10QSB 1 form10qsb063001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2001 ------------------------------------ [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to --------------- ------------------ Commission file number 33-4707-NY ------------------------------------ CBQ, Inc. -------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Colorado 84-1047159 -------------------------------------------------------------------------------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 10923 McCormick Road, Hunt Valley, Maryland 21031 ---------------------------------------------------------------------------- (Address of principal executive offices) (410) 568-4000 ------------------------------------------- Issuer's telephone number (Former name, former address and former fiscal year, if changed since last report.) APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ----- No ----- APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date: July 11, 2001 Approximately 79,621,299 shares Transitional Small Business Disclosure Format (check one). Yes ; No X ---- ----- PART I Item 1. Financial Statements INDEPENDENT ACCOUNTANT'S REPORT To the Board of Directors and Shareholders CBQ, Inc. and Subsidiaries We have reviewed the accompanying consolidated balance sheets of CBQ, Inc. and Subsidiaries as of June 30, 2001 and December 31, 2000 and the related consolidated statements of operations for the three and six months and cash flows for the six month periods ended June 30, 2001 and 2000. These consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statement taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. Respectfully submitted /s/ Robison, Hill & Co. ---------------------------- Certified Public Accountants Salt Lake City, Utah August 16, 2001 CBQ, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Unaudited) June 30, December 31, 2001 2000 ------------------ ------------------ Assets: Current assets: Cash $ 197,989 $ 147,873 Accounts receivable, net of allowance for doubtful accounts 957,588 1,042,248 Inventories 140,280 75,420 Other current assets 867,195 186,277 ------------------ ------------------ Total current assets 2,163,051 1,451,818 ------------------ ------------------ Equipment: Computers and related equipment 592,201 537,890 Office equipment 371,812 355,664 Software 34,927 34,927 Transportation equipment 48,558 47,078 Leasehold improvements 17,910 18,611 ------------------ ------------------ 1,065,408 994,170 Less accumulated depreciation (627,534) (548,427) ------------------ ------------------ Equipment, net of accumulated depreciation 437,874 445,743 ------------------ ------------------ Other non-current assets: Notes receivable, long-term 60,452 60,452 Goodwill, less amortization 1,377,467 844,951 Investments 46,163 46,163 Other assets 72,562 75,999 ------------------ ------------------ Total other non-current assets 1,556,644 1,027,565 ------------------ ------------------ Total assets $ 4,157,569 $ 2,925,126 ================== ==================
CBQ, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited) June 30, December 31, 2001 2000 ------------------ ------------------ Liabilities and Stockholders' Deficit: Current liabilities: Line of credit payable $ 912,157 $ 1,312,157 Current portion of long-term debt 764,029 87,908 Accounts payable, trade 2,076,455 1,780,927 Accrued expenses 626,020 348,591 Due to related party 1,215 1,215 Due to shareholders 115,000 115,000 ------------------ ------------------ Total current liabilities 4,494,875 3,645,798 ------------------ ------------------ Non-current liabilities: Long-term debt 1,803,673 1,813,139 Preferred stock of subsidiaries 525,000 525,000 ------------------ ------------------ Total non-current liabilities 2,328,673 2,338,139 ------------------ ------------------ Total Liabilities 6,823,548 5,983,938 ------------------ ------------------ Stockholders' Deficit: Preferred Stock, par value $.001 per share Authorized 100,000,000 shares, 70,000 shares issued and outstanding at June 30, 2001 and December 31, 2000 70 70 Common Stock, par value $.0001 per share Authorized 500,000,000 shares, Issued 79,516,835 Shares at June 30, 2001 and 69,836,835 shares at December 31, 2000 7,952 6,984 Additional paid-in capital 3,518,141 2,304,813 Accumulated deficit (6,192,143) (5,370,678) ------------------ ------------------ Total Stockholders' Deficit (2,665,979) (3,058,811) ------------------ ------------------ Total Liabilities and Stockholders' Deficit $ 4,157,569 $ 2,925,126 ================== ==================
See accompanying notes and accountants' report. CBQ, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months For the Six Months Ended June 30, Ended June 30, ----------------------------------- -------------------------------------- 2001 2000 2001 2000 ------------------ ---------------- ------------------ ------------------ Continuing operations: Revenues $ 2,240,368 $ 2,097,997 $ 3,712,859 $ 5,090,196 Cost of revenues 1,803,639 1,765,702 2,542,788 3,771,778 ------------------ ---------------- ------------------ ------------------ Gross Profit 436,729 332,295 1,170,071 1,318,418 ------------------ ---------------- ------------------ ------------------ Expenses Sales and marketing 296,011 146,682 467,676 169,084 General and administrative 676,370 1,039,113 1,140,821 1,255,008 Depreciation and amortization 117,459 147,036 211,891 149,442 ------------------ ---------------- ------------------ ------------------ Total costs and expenses 1,089,830 1,332,831 1,820,388 1,573,534 ------------------ ---------------- ------------------ ------------------ Other Income (Expense) Interest expense (100,524) (138,031) (189,437) (144,833) Other income 11,280 - 11,280 - ------------------ ---------------- ------------------ ------------------ Net Other Income (Expense) (89,244) (138,031) (178,157) (144,833) ------------------ ---------------- ------------------ ------------------ Net Loss from Continuing Operations (742,356) (1,138,567) (828,474) (399,949) ------------------ ---------------- ------------------ ------------------ Discontinued operations: Income (Loss) from operations of discontinued operations 1 (389,342) 7,009 (714,972) Loss on disposal of discontinued operations - - - - ------------------ ---------------- ------------------ ------------------ Net Income (loss) from discontinued operations 1 (389,342) 7,009 (714,972) ------------------ ---------------- ------------------ ------------------ Net Income (Loss) $ (742,357)$ (1,527,909) $ (821,465) $ (1,114,921) ================== ================ ================== ================== Weighted Average Shares Outstanding 78,726,725 64,833,866 75,525,122 66,404,025 ================== ================ ================== ================== Loss per Common Share $ (0.01) $ (0.03) $ (0.01) $ (0.02) ================== ================ ================== ==================
See accompanying notes and accountants' report. CBQ, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the six months ended June 30, ------------------------------------- 2001 2000 ----------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Continuing operations: Net Income (Loss) $ (839,752) $ (399,949) Adjustments necessary to reconcile net loss to net cash used in operating activities: Depreciation and amortization 211,891 149,442 Decrease (increase) in accounts receivable 1,712,578 592,786 Decrease (increase) in inventories (64,860) 193,797 Decrease (increase) in other current assets (631,510) (246,765) Decrease (increase) in other assets 12,620 (90,182) Increase (decrease) in accounts payable (401,805) 209,378 Increase (decrease) in accrued expenses 277,429 119,981 ----------------- ------------------ Net Cash Used in continuing operations 79,516 528,488 ----------------- ------------------ Cash flows from discontinued operations 215,362 (714,972) ----------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of equipment (47,717) - ----------------- ------------------ Net cash provided by (used) investing activities (47,717) - ----------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: (Repayments) borrowings on line of credit (400,000) 585,568 Other decreases in long-term debt (12,045) - Repayment of notes payable to shareholder - (25,562) Common stock issued for cash 215,000 - ----------------- ------------------ Net Cash Provided by Financing Activities (197,045) 560,006 ----------------- ------------------ Net (Decrease) Increase in Cash and Cash Equivalents 50,116 373,522 Cash and Cash Equivalents at Beginning of Period 147,873 (119,165) ----------------- ------------------ Cash and Cash Equivalents at End of Period $ 197,989 $ 254,357 ================= ==================
CBQ, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Continued
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 63,675 $ 79,201 Franchise and income taxes $ -- $ --
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: On March 1, 2001, the Company purchased Easy Soft International, Inc. ("Easy Soft"). The purchase price was 5,625,000 shares of common stock in exchange for assets valued at $580,596 (receivables in the approximate amount of $95,665, equipment and other assets of $5,181 and goodwill of $479,750) less liabilities of $9,305. On March 27, 200l the Company purchased certain assets of Technet Computers Services, Inc. and Networkland, Inc. for 7,800,000 shares of common stock and a 10% note payable of $700,000 in exchange for which the Company received assets valued at $1,794,748 ( receivables $1,553,273, inventory $27,067, equipment $20,417, goodwill $192,671 and other assets $1,320) and assumed liabilities of $688,029. The allocation of purchase price include certain assumptions and preliminary estimates and are subject to change. In April 2001, the Company settled approximately $120,000 in disputed charges with a third party for $17,000 in cash and 900,000 shares of the Company's common stock. See accompanying notes and accountants' report. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 --------------------------------------------------------- NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of accounting policies for CBQ, Inc. and Subsidiaries is presented to assist in understanding the Company's consolidated financial statements. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Interim Reporting The unaudited financial statements as of June 30, 2001 and for the three month and six month periods ended June 30, 2001 and 2000 reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and results of operations for the three and six months. Operating results for interim periods are not necessarily indicative of the results which can be expected for full years. Organization and Basis of Presentation CBQ, Inc., (formerly Freedom Funding, Inc.) a Colorado corporation, was incorporated September 18, 1986, under the laws of the State of Delaware, and changed its situs to Colorado in 1989. The Company ceased its development stage with its merger with Quantum Technology Group, Inc. ("Quantum Group") in August 2000. Nature of Business The Company's lines of businesses include software development outsourcing, web development, custom software development, network systems integration and management. Principles of Consolidation The consolidated financial statements for the three months ended June 30, 2001 and 2000 include the accounts of the parent entity and all of its subsidiaries: Quantum Group and its subsidiary, ProWare, Inc. ("ProWare"); China Partners, Inc. (from the date of its formation in March 2000); CyberQuest, Inc. ("CyberQuest"); Reliance Technologies, Inc. ("Reliance") and its subsidiary, TopherNet, Inc. ("TopherNet"); and Priority One Electronic Commerce Corporation ("Priority One"). Two subsidiaries of Quantum Group, Quantum Technology Distribution, Inc. ("Quantum Distribution") and dpi Net Solutions, Inc. ("DPI"), are included in the consolidated financial statements from November 15, 1999 and April 1, 2000, their respective dates of acquisition by Quantum Group. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 --------------------------------------------------------- (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) As more fully described in Note 2, the business combinations between the Company and ChinaSoft, Inc. ("ChinaSoft") in January 2000 and between the Company and Quantum Group in August 2000 were accounted for as poolings of interests. Accordingly, the Company's consolidated financial statements have been restated for all periods to reflect the consolidated financial position, results of operations and cash flows of the Company, ChinaSoft and Quantum Group. All significant intercompany balances and transactions have been eliminated. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. Pervasiveness of Estimates The preparation of financial statements in conformity with generally accepted accounting principles required management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition Revenue is recognized as services are performed or as products are shipped. Inventories Inventories are stated at lower of cost or market, with cost determined on the first-in, first-out method. Income Taxes The Company has a net operating loss for income taxes. Due to the regulatory limitations in utilizing the loss, it is uncertain whether the Company will be able to realize a benefit from these losses. Therefore, a deferred tax asset has not been recorded. There are no significant tax differences requiring deferral. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 --------------------------------------------------------- (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Loss per Share The reconciliations of the numerators and denominators of the basic loss per share computations are as follows:
Income Shares Per-Share (Numerator) (Denominator) Amount ------------------ ------------------- ------------------ For the Three Months Ended June 30, 2001 ----------------------------------------------------------- Basic Income per Share Income to common shareholders $ (742,357) 78,726,725 $ (0.01) ================== =================== ================== For the Three Months Ended June 30, 2000 ----------------------------------------------------------- Basic Loss per Share Loss to common shareholders $ (1,527,909) 64,833,866 $ (0.03) ================== =================== ================== For the Six Months Ended June 30, 2001 ----------------------------------------------------------- Basic Income per Share Income to common shareholders $ (821,465) 75,525,122 $ (0.01) ================== =================== ================== For the Six Months Ended June 30, 2000 ----------------------------------------------------------- Basic Loss per Share Loss to common shareholders $ (1,114,921) 66,404,025 $ (0.02) ================== =================== ==================
The effect of outstanding common stock equivalents would be anti-dilutive for June 30, 2001 and 2000 and are thus not considered. Concentration of Credit Risk The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. Goodwill Goodwill reflects the excess of purchase prices over the fair market value of assets acquired in the CyberQuest reverse acquisition and DPI acquisition. Goodwill is amortized over a five-year period. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 --------------------------------------------------------- (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and Equipment Property and equipment is recorded at cost, except for assets acquired in acquisitions accounted for as purchases. Property and equipment acquired in acquisitions accounted for as purchases are recorded at their fair market values at the date of acquisition. All property and equipment are depreciated on a straight-line basis with the following useful lives: Computers and related equipment 3 years Office equipment 7 years Software 3 years Transportation equipment 5 years Leasehold improvements Lesser of 5 years or remaining lease term Reclassifications Certain reclassifications have been made in the June 30, 2000 financial statements to conform with the June 30, 2001 presentation. NOTE 2 - ACQUISITIONS On November 18, 1998, Freedom Funding, Inc., a Colorado corporation ("FFI"), entered into a reorganization agreement (Reorganization Agreement) with CyberQuest, Inc., a Colorado corporation (CyberQuest), as well as the shareholders of CyberQuest, pursuant to which FFI acquired all of the outstanding proprietary interest of CyberQuest in a stock for stock exchange which resulted in CyberQuest becoming a wholly owned subsidiary of FFI and the shareholders of CyberQuest acquiring control of the Company through their stock ownership. FFI also changed its name to CBQ, Inc. on this date. FFI, under the Reorganization Agreement, issued 18,000,000 common shares and 70,000 shares of the Class A: Redeemable, Convertible Preferred Stock of the Company to the shareholders of CyberQuest in exchange for the issued and outstanding shares of this subsidiary. The acquisition of CyberQuest was treated as a reverse acquisition of FFI by CyberQuest. In a reverse acquisition the shareholders of a Company own less than 50% of the post acquisition shares. The shareholders of CyberQuest received approximately 80% of the post acquisition shares of the Company and therefore, CyberQuest is the accounting acquirer. Common stock and additional paid-in capital have been restated to reflect the same ratio as the Company's common stock and additional paid-in capital at that time. This business combination was accounted for as a purchase. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 --------------------------------------------------------- (Continued) NOTE 2 - ACQUISITIONS Continued On March 15, 1999, the Company merged with Reliance and its subsidiary in a tax-free exchange. All of the outstanding shares of Reliance were exchanged for 1,000,000 restricted common shares of the Company. This business combination was accounted for as a pooling of interests. On April 9, 1999, the Company merged with Priority One in a tax-free exchange. All of the outstanding shares of Priority One were exchanged for 900,000 restricted common shares of the Company. This business combination was accounted for as a pooling of interests. On November 15, 1999, Quantum Group acquired all of the outstanding shares of Quantum Distribution for 250 shares of Quantum Group's Series B preferred stock, valued at $250,000, plus $125,000 in cash. This business combination was accounted for as a purchase. On January 14, 2000, the Company merged with ChinaSoft in a tax-free exchange. All of the outstanding shares of ChinaSoft were exchanged for 30,000,000 restricted common shares of the Company. This business combination was accounted for as a pooling of interests. On April 1, 2000 Quantum Group, prior to its merger with the Company, acquired all of the outstanding shares of DPI for $200,000 in cash, 290,000 shares of Quantum Group's Series A common stock, 275 shares of Quantum Group's Series C preferred stock, plus 550 shares of Quantum Group's Series D preferred stock. This business combination was accounted for as a purchase, resulting in $972,000 of goodwill that is being amortized over five years. On August 8, 2000, the Company merged with Quantum Group and its subsidiaries in a tax- free exchange. All of the outstanding common stock of Quantum Group was exchanged for 11,508,568 restricted common shares of the Company. This business combination was accounted for as a pooling of interests. 450 shares of Quantum Group's Series D preferred stock were converted into 720,000 shares of the Company's common stock on August 31, 2000. On March 1, 2001, the Company purchased Easy Soft International, Inc. ("Easy Soft"). The purchase price was 5,625,000 shares of common stock in exchange for all of the outstanding preferred and common shares of Easy Soft. On March 27, 200l the Company purchased certain assets of Technet Computer Services, Inc. and Networkland, Inc. for 7,800,000 shares of voting common stock and a 10% note payable of $700,000 in exchange for which the Company received assets valued at $1,106,720. In addition, the Company assumed an $80,000 liability of the Parent, Socrates Technologies Corp, Inc. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 --------------------------------------------------------- (Continued) NOTE 3 - INVESTMENTS On May 11, 1999, the Company acquired 19% of the outstanding interest of Global Logistics Partners, LLC ("GLP"), a privately held Texas limited liability company in a tax-free exchange. This interest was acquired solely for the issuance of 4,233,200 common shares. NOTE 4 - LINE OF CREDIT Quantum Group has an outstanding balance of $912,157 under its line of credit payable to a bank at June 30, 2001 with interest at the bank's prime rate or LIBOR plus 2.5% which expired on April 1, 2001. The line of credit is collateralized by substantially all of the company's assets, and is personally guaranteed by certain of the company's officers and stockholders. The line of credit agreement with the bank contains various covenants pertaining to maintenance of certain debt coverage and leverage ratios. In addition, the agreement restricted entrance into any merger or acquisition agreement without prior written consent of the bank. At June 30, 2001 the company was not in compliance with the covenants. Under the terms of the agreement, the bank may call the loan if the company is in violation of any restrictive covenant. NOTE 5 - DUE TO SHAREHOLDERS Due to shareholders at June 30, 2001 and December 31, 2000 consists of the following:
June 30, December 31, 2001 2000 ------------------- ------------------ Demand note payable, unsecured, with interest at 15%, payable monthly. Principal and accrued interest due on this note payable are subordinated to all bank debt. $ 50,000 $ 50,000 Advances, unsecured, non-interest bearing, due on demand 65,000 65,000 ------------------- ------------------ $ 115,000 $ 115,000 =================== ==================
CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 --------------------------------------------------------- (Continued) NOTE 6 - LONG-TERM DEBT Long-term debt at June 30, 2001 and December 31, 2000 consists of the following:
June 30, December 31, 2001 2000 ------------------- ------------------ Note payable, bank, with interest at 8.66%, payable in monthly installments of principal of $5,555 plus interest through April 30, 2003 $ 144,384 $ 166,294 Capital lease obligations, at interest rates ranging from 4.90% to 14.17%, payable in monthly installments of $3,461 through the maturity dates ranging from November 2000 to February 2004 23,318 34,753 Subordinated debenture due in monthly installments of 12% interest only until April 30, 2003; 13.5% beginning May 1, 2003; 14% beginning May 1, 2004 and continuing thereafter. Beginning May 1, 2002 monthly principal installments of $20,000 are due until maturity on April 30, 2006 1,200,000 1,200,000 Subordinated debenture due in monthly installments of 12% interest only until September 30, 2001; 13% beginning October 1, 2001; 14% beginning October 1, 2002 and continuing thereafter. Principal and any unpaid interest due at maturity date on October 1, 2005 500,000 500,000 Note payable, with interest of 10% payable in Quarterly installments of interest only. Principal and any unpaid interest due at maturity date on March 1, 2004 700,000 - ------------------- ------------------ 2,567,702 1,901,047 Less amounts due within one year 105,996 87,908 ------------------- ------------------ $ 2,461,706 $ 1,813,139 =================== ==================
CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 --------------------------------------------------------- (Continued) NOTE 6 - LONG-TERM DEBT continued The following are maturities of long-term debt: Period Ending June 30, 2001 -------------------- 2001 $ 105,996 2002 314,300 2003 967,406 2004 240,000 2005 940,000 2006 - -------------------- $ 2,567,702 ==================== NOTE 7 - LEASES The Company leases facilities and equipment under various capital and operating leases with expiration dates through 2004. Equipment capitalized under capital leases had fair market value of $73,000 as of April 1, 2000 (date of acquisition of the equipment and assumption of the related leases by the Company). Total rental expense for the Company for the years ended December 31, 2000 and 1999 was $153,106 and $159,045, respectively, including rent under month-to month leases. Net minimum rental commitments under all non-cancelable operating leases are as follows:
Capital Operating Year Ending December 31, Leases Leases Total ------------------ ------------------- ------------------ 2001 $ 16,958 $ 123,354 $ 140,312 2002 11,804 106,304 118,108 2003 8,189 83,286 91,475 2004 1,869 63,882 65,751 ------------------ ------------------- ------------------ Total minimum lease payments due 38,820 376,826 415,646 Less amounts representing interest (4,068) - (4,068) ------------------ ------------------- ------------------ $ 34,752 $ 376,826 $ 411,578 ================== =================== ==================
CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 --------------------------------------------------------- (Continued) NOTE 8 - PREFERRED STOCK OF SUBSIDIARY Quantum Group has two classes of preferred stock outstanding. Class B preferred stock has no dividend rights and an aggregate liquidation preference of $250,000. Class C preferred stock has total stated amount of $275,000. All of the Class C preferred stock has 8% cumulative dividend rights on the stated amount, which aggregates $275,000. Dividends on the Class C preferred stock were last declared and paid during the third quarter of 2000. NOTE 9 - CONTINGENCIES CBQ, Inc. had an agreement with a funding source to sell certain receivables with recourse. In the event of the customer's default the company must repurchase the receivables from the funding source. As of June 30, 2001, the company is contingently liable in the amount of $783,000 relating to such receivables sold with recourse. The Company is a defendant in several lawsuits. In the opinion of Company management, none of these lawsuits will have a material adverse impact on the Company's consolidated financial position, results of operations or cash flows. NOTE 10 - PREFERRED STOCK The Company has the option to call the preferred stock as follows: 7,000 shares at the greater of $10.00 per share or the traded market value of the preferred stock on or before October 23, 1999 21,000 shares at the greater of $10.715 per share or the traded market value of the preferred stock on or before October 23, 2000 42,000 shares at the greater of $11.905 per share or the traded market value of the preferred stock on or before October 23, 2001 70,000 shares at the greater of $12.50 per share or the traded market value of the preferred stock on or before October 23, 2002 NOTE 11 - COMMON STOCK During 2000, the Company settled liabilities of $923,398 in exchange for 1,658,920 shares of common stock. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 --------------------------------------------------------- (Continued) NOTE 12 - STOCK OPTIONS The options have a five-year life and are currently exercisable. The following summarizes stock option activity during the six months ended June 30, 2001 and year ended December 31, 2000:
Six Months Ended Year Ended December 31, June 30, 2001 2000 ----------------------------------- ------------------------------------- Exercise Exercise Shares Price/Share Shares Price/Share --------------- ------------------ ------------------ ----------------- Options outstanding, Beginning of period: 7,715,708 - 5,545,471 - Options granted 8,625,000 $0.25-$2.125 3,050,000 $1.00-$2.125 Options exercised - - (662,263) $2.125 Options canceled - - (217,500) $2.125 --------------- ------------------ Options outstanding, End of period: 16,340,708 $1.00-$2.125 7,715,708 $1.00-$2.125 =============== ==================
Substantially all of the options are exercisable during five-year periods from the dates of grant. Item 2. Management's Discussion and Analysis or Plan of Operation This Quarterly Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Investors are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation, the ability of the Company to continue its expansion strategy, changes in costs of raw materials, labor, and employee benefits, as well as general market conditions, competition and pricing. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward- looking statements included herein, the inclusion of such information should not be regarded as a presentation by the Company or any other person that the objectives and plans of the Company will be achieved. As used herein the term "Company" refers to CBQ, Inc., a Colorado corporation and its predecessors and subsidiaries, unless the context indicates otherwise. Business of the Company and its Subsidiaries: CBQ exhibits core competency in the United States Information Technology software industry with offices in Hunt Valley, Maryland and Miami, Florida and significant private industry and governmental relationships in the People's Republic of China. In January 2000, CBQ merged with ChinaSoft Inc., the private industry partner of the state-owned software development companies. CBQ may call on ChinaSoft's substantial programmer resources for contract software development or outsourcing. CBQ also works jointly with a privately owned China based software development and outsourcing company with English language expertise in both management and staff. These resources are capable of offering software services in virtually any programming language to the US. CBQ can deliver these services through software product offerings and outsourcing and/or project development, both in the US and in China. CBQ's lines of businesses include software development outsourcing, web development, custom software development, network systems integration and management. These lines of business are reflective of the Company's renewed focus on these business segments. The Company is in the process of attempting to identify and acquire favorable business opportunities. The Company has reviewed and evaluated a number of business ventures for possible acquisition or participation by the Company. Other than previously mentioned the Company has not entered into any agreement, nor does it have any commitment or understanding to enter into or become engaged in a transaction as of the date of this filing. The Company continues to investigate, review, and evaluate business opportunities as they become available and will seek to acquire or become engaged in business opportunities at such time as specific opportunities warrant. Results of Operations As the world increasingly becomes reliant upon information and data, companies will continue to invest in highly reliable and scalable IT infrastructures. As an End to End e-business solutions provider, CBQ offers a unique value proposition and is well positioned to become a major vendor for software and hardware in the Information Technology Market. The company's strategy is to have diverse streams of revenue including software development, hardware sales, and networking and integration services. The Company has a solid base of business in the mid-Atlantic region, and will rely on sources in China and the United States to provide the lowest available costs to its customers. While the software market in the United States has softened considerably in 2001, CBQ, as a result of its ability to import low cost, high quality software services from China, is poised to become an even more important player in coming years. CBQ has developed connections in China in both the private and public sectors that will allow it to implement software solutions, build Web sites, manage databases, and provide supply chain management solutions for U.S. customers. Due to the deteriorating IT spending climate it will be imperative for U.S. companies to outsource software development and to use the most cost effective source of supply, which is now China. Companies that have been using India as a source of outsourced software will increasingly turn to China, which is 30% lower cost on the average than software programmers from India. In addition, IT hardware cost will continue to decline. In this climate the connections CBQ has in China that will allow the Company to import personal computers, laptop computers, and personal digital assistants will give the Company a major price advantage over its U.S. competitors. Networking and integration services will also continue to be in demand, and CBQ, in tandem with partners such as Lockheed-Martin and Verizon, will be a major player in the Mid-Atlantic market. CBQ has grown steadily since current management assumed control of the Company on January 14, 2000. In the first six months of 2000, the revenues of CBQ, on a non-pooled accounting basis, were $336,420, with losses of $308,795, or 90% of revenues. In the first six months of 2001, the revenues of CBQ were $3,712,859, while losses were $821,465, or 22% of revenue. Revenues grew eleven-fold, while losses grew by a much lower factor (2.6). In the second quarter of 2000, ending on June 30, 2000, the revenues of CBQ, on a non- pooled accounting basis, were $116,504, while losses were $167,669. In the second quarter of 2001, the revenues of CBQ were $2,240,368, with losses of $742,357, or $.01 per share. Thus, the revenues of CBQ grew by a factor of 20 quarter to quarter, while losses sharply decreased as a percentage of revenues from over 100% to under 30% of revenues. While revenues were pooled for tax and accounting reasons in the various transactions in the second quarter involving Easysoft, Networkland, and Technet, the appropriate "real world" way to look at the situation is in terms of CBQ's revenues on a non-pooled basis until August 8, 2000 when CBQ acquired Quantum Technology Group. This clarifies the accounting situation, which state the consolidated statement of operations on a pooled basis in this filing. Continuing Operations: The Company has had recurring losses during its development stage and during the short period in which it has been in operations. Management believes that the losses incurred in 2000 will be abated in 2001, and will continue to pursue a two-track strategy to address the cash needs of CBQ--internal growth and acquisitions. The acquisitions of EasySoft and Technet will strengthen the software capabilities of CBQ, and permit the marketing of its software development expertise on an ever-broadening scale. CBQ plans to develop a sustainable competitive advantage by outsourcing the majority of the programming labor to skilled software engineers located in China ("the China team") and India ("the India team"). The acquisition of Networkland will strengthen the hardware, networking, and integration business of CBQ. These synergistic acquisitions will provide management efficiencies, economies of scale, and a broader reach into the District of Columbia and Virginia.. Three Months Ended June 30, 2001 and 2000 Revenues for the three months ending June 30, 2001 increased by $142,000 primarily as a result of the acquisitions during the later part of the first quarter. The cost of revenues decreased to 81% of revenue from 84% which has resulted from the company's change in products. The increase in sales and marketing nearly doubled from the same period ending June 30, 2000 which reflects the change in the company's marketing strategy towards system integration and the targeting of a new customer base. The 35% decrease in general and administrative expenses from 2000 reflects the company's on-going pursuit of new acquisitions and economies of integration including accounting and overhead costs. Although not operating in the black the company continues to show improvement. The company recorded a net loss from continuing operations of $754,000 for the three months ended June 30, 2001 compared to a loss of $1,139,000 for the three months ended June 30, 2000. Six Months Ended June 30, 2001 and 2000 Revenues for the six months ending June 30, 2001 decreased by $1,377,000 from the same period ending June 30, 2000. The decrease is a result of a change in the company's business model in its subsidiary, Quantum Distribution. In a declining parts and distribution market, the company switched its model to white box custom builds where there continues to be a strong growth pattern and higher profit margins. The decrease in costs of revenues of $1,229,000 is primarily a result of this change in strategy. Cost of revenues includes direct salaries and related payroll taxes, product costs, and outside services charged to customers. The increase in sales and marketing of $299,000 from the same period ending June 30, 2000 reflects the change in the company's marketing strategy towards system integration and the targeting of a new customer base as well as the development of a sales and marketing team which began in the October of 2000. Sales and marketing includes salaries, commissions, and related payroll taxes for the sales team, advertising and marketing costs, and related selling costs such as travel, meals and entertainment. The decrease in general and administrative expenses of $114,000 from 2000 reflects the company's on-going pursuit of new acquisitions and economies of integration including accounting and overhead costs. Depreciation and amortization expenses increased $63,000 from 2000. These increases reflect the goodwill amortization as a result of the company's current period acquisitions. The Company recorded a net loss from continuing operations of $821,464 for the six months ended June 30, 2001. The company continues to refine its business model, acquisition philosophy, and marketing strategy in an effort to compete in the ever-changing technology industry. Capital Resources and Liquidity Liquidity for the company is primarily generated by issuance of common stock, stockholder loans and vendor financing. At June 30, 2001, the Company had total current assets of $2,163,000 and total assets of $4,157,000 as compared to $1,452,000 current assets and $2,925,000 total assets at December 31, 2000. The Company had a net working capital deficit of $2,332,000 and $2,194,000 at June 30, 2001 and December 31, 2000. Net stockholders' deficit in the Company was $2,665,000 and $3,059,000 as of June 30, 2001 and December 31, 2000. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No material legal proceedings to which the Company (or any officer or director of the Company, or affiliate or owner of record or beneficially of more than five percent of the Common Stock, to management's knowledge) is a party or to which the property of the Company is subject is pending, and no such material proceeding is known by management of the Company to be contemplated. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None/Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS None/Not Applicable. ITEM 5. OTHER INFORMATION The financial statements of the EasySoft International, Inc., Technet Computer Services, Inc. and Networkland, Inc. and proforma financials are included immediately following the signature page to this report. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS (b) Reports on Form 8-K. The Company filed Form 8K on May 11, 2001 reporting the acquisition of assets of Technet and Networkland. See Item 5 above for proforma disclosures. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 17th day of August, 2001. CBQ, Inc. /s/ Bart S. Fisher ------------------------ Bart S. Fisher Chairman and Chief Executive Officer /s/ Leann Zawodniak Leann Zawodniak Chief Financial Officer August 17, 2001 EASYSOFT INTERNATIONAL, INC. -:- INDEPENDENT AUDITOR'S REPORT DECEMBER 31, 2000 AND 1999 AND MARCH 31, 2001 AND 2000 (UNAUDITED) CONTENTS
Page Independent Auditor's Report...............................................................................F - 1 Balance Sheets March 31, 2001 and 2000 (unaudited) and December 31, 2000 and 1999...............................................................................F - 2 Statements of Operations for the Three Months Ended March 31, 2001 and 2000 (unaudited) and Years Ended December 31, 2000 and 1999...................................................................F - 3 Statement of Stockholders' Equity Three Months Ended March 31, 2001 and 2000 (unaudited) and Years Ended December 31, 2000 and 1999..................................................................F - 4 Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000 (unaudited) and Years Ended December 31, 2000 and 1999...................................................................F - 5 Notes to Financial Statements..............................................................................F - 7
INDEPENDENT AUDITOR'S REPORT EasySoft International, Inc. We have audited the accompanying balance sheets of EasySoft International, Inc. as of December 31, 2000 and 1999, and the related statements of operations, stockholder's equity and cash flows for the two years ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of EasySoft International, Inc. as of December 31, 2000 and 1999 and the results of its operations and its cash flows for the two years then ended in conformity with generally accepted accounting principles. Respectfully submitted /S/ ROBISON, HILL & CO Certified Public Accountants Salt Lake City, Utah July 11, 2001 F - 1 EASYSOFT INTERNATIONAL, INC. BALANCE SHEETS
(Unaudited) March 31, December 31, ------------------------------------- 2001 2000 1999 ----------------- ----------------- ------------------ ASSETS Current Assets Cash $ 11,961 $ 3,586 $ 138,555 Accounts Receivable 67,543 10,275 - Employee Advances 23,300 20,500 3,300 Available-for-Sale Investments 402 155,346 355,103 ----------------- ----------------- ------------------ Total Current Assets 103,206 189,707 496,958 ----------------- ----------------- ------------------ Property & Equipment Computer Equipment and Software 37,599 37,599 34,495 Less Accumulated Depreciation (34,495) (28,282) (18,576) ----------------- ----------------- ------------------ Net Property & Equipment 3,104 9,317 15,919 ----------------- ----------------- ------------------ Other Assets Deposits 2,077 2,077 2,077 ----------------- ----------------- ------------------ Total Assets $ 108,387 $ 201,101 $ 514,954 ================= ================= ================== LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities Accounts Payable $ 846 $ 2,656 $ 23,746 Accrued Liabilities 1,676 3,734 21,277 ----------------- ----------------- ------------------ Total Current Liabilities 2,522 6,390 45,023 ----------------- ----------------- ------------------ Stockholder's Equity Common Stock, Par value $1.00 Authorized 1,000 shares, Issued 1,000 shares at December 31, 2000 and 1999 and March 31, 2001 1,000 1,000 1,000 Additional Paid in Capital 13,078 13,078 13,078 Accumulated Other Comprehensive Income - 4,856 39,365 Retained Earnings 91,787 175,777 416,488 ----------------- ----------------- ------------------ Total Stockholder's Equity 105,865 194,711 469,931 ----------------- ----------------- ------------------ Total Liabilities and Stockholder's Equity $ 108,387 $ 201,101 $ 514,954 ================= ================= ==================
The accompanying notes are an integral part of these financial statements. F - 2 EASYSOFT INTERNATIONAL, INC. STATEMENTS OF OPERATIONS
(Unaudited) For the three months ended For the year ended March 31, December 31, --------------------------------- ---------------------------------- 2001 2000 2000 1999 ---------------- --------------- ---------------- ---------------- REVENUES Sales $ 192,165 $ 504,093 $ 1,162,508 $ 889,353 Cost of Sales 129,886 357,906 823,624 464,782 ---------------- --------------- ---------------- ---------------- Gross Margin 62,279 146,187 338,884 424,571 ---------------- --------------- ---------------- ---------------- EXPENSES Advertising - 5,000 9,718 7,268 General and Administrative 16,327 35,727 225,539 100,788 ---------------- --------------- ---------------- ---------------- Total Expenses 16,327 40,727 235,257 108,056 ---------------- --------------- ---------------- ---------------- Earnings (Loss) from Operations 45,952 105,460 103,627 316,515 ---------------- --------------- ---------------- ---------------- Other Income (Expense) Interest Income 383 1,565 8,047 2,132 Dividends 83 - 385 Interest Expense - - (116) - Gain (Loss) on Sale of Investments - - (182,654) 31,362 ---------------- --------------- ---------------- ---------------- Net Other Income (Loss) 466 1,565 (174,338) 33,494 ---------------- --------------- ---------------- ---------------- Net Income (Loss) $ 46,418 $ 107,025 $ (70,711) $ 350,009 ================ =============== ================ ================ Weighted Average Shares Outstanding 1,000 1,000 1,000 1,000 ================ =============== ================ ================ Income (Loss) Per Share $ 46.42 $ 107.03 $ (70.72) $ 350.01 ================ =============== ================ ================
The accompanying notes are an integral part of these financial statements. F - 3 EASYSOFT INTERNATIONAL, INC. STATEMENT OF STOCKHOLDERS' EQUITY SINCE JANUARY 1, 1999 TO MARCH 31, 2001
Accumulated Additional Other Common Stock Paid-in Comprehensive Retained ------------------------ Shares Amount Capital Income Deficit ------------- --------- -------------- ------------------- ---------------- Balance at January 1, 1999 1,000 $ 1,000 $ 13,078 $ - $ 66,479 Comprehensive income: Net Income - - - - 350,009 Unrealized holding gains - - - 39,365 - ------------- --------- -------------- ------------------- ---------------- Balance at December 31, 1999 1,000 1,000 13,078 39,365 416,488 Accumulated Earnings Distribution - - - - (170,000) Comprehensive income: Net Loss - - - - (70,711) Unrealized holding losses - - - (34,509) - ------------- --------- -------------- ------------------- ---------------- Balance at December 31, 2000 1,000 1,000 13,078 4,856 175,777 Accumulated Earnings Distribution - - - - (130,408) Comprehensive income: Net Loss - - - - 46,418 Unrealized holding losses - - - (4,856) - ------------- --------- -------------- ------------------- ---------------- Balance at March 31, 2001 (unaudited) 1,000 $ 1,000 $ 13,078 $ - $ 91,787 ============= ========= ============== =================== ================
The accompanying notes are an integral part of these financial statements. F - 4 EASYSOFT INTERNATIONAL, INC. STATEMENTS OF CASH FLOWS
(unaudited) For the three months ended For the Year Ended March 31, December 31, ---------------------------- --------------------------------- 2001 2000 2000 1999 ------------- ------------- ---------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ 46,418 $ 107,025 $ (70,711)$ 350,009 Adjustments used to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 6,213 2,426 9,706 7,337 Changes in operating assets and liabilities: (Increase) Decrease in accounts receivable (57,268) (82,592) (10,275) - (Increase) Decrease in employee advances (2,800) (52,800) (17,200) (3,300) Increase (Decrease) in accounts payable (1,810) (16,281) (21,090) 43,484 Increase (Decrease) in accrued liabilities (2,058) (15,615) (17,543) (4,089) ------------- ------------- ---------------- ---------------- Net cash provided by operating activities (11,305) (57,837) (127,113) 393,441 ------------- ------------- ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: ----------- Cash received from sale of available-for-sale investments 179,272 905,178 2,407,793 315,737 Acquisition of available-for-sale investments (29,184) (842,816) (1,972,607) (593,942) Acquisition of Property and Equipment - - (3,104) (12,823) ------------- ------------- ---------------- ---------------- Net cash used by investing activities 150,088 62,362 432,082 (291,028) ------------- ------------- ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Accumulated Earnings Distribution (130,408) - (170,000) - ------------- ------------- ---------------- ---------------- Net cash used in financing activities (130,408) - (170,000) - ------------- ------------- ---------------- ---------------- Net increase in cash and cash equivalents 8,375 4,525 (134,969) 102,413 Cash and cash equivalents at beginning of period 3,586 138,555 138,555 36,142 ------------- ------------- ---------------- ---------------- Cash and cash equivalents at end of the period $ 11,961 $ 143,080 $ 3,586 $ 138,555 ============= ============= ================ ================
F - 5 EASYSOFT INTERNATIONAL, INC. STATEMENTS OF CASH FLOWS
(unaudited) For the three months ended For the Year Ended March 31, December 31, ------------------------------- -------------------------- 2001 2000 2000 1999 ------------- ---------------- ------------ ------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for taxes $ - $ - $ - $ - Cash paid during the period for interest $ - $ - $ 116 $ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: None The accompanying notes are an integral part of these financial statements. F - 6 EASYSOFT INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 references to March 31, 2001 and 2000 are unaudited NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN Organization and Basis of Presentation The Company was incorporated under the laws of the State of Florida on June 2, 1995. Effective June 2, 1995 the owners of the Company elected to be taxed as a S-Corporation. The unaudited financial statements as of March 31, 2001 and for the three months ended March 31, 2001 and 2000 reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and results of operations for the three months. Operating results for interim periods are not necessarily indicative of the results which can be expected for full years. Nature of Business EasySoft International, Inc. is an E-Commerce software developer. The Company started with the business of Web design and development, providing the service of customized database development over the Internet, such as internet domain name and email address hosting. In 1996, the Company contracted Government project, providing the services of programming, LAN-based and Internet-enabled database application for the Federal Welfare Program projects. Recently, the Company developed a E-commerce platform program to let customers sign on E-commerce stores and master OEM. The Company also provides on line shopping cart products and services. Pervasiveness of Estimates The preparation of financial statements in conformity with generally accepted accounting principles required management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. F - 7 EASYSOFT INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 references to March 31, 2001 and 2000 are unaudited (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Advertising Expense Advertising costs are expensed when the services are provided. Loss per Share The reconciliations of the numerators and denominators of the basic loss per share computations are as follows:
March 31, December 31, ------------------------- ------------------------------- 2001 2000 2000 1999 ------------ ------------ ---------------- ------------- NUMERATOR Net Income (Loss) To Common Stockholder $ 46,418 $ 107,025 $ (70,711) $ 350,009 ============ ============ ================ ============= DENOMINATOR Weighted Average Number of Common Shares 1,000 1,000 1,000 1,000 ============ ============ ================ ============= EPS Basic & Diluted Earnings (Loss) Per Share $ 46.42 $ 107.03 $ (70.72) $ 350.01 ============ ============ ================ =============
There are no other potential common shares. The effects of potential common shares such as warrants would be anti-dilutive in each of the period December 31, 2000 and are thus not considered. Concentration of Credit Risk The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains the majority of its cash balances with one financial institution, in the form of demand deposits. F - 8 EASYSOFT INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 references to March 31, 2001 and 2000 are unaudited (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Investments The Company's securities investments that are bought and held principally for the purpose of selling them in the near term are classified as trading securities. Trading securities are recorded at fair value on the balance sheet in current assets, with the change in fair value during the period included in earnings.
Investments in securities are summarized as follows: December 31, 2000 --------------------------------------------------------- Gross Gross Unrealized Unrealized Fair Gain Loss Value ----------------- ------------------ ------------------ Trading Securities $ 82,182 $ 77,326 $ 155,346 ================= ================== ================== December 31, 1999 --------------------------------------------------------- Gross Gross Unrealized Unrealized Fair Gain Loss Value ----------------- ------------------ ------------------ Trading Securities $ 39,365 $ - $ 355,103 ================= ================== ==================
Realized Gains and losses are determined on the basis of specific identification. During the years ended December 31, 2000 and 1999, sales proceeds and gross realized gains and losses on securities classified as trading securities were:
For the Year Ended December 31, 2000 1999 ---------------------- ---------------------- Sale Proceeds $ 2,407,793 $ 315,737 ====================== ====================== Gross Realized Losses $ 314,879 $ 6,022 ====================== ====================== Gross Realized Gains $ 132,225 $ 37,384 ====================== ======================
F - 9 EASYSOFT INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 references to March 31, 2001 and 2000 are unaudited (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and Equipment Property and equipment are stated at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives, principally on a straight-line basis from 3 to 5 years. Upon sale or other disposition of property and equipment, the cost and related accumulated depreciation or amortization are removed from the accounts and any gain or loss is included in the determination of income or loss. Expenditures for maintenance and repairs are charged to expense as incurred. Major overhauls and betterments are capitalized and depreciated over their useful lives. The Company identifies and records impairment losses on long-lived assets such as property and equipment when events and circumstances indicate that such assets might be impaired. The Company considers factors such as significant changes in the regulatory or business climate and projected future cash flows from the respective asset. Impairment losses are measured as the amount by which the carrying amount of intangible asset exceeds its fair value. NOTE 2 - INCOME TAXES As of December 31, 2000, the Company has been operating as a Sub-chapter S corporation and thus income tax is paid on the individual shareholders' Form 1040 filed with the Internal Revenue Service. NOTE 3 - COMMITMENTS AND RENT EXPENSE The Company has entered into lease agreements for various office facilities. For the quarter ending March 31, 2001 and 2000 the rental payments were $5,044 and $4,453 respectively. For the year ending December 31, 2000 and 1999 the rental payments were$22,345 and $19,654 respectively. Effective with the sale of the business to CBQ, Inc. on March 1, 2001 the lease obligations of EasySoft International, Inc. were assumed by CBQ, Inc. F - 10 EASYSOFT INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 references to March 31, 2001 and 2000 are unaudited (Continued) NOTE 4 - SUBSEQUENT EVENTS On March 1, 2001 the shareholders' of EasySoft International, Inc. entered into a stock purchase and exchange agreement with CBQ, Inc. In exchange for 5,625,000 common shares of CBQ, Inc. the shareholders of EasySoft International, Inc. sold all of the outstanding shares of EasySoft International to CBQ, Inc. F - 11 TECHNET COMPUTER SERVICES, INC. -:- INDEPENDENT AUDITOR'S REPORT DECEMBER 31, 2000 AND 1999 AND MARCH 31, 2001 AND 2000 (UNAUDITED) CONTENTS
Page Independent Auditor's Report...............................................................................F - 1 Balance Sheets March 31, 2001 and 2000 (unaudited) and December 31, 2000 and 1999...............................................................................F - 2 Statements of Operations for the Three Months Ended March 31, 2001 and 2000 (unaudited) and Years Ended December 31, 2000 and 1999...................................................................F - 4 Statement of Stockholders' Equity Three Months Ended March 31, 2001 and 2000 (unaudited) and Years Ended December 31, 2000 and 1999..................................................................F - 5 Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000 (unaudited) and Years Ended December 31, 2000 and 1999...................................................................F - 6 Notes to Financial Statements..............................................................................F - 8
INDEPENDENT AUDITOR'S REPORT Technet Computer Services, Inc. We have audited the accompanying balance sheets of Technet Computer Services, Inc. as of December 31, 2000 and 1999, and the related statements of operations, stockholder's equity and cash flows for the two years ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Technet Computer Services, Inc. as of December 31, 2000 and 1999 and the results of its operations and its cash flows for the two years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Respectfully submitted /S/ ROBISON, HILL & CO Certified Public Accountants Salt Lake City, Utah June 6, 2001 F - 1 TECHNET COMPUTER SERVICES, INC. BALANCE SHEETS
(Unaudited) March 31, December 31, -------------------------------------- 2001 2000 1999 ----------------- ------------------ ------------------ ASSETS Current Assets Cash $ - $ 177,363 $ 471,921 Accounts Receivable 715,677 1,023,420 1,539,310 Employee Advances 9,135 33,995 42,907 Other 43,689 43,025 42,029 ----------------- ------------------ ------------------ Total Current Assets 768,501 1,277,803 2,096,167 ----------------- ------------------ ------------------ Property & Equipment Transportation Equipment 30,070 30,070 30,070 Furniture & Equipment 19,240 19,240 18,965 Office Equipment 20,952 20,952 19,907 Computer Equipment and Software 605,171 605,171 599,042 ----------------- ------------------ ------------------ 675,433 675,433 667,984 Less Accumulated Depreciation (479,586) (456,080) (359,317) ----------------- ------------------ ------------------ Net Property & Equipment 195,847 219,353 308,667 ----------------- ------------------ ------------------ Other Assets Intangibles - Goodwill, Net - - 2,639,286 Deferred Tax Asset - - 123,880 ----------------- ------------------ ------------------ Net Other Assets - - 2,763,166 ----------------- ------------------ ------------------ Total Assets $ 964,348 $ 1,497,156 $ 5,168,000 ================= ================== ==================
F - 2 TECHNET COMPUTER SERVICES, INC. BALANCE SHEETS (continued)
(Unaudited) March 31, December 31, ------------------------------------- 2001 2000 1999 ----------------- ----------------- ------------------ LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities Accounts Payable $ 380,861 $ 462,927 $ 398,770 Checks Written in excess of Cash in Bank 58,836 - - Accrued Liabilities 4,790 25,418 260,564 Advances from Parent 984,288 1,476,013 1,676,394 Short Term Notes Payable 19,500 35,500 4,500 ----------------- ----------------- ------------------ Total Current Liabilities 1,448,275 1,999,858 2,340,228 ----------------- ----------------- ------------------ Stockholder's Equity Common Stock, Par value $.01 Authorized 1,000 shares, Issued 1,000 shares at December 31, 2000 and 1999 and March 31, 2001 10 10 10 Additional Paid in Capital 2,379,990 2,379,990 2,379,990 Retained Earnings (Deficit) (2,863,927) (2,882,702) 447,772 ----------------- ----------------- ------------------ Total Stockholder's Equity (Deficit) (483,927) (502,702) 2,827,772 ----------------- ----------------- ------------------ Total Liabilities and Stockholder's Equity $ 964,348 $ 1,497,156 $ 5,168,000 ================= ================= ==================
The accompanying notes are an integral part of these financial statements. F - 3 TECHNET COMPUTER SERVICES, INC. STATEMENTS OF OPERATIONS
(Unaudited) For the three months ended For the year ended March 31, December 31, --------------------------------- ---------------------------------- 2001 2000 2000 1999 ---------------- --------------- ---------------- ---------------- REVENUES Sales $ 1,094,990 $ 1,458,821 $ 4,926,152 $ 7,411,103 Cost of Sales 229,532 575,031 2,225,635 5,183,487 ---------------- --------------- ---------------- ---------------- Gross Margin 865,458 883,790 2,700,517 2,227,616 EXPENSES General and Administrative 824,950 860,923 5,755,988 1,872,950 ---------------- --------------- ---------------- ---------------- Earnings (Loss) from Operations 40,508 22,867 (3,055,471) 354,666 Other Income (Expense) Interest Income 56 - 9,214 - Interest Expense (21,789) (28,689) (122,336) (100,668) ---------------- --------------- ---------------- ---------------- Net Other Income (Loss) (21,733) (28,689) (113,122) (100,668) ---------------- --------------- ---------------- ---------------- Income (Loss) Before Taxes 18,775 (5,822) (3,168,593) 253,998 Income Tax Expense (Benefit) - 38,000 161,881 (2,400) ---------------- --------------- ---------------- ---------------- Net Income (Loss) $ 18,775 $ (43,822) $ (3,330,474) $ 256,398 ================ =============== ================ ================ Weighted Average Shares Outstanding 1,000 1,000 1,000 1,000 ================ =============== ================ ================ Income (Loss) Per Share $ 18.77 $ (43.88) $ (3,330.47) $ 256.40 ================ =============== ================ ================
The accompanying notes are an integral part of these financial statements. F - 4 TECHNET COMPUTER SERVICES, INC. STATEMENT OF STOCKHOLDERS' EQUITY SINCE JANUARY 1, 1999 TO MARCH 31, 2001
Common Stock Paid-In Retained Shares Par Value Capital Deficit --------------- ------------- --------------- ---------------- Balance at January1, 1999 1,000 $ 10 $ 2,379,990 $ 191,374 Net Income - - - 256,398 --------------- ------------- --------------- ---------------- Balance at December 31, 1999 1,000 10 2,379,990 447,772 Net Loss - - - (3,330,474) --------------- ------------- --------------- ---------------- Balance at December 31, 2000 1,000 10 2,379,990 (2,882,702) Net Income - - - 18,775 --------------- ------------- --------------- ---------------- Balance March 31, 2001(unaudited) 1,000 $ 10 $ 2,379,990 $ (2,863,927) =============== ============= =============== ================
The accompanying notes are an integral part of these financial statements. F - 5 TECHNET COMPUTER SERVICES, INC. STATEMENTS OF CASH FLOWS
(unaudited) For the three months ended For the Year Ended March 31, December 31, ---------------------------- --------------------------------- 2001 2000 2000 1999 ------------- ------------- ---------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ 18,775 $ (43,822)$ (3,330,474)$ 256,398 Adjustments used to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 23,506 111,712 2,736,049 489,031 Changes in operating assets and liabilities: (Increase) Decrease in accounts receivable 307,743 8,398 515,890 (1,539,310) (Increase) Decrease in employee advances 24,860 4,375 8,912 (42,907) (Increase) Decrease in other current assets (664) - (996) (42,029) (Increase) Decrease in deferred tax asset - - 123,880 (123,880) Increase (Decrease) in accounts payable (82,066) (160,750) 64,157 398,770 Increase (Decrease) in checks written In excess of cash in bank 58,836 27,348 - - Increase (Decrease) in accrued liabilities (20,628) (260,556) (235,146) 260,564 Increase (Decrease) in advances parent (491,725) 78,689 (200,381) 810,784 ------------- ------------- ---------------- ---------------- Net cash provided by operating activities (161,363) (234,606) (318,109) 467,421 ------------- ------------- ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Property and Equipment - (276) (7,449) - ------------- ------------- ---------------- ---------------- Net cash used by investing activities - (276) (7,449) - ------------- ------------- ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of Long-Term Debt (16,000) (1,798) (9,000) - Proceeds of Long-Term Debt - - 40,000 4,500 ------------- ------------- ---------------- ---------------- Net cash used in financing activities (16,000) (1,798) 31,000 4,500 ------------- ------------- ---------------- ---------------- Net increase in cash and cash equivalents (177,363) (236,680) (294,558) 471,921 Cash and cash equivalents at beginning of period 177,363 471,921 471,921 - ------------- ------------- ---------------- ---------------- Cash and cash equivalents at end of the period - $ 235,241 $ 177,363 $ 471,921 ============= ============= ================ ================
F - 6 TECHNET COMPUTER SERVICES, INC. STATEMENTS OF CASH FLOWS
(unaudited) For the three months ended For the Year Ended March 31, December 31, ------------------------------- -------------------------- 2001 2000 2000 1999 ------------- ---------------- ------------ ------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for taxes $ - $ 38,000 $ 161,881 $ - Cash paid during the period for interest $ 21,789 $ 28,689 $ 122,336 $ 100,668
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: None The accompanying notes are an integral part of these financial statements. F - 7 TECHNET COMPUTER SERVICES, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 references to March 31, 2001 and 2000 are unaudited NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN The accompanying financial statements have been prepared on the basis of accounting principles applicable to a "going concern", which assume that the Company will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations. Several conditions and events cast doubt about the Company's ability to continue as a "going concern". The Company has incurred net losses of approximately $3,000,000 for the period from January 1, 2000 to December 31, 2000, has a liquidity problem, and requires additional financing in order to finance its business activities on an ongoing basis. The Company is actively pursuing alternative financing through and has had discussions with various third parties, although no firm commitments have been obtained. In addition substantially all of the asset and some of the liabilities were sold to CBQ, Inc. (see subsequent events footnote). The Company's future capital requirements will depend on numerous factors including, but not limited to, continued market penetration and profitable operations from its employee leasing and software services. These financial statements do not reflect adjustments that would be necessary if the Company were unable to continue as a "going concern". While management believes that the actions already taken or planned, will mitigate the adverse conditions and events which raise doubt about the validity of the "going concern" assumption used in preparing these financial statements, there can be no assurance that these actions will be successful. If the Company were unable to continue as a "going concern", then substantial adjustments would be necessary to the carrying values of assets, the reported amounts of its liabilities, the reported revenues and expenses, and the balance sheet classifications used. Organization and Basis of Presentation The Company was incorporated under the laws of the State of Virginia on March 24, 1989. The Company is a wholly owned subsidiary of Socrates Technologies Corporation. The unaudited financial statements as of March 31, 2001 and for the three months ended March 31, 2001 and 2000 reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and results of operations for the three months. Operating results for interim periods are not necessarily indicative of the results which can be expected for full years. F - 8 TECHNET COMPUTER SERVICES, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 references to March 31, 2001 and 2000 are unaudited NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Nature of Business As of March 31, 2001 the Company leases employees to CBQ, Inc. Prior to March 27, 2001 the Company was in the business of providing software solutions. Pervasiveness of Estimates The preparation of financial statements in conformity with generally accepted accounting principles required management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Loss per Share The reconciliations of the numerators and denominators of the basic loss per share computations are as follows:
March 31, December 31, ------------------------- ------------------------------- 2001 2000 2000 1999 ------------ ------------ ---------------- ------------- NUMERATOR Net Income (Loss) To Common Stockholder $ 18,755 $ (43,822)$ (3,330,474) $ 256,398 ============ ============ ================ ============= DENOMINATOR Weighted Average Number of Common Shares 1,000 1,000 1,000 1,000 ============ ============ ================ ============= EPS Basic & Diluted Earnings (Loss) Per Share $ 18.76 $ (43.83) $ (3,330.48) $ 256.40 ============ ============ ================ =============
There are no other potential common shares. The effects of potential common shares such as warrants would be anti-dilutive in each of the periods March 31, 2001 and December 31, 2000 and are thus not considered. F - 9 TECHNET COMPUTER SERVICES, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 references to March 31, 2001 and 2000 are unaudited (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and Equipment Property and equipment are stated at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives, principally on a straight-line basis from 3 to 5 years. Upon sale or other disposition of property and equipment, the cost and related accumulated depreciation or amortization are removed from the accounts and any gain or loss is included in the determination of income or loss. Expenditures for maintenance and repairs are charged to expense as incurred. Major overhauls and betterments are capitalized and depreciated over their useful lives. The Company identifies and records impairment losses on long-lived assets such as property and equipment when events and circumstances indicate that such assets might be impaired. The Company considers factors such as significant changes in the regulatory or business climate and projected future cash flows from the respective asset. Impairment losses are measured as the amount by which the carrying amount of intangible asset exceeds its fair value. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. Concentration of Credit Risk The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains the majority of its cash balances with one financial institution, in the form of demand deposits. F - 10 TECHNET COMPUTER SERVICES, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 references to March 31, 2001 and 2000 are unaudited (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Intangible Assets Intangible assets are valued at cost and are being amortized on the straight-line basis over a period of five years. The amortization period is management's estimate of useful economic life of the asset. The Company identifies and records impairment losses on intangible assets when events and circumstances indicate that such assets might be impaired. The Company considers factors such as significant changes in the regulatory or business climate and projected future cash flows from the respective asset. Impairment losses are measured as the amount by which the carrying amount of intangible asset exceeds its fair value. The goodwill has been written off due to the sale of the majority of the assets. (See subsequent events) NOTE 2 - INCOME TAXES As of March 31, 2001, the Company had a net operating loss carryforward for income tax reporting purposes of approximately $450,000 that may be offset against future taxable income through 2021. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. No tax benefit has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carryforwards will expire unused. Accordingly, the potential tax benefits of the loss carryforwards are offset by a valuation allowance of the same amount. NOTE 3 - EMPLOYEE BENEFIT PLAN The Company participates in a 401(k) retirement plan which is available to all of its full time employees. For the quarter ending March 31, 2001 and 2000 the expense paid by the Company attributable to the benefit plan was $45,005 and $-0- and for the year ended December 31, 2000 and 1999 was $850 and $-0- respectively. F - 11 TECHNET COMPUTER SERVICES, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 references to March 31, 2001 and 2000 are unaudited (Continued) NOTE 4 - COMMITMENTS AND RENT EXPENSE The Company has entered into lease agreements for various office facilities. For the quarter ending March 31, 2001 and 2000 the rental payments were $33,587 and $55,805 respectively. For the year ending December 31, 2000 and 1999 the rental payments were$223,221 and $223,221 respectively. Effective with the sale of the business to CBQ, Inc. on March 27, 2001 the lease obligations of Technet Computer Services, Inc. and Networkland, Inc. were assumed by CBQ, Inc. As of March 31, 2001 all activities of the Company have been conducted by corporate officers from either their homes or business offices. Currently, there are no outstanding debts owed by the company for the use of these facilities and there are no commitments for future use of the facilities. NOTE 5 - SUBSEQUENT EVENTS On March 27, 2001 Socrates Technologies Corporation the parent company of Technet Computer Services, Inc. and Networkland, Inc. entered into an asset purchase agreement with CBQ, Inc. In exchange for 7,650,000 common shares of CBQ, Inc. and a promissory note in the amount of $700,000 plus 10% interest due March 1, 2004, Socrates Technologies Corporation sold essentially all of the assets and some of the liabilities of Technet Computer Services, Inc. and Networkland, Inc. to CBQ, Inc. The promissory note is convertible into common shares of CBQ, Inc. anytime after twelve months at the rate of $.75 per share. In May 2001 Farshad Sajedi a former officer of Technet filed a civil action against Technet for alleged breach of employment agreement. The action was filed in the Circuit Court for Arlington County, Virginia and seeks damages in excess of $300,000. Management believes that the action is frivolous because the Company had sufficient cause for terminating Mr. Sajedi's employment. F - 12 NETWORKLAND, INC. -:- INDEPENDENT AUDITOR'S REPORT DECEMBER 31, 2000 AND 1999 AND MARCH 31, 2001 AND 2000 (UNAUDITED) CONTENTS
Page Independent Auditor's Report...............................................................................F - 1 Balance Sheets March 31, 2001 (unaudited) and December 31, 2000 and 1999...............................................................................F - 2 Statements of Operations for the Three Months Ended March 31, 2001 and 2000 (unaudited) and Years Ended December 31, 2000 and 1999...................................................................F - 4 Statement of Stockholders' Equity Three Months Ended March 31, 2001 and 2000 (unaudited) and Years Ended December 31, 2000 and 1999..................................................................F - 5 Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000 (unaudited) and Years Ended December 31, 2000 and 1999...................................................................F - 6 Notes to Financial Statements..............................................................................F - 8
INDEPENDENT AUDITOR'S REPORT Networkland, Inc. We have audited the accompanying balance sheets of Networkland, Inc. as of December 31, 2000 and 1999, and the related statements of operations, stockholder's equity and cash flows for the two years ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Networkland, Inc. as of December 31, 2000 and 1999 and the results of its operations and its cash flows for the two years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Respectfully submitted /S/ ROBISON, HILL & CO Certified Public Accountants Salt Lake City, Utah June 6, 2001 F - 1 NETWORKLAND, INC. BALANCE SHEETS
(Unaudited) March 31, December 31, -------------------------------------- 2001 2000 1999 ----------------- ------------------ ------------------ ASSETS Current Assets Cash $ 158,085 $ 271,682 $ 417,236 Accounts Receivable 729,112 815,819 1,643,942 Accounts Receivable - Sajedi Finance 576,405 - - Inventory 27,067 33,687 44,463 Other - - 33,296 ----------------- ------------------ ------------------ Total Current Assets 1,490,669 1,121,188 2,138,937 Property & Equipment Transportation Equipment 1,100 1,100 - Furniture & Equipment 1,528 1,528 1,528 Office Equipment 1,069 1,069 670 Computer Equipment and Software 14,220 14,220 9,510 ----------------- ------------------ ------------------ 17,917 17,917 11,708 Less Accumulated Depreciation 7,500 6,000 1,500 ----------------- ------------------ ------------------ Net Property & Equipment 10,417 11,917 10,208 Other Assets Intangibles - Goodwill, Net - - 1,902,871 ----------------- ------------------ ------------------ Total Assets $ 1,501,086 $ 1,133,105 $ 4,052,016 ================= ================== ==================
F - 2 NETWORKLAND, INC. BALANCE SHEETS (continued)
(Unaudited) March 31, December 31, ------------------------------------- 2001 2000 1999 ----------------- ----------------- ------------------ LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities Accounts Payable $ 409,105 $ 184,484 $ 958,993 Accrued Liabilities 75,942 149,516 283,652 Advances from Parent 1,931,127 1,811,124 136,725 Current Portion Long-Term Debt 18,956 18,956 374,794 ----------------- ----------------- ------------------ Total Current Liabilities 2,435,130 2,164,080 1,754,164 ----------------- ----------------- ------------------ Long Term and Other Liabilities Notes Payable - Officer - - 18,956 ----------------- ----------------- ------------------ Total Long Term and Other Liabilities - - 18,956 ----------------- ----------------- ------------------ Total Liabilities 2,435,130 2,164,080 1,773,120 ----------------- ----------------- ------------------ Stockholder's Equity Preferred Stock, Par value $1.00 Authorized 5,000 shares, issued -0- shares at December 31, 2000 and 1999 and March 31, 2001 - - - Common Stock, Par value $.01 Authorized 10,000 shares, Issued 2,000 shares at December 31, 2000 and 1999 and March 31, 2001 20 20 20 Additional Paid in Capital 1,975,028 1,975,028 1,975,028 Retained Earnings (Deficit) (2,909,092) (3,006,023) 303,848 ----------------- ----------------- ------------------ Total Stockholder's Equity (Deficit) (934,044) (1,030,975) 2,278,896 ----------------- ----------------- ------------------ Total Liabilities and Stockholder's Equity $ 1,501,086 $ 1,133,105 $ 4,052,016 ================= ================= ==================
The accompanying notes are an integral part of these financial statements. F - 3 NETWORKLAND, INC. STATEMENTS OF OPERATIONS
(Unaudited) For the three months ended For the year ended March 31, December 31, --------------------------------- --------------------------------- 2001 2000 2000 1999 ---------------- --------------- --------------- ---------------- REVENUES Sales $ 978,482 $ 3,258,056 $ 9,784,369 $ 4,494,155 Cost of Sales 711,650 2,637,985 9,304,903 3,620,840 ---------------- --------------- --------------- ---------------- Gross Margin 266,832 620,071 479,466 873,315 EXPENSES Advertising 1,653 1,826 32,868 5,428 General and Administrative 165,706 461,747 3,753,584 448,538 ---------------- --------------- --------------- ---------------- Total Expenses 167,359 463,573 3,786,452 453,966 Other Income (Expense) Interest Income 955 3,530 9,509 4,866 Interest Expense (2,877) - (11,644) - ---------------- --------------- --------------- ---------------- Net Other Income (Loss) (1,922) 3,530 (2,135) 4,866 ---------------- --------------- --------------- ---------------- Income (Loss) Before Taxes 97,551 160,028 (3,309,121) 424,215 Income Tax Expense (Benefit) 620 54,000 750 120,367 ---------------- --------------- --------------- ---------------- Net Income (Loss) $ 96,931 $ 106,028 $ (3,309,871) $ 303,848 ================ =============== =============== ================ Weighted Average Shares Outstanding 2,000 2,000 2,000 2,000 ================ =============== =============== ================ Income (Loss) Per Share $ 48.47 $ 53.02 $ (1,654.94) $ 151.93 ================ =============== =============== ================
The accompanying notes are an integral part of these financial statements. F - 4 NETWORKLAND, INC. STATEMENT OF STOCKHOLDERS' EQUITY SINCE AUGUST 19, 1999 (INCEPTION) TO MARCH 31, 2001
Common Stock Paid-In Retained Shares Par Value Capital Deficit --------------- ------------- --------------- ---------------- Balance at August 19, 1999 (inception) 2,000 $ 20 $ 1,975,028 $ - Net Income - - - 303,848 --------------- ------------- --------------- ---------------- Balance at December 31, 1999 2,000 20 1,975,028 303,848 Net Loss - - - (3,309,871) --------------- ------------- --------------- ---------------- Balance at December 31, 2000 2,000 20 1,975,028 (3,006,023) Net Income - - - 96,931 --------------- ------------- --------------- ---------------- Balance March 31, 2001(unaudited) 2,000 $ 20 $ 1,975,028 $ (2,909,092) =============== ============= =============== ================
The accompanying notes are an integral part of these financial statements. F - 5 NETWORKLAND, INC. STATEMENTS OF CASH FLOWS
(unaudited) For the three months ended For the Year Ended March 31, December 31, ---------------------------- -------------------------------- 2001 2000 2000 1999 ------------- ------------- ---------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ 96,931 $ 106,028 $ (3,309,871)$ 303,848 Adjustments used to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,500 53,925 1,907,371 75,638 Changes in operating assets and liabilities: (Increase) Decrease in accounts receivable 86,707 (579,232) 828,123 (1,643,942) (Increase) Decrease in receivable-Sajedi (576,405) - - - (Increase) Decrease in inventory 6,620 (2,133) 10,776 (44,463) (Increase) Decrease in other current assets - (74,230) 33,296 (33,296) Increase (Decrease) in accounts payable 224,621 (354,243) (774,509) 958,993 Increase (Decrease) in accrued liabilities (73,574) 116,528 (134,136) 283,652 Increase (Decrease) in advances parent 120,003 499,433 1,674,399 136,725 ------------- ------------- ---------------- --------------- Net cash provided by operating activities (113,597) (233,924) 235,449 37,155 ------------- ------------- ---------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Property and Equipment - (1,803) (6,209) (11,708) Acquisition of intangible assets - - - (1,961) ------------- ------------- ---------------- --------------- Net cash used by investing activities - (1,803) (6,209) (13,669) ------------- ------------- ---------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of Long-Term Debt - (50,000) (374,794) - Proceeds of Long-Term Debt - - 393,750 ------------- ------------- ---------------- --------------- Net cash used in financing activities - (50,000) (374,794) 393,750 ------------- ------------- ---------------- --------------- Net increase in cash and cash equivalents (113,597) (285,727) (145,554) 417,236 Cash and cash equivalents at beginning of period 271,682 417,236 417,236 - ------------- ------------- ---------------- --------------- Cash and cash equivalents at end of the period $ 158,085 $ 131,509 $ 271,682 $ 417,236 ============= ============= ================ ===============
F - 6 NETWORKLAND, INC. STATEMENTS OF CASH FLOWS
(unaudited) For the three months ended For the Year Ended March 31, December 31, ------------------------------- -------------------------- 2001 2000 2000 1999 ------------- ---------------- ------------ ------------ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for taxes $ 620 $ - $ 750 $ 1,189 Cash paid during the period for interest $ 2,877 $ 914 $ 11,644 $ - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: None
The accompanying notes are an integral part of these financial statements. F - 7 NETWORKLAND, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 references to March 31, 2001 and 2000 are unaudited NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN The accompanying financial statements have been prepared on the basis of accounting principles applicable to a "going concern", which assume that the Company will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations. Several conditions and events cast doubt about the Company's ability to continue as a "going concern". The Company has incurred net losses of approximately $3,000,000 for the period from January 1, 2000 to December 31, 2000, has a liquidity problem, and requires additional financing in order to finance its business activities on an ongoing basis. The Company is actively pursuing alternative financing through and has had discussions with various third parties, although no firm commitments have been obtained. In addition substantially all of the asset and some of the liabilities were sold to CBQ, Inc. (see subsequent events footnote). The Company's future capital requirements will depend on numerous factors including, but not limited to, continued market penetration and profitable operations from its sales of computer hardware and software services. These financial statements do not reflect adjustments that would be necessary if the Company were unable to continue as a "going concern". While management believes that the actions already taken or planned, will mitigate the adverse conditions and events which raise doubt about the validity of the "going concern" assumption used in preparing these financial statements, there can be no assurance that these actions will be successful. If the Company were unable to continue as a "going concern", then substantial adjustments would be necessary to the carrying values of assets, the reported amounts of its liabilities, the reported revenues and expenses, and the balance sheet classifications used. Organization and Basis of Presentation The Company was incorporated under the laws of the State of Virginia on August 19, 1999. The Company is a wholly owned subsidiary of Socrates Technologies Corporation. The unaudited financial statements as of March 31, 2001 and for the three months ended March 31, 2001 and 2000 reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and results of operations for the three months. Operating results for interim periods are not necessarily indicative of the results which can be expected for full years. F - 8 NETWORKLAND, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 references to March 31, 2001 and 2000 are unaudited NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Nature of Business The company has no products or services as of March 31, 2001. Prior to March 27, 2001 the Company was in the business of providing computer hardware and software solutions. Pervasiveness of Estimates The preparation of financial statements in conformity with generally accepted accounting principles required management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Loss per Share The reconciliations of the numerators and denominators of the basic loss per share computations are as follows:
March 31, December 31, ----------------------------- -------------------------------- 2001 2000 2000 1999 -------------- ------------- ----------------- ------------- NUMERATOR Net Income (Loss) To Common Stockholder $ 96,931 $ 106,028 $ (3,309,871) $ 303,848 ============== ============= ================= ============= DENOMINATOR Weighted Average Number of Common Shares 2,000 2,000 2,000 2,000 ============== ============= ================= ============= EPS Basic & Diluted Earnings (Loss) Per Share $ 48.47 $ 53.02 $ (1,654.94) $ 101.43 ============== ============= ================= ============= There are no other potential common shares.
F - 9 NETWORKLAND, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 references to March 31, 2001 and 2000 are unaudited (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and Equipment Property and equipment are stated at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives, principally on a straight-line basis from 3 to 5 years. Upon sale or other disposition of property and equipment, the cost and related accumulated depreciation or amortization are removed from the accounts and any gain or loss is included in the determination of income or loss. Expenditures for maintenance and repairs are charged to expense as incurred. Major overhauls and betterments are capitalized and depreciated over their useful lives. The Company identifies and records impairment losses on long-lived assets such as property and equipment when events and circumstances indicate that such assets might be impaired. The Company considers factors such as significant changes in the regulatory or business climate and projected future cash flows from the respective asset. Impairment losses are measured as the amount by which the carrying amount of intangible asset exceeds its fair value. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. Concentration of Credit Risk The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains the majority of its cash balances with one financial institution, in the form of demand deposits. F - 10 NETWORKLAND, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 references to March 31, 2001 and 2000 are unaudited (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Intangible Assets Intangible assets are valued at cost and are being amortized on the straight-line basis over a period of five years. The amortization period is management's estimate of useful economic life of the asset. The Company identifies and records impairment losses on intangible assets when events and circumstances indicate that such assets might be impaired. The Company considers factors such as significant changes in the regulatory or business climate and projected future cash flows from the respective asset. Impairment losses are measured as the amount by which the carrying amount of intangible asset exceeds its fair value. The goodwill has been written off due to the sale of the majority of the assets. (See subsequent events) NOTE 2 - INCOME TAXES As of March 31, 2001, the Company had a net operating loss carryforward for income tax reporting purposes of approximately $3,000,000 that may be offset against future taxable income through 2021. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. No tax benefit has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carryforwards will expire unused. Accordingly, the potential tax benefits of the loss carryforwards are offset by a valuation allowance of the same amount. NOTE 3 - EMPLOYEE BENEFIT PLAN The Company participates in a 401(k) retirement plan which is available to all of its full time employees. For the quarter ending March 31, 2001 and 2000 the expense paid by the Company attributable to the benefit plan was $-0- and $5,886 and for the year ended December 31, 2000 and 1999 was $25,031 and $3,181 respectively. F - 11 NETWORKLAND, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 references to March 31, 2001 and 2000 are unaudited (Continued) NOTE 4 - COMMITMENTS AND RENT EXPENSE The Company has entered into lease agreements for various office, storage and warehouse facilities. For the quarter ending March 31, 2001 and 2000 the rental payments were $9,623 and $14,344 respectively. For the year ending December 31, 2000 and 1999 the rental payments were$51,263 and $20,208 respectively. Effective with the sale of the business to CBQ, Inc. on March 27, 2001 the lease obligations of Networkland, Inc. and Technet Computer Services, Inc. were assumed by CBQ, Inc. As of March 31, 2001 all activities of the Company have been conducted by corporate officers from either their homes or business offices. Currently, there are no outstanding debts owed by the company for the use of these facilities and there are no commitments for future use of the facilities. NOTE 5 - SUBSEQUENT EVENTS On March 27, 2001 Socrates Technologies Corporation the parent company of Networkland, Inc. and Technet Computer Services, Inc. entered into an asset purchase agreement with CBQ, Inc. In exchange for 7,650,000 common shares of CBQ, Inc. and a promissory note in the amount of $700,000 plus 10% interest due March 1, 2004, Socrates Technologies Corporation sold essentially all of the assets and some of the liabilities of Networkland, Inc. and Technet Computer Services, Inc. to CBQ, Inc. The promissory note is convertible into common shares of CBQ, Inc. anytime after twelve months at the rate of $.75 per share. F - 12 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS During 2001, CBQ, Inc. (the "Company" or "CBQ") completed a number of business and asset acquisitions. These unaudited pro forma condensed combined statements of operations are based on the December 31, 2000 and March 31, 2001 historical consolidated financial statements of the Company and the financial statements of EasySoft International, Inc. ("ESI"), Technet Computer Services, Inc. (TCS) and Networkland, Inc. ("NWL") contained elsewhere herein, giving effect to the transaction under the purchase method of accounting, with the Company treated as the acquiring entity for financial reporting purposes. The unaudited pro forma condensed combined statement of operations presents the results of operations of the Surviving Corporation, assuming the acquisitions were completed on January 1, 2000 (for the Year ended December 31, 2000) and January 1, 2001 (for the three months ended March 31, 2001). ESI - On March 1, 2001 the shareholders' of ESI entered into a stock purchase agreement with CBQ. The purchase price was 5,625,000 shares of common stock in exchange for assets valued at $580,596 (receivables in the approximate amount of $95,665, equipment and other assets of $5,181 and goodwill of $479,750) less liabilities of $9,305 or $0.101563 per share calculated based on the average closing prices of the period February 22, 2001 to March 8, 2001, the five days before and after the date of acquisition. ESI was based in Florida. TCS and NWL - On March 27, 200l the Company purchased certain assets of TCS and NWL from their Parent, Socrates Technologies Corp, Inc. for 7,800,000 shares of common stock and a 10% note payable of $700,000 in exchange for which the Company received assets valued at $1,699,247 ( receivables $1,434,389, inventory $27,067, equipment $45,120, goodwill $192,671 and other assets $220,080) and assumed liabilities of $785,198.. The unaudited pro forma condensed combined financial statements have been prepared by management of CBQ, ESI, TCS and NWL based on the financial statements included elsewhere herein. The pro forma adjustments include certain assumptions and preliminary estimates as discussed in the accompanying notes and are subject to change. These pro forma statements may not be indicative of the results that actually would have occurred if the combination had been in effect on the dates indicated or which may be obtained in the future. These pro forma financial statements should be read in conjunction with the accompanying notes and the historical financial information of CBQ, ESI, TCS and NWL (including the notes thereto) included in this Form. See "FINANCIAL STATEMENTS." UNAUDITED PRO FORMA CONDENSED BALANCE SHEET DECEMBER 31, 2000
Technet Acquired EasySoft Computer Entities International, Services, Networkland, Combined Inc. Inc. Inc. Balance ----------- ----------- ----------- ----------- ASSETS Current Assets ................................ $ 189,707 $ 1,277,803 $ 1,121,188 $ 2,588,698 Fixed Assets (net) ............................ 9,317 219,353 11,917 240,587 Other Assets .................................. 2,077 -- -- 2,077 ----------- ----------- ----------- ----------- Total Assets ............................. $ 201,101 $ 1,497,156 $ 1,133,105 $ 2,831,362 =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities ........................... $ 6,390 $ 1,999,858 $ 2,164,080 $ 4,170,328 Long-term Debt ................................ -- -- -- -- ----------- ----------- ----------- ----------- Total Liabilities ......................... 6,390 1,999,858 2,164,080 4,170,328 ----------- ----------- ----------- ----------- Stockholders' Equity: Preferred Stock ............................ -- -- -- -- Common Stock ................................ 1,000 10 20 1,030 Additional Paid in Capital .................. 13,078 2,379,990 1,975,028 4,368,096 Accumulated Other Comprehensive Income ...... 4,856 -- -- 4,856 Retained Earnings (Deficit) ................. 175,777 (2,882,702) (3,006,023) (5,712,948) ----------- ----------- ----------- ----------- Total Stockholders' Equity (Deficit) ..... 194,711 (502,702) (1,030,975) (1,338,966) ----------- ----------- ----------- ----------- Total Liabilities and Stockholders' Equity $ 201,101 $ 1,497,156 $ 1,133,105 $ 2,831,362 =========== =========== =========== ===========
See accompanying notes to unaudited pro forma condensed combined financial statements. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000
Technet Acquired EasySoft Computer Entities International, Services, Networkland, Combined Inc. Inc. Inc. Balance ------------ ------------ ------------ ------------ Revenues: ......................... $ 1,162,508 $ 4,926,152 $ 9,784,369 $ 15,873,029 Cost of Revenues .................. 823,624 2,225,635 9,304,903 12,354,162 ------------ ------------ ------------ ------------ Gross Profit ................... 338,884 2,700,517 479,466 3,518,867 Expenses: Advertising .................... 9,718 -- 32,868 42,586 General & Administrative ....... 225,539 5,755,988 3,753,584 9,735,111 Other (Income) Expense ......... 174,338 113,122 2,135 289,595 ------------ ------------ ------------ ------------ Net Income (Loss) Before Taxes .... (70,711) (3,168,593) (3,309,121) (6,548,425) Income Taxes (Benefit) ............ -- 161,881 750 162,631 ------------ ------------ ------------ ------------ Net Income (Loss) ................. $ (70,711) $ (3,330,474) $ (3,309,871) $ (6,711,056) ============ ============ ============ ============ Income (Loss) per share ........... $ 70.71 $ (3,330.47) (1,654.94) Weighted average shares outstanding 1,000 1,000 2,000
See accompanying notes to unaudited pro forma condensed combined financial statements. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001
Technet Acquired EasySoft Computer Entities International, Services, Networkland, Combined Inc. Inc. Inc. Balance ---------- ---------- ---------- ---------- Revenues: ......................... $ 192,165 $1,094,990 $ 978,482 $2,265,637 Cost of Revenues .................. 129,886 229,532 711,650 1,071,068 ---------- ---------- ---------- ---------- Gross Profit ................... 62,279 865,458 266,832 1,194,569 Expenses: Advertising .................... -- -- 1,653 1,653 General & Administrative ....... 16,327 824,950 165,706 1,006,983 Other (Income) Expense ......... (466) 21,733 1,922 23,189 ---------- ---------- ---------- ---------- Net Income (Loss) Before Taxes .... 46,418 18,775 97,551 162,744 Income Taxes (Benefit) ............ -- -- 620 620 ---------- ---------- ---------- ---------- Net Income (Loss) ................. $ 46,418 $ 18,775 $ 96,931 $ 162,124 ========== ========== ========== ========== Income (Loss) per share ........... $ 46.42 $ 18.77 $ 48.47 Weighted average shares outstanding 1,000 1,000 2,000
See accompanying notes to unaudited pro forma condensed combined financial statements. UNAUDITED PRO FORMA CONDENSED BALANCE SHEET DECEMBER 31, 2000
CBQ, Inc. Pro Forma and Acquired Pro Forma Combined Subsidiaries Entities Adjustments Balance ----------- ----------- ---------- ----------- ASSETS Current Assets ................................ $ 1,451,818 $ 2,588,698 $ (103,169) A (1,716,212) B $ 2,221,135 Fixed Assets (net) ............................ 445,743 240,587 -- 686,330 Other Assets .................................. 1,027,565 2,077 479,750 A 192,671 B 1,702,063 ----------- ----------- ----------- ----------- Total Assets ............................. $ 2,925,126 $ 2,831,362 $(1,146,960) $ 4,609,528 =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities ........................... $ 3,645,798 $ 4,170,328 $(4,163,938) B $ 3,652,188 Long-term Debt ................................ 2,338,139 -- 780,000 B 3,118,139 ----------- ----------- ----------- ----------- Total Liabilities ......................... 5,983,937 4,170,328 (3,383,938) 6,770,327 ----------- ----------- ----------- ----------- Stockholders' Equity: Preferred Stock ............................ 70 -- -- 70 Common Stock ................................ 6,984 1,030 (1,000) A 563 A (30) B 780 B 8,327 Additional Paid in Capital .................. 2,304,813 4,368,096 570,729 A (13,078) A (4,355,018) B 325,940 B 3,201,482 Accumulated Other Comprehensive Income ...... -- 4,856 (4,856) A -- Retained Earnings (Deficit) ................. (5,370,678) (5,712,948) (175,777) A 5,888,725 B (5,370,678) ----------- ----------- ----------- ----------- Total Stockholders' Equity (Deficit) ..... (3,058,811) (1,338,966) 2,236,978 (2,160,799) ----------- ----------- ----------- ----------- Total Liabilities and Stockholders' Equity $ 2,925,126 $ 2,831,362 $(1,146,960) $ 4,609,528 =========== =========== =========== ===========
See accompanying notes to unaudited pro forma condensed combined financial statements. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000
CBQ, Inc. Pro Forma and Acquired Pro Forma Combined Subsidiaries Entities Adjustments Balance ------------ ----------- ----------- ------------ Revenues: ............................... $ 9,450,315 $15,873,029 $ -- $ 25,323,344 Cost of Revenues ........................ 8,059,359 12,354,162 -- 20,413,521 ------------ ----------- ----------- ------------ Gross Profit ......................... 1,390,956 3,518,867 -- 4,909,823 Expenses: Advertising .......................... -- 42,586 -- 42,586 Selling .............................. 898,797 -- -- 898,797 General & Administrative ............. 2,690,410 9,735,111 (100,000) A 12,325,521 Other (Income) Expense ............... 228,784 289,595 70,000 B 588,379 ------------ ----------- ----------- ------------ Income (Loss) from Continuing Operations (2,427,035) (6,548,425) (30,000) (8,945,460) Income Taxes ............................ -- 162,631 (162,631) -- ------------ ----------- ----------- ------------ Net Income (Loss) from Continuing Operations ............... (2,427,035) (6,711,056) 192,631 (8,945,460) Discontinued (Loss) Operations .......... (1,833,325) -- -- (1,833,325) ------------ ----------- ----------- ------------ Net Income (Loss) ....................... $ (4,260,360) $(6,711,056) $ 192,631 $(10,778,785) ============ =========== =========== ============ Income (Loss) per share ................. $ (0.06) $ (0.14) Weighted average shares outstanding ..... 66,696,163 80,121,163
See accompanying notes to unaudited pro forma condensed combined financial statements. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001
CBQ, Inc. Pro Forma and Acquired Pro Forma Combined Subsidiaries Entities Adjustments Balance ------------ ----------- ----------- ------------ Revenues: ............................... $ 1,472,491 $ 2,265,637 $ -- $ 3,738,128 Cost of Revenues ........................ 739,149 1,071,068 -- 1,810,217 ------------ ----------- ----------- ------------ Gross Profit ......................... 733,342 1,194,569 -- 1,927,911 Expenses: Advertising .......................... -- 1,653 1,653 Selling .............................. 171,665 -- 171,665 General & Administrative ............. 558,881 1,006,983 (25,000) A 1,540,864 Other (Income) Expense ............... 88,913 23,189 17,500 B 129,602 ------------ ----------- ----------- ------------ Income (Loss) from Continuing Operations (86,117) 162,744 7,500 84,127 Income Taxes ............................ -- 620 16,853 16,233 ------------ ----------- ----------- ------------ Net Income (Loss) from Continuing Operations ............... (86,117) 162,124 24,353 100,360 Discontinued Operations ................. 7,009 -- -- 7,009 ------------ ----------- ----------- ------------ Net Income (Loss) ....................... $ (79,108) $ 162,124 $ 24,353 $ 107,369 ============ =========== =========== ============ Income (Loss) per share ................. $ -- $ -- Weighted average shares outstanding ..... 77,221,835 77,221,835
See accompanying notes to unaudited pro forma condensed combined financial statements. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (1) General In the mergers, ESI, TCS and NWL will be merged with and into CBQ, with the shares of outstanding ESI, TCS and NWL Common Stock held by CBQ as an investment, making ESI, TCS and NWL all wholly owned subsidiaries of CBQ subsequent to the Merger. CBQ has not yet performed a detailed evaluation and appraisal of the fair market value of the net assets sold in order to allocate the purchase price among the assets sold. For purposes of preparing these pro forma financial statements, certain assumptions as set forth in the notes to the pro forma adjustments have been made in allocating the sales price to the net assets sold. As such, the pro forma adjustments discussed below are subject to change based on final appraisals and determination of the fair market value of the assets and liabilities of ESI, TCS and NWL. (2) Fiscal Year Ends The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2000, and March 31, 2001 include CBQ, ESI, TCS and NWL's operations on a common fiscal year. (3) Pro Forma Adjustments The adjustments to the accompanying unaudited pro forma condensed combined balance sheet as of December 31, 2000, are described below: (A) Record merger by issuing 5,625,000 shares of common stock in exchange for assets of ESI. (B) Record purchase of assets of TCS and NWL in exchange for 7,800,000 shares of common stock and $700,000 note payable. The adjustments to the accompanying unaudited pro forma condensed combined statements of operations are described below: (A) Reduction of salaries from consolidation of operations. (B) Interest expense on notes payable.