |         | 2.5   |  |  |  | 40,000  | 
|                              
|                              
|                              
|                              
|Rick Gunther                   |  |              | 22,000    |          |  |         | 1.0   |  |  |  | 16,000  | 
|                               |  |              |           |          |  |         |       |  |  |  |         | 
|TOTAL                          |  |              | 1,100,000 |          |  |         | 50.0  |  |  |  | 800,000 | 

In connection with the Merger, the Company also granted 200,000
shares of Common Stock to Michael Glynn in consideration for his
future employment services. These shares were scheduled to vest
50% after one year of employment and 50% after the second year of
 employment. Of the 200,000 shares granted, 100,000 vested and
100,000 did not. The issuance of such securities was exempt from
registration pursuant to Section 4(2) of the Act, as a
transaction by an issuer not involving a public offering.

On June 12, 1998, the Company issued new options to purchase
 1,600,000 shares of its common stock (the New
Options) to the former shareholders of Osage Computer
Group, Inc. in exchange for the surrender by such shareholders of
 the Merger Options. The New Options are subject to an exercise
price of $4.50 per share and expire if not exercised by
December 19, 2003. The New Options were granted to the
following individuals:

|                              |  |           |           | 
|----------------------------- |  | --------- | --------- | 
|                              |  | Number of
|Name                          |  | Options  
|                              |  |          
|Jack R. Leadbeater            |  |           | 664,000   | 
|                             
|                             
|                             
|                             
|David S. Olson                |  |           | 664,000   | 
|                             
|                             
|                             
|                             
|Steve Rigby                   |  |           | 80,000    | 
|                             
|                             
|                             
|                             
|Chris Donahue                 |  |           | 80,000    | 
|                             
|                             
|                             
|                             
|Dale Van deVrede Family Trust |  |           | 80,000    | 
|                             
|                             
|                             
|                             
|Rick Gunther                  |  |           | 32,000    | 
|                              |  |           |           | 
|TOTAL                         |  |           | 1,600,000 | 

The New Options were granted in a private transaction exempt from
 registration pursuant to Section 4(2) of the Act as a
transaction by an issuer not involving a public offering.
Messrs. Leadbeater and Olson surrendered all of the New
Options issued to them on November 22, 1999 in connection
with their resignations as officers and directors of the Company.

6.  In January 1998, the Company sold 600,000 shares of
 Common Stock at a purchase price of $3.50 per share to
accredited investors in a private placement transaction exempt
from registration pursuant to Rule 506 of Regulation D
as set forth below. In connection with this transaction, the
Company paid a brokerage fee of $126,000 and options to purchase
200,000 shares of Common Stock at an exercise price of $3.50 per
share with a term of three years.

20



---



|                      |  |              |         | 
|--------------------- |  | ------------ | ------- | 
|                      |  | Shares of   
|Name                  |  | Common Stock
|                      |  |             
|Lancer Partners, L.P. |  |              | 210,000 | 
|                     
|                     
|                     
|                     
|Lancer Offshore Inc.  |  |              | 320,000 | 
|                     
|                     
|                     
|                     
|Lancer Voyager Fund   |  |              | 50,000  | 
|                     
|                     
|                     
|                     
|Michael Lauer         |  |              | 20,000  | 
|                      |  |              |         | 
|TOTAL                 |  |              | 600,000 | 

7.  In March 1998, the Company issued 150,000 shares of
 Common Stock in consideration of the acquisition of 100% of the
outstanding capital stock of Solsource Computers, Inc.

|                                    |  |              |         | 
|----------------------------------- |  | ------------ | ------- | 
|                                    |  | Shares of   
|Name                                |  | Common Stock
|                                    |  |             
|Trust of Daniel J. and Mary Vahalla |  |              | 146,297 | 
|                                   
|                                   
|                                   
|                                   
|Gary Gwin                           |  |              | 3,111   | 
|                                   
|                                   
|                                   
|                                   
|Maureen Gaare                       |  |              | 296     | 
|                                   
|                                   
|                                   
|                                   
|Daniel Grube                        |  |              | 296     | 
|                                    |  |              |         | 
|TOTAL                               |  |              | 150,000 | 

The issuance of such securities was exempt from registration
pursuant to Section 4(2) of the Act, as a transaction of
issuer not involving a public offering.

8.  In March 1998, the Company issued 105.3 shares of
Series C Convertible Preferred Stock to Hugh V. Jones in
consideration of the acquisition of 100% of the outstanding
capital stock of HV Jones, Inc. (Jones). The 105.3
shares of Series C Convertible Preferred Stock converted
into Common Stock during the four quarters following issuance at
a conversion rate equal to the lower of $6.87 or a 33% premium
over the average closing price of the Companys Common Stock
 for the (10) trading days prior to each date of conversion.
 On July 6, 1999, the Company issued 144,535 shares of
Common Stock valued at $1,000,000 to Hugh V. Jones based upon
certain performance targets set forth in the Agreement and Plan
of Merger among the Company, Hugh V. Jones and Jones. The shares
of Common Stock issued in 1999 were issued by virtue of the
achievement of certain performance targets during the one-year
period following the acquisition of Jones. The issuance of such
securities was exempt from registration pursuant to
Section 4(2) of the Act, as a transaction of issuer not
involving a public offering.

9.  On April 24, 1998, the Company issued 333,334
shares of Common Stock to O. Jack Anderson in connection
with the acquisition of 100% of the outstanding capital stock of
Open System Technologies, Inc (OST). In conjunction
with the acquisition, the Company agreed to issue 50,000 shares
of Common Stock to an investment banking advisor to the Company
in consideration for services provided in identifying OST as a
target company and advising the Company in connection with the
acquisition. The issuance of these securities was exempt from
registration pursuant to Section 4(2) of the Securities Act
of 1933, as amended (the Act) and Rule 506 of
Regulation D as an issuer transaction not involving a public
 offering.

10.  In May 1998, the Company issued 700,000 shares of
Common Stock at a purchase price of $3.50 per share to the
accredited investors identified below in a private placement
transaction exempt from registration pursuant to
Section 4(2) of the Act and Rule 506 of
Regulation D as an issuer transaction not involving a public
 offering. In connection with this transaction, the Company
realized gross proceeds of $ 2,450,000 and paid a brokerage fee
consisting of a cash commission of $147,000.

|                     |  |              |         | 
|-------------------- |  | ------------ | ------- | 
|                     |  | Shares of   
|Name                 |  | Common Stock
|                     |  |             
|Lancer Partners L.P. |  |              | 200,000 | 
|                    
|                    
|                    
|                    
|Lancer Voyager Fund  |  |              | 100,000 | 
|                    
|                    
|                    
|                    
|Lancer Offshore Inc. |  |              | 400,000 | 
|                     |  |              |         | 
|TOTAL                |  |              | 700,000 | 

21



---



11.  In May 1998, the Company issued 175,000 shares of
Common Stock at a purchase price of $4.25 per share to
Wills Wei Corp., an accredited investor in a private
placement transaction exempt from registration pursuant to
Section 4(2) of the Act and Rule 506 of
Regulation D as an issuer transaction not involving a public
 offering. In connection with this transaction, the Company
realized gross proceeds of $743,750 and paid a brokerage fee
consisting of a cash commission of $44,625 and warrants to
purchase 25,000 shares of the Companys Common Stock at an
exercise price of $4.25 per share for a term of three years.

12.  In May 1998, the Company issued 235,294 shares of
Common Stock and warrants to purchase 100,000 shares of Common
Stock at an exercise price of $4.25 per share for a term of three
 years, for an aggregate purchase price of $1,000,000 to Founders
 Partners IV LLC, an accredited investor, in a private placement
transaction exempt from registration pursuant to
Section 4(2) of the Act and Rule 506 of
Regulation D as an issuer transaction not involving a public
 offering. In connection with this transaction, a brokerage fee
was paid consisting of a cash commission of $20,000 and warrants
to purchase 50,000 shares of the Companys Common Stock at
an exercise price of $4.25 per share for a term of three years.

13.  On June 22, 1998, the Company issued 362,330
shares of Common Stock in connection with the acquisition of 100%
 of the outstanding capital stock of Open Business Systems, Inc.
(OBS). In connection with the acquisition, the
Company agreed to issue 70,000 shares to an investment banking
advisor to the Company in consideration for services provided in
identifying OBS as a target company and advising the Company in
connection with the acquisition. The issuance of these securities
 was exempt from registration pursuant to Section 4(2) of
the Act and Rule 506 of Regulation D as an issuer
transaction not involving a public offering. The shares of the
Companys Common Stock were issued at the closing to the
following shareholders of OBS (the OBS Shareholders):

|                                                  |  |              |         | 
|------------------------------------------------- |  | ------------ | ------- | 
|                                                  |  | Shares of   
|Name                                              |  | Common Stock
|                                                  |  |             
|John Udelhofen                                    |  |              | 45,291  | 
|                                                 
|                                                 
|                                                 
|                                                 
|E. Michael Durbin                                 |  |              | 45,291  | 
|                                                 
|                                                 
|                                                 
|                                                 
|David R. Durbin                                   |  |              | 45,291  | 
|                                                 
|                                                 
|                                                 
|                                                 
|Brian Wolfe                                       |  |              | 45,291  | 
|                                                 
|                                                 
|                                                 
|                                                 
|In escrow for the benefit of the OBS Shareholders |  |              | 181,166 | 
|                                                  |  |              |         | 
|TOTAL                                             |  |              | 362,330 | 

On September 29, 1999, the Company issued an aggregate
579,710 shares of Common Stock valued at $500,000 to the OBS
Shareholders, based upon the achievement of certain performance
targets set forth in the Stock Purchase Agreement among the
Company, OBS and the OBS Shareholders. The issuance of the shares
 was exempt from registration pursuant to Section 4(2) of
the Act as an issuer transaction not involving a public offering.

14.  In August 1998, the Company issued 70,000 shares
of Common Stock at a purchase price of $4.75 per share to IP
Services Corp., an accredited investor in a private placement
transaction exempt from registration pursuant to
Section 4(2) of the Act and Rule 506 of
Regulation D as an issuer transaction not involving a public
 offering. In connection with this transaction, the Company
realized gross proceeds of $332,500 and paid a brokerage fee
consisting of a cash commission of $33,250 and warrants to
purchase 35,000 shares of the Companys Common Stock at an
exercise price of $5.25 per share for a term of four years.

15.  On October 8, 1998, the Company issued 149,700 shares
of Common Stock in connection with the acquisition of 100% of the
 outstanding capital stock of Electronic Commerce Network
Solutions Corporation (E-comm). The issuance of these
 securities was exempt from registration pursuant to
Section 4(2) of the

22



---





|                    |       |              |        |         | 
|------------------- | ----- | ------------ | ------ | ------- | 
|                    |       | Shares of   
|Name                |       | Common Stock
|                    |       |             
|Robert S. Lowery    |       |              | 50,598 |        
|                   
|                   
|                   
|                   
|Michael P. Lowery   |       |              | 50,748 |        
|                   
|                   
|                   
|                   
|Robb L. Leatherwood |       |              | 29,042 |        
|                   
|                   
|                   
|                   
|Cary T. Westmark    |       |              | 19,312 |        
|                    |       |              |        |        
|                    | Total |              |        | 149,700 | 
|                    |       |              |        |        

16.  On December 31, 1998, the Company sold 1,000
shares of Series D Convertible Preferred Stock at a purchase
 price of $1,000 per share for aggregate sales consideration of
$1,000,000. The Series D Shares were convertible into Common
 Stock at a conversion price of $4.975 per share, subject to
adjustment. As part of the transaction, the Company issued
warrants to purchase 100,000 shares of Common Stock at an
exercise price of $5.97. The warrants expire on December 31,
 2001. The shares of Series D Convertible Preferred Stock
and warrants were sold to The Cuttyhunk Fund Limited, an
institutional investor in a private placement transaction exempt
from registration pursuant to Rule 506 of Regulation D.
 All of the Series D Shares were converted during 1999 at a
conversion rate of $4.975.

17.  On February 10, 1999, the Company sold 2,000
shares of Series E Convertible Preferred Stock at a purchase
 price of $1,000 per share for aggregate sales consideration of
$2,000,000. The Series E Shares were convertible into Common
 Stock at a conversion price of $6.56 per share, subject to
adjustment. As part of the transaction, the Company issued
warrants to purchase 100,000 shares of common stock at an
exercise price of $7.875. The warrants expire on February 9,
 2002. The shares of Series E Convertible Preferred Stock
and warrants were sold to Halifax Fund L.P., an institutional
investor in a private placement transaction exempt from
registration pursuant to Rule 506 of Regulation D.
During 1999, all the Series E Shares were either redeemed by
 the Company or converted into Common Stock. The Company granted
three-year warrants to purchase 50,000 shares of Common Stock at
an exercise price of $7.875 to the designees of Reedland Capital
Partners as an investment banking fee for arranging the
transaction. Of these warrants, 40,000 were granted to Robert K.
Schacter and 10,000 were granted to Thomas J. Griesel.

18.  On February 12, 1999, the Company issued 20,000
shares of Common Stock at a purchase price of $4.75 per share to
IP Services Corp., an accredited investor, in a private placement
 transaction exempt from registration pursuant to
Section 4(2) of the Act and Rule 506 of
Regulation D as an issuer transaction not involving a public
 offering. As part of the transaction, the Company also issued IP
 Services Corp. three-year warrants to purchase 10,000 shares of
Common Stock at an exercise price of $5.25 per share. In
connection with this transaction, the Company realized gross
proceeds of $95,000 and paid a brokerage fee consisting of a cash
 commission of $9,500 and warrants to purchase 10,000 shares of
the Companys Common Stock at an exercise price of $5.25 per
 share for a term of three years.

19.  On August 11, 1999, the Company issued 364,846
shares of Common Stock in connection with the acquisition of the
business intelligence and data warehousing practice of Leveraged
Solutions, Inc. (LSI). The acquisition price,
however, was subsequently modified in December 1999,
resulting in the surrender and cancellation of all of the
securities issued by the Company in exchange for cash
consideration. The issuance of these securities to LSI was exempt
 from registration pursuant to Section 4(2) of the Act and
Rule 506 of Regulation D as an issuer transaction not
involving a public offering.

20.  On November 22, 1999, the Company sold Michael
Lauer and three investment funds managed by him, Lancer Offshore,
 Inc., Lancer Partners, L.P. and Orbiter Fund, Ltd.
(collectively, Lancer), who are principal
stockholders of the Company, $3 million principal amount of 10%
Convertible Subordinated Debentures (the Debentures)
and common stock purchase warrants for a total purchase price of
$3 million in a private placement transaction exempt from
registration pursuant to Section 4(2) and Regulation D
of the Act. The principal amount of the Debentures is payable on
November 22, 2001 with interest payable at the rate of ten
percent (10%) per annum on a quarterly basis commencing
December 31, 1999. Interest may be

23



---





The Debentures were privately offered as a Unit, together with
warrants that, subject to certain vesting provisions, entitled
Lancer to contingently purchase twenty million (20,000,000)
shares of Common Stock of the Company at an exercise price of
$.30 per share. The warrants consist of 5-year warrants to
purchase ten million (10,000,000) shares of Common Stock of the
Company (the Long-Term Warrants) and 90-day warrants
to purchase ten million (10,000,000) shares of Common Stock of
the Company (the Short-Term Warrants). All of the
Short-Term Warrants expired on February 22, 2000. The
Long-Term Warrants shall vest only once stockholder approval of
the exercise feature of these warrants is obtained.

The Company granted SPH Investments, Inc. three-year warrants to
purchase 350,000 shares of Common Stock at $0.30 per share as an
investment banking fee for arranging the Lancer transaction.

21.  On December 30, 1999, the Company granted Coast
Business Credit five-year warrants to purchase 100,000 shares of
Common Stock at $0.75 per share. These warrants were granted in
consideration of an amendment to the Companys credit
facility with Coast increasing the availability of funds
thereunder. These Warrants were granted in a private placement
transaction exempt from registration pursuant to
Section 4(2) of the Act and Rule 506 of
Regulation D promulgated under the Act. The Company granted
four-year warrants to purchase 70,000 shares of Common Stock at
an exercise price of $2.04 to the designees of Reedland Capital
Partners as an investment banking fee for arranging the
transaction. Of these warrants, 28,000 were granted to Robert K.
Schacter, 7,000 were granted to Thomas J. Griesel, 16,625 were
granted to David Schacter, 16,625 were granted to Andrew Shayne
and 1,750 were granted to Kevin Pelletier.

22.  On January 6, 2000, the Company issued 500,000
shares of Common Stock in connection with the acquisition of the
e-publishing and systems integration practice groups of Sharon
OReilly and Michael Lowther. Of these shares, each of
Sharon OReilly and Michael Lowther received 250,000 shares.
 In addition, the Company may, at its option, issue additional
shares of Common Stock in lieu of cash payments of $220,000 for
deferred acquisition consideration. The issuance of these
securities was exempt from registration pursuant to
Section 4(2) of the Act and Rule 506 of
Regulation D as an issuer transaction not involving a public
 offering.

23.  On December 17, 1999, the Company issued 54,545
shares of Common Stock to Risch + Darlington, Inc., an executive
search firm, as payment for services rendered under a retained
search agreement. The issuance of these securities was exempt
from registration pursuant to Section 4(2) of the Act and
Rule 506 of Regulation D as an issuer transaction not
involving a public offering.

24.  On March 10, 2000, the Company issued 15,000
shares of Common Stock to Harbour International, Inc. in
consideration of a general release given pursuant to the terms of
 a settlement agreement between Harbour International and the
Company. The issuance of these securities was exempt from
registration pursuant to Section 4(2) of the Act and
Rule 506 of Regulation D as an issuer transaction not
involving a public offering.



|        |                                                             
|------- | ------------------------------------------------------------
|Item 6. | Managements Discussion and Analysis or Plan of
	Operations.

Overview

Through its operating subsidiaries, the Company markets a broad
range of integrated information technology products and
professional consulting services, intended to address all phases
of a customers information technology needs. The
Companys ability to deliver integrated solutions is
principally attributable

24



---





The first component of the Companys business strategy is to
 provide services to customers requiring our systems integration
expertise. These customers include both our traditional base and
the emerging market of Internet related companies. In 1999, the
Company had more than 70 customers whose principal business
related to the Internet such as ISPs, ASPs, B2B commerce sites
and B2C commerce sites. Most of the services provided to these
customers involved the basic infrastructure of their Internet
installations.

One of the primary objectives of the Company is to take advantage
 of the business opportunities afforded by recent e-business
trends. The Company has identified two key types of functional
roles that have begun to emerge in the e-business space: that of
web content providers (Influencers) and that of infrastructure
providers. Content providers primarily work with clients to
develop an Internet strategy and create the visage that will be
seen on the World Wide Web. Each of these Internet projects
additionally involve foundational infrastructure development for
hardware, software, and service support. The Company has
developed a National Influencer Alliances program to establish
partnerships with Influencer organizations. Through the Alliances
 program, the Company assumes the role of the infrastructure
provider by integrating the technologies upon which the content,
as recommended by the Influencer, will be deployed.

Since the adoption of its growth strategy in the beginning of
1998, the Company has acquired seven (7) companies which
have significantly contributed to its revenue base. During 1998,
the Companys revenues increased to $61 million, as compared
 to $14.2 million during 1997. These acquisitions were accounted
for under the purchase method of accounting for business
combinations. Accordingly, the Companys results of
operations for 1998 include the operations of each of the
acquired companies from the respective dates of acquisition
through the end of the period reported. On a pro forma basis, had
 each of the acquisitions been completed or reported as of
January 1, 1998, the Companys revenues during 1998
would have increased to $83 million. In October 1999 two of the
companies, Solsource and E-Comm were shut down as part of the
Companys restructuring of operations. Revenues from those
two companies are contained in the Companys results for
1999.

The Company realizes revenues from the sale of products and
services. Professional services are provided to customers on a
time and material basis at hourly rates or on a fixed contract
basis depending upon the skill level, experience and type of
service being performed. Support contract revenue is recognized
over the term of the contract. Historically, most of the
Companys revenues have been derived from the resale of
computer and network hardware and software products. However, in
recognition that market demand is evolving toward higher margin
comprehensive information technology solutions, the Company has
adopted as one of its business strategies, the expansion of its
service offerings to the marketplace. During 1999, the
Companys consulting and service revenue increased to 11.5%
of overall revenue, from 9.6% in 1998. Management expects its
consulting and service revenue to increase as a percentage of net
 sales as it expands its internal service offerings to new and
existing customers.

Osage Computer Group, Inc. (Osage) became publicly
held by virtue of a merger (the Merger) into a
wholly-owned subsidiary of the Company on December 22, 1997.
 The Company then operating under the name Pacific Rim
Entertainment, Inc. had been an inactive public company at
the time of the Merger. Osage had been a provider of network
computing solutions since 1989. Following the Merger, the Company
 assumed the continuing operations of Osage and on March 9,
1998, changed its name to Osage Systems Group, Inc.
Since, as a result of the Merger, the former stockholders of
Osage acquired a controlling interest in the Company, the Merger
has been accounted for as a reverse acquisition.
Accordingly, for financial statement presentation purposes, Osage
 is viewed as the continuing entity and the related business
combination is viewed as a recapitalization of Osage, rather than
 an acquisition by the Company.

25



---



Results Of Operations

The following table sets forth for the periods indicated certain
financial data as a percentage of net sales:

|                                                       |                                      |                                       |         |           |        |        |       |           |      |        |        |           |        |  |       |      |      |   |        |       |       |  |       |      |      |  
|------------------------------------------------------ | ------------------------------------ | ------------------------------------- | ------- | --------- | ------ | ------ | ----- | --------- | ---- | ------ | ------ | --------- | ------ |  | ----- | ---- | ---- | - | ------ | ----- | ----- |  | ----- | ---- | ---- | -
|                                                       |                                      |                                       |         |           |        |       
|                                                       |                                      | 1999                                  |         | 1998      |        | 1997  
|                                                       |                                      |                                       |         |           |        |       
|                                                       |                                      |                                       |         | % of      |        |        |       | % of      |      |        |        | % of     
|                                                       |                                      | Amount                                |         | Net Sales |        | Amount |       | Net Sales |      | Amount |        | Net Sales
|                                                       |                                      |                                       |         |           |        |        |       |           |      |        |        |          
|                                                       |                                      |                                      
|                                                       |                                      | (000s omitted except per share data)
|                                                      
|                                                      
|                                                      
|                                                      
|Net sales                                              |                                      | $                                     | 114,720 |           |        |        | 100.0 | %         |      | $      | 60,976 |           |        |  | 100.0 | %    |      | $ | 14,191 |       |       |  | 100.0 | %   
|                                                      
|                                                      
|                                                      
|                                                      
|Cost of sales                                          |                                      |                                       | 88,730  |           |        |        | 77.3  | %         |      |        | 49,430 |           |        |  | 81.1  | %    |      |   | 11,670 |       |       |  | 82.2  | %   
|                                                       |                                      |                                       |         |           |        |        |       |           |      |        |        |           |        |  |       |      |      |   |        |       |       |  |       |     
|                                                       | Gross profit                         |                                       |         | 25,990    |        |        |       | 22.7      | %    |        |        | 11,546    |        |  |       | 18.9 | %    |   |        | 2,521 |       |  |       | 17.8 | %   
|                                                       |                                      |                                       |         |           |        |        |       |           |      |        |        |           |        |  |       |      |      |   |        |       |       |  |       |     
|Operating expenses                                     |                                      |                                       |         |           |        |        |       |           |      |        |        |           |        |  |       |      |      |   |        |       |       |  |       |     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Selling, general and administrative  |                                       |         | 26,250    |        |        |       | 22.9      | %    |        |        | 15,133    |        |  |       | 24.8 | %    |   |        | 2,776 |       |  |       | 19.6 | %   
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Restructuring and impairment charges |                                       |         | 4,375     |        |        |       | 3.8       | %    |        |        |           |        |  |       |      |      |   |        |       |       |  |       |      |     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Depreciation and amortization        |                                       |         | 1,610     |        |        |       | 1.4       | %    |        |        | 748       |        |  |       | 1.2  | %    |   |        | 31    |       |  |       | 0.2  | %   
|                                                       |                                      |                                       |         |           |        |        |       |           |      |        |        |           |        |  |       |      |      |   |        |       |       |  |       |     
|                                                       |                                      | Total operating expenses              |         |           | 32,235 |        |       |           | 28.1 | %      |        |           | 15,881 |  |       |      | 26.0 | % |        |       | 2,807 |  |       |      | 19.8 | %
|                                                       |                                      |                                       |         |           |        |        |       |           |      |        |        |           |        |  |       |      |      |   |        |       |       |  |       |     
|Loss from operations                                   |                                      |                                       | (6,245  | )         |        |        | -5.4  | %         |      |        | (4,335 | )         |        |  | -7.1  | %    |      |   | (286   | )     |       |  | -2.0  | %   
|                                                      
|                                                      
|                                                      
|                                                      
|Interest  net                                         |                                      |                                       | (813    | )         |        |        | -0.7  | %         |      |        | (218   | )         |        |  | -0.4  | %    |      |   | (10    | )     |       |  | -0.1  | %   
|                                                       |                                      |                                       |         |           |        |        |       |           |      |        |        |           |        |  |       |      |      |   |        |       |       |  |       |     
|Loss before benefit from income taxes                  |                                      |                                       | (7,058  | )         |        |        | -6.2  | %         |      |        | (4,553 | )         |        |  | -7.5  | %    |      |   | (296   | )     |       |  | -2.1  | %   
|                                                      
|                                                      
|                                                      
|                                                      
|Benefit from income taxes                              |                                      |                                       | (648    | )         |        |        | -0.6  | %         |      |        | (1,529 | )         |        |  | -2.5  | %    |      |   | (3     | )     |       |  | 0.0   | %   
|                                                       |                                      |                                       |         |           |        |        |       |           |      |        |        |           |        |  |       |      |      |   |        |       |       |  |       |     
|Net loss                                               |                                      | $                                     | (6,410  | )         |        |        | -5.6  | %         |      | $      | (3,024 | )         |        |  | -5.0  | %    |      | $ | (293   | )     |       |  | -2.1  | %   
|                                                      
|                                                      
|                                                      
|                                                      
|Series D Embedded Dividend                             |                                      |                                       | 434     |           |        |        |       |           |      |        | 0      |           |        |  |       |      |      |   | 0      |       |       |  |       |     
|                                                       |                                      |                                       |         |           |        |        |       |           |      |        |        |           |        |  |       |      |      |   |        |       |       |  |       |     
|Net loss attributable to
	Common Shareholders          |                                      | $                                     | (6,844  | )         |        |        |       |           |      | $      | (3,024 | )         |        |  |       |      |      | $ | (293   | )     |       |  |       |     
|                                                       |                                      |                                       |         |           |        |        |       |           |      |        |        |           |        |  |       |      |      |   |        |       |       |  |       |     
|Net loss attributable to common shareholders per share |                                      |                                       |         |           |        |        |       |           |      |        |        |           |        |  |       |      |      |   |        |       |       |  |       |     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Basic                                |                                       | $       | (0.70     | )      |        |       |           |      |        | $      | (0.40     | )      |  |       |      |      |   | $      | (0.06 | )     |  |       |      |     
|                                                       |                                      |                                       |         |           |        |        |       |           |      |        |        |           |        |  |       |      |      |   |        |       |       |  |       |     
|                                                       | Diluted                              |                                       | $       | (0.70     | )      |        |       |           |      |        | $      | (0.40     | )      |  |       |      |      |   | $      | (0.06 | )     |  |       |      |     
|                                                       |                                      |                                       |         |           |        |        |       |           |      |        |        |           |        |  |       |      |      |   |        |       |       |  |       |     

Year Ended December 31, 1999 Compared To Year
 Ended December 31, 1998

Revenues.Net sales increased by 88.1% or $53.7 million to
 $114.7 million for the year ended December 31, 1999 as
compared to $61.0 million for the prior year. This increase in
net sales was principally attributable to increased product,
service and consulting revenues delivered to new customers
coupled with leveraging existing customer alliances by
undertaking additional projects for existing customers. During
1999 the Company saw strong demand for information technology
products and services in its markets. Additionally, increased
sales reflected the full impact of the Companys
acquisitions made in 1998 together with its opening branch
offices in San Antonio, Texas, Vienna, Virginia, and New York,
New York.

Consulting and services revenue increased by 121.8% or $7.2
million to $13.2 million for the year ended December 31,
1999 as compared to $5.9 million for the prior year. This
increase was primarily a result of the Companys increased
focus on the service component of its revenue base.

Growth in the Companys net sales is expected to slow in
2000 as the Company emphasizes improving operating margins over
revenue growth.

The Companys acquisition strategy relies primarily upon
identifying target companies that fit within the Companys
acquisition criteria and having sufficient financing available to
 complete its planned acquisitions.

26



---





Gross Profit.The Companys cost of sales consists
primarily of the cost to the Company of products acquired for
resale. The Companys gross profit increased by 125.1% or
$14.4 million to $26.0 million for the year ended
December 31, 1999 as compared to $11.5 million for the prior
 year. Gross profit margin increased to approximately 22.7%
during 1999 as compared to approximately 18.9% during the prior
year. The improvement in gross profit margins was attributable
primarily to the increasing percentage of the Companys
business being service and consulting revenues. These revenues
carry substantially higher gross profit margins. Management
believes that gross profit margins on the sale of hardware and
software will continue to decrease. As a consequence, the Company
 intends to continue growing its services and consulting business
 at a rate in excess of the growth of its hardware and software
business. Also, the Company believes that, as one of the larger
systems integrators competing in its markets, it can obtain
economies of scale, which will allow it to compete profitably in
spite of any deterioration of gross profit margins.

Selling, General and Administrative Expenses.Selling,
general and administrative expenses consist primarily of
salaries, sales person compensation, employee benefits,
professional fees, travel, marketing and facility costs. Selling,
 general and administrative expenses increased by 73.5% or $11.1
million to $26.3 million for the year ended December 31,
1999 as compared to $15.1 million for the prior year. The
increase is primarily attributable to the expansion of the
Companys infrastructure and the increased sales and
marketing expenses associated with the growth of the
Companys business. As a percentage of sales, these costs
decreased from 24.8% in 1998 to 22.9% in 1999. In the third
quarter of 1999 the Company implemented a restructuring plan that
 substantially reduced administrative costs during the fourth
quarter. The restructuring activity resulted in the elimination
of approximately forty-five positions, including several senior
executive personnel, vacating certain leased facilities and
canceling certain contracts. These actions resulted in aggregate
charges of approximately $4.4 million.

Depreciation and Amortization.Depreciation and
amortization expense of $1.6 million in 1999 reflected an
increase of 115.2% or $862,000 for the year ended
December 31, 1999 as compared to the prior year. The
increase was primarily due to the effect of full year
amortization of goodwill and depreciation of assets acquired in
connection with 1998 acquisitions. During the third quarter of
1999 the Company closed two subsidiaries acquired during 1998,
Solsource and E-Comm, writing off purchased goodwill and fixed
assets of $2.6 million.

Interest expense-net.Interest expense-net increased from
$218,000 in 1998 to $813,000 in 1999 primarily due to increased
borrowings between periods.

Income Taxes.The Companys effective tax rate
benefit for the year ended December 31, 1999 was 9.2% which
is primarily attributable to the net operating loss carryforward
generated during the year.

Net Loss. During the year ended December 31, 1999,
the Company incurred a net loss of $6.4 million as compared to a
net loss of $3.0 million for the prior year. The net loss for the
 current period, however, includes $4.4 million in nonrecurring
restructuring and impairment charges. The loss attributable to
common shareholders was further increased by $430 thousand of
embedded dividends on the Series D Preferred Stock.
Additional factors contributing to the Companys net loss
include the increase in corporate infrastructure and costs to
support the Companys rapid growth and acquisition program.
Management anticipates that as the effects of the restructuring
initiatives continue to be felt, the Company will return to
profitability on an operating basis. The Company will continue to
 post substantial interest expense costs due to the impact of its
 subordinated debt financing that closed during the fourth
quarter of 1999.

27



---



Year Ended December 31, 1998 Compared To Year
 Ended December 31, 1997

Revenues. Net sales increased by 329.7%, or $46.8 million
to $61.0 million, for the year ended December 31, 1998 as
compared to $14.2 million for the prior year. This increase in
net sales was principally attributable to increased product,
service and consulting revenues delivered to new customers,
leveraging existing customer alliances by undertaking additional
projects for existing customers, as well as cross-selling the
Companys skill set across the United States. This was due,
in large part, to the Companys aggressive acquisition and
growth strategy implemented during 1998 coupled with the strong
demand for information technology products and services in the
marketplace. During 1998, the Company completed the acquisitions
of Solsource, HV Jones, OST, OBS, E-Comm and the systems
integration business of IntraNet Solutions, Inc. and opened
branch offices in San Antonio, Texas, Washington D.C. and
New York, New York. The acquired companies had combined net sales
 of approximately $48.4 million in their respective fiscal years
prior to acquisition. On a pro forma basis, the Company would
have realized net sales of over $83 million during 1998 had all
the acquisitions occurred as of January 1, 1998.

Consulting revenues increased 1,400% to $5.9 million for the year
 ended December 31,1998, as compared to $390,600 for the
prior year. This increase was primarily attributable to demand
for the Companys consulting services and technical support
resulting from the Companys increased focus on the service
component of its revenue base and through its aggressive growth
strategy.

Gross Profit. The Companys cost of sales consists
primarily of the cost to the Company of products acquired for
resale. The Companys gross profit increased by 358% or $9.0
 million to $11.5 million for the year ended December 31,
1998 as compared to $2.5 million for the prior year. Gross profit
 margin increased to approximately 18.9% during the year ended
December 31, 1998, as compared to approximately 17.8%
experienced during the prior year. During 1997, the Company
experienced an overall decrease in its gross profit margin. This
decrease was primarily due to cost reductions passed on to the
Companys customers from its major vendors as a result of an
 increase in demand for the Companys products which
occurred as certain customers increased their volume of
purchases. During the first portion of 1998, the Company
experienced downward pressure on gross profit margins based upon
increased sales to certain customers. During the latter half of
1998, the Company experienced increased gross profit margins as
result of increased margins from certain acquisitions made during
 the year, the delivery of productized services which generally
generate higher margins and the ability of the Company to deliver
 complete information technology solutions to a wider range of
customers.

Selling, General and Administrative Expenses. Selling,
general and administrative expenses consist primarily of
salaries, sales person compensation, employee benefits, travel,
promotion and related marketing costs. Selling, general and
administrative expenses increased by 445.2% or $12.4 million to
$15.1 million for the year ended December 31, 1998 as
compared to $2.8 million for the prior year. This increase in
expenses is primarily attributable to the expansion of the
Companys infrastructure as it became publicly-held by
virtue of the Merger transaction during the fourth quarter of
1997, including increased administrative personnel and increased
travel and promotion expenses associated with the growth of the
business. In addition, competition for personnel with information
 technology skills is intense and the Company expects
compensation to continue to increase. During 1998, the Company
encountered significant recruiting costs to support the
Companys continued growth and geographic expansion.
Corresponding increases in legal and accounting fees were also
incurred by the Company in connection with its financing and
acquisition activities. In addition, the Company instituted a
cost containment program in December 1998 whereby synergies of a
larger organization were initiated through the removal of
duplication of efforts, consolidation of systems and
administrative functions and the adoption of business processes.

Depreciation and Amortization. Depreciation and
amortization of $747,800 for 1998 reflected an increase of
2,271%, or $716,300, for the year ended December 31, 1998 as
 compared to the same prior year period. This increase was
primarily due to the amortization of goodwill and depreciation of
 assets acquired in connection with the acquisitions that
occurred during the year.

Income Taxes.The Companys effective tax rate
benefit for the year ended December 31, 1998 was 33.6% which
 is primarily attributable to the net operating loss carryforward
 generated during the year.

28



---



Net Loss.During the year ended December 31, 1998,
the Company incurred a net loss of $3.0 million as compared to a
net loss of $292,900 for the prior year. The net loss for the
year ended December 31, 1998, however, included $747,800 of
non-cash charges relating to depreciation and amortization
resulting from the Companys acquisition program. Additional
 factors contributing to the Companys net loss consisted of
 significant increases in the Companys overhead expenses as
 corporate infrastructure was established in anticipation of
future growth through the Companys acquisition program. An
additional contributing factor occurred during the fourth quarter
 when product availability was limited due to a major
implementation of a new order entry, manufacturing and
distribution systems by the Companys major product
manufacturer. Accordingly, during this period, the Company was
unable to secure sufficient product to satisfy customer demand,
thereby resulting in a material loss of sales. Product
availability during the early part of 1999 resumed to normal
levels.

Selected Quarterly Results Of Operations

The following table presents certain condensed unaudited
quarterly financial information for each of the twelve
(12) quarters through December 31, 1999. This
information is derived from unaudited quarterly consolidated
financial statements of the Company that include, in the opinion
of the Company, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of
results of operations for such periods. Such information should
be read in conjunction with the audited Consolidated Financial
Statements of the Company and notes thereto appearing elsewhere
in this 10-KSB.

|                         |  |         |        |         |  |          |        |         |  |       |        |   |  |   |        |   |  |   |         |  
|------------------------ |  | ------- | ------ | ------- |  | -------- | ------ | ------- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------- | -
|                         |  | Mar. 31 |        | June 30 |  | Sept. 30 |        | Dec. 31 |  | Total
|                         |  |         |        |         |  |          |        |         |  |      
|1998:                    |  |         |        |         |  |          |        |         |  |       |        |   |  |   |        |   |  |   |         |  
|                        
|                        
|                        
|                        
|Revenues                 |  | $       | 5,642  |         |  | $        | 12,766 |         |  | $     | 19,683 |   |  | $ | 22,885 |   |  | $ | 60,976  |  
|                        
|                        
|                        
|                        
|Gross profit             |  |         | 1,062  |         |  |          | 2,199  |         |  |       | 4,301  |   |  |   | 3,984  |   |  |   | 11,546  |  
|                        
|                        
|                        
|                        
|Operating expenses       |  |         | 1,223  |         |  |          | 2,987  |         |  |       | 4,318  |   |  |   | 7,353  |   |  |   | 15,881  |  
|                        
|                        
|                        
|                        
|Loss from operations     |  |         | (161   | )       |  |          | (788   | )       |  |       | (17    | ) |  |   | (3,369 | ) |  |   | (4,335  | )
|                        
|                        
|                        
|                        
|Interest  net           |  |         | 36     |         |  |          | (9     | )       |  |       | (80    | ) |  |   | (165   | ) |  |   | (218    | )
|                        
|                        
|                        
|                        
|Benefit for income taxes |  |         | (39    | )       |  |          | (285   | )       |  |       | (40    | ) |  |   | (1,165 | ) |  |   | (1,529  | )
|                         |  |         |        |         |  |          |        |         |  |       |        |   |  |   |        |   |  |   |         |  
|Net loss                 |  | $       | (86    | )       |  | $        | (512   | )       |  | $     | (57    | ) |  | $ | (2,369 | ) |  | $ | (3,024  | )
|                         |  |         |        |         |  |          |        |         |  |       |        |   |  |   |        |   |  |   |         |  
|1999:                    |  |         |        |         |  |          |        |         |  |       |        |   |  |   |        |   |  |   |         |  
|                        
|                        
|                        
|                        
|Revenues                 |  | $       | 27,092 |         |  | $        | 26,620 |         |  | $     | 30,005 |   |  | $ | 31,003 |   |  | $ | 114,720 |  
|                        
|                        
|                        
|                        
|Gross profit             |  |         | 5,680  |         |  |          | 6,105  |         |  |       | 5,190  |   |  |   | 9,015  |   |  |   | 25,990  |  
|                        
|                        
|                        
|                        
|Operating expenses       |  |         | 5,843  |         |  |          | 6,553  |         |  |       | 11,347 |   |  |   | 8,492  |   |  |   | 32,235  |  
|                        
|                        
|                        
|                        
|Loss from operations     |  |         | (163   | )       |  |          | (448   | )       |  |       | (6,157 | ) |  |   | 523    |   |  |   | (6,245  | )
|                        
|                        
|                        
|                        
|Interest  net           |  |         | (163   | )       |  |          | (218   | )       |  |       | (464   | ) |  |   | 32     |   |  |   | (813    | )
|                        
|                        
|                        
|                        
|Benefit for income taxes |  |         | (60    | )       |  |          | (205   | )       |  |       | 82     |   |  |   | (465   | ) |  |   | (648    | )
|                         |  |         |        |         |  |          |        |         |  |       |        |   |  |   |        |   |  |   |         |  
|Net income (loss)        |  | $       | (266   | )       |  | $        | (461   | )       |  | $     | (6,703 | ) |  | $ | 1,020  |   |  | $ | (6,410  | )
|                         |  |         |        |         |  |          |        |         |  |       |        |   |  |   |        |   |  |   |         |  

The Companys historical operating results have varied from
quarter to quarter, and the Company expects that they will
continue to do so. Due to the relatively fixed nature of certain
of the Companys costs, including personnel and facilities
costs, a decline in revenue in any fiscal quarter would result in
 lower profitability in that quarter. A variety of factors, many
of which are not within the Companys control, influence the
 Companys quarterly operating results, including
availability of product, the closings of acquisitions, seasonal
patterns of capital spending by customers, information technology
 outsourcing trends, the timing, size and stage of projects, new
service introductions by the Company or its competitors, levels
of market acceptance for the Companys products or services
or the hiring of additional staff. Operating results may also be
impacted by the timing of billings and changes in the
Companys billing and utilization rates. The Company
believes, therefore, that past operating results and
period-to-period comparisons should not be relied upon as an
indication of future performance. The Company anticipates that
its business will continue to be subject to such seasonal
variations.

29



---



Backlog

The Company normally ships systems promptly after receiving an
order and therefore does not customarily have a significant
backlog.

Liquidity And Capital Resources

Historically, the Company has funded its operations primarily
from cash generated by operations and, to a lesser extent, with
funds from borrowings under the Companys credit facility.
For the year ended December 31, 1999, cash flow used by
operations was $20.2 million as compared to cash provided by
operations of $1.2 million during the prior year. The
Companys cash flow from operations was negatively affected
by the loss for the year, growth in receivables and the
conversion from vendor financing to a new credit facility.

The Companys working capital was $11.5 million at
December 31, 1999, as compared to the working capital
deficit of $3.3 million at December 31, 1998. The increase
in the Companys working capital during such period is
principally attributable to the new credit agreement with Coast
Business Credit that replaced previous vendor financing.

Capital expenditures, which totaled $1.0 million in 1999, were
principally for computer hardware and software to support the
Companys expanding operations and for an internal financial
 application system for the purpose of improving operating
efficiencies and integrating the companies acquired during 1999
and 1998. In addition, the Company paid cash of $307,490
attributable to acquisitions during 1999.

Cash flow from financing activities was favorably impacted by the
 $23.0 million of net proceeds received from the sale of common
stock, preferred shares, and notes payable offset by $2.1 million
 of repayments of long-term debt.

The Company received net proceeds of $2,820,000 from the private
placement of Derivative Securities sold to Lancer in
November 1999. In March 2000, the Company received
$3,000,000 as an interest-free advance under common stock
purchase warrants issued as part of the Derivative Securities.
The advance was used to redeem the Companys outstanding
shares of Series E Convertible Preferred Stock.

At the Companys next annual meeting of stockholders
scheduled to be held during May 1999, the stockholders will vote
on the conversion and exercise feature of the Debentures and the
Warrants (collectively, the Derivative Securities)
sold by the Company to Lancer in November 1999 (the Lancer
Financing). If the stockholders approve the conversion and
exercise features of the Derivative Securities, the Company may
be caused to issue approximately 20,000,000 shares of its Common
Stock to Lancer or its designees, which would have an extremely
dilutive effect on the existing stockholders. Furthermore, Lancer
 and its designees would beneficially own approximately 69% of
the Companys Common Stock, thereby securing majority voting
 control of the Companys stock. In the event that the
stockholders do not approve the conversion and exercise features
of the Derivative Securities, the Company will have the
obligation to repay Lancer or its designees $6,000,000 together
with interest at the rate of up to 18% per annum until repayment.
 Lancer will not require the Company to make payment of the
$6,000,000 until the earlier of the Company securing alternative
financing or until January 2, 2001. Since the Company does
not presently have sufficient liquid assets to repay the funds
advanced by Lancer and its designees under the Derivative
Securities, the failure of the stockholders to approve the
conversion and exercise features of the Derivative Securities may
 have a material adverse effect on the Companys financial
condition, liquidity and operations.

The Company is currently involved in two material legal
proceedings. See Item 3  Legal
Proceedings. Although the Company believes that both of
 these actions are without merit, there can be no assurances as
to the outcome of the litigation. In the event that a judgment is
 entered against the Company in either of the proceedings, the
Company may be caused to incur material expenditures in the
future.

In 1999 the Company established a $20 million revolving line of
credit facility with Coast Business Credit. The facility replaced
 a previous financing arrangement with Finova Capital
Corporation. The Companys ability to borrow under the
facility is based upon its eligible accounts receivable, with the

30



---





As its operations continue to expand, additional financing will
be required to support the continued growth of the Company. The
inability to secure such financing, may have an adverse effect on
 the operations of the Company. Principally all of the
Companys currently available cash from operations and
financing, is being utilized to help support the Companys
operations. The Company will need to secure additional financing
in the near term in order to continue the acquisition and growth
strategy implemented during 1998. Since its future profitability
is likely dependent upon the continuation of the Companys
acquisition and growth strategy, failure to secure new or
increased sources of financing would not only delay the
Companys growth program, but could also have an adverse
effect on the Companys ability to achieve profitable
operations.

Impact Of Inflation

The effects of inflation on the Companys operations were
not significant during the periods presented.

Recently Issued Accounting Standards

During June 1999, the Financial Accounting Standards Board
(FASB) issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities-Deferral of the
effective Date of FASB Statement 133. The Statement defers
the effective date of SFAS 133 to fiscal 2001. The Company
has not completed evaluating the impact of implementing the
provisions of SFAS No. 133.

Item 7.  Financial Statements.

Financial Statements of the Company for the years ended
December 31, 1999 and 1998, and specific supplementary
financial information are included within Item 13(a) and
13(b) of this Report and may be found at pages F-45 through F-52.

Item 8.  Changes In and Disagreements with
Accountants on Accounting and Financial Disclosure.

There are no matters to be reported hereunder.

PART III



|        |                                                                                                                  
|------- | -----------------------------------------------------------------------------------------------------------------
|Item 9. | Directors, Executive Officers, Promoters and Control
	Persons; Compliance with Section 16(A) of the Exchange Act.

31



---



Directors And Executive Officers

The following table sets forth certain information with respect
to each of the executive officers and directors of the Company.

|                            |  |     |    |          |  |                                                   |          | 
|--------------------------- |  | --- | -- | -------- |  | ------------------------------------------------- | -------- | 
|Name                        |  | Age |    | Position
|                            |  |     |    |         
|Phil Carter(1 & 2)          |  |     | 55 |          |  | Chairman of the Board and Chief Executive Officer
|                           
|                           
|                           
|                           
|Glenn Ford(3)               |  |     | 48 |          |  | Interim Chief Financial Officer(3)               
|                           
|                           
|                           
|                           
|George Knight(1 & 2)        |  |     | 58 |          |  |                                                   | Director | 
|                           
|                           
|                           
|                           
|Gerald T. Harrington(1 & 2) |  |     | 41 |          |  |                                                   | Director | 




|    |                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Member of Audit Committee.                                                                                                                                                                        
|   
|(2) | Member of Compensation Committee.                                                                                                                                                                 
|   
|(3) | Mr. Ford expects to resign as Interim Chief Financial
	Officer on or about April 15, 2000, at which time the
	Company anticipates that Robert Peterson will be appointed Chief
	Financial Officer.

The following is a brief summary of the business experience of
the foregoing directors and executive officers.

Phil Carter

Mr. Carter, age 54, has served as Chairman and Chief
Executive Officer since November 1999. He has also held the
following positions at the Company: interim Chief Executive
Officer (October 8, 1999 to November 22, 1999);
director and Chief Operating Officer (January 5, 1999 to
September 2, 1999); and Executive Vice President and General
 Manager of Operations (July 1, 1998 to January 4,
1999). From 1994 until 1998, Mr. Carter owned and operated a
 privately held real estate sales and development company. From
1986 to 1993, Mr. Carter was President, Chief Operating
Officer, and a member of the Board of Directors of Acxiom
Corporation, an international database management and direct
marketing company. Prior to 1986, Mr. Carter held numerous
senior management and executive positions with IBM, including
Branch Manager, Regional Manager, and Director of IBMs
Value Added Reseller Channel. He is a graduate of the University
of Central Arkansas with a Bachelor of Science degree in Math.

Glenn M. Ford

Mr. Ford, age 48, has served as Chief Financial Officer
since November 1999. Since 1992, Mr. Ford has been
President of Lauren Management Company, a financial management
and consulting firm. From 1996 through 1999, Mr. Ford was
also the owner of Teton Financial Associates, which provided
financial advisory and securities services for individuals.
Mr. Ford is a graduate of the University of Oklahoma with a
Bachelor of Arts degree in Philosophy, a graduate of the
University of Michigan with a Juris Doctor in law, and a graduate
 of the University of California at Los Angeles with a Masters of
 Business Administration.

George Knight

Mr. Knight, age 58, became a member of the Board of
Directors during November 1999. He had previously served as
a director from November 1998 to September 1999.
Mr. Knight retired from IBM in 1995 after a 29-year career
in sales and management. Most recently, Mr. Knight was the
owner of an insurance agency that was sold in 1997.
Mr. Knight also serves as an independent contractor and
consultant, having performed work for companies such as IBM,
Acxiom, Inc. and Dillards Department Stores. He is a graduate of
the University of Arkansas with a degree in Civil Engineering.

Gerald T. Harrington

Mr. Harrington, age 41, became a director on
November 22, 1999. Since February 1999,
Mr. Harrington has served as a Managing Director of Capitol
City Group, LLC, a Washington, D.C. and Providence, Rhode
Island-based government relations firm. Mr. Harrington is
also an attorney with the firm of Nadeau &

32



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Classified Board Of Directors; Removal Of Directors

On June 12, 1998, the Company held its 1998 Annual Meeting
of Stockholders (the Meeting). At the Meeting, the
Companys Stockholders approved a number of amendments to
the Companys Restated Certificate of Incorporation (the
Certificate). Among other things, the Certificate was
 amended to provide for the classification of the Board of
Directors of the Company into three separate classes, each to
serve for 3-year terms with one class to be elected at each
annual meeting of stockholders after 1998. As a Class I
director, Phil Carter serves until his term expires at the
Companys Annual Meeting in 2002. As a Class II
Director, Gerald Harrington serves until his term expires at the
Companys Annual Meeting in 2001. As a Class III
director, George Knight serves until his term expires at the
Companys Annual Meeting in 2000. Directors may only be
removed for cause and by the affirmative vote of two-thirds of
the Companys Stockholders entitled to vote thereon.

In order to satisfy a contractual obligation under the Lancer
Financing, the Company will submit to the vote of the
stockholders at the 2000 Annual Meeting of Stockholders a
proposal to eliminate the classified board. If the proposal is
approved, all directors will serve a one year term until their
respective successors are duly elected and qualify. In addition,
the proposal would allow the removal of directors with or without
 cause by the affirmative vote of 51% of the stockholders
entitled to vote thereon.

The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee is responsible for
reviewing the Companys financial and accounting practices
and controls and making recommendations concerning the engagement
 of its independent auditors. The Compensation Committee is
responsible for determining the compensation of the officers and
employees of the Company and administering the Companys
Stock Option Plans.

Directors Compensation

Currently, the Company has no policy with respect to the granting
 of fees to directors in connection with their service to the
Company. However, the Company may reimburse directors for their
cost of travel and lodging to attend meetings of the Board of
Directors or committees thereof. In connection with their
services as directors of the Company, on November 23, 1999,
the Company granted each of George Knight and Gerald Harrington
three-year options to purchase 25,000 shares of Common Stock of
the Company at an exercise price of $1.50 per share.

33



---



Item 10.  Executive Compensation

The following table sets forth a summary of the compensation paid
 or accrued for the fiscal years ended December 31, 1999,
1998 and 1997 by the Company to or for the benefit of the named
executive officers.

Summary Compensation Table

|                            |                                 |                     |      |            |  |          |         |                        |      |         |        |              |  |  |     |         |      |  |         |         |      |   |        |        |     
|--------------------------- | ------------------------------- | ------------------- | ---- | ---------- |  | -------- | ------- | ---------------------- | ---- | ------- | ------ | ------------ |  |  | --- | ------- | ---- |  | ------- | ------- | ---- | - | ------ | ------ | ----
|                            |                                 |                     |      |            |  |          |         |                       
|                            |                                 |                     |      |            |  |          |         | Long Term Compensation
|                            |                                 |                     |      |            |  |          |         |                       
|                            |                                 |                     |      |            |  |          |         |                        |      |        
|                            |                                 |                     |      |            |  |          |         | Awards                 |      | Payouts
|                            |                                 |                     |      |            |  |         
|                            |                                 | Annual Compensation |      | Restricted |  |          |         |                       
|                            |                                 |                     |      | Stock      |  | Options/ |         | All Other             
|Name and Principal Position |                                 | Year                |      | Salary     |  | Bonus    |         | Award(s)($)            |      | SARS(#) |        | Compensation
|                            |                                 |                     |      |            |  |          |         |                        |      |         |        |             
|Phil Carter                 |                                 |                     | 1999 |            |  | $        | 146,950 | (1)                    |      | $       | 12,500 |              |  |  | 0 |         |      |  | 700,000 | (2)     |      | $ | 6,321  | (3)   
|                            | Chairman of the Board and       |                     |      | 1998       |  |          | $       | 75,000                 | (4)  |         |        | 0          |  |  |     | 0     |      |  |         | 510,000 | (5)  |   |        | 0    |     
|                            | Chief Executive Officer; Former |                     |      | 1997       |  |          |         | N/A                    |      |         |        | N/A          |  |  |     | N/A     |      |  |         | N/A     |      |   |        | N/A    |     
|                            | Chief Operating Officer         |                     |      |            |  |          |         |                        |      |         |        |              |  |  |     |         |      |  |         |         |      |   |        |        |     
|                           
|                           
|                           
|                           
|Glenn M. Ford               |                                 |                     | 1999 |            |  |          | 0     | (6)                    |      |         | 0    |              |  |  | 0 |         |      |  | 0     |         |      | $ | 35,926 | (7)   
|                            | Interim Chief Financial Officer |                     |      | 1998       |  |          |         | N/A                    |      |         |        | N/A          |  |  |     | N/A     |      |  |         | N/A     |      |   |        | N/A    |     
|                            |                                 |                     |      | 1997       |  |          |         | N/A                    |      |         |        | N/A          |  |  |     | N/A     |      |  |         | N/A     |      |   |        | N/A    |     
|                           
|                           
|                           
|                           
|Jack R. Leadbeater          |                                 |                     | 1999 |            |  | $        | 188,125 | (8)                    |      |         | 0    |              |  |  | 0 |         |      |  | 116,943 | (9)     |      | $ | 30,743 | (10)  
|                            | Former Chairman of the Board    |                     |      | 1998       |  |          | $       | 200,000                |      |         | $      | 70,000       |  |  |     | 0     |      |  |         | 664,000 | (11) |   | $      | 26,295 | (12)
|                            | and Chief Executive Officer     |                     |      | 1997       |  |          | $       | 89,967                 |      |         | $      | 261,463      |  |  |     | 0     |      |  |         | 19,057  | (13) |   |        | 0    |     
|                           
|                           
|                           
|                           
|David S. Olson              |                                 |                     | 1999 |            |  | $        | 188,125 | (14)                   |      |         | 0    |              |  |  | 0 |         |      |  | 0     |         |      | $ | 24,785 | (15)  
|                            | Former Director, President and  |                     |      | 1998       |  |          | $       | 200,000                |      |         | $      | 70,000       |  |  |     | 0     |      |  |         | 664,000 | (11) |   | $      | 18,052 | (16)
|                            | Chief Operating Officer         |                     |      | 1997       |  |          | $       | 89,967                 |      |         | $      | 261,463      |  |  |     | 0     |      |  |         | 19,057  | (13) |   |        | 0    |     
|                           
|                           
|                           
|                           
|John Iorillo                |                                 |                     | 1999 |            |  | $        | 83,125  | (17)                   |      |         | 0    |              |  |  | 0 |         |      |  | 0     |         |      | $ | 38,714 | (18)  
|                            | Former Director and             |                     |      | 1998       |  |          | $       | 87,500                 | (19) |         | $      | 77,500       |  |  |     | 0     |      |  |         | 150,000 | (20) |   | $      | 2,586  | (21)
|                            | Chief Financial Officer         |                     |      | 1997       |  |          |         | N/A                    |      |         |        | N/A          |  |  |     | N/A     |      |  |         | N/A     |      |   |        | 0    |     
|                           
|                           
|                           
|                           
|Michael G. Glynn            |                                 |                     | 1999 |            |  |          | N/A     |                        |      |         | N/A    |              |  |  | N/A |         |      |  | N/A     |         |      |   | N/A    |       
|                            | Former Director and             |                     |      | 1998       |  |          | $       | 200,000                | (22) |         |        | 0          |  |  |     | 0     |      |  |         | 0     |      |   | $      | 13,200 | (23)
|                            | Executive Vice President        |                     |      | 1997       |  |          |         | 0                    |      |         |        | 0          |  |  |     | 100,000 | (24) |  |         | 100,000 | (25) |   |        | 0    |     




| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Reflects Mr. Carters compensation as Chief Operating
	Officer from January 1, 1999 through September 2, 1999
	based on an annual salary of $150,000, together with his
	compensation as interim Chief Executive Officer from
	October 8, 1999 to November 1999 based on an annual
	salary of $175,000, and as Chief Executive Officer from
	November 29, 1999 through December 31, 1999 based on an
	 annual salary of $195,000.
|
| | (2) | Reflects options to purchase 700,000 shares of Common Stock
	granted in conjunction with the commencement of employment as
	Chief Executive Officer in November 1999. See CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                                                                                                                                                                                                      
|
| | (3) | Includes $6,321 for costs of maintaining a condominium in
	Phoenix, Arizona.                                                                                                                                                                                                                                                                                                                                                     
|
| | (4) | Reflects Mr. Carters compensation during the six-month
	 period commencing July  1, 1998, the date on which
	Mr. Carter was initially employed by the Company, based on
	an annual salary of $150,000.                                                                                                                                                                                                                          
|
| | (5) | Reflects options to purchase 510,000 shares of Common Stock
	granted in conjunction with the commencement of initial
	employment in 1998, of which options to purchase 360,000 shares
	of Common Stock were forfeited by virtue of
	Mr. Carters termination as Chief Operating Officer on
	September 2, 1999. See CERTAIN RELATIONSHIPS AND
	RELATED TRANSACTIONS.                                                            
|
| | (6) | The Company has retained Mr. Ford as Interim Chief Financial
	 Officer through his consulting company, Lauren Management
	Company.                                                                                                                                                                                                                                                                                               
|
| | (7) | Includes $25,780 in consulting fees paid to Mr. Fords
	company, Lauren Management Company, for professional services
	rendered from October 20, 1999 through December 31,
	1999, based on an annual rate of $129,600. Also includes $10,146
	in housing and travel expenses.                                                                                                                                                    

34



---





| |     |                                                                                                                                                                                                        
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (8) | Reflects Mr. Leadbeaters compensation as Chief
	Executive Officer from January  1, 1999 to November 22,
	 1999, the date of his resignation, based on an annual salary of
	$210,000.                  
|
| | (9) | Reflects options to purchase 116,943 shares of Common Stock
	granted on August  25, 1999. All of these options were
	forfeited upon Mr. Leadbeaters resignation as an officer on
	 November  22, 1999.



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes $21,875 in severance benefits in the form of salary
	continuation from November 22, 1999, the date of
	Mr. Leadbeaters resignation as an officer of the
	Company, through December 31, 1999, based on $210,000 per
	year. Pursuant the terms of his settlement agreement with the
	Company, Mr. Leadbeater is entitled to receive severance payments
	 in the form of salary continuation at the annual rate of
	$210,000 from November 22, 1999 through December 22,
	2000. Also includes $8,368 in interest income from a loan made to
	 the Company in 1998, and $500 in premium payments for a life
	insurance policy. With respect to the loan, see CERTAIN
	RELATIONSHIPS AND RELATED TRANSACTIONS.                
|    
|(11) | Reflects options to purchase 664,000 shares of Common Stock
	(New Options) granted in exchange for the surrender
	of options to purchase 332,000 shares of Common Stock
	(Merger Options) previously granted on
	December 22, 1997 as part of the December 22, 1997
	merger between the Company and Osage Computer Group, Inc. (the
	Merger). All of the New Options were forfeited on
	November 22, 1999.                                                                                                                                                                                                                                                                                                                     
|    
|(12) | Includes $12,795 in interest income from a loan made to the
	Company in 1998, and $13,500 in car payments. With respect to the
	 loan, see CERTAIN RELATIONSHIPS AND RELATED
	TRANSACTIONS.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|(13) | Reflects options to purchase 19,057 shares of Common Stock
	granted immediately following the Merger. All of these options
	were forfeited on November 22, 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    
|(14) | Reflects Mr. Olsons compensation as President from
	January 1, 1999 to November 22, 1999, the date of his
	resignation, based on an annual salary of $210,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|(15) | Includes $21,875 in severance benefits in the form of salary
	continuation from November 22, 1999, the date of his
	resignation as an officer of the Company, through
	December 31, 1999, based on $210,000 per year. Pursuant the
	terms of his settlement agreement with the Company,
	Mr. Olson is entitled to receive severance payments in the
	form of salary continuation at the annual rate of $210,000 from
	November 22, 1999 through December 22, 2000. Also
	includes $2,410 in interest income from a loan made to the
	Company in 1998, and $500 in premium payments for a life
	insurance policy. With respect to the loan, see CERTAIN
	RELATIONSHIPS AND RELATED TRANSACTIONS.                                    
|    
|(16) | Includes $4,552 in interest income from a loan made to the
	Company in 1998, and $13,500 in car payments. With respect to the
	 loan, see CERTAIN RELATIONSHIPS AND RELATED
	TRANSACTIONS.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(17) | Reflects Mr. Iorillos compensation as Chief Financial
	Officer from January 1, 1999 to October 15, 1999, the
	date of his resignation, based on an annual salary of $105,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|(18) | Includes $21,875 in severance benefits in the form of salary
	continuation from October 15, 1999, the date of his
	resignation as an officer of the Company, through
	December 31, 1999, based on $105,000 per year. Pursuant the
	terms of his settlement agreement with the Company,
	Mr. Iorillo is entitled to receive severance payments in the
	 form of salary continuation at the annual rate of $105,000 from
	October 16, 1999 through March 31, 2000. Also includes
	$15,000 in accrued but unpaid wages, $1,339 in interest income
	from a loan made to the Company in 1998, and $500 in premium
	payments for a life insurance policy. With respect to the loan,
	see CERTAIN RELATIONSHIPS AND RELATED
	TRANSACTIONS.
|    
|(19) | Reflects Mr. Iorillos compensation during 1998
	commencing February 16, 1998, the date on which
	Mr. Iorillo was employed by the Company, based on an annual
	salary of $100,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|(20) | Includes options to purchase 100,000 shares of Common Stock
	granted in conjunction with the commencement of employment. Also
	includes options to purchase 50,000 shares of Common Stock
	granted during June 1998. All 150,000 of these options were
	forfeited on October 15, 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                               

35



---





|     |                                                                                                                                                                                                                                                                   
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(21) | Includes $2,396 in interest income from a loan made to the
	Company in 1998, and $190 in premium payments for a life
	insurance policy. With respect to the loan, see CERTAIN
	RELATIONSHIPS AND RELATED TRANSACTIONS.                                          
|    
|(22) | Mr. Glynn is a former director and officer of the Company.                                                                                                                                                                                                        
|    
|(23) | Represents $13,200 in car payments.                                                                                                                                                                                                                               
|    
|(24) | Includes 100,000 shares of Common Stock granted to Mr. Glynn
	 in conjunction with his employment.                                                                                                                                                                
|    
|(25) | Pursuant to the terms of his employment agreement, Mr. Glynn
	 was granted options to purchase 100,000 shares of Common Stock;
	however, these options did not vest due to the Companys
	failure to achieve certain performance criteria and have since
	expired.

Employment Arrangements

The Company has an employment agreement with Phil Carter, Chief
Executive Officer, with an initial two-year term commencing
November 29, 1999. Mr. Carters annual salary is
$195,000, plus a performance-based bonus of up to $292,500 per
year. In addition, in the event that the Company is sold to a
third party during the term of his employment agreement at a
price in excess of $40,000,000 when the Companys Common
Stock is trading at $1.00 per share or more, Mr. Carter is
entitled to receive a bonus equal to 1% of the acquisition price,
 provided, however, that such bonus shall not exceed $7,000,000
for a sale in 2000 and $10,000,000 for a sale in 2001.
Mr. Carters employment agreement contains covenants
not to solicit the Companys employees, customers or
suppliers for the twelve-month period following the termination
of his employment with the Company. In conjunction with his
employment as Chief Executive Officer of the Company,
Mr. Carter was granted options to purchase 700,000 shares of
 Common Stock of the Company. See Summary Compensation
Table. Mr. Carter is entitled to receive his base
salary through November 23, 2001 and an additional twelve
months salary as severance pay in the event that his
employment is terminated prior to November 29, 2001.

Severance Arrangements with Former Management

On November 22, 1999, Jack Leadbeater resigned as Chief
Executive Officer and David S. Olson resigned as President of the
 Company. In addition, John Iorillo resigned as Chief Financial
Officer of the Company effective as of October 15, 1999. In
conjunction with their resignations, each of Messrs. Leadbeater,
Olson and Iorillo entered into severance agreements with the
Company. Each of the severance arrangements with
Messrs. Leadbeater, Olson and Iorillo provides for the
termination of their respective employment agreements and the
termination benefits agreements with the Company. Each agreement
further provides for: (i) severance benefits in the form of
salary continuation at $17,500 per month for
Messrs. Leadbeater and Olson commencing on November 22,
 1999 until December 22, 2000, and $8,750 per month for
Mr. Iorillo, commencing October 18, 1999 until
March 31, 2000; (ii) reimbursement of reasonable
business expenses through their respective resignation dates; and
 (iii) repayment of certain outstanding loans extended to
the Company in the amount of $83,488.44 to Mr. Leadbeater,
$7,748.36 to Mr. Olson and $10,000 (plus accrued interest)
to Mr. Iorillo, payable upon the terms set forth in their
respective agreements. Mr. Iorillo also received accrued
wages in the amount of $15,000 pursuant to the terms of his
severance agreement. The Company also agreed to provide directors
 and officers insurance coverage for Messrs. Leadbeater,
Olson and Iorillo for a period of one year commencing
November 22, 1999, provided such insurance can be obtained
at commercially reasonable rates. Messrs. Leadbeater, Olson
and Iorillo also surrendered and forfeited all rights to all
stock options they held. The agreements of Messrs. Leadbeater and
 Olson contain covenants not to compete for a three month period
commencing November 22, 1999 and covenants not to solicit
the Companys employees or customers until after
December 22, 2000, for which the Company made lump-sum
payments on November 22, 1999 to Mr. Leadbeater and
Mr. Olson of $159,360 and $153,360, respectively. The
severance agreements also contain mutual releases of the Company
and each of Messrs. Leadbeater, Olson and Iorillo.

36



---



Stock Options

1993 Stock Option Plan

The Companys Amended and Restated 1993 Stock Option Plan,
as amended (the 1993 Option Plan), covers 5,000,000
shares of the Companys Common Stock. Under its terms,
officers, directors, key employees and consultants of the Company
 are eligible to receive incentive stock options within the
meaning of Section 422 of the Internal Revenue Code, as well
 as non-qualified stock options. The 1993 Option Plan is
administered by the Board of Directors or a committee designated
by the Board of Directors. Incentive stock options, as well as
non-qualified stock options, granted under the 1993 Option Plan
are exercisable for a period of up to 10 years from the date
 of grant and at an exercise price that is not less than the fair
 market value of the Common Stock on the date of the grant. The
term of an incentive stock option granted under the 1993 Option
Plan to a stockholder owning more than 10% of the outstanding
Common Stock may not exceed five years and the exercise price of
an incentive stock option granted to such stockholder may not be
less than 110% of the fair market value of the Common Stock on
the date of the grant. As of March 24, 2000, options to
purchase 4,029,045 shares of the Companys Common Stock were
 outstanding under the 1993 Option Plan.

1999 Employee Stock Purchase Plan

In June 1999, the stockholders approved the adoption of the
Companys 1999 Employee Stock Purchase Plan (the 1999
Plan). The 1999 Plan covers 1,000,000 shares of the
Companys Common Stock. Under its terms, employees,
including officers and directors of the Company, are eligible to
purchase shares of the Companys Common Stock, up to 10% of
the participants compensation (not to exceed $25,000 in
fair market value) in any given year, through accumulated payroll
 deductions. Purchases may be made four times per year at a price
 equal to the lesser of (i) 85% of the closing price of the
Companys Common Stock reported on the American Stock
Exchange (AMEX) on the first business day of the
offering period and (ii) 85% of the closing price of the
Companys Common Stock reported on AMEX on the last business
 day of the offering period. As of December 31, 1999 69,943
shares of the Companys Common Stock have been purchased by
participants in the 1999 Plan.

Surrender of Options

In connection with their severance arrangements,
Messrs. Leadbeater and Olson surrendered and forfeited all
of their respective options on November 22, 1999, and John
Iorillo surrendered and forfeited all of his options on
October 15, 1999. In connection with his previous
termination from the Company during the third quarter of 1999,
Mr. Carter forfeited 360,000 of the options granted to him
in 1998.

Option/ SAR Grants in Last Fiscal Year

|                   |  |                   |         |              |  |            |      |                 |  |   |       |   |  |  |                   | 
|------------------ |  | ----------------- | ------- | ------------ |  | ---------- | ---- | --------------- |  | - | ----- | - |  |  | ----------------- | 
|                   |  |                   |         |              |  |           
|                   |  | Individual Grants |         |              |  |           
|                   |  |                   |         |              |  |           
|                   |  | Number of         |         | % of Total   |  |            |      |                
|                   |  | Securities        |         | Options/SARs |  | Exercise   |      |                
|                   |  | Underlying        |         | Granted to   |  | or         |      |                
|                   |  | Option/SARs       |         | Employees in |  | Base Price |      |                
|Name               |  | Granted(#)        |         | Fiscal Year  |  | ($/Sh)     |      | Expiration Date
|                   |  |                   |         |              |  |            |      |                
|Phil Carter        |  |                   | 700,000 |              |  |            | 23.8 | %               |  | $ | 1.50  |   |  |  | November 29, 2002 | 
|                  
|                  
|                  
|                  
|Jack R. Leadbeater |  |                   | 116,943 | (1)          |  |            | 4.0  | %               |  | $ | 1.437 | 5 |  |  | August 25, 2009   | 




|    |                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------
|(1) | By virtue of Mr. Leadbeaters resignation as an officer
	 of the Company, all of these options were forfeited on
	November 22, 1999.

37



---



Option Exercises and Fiscal Year-End Option Values

|                      |  |             |     |                |  |                        |     |                  |  |  |                       |  |  |      |         | 
|--------------------- |  | ----------- | --- | -------------- |  | ---------------------- | --- | ---------------- |  |  | --------------------- |  |  | ---- | ------- | 
|                      |  |             |     |                |  | Number of Securities   |     | Value of        
|                      |  |             |     |                |  | Underlying Unexercised |     | Unexercised     
|                      |  |             |     |                |  | Options/SARs           |     | In-the-Money    
|                      |  |             |     |                |  | at FY-End(#)           |     | Options/SARs at 
|                      |  | Shares      |     |                |  | Shares                 |     | FY-End($)       
|                      |  | Acquired on |     | Value Realized |  | Exercisable/           |     | Exercisable/    
|Name                  |  | Exercise(#) |     | ($)            |  | Unexercisable          |     | Unexercisable(1)
|                      |  |             |     |                |  |                        |     |                 
|Phil Carter(2)        |  |             | 0 |                |  |                        | 0 |                  |  |  | (E)450,000/400,000(U) |  |  | (E)$ | 0/(U)$0 | 
|                     
|                     
|                     
|                     
|Jack R. Leadbeater(3) |  |             | 0 |                |  |                        | 0 |                  |  |  | (E)0/(U)0             |  |  | (E)$ | 0/(U)$0 | 




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based upon $1.3125, the high bid price (per share) of the
	Companys Common Stock on the last reported trading date
	during the year ended December 31, 1999 as reported on the
	American Stock Exchange.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(2) | Pursuant to the terms of his employment agreement dated as of
	November 29, 1999, Mr. Carter was granted options to
	purchase 700,000 shares of Common Stock (the 1999
	Options). The 1999 Options have a term of three years
	commencing in November 1999 and an exercise price of $1.50
	per share. Subject to accelerated vesting provisions in the event
	 of a change in control of the Company or termination of
	Mr. Carters employment for any reason, the 1999
	Options vest as follows: (i) 300,000 vest on November 29,
	1999, the date of grant; (ii) 200,000 vest on
	November 29, 2000; and (iii) 200,000 vest on
	November 29, 2001. Pursuant to the terms of his employment
	agreement dated as of July 1, 1998, Mr.  Carter was
	granted options to purchase 510,000 shares of Common Stock, of
	which 360,000 were forfeited upon Mr. Carters
	termination as Chief Operating Officer in September 1999.
	The remaining 150,000 options (the 1998 Options)
	expire on June 30, 2003 and have an exercise price of $4.50
	per share. All of the 1998 Options vested on December 31,
	1998.
|   
|(3) | Mr. Leadbeater forfeited all of his options to purchase
	shares of Common Stock on November 22, 1999, the date of his
	 resignation as an officer and director of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Compliance with Section 16(a) of The Securities Exchange
Act

Based solely on its review of copies of forms filed pursuant to
Section 16(a) of the Securities Exchange Act of 1934, as
amended, and written representations from certain reporting
persons, the Company believes that during fiscal 1999 all
reporting persons timely complied with all filing requirements
applicable to them, except for certain reports, which include:
(i) a Form 4 for each of Messrs. Leadbeater, Olson
 and Iorillo; (ii) a Form 3 for Gerald T.
Harrington; (iii) a Form 5 for George Knight; and
(iv) a Schedule 13G for Lancer.



|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 11. | Security Ownership of Certain Beneficial Owners and
	Management

The following table sets forth, as of March 31, 2000,
information with respect to the securities holdings of all
persons which the Company, pursuant to filings with the
Securities and Exchange Commission, has reason to believe may be
deemed the beneficial owners of more than five percent (5%) of
the Companys outstanding

38



---





|                                                  |  |                  |           |               |  |  |      |  
|------------------------------------------------- |  | ---------------- | --------- | ------------- |  |  | ---- | -
|                                                  |  | Shares Owned     |           | Percentage of
|                                                  |  | Beneficially and |           | Outstanding  
|Name and Address                                  |  | of Record(1)     |           | Shares       
|                                                  |  |                  |           |              
|Phil Carter(2)                                    |  |                  | 453,200   | (3)           |  |  | 3.8  | %
|1661 East Camelback Road, Suite 245               |  |                  |           |               |  |  |      |  
|Phoenix, AZ 85016                                 |  |                  |           |               |  |  |      |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Glenn M. Ford(2)                                  |  |                  | 0         |               |  |  | 0    | %
|1661 East Camelback Road, Suite 245               |  |                  |           |               |  |  |      |  
|Phoenix, AZ 85016                                 |  |                  |           |               |  |  |      |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Gerald T. Harrington                              |  |                  | 0         | (4)           |  |  | 0    | %
|80 Hazael Street                                  |  |                  |           |               |  |  |      |  
|Providence, RI 02908                              |  |                  |           |               |  |  |      |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|George Knight                                     |  |                  | 3,000     | (5)           |  |  | *    |  
|1706 Alton Drive                                  |  |                  |           |               |  |  |      |  
|Fayetteville, AR 72701                            |  |                  |           |               |  |  |      |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Lancer Offshore, Inc.                             |  |                  | 820,000   | (6)           |  |  | 7.2  | %
|Kaya Flamboyan 9                                  |  |                  |           |               |  |  |      |  
|Curacao, Netherland Antilles                      |  |                  |           |               |  |  |      |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Lancer Partners, LP                               |  |                  | 470,000   | (7)           |  |  | 4.1  | %
|375 Park Avenue, Suite 2006                       |  |                  |           |               |  |  |      |  
|New York, NY 10152                                |  |                  |           |               |  |  |      |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Michael Lauer                                     |  |                  | 1,500,000 | (8)           |  |  | 13.2 | %
|375 Park Avenue, Suite 2006                       |  |                  |           |               |  |  |      |  
|New York, NY 10152                                |  |                  |           |               |  |  |      |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|All Directors and Officers as a group (4 persons) |  |                  | 456,200   |               |  |  | 3.9  | %




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The securities beneficially owned by an individual
	are determined in accordance with the definition of
	beneficial ownership set forth in the regulations
	promulgated under the Securities Exchange Act of 1934, and,
	accordingly, may include securities owned by or for, among
	others, the spouse and/or minor children of an individual and any
	 other relative who has the same home as such individual, as well
	 as, other securities as to which the individual has or shares
	voting or investment power or which each person has the right to
	acquire within 60 days through the exercise of options or
	otherwise. Beneficial ownership may be disclaimed as to certain
	of the securities. This table has been prepared based on
	11,325,543 shares of Common Stock outstanding as of
	March 31, 2000.
|   
|(2) | Mr. Carter and Mr. Ford are brothers-in-law.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(3) | Includes 3,200 shares of Common Stock, and 450,000 shares
	issuable upon the exercise of vested options. Does not include
	options to purchase 400,000 shares of Common Stock, which have
	not vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(4) | Does not include options to purchase 25,000 shares of Common
	Stock, which have not vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(5) | Includes 3,000 shares of Common Stock. Does not include options
	to purchase 25,000 shares of Common Stock, which have not vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(6) | Includes 820,000 shares of Common Stock. Does not include
	3,666,667 shares of Common Stock issuable upon the exercise of
	Warrants, or 6,666,667 shares of Common Stock issuable upon the
	conversion of Debentures, none of which vest until the
	Companys stockholders approve the exercise of these
	Warrants and the conversion of the Debentures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(7) | Includes 470,000 shares of Common Stock. Does not include
	1,666,666 shares of Common Stock issuable upon the exercise of
	Warrants, or 1,666,666 shares of Common Stock issuable upon the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

39



---



| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | conversion of Debentures, none of which vest until the
	Companys stockholders approve the exercise of these
	Warrants and the conversion of the Debentures.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(8) | Includes direct ownership of 40,000 shares and investment control
	 of 1,460,000 shares through Mr. Lauers role as
	Managing Member of Lancer Management Group LLC, which is the
	Manager of Lancer Offshore, Inc. (820,000 shares) and Lancer
	Voyager Fund (170,000 shares), and Lancer Management
	Group, II, which is the Manager of Lancer Partners, L.P.
	(470,000 shares). Mr. Lauer acts as Investment Manager of
	each of these funds. Does not include the shares of Common Stock
	issuable upon the conversion of Debentures and exercise of
	Warrants that will not vest until the Companys stockholders
	 approve the conversion and exercise features of the Debentures
	and Warrants, which instruments are owned of record either by
	Michael Lauer or funds managed by Mr. Lauer, as follows:
	Warrants to purchase an aggregate 7,000,000 shares (of which
	3,666,667 are in the name of Lancer Offshore, Inc., 1,666,666 are
	 in the name of Lancer Partners, L.P., 833,334 are in the name of
	 Michael Lauer and 833,333 are in the name of Orbiter Fund,
	Ltd.), and Debentures convertible into 10,000,000 shares (of
	which 6,666,667 are in the name of Lancer Offshore, Inc.,
	1,666,666 are in the name of Lancer Partners, L.P., 833,334 are
	in the name of Michael Lauer and 833,333 are in the name of
	Orbiter Fund, Ltd.).

(*)  Less than 1%.

Item 12.  Certain Relationships and Related
Transactions

Financing Transaction with Lancer

On November 22, 1999, the Company sold Lancer, a principal
stockholder, $3 million principal amount 10% Convertible
Subordinated Debentures (the Debentures) and common
stock purchase warrants for a total purchase price of $3 million
in a private placement transaction exempt from registration
pursuant to Section 4(2) and Regulation D of the
Securities Act of 1933, as amended. The principal amount of the
Debentures is payable on November 22, 2001 with interest
payable at the rate of ten percent (10%) per annum on a quarterly
 basis commencing December 31, 1999. Interest may be paid in
 cash, or at the option of Lancer, in shares of Common Stock
priced at the Conversion Price of the Debentures. At
the option of Lancer, the Debentures are convertible into shares
of the Companys Common Stock at the Conversion Price per
share at any time prior to maturity, commencing once stockholder
approval of the conversion feature has been obtained. However,
once stockholder approval of the conversion feature has been
obtained and the shares of Common Stock issuable upon the
conversion of the Debentures may be resold under an effective
registration statement filed with the Securities and Exchange
Commission, the Debentures shall automatically convert into
shares of the Companys Common Stock at the Conversion
Price. The Conversion Price shall be $.30 per share of Common
Stock (reflective of a twenty (20%) percent discount to the
closing bid price of the Common Stock on October 8, 1999).

The Debentures were privately offered as a Unit, together with
warrants that, subject to certain vesting provisions, entitled
Lancer to contingently purchase twenty million (20,000,000)
shares of Common Stock of the Company at an exercise price of
$.30 per share. The warrants consist of 5-year warrants to
purchase ten million (10,000,000) shares of Common Stock of the
Company (the Long-Term Warrants) and 90-day warrants
to purchase ten million (10,000,000) shares of Common Stock of
the Company (the Short-Term Warrants). All of the
Short-Term Warrants expired on February 22, 2000. The
Long-Term Warrants shall vest only once stockholder approval of
the exercise feature of these warrants is obtained. In
March 2000, Lancer and its designee advanced the $3,000,000
exercise price under the Long-Term Warrants. In the event that
the stockholders approve the exercise feature of the Long-Term
Warrants, the entire $3,000,000 will be applied towards the
exercise price thereunder. In the event that the exercise feature
 of the Long-Term Warrants is not approved by the stockholders,
the entire principal amount of the advance will be payable
pursuant to the terms of the Notes.

40



---



Severance Arrangements with Former Management

On November 22, 1999, Jack Leadbeater resigned as Chief
Executive Officer and David S. Olson resigned as President
of the Company. In addition, John Iorillo resigned as Chief
Financial Officer of the Company effective as of October 15,
 1999. In conjunction with their resignations, each of
Messrs. Leadbeater, Olson and Iorillo entered into severance
 agreements with the Company. Each of the severance arrangements
with Messrs. Leadbeater, Olson and Iorillo provides for the
termination of their respective employment agreements and the
termination benefits agreements with the Company. Each agreement
further provides for: (i) severance benefits in the form of
salary continuation at $17,500 per month for
Messrs. Leadbeater and Olson commencing on November 22,
 1999 until December 22, 2000, and $8,750 per month for
Mr. Iorillo, commencing October 18, 1999 until
March 31, 2000; (ii) reimbursement of reasonable
business expenses through their respective resignation dates; and
 (iii) repayment of certain outstanding loans extended to
the Company to complete the IntraNet acquisition in the amount of
 $83,488.44 to Mr. Leadbeater, $7,748.36 to Mr. Olson
and $10,000 (plus accrued interest) to Mr. Iorillo, payable
upon the terms set forth in their respective agreements.
Mr. Iorillo also received accrued wages in the amount of
$15,000 pursuant to the terms of his severance agreement. The
Company also agreed to provide directors and officers insurance
coverage for Messrs. Leadbeater, Olson and Iorillo for a
period of one year commencing November 22, 1999, provided
such insurance can be obtained at commercially reasonable rates.
Messrs. Leadbeater, Olson and Iorillo also surrendered and
forfeited all rights to all stock options they held. The
agreements of Messrs. Leadbeater and Olson contain covenants not
to compete for a three month period commencing November 22,
1999 and covenants not to solicit the Companys employees or
 customers until after December 22, 2000, for which the
Company made lump-sum payments on November 22, 1999 to
Mr. Leadbeater and Mr. Olson of $159,360 and $153,360,
respectively. The severance agreements also contain mutual
releases of the Company and each of Messrs. Leadbeater,
Olson and Iorillo.

Consulting Services

George Knight received $28,100 during the fiscal year ended
December 31, 1999 in consideration for providing the Company
 with management consulting services to the Company.
Mr. Knight is a director of the Company.

Options Granted to Management and Directors

During August 1999, the Company granted Jack Leadbeater
ten-year options to purchase 116,943 shares of its Common Stock
at $1.4375 per share. Mr. Leadbeater forfeited all of these
options on November 22, 1999, the date of his resignation as
 an officer of the Company.

41



---



Part IV

Item 13.  Financial Statements and Exhibits and
Reports on Form 8-K.

(a)  The following documents are filed as part of this
Report:



| |                                                      
| | -----------------------------------------------------
| | 1. Financial Statements filed as part of this Report:

|                                |                                                              |                                              |    |    |    | 
|------------------------------- | ------------------------------------------------------------ | -------------------------------------------- | -- | -- | -- | 
|                                |                                                              | Page                                        
|                                |                                                              |                                             
|Report of Deloitte & Touche LLP |                                                              |                                              | 45 |   
|                               
|                               
|                               
|                               
|                                | Consolidated Balance Sheets as of December 31, 1999 and 1998 |                                              |    | 46 |   
|                                | Consolidated Statements of Operations                        |                                              |    |    |   
|                               
|                               
|                               
|                               
|                                |                                                              | Years Ended December 31, 1999, 1998 and 1997 |    |    | 47 | 
|                                | Consolidated Statements of Stockholders Equity              |                                              |    |    |   
|                               
|                               
|                               
|                               
|                                |                                                              | Years Ended December 31, 1999, 1998 and 1997 |    |    | 48 | 
|                                | Consolidated Statements of Cash Flows                        |                                              |    |    |   
|                               
|                               
|                               
|                               
|                                |                                                              | Years Ended December 31, 1999, 1998 and 1997 |    |    | 49 | 
|                               
|                               
|                               
|                               
|                                | Notes to Consolidated Financial Statements                   |                                              |    | 52 |   



| |                                                             
| | ------------------------------------------------------------
| | 2.  The following Exhibits are filed as part of this Report:

|        |     |             |  |                                                                                                                                    |  |                                                                                                                                                                                                 
|------- | --- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |             |  |                                                                                                                                   
|No.     |     | Description |  | Method of Filing                                                                                                                  
|        |     |             |  |                                                                                                                                   
|        | 3.1 |             |  | Certificate of Incorporation                                                                                                       |  | Incorporated by reference to Exhibit 3.1 to Amendment
	No. 1 to the Registrants Registration Statement on
	Form S-1 (Reg. No. 33 69380) filed November 2,
	1993 (Amendment No. 1 to Form S-1)
|        | 3.2 |             |  | Certificate of Amendment to the Certificate of Incorporation
	effective March 10, 1998                                             |  | Incorporated by reference to Exhibit 3.5 of the
	Registrants Current Report on Form 8-K dated
	March 11, 1998 (the March 11, 1998
	Form 8-K)                                                 
|        | 3.3 |             |  | Certificate of Amendment to the Certificate of Incorporation
	dated June 12, 1998                                                  |  | Incorporated by reference to Exhibit 3.9 of the
	Registrants Quarterly Report on Form  10-QSB for the
	period ended June 30, 1998 (the June 30, 1998
	Form 10-QSB)                           
|        | 3.4 |             |  | Certificate of Designation, Preferences and Rights of
	Class A Non-Voting Convertible Preferred Stock                              |  | Incorporated by reference to Exhibit 3.1 of the
	March 11, 1998 Form 8-K                                                                                                                        
|        | 3.5 |             |  | Certificate of Amendment of Certificate of Designation,
	Preferences and Rights of Class A Non-Voting Convertible
	Preferred Stock |  | Incorporated by reference to Exhibit 3.2 to the
	March 11, 1998 Form 8-K                                                                                                                        
|        | 3.6 |             |  | Certificate of Restoration and Revival of Certificate of
	Incorporation                                                            |  | Incorporated by reference to Exhibit 3.3 to the
	March 11, 1998 Form 8-K                                                                                                                        
|        | 3.7 |             |  | Certificate of Amendment to the Certificate of Incorporation
	dated November 21, 1997                                              |  | Incorporated by reference to Exhibit 3.4 to the
	March 11, 1998 Form 8-K                                                                                                                        
|        | 3.8 |             |  | Certificate of Designation, Preferences and Rights of
	Series A $3.00 Convertible Preferred Stock                                  |  | Incorporated by reference to Exhibit 3.3 to the
	December 22, 1997 Form 8-K                                                                                                                     
|        | 3.9 |             |  | Certificate of Designation, Preferences and Rights of
	Series B $3.00 Convertible Preferred Stock                                  |  | Incorporated by reference to Exhibit 3.4 to the
	December 22, 1997 Form 8-K                                                                                                                     

42



---



|        |      |             |  |                                                                                                                                                                                                                 |  |                                                                                                                                                          
|------- | ---- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |             |  |                                                                                                                                                                                                                
|No.     |      | Description |  | Method of Filing                                                                                                                                                                                               
|        |      |             |  |                                                                                                                                                                                                                
|        | 3.10 |             |  | Certificate of Designation, Preferences and Rights of
	Series C Convertible Preferred Stock                                                                                                                     |  | Incorporated by reference to Exhibit 3.8 to the
	Registrants Current Report on Form 8-K dated
	March 27, 1998                                           
|        | 3.11 |             |  | Certificate of Designation, Preferences and Rights of
	Series D Convertible Preferred Stock                                                                                                                     |  | Incorporated by reference to Exhibit 3.11 to the
	Registrants Annual Report Form  10-KSB for the year
	ended December 31, 1998 (the 1998
	Form 10K-SB)
|        | 3.12 |             |  | Certificate of Correction to Certificate of Designation,
	Preferences and Rights of Series D Convertible Preferred
	Stock                                                                                       |  | Incorporated by reference to Exhibit 3.12 to the 1998
	Form 10K-SB                                                                                       
|        | 3.13 |             |  | Certificate of Designation of Series E Convertible Preferred
	 Stock                                                                                                                                            |  | Incorporated by reference to Exhibit 3.13 to the 1998
	Form 10K-SB                                                                                       
|       
|       
|       
|       
|        | 3.14 |             |  | Amended and Restated Bylaws dated June 12, 1998                                                                                                                                                                 |  | Incorporated by reference to Exhibit 3.10 of the
	June 30, 1998 Form 10-QSB                                                                              
|       
|       
|       
|       
|        | 4.1  |             |  | Form of Common Stock Certificate                                                                                                                                                                                |  | Incorporated by reference to Exhibit 4.1 to Amendment
	No. 1 to Form S-1                                                                                 
|       
|       
|       
|       
|        | 4.2  |             |  | Form of Warrant                                                                                                                                                                                                 |  | Incorporated by reference to Exhibit 1.2 to Amendment
	No. 1 to Form S-1                                                                                 
|       
|       
|       
|       
|        | 4.3  |             |  | Form of Warrant Certificate                                                                                                                                                                                     |  | Incorporated by reference to Exhibit 4.2 to Amendment
	No. 1 to Form S-1                                                                                 
|       
|       
|       
|       
|        | 4.4  |             |  | Form of 8% Senior Secured Note                                                                                                                                                                                  |  | Incorporated by reference to Exhibit 4 to the
	Registrants Quarterly Report on Form  10-QSB for the
	period ended June 30, 1997                         
|       
|       
|       
|       
|        | 4.5  |             |  | Specimen of Series A $3.00 Convertible Preferred Stock                                                                                                                                                          |  | Incorporated by reference to Exhibit 4.1 to the
	December 22, 1997 Form 8-K                                                                              
|       
|       
|       
|       
|        | 4.6  |             |  | Specimen of Series B $3.00 Convertible Preferred Stock                                                                                                                                                          |  | Incorporated by reference to Exhibit 4.2 to the
	December 22, 1997 Form 8-K                                                                              
|       
|       
|       
|       
|        | 4.7  |             |  | Specimen of Series C Convertible Preferred Stock                                                                                                                                                                |  | Incorporated by reference to Exhibit 4.7 to the
	March 27, 1997 Form 8-K                                                                                 
|       
|       
|       
|       
|        | 4.8  |             |  | Specimen of Series D Convertible Preferred Stock                                                                                                                                                                |  | Incorporated by reference to Exhibit 4.8 to the 1998
	Form 10K-SB                                                                                        
|       
|       
|       
|       
|        | 4.9  |             |  | Specimen of Series E Convertible Preferred Stock                                                                                                                                                                |  | Incorporated by reference to Exhibit 4.9 to the 1998
	Form 10K-SB                                                                                        
|       
|       
|       
|       
|        | 10.1 |             |  | 1999 Employee Stock Purchase Plan                                                                                                                                                                               |  | Incorporated by reference to Exhibit 4.4 to the
	Registrants Registration Statement on Form S-8 filed
	May 12, 1999 (the S-8)                         
|       
|       
|       
|       
|        | 10.2 |             |  | Amended and Restated 1993 Stock Option Plan                                                                                                                                                                     |  | Incorporated by reference to Exhibit 10.1 of the
	June 30, 1998 Form 10-QSB.                                                                             
|       
|       
|       
|       
|        | 10.3 |             |  | 1993 Outside Director Stock Option Plan                                                                                                                                                                         |  | Incorporated by reference to Exhibit 10.5 to the
	Registration Statement on Form S-1 (Registration
	No. 33-69380) filed September 24, 1993
	(Form S-1).
|       
|       
|       
|       
|        | 10.4 |             |  | Form of Stock Option                                                                                                                                                                                            |  | Incorporated by reference to Exhibit 10.1 to the
	December 22, 1997 Form 8-K                                                                             
|       
|       
|       
|       
|        | 10.5 |             |  | Asset Purchase Agreement dated August 11, 1999 by and among
	Osage Systems Group, Inc., Osage Computer Group, Inc., Leveraged
	Solutions, Inc., Michael Ehrensberger and Robert Carlson (the
	LSI Agreement). |  | Filed herewith                                                                                                                                           

43



---



|        |       |             |  |                                                                                                                                                                                                                |  |                                                                                                                                                         
|------- | ----- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |             |  |                                                                                                                                                                                                               
|No.     |       | Description |  | Method of Filing                                                                                                                                                                                              
|        |       |             |  |                                                                                                                                                                                                               
|        | 10.6  |             |  | Settlement Agreement and Amendment No. 1 to the LSI
	Agreement dated as of December 9, 1999                                                                                                                    |  | Filed herewith                                                                                                                                          
|       
|       
|       
|       
|        | 10.7  |             |  | Severance Agreement dated October 8, 1999 by and between
	Osage Systems Group, Inc. and Jack R. Leadbeater                                                                                                     |  | Incorporated by reference to Exhibit 10.38 of the
	Registrants Current Report on Form  8-K dated
	November 22, 1999 (the November 22, 1999
	Form 8-K)
|       
|       
|       
|       
|        | 10.8  |             |  | Severance Agreement dated October 8, 1999 by and between
	Osage Systems Group, Inc. and David S. Olson.                                                                                                        |  | Incorporated by reference to Exhibit 10.39 of the
	November 22, 1999 Form 8-K                                                                           
|       
|       
|       
|       
|        | 10.9  |             |  | Employment Agreement with Phil Carter dated November 23, 1999                                                                                                                                                  |  | Filed herewith                                                                                                                                          
|       
|       
|       
|       
|        | 10.10 |             |  | Option to Purchase 700,000 Shares granted to Phil Carter                                                                                                                                                       |  | Filed herewith                                                                                                                                          
|       
|       
|       
|       
|        | 10.11 |             |  | Option to Purchase 510,000 Shares granted to Phil Carter                                                                                                                                                       |  | Incorporated by reference to Exhibit 10.18 to the 1998
	Form 10K-SB Filed herewith.                                                                     
|       
|       
|       
|       
|        | 10.12 |             |  | Registration Rights Agreement dated June  22, 1998 by and
	among Osage Systems Group, Inc. and John Udelhofen, Michael
	Durbin, David Durbin and Brian Wolfe, the Shareholders of Open
	Business Systems, Inc. |  | Incorporated by reference to Exhibit 10.22 of the
	July 7, 1998 Form 8-K                                                                                
|       
|       
|       
|       
|        | 10.13 |             |  | Securities Purchase Agreement dated as of October 8, 1999 by
	 and among Osage Systems Group, Inc., Michael Lancer, Lancer
	Offshore, Inc., Lancer Partners, L.P. and The Orbiter Fund, Ltd.                   |  | Incorporated by reference to Exhibit 10.40 of the
	November 22, 1999 Form 8-K                                                                           
|       
|       
|       
|       
|        | 10.14 |             |  | Form of Convertible Subordinated Debenture issued by Osage
	Systems Group, Inc. to Lancer Offshore, Inc., Lancer Partners,
	L.P., The Orbiter Fund, Ltd. and Michael Lauer                                     |  | Incorporated by reference to Exhibit 10.41 of the
	November 22, 1999 Form 8-K                                                                           
|       
|       
|       
|       
|        | 10.15 |             |  | Form of Long-Term Warrant issued by Osage Systems Group, Inc. to
	Lancer Offshore, Inc., Lancer Partners, L.P., The Orbiter Fund,
	Ltd. and Michael Lauer                                                      |  | Incorporated by reference to Exhibit 10.42 of the
	November 22, 1999 Form 8-K                                                                           
|       
|       
|       
|       
|        | 21.1  |             |  | Subsidiaries of the Registrant                                                                                                                                                                                 |  | Filed herewith.                                                                                                                                         
|       
|       
|       
|       
|        | 27.1  |             |  | Financial Data Schedule                                                                                                                                                                                        |  | Filed herewith.                                                                                                                                         

(b)  The Company filed the following reports on
Form 8-K during the quarter ended December 31, 1999.



| |                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  A Report on Form 8-K was filed with the Securities
	 and Exchange Commission on December 7, 1999 relating to
	changes in the management and majority of the Board of Director
	.                                                         
|
| | (ii)  A Report on Form 8-K was filed with the
	Securities and Exchange Commission on November 10, 1999
	relating to the resignation of Mark Weiss as a Director and the
	resignation of John Iorillo as Director and Chief Financial
	Officer.

44



---



INDEPENDENT AUDITORS REPORT

Stockholders and Board of Directors





We have audited the accompanying consolidated balance sheets of
Osage Systems Group, Inc. and subsidiaries (the
Company) as of December 31, 1999 and 1998, and
the related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 1999. 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 generally accepted
auditing standards. 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, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company at December 31, 1999 and 1998, and the results of
its operations and its cash flows for each of the three years in
the period ended December 31, 1999 in conformity with
generally accepted accounting principles.



| |                      
| | ---------------------
| | DELOITTE & TOUCHE LLP

Phoenix, Arizona



45



---



OSAGE SYSTEMS GROUP, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 1999 and 1998


|                                                             |                                                                                                                                                                                |                            |        |         |        |   |        |        |        | 
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------ | ------- | ------ | - | ------ | ------ | ------ | 
|                                                             |                                                                                                                                                                                | 1999                       |        | 1998   
|                                                             |                                                                                                                                                                                |                            |        |        
|                                                             |                                                                                                                                                                                |                           
|                                                             |                                                                                                                                                                                | (000s omitted except     
|                                                             |                                                                                                                                                                                | share data)               
|                                                            
|                                                            
|                                                            
|                                                            
|ASSETS                                                       |                                                                                                                                                                                |                            |        |         |        |   |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|CURRENT ASSETS:                                              |                                                                                                                                                                                |                            |        |         |        |   |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Cash and cash equivalents                                                                                                                                                      |                            | $      | 2,546   |        |   | $      | 3,152  |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Accounts receivable  net of allowance for doubtful
	accounts of $203 in 1999 and $132 in 1998 (Note 5)                                                                        |                            |        | 23,198  |        |   |        | 14,078 |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Inventories (Note 5)                                                                                                                                                           |                            |        | 534     |        |   |        | 332    |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Prepaid expenses and other current assets (Note 10)                                                                                                                            |                            |        | 700     |        |   |        | 557    |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Deferred income taxes (Note 11)                                                                                                                                                |                            |        | 568     |        |   |        | 508    |       
|                                                             |                                                                                                                                                                                |                            |        |         |        |   |        |       
|                                                             |                                                                                                                                                                                | Total current assets       |        |         | 27,546 |   |        |        | 18,627 | 
|                                                            
|                                                            
|                                                            
|                                                            
|Furniture and equipment  Net (Notes 4 and 5)                |                                                                                                                                                                                |                            | 1,804  |         |        |   | 1,475  |       
|                                                            
|                                                            
|                                                            
|                                                            
|Goodwill  Net (Note 5)                                      |                                                                                                                                                                                |                            | 14,577 |         |        |   | 15,462 |       
|                                                            
|                                                            
|                                                            
|                                                            
|Deferred income taxes (Note 11)                              |                                                                                                                                                                                |                            | 2,140  |         |        |   | 1,392  |       
|                                                            
|                                                            
|                                                            
|                                                            
|Other assets                                                 |                                                                                                                                                                                |                            | 443    |         |        |   | 205    |       
|                                                             |                                                                                                                                                                                |                            |        |         |        |   |        |       
|Total assets                                                 |                                                                                                                                                                                | $                          | 46,510 |         |        | $ | 37,161 |       
|                                                             |                                                                                                                                                                                |                            |        |         |        |   |        |       
|LIABILITIES AND STOCKHOLDERS EQUITY                         |                                                                                                                                                                                |                            |        |         |        |   |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|CURRENT LIABILITIES:                                         |                                                                                                                                                                                |                            |        |         |        |   |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Line of credit (Note 5)                                                                                                                                                        |                            |        |         |        |   | $      | 750    |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Current portion of long-term debt (Notes 5, 8 and 10)                                                                                                                          |                            | $      | 4,356   |        |   |        | 1,914  |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Accounts payable (Note 5)                                                                                                                                                      |                            |        | 7,507   |        |   |        | 15,857 |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Accrued expenses                                                                                                                                                               |                            |        | 2,732   |        |   |        | 2,142  |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Accrued restructuring costs (Note 2)                                                                                                                                           |                            |        | 1,287   |        |   |        |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Deferred revenue                                                                                                                                                               |                            |        | 190     |        |   |        | 1,186  |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Income taxes payable (Note 11)                                                                                                                                                 |                            |        |         |        |   |        | 70     |       
|                                                             |                                                                                                                                                                                |                            |        |         |        |   |        |       
|                                                             |                                                                                                                                                                                | Total current liabilities  |        |         | 16,072 |   |        |        | 21,919 | 
|                                                            
|                                                            
|                                                            
|                                                            
|LONG-TERM DEBT  Net of current portion (Notes 5,
	8 and 10) |                                                                                                                                                                                |                            | 14,952 |         |        |   | 645    |       
|                                                            
|                                                            
|                                                            
|                                                            
|CONVERTIBLE SUBORDINATED DEBENTURES (Notes 6 and 14)         |                                                                                                                                                                                |                            | 1,745  |         |        |   |        |       
|                                                             |                                                                                                                                                                                |                            |        |         |        |   |        |       
|                                                             |                                                                                                                                                                                | Total liabilities          |        |         | 32,769 |   |        |        | 22,564 | 
|                                                             |                                                                                                                                                                                |                            |        |         |        |   |        |       
|COMMITMENTS AND CONTINGENCIES (Notes 3, 7, 8, 9 and 14)      |                                                                                                                                                                                |                            |        |         |        |   |        |       
|SERIES D CONVERTIBLE REDEEMABLE PREFERRED STOCK              |                                                                                                                                                                                |                            |        |         |        |   |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Issued and outstanding, 1,000 shares in 1999 and 1998; total
	liquidation preference, $1,000 (Note 3)                                                                          |                            |        | 1,200   |        |   |        | 766    |       
|                                                             |                                                                                                                                                                                |                            |        |         |        |   |        |       
|SERIES E CONVERTIBLE REDEEMABLE PREFERRED STOCK              |                                                                                                                                                                                |                            |        |         |        |   |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Issued and outstanding, 2000 shares in 1999; total liquidation
	preference, $2,000 (Note 3)                                                                                    |                            |        | 1,713   |        |   |        |        |       
|                                                             |                                                                                                                                                                                |                            |        |         |        |   |        |       
|STOCKHOLDERS EQUITY (Notes 3, 9 and 12)                     |                                                                                                                                                                                |                            |        |         |        |   |        |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Series A Convertible Preferred, $100 stated
	value  authorized, issued and outstanding,
	10 shares in 1999 and 1998; total liquidation preference,
	$300,000 in 1999 and 1998 |                            |        | 1       |        |   |        | 1      |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Series C Convertible Preferred, $50 stated value 
	 authorized, issued and outstanding, 25 shares in 1998;
	total liquidation preference, $375,000                            |                            |        |         |        |   |        | 1      |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Common stock, $.01 par value  authorized, 50,000,000
	shares; issued and outstanding, 10,334,976 shares in 1999 and
	9,511,058 shares in 1998                                 |                            |        | 103     |        |   |        | 95     |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Additional paid-in capital                                                                                                                                                     |                            |        | 21,495  |        |   |        | 17,434 |       
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Accumulated deficit                                                                                                                                                            |                            |        | (10,771 | )      |   |        | (3,700 | )     
|                                                             |                                                                                                                                                                                |                            |        |         |        |   |        |       
|                                                             |                                                                                                                                                                                | Total stockholders equity |        |         | 10,828 |   |        |        | 13,831 | 
|                                                             |                                                                                                                                                                                |                            |        |         |        |   |        |       
|Total liabilities and stockholders equity                   |                                                                                                                                                                                | $                          | 46,510 |         |        | $ | 37,161 |       
|                                                             |                                                                                                                                                                                |                            |        |         |        |   |        |       

See notes to consolidated financial statements.

46



---



OSAGE SYSTEMS GROUP, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

Years Ended December 31, 1999, 1998 and 1997


|                                             |                                               |                                           |           |         |         |      |           |        |        |   |           |        |        | 
|-------------------------------------------- | --------------------------------------------- | ----------------------------------------- | --------- | ------- | ------- | ---- | --------- | ------ | ------ | - | --------- | ------ | ------ | 
|                                             |                                               | 1999                                      |           | 1998    |         | 1997
|                                             |                                               |                                           |           |         |         |     
|                                             |                                               |                                          
|                                             |                                               | (000s omitted except share and per share
|                                             |                                               | data)                                    
|                                            
|                                            
|                                            
|                                            
|REVENUE:                                     |                                               |                                           |           |         |         |      |           |        |        |   |           |       
|                                            
|                                            
|                                            
|                                            
|                                             | Hardware and software sales                   |                                           | $         | 101,570 |         |      | $         | 55,047 |        |   | $         | 13,800 |       
|                                            
|                                            
|                                            
|                                            
|                                             | Services and consulting revenues              |                                           |           | 13,150  |         |      |           | 5,929  |        |   |           | 391    |       
|                                             |                                               |                                           |           |         |         |      |           |        |        |   |           |       
|                                             |                                               | Total revenue                             |           |         | 114,720 |      |           |        | 60,976 |   |           |        | 14,191 | 
|                                            
|                                            
|                                            
|                                            
|COST OF SALES                                |                                               |                                           | 88,730    |         |         |      | 49,430    |        |        |   | 11,670    |       
|                                             |                                               |                                           |           |         |         |      |           |        |        |   |           |       
|                                             |                                               | GROSS PROFIT                              |           |         | 25,990  |      |           |        | 11,546 |   |           |        | 2,521  | 
|                                             |                                               |                                           |           |         |         |      |           |        |        |   |           |       
|OPERATING EXPENSES:                          |                                               |                                           |           |         |         |      |           |        |        |   |           |       
|                                            
|                                            
|                                            
|                                            
|                                             | Selling, general and administrative expenses  |                                           |           | 26,250  |         |      |           | 15,133 |        |   |           | 2,776  |       
|                                            
|                                            
|                                            
|                                            
|                                             | Restructuring and impairment charges (Note 2) |                                           |           | 4,375   |         |      |           |        |        |   |           |        |       
|                                            
|                                            
|                                            
|                                            
|                                             | Depreciation and amortization                 |                                           |           | 1,610   |         |      |           | 748    |        |   |           | 31     |       
|                                             |                                               |                                           |           |         |         |      |           |        |        |   |           |       
|                                             |                                               | Total operating expenses                  |           |         | 32,235  |      |           |        | 15,881 |   |           |        | 2,807  | 
|                                             |                                               |                                           |           |         |         |      |           |        |        |   |           |       
|OPERATING LOSS                               |                                               |                                           | (6,245    | )       |         |      | (4,335    | )      |        |   | (286      | )     
|                                            
|                                            
|                                            
|                                            
|INTEREST EXPENSE  NET                       |                                               |                                           | (813      | )       |         |      | (218      | )      |        |   | (10       | )     
|                                             |                                               |                                           |           |         |         |      |           |        |        |   |           |       
|LOSS BEFORE BENEFIT FOR INCOME TAXES         |                                               |                                           | (7,058    | )       |         |      | (4,553    | )      |        |   | (296      | )     
|                                            
|                                            
|                                            
|                                            
|BENEFIT FOR INCOME TAXES (Note 11)           |                                               |                                           | (648      | )       |         |      | (1,529    | )      |        |   | (3        | )     
|                                             |                                               |                                           |           |         |         |      |           |        |        |   |           |       
|NET LOSS                                     |                                               |                                           | (6,410    | )       |         |      | (3,024    | )      |        |   | (293      | )     
|                                            
|                                            
|                                            
|                                            
|SERIES D EMBEDDED DIVIDENDS                  |                                               |                                           | 434       |         |         |      |           |        |        |   |           |       
|                                             |                                               |                                           |           |         |         |      |           |        |        |   |           |       
|NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS |                                               | $                                         | (6,844    | )       |         | $    | (3,024    | )      |        | $ | (293      | )     
|                                             |                                               |                                           |           |         |         |      |           |        |        |   |           |       
|BASIC AND DILUTED LOSS PER SHARE             |                                               | $                                         | (0.70     | )       |         | $    | (0.40     | )      |        | $ | (0.06     | )     
|                                             |                                               |                                           |           |         |         |      |           |        |        |   |           |       
|BASIC AND DILUTED SHARES OUTSTANDING         |                                               |                                           | 9,729,131 |         |         |      | 7,632,407 |        |        |   | 4,820,000 |       
|                                             |                                               |                                           |           |         |         |      |           |        |        |   |           |       

See notes to consolidated financial statements.

47



---



OSAGE SYSTEMS GROUP, INC.

CONSOLIDATED STATEMENTS STOCKHOLDERS EQUITY

Years Ended December 31, 1999, 1998, and 1997


|                          |                                                                              |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            |           |  |   |     |    | 
|------------------------- | ---------------------------------------------------------------------------- | --------------------------------- | --- | --------------- | - | --------------- | -- | ------------ | - | ------ | -- | ------ | - | ------ | - | ------ | - |  | -- | --- | - |  | - | -- | - | - | ---------- | --------- |  | - | --- | -- | 
|                          |                                                                              |                                  
|                          |                                                                              | Stockholders equity             
|                          |                                                                              |                                  
|                          |                                                                              |                                   |     |                 |   |                 |    |             
|                          |                                                                              | Series A                          |     | Series B        |   | Series C        |    |             
|                          |                                                                              | Convertible                       |     | Convertible     |   | Convertible     |    |             
|                          |                                                                              | Preferred Stock                   |     | Preferred Stock |   | Preferred Stock |    | Common Stock
|                          |                                                                              |                                   |     |                 |   |                 |    |             
|                          |                                                                              | Shares                            |     | Amount          |   | Shares          |    | Amount       |   | Shares |    | Amount |   | Shares |   | Amount
|                          |                                                                              |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |       
|                          |                                                                              |                                  
|                          |                                                                              | (000s omitted except share data)
|                         
|                         
|                         
|                         
|Balance January 1, 1997   |                                                                              |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   | 4,820,000  |           |  | $ | 48  |   
|                         
|                         
|                         
|                         
|                          | Acquisition of Pacific Rim Entertainment, Inc.                               |                                   |     |                 |   |                 |    |              |   |        |    | 50     |   |        | $ | 5      |   |  |    |     |   |  |   |    |   |   |            |           |  |   |     |    | 
|                         
|                         
|                         
|                         
|                          | Private placement offering                                                   |                                   |     | 122             |   |                 | $  | 12           |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            |           |  |   |     |    | 
|                         
|                         
|                         
|                         
|                          | Net Loss                                                                     |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            |           |  |   |     |    | 
|                          |                                                                              |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            |           |  |   |     |   
|Balance December 31, 1997 |                                                                              |                                   | 122 |                 |   |                 | 12 |              |   |        | 50 |        |   |        | 5 |        |   |  |    |     |   |  |   |    |   |   | 4,820,000  |           |  |   | 48  |   
|                         
|                         
|                         
|                         
|                          | Acquisition of Solsource                                                     |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            | 150,000   |  |   |     | 2  | 
|                         
|                         
|                         
|                         
|                          | Acquisition of HV Jones                                                      |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    | 105 |   |  | $ | 5  |   |   |            |           |  |   |     |    | 
|                         
|                         
|                         
|                         
|                          | Acquisition of OST                                                           |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            | 383,334   |  |   |     | 4  | 
|                         
|                         
|                         
|                         
|                          | Acquisition of OBS                                                           |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            | 432,330   |  |   |     | 4  | 
|                         
|                         
|                         
|                         
|                          | Acquisition of E-Comm                                                        |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            | 149,700   |  |   |     | 1  | 
|                         
|                         
|                         
|                         
|                          | Issuance of Series D preferred stock and common stock
	warrants (Note 3)     |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            |           |  |   |     |    | 
|                         
|                         
|                         
|                         
|                          | Issuance of common stock (Note 3)                                            |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            | 1,780,294 |  |   |     | 18 | 
|                         
|                         
|                         
|                         
|                          | Conversion of preferred stock into common stock (Note 3)                     |                                   |     | (112            | ) |                 |    | (11          | ) |        |    | (50    | ) |        |   | (5     | ) |  |    | (80 | ) |  |   | (4 | ) |   |            | 1,795,400 |  |   |     | 18 | 
|                         
|                         
|                         
|                         
|                          | Net Loss                                                                     |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            |           |  |   |     |    | 
|                          |                                                                              |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            |           |  |   |     |   
|Balance December 31, 1998 |                                                                              |                                   | 10  |                 |   |                 | 1  |              |   |        |    |        |   |        |   |        |   |  | 25 |     |   |  | 1 |    |   |   | 9,511,058  |           |  |   | 95  |   
|                         
|                         
|                         
|                         
|                          | Issuance of Series E preferred stock and common stock
	warrants (Note 3)     |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            |           |  |   |     |    | 
|                         
|                         
|                         
|                         
|                          | Conversion of preferred stock into common stock (Note 3)                     |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    | (25 | ) |  |   | (1 | ) |   |            | 54,585    |  |   |     | 1  | 
|                         
|                         
|                         
|                         
|                          | Series D Embedded Dividends (Note 3)                                         |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            |           |  |   |     |    | 
|                         
|                         
|                         
|                         
|                          | Issuance of common stock (Note 3)                                            |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            | 769,333   |  |   |     | 7  | 
|                         
|                         
|                         
|                         
|                          | Value assigned to warrants issued with the convertible debentures
	 (Note 6) |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            |           |  |   |     |    | 
|                         
|                         
|                         
|                         
|                          | Series D and E Preferred Dividends (Note 3)                                  |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            |           |  |   |     |    | 
|                         
|                         
|                         
|                         
|                          | Net Loss                                                                     |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            |           |  |   |     |    | 
|                          |                                                                              |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            |           |  |   |     |   
|Balance December 31, 1999 |                                                                              |                                   | 10  |                 |   | $               | 1  |              |   |        |    |        |   | $      |   |        |   |  |    |     |   |  |   |    |   | $ | 10,334,976 |           |  | $ | 103 |   
|                          |                                                                              |                                   |     |                 |   |                 |    |              |   |        |    |        |   |        |   |        |   |  |    |     |   |  |   |    |   |   |            |           |  |   |     |   

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                          |                                                                              |                                   |        |           |   |               |         |        |   |   |        |        |  
|------------------------- | ---------------------------------------------------------------------------- | --------------------------------- | ------ | --------- | - | ------------- | ------- | ------ | - | - | ------ | ------ | -
|                          |                                                                              |                                  
|                          |                                                                              | Stockholders equity             
|                          |                                                                              |                                  
|                          |                                                                              | Additional                        |        | Retained  |   | Total        
|                          |                                                                              | Paid-in                           |        | Earnings  |   | Stockholders
|                          |                                                                              | Capital                           |        | (Deficit) |   | Equity       
|                          |                                                                              |                                   |        |           |   |              
|                          |                                                                              |                                  
|                          |                                                                              | (000s omitted except share data)
|                         
|                         
|                         
|                         
|Balance January 1, 1997   |                                                                              |                                   |        |           |   | $             | 117     |        |   | $ | 165    |       
|                         
|                         
|                         
|                         
|                          | Acquisition of Pacific Rim Entertainment, Inc.                               |                                   | $      | (716      | ) |               |         | (500   | ) |   |        | (1,211 | )
|                         
|                         
|                         
|                         
|                          | Private placement offering                                                   |                                   |        | 3,488     |   |               |         |        |   |   |        | 3,500  |  
|                         
|                         
|                         
|                         
|                          | Net Loss                                                                     |                                   |        |           |   |               |         | (293   | ) |   |        | (293   | )
|                          |                                                                              |                                   |        |           |   |               |         |        |   |   |        |       
|Balance December 31, 1997 |                                                                              |                                   | 2,772  |           |   |               | (676    | )      |   |   | 2,161  |       
|                         
|                         
|                         
|                         
|                          | Acquisition of Solsource                                                     |                                   |        | 1,029     |   |               |         |        |   |   |        | 1,031  |  
|                         
|                         
|                         
|                         
|                          | Acquisition of HV Jones                                                      |                                   |        | 1,574     |   |               |         |        |   |   |        | 1,579  |  
|                         
|                         
|                         
|                         
|                          | Acquisition of OST                                                           |                                   |        | 2,568     |   |               |         |        |   |   |        | 2,572  |  
|                         
|                         
|                         
|                         
|                          | Acquisition of OBS                                                           |                                   |        | 2,382     |   |               |         |        |   |   |        | 2,386  |  
|                         
|                         
|                         
|                         
|                          | Acquisition of E-Comm                                                        |                                   |        | 929       |   |               |         |        |   |   |        | 930    |  
|                         
|                         
|                         
|                         
|                          | Issuance of Series D preferred stock and common stock
	warrants (Note 3)     |                                   |        | 154       |   |               |         |        |   |   |        | 154    |  
|                         
|                         
|                         
|                         
|                          | Issuance of common stock (Note 3)                                            |                                   |        | 6,024     |   |               |         |        |   |   |        | 6,042  |  
|                         
|                         
|                         
|                         
|                          | Conversion of preferred stock into common stock (Note 3)                     |                                   |        | 2         |   |               |         |        |   |   |        |        |  
|                         
|                         
|                         
|                         
|                          | Net Loss                                                                     |                                   |        |           |   |               |         | (3,024 | ) |   |        | (3,024 | )
|                          |                                                                              |                                   |        |           |   |               |         |        |   |   |        |       
|Balance December 31, 1998 |                                                                              |                                   | 17,434 |           |   |               | (3,700  | )      |   |   | 13,831 |       
|                         
|                         
|                         
|                         
|                          | Issuance of Series E preferred stock and common stock
	warrants (Note 3)     |                                   |        | 180       |   |               |         |        |   |   |        | 180    |  
|                         
|                         
|                         
|                         
|                          | Conversion of preferred stock into common stock (Note 3)                     |                                   |        |           |   |               |         |        |   |   |        |        |  
|                         
|                         
|                         
|                         
|                          | Series D Embedded Dividends (Note 3)                                         |                                   |        |           |   |               |         | (434   | ) |   |        | (434   | )
|                         
|                         
|                         
|                         
|                          | Issuance of common stock (Note 3)                                            |                                   |        | 2,104     |   |               |         |        |   |   |        | 2,111  |  
|                         
|                         
|                         
|                         
|                          | Value assigned to warrants issued with the convertible debentures
	 (Note 6) |                                   |        | 1,777     |   |               |         |        |   |   |        | 1,777  |  
|                         
|                         
|                         
|                         
|                          | Series D and E Preferred Dividends (Note 3)                                  |                                   |        |           |   |               |         | (227   | ) |   |        | (227   | )
|                         
|                         
|                         
|                         
|                          | Net Loss                                                                     |                                   |        |           |   |               |         | (6,410 | ) |   |        | (6,410 | )
|                          |                                                                              |                                   |        |           |   |               |         |        |   |   |        |       
|Balance December 31, 1999 |                                                                              | $                                 | 21,495 |           |   | $             | (10,771 | )      |   | $ | 10,828 |       
|                          |                                                                              |                                   |        |           |   |               |         |        |   |   |        |       

See notes to consolidated financial statements.

48



---



OSAGE SYSTEMS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 1999, 1998, and 1997


|                                                     |                                                                                            |                                              |                                       |                                                     |       |        |         |        |        |        |        |       |      |     |       |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------ | -------------------------------------------- | ------------------------------------- | --------------------------------------------------- | ----- | ------ | ------- | ------ | ------ | ------ | ------ | ----- | ---- | --- | ----- | -
|                                                     |                                                                                            | 1999                                         |                                       | 1998                                                |       | 1997  
|                                                     |                                                                                            |                                              |                                       |                                                     |       |       
|                                                     |                                                                                            |                                             
|                                                     |                                                                                            | (000s omitted)                             
|                                                    
|                                                    
|                                                    
|                                                    
|Cash flows from operating activities:                |                                                                                            |                                              |                                       |                                                     |       |        |         |        |        |        |        |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net loss                                                                                   |                                              | $                                     | (6,410                                              | )     |        | $       | (3,024 | )      |        | $      | (293  | )   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net loss to net cash (used in) provided
	by operating activities: |                                              |                                       |                                                     |       |        |         |        |        |        |        |       |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Depreciation and amortization                |                                       |                                                     | 1,610 |        |         |        | 748    |        |        |       | 31   |    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Impairment charge                            |                                       |                                                     | 2,645 |        |         |        |        |        |        |       |      |    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Non-operating interest                       |                                       |                                                     | 127   |        |         |        |        |        |        |       |      |    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Stock-based compensation                     |                                       |                                                     | 0     |        |         |        |        |        |        |       | 300  |    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Loss on disposal of assets                   |                                       |                                                     | 186   |        |         |        |        |        |        |       | 2    |    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Loss on disposal of investments              |                                       |                                                     |       |        |         |        |        |        |        |       | 50   |    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Deferred income taxes                        |                                       |                                                     | (648  | )      |         |        | (1,352 | )      |        |       | (265 | )  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Interest on employee retention programs      |                                       |                                                     |       |        |         |        | 43     |        |        |       |      |    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            | Changes in operating assets and liabilities: |                                       |                                                     |       |        |         |        |        |        |        |       |      |    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            |                                              | Accounts receivable                   |                                                     |       | (9,120 | )       |        |        | (7,637 | )      |       |      | (35 | )    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            |                                              | Inventories                           |                                                     |       | (202   | )       |        |        | 205    |        |       |      | (4  | )    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            |                                              | Prepaid expenses and other assets     |                                                     |       | (796   | )       |        |        | (294   | )      |       |      | 22  |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            |                                              | Accounts payable                      |                                                     |       | (8,349 | )       |        |        | 10,253 |        |       |      | 309 |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            |                                              | Accrued expenses and deferred revenue |                                                     |       | 876    |         |        |        | 2,416  |        |       |      | 125 |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                            |                                              | Income taxes payable                  |                                                     |       | (70    | )       |        |        | (192   | )      |       |      | 262 |      
|                                                     |                                                                                            |                                              |                                       |                                                     |       |        |         |        |        |        |        |      
|                                                     |                                                                                            |                                              |                                       | Net cash (used in) provided by operating activities |       |        | (20,151 | )      |        |        | 1,166  |       |      |     | 504   |  
|                                                     |                                                                                            |                                              |                                       |                                                     |       |        |         |        |        |        |        |      
|Cash flows from investment activities                |                                                                                            |                                              |                                       |                                                     |       |        |         |        |        |        |        |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                                                                       |                                              |                                       | (1,005                                              | )     |        |         | (1,148 | )      |        |        | (39   | )   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Acquisition costs, net of cash received                                                    |                                              |                                       | (307                                                | )     |        |         | (6,673 | )      |        |        |       |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investments                                                                                |                                              |                                       |                                                     |       |        |         |        |        |        |        | (25   | )   
|                                                     |                                                                                            |                                              |                                       |                                                     |       |        |         |        |        |        |        |      
|                                                     |                                                                                            |                                              |                                       | Net cash used in investing activities               |       |        | (1,312  | )      |        |        | (7,821 | )     |      |     | (64   | )
|                                                     |                                                                                            |                                              |                                       |                                                     |       |        |         |        |        |        |        |      
|Cash flows from financing activities                 |                                                                                            |                                              |                                       |                                                     |       |        |         |        |        |        |        |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net borrowings under line of credit agreements                                             |                                              |                                       | 14,066                                              |       |        |         | 750    |        |        |        |       |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Borrowings on long-term debt                                                               |                                              |                                       | 3,500                                               |       |        |         | 740    |        |        |        |       |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Borrowings on convertible debentures                                                       |                                              |                                       | 2,820                                               |       |        |         |        |        |        |        |       |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Principal payments on capital leases                                                       |                                              |                                       | (19                                                 | )     |        |         | (39    | )      |        |        |       |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Distribution to Osage stockholders                                                         |                                              |                                       |                                                     |       |        |         |        |        |        |        | (500  | )   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Repayment of bridge indebtedness                                                           |                                              |                                       |                                                     |       |        |         |        |        |        |        | (450  | )   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net proceeds from sale of common stock and preferred shares                                |                                              |                                       | 2,595                                               |       |        |         | 6,961  |        |        |        | 3,500 |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Principal payments on long-term debt                                                       |                                              |                                       | (2,105                                              | )     |        |         | (1,181 | )      |        |        |       |     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Repayment of note payable due to former parent company                                     |                                              |                                       |                                                     |       |        |         |        |        |        |        | (154  | )   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of treasury stock                                                                 |                                              |                                       |                                                     |       |        |         |        |        |        |        | (213  | )   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Acquisition costs                                                                          |                                              |                                       |                                                     |       |        |         |        |        |        |        | (48   | )   
|                                                     |                                                                                            |                                              |                                       |                                                     |       |        |         |        |        |        |        |      
|                                                     |                                                                                            |                                              |                                       | Net cash provided by financing activities           |       |        | 20,857  |        |        |        | 7,231  |       |      |     | 2,135 |  
|                                                     |                                                                                            |                                              |                                       |                                                     |       |        |         |        |        |        |        |      
|Net (decrease) increase in cash and cash equivalents |                                                                                            |                                              | (606                                  | )                                                   |       |        | 576     |        |        |        | 2,575  |      
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents, beginning of year         |                                                                                            |                                              | 3,152                                 |                                                     |       |        | 2,576   |        |        |        | 1      |      
|                                                     |                                                                                            |                                              |                                       |                                                     |       |        |         |        |        |        |        |      
|Cash and cash equivalents, end of year               |                                                                                            | $                                            | 2,546                                 |                                                     |       | $      | 3,152   |        |        | $      | 2,576  |      
|                                                     |                                                                                            |                                              |                                       |                                                     |       |        |         |        |        |        |        |      

49



---



OSAGE SYSTEMS GROUP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

Years ended December 31, 1999, 1998, 1997


|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |    |  | 
|------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------------------------------- | - | ---- |  | ---- | - | --- | ----- |  | - | -- |  | 
|                                                                          |                                            | 1999                                                          |   | 1998 |  | 1997
|                                                                          |                                            |                                                               |   |      |  |     
|                                                                          |                                            |                                                              
|                                                                          |                                            | (000s omitted)                                              
|Supplemental disclosures of cash flow information                         |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Cash paid for interest                     |                                                               | $ | 584  |  |      | $ | 257 |       |  | $ | 10 | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          | Income taxes paid                          |                                                               | $ | 0    |  |      | $ | 17  |       |  |   |    | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          | Income taxes refunded                      |                                                               | $ | 15   |  |      | $ | 47  |       |  |   |    | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|Supplemental disclosures of non-cash investing and financing
	activities: |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Non-cash aspects of Solsource acquisition: |                                                               |   |      |  |      |   |     |       |  |   |    | 
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                            | Stock issued                                                  |   |      |  |      |   | $   | 1,031 |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Fair value of assets acquired other than cash                 |   |      |  |      |   | $   | 1,340 |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Deferred tax asset acquired                                   |   |      |  |      |   | $   | 14    |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Liabilities assumed                                           |   |      |  |      |   | $   | 1,758 |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Goodwill recorded in connection with acquisition of Solsource |   |      |  |      |   | $   | 1,689 |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          | Non-cash aspects of HV Jones acquisition:  |                                                               |   |      |  |      |   |     |       |  |   |    | 
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                            | Stock issued                                                  |   |      |  |      |   | $   | 1,580 |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Fair value of assets acquired other than cash                 |   |      |  |      |   | $   | 602   |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Deferred tax asset acquired                                   |   |      |  |      |   | $   | 141   |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Liabilities assumed                                           |   |      |  |      |   | $   | 1,226 |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Note forgiveness                                              |   |      |  |      |   | $   | 60    |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Goodwill recorded in connection with acquisition of HV Jones  |   |      |  |      |   | $   | 2,601 |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          | Non-cash aspect of OST acquisition:        |                                                               |   |      |  |      |   |     |       |  |   |    | 
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                            | Stock issued                                                  |   |      |  |      |   | $   | 2,572 |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Fair value of assets acquired other than cash                 |   |      |  |      |   | $   | 1,664 |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Deferred tax asset acquired                                   |   |      |  |      |   | $   | 168   |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Liabilities assumed                                           |   |      |  |      |   | $   | 784   |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Employee retention program                                    |   |      |  |      |   | $   | 420   |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Note payable                                                  |   |      |  |      |   | $   | 238   |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Goodwill recorded in connection with acquisition of OST       |   |      |  |      |   | $   | 4,801 |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          | Non-cash aspects of OBS acquisition:       |                                                               |   |      |  |      |   |     |       |  |   |    | 
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                            | Stock issued                                                  |   |      |  |      |   | $   | 2,386 |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Fair value of assets acquired other than cash                 |   |      |  |      |   | $   | 2,009 |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Liabilities assumed                                           |   |      |  |      |   | $   | 1,699 |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Deferred tax liability assumed                                |   |      |  |      |   | $   | 43    |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   
|                                                                          |                                            | Goodwill recorded in connection with acquisition of OBS       |   |      |  |      |   | $   | 4,047 |  |   |    |  | 
|                                                                          |                                            |                                                               |   |      |  |      |   |     |       |  |   |   

50



---



|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  |  | 
|---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | --------------- | ----- | ---- |  | ---- | --- | ----- |  |  |  |  | 
|                                                                                               |                                                                                                   | 1999            |       | 1998 |  | 1997
|                                                                                               |                                                                                                   |                 |       |      |  |     
|                                                                                               |                                                                                                   |                
|                                                                                               |                                                                                                   | (000s omitted)
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Non-cash aspects of E-Comm acquisition:                                                        |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Stock issued                                                                                      |                 |       |      |  |      | $   | 930   |  |  |  |  | 
|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|                                                                                               | Fair value of assets acquired other than cash                                                     |                 |       |      |  |      | $   | 257   |  |  |  |  | 
|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|                                                                                               | Deferred tax asset acquired                                                                       |                 |       |      |  |      | $   | 32    |  |  |  |  | 
|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|                                                                                               | Liabilities assumed                                                                               |                 |       |      |  |      | $   | 88    |  |  |  |  | 
|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|                                                                                               | Employee retention program                                                                        |                 |       |      |  |      | $   | 64    |  |  |  |  | 
|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|                                                                                               | Goodwill recorded in connection with acquisition of E-Comm                                        |                 |       |      |  |      | $   | 1,098 |  |  |  |  | 
|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|Non-cash aspects of the systems integration business of IntraNet
	Solutions, Inc. acquisition: |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Deferred tax asset acquired                                                                       |                 |       |      |  |      | $   | 26    |  |  |  |  | 
|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|                                                                                               | Note payable                                                                                      |                 |       |      |  |      | $   | 785   |  |  |  |  | 
|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|                                                                                               | Employee retention program                                                                        |                 |       |      |  |      | $   | 60    |  |  |  |  | 
|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|                                                                                               | Goodwill recorded in connection with acquisition of the systems
	integration business of IntraNet |                 |       |      |  |      | $   | 1,702 |  |  |  |  | 
|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|Commitment fee on notes payable (Note 10)                                                      |                                                                                                   |                 |       |      |  | $    | 183 |       |  |  |  | 
|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|Non-cash aspects of LSI acquisition:                                                           |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Note payable                                                                                      |                 | $     | 500  |  |      |     |       |  |  |  |  | 
|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|                                                                                               | Fair value of assets acquired other than cash                                                     |                 | $     | 9    |  |      |     |       |  |  |  |  | 
|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|                                                                                               | Liabilities assumed                                                                               |                 | $     | 5    |  |      |     |       |  |  |  |  | 
|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|                                                                                               | Goodwill recorded in connection with acquisition of LSI                                           |                 | $     | 736  |  |      |     |       |  |  |  |  | 
|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|Common stock issued for earn-outs                                                              |                                                                                                   | $               | 1,500 |      |  |      |     |       |  |  |  | 
|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 
|Series D Embedded Dividend                                                                     |                                                                                                   | $               | 434   |      |  |      |     |       |  |  |  | 
|                                                                                               |                                                                                                   |                 |       |      |  |      |     |       |  |  |  | 

See notes to consolidated financial statements.

51



---



OSAGE SYSTEMS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 1999, 1998 and 1997


1.  Description of Business and Summary of Significant
Accounting Policies

Description of Business  Osage Systems Group,
Inc. (the Company), through its wholly-owned
subsidiaries, provides network computer solutions through a broad
 range of information technology services primarily in the states
 of Arizona, Texas, Florida, Illinois, Wisconsin, Minnesota,
Virginia and New York. Such services are intended to transform
discrete hardware and software components into integrated systems
 and provide solutions to complex information technology
problems.

On November 11, 1997, the former parent of Osage Computer
Group, Inc. (Osage), Sun Up Enterprises, Inc.
(Sun Up) was merged into Osage. In conjunction with
such merger, Sun Ups separate corporate existence ceased.

On December 22, 1997, the Company acquired Osage pursuant to
 the terms of a Merger Agreement dated November 5, 1997 (the
 Merger Agreement) with Pacific Rim Entertainment,
Inc., a publicly traded company. Upon the closing of the merger,
through a wholly-owned subsidiary, the Company acquired
100 percent of the outstanding capital stock of Osage in
exchange for consideration paid to the former stockholders of
Osage (the Osage Stockholders) consisting of:
(i) $500,000 in cash; (ii) 900,000 newly-issued shares
of common stock; (iii) 200,000 newly-issued shares of common
 stock; (iv) 50 shares of Series B $3.00 convertible
preferred stock (the Series B Shares), which are
 convertible into 500,000 shares of common stock (Note 2);
and (v) options with a term of six years that permit the
purchase of 800,000 shares of common stock (Note 12).

Contemporaneous with the merger, the Company completed a private
placement offering to accredited investors (the
Offering) of $3,660,000, consisting of 122 shares of
Series A $3.00 convertible preferred stock (the
Series A Shares). Part of the proceeds was used
by the Company to: (i) retire approximately $450,000 of
debt; (ii) pay the $500,000 cash component of the merger
consideration to the Osage Stockholders; and (iii) pay
$160,000 of related fees for such offering. The remainder of the
proceeds was used to finance the Companys strategic
acquisition strategy and working capital requirements.

On March 10, 1998, the Company changed its name from Pacific
 Rim Entertainment, Inc. to Osage Systems Group, Inc.

For accounting purposes, the merger is considered a reverse
acquisition with Osage being the accounting acquirer and Pacific
Rim Entertainment, Inc. being the legal acquirer. Accordingly,
because the Osage Stockholders retained voting and operating
control of the combined entity, the merger consideration was
allocated to the net assets of the Company followed by a
re-capitalization of Osage. All historical share and per share
amounts have been restated to retroactively reflect the reverse
acquisition.

During 1998, the Company commenced an aggressive acquisition
strategy to enhance its position in its current markets and
acquire operations in new markets. To effectuate this growth, the
 Company made one acquisition during 1999 and six acquisitions
during 1998.

On March 17, 1998, the Company acquired Solsource Computers,
 Inc. (Solsource) pursuant to the terms of an
Agreement and Plan of Merger. Upon closing, through a
wholly-owned subsidiary, the Company acquired 100 percent of the
outstanding capital stock of Solsource for merger consideration
of $1.1 million; consisting of $200,000 in cash and $900,000 in
newly issued common shares priced at $6.00 per share. In
addition, the agreement requires earn-out incentive shares of
$1.0 million to be issued if Solsource achieves certain
performance targets based upon performance criteria established
for the one-year anniversary following the date of acquisition.
This business was closed in 1999 as part of the restructuring
plan (Note 2).

On March 17, 1998, the Company also completed the
acquisition of H.V. Jones, Inc. (HV Jones)
pursuant to the terms of an Agreement and Plan of Merger dated
February 27, 1998. Upon closing, through a wholly-owned
subsidiary, the Company acquired 100 percent of the
outstanding capital stock of HV Jones for

52



---



OSAGE SYSTEMS GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

merger consideration of $1,975,000; consisting of $395,000 in
cash and $1.58 million (105.3 shares) in Series C
Convertible Preferred Stock (Series C Shares)
which converts into common stock during the next four quarters
(Note 3). In addition, the agreement requires earn-out
incentive shares of $2.7 million to be issued over a two-year
period if HV Jones achieves certain performance targets
based upon performance criteria established for the one and two
year anniversaries following the date of acquisition. On
July 6, 1999, the Company issued 144,535 shares of common
stock valued at $1,000,000 to the former shareholder of
HV Jones as HV Jones achieved certain performance
targets.

On April 24, 1998, the Company completed the acquisition of
100 percent of the outstanding capital stock of Open Systems
Technologies, Inc. (OST) for merger consideration of
$5.26 million; consisting of $2.76 million in cash ($260,000 is
payable no later than March 31, 1999), $2.0 million in newly
 issued common shares priced at $6.00 per share and $500,000 in a
 key employee retention program. The key employee retention
program is payable to key employees or the selling shareholders
within 30 days following the end of the 24th month of the
closing of the acquisition and is payable in equal portions of
cash and common stock.

On June 22, 1998, the Company completed the acquisition of
100 percent of the outstanding capital stock of Open Business
Systems, Inc. (OBS) for merger consideration of $4.0
million; consisting of $2.0 million in cash and $2.0 million in
newly issued common shares priced at $5.52 per share. In
addition, the agreement requires earn-out incentive shares of
$3.0 million to be issued over a three-year period if OBS
achieves certain performance targets based upon performance
criteria established for the one, two and three year
anniversaries following the date of acquisition. On
September 29, 1999, the Company issued 579,710 shares of
common stock valued at $500,000 to the former shareholders of OBS
 as OBS achieved certain performance targets.

On October 8, 1998, Osage acquired Electronic Commerce
Network Solutions Corporation (E-Comm) pursuant to
the terms of an Agreement and Plan of Merger. Upon closing,
through a wholly-owned subsidiary, Osage acquired 100 percent of
the outstanding stock of E-Comm for merger consideration of $1.25
 million; consisting of $232,500 in cash, $930,000 in newly
issued common shares priced at $6.21 per share and $87,500 in a
key employee retention program. $17,500 of the key employee
retention program was paid at closing, with the remaining $70,000
 payable to key employees or the selling shareholders within
60 days following the end of the first anniversary of the
closing of the acquisition and is payable in shares of the
Companys common stock. In addition, the agreement requires
earn-out incentive of $500,000 (20% cash and 80% common stock) to
 be issued over a two year period if E-Comm achieves certain
performance targets based upon performance criteria established
for the one and two year anniversaries following the date of
acquisition. This business was closed in 1999 as part of the
restructuring plan (Note 2).

On October 15, 1998, the Company completed the acquisition
of the systems integration business of IntraNet Solutions, Inc.
(IntraNet) for merger consideration of $1.6 million;
consisting of $715,000 in cash, $785,000 in the form of a note
payable, of which $250,000 was due and payable within
30 days after the closing and the remaining principal amount
 of $535,000 is due and payable within 90 days after the
closing, and $100,000 in a key employee retention program. Of the
 key employee retention program, $35,000, was paid at closing,
with the remaining $65,000 payable to key employees or the
selling shareholders within 30 days following the end of the
 first anniversary of the closing of the acquisition in shares of
 the Companys common stock. In addition, the agreement
requires earn-out incentive shares valued at $1.0 million to be
issued over a two-year period if IntraNet achieves certain
performance targets based upon performance criteria established
for the one and two year anniversaries following the date of
acquisition. No amounts were due under the one year earn-out.

On August 11, 1999, Osage completed the acquisition of the
business intelligence and data warehousing practice of Leveraged
Solutions, Inc. (LSI) for merger consideration of
$740,000, consisting of $240,000 in cash and a note for $500,000.

53



---



OSAGE SYSTEMS GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The LSI, Solsource, HV Jones, OST, OBS, E-Comm and the
systems integration business of IntraNet acquisitions were
accounted for using the purchase method of accounting for
business combinations. The excess of assets acquired over
liabilities assumed has been allocated to goodwill and is being
amortized over periods ranging from 5 to 20 years. Results
of operations of LSI, Solsource, HV Jones, OST, OBS, E-Comm
and the systems integration business of IntraNet have been
included in the Companys consolidated statements of
operations from their respective acquisition dates.

The unaudited proforma combined condensed financial information
below does not purport to represent the results of operations
that would have actually resulted had the purchases occurred on
the indicated dates, nor should it be taken as indicative of
future results of operations. The proforma information assumes
the acquisitions were made at the beginning of each year
presented.

|                   |  |                                         |         |      |  |      |        |   |  |   |        |  
|------------------ |  | --------------------------------------- | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                   |  |                                        
|                   |  | Fiscal Year                            
|                   |  |                                        
|                   |  | 1999                                    |         | 1998 |  | 1997
|                   |  |                                         |         |      |  |     
|                   |  |                                        
|                   |  | (in thousands except per share amounts)
|                  
|                  
|                  
|                  
|Net sales          |  | $                                       | 114,720 |      |  | $    | 83,046 |   |  | $ | 62,599 |  
|                   |  |                                         |         |      |  |      |        |   |  |   |        |  
|Operating loss     |  | $                                       | (6,245  | )    |  | $    | (4,571 | ) |  | $ | (1,160 | )
|                   |  |                                         |         |      |  |      |        |   |  |   |        |  
|Net loss           |  | $                                       | (6,410  | )    |  | $    | (3,180 | ) |  | $ | (1,706 | )
|                   |  |                                         |         |      |  |      |        |   |  |   |        |  
|Net loss per share |  | $                                       | (0.70   | )    |  | $    | (0.33  | ) |  | $ | (0.18  | )
|                   |  |                                         |         |      |  |      |        |   |  |   |        |  

Significant accounting policiesare as follows:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Basis of Consolidation  The accompanying
	financial statements include the accounts of the Company and its
	wholly-owned subsidiaries, Osage Computer Group, Inc.,
	H.V. Jones, Inc., Solsource Computers, Inc., Open Systems
	Technologies, Inc., Open Business Systems, Inc., Osage Systems
	Group Minnesota, Inc. and Osage Support Center, Inc. (the
	Support Center), (collectively, the
	Company). All significant intercompany balances and
	transactions are eliminated in consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Cash and Cash Equivalents  The Company
	considers all highly liquid debt instruments purchased with an
	original maturity of three months or less to be cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | Inventories, which consist of finished goods, are recorded
	 at the lower of cost (first-in, first-out) or market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | Furniture and equipmentare stated at cost. Depreciation
	is computed using the straight-line method over the estimated
	useful lives of the assets. The useful lives range from three to
	seven years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Goodwillrelating to the acquisitions made during 1999 and
	 1998, respectively, is being amortized on a straight-line basis
	over periods ranging from 5 to 20 years. For the years ended
	 December 31, 1999 and 1998, amortization expense was
	$1,110,426 and $475,471, respectively, and accumulated
	amortization at December 31, 1999 and December 31, 1998
	 was $1,249,998 and $475,471, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | Revenue Recognition  The Company recognizes
	sales of products when the products are shipped and services and
	support revenue are recognized when the applicable services are
	rendered. Prior to November 1, 1998, preventative
	maintenance contracts sold to customers were provided by an
	unrelated company. Upon sale of a preventative maintenance
	contract, the Company recognized the sale and related cost in its
	 statement of operations. Effective, November 1, 1998, the
	Support Center commenced operations whereby the service relating
	to preventative maintenance contracts sold to customers is
	initially handled by the Support Center. Accordingly, the sale
	and related costs of such contracts were recognized over the term
	 of the contract. Effective April 1999, all remaining
	preventative maintenance contracts were assigned to a third party
	 resulting in the elimination of the deferred revenue and prepaid
	 cost attributable to these contracts.

54



---



OSAGE SYSTEMS GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Income Taxes  The Company accounts for income
	taxes using the asset and liability approach, which can result in
	 recording tax provisions or benefits in periods different than
	the periods in which such taxes are paid or benefits realized.
	Deferred income taxes are recorded for the difference between the
	 book and tax basis of various assets and liabilities which can
	provide for current recognition of expected tax benefits from
	temporary differences that will result in deductible amounts in
	future years.                                                                                                                                                                                    
|
| | Net Income (Loss) Per Common Share  Net income
	(loss) per common share is computed by dividing net income (loss)
	 by the weighted average number of common shares outstanding
	during the year after giving effect to stock options and the
	conversion of preferred shares considered to be dilutive. Because
	 the Company incurred a loss for the years ended
	December 31, 1999 and 1998 and 1997, the effects of the
	potential dilutive securities discussed in Notes 1, 3 and 12
	 are not included in the calculations.                                                                                                                                                                                       
|
| | Financial Instruments and Concentration of Credit Risk
	  Financial instruments which potentially subject the
	Company to a concentration of credit risk consist of accounts
	receivable. The Company performs ongoing credit evaluations of
	its customers and generally does not require collateral on
	accounts receivable. The Company maintains allowances for
	probable credit losses and such losses have been within
	managements expectations. Write-offs of accounts receivable
	 have not been material for any of the periods presented.                                                                                                                                                                   
|
| | The fair value of cash and cash equivalents, accounts receivable,
	 accounts payable and accrued expenses approximates the carrying
	value due to the short-term nature of these instruments.
	Management has estimated that the fair values of the notes
	payable approximate the current balances outstanding, based on
	currently available rates for debt with similar terms.                                                                                                                                                                                                                                                                                                                                        
|
| | Use of Estimates  The preparation of financial
	statements in conformity with generally accepted accounting
	principles requires management to make estimates and assumptions
	that effect the reported amounts of assets and liabilities and
	disclosure of contingent assets and liabilities as of 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.                                                                                                                                                                                                                                          
|
| | Impairment  The Company continually evaluates
	whether events and circumstances have occurred that indicate the
	remaining estimated useful life of long-lived assets and
	identifiable intangible assets may warrant revision or that the
	remaining balance of these assets may not be recoverable. When
	factors indicate that these assets should be evaluated for
	possible impairment, the Companys management uses several
	factors including, among other the Companys projection of
	future operating revenues relating to these assets and their
	related impact on cash flows.                                                                                                                             
|
| | New Accounting Pronouncements  In June 1998,
	the FASB issued Statement of Financial Accounting Standards
	(SFAS) No. 133, Accounting for Derivative
	Instruments and Hedging Activities. This statement
	establishes standards for the accounting and reporting for
	derivative instruments and for hedging activities. During June
	1999, the Financial Accounting Standards Board (FASB)
	 issued SFAS No. 137, Accounting for Derivative
	Instruments and Hedging Activities-Deferral of the effective Date
	 of FASB Statement 133. The Statement defers the effective
	date of SFAS 133 to fiscal 2001. The Company has not
	completed evaluating the impact of implementing the provisions of
	 SFAS No. 133.
|
| | Reclassifications  Certain reclassifications
	have been made to conform the prior years financial
	statement amounts to the current year classifications.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

2.  Restructuring and Impairment Charges

During the Companys third quarter ended September 30,
1999, the Company announced and began to implement a
restructuring program aimed at eliminating unprofitable
operations, reducing overhead and

55



---



OSAGE SYSTEMS GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

focusing on long-term profitability. The restructuring plan is
broad-based and includes virtually all aspects of the
Companys operations and processes. The restructuring
activity resulted in the planned elimination of approximately
forty-five positions, including several senior executive
personnel, replacing two senior executives, vacating certain
leased facilities and canceling certain contracts. These actions
resulted in aggregate charges of $2.2 million.

In addition during the third quarter, the Company recorded a $2.9
 million charge to write down fixed assets and purchased goodwill
 associated with the acquisitions of Solsource in March 1998
 and E-Comm in October 1998. The impairment write down is
primarily based on the facts that each of the operations have
operated at a loss since acquisition and the forecast
demonstrates that the entity will not produce positive cash flow
on a stand-alone basis or the Company has decided to withdraw
business presence in that particular marketplace. As the sum of
estimated undiscounted cash flows are less than the carrying
amount of the asset, the Company recognized an impairment loss.

During the fourth quarter, the Company adjusted the restructuring
 plan which resulted in a reduction of $747,614 of accrued
restructuring costs. Severance costs were reduced by $397,614
which reflected a reclassification of $312,720 to capitalize
noncompete covenants and higher than expected attrition rates.
The company also reduced its estimate of the cost of settling a
customer contract dispute by $100,000. Goodwill impairment was
reduced by $250,000 as a result of a settlement of estimated
liability under the Ecomm acquisition agreement. For the year
ended December 31, 1999, the Company recorded a total of
$4.3 million of restructuring and other one-time charges.

The components of the restructuring charge for the year ended
December 31, 1999 are as follows:

|                              |  |           |           |              |  |            |         |           |  |   |         |  |  |   |           | 
|----------------------------- |  | --------- | --------- | ------------ |  | ---------- | ------- | --------- |  | - | ------- |  |  | - | --------- | 
|                              |  | Beginning |           | Cash         |  |            |         | Remaining
|Description                   |  | Accrual   |           | Expenditures |  | Adjustment |         | Accrual  
|                              |  |           |           |              |  |            |         |          
|Severance and related charges |  | $         | 1,501,938 |              |  | $          | 390,646 |           |  | $ | 397,614 |  |  | $ | 713,678   | 
|                             
|                             
|                             
|                             
|Facilities                    |  | $         | 332,697   |              |  | $          | 37,200  |           |  |   |         |  |  | $ | 295,497   | 
|                             
|                             
|                             
|                             
|Canceled contracts            |  | $         | 393,202   |              |  | $          | 15,694  |           |  | $ | 100,000 |  |  | $ | 277,508   | 
|                              |  |           |           |              |  |            |         |           |  |   |         |  |  |   |           | 
|Total                         |  | $         | 2,227,837 |              |  | $          | 443,540 |           |  | $ | 497,614 |  |  | $ | 1,286,683 | 
|                              |  |           |           |              |  |            |         |           |  |   |         |  |  |   |           | 

3.  Convertible Preferred Stock and Capital Stock

The Companys capital stock consists of common stock,
Series A Preferred, Series C Preferred, Series D
Preferred and Series E Preferred. The Series A
Preferred shares have no voting rights, do not share in
dividends, are each convertible at any time into 10,000 shares of
 voting common stock, and beginning June 22, 1998, six
months from issuance, are redeemable by the Company at its
discretion at $3.00 per share. As of December 31, 1999 and
1998, 10 Series A Shares with a principal amount of $300,000
 remain outstanding. The Series A Preferred shares are
redeemable by the Company provided (1) the average of the
closing bid and ask prices of the Companys common stock has
 exceeded $5.00 per share for the 20 trading days preceding the
date notice of redemption is given to the holders of the
Series A Preferred shares, (2) the shares of the common
 stock issued or issuable upon conversion of the Series A
Preferred shares are subject to an effective registration
statement, and (3) the placement agent of the offering shall
 have waived any restrictions upon the resale of such shares.

The Series C Preferred Shares participate in common stock
dividends on an if converted basis. The Series C
 Shares have no voting rights and are each convertible into
common stock during the four quarters that commenced on
March 31, 1998, at a conversion rate equal to the lower of
$6.87 or a 33 percent premium over the average closing price
 of a Companys common stock for the 10 trading days prior
to each date of conversion. During 1998, 80.3 Series C
Shares were converted into 175,400 shares of common stock. During

56



---



OSAGE SYSTEMS GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

1999, the remaining Series C Preferred shares outstanding
were converted into 54,585 shares of common stock.

During 1998, the Company completed a private placement offering
for 1,000 shares of Series D Preferred shares (the
Series D Shares). In connection with the private
 placement, 100,000 warrants to purchase common stock of the
Company at $5.97 per share were granted to the investor.

The Series D Preferred shares have no voting rights prior to
 conversion (discussed below). Subject to and after making
provision for the rights and preferences of the Series A and
 the Series C Shares, the holders of the Series D
Shares shall be entitled to a liquidation preference equal to
$1,000 plus 8 percent per annum thereon from the issuance
date. Accordingly, if the Company liquidates or dissolves, after
payment to all creditors and payment of the liquidation
preference to holders of Series A and Series C Shares,
no distribution shall be made to the holders of the Common Stock,
 unless prior thereto, holders of the Series D Shares shall
have received a liquidation preference of $1,000 plus eight
percent per annum per share.

The holder of the Series D Shares shall be entitled to
cumulative dividends of 8 percent per annum accruing from
the date of issuance. The holder may elect to receive the
dividends in the form of shares of common stock.

The holder of the Series D Shares has the right at any time
to convert the $1,000,000 principal amount of the shares, plus
any and all accrued dividends therein, into shares of Common
Stock at the Series D conversion rate of $4.975 per share.
The Series D conversion rate is subject to adjustment if the
 Company fails to comply with certain redemption provisions
described below. As so adjusted, the conversion rate shall be
equal to the lesser of $4.975 or 80 percent of the three
lowest closing bid prices of the common stock during the five
trading days immediately preceding the conversion date.

Commencing on the effective date of a registration statement
covering the shares of common stock issuable upon conversion of
the Series D Shares, and provided the registration statement
 then remains effective, the Company shall have the right to
force conversion by the holders of the Series D Shares,
provided that the closing bid price as calculated on the date set
 forth in the forced conversion notice is equal to or greater
than 150 percent of the conversion price. The Company may not
initiate a forced conversion more than once every 30 calendar
days and no single forced conversion shall exceed 50 percent
 of the total number of shares of Series D Shares issued.

The Series D Shares may be redeemed at the option of the
holder upon 10 business days written notice after the first
anniversary of the issuance date if the closing bid price
calculated as of the first anniversary of the issuance date is
less than the conversion price as of the issuance date. The
redemption price shall be 120 percent of the stated value
($1,000 per share) plus accrued and unpaid dividends. Failure to
comply with these redemption provisions would result in an
adjustment to the conversion price.

At the date of issuance, the carrying amount of the redeemable
preferred stock was decreased by $154,000, the fair value of the
common stock warrants, with a credit to additional paid-in
capital. As of December 31, 1999 the preferred stock became
redeemable at the option of the holder. Therefore, the preferred
stock was accreted to its redemption value with an increase to
the net loss in the consolidated statement of operations to
arrive at the amount of loss attributable to common shareholders.
 Additionally, because the redeemable preferred stock has
conditions for redemption that are not solely within the control
of the Company, it has been classified outside of permanent
equity in the accompanying consolidated balance sheet.

On February 9, 1999, the Company completed a private
placement offering for 2,000 shares of Series E Preferred
shares (the Series E Shares). In connection with
 the private placement, 150,000 warrants to purchase common stock
 of the Company at $7.875 per share were granted to the investor
and broker.

57



---



OSAGE SYSTEMS GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Series E shares have a liquidation preference of $1,000
per share plus 8 percent per annum from the issuance date
per Series E share, have no voting rights prior to
conversion and have similar rights and features as the
Series D Preferred shares. The Series E shares are
convertible into common stock at a conversion price of $6.5625
per share, subject to adjustment.

The carrying amount of the redeemable preferred stock has been
decreased by $180,000, the fair value of the common stock
warrants, with a credit to additional paid in capital. This
amount will be amortized as a deduction from net income in the
consolidated statement of operations to arrive at the amount of
net (loss) income available to common shareholders. Additionally,
 because the redeemable preferred stock has conditions for
redemption that are not solely within the control of the Company,
 it has been classified outside of permanent equity in the
accompanying consolidated balance sheet and will be accreted to
its redemption value.

During 1998 and 1999, the Company completed the following private
 placement offerings:

|                      |  |        |         |           |  |              |      |          |  |           |           |  |  |  |         |  |  |   |      | 
|--------------------- |  | ------ | ------- | --------- |  | ------------ | ---- | -------- |  | --------- | --------- |  |  |  | ------- |  |  | - | ---- | 
|                      |  |        |         | Price     |  | Net Proceeds |      |          |  | Price    
|Description           |  | Shares |         | Per Share |  | After Costs  |      | Warrants |  | Per Share
|                      |  |        |         |           |  |              |      |          |  |          
|1998                  |  |        |         |           |  |              |      |          |  |           |           |  |  |  |         |  |  |   |      | 
|                     
|                     
|                     
|                     
|Sale of common shares |  |        | 600,000 |           |  | $            | 3.50 |          |  | $         | 1,912,670 |  |  |  | 200,000 |  |  | $ | 3.50 | 
|                     
|                     
|                     
|                     
|Sale of common shares |  |        | 700,000 |           |  | $            | 3.50 |          |  | $         | 2,290,828 |  |  |  |         |  |  |   |      | 
|                     
|                     
|                     
|                     
|Sale of common shares |  |        | 175,000 |           |  | $            | 4.25 |          |  | $         | 691,427   |  |  |  | 25,000  |  |  | $ | 4.25 | 
|                     
|                     
|                     
|                     
|Sale of common shares |  |        | 235,294 |           |  | $            | 4.25 |          |  | $         | 980,000   |  |  |  | 150,000 |  |  | $ | 4.25 | 
|                     
|                     
|                     
|                     
|Sale of common shares |  |        | 70,000  |           |  | $            | 4.75 |          |  | $         | 286,373   |  |  |  | 35,000  |  |  | $ | 5.25 | 
|                     
|                     
|                     
|                     
|1999                  |  |        |         |           |  |              |      |          |  |           |           |  |  |  |         |  |  |   |      | 
|                     
|                     
|                     
|                     
|Sale of common shares |  |        | 20,000  |           |  | $            | 4.75 |          |  | $         | 85,500    |  |  |  | 20,000  |  |  | $ | 5.25 | 

4.  Furniture and Equipment

Furniture and equipment at December 31 consists of the
following:

|                              |  |      |           |      |  |   |           | 
|----------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                              |  | 1999 |           | 1998
|                              |  |      |           |     
|Computer hardware             |  | $    | 2,022,930 |      |  | $ | 1,610,061 | 
|                             
|                             
|                             
|                             
|Furniture and fixtures        |  |      | 395,041   |      |  |   | 276,789   | 
|                             
|                             
|                             
|                             
|Leasehold improvements        |  |      | 33,961    |      |  |   |           | 
|                             
|                             
|                             
|                             
|Construction in Progress      |  |      | 233,846   |      |  |   |           | 
|                             
|                             
|                             
|                             
|Computer software             |  |      | 492,212   |      |  |   | 525,917   | 
|                              |  |      |           |      |  |   |           | 
|Total                         |  |      | 3,177,990 |      |  |   | 2,412,767 | 
|                             
|                             
|                             
|                             
|Less accumulated depreciation |  |      | 1,374,274 |      |  |   | 937,483   | 
|                              |  |      |           |      |  |   |           | 
|Furniture and equipment  net |  | $    | 1,803,716 |      |  | $ | 1,475,284 | 
|                              |  |      |           |      |  |   |           | 

5.  Debt Agreements

In 1999 the Company established a $20 million revolving line of
credit facility with Coast Business Credit (Coast).
The Companys ability to borrow under the facility is based
upon its eligible accounts receivable, with the company able to
borrow 85% of that amount. The line of credit matures on
July 31, 2002. Amounts outstanding under the facility are
split into two components, a revolving credit line and a
factoring line. Borrowings under the revolving credit line bear
interest at prime (8.5% at December 31, 1999) plus 1.25%.
Amounts outstanding under the factoring line do not bear interest
 for the first sixty days, after that they are transferred to the
 revolving credit line. Total outstanding borrowings under the
facility were $14,816,478 at December 31, 1999, of which
$12,152,982 was non-interest bearing.

58



---



OSAGE SYSTEMS GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Coast arrangement replaced a $13 million credit facility with
 FINOVA Capital Corporation (FINOVA) that consisted
of both a revolving line of credit and an inventory line.
Borrowings under the FINOVA revolving line of credit could not
exceed $10.5 million at any one time and bore interest at prime
plus 3 percent. Amounts outstanding under the FINOVA
inventory line which were paid within 60 days of invoice
date did not bear interest. Interest was payable monthly on
amounts outstanding over 60 days at prime plus
6 percent. Outstanding borrowings under the FINOVA revolving
 line of credit were $750,000 at December 31, 1998. Amounts
outstanding under the FINOVA inventory line of $9,597,463 at
December 31, 1998 are classified in the accompanying
consolidated balance sheets with accounts payable.

The Coast credit facility is collateralized by accounts
receivable, inventory, equipment and intangibles and requires,
among other things, a quarterly minimum cash requirement, and a
quarterly minimum EBITDA (earnings before interest, taxes,
depreciation and amortization) requirement.

Coast also provided in 1999 a term loan in the amount of
$1,000,000. The loan amortizes over a two year period with
interest payable at 11% per annum.

In November, 1999 the company restructured a portion of its
accounts payable into a vendor loan of $2,500,000. This loan
amortizes over a one year period with interest payable at 10% per
 annum.

Long term debt at December 31, 1999 and 1998 consists of the
 following:

|                                                                                                                                                                          |  |      |            |      |  |   |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- |  | - | --------- | 
|                                                                                                                                                                          |  | 1999 |            | 1998
|                                                                                                                                                                          |  |      |            |     
|Line of credit                                                                                                                                                            |  |      | 14,816,478 |      |  |   |           | 
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Vendor loan                                                                                                                                                               |  |      | 2,224,071  |      |  |   |           | 
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Term loan                                                                                                                                                                 |  |      | 875,000    |      |  |   |           | 
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Note payable relating to the acquisition of LSI (Note  1)                                                                                                                 |  |      | 500,000    |      |  |   |           | 
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Notes payable to executive officers (Note 10)                                                                                                                             |  |      | 91,060     |      |  |   | 923,000   | 
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Note payable to IntraNet (Notes 1 and 10)                                                                                                                                 |  |      |            |      |  |   | 535,000   | 
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Notes payable relating to various employee retention programs
	(Note 1)                                                                                                   |  |      | 606,666    |      |  |   | 572,275   | 
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Note payable relating to the acquisition of OST (Note  1)                                                                                                                 |  |      |            |      |  |   | 252,761   | 
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Capital lease obligations (Note 8)                                                                                                                                        |  |      | 13,307     |      |  |   | 31,869    | 
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Note payable, guaranteed by the U.S. Small Business
	Administration, interest at prime (8.5% at December  31,
	1999) plus 2.75%, due in monthly installments through 2003 |  |      | 81,638     |      |  |   | 105,967   | 
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Note payable, guaranteed by the U.S. Small Business
	Administration, interest at prime (8.5% at December  31,
	1999) plus 2.75%, due in monthly installments through 2002 |  |      | 99,808     |      |  |   | 138,310   | 
|                                                                                                                                                                          |  |      |            |      |  |   |           | 
|Total                                                                                                                                                                     |  |      | 19,308,028 |      |  |   | 2,559,182 | 
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|                                                                                                                                                                         
|Less current maturities                                                                                                                                                   |  |      | 4,355,944  |      |  |   | 1,914,078 | 
|                                                                                                                                                                          |  |      |            |      |  |   |           | 
|Long-term debt  net                                                                                                                                                      |  | $    | 14,952,084 |      |  | $ | 645,104   | 
|                                                                                                                                                                          |  |      |            |      |  |   |           | 

59



---



OSAGE SYSTEMS GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Debt maturities for the Company are as follows:

|     |  |   |            | 
|---- |  | - | ---------- | 
|    
|    
|    
|    
|2000 |  | $ | 4,355,944  | 
|    
|    
|    
|    
|2001 |  | $ | 61,101     | 
|    
|    
|    
|    
|2002 |  | $ | 14,877,537 | 
|    
|    
|    
|    
|2003 |  | $ | 13,446     | 
|    
|    
|    
|    
|2004 |  |   | 0          | 

The notes payable relating to the acquisition of OST and the
employee retention programs arising from the acquisitions of OST
and E-Comm have been discounted at 8.75 percent per year
over the period such notes remain outstanding (Note 1).
Noncash interest expense on the notes amounted to $57,000 and
$43,000 for the years ended December 31, 1999 and 1998,
respectively.

6.  Convertible Subordinated Debentures

On November 22, 1999, the Company completed a private
placement offering for $3 million principal amount 10%
Convertible Subordinated Debentures (the Debentures).
 In connection with the private placement, common stock purchase
warrants were granted to the holder and to the broker. The
principal amount of the Debentures is payable on
November 22, 2001 with interest payable at the rate of ten
percent (10%) per annum on a quarterly basis commencing
December 31, 1999. Interest may be paid in cash, or at the
option of the holder, in shares of Common Stock priced at the
Conversion Price of the Debentures. At the option of
the holder, the Debentures are convertible into shares of the
Companys Common Stock at the Conversion Price per share at
any time prior to maturity, commencing once stockholder approval
of the conversion feature has been obtained. However, once
stockholder approval of the conversion feature has been obtained
and the shares of Common Stock issuable upon the conversion of
the Debentures may be resold under an effective registration
statement filed with the Securities and Exchange Commission, the
Debentures shall automatically convert into shares of the
Companys Common Stock at the Conversion Price. The
Conversion Price shall be $.30 per share of Common Stock
(reflective of a twenty (20%) percent discount to the closing bid
 price of the Common Stock on October 8, 1999). See
Note 14 for subsequent events related to the Debentures.

The convertible debenture has a beneficial conversion feature
that reflects a conversion price that was a discount to the price
 of the common stock on the date the debenture was priced. The
beneficial conversion feature was valued at $750,000 at the date
of issuance. Since the debt is convertible at any time after
stockholder approval, this amount will be charged to interest
expense at the date stockholder approval is obtained.

The Debentures were privately offered as a Unit, together with
warrants that, subject to certain vesting provisions, entitled
the holder to contingently purchase twenty million (20,000,000)
shares of Common Stock of the Company at an exercise price of
$.30 per share. The warrants consist of 5-year warrants to
purchase ten million (10,000,000) shares of Common Stock of the
Company (the Long-Term Warrants) and 90-day warrants
to purchase ten million (10,000,000) shares of Common Stock of
the Company (the Short-Term Warrants). All of the
Short-Term Warrants expired on February 22, 2000. The
Long-Term Warrants shall vest only once stockholder approval of
the exercise feature of these warrants is obtained. In connection
 with this transaction the Company paid an investment banking fee
 of $180,000 in cash and agreed to issue five year warrants to
purchase 350,000 shares of common stock at $.30 per share.

The carrying amount of the Debentures has been decreased by
$1,325,840, the fair value of the common stock warrants issued to
 the holder. This amount will be amortized as interest expense
over the term of the convertible debt. During 1999, the company
amortized $70,711 as interest expense.

60



---



OSAGE SYSTEMS GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

7.  Segment Reporting and Significant Customers

The Company engages in business activities in one operating
segment which provides network computers solutions through
information technology services. The chief operating
decision-makers are provided information about the revenues
generated in key client industries. The resources needed to
deliver the Companys services are not separately reported
by industry. The Companys services are delivered to clients
 primarily in the U.S., and the Companys long-lived assets
are all located in the U.S.

Sales to significant customers as a percentage of net sales for
the years ended December 31 are as follows:

|           |  |      |      |      |  |      |      |   |  |  |      |  
|---------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|           |  | 1999 |      | 1998 |  | 1997
|           |  |      |      |      |  |     
|Customer A |  |      | 15.0 | %    |  |      | 16.7 | % |  |  | 64.8 | %
|          
|          
|          
|          
|Customer B |  |      | 2.0  | %    |  |      | 10.0 | % |  |  |      |  

8.  Commitments and Contingencies

The Company leases office space and office equipment under
noncancellable operating leases which expire through 2004. Future
 minimum lease payments under noncancellable operating leases at
December 31, 1999 are approximately as follows:

|      |  |   |           | 
|----- |  | - | --------- | 
|     
|     
|     
|     
|2000  |  | $ | 1,119,000 | 
|     
|     
|     
|     
|2001  |  |   | 864,000   | 
|     
|     
|     
|     
|2002  |  |   | 705,000   | 
|     
|     
|     
|     
|2003  |  |   | 610,000   | 
|     
|     
|     
|     
|2004  |  |   | 368,000   | 
|      |  |   |           | 
|Total |  | $ | 3,666,000 | 
|      |  |   |           | 

Total rent expense was $1,038,373, $536,400 and $81,983, net of
rent income from a month-to-month sublease of $30,000, $22,000
and $23,700 for the years ended December 31, 1999, 1998 and
1997, respectively.

The Company leases computer equipment under agreements classified
 as capital leases. The cost and accumulated depreciation of
equipment of $133,578 and $124,373, respectively, are included in
 furniture and equipment in the accompanying consolidated
financial statements as of December 31, 1999.

Future minimum lease payments on capital lease obligations are
due as follows:

|                                               |  |   |        | 
|---------------------------------------------- |  | - | ------ | 
|                                              
|                                              
|                                              
|                                              
|2000                                           |  | $ | 5,847  | 
|                                              
|                                              
|                                              
|                                              
|2001                                           |  |   | 5,847  | 
|                                              
|                                              
|                                              
|                                              
|2002                                           |  |   | 3,898  | 
|                                               |  |   |        | 
|Total future minimum lease payments            |  |   | 15,592 | 
|                                              
|                                              
|                                              
|                                              
|Less amount representing interest              |  |   | 2,285  | 
|                                               |  |   |        | 
|Present value of future minimum lease payments |  |   | 13,307 | 
|                                              
|                                              
|                                              
|                                              
|Less current portion                           |  |   | 4,695  | 
|                                               |  |   |        | 
|Non-current portion                            |  | $ | 8,612  | 
|                                               |  |   |        | 

The Company is involved in litigation and various other legal
matters that have arisen in the ordinary course of business. The
Company does not believe that the ultimate resolution of existing
 matters will have a material adverse effect on its financial
condition, results of operations, or cash flows.

On or about March 7, 2000, Halifax Fund, L.P. commenced an
action against the Company, as well as Michael Lauer and three
investment funds managed by him, Lancer Offshore, Inc., Lancer
Partners, L.P. and

61



---



OSAGE SYSTEMS GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Orbiter Fund, Ltd. (collectively Lancer) in the
Supreme Court of the State of New York (the Court)
captioned Halifax Fund, L.P. v. Osage Systems Group, Inc.,
Michael Lauer, Lancer Offshore, Inc., Lancer Partners, L.P. and
Orbiter Fund, Ltd.,Supreme Court of the State of New York,
County of New York (Index No. 600993/00). In its complaint,
Halifax alleges that the Company breached a contractual
obligation to offer Halifax a right of first refusal to
participate in a financing transaction the Company completed with
 Lancer in November 1999 [Note 6]. Halifax also alleges
 that the Company breached a contractual obligation to register
securities issuable upon the conversion of preferred stock
Halifax purchased from the Company in February 1999. Halifax
seeks: (i) monetary damages in excess of $23 million for the
 alleged breaches of contract; (ii) specific performance of
the right of first refusal; (iii) injunctive relief
preventing the Company from issuing shares of its common stock to
 Lancer upon the conversion of debentures and the exercise of
warrants granted in the Lancer financing (collectively, the
Derivative Securities); and (iv) injunctive
relief preventing the Company from soliciting stockholder
approval for the Lancer financing, which is necessary condition
precedent for the issuance of the Companys common stock
under the Derivative Securities issued to Lancer.

As to the remainder of the substantive claims, the Company is in
the process of investigating the matter and has tentatively
concluded that no breach of contract occurred. It has arrived at
this conclusion in reliance on information provided by its
investment bankers that they provided Halifax with the requisite
written right of first refusal offer in compliance with the
Companys contractual obligation to do so. Accordingly, the
Company intends to vigorously defend the matter.

Since the Companys investigation of the matter has not yet
been completed, and since no assurances can be provided as to the
 ultimate outcome of litigation, particularly where fact-based
disputes may arise, the Company cannot assure that it will not be
 subject to any liability thereunder. In the event that it is
successful in asserting its claims, Halifax may be awarded relief
 consisting of, among others, the right to purchase securities of
 the Company on the same terms as the Derivative Securities
offered to Lancer (in which case the Company may be caused to
issue additional securities convertible into up to 20,000,000
shares of the Companys common stock) or monetary damages
which may, if fully awarded, exceed the Companys current
asset value. Due to the Companys belief that the claims are
 without merit, no provision has been established for any
potential liability arising out of the litigation.

On October 29, 1999 John E. Udelhofen and E. Michael Durbin
filed an action in the United States District Court for the
Northern District of Illinois against the Company. The Plaintiffs
 are former shareholders of Open Business Systems, Inc.
(OBS). On June 22, 1998 Osage purchased all of
the outstanding shares of OBS and the Plaintiffs entered into
employment contracts with Osage. On August 17, 1999, Osage
terminated the Plaintiffs employment contracts. In the
lawsuit the Plaintiffs claim their employment contracts were
wrongfully terminated and seek damages in excess of $75,000 as
well as declaratory relief. The Plaintiffs also claim that Osage
breached the Registration Rights Agreement entered into by the
parties in connection with the sale of the stock of OBS. The
Plaintiffs claim Osage failed to timely file the necessary
registration statement with the Securities and Exchange
Commission with respect to the registration for resale of the
Osage stock distributed to plaintiffs in connection with the
transaction. Plaintiffs also claim that they are owed additional
sums pursuant to the earnout provisions of the
Agreement by which Osage purchased OBS. Osage has answered
Plaintiffs claims denying that they are entitled to any
relief. Additionally Osage is asserting counterclaims against
certain of the Plaintiffs for violation of provisions of both the
 Purchase Agreement and their employment agreements. Osage
accordingly believes it has valid defenses to all of the
Plaintiffs claims and intends to vigorously defend the
matter.

9.  Employee Benefit Plans

On January 1, 1999, the Board of Directors adopted the Osage
 Systems Group, Inc. 401(k) and Profit Sharing Plan (the
Plan) covering substantially all employees of the
Company or its wholly owned

62



---



OSAGE SYSTEMS GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

subsidiaries who have attained the age of 21 and completed three
months of service. The Plan is designed to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as
amended. Each participant may elect to contribute up to
15 percent of his or her gross compensation up to the
maximum allowed by the Internal Revenue Service. The Company can
make annual discretionary matching contributions. No company
contributions have been made to this plan.

Previously, the Company sponsored a qualified contributory 401(k)
 plan (the Osage Plan) that covered all employees who
 had attained the age of 21 and completed six months of service.
The Company could make discretionary matching contributions. No
matching contributions have been made under the Osage Plan. On
December 31, 1998, contributions to the Osage Plan were
ceased. Furthermore, the Osage Plan was merged into the Plan as
of January 1, 1999. The Company completed the transfer of
assets from the Osage Plan to the Plan in the first half of 1999.

Previously, Solsource, OST and OBS each sponsored a qualified
contributory 401(k) plan that covered all employees who had
attained the age of 21 and completed required continuous months
of service. The plans of Solsource, OST and OBS (the Former
 Plans) could make discretionary matching contributions.
Matching contributions under the OST and OBS plans amounted to
$21,216 and $16,153, respectively, for the year ended
December 31, 1998. On December 31, 1998, all
contributions to the Former Plans were ceased. Furthermore, the
Former Plans were merged into the Plan as of January 1,
1999. The Company completed the transfer of assets from the
Former Plans to the Plan in the first half of 1999.

On January 1, 1999, the Board of Directors adopted the 1999
Employee Stock Purchase Plan (the Stock Purchase
Plan), which is subject to stockholder approval during the
annual meeting of stockholders in June 1999. The Company has
 authorized 250,000 shares of the Companys common stock for
 purchases under the Stock Purchase Plan. The Stock Purchase Plan
 permits eligible employees to purchase shares of common stock,
subject to limitations provided by Section 423(b) of the
Internal Revenue Code, through accumulated payroll deductions.
Each participating employee may purchase an amount up to
10 percent of the participants compensation and
purchases by any one employee may not exceed $25,000 in fair
market value in any one year. The purchases are made four times
per year at a price equal to the lesser of
(i) 85 percent of the fair market value of the
Companys common stock on the first business day of the
payment period or (ii) 85 percent of the fair market
value of the Companys common stock on the last day of the
payment period. During 1999 69,943 shares at a weighted average
price of $1.76 were purchased pursuant to the plan.

10.  Related Party Transactions

In connection with the acquisition of the systems integration
business of IntraNet on October 15, 1998, certain former
officers loaned funds to the Company and pledged personal stock
of the Company to guarantee the remaining purchase price with a
combined value of $1,525,000 to fund the purchase price. In
conjunction with the loan and stock pledge, a commitment fee of
$183,000 was recorded. The commitment fee and loan, $91,060 and
$923,000 as of December 31, 1999 and 1998, respectively,
accrue interest at the rate of 10 percent per annum.
Interest paid to former officers on notes payable amounted to
$33,528 and $19,742 for the years ended December 31, 1999
and 1998.

On December 4, 1998, the Company entered into an Investing
Banking Agreement with an investment banking company for
financial advisory and acquisition services. A former director of
 the Company is the Managing Director of this company. In
consideration for such services, the Company granted this company
 a warrant to purchase 50,000 shares of common stock at an
exercise price of $4.75 per share. The warrants expire on
December 4, 2000. Pursuant to the terms of the Investment
Banking Agreement, the Company further agreed to pay this company
 a monthly fee and additional compensation in the form of cash or
 warrants in the event that the Company consummates certain
financing transactions or acquisitions with third parties
introduced to it by this company.

63



---



OSAGE SYSTEMS GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Included in prepaid expenses and other current assets in the
accompanying consolidated balance sheets as of December 31,
1998 is $13,000 due from employees of the Company.

11.  Income Taxes

The deferred income tax asset at December 31 is comprised of
 the following:

|                                                        |  |      |         |      |  |   |         | 
|------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                                        |  | 1999 |         | 1998
|                                                        |  |      |         |     
|Use of cash basis of accounting for income tax purposes |  | $    | 30,000  |      |  | $ | 51,000  | 
|                                                       
|                                                       
|                                                       
|                                                       
|Allowance for doubtful accounts                         |  |      | 68,000  |      |  |   | 51,000  | 
|                                                       
|                                                       
|                                                       
|                                                       
|Compensation                                            |  |      | 470,000 |      |  |   | 350,000 | 
|                                                       
|                                                       
|                                                       
|                                                       
|Other                                                   |  |      |         |      |  |   | 56,000  | 
|                                                        |  |      |         |      |  |   |         | 
|Net current assets                                      |  | $    | 568,000 |      |  | $ | 508,000 | 
|                                                        |  |      |         |      |  |   |         | 

|                                                        |  |      |           |      |  |   |           |  
|------------------------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | -
|                                                        |  | 1999 |           | 1998
|                                                        |  |      |           |     
|Net operating loss carryforwards                        |  | $    | 3,056,000 |      |  | $ | 1,806,000 |  
|                                                       
|                                                       
|                                                       
|                                                       
|Goodwill                                                |  |      | (102,000  | )    |  |   | (41,000   | )
|                                                       
|                                                       
|                                                       
|                                                       
|Property                                                |  |      | 9,000     |      |  |   | (10,000   | )
|                                                       
|                                                       
|                                                       
|                                                       
|Discount on subordinated debt                           |  |      | (477,000  | )    |  |   |           |  
|                                                       
|                                                       
|                                                       
|                                                       
|Other                                                   |  |      | (96,000   | )    |  |   |           |  
|                                                       
|                                                       
|                                                       
|                                                       
|Valuation allowance on net operating loss carryforwards |  |      | (250,000  | )    |  |   | (363,000  | )
|                                                        |  |      |           |      |  |   |           |  
|Net noncurrent assets                                   |  | $    | 2,140,000 |      |  | $ | 1,392,000 |  
|                                                        |  |      |           |      |  |   |           |  

The income tax provision consists of the following for the years
ended December 31:

|                     |         |      |          |          |   |      |            |            |   |   |        |          |  
|-------------------- | ------- | ---- | -------- | -------- | - | ---- | ---------- | ---------- | - | - | ------ | -------- | -
|                     |         | 1999 |          | 1998     |   | 1997
|                     |         |      |          |          |   |     
|Current:             |         |      |          |          |   |      |            |            |   |   |        |         
|                    
|                    
|                    
|                    
|                     | Federal |      |          |          |   |      |            |            |   |   | $      | 207,000  |  
|                    
|                    
|                    
|                    
|                     | State   |      | $        | 58,000   |   |      | $          | 38,000     |   |   |        | 55,000   |  
|                    
|                    
|                    
|                    
|Deferred:            |         |      |          |          |   |      |            |            |   |   |        |         
|                    
|                    
|                    
|                    
|                     | Federal |      |          | (631,000 | ) |      |            | (1,417,000 | ) |   |        | (228,000 | )
|                    
|                    
|                    
|                    
|                     | State   |      |          | (75,000  | ) |      |            | (150,000   | ) |   |        | (37,000  | )
|                     |         |      |          |          |   |      |            |            |   |   |        |         
|Income tax provision |         | $    | (648,000 | )        |   | $    | (1,529,000 | )          |   | $ | (3,000 | )       
|                     |         |      |          |          |   |      |            |            |   |   |        |         

Reconciliation of the statutory federal income tax rate to the
Companys effective income tax rate for the years ended
December 31 is as follows:

|                                                 |  |      |       |      |  |      |       |    |  |  |       |   
|------------------------------------------------ |  | ---- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                                 |  | 1999 |       | 1998 |  | 1997
|                                                 |  |      |       |      |  |     
|Federal statutory rate                           |  |      | (34.0 | )%   |  |      | (34.0 | )% |  |  | (34.0 | )%
|                                                
|                                                
|                                                
|                                                
|Nondeductible meals, entertainment and insurance |  |      | 1.4   | %    |  |      | 1.8   | %  |  |  | 5.2   | % 
|                                                
|                                                
|                                                
|                                                
|Nondeductible goodwill                           |  |      | 21.5  | %    |  |      | 1.7   | %  |  |  |       |   
|                                                
|                                                
|                                                
|                                                
|Nondeductible write-off of investment            |  |      |       |      |  |      |       |    |  |  | 6.7   | % 
|                                                
|                                                
|                                                
|                                                
|State income taxes                               |  |      | (3.4  | )%   |  |      | (3.1  | )% |  |  | (5.5  | )%
|                                                
|                                                
|                                                
|                                                
|Subordinated debt interest/discount              |  |      | 7.3   | %    |  |      |       |    |  |  |       |   
|                                                
|                                                
|                                                
|                                                
|Overall effect of graduated federal rates        |  |      | (2.0  | )%   |  |      |       |    |  |  | 26.6  | % 
|                                                 |  |      |       |      |  |      |       |    |  |  |       |   
|Effective income tax rate                        |  |      | (9.2  | )%   |  |      | (33.6 | )% |  |  | (1.0  | )%
|                                                 |  |      |       |      |  |      |       |    |  |  |       |   

64



---



OSAGE SYSTEMS GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At December 31, 1999, the Company has net operating loss
carryforwards of approximately $7,900,000 expiring in various
years through 2019. A significant portion of the Companys
net operating loss carryforwards are subject to an annual
limitation under Internal Revenue Code Section 382 as a
result of changes in ownership of the Companys stock. The
annual limitation is generally equal to the value of the
corporations equity immediately prior to the change in
ownership, times the federal long-term tax exempt rate published
by the federal government. Management believes that such
limitations will not materially impact the ability to use the net
 operating loss carryforwards in subsequent years. As a result of
 the acquisitions made during 1998 and 1999, the Company has
acquired various net operating loss carryforwards which are
subject to additional limitations on use. Accordingly, a
valuation allowance of $250,000 has been recorded against the net
 deferred asset since it is more likely than not that such
amounts will not be utilized in subsequent years.

12.  Stock Options and Warrants and Stock Compensation

During 1993, the Company adopted the 1993 Stock Option Plan (the
Option Plan). The Option Plan provides for the
issuance of both incentive stock options as well as nonqualified
options to be issued to consultants and others. In
June 1998, the stockholders approved an amendment to the
Option Plan to increase the number of shares available for
issuance pursuant to grants thereunder from 100,000 to 2,000,000.
 In June, 1999 the stockholders approved an amendment to the
Option Plan to increase the number of shares available for
issuance pursuant to grants thereunder from 2,000,000 to
5,000,000. Options granted under the Option Plan generally vest
at the date of grant or ratably over a three-year period and
expire four to five years from the date of grant.

Also in 1993, the Company adopted the Outside Directors Stock
Option Plan pursuant to which options to purchase an aggregate of
 2,500 shares of common stock have been authorized on an annual
basis to each outside director who has served during the
immediately preceding year. No options have been granted under
this plan since inception.

At December 31, 1997, the Company had 1,000,000 options
outstanding to purchase shares of common stock. Of these options,
 800,000 were granted in connection with the Merger Agreement as
discussed in Note 1. These options were subject to an
exercise price equal to the lower of $3.00 per share or the
average of the closing bid and ask prices of shares of the
Companys common stock on the principal exchange, automated
quotation system or over-the-counter market for the 15 trading
days prior to the date upon which any segment of the options
vest. Options granted to the former Osage stockholders had an
exercise price of $3.00, however, vesting was contingent upon the
 future earnings of the Company and the employees continued
 employment by the Company. Because these options were
performance-based, the Company would have to record compensation
expense in the future if the earnings of the Company achieved
agreed-upon levels and other events occurred that would lead
management to believe that vesting of the options was a probable
occurrence. The expense, when recorded, could have had an adverse
 effect on the Companys income for financial accounting
purposes. In recognition of the potential charge upon the
Companys earnings, and for other consideration, during
June 1998, the Company restructured the options so as to
increase the number of options granted from 800,000 to 1,600,000,
 increase the exercise price to $4.50 (fair market value when
regranted) and eliminate any vesting conditions. In addition,
100,000 options were granted to an officer of the Company in
January 1998 with terms similar to those described above.
These options were also restructured in June 1998 and the
exercise price was increased to $4.50.

65



---



OSAGE SYSTEMS GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Stock option activity under the Companys stock option plans
 is summarized as follows:

|                                 |           |        |           |                |   |   |      |       |  
|-------------------------------- | --------- | ------ | --------- | -------------- | - | - | ---- | ----- | -
|                                 |           |        |           | Weighted      
|                                 |           |        |           | Average       
|                                 |           | Option |           | Exercise Price
|                                 |           | Shares |           | Per Share     
|                                 |           |        |           |               
|Outstanding at January 1, 1997   |           |        |           |                |   |   |      |      
|                                
|                                
|                                
|                                
|                                 | Granted   |        |           | 1,000,000      |   |   | $    | 3.00  |  
|                                 |           |        |           |                |   |   |      |      
|Outstanding at December 31, 1997 |           |        | 1,000,000 |                |   |   | 3.00 |      
|                                
|                                
|                                
|                                
|                                 | Granted   |        |           | 2,743,572      |   |   |      | 4.61  |  
|                                
|                                
|                                
|                                
|                                 | Canceled  |        |           | (900,000       | ) |   |      | 3.17  |  
|                                 |           |        |           |                |   |   |      |      
|Outstanding at December 31, 1998 |           |        | 2,843,572 |                |   |   | 4.56 |      
|                                
|                                
|                                
|                                
|                                 | Granted   |        |           | 3,163,379      |   |   |      | 2.02  |  
|                                
|                                
|                                
|                                
|                                 | Exercised |        |           | (600           | ) |   |      | (3.00 | )
|                                
|                                
|                                
|                                
|                                 | Canceled  |        |           | (2,458,416     | ) |   |      | (4.08 | )
|                                 |           |        |           |                |   |   |      |      
|Outstanding at December 31, 1999 |           |        | 3,547,935 |                |   | $ | 2.49 |      
|                                 |           |        |           |                |   |   |      |      

The following table summarizes information about the
Companys stock options outstanding at December 31,
1999:

|               |               |                     |  |             |           |                |  |                   |      |  |  |   |      |  |  |  |           | 
|-------------- | ------------- | ------------------- |  | ----------- | --------- | -------------- |  | ----------------- | ---- |  |  | - | ---- |  |  |  | --------- | 
|               |               |                     |  |             |           |               
|               |               | Options Outstanding |  |             |           | Options       
|               |               |                     |  |             |           |               
|               |               |                     |  | Weighted    |           | Options        |  |                  
|               |               |                     |  | Average     |           | Weighted       |  |                  
|               |               | Number              |  | Remaining   |           | Average        |  | Number           
|Range of       |               | Outstanding at      |  | Contractual |           | Exercise Price |  | Exercisable at   
|Exercise Price |               | December 31, 1999   |  | Life        |           | Per Share      |  | December 31, 1999
|               |               |                     |  |             |           |                |  |                  
|               | $3.00         |                     |  |             | 42,556    |                |  |                   | 0.97 |  |  | $ | 3.00 |  |  |  | 42,556    | 
|               | $4.50         |                     |  |             | 359,034   |                |  |                   | 3.14 |  |  | $ | 4.50 |  |  |  | 348,011   | 
|               | $4.80  $5.50 |                     |  |             | 203,395   |                |  |                   | 2.75 |  |  | $ | 5.03 |  |  |  | 86,132    | 
|               | $0.69  $7.25 |                     |  |             | 2,942,950 |                |  |                   | 3.72 |  |  | $ | 2.06 |  |  |  | 664,000   | 
|               |               |                     |  |             |           |                |  |                   |      |  |  |   |      |  |  |  |           | 
|               | $0.69  $7.25 |                     |  |             | 3,547,935 |                |  |                   | 3.60 |  |  | $ | 2.49 |  |  |  | 1,140,699 | 
|               |               |                     |  |             |           |                |  |                   |      |  |  |   |      |  |  |  |           | 

Of the total options outstanding as of December 31, 1999,
3,113,379 options have been granted in conjunction with the
Option Plan while the remaining 434,556 options have been granted
 outside the Option Plan.

The Company applies Accounting Principles Board (APB)
 Opinion No. 25 and related interpretations in accounting
for its stock options. Accordingly, no compensation expense has
been recognized in the accompanying consolidated statements of
operations as the options granted are considered fixed options
and were granted at fair market value, as defined by the
provisions of APB No. 25 and related interpretations. Had
compensation expense for the Companys stock option plan
been determined based on the fair value at the grant date for
awards under the plan consistent with the methodology prescribed
under SFAS No. 123,

66



---



OSAGE SYSTEMS GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Accounting for Stock-Based Compensation
(SFAS 123), the Companys proforma net loss
 and net loss per share would have been as follows:

|                                                                                  |                                                                     |      |            |       |   |   |            |       |  
|--------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ---- | ---------- | ----- | - | - | ---------- | ----- | -
|                                                                                  |                                                                     | 1999 |            | 1998 
|                                                                                  |                                                                     |      |            |      
|As reported net loss attributable to common shareholders                          |                                                                     | $    | (6,844,483 | )     |   | $ | (3,024,052 | )    
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Proforma net loss attributable to common shareholders for SFAS
	123               |                                                                     | $    | (5,284,004 | )     |   | $ | (5,748,051 | )    
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Net loss attributable to common shareholders per common
	share  basic & diluted: |                                                                     |      |            |       |   |   |            |      
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | As reported net loss attributable to common shareholders            |      | $          | (0.70 | ) |   | $          | (0.40 | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Proforma net loss attributable to common shareholders for
	SFAS 123 |      | $          | (0.54 | ) |   | $          | (0.75 | )

The Company determined that the pro forma effects of recognizing
compensation expense in accordance with SFAS 123 for the
year ended December 31, 1997 was not materially different
than the net loss and net loss per common share included in the
consolidated statements of operations.

The following assumptions were used by the Company to determine
the fair value of stock options granted using the Black-Scholes
option-pricing model:

|                             |  |      |           |      |  |  |           | 
|---------------------------- |  | ---- | --------- | ---- |  |  | --------- | 
|                             |  | 1999 |           | 1998
|                             |  |      |           |     
|Expected volatility          |  |      | 112.0%    |      |  |  | 73.0%     | 
|                            
|                            
|                            
|                            
|Average expected option life |  |      | 3.0 years |      |  |  | 2.8 years | 
|                            
|                            
|                            
|                            
|Risk-free interest rate      |  |      | 6.5%      |      |  |  | 4.7%      | 
|                            
|                            
|                            
|                            
|Dividend yield               |  |      | 0.0%      |      |  |  | 0.0%      | 

During 1998 and 1999, the Company issued warrants to various
investors and other third parties in connection with services
provided and purchases of the Companys stock. These
warrants, which expire at various dates through
November 2003, range in price from $.30 per share to $5.97
per share.

The Company had an employment contract with one of its executives
 that granted the employee 200,000 shares of the Companys
common stock, 100,000 shares of which vest at the end of the
employees first anniversary with the remaining 100,000
shares vesting at the end of the employees second
anniversary. In connection with the employment contract, if the
employee is terminated prior to the one-year anniversary, 100,000
 shares shall be released to the employee. Accordingly, the
Company recorded $300,000 (value assigned to the first 100,000
shares) of compensation expense in the accompanying 1997
consolidated statement of operations. During 1998, the employee
was terminated and forfeited the remaining 100,000 shares of
common stock. During 1999, the 100,000 shares of common stock
were released to the employee with the associated liability
reclassified to stockholders equity.

Warrants issued and outstanding for the Companys Common
Stock is summarized as follows:

|                                 |         |         |           |                   |  |  |              |              | 
|-------------------------------- | ------- | ------- | --------- | ----------------- |  |  | ------------ | ------------ | 
|                                 |         | Warrant |           | Range of Exercise
|                                 |         | Shares  |           | Price per Share  
|                                 |         |         |           |                  
|Outstanding at January 1, 1997   |         |         |           |                   |  |  |              |             
|                                
|                                
|                                
|                                
|                                 | Granted |         |           | 760,000           |  |  |              | $3.25-$5.97  | 
|                                
|                                
|                                
|                                
|Outstanding at December 31, 1998 |         |         | 760,000   |                   |  |  | $3.25-$5.97  |             
|                                
|                                
|                                
|                                
|                                 | Granted |         |           | 600,000           |  |  |              | $0.30-$7.875 | 
|                                
|                                
|                                
|                                
|Outstanding at December 31, 1999 |         |         | 1,360,000 |                   |  |  | $0.30-$7.875 |             

67



---



OSAGE SYSTEMS GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

13.  Quarterly Financial Data (Unaudited)

Quarterly financial information is presented in the following
summary:

|               |                                                                             |          |   |         |   |              |   |             |   |  |   |        |   |  |   |        |  
|-------------- | --------------------------------------------------------------------------- | -------- | - | ------- | - | ------------ | - | ----------- | - |  | - | ------ | - |  | - | ------ | -
|Quarters Ended |                                                                             | March 31 |   | June 30 |   | September 30 |   | December 31
|               |                                                                             |          |   |         |   |              |   |            
|1998:          |                                                                             |          |   |         |   |              |   |             |   |  |   |        |   |  |   |       
|              
|              
|              
|              
|               | Revenues                                                                    |          | $ | 5,642   |   |              | $ | 12,766      |   |  | $ | 19,683 |   |  | $ | 22,885 |  
|              
|              
|              
|              
|               | Gross profit                                                                |          |   | 1,062   |   |              |   | 2,199       |   |  |   | 4,301  |   |  |   | 3,984  |  
|              
|              
|              
|              
|               | Net Income (Loss)                                                           |          |   | (86     | ) |              |   | (512        | ) |  |   | (57    | ) |  |   | (2,369 | )
|              
|              
|              
|              
|               | Net loss attributable to common shareholders                                |          |   | (86     | ) |              |   | (512        | ) |  |   | (57    | ) |  |   | (2,369 | )
|              
|              
|              
|              
|               | Net loss attributable to common shareholders per
	share  basic and diluted |          |   | (0.02   | ) |              |   | (0.07       | ) |  |   | (0.01  | ) |  |   | (0.30  | )
|              
|              
|              
|              
|              
|1999:          |                                                                             |          |   |         |   |              |   |             |   |  |   |        |   |  |   |       
|              
|              
|              
|              
|               | Revenues                                                                    |          | $ | 27,092  |   |              | $ | 26,620      |   |  | $ | 30,005 |   |  | $ | 31,003 |  
|              
|              
|              
|              
|               | Gross profit                                                                |          |   | 5,680   |   |              |   | 6,105       |   |  |   | 5,190  |   |  |   | 9,015  |  
|              
|              
|              
|              
|               | Net Income (Loss)                                                           |          |   | (266    | ) |              |   | (461        | ) |  |   | (6,703 | ) |  |   | 1,020  |  
|              
|              
|              
|              
|               | Net loss attributable to common shareholders                                |          |   | (266    | ) |              |   | (461        | ) |  |   | (6,703 | ) |  |   | 586    |  
|              
|              
|              
|              
|               | Net loss attributable to common shareholders per
	share  basic and diluted |          |   | (0.03   | ) |              |   | (0.05       | ) |  |   | (0.68  | ) |  |   | 0.06   |  

14.  Subsequent Events

On January 18, 2000 the holders of the Series D
Preferred Stock converted 500 shares of preferred stock into
 468,736 shares of Common Stock of the Company at a conversion
price of $1.07 per common share. On February 10, 2000
the holders converted the remaining 500 shares of
Series D Preferred Stock into 288,468 shares of Common Stock
 of the Company at a conversion price of $1.73 per common
share.

On February 22, 2000, the holders of the Series E
Preferred Stock converted 133 shares of preferred stock into
 20,267 shares of Common Stock of the Company at a conversion
price of $6.56 per common share. On March 17, 2000 the
Company redeemed the remaining shares of Series E Preferred
Stock at the redemption price of $1,200 per preferred share. To
redeem the Series E Preferred Stock, Lancer and its designee
 advanced to the Company $3,000,000 pursuant to an unsecured
interest-free demand note. It is expected that the Company will
repay the demand note with the proceeds received from the
exercise of the Lancer warrants.

At the Companys next annual meeting of stockholders
scheduled to be held during May 1999, the stockholders will vote
on the conversion and exercise feature of the Debentures and the
Warrants (collectively, the Derivative Securities)
sold by the Company to Lancer in November 1999 (the Lancer
Financing). If the stockholders approve the conversion and
exercise features of the Derivative Securities, the Company may
be caused to issue approximately 20,000,000 shares of its Common
Stock to Lancer or its designees, which would have an extremely
dilutive effect on the existing stockholders. Furthermore, Lancer
 and its designees would beneficially own approximately 69% of
the Companys Common Stock, thereby securing majority voting
 control of the Companys stock. In the event that the
stockholders do not approve the conversion and exercise features
of the Derivative Securities, the Company will have the
obligation to repay Lancer or its designees $6,000,000 together
with interest at the rate of up to 18% per annum until repayment.
 Lancer will not require the Company to make payment of the
$6,000,000 until the earlier of the Company securing alternative
financing or until January 2, 2001. Since the Company does
not presently have sufficient liquid assets to repay the funds
advanced by Lancer and its designees under the Derivative
Securities, the failure of the stockholders to approve the
conversion and exercise features of the Derivative Securities may
 have a material adverse effect on the Companys financial
condition, liquidity and operations.

68



---



OSAGE SYSTEMS GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant certifies that it has reasonable grounds to
believe that it meets all the requirements of filing on
Form 10-KSB, and has duly caused this Form 10-KSB to be
 signed on its behalf by the undersigned, thereunto duly
authorized on the 5th day of April 2000.



| |                          
| | -------------------------
| | OSAGE SYSTEMS GROUP, INC.



| |     |               
| | --- | --------------
| | By: | /s/PHIL CARTER

| |                            
| | ---------------------------
| |                            
| | Phil Carter                
| | Chairman of the Board      
| | and Chief Executive Officer



| |     |              
| | --- | -------------
| | By: | /s/GLENN FORD

| |                                 
| | --------------------------------
| |                                 
| | Glenn Ford                      
| | Interim Chief Financial Officer/
| | Principal Accounting Officer    

Pursuant to the requirements of the Securities Exchange Act of
1934, this Form 10-KSB has been signed by the following
persons in the capacity and on the dates indicated.

|                                             |  |                                       |  |              
|-------------------------------------------- |  | ------------------------------------- |  | -------------
|Signature                                    |  | Title                                 |  | Date         
|                                             |  |                                       |  |              
|/s/ PHIL CARTERPhil Carter                   |  | Chairman and Chief
	Executive Officer |  | April 5, 2000
|/s/ GLENN FORDGlenn Ford                     |  | Interim Chief
	Financial Officer      |  | April 5, 2000
|/s/ GEORGE KNIGHTGeorge Knight               |  | Director                              |  | April 5, 2000
|/s/ GERALD T. HARRINGTONGerald T. Harrington |  | Director                              |  | April 5, 2000

69



---



|        |      |             |  |                                                                                                                                    |  |                                                                                                                                                                                                 
|------- | ---- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |             |  |                                                                                                                                   
|No.     |      | Description |  | Method of Filing                                                                                                                  
|        |      |             |  |                                                                                                                                   
|        | 3.1  |             |  | Certificate of Incorporation                                                                                                       |  | Incorporated by reference to Exhibit 3.1 to Amendment
	No. 1 to the Registrants Registration Statement on
	Form S-1 (Reg. No. 33 69380) filed November 2,
	1993 (Amendment No. 1 to Form S-1)
|        | 3.2  |             |  | Certificate of Amendment to the Certificate of Incorporation
	effective March 10, 1998                                             |  | Incorporated by reference to Exhibit 3.5 of the
	Registrants Current Report on Form 8-K dated
	March 11, 1998 (the March 11, 1998
	Form 8-K)                                                 
|        | 3.3  |             |  | Certificate of Amendment to the Certificate of Incorporation
	dated June 12, 1998                                                  |  | Incorporated by reference to Exhibit 3.9 of the
	Registrants Quarterly Report on Form  10-QSB for the
	period ended June 30, 1998 (the June 30, 1998
	Form 10-QSB)                           
|        | 3.4  |             |  | Certificate of Designation, Preferences and Rights of
	Class A Non-Voting Convertible Preferred Stock                              |  | Incorporated by reference to Exhibit 3.1 of the
	March 11, 1998 Form 8-K                                                                                                                        
|        | 3.5  |             |  | Certificate of Amendment of Certificate of Designation,
	Preferences and Rights of Class A Non-Voting Convertible
	Preferred Stock |  | Incorporated by reference to Exhibit 3.2 to the
	March 11, 1998 Form 8-K                                                                                                                        
|        | 3.6  |             |  | Certificate of Restoration and Revival of Certificate of
	Incorporation                                                            |  | Incorporated by reference to Exhibit 3.3 to the
	March 11, 1998 Form 8-K                                                                                                                        
|        | 3.7  |             |  | Certificate of Amendment to the Certificate of Incorporation
	dated November 21, 1997                                              |  | Incorporated by reference to Exhibit 3.4 to the
	March 11, 1998 Form 8-K                                                                                                                        
|        | 3.8  |             |  | Certificate of Designation, Preferences and Rights of
	Series A $3.00 Convertible Preferred Stock                                  |  | Incorporated by reference to Exhibit 3.3 to the
	December 22, 1997 Form 8-K                                                                                                                     
|        | 3.9  |             |  | Certificate of Designation, Preferences and Rights of
	Series B $3.00 Convertible Preferred Stock                                  |  | Incorporated by reference to Exhibit 3.4 to the
	December 22, 1997 Form 8-K                                                                                                                     
|        | 3.10 |             |  | Certificate of Designation, Preferences and Rights of
	Series C Convertible Preferred Stock                                        |  | Incorporated by reference to Exhibit 3.8 to the
	Registrants Current Report on Form 8-K dated
	March 27, 1998                                                                                  
|        | 3.11 |             |  | Certificate of Designation, Preferences and Rights of
	Series D Convertible Preferred Stock                                        |  | Incorporated by reference to Exhibit 3.11 to the
	Registrants Annual Report Form  10-KSB for the year
	ended December 31, 1998 (the 1998
	Form 10K-SB)                                       
|        | 3.12 |             |  | Certificate of Correction to Certificate of Designation,
	Preferences and Rights of Series D Convertible Preferred
	Stock          |  | Incorporated by reference to Exhibit 3.12 to the 1998
	Form 10K-SB                                                                                                                              
|        | 3.13 |             |  | Certificate of Designation of Series E Convertible Preferred
	 Stock                                                               |  | Incorporated by reference to Exhibit 3.13 to the 1998
	Form 10K-SB                                                                                                                              
|        | 3.14 |             |  | Amended and Restated Bylaws dated June 12, 1998                                                                                    |  | Incorporated by reference to Exhibit 3.10 of the
	June 30, 1998 Form 10-QSB                                                                                                                     
|        | 4.1  |             |  | Form of Common Stock Certificate                                                                                                   |  | Incorporated by reference to Exhibit 4.1 to Amendment
	No. 1 to Form S-1                                                                                                                        
|        | 4.2  |             |  | Form of Warrant                                                                                                                    |  | Incorporated by reference to Exhibit 1.2 to Amendment
	No. 1 to Form S-1                                                                                                                        
|        | 4.3  |             |  | Form of Warrant Certificate                                                                                                        |  | Incorporated by reference to Exhibit 4.2 to Amendment
	No. 1 to Form S-1                                                                                                                        



---



|        |       |             |  |                                                                                                                                                                                                                |  |                                                                                                                                                          
|------- | ----- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |             |  |                                                                                                                                                                                                               
|No.     |       | Description |  | Method of Filing                                                                                                                                                                                              
|        |       |             |  |                                                                                                                                                                                                               
|        | 4.4   |             |  | Form of 8% Senior Secured Note                                                                                                                                                                                 |  | Incorporated by reference to Exhibit 4 to the
	Registrants Quarterly Report on Form  10-QSB for the
	period ended June 30, 1997                         
|        | 4.5   |             |  | Specimen of Series A $3.00 Convertible Preferred Stock                                                                                                                                                         |  | Incorporated by reference to Exhibit 4.1 to the
	December 22, 1997 Form 8-K                                                                              
|        | 4.6   |             |  | Specimen of Series B $3.00 Convertible Preferred Stock                                                                                                                                                         |  | Incorporated by reference to Exhibit 4.2 to the
	December 22, 1997 Form 8-K                                                                              
|        | 4.7   |             |  | Specimen of Series C Convertible Preferred Stock                                                                                                                                                               |  | Incorporated by reference to Exhibit 4.7 to the
	March 27, 1997 Form 8-K                                                                                 
|        | 4.8   |             |  | Specimen of Series D Convertible Preferred Stock                                                                                                                                                               |  | Incorporated by reference to Exhibit 4.8 to the 1998
	Form 10-SB                                                                                         
|        | 4.9   |             |  | Specimen of Series E Convertible Preferred Stock                                                                                                                                                               |  | Incorporated by reference to Exhibit 4.9 to the 1998
	Form 10K-SB                                                                                        
|        | 10.1  |             |  | 1999 Employee Stock Purchase Plan                                                                                                                                                                              |  | Incorporated by reference to Exhibit 4.4 to the
	Registrants Registration Statement on Form S-8 filed
	May 12, 1999 (the S-8)                         
|        | 10.2  |             |  | Amended and Restated 1993 Stock Option Plan                                                                                                                                                                    |  | Incorporated by reference to Exhibit 10.1 of the
	June 30, 1998 Form 10-QSB                                                                              
|        | 10.3  |             |  | 1993 Outside Director Stock Option Plan                                                                                                                                                                        |  | Incorporated by reference to Exhibit 10.5 to the
	Registration Statement on Form S-1 (Registration
	No. 33-69380) filed September 24, 1993
	(Form S-1).
|        | 10.4  |             |  | Form of Stock Option                                                                                                                                                                                           |  | Incorporated by reference to Exhibit 10.1 to the
	December 22, 1997 Form 8-K                                                                             
|        | 10.5  |             |  | Asset Purchase Agreement dated August 11, 1999 by and among
	Osage Systems Group, Inc., Osage Computer Group, Inc., Leveraged
	Solutions, Inc., Michael Ehrensberger and Robert Carlson (the
	LSI Agreement) |  | Filed herewith                                                                                                                                           
|        | 10.6  |             |  | Settlement Agreement and Amendment No. 1 to the LSI
	Agreement dated as of December 9, 1999                                                                                                                    |  | Filed herewith                                                                                                                                           
|        | 10.7  |             |  | Severance Agreement dated October 8, 1999 by and between
	Osage Systems Group, Inc. and Jack R. Leadbeater                                                                                                     |  | Incorporated by reference to Exhibit 10.38 of the
	Registrants Current Report on Form  8-K dated
	November 22, 1999 (the November 22, 1999
	Form 8-K) 
|        | 10.8  |             |  | Severance Agreement dated October 8, 1999 by and between
	Osage Systems Group, Inc. and David S. Olson.                                                                                                        |  | Incorporated by reference to Exhibit 10.39 of the
	November 22, 1999 Form 8-K                                                                            
|        | 10.9  |             |  | Employment Agreement with Phil Carter dated November 23, 1999                                                                                                                                                  |  | Filed herewith                                                                                                                                           
|        | 10.10 |             |  | Option to Purchase 700,000 Shares granted to Phil Carter                                                                                                                                                       |  | Filed herewith                                                                                                                                           
|        | 10.11 |             |  | Option to Purchase 510,000 Shares granted to Phil Carter                                                                                                                                                       |  | Incorporated by reference to Exhibit 10.18 to the 1998
	Form 10K-SB Filed herewith.                                                                      
|        | 10.12 |             |  | Registration Rights Agreement dated June  22, 1998 by and
	among Osage Systems Group, Inc. and John Udelhofen, Michael
	Durbin, David Durbin and Brian Wolfe, the Shareholders of Open
	Business Systems, Inc. |  | Incorporated by reference to Exhibit 10.22 of the
	July 7, 1998 Form 8-K                                                                                 



---



|        |       |             |  |                                                                                                                                                                                              |  |                                                                              
|------- | ----- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------
|Exhibit |       |             |  |                                                                                                                                                                                             
|No.     |       | Description |  | Method of Filing                                                                                                                                                                            
|        |       |             |  |                                                                                                                                                                                             
|        | 10.13 |             |  | Securities Purchase Agreement dated as of October 8, 1999 by
	 and among Osage Systems Group, Inc., Michael Lancer, Lancer
	Offshore, Inc., Lancer Partners, L.P. and The Orbiter Fund, Ltd. |  | Incorporated by reference to Exhibit 10.40 of the
	November 22, 1999 Form 8-K
|       
|       
|       
|       
|        | 10.14 |             |  | Form of Convertible Subordinated Debenture issued by Osage
	Systems Group, Inc. to Lancer Offshore, Inc., Lancer Partners,
	L.P., The Orbiter Fund, Ltd. and Michael Lauer                   |  | Incorporated by reference to Exhibit 10.41 of the
	November 22, 1999 Form 8-K
|       
|       
|       
|       
|        | 10.15 |             |  | Form of Long-Term Warrant issued by Osage Systems Group, Inc. to
	Lancer Offshore, Inc., Lancer Partners, L.P., The Orbiter Fund,
	Ltd. and Michael Lauer                                    |  | Incorporated by reference to Exhibit 10.42 of the
	November 22, 1999 Form 8-K
|       
|       
|       
|       
|        | 21.1  |             |  | Subsidiaries of the Registrant                                                                                                                                                               |  | Filed herewith.                                                              
|       
|       
|       
|       
|        | 27.1  |             |  | Financial Data Schedule                                                                                                                                                                      |  | Filed herewith.