8-K/A 1 meta_8ka122602.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 2 TO FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): July 12, 2002 Commission File Number: 000-28005 MetaSource Group, Inc. ---------------------- (Exact name of registrant as specified in its charter) Nevada 88-0422028 ------ ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 40 Exchange Place, Suite 1607, New York, New York 10005 ------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) (646) 805-5141 -------------- (Registrant's Telephone Number, Including Area Code) ------------------ (Former name, if changed since last report) ------------------------ (Former Address and Telephone Number of Principal Executive Offices) 1 Item 1. Changes in Control of Registrant. ----------------------------------------- On July 12, 2002 ("Closing Date"), Meta Source Acquisition Corp., a Delaware corporation and our wholly-owned subsidiary ("MSAC") merged with MetaSource Systems, Inc., a Delaware corporation ("MSS"). MSAC was formed by us for the purpose of effectuating a merger with MSS. The merger transaction between MSS and MSAC was consummated pursuant to an Agreement and Plan of Merger dated April 24, 2002 (the "Merger Agreement") which was amended on May 23, 2002 ("Amendment No. 1"), and July 11, 2002 ("Amendment No. 2"). The Merger Agreement is attached as Exhibit 2.1 to the original Form 8-K filed on July 19, 2002. Amendment No. 1 is attached as Exhibit 2.1.1 and Amendment No. 2 is attached as Exhibit 2.1.2. Pursuant to the Merger Agreement, Joe Cheung resigned as our sole officer and sole member of our Board of Directors and Courtney Smith was appointed as president, secretary, treasurer, and a member of our Board of Directors. Upon the closing of the merger, Mr. Cheung agreed to have 6,782,519 shares of his common stock cancelled. The following table sets forth certain information regarding the beneficial ownership of our common stock as of July 18, 2002, by each person or entity known by us to be the beneficial owner of more than 5% of the outstanding shares of common stock, each of our directors and named executive officers, and all of our directors and executive officers as a group.

(1) 1,500,000 shares are subject to an escrow agreement and will be released if we reach certain financial milestones. If we do not reach those financial milestones in the next 18 months, then those shares will be cancelled. (2) Courtney Smith owns approximately 42% of Greater China Technology, Inc. (3) On November 17, the Registrant effected a 1 for 1.1 forward split for holders of record on November 17, 2002. The current shareholdings are listed in the table above. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. In accordance with Securities and Exchange Commission rules, shares of our common stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days of the date of the table are deemed beneficially owned by the optionees. Subject to community property laws, where applicable, the persons or entities named in the table above have sole voting and investment power with respect to all shares of our common stock indicated as beneficially owned by them. Pursuant to the Merger Agreement, Mr. Smith, age 50, became our president, secretary, treasurer and director. Mr. Smith is also the president, secretary and a member of the Board of Directors of MSS. Mr. Smith is primarily responsible for our day to day operations. The duties of our chief financial officer and controller are performed by Geller & Co. Mr. Smith was the founder of the predecessor software company to MSS, Web Master, Inc. in 1996. Mr. Smith is also the president and chief executive officer of Greater China Technology, Inc. From July 1990 to the present, Mr. Smith has been the president and owner of Courtney Smith & Co., an investment advisor firm, formerly Pinnacle Capital 2 Management, Inc. He was also a Managing Director in the New York Representative Office of Daishin Securities Co., Ltd., from October 1994 to February 1996. Mr. Smith became Senior Vice President of Bersac International in March 1996. He is the President and owner of Pinnacle Capital Strategies, Inc. which was registered with the Commodity Futures Trading Commission as a commodity trading advisor and a commodity pool operator from December 1990 to May 2001. Mr. Smith is also the owner of CTCR, Inc. and Nexus, Inc. and the founder of DK&G WebMaster and CollegeCentral.com. Mr. Smith attended the University of British Columbia, Vancouver, British Columbia, Canada, from September 1970 to June 1971, and the Simon Fraser University, Burnaby, British Columbia, Canada, and the British Columbia Institute of Technology, Burnaby BC in 1975 and 1976. Mr. Smith is currently not an officer or director of any other reporting company. In October 2001, a class action lawsuit was filed against numerous defendants including Mr. Smith in United States District Court in the Central District of California, Case No. CV 01-9024 SVW, alleging violations of federal securities laws. The plaintiffs ^ served an amended complaint^. Mr. Smith believes that the plaintiffs' allegations are without merit and intends to oppose this lawsuit zealously. As of December 24, 2002, a motion to dismiss has been filed by Mr. Smith. In 2000, a lawsuit was filed against numerous defendants including Mr. Smith in United States District Court in the Eastern District of New York, Case No. 00-CV 4026, alleging violations of federal securities laws. Mr. Smith has responded to that amended complaint and the case is currently in the discovery process. Mr. Smith believes that Plaintiffs' allegations are without merit and intends to oppose this lawsuit zealously. As of December 24, 2002, the plaintiff has indicated that it may drop Mr. Smith as a defendant, and Mr. Smith believes that the matter will be resolved shortly. Item 2. Acquisition of Assets. ------------------------------ Merger of MSAC and MSS. On July 12, 2002, MSAC merged with and into MSS pursuant to the Merger Agreement (the "MSS/MSAC Merger"). The MSS/MSAC Merger has been accounted for as a reorganization. Prior to the MSS/MSAC Merger and in an effort to satisfy the conditions of the Merger Agreement, MSS had entered into agreements to acquire certain entities: Digit Digital Experiences Limited, a United Kingdom corporation ("Digit"), Global Systems and Technologies Corp., a Virginia corporation ("GSS"), PFA Research Limited, a UK corporation ("PFAR") and Prime Marketing Publications Limited, a UK corporation ("PMP") (collectively, the "Acquired Entities") which MSS believed complemented its business of providing computer solutions and consulting. As of December 24, 2002, we have decided not to close three of these acquisitions: PMP, PFAR, and GSS. In the case of PMP and PFAR, our primary reason not closing these acquisitions was a downturn in the business prospects of these companies as our audit was being performed. In the case of GSS, the primary reason not to close the transaction was incomplete financial records as determined in our audit process. We were also having difficulty in receiving cooperation from GSS. In performing our due diligence on these companies, we collected and verified information regarding financial performance and liability exposure. We further relied on our audit for final confirmation of all information we collected. We agreed to value our acquisitions solely on the results of our audit. Because our audit reflected declining financial performance, we believe we are under no obligation to give consideration for the acquisitions. We decided to not to close the transaction to acquire PMP because PMP was losing significant amounts of money and PMP management had recently indicated to us that sales visibility remained low. Our management decided it was in the best interest of the shareholders to terminate our relationship with PMP in order to avoid significant losses. We believe our earnings are higher as a result of not closing this transaction. Prior to terminating our relationship with PMP, we had lent and invested over $300,000 to PMP and its principals. Our management intends to pursue all appropriate measures to gain recourse to these funds. 3 We decided not to close the transaction acquiring PFAR for the same reasons detailed above for PMP. PFAR was losing relatively significant amounts of money and sales visibility remained low for the foreseeable future. Our management decided it was in the best interest of the shareholders to terminate our relationship with PFAR to avoid significant losses. We believe our earnings are higher as a result of not closing the transaction to acquire PFAR. Prior to terminating our relationship with PFAR, we lent and invested over $15,000 to PFAR and its principals. We decided not to continue funding such losses and we will pursue all appropriate measures to gain recourse to these funds. We decided not to close the transaction to acquire GSS because our audit of GSS's records revealed incomplete information. Our management decided it was in the best interest of the shareholders to not close on the acquisition in order to limit potential undiscovered liabilities. GSS also failed to cooperate with our audit, as required by the GSS Acquisition Agreement. The Acquired Entities are described more particularly below. We intend to pursue further acquisitions with the goal of becoming a provider of software solutions and technology consulting. We intend to focus on acquiring companies that complement MSS's existing assets. 1. Mechanics of the Merger. The separate corporate existence of MSAC ceased when the Certificate of Merger was filed with the Delaware Secretary of State on July 12, 2002, and MSS was the surviving corporation. The charter documents of MSS are the charter documents of the surviving corporation. 2. Share Conversion. Pursuant to the Merger Agreement, we issued 10,986,600 shares of our common stock to the MSS shareholders in exchange for all the issued and outstanding shares of MSS common stock. The holders of MSS common stock immediately prior to the MSS/MSAC Merger will receive one share of MSG stock for each share of MSS stock owned by such holder. The number of shares issued to the MSS shareholders may be reduced pro rata if the following occurs: If the net annual earnings for the year ending December 31, 2001 for the entities acquired pursuant to the Merger Agreement ("Acquired Entities"), do not equal or exceed $2,000,000, then the number of shares issuable under the Merger Agreement shall be reduced, pro rata, by the number of shares equal to the total shortfall. Two of our principal shareholders, Courtney Smith and Angela Chen, have agreed that any shortfall will be taken only from their holdings, and will not reduce the holdings of any other shareholders. For example, if the total net earnings of the Acquired Entities are $1,800,000, the shortfall is 10% of $2,000,000, such that the total number of shares issuable to Mr. Smith and Ms. Chen under the Merger Agreement would be reduced to account for that 10%. Net earnings are to be determined according to U.S. GAAP, as verified by our auditor. 3. Share Restrictions. The shares of MSG common stock issued pursuant to the Merger Agreement shall bear a restricted legend indicating that the shares are "restricted" securities and are not transferable unless certain conditions are satisfied pursuant to applicable securities laws. In addition to any restrictions on transfer pursuant to applicable securities laws, the shares of MSG common stock issued pursuant to the Merger shall have the following additional restrictions: a) No shares of MSG common stock issued pursuant to the Merger Agreement may be transferred within 12 months of the Closing Date. b) After 12 months from the Closing Date, 50% of the holder's shares may be transferred subject to the provisions of the applicable securities laws. c) After 24 months from the Closing Date, the remaining 50% of the holder's shares may be transferred subject to the provisions of the applicable securities laws. In addition to the above restrictions and any restrictions on transfer pursuant to the applicable securities laws, MSS's officers, directors and any of their agents, relatives, affiliates and any entities controlled by MSS's officers, directors, and any holders of more than 5% of MSG's stock issued pursuant to the MSS/MSAC Merger ("MSG Insiders") shall be subject to the following additional restrictions: 4 a) No shares of MSG common stock issued pursuant to the Merger may be transferred within 12 months of the issuance pursuant to the Merger. b) After 12 months from the Closing Date, 25% of MSG common stock held by an MSG Insider may be transferred, subject to any applicable securities regulations. c) After 18 months from the Closing Date, an additional 25% of the MSG Insider's MSG common stock may be transferred, subject to any applicable securities regulations. d) After 24 months from the Closing Date, an additional 25% of the MSG Insider's MSG common stock may be transferred, subject to any applicable securities regulations. e) After 30 months from the Closing Date, the remaining 25% of the MSG Insider's MSG common stock may be transferred, subject to any applicable securities regulations. 4. Financing. On July 12, 2002, and pursuant to the Merger Agreement, we issued three convertible debentures to three investors for a total of $2,000,000. One of those investors had previously loaned us $350,000, which we had loaned to MSS pursuant to the Merger Agreement, Amendment No.1 and Amendment No. 2. Upon the closing of the MSS/MSAC Merger, the investor agreed to convert that promissory note in exchange for a convertible debenture in the amount of $350,000. The terms of those convertible debentures are as follows: a) The debentures shall bear interest of eight percent (8%). b) Interest and principal shall be due and payable on July 12, 2003. c) The debenture holders shall have the right, at any time on or prior to July 11, 2003, to convert that debt into one share of our common stock at $2.25 per share and one warrant to purchase one share of our common stock at $2.50 per share. d) Upon seventy five (75) days prior written notice, we have the right to require and compel the debenture holders to convert the principal indebtedness into shares of common stock at such time as our historical net annual income, evidenced by reviewed financial statements, exceeds Five Million Dollars ($5,000,000). Merger of MetaSource Systems UK and MSS. Immediately prior to the MSS/MSAC Merger, MSS merged with MetaSource Systems UK, a United Kingdom corporation ("MSS UK"). MSS became the surviving entity in that merger. Courtney Smith, our sole officer and director, is a director and a shareholder of MSS UK. The Agreement of Merger between MSS and MSS UK is attached to this Form 8-K as Exhibit 2.6. MSS agreed to issue 986,600 shares of MSS common stock to the shareholders of MSS UK in exchange for all the issued and outstanding stock of MSS UK. The merger between MSS and MSS UK will be accounted for as a reorganization. MetaSource Systems (MSS/MSS UK) Business Description. MSS is a New York and London-based company which provides solutions to software development and maintenance problems that companies encounter in the current business environment. MSS provides professional services through an integrated business model that combines technical, project and relationship management teams located in the U.S. and U.K., along with development companies located in China, Russia and Taiwan. MSS's solutions include application development and integration, application management, and re-engineering services. MSS's core competencies include webcentric applications, database programming, and client-server systems. To date, MSS has assembled the following resources: Sales, Project Management and Client Service Team. MSS performs all client-facing functions using local sales, service and project management personnel. The experienced, high quality professionals ensure seamless integration of client needs and company capabilities. Offshore development platform in China. Through an exclusive agreement with Greater China Technology, Inc. located in China, MSS has an exclusive agreement to outsource programming and development work at costs significantly less than those in the U.S. Corporate strategy & finance team. Many smaller IT solutions providers have focused their resources mainly on building technical and sales & marketing expertise and therefore lack the strategic and financial managerial expertise to drive sustained long-term growth. MSS has assembled an in-house team dedicated solely to developing corporate and financial strategies aimed at building a world-leading provider of IT solutions within the context of the current depressed market environment. 5 MSS focuses first and foremost on managing the software development process. MSS can provide complete system analysis and design as well as hard core project management. Typically, MSS will receive program specifications from the client so that the primary function of MSS is to ensure that the project is implemented on time and on budget. MSS professionals will work with the client to ensure that the specifications will precisely solve the clients' problem. MSS's approach to technical development is based on a combination of Prince II and Rational methodologies. All of our work is completely PMBOK(R) compliant. Our global staff is highly trained in project management disciplines. The methodology is design to reduce implementation duration and risk, while ensuring effective resource-based management. MSS's main aim is to establish business goals and deliver results that provide our clients with strategic advantage in their industry. ^ MSS Agreement with Digit. Pursuant to an acquisition agreement (the "Digit Agreement"), MSS obtained the right to acquire Digit. The Agreement of Merger between MSS, Digit, and Digit Stockholders is attached as Exhibit 2.2. According to the Digit Agreement, the shareholders of Digit will be issued shares of MSS's common stock (the "Digit Exchange Shares") in exchange for all the issued and outstanding stock of Digit. Each Digit shareholder is to be issued Digit Exchange Shares based on their pro rata ownership of Digit stock. The ultimate number of Digit Exchange Shares to be issued to the Digit shareholders will be calculated using the following formula: ADD--the average of 5 times Digit net earnings from April 1, 2001 through March 31, 2002 with 5 times the Digit net earnings from April 1, 2002 through March 31, 2003, and DIVIDE BY the average trading price (defined hereinafter) of MSS's common stock on the first twenty days of public trading of MSS's shares. "Net earnings" are to be determined by MSS's auditor using U.S. GAAP. The "average trading price" shall be calculated with reference to the average of high and low prices on the first twenty days of public trading as reported on finance.yahoo.com. The Digit shareholders agreed to place all of the Digit Exchange Shares in escrow for a period of one year. Within 60 days of March 31, 2003, additional Digit Exchange Shares will be added according to the formula above if Digit's net earnings for the period beginning April 1, 2002 and ending March 31, 2003 are greater than the average of April 1, 2001 through March 31, 2002 Digit earnings. If Digit net earnings for the period beginning April 1, 2002 and ending March 31, 2003 are less than the average of April 1, 2001 through March 31, 2002, Digit earnings, the appropriate number of Digit Exchange Shares will be subtracted according to the formula above. 6 Digit Business Description. Since 1995, Digit has provided interactive digital business solutions to a corporate client base. Those solutions include a combination of design, marketing, branding, merchandising and technology integration skills to create business value. Digit specializes in navigation and flow within interactive design solutions and are experienced structural architects for complex information management systems. By carefully selecting technologies Digit has navigated an uncertain market environment by establishing a reputation as the European leader in design and innovation. Recognition of Digit's work has resulted in the award of a BAFTA for Interface Design and Best of Show at the International Design Week Awards 2001. Furthermore in a recent Financial Times survey of the leading 50 Creative Minds of 2001, Digit's Creative Director, Daljit Singh, was the only New Media personality to feature alongside the likes of Greg Dyke, Sir Paul Smith, Sir Martin Sorrell and Ridley Scott. Recent Work includes: Habitat - Digit has redesigned and revitalized Habitat's global website which was launched in September in five countries - the UK, Eire, France, Spain and Germany. The new site has been designed to allow a seamless migration to e-commerce elements in the future. Partnering with Dataforce to handle all of Habitat's online customer relationship marketing, Digit will introduce dynamic digital mailers throughout the year, informing customers of promotions and new ranges within the stores. World Wide Learning - Part of News Corporation, (a division of the News International plc). WorldWide Learning has commissioned Digit to look at the branding and design for several projects both on and off-line. Digit has been asked to re-design their existing corporate Worldwide Learning website, as well as design an interface and navigation for one of their main on-line learning products - LENS. In addition to these on-line projects Worldwide Learning has asked Digit to design and produce their company information brochure pack. MTV Source - MTV approached Digit to design and produce a viral flash animation and a dedicated micro site. The brief for the animation was that it should attract students and non-professional designers to design screen identifications for the MTV channel. After viewing the animation the user then clicks on a link taking them directly to the microsite, which gives further information about the project. The animation is around twenty seconds long and under MB in size and produced entirely in Flash. Disney Channel - Digit has completed several projects and is currently working with Disney Channel on various activities. One such project is the Disney Channel site, the brief was to create an entertaining and animation rich environment that allows children to explore and interact directly with the Live Studio in an innovative way. It aims to encourage interactivity and communication with playful and humorous content. The project is divided into two phases, the second phase currently being developed concentrates on interactive content and gaming. The aim is to create a synergy between the on-air studio and the website. Children will be able to interact and affect aspects of the studio by visiting the site which will encourage children to stay and re-visit regularly. www.disneychannel.co.uk Other projects completed for Disney include a re-design of the Disney Kids Awards Site, the brief was to take the existing content for the Kids Awards site www.disney.co.uk/kidsawards, and to redesign and incorporate new content, the look and feel of the site needed to be in keeping with the existing marketing collateral produced for the event. Digit has also produced several content specific homepage re-fresh for the main European Disney channel homepage, the existing Buzz Lightyear page is soon to be replaced with a new Tarzan themed homepage. 7 ^ Merger of Kensington Consulting Acquisition Corporation and Kensington Group, Inc. Immediately following the MSS/MSAC Merger, and also on July 12, 2002, our wholly-owned subsidiary, Kensington Consulting Acquisition Corporation, a Delaware corporation ("KCAC") filed a Certificate of Merger to merge into and with (the "KG/KCAC Merger") Kensington Group, Inc., a Massachusetts corporation ("KG"). KCAC was to be the surviving entity and take the name "Kensington Management Consulting, Inc."("KMC"). KCAC changed its name on December 13, 2002 to "KGI: Kensington Management Consultants, Inc." The KG/KCAC Merger is attached as Exhibit 2.7 and was consummated with the following terms and conditions: Prior to the consummation of KG/KCAC Merger, Norma LaRosa, officer and director of KG, entered into a Share Purchase Agreement whereby she agreed to purchase all the stock of Efrem Mallach. Norma LaRosa ("KG Shareholder") entered into the KG/KCAC Merger Agreement as the sole shareholder of KG. Pursuant to that agreement, the KG Shareholder shall receive an amount of our common stock (the "KG Exchange Shares") according to the following formula: KG's net income for the calendar year ended December 31, 2001 (the "2001 Income"), multiplied by five (5), divided by the average between the high, low and closing price of shares of our common stock on July 16, 2002 (the "Average Price"), but not more than $5.50 per share. "Net Income" shall be determined by our auditor in accordance with U.S. GAAP applying the accounting policies and procedures historically used by KG. The KG Exchange Shares shall be held in escrow as described below. On or before August 30, 2003, the KG Exchange Shares issued to the KG Shareholder will be adjusted according to the following formula: as soon as practicable after June 30, 2003, KG will determine its net income for the period from July 1, 2002 to June 30, 2003 (the "2003 Income"). If the average of the 2003 Income and the 2001 Income exceeds, by more than 10%, the 2001 Income, then the KG Shareholder will be issued additional KG Exchange Shares determined by multiplying (A) the difference between (i) the average of the 2003 Income and the 2001 Income and (ii) the 2001 Income by (B) 5 and dividing that product by the Average Price. If the average of KG's 2003 Income and the 2001 Income is more than 10% less than the 2001 Income, then the KG Shareholder shall return to us that number of KG Exchange Shares determined by multiplying (A) the difference between (i) the 2001 Income and (ii) the average of the 2001 Income and the 2003 Income by (B) 5 and dividing that product by the Average Price. 8 In the event that the average of 2003 Income and the 2001 Income exceeds the 2001 Income by more than 10%, we have agreed to issue additional KG Exchange Shares, as determined herein, within 5 business days of the determination of the 2003 Income, but in no event later than August 30, 2003. In the event that the 2001 Income exceeds the average of the 2001 Income and 2003 Income by more than 10%, we will receive that number of KG Exchange Shares determined in accordance with the formula above within 5 business days of the determination of the 2003 Income, but in no event later than August 30, 2003. In the event that the average of the 2003 Income and 2001 Income is within 10% of (either plus or minus) the 2001 Income, there shall be no adjustment. Additionally, certificates representing 50% of the immediately issued KG Exchange Shares shall be delivered to an escrow agent and certificates evidencing and representing the remaining 50% of the immediately issued KG Exchange Shares shall be delivered to the KG Shareholder pursuant to the provisions of the KG/KCAC Merger Agreement. Pursuant to the terms of an employment agreement, Norma LaRosa, co-founder of KG, has agreed to serve as the chief executive officer of KMC, which is now our wholly-owned subsidiary. The term of the employment agreement is two years beginning July 12, 2002, and is renewable on a yearly basis thereafter. Her gross annual salary shall be $85,000, plus certain employee benefits as detailed in the employment agreement attached hereto as an exhibit. Kensington Group, Inc. Business Description. Kensington Group, Inc. provides companies with services such as research, consulting, and training to assist their clients to achieve corporate objectives, maximize sales and business opportunities, and increase shareholder value. Kensington Group, Inc. has clients which are Fortune 500 and Global 2000 companies. Kensington Group, Inc. believes its customers benefit by Kensington Group, Inc.'s knowledge and hands-on experience as its principals have over 20 years of experience in the information technology ("IT") industry. Kensington Group, Inc. provides its clients with research that exposes those factors which could influence a company's future success such as: Custom Influencer Win/Loss Analysis -- Kensington Group, Inc. will work with clients to determine the impact of certain influencers on corporate sales and take corrective action to resolve negative influences on a particular companies business, whether real or perceived. The term "influencers" covers industry analysts, consultants, the press, and others who can impact customers' buying decisions. Analyst Quotation Tracking System(TM) -- Kensington Group Inc. uses a global system that tracks trends and industry analysts' and financial analysts' quotes in the media, both print and online, of business, trade and news press. Media quotations are a key channel through which analysts influence the course of the market and the fortunes of individual companies. This service comes with unlimited access to Kensington Group, Inc.'s extensive "searchable and sortable" database and custom, monthly executive "key indicator" reports. Public Analyst/Consultant Relations Effectiveness Benchmark Studies(TM) for IT and telecommunications companies. This is an annual series of reports to companies that includes performance measurements, program concepts, best practices and recommendations for all IT and telecommunications companies worldwide. Watching the Watchers(TM). An annual benchmark study for users, vendors, venture capitalists and others. These reports seek to answer important questions such as: Who uses which research firms, and for what? How much are they really spending? Who is really being used to influence sales? What are their strengths and weaknesses? Kensington Group, Inc. is in a position to answer these questions and provide an objective guide to these critical influencers. 9 Best Practices and Trends Report. These reports detail lessons learned in eleven years of industry studies. They incorporate thousands of interviews with analysts and consultants from around the world in an understandable format. Analyst Relations Manager's Companion and Guide. This guide is a one-stop-shopping guide to influencer programs and processes: planning, templates, checklists and concepts for today's analyst or consultant relations professional. The Guide is updated annually to address new and changing market conditions. Kensington Group, Inc. also provides public and private forums for their clients' analyst and consultant relations staff. The available forums are detailed immediately below. Private Forums include: Specialized Analyst Relations Training and Coaching: During these forums, Kensington Group, Inc. stresses message development, briefing preparation, spokesperson training and executive coaching with a clear focus on content, information flow and style. Custom Public Relations Agency Training: These training sessions focus on learning how to be more competitive in analyst relations. Consulting Services: Kensington Group, Inc. works to analyze its client's specific needs for analyst and consultant services. Kensington Group, Inc. provides its clients with a customized approach to analyst and consultant relations. ITEM 5. OTHER EVENTS. LaRosa Promissory Notes. MSS agreed to loan Norma LaRosa, the officer and director of KG, the sum of $560,000 at 2.84% interest per annum. The loan is full-recourse. The funds are to be distributed to Ms. LaRosa in separate payments occurring over approximately one year depending on several factors. The principal and all accrued interest is due and payable no later than July 12, 2004. As collateral for the loan, Ms. LaRosa agreed to deposit in escrow that portion of our shares owned by her equal in value to $560,000 as determined by taking the average of the high, low, and closing price of our stock on July 16, 2002. ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS. On July 12, 2002, Joe Cheung resigned as our president, secretary, treasurer and a member of our Board of Directors. The resignation was not the result of any disagreement with us on any matter relating to our operations, policies or practices. A copy of Mr. Cheung's resignation is filed as Exhibit 17.1 to the Form 8-K filed July 19, 2002. 10 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS Proforma Consolidated June 30, 2002

The accompanying footnotes are an integral part of these financial statements 11 Consolidated Statement of Operations Year ended December 31, 2001 --------------------------------------------------------------------------------

Basic & diluted net loss per share $ (0.04) $ (0.07) The accompanying footnotes are an integral part of these financial statements 12 Consolidated Statement of Operations six months June 30, 2002 ----------------------------------------------------------------

The accompanying footnotes are an integral part of these financial statements 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 The accompanying condensed consolidated financial statements include our accounts as well as our wholly owned subsidiaries. All significant inter-company transactions and balances have been eliminated. In our opinion, the accompanying unaudited consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the periods presented. The results of operations presented for the three and nine months ended September 30, 2002 are not necessarily indicative of the results to be expected for any other interim period or any future fiscal year. The accompanying consolidated financial statements should be read in conjunction with the financial statements for the six months ended June 30, 2002 and years ended 2001 and 2000 included in our amended Form 8-K/A filed with the Securities and Exchange Commission on December 26, 2002. Basis of Presentation ---------------------- On July 12, 2002 MetaSource Group ("MSGR") and MetaSource Systems ("MS") executed a business combination agreement that provided for MSGR acquiring all of the issued and outstanding common stock of MS. In connection with the transaction, the shareholders of MS received 10,000,000 shares of MSGR common stock for their 10,000,000 shares of MS. As a result of this transaction, the former shareholders of MS acquired or exercise control over a majority of the shares of MSGR. Accordingly the transaction has been treated for accounting purposes as a recapitalization of MS and, therefore, these financial statements represent a continuation of the accounting acquirer, MS, not MSGR, the legal acquirer. In accounting for the transaction: i) MS is deemed to be the purchaser and surviving company for accounting purposes. Accordingly, its net assets are included in the balance sheet at their historical book values. ii) Control of the net assets and business of MSGR was acquired effective July 12, 2002 (the "Effective Date"). This transaction has been accounted for as a purchase of MSGR by MS. iii) The consolidated statements of operations and cash flows include MS's results of operations and cash flows from November 27, 2001 (date of inception) and MSGR's results of operations from the Effective Date. MSGR had no operations subsequent to the Effective Date. NOTE 2 -- Notes Payable -------------------------- On July 12, 2002, and pursuant to the Merger Agreement, we issued three convertible debentures to three investors for a total of $2,000,000. Of the three convertible debentures, one was for $1,000,000 and a second was for $650,000. The third convertible debenture was for $350,000, which was exchanged for a promissory note we had previously issued to an investor who had previously loaned us $350,000, which we in turn was loaned to our wholly-owned subsidiary, MetaSource Systems, Inc. Upon the closing of the merger between our wholly owned subsidiary, MetaSource Acquisition Corporation and MetaSource Systems, Inc., the investor who loaned us the funds agreed to convert that promissory note in exchange for a convertible debenture in the amount of $350,000. The general terms of all three convertible debentures are similar and are as follows: 14 o The debentures shall bear interest of eight percent (8%). o Interest and principal shall be due and payable on July 12, 2003. o The debenture holders shall have the right, at any time on or prior to July 11, 2003, to convert that debt into one share of our common stock at $2.25 per share and one warrant to purchase one share of our common stock at $2.50 per share. o Upon seventy five (75) days prior written notice, we have the right to require and compel the debenture holders to convert the principal indebtedness into shares of common stock at such time as our historical net annual income, evidenced by reviewed financial statements, exceeds Five Million Dollars ($5,000,000). NOTE 3 -- Notes Receivable ---------------------------- LaRosa Promissory Notes. MetaSource Systems, Inc., agreed to loan Norma LaRosa, the officer and director of Kensington Group, certain sums at 2.84% interest per annum. To date we have loaned Ms. LaRosa $135,000. The loan is full-recourse. The principal and all accrued interest is due and payable no later than July 12, 2004. As collateral for the loan, Ms. LaRosa agreed to deposit in escrow that portion of our shares owned by her equal in value to $560,000 as determined by taking the average of the high, low, and closing price of our stock on July 16, 2002. PMP Financing Agreement. MetaSource Systems, Inc., entered into an Agreement of Financing with Mike Price, a director of PMP, wherein MetaSource Systems, Inc., agreed to loan Mike Price certain sums. To date we have loaned Mr. Price over $250,000. The loan is a full recourse loan with a due date of July 13, 2004. NOTE 4 -- Recent accounting pronouncements --------------------------------------------- On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 141, "Business Combinations," and SFAS 142, "Goodwill and Intangible Assets." SFAS 141 is effective for all business combinations completed after June 30, 2001. SFAS 142 is effective for fiscal years beginning after December 15, 2001; however, certain provisions of this Statement apply to goodwill and other intangible assets acquired between July 1, 2001 and the effective date of SFAS 142. The Company does not believe that these statements will have a material affect on the Company's financial statements. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement is effective for fiscal years beginning after December 15, 2001. This supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," while retaining many of the requirements of such statement. The Company is currently evaluating the impact of the statement. 15 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders of Meta Source Systems, Inc. We have audited the accompanying balance sheet of Meta Source Systems, Inc. as of December 31, 2001, and the related statements of operations, stockholders' equity and cash flows for the initial period November 26, 2001 to December 31, 2001. 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Meta Source Systems, Inc. as of December 31, 2001, and the results of its operations and cash flows for the initial period November 26, 2001 to December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. MERDINGER, FRUCHTER, ROSEN & COMPANY, P.C. Certified Public Accountants New York, New York December 16, 2002 16 MetaSource Systems, Inc.

The accompanying footnotes are an integral part of these financial statements 17 MetaSource Systems, Inc. Statement of Stockholders Equity

The accompanying footnotes are an integral part of these financial statements 18 MetaSource Systems, Inc.

The accompanying footnotes are an integral part of these financial statements 19 MetaSource Systems, Inc.

The accompanying footnotes are an integral part of these financial statements 20 MetaSource Systems, Inc. Notes to Financial Statements December 31, 2001 andJune 30, 2002 (Information with respect to June 30, 2002 is unaudited) NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of business ----------------------- MetaSource Systems, Inc. (MSS) was incorporated in Delaware on November 26, 2001 and is a custom software development company. Revenue recognition ------------------- Revenue for software development is recognized as the services are rendered. Daily rates for programming are determined in advance and agreed to with the customer. Most jobs are on a project basis. Advertising costs ----------------- The Company expenses all advertising costs as incurred and classifies these costs under selling, general and administrative expenses. Advertising costs for the year ended December 31, 2001 was $210 and was $295 for six months ended June 30, 2002. Cash and cash equivalents -------------------------- Cash and cash equivalents consists solely of cash in demand accounts at banks. Concentration of credit risks ----------------------------- The Company keeps it's money in non-interest bearing demand accounts. The Company maintains its cash balances in financial institutions located in the United States. The balances in U.S. banks are insured by the Federal Deposit Insurance Corporation up to $100,000. There were no accounts receivable at December 31, 2001 and 74150 at June 30,2002. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, and other information. Fair value of financial instruments ----------------------------------- The carrying value of financial instruments (principally consisting of cash and cash equivalents, accounts receivable and payable) approximates fair value because of the short maturities. Income taxes ------------ Income tax expense includes federal and state taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. Use of estimates in financial statements ---------------------------------------- In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 21 MetaSource Systems, Inc. Notes to Financial Statements December 31, 2001 andJune 30, 2002 (Information with respect to June 30, 2002 is unaudited) Recent accounting pronouncements -------------------------------- On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 141, "Business Combinations," and SFAS 142, "Goodwill and Intangible Assets." SFAS 141 is effective for all business combinations completed after June 30, 2001. SFAS 142 is effective for fiscal years beginning after December 15, 2001; however, certain provisions of this Statement apply to goodwill and other intangible assets acquired between July 1, 2001 and the effective date of SFAS 142. These statements will have no affect on the Company's financial statements as there was no goodwill or intangible assets on the balance sheets. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement is effective for fiscal years beginning after December 15, 2001. This supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," while retaining many of the requirements of such statement. The Company is currently evaluating the impact of the statement but believes it will have no impact because there were no long-lived assets at December 31, 2001 nor June 30, 2002.. NOTE 2 - PREPAID EXPENSES Prepaid expenses represent advances to a vendor for programming services performed in the subsequent period. NOTE 3 - INCOME TAXES The components of the provision for income taxes are as follows: For the Year Ended Six Months Ended December 31, 2001 June 30, 2002 -------------------- ------------------- Current Tax Expense U.S. Federal $ - $ - State and Local - - ------------------- ------------------- Total Current - - ------------------- ------------------- Deferred Tax Expense U.S. Federal - - State and Local - - ------------------- ------------------- Total Deferred - - ------------------- ------------------- Total Tax Provision (Benefit) from Operations $ - $ - ------------------- ------------------- 22 MetaSource Systems, Inc. Notes to Financial Statements December 31, 2001 andJune 30, 2002 (Information with respect to June 30, 2002 is unaudited) The reconciliation of the effective income tax rate to the Federal statutory rate is as follows: Federal Income Tax Rate (34.0)% (34.0)% Deferred Tax Charge (Credit) - - Effect on Valuation Allowance 34.0% 34.0% State Income Tax, Net of Federal Benefit - - --------------- ----------------- Effective Income Tax Rate 0.0% 0.0% =============== ================= As of December 31, 2001 and June 30, 2002 the Company had a net carryforward loss of approximately $143,000 and $524,000 respectively. Because of the current uncertainty of realizing the benefit of the tax carryforward, a valuation allowance equal to the tax benefit has been established. The full realization of the tax benefit associated with the carryforwards depends predominantly upon the Company's ability to generate taxable income during the carryforward period. Net operating loss carryforwards expire through 2021. Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purpose and amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities approximate as follows: -------------------------- ------------------- -------------------- December 31, 2001 June 30, 2002 -------------------------- ------------------- -------------------- Deferred Tax Assets -------------------------- ------------------- -------------------- Loss Carryforwards $49,000 178000 -------------------------- ------------------- -------------------- Less: Valuation Allowance (49,000) (178000) -------------------------- ------------------- -------------------- Net Deferred Tax Assets $ - $ - -------------------------- ------------------- -------------------- NOTE 4 - OFFICE SPACE The company occupies administrative office space in New York, NY under a five year lease held by two affiliated entities. NOTE 5 - SUBSEQUENT EVENTS Acquisition of Company ---------------------- Effective July 12, 2002, the Company entered into a transaction with MetaSource Group, Inc., Inc.("MSGR") in which the shareholders exchanged 100% of the issued and outstanding shares of the Company in exchange for shares of MSGR (the "Exchange Shares"). Under the terms of the exchange agreement, the Exchange shares were on a one for one basis. See detail in the relevant 8K filings of MetaSource Group, Inc. 23 MetaSource Systems, Inc. Notes to Financial Statements December 31, 2001 andJune 30, 2002 (Information with respect to June 30, 2002 is unaudited) Concurrent with this, the Company received additional funding through the issuance of convertible debentures totaling $2.0 million. These debentures carry an interest rate of 8% due at the maturity date of the debentures July 11, 2003. The debentures may be converted into common stock at $2.25 per share and upon conversion the debenture holder receives a one year warrant to purchase common stock at $2.50 per share for each share of common stock received at the conversion date prior to June 30, 2002. The conversion and warrant prices will be reduced if the company sells stock at a price per share less than the conversion price. The Company received advances from the debenture holders of $350,000 against the proceeds from the sales of the debentures. Concurrent with this agreement the Company entered into an employment agreement with a certain executive which provide for minimum compensation of $ 120,000 for the years ending December 31, 2002 and 2003 respectively. During the year 2002, the Company sold to various investors 640,846 shares of common stock under Securities and exchange Commission Regulation D, Rule 506 realizing $658,000. On June 26, 2002, the Company increased its authorized common stock from 10,000,000 shares to 30,000,000 shares and in addition reduced the par value of its common stock from $.01 to $.001 During 2002, the Company loaned three affiliated companies $386,000 receiving subordinated notes due in one year from the loan dates bearing interest at rates ranging from 6% to 9%. In July 2002, the Company loaned a related party $135,000 against a secured full-recourse promissory notes due July 16, 2003bearing no interest secured by the ownership of the Company's stock. In addition, the Company loaned a related party $160,000 against a secured full-recourse promissory notes due July 16, 2003bearing no interest secured by the ownership of the Company's stock. In December the Company acquired two companies, Sitaro Group, Inc. and International Trade and Development, Ltd in share swaps detailed in the relevant 8K filings. 24 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders of Digit Digital Experiences, Limited We have audited the accompanying balance sheets of Digit Digital Experiences, Limited as of December 31, 2001 and 2000, and the related statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Digit Digital Experiences, Limited as of December 31, 2001 and 2000, and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. MERDINGER, FRUCHTER, ROSEN & COMPANY, P.C. Certified Public Accountants New York, New York November 15, 2002 25

26 Digit Digital Experiences Ltd Statement of Stockholders Equity

The accompanying footnotes are an integral part of these financial statements 27 Digit Digital Experiences Limited Statement of Operations -----------------------------------------------------

The accompanying footnotes are an integral part of these financial statements 28 Digit Digital Experiences Limited

The accompanying footnotes are an integral part of these financial statements 29 Digit Digital Experience Limited Notes to Financial Statements December 31, 2001 and 2000 June 30, 2002 and 2001 (Information with respect to June 30, 2002 and 2001 is unaudited) NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of business and basis of presentation ------------------------------------------------- Digit Digital Experiences Limited ("the Company" or "Digit") was incorporated in 1996 in the United Kingdom and is a professional services firm that designs interactive digital business solutions. The Company is based in the United Kingdom. The company's financial statements have been presented in U.S. dollars in accordance with SFAS 52 Foreign Currency Translation. Assets and liabilities have been translated from UK pounds sterling to U.S. dollars at year-end exchange rates, and revenue and expenses have been translated at average rates prevailing during the year. Translation adjustments are included as a component of stockholder's equity. Foreign currency transaction gains and losses, which have been immaterial, are included in results of operations. Revenue recognition ------------------- Revenue for professional services is recognized as the services are rendered. Daily rates are determined in advance and agreed to with the customer. On fixed fee engagements, revenue and gross profit adjustments are made to reflect revisions in estimated costs and contract values. Deferred revenue occurs when a client prepays for work to be done in the future. Research and development costs ------------------------------ The Company expenses all costs incurred to establish the technological feasibility of software products or product enhancements to research and development costs as incurred. Advertising costs ----------------- The Company expenses all advertising costs, as incurred and classifies these costs under selling, general and administrative expenses. Advertising costs for six months ending June 30, 2001 and June 30, 2002 were $6,622 and zero, respectively. Concentration of credit risks ----------------------------- Financial instruments, which potentially subject the Company to concentrations of credit risk, regardless of the degree of such risk, consist principally of trade accounts receivable. The Company's largest customer receivable accounts for approximately 20% of billed accounts receivable at December 31, 2000. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, and other information. Fair value of financial instruments ----------------------------------- The carrying value of financial instruments (principally consisting of accounts receivable and payable, notes payable and due to factor) approximates fair value because of the short maturities. Property and equipment and depreciation --------------------------------------- Property and equipment are stated at cost. Depreciation is on equipment computed using the straight-line method over the estimated useful lives of the assets. All equipment is depreciated over four years. 30 Digit Digital Experience Limited Notes to Financial Statements December 31, 2001 and 2000 June 30, 2002 and 2001 (Information with respect to June 30, 2002 and 2001 is unaudited) Impairment of long-lived assets and long-lived assets to be disposed --------------------------------------------------------------------- Up to and including the year ended December 31, 2001, the Company evaluated its long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicated that the carrying amount of such assets or intangibles may not be recoverable. Recoverability of assets to be held and used was measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such an asset was considered to be impaired, the impairment to be recognized was measured by the amount by which the carrying amount of the asset exceeded the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Income taxes ------------ Deferred income taxes result from temporary differences between income reported for financial and income tax purposes. These temporary differences result primarily from the allowance for doubtful accounts provision and certain accrued expenses which are deductible, for tax purposes, only when paid. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax asset will not be realized. The deferred tax liability was $51,771 on December 31, 2000. Use of estimates in financial statements ---------------------------------------- In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Recent accounting pronouncements -------------------------------- On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 141, "Business Combinations," and SFAS 142, "Goodwill and Intangible Assets." SFAS 141 is effective for all business combinations completed after June 30, 2001. SFAS 142 is effective for fiscal years beginning after December 15, 2001; however, certain provisions of this Statement apply to goodwill and other intangible assets acquired between July 1, 2001 and the effective date of SFAS 142. The company does not believe that these statements will have a material affect on the Company's financial statements. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement is effective for fiscal years beginning after December 15, 2001. This supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," while retaining many of the requirements of such statement. The Company is currently evaluating the impact of the statement. 31 Digit Digital Experience Limited Notes to Financial Statements December 31, 2001 and 2000 June 30, 2002 and 2001 (Information with respect to June 30, 2002 and 2001 is unaudited) NOTE 2 - ACCOUNTS RECEIVABLE Accounts receivable consist of the following at December 31: 2001 2000 Billed, net of advances $ - $ 126,438 Less allowance for doubtful accounts - ( 53,800) ------------- ------------- $ - $ 72,638 ============= ============= Billed accounts receivables have been factored with a financing company (the "Factor"). Under the terms of the agreement the Factor advances the Company up to 85% of a billed receivable for working capital purposes. The receivables and the remaining assets of the Company secure the advances. A finance charge of prime plus 2.5% is assessed on all advanced balances. Finance charges were approximately $23,200 and $13,600 for the years ended December 31, 2001 and 2000, respectively. Advanced billed receivable balances are approximately $272,000 and $225,500 at December 31, 2001 and 2000 respectively. NOTE 3 - Property and Equipment As of December 31 property and equipment consisted of: June 30, 2002 2001 2000 Leasehold improvements $44,585 $ 45,685 $ 47,007 Machinery and equipment 397,154 384,741 400,572 ------- --------- ---------- 441,739 358,462 227,241 Less accumulated depreciation 300,704 (252,370) (165,511) ------- --------- ---------- Property and equipment, net $141,034 $ 178,056 $ 282,068 -------- --------- ---------- NOTE 4 - REVOLVING CREDIT AND TERM LOAN The Company has a revolving credit agreement with a bank that expires in 2003. The agreement provides for borrowings up to $153,000 for working capital purposes and earns interest at the bank's prime lending rate (6.0% at December 31, 2001) plus 2.5%. The borrowing are personally guaranteed by the Company's shareholder's. The Company has a term loan of approximately $288,000 with a financial institution which is currently in default. The borrowings are secured by Digit's assets and are personally guaranteed by the Company's shareholder's and earns interest at the bank's prime lending rate (6.0% at December 31, 2001) plus 3.0%. 32 Digit Digital Experience Limited Notes to Financial Statements December 31, 2001 and 2000 June 30, 2002 and 2001 (Information with respect to June 30, 2002 and 2001 is unaudited) NOTE 5 - DUE FROM / TO OFFICERS The Company paid approximately $83,600 and $112,470 during the years ended December 31, 2001 and 2000, respectively for expenses related to property owned by two officers of the Company. These amounts were offset by interest free loans made by the officers to the company for working capital purposes. NOTE 6 - DIVIDENDS PAYABLE In December 2000 the Company declared a divided of $74,675 to the holders of the Class A common stock and $74,675 to the holders of the Class B common stock at December 31, 2000. The dividend was offset against amount owed by shareholders, who are also officers of the Company. NOTE 7 - EMPLOYEE BENEFITS PLANS The Company maintains a defined contribution savings plan covering eligible employees. The Company makes contributions up to a specific percentage of participants' contributions. The Company contributed approximately $26,200 and $12,900 in 2001, and 2000 respectively. NOTE 8 - COMMITMENTS AND CONTINGENCIES The Company leases office space under a long-term operating lease expiring in 2004. Lease expense for 2000 and 2001 were $65,250 each year. As of December 31, 2001, approximate minimum rental commitments were as follows: Year Ending December 31, 2002 $ 65,250 2003 65,250 2004 65,250 ---------- $ 195,750 ========== NOTE 9 - CAPITAL STRUCTURE Only common shares are issues. Andrew Chambers and Daljit Singh own 1000 shares each while Simon Sankaray and Nick Christea each own 25 shares. NOTE 10 - SUBSEQUENT EVENTS Effective July 12, 2002, the Company entered into a transaction with MetaSource Group, Inc., Inc. ("MSGR") in which the shareholders exchanged 100% of the issued and outstanding shares of the Company in exchange for shares of MSGR (the "Exchange Shares"). Under the terms of the exchange agreement the Exchange shares to be issued to the Company's shareholders will be determined by dividing the average of five times Digit's pro-forma net income for (i) the period April 1, 2001 through March 31, 2002 (ii) the period of April 1, 2002 through March 31, 2003 by the average of MSGR's high, low and closing stock price during the first twenty business days of public trading of MSGR. The Exchange shares will be maintained in escrow for a period of one year and on or before May 30,2003 the Exchange Shares may be increased or decreased if the average pro-forma net income for the period April 1, 2002 to March 31, 2003 exceeds or is less than the average pro-forma net income for the period April 1, 2001 through March 31, 2002. 33 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders of Kensington Group, Inc. We have audited the accompanying balance sheets of Kensington Group, Inc. as of December 31, 2001 and 2000, and the related statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kensington Group, Inc. as of December 31, 2001 and 2000, and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. MERDINGER, FRUCHTER, ROSEN & COMPANY, P.C. Certified Public Accountants New York, New York October 3, 2002 34 Kensington

The accompanying footnotes are an integral part of these financial statements 35 Kensington Group, Inc. Statement of Stockholders Equity

The accompanying footnotes are an integral part of these financial statements 36 Kensington Statement of Operations -----------------------------------------------------

The accompanying footnotes are an integral part of these financial statements 37 Kensington

The accompanying footnotes are an integral part of these fiinancial statements 38 Kensington Group, Inc. Notes to Financial Statements December 31, 2001 and 2000 and June 30, 2002 and June 30, 2001 (Information with respect to June 30, 2002 and June 30, 2001 is unaudited) NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of business ----------------------- Kensington Group, Inc.("the Company" or "KGI") was incorporated in the state of Massachusetts in 1996 and is a professional services firm that provides research, consulting, and training to assist end-users, vendors, media, analysts, venture capitalists and others. The Company is operates in California and Massachusetts. Revenue recognition ------------------- Revenue for professional services is recognized as the services are rendered. Daily rates for training and consulting are determined in advance and agreed to with the customer. Revenue from research is also recognized as services are performed, however, adjustments are sometimes needed to reflect progress against milestones or deliverables. On fixed fee engagements, revenue and gross profit adjustments are made to reflect revisions in estimated costs and contract values. Advertising costs ----------------- The Company expenses all advertising costs as incurred and classifies these costs under selling, general and administrative expenses. Advertising costs for the years ended December 31, 2001, and 2000 were approximately $22,000 and $1,000, respectively. Advertising costs for six months 2002 were $100 and six months 2001 were $13,656. Cash and cash equivalents ------------------------- Cash and cash equivalents include highly liquid instruments with a maturity of three months or less at the time of purchase. Concentration of credit risks ----------------------------- Financial instruments, which potentially subject the Company to concentrations of credit risk, regardless of the degree of such risk, consist principally of cash and cash equivalents and trade accounts receivable. The Company invests the majority of its excess cash in overnight commercial paper of high-credit, high-quality financial institutions or companies, with certain limitations as to the amount that can be invested in any one entity. The Company maintains its cash balances in financial institutions located in the United States. The balances in U.S. banks are insured by the Federal Deposit Insurance Corporation up to $100,000 for each entity at each institution. The Company's largest customer receivable accounts for approximately 17% and 16% of billed accounts receivable at December 31, 2001 and 2000, respectively. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, and other information. Fair value of financial instruments ----------------------------------- The carrying value of financial instruments (principally consisting of cash and cash equivalents, accounts receivable and payable) approximates fair value because of the short maturities. 39 Kensington Group, Inc. Notes to Financial Statements December 31, 2001 and 2000 and June 30, 2002 and June 30, 2001 (Information with respect to June 30, 2002 and June 30, 2001 is unaudited) Property and equipment and depreciation --------------------------------------- Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets which range from three to seven years. Rent Expense and Lease Commitments ---------------------------------- The Company does not rent or lease any space so there is no rent expense or lease commitments. Income taxes ------------ The Company was incorporated as an S Corporation for Federal and Massachusetts State purposes. Accordingly, the Company is not responsible for Federal or Massachusetts State income taxes, which are reportable instead by the Company's shareholders. Use of estimates in financial statements ---------------------------------------- In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Recent accounting pronouncements -------------------------------- On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 141, "Business Combinations," and SFAS 142, "Goodwill and Intangible Assets." SFAS 141 is effective for all business combinations completed after June 30, 2001. SFAS 142 is effective for fiscal years beginning after December 15, 2001; however, certain provisions of this Statement apply to goodwill and other intangible assets acquired between July 1, 2001 and the effective date of SFAS 142. The Company does not believe that these statements will have a material affect on the Company's financial statements. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement is effective for fiscal years beginning after December 15, 2001. This supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," while retaining many of the requirements of such statement. The Company is currently evaluating the impact of the statement. NOTE 2 - ACCOUNTS RECEIVABLE Accounts receivable consist of the following at December 31: 2001 2000 Billed $ 98,715 $ 154487 Unbilled 30,750 52,650 --------- --------- $ 129,465 $ 207137 ========= ======== 40 Kensington Group, Inc. Notes to Financial Statements December 31, 2001 and 2000 and June 30, 2002 and June 30, 2001 (Information with respect to June 30, 2002 and June 30, 2001 is unaudited) NOTE 3 - EMPLOYEE BENEFITS PLANS The Company maintains a defined contribution savings plan covering eligible employees. Employees may contribute up to 20% of their pay. The Company makes cash contributions of 100% to a specific percentage of participants' contributions up to 6% of an employees salary. The Company contributed approximately $29,100 and $13,400 in 2001, and 2000 respectively. The company amended the plan effective December 1, 2001 to terminate contributions. NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment consists primarily of computer equipment and is summarized as follows: June 30 December 31 2002 2001 2000 ------------------------------------------ Cost $20,973 20,574 17,030 Accumulated depreciation 14,312 10,803 4,124 ------------------------------------------ Net $ 6,661 9,771 12,906 Depreciation expense was $6679 and 4124 for the years ended December 31, 2001 and 2000 respectively and $3429 and $3380 for the six month periods ended June 30 2002 and 2001 respectively. NOTE 5 - SUBSEQUENT EVENTS Acquisition of Company ---------------------- Effective July 12, 2002, the Company entered into a transaction with MetaSource Group, Inc., Inc.("MSGR") in which the shareholders exchanged 100% of the issued and outstanding shares of the Company in exchange for shares of MSGR (the "Exchange Shares"). Under the terms of the exchange agreement, the Exchange shares are determined by multiplying the Company's pro-forma net income for the year ended December 31, 2001 (the "2001 Income") by five and then dividing the result by the average of MSGR's high, low and closing stock price on July 16, 2002 (the "Average Price"). On or before August 30, 2003 the Exchange shares may be increased or decreased if the average of pro-forma net income for the period July 1, 2002 to June 30, 2003 (the "2003 Income"), and the 2001 Income exceeds or is less than the 2001 Income by greater than 10%, respectively. The adjustment shall be calculated by multiplying the difference between (i) the average of the 2003 Income and the 2001 Income and (ii) the 2001 Income by five and dividing the product by the Average Price. Concurrent with this agreement the Company entered into an employment agreement with a certain executive which provide for minimum compensation of $ 85,000 for the years ending December 31, 2002 and 2003 respectively. 41 Index to Exhibits ----------------- 2.1 Agreement and Plan of Merger between MSS, MSG and MSAC* 2.1.1 Amendment No. 1 to Agreement and Plan of Merger between MSS, MSG and MSAC* 2.1.2 Amendment No. 2 to Agreement and Plan of Merger between MSS, MSG and MSAC* 2.2 Agreement of Merger between MSS, Digit, and Digit Stockholders* 2.3 Acquisition Agreement between MSS and Stockholders of PFAR* 2.4 Acquisition Agreement between MSS and PMP Stockholders* 2.5 Agreement of Merger between MSS, GSS and Stockholders of GSS* 2.6 Agreement of Merger between MSS, MSS UK, and Stockholders of MSS UK* 2.7 Agreement and Plan of Merger between MSAC, KG, and Stockholders of KG* 17.1 Resignation of Mr. Cheung* * Filed as Exhibits to Form 8-K filed July 19, 2002. 42 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MetaSource Group, Inc. January 14, 2003 By: /s/ Courtney Smith -------------------------------- Courtney Smith, President

METASOURCE GROUP INC 8-K/A