8-K/A 1 cat58ka.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________ FORM 8-K/A Amendment No.1 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): June 24, 2002 (April 10, 2002) CATEGORY 5 TECHNOLOGIES, INC. ----------------------------- (Exact Name of Registrant as Specified in Charter) Nevada 0-25463 88-0367792 (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 2755 East Cottonwood Parkway, Suite 450, Salt Lake City, Utah 84124 ------------------------------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (801) 365-0455 ------------- ITEM 1. CHANGES IN CONTROL OF REGISTRANT On April 10, 2002, Category 5 Technologies, Inc., a Nevada corporation ("Category 5"), entered into a Stock Purchase and Exchange Agreement (the "Exchange Agreement") by and among Category 5, CaptureQuest, Inc., a Utah corporation ("CaptureQuest"), and the shareholders of CaptureQuest. Pursuant to the terms of the Exchange Agreement, Category 5 acquired all of the outstanding capital stock of CaptureQuest in exchange for up to 3,105,769 shares of common stock of Category 5 (the "Exchange Shares"). The Exchange Agreement is filed with this Current Report as Exhibit 2.1. The foregoing description of the acquisition of CaptureQuest by Category 5 is qualified in its entirety by reference to the full text of the Exchange Agreement attached hereto. Pursuant to the terms of the Exchange Agreement, Category 5 agreed to appoint one nominee selected by the former shareholders of CaptureQuest to the Board of Directors of Category 5. At a Category 5 Board Meeting on April 23, 2002, Tyler Thompson, CEO of CaptureQuest, was appointed a Director of Category 5. In addition, Category 5 has agreed to submit Mr. Thompson as a director to be elected to the Board of Directors at the next annual meeting of Category 5's stockholders. Pursuant to the Exchange Agreement, the Exchange Shares have been or will be distributed to the Shareholders in two tranches. In connection with the first tranche, on April 10, 2002, Category 5 delivered to the shareholders of CaptureQuest an aggregate of 2,105,769 Exchange Shares, a portion of which were provided certain registration rights pursuant to a registration rights agreement by and among Category 5, CaptureQuest and the former shareholders of CaptureQuest. In connection with the second tranche, 1,000,000 of the remaining Exchange Shares were placed in escrow to protect Category 5 against undisclosed liabilities, misrepresentations and breaches of warranties, covenants and agreements on the part of CaptureQuest, as discussed more fully below. Immediately prior to the acquisition of CaptureQuest, Category 5 had approximately 14,481,500 shares of common stock outstanding. As a result of the acquisition, the former shareholders of CaptureQuest collectively acquired approximately 20.3% of Category 5's outstanding shares of common stock. ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On April 10, 2002, Category 5 acquired 100% of the issued and outstanding shares of capital stock of CaptureQuest pursuant to the terms of the Exchange Agreement. The acquisition of CaptureQuest was consummated following approval of the Exchange Agreement by the shareholders of CaptureQuest. As provided in the Exchange Agreement, the shareholders of CaptureQuest exchanged all outstanding capital stock of CaptureQuest for an aggregate of 3,105,769 shares of Category 5's common stock. Pursuant to the Exchange Agreement, the Exchange Shares have been or will be distributed to the Shareholders in two tranches. In connection with the first tranche, on April 10, 2002, Category 5 delivered to the shareholders of CaptureQuest an aggregate of 2,105,769 Exchange Shares, a portion of which were provided certain registration rights pursuant to a registration rights agreement by and among Category 5, CaptureQuest and the former shareholders of CaptureQuest. In connection with the second tranche, 1,000,000 of the remaining 2 Exchange Shares were placed in escrow to be released upon attainment by CaptureQuest of certain revenue and profitability targets, and to protect Category 5 against undisclosed liabilities, misrepresentations and breaches of warranties, covenants and agreements on the part of CaptureQuest. All or a portion of the Exchange Shares remaining in escrow on April 10, 2003, shall be released on that date subject to the following conditions: o In the event CaptureQuest realizes certain revenue and income benchmarks for the twelve months ended April 10, 2003, all Exchange Shares remaining in escrow on that date shall be released to the former CaptureQuest shareholders. o In the event CaptureQuest fails to satisfy such benchmarks, the number of Exchange Shares released from escrow will be adjusted depending upon the actual revenue and income realized by CaptureQuest during the twelve month period ended April 10, 2003. Pursuant to the Exchange Agreement, within 180 days following April 10, 2001, Category 5 must allocate $1,500,000 to CaptureQuest to be used for working and expansion capital. The purchase price for CaptureQuest (including the exchange ratio for the CaptureQuest common stock) was determined through arms-length negotiations between the parties. Category 5 financed the acquisition of CaptureQuest through the issuance of shares of Category 5's common stock, none of which shares have been registered with the Securities and Exchange Commission. At Effective Time of the acquisition, Tyler Thompson, the CEO of CaptureQuest, was a shareholder of Category of Category 5, but was not an officer or director of Category 5 and did not participate in any Board Meetings or internal meetings of Category 5 during which the transaction was discussed. The principal business of CaptureQuest prior to its acquisition by Category 5, was the development and marketing of software that enables the delivery of rich media information over the Internet. Following the acquisition of CaptureQuest by Category 5, Category 5 will continue to use the CaptureQuest assets to develop and market software that enables the delivery of rich media information over the Internet. 3 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of the Business Acquired 1. Balance sheet of CaptureQuest as of December 31, 2001 and 2000, together with report of independent public accountants. 2. Statements of operations of CaptureQuest for the year ended December 31, 2001 and the period from March 22, 2000 (date of inception) through December 31, 2000. 3. Statements of cash flows of CaptureQuest for the year ended December 31, 2001 and the period from March 22, 2000 (date of inception) through December 31, 2000. 4. Statements of stockholders' (deficit) equity of CaptureQuest for the year ended December 31, 2001 and the period from March 22, 2000 (date of inception) through December 31, 2000. (b) Pro forma financial statements 1. Pro forma condensed balance sheet as of March 31, 2002. 2. Pro forma condensed statement of operations for the nine months ended March 31, 2002. 3. Pro forma condensed statement of operations for the year ended June 30, 2001. 4. Notes to the pro forma condensed financial statements. (c) Exhibits: The following exhibits required to be attached hereto by Item 601 of Regulation S-K are incorporated herein by this reference: Exhibit Number Description -------- ----------- 2.1* Stock Purchase and Exchange Agreement by and among Category 5 Technologies, Inc., CaptureQuest, Inc. and the Shareholders of CaptureQuest, Inc., dated April 10, 2002. 99.1* Joint Press Release, issued April 10, 2002, by Category 5 Technologies, Inc. and CaptureQuest, Inc. * Filed as an exhibit to the Registrant's current report on Form 8-K filed on April 24, 2002. 4 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CATEGORY 5 TECHNOLOGIES, INC. /s/William Gibbs Date: June 24, 2002 --------------------------- William Gibbs, CEO 5 CAPTUREQUEST, INC. Financial Statements December 31, 2001 and 2000 CAPTUREQUEST, INC. Index to Financial Statements -------------------------------------------------------------------------------- Page ---- Independent Auditors' Report F-2 Balance Sheet as of December 31, 2001 and 2000 F-3 Statement of Operations for the periods ended December 31, 2001 and 2000 F-4 Statement of Stockholders' (Deficit) Equity for the periods ended December 31, 2001 and 2000 F-5 Statement of Cash Flows for the periods ended December 31, 2001 and 2000 F-6 Notes to Financial Statements F-8 -------------------------------------------------------------------------------- F-1 INDEPENDENT AUDITORS' REPORT To the Shareholders of CaptureQuest, Inc. We have audited the balance sheet of CaptureQuest, Inc. as of December 31, 2001 and 2000 and the related statements of operations, stockholders' (deficit) equity, and cash flows for the year ended December 31, 2001 and for the period from March 22, 2000 (date of inception) through December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 CaptureQuest, Inc. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for the year ended December 31, 2001 and for the period from March 22, 2000 (date of inception) through December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. TANNER + CO. Salt Lake City, Utah June 7, 2002 F-2

CAPTUREQUEST, INC. Notes to Financial Statements December 31, 2001 and 2000 -------------------------------------------------------------------------------- 1. Summary of Organization and Business Activity Significant On March 22, 2000, the Company was organized as a Accounting corporation within the State of Utah. The financial Policies statements herein reflect the operations of the Company from inception on March 22, 2000 to December 31, 2000, and from January 1, 2001 to December 31, 2001. The Company's primary business activity involves online and rich-media marketing communication, education and advertising using proprietary software to present and track its products and services. Cash and Cash Equivalents The Company considers all short-term instruments with an original maturity of three months or less to be cash equivalents. Concentration of Credit Risk The Company maintains cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. With respect to trade receivables, the Company does not require collateral, and the Company believes that it is not exposed to any significant credit risk. Property and Equipment Property and equipment, which includes equipment obtained by capitalized leases, are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets or the term of the related lease, whichever is shorter, as follows: Years ----- Computer hardware 3 Furniture and equipment 7 Leasehold improvements 3 -------------------------------------------------------------------------------- F-8 CAPTUREQUEST, INC. Notes to Financial Statements Continued -------------------------------------------------------------------------------- 1. Summary of Property and Equipment Continued Significant Leasehold improvements are amortized over the shorter of Accounting the term of the related leases or estimated service Policies lives. Upon sale or retirement of assets, cost and Continued related accumulated depreciation or amortization are removed from the balance sheet and the resulting gain or loss is reflected in operations. Revenue Recognition Revenues are recognized when the following four revenue recognition criteria are met: (1) persuasive evidence of an arrangement exists; (2) services have been rendered and the customer approves final product; (3) the selling price is fixed or determinable; and (4) collectibility is reasonable assured. Amounts received prior to completion of services are recorded as deferred revenue. Loss Per Share Loss per share is calculated on the weighted average number of shares issued and outstanding. Diluted earnings per share are computed using the weighted average number of shares determined for the basic computations plus the number of shares of Common Stock that would be issued assuming all contingently issuable shares having a dilutive effect on earnings per share that were outstanding for the year. The Company experienced a net loss for the periods presented in the financial statements herein, and the effect of all contingently issuable shares is anti-dilutive. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions principally related to potential collections of receivables that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. -------------------------------------------------------------------------------- F-9 CAPTUREQUEST, INC. Notes to Financial Statements Continued -------------------------------------------------------------------------------- 1. Summary of Fair Value of Financial Instruments Significant The Company's financial instruments consist of cash, Accounting receivables, payables, and loan from shareholder. The Policies carrying amount of cash and receivables and payables Continued approximates fair value due to the short-term nature of these items. The loan from shareholder also approximates fair value based on evaluations of market interest rates and the short-term nature of the payable. 2. Property and Property and equipment are summarized by major Equipment classifications as follows: December 31, December 31, 2001 2000 ------------ ------------ Computer hardware $ 225,547 $ 45,483 Furniture and fixtures 43,580 8,917 Leasehold improvements 3,659 - ------------ ------------ 272,786 54,400 Less: accumulated depreciation (60,916) (4,864) ------------ ------------ $ 211,870 $ 49,536 ============ ============ Depreciation expense for the periods ended December 31, 2001 and 2000 was $64,327 and $7,643, respectively. 3. Related Party Loans from Shareholders Transactions During 2001 and 2000, two of the Company's primary shareholders made advances to the Company. At December 31, 2001 and 2000 the amount due to the shareholders was $174,423 and $20,790, respectively. Office Lease The Company lease office space from a related party under a three year lease agreement commencing September 1, 2001 (Note 5). 4. Income Taxes The Company provides for deferred income taxes on temporary differences which represent tax effects of transactions reported for tax purposes in periods different than for book purposes. -------------------------------------------------------------------------------- F-10 CAPTUREQUEST, INC. Notes to Financial Statements Continued -------------------------------------------------------------------------------- 4. Income Taxes The provision for income taxes results in an effective Continued tax rate which differs from federal income tax rates as follows: December 31, ------------------------------------ 2001 2000 ------------------------------------ Expected tax benefit at federal statutory rate $ 316,000 $ 224,000 State income tax benefit, net of federal income tax benefit 25,000 24,000 Change in valuation allowance (341,000) (248,000) ------------------------------------ Income tax benefit $ - $ - ------------------------------------ The deferred income taxes consist of the following: December 31, ------------------------------------ 2001 2000 ------------------------------------ Net operating loss carryforwards $ 590,000 $ 247,000 Other (1,000) 1,000 Valuation allowance (589,000) (248,000) ------------------------------------ $ - $ - ------------------------------------ The Company has net operating loss ("NOL") carryforwards at December 31, 2001 of approximately $1,580,000 which expire in years 2010 through 2021. The NOL carryforwards are limited to use against future taxable income due to changes in ownership and control. 5. Commitments Operating Leases and The Company leases office space from a related party Contingencies under a non-cancellable lease agreement. The term of the lease is thirty-six months commencing on September 1, 2001 and terminating on August 31, 2004, and requires monthly lease payments ranging from $4,473 to $4,745 over the lease term. -------------------------------------------------------------------------------- F-11 CAPTUREQUEST, INC. Notes to Financial Statements Continued -------------------------------------------------------------------------------- 5. Commitments Operating Leases - Continued and Future minimum lease payments for the office space are Contingencies as follows: Continued Year Amount ---- ------ 2002 $ 55,296 2003 55,296 2004 36,864 ------------ Total $ 147,456 ------------ Rent expense for the periods ended December 31, 2001 and 2000 was $30,377 and $9,250, respectively. Capital Lease The Company entered into a long-term capital lease agreement during April 2001 for computer equipment. The agreement is a thirty six month lease ending March 2004 requiring monthly payments of $10,393. The equipment is recorded in property and equipment as follows at December 31, 2001: Equipment cost $ 149,429 Less accumulated amortization (34,935) ------------ Net book value $ 114,494 ------------ Future minimum lease payments are as follows: Year Amount 2002 $ 124,719 2003 124,719 2004 26,496 ------------ 275,934 Less amount representing interest (45,556) ------------ Present value of minimum net lease payments 230,378 Less: current portion (94,365) ------------ Capital lease obligation, long-term $ 136,013 ------------ -------------------------------------------------------------------------------- F-12 CAPTUREQUEST, INC. Notes to Financial Statements Continued -------------------------------------------------------------------------------- 6. Restructuring Management of the Company determined during 2001 that Agreement certain shareholders and Board Members were not in full agreement on certain policies and company direction. As a result, the Company and the certain shareholders and Board Members entered into a Restructuring Agreement wherein the Company received shares of common stock back from the certain shareholders and Board Members, and the Company retired the shares of common stock. 7. Stock 2000 Stock Plan Compensation The maximum aggregate number of shares of Class A voting Plans common stock that may be optioned and sold under the plan is 10,000,000, plus an annual increase on the first day of each of the Company's fiscal years beginning in 2001, 2002, 2003 and 2004 equal to lesser of (i) 1,500,000 shares, (ii) three percent of the shares outstanding on the last day of the immediately preceding fiscal year, or (iii) such lesser number of shares as the Board of Directors shall determine. The 2000 Stock Plan commenced April 1, 2000 and shall continue in effect for a term of ten years unless sooner terminated. Nonstatutory Stock Options and Stock Purchase Rights may be granted to employees and consultants. Incentive stock options may be granted only to employees. The term of each option shall be the term stated in the respective option agreement, provided that the term shall be no more than ten years. In the case of an incentive stock option granted to a person who at the time of such grant is a ten percent shareholder or greater of the Company, then the term of such incentive stock option shall be no greater than five years. The exercise price shall be determined by the plan's administrator, and shall range from 85% to 110% of the fair market value per share of the Company's common stock, depending on the type of stock option and grantee. The options shall become exercisable at a rate of at least 20% per year over five years from the date of grant. The options are exercisable up to three months after termination of status as an employee or consultant. In the event of a corporate transaction or change of control, the successor corporation shall substitute an equivalent option or right unless the successor corporation does not agree to such assumption, and any outstanding options or rights shall terminate upon consummation of the transaction. However, if the successor corporation does not agree to such assumption, then each option and right shall accelerate and shall become exercisable in full. -------------------------------------------------------------------------------- F-13 CAPTUREQUEST, INC. Notes to Financial Statements Continued -------------------------------------------------------------------------------- 7. Stock A schedule of the options to purchase shares of Class A Compensation voting common stock is as follows: Plans Continued Number of Price Per Options Share ---------------------------------------- Outstanding at: March 22, 2000 (inception) - $ - Granted 19,091,280 0.001 - 0.50 Exercised (14,437,500) 0.01 Expired - - ---------------------------------------- Outstanding at: December 31, 2000 4,653,780 0.001 - 0.50 Granted 210,000 0.01 - 0.50 Exercised - - Canceled (250,000) 0.10 Expired - - ---------------------------------------- Outstanding at: December 31, 2001 4,613,780 $ 0.001 - 0.50 ---------------------------------------- A schedule of the options to purchase shares of Class B non voting common stock is as follows: Number of Price Per Options Share ---------------------------------------- Outstanding at: March 22, 2000 (inception) - $ - Granted 3,162,500 0.10 Exercised - - Expired - - ---------------------------------------- Outstanding at: December 31, 2000 3,162,500 0.10 Granted - - Exercised - - Canceled - - Expired (3,162,500) 0.10 ---------------------------------------- Outstanding at: December 31, 2001 - $ - ---------------------------------------- -------------------------------------------------------------------------------- F-14 CAPTUREQUEST, INC. Notes to Financial Statements Continued -------------------------------------------------------------------------------- 8. Stock-Based The Financial Accounting Standards Board issued Compensation Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123) which established financial accounting and reporting standards for stock-based compensation. The new standard defines a fair value method of accounting for an employee stock option or similar equity instrument. This statement gives entities the choice between adopting the fair value method or continuing to use the intrinsic value method under Accounting Principles Board (APB) Opinion No. 25 with footnote disclosures of the pro forma effects if the fair value method had been adopted. The Company has opted for the latter approach. Accordingly, $184,331 and $79,772 of compensation expense has been recognized for the intrinsic value of stock options granted during the periods ended December 31, 2001 and 2000, respectively. Had compensation expense for the Company's stock option plan been determined based on the fair value at the grant date for awards in 2001 and 2000 consistent with the provisions of FAS No. 123, the Company's results of operations would have been reduced to the pro forma amounts indicated below: December 31, ------------------------------------ 2001 2000 ------------------------------------ Net loss - as reported $ (930,031) $ (523,757) Net loss - pro forma $ (933,471) $ (524,601) Loss per share - as reported $ (0.40) $ (0.07) Loss per share - pro forma $ (0.40) $ (0.07) The fair value of each option grant is estimated at the date of grant using the Black-Scholes option pricing model with the following assumptions: December 31, ------------------------------------ 2001 2000 ------------------------------------ Expected dividend yield $ - $ - Expected stock price volatility 0% 0% Risk-free interest rate 4.3% - 6.5% 5.7% - 6.7% Expected life of options 5-10 years 1.5 - 10 years -------------------------------------------------------------------------------- F-15 CAPTUREQUEST, INC. Notes to Financial Statements Continued -------------------------------------------------------------------------------- 8. Stock-Based The weighted average fair value of options outstanding Compensation during 2001 and 2000 are $0.13 and $0.12 per share, Continued respectively. The following table summarizes information about fixed stock options and warrants outstanding at December 31, 2001: Options Outstanding Options Exercisable ------------------------------------------------------------------- Weighted Average Number Remaining Weighted Number Weighted Range of Outstanding Contractual Average Exercisable Average Exercise At Life Exercise At Exercise Prices 12/31/01 (Years) Price 12/31/01 Price ------------------------------------------------------------------------------ 0.001 3,801,280 3.51 $ 0.001 1,836,716 $ 0.001 0.10 522,500 3.02 0.01 226,111 0.10 0.50 290,000 2.09 0.50 85,556 0.50 ------------------------------------------------------------------- 4,613,780 3.36 $ 0.04 2,148,383 $ 0.03 ------------------------------------------------------------------- 9. Recent The Financial Accounting Standards Board ("FASB") has Accounting issued Statement of Financial Accounting Standards No. Pronounce- 143, "Accounting for Asset Retirement Obligations," ments which is applicable to financial statement issued for fiscal years beginning after June 15, 2002. This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets. The Company anticipates the provision of this Standard will not have a significant effect on the Company's financial position or operating results. -------------------------------------------------------------------------------- F-16 CAPTUREQUEST, INC. Notes to Financial Statements Continued -------------------------------------------------------------------------------- 9. Recent The FASB has recently issued Statement of Financial Accounting Accounting Standards No. 144, "Accounting for the Pronounce- Impairment of Disposal of Long-Lived Assets," which is ments applicable to financial statements issued for fiscal Continued years beginning after December 15, 2001. The FASB's new rules on asset impairment supercede Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and portions of Accounting Principles Bulletin Opinion 20, "Reporting the results of Operations." This Standard provides a single accounting model for long-lived assets to be disposed of and significantly changes the criteria that would have to be met to classify an asset as held-for-sale. Classification as held-for-sale is an important distinction since such assets are not depreciated and are stated at the lower of fair value and carrying amount. This Standard also requires expected future operating losses from discontinued operations to be displayed in the period in which the losses are incurred, rather than as of the measurement date as presently required. The provisions of the Standard are not expected to have a significant effect on the Company's financial position or operating results. The FASB has also recently issued Statement of Financial Accounting Standards No. 145, which rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, and rescinds FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company anticipates the provisions of this Standard will not have a significant effect on the Company's financial position or operating results. -------------------------------------------------------------------------------- F-17 CAPTUREQUEST, INC. Notes to Financial Statements Continued -------------------------------------------------------------------------------- 10. Subsequent On March 27, 2002, the Company acquired all of the Events outstanding shares of common stock of Creative Media, LLC in exchange for 150,000 shares of the Company's common stock. In the transaction the Company acquired property and equipment valued at $180,000. Effective April 10, 2002, all of the Company's outstanding shares of common stock were acquired by Category 5 Technologies, Inc. (Category 5) in exchange for 3,105,769 shares of Category 5 common stock. 1,000,000 of the Category 5 shares are issued but held in escrow, and these shares will be released to the shareholders of the Company upon the Company's achievement of certain operating results for the year ended April 10, 2003. -------------------------------------------------------------------------------- F-18 Category 5 Technologies, Inc. Pro Forma Combined Condensed Financial Statements (Unaudited) The following unaudited pro forma combined condensed balance sheet as of March 31, 2002 is presented as though the entities had been combined on March 31, 2002 and the unaudited pro forma combined condensed statements of operations for the nine months and year ended March 31, 2002 and June 30, 2001, respectively, are presented as though the entities had been combined since July 1, 2001 and 2000, respectively. These pro forma statements should be read in conjunction with the financial statements and the related notes thereto of Category 5 as of March 31, 2002 and for the nine months then ended March 31, 2002 as filed on Form 10-QSB on May 15, 2002 and as of June 30, 2001 and the transition period of six months then ended as filed in Form 10-KSB/T on October 15, 2001 and the financial statements of CaptureQuest as of December 31, 2001 and 2000 and for the periods then ended, which are included elsewhere in this filing. The financial statements aggregate the unaudited balance sheets and unaudited statements of operations of Category 5 and CaptureQuest, as of March 31, 2002 and for the nine months and year ended March 31, 2002 and June 30, 2001, respectively, giving effect to a proposed transaction wherein Category 5 acquires CaptureQuest by Category 5 issuing up to 3,105,769 shares of common stock in exchange for all of the issued and outstanding shares of CaptureQuest common stock. 2,105,769 shares of Category 5 common stock were delivered upon execution of the agreement, and an additional 1,000,000 newly issued restricted shares of Category 5 common stock are held in escrow. The additional 1,000,000 shares of Category 5 common stock are to be released from escrow and delivered to the former shareholders of CaptureQuest upon CaptureQuest's achievement of certain operating results for the twelve months following the acquisition. The following unaudited pro forma combined condensed balance sheet and statements of operations used management assumptions and preliminary allocation of the purchase price and other amounts as described in the notes and the historical financial information available at March 31, 2002. The Category 5 audited financial statements at June 30, 2001 include operations for the six months then ended as it was a transition report. The pro forma results of operations presented herein include the operations for the six months presented at June 30, 2001, plus the operations of Category 5 for the period July 1, 2000 through December 31, 2000. The format and amounts used in these unaudited pro forma combined condensed financial statements are based on those financial statements. The unaudited pro forma combined condensed financial information is presented for illustrative purposes only and does not purport to be indicative of the operating results or financial position that would have actually occurred if the transaction had been in effect on the dates indicated, nor is it necessarily indicative of future operating results or financial position of the merged companies. The pro forma adjustments are based on the information and assumptions available as of the date of this filing. The unaudited pro forma combined condensed financial statements do not give effect to any cost savings or synergies, if any, that may result from the integration of Category 5' and CaptureQuest's operations. 1 Category 5 Technologies, Inc. Unaudited Pro Forma Combined Condensed Balance Sheet March 31, 2002

2 Category 5 Technologies, Inc. Unaudited Pro Forma Combined Condensed Statement of Operations For the 9 Months Ended March 31, 2002

3 Category 5 Technologies, Inc. Unaudited Pro Forma Combined Condensed Statement of Operations For the Year Ended June 30, 2001

4 Notes to the Unaudited Pro Forma Combined Condensed Financial Statements Category 5 entered into a Stock Purchase and Exchange Agreement with CaptureQuest effective April 10, 2002, wherein Category 5 issued up to 3,105,769 shares of common stock to the stockholders of CaptureQuest in exchange for all of the issued and outstanding shares of CaptureQuest common stock. The total purchase price and the allocation of such purchase price is preliminary based on management's estimates. The unaudited pro forma combined condensed balance sheet as of March 31, 2002 has been prepared assuming that Category 5 issued the entire 3,105,769 shares of common stock to the stockholders of CaptureQuest. 2,105,769 shares of Category 5 common stock were delivered upon execution of the agreement, and an additional 1,000,000 newly issued restricted shares of Category 5 common stock are held in escrow. The additional 1,000,000 shares of Category 5 common stock are to be released from escrow and delivered to the former shareholders of CaptureQuest upon CaptureQuest's achievement of certain operating results for the twelve months following the acquisition. If the 1,000,000 shares of Category 5 common stock are not released from escrow, then goodwill would be decreased by $2,600,000, common stock would be decreased by $1,000 and additional paid-in capital would be reduced by $2,599,000 at March 31, 2002. The adjustments to the unaudited pro forma combined condensed balance sheet assume the acquisition occurred on March 31, 2002. The adjustments to the unaudited pro forma combined condensed statements of operations for the nine months and year ended March 31, 2002 and June 30, 2001, respectively, assume the acquisition occurred on July 1, 2001 and 2000, respectively. 1 Adjustments to record the acquisition wherein Category 5 issues up to 3,105,769 shares of common stock for all of the issued and outstanding shares of CaptureQuest. The excess of the consideration over CaptureQuest's equity results in tentatively identifiable intangible assets related to non-compete agreements of $2,189,800 and goodwill of $4,764,500. The stock price used is the average closing price over the five trading day period around the effective date of the agreement. Value of shares issued $ 8,075,000 CaptureQuest equity acquired (1,120,700) ------------- Total intangible assets $ 6,954,300 ------------- Identifiable intangible assets $ 2,189,800 Goodwill 4,764,500 ------------- Total intangible assets $ 6,954,300 ------------- 2 Adjustment to eliminate the equity of CaptureQuest. 3 Adjustment to record amortization of the identifiable intangible assets based on a two-year life, the term of the associated non-compete agreements, of $821,000 and $1,095,000 for the nine months and year ended March 31, 2002 and June 30, 2001, respectively. 5 4 Adjustment to record income taxes as if the combined entity had been a C corporation for the year ended June 30, 2001. 5 Adjustment to record income taxes as if the entity had been combined for the nine months ended March 31, 2002. Earnings/Loss Per Share Basic earnings (loss) per share is computed by dividing income (loss) from continuing operations available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of shares determined for the basic computations plus common stock equivalents. 6

CATEGORY 5 TECHNOLOGIES INC 8-K/A