<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
COMMISSION FILE NUMBER 0-27190
5B TECHNOLOGIES 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) (ZIP CODE)
(516) 938-3400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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
----- -----
NUMBER OF SHARES OUTSTANDING AT MAY 12, 2000:
2,135,500 SHARES OF COMMON STOCK, PAR VALUE $0.04 PER SHARE.
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<PAGE>
5B TECHNOLOGIES CORPORATION
INDEX TO FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 2000
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999..............................1
Consolidated Statements of Operations Three
Months Ended March 31, 2000 and 1999..............................2
Consolidated Statements of Cash Flows Three
Months Ended March 31, 2000 and 1999..............................3
Notes to Unaudited Consolidated Financial
Statements......................................................4-6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations..................7-11
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk......................................................12
PART II - Other Information...................................................13
SIGNATURES....................................................................14
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
5B TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 317,604 $ 1,003,752
Investments available for sale .............................................. 931,705 925,616
Accounts receivable ......................................................... 2,499,884 2,718,646
Other current assets ........................................................ 143,668 61,164
------------ ------------
Total current assets .................................................... 3,892,861 4,709,178
------------ ------------
Investments available for sale ................................................. 156,493 157,060
Goodwill ....................................................................... 1,461,826 1,498,292
Net assets of discontinued operation ........................................... 913,020 1,812,232
Other assets ................................................................... 1,022,653 1,098,260
------------ ------------
Total assets ............................................................ $ 7,446,853 $ 9,275,022
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 660,829 $ 745,839
Accrued liabilities ......................................................... 396,976 558,840
Notes payable ............................................................... 2,025,164 2,227,775
------------ ------------
Total current liabilities ............................................... 3,082,969 3,532,454
Notes payable .................................................................. 91,670 158,600
------------ ------------
Total liabilities ....................................................... 3,174,639 3,691,054
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, none outstanding .............................................. -- --
Common stock, $.04 par value; 17,500,000 shares
authorized, and 2,160,000 shares issued and outstanding ................... 86,400 86,400
Additional paid-in capital .................................................. 14,520,929 14,504,629
Stock subscription receivable ............................................... (812,500) (812,500)
Accumulated deficit ......................................................... (9,472,011) (8,143,956)
Treasury stock, 24,500 shares at cost ....................................... (50,605) (50,605)
------------ ------------
Total stockholders' equity ..................................................... 4,272,213 5,583,968
------------ ------------
Total liabilities and stockholders' equity ..................................... $ 7,446,853 $ 9,275,022
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
5B TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
UNAUDITED
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Sales .......................................................................... $ 3,883,016 $ 4,004,540
Cost of sales .................................................................. 2,653,387 2,930,724
----------- -----------
Gross profit ............................................................ 1,229,629 1,073,816
----------- -----------
Expenses:
Selling ................................................................. 390,247 354,644
General and administrative .............................................. 1,198,353 1,271,756
----------- -----------
Total expenses .......................................................... 1,588,600 1,626,400
----------- -----------
Loss from operations ........................................................... (358,971) (552,586)
Interest income ................................................................ 9,233 14,616
----------- -----------
Loss before provision for income and
discontinued operations ...................................................... (349,738) (537,970)
Provision for income taxes ..................................................... 944 825
----------- -----------
Loss from continuing operations ......................................... (350,682) (538,795)
Discontinued operation:
(Loss) income from discontinued operation ............................... (121,175) 425,016
Loss on disposal of discontinued operation .............................. (856,198) --
----------- -----------
Net loss ....................................................................... $(1,328,055) $ (113,779)
=========== ===========
Basic (loss) earnings per share:
Continuing operations ................................................... $ (0.16) $ (0.26)
=========== ===========
Discontinued operations ................................................. $ (0.46) $ 0.20
=========== ===========
Net loss per share ...................................................... $ (0.62) $ (0.06)
=========== ===========
Diluted (loss) earnings per share:
Continuing operations ................................................... $ (0.16) $ (0.26)
=========== ===========
Discontinued operation .................................................. $ (0.46) $ 0.20
=========== ===========
Net loss per share ...................................................... $ (0.62) $ (0.06)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
5B TECHNOLOGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
UNAUDITED
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................................................... $(1,328,054) $ (113,779)
Adjustments to reconcile net loss to net cash provided by operating activities:
Loss from discontinued operation ........................................................ 40,282 --
Loss from sale of discontinued operation ................................................ 856,198 --
Issuance of stock options ............................................................... 16,300 --
Depreciation and amortization ........................................................... 124,519 113,942
Depreciation and amortization on discontinued operation ................................. 530,530 1,058,132
Changes in operating assets and liabilities:
Accounts receivable .................................................................. 218,762 (310,487)
Other assets ......................................................................... (94,951) (95,657)
Accounts payable ..................................................................... (85,010) 93,187
Accrued expenses ..................................................................... (161,864) 8,374
----------- -----------
Net cash provided by continuing operations ................................................... 116,712 753,712
Net cash provided by discontinued operation .................................................. 689,967 218,029
----------- -----------
Net cash provided by operating activities .................................................... 806,679 971,741
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisitions, net of cash acquired .......................................... -- (50,000)
Purchases of investments ................................................................ (5,522) (6,710)
----------- -----------
Net cash used in investing activities by discontinued operation .............................. (5,522) (56,710)
Net cash provided by discontinued operation .................................................. 2,616,581 3,651,572
----------- -----------
Net cash provided by investing activities .................................................... 2,611,059 3,594,862
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable ............................................................. 142,621 370,718
Repayment of notes payable .............................................................. (412,162) (696,596)
----------- -----------
Net cash used in financing activities ........................................................ (269,541) (325,878)
Net cash used by discontinued operation ...................................................... (3,834,345) (4,599,666)
----------- -----------
Net cash used in financing activities ........................................................ (4,103,886) (4,925,544)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS .................................................... (686,148) (358,941)
CASH AND CASH EQUIVALENTS, beginning of period ............................................... 1,003,752 1,495,082
----------- -----------
CASH AND CASH EQUIVALENTS, end of period ..................................................... $ 317,604 $ 1,136,141
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes ................................................................... $ 1,694 $ 35,830
=========== ===========
Cash paid for income taxes for discontinued operation ........................................ $ 70,969 $ --
=========== ===========
Cash paid for interest ....................................................................... $ 53,491 $ 27,329
=========== ===========
Cash paid for interest for discontinued operation ............................................ $ 252,792 $ 592,028
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
5B TECHNOLOGIES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and Regulation
S-X related to interim period financial statements and, therefore, do not
include all information and footnotes required by generally accepted
accounting principles. However, in the opinion of management, all
adjustments (consisting of normal recurring adjustments and accruals)
considered necessary for a fair presentation of the financial position of
5B Technologies Corporation and subsidiaries (the "Company") at March 31,
2000 and its results of operations and cash flows for the three months
ended March 31, 2000 and 1999, respectively, have been included (See Note
2).
The financial statements for the three months ended March 31, 2000 are
consolidated to include the results of the Company's two wholly owned
subsidiaries, Paratech Resources, Inc. ("Paratech") and Deltaforce
Personnel Services, Inc. ("DeltaGroup"). All material intercompany balances
and transactions have been eliminated.
The results of operations for the interim periods are not necessarily
indicative of the results that may be expected for the entire year.
Reference should be made to the annual financial statements, including
footnotes thereto, included in the Company's Form 10-K for the fiscal year
ended December 31, 1999.
2. DISCONTINUED OPERATION
On May 2, 2000, the Company sold the majority of its lease portfolio (the
"Assets"), which was maintained through a wholly owned subsidiary,
Paramount Operations Inc. ("Paramount"), for approximately $700,000 and
the assumption of approximately $6,117,000 of indebtedness related to the
Assets. Accordingly, Paramount has been presented as a discontinued
operation for the three months ended March 31, 2000, and the balance sheet
as of December 31, 1999 and the statements of operations and cash flows for
the three months ended March 31, 1999 have been restated to conform with
this presentation. The loss on disposal of Paramount includes provisions
for estimated losses of approximately $602,000 and a loss on sale of
approximately $254,000, for a total loss of approximately $856,000. The
provision for estimated losses of approximately $602,000 is based on
management's estimate of future income and expenses relating to the
remaining lease portfolio and write-downs of certain related assets. Net
sales for Paramount were approximately $1,588,000 and $3,562,000 for the
three months ended March 31, 2000 and 1999, respectively.
The components of net assets of discontinued operation included in the
Company's Consolidated Balance Sheets at March 31, 2000 and December 31,
1999, are as follows:
4
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<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Accounts receivable .............................................................. $ 215,217 $ 274,613
Net investment in direct finance and sales-type leases ........................... 13,778,669 16,232,749
Assets held under operating leases, net of accumulated depreciation .............. 2,018,483 2,990,213
Other assets ..................................................................... 105,439 537,990
Accrued expenses (includes provision for loss on disposal of
$856,000 in 2000) .............................................................. (900,721) (84,922)
Notes payable .................................................................... (376,299) (1,382,902)
Obligations for financed equipment - non-recourse
(13,927,768) (16,755,509)
------------ ------------
$ 913,020 $ 1,812,232
============ ============
</TABLE>
3. EARNINGS PER SHARE
A reconciliation of shares used in calculating basic and diluted
earnings per share follows:
Shares used in computing net (loss) from continuing operations per share:
<TABLE>
<S> <C> <C>
Basic .................................................................................. 2,135,500 2,067,397
Effect of assumed conversion of employee stock options and warrants .................... -- --
--------- ---------
Diluted ................................................................................ 2,135,500 2,067,397
========= =========
Shares used in computing net (loss) from discontinued operation per share:
Basic .................................................................................. 2,135,500 2,067,397
Effect of assumed conversion of employee stock options and warrants .................... -- 98,759
--------- ---------
Diluted ................................................................................ 2,135,500 2,166,156
========= =========
</TABLE>
4. SEGMENT INFORMATION
The Company's results of operations are reviewed and managed through
three segments (i) corporate overhead ("5B"), (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, which
can be found on pages F-8 through F-12 of the Company's Annual Report on
Form 10-K (for the year ended December 31, 1999). The following represents
selected financial information for the Company's segments for the three
months ended March 31, 2000 and 1999:
5
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 2000 5B PARATECH DELTAGROUP TOTAL
-------------- ---------- --------- ---------- ----------
S> <C> <C> <C> <C>
Revenues ........................... $ $1,916,310 $1,966,706 $3,883,016
Cost of sales ...................... -- 1,255,983 1,397,404 2,653,387
Pre-tax net loss ................... 69,173 166,839 114,670 350,682
Assets ............................. 2,209,184(1) 3,046,740 2,210,929 7,466,853
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999 5B PARATECH DELTAGROUP TOTAL
-------------- ---------- --------- ---------- ----------
Revenues ........................... $ $2,410,269 $1,594,271 $4,004,540
Cost of sales ...................... -- 1,906,733 1,023,991 2,930,724
Pre-tax net loss ................... 35,089 306,593 197,113 538,795
Assets ............................. 3,859,820(1) 3,143,540 2,271,662 9,275,022
</TABLE>
1 Includes $913,020 and $1,812,232 of the net assets of discontinued
operation at March 31, 2000 and 1999, respectively.
5. SUBSEQUENT EVENTS
On April 17, 2000, the Company received an equity investment of
$1,000,000 from La Vista Investors, LLC, a fund managed by WEC Asset
Management LLC ("La Vista"), a New York-based investment company. In
connection with its investment, La Vista received (i) 1,000 shares of the
Company's Series A 6% Convertible Preferred Stock, par value $0.01 per
share (the "Series A Preferred Stock"), and (ii) a warrant convertible into
100,000 shares of the Company's Common Stock at an exercise price of $10.00
per share of Common Stock, subject to certain anti-dilution adjustments for
stock splits, subdivisions, other similar events and certain below-market
price issuances of Common Stock. Each share of Series A Preferred Stock is
convertible into such number of shares of Common Stock as is determined by
dividing $1,000, plus the amount of any accrued and unpaid dividends, by
the Conversion Price (as defined below) in effect at the time of
conversion. The Conversion Price at which shares of Common Stock shall be
deliverable upon conversion of Series A Preferred Stock, without the
payment of additional consideration by the holder thereof, shall be the
lower of (i) nine dollars ($9.00) or (ii) 80% of the average of the three
lowest Closing Bid Prices (as defined in the Certificate of Designations of
the Series A Preferred Stock) of the Company's Common Stock during the
thirty (30) trading days immediately preceding the date of notice from a
holder of the Series A Preferred Stock of any such conversion.
6
<PAGE>
ITEM 2. 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 unaudited financial statements,
including the notes thereto, appearing elsewhere in this 10-Q.
RECENT DEVELOPMENTS
5B Technologies 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 and staffing services. The Company includes two
wholly owned subsidiaries, Paratech Resources, Inc. ("Paratech") and Deltaforce
Personnel Services, Inc. ("DeltaGroup").
On May 2, 2000, the Company sold the majority of its lease portfolio
(the "Assets"), which was maintained through a wholly owned subsidiary,
Paramount Operations Inc. ("Paramount"), for approximately $700,000 and the
assumption of approximately $6,117,000 of indebtedness related to the Assets.
Accordingly, Paramount has been presented as a discontinued operation for the
three months ended March 31, 2000, and the balance sheet as of December 31,
1999 and the statements of operations and cash flows for the three months
ended March 31, 1999 have been restated to conform with this presentation.
The loss on disposal of Paramount includes provisions for estimated losses of
approximately $602,000 and a loss on sale of approximately $254,000, for a
total loss of approximately $856,000. The provision for estimated losses of
approximately $602,000 is based on management's estimate of future income and
expenses relating to the remaining lease portfolio and write-downs of certain
related assets. Net sales for Paramount were approximately $1,588,000 and
$3,562,000 for the three months ended March 31, 2000 and 1999, respectively.
5B was founded in July of 1991 as a wholesale trader of used
computer equipment and computer leasing company. From inception through the
end of 1995, the Company generated most of its revenue from its wholesale
trading business. In January of 1996 the Company completed an initial public
offering which enabled it to expand its leasing portfolio. Also, in 1996, the
Company recognizing the emergence of desktop personal computers as the future
for small to mid-sized companies' processing and operational needs, established
a new wholly owned subsidiary, Paratech Resources, Inc., to address
opportunities in this new market. Paratech began by offering its customers
system design, integration and other value added support services for local
area and wide area networks environments.
In order to further enhance and expand its system integration services
and solutions business, the Company acquired Comptech Resources, Inc.
("Comptech") in October of 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.
7
<PAGE>
To expand its Internet solutions business and to add the ability to
host clients, the Company acquired, in March of 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.
In February of 2000, the Company changed its name from Paramount
Financial Corporation to 5B Technologies Corporation in connection with the
Company's reorganization, pursuant to Delaware law, into a holding company
corporate structure. This reorganization and related name change reaffirmed
the Company's commitment to its Paratech subsidiary and the de-emphasis of
the Company's leasing activities. Then, in May of 2000, the Company sold the
majority of its leasing portfolio. The sale of the leasing portfolio
generated working capital for the Company which it plans to use to expand its
Paratech subsidiary in order to take advantage of the significant market
opportunities that the Company believes exists in the Internet and e-commerce
sectors.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
For the three months ended March 31, 2000, the Company recorded sales
revenues of $3.9 million, a $0.1 million decrease from the $4.0 million recorded
during the three months ended March 31, 1999. Paratech reported revenue for the
three months ended March 31, 2000 of $1.9 million, a decrease of $0.5 million,
or 21%, compared to the $2.4 million recorded for the three months ended
March 31, 1999. The decrease in revenue at Paratech is a result of the timing
of client engagements and project completion dates. DeltaGroup recorded
$2.0 million in revenue during the three months ended March 31, 2000, an
increase of $0.4 million, or 25%, over the $1.6 million recorded for the three
months ended March 31, 1999. The increase was due to DeltaGroup's ability to
consistently provide its customers with well-trained temporary personnel on a
timely basis, the expansion of its customer base and an increase in its
permanent placement revenue.
Cost of sales consists of all direct labor costs and other costs, such
as payroll taxes, employee benefits, outside contractors and equipment
purchases, related to each project or individual sale. For the three months
ended March 31, 2000, the Company recorded cost of sales of $2.7 million, a
decrease of $0.2 million, or 7%, compared to the $2.9 million recorded for the
three months ended March 31, 1999. The decrease is predominantly due to the
decrease in cost of sales of the Company's Paratech subsidiary. Paratech
reported cost of sales of $1.3 million, a decrease of $0.6 million, or 32%,
compared to the $1.9 million recorded for the three months ended March 31, 1999.
The reason for this decrease is the growth of Paratech's Internet division which
typically generates higher gross margins and lower cost of sales. The DeltaGroup
posted cost of sales of $1.4 million, a $0.4 million, or 40%, increase compared
to the $1.0 million recorded in the three months ended March 31, 1999. The
reason for the increase is predominantly due to the increase in revenue which
generated corresponding increases in temporary salaries and associated payroll
taxes.
8
<PAGE>
Selling expense consists of all sales force salaries, commissions
and associated costs. Selling expense for the three months ended March 31,
2000 was $390,000, a 10% increase over the $355,000 recorded in the
comparable prior period. Paratech reported selling expenses of $193,000, or
10%, of revenue for the three months ended March 31, 2000 compared to
$130,000, or 7%, of revenue for the period ended March 31, 1999. The increase
in selling expenses for Paratech is predominantly due to the addition of new
salespeople. DeltaGroup reported selling expenses of $197,000, or 10%, of
revenue for the three months ended March 31, 2000 compared to $225,000, or
14%, of revenue for the period ended March 31, 1999. The increase in selling
expenses is predominantly due to a restructuring of salespeople's commissions.
General and administrative expenses totaled $1.2 million for the
three months ended March 31, 2000, representing a decrease of 8% compared to
the $1.3 million recorded during the three months ended March 31, 1999.
Paratech reported SG&A of $588,000, or 31%, of revenue for the three months
ended March 31, 2000 compared to $584,000, or 24%, of revenue for the period
ended March 31, 1999. DeltaGroup reported SG&A of $518,000, or 26%, of
revenue for the three months ended March 31, 2000 compared to $572,000, or
36%, of revenue for the period ended March 31, 1999. The decrease is
predominantly due to a decrease in administrative salaries.
The tax provision of $1,000 for the three months ended March 31, 2000
and 1999 reflects the state taxes due.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had $1.4 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.
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 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 March 31, 2000, the Company had three types of credit lines
available:
TERM LOAN: 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 (the "Term Loan"). 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
9
<PAGE>
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 March 31, 2000, approximately $423,000 remained outstanding under these
loans collateralized by $500,000 in cash maintained in an investment account.
Under the agreement, the Company was not in compliance with the debt covenant
requiring minimum net worth of at least $5.5 million at March 31, 2000. However,
the Company has obtained a waiver from the bank for non-compliance with the
aforementioned covenant for the three months ended March 31, 2000. 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 March 31, 2000, 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 (the "Paratech Facility"). 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 March 31, 2000, Paratech
had $718,000 outstanding under this line. Under the agreement, at March 31, 2000
Paratech was not in compliance with the debt covenant requiring a liability to
net worth ratio of less than 8 to 1 and net income greater than $0. However,
Paratech has obtained a waiver from the finance company for non-compliance with
the aforementioned covenant for the three months ended March 31, 2000.
Each of the Company's three credit lines contains cross-default
provisions, so that any uncured or unwaived default under any of these credit
lines would cause there to be a default under the other two credit lines.
As described above, the Company has received waivers from the lenders
under the Term Loan and the Paratech Facility as a result of the Company's
non-compliance at March 31, 2000 with certain covenants under such facilities.
The Company believes that it will not satisfy these covenants in the future. The
Company has regularly obtained waivers of compliance from the respective lenders
under these facilities, and believes that it will be able to obtain waivers in
the future. However, if any waiver cannot be obtained in the future, that lender
would be able to declare a default under its credit line which would have the
effect of also causing a default under the Company's other two credit lines.
Among other things, if such defaults were to occur, any or all of the lenders
could declare all amounts, which aggregated approximately $1,891,000, at
March 31, 2000, under its respective credit lines immediately due and payable.
On April 17, 2000, the Company received an equity investment of
$1,000,000 from La Vista Investors, LLC, a fund managed by WEC Asset
Management LLC ("La Vista"), a New York-based investment company. In
connection with its investment, La Vista received (i) 1,000 shares of the
Company's Series A 6% Convertible Preferred Stock, par value $0.01 per
10
<PAGE>
share (the "Series A Preferred Stock"), and (ii) a warrant convertible into
100,000 shares of the Company's Common Stock at an exercise price of $10.00
per share of Common Stock, subject to certain anti-dilution adjustments for
stock splits, subdivisions, other similar events and certain below-market
price issuances of Common Stock. Each share of Series A Preferred Stock is
convertible into such number of shares of Common Stock as is determined by
dividing $1,000, plus the amount of any accrued and unpaid dividends, by
the Conversion Price (as defined below) in effect at the time of
conversion. The Conversion Price at which shares of Common Stock shall be
deliverable upon conversion of Series A Preferred Stock, without the
payment of additional consideration by the holder thereof, shall be the
lower of (i) nine dollars ($9.00) or (ii) 80% of the average of the
three lowest Closing Bid Prices (as defined in the Certificate of
Designations of the Series A Preferred Stock) of the Company's Common
Stock during the thirty (30) trading days immediately preceding the date
of notice from a holder of the Series A Preferred Stock of any such
conversion.
The Company believes that cash generated from operations, amounts
available under its credit facilities, the proceeds received from the sale
of its leasing assets and from the sale of securities to La Vista,
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.
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-Q, which are not historical facts,
are forwarding-looking statements. The forward-looking statements in this Form
10-Q 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;
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.
11
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
"Quantitative and Qualitative Disclosure About Market Risk", on
page 22 of the Company's Annual Report on Form 10-K, is incorporated herein
by reference. No material changes have occurred from the disclosure in Form
10-K, through the three months ended March 31, 2000.
12
<PAGE>
PART II: OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The information contained in Footnote 5- Subsequent Events,
set forth in Notes to Unaudited Consolidated Financial Statements
herein, is hereby incorporated by reference into this Item 2. The
securities described in such Footnote 5 were sold in reliance upon
Section 4(2) of the Securities Act of 1933, as amended, which
provides an exemption for sales of securities by an issuer not
involving a public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27. Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
(i) The Company filed a Current Report on Form 8-K with
the Securities and Exchange Commission on February
15, 2000. The following items were reported in such
Form 8-K:
1. Item 5. Other Events.
2. Item 7. Financial Statements and Exhibits.
(a) Agreement and Plan of Merger, dated as
of February 11, 2000, by and among Paramount
Financial Corporation, 5B Technologies
Corporation and Paramount Merger
Corporation.
(b) Press Release, dated February 14, 2000.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
5B TECHNOLOGIES CORPORATION
Date: May 15, 2000 By: /S/ GLENN NORTMAN
---------------------------------------
Glenn Nortman, Chief Executive Officer
14
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