SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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): March 2, 2000 IBS INTERACTIVE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) DELAWARE 0-24073 13-3817344 (STATE OR OTHER (COMMISSION (IRS EMPLOYER JURISDICTION FILE NUMBER) IDENTIFICATION NO.) OF INCORPORATION) 2 RIDGEDALE AVENUE, SUITE 350, CEDAR KNOLLS, NEW JERSEY 07927 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (973) 285-2600 *Item 2 and Item 7 of the Form 8-K, filed March 24, 2000 are being amended hereby to revise Item 2 and to include in Item 7 the financial statements of the business acquired and pro forma financial information. ======================================================================= ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. As announced in its press release of Thursday, March 2, 2000, on March 1, 2000, IBS Interactive, Inc. ("IBS") entered into an Agreement and Plan of Merger (the "Agreement") with Sean D. Mann, Roy E. Crippen III, Michael Mandt, Ali A. Husain, Robert E. Siegmann, digital fusion, inc. a Florida corporation ("digital fusion"), and Digital Fusion Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of IBS ("DFAC"). Pursuant to the terms of the Agreement, digital fusion merged with DFAC and became the surviving entity. In exchange for all of the issued and outstanding shares of digital fusion, IBS issued: (i) 925,000 shares of its unregistered common stock, par value $.01 per share (the "Common Stock"), and reserved an additional 50,000 shares of Common Stock for potential later issuance subject to certain adjustments and (ii) a three-year subordinated note accruing 6% interest. IBS also assumed debt totaling approximately $4.2 million ($3.3 million of which is secured in the Company's assets). digital fusion provides e-Business services and is based in Tampa, Florida. The foregoing summary of the Agreement is qualified in its entirety by reference to the Agreement, a copy of which is attached hereto as an exhibit. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. 1. Audited financial statements of digital fusion, inc. as of and for the years ended December 31, 1999 and 1998, which includes the following: a. Balance Sheets; b. Statements of Operations; c. Statements of Shareholders' Equity; d. Statements of Cash Flows; and e. Notes to Financial Statements. -2- digital fusion, inc. INDEX TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 PAGE Reports of Independent Certified Public Accountants...................4 Balance Sheets as of December 31, 1999 and 1998.......................6 Statements of Operations for the years ended December 31, 1999 and 1998..........................................7 Statements of Shareholders' Equity for the years ended December 31, 1999 and 1998....................................8 Statements of Cash Flows for the years ended December 31, 1999 and 1998....................................9 Notes to Financial Statements........................................10 -3- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors digital fusion, inc. We have audited the accompanying balance sheet of digital fusion, inc. as of December 31, 1999, and the related statements of operations, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of digital fusion, inc. as of December 31, 1999, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ BDO SEIDMAN, LLP BDO Seidman, LLP Woodbridge, New Jersey May 4, 2000 -4- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors digital fusion, inc. We have audited the accompanying balance sheet of digital fusion, inc. (formerly ROI Consulting, Inc.) (the Company) as of December 31, 1998, and the related statements of operations, shareholders' equity and cash flows for the year ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of digital fusion, inc. (formerly ROI Consulting, Inc.) as of December 31, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Ernst & Young, LLP Tampa, Florida March 31,1999 -5- digital fusion, inc. BALANCE SHEETS DECEMBER 31, 1999 AND 1998 December 31, 1999 1998 - -------------------------------------------------------------------------------- Assets Current: Cash and cash equivalents $ 40,381 $254,702 Accounts receivable, net of allowance for doubtful accounts of $315,000 and $5,000 in 1999 and 1998, respectively 1,649,296 379,072 Due from related party 281,656 - Prepaid expenses and other current assets 90,039 4,812 - -------------------------------------------------------------------------------- Total current assets 2,061,372 638,586 Property, equipment and software, net 1,228,174 17,976 Intangible assets, net 6,702,540 - Other assets 55,346 292 - -------------------------------------------------------------------------------- Total assets $10,047,432 $656,854 - -------------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities: Borrowings - line of credit $ 3,323,113 $ - Accounts payable 167,448 2,280 Due to related party 408,757 - Accrued expenses 539,718 204,886 Income taxes payable - 1,423 Deferred income tax liability - 5,063 Deferred revenue 118,470 - - -------------------------------------------------------------------------------- Total current liabilities 4,557,506 213,652 Long-term notes payable 827,500 - Convertible subordinated debentures 3,000,000 - - -------------------------------------------------------------------------------- Total liabilities 8,385,006 213,652 - -------------------------------------------------------------------------------- Shareholders' equity: Common stock, $.01 par value -3,500,000 authorized; 3,500,000 and 1,020,000 shares, issued and outstanding at December 31, 1999 and 1998, respectively 35,000 10,200 Additional paid-in capital 2,645,060 94,860 Retained earnings (accumulated deficit) (1,017,634) 338,142 - -------------------------------------------------------------------------------- Total shareholders' equity 1,662,426 443,202 - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $10,047,432 $656,854 - -------------------------------------------------------------------------------- SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. -6- digital fusion, inc. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 YEAR ENDED DECEMBER 31, 1999 1998 ------------------------------------------------------------------------------- Revenues $ 9,561,238 $2,834,257 Cost of revenues 6,113,213 2,163,773 ------------------------------------------------------------------------------- Gross profit 3,448,025 670,484 Selling, general and administrative expenses 2,990,623 269,036 Depreciation 213,647 5,901 Amortization of intangible assets 1,182,801 - ------------------------------------------------------------------------------- Operating income (loss) (939,046) 395,547 Interest (expense) income, net (421,793) 11,797 ------------------------------------------------------------------------------- Income (loss) before provision (benefit) for income taxes (1,360,839) 407,344 Provision (benefit) for income taxes (5,063) 156,805 ------------------------------------------------------------------------------- Net income (loss) $(1,355,776) $ 250,539 ------------------------------------------------------------------------------- SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. -7- digital fusion, inc. STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 Retained Common Stock Additional earnings ------------------------ paid-in (accumulated Shares Amount capital deficit) Total ----------------------------------------------------------------------------------- Balance at December 31, 1997 510,000 $ 5,100 $ - $ 87,603 $ 92,703 Net income 250,539 250,539 Common stock issued pursuant to stock purchase 510,000 5,100 94,860 99,960 ----------------------------------------------------------------------------------- Balance at December 31, 1998 1,020,000 10,200 94,860 338,142 443,202 Net loss (1,355,776) (1,355,776) Contribution of PowerCerv stock owned by shareholder in return for common stock 1,680,000 16,800 1,558,200 - 1,575,000 Sales of common stock to shareholder 800,000 8,000 992,000 - 1,000,000 ----------------------------------------------------------------------------------- Balance at December 31, 1999 3,500,000 $35,000 $2,645,060 $(1,017,634) $1,662,426 ----------------------------------------------------------------------------------- SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. -8- digital fusion, inc. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 YEAR ENDED DECEMBER 31, 1999 1998 ------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $(1,355,776) $250,539 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,396,448 5,901 Deferred tax expense (benefit) (5,063) 2,595 Changes in operating assets and liabilities, net of effects of PowerCerv acquisition: Accounts receivable 73,419 (160,072) Amounts due to/from related party 127,101 - Prepaid expenses and other current assets (81,180) (1,644) Income taxes receivable - 3,307 Accounts payable 165,168 (59,503) Accrued expenses 102,149 (65,423) Income taxes payable (1,423) 1,423 Deferred revenue (17,794) - ------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 403,049 (22,877) ------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures - property and equipment (140,846) (13,943) PowerCerv acquisition and related costs (2,632,841) - Purchases of software technology (895,750) - ------------------------------------------------------------------------------- Net cash used in investing activities (3,669,437) (13,943) ------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from issuance of common stock 1,000,000 99,960 Line of credit proceeds, net 3,323,113 - Proceeds from convertible subordinated debentures 3,000,000 - Repayments of notes payable (4,271,046) - ------------------------------------------------------------------------------- Net cash provided by financing activities 3,052,067 99,960 ------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (214,321) 63,140 Cash and cash equivalents, beginning of year 254,702 191,562 ------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 40,381 $254,702 ------------------------------------------------------------------------------- SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. -9- GENERAL 1. Organization and digital fusion, inc. (formerly ROI Consulting, Inc.) Nature of (the "Company") was organized in May 1997 as a Business (see Florida corporation. The Company provides e-Business Note 14) and information technology consulting and education services to a wide array of commercial businesses and governmental entities. The Company has its main administrative office in Tampa, Florida along with regional offices in Minnesota, Florida, Michigan and Alabama. ACQUISITION On March 31, 1999, the Company acquired certain assets of the General Consulting and Education division of PowerCerv Technologies Corporation ("PowerCerv"), in exchange for $2,455,000 of cash, $5,098,546 of notes payable and 700,000 shares of PowerCerv stock owned by the Company (see note 12). To finance a portion of the acquisition, the Company sold 800,000 shares of common stock for $1,000,000 to an existing shareholder and officer. The value of the consideration and the direct costs of the acquisition ($9.2 million) less the fair value of the net assets acquired ($1.3 million) resulted in goodwill of approximately $7.9 million, which is being amortized over an estimated life of five years. The following summarized unaudited pro forma information for the year ended December 31, 1999 assumes that the PowerCerv acquisition occurred on January 1, 1999. ------------------------------------------------------- Net revenues $12,100,000 Operating loss (1,103,000) Net loss (1,529,000) ------------------------------------------------------- The pro forma operating results reflect estimated pro forma adjustments for the amortization of intangibles arising from the acquisition ($388,000) additional interest expense from debt related to the acquisition ($9,000) and the operating results of PowerCerv through March 1999. Pro forma results of operations information is not necessarily indicative of the results of operations that would have occurred had the acquisition been consummated at the beginning of 1999, or of future results of the combined companies. -10- 2. Summary of REVENUE RECOGNITION Significant Accounting Revenue is recognized as services are rendered and Policies performance obligations are fulfilled. Deferred revenue is recorded for any payments received prior to the services being performed or performance obligations fulfilled. CASH AND CASH EQUIVALENTS The Company considers all highly liquid short-term investments with original maturities of three months or less to be cash equivalents. INCOME TAXES The Company has elected, as of January 1, 1999, under the applicable provisions of the Internal Revenue Code and applicable state code, to report its results of operations for income tax purposes as an "S" Corporation. Under those regulations, the shareholders individually assume the income tax liability or benefits of the Company's net income or loss. Prior to 1999, the Company reported its results of operations for income tax purposes as a "C" Corporation and accounted for income taxes using the liability method. Under the liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities were measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of the change in the Company's tax status was recognized in 1999. Accordingly, the Company's benefit for federal and state income taxes for the year ended December 31, 1999 of $5,063 is comprised of the effects of reducing previously recorded deferred income tax liabilities. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, notes payable and convertible subordinated debentures. The carrying value of these financial instruments approximate the instruments' fair values at December 31, 1999 and 1998. -11- CONCENTRATION OF CREDIT RISK Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company continually evaluates the credit worthiness of its customers' financial position and monitors accounts on a periodic basis, but typically does not require collateral related to trade receivables. PROPERTY, EQUIPMENT AND SOFTWARE Property, equipment and software are stated at cost. Depreciation is provided on a straight line method based upon the following useful lives: ------------------------------------------------------- Office equipment 2 - 5 years Computer equipment 2 - 4 years Furniture and fixtures 5 -7 years Software technology 5 years ------------------------------------------------------- LONG-LIVED ASSETS The Company follows SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). In accordance with SFAS 121, the carrying values of long-lived assets are periodically reviewed by the Company and impairments would be recognized if the expected future operating non-discounted cash flows derived from an asset were less than its carrying value. There were no impairment losses recorded in the years ended December 31, 1999 and 1998. INTANGIBLE ASSETS Intangible assets are comprised primarily of goodwill arising from the PowerCerv acquisition and related costs. Such asset values are amortized over a period of five years. -12- USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates used by the Company include the valuation of the allowances for doubtful accounts and the useful lives ascribed to property, equipment, software and goodwill. 3. Accounts Accounts receivable includes unbilled receivables of Receivable $155,000 and $87,000 under contracts to purchase services as of December 31, 1999 and 1998, respectively. Such amounts are billable upon completion of performance milestones and are expected to be collected within one year. 4. Property, Major classes of property, equipment and software, Equipment and net, consist of the following: Software DECEMBER 31, 1999 1998 ------------------------------------------------------- Office equipment $ 41,306 $ - Computer equipment 406,490 23,966 Software technology 895,750 - Furniture and fixtures 95,886 944 ------------------------------------------------------- 1,439,432 24,910 Less: Accumulated depreciation (211,258) (6,934) ------------------------------------------------------- $ 1,228,174 $17,976 ------------------------------------------------------- Depreciation expense totaled $213,647 and $5,901 for the years ended December 31, 1999 and 1998, respectively. 5. Intangible Assets Intangible assets, net, are comprised of goodwill related to the PowerCerv acquisition ($7,885,341 at December 31, 1999) less accumulated amortization of $1,182,801. Amortization expense totaled $1,182,801 for the year ended December 31, 1999. -13- 6. Accrued Expenses At December 31, 1999 and 1998, accrued expenses consist of the following: DECEMBER 31, 1999 1998 ------------------------------------------------------- Compensation and benefits $217,581 $188,140 Interest 164,624 - Other 157,513 16,746 ------------------------------------------------------- $539,718 $ 204,886 ------------------------------------------------------- 7. Borrowings LINE OF CREDIT In June 1999, the Company secured a $4 million line of credit from a bank with an interest rate of LIBOR plus 2.5% (8.33% at December 31, 1999). This line of credit was secured by all of the Company's assets and guaranteed by certain shareholders. On February 29, 2000, the terms of the line of credit were amended and the borrower was changed to IBS Interactive, Inc. ("IBS") (see Note 14). This new facility is secured by IBS' assets and has a rate of prime plus 2% and is due in a series of installments through August 29, 2000. LONG-TERM NOTES PAYABLE As part of the consideration for the PowerCerv acquisition, the Company issued three notes payable totaling $5,098,540. Of the total amount $4,271,046 was paid off during June 1999. The balance outstanding at December 31, 1999 $827,500 accrues interest at 4.56% per annum and has maturities of $209,970 in 2001, $225,786 in 2002, $236,259 in 2003 and $155,485 in 2004. The effects of adjusting these notes to fair value as of the acquisition date were not considered material. Interest expense on such notes totaled approximately $180,000 in 1999. CONVERTIBLE DEBT During 1999, the Company sold $3,000,000 of 9% convertible subordinated debentures with a five-year term which was convertible into common stock at $1.75 per share; of the total sale, $1,500,000 of the debentures were sold to two existing shareholders and officers at the same terms afforded to others. The total debt was converted into shares of Company common stock on March 1, 2000 in conjunction with selling the outstanding shares of the Company to IBS as discussed in Note 14 below. -14- 8. Income Taxes The provision (benefit) for income taxes consists of the following: DECEMBER 31, 1999 1998 ------------------------------------------------------- Current: Federal $ - $134,038 State - 20,172 ------------------------------------------------------- - 154,210 Deferred: Federal (4,429) 2,270 State (634) 325 ------------------------------------------------------- (5,063) 2,595 ------------------------------------------------------- $(5,063) $156,805 ------------------------------------------------------- As discussed in Note 2, the Company changed from a "C" corporation to a "S" corporation as of January 1, 1999; therefore, the 1999 benefit relates to a reduction of previously recorded deferred tax liabilities. The deferred income tax liability at December 31, 1998 reflects the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company's only significant temporary difference is related to the basis difference in property and equipment related to the use of accelerated depreciation for tax purposes. The difference in the Company's 1999 effective tax rate when compared to the Federal statutory rate of 34% principally relates to: (i) the Company's benefit for taxes, as an "S" Corporation, reverts to the shareholders rather than the Company and (ii) the benefit of the Company's change in tax status described in note 2. The difference in the Company's 1998 effective tax rate when compared to the Federal statutory rate of 34% principally relates to state taxes. 9. Benefit Plans During 1997, the Company initiated the ROI Consulting, Inc. 401(k) Retirement Saving Plan (the "ROI 401(k) Plan") effective May 2, 1997, for the benefit of the employees hired with the Company prior to April 1, 1999. This ROI 401(k) Plan is funded by certain employee payroll deductions. In addition, the Company has the option to contribute to the ROI 401(k) Plan on the employee's behalf. The Company did not make any contributions to the ROI 401(k) Plan during 1999 or 1998. -15- For employees associated with the PowerCerv acquisition and employees hired after March 31, 1999, the Company adopted the PowerCerv Corporation 401(k) Profit Sharing Plan (the "Multiple Employer 401(k) Plan") which is a multiple employer plan. This Multiple Employer 401(k) Plan covers employees who meet established eligibility requirements. Under the Multiple Employer 401(k) Plan, the Company may match participant contributions. During 1999, the Company matched 30% of participant contributions to a maximum matching amount of 6% of participant base compensation. Total Company contributions were approximately $156,500 during the year ended December 31, 1999. 10. Major Customers One customer accounted for 12% and 69% of the Company's revenues for the years ended December 31, 1999 and 1998, respectively. At December 31, 1999 and 1998 accounts receivable from this customer were $118,935 and $226,111, respectively. 11. Commitments The Company conducts its operations in leased facilities. The remaining lease terms range from one month to three and one-half years. Rental expenses under operating leases approximated $254,000 and $800 during the years ended December 31, 1999 and 1998, respectively. Future minimum lease payments under non-cancelable operating lease agreements during the years following December 31, 1999 are approximately $155,000 for the year ending December 31, 2000; $76,000 for the year ending December 31, 2001; $68,000 for the year ending December 31, 2002; $19,000 for the year ending December 31, 2003 and $2,000 for the year ending December 31, 2004. 12. Related Party A Shareholder and officer of the Company also serves Transactions as a Director of PowerCerv. The Company transacts business with PowerCerv on a regular basis. During the year ended December 31, 1999, the Company recognized revenues of $494,541, for services rendered to PowerCerv and incurred expenses of $158,859, for services received and ongoing facility costs. In addition, the Company capitalized costs of $895,750 for software developed by PowerCerv and utilized in the Company's operations. Amounts due from and due to PowerCerv at December 31, 1999 totaled $281,656 and $408,757, respectively. -16- In March 1999, a shareholder and officer contributed 700,000 shares of personally owned PowerCerv stock to the Company. In return, the shareholder and officer received 1,680,000 shares of Company common stock with an ascribed value of $1,575,000. The value of the 1,680,000 shares was based on the value assigned to the PowerCerv stock in consummating the acquisition described in note 1. At December 31, 1999, the Company had a subordinated note payable in the amount of $827,500 to PowerCerv that was issued in connection with the acquisition described in note 1. 13. Supplemental In connection with the PowerCerv acquisition, Cash Flow liabilities were assumed as follows: Information ------------------------------------------------------- Fair value of assets acquired $9,128,546 Cash paid (2,455,000) Fair value of issued equity securities (1,575,000) ------------ Liabilities assumed (including notes payable) $5,098,546 ------------------------------------------------------- Cash paid for interest totaled $181,831 and $4,050, respectively, in 1999 and 1998. Cash paid for income taxes totaled $1,423 and $150,448 respectively, in 1999 and 1998. 14. Subsequent Event In March, 2000, the stockholders sold the outstanding shares of the Company to IBS in exchange for 975,000 shares (50,000 shares of which will be reserved upon settlement of certain matters) of IBS common stock and a $500,000 unsecured, subordinated note (accruing interest at 6% per annum) and assumption of debt approximating $4,200,000. (B) PRO FORMA FINANCIAL INFORMATION. 1. Pro forma unaudited condensed statements of operations for the year ended December 31, 1999 and the three months ended March 31, 2000 ( a condensed pro forma balance sheet as of March 31, 2000, reflecting the acquisition, are not presented herein since the effects of the digital fusion acquisition are reflected in the Company's financial statements included in Form 10-QSB for the period ended March 31, 2000 and filed with the Securities & Exchange Commission on May 15, 2000. -17- IBS INTERACTIVE, INC. PRO FORMA UNAUDITED CONDENSED FINANCIAL INFORMATION The accompanying pro forma unaudited condensed statements of operations are based upon the historical consolidated financial statements of IBS Interactive Inc. ("IBS" or the "Company") and digital fusion Inc. ("digital fusion") adjusted to give effect to the acquisition of digital fusion by IBS, accounted for as a purchase, as if the acquisition had occurred at January 1, 1999. IBS acquired the outstanding shares of digital fusion in exchange for 925,000 shares of unregistered IBS common stock (an additional 50,000 shares may be issued in the future pending the resolution of certain adjustments) and a three year $500,000 subordinated note bearing interest at 6% per annum. In connection with the acquisition, $3,000,000 of 9% convertible subordinated debentures were converted into digital fusion common stock. The pro forma statements of operations are not necessarily indicative of the results that would have been obtained if the acquisition had occurred on the date indicated or for any future period or date. The pro forma adjustments give effect to available information and assumptions that the Company believes are reasonable. The pro forma condensed financial information should be read in conjunction with the Company's historical consolidated financial statements and notes thereto and the historical consolidated financial statements of digital fusion and the notes thereto. Year Ended December 31, 1999 HISTORICAL ---------------------- POWERCERV DIGITAL PRO FORMA PRO FORMA PRO FORMA IBS FUSION ADJUSTMENTS ADJUSTMENTS AS ADJUSTED (A) ------------------------------------------------------------ (UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA) REVENUES $ 18,774 $ 9,561 $ 2,539 $ - $ 30,874 Cost of services 13,003 6,113 1,621 - 20,737 ------------------------------------------------------------ Gross profit 5,771 3,448 918 - 10,137 Operating expenses: Selling, general and administrative 10,545 3,205 694 - 14,444 Amortization of intangible assets 514 1,182 388 2,034(B) 4,118 Compensation expense-non-cash 332 - - - 332 Merger expenses 232 - - - 232 ------------------------------------------------------------ Operating income (loss) (5,852) (939) (164) (2,034) (8,989) Interest (expense) income, net 35 (422) (9) 143(C) (253) Other expense, net (376) - - - (376) ------------------------------------------------------------ Income (loss) before income taxes (6,193) (1,361) (173) (1,891) (9,618) Tax benefit (provision) (45) 5 - (40) ------------------------------------------------------------ NET INCOME (LOSS) $ (6,238) $(1,356) $ (173) $(1,891) $ (9,658) ============================================================ LOSS PER BASIC AND DILUTED SHARE $ (1.45) $ (1.83) ============ =========== Weighted average common shares outstanding Basic 4,310,458 975,000 5,285,458 Diluted 4,310,458 975,000 5,285,458 -19- IBS INTERACTIVE, INC. PRO FORA UNAUDITED CONDENSED FINANCIAL INFORMATION (CONTINUED) Three Months Ended March 31, 2000 HISTORICAL ---------------------- DIGITAL PRO FORMA PRO FORMA IBS FUSION ADJUSTMENTS AS ADJUSTED ------------------------------------------------------------ (UNAUDITED, IN THOUSANDS, (D) EXCEPT SHARE DATA) REVENUES $ 5,412 $ 1,670 $ - $ 7,082 Cost of services 4,300 1,145 - 5,445 ------------------------------------------------------------- Gross profit 1,112 525 - 1,637 Operating expenses: Selling, general and administrative 3,462 853 - 4,315 Amortization of intangible assets 391 263 273(B) 927 Compensation expense-non-cash 237 - - 237 Severance and Restructuring 865 - - 865 ------------------------------------------------------------- Operating income (loss) (3,843) (591) (273) (4,707) ------------------------------------------------------------- Interest expense (income), net (1) 94 (60)(E) 33 Income (loss) before income taxes (3,842) (685) (213) (4,740) Tax provision (5) - (5) ------------------------------------------------------------- NET INCOME (LOSS) $ (3,847) $ (685) $ (213) $ (4,745) ============================================================= LOSS PER BASIC AND DILUTED SHARE $ (0.72) $ (0.78) ============ =========== Weighted average common shares outstanding Basic 5,377,553 676,944(F) 6,054,497 Diluted 5,377,553 676,944 6,054,497 -20- IBS INTERACTIVE, INC. FOOTNOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS Adjustments to reflect the acquisition of digital fusion, inc. by IBS Interactive, Inc. as if such acquisition had occurred as of January 1, 1999 are as follows: A. The acquisition of the education and consulting division of PowerCerv ("PowerCerv Division") by digital fusion, inc. occurred on April 1, 1999. This pro forma adjustment reflects the operating results of the PowerCerv division as if that acquisition had occurred on January 1, 1999. Certain amounts have been reclassified to conform to the Company's presentation. B. Reflects the amortization of intangible assets arising from the acquisition of digital fusion, inc. C. Reflects reductions in interest expense of $203,000 from the conversion of $3,000,000 of DF Convertible Debt to digital fusion common stock (the conversion occurred in connection with the acquisitions); such reductions were offset by the interest expense arising from the Subordinated Note ($60,000). D. This pro forma adjustment reflects the operating results of digital fusion for the two months ended February 29, 2000. E. Reflects reductions in interest expense of $67,000 from the conversion of $3,000,000 of DF Convertible Debt to common stock and offset by the interest expense arising from the Subordinated Note ($7,000), as if such shares were outstanding for the entire three month period. F. Reflects the incremental weighted average number of shares issued in the period of acquisition, as if such shares were outstanding for the entire three-month period. (C) EXHIBITS. The following exhibits are included as part of this Report: 2.1* Agreement and Plan of Merger dated as of March 1, 2000 among Sean D. Mann, Roy E. Crippen III, Michael Mandt, Ali A. Husain, Robert E. Siegmann, digital fusion, inc. a Florida corporation ("digital fusion"), and Digital Fusion Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of IBS Interactive, Inc. 99.1* Press release of IBS, dated March 2, 2000. -------------------- * Incorporated by reference to the Current Report on Form 8-K filed on March 24, 2000. -21- 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 hereunto duly authorized. IBS INTERACTIVE, INC. Date: May 16, 2000 By: /s/ Nicholas R. Loglisci, Jr. - -------------------------------- ------------------------------------------- Name: Nicholas R. Loglisci, Jr. Title: President and Chief Executive Officer -22-