UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 16, 2001
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5B Technologies Corporation
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 0-27190
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(State or Other Jurisdiction (Commission
of Incorporation) File Number)
100 Sunnyside Boulevard, Woodbury, NY 11797
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(Address of Principal Executive Offices)
Registrant's telephone number, (516) 677-6100
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
On August 20, 2001, the registrant, 5B Technologies Corporation
(the "Company" or "Registrant"), filed a Quarterly Report on Form 10-Q with
the Securities and Exchange Commission, reporting the completion of the
acquisition of certain assets of Knowledge Strategies Group, Inc. ("KSG"), a
privately held New York City based e-commerce web site development and
hosting company. This report amends the information provided in the Section
titled "Subsequent Events" in such Form 10-Q, and provides such information
as would normally be found in Item 7 on Form 8-K.
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
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On July 30, 2001, The Company executed a definitive agreement to
acquire certain assets of KSG. On August 16, 2001, the Company acquired the
operating assets of KSG in exchange for 150,000 shares of the Company's common
stock and the assumption by the Company of certain indebtedness of KSG,
including KSG's indebtedness to the Connecticut Bank of Commerce ("CBC"). The
Company issued to CBC 140,193 shares of common stock and shares of the Company's
Series C, Series D and Series E Convertible Preferred Stock (the "CBC Preferred
Stock") in satisfaction of the Company's obligations with respect to such CBC
indebtedness. The CBC Preferred Stock is convertible into an aggregate of
648,486 shares of the Company's common stock; provided, however, that to the
extent such CBC Preferred Stock will be converted into shares of common stock
that exceed 19.9% of the Company's outstanding common stock (calculated as of
the date of issuance of the CBC Preferred Stock), the Company must first obtain
the approval of the Company's stockholders prior to such issuance. The Company
has undertaken to obtain such stockholder approval at the annual meeting of
stockholders scheduled for 2002. Additionally, the Company has granted certain
registration rights with respect to the shares of common stock issuable upon
conversion of the CBC Preferred Stock and has undertaken to register the 140,193
shares of common stock issued to CBC within 120 business days of the date of
issuance. The terms of the CBC Preferred Stock also contain certain
anti-dilution protections, including those related to issuances of securities by
the Company below the market price per share. In connection with the KSG
transaction, CBC has amended its credit arrangement with the Company by making
such arrangement less restrictive with respect to the mezzanine facility.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
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(a) Financial Statements of Businesses Acquired (included herein):
(i) Independent Auditor's Report;
(ii) Balance Sheet as of December 31, 2000;
(iii) Statement of Operations and Retained Earnings (Deficit) for
the Year Ended December 31, 2000;
(iv) Statement of Cash Flows for the Year Ended
December 31, 2000;
(v) Notes to Financial Statements;
(vi) Report on Supplementary Information; and
(vii) Supplementary Information.
(b) Unaudited PRO FORMA Condensed Financial Information (included
herein):
(i) PRO FORMA Condensed Balance Sheet as of December 31, 2000; and
(ii) PRO FORMA Condensed Statement of Operations for the Year Ended
December 31, 2000.
(c) Exhibits included herein:
None
(d) Exhibits previously filed on August 20, 2001:
3.5 - Certificate of Designations of Series C, Series D
and Series E 6% Convertible Preferred Stock of the
Company.
10.19 - Asset Purchase Agreement dated as of July 30, 2001,
by and among the Company, Knowledge Acquisition
Corporation, KSG, Cynthia Hollen, Douglas Carlson
and Michael Thompson.
10.20 - Amendment No. 1 to Asset Purchase Agreement, dated
as of August 16, 2001, by and among the Company,
Knowledge Acquisition Corporation, KSG, Cynthia Hollen,
Douglas Carlson and Michael Thompson.
10.21 - First Amendment to Credit Agreement, dated as of
August 16, 2001, by and among 5B Technologies Group,
Inc., and CBC.
10.22 - Security Agreement, dated as of August 16, 2001, by
and among Knowledge Acquisition Corporation and CBC.
10.23 - Amended and Restated Registration Rights Agreement,
dated as of August 16, 2001, by and among the Company
and CBC.
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 hereunto duly authorized.
5B TECHNOLOGIES CORPORATION
Date: October 30, 2001 By: /s/ Glenn Nortman
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Glenn Nortman, Chief Executive Officer
KNOWLEDGE STRATEGIES GROUP, INC.
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2000
KNOWLEDGE STRATEGIES GROUP, INC.
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2000
C O N T E N T S PAGE NO.
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Independent Auditors' Report 1
Balance Sheet as of December 31, 2000 2
Statement of Operations and Retained Earnings (Deficit) for
the Year Ended December 31, 2000 3
Statement of Cash Flows for the Year Ended
December 31, 2000 4
Notes to Financial Statements 5 - 9
SUPPLEMENTARY INFORMATION
Report on Supplementary Information 10
Operating Expenses 11
[LETTERHEAD OF DIAMANT, KATZ, KAHN & COMPANY LLP]
To the Board of Directors and
Stockholders
Knowledge Strategies Group, Inc.
New York, New York
We have audited the accompanying balance sheet of Knowledge Strategies Group,
Inc. as of December 31, 2000, and the related statements of operations and
retained earnings (deficit) and cash flows for the year 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 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
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 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 Knowledge Strategies Group,
Inc. as of December 31, 2000, and the results of its operations and its cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
DIAMANT, KATZ, KAHN & COMPANY LLP
October 19, 2001
New York, New York
-1-
KNOWLEDGE STRATEGIES GROUP, INC.,
BALANCE SHEET
DECEMBER 31, 2000
ASSETS
CURRENT ASSETS
Cash $ 7,876
Accounts receivable 633,638
Prepaid expenses 42,445
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Total Current Assets 683,959
PROPERTY AND EQUIPMENT, NET 262,261
OTHER ASSETS
Intangibles, net 46,667
Security deposits 50,780
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$ 1,043,667
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Loans payable - bank $ 2,043,412
Accounts payable and accrued expenses 590,868
Capitalized lease obligations, current maturities 16,003
-----------
Total Current Liabilities 2,650,283
-----------
LONG-TERM LIABILITIES
Capitalized lease obligations, net of current maturities 18,837
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STOCKHOLDERS' DEFICIENCY
Common stock 12,632
Retained earnings (deficit) (1,638,085)
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(1,625,453)
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$ 1,043,667
===========
See Notes to financial statements.
-2-
KNOWLEDGE STRATEGIES GROUP, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
YEAR ENDED DECEMBER 31, 2000
Revenues $ 8,040,723
Operating expenses 9.982,631
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Loss from operations (1,941,908)
OTHER EXPENSE
Interest 149,014
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Loss before provision for income taxes (2,090,922)
Provision for income taxes 6,618
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NET LOSS (2,097,540)
Retained earnings - beginning 459,455
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RETAINED EARNINGS (DEFICIT) - ENDING $(1,638,085)
===========
See Notes to financial statements.
-3-
KNOWLEDGE STRATEGIES GROUP, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,097,540)
Adjustments to reconcile net loss to net cash used by
operating activities
Depreciation 110,761
Amortization 3,333
Deferred rent expense (6,470)
(Increase) decrease in:
Accounts receivable 428,102
Prepaid expenses (42,445)
Increase (decrease) in:
Accounts payable and accrued expenses 156,385
Income taxes payable (138,250)
Customer deposits (32,000)
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Net Cash Used by Operating Activities (1,618,124)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment for cash (140,716)
Purchase of intangibles for cash (50,000)
Security deposits paid (36,255)
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Net Cash Used by Investing Activities (226,971)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of bank loan 1,860,627
Proceeds from sale of common stock 32
Repayments of capital leases (17,145)
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Net Cash Provided by Financing Activities 1,843,514
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NET DECREASE IN CASH (1,581)
Cash - beginning of year 9,457
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CASH - END OF YEAR $ 7,876
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SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the year for:
Interest $ 149,014
Income taxes $ 150,247
NON CASH INVESTING ACTIVITIES
Equipment acquired for capital lease $ 32,292
See notes to financial statements.
-4-
KNOWLEDGE STRATEGIES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Knowledge Strategies Group, Inc. was incorporated on March 31,
1995 in the State of New York. The Company amended its articles of
incorporation to change its name from Knowledge Strategies, Inc.
to Knowledge Strategies Group, Inc. on May 4, 2000. The Company is
engaged primarily in the business of internet and new media
consulting and business development services. Revenues are
generated through various internet consulting services including
web-site development, electronic commerce and technology
consulting, and web-site hosting. A summary of the Company's
accounting policies that affect the more significant elements of
the financial statements is stated below.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is
computed utilizing the straight-line method based on estimated
useful lives of three to ten years. Routine maintenance and
repairs are expensed as incurred.
INCOME TAXES
The Company with the consent of its stockholders, has elected to
be treated as an "S" corporation for Federal and New York State
income tax purposes. The stockholders of an S Corporation are
taxed individually on their proportionate share of the Company's
taxable income. Therefore, no provision or liability for these
income taxes has been included in the financial statements.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing these
financial statements in accordance with generally accepted
accounting principles. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were
used.
INTANGIBLE ASSETS
Intangible assets are being amortized using the straight-line
method over 5 years.
-5-
KNOWLEDGE STRATEGIES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
NOTE 2 - PROPERTY AND EQUIPMENT
The major classes of property and equipment, at cost, on December
31, 2000 were as follows:
Furniture and fixtures $ 141,096
Computer equipment 349,309
Leasehold Improvements 5,856
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496,261
Less: Accumulated depreciation 233,998
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$ 262,263
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Property and equipment include gross assets acquired under capital
leases of $99,012.
NOTE 3 - INTANGIBLES
In August 2000, the Company acquired certain trademarks from
eOSK.com, Inc. for $50,000 and a warrant to purchase 1,037,500
shares of the Company's $.001 common stock at its par value. The
warrant expires August 25, 2005.
NOTE 4 - LOANS PAYABLE - BANK
The Company has lines of credit aggregating $2,100,000 from
Connecticut Bank of Commerce. The note requires interest to be
paid monthly at the bank's prime interest rate (9.75% at December
31, 2000) plus 2%, and matured March 1, 2001. The amount available
under the credit line is limited to 80% of eligible accounts
receivable. An additional 2% interest will be charged on over
advanced funds. Borrowing against the line is secured by the
assets of the Company and is guaranteed by the Company's common
stockholders and officers. The loan contains certain restrictions
and covenants which, at December 31, 2000, the Company was unable
to meet. The Company is in a workout arrangement with the bank -
See Note 12. At December 31, 2000 the company owed the bank
$1,650,841 under the credit line and $392,603 on the over advanced
line. During the year ended December 31, 2000 interest in the
amount of $100,456 was charged to operations.
-6-
KNOWLEDGE STRATEGIES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
NOTE 5 - CAPITAL LEASES
The Company leases equipment under capital leases expiring 2003.
The assets and liabilities under capital leases are recorded at
the lower of the present value of the minimum lease payments or
the fair value of the asset. The assets are depreciated over their
respective estimated useful lives.
The following is a summary of property held under capital leases
at December 31, 2000:
Equipment $ 99,012
Less: Accumulated depreciation 57,515
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Net equipment held under
capital leases $ 41,497
==============
Minimum future lease payments under capital leases together with
the present value of the net minimum lease payments as of December
31, 2000 are as follows:
YEAR ENDING DECEMBER 31,
2001 $ 24,767
2002 19,746
2003 3,506
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Total minimum lease payments 48,019
Less: Amount representing interest 13,179
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Present value of net minimum lease payments 34,840
Less: Current maturities 16,003
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Capital lease obligations, non current portion $ 18,837
==============
NOTE 6 - COMMON STOCK
The Company's common stock is comprised of the following:
Class A $.001 par value, 26,000,000 shares authorized,
12,600,000 issued and outstanding 12,600
Class B, non-voting, $.001 par value, 4,000,000 shares
authorized, 31,759 shares issued and outstanding 32
-7-
KNOWLEDGE STRATEGIES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
NOTE 7 - COMMITMENTS
LEASES
Future minimum annual rental payments under leases for premises
located in New York City expiring through 2003, without regard to
increases in real estate taxes and other costs are as follows:
DECEMBER 31, 900 BROADWAY 1755 5TH AVENUE TOTAL
------------ ------------- --------------- ------------
2001 $ 58,487 $ 66,120 $ 124,607
2002 60,827 66,120 126,947
2003 26,000 66,120 96,120
Total rent charged to operations for the year ended December 31,
2000 amounted to $249,097.
OTHER COMMITMENTS
In August 2000, the Company entered into a two year consulting
agreement for services to be provided at $160,000 per annum plus
$70,000 per month for the first four months of the agreement. For
the period ended December 31, 2000, approximately $300,000 has
been included in contractor services.
NOTE 8 - CONCENTRATION OF CREDIT RISK
Approximately 49% of 2000 net revenue and 81% of accounts
receivable as of December 31, 2000 were from one client.
NOTE 9 - RELATED PARTY TRANSACTIONS
An entity related through common ownership, Kstrat Ventures Inc.
("Kstrat"), provides for services to emerging companies and, in
turn, engages the Company to perform these services. Revenue from
Kstrat during the year ended December 31, 2000 totaled $521,668.
At December 31, 2000, the balance of $211,529 due from Kstrat has
been written off as uncollectible.
-8-
KNOWLEDGE STRATEGIES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
(Continued)
NOTE 10 - INCOME TAXES
The provision for income taxes consists of payments for prior
years under accruals.
The Company has available approximately $2,000,000 of New York
City net operating loss carryforwards available to reduce future
taxable income expiring in 2015.
Deferred tax liabilities (assets) are comprised as follows:
Deferred tax assets
Net operating loss carryforward $ (180,000)
Deferred tax assets valuation
allowance 180,000
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Net Deferred Tax Assets $ -
=============
NOTE 11 - GOING CONCERN
As shown in the accompanying financial statements, the Company has
incurred losses from operations, and as of December 31, 2000, the
Company's current liabilities exceeded its current assets by
approximately $1,966,000 and its total liabilities exceeded its
total assets by approximately $1,625,000. These factors raise
substantial doubt about the Company's ability to continue as a
going concern. Management has instituted a cost reduction program
that included a reduction in labor and fringe costs. The financial
statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern. See
Note 12.
NOTE 12 - SUBSEQUENT EVENT
On August 15, 2001, the Company sold all accounts receivable less
than 90 days old, property and equipment and all intangible assets
to 5 B Technologies Corporation for 150,000 shares of that
company's common stock and the assumption of the bank loan and
lease obligations. Certain of the Company's stockholders entered
into consulting agreements with the purchaser.
-9-
[LETTERHEAD OF DIAMANT, KATZ, KAHN & COMPANY LLP]
To the Board of Directors
and Stockholders of
Knowledge Strategies Group, Inc.
New York, New York
Our report on our audit of the financial statements of Knowledge Strategies
Group, Inc. for the year ended December 31, 2000, appears on page 1. That audit
was made for the purpose of forming an opinion on the financial statements taken
as a whole. The information presented on page 11 is presented for purposes of
additional analysis and is not a required part of the financial statements. Such
information has not been subjected to the auditing procedures applied in the
audit of the financial statements and, accordingly, we express no opinion on it.
DIAMANT, KATZ, KAHN & COMPANY LLP
October 19, 2001
New York, New York
SUPPLEMENTARY INFORMATION
KNOWLEDGE STRATEGIES GROUP, INC.
SUPPLEMENTARY INFORMATION
YEAR ENDED DECEMBER 31, 2000
OPERATING EXPENSES
Officers' salary $ 384,068
Employee salaries 4,859,056
Payroll taxes and related benefits 763,147
Contractor services 597,328
Commissions 230,373
Computer expenses 123,402
Bad debt expense 1,047,593
Rent 281,168
Telecommunications 128,874
Online access and services 167,260
Recruiting 77,897
Marketing and promotion 121,744
Professional fees 409,970
Travel and entertainment 416,495
Office expense 88,749
Office cleaning and maintenance 47,944
Education, seminars and subscriptions 39,030
Postage and delivery services 24,735
Printing and reproduction 28,111
Equipment leasing 12,066
Miscellaneous 9,410
Insurance 4,493
Contributions 5,624
Depreciation 110,761
Amortization 3,333
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$ 9,982,631
===========
See accountants' report on supplementary information.
- 11 -
5B TECHNOLOGIES CORPORATION AND SUBSIDIARIES
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PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(UNAUDITED)
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The following unaudited pro forma condensed consolidated financial
statements give effect to the acquisition by 5B Technologies corporation, ("5B"
or the "Company"), of Knowledge Strategies Group, Inc., ("KSG"), using the
purchase method of accounting, and are based on estimates and assumptions set
forth below and in the notes to such financial statements, which include pro
forma adjustments. These pro forma financial statements are based on the
historical financial statements of 5B adjusting to give effect to the
acquisition of KSG, which was consummated on July 30, 2001.
The pro forma condensed consolidated statement of operations for the
year ended December 31, 2000 gives affect to the acquisition as if it had
occurred at the beginning of 2000. Such statements are based on historical
statements of operations of KSG for the year ended December 31, 2000.
The pro forma condensed consolidated balance sheet for the year ended
December 31, 2000 combines 5B and KSG's balance sheets at December 31, 2000.
The pro forma adjustments are based on estimates, available
information, valuations and certain assumptions that management deemed
appropriate. Final purchase accounting adjustments may differ from pro forma
adjustments presented herein. The unaudited pro forma condensed consolidated
financial information does not profess to represent the Company's results of
operations had the above transaction, in fact, occurred on these dates or to
project the Company's combined results of operations for any date or period. The
pro forma condensed consolidated financial information should be read in
conjunction with the Company's and KSG's historical financial statements and
notes thereto.
Certain amounts in the 2000 financial statements have been reclassified
to conform with the 2000 presentation. Such reclassifications had no effect on
net earnings as previously reported.
On May 14, 2001, 5B Technologies Corporation, ("5B" or the "Company"),
sold its legal staffing business, which was maintained through a wholly owned
subsidiary, Deltaforce Personnel Services, Inc., ("DeltaGroup"). Accordingly,
DeltaGroup has been presented as a discontinued operation. The Pro Forma
Condensed Consolidated Financial Statements have been restated to conform to
such presentation.
5B TECHNOLOGIES CORPORATION AND SUBSIDIARIES
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PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
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DECEMBER 31, 2000
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Knowledge
5B Technologies Strategies Pro Forma
Corporation Group, Inc. Adjustments Consolidated
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ASSETS (RESTATED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
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Current assets:
Cash and cash equivalents $ 1,156,436 $ 7,876 $ (7,876) $ 1,156,436
Investments available for sale 499,778 - 499,778
Accounts receivable, net 1,501,523 633,638 (550,000) 1,585,161
Note receivable for services provided 427,590 - 427,590
Other current assets 64,385 42,445 (42,445) 64,385
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Total current assets 3,649,712 683,959 (600,321) 3,733,350
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Goodwill & other intangibles, net 939,900 46,667 (46,667) 939,900
Developed software - - 1,095,677 708,200
(387,477) c
Net assets of discontinued operations 1,247,094 - 1,247,094
Other assets 509,610 313,041 (50,780) 609,610
(162,261) c
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TOTAL ASSETS $ 6,346,316 $ 1,043,667 $ (151,829) $ 7,238,154
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 850,159 $ 2,043,412 $ (2,043,412) $ 850,159
Accounts payable and accrued expenses 1,461,581 606,871 (590,868) 1,477,584
Unearned sales revenue 174,527 - 174,527
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Total current liabilities 2,486,267 2,650,283 (2,634,280) 2,502,270
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Notes payable 11,928 18,837 30,765
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TOTAL LIABILITIES 2,498,195 2,669,120 (2,634,280) 2,533,035
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1,250,000 - 1,250,000
REDEEMABLE PREFERRED STOCK
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STOCKHOLDERS' EQUITY:
Preferred stock - - 190 d 190
Common stock 86,601 12,632 (12,632) 98,209
11,608 d
Additional paid-in capital 14,525,450 - 845,200 15,370,650
Stock subscription receivable (812,500) - (812,500)
Accumulated deficit (11,150,825) (1,638,085) 1,638,085 (11,150,825)
Treasury stock at cost, 24,500 shares (50,605) - (50,605)
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,598,121 (1,625,453) 2,482,451 3,455,119
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 6,346,316 $ 1,043,667 $ (151,829) $ 7,238,154
EQUITY
===================================================================================================================================
See accompanying notes.
5B TECHNOLOGIES CORPORATION AND SUBSIDIARIES
--------------------------------------------
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------------------------
DECEMBER 31, 2000
-----------------
5B Knowledge
Technologies Strategies Pro Forma
Corporation Group, Inc. Adjustments Consolidated
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(RESTATED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net sales $ 14,438,759 $ 8,040,723 $ 22,479,482
Cost of sales 11,128,705 - 11,128,705
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Gross profit 3,310,054 8,040,723 11,350,777
------------------------------------------------------------------------------------------------------------------------------------
Expenses:
Selling 1,209,390 - 1,209,390
General and administrative expenses 3,483,857 9,982,631 $(1,095,677) 12,370,811
------------------------------------------------------------------------------------------------------------------------------------
Total expenses 4,693,247 9,982,631 (1,095,677) 13,580,201
------------------------------------------------------------------------------------------------------------------------------------
(Loss) from operations (1,383,193) (1,941,908) (1,095,677) (2,229,424)
Other income (expense) 86,169 (149,014) (62,845)
------------------------------------------------------------------------------------------------------------------------------------
(Loss) before provision for income taxes and (1,297,024) (2,090,922) (1,095,677) (2,292,269)
discontinued operations
(Benefit) provision for state and local taxes (10,820) 6,618 (4,202)
------------------------------------------------------------------------------------------------------------------------------------
(Loss) from continuing operations (1,286,204) (2,097,540) (1,095,677) (2,288,067)
Discontinued operations:
(Loss) from discontinued operations (436,432) - (436,432)
(Loss) on disposal of discontinued
operations (856,198) - (856,198)
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Net (loss) $ (2,578,834) $ (2,097,540) $ (1,095,677) $ (3,580,697)
Preferred dividends and increase in carrying
value of redeemable preferred stock (428,035) - (428,035)
------------------------------------------------------------------------------------------------------------------------------------
Net (loss) attributable to common shareholders $ (3,006,869) $ (2,097,540) $ (1,095,677) $ (4,008,732)
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 2,162,041 2,452,234
Diluted 2,162,041 2,452,234
BASIC AND DILUTED LOSS PER COMMON SHARE:
Continuing operations $ (0.79) $ (1.11)
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Discontinued operations $ (0.60) $ (0.53)
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Net loss per share $ (1.39) $ (1.64)
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====================================================================================================================================
See accompanying notes.
5B TECHNOLOGIES CORPORATION AND SUBSIDIARIES
--------------------------------------------
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------
(UNAUDITED)
-----------
Pro Forma Adjustments
(a) Reflects assets and liabilities not acquired or assumed by 5B.
(b) Reflects the capitalization of software developed for sale.
(c) Reflects the negative goodwill in connection with the KSG acquisition.
Negative goodwill amounted to $515,405 and was allocated to the acquired
assets as follows:
Intangibles $ 46,667
Developed software 387,477
Other assets 162,261
Total $515,405
(d) Reflects the acquisition of KSG. 5B issued 150,000 shares of the
Company's common stock (valued at $0.51 per share, the closing price on
July 30, 2001) and the assumption by the Company of certain indebtedness
of KSG, including KSG's indebtedness to Connecticut Bank of Commerce
("CBC"). The Company issued to CBC 140,193 shares of common stock,
(valued at $0.51 per share, the closing price on July 30, 2001) and
shares of the Company's Series C, Series D and Series E Convertible
Preferred Stock (the "CBC Preferred Stock") (estimated value of $709,000,
based on a preliminary independent valuation which the Company may change
in subsequent filings) in satisfaction of the Company's obligations with
respect to such CBC indebtedness. The CBC Preferred Stock is convertible
into an aggregate of 648,486 shares of the Company's common stock;
provided, however, that to the extent such CBC Preferred Stock will be
converted into shares of common stock that exceeds 19.9% of the Company's
outstanding common stock (calculated as of the date of issuance of the
CBC Preferred Stock), the Company must first obtain the approval of the
Company's stockholders prior to such issuance. The Company has undertaken
to obtain such stockholder approval at the annual meeting of stockholders
scheduled for 2002. Additionally, the Company has granted certain
registration rights with respect to the shares of common stock issuable
upon conversion of the CBC Preferred Stock and has undertaken to register
the 140,193 shares of common stock issued to CBC within 120 business days
of the date of issuance. The terms of the CBC Preferred Stock also
contains certain anti-dilution protections, including with respect to
issuances of securities by the Company below the market price per share.