UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number 0-27190
5B TECHNOLOGIES CORPORATION
(formerly PARAMOUNT FINANCIAL CORPORATION)
(Exact Name of Registrant as Specified in Its Charter)
Delaware 11-3529387
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Jericho Plaza
Jericho, New York 11753
(Address of Principal Executive Offices)
(516) 938-3400
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Units, each consisting of two shares of
Common Stock and two Class A Warrants
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(Title of class)
Class A Warrants, each to purchase one share of Common Stock
------------------------------------------------------------
(Title of class)
Common Stock, $0.04 par value per share
---------------------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
The aggregate market value of the voting stock (Common Stock) held by
non-affiliates of the Registrant on March 15, 2000 was approximately $18,542,000
based on the closing sales price of such stock on such date, as reported by the
Nasdaq SmallCap Market.
The number of shares outstanding of the Registrant's Common Stock, as of
March 15, 2000 was: 2,135,500 shares of Common Stock, $0.04 par value.
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DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Definitive Proxy Statement relating to the Registrant's
2000 Annual Meeting of Stockholders, to be filed by the Registrant with the
Securities and Exchange Commission on or before April 30, 2000, is hereby
incorporated by reference into Part III of this Annual Report on Form 10-K.
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PART I
ITEM 1 - BUSINESS
5B Technologies Corporation (formerly Paramount Financial Corporation) and
subsidiaries ("5B" or the "Company") is a comprehensive business solution
provider, offering customers a wide range of integrated services, including
Internet solutions, information technology ("IT") consulting, systems
integration, staffing services and lease financing. The Company includes three
wholly owned subsidiaries, Paratech Resources, Inc. ("Paratech"), Deltaforce
Personnel Services, Inc. ("Deltaforce") and Paramount Operations Inc.
("Paramount").
On February 14, 2000, the Company completed a corporate structure
reorganization under Delaware law. As a result of the reorganization, 5B
Technologies Corporation became the new public parent holding company for the
three subsidiaries. The new corporate name and structure reflect the Company's
change, in 1999, of its business focus to its systems integration and
consulting, website development and Internet consulting, and temporary staffing
businesses, and its de-emphasizing of the equipment leasing business.
The evolution of 5B from a technology equipment leasing and trading
company to a full service Internet and IT business solution provider began in
1996. During the first quarter of that year, in response to the Company's need
to provide its customers with more-value added services, the Company created a
new wholly owned subsidiary, Paratech Resources, Inc. Paratech began offering
customers full IT service solutions, including hardware, software, system
design, systems integration and other value-added support services.
In order to further enhance and expand its system integration services and
solutions business, Paratech acquired Comptech Resources, Inc. ("Comptech") in
October 1998. Comptech was a systems consulting, software application, Year 2000
compliance and Internet design and development firm. The acquisition of Comptech
brought to the Company a specialization in client-server accounting, sales-force
automation, web development and e-commerce solutions.
To expand its Internet solutions business and to add the ability to host
clients, Paratech acquired, in March 1999, certain assets of Web Business
Systems Inc. ("Web"), a small New York based web hosting and development
company. The acquisitions of Comptech and Web have enabled the Company to offer
a full complement of state-of-the-art Internet and IT solutions.
The Company's strategic diversification and expansion strategy also
resulted in two other acquisitions during 1998. In January 1998, the Company
completed the acquisition of Deltaforce Personnel Services, Inc., a privately
held New York City based staffing company specializing in legal support staffing
("Deltaforce"). This acquisition further enhanced the Company's product
offerings by including staffing services to its expanding list of integrated
services. The Deltaforce acquisition was followed in August 1998 by the
acquisition of RBW Staffing Services, Inc. (d/b/a Wordsmiths) ("Wordsmiths"), a
New York City based staffing company also specializing in legal support
staffing. Following this second acquisition, the Company merged the operations
of Wordsmiths into Deltaforce to form "The DeltaGroup." As a result of the
Deltaforce and Wordsmiths acquisitions, the Company became able to offer not
only temporary legal support staffing, but also temporary and permanent IT
placements.
Throughout this period of strategic expansion and diversification, the
Company maintained its lease portfolio and in 1999 selectively engaged in new
lease transactions. The leasing operations of the Company are conducted by
Paramount Operations Inc.
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INTERNET SOLUTIONS BUSINESS
Industry Background
Growth of the Internet
The Internet has experienced rapid growth in recent years. According to
International Data Corporation, a leading research firm, the number of Internet
users was 196 million worldwide at the end of 1999 and will continue to grow to
502 million by the end of 2003. The broad acceptance of the Internet has
resulted in the creation of Intranets and Extranets, which allow a company and
its customers, employees and suppliers to communicate in new and different ways.
Intranets are secure web sites accessible only within a given company and
Extranets are Intranets which are also accessible to select outsiders.
Growth of E-Commerce
Much of the growth of the Internet has been driven by corporate
recognition that the Internet can be used to achieve competitive advantage. The
growth in the use of the Internet and the expansion of uses for the Internet
have led to the creation of numerous start-up companies that seek to take
advantage of new market opportunities including the sale and delivery of goods
and services via the Internet. International Data Corporation expects dramatic
growth in total world e-commerce transaction volume, predicting an increase to
$2.8 trillion in 2003.
Market for Internet Services
The development and implementation of Internet solutions requires the
successful integration of creative design and systems engineering skills.
Historically, these areas have not existed within most companies. Accordingly,
many businesses have chosen to outsource a significant portion of the
development, design and maintenance of their web sites, Intranets, Extranets and
e-commerce applications to independent service providers who can capitalize on
their creative and technical expertise. Such outsourcing needs have generated
worldwide demand for Internet professional services, which International Data
Corporation estimates will grow from $8 billion in 1998 to $79 billion in 2003.
The Company believes that the rapidly growing demand for Internet solutions has
created significant opportunities for strategic Internet service providers such
as Paratech.
Operations
Paratech provides comprehensive Internet-based solutions to small and
medium size companies, primarily in the New York Metropolitan area. For the year
ended December 31, 1999, the Internet solutions business generated $2.0 million
in revenue from eight projects and its web hosting services. While the Internet
division generated only 21% of Paratech's total revenue for 1999, the Company
believes that this percentage can increase in future years if the Company can
successfully grow this business to address the rapid growth in the Internet
discussed above.
Paratech helps businesses identify how the Internet can be used to their
competitive advantage and uses its expertise in creative design and systems
engineering to develop and deploy advanced Internet applications and solutions.
Our service offerings include:
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o Web site design and development
o Customized web hosting
o Internet strategy consulting
o E-commerce strategy and applications
o Digital media solutions
Paratech uses its engineering capabilities to deliver complex
Internet-based business solutions. Its engineers provide application development
and systems integration services by employing proven Internet technologies such
as Java, Perl, Cold Fusion, CGI, C and C++. Additionally, the Company has
customized modular software applications that can be re-used for more than one
client or for more than one engagement. This library of re-usable applications
continues to grow as projects are completed. To support our growing technology
development capability, the Company has increased its Internet solutions
business's engineering staff by 150% through the addition of new highly-skilled
personnel. Paratech also established strategic affiliations with leading
technology vendors, such as Microsoft, Intershop, Cisco, Computer Associates and
UUNET. These affiliations typically allow us early access to training, product
support and technology developed by these companies.
Typical Paratech engagements include (1) the strategic application of
E-commerce solutions to enhance existing business processes, (2) the
identification of new business opportunities created by the Internet, (3) the
use of creative design and marketing to acquire, cross-sell and retain customers
on-line, and (4) the integration of web-based applications to our clients'
existing systems. In each consulting engagement, the client can contract for the
specific services it requires, depending on the nature of the engagement and the
capabilities of the client's organization. Paratech generally bills its clients
on a fixed price basis, however some engagements may be on a time-and-material
basis. Additionally, as part of our fee arrangement, Paratech may receive a
small percentage of the revenues to be generated by the web site for a specified
period of time or equity in the client company.
The Company's Internet solution process consists of four phases:
1. Strategy Consulting. Paratech works closely with the client to
conduct a thorough study of its strategic market position, business requirements
and existing systems to determine the ways in which Internet solutions can
improve the client's business. The Company then delivers its recommendations
taking into account the client's budget, timeline and available resources.
2. Design. After the strategic groundwork has been formulated, the
Company translates the client's strategic requirements into a system design
architecture, a blueprint that defines the roles the system will perform to meet
these requirements.
3. Technology Development. In the development phase, Paratech builds
a testable version of the client's solution based on the blueprint provided in
the design phase. Paratech designs, codes, integrates and tests all necessary
programs and components.
4. Implementation Phase. In this phase, Paratech tests the solution
created in the development phase and prepares it to be deployed into a full
production system. Paratech delivers the system to the client, installs it,
converts and initializes all necessary data, performs acceptance testing and
places the
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system into operation. Paratech also integrates any necessary Intranet solutions
to ensure that each client's critical applications are secure and seamless.
Competition
Although the market for Internet solutions is relatively new, it is
already highly competitive. We believe that competition will intensify and
increase in the future. The market is rapidly evolving and is subject to
continuous technological change. Paratech's competitors can be divided into
several groups:
o Small and large Internet solutions service providers
o Large information technology consulting service providers
o Computer hardware and service vendors
o Strategic consulting firms
o Interactive advertising agencies
Paratech competes on the basis of a number of factors, including the
attractiveness of the Internet solutions offered, the breadth and quality of
these services, creative design, engineering expertise, pricing, and
understanding clients' strategies and needs. In order to gain a competitive
advantage, Paratech is constantly integrating new technologies, such as digital
medial technology, into its development efforts. Additionally, because the
Company is able to act as a single source provider for Internet solutions as
well as other IT requirements, the Company believes that it enjoys a competitive
advantage.
SYSTEM INTEGRATION AND CONSULTING BUSINESS
Industry Background
Businesses have become increasingly dependent upon complex information
systems in an effort to gain competitive advantages or to maintain competitive
positions. Computer technology and related products are continuously evolving,
making predecessor technologies or products obsolete within a few years or, in
some cases, within months. The constant changes in hardware and software and the
competitive pressure to upgrade existing products create significant challenges
to companies.
Over the last several years, the increase in performance of personal
computers, the development of a variety of effective business productivity
software programs and the ability to interconnect personal computers in high
speed networks have led to an industry shift away from mainframe computer
systems to client/server systems based on personal computer technology. In such
systems, the client computer, in addition to its stand-alone capabilities, is
able to obtain resources from a central server or servers. Accordingly, personal
computers may share everything from data files to printers. Recently, networked
applications such as electronic mail and work group productivity software,
coupled with widespread acceptance of Internet technologies, have led companies
to implement corporate Intranets (networks that enable end-users (e.g.,
employees) to share information). The use of a corporate Intranet allows a
company to warehouse valuable information, which may be "mined" or accessed by
employees or other authorized users through readily available Internet tools
such as Web browsers and other graphical user interfaces.
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With these advances in information systems and networking, many companies
are reengineering their businesses using these technologies to enhance their
revenue and productivity. However, as the design of information systems has
become more complex to accommodate the proliferating network applications, the
configuration, selection and integration of the necessary hardware and software
products have become increasingly more difficult and complicated. While many
companies have the financial resources to make the required capital investments,
they often do not have the necessary information technology personnel to design,
install or maintain complex systems and may not be able to provide appropriate
or sufficient funding or internal management for the maintenance of their
information systems. As a result, such companies are increasingly turning to
independent third parties to procure, design, install, maintain and upgrade
their information systems. By utilizing the services of such third parties,
companies are able to acquire state-of-the-art equipment and expertise on a
cost-effective basis.
Systems integration includes designing systems and integrating hardware,
software and communications. According to Frost & Sullivan, an industry research
firm, the systems integration market will grow to nearly $13 billion by the year
2000 and worldwide computer equipment sales is expected to reach more than $320
billion. This growth is being driven by several factors, including the
proliferation of distributed computing applications, the increased reliance on
network computing, and the trend for companies to outsource network management
responsibilities to companies such as Paratech.
Operations
Paratech's mission is to assist and support companies in designing
computer networks that cater to their individual needs and to implement and
maintain these systems in a cost-effective manner. Paratech ensures that these
systems support a company's business goals by staying closely attuned to each
client's environment in order to provide the strategy and consulting required to
achieve their goals. Paratech offers a full range of comprehensive technology
solutions, including network design and integration, software applications,
system training and value added support.
In 1999, Paratech expanded its service offerings by adding security for
local area networks and web sites. This is accomplished using firewall and proxy
server technology. Additionally, Paratech became a "lead reseller member" of the
National Service Network of Ingram Micro Inc. Ingram Micro is the world's
leading wholesale distributor of technology products and services. The National
Services Network is a national network of more than 325 service led technology
resellers working together to provide service and support for regional and
national end-user customers. Paratech can access the National Services Network
24 hours a day, seven days a week, to arrange service for its customers.
For the year ended December 31, 1999, Paratech's system integration
division generated $7.5 million in revenue, or 79% of the total revenue
generated by Paratech. The majority of the systems integration work that
Paratech performs is on a time and material basis. In addition to being engaged
on a project basis, Paratech is regularly engaged by customers on a regular,
ongoing basis to perform maintenance and updates to their networks. Paratech's
system integration division serves small, mid-sized and large companies within
the Northeast area.
Paratech is platform independent and thus can provide customers with the
latest technology and flexible financial alternatives. Because companies want
both value and fast delivery of their products, Paratech sifts through the
barrage of products and equipment to offer the most extensive and complete
solutions to its
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customers. Paratech works with its customers to develop strategies governing
when to acquire equipment, upgrade existing equipment and order new equipment to
take advantage of current technology. The Company believes that a single source
solution enables the customers to use fewer vendors while providing a more
efficient integration, thereby reducing costs, minimizing risk, and increasing
management control and accountability.
Furthermore, through Paramount Operations, the Company can offer its
customers lease financing for all of the products and services that it sells
through Paratech. The Company believes that this "vertical integration" provides
Paratech with a significant competitive advantage in the system integration
market. Customers of Paratech are provided with a total technology and financial
solution which will allow them to assess their IT costs in terms of a fixed
monthly rate, rather than a large one-time cash outlay.
Competition
Paratech competes against major hardware distributors and national and
regional consulting and service organizations. The Company believes that it is
able to compete in this market due to the technical expertise of its employees,
its focus on customer service, and its relationship with technology vendors. In
addition, the Company believes its ability to act as a sole source provider
offering all components of an IT solution, from hardware and infrastructure to
specific application software and Internet design and implementation, provides
it with a competitive advantage. Paratech's typical customers are mid-size
regional organizations with ongoing IT infrastructure needs.
Customer Concentration
The Company believes that Paratech's business is not dependent on any
single customer.
STAFFING SERVICES
Industry Background
The temporary staffing industry, once used predominately as a short-term
solution for peak production periods and to temporarily replace absent workers,
has evolved into a permanent and significant component of the staffing plans of
many companies. Corporate restructuring, downsizing, increased government
regulations governing employee relations, advances in technology, and the desire
by many companies to shift employee cost from a fixed to a variable expense have
contributed to the strong growth of the temporary staffing industry. Temporary
staffing firms act as intermediaries in matching available temporary workers to
employer assignments. According to Investors Business Daily, a periodic business
publication, the temporary staffing industry was a $69 billion industry in 1999,
up 12% from 1998. Of this total, Commercial Services (office/clerical and light
industrial) and IT, the two segments in which the Company operates, accounted
for a total of $49.4 billion in 1999. The Commercial Services segment has grown
12% since 1993 and the IT segment has grown at 26% a year since 1993.
Operations
Deltaforce, which commenced operations in 1988, is a provider of temporary
legal-support staff to the legal community in the New York City
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metropolitan area. Deltaforce's typical clients are large New York City based
law firms with on-going needs for temporary personnel services. The Company's
acquisition of Deltaforce was followed closely by the acquisition of Wordsmiths
in August 1998. Wordsmiths is an 11-year old staffing firm providing law firms
with support staff, proofreaders, legal professionals and paralegals. Its
services are a strong complement to the legal services of Deltaforce. Following
this second acquisition, the Company merged the operations of Wordsmiths into
Deltaforce to create The DeltaGroup. The combined company now offers not only
temporary legal support staff, but also temporary and permanent IT placements.
The Company believes that The DeltaGroup is now among the top five temporary
staffing companies to the legal community in New York City.
Following the acquisition of Deltaforce, the Company made a considerable
investment in systems and process improvements to create a new and improved
infrastructure to enhance client servicing, applicant recruitment and overall
productivity. These systems, which are specific to the staffing industry,
provide The DeltaGroup with the platform to grow without incurring additional
administrative costs. With the integration of Wordsmiths into the Deltaforce
operation, the company was able to realize economies of scale concurrent with
improving overall performance and serving the growing client base more
efficiently.
In the temporary staffing industry, quality of service is generally a
function of two things: (1) the ability to effectively match an individual
worker to a specific assignment, and (2) the promptness with which the
assignment is filled. The Company believes that the experience of its management
and internal staff and its standing in the market allows it to effectively
access a large supply of available temporary workers, select suitable
individuals for a particular assignment and, in some cases, train available
worker in skills required for an assignment.
Competition
The DeltaGroup competes against local and national temporary personnel
firms, both to recruit and retain a supply of worker and to attract customers to
use temporary employees. Many of the firms that the company competes with have
greater financial resources available for marketing and advertising as well as a
larger pool of potential candidates to fill positions. The company believes that
it can compete against these firms due to the experience of existing management,
the relationships that it has maintained over the years, and the reputation that
it holds in the market for providing high quality service. The Company recruits
temporary workers through a wide variety of means, principally personal
referrals and advertisements. In addition, The DeltaGroup has installed a new
state-of-the-art computer system specifically designed for the temporary
personnel industry, which allows it to effectively match candidates with
assignments in a timely and efficient manner. Further, as a result of its
affiliation with Paratech, Deltaforce expects to have additional opportunities
to place candidates in IT related disciplines.
Customer Concentration
The DeltaGroup's typical clients are large New York City based law firms
with on-going needs for temporary personnel services. The company believes that
its business is not dependent on any single customer. For the year ending
December 31, 1999, the three largest customers of The DeltaGroup accounted for
28% of DeltaGroup's total sales. The loss of any of these major customers could
have a material adverse effect on the DeltaGroup's business, financial condition
and results of operations.
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LEASE FINANCE
Industry Background
The large system computer industry has been characterized by frequent
technological advances resulting in cost reductions, increases in computer
processing capacity and broadened user applications. The introduction of new
models generally does not result in equipment currently in service becoming
technologically obsolete, but usually causes the price of existing equipment to
decrease, reflecting the increased performance and cost-effectiveness of newer
equipment. Users frequently replace or upgrade equipment as their existing
equipment becomes inappropriate for their needs or as increased data processing
capacity is required.
As more end-users become aware of the economic benefits of leasing, they
often turn to independent leasing companies. Independent lessors, such as
Paramount, offer tailored financing and flexible delivery, and can deliver
financing for mixed systems from different vendors. Responding to customers'
demands, leasing companies are becoming increasingly more flexible in terms of
lease duration, equipment upgrades and payment options. By more accurately
assessing the residual value associated with the price of equipment, lessors
have become better able to fine tune the fixed monthly payment amount.
According to the U.S. Department of Commerce "trends and forecasts for
equipment leasing in the US" it is estimated that nearly $207 billion worth of
equipment was leased in 1998 with a forecasted amount of $226 billion and $233
billion in 1999 and 2000, respectively. Of the total equipment leased in 1998,
nearly $38.92 billion was computer and computer related products.
Operations
The leasing business of the Company is conducted by Paramount Operations
Inc. In 1999, the Company de-emphasized its leasing business and switched its
main focus to its systems integration and consulting, website development and
Internet consulting, and the staffing businesses. For 1998, Paramount entered
into leases having an equipment value of $19.9 million, and in 1999 Paramount
entered into leases having an equipment value of $3.5 million.
Paramount's leasing operations involve the leasing of new or used high
technology equipment to computer end-users nationwide. The majority of the
Company's end-user customers are Fortune 1000 and equivalent companies with
large data processing needs. The Company offers its customers a variety of
choices for their data processing needs, including equipment manufactured by
IBM, Hitachi Data Systems, Amdahl Corporation, EMC Corporation, Sun Microsystems
Inc., Hewlett-Packard Co., Storage Technology Corp. and Xerox Corp., and
includes mainframe and midrange central processing units, peripheral devices,
upgrades and component parts; client servers; LAN and WAN equipment;
telecommunications equipment; and personal computers.
As a result of the Company's involvement in the systems integration
business, Paramount is positioned to offer lease finance arrangements to
customers of Paratech.
In connection with its leasing of computer products to its end-user
customers and depending on the type of computer equipment involved, Paramount's
relationship with the end-user and the term of the lease, Paramount may make a
"residual value" investment in these leased assets. A residual value investment
represents the
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difference between the acquisition cost of the leased asset to Paramount and the
discounted present value of the rental stream from the lessee. Paramount plans
to maximize the return on its residual value investments through creative and
diligent remarketing activities, including mid-term extensions, upgrades and
early terminations.
Competition
The computer leasing industry is characterized by intense competition.
Companies compete for accounts through a variety of factors. The Company
believes it competes on the basis of price, responsiveness to customer needs,
flexibility in structuring lease transactions, relationships with customers and
vendors and knowledge of the equipment. The Company believes that its primary
competitors currently are IBM Credit Corporation, El Camino Resources and
Unicapital Corporation.
Customer Concentration
The Company's typical leasing customers are large, creditworthy
corporations that require several million dollars of equipment per year and are
repeat customers of the Company. Repeat business generated through existing
relationships is an important source of revenue for the Company. While the
Company believes that its business is not dependent on any single customer, as
of December 31, 1999, the three largest lessees of the Company accounted for 27%
of the original acquisition cost of all equipment leases owned and managed as of
such date. The loss of any of these major customers will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
EMPLOYEES
As of December 31, 1999, the Company employed 58 full-time employees and
686 temporary part-time employees, related to The DeltaGroup. Of the 58 full
time employees 32 worked for Paratech, 24 worked for DeltaGroup and 2 worked for
Paramount. The Company has experienced no work stoppages and considers its
employee relations to be satisfactory. None of the Company's employees are
represented by a labor union.
GOVERNMENT REGULATION
The Company has not been materially affected by any government regulations
applicable to its business activities.
ITEM 2 - PROPERTIES
Properties
The Company leases approximately 2,828 square feet of office space for its
principal executive offices at One Jericho Plaza, Jericho, New York 11753.
Payment of rent for the Company's offices is approximately $6,000 per month.
This lease expires in August 2001. The Company intends to lease a larger space
for its executive offices prior to the termination of this lease, the rent for
which is expected to be at a higher monthly rate.
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In addition, the Company leases 6,000 square feet in Manhattan for The
DeltaGroup operations. Payment of rent is approximately $13,000 per month. This
lease expires in November 2002.
ITEM 3 - LEGAL PROCEEDINGS
The Company is a named defendant in an action brought in the United States
Court of the Southern District of Indiana, Indianapolis Division, by Hirata
Corporation and Hirata Corporation of America (collectively, the "Plaintiffs").
The Complaint relates broadly to the Company's initial public offering in
January 1996, in which the Plaintiffs allegedly bought shares of the Company
(and shares of two other named defendants). The Complaint principally focuses on
various alleged activities of the Company's underwriter and the underwriter's
principals and a broker in the initial public offering. The Complaint alleges
that the Plaintiffs suffered various damages as a result of a range of alleged
counts; an answer to the Complaint has not yet been filed. The Company believes
that the Plaintiffs' allegations are without merit and intends to defend the
suit vigorously.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security-holders during the fourth
quarter of the fiscal year ended December 31, 1999.
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PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
In connection with the reorganization in February 2000, the Company
changed the trading symbols of its Common Stock and Class A Warrants to "FIVE"
and "FIVEW", respectively.
The following table sets forth the high and low closing prices for the
Company's Common Stock for the periods shown below. Prices shown for periods
prior to May 19, 1998 have been adjusted to reflect the Company's one-for-four
reverse stock split at that time.
COMMON STOCK
1997 High Low
---- ---- ---
First quarter..................................... $3 1/8 $1 1/2
Second quarter.................................... 3 1/4
Third quarter..................................... 4 3/8 1 1/2
Fourth quarter.................................... 4 1/8 2 1/8
1998
----
First quarter..................................... 2 3/4 1 1/2
Second quarter.................................... 2 5/16 1 1/16
Third quarter..................................... 1 3/16 19/32
Fourth quarter.................................... 29/32 7/16
1999
----
First quarter..................................... 6 17/32
Second quarter.................................... 2 15/16 1 1/2
Third quarter..................................... 4 5/16 1 32/93
Fourth quarter.................................... 1 15/16 1 7/16
2000
----
January 1, 2000 through March 15, 2000............ 18 7/8 1 1/2
As of August 20, 1998, the Class A Warrants were delisted from the Nasdaq
SmallCap Market as a result of the failure to meet certain Nasdaq continued
listing requirements. Set forth below in the first table are the high and low
closing prices for the Class A Warrants as reported by the Nasdaq SmallCap
Market from January 1, 1997 through August 20, 1998. Set forth below in the
second table are the high and low sales prices for the Class A Warrants as
reported by the Nasdaq Over-The-Counter Bulletin Board since August 21, 1998.
CLASS A WARRANTS
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Nasdaq SmallCap Market
1997 High Low
---- ---- ---
First quarter................................... $5/32 $3/97
Second quarter.................................. 3/32 3/97
Third quarter................................... 3/16 3/97
Fourth quarter.................................. 3/16 1/16
1998
----
First quarter................................... 1/8 3/32
Second quarter.................................. 3/32 1/32
Third quarter (July 1 - August 20).............. 1/32 1/64
Nasdaq Over-The-Counter Bulletin Board
1998 High Low
---- ---- ---
Third Quarter (beginning August 21)1............ DNT DNT
Fourth Quarter(1)............................... $1/200 $1/200
1999
----
First quarter................................... 3/100 1/500
Second quarter.................................. 9/50 1/20
Third quarter................................... 23/200 1/1,000
Fourth quarter.................................. 7/200 3/200
2000
----
January 1, 2000 through March 15, 2000.......... 37/49 3/200
- ----------
(1) After being delisted from the Nasdaq SmallCap Market, the Class A Warrants
did not begin trading on The Over-The-Counter Bulletin Board until
December 1998.
The closing sales price of the Common Stock as of March 15, 2000, as
reported by the Nasdaq SmallCap Market, was $13.50 per share. The closing sales
price of the Class A Warrants as of March 15, 2000, as reported by the Nasdaq
Over-The-Counter Bulletin Board, was $0.510 per Warrant.
As of March 15, 2000, there were 27 record holders of the Common Stock.
12
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Revenues:
Sales and service .................................. $ 30,857,949 $ 27,159,894 $ 21,405,788 $ 30,391,446 $ 19,434,106
Lease revenue ...................................... 2,147,358 3,680,924 9,829,991 7,478,750 6,056,660
Fee, interest and
other income .................................... 162,873 511,698 1,159,062 615,295 502,147
------------ ------------ ------------ ------------ ------------
Total revenues ............................... 33,168,180 31,352,516 32,394,841 38,485,491 25,992,913
------------ ------------ ------------ ------------ ------------
Costs and Expenses:
Cost of sales ...................................... 28,955,984 25,785,022 19,933,213 28,157,266 13,657,575
Lease expense ...................................... 1,828,412 3,419,600 9,499,365 7,172,273 6,349,462
Selling, general and
Administrative
expenses ........................................ 1,805,499 2,447,884 3,746,712 4,947,718 6,067,286
Interest expense ................................... 5,284,756 6,209 -- 51,324 97,230
------------ ------------ ------------ ------------ ------------
Total costs and
expenses ................................. 37,874,651 31,658,715 33,179,290 40,328,581 26,171,553
------------ ------------ ------------ ------------ ------------
Loss before
provision for (benefit
from) taxes ....................................... (4,706,471) (306,199) (784,449) (1,843,090) (178,640)
Provision for (benefit from)
income taxes ...................................... 21,850 498,212 (288,111) (9,286) 82,432
------------ ------------ ------------ ------------ ------------
Net loss ........................................... $ (4,728,321) $ (804,411) $ (496,338) $ (1,833,804) $ (261,072)
============ ============ ============ ============ ============
Basic loss per
common share ...................................... $(0.41) $(0.25) $(0.89) $(0.12)
====== ====== ====== ======
Diluted loss per common share ...................... $(0.41) $(0.25) $(0.89) $(0.12)
====== ====== ====== ======
Shares used in computing net loss per share:
Basic ........................................... 1,954,493 1,991,117 2,067,842 2,135,500
Diluted ......................................... 1,954,493 1,991,117 2,067,842 2,135,500
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets .................................. $12,378,585 $51,561,520 $53,062,461 $45,246,610 $27,498,355
Obligations for financial
equipment-- non-recourse .................... 9,337,883 23,461,175 40,287,404 33,435,459 16,755,509
Shareholders' equity .......................... 568,718 8,171,386 7,645,683 5,797,139 5,583,968
Lease Portfolio Data:
Net investment in direct finance
and sales - type leases ..................... 6,446,063 20,942,542 39,941,764 30,059,378 16,232,749
Assets held under operating leases,
net of accumulated depreciation ............. 3,976,209 21,103,033 5,459,895 7,263,181 2,990,213
</TABLE>
14
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with,
and is qualified in its entirety by, the audited financial statements, including
the notes thereto, appearing elsewhere in this Form 10-K.
General
5B Technologies Corporation (formerly Paramount Financial Corporation) and
subsidiaries ("5B" or the "Company") is a comprehensive business solution
provider, offering customers a wide range of integrated services, including
Internet solutions, information technology ("IT") consulting, systems
integration, staffing services and lease financing. The Company includes three
wholly owned subsidiaries, Paratech Resources, Inc. ("Paratech"), Deltaforce
Personnel Services, Inc. ("Deltaforce") and Paramount Operations Inc.
("Paramount").
Paratech provides a complete range of advanced technological services,
including fully integrated solutions for Internet and e-commerce businesses,
Internet marketing, applications development, systems integration, hardware and
software procurement, multi-platform integration services and personnel
outsourcing.
Paratech's Internet solutions business is typically retained on a fixed
price, project-by-project basis. Revenue is recognized as earned when the work
is completed. Each project typically undergoes a four step process: (a) strategy
consulting, (b) design, (c) technology development, and (d) implementation. The
Company believes that these four phases are crucial to the success of its
Internet projects and uses this model to plan and price its projects. From time
to time the Company may accept small time-and-material projects, but it prefers
to align itself with its customers, developing long-term relationships as
opposed to performing one-time changes or fixes. During 1999, the Internet
solutions business began to review its pricing models and has adapted it to the
customers needs. Many of the Internet solution business's customers are small,
start-up companies which are pursuing the option to undertake an initial public
offering approximately six months to a year after their e-commerce solutions has
been implemented. Based on the growth potential and initial cash constraints of
these companies, Paratech may accept equity or revenue sharing in its customers.
This new pricing model may reduce the initial cash received, but the Company
believes that it can recognize greater benefits in the future as these customers
grow.
In contrast, Paratech's systems integration and consulting business is
typically retained on a time-and-material basis. Due to the complexity and
diversity of implementing integration and application solutions, the Company
prefers a time and material basis contract over a fixed price contract. The
Company perceives the growth in the integration business to be generated from
the Internet solutions business. As more businesses expand on to the Internet
the need for integrated accounting and sales force automation software will
become essential. Paratech's integration business continues to serve its core
clients as well as expanding its client base through the use of its internal
sales force and referrals from Paratech's Internet solutions business.
Paratech has established standard costs, per engineer, for all services
performed. This standard cost encompasses all associated expenses and gives the
Company a worst case scenario as it prices it projects.
In the temporary staffing industry, quality of service is generally a
function of two things: (1) the ability to effectively match an individual
worker to a specific assignment, and (2) the promptness with which the
assignment is filled. The Company believes that the experience of its management
and internal staff and its standing in the New York City market allows it to
effectively access a large supply of available temporary
15
<PAGE>
workers, select suitable individuals for a particular assignment and, in some
cases, train available workers in skills required for an assignment.
Following the acquisition of Deltaforce and Wordsmith, the Company made a
considerable investment in systems and process improvements to create a new and
improved infrastructure to enhance client servicing, applicant recruitment and
overall productivity. These systems, which are specific to the staffing
industry, provide The DeltaGroup with the platform to grow without incurring
additional administrative costs, as well as to provide a shift-based, 24 hour a
day seven day a week business.
Paramount has maintained its core leasing business and has selectively
engaged in leasing transactions during 1999.
Fluctuations in Quarterly Results
The Company's operating results are subject to quarterly fluctuations
resulting from a variety of factors, including the volume of new leases written,
product announcements by manufacturers, economic conditions, interest rate
fluctuations and variations in the mix of leases written. In addition, revenue
can fluctuate significantly from quarter to quarter based on the closing date
and nature of each particular lease and/or sales transaction. The mix of leases
written in a quarter is a result of a combination of factors, including changes
in customer demands and/or requirements, new product announcements, price
changes, changes in delivery dates, changes in maintenance policies and pricing
policies of equipment manufacturers and price competition from other lessors.
Leasing transactions (other than sales-type leases), in general, do not
provide for significant earnings in the month of lease origination. Instead,
revenue, expense and profit from lease transactions are recorded over the life
of the asset and the lease. Lease revenue and lease expense recognition is
dependent upon a number of factors, including the term of the lease, the
accounting classification of the lease (i.e., operating, direct finance, or
sales-type) and the commencement date of the lease and the lease financing
within a particular period. See "Lease Accounting."
The Company is aggressively working to maximize the returns on the
residual value investments, made in prior years, on its lease portfolio. Such
efforts, which are an ordinary but not a predictable part of the Company's
business, often result in equipment originally leased under an operating lease,
and accounted for as described below, being upgraded or otherwise enhanced and
extended at the original account or leased to a different end-user. The
resulting lease may qualify under Statement of Financial Accounting Standard No.
13, "Accounting for Leases" ("SFAS 13"), as a sales-type lease in which the
Company can record as sales revenue the fair market value of the equipment and
recognize as income the difference between this amount and the equipment's cost
or net book value. Since a sales-type lease is a form of direct finance lease,
the new lease is recorded over its remaining term as a direct finance lease
resulting in a reduction of lease rental income and lease expense compared to
the original operating lease accounting.
Marketing efforts may also result in the sale of the leased asset to the
customer which will result in an increase in revenue, and to the extent the
sales proceeds exceed the net book value, net income, in the quarter in which
the sale occurs. Any such sale will also result in a reduction of revenue,
expense and profit expected in subsequent quarters since the equipment was sold.
16
<PAGE>
Given the possibility of such fluctuations as described above, the Company
believes that comparisons of the results of its operations for preceding
quarters are not necessarily meaningful and that such results for one quarter
should not be relied upon as an indication of future performance.
Lease Accounting
In accordance with SFAS 13, the Company classifies its leases as either
operating leases or direct finance leases. The allocation of income among
accounting periods within a lease term will vary depending upon the lease
classification, as described below.
Direct Finance Leases: Direct finance leases transfer substantially all
benefits and risks of equipment ownership to the lessee. A lease is a direct
finance lease if it meets one of the following criteria: (i) the lease transfers
ownership of the equipment to the lessee by the end of the lease term; (ii) the
lease contains a bargain purchase option; (iii) the lease term at inception is
at least 75% of the estimated economic life of the leased equipment; or (iv) the
present value of the minimum lease payments is at least 90% of the fair value of
the leased equipment at lease inception.
At lease inception, the cost of equipment under a direct finance lease is
recorded as "Net investment in direct finance leases." The difference between
the gross lease payments receivable, plus the estimated residual value of the
equipment, and the equipment cost is recognized as income over the life of the
lease using the effective interest method.
A lease transaction which meets all of the above criteria, and in which
the Company has made a dealer's profit, is recorded as a "sales-type lease". A
sales type lease is a type of direct finance lease, but one in which the Company
recognizes, at lease inception, revenue and profit which arises from the
difference between the fair market value of the leased equipment and its
acquisition cost.
Operating Leases: All lease contracts which do not meet the criteria of
direct finance leases are accounted for as operating leases. Monthly lease
payments are recorded as operating lease revenue. Leased equipment is recorded
at the Company's cost and depreciated on a straight-line basis over the lease
term to the estimated residual value at the expiration of the lease term.
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
For the year ended December 31, 1999, the Company recorded sales revenue
of $26.0 million, a $12.5 million decrease from the $38.5 million recorded
during the year ended December 31, 1998. The decrease was primarily due to the
de-emphasis on the Company's leasing segment. The Company is primarily focusing
on the growth of its Paratech subsidiary. Paratech's revenue for the year ended
December 31, 1999 increased by 76%, to $9.5 million, as compared to $5.4 million
recorded in 1998. The increase in sales at Paratech is a result of the Company's
growth in providing Internet and e-commerce services to business in addition to
growth in its systems integration division. DeltaGroup, which was purchased in
January 1998, contributed $7.3 million in revenue during the year ended December
31, 1999, an 83% increase over the $4.0 million recorded in 1998. The Company
believes that this increase was due to DeltaGroup's ability to consistently
provide its customers with well-trained temporary personnel on a timely basis
and the expansion of its customer base as a result of the acquisition of
Wordsmiths in July 1998.
17
<PAGE>
During the year ended December 31, 1999, the Company entered into new
lease transactions totaling $3.5 million of equipment cost, as compared with
$19.9 million for the year ended December 31, 1998. During the year ended
December 31, 1999, the Company entered into $2.9 million of non-recourse lease
financing arrangements, as compared with $19.1 million for the year ended
December 31, 1998. See "Liquidity and Capital Resources."
During the year ended December 31, 1999, the Company generated $502,000 in
fee, interest and other income, compared to $615,000 for the comparable period
last year. Generally, fee income is generated as a result of the Company's
involvement in certain transactions in which it acted as an arranger of
financing for leases originated by third parties, or otherwise assisted these
companies in their lease related transactions. These transactions come about as
a result of the Company's relationship with other lessors and financial
institutions. The Company cannot predict with any certainty the timing and
nature of any future such transactions. See "General"
Selling, general and administrative ("SG&A") expenses totaled $6.1 million
for the year ended December 31, 1999, representing an increase of 23% over the
$4.9 million recorded during the year ended December 31, 1998. The increase in
SG&A is predominantly attributable to the growth of the Company's subsidiaries
through the acquisitions made in 1998. Paratech incurred $1.9 million in SG&A
for the year ended December 31, 1999, compared to $1.4 million incurred in 1998,
while DeltaGroup incurred $2.7 million in SG&A for the year ended 1999, compared
to $1.3 million in 1998. Within SG&A expense for the year ended December 31,
1999 for the DeltaGroup is $300,000 of non-recurring expenses. Paramount
incurred $1.7 million in SG&A compared to $2.2 million for the year ended
December 31, 1998. The decrease in Paramount's SG&A expense is attributable to
the Company's reduction of certain upper management personnel due to the
de-emphasis in the leasing business. Included in leasing expense, for the
Paramount subsidiary, is a $471,000 write-down, which occurred during the fourth
quarter ended December 31, 1999, related to the termination of certain leasing
contracts.
The Company recorded a provision for income taxes of $82,000 for the year
ended December 31, 1999, compared to a tax benefit of $9,300 in 1998. The
provision for income taxes was predominantly attributable to the Company's
leasing business.
Pre-tax loss for the year ended December 31, 1999 was $179,000, as
compared with a pre-tax loss of $1.8 million for the year ended December 31,
1998. The Company believes its operational improvement is predominantly
attributable to the Company's Paratech subsidiary, which posted pre-tax income
of $434,000, while DeltaGroup recorded a pre-tax loss of $550,000 and Paramount
reported a pre-tax loss of $62,000.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
The Company recorded a net loss for the year ended December 31, 1998 of
$1,833,800, after a benefit for income taxes of $9,300, as compared with a net
loss of $496,300, after a benefit for income taxes of $288,100, for the year
ended December 31, 1997.
For the year ended December 31, 1998, the Company recorded sales and
service revenue of $30.4 million, a $9.0 million increase over the $21.4 million
recorded during the year ended December 31, 1997. The increase was primarily a
result of the transactional nature of the Company's leasing business and the
resulting quarterly fluctuations. Additionally, Paratech's revenue increased by
43% to $5.4 million when compared with
18
<PAGE>
1997. The DeltaGroup, which was not part of the Company in 1997, contributed
$3.9 million in revenue during the 1998 year.
As a result of the Company's ongoing marketing efforts with respect to its
lease portfolio in 1998, certain assets which were recorded as operating leases
during the year ended December 31, 1998 were upgraded and re-leased, providing
the Company with a return on its residual value investment. The resulting lease
has been accounted for as a sales-type lease. As a result of this activity, the
effect of accounting for a lease as a direct finance lease versus an operating
lease, net of new leases written in the fourth quarter, lease revenue and lease
expense decreased for the year ended December 31, 1998 when compared to the year
ended December 31, 1997 by 23.9% and 24.5%, respectively.
During the year ended December 31, 1998, the Company entered into new
lease transactions totaling $19.9 million of equipment cost as compared with
$38.5 million for the year ended December 31, 1997. During the year ended
December 31, 1998, the Company entered into $19.1 million of non-recourse lease
financing arrangements, as compared with $38.5 million for the year ended
December 31, 1997. See "Liquidity and Capital Resources."
During the year ended December 31, 1998, the Company generated $615,000 in
fee, interest and other income, compared to $1.2 million in 1997. Generally, fee
income is generated as a result of the Company's involvement in certain
transactions in which it acted as an arranger of financing for leases originated
by third parties, or otherwise assisted these companies in their lease related
transactions. These transactions come about as a result of the Company's
relationship with other lessors and financial institutions. The Company cannot
predict with any certainty the timing and nature of any future such
transactions.
SG&A totaled $4.9 million for the year ended December 31, 1998,
representing an increase of 32.0% over the $3.7 million recorded during the year
ended December 31, 1997. The increase in SG&A is attributed to the acquisitions
of Deltaforce and Wordsmiths, which contributed $1.3 million, as well as the
acquisition of Comptech and the continued growth of Paratech, which contributed
$1.4 million
The Company recorded a tax benefit of $9,300 for the years ended December
31, 1998 and 1997, respectively. The income tax benefit for the year ended
December 31, 1998 was reduced by a valuation allowance on the Company's net
deferred tax asset. The Company will continue to assess the fully reserved
deferred tax asset each reporting quarter. The benefit from income taxes of
$288,100 for the year ended December 31, 1997 reflects an effective tax rate of
37%.
Liquidity and Capital Resources
As of December 31, 1999, the Company had $2.1 million in cash and cash
equivalents and investments available for sale. Substantially this entire amount
was invested in interest-bearing savings accounts, money market accounts
established by major commercial banks or in United States Government, other AA
rated obligations and mutual funds. Investments available for sale also includes
250,000 shares and a warrant to purchase 50,000 shares of a privately held
company, which had a fair value of approximately $438,000. Primarily as a result
of the continued investment in Paratech and DeltaGroup and the acquisitions it
made in 1998 the Company experienced a reduction in net cash and investments
available for sale during the year ended December 31, 1999 of $491,330.
The Company continues to use its cash balances to fund its operations. In
order to expand its operations, which the Company is aggressively seeking to
accomplish, the Company will need to utilize its cash balances to
19
<PAGE>
promote internal growth and fund potential future acquisitions. However, the
Company is limited to its current cash balances for funding such internal growth
and add-on acquisitions, unless the Company is able in the future to raise
significant additional financing. There can be no assurance that the Company
will be able to raise any such financing. Further, the Company's cash funds for
acquisitions might be limited to the extent that the Company's current
operations or the operations of any future acquisitions require the funding of
losses or the incurrence of capital outlay.
At December 31, 1999, the Company had three types of credit lines
available:
Term Loan: In April 1998, Paramount entered into a $500,000 term loan with
a bank collateralized by $600,000 in cash maintained in an investment account.
Principal payments of approximately $41,600 and interest are due on a quarterly
basis through April 20, 2001. On July 20, 1999 the Company borrowed an
additional $215,000 as a demand note. Interest payments are being made on this
additional borrowing and the Company is undergoing negotiations with the bank to
establish repayment terms. As of December 31, 1999, approximately $465,000
remained outstanding under these loans collateralized by $500,000 in cash
maintained in an investment account. Under the agreement, the Company's
Paramount subsidiary was not in compliance with the debt covenant requiring
minimum net worth of at least $7.0 million. Paramount has obtained a waiver from
the bank for non-compliance with the aforementioned covenant for the year ended
December 31, 1999. The Company is currently in negotiations to revise the
existing debt covenant.
DeltaGroup Revolving Credit Facility: DeltaGroup has a $750,000 revolving
line of credit agreement with a bank secured by accounts receivable, which will
expire on June 30, 2000. Interest on outstanding borrowings accrues at the
bank's prime rate plus 1%. Borrowings are limited to 80% of eligible accounts
receivable. As of December 31, 1999, DeltaGroup had $750,000 outstanding under
this line.
Paratech Equipment Acquisition Credit Facility: Paratech has a $2,000,000
revolving line of credit agreement with a finance company secured by accounts
receivable and inventory. Interest on outstanding borrowings accrues at the
prime rate plus 1 1/2 %. Borrowings are limited to 85% of eligible accounts
receivable, as defined. This facility allows the Company to purchase computer
hardware from its vendors with net 30-day terms interest free. At the expiration
of the net 30-day period, the Company has the option of paying the amount due
or, provided the Company has sufficient eligible collateral, borrowing under the
credit facility. As of December 31, 1999, Paratech had $665,000 outstanding
under this line. Under the agreement, the Company's Paratech subsidiary was not
in compliance with the debt covenant requiring a liability to net worth ratio of
less than 8 to 1. Paratech has obtained a waiver from the finance company for
non-compliance with the aforementioned covenant for the year ended December 31,
1999.
As the Company is in default with two of its existing debt agreements at
December 31, 1999, it is, pursuant to its respective debt agreements, in default
with all of its debt agreements. Accordingly, amounts outstanding, aggregating
approximately $1,880,000, under these debt agreements could become due
immediately.
The Company believes that cash generated from operations, amounts
available under its credit facilities, and/or other third party financing will
be sufficient to fund necessary capital expenditures and to provide adequate
working capital for at least the next 12 months. There can be no assurance,
however, that the Company will not require additional financing prior to such
date to fund its operations, or that if required, such financing will be
available on commercially reasonable terms. In addition, the Company will
require additional financing after such date to fund its operations.
Year 2000
The Company completed its Year 2000 software program conversions,
compliance and contingency programs during the fourth quarter of 1999.
Subsequent to December 31, 1999, the Company has not experienced any Year 2000
problems either internally or from suppliers or other outside sources that had
an adverse impact on the Company's operations of financial condition. The
Company has no reason to believe that
20
<PAGE>
Year 2000 failures will materially affect it in the future. However, since it
may take several additional months before it is known whether the Company or
suppliers, vendors or customers may have undergone Year 2000 problems, no
assurance can be given that the Company will not experience losses or
disruptions of due to Year 2000 computer-related problems. The Company will
continue to monitor the operation of its software, computers and
microprocessor-based devices for any Year 2000 problems.
Inflation
Management does not believe inflation had a material adverse effect on the
financial statements for the periods presented.
Forward Looking Statements and Associated Risk
Statements contained in this Form 10-K, which are not historical facts,
are forwarding-looking statements. The forward-looking statements in this press
release are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements made herein
contain a number of risks and uncertainties that could cause actual results to
differ materially. These risks and uncertainties include, but are not limited
to, specific factors impacting the Company's business, including increased
competition; the ability of the Company to expand its operations and attract and
retain qualified sales representatives and technically trained consultants
experienced in the Internet and IT sectors; the ability of the Company to
attract and retain Internet solutions and IT professionals skilled in specific
applications; the ability of the Company to attract and retain qualified
personnel in the legal staffing sector; the availability of computer equipment;
technological obsolescence of the Company's portfolio of computer equipment;
competition in the Internet solutions and IT consulting sector and general
economic conditions and the Company's need for additional capital to finance the
growth of its operations.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Company's principal financial instrument is debt consisting of
revolving lines of credit and notes payable that provide for interest at a
spread above the prime rate. The Company is affected by market risk exposure
primarily through the effect of changes in interest rates on amounts payable by
the Company under these credit facilities. A significant rise in the prime rate
could materially adversely affect the Company's business and financial
condition. At December 31, 1999, an aggregate principal amount of $3.0 million
was outstanding under the Company's revolving lines of credit and notes payable,
with spreads ranging from 0.25% to 1.5% over prime, and representing a weighted
average interest rate of 9.21%. If principal amounts outstanding under the
Company's revolving lines of credit and notes payable remained at this year-end
level for an entire year and the prime rate increased or decreased, respectively
by 1.25%, the Company would pay or save, respectively, an additional $37,000 in
interest in that year. The Company does not utilize derivative financial
instruments to hedge against changes in interest rates or for any other
purposes. The Company does not have any material foreign sales and all
transactions are denominated in U.S. dollars.
21
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The audited financial statements of the Company for the fiscal year ended
December 31, 1999 are located beginning at page F-1 of this Annual Report on
Form 10-K.
ITEM 9 - CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
(a) Changes in Accountants
During 1999, the Company dismissed Arthur Andersen LLP as its
independent auditors and retained BDO Seidman LLP. On May 27, 1999,
the Company filed a Form 8-K disclosing the change in the Company's
independent auditors, which is incorporated herein by reference.
(b) Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
ITEM 10 -- ITEM 13 - DOCUMENTS INCORPORATED BY REFERENCE
Information with respect to Items 10, 11, 12 and 13 of Form 10-K is hereby
incorporated by reference into this Part III of Form 10-K from the Registrant's
Definitive Proxy Statement relating to the Registrant's 2000 Annual Meeting of
Stockholders to be filed by the Registrant with the Securities and Exchange
Commission on or before April 30, 2000.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
The exhibits listed in the Index to Exhibits below are filed as part of
this Annual Report on Form 10-K.
(a) Exhibits:
****2.1 - Agreement and Plan of Merger, dated as of February 11,
2000, by and among Paramount Financial Corporation,
5B Technologies Corporation and Paramount Merger
Corporation
+3.1 - Certificate of Incorporation of the Registrant
+3.2 - By-laws of the Registrant
*4.1 - Specimen Common Stock Certificate
*4.2 - Form of Underwriter's Unit Purchase Option, as amended
*4.3 - Form of Class A and Class B Warrant Agreement, as amended
*4.4 - Specimen Class A Warrant Certificate
*4.5 - Specimen Class B Warrant Certificate
*10.1 - Employment Agreement between Registrant and Jeffrey Nortman
dated as of January 22, 1996
22
<PAGE>
*10.2 - Employment Agreement between Registrant and Glenn Nortman
dated as of January 22, 1996
10.3 Intentionally Omitted
*10.4 - Form of Master Lease Agreement relating to Computer
Equipment Leases
*10.5 - 1995 Stock Option Plan
**10.6 - Stock Purchase Agreement dated January 6, 1998 by and
among Paramount Financial Corporation and Lawrence P. Kagan
and Steven Lippel relating to Deltaforce Personnel
Services, Inc.
*10.7 - Form of Indemnification Agreement
*10.8 - Sublease Agreement, dated September 15, 1995, between the
Company and Lehman Brothers Inc.
*10.9 - Consent to Sublease, dated September 15, 1995, among Chasco
Company, Lehman Brothers Inc. and the Company
*10.10 - 1995 Director Option Plan
***10.11 - Stock Purchase Agreement dated October 23, 1998 between
the Registrant and Abbey, Garrett & Seth, Ltd. relating
to Comptech Resources, Inc.
***10.12 - Asset Purchase Agreement dated July 28, 1998 between the
Registrant and RBW Staffing Services, Inc. relating to
Wordsmiths
+21 - List of Subsidiaries
+27 - Financial Data Schedule
- ----------
+ Filed herewith.
* Incorporated by Reference from the Registrant's Registration Statement on
Form S-1, Registration No. 33-96382.
** Incorporated by reference from the Registrant's Form 10-K for the year
ended December 31, 1997.
*** Incorporated by reference from the Registrant's Form 10-K for the year
ended December 31, 1998.
**** Incorporated by reference from the Registrant's Form 8-K filed on
February 15, 2000.
Financial Statements: See Index to Consolidated Financial Statements
on page F-1.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth quarter
of the fiscal year ended December 31, 1999.
(c) Exhibits
The Exhibits set forth in (a) above are filed as part of this Annual
Report on Form 10-K.
(d) Financial Statement Schedules
Information required by schedules called for under Regulation S-X is
either not applicable or is included in the financial statements or notes
thereto.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PARAMOUNT FINANCIAL CORPORATION
Dated: March 21, 2000 By: /s/ Glenn Nortman
------------------------------
Glenn Nortman,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Glenn Nortman Chief Executive Officer March 21, 2000
- -------------------------- and Director
Glenn Nortman (Principal Executive Officer)
/s/ Jeffrey Nortman Chief Operating Officer March 21, 2000
- -------------------------- and Director
Jeffrey Nortman
/s/ Anthony Fernandez Director of Finance March 21, 2000
- -------------------------- (Principal Financial Officer and
Anthony Fernandez Principal Accounting Officer)
/s/ William H. Kelly Director March 21, 2000
- --------------------------
William H. Kelly
/s/ Larry Austin Director March 21, 2000
- --------------------------
Larry Austin
24
<PAGE>
5B Technologies Corporation and Subsidiaries
(formerly Paramount Financial Corporation and Subsidiaries)
Index to Consolidated Financial Statements
December 31, 1999
Reports of Independent Certified Public Accountants F-2-F-3
Consolidated Financial Statements:
Balance sheets as of December 31, 1998 and 1999 F-4
Statements of operations for each of the three years
in the period ended December 31, 1999 F-5
Statements of stockholders' equity for each of the
three years in the period ended December 31, 1999 F-6
Statements of cash flows for each of the three years
in the period ended December 31, 1999 F-7
Notes to consolidated financial statements F-8-F-24
Information required by schedules called for under Regulation S-X is either not
applicable or is included in the financial statements or notes thereto.
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
5B Technologies Corporation and Subsidiaries
Jericho, New York
We have audited the accompanying consolidated balance sheet of 5B Technologies
Corporation and Subsidiaries (formerly Paramount Financial Corporation and
Subsidiaries) as of December 31, 1999, and the related consolidated statements
of operations, stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 5B Technologies Corporation and
Subsidiaries (formerly Paramount Financial Corporation and Subsidiaries) as of
December 31, 1999, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
Melville, New York
March 6, 2000
F-2
<PAGE>
Report of Independent Public Accountants
To 5B Technologies Corporation and Subsidiaries:
Jericho, New York
We have audited the accompanying consolidated balance sheet of 5B Technologies
Corporation and Subsidiaries (formerly Paramount Financial Corporation and
Subsidiaries) as of December 31, 1998, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the two years in
the period ended December 31, 1998. 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 5B Technologies Corporation and
Subsidiaries (formerly Paramount Financial Corporation and Subsidiaries) as of
December 31, 1998, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Melville, New York
March 12, 1999
F-3
<PAGE>
5B Technologies Corporation and Subsidiaries
(formerly Paramount Financial Corporation and Subsidiaries)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 1,495,082 $ 1,003,752
Investments available for sale 613,188 1,082,676
Accounts receivable, net of allowance for bad debts of $70,000 2,632,258 2,993,259
Net investment in direct finance and sales-type leases 30,059,378 16,232,749
Assets held under operating leases, net of accumulated depreciation 7,263,181 2,990,213
Other assets 3,183,523 3,195,706
- ----------------------------------------------------------------------------------------------------------------
Total assets $ 45,246,610 $ 27,498,355
================================================================================================================
Liabilities and Stockholders' Equity
Liabilities:
Notes payable $ 4,313,189 $ 3,769,278
Accounts payable 942,431 745,839
Accounts payable - leases 100,000 --
Accrued expenses 658,392 643,761
Obligations for financed equipment - non-recourse 33,435,459 16,755,509
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 39,449,471 21,914,387
- ----------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized, none outstanding -- --
Common stock, $.04 par value, 17,500,000 shares authorized, 2,160,000 shares
issued 86,400 86,400
Additional paid-in capital 14,456,728 14,504,629
Stock subscription receivable (812,500) (812,500)
Accumulated deficit (7,882,884) (8,143,956)
Treasury stock at cost, 24,500 shares (50,605) (50,605)
- ----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 5,797,139 5,583,968
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 45,246,610 $ 27,498,355
================================================================================================================
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-4
<PAGE>
5B Technologies Corporation and Subsidiaries
(formerly Paramount Financial Corporation and Subsidiaries)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1997 1998 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Sales and service $ 21,405,788 $ 30,391,446 $ 19,434,106
Lease revenue 9,829,991 7,478,750 6,056,660
Fee, interest and other income 1,159,062 615,295 502,147
- ----------------------------------------------------------------------------------------------------
Total revenues 32,394,841 38,485,491 25,992,913
- ----------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 19,933,213 28,157,266 13,657,575
Lease expense 9,499,365 7,172,273 6,349,462
Selling, general and administrative expenses 3,746,712 4,947,718 6,067,286
Interest expense -- 51,324 97,230
- ----------------------------------------------------------------------------------------------------
Total costs and expenses 33,179,290 40,328,581 26,171,553
- ----------------------------------------------------------------------------------------------------
Loss before provision for (benefit from) income taxes (784,449) (1,843,090) (178,640)
Provision for (benefit from) income taxes (288,111) (9,286) 82,432
- ----------------------------------------------------------------------------------------------------
Net loss $ (496,338) $ (1,833,804) $ (261,072)
====================================================================================================
Basic loss per common share $(0.25) $(0.89) $(0.12)
====================================================================================================
Diluted loss per common share $(0.25) $(0.89) $(0.12)
====================================================================================================
Shares used in computing net loss per share:
Basic 1,991,117 2,067,842 2,135,500
====================================================================================================
Diluted 1,991,117 2,067,842 2,135,500
====================================================================================================
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-5
<PAGE>
5B Technologies Corporation and Subsidiaries
(formerly Paramount Financial Corporation and Subsidiaries)
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional Stock
------------------------- Paid-In Subscription Accumulated Treasury
Shares Amount Capital Receivable Deficit Stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 7,990,000 $ 79,000 $13,644,228 $ -- $(5,552,742) $ -- $ 8,171,386
Purchase of treasury stock -- -- -- -- -- (29,365) (29,365)
Net loss -- -- -- -- (496,338) -- (496,338)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 7,990,000 79,900 13,644,228 -- (6,049,080) (29,365) 7,645,683
One-for-four reverse stock
split (5,992,500) -- -- -- -- -- --
Issuance of common stock 162,500 6,500 812,500 (812,500) -- -- 6,500
Purchase of treasury stock -- -- -- -- -- (21,240) (21,240)
Net loss -- -- -- -- (1,833,804) -- (1,833,804)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 2,160,000 86,400 14,456,728 (812,500) (7,882,884) (50,605) 5,797,139
Issuance of warrants -- -- 47,901 -- -- -- 47,901
Net loss -- -- -- -- (261,072) -- (261,072)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 2,160,000 $ 86,400 $14,504,629 $ (812,500) $(8,143,956) $ (50,605) $ 5,583,968
===================================================================================================================================
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-6
<PAGE>
5B Technologies Corporation and Subsidiaries
(formerly Paramount Financial Corporation and Subsidiaries)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------
1997 1998 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (496,338) $ (1,833,804) $ (261,072)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Deferred income taxes (351,814) (73,848) --
Depreciation and amortization 6,721,854 5,558,520 4,608,490
Provision for losses on operating lease residuals -- -- (90,021)
Amortization of discounts on investments (205,082) (26,953) --
Issuance of warrants -- -- 25,000
Equity received for services provided -- -- (438,000)
Changes in operating assets and liabilities:
Accounts receivable 1,121,534 (1,493,779) (361,001)
Other assets (396,901) (1,556,671) (354,959)
Accounts payable 245,270 (365,065) (196,592)
Accrued expenses 194,928 275,295 (14,631)
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,833,451 483,695 2,917,214
- --------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Accounts payable - leases (17,525,950) (608,568) (100,000)
Purchase of equipment for direct finance leases and
sales-type leases (38,158,975) (11,787,818) (3,193,848)
Termination of direct finance leases 4,499,046 3,159,587 2,346,089
Proceeds applied to direct finance leases and
sales-type leases 12,327,521 18,159,432 14,674,391
Purchase of equipment for operating leases (346,733) (8,178,032) (325,806)
Termination of operating leases 6,972,505 481,980 541,310
Residual value sharing arrangements 4,628,698 856,969 --
Payments for acquisitions, net of cash acquired -- (1,010,172) (95,331)
Purchase of investments (14,187,250) (3,697,782) (498,488)
Proceeds from sale/maturity of investments 14,031,717 6,636,003 467,000
- --------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (27,759,421) 4,011,599 13,815,317
- --------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from sale of common stock -- 6,500 --
Repurchase of common stock (29,365) (21,240) --
Proceeds from notes payable 3,894,286 5,183,606 2,006,877
Repayment of notes payable (1,256,305) (3,526,782) (2,550,788)
Increase in non-recourse lease financing 38,818,439 19,139,928 2,888,589
Termination of non-recourse lease financing (3,463,973) (2,864,077) (1,138,707)
Repayments and interest amortization applied to
non-recourse lease financing (18,528,237) (23,127,796) (18,429,832)
- --------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 19,434,845 (5,209,861) (17,223,861)
Cash and cash equivalents, beginning of period 3,700,774 2,209,649 1,495,082
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 2,209,649 $ 1,495,082 $ 1,003,752
Supplemental cash flow information:
Cash paid for income taxes $ 48,574 $ 87,232 $ 33,055
Cash paid for interest $ 2,936,823 $ 2,714,790 $ 2,065,634
========================================================================================================
</TABLE>
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-7
<PAGE>
5B Technologies Corporation and Subsidiaries
(Formerly Paramount Financial Corporation and Subsidiaries)
Summary of Significant Accounting Policies
Nature of Business
5B Technologies Corporation (formerly Paramount Financial Corporation) and
subsidiaries ("5B" or the "Company") is a comprehensive business solution
provider, offering customers a wide range of integrated services, including
Internet solutions, information technology ("IT") consulting, systems
integration, staffing services and lease financing.
Effective February 11, 2000, 5B Technologies Corporation and Subsidiaries was
created as a holding company for Paramount Financial Corporation. Paramount
Financial Corporation became a wholly owned subsidiary of 5B Technology
Corporation and was renamed Paramount Operations Inc. Paramount Financial
Corporation was incorporated in the state of Delaware in July 1991.
The Company operates primarily through three wholly owned subsidiaries:
Paramount Operations, Inc. ("Paramount"), Paratech Resources, Inc. ("Paratech")
and Deltaforce Personnel Services, Inc. ("DeltaGroup").
Paramount provides technology planning, asset management and lease financing.
Paratech provides a complete range of advanced technological services, including
fully integrated solutions for Internet and e-commerce businesses, Internet
marketing, applications development, systems integration, hardware and software
procurement, multi-platform integration services and personnel outsourcing to
small and mid-sized companies primarily in the New York Metropolitan area.
DeltaGroup is a provider of temporary and permanent placement staffing to the
legal industry. DeltaGroup offers its clients, which consist primarily of New
York based law firms and corporate legal departments, an array of experienced
legal support staff 24 hours a day seven days a week. DeltaGroup also provides
temporary and permanent placement of IT professionals to various businesses.
Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All intercompany balances and transactions have
been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities 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.
F-8
<PAGE>
Cash Equivalents
The Company considers all highly liquid debt and equity instruments with an
original maturity of three or less months to be cash equivalents. Cash
equivalents include investments in money market funds and are stated at cost,
which approximates market value.
Investments Available for Sale
Marketable securities are stated in accordance with Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments
in Debt and Equity Securities". Securities classified as available for sale are
reported at fair value, with unrealized gains and losses excluded from earnings
and reported as a separate component of stockholders' equity. Gains and losses
on the disposition of securities are recognized on the specific identification
method in the period in which they occur.
At December 31, 1998 and 1999, investments available for sale consist of United
States government and agency bonds with original maturities of one year or less
and a mutual fund. The cost of debt securities is adjusted for accretion of
discount to maturity and recorded as interest income and interest income is
recorded on the mutual fund as earned. At December 1998 and 1999, the cost basis
of these securities approximates market value.
During 1999, the Company received payment for services provided, in lieu of
cash, of 250,000 shares and a warrant to purchase 50,000 shares of a privately
held company. The fair value of these investments at December 31, 1999 was
approximately $438,000 (which equaled the fair value at the date shares and
warrants were received).
Net Investment in Direct Finance and Sales-Type Leases
The net investment in direct finance and sales-type leased assets consists of
the present value of the future minimum lease payments plus the present value of
the residual value, if any (collectively referred to as the "net investment").
The residual value is the estimated fair market value of the leased assets at
lease expiration.
Completed lease contracts which qualify as direct finance and sales-type leases,
as defined by Statement of Financial Accounting Standards No. 13, ("SFAS 13")
"Accounting for Leases", are accounted for on the balance sheet by recording the
total minimum lease payments receivable, the estimated residual value of the
leased equipment and unearned income. The unearned lease income represents the
excess of the total minimum lease payments and the estimated residual value
expected to be realized, over the cost of the related equipment. The unearned
income is recognized as revenue over the term of each lease by applying a
constant periodic rate of return to the declining net investment in each lease.
Lease revenue includes that portion of unearned income amortized into income
during the current period. Revenue recognized at the inception of a sales-type
lease is recorded in sales.
Assets Held Under Operating Leases
Assets held under operating leases consist of the equipment at cost, net of
accumulated depreciation. Depreciation is recognized on a straight-line basis
over the lease term up to the Company's estimate of the
F-9
<PAGE>
equipment's residual value at lease expiration. Accumulated depreciation was
approximately $4,453,000 and $6,055,000 at December 31, 1998 and 1999,
respectively. During the fourth quarter of 1999, additional depreciation expense
of $182,000 was recorded in order to record the residual value associated with
certain operating leases to fair value.
Lease revenue includes the contractual lease payments and is recognized on a
straight-line basis over the lease term.
Residual Values
The Company's residual value estimates are based on current market conditions
and published residual value projections, as determined at lease inception. On
an ongoing basis, the Company compares its residual value estimates against
currently published independent forecasts of equipment values at lease
expiration as well as other known market conditions. If the residual value is
determined to be excessive and the decline in residual value is judged to other
than temporary, the Company revises its residual values accordingly with
corresponding adjustments to income and unearned income. During the year ended
December 31, 1998, the Company entered into residual value sharing agreements
whereby an equipment investor or a financial institution purchased a portion of
the residual value of the equipment on lease in exchange for a right to share in
re-marketing proceeds received upon lease expiration. The proceeds received were
used to reduce the cost basis and the residual value in the leased assets.
Revenue Recognition
The Company records revenues when products are shipped and title transfers to
the customer or services are provided to customers. When equipment is sold to
another computer leasing and trading company (a "broker"), the transfer of title
and recognition of revenue generally occur upon the receipt of a payment from
the broker.
From time to time, the Company will receive payment prior to the transfer of
title or purchase of the related inventory or performance of services. The
Company records such amounts as unearned sales revenue on the balance sheet.
Upon shipment and transfer of title, unearned sales revenue is reversed and
recorded as equipment sales or service revenues, respectively.
The Company records revenue from the sale of leased equipment to an equipment
investor upon transfer of title to the equipment. Subsequent to a sale of this
variety, the Company generally is a party to a re-marketing agreement under
which it may earn additional income from the asset's future re-lease or sale
value upon lease termination or expiration.
See Net Investment in Direct Finance and Sales-Type Leases and Assets Held Under
Operating Leases for a discussion of revenues earned under leasing transactions.
Lease Expense
Lease expense includes depreciation on assets held under operating leases,
interest expense on obligations for financed equipment and sublease rental
expense. The cost of equipment recognized at the inception of a sales-type lease
is reflected in cost of sales.
F-10
<PAGE>
Income Taxes
The Company accounts for income taxes using the liability method. Under the
liability method, deferred income taxes are provided on the differences between
the carrying values of assets and liabilities for financial reporting and tax
purposes at the enacted rate.
Net Loss Per Common Share
Basic loss per share is computed by dividing net loss by the weighted average
number of common shares outstanding. Diluted loss per share reflect, in periods
in which they have a dilutive effect, the effect of common shares issuable upon
exercise of stock options and warrants.
Options to purchase approximately 211,650 shares of common stock at exercise
prices ranging from $0.44 to $2.38 per share and warrants to purchase
approximately 110,000 shares of common stock at prices ranging from $0.85 to
$2.34 per share were outstanding during a portion of 1999 but were not included
in the computation of diluted earnings per share because they are anti-dilutive.
(See Notes 7(a) and 12(d)). These options and warrants expire through 2009 and
2004, respectively. Options to purchase approximately 186,000 shares of common
stock at exercise prices ranging from $0.44 to $2.38 per share were outstanding
during a portion of 1998 but were not included in the computation of diluted
earnings per share because they were anti-dilutive. Options to purchase
approximately 41,250 shares of common stock at exercise prices ranging from
$1.50 to $2.38 per share were outstanding during portions of 1997 and were not
included in the computation of diluted earnings per share because they were
anti-dilutive.
Stock-Based Compensation
The Company accounts for its stock option awards under the intrinsic value based
method of accounting prescribed by Accounting Principles Board Option No. 25
"Accounting for Stock Issued to Employees". Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. The Company makes pro forma disclosure of net
income and earnings per share as if the fair value based method of accounting
had been applied as required by Statement of Financial Accounting Standards
("SFAS 123"), "Accounting for Stock-Based Compensation.
Long-Lived Assets
Long-lived assets, such as goodwill and property and equipment, are evaluated
for impairment when events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets. When any such
impairment exists, the related assets will be written down to the fair market
value. No impairment losses have been necessary through December 31, 1999.
Acquisitions
The net assets of businesses purchased are recorded at their fair value at the
acquisition date and the consolidated financial statements include their
operations from that date. Any excess of acquisition costs over the fair value
of identifiable net assets acquired is included in goodwill and is amortized on
a straight-line basis
F-11
<PAGE>
over periods not exceeding 15 years. Certain acquisitions provide for contingent
consideration, primarily cash, to be paid in the event certain financial
performance targets are satisfied over periods typically not exceeding two years
from the date of acquisition.
The Company's policy is to record a liability for such amounts when it becomes
probable that targets will be met.
Fair value of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash and
cash equivalents, accounts receivable, accounts payable and accrued liabilities
approximate fair value because of the immediate or short-term maturity of these
financial instruments. The carrying amount reported for long-term debt
approximates fair value because certain of the underlying instruments are at
variable rates, which are repriced frequently. The remaining portion of
long-term debt approximates fair value because the interest approximates current
market rates for financial instruments with similar maturities and terms.
F-12
<PAGE>
5B Technologies Corporation and Subsidiaries
(formerly Paramount Financial Corporation and Subsidiaries)
Notes to Consolidated Financial Statements
Note 1: Acquisitions
(a) Web Business Systems, Inc.
On March 3, 1999, Paratech acquired certain assets of Web Business
Systems, Inc. ("Web"), a privately held New York based web hosting and
development company for a total purchase price of $73,000. The purchase
price consisted of $50,000 in cash and a warrant, which expires in
February 2004, to purchase 10,000 shares of the Company's common stock at
$2.34, which equaled the market value of the Company's common stock on the
date of acquisition. The acquisition was accounted for as a purchase. The
acquisition agreement provided for additional consideration of $30,000 to
be paid if the acquired entity's results of operations exceed certain
targeted levels. This additional consideration was earned during 1999. The
excess of the aggregate purchase price over the net assets acquired of
approximately $118,000 is being amortized over 10 years.
(b) Abbey, Garrett and Seth, Ltd.
On October 23, 1998, Paratech acquired 100% of the outstanding shares of
Abbey, Garrett and Seth, Ltd, (d/b/a Comptech Resources) ("Comptech'), a
privately held, systems consulting, software applications and Internal
commerce development firm for approximately $272,000. The acquisition was
accounted for as a purchase. The excess of the aggregate purchase price
over the net assets acquired of approximately $551,000 is being amortized
over 10 years. In connection with this acquisition the Company entered
into non-compete agreements with three key executives for an aggregate
consideration of $380,000, $105,000 of which was paid at closing with
$25,000 due quarterly through October 23, 2001 (See Note 5(c)).
(c) RBW Staffing Resources, Inc.
On July 28, 1998, Deltaforce, a wholly owned subsidiary of the Company,
acquired certain assets from RBW Staffing Resources, Inc. (d/b/a
Wordsmiths) ("Wordsmiths"), a privately held New York City based staffing
company for approximately $440,000, which included $100,000 of notes
payable. The acquisition was accounted for as a purchase. The excess of
the aggregate purchase price over the net assets acquired of approximately
$440,000 is being amortized over 15 years. In connection with this
acquisition Deltaforce entered into non-compete agreements with two key
executives of Wordsmiths for an aggregate consideration of $460,000,
$60,000 of which was paid at closing with $150,000 due on July 28, 1999
and $250,000 due on July 28, 2000. Such non-compete agreements are
included in other assets and are being amortized over the terms of the
agreement of 5 years. In addition, simultaneous with the closing of the
transaction, the Company entered into a stock purchase agreement with the
former shareholder of Wordsmiths (the "Shareholder"). Under the terms of
this agreement, the Company sold 162,500 shares of newly issued $.04 par
value common stock to the Shareholder as follows: (1) 81,250 shares at
$4.00 per share and (2) 81,250 shares at $6.00 per share. The Shareholder
paid for the stock with cash equal to the par value of the shares issued,
$6,500, and
F-13
<PAGE>
by the issuance of two non-recourse secured promissory notes and stock
pledge agreements restricting the issuance of the stock until the notes
are paid in full. The notes mature on July 27, 2001. The operations of
Wordsmiths was merged into Deltaforce to create The DeltaGroup.
(d) Deltaforce Personnel Services, Inc.
On January 9, 1998, the Company acquired 100% of the outstanding shares of
Deltaforce Personnel Services, Inc., a privately held New York City based
staffing company, for approximately $560,000, which included $162,500 of
notes payable. The acquisition was accounted for as a purchase. The
acquisition agreement provided for additional consideration of $162,500 to
be paid if the acquired entity's results of operations exceeded certain
targeted levels and certain forfeiture events do not occur. During 1999, a
forfeiture event occurred and the additional consideration earned was
reduced to $81,250. The excess of the aggregate purchase price over the
net assets acquired of approximately $545,000 is being amortized over 15
years.
Note 2: Direct Finance and Sales-Type Leases
The net investment in direct finance and sales-type leases was comprised
of the following:
December 31, 1998 1999
---------------------------------------------------------------------
Total minimum lease payments receivable $30,895,900 $16,282,746
Estimated residual value of equipment 1,727,787 1,071,785
---------------------------------------------------------------------
32,623,687 17,354,531
Less: Unearned income 2,564,309 1,121,782
---------------------------------------------------------------------
Net investment in direct finance and
sales-type leases $30,059,378 $16,232,749
=====================================================================
During the fourth quarter 1999, the Company wrote down the residual value
of certain lease contracts by approximately $289,000.
Note 3: Future Minimum Lease Payments
Future minimum lease rentals to be received by the Company under
non-cancelable direct finance, sales-type and operating leases are as
follows:
Years ending Direct Finance and
December 31, Sales-Type Leases Operating Leases
---------------------------------------------------------------
2000 $9,155,536 $1,224,061
2001 4,996,532 524,564
2002 1,123,881 25,084
2003 513,065 --
F-14
<PAGE>
Note 4: Obligations for Financed Equipment - Non-Recourse
Under various arrangements with banks and financial institutions, the
Company finances substantially all of its equipment leases with
non-recourse notes. In exchange for these future rentals, the Company
receives a discounted cash payment. These notes provide for an assignment
of future lease rentals to these institutions at effective interest rates
(which range between 6.0% and 10.8%). In the event of default by a lessee,
the financial institution has a first lien on the underlying equipment,
with no further recourse against the Company. The underlying equipment
securing these non-recourse notes represents the Company's assets under
direct finance, sales-type and operating leases, which book value totaled
approximately $37.3 million and $19.4 million at December 31, 1998 and
1999.
Future maturities on non-recourse notes are:
Years ending
December 31, Lease Payments
---------------------------------------------------------
2000 $10,340,623
2001 5,573,738
2002 1,211,732
2003 520,349
---------------------------------------------------------
17,646,442
Less: Interest 890,933
---------------------------------------------------------
$16,755,509
=========================================================
Note 5: Notes Payable and Other Financing
Notes payable were comprised of:
December 31, 1998 1999
----------------------------------------------------------------
Notes payable to financial
institutions (a) $1,601,990 $1,363,933
Credit facilities (b) 1,773,699 1,899,095
Notes payable (c) 937,500 506,250
----------------------------------------------------------------
$4,313,189 $3,769,278
================================================================
(a) During 1998, the Company entered into a total of nine notes payable
agreements totaling approximately $2,925,000 with a financial institution
to finance the residual value of certain equipment on lease, at an
interest rate of prime (8.50% at December 31, 1999) plus 0.25%. Interest
is payable quarterly and the principal amount is due 60 days after lease
expiration. These notes mature through 2001. The equipment on lease and
the related lease serve as collateral for the notes payable.
The Company entered into a similar notes payable in the amount of $18,036
with the same institution in 1998, respectively, and repaid the loans in
the same year.
No such transactions were entered into during 1999.
F-15
<PAGE>
(b) In December 1997, the Company entered into a loan agreement with a bank
for a $2,000,000 credit facility, which expired on December 30, 1998, to
finance the purchase of equipment on leases that are approved by the bank.
The bank will receive notes equal to the discounted rental payments under
the leases being financed using the bank's current interest rate. The
notes are payable monthly as the lease payments become due. As collateral
for the notes, the bank has a first priority security interest in the
equipment and the underlying lease. Under the agreement the Company's
Paramount subsidiary was not in compliance with the debt covenant
requiring tangible net worth of at least $8 million. As of December 31,
1999, the Company had $19,000 outstanding at a rate of 8.08%. The loan
will mature in 2000.
The Company maintains a $2,000,000 revolving line of credit agreement with
a finance company for its subsidiary Paratech, secured by accounts
receivable of Paratech. Interest on outstanding borrowings accrues at the
prime rate (8.50% at December 31, 1999) plus 1-1/2%. Borrowings are
limited to 85% of eligible accounts receivable. This facility allows the
Company to purchase computer hardware from its vendors with net 30-day
terms interest free. At the expiration of the net 30-day period, the
Company has the option of paying the amount due or, provided the Company
has sufficient eligible collateral, borrowing under the credit facility.
As of December 31, 1999, Paratech had $978,000 outstanding under this
line, of which $665,000 was classified as debt. Under the agreement, the
Company's Paratech subsidiary was not in compliance with the debt covenant
requiring a liability to net worth ratio of less that 8 to 1. Paratech has
obtained a waiver from the finance company for non-compliance with the
aforementioned covenant for the year ended December 31, 1999.
In addition, in connection with the acquisition of Comptech, the Company
assumed all outstanding obligations under a similar arrangement between
Comptech and the same finance company. This facility has been repaid in
full.
In April 1998, the Company entered into a $500,000 term loan with a bank
collateralized by $600,000 in cash maintained in an investment account.
Interest accrues at a rate of 8.14% and principal payments of
approximately $41,600 and interest are due on a quarterly basis through
April 20, 2001. As of December 31, 1999, approximately $250,000 remains
outstanding under this agreement. Under the agreement, the Company's
Paramount subsidiary was not in compliance with the debt covenant
requiring minimum net worth of at least $7.0 million. Paramount has
obtained a waiver from the bank for non-compliance with the aforementioned
covenant for the year ended December 31, 1999.
In addition, the Company entered into a demand note with the same bank, in
July 1999, collateralized by the same $600,000 in cash as the term loan
for $215,000. Interest accrues at the prime rate (8.50% at December 31,
1999) plus 1% and is paid quarterly. As of December 31, 1999,
approximately $215,000 remains outstanding.
In January 1998, the Company entered into a $750,000 revolving line of
credit agreement with a bank secured by accounts receivable which expires
on June 30, 2000. Interest on outstanding borrowings accrues at the bank's
prime rate (8.5% at December 31, 1999) plus 1%, and interest is paid
monthly.
F-16
<PAGE>
Borrowings are limited to 80% of eligible accounts receivable. As of
December 31, 1999, $750,000 was outstanding under this line.
(c) In connection with the acquisitions described in Note 3, the Company
entered into promissory notes with several individuals. Interest on such
notes ranges from 0% to 8.5%. The interest components of those
non-interest bearing notes are immaterial. Annual maturities are $350,000
and $75,000 in 2000 and 2001, respectively.
Note 6: Income Taxes
The provision for (benefit from) income taxes is comprised of:
Years ended December 31, 1997 1998 1999
======================================================================
Current:
Federal $ -- $ -- $73,795
State 63,703 43,328 8,637
----------------------------------------
63,703 43,328 82,432
----------------------------------------
Deferred:
Federal (251,928) (532,055) (72,730)
State (99,886) (82,362) (6,241)
----------------------------------------
(351,814) (614,417) (78,971)
----------------------------------------
Valuation allowance -- 561,803 78,971
----------------------------------------
Total $(288,111) $ (9,286) $82,432
========================================
Significant components of deferred income tax assets and (liabilities) are:
1998 1999
-----------------------------------------------------------------------
Depreciation $ 655,323 $ 369,668
Lease transactions treated differently
for tax and financial reporting
purposes (726,226) (45,187)
Net operating loss carryforwards 600,320 354,361
Other 122,386 51,932
Valuation allowance (651,803) (730,774)
-----------------------------------------------------------------------
Net deferred income tax $ -- $ --
=======================================================================
The Company has net operating loss carryforwards for income tax reporting
purposes of approximately $719,000 expiring through 2013 and an alternative
minimum tax credit carryforward of $73,795. A full valuation allowance has been
provided against the net deferred tax asset due to the uncertainty at December
31, 1999 as to their realization.
F-17
<PAGE>
The following reconciliation presents the principal reasons for the difference
between income taxes calculated at the United States federal statutory income
tax rate (34%) and the provision for (benefit from) income taxes:
Years ended December 31, 1997 1998 1999
----------------------------------------------------------------------
Federal income tax expense
(benefit) at U.S. statutory
rate $(266,713) $(626,651) $(60,738)
Permanent differences -- -- 47,588
Alternative minimum tax -- -- 73,795
Change in valuation allowance -- 561,803 --
State taxes, net of federal
benefit 39,547 43,328 5,700
All other, net (60,945) 12,234 16,087
-------------------------------------
$(288,111) $ (9,286) $ 82,432
=====================================
Note 7: Stockholders' Equity
(a) Class A and Class B Warrants
On January 22, 1996 ("Effective Date"), the Company consummated an initial
public offering of its securities. In connection with the offering, the
Company issued a total of 1,495,000 units, inclusive of the underwriter's
over-allotment option, which was exercised in full, at a price of $7.00
per unit. Each unit sold in the offering consisted of two shares of common
stock and two redeemable Class A warrants. The common stock and Class A
warrants were detachable and trade separately. The Class A warrants were
exercisable commencing one year from the Effective Date. Four Class A
warrants entitle the holder to purchase one share of common stock at
$16.00 per share (after giving effect to a one-for-four reverse stock
split of the common stock effected May 19, 1998 and subject to adjustment
for anti-dilution) during the four year period commencing one year from
the Effective Date. The Class A warrants are redeemable by the Company for
$0.05 per warrant in the event that the closing bid price of the Company's
common stock exceeds $36.00 per share (after giving effect to the
one-for-four reverse stock split) for twenty consecutive trading days
ending within ten days of the notice of redemption. With the prior written
consent of the underwriter, upon thirty days written notice to all holders
of the Class A warrants, the Company shall have the right to reduce the
exercise price and/or extend the term of the class A warrants. None of the
Class A warrants have been exercised to date.
In connection with the Company's initial public offering, there was a
secondary offering of securities by certain non-affiliated lenders of the
Company (the "Selling Lenders"). The Selling Lenders registered 750,000
units (consisting of an aggregate of 1,500,000 shares of common stock and
Class A warrants to purchase an aggregate of 1,500,000 shares of common
stock), identical to the initial public offering units described above, as
well as an additional 1,500,000 shares of common stock issuable upon the
exercise of Class B warrants. The Class B warrants are identical to Class
A warrants, except that their exercise price is $16.80 per share (after
giving effect to the one-for-four reverse stock split). They are not
included for listing on any public trading market and there is no
solicitation fee payable in connection with their exercise. None of the
Class B warrants have been exercised to date.
F-18
<PAGE>
(b) Authorized Shares Outstanding
Effective May 19, 1998, the Board of Directors of the Company approved a
reduction of the authorized number of shares of common stock from
35,000,000 to 17,500,000 and authorized a one-for-four reverse stock split
of the Company's common stock. The par value of the common stock was
increased from $.01 to $.04 per share. The preferred stock remained
unchanged. All shareholders' equity accounts and per share date were
retroactively adjusted to reflect this split.
(c) Treasury Shares
During the year ended December 31, 1997, the Board of Directors of the
Company approved a plan that would allow for the repurchase of up to
$500,000 worth of common stock of the Company. The repurchase program took
effect immediately and was authorized to continue for a period of two
years. Subject to applicable rules, the plan allowed the Company to
repurchase shares at any time during the authorized period in any
increments it deems appropriate. As of December 31, 1998 and 1999, the
Company had repurchased 24,500 shares for a cash purchase price of
$50,605.
(d) Warrants
In January 1999, the Company, in connection with a service agreement,
issued warrants, which expire in January 2002, to a third party to
purchase 100,000 shares of the Company's common stock at an exercise price
of $0.85 per share for 50,000 shares and $1.25 per share for 50,000
shares. The fair value of the warrants was approximately $25,000, which
has been recorded as compensation expense.
Note 8: Stock Option Plans
(a) Employee Stock Option Plan
In August 28, 1995, the Board of Directors adopted and the Company's
shareholders approved the Employee Stock Option Plan (the "Stock Option
Plan") for all senior executive officers, key employees and consultants of
the Company pursuant to which 187,500 shares of common stock were reserved
for issuance. In June 1997, the Board of Directors approved an amendment
to increase the aggregate number of shares of common stock reserved for
issuance by 187,500 shares, for a total of 375,000. Additionally, in June
1999 the Board of Directors approved an amendment to increase the
aggregate number of shares of common stock reserved for issuance by 125,00
shares, for a total of 500,000. Options granted under the Stock Option
Plan may be either incentive stock options ("ISO"), which are intended to
meet the requirements of Section 422 of the Internal Revenue Code of 1986,
as amended, or non-qualified stock options ("NSO's"). Under the Stock
Option Plan, the Board of Directors may grant (i) ISO's at an exercise
price per share which is not less than the fair market value of a share of
common stock on the date on which such ISO's are granted (and not less
than 110% of the fair market value in the case of any optionee who
beneficially owns more than 10% of the total combined voting power of the
Company), and (ii) NSO's at an exercise price per share which is
determined by the Board of Directors (and which may be less than the fair
market value of a share of common stock on the date on which such NSO's
are granted). The Stock Option Plan further provides that the maximum
period in which options may be exercised will be determined by the Board
of Directors, except that ISO's may not be exercised after the expiration
of ten years from the date the ISO was initially granted (and five years
F-19
<PAGE>
in the case of any optionee who beneficially owns more than 10% of the
total combined voting power of the Company). Any option granted under the
Stock Option Plan will be nontransferable and may be exercised upon
payment of the option price in cash, a cash equivalent, common stock or
any other form of consideration, which is acceptable to the Board of
Directors.
The following table summarizes the activity under the Stock Option Plan for the
years ended December 31, 1998 and 1999:
Weighted
Average
Exercise
Shares Excise Price Price
------------------------------------------------------------------
Outstanding, December 31,
1997 41,250 $1.50-$2.38 $2.00
Granted 150,000 0.44-2.50 1.02
Forfeited (5,250) 0.44-1.50 .99
Outstanding, December 31,
1998 186,000 0.44-2.38 1.24
Granted 95,750 1.08-2.06 1.62
Forfeited (70,100) 0.44-2.38 .85
Outstanding, December 31,
1999 211,650 0.44-2.38 1.41
Shares exercisable
December 31, 1998 3,450 1.50-2.38 2.27
Shares exercisable
December 31, 1999 27,346 0.44-2.38 .90
The 211,650 options outstanding as of December 31, 1999 have a weighted average
remaining contractual life of 8.71 years.
The Company accounts for these plans under APB Opinion No. 25, under which no
compensation has been recorded. As of December 31, 1999 the Company has not
issued any options to consultants. Had compensation cost for the plan been
determined in accordance with SFAS 123, the Company's net loss and basic loss
per common share would have been decreased in the following pro forma amounts:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1997 1998 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss As reported $(496,338) $(1,833,804) $(261,069)
Pro forma (518,148) (1,849,110) (310,134)
Basic and diluted loss income
per common share As reported $(0.25) $(0.89) $(0.15)
Pro forma $(0.26) $(0.89) $(0.15)
</TABLE>
The fair value of each stock option grant is estimated as of the date of
grant using the Black-Scholes option pricing model with the following
weighted average assumptions:
F-20
<PAGE>
December 31,
---------------------------------------------
1997 1998 1999
-------------------------------------------------------------------------
Fair value $0.25 $0.59 $1.63
Expected life (years) 3.45 3.87 2.45
Risk-free interest rate 6.5% 4.8% 5.3%
Volatility 71% 73% 68%
Dividend yield 0% 0% 0%
The pro forma effects of applying SFAS 123 are not indicative of future
amounts because stock option awards are anticipated in future years.
(b) Director Option Plan
On October 1, 1995, the Board of Directors of the Company adopted and the
Company's shareholders approved the Director Option Plan (the "Director
Plan") pursuant to which 12,500 shares of common stock of the Company were
reserved for issuance upon the exercise of options granted to non-employee
directors of the Company. Under the Director Plan, an eligible director of
the Company will, after having served as a director for one year,
automatically receive non-qualified stock options to purchase 500 shares
of common stock per annum at an exercise price equal to the fair market
value of such shares at the time of grant of such options. Each option is
immediately exercisable for a period of ten years from the date of grant
but generally may not be exercised more than 90 days after the date an
optionee ceases to serve as a director of the Company. As of December 31,
1999, there were options to purchase 1,000 shares of common stock granted
to directors under the Director Plan.
Note 9: Employee Savings Plan
The Company has an employee savings plan, which covers all employees who have
completed at least one year or service with the Company and permits participants
to make contributions by salary reduction pursuant to section 401(k) of the
Internal Revenue Code. Company contributions are discretionary. As of December
31, 1998 and 1999, the Company contributed $0 and $34,500, respectively.
Note 10: Segment Information
The Company's results of operations are reviewed and managed through three
segments (i) high technology equipment leasing ("Paramount"), (ii) Internet,
e-commerce and systems integration ("Paratech") and (iii) legal support staff
("DeltaGroup"). The accounting policies of the segments are the same as those
described in the Summary of Significant Accounting Policies. The Company
evaluated segment performance based on net income (loss) for the years ended
December 31, 1997 and 1998. During 1999, the Company decided to change the way
in which it evaluated its segments by using pre-tax income (loss). The following
represents selected financial information for the Company's segments for the
years ended December 31, 1997, 1998 and 1999:
F-21
<PAGE>
Paramount Paratech DeltaGroup Total
-------------------------------------------------------------------------
1997
-------------------------------------------------------------------------
Revenues $28,620,168 $3,774,673 $ -- $32,394,841
Cost of sales 16,871,078 3,062,135 -- 19,933,213
Net income (loss) 231,251 (727,589) -- (496,338)
Assets 51,956,164 1,106,297 -- 53,062,461
1998
-------------------------------------------------------------------------
Revenues 29,090,851 5,411,945 3,982,695 38,485,491
Cost of sales 20,536,854 4,453,016 3,167,396 28,157,266
Net loss (784,797) (545,290) (503,717) (1,833,804)
Assets 40,559,376 2,581,710 2,105,524 45,246,610
1999
-------------------------------------------------------------------------
Revenues 9,168,201 9,505,458 7,319,254 25,992,913
Cost of sales 8,334,953 6,595,490 5,076,594 20,007,037
Pre-tax (loss)
income (61,834) 433,556 (550,362) (178,640)
Assets 21,920,306 3,723,053 1,854,996 27,498,355
=========================================================================
Note 11: Significant Customers and Concentrations of Credit
For the years ended December 31, 1997, 1998 and 1999, the following customers
represented in excess of 10% of total revenues for the respective years:
Customer 1997 1998 1999
---------------------------------------------------------------
A 47% -- --
B 14% 51% --
C -- 11% --
The Company's net investment in direct finance and sales-type leases is
concentrated primarily with end users of the computer equipment. The Company had
various arrangements with banks and financial institutions in which lease
receivables are assigned to the institutions in exchange for a discounted cash
payment. The financing is in the form of non-recourse notes, in which the
financial institution has a lien on the underlying equipment with no further
recourse against the Company. Therefore, the Company has no credit exposure from
these assigned leases.
Note 12: Commitments and Contingencies
(a) Operating Leases
The Company leases two office facilities and office equipment under
operating leases expiring through November 2002. Total rent expense
amounted to approximately $90,000, $184,000 and $245,000 in 1997, 1998 and
1999, respectively. Total minimum lease payments due under non-cancelable
operating leases are as follows:
F-22
<PAGE>
2000 $231,000
2001 207,000
2002 59,000
(b) Employment Agreements
In 1999, employment agreements with 2 executives automatically renewed and
will expire through the end of 2000 (subject to automatic renewal
provisions) with aggregate minimum payments totaling $650,000.
In connection with the acquisitions described in Note 1, the Company has
also entered into employment agreements with 4 executives expiring through
the end of 2000 with aggregate minimum payments totaling $589,000.
(c) Legal Proceedings
The Company is named in an action to the Company's relates to the
Company's initial public offering in January 1996, in which the Plaintiffs
allegedly bought shares of the Company (and shares of two other named
defendants). The case principally focuses on various alleged activities of
the Company's underwriter and the underwriter's principals and a broker in
the initial public offering and alleges that the Plaintiffs suffered
various damages as a result of a range of alleged counts. The Company
believes that the Plaintiffs' allegations are without merit and intends to
defend the suit vigorously.
The Company is subject to legal proceedings and claims that a rise in the
ordinary course of its business. In the opinion of the management, the
amount of the ultimate outcome of these actions will not materially affect
the Company's financial position, results of operations or cash flows.
(d) Warrants
A service agreement dated May 8, 1997 between the Company and its former
investment adviser provided for a portion of compensation in the form of a
warrant to purchase shares of the Company's common stock. Pursuant to the
agreement the advisor was granted warrants to purchase 33,333 shares of
the Company's common stock at $1.50 per share (after giving effect to the
one-for-four reverse stock split).
Note 13: Supplemental Cash Flow Information
F-23
<PAGE>
Years ended December 31,
---------------------------------------
1997 1998 1999
--------------------------------------------------------------------------
Fair value of assets acquired $ -- $2,365,376 $ --
Liabilities assumed -- (2,570,194) --
Notes issued -- (262,500) --
Warrants issued -- -- (22,901)
Purchase price in excess of net
assets acquired -- 1,477,490 118,232
Cash paid for acquisitions $ -- $1,010,172 $ 95,331
F-24
CERTIFICATE OF INCORPORATION
OF
5B TECHNOLOGIES CORPORATION
THE UNDERSIGNED, for the purpose of forming a corporation pursuant
to the provisions of the General Corporation Law of the State of Delaware (the
"General Corporation Law"), does hereby certify as follows:
FIRST: The name of the corporation is 5B Technologies Corporation
(hereinafter referred to as the "Corporation").
SECOND: The address of the Corporation's registered office in the
State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle,
Delaware 19805. The name of its registered agent at such address is Corporation
Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law.
FOURTH: (A) The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 22,500,000 shares divided into
the following classes: (i) 17,500,000 shares of common stock with a par value of
$0.04 per share (the "Common Stock"); and (ii) 5,000,000 shares of preferred
stock with a par value of $0.01 per share (the "Preferred Stock")
(B) The Board of Directors of the Corporation is authorized, subject
to the limitations prescribed by law and the provisions of this Article, to
provide for the issuance, from time to time in one or more series, of any number
of shares of Preferred Stock, and by filing a certificate of designations
pursuant to Section 151 of the General Corporation Law, to establish the number
of shares to be included in each series of Preferred Stock and to fix the
powers, designations, preferences, relative rights, qualifications and
restrictions thereof. The authority of the Board of Directors with respect to
each series of Preferred Stock shall include, but not be limited to, a
determination of the following:
(a) The number of shares of Preferred Stock constituting that
series and the distinctive designation of that series;
(b) The dividend rate on the shares of Preferred Stock of that
series, whether dividends shall be cumulative, and if so, from which
date or dates, and whether they shall be payable in preference to,
or in such relation to, the dividends payable on any other class or
classes or of any other series of the capital stock of the
Corporation;
<PAGE>
(c) Whether that series shall have any voting rights in
addition to those provided by law, and if so, the terms of such
additional voting rights;
(d) Whether that series shall have conversion or exchange
privileges, and if so, the terms and conditions of such conversion
or exchange, including provision for adjustment of the conversion or
exchange rate in such events as the Board of Directors shall
determine;
(e) Whether or not the shares of that series shall be
redeemable, and if so, the terms and conditions of such redemption,
including the manner of selecting shares for redemption if less than
all of the shares are to be redeemed, the date or dates upon or
after which they shall be redeemable and the type and amount of
consideration payable per share in case of redemption, which amount
may vary under different conditions and at different redemption
dates;
(f) Whether that series shall be entitled to the benefit of a
sinking fund to be applied to the purchase or redemption of shares
of that series, and if so, the terms and amount of such sinking
fund;
(g) The right of shares of that series to the benefit of
conditions and restrictions upon the creation of indebtedness of the
Corporation or any subsidiary, upon the issuance of any additional
stock (including additional shares of such series or of any other
series) and upon the payment of dividends or the making of other
distributions on, and the purchase or redemption or other
acquisition by the Corporation or any subsidiary of, any outstanding
stock of the Corporation;
(h) The rights of the shares of that series in the event of a
voluntary or involuntary liquidation, dissolution or winding up of
the Corporation and whether such rights shall be in preference to,
or in another relation to, the comparable rights of any other class
or classes or series of capital stock; and
(i) Any other relative, participation, optional or other
special rights, qualifications, limitations or restrictions of that
series.
FIFTH: The following provisions are inserted for the management of
the business and the conduct of the affairs of the Corporation and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
I. The election of directors need not be by written ballot,
unless the By-laws so provide.
II. The Board of Directors shall have the power, without the
consent or vote of the stockholders, to make, alter, amend, change or repeal the
By-laws of the Corporation in accordance with Article IX of the By-laws.
- 2 -
<PAGE>
SIXTH: The Corporation shall indemnify and advance expenses to, to
the fullest extent permitted by Section 145 of the General Corporation Law, as
amended from time to time, each person who is or was a director or officer of
the Corporation and the heirs, executors and administrators of such person. Any
expenses (including attorneys' fees) incurred by each person who is or was a
director or officer of the Corporation, and the heirs, executors and
administrators of such person, in connection with defending any such proceeding
in advance of its final disposition shall be paid by the Corporation; provided,
however, that if the General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Corporation of an undertaking by or on
behalf of such indemnitee to repay all amounts so advanced, if it shall
ultimately be determined that such indemnitee is not entitled to be indemnified
for such expenses under this Article or otherwise.
SEVENTH: Whenever a compromise or arrangement is proposed between
the Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
EIGHTH: No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law, or
(iv) for any transaction from which the director derived an improper personal
benefit.
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<PAGE>
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by the laws, and all rights herein conferred
upon stockholders, directors and officers are subject to this reserved power.
TENTH: The name and mailing address of the sole Incorporator of the
Corporation is Danal F. Abrams, c/o Piper Marbury Rudnick & Wolfe LLP, 1251
Avenue of the Americas, New York 10020.
IN WITNESS WHEREOF, the undersigned, being the sole Incorporator
hereinabove named, does hereby certify that the facts hereinabove stated are
truly set forth and, accordingly, hereby executes this Certificate of
Incorporation this ____ day of February, 2000.
/s/ Danal F. Abrams
---------------------------------------
Danal F. Abrams, Incorporator
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BY-LAWS
OF
5B TECHNOLOGIES CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - OFFICES..........................................................1
Section 1. Registered Office and Agent:...............................1
Section 2. Offices....................................................1
ARTICLE II - SEAL............................................................1
Section 1. Corporate Seal.............................................1
ARTICLE III - STOCKHOLDERS' MEETINGS.........................................1
Section 1. General....................................................1
Section 2. Annual Meeting.............................................2
Section 3. No Ballot Required.........................................2
Section 4. Special Meetings...........................................2
Section 5. Quorum.....................................................2
Section 6. Vote Required..............................................3
Section 7. Proxies....................................................3
Section 8. Notice of Meetings.........................................3
Section 9. Consent in Lieu of Meetings................................4
Section 10. List of Stockholders.......................................4
Section 11. Conduct of Stockholders' Meetings..........................4
ARTICLE IV - DIRECTORS.......................................................5
Section 1. General....................................................5
Section 2. Regular Meetings...........................................5
Section 3. Special Meetings...........................................5
Section 4. Quorum, Voting.............................................6
Section 5. Consent in Lieu of Meeting.................................6
Section 6. Conference Telephone.......................................6
Section 7. Compensation...............................................6
Section 8. Removal....................................................7
Section 9. Committees.................................................7
ARTICLE V - ARTICLE V - OFFICERS.............................................8
Section 1. General....................................................8
Section 2. Salaries...................................................8
Section 3. Term of Office............................................8
Section 4. Chairman...................................................9
Section 5. Chief Executive Officer(s).................................9
Section 6. President..................................................9
Section 7. Vice Presidents............................................9
Section 8. Secretary and Assistant Secretaries........................9
Section 9. Treasurer and Assistant Treasurers........................10
Section 10. Other Officers............................................11
(i)
<PAGE>
ARTICLE VI - STOCK CERTIFICATES, RECORD DATE, DIVIDENDS, ETC................11
Section 1. Stock Certificates........................................11
Section 2. Record Holders............................................11
Section 3. Transfers of Stock........................................12
Section 4. Lost Certificate..........................................12
Section 5. Record Date...............................................12
Section 6. Dividends.................................................13
ARTICLE VII - MISCELLANEOUS PROVISIONS......................................14
Section 1. Checks....................................................14
Section 2. Fiscal Year...............................................14
Section 3. Notice....................................................14
Section 4. Waiver of Notice.........................................14
Section 5. Resignations..............................................15
ARTICLE VIII - ANNUAL STATEMENT.............................................15
Section 1. ..........................................................15
ARTICLE IX - AMENDMENTS.....................................................15
Section 1. ..........................................................15
ARTICLE X - INDEMNIFICATION.................................................15
Section 1. Indemnity in Third-Party Actions .........................15
Section 2. Indemnity in Suits By or in right of Corporation..........16
Section 3. Expenses in Successful Defense............................17
Section 4. Determination of Proper Indemnification...................17
Section 5. Advance of Expenses.......................................17
Section 6. Non-Exclusivity...........................................17
Section 7. Continuing Coverage.......................................18
Section 8. Insurance.................................................18
Section 9. Definition of "the Corporation"...........................18
Section 10. Certain Definitions.......................................19
Section 11. Retroactive Effect........................................19
(ii)
<PAGE>
By-Laws
of
5B TECHNOLOGIES CORPORATION
ARTICLE I - OFFICES
Section 1. Registered Office and Agent: The registered office of the
Corporation in the state of Delaware shall be at 1013 Centre Road in the City of
Wilmington, County of New Castle, Delaware 19805-1297. The registered agent in
charge thereof shall be Corporation Service Company.
Section 2. Offices: The Corporation may also have offices at such other
places, both within and without the State of Delaware, as the Board of Directors
(the "Board") may from time to time appoint or the business of the Corporation
may require.
ARTICLE II - SEAL
Section 1. Corporate Seal: The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by having it or a facsimile
thereof to be impressed or affixed or in any manner reproduced.
ARTICLE III - STOCKHOLDERS' MEETINGS
Section 1. General: All meetings of the stockholders shall be held at the
executive offices of the Corporation or at such other place, either within or
without the State of Delaware, as may be stated from time to time by the Board
in a notice of the meeting or in a duly executed waiver of notice thereof.
<PAGE>
Section 2. Annual Meeting: An annual meeting of the stockholders shall be
held in each year for the election of directors and to transact such other
business as may properly be brought before the meeting at such time and place as
the Board shall determine and set forth in a written notice provided
stockholders in accordance with Section 8 of this Article 1.
Section 3. No Ballot Required: Elections of the directors of the
Corporation need not be by written ballot.
Section 4. Special Meetings: Special meetings of the stockholders may be
called at any time by the Board or by stockholders entitled to cast at least a
majority in amount of the votes which all stockholders are entitled to cast at
the particular meeting. Upon the written request of any person or persons who
have duly called a special meeting, it shall be the duty of the Secretary to
give due notice thereof stating the time, place and purpose thereof. If the
Secretary shall neglect or refuse to fix the date of the special meeting and
give notice thereof in accordance with Section 8 of this Article I, the person
or persons calling such meeting may do so. Business transacted at all special
meetings shall be confined to the subjects stated in the notice and matters
germane thereto.
Section 5. Quorum: Except as otherwise provided by applicable law, a
majority of the outstanding shares of the Corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at any meeting of
stockholders. If less than a majority of the outstanding shares entitled to vote
is represented at any such meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting of stockholders at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly organized meeting may
continue to transact business until adjournment notwithstanding the withdrawal
of sufficient stockholders to reduce the remaining number below that which
constitutes a quorum.
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<PAGE>
Section 6. Vote Required: When a quorum is present at any meeting, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of
applicable law or the Corporation's Certificate of Incorporation, a different
vote is required, in which case such express provision shall govern and control
the decision of such question. Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, unless otherwise
provided for in the Corporation's Certificate of Incorporation.
Section 7. Proxies: Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three (3) years from
its date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally. All
proxies shall be filed with the Secretary of the meeting before being voted
upon.
Section 8. Notice of Meetings: Whenever stockholders are required or
permitted to take any action at a meeting, written notice of the meeting shall
be given to each stockholder of record as determined in accordance with Section
5 of Article VI, not less than ten (10) days nor more than sixty (60) days
before the date of the meeting. The foregoing notice shall state the place, date
and hour of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called.
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<PAGE>
Section 9. Consent in Lieu of Meetings: Any action required or permitted
to be taken at any annual or special meeting of stockholders of the Corporation
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by
stockholders having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders of record who have not consented in writing in
accordance with applicable law.
Section 10. List of Stockholders: The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten (10) business
days before every meeting of stockholders, a complete list of the stockholders
of record entitled to vote at the meeting, arranged in alphabetical order, and
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. This list of stockholders shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of not less than ten (10) business days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is held. The list shall also be
produced and kept at the meeting during the entire duration thereof, and may be
inspected by any stockholder who is present thereat.
Section 11. Conduct of Stockholders' Meetings: The Chairman, or in his
absence the Chief Executive Officer(s), or in their absence a Vice-President
designated by the Board, shall call to order meetings of stockholders and shall
act as chairman of such meetings. If the Board fails to act, the stockholders
may appoint any stockholder, director or officer of the Corporation to act as
chairman of any meeting in the absence of the Chairman, the Chief Executive
Officer(s), and all
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<PAGE>
Vice-Presidents. The Secretary of the Corporation shall act as secretary of all
meetings of stockholders but, in the absence of the Secretary, the chairman of
the meeting may appoint any other person to act as secretary of the meeting.
ARTICLE IV - DIRECTORS
Section 1. General: The business and affairs of the Corporation shall be
managed by or under the direction of a Board consisting of such number of
directors as shall be established from time to time by resolution adopted by the
affirmative vote of a majority of the entire Board, provided that the number
shall not be less than two (2) nor more than ten (10). A director shall hold
office until the next annual meeting of stockholders and until his successor
shall be elected and shall qualify, subject, however, to his prior death,
resignation, retirement, disqualification or removal from office. Any vacancy on
the Board that results from an increase in the number of directors may be filled
by a majority of the directors then in office, although less than a quorum, or
by a sole remaining director. Any director elected to fill a vacancy not
resulting from an increase in the number of directors shall have the same
remaining term as that of his predecessor.
Section 2. Regular Meetings: The Board may hold meetings, both regular and
special, either within or without the State of Delaware. The first meeting of
each newly elected Board shall be held immediately after and at the same place
as the meeting of the stockholders at which it was elected and no notice of such
meeting shall be necessary to the newly elected directors in order legally to
constitute the meeting, provided a quorum shall be present. Regular meetings of
the Board may be held without notice of such time and at such place as shall
from time to time be determined by the Board.
Section 3. Special Meetings: Special meetings of the Board may be called
by the Chief Executive Officer on two (2) days' notice to each director, either
personally or by mail, overnight courier, facsimile or telegram. Special
meetings shall be called by the Chief Executive
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<PAGE>
Officer or the Secretary in like manner and on like notice upon the written
request of any two (2) directors in office.
Section 4. Quorum, Voting: A majority of the total number of directors
shall constitute a quorum for the transaction of business at any meeting of the
Board. In the absence of a quorum, a majority of those present (or if only one
is present, then that one) may adjourn the meeting, without notice other than
announcement at the meeting, until such time as a quorum is present. Except as
otherwise required by applicable law or by the Certificate of Incorporation, the
vote of a majority of the directors present at a meeting at which a quorum is
present shall constitute the act of the Board and the vote of a majority of the
members of any committee of the Board shall constitute the act of such
committee. Meetings shall be presided over by the Chairman or, in his absence,
by the Chief Executive Officer(s), or in the absence of both, by such other
person as the Board may select. The Secretary of the Corporation shall act as
secretary of the meeting, but -in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 5. Consent in Lieu of Meeting: Any action required or permitted to
be taken at any meeting of the Board, or at any committee thereof, may be taken
without a meeting if all the members of the Board or particular committee, as
the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board or committee, as appropriate.
Section 6. Conference Telephone: One or more directors may participate in
a meeting of the Board, or of any committee thereof, by means of conference
telephone or similar communications equipment so long as all persons
participating in the meeting can hear each other; and participation in this
manner shall constitute presence in person at such meeting.
Section 7. Compensation: The Board may determine the compensation of
directors who are not also officers or employees of the Corporation. In
addition, as determined by the Board,
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<PAGE>
directors may be reimbursed by the Corporation for travel expenses, if any,
incurred by them in attending any meetings of the Board or any committee
thereof. No such compensation or reimbursement shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
Section 8. Removal: Any director or the entire Board may be removed, with
or without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors.
Section 9. Committees: The Board may, by resolution passed by a majority
of the whole Board, designate one or more committees, each committee to consist
of one or more of the directors of the Corporation. Any such committee, to the
extent provided in the resolution of the Board, shall have and may exercise all
powers and authority of the Board in the management of the business and affairs
of the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it; provided that no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property or assets, recommending to the stockholders a dissolution
of the Corporation or a revocation of a dissolution or amending the by-laws of
the Corporation; and, unless the resolution expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Each committee shall keep regular minutes of
its meetings and report the same to the Board when required. By similar vote,
the Board may designate one or more directors as alternate members of any such
committee who may replace any absent or disqualified member at any meeting of
any such committee. In the absence or disqualification of any member of any such
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a
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<PAGE>
quorum, may unanimously appoint another member of the Board to act at the
meeting in the place of any such absent or disqualified member. Meetings of such
committees of the Board may be held at any place, without or without the State
of Delaware, from time to time designated by the Board or the committee. Regular
meetings of any such committee shall be held at such times as may be determined
by resolution of the Board or the committee and no notice shall be required for
any regular meeting. A special meeting of any such committee may be called, on
two (2) days' notice to each member of such committee, either personally or by
mail, overnight courier, facsimile or telegram, by resolution of the Board or by
the Secretary or an Assistant Secretary upon the request of any member of the
committee. Any such committee may make rules for holding and conducting its
meetings.
ARTICLE V - OFFICERS
Section 1. General: The executive officers of the Corporation shall be
chosen by the directors and shall consist of a Chief Executive Officer or
Co-Chief Executive Officers, President, Secretary and Treasurer. The Board may
also choose a Chairman, one or more Vice-Presidents and such other officers as
it shall deem necessary. Any number of offices may be held by the same person.
Section 2. Salaries: The salaries of all officers and agents of the
Corporation shall be fixed by the Board or any committee thereof.
Section 3. Term of Office: Office: The officers of the Corporation shall
hold office for such term as the Board shall fix and until their successors are
chosen and have qualified. Any officer or agent elected or appointed by the
Board may be removed by the Board whenever in its Judgment the best interests of
the Corporation will be served thereby. Any vacancy occurring in any office of
the Corporation shall be filled by the Board.
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<PAGE>
Section 4. Chairman: The Chairman shall have the general powers and duties
of supervision and management usually vested in the office of the Chairman of a
corporation.
Section 5. Chief Executive Officer(s): The Chief Executive Officer or
Co-Chief Executive Officers shall have the general powers and duties of
supervision and management of the Corporation, including responsibility for the
establishment and supervision of all policies of the Corporation, subject to the
control of the Board. In the absence of a President, the Chief Executive Officer
or Officers shall have the powers prescribed to the President.
Section 6. President: The President shall have responsibility for the
day-to-day management of the business of the Corporation subject to the control
of the Board, and shall ensure that all orders and resolutions of the Board are
carried into effect, subject, however, to the right of the directors to delegate
any specific powers to any other officer or officers of the Corporation. The
President shall be directly answerable to the Chief Executive Officer.
Section 7. Vice Presidents: The Vice-President, or if there shall be more
than one, the Vice-Presidents in the order determined by the Board, shall, in
the absence or disability of the Chairman, Chief Executive Officer(s) and the
President, perform the duties and exercise the powers of the Chairman, Chief
Executive Officer(s) and the President. The Vice-Presidents shall each report to
the President or such other person as may be designated by the Board. The
Vice-Presidents may be responsible for a single function or department or for
more than one function or department. The Vice-Presidents shall perform such
duties and have such powers as the Board, the Chairman, Chief Executive
Officer(s) or the President may from time to time prescribe.
Section 8. Secretary and Assistant Secretaries: Secretaries: The Secretary
shall attend all sessions of the Board and all meetings of the stockholders and
act as clerk thereof, and record all the votes of the Corporation and the
minutes of all its transactions in a book to be kept for that purpose, and shall
perform like duties for all committees of the Board, and shall perform
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<PAGE>
such other duties as may be prescribed by the Board or the Chief Executive
Officer(s). The Secretary shall keep in safe custody the corporate seal of the
Corporation, and when authorized by the Board, shall affix the same to any
instrument requiring such corporate seal. The Assistant Secretary, or if there
be more than one, the Assistant Secretaries in the order determined by the
Board, shall, in the absence or disability of the Secretary, perform the duties
and exercise the power of the Secretary and shall perform such other duties and
have such other powers as the Board may from time to time prescribe. Assistant
Secretaries shall report to the Secretary.
Section 9. Treasurer and Assistant Treasurers: The Treasurer shall have
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation,
and shall keep the moneys of the Corporation in a separate account to the credit
of the Corporation. The Treasurer shall disburse the funds of the Corporation as
may be ordered by the Board or the Chief Executive Officer(s), taking proper
vouchers for such disbursements, and shall render to the Chairman, Chief
Executive Officer(s), President, the Vice President responsible for financial
matters and the Board, at the regular meetings of the Board, or whenever they
may require it, an accounting of all his transact-Ions as Treasurer and of the
financial condition of the Corporation. The Treasurer shall report directly to
the Vice-President responsible for financial matters, or to such other person as
may be designated by the Chairman, the Chief Executive Officer(s) or the Board.
If required by the Board, the Treasurer shall give the Corporation a bond in
such sum and with such surety or sureties as shall be satisfactory to the Board
for the faithful performance of the duties of his office and for the restoration
to the Corporation, in case of his death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in the Treasurer's possession or under the Treasurer's control
belonging to the Corporation. The Assistant Treasurer, or if there shall be more
than one, the Assistant Treasurers in the order determined by the Board,
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<PAGE>
shall, in the absence or disability of the Treasurer, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties and
have such other powers as the Board may from time to time prescribe. The
Assistant Treasurers shall report to the Treasurer.
Section 10. Other Officers: The Board may appoint such other officers and
agents as it shall deem necessary or appropriate in order to carry out the
business of the Corporation who shall have such power and authority as may be
delegated to them by the Board, the Chairman, the Chief Executive Officer(s) or
the President of the Corporation.
ARTICLE VI - STOCK CERTIFICATES, RECORD DATE, DIVIDENDS, ETC.
Section 1. Stock Certificates: Shares of capital stock of the Corporation
shall be represented by certificates. The stock certificates of the Corporation
shall be numbered and registered in the share ledger and transfer books of the
Corporation as they are issued. They shall bear the corporate seal and shall be
signed by the Chairman, Chief Executive Officer(s), President or any Vice
President and by the Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary of the Corporation. In case of any officer or officers who have
signed, or whose facsimile signature or signatures have been used on, any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates have been delivered by the Corporation, such
certificate or certificates may nevertheless be adopted by the Corporation and
be issued or delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the Corporation.
Section 2. Record Holders: The Corporation shall for all purposes be
entitled to treat a person registered on its books as the owner of shares, as
the owner of those shares, with the exclusive right, among other things, to
receive dividends and notifications and to vote with regard to those shares. The
Corporation shall be entitled to hold a person registered on its books as the
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<PAGE>
owner of shares liable for calls and assessments, if any may legally be made,
and shall not be bound to recognize any equitable or other claim to or interest
in shares of its stock on the part of any other person, whether or not the
Corporation shall have express or other notice of the claim or interest of the
other person, except as otherwise provided by the laws of Delaware.
Section 3. Transfers of Stock: Shares of capital stock of the Corporation
shall be transferable on the books of the Corporation by the holder of record
thereof or by his attorney, pursuant to applicable law and such rules and
regulations as the Board shall from time to time prescribe. Any shares
represented by a certificate shall be transferable only upon surrender of the
certificate therefor with an assignment endorsed thereon or attached thereto and
duly executed and with such proof of authenticity of signatures as the
Corporation may reasonably require.
Section 4. Lost Certificate: The Corporation may issue a new certificate
of stock in the place of any certificate theretofore signed by it, alleged to
have been lost, stolen, mutilated or destroyed upon the making of an affidavit
of that fact by the person claiming such fact; and the Corporation may require
the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
Section 5. Record Date: In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board may fix, in advance, a record date, which shall
not be more than sixty (60)
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days nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action.
If no record date is fixed:
(a) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice Is given,
or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no
prior action by the Board is necessary, shall be the day on which
the first written consent is expressed.
(c) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board
adopts the resolution relating thereto.
A determination of the stockholders entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
Section 6. Dividends: Dividends upon the capital stock of the Corporation,
subject to the I provisions, 1 if any, of the Certificate of Incorporation, may
be declared by the Board at any regular or special meeting, pursuant to
applicable law. Dividends may be paid in cash, in property or in shares of the
capital stock, subject to the provisions of the Certificate of Incorporation.
Before payment of any dividend, there may be set aside out of any funds as the
Board from time to time, in its absolute discretion, thinks proper as a reserve
or reserves to meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the Corporation, or for such other
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purpose as the Board shall think conducive to the interest of the Corporation,
and the Board may modify or abolish any such reserves in the manner in which it
was created.
ARTICLE VII - MISCELLANEOUS PROVISIONS
Section 1. Checks: All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other persons as
the Board may from time to time designate.
Section 2. Fiscal Year: The fiscal year of the Corporation shall be the
calendar year.
Section 3. Notice: Whenever written notice is required to be given to any
stockholder or director, it may be given to such person, either personally or by
sending a copy thereof through the mail, or by telegram, charges prepaid, to
such person's address appearing on the books of the Corporation, or supplied by
such person to the Corporation for the purpose of receiving notice. If the
notice is sent by mail or by telegraph, it shall be deemed to have been given to
the person entitled thereto when deposited in the United States mail or with a
telegraph office for transmission to such person. Notices to directors may be
also be given by overnight courier, by telegram or by facsimile transmission at
their addresses appearing on the books of the Corporation.
Section 4. Waiver of Notice: Whenever any written notice is required by
law, the Certificate of Incorporation or these By-Laws, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such meeting. Attendance of
a person, either in person or by proxy, at any meeting, shall constitute a
waiver of notice of such meeting, except when such person attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting was not lawfully called or convened.
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Section 5. Resignations: Any director or other officer may resign at
anytime, such resignation to be in writing, and to take effect from the time of
its receipt by the Corporation, unless some time is fixed in the resignation and
then from the date specified therein. The acceptance of a resignation shall not
be required to make it effective.
ARTICLE VIII - ANNUAL STATEMENT
Section 1. The Board and President shall present at each annual meeting of
stockholders a full and complete statement of the business and affairs of the
Corporation for the preceding year. Such statement shall be prepared and
presented in whatever manner the Board shall deem advisable and need not be
verified by a certified public accountant.
ARTICLE IX - AMENDMENTS
Section 1. Except as otherwise provided in the Certificate of
Incorporation, these By-Laws may be altered, amended or repealed from time to
time by the Board by affirmative vote of a majority of the whole Board. These
By-Laws may also be altered, amended or repealed at any annual or special
meeting of stockholders. Notice of such proposed alteration, amendment or repeal
setting forth the substance or text thereof shall be included in the notice of
any meeting of the Board or stockholders called to consider any such alteration,
amendment or repeal.
ARTICLE X - INDEMNIFICATION
Section 1. Indemnity in Third-Party Actions: The Corporation shall
indemnify any person who was or is made a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that the person is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint
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<PAGE>
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonable
incurred by him in connection with such action, suit or proceeding if the person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contenders or its
equivalent, will not, of itself, create a presumption that the person did not
act in good faith and in a manner which the person reasonably believed to be in
or not opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, had reasonable cause to believe that the conduct
was unlawful.
Section 2. Indemnity in Suits By or in Right of Corporation: Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, ending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
the person is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
Corporation. No indemnification shall be made in respect of any claim, issue or
matter as to which any person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Delaware Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case,
- 16 -
<PAGE>
such person is fairly and reasonably entitled to indemnity for his expenses
which the Court of Chancery or such other court shall deem proper.
Section 3. Expenses in Successful Defense: To the extent that a director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 1 and 2 of this Article, or in defense of any claim, issue or matter
therein, the person shall be indemnified against expenses (including attorneys
fees) actually and reasonably incurred by the person in connection therewith.
Section 4. Determination of Proper Indemnification: Any indemnification
under Sections 1 and 2 of this Article (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that the indemnification of the director, officer, employee or agent is proper
under the circumstances because he has met the applicable standard of conduct
set forth in Section 1 or 2. Such determination shall be made: (i) by the Board
by a majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding; or (ii) if such a quorum is not obtainable, or,
even if obtainable and a quorum of disinterested directors so directs, by
independent legal counsel (compensated by the Corporation) in a written opinion;
or (iii) by the stockholders.
Section 5. Advance of Expenses: Expenses incurred by an officer, director,
employee or agent in defending a civil, criminal, administrative or
investigative action, suit or proceeding, or any threat thereof, may be paid by
the Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article.
Section 6. Non-Exclusivity: The indemnification and advancement of
expenses provided by, or granted pursuant to, the other Sections of this Article
shall not be deemed exclusive
- 17 -
<PAGE>
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any agreement, vote of stockholders or
disinterested directors or otherwise, both as to actions in their official
capacity and as to actions in any other capacity while holding such office(s).
Section 7. Continuing Coverage: The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 8. Insurance: The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against the
person and incurred by him in any such capacity, or arising out of that person's
status as such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of this Article.
Section 9. Definition of "the Corporation": References in this Article to
"the Corporation" will include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had the power and authority to indemnify its directors, officers and
employees or agents so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, will stand in the same position under the provisions of this Article
with respect to the resulting or surviving corporation as he would have with
respect to the constituent corporation if its separate existence had continued.
- 18 -
<PAGE>
Section 10. Certain Definitions: For purposes of this Article, references
to "other enterprises" will include employee benefit plans; references to
"fines" will include any excise taxes " assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
Corporation" will include any service as a director, officer, employee or agent
of a subsidiary of the Corporation and any service as a director, officer,
employee or agent of the Corporation which imposes duties on, or involves
services by, such director, officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan will be deemed
to have acted in a manner "not opposed to the best interests of the Corporation"
as referred to in this Article.
Section 11. Retroactive Effect: The provisions of this Article will be
deemed retroactive and will include all acts of the officers and directors of
the Corporation since the date of incorporation.
************************
- 19 -
EXHIBIT 21
List of Subsidiaries of 5B Technologies Corporation
o Paramount Operations Inc. (owned by 5B Technologies Corporation);
incorporated in Delaware
o Paratech Resources, Inc. (owned by Paramount Operations Inc.);
incorporated in New York
o Deltaforce Personnel Services, Inc. (owned by Paramount Operations
Inc.); incorporated in New York
o Comptech Acquisition Corp. (owned by Paratech Resources, Inc.);
incorporated in New York
o Abbey, Garrett & Seth, Ltd. (owned by Comptech Acquisition Corp.);
incorporated in New York; does business under the name Comptech
Resources
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