SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
July 7, 2003 (April 17, 2003)
-----------------------------
CNE Group, Inc.
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 1-9224 56-2346563
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(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
200 West 57th Street, Suite 507
New York, New York 10019
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(Address of Principal Executive Offices) (Zip Code)
212-977-2200
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Registrant's telephone number, including area code
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(Former name or former address, if changed since last report)
1
THIS FORM 8K/A IS BEING FILED SO THAT REGISTRANT SHALL BE IN TIMELY COMPLIANCE
WITH THE REQUIREMENTS SET FORTH IN ITEM 7 OF FORM 8-K
ITEM 2. Acquisition or Disposition of Assets.
On April 23, 2003, CNE Group, Inc. ("CNE") acquired all of the outstanding stock
of SRC Technologies, Inc. ("SRC") and Econo-Comm, Inc. ("ECI") by merging these
companies into its wholly-owned subsidiaries.
CNE issued to Michael and Carol Gutowski, the principal stockholders of SRC, an
aggregate of 4,867,937 shares of its non-voting Series C Preferred Stock and a
like number of ten year Class C Warrants, each to purchase one share of its
Common Stock at $1.00 per share. The Class C Warrants are not exercisable and
are not detachable from the C Preferred Stock prior to 66 months after their
issuance. CNE issued to the other common stockholders of SRC, including Larry
Reid, SRC's Chief Operating Officer, an aggregate of 899,976 shares of its
Common Stock, 1,697,961 shares of its non-voting Series A Preferred Stock and a
like number of ten year Class A Warrants, each to purchase one share of its
Common Stock at $1.00 per share. The Class A Warrants are not exercisable and
are not detachable from the A Preferred Stock prior to 66 months after their
issuance. The Company issued an aggregate of 440,000 shares of its Series B
Preferred Stock to the holders of the SRC Series B Preferred Stock. The A
Preferred Stock has an aggregate liquidating preference over all other CNE
equity of $1,697,961 and the B Preferred Stock has an aggregate liquidating
preference over all other CNE equity except the A Preferred Stock of $440,000.
The C Preferred Stock has no liquidating preference.
CNE issued to Gary Eichsteadt and Thomas Sullivan, the stockholders of ECI, an
aggregate of 4,867,938 shares of its Series C Preferred Stock and a like number
of Class C Warrants. In addition, Messrs. Eichsteadt and Sullivan retained
certain of ECI's trade receivables aggregating in the amount of approximately
$100,000. The Company also acquired a patent related to the operation of ECI's
business from Mr. Eichsteadt for four notes each in the principal amount of
$500,000(aggregating $2,000,000), bearing interest at the annual rate of 8%
payable quarterly and due on October 31, 2008.
There were no relationships between CNE or any of its affiliates and any of the
sellers of the assets acquired by the Company prior to the acquisition
transactions. Messrs. Gutowski and Reid and Ms. Gutowski became directors and
Mr. Gutowski became President and Mr. Reid became Executive Vice President of
the Company immediately subsequent to the consummation of the acquisitions. Ms.
Gutowski and Messrs. Eichsteadt and Sullivan became executive officers,
respectively, of the Company's subsidiaries that merged with SRC and ECI.
2
On April 23, 2003, CNE also effected a private financing pursuant to which it
issued its notes (the "Notes") in the aggregate principal amount of $750,000, of
which $650,000 was contributed by officers of the Company, and 3,124,350 ten
year Class B Warrants, each warrant to purchase one share of its Common Stock at
$0.50 per share. The Notes bear interest at the annual rate of 10% payable
quarterly and are due on April 30, 2004. The Warrants are non-dilutive until the
Notes have been repaid. The due date of the Notes may be extended at the
Company's option for an additional year in consideration for the issuance of 10
year cashless warrants to purchase 5% of the Company's then outstanding common
stock at $0.50 per share. These Warrants will also be anti-dilutive until the
Notes have been repaid.
The Company is using the funds obtained from this financing to pay certain ECI
notes payable and for working capital. The financing was effected pursuant to
the exemption from the registration provisions of the Securities Act of 1933
provided by Section 4(2) thereof.
Reference is made to the (i) SRC and ECI Merger Agreements, (ii) Designations
for the Company's Series A, B, C, and E Preferred Stock, (iii) form of the Class
A and C Warrants, (iv) form of the 8% Notes issued to Mr. Eichsteadt, (v) Asset
Purchase Agreement, Patent Assignment and Pledge Agreement relating to the
Company's acquisition of the patent from Mr. Eichsteadt, and (vi) form of the
10% Note and the Class B Warrant issued in connection with the Company's
financing, copies of which are being filed as Exhibits to this Form 8-K/A. All
statements made with respect to the transactions discussed in this Item 2 are
qualified by such reference.
Item 5. OTHER INFORMATION
On April 17, 2003, pursuant to the terms of Section 251(g) of the Delaware
General Corporation Law, CareerEngine Network, Inc. ("CareerEngine") became a
wholly-owned subsidiary of CNE Group, Inc. Pursuant to this transaction the
Company acquired all of the assets of CareerEngine, all former stockholders of
CareerEngine became the stockholders of the Company, which is the entity that is
now publicly traded on the American and Pacific Stock Exchanges under the symbol
"CNE," and the officers and directors of CareerEngine became the officers and
directors of the Company.
As a successor entity to CareerEngine, the Company's shares are deemed to be
registered under Section 12(g) of the Securities Exchange Act of 1934 and Rule
12g-3 promulgated thereunder. The shares have been issued without registration
in reliance upon exemptions provided in Section 3(a)(9) of the Securities Act of
1933 and Rule 145 promulgated thereunder. CareerEngine has been subject to the
reporting requirements of the Exchange Act since 1986. The last report filed by
CareerEngine was its Annual Report on Form 10-KSB for the year ended December
31, 2002.
3
Reference is made to the (i) Agreement and Plan of Merger among CNE Group, Inc.,
CNE Acquisition, Inc. and CareerEngine Network, Inc, (ii) Certificate of
Incorporation of CNE Group, Inc., (iii) Certificate of Amendment of the
Certificate of Incorporation of CNE Group, Inc., and (iv) Amended and Restated
By-laws of CNE Group, Inc, copies of which were filed as Exhibits to the
Company's Form 8-K filed with the Securities and Exchange Commission on May 6,
2003. All statements made with respect to the transactions discussed in this
Item 5 are qualified by such reference to such exhibits.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
Financial information of the businesses acquired are filed as Exhibits to this
Form 8-K/A and are incorporated herein by reference.
(b) Pro Forma Financial Information.
Set forth below is Unaudited Pro forma Consolidated Financial Information which
includes an unaudited pro forma consolidated balance sheet as of March 31, 2003
and pro forma consolidated statements of operations for the three-month period
ended March 31, 2003 and the year ended December 31, 2002 (collectively, the
"Pro forma Financial Information"). The Pro forma Financial Information relates
to the acquisitions of SRC Technologies, Inc. ("SRC") and Econo-Comm, Inc.
("ECI"). In addition, the Pro forma Financial Information reflects additional
adjustments pertaining to the Company which relate to (i) a private financing
and (ii) the proposed settlement of assets and liabilities of two subsidiaries
of the Company for the benefit of creditors.
In April 2003, the Company acquired all of the outstanding voting common stock
of the SRC and ECI in a purchase business combination, entered into private
financing transaction, and entered into certain corporate re-structuring
transactions (see Items 2 and 5 above). The Company's Form 8-K filed with the
Securities and Exchange Commission on May 6, 2003 pertaining to these events is
incorporated herein by reference.
The accompanying Pro forma Financial Information illustrates the effect of the
acquisition and financing transactions and is not necessarily indicative of the
consolidated financial position at an earlier date or results of operations of
future periods or the results that would have been realized had the Company, SRC
and ECI been a consolidated entity during the specified periods. The Pro forma
Financial Information (including the notes thereto) is qualified in its entirety
by reference to, and should be read in conjunction with, the historical
financial statements of the Company, SRC and ECI, including the notes thereto,
incorporated herein by reference or included herein. The Company's historical
financial statements incorporated herein by
4
reference are the audited December 31, 2002 financial statements included in its
Form 10-KSB and the unaudited financial statements for the three-month period
ended March 31, 2003 included in its related Form 10-QSB and the Form 10-QSB/A.
The financial statements referred to in the preceding sentence have been filed
with the Securities and Exchange Commission. The historical financial statements
of SRC and ECI at December 31, 2002 and 2001 and for the years then ended are
enclosed herein as Exhibits to this Form 8-K/A.
The following pro forma financial statements give effect to the reorganization
of the Company, SRC and ECI using the purchase method of accounting. The pro
forma financial statements are based on the respective historical financial
statements and the notes thereto for the Company, SRC and ECI (which are
included or incorporated herein by reference).
The March 31, 2003 unaudited pro forma consolidated balance sheet, which assumes
that the reported transactions occurred on January 1, 2003, combines the
unaudited balance sheets of the Company, SRC and ECI as of March 31, 2003. The
unaudited pro forma consolidated statement of operations for the year ended
December 31, 2002, which assumes that the reported transactions occurred on
January 1, 2002, combines the audited statements of operations of the Company,
SRC and ECI for the year ended December 31, 2002. The unaudited pro forma
consolidated statement of operations for the three-month period ended March 31,
2003, assumes that the reported transactions occurred on January 1, 2003,
combines the unaudited statements of operations of the Company, SRC and ECI for
the three-month period ended March 31, 2003.
Management is in the process of assessing and formulating its integration plans;
although restructuring costs, if any, are not yet known, in the opinion of
management, all known presently quantifiable adjustments have been made that are
necessary to present fairly the Pro-forma Financial Information.
CNE Group, Inc. and Subsidiaries
Pro Forma Consolidated Balance Sheet
(Unaudited)
March 31, 2003
Historical March 31, 2003
--------------------------------------------------------------------------------
CNE Group, Inc. SRC Technologies, Inc.
and subsidiaries and subsidiaries Econo-Comm, Inc. Combined
---------------- ---------------------- ---------------- --------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Balance Sheet:
Assets:
Current assets:
Cash $ 96,747 $ 12,412 $ 73,228 $ 182,387
Accounts receivable, net 28,447 24,924 351,210 404,581
Investment in subsidiaries -- -- -- --
Inventory -- 90,953 143,167 234,120
Other -- -- 10,777 10,777
Fixed assets, net 22,167 82,599 250,000 354,766
Deferred financing costs, net -- -- -- --
Patent -- 390,000 -- 390,000
Other assets -- 20,707 11,207 31,914
Goodwill -- 178,833 -- 178,833
------------ ----------- ----------- ------------
$ 147,361 $ 800,428 $ 839,589 $ 1,787,378
============ =========== =========== ============
Liabilities:
Current liabilities:
Accounts payable and accrued expenses $ 379,141 $ 230,012 $ 99,717 $ 708,870
Interest payable 288,000 -- -- 288,000
Line of credit -- 19,088 145,310 164,398
Notes payable -- 12,922 189,561 202,483
Short-term financing arrangements -- 454,064 -- 454,064
12% Debentures payable 2,400,000 -- -- 2,400,000
Other -- 2,396 2,500 4,896
Tax assessment payable 929,403 428,479 -- 1,357,882
Notes payable -- 34,152 -- 34,152
10% Subordinated notes -- -- -- --
8% Subordinated notes -- -- -- --
Deferred grant revenue 291,827 -- -- 291,827
------------ ----------- ----------- ------------
4,288,371 1,181,113 437,088 5,906,572
------------ ----------- ----------- ------------
Stockholders' Equity:
Preferred Stock -- -- -- --
Common Stock 68 36,992 100 37,160
Paid-in-surplus 16,973,583 515,911 33,978 17,523,472
Retained earnings (18,241,561) (933,588) 368,423 (18,806,726)
Treasury stock (2,873,100) -- -- (2,873,100)
------------ ----------- ----------- ------------
(4,141,010) (380,685) 402,501 (4,119,194)
------------ ----------- ----------- ------------
$ 147,361 $ 800,428 $ 839,589 $ 1,787,378
============ =========== =========== ============
See Notes to Pro forma Consolidated Balance Sheet (Unaudited)
CNE Group, Inc. and Subsidiaries
Pro Forma Consolidated Balance Sheet
(Unaudited)
March 31, 2003
Adjustments Pro-forma,
------------------------------------- as adjusted
Debits Notes Credits Notes March 31, 2003
----------------- ----------------- --------------
(Unaudited)
Balance Sheet:
Assets:
Current assets:
Cash $ 182,387
Accounts receivable, net $ 351,210 c 53,371
Investment in subsidiaries $ 6,523,813 b 6,523,813 d --
Inventory 234,120
Other 10,777
Fixed assets, net 354,766
Deferred financing costs, net --
Patent 1,160,820 a 1,550,820
Other assets 31,914
Goodwill 6,913,534 d 7,092,367
------------
$ 9,510,522
============
Liabilities:
Current liabilities:
Accounts payable and accrued expenses $ 708,870
Interest payable 288,000
Line of credit 164,398
Notes payable 202,483
Short-term financing arrangements 351,210 c 102,854
12% Debentures payable 2,400,000
Other 4,896
Tax assessment payable 1,357,882
Notes payable 34,152
10% Subordinated notes --
8% Subordinated notes 2,000,000 a 2,000,000
Deferred grant revenue 291,827
------------
7,555,362
------------
Stockholders' Equity:
Preferred Stock 115 b 115
Common Stock 37,092 d 9 b 77
Paid-in-surplus 138,069 a,d 6,935,226 b 23,069,629
Retained earnings 565,165 d (18,241,561)
Treasury stock (2,873,100)
------------
1,955,160
------------ ------------ ------------
$ 16,375,538 $ 16,375,538 9,510,522
============ ============ ============
See Notes to Pro forma Consolidated Balance Sheet (Unaudited)
CNE Group, Inc. and Subsidiaries
Pro Forma Consolidated Balance Sheet
(Unaudited)
March 31, 2003
Additional Adjustments Adjusted
----------------------------------- Pro-forma
Debits Notes Credits Notes March 31, 2003
--------------- --------------- --------------
(Unaudited)
Balance Sheet:
Assets:
Current assets:
Cash $ 692,000 1 $ 97,885 2 $ 776,502
Accounts receivable, net 28,447 2 24,924
Investment in subsidiaries --
Inventory 13,410 2 220,710
Other 10,777
Fixed assets, net 22,167 2 332,599
Deferred financing costs, net 58,000 1 58,000
Patent 1,550,820
Other assets 16,619 2 15,295
Goodwill 7,092,367
------------
$ 10,081,994
Liabilities: ============
Current liabilities:
Accounts payable and accrued expenses 289,558 2 $ 419,312
Interest payable 288,000 2 --
Line of credit 164,398
Notes payable 202,483
Short-term financing arrangements 102,854
12% Debentures payable 2,400,000 2 --
Other 4,896
Tax assessment payable 1,357,882 2 --
Notes payable 34,152
10% Subordinated notes 227,000 1 227,000
8% Subordinated notes 2,000,000
Deferred grant revenue 291,827
------------
3,446,922
Stockholders' Equity: ------------
Preferred Stock 115
Common Stock 77
Paid-in-surplus 3,211,000 1, 2 26,280,629
Retained earnings 1,468,912 2 (16,772,649)
Treasury stock (2,873,100)
------------
6,635,072
----------- ----------- ------------
$ 5,085,440 $ 5,085,440 $ 10,081,994
=========== =========== ============
See Notes to Pro forma Consolidated Balance Sheet (Unaudited)
Notes to Pro forma Consolidated Balance Sheet:
Adjustments:
a. Purchase of patent in consideration of a $2,000,000 8% note payable
recorded at its fair value of $1,380,000 and reduction of $219,180 to
fair value of a patent owned by SRC Technologies. Inc.
b. Adjustments to record acquisition of SRC Technologies, Inc. and
Econo-Comm, Inc.:
i. Adjustment to record the acquisition of SRC
Technologies, Inc. The cost of the acquisition of
approximately $4,126,427 consisted of the issuance of
1,697,961 shares of Class A Preferred Stock and
1,697,961 Class A Warrants, 4,867,937 shares of Class C
Preferred Stock and 4,867,937 Class C Warrants, 440,000
shares of Class D Preferred Stock, and 899,976 shares
of Common Stock. The fair value ascribed to the
acquisition is based on an appraisal performed by an
independent valuation consultant. Total consideration
was allocated as follows:
Fair value of tangible assets acquired $ 231,595
Fair value of separately indentifiable intangible assets 170,820
Goodwill 4,553,915
----------
4,956,330
Obligations 829,903
----------
Total consideration $4,126,427
==========
ii. Adjustment to record the acquisition of Econo-Comm,
Inc.. The cost of the acquisition of approximately
$2,589,743 consisted of the issuance of 4,867,938
shares of Class C Preferred Stock and 4,867,938 Class C
Warrants. The fair value ascribed to the acquisition is
based on an appraisal performed by an independent
valuation consultant. Total consideration was allocated
as follows:
Fair value of tangible assets acquired $ 488,379
Goodwill 2,538,452
----------
3,026,831
Obligations 437,088
----------
Total consideration $2,589,743
==========
c. To eliminate intercompany accounts receivable and related accounts
payable amounting to $351,210
d. Excess of purchase price over net assets acquired
Additional Adjustments:
1. Proceeds from issuance of $750,000 10% notes payable in a private
placement less estimated related offering costs of $58,000. Related
attached warrants are valued at $523,000 and included in
Paid-in-Surplus. Debt discount of $523,000 to be amortized as
additional interest expense over a one-year period.
2. Treatment of the assets and liabilities of the Company's subsidiaries,
(i) CareerEngine Network, Inc. ("CEI"), and (ii) Denbridge Digital,
Ltd. ("DDL"), a subsidiary of SRC Technologies, Inc. ("SRC"). The pro
forma adjustments assume the following:
a. That all assets of CEI and DDL will be used to satisfy the
respective liabilities of CEI and DDL.
b. That the holders of the 12% convertible debentures of CEI will
exercise their right to convert their debentures into common
stock of the Company, in lieu of bankruptcy or liquidation, as
the value of CEI's remaining assets are nominal and the Company
has no legal obligation to pay this liability.
c. That the Internal Revenue Service will accept the Company's Offer
in Compromise in the amount of $50,000 to satisfy the existing
tax obligation of CEI as the value of CEI's remaining assets are
nominal and the Company has no legal obligation to pay this
liability.
d. That the Internal Revenue Service will accept SRC's Offer in
Compromise of a nominal amount to satisfy the existing tax
obligation of DDL as the value of DDL's remaining assets are
nominal and SRC has no legal obligation to pay this liability.
e. That the remaining liabilities of CEI and DDL, estimated at
$577,558, will not be paid as there is insufficient value in the
remaining assets of either CEI or DDL and neither the Company or
SRC, as the case may be, has any legal obligation to pay these
liabilities.
CNE Group, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
(Unaudited)
Three-month period ended March 31, 2003
Historical
---------------------------------------------------------------------------------
Three-months ended March 31, 2003
---------------------------------------------------------------------------------
CNE Group, Inc. SRC Technologies, Inc.
and subsidiaries and subsidiaries Econo-Comm, Inc. Combined
---------------- ---------------- ---------------- --------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue:
Product sales $ -- $ 135,417 338,294 $ 473,711
Service fee income 45,039 -- -- 45,039
Interest income 282 -- -- 282
--------- ------- ------- ---------
45,321 135,417 338,294 519,032
Costs of Goods Sold -- 75,121 61,902 137,023
--------- -------- ------- ---------
Gross Profit 45,321 60,296 276,392 382,009
--------- -------- ------- ---------
Operating Epenses:
Selling -- 27,646 112,194 139,840
Compensation and related costs 90,231 80,373 140,062 310,666
General and administrative 110,071 31,147 22,424 163,642
Interest 87,942 3,602 10,219 101,763
--------- -------- ------- ---------
288,244 142,768 284,899 715,911
--------- -------- ------- ---------
Income (loss) before items below (242,923) (82,472) (8,507) (333,902)
Amortization of debt discount -- -- -- --
Rental income -- -- 14,626 14,626
Gain on fixed assets destroyed in catastrophe -- -- -- --
Reversal of Director fee accrual -- -- -- --
--------- -------- ------- ---------
Income (loss) before taxes (242,923) (82,472) 6,119 (319,276)
Income tax provision $ (0.4) $ (.06)
--------- -------- ------- ---------
Net income (loss) from
continuing operations $ (242,923) $ (82,472) $6,119 $(319,276)
========= ======== ======= =========
Net income (loss) from continuing
operations per share -
basic and diluted $ (.04) $ (.06)
========= =========
Weighted average number
of shares outstanding -
basic and diluted 5,590,944 5,590,944
========= =========
See Notes to Pro Forma Consolidated Statement of Operations (Unaudited)
CNE Group, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
(Unaudited)
Three-month period ended March 31, 2003
Pro-forma,
as adjusted,
Adjustments for the three-month
-------------------------------------- period ended
Debits Notes Credits Notes March 31, 2003
--------- ----- --------- ----- --------------
(Unaudited)
Revenue:
Product sales 32,443 b $ 441,268
Service fee income 45,039
Interest income 282
----------
486,589
Costs of Goods Sold 37,607 a, b 99,416
----------
Gross Profit 387,173
----------
Operating Epenses:
Selling 139,840
Compensation and related costs 310,666
General and administrative 57,892 c 221,534
Interest 9,439 a 92,324
----------
764,364
----------
Income (loss) before items below (377,191)
Amortization of debt discount --
Rental income 14,626 a --
Gain on fixed assets destroyed in catastrophe --
Reversal of Director fee accrual --
----------
Income (loss) before taxes (377,191)
Income tax provision (.02)
----------
--------- ---------
Net income (loss)from continuing operations $ 104,961 $47,046 $18,364,755
========= ========= ==========
Net income (loss) from continuing
operations per share -
basic and diluted $ (.02)
==========
Weighted average number
of shares outstanding -
basic and diluted 18,364,755
==========
See Notes to Pro forma Consolidated Statement of Operations (Unaudited)
CNE Group, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
(Unaudited)
Three-month period ended March 31, 2003
Adjusted
Pro-forma
Additional Adjustments for the three-month
------------------------------------ period ended
Debits Notes Credits Notes March 31, 2003
------ ----- ------- ----- -------------------
(Unaudited)
Revenue:
Product sales $ 441,268
Service fee income 45,039
Interest income 282
----------
486,589
Costs of Goods Sold 99,416
----------
Gross Profit 387,173
----------
Operating Epenses:
Selling 139,840
Compensation and related costs 310,666
General and administrative 221,534
Interest 58,750 2 87,942 1 63,132
----------
735,172
----------
Income (loss) before items below (347,999)
Amortization of debt discount 130,750 3 (130,750)
Rental income --
Gain on fixed assets destroyed in catastrophe --
Reversal of Director fee accrual --
----------
Income (loss) before taxes (478,749)
Income tax provision --
----------
---------- ---------
Net income (loss) from continuing operations $ 189,500 $ 87,942 $ (478,749)
========== ========= ==========
Net income (loss) from continuing
operations per share -
basic and diluted $ (.03)
==========
Weighted average number
of shares outstanding -
basic and diluted 18,364,755
==========
See Notes to Pro forma Consolidated Statement of Operations (Unaudited)
Notes to Pro forma Consolidated Statement of Operations:
Adjustments:
a. (i) CNE Group, Inc.: Includes the operations generated by CareerEngine,
Inc., a subsidiary of CareerEngine Network, Inc.
(ii) Econo-Comm, Inc.: Excludes any rental income ($14,626),
depreciation ($5,164), repair and maintenance ($nil) and related
debt expenses ($9,439) pertaining to land and building not acquired
by the Company.
b. Elimination of intercompany sales and related costs of sales
c. Amortization ($42,930) of $2,390,000 of intellectual property rights
purchased (amortized, utilizing the straight-line method, over their
estimated remaining lives of approximately 12 to 14 years) and rent per
lease now in effect ($14,962) in lieu of property ownership expenses,
aggregating $57,892
Additional Adjustments:
1. Elimination of interest on Debentures Payable ($72,000) and interest on
Tax Assessment ($15,942) aggregating $87,942
2. Interest expense adjustment includes interest on 10% 750,000 Note Payable
($18,750) and 8% 2,000,000 Note Payable ($40,000) aggregating $58,750
3. Amortization of debt discount for quarter
CNE Group, Inc. and Subsidiaries
Pro-Forma Consolidated Statement of Operations
(Unaudited)
Year ended December 31, 2002
Historical
-----------------------------------------------------------------------------
Year ended December 31, 2002
-----------------------------------------------------------------------------
CNE Group, Inc. SRC Technologies, Inc.
and subsidiaries and subsidiaries Econo-Comm, Inc. Combined
---------------- ---------------------- ---------------- -----------
(Audited) (Audited) (Audited) (Unaudited)
Revenue:
Product sales $ -- $ 1,265,137 $2,321,085 $ 3,586,222
Service fee income 237,800 -- -- 237,800
Interest income 2,248 -- -- 2,248
----------- ----------- ---------- -----------
240,048 1,265,137 2,321,085 3,826,270
Costs of Goods Sold -- 770,470 1,593,130 2,363,600
----------- ----------- ---------- -----------
Gross Profit 240,048 494,667 727,955 1,462,670
----------- ----------- ---------- -----------
Operating Epenses:
Selling 10,000 33,116 140,446 183,562
Compensation and related costs 580,145 434,474 65,834 1,080,453
General and administrative 927,367 97,187 286,388 1,310,942
Interest 1,040,666 36,888 46,575 1,124,129
----------- ----------- ---------- -----------
2,558,178 601,665 539,243 3,699,086
----------- ----------- ---------- -----------
Income (loss) before items below (2,318,130) (106,998) 188,712 (2,236,416)
Amortization of debt discount -- -- -- --
Rental income -- -- 61,458 61,458
Gain on fixed assets destroyed in catastrophe 152,934 -- -- 152,934
Reversal of Director fee accrual 55,000 -- -- 55,000
----------- ----------- ---------- -----------
Income (loss) before taxes (2,110,196) (106,998) 250,170 (1,967,024)
Income tax provision 5,250 -- -- 5,250
----------- ----------- ---------- -----------
Net income (loss) from continuing operations $(2,115,446) $ (106,998) $ 250,170 $(1,972,274)
=========== =========== ========== ===========
Net income (loss) from continuing
operations per share -
basic and diluted $ (.37) $ (.35)
=========== ===========
Weighted average number
of shares outstanding -
basic and diluted 5,585,944 5,585,944
=========== ===========
See Notes to Pro forma Consolidated Statement of Operations (Unaudited)
CNE Group, Inc. and Subsidiaries
Pro-Forma Consolidated Statement of Operations
(Unaudited)
Year ended December 31, 2002
Proforma,
Adjustments as adjusted,
---------------------------------------- for the year ended
Debits Notes Credits Notes Decmber 31, 2002
----------- ----- ---------- ----- ----------------
(Unaudited)
Revenue:
Product sales 656,535 b $ 2,929,687
Service fee income 237,800
Interest income 2,248
------------
3,169,735
Costs of Goods Sold 687,729 a, b 1,675,871
------------
Gross Profit 1,493,864
------------
Operating Epenses:
Selling 183,562
Compensation and related costs 1,080,453
General and administrative 231,568 c 30,119 a 1,512,391
Interest 37,900 a 1,086,229
------------
3,862,635
------------
Income (loss) before items below (2,368,771)
Amortization of debt discount --
Rental income 61,458 a --
Gain on fixed assets destroyed in catastrophe 152,934 a --
Reversal of Director fee accrual 55,000 a --
--
------------
Income (loss) before taxes (2,368,771)
Income tax provision 5,250
------------
----------- ----------
Net income (loss) from continuing operations $ 1,157,495 $ 755,748 $ (2,374,021)
=========== ========== =============
Net income (loss) from continuing
operations per share -
basic and diluted $ (.13)
============
Weighted average number
of shares outstanding -
basic and diluted 18,359,755
============
See Notes to Pro forma Consolidated Statement of Operations (Unaudited)
CNE Group, Inc. and Subsidiaries
Pro-Forma Consolidated Statement of Operations
(Unaudited)
Year ended December 31, 2002
Adjusted
Additional Adjustments Pro-forma
------------------------------------------ for the year ended
Debits Notes Credits Notes December 31, 2002
---------- ----- ------------ ------ ------------------
(Unaudited)
Revenue:
Product sales $ 2,929,687
Service fee income 237,800
Interest income 2,248
------------
3,169,735
Costs of Goods Sold 1,675,871
------------
Gross Profit 1,493,864
------------
Operating Epenses:
Selling 183,562
Compensation and related costs 1,080,453
General and administrative 320,350 2 1,192,041
Interest 235,000 3 1,040,666 1 280,563
------------
2,736,619
------------
Income (loss) before items below (1,242,755)
Amortization of debt discount 523,000 3 (523,000)
Rental income --
Gain on fixed assets destroyed in catastrophe --
Reversal of Director fee accrual --
------------
Income (loss) before taxes (1,765,755)
Income tax provision 5,250
------------
---------- ------------
Net income (loss) from continuing operations $ 758,000 $ 1,361,016 $ (1,771,005)
========== ============ ============
Net income (loss) from continuing
operations per share -
basic and diluted $ (.10)
============
Weighted average number
of shares outstanding -
basic and diluted 18,359,755
============
See Notes to Pro forma Consolidated Statement of Operations (Unaudited)
Notes to Pro forma Consolidated Statement of Operations:
Adjustments:
a. (i) CNE Group, Inc.'s audited Statement of Operations within this
Pro-forma Financial Information excludes the following non-recurring
credits; Gain on fixed assets destroyed in catastrophe ($152,934)
and Reversal of Director fees accrual ($55,000).
(ii) CNE Group, Inc.'s Pro-forma Statement of Operations includes the
operations generated by CareerEngine, Inc. a subsidiary of
CareerEngine Network, Inc.
(iii) Econo-Comm, Inc.'s audited Statement of Income within this Pro-forma
Financial Information excludes any rental income ($61,458),
depreciation ($31,194), repair and maintenance ($30,119) and related
debt expenses ($37,900) pertaining to land and building not acquired
by the Company.
b. Elimination of intercompany sales and related costs of sales
c. Amortization ($171,720) of $2,390,000 of intellectual property rights
purchased (amortized, utilizing the straight-line method, over their
estimated remaining lives of approximately 12 to 14 years) and rent per
lease now in effect ($59,848) in lieu of property ownership expenses,
aggregating $231,568
Additional Adjustments:
1. Elimination of interest on Debentures Payable ($288,000), amortization of
debt discount on Debentures Payable ($29,768), interest on Tax Assessment
($60,918) and expensing of remaining unamortized debt discount ($661,980)
aggregating $1,040,666
2. Elimination of expensing deferred financing costs associated with
Debentures Payable in the amount of $320,350
3. Interest expense adjustment includes interest on 10% 750,000 Note Payable
($75,000) and 8% 2,000,000 Note Payable ($160,000), and amortization of
entire debt discount of $523,000 on 10% Note Payable
(c) Exhibits.
The following documents are being filed as exhibits to this Form 8-K/A. The
documents filed as Exhibits to the Company's Form 8-K filed with the Securities
and Exchange Commission on May 6, 2003 are incorporated herein by reference.
Exhibit No. Description
----------- -----------
99.1 Econo-Comm, Inc. (d/b/a Mobile Communications) Financial
Statements and Independent Auditors' Report as of December 31,
2002 and 2001 and for the years then ended.
5
99.2 SRC Technologies, Inc. (formerly Southern Dragon, Inc.) and
Subsidiary (Connectivity, Inc. which was acquired on May 30,
2002) Financial Statements and Independent Auditors' Report as of
December 31, 2002 and for the year then ended.
99.3 Southern Dragon, Inc. Financial Statements and Independent
Auditors' Report as of December 31, 2001 and for the year then
ended.
99.4 Connectivity, Inc. Financial Statements and Independent Auditors'
Report as of December 31, 2001 and for the year then ended.
6
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.
CNE GROUP, INC.
Date: July 7, 2003 By: /S/George W. Benoit
------------ ----------------------------------
George W. Benoit,
Chairman of the Board of Directors
and Chief Executive Officer