U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
COMMISSION FILE NO. 1-11873
K2 DIGITAL, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
13-3886065
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
30 BROAD STREET, 16TH FLOOR
NEW YORK, NEW YORK 10004
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(212) 301-8800
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Check whether the issuer: (1) filed all reports required by Section 13 or 15(d)
of the Exchange Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
CLASS OUTSTANDING AT OCTOBER 31, 2001
Common stock, par value $.01 per share............. 4,982,699
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [x]
K2 DIGITAL, INC. AND SUBSIDIARY
INDEX
PAGE
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheet - September 30, 2001 (unaudited)........... 1
Consolidated statements of operations - three and nine months ended
September 30, 2001 (unaudited) and September 30, 2000 (unaudited)..... 2
Consolidated statements of cash flows - nine months ended
September 30, 2001 (unaudited) and September 30, 2000 (unaudited)..... 3
Notes to consolidated financial statements............................ 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................... 10
SIGNATURES .................................................................... 11
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements.
K2 DIGITAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2001
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 121,658
Accounts receivable, net of allowance for doubtful accounts of $50,000 195,744
Prepaid expenses and other current assets 3,122
Investment in securities available for sale 18,700
-----------
Total assets $ 339,224
===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 384,287
Accrued compensation and payroll taxes 5,691
Accrued expenses 16,820
Other Current Liabilities 62,099
-----------
Total liabilities 468,897
STOCKHOLDERS' EQUITY:
Preferred Stock, $0.01 par value, 1,000,000 shares authorized;
0 shares issued and outstanding --
Common Stock, $0.01 par value, 25,000,000 shares authorized;
5,400,116 shares issued and 4,982,699 shares outstanding 54,001
Treasury stock, 417,417 shares at cost (819,296)
Additional paid-in capital 8,285,409
Accumulated other comprehensive loss (91,300)
Deferred compensation (134,854)
Accumulated deficit (7,423,633)
-----------
Total stockholders' equity (129,673)
-----------
Total liabilities & stockholders' equity $ 339,224
===========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
1
K2 DIGITAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
---- ---- ---- ----
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
General and administrative expenses $ 156,500 $ 170,000 $ 469,500 $ 349,390
--------- --------- --------- ---------
Loss from continuing operations before (156,500) (170,000) (469,500) (349,390)
impairment of investment in securities
Impairment of investment in securities 1,328,047 -- 1,328,047 --
--------- --------- --------- ---------
Loss from continuing operations (1,484,547) (170,000) (1,797,547) (349,390)
Loss from discontinued operations after income
taxes (370,439) (527,238) (3,530,722) (1,584,535)
Gain on disposal of discontinued operations 442,108 -- 442,108 --
--------- --------- --------- ---------
Net loss $(1,412,878) $ (697,238) $(4,886,161) $(1,933,925)
--------- --------- --------- ---------
Net loss per share --
Basic and Diluted
Loss from continuing operations $ (0.30) $ (0.05) $ (0.42) $ (0.10)
Loss from discontinued operations $ (0.08) $ (0.16) $ (0.83) $ (0.47)
Gain on disposal of discontinued operations $ 0.09 -- $ 0.10 --
--------- --------- --------- ---------
Net Loss $ (0.29) $ (0.21) $ (1.15) $ (0.57)
--------- --------- --------- ---------
Weighted average common shares outstanding -
basic and diluted
4,805,547 3,379,854 4,265,953 3,364,079
The accompanying notes are an integral part of these Consolidated Financial
Statements.
2
K2 DIGITAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
2001 2000
UNAUDITED UNAUDITED
CASH FROM OPERATING ACTIVITIES:
Net Loss $(4,886,161) $(1,933,925)
Adjustments to reconcile net loss to net cash used
In operating activities --
Impairment of investment in securities 1,328,047 --
Non-cash compensation expense 187,497 262,860
Write-off of deferred issuance and transaction costs 757,861 --
Assets impairment 223,998 --
Gain on disposal of discontinued operations (442,108) --
Depreciation 210,640 247,769
Changes in --
Accounts receivable, net 1,474,404 (933,716)
Prepaid expenses and other current assets 2,703 (78,852)
Unbilled revenue 482,773 34,134
Other assets -- 2,882
Accounts payable (393,574) 323,473
Accrued compensation and payroll taxes (188,955) (25,401)
Other accrued expenses and current liabilities (488,208) 357,956
Deferred revenue and Customer Advances (102,251) 577,513
Deferred rent 121,926 --
Restricted Cash 250,000 (99,289)
----------- -----------
Net cash used in operating activities $(1,461,408) $(1,264,596)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from disposal of discontinued operations 528,500 --
Gross proceeds from sale of investment 94,127 --
securities
Purchase of equipment (8,074) (292,359)
Software development costs -- (170,996)
Advances for proposed transaction -- (185,954)
----------- -----------
Net cash used in investing activities 614,553 (649,309)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (17,093) (21,534)
Equity Issuance 250,000 --
Options exercised for cash -- 26,875
----------- -----------
Net cash (used in) provided by financing activities 232,907 5,341
----------- -----------
Net decrease in cash and cash equivalents $ (613,948) $(1,908,564)
CASH AND CASH EQUIVALENTS, beginning of period $ 735,606 $ 2,936,918
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 121,658 $ 1,028,354
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for --
Interest $ 7,293 $ 1,495
Income taxes -- $ 31,369
The accompanying notes are an integral part of these Consolidated Financial
Statements.
3
K2 DIGITAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BUSINESS
K2 Digital, Inc., a Delaware corporation ("K2" or the "Company"), is a strategic
digital services company, that has historically provided consulting and
development services including analysis, planning, systems design, creative and
implementation.
On August 29, 2001, the Company completed the closing under an agreement (the
"Purchase Agreement") with Integrated Information Systems, Inc., a Delaware
corporation ("IIS") pursuant to which, among other things, IIS purchased
substantially all fixed and intangible assets of the Company, including most of
the Company's customer contracts, furniture, fixtures, equipment and
intellectual property, for an aggregate purchase price of $444,000, of which
$419,000 was paid in cash and $25,000 of which was paid through the assumption
by IIS of capital lease obligations of the Company. IIS also assumed certain
deferred revenues and customer deposits.
Under the terms of the Purchase Agreement, IIS now occupies the Company's
premises and has assumed the Company's office lease obligations. As part of the
same transaction, IIS has also made offers of employment to substantially all of
the remaining employees of the Company, all of which offers have been accepted.
In addition to the purchase price and as consideration of the Company's release
of certain employees from the non-competition restrictions contained in their
agreements with the Company, the Company received from IIS at closing a
recruitment and placement fee of $75,000. In addition, under the terms of the
Purchase Agreement, the Company is to receive from IIS an additional placement
fee of $7,500 per key employee and $2,500 per other employee that remains
employed by IIS through December 31, 2001. This additional contingent placement
fee is to be paid by IIS in cash in five monthly installments beginning August
31, 2001, pro rated monthly for the number of employees retained.
Under the Purchase Agreement, the Company also received from IIS a cash fee of
$50,000 in return for entering into certain non-competition provisions contained
in the Purchase Agreement, which provide that the Company will not, for a period
of five years, (i) engage in any business of substantially the same character as
the business engaged in by the Company prior to the transaction, (ii) solicit
for employment any employee of IIS (including former employees of the Company),
or (iii) solicit any client or customer of IIS (including any customer
transferred to IIS under the Purchase and Sale Agreement) to do business with
the Company.
The aggregate consideration delivered to the Company at closing was $544,000, of
which approximately $258,000 was paid directly to K2 Holding LLC, an affiliate
of SGI Graphics, LLC (collectively, "SGI"), the Company's principal secured
creditor, in order to release SGI's security interest in the assets of the
Company.
Accordingly, the operating results relating to the discontinued operations have
been segregated from continuing operations and reported as a separate line item
on the consolidated statements of operations. The Company has restated its
consolidated financial statements for prior periods to conform to the current
year presentation. Gain on disposal of discontinued operations includes actual
gain from the disposal of the discontinued operations.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared by the Company and reflect all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of management, necessary for a
fair presentation of the financial position as of September 30, 2001 and the
financial results for the three and nine months ended September 30, 2001 and
2000, in accordance with generally accepted accounting principles for interim
financial statements and pursuant to Form 10-QSB and Regulation S-B. Certain
information and footnote disclosures normally included in the Company's annual
audited consolidated financial statements have been condensed or omitted
pursuant to such rules and regulations.
4
The results of operations for the three and nine months ended September 30, 2001
and September 30, 2000, respectively, are not necessarily indicative of the
results of operations to be expected for a full fiscal year. These interim
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements for the fiscal year ended December
31, 2000, which are included in the Company's Annual Report on Form 10-KSB filed
with the Securities and Exchange Commission.
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 revenues and expenses
during the reporting periods. Actual results may differ from those estimates.
3. GOING CONCERN
The Company has incurred negative cash flows from operations and sustained net
losses. Furthermore, in August 2001, the Company sold substantially all fixed
and intangible assets essential to its business operations and entered into a
purchase agreement containing provisions restricting the Company's ability to
continue to engage in the business engaged in by the Company prior to the
transaction. Accordingly, the Company's remaining operations will be limited to
either the sale of the Company or the winding up of the Company's remaining
business and operations, subject, in either case, to the approval of the
shareholders of the Company. The Company's independent public accountants have
added an explanatory paragraph to their audit opinion issued in connection with
the 2000 financial statements which states that the Company's losses since
inception and dependence on outside financing raise substantial doubt about its
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
4. NET INCOME (LOSS) PER SHARE OF COMMON STOCK
SFAS 128, "Earnings per Share," establishes standards for computing and
presenting earnings per share ("EPS"). The standard requires the presentation of
basic EPS and diluted EPS. Basic EPS is calculated by dividing income available
to common stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted EPS is calculated by dividing income
available to common stockholders by the weighted average number of shares of
common stock outstanding adjusted to reflect potentially dilutive securities.
5
In accordance with SFAS 128, the following table reconciles net loss and share
amounts used to calculate basic and diluted loss per share:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
-------------- ------------- --------------- ---------------
Numerator: Net Loss $ (1,412,878) $ (697,238) $ (4,886,161) $ (1,933,925)
Denominator: Weighted average number
of common shares outstanding -
Basic and Diluted 4,805,547 3,379,854 4,265,953 3,364,079
Net loss per share --
Basic and Diluted
Loss from continuing operations $ (0.30) $ (0.05) $ (0.42) $ (0.10)
Loss from discontinued operations $ (0.08) $ (0.16) $ (0.83) $ (0.47)
Gain on disposal of discontinued operations $ 0.09 -- $ 0.10 --
-------------- ------------- --------------- ---------------
$ (0.29) $ (0.21) $ (1.15) $ (0.57)
Net Loss ------------- ------------ -------------- ---------------
* Excludes all outstanding stock options and warrants as of September 30,
2001 and 2000, as they are antidilutive.
5. INVESTMENT IN SECURITIES
As of September 30, 2001, the Company held 110,000 shares of common stock of
24/7 Media Inc. These shares have been classified as "investments in securities
available for sale" as a result of the Company's ability and intent to sell such
shares in the near future. In accordance with SFAS No. 115, the shares are
stated at fair market value on the Company's September 30, 2001 consolidated
balance sheet. Management believes that the decline of $1,328,047 in value of
such investment is permanent. Accordingly, such amount, which previously was
reflected in "other comprehensive loss" in the stockholders' equity, is recorded
in the statement of operations as impairment of investment securities. Any
remaining unrealized holding loss is reflected as "other comprehensive loss" in
the stockholders' equity section of the balance sheet.
The following disclosures are presented in accordance with SFAS No. 115:
Equity Securities:
Aggregate fair market value............... $ 18,700
Gross unrealized holding loss............. $ (91,300)
The Company did not sell any shares of capital stock of 24/7 Media Inc. during
the quarter ended September 30, 2001.
6
6. FUSION CAPITAL AGREEMENT
On December 11, 2000, the Company entered into a common stock purchase agreement
(the "Fusion Facility") with Fusion Capital Fund II, LLC ("Fusion Capital"). In
May 2001, the Company issued 862,069 shares of common stock under the Fusion
Facility in exchange for net proceeds of $250,000. On August 14, 2001, Fusion
Capital exercised a warrant to purchase an additional 297,162 shares of the
Company's common stock at an exercise price of $.01 per share. After applying
the net exercise provisions of the warrant, based upon the closing sale price of
the Company's common stock on the Nasdaq SmallCap Market of $.15 per share on
August 13, 2001, Fusion Capital received 277,351 shares of common stock upon
exercise of the warrant.
As a result of the sale of assets of the Company consummated in August 2001, the
Company is currently in default under the Fusion Facility. In addition, due to
the Company's current financial circumstances, the Company does not anticipate
that, even if the current defaults are cured, it will be able to make any
further issuances under the Fusion Facility.
7. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations ("FAS 141") and
No. 142, Goodwill and Other Intangible Assets ("FAS 142"). FAS 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. Under FAS 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives (but with no maximum life). The amortization
provisions of FAS 142 apply to goodwill and intangible assets acquired after
June 30, 2001. With respect to goodwill and intangible assets acquired prior to
July 1, 2001, the Company is required to adopt FAS 142 effective January 1,
2002. The Company believes that the provisions of FAS 141 and FAS 142 will not
have a material effect on its results of operations and financial position.
8. NASDAQ DELISTING
The Company's common stock was delisted from the Nasdaq SmallCap Market
effective August 15, 2001 and currently trades in the over-the-counter market.
On March 13, 2001, the Staff of the Nasdaq Stock Market notified K2 that it had
failed to demonstrate a closing bid price of at least $1.00 per share for 30
consecutive trading days and was in violation of Nasdaq Marketplace Rule
4310(c)(4). In accordance with applicable Nasdaq Marketplace rules, K2 was
provided a 90-day grace period, through June 11, 2001, during which to regain
compliance. On June 20, 2001, K2 requested a hearing, which effectively stayed
the delisting. However, after submission of materials in support of K2's
position to the Panel, the Panel decided to delist K2's common stock from the
Nasdaq SmallCap Market as of the open of business on August 15, 2001.
9. RECENT EVENTS
The Board of Directors of the Company has determined that, subject to
shareholder approval, the best course of action for the Company is to complete a
business combination with a third party with an existing business. Accordingly,
on September 20, 2001 the Company signed a non-binding Letter of Intent with
First Step Distribution Network, Inc. ("First Step") detailing the general terms
and conditions for a business combination between the Company and First Step
pursuant to which the Company will exchange newly issued shares of its common
stock for all of the issued and outstanding securities of First Step. Definitive
agreements, subject to the approval of the Board of Directors of each of First
Step and K2 and subject to the approval of the shareholders of K2, are being
prepared on the following general terms and conditions. If the proposed
combination is completed, it is anticipated that the shareholders of First Step
will thereby acquire substantially the majority of the issued and outstanding
voting common stock in the surviving entity. The transaction is subject to the
prior approval of the shareholders of the Company. There can be no assurance
that the proposed transaction, or any other business combination, will be
completed.
7
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following presentation of management's discussion and analysis of the
Company's financial condition and results of operations should be read in
conjunction with the Company's (unaudited) Consolidated Financial Statements,
the accompanying notes thereto and other financial information appearing
elsewhere in this Report. This section and other parts of this Report contain
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Readers are encouraged to review "Factors Affecting
Operating Results and Market Price of Stock" commencing on page 10 of the
Company's 2000 Annual Report on Form 10-KSB for a discussion of certain of these
risks and uncertainties.
Sale of Assets and Discontinued Operations
On August 29, 2001, the Company completed the closing under an agreement (the
"Purchase Agreement") with Integrated Information Systems, Inc., a Delaware
corporation ("IIS") pursuant to which, among other things, IIS purchased
substantially all fixed and intangible assets of the Company, including most of
the Company's customer contracts, furniture, fixtures, equipment and
intellectual property, for an aggregate purchase price of $444,000, of which
$419,000 was paid in cash and $25,000 of which was paid through the assumption
by IIS of capital lease obligations of the Company. IIS also assumed certain
deferred revenues and customer deposits.
Under the terms of the Purchase Agreement, IIS now occupies the Company's
premises and has assumed the Company's office lease obligations. As part of the
same transaction, IIS has also made offers of employment to substantially all of
the remaining employees of the Company, all of which offers have been accepted.
In addition to the purchase price and as consideration of the Company's release
of certain employees from the non-competition restrictions contained in their
agreements with the Company, the Company received from IIS at closing a
recruitment and placement fee of $75,000. In addition, under the terms of the
Purchase Agreement, the Company is to receive from IIS an additional placement
fee of $7,500 per key employee and $2,500 per other employee that remains
employed by IIS through December 31, 2001. This additional contingent placement
fee is to be paid by IIS in cash in five monthly installments beginning August
31, 2001, pro rated monthly for the number of employees retained.
Under the Purchase Agreement, the Company also received from IIS a cash fee of
$50,000 in return for entering into certain non-competition provisions contained
in the Purchase Agreement, which provide that the Company will not, for a period
of five years, (i) engage in any business of substantially the same character as
the business engaged in by the Company prior to the transaction, (ii) solicit
for employment any employee of IIS (including former employees of the Company),
or (iii) solicit any client or customer of IIS (including any customer
transferred to IIS under the Purchase and Sale Agreement) to do business with
the Company.
The aggregate consideration delivered to the Company at closing was $544,000, of
which approximately $258,000 was paid directly to K2 Holding LLC, an affiliate
of SGI Graphics, LLC (collectively, "SGI"), the Company's principal secured
creditor, in order to release SGI's security interest in the assets of the
Company.
Accordingly, the operating results relating to the discontinued operations have
been segregated from continuing operations and reported as a separate line item
on the consolidated statements of operations. The Company has restated its
consolidated financial statements for prior periods to conform to the current
year presentation. Gain on disposal of discontinued operations includes actual
gain from the disposal of the discontinued operations.
Continuing Operations, Liquidity and Resources
Subsequent to the sale of assets to IIS, the Company has been in the process of
liquidating assets, collecting accounts receivable and paying creditors. The
Company does not have any ongoing operations or revenue sources beyond those
assets not purchased by IIS. The proceeds from the sale of assets plus certain
additional contingent payments from IIS, together with assets not sold to IIS
are expected to be sufficient to repay substantially all of the liabilities of
the Company. The Company has entered into negotiations with certain creditors to
settle specific obligations for amounts less than reflected in
8
the financial statements reported herein. If these negotiations are
unsuccessful, there will not be sufficient cash to repay all of the obligations
of the Company. General and administrative expenses for continuing operations
represent costs associated with maintaining the public entity.
During the quarter ended September 30, 2001, the Company recorded an impairment
of investment securities of $1,328,047 in the statement of operations. Such
amount, which previously was reflected in "other comprehensive loss" in the
stockholders' equity, has been charged to operations, as management believes
that the decline of $1,328,047 in value of such investment is permanent.
The Board of Directors of the Company has determined that, subject to
shareholder approval, the best course of action for the Company is to complete a
business combination with a third party with an existing business. Accordingly,
on September 20, 2001 the Company signed a non-binding letter of intent with
First Step Distribution Network, Inc. ("First Step") detailing the general terms
and conditions for a business combination between the Company and First Step
pursuant to which the Company will exchange newly issued shares of its common
stock for all of the issued and outstanding securities of First Step. Definitive
agreements, subject to the approval of the Board of Directors of each of First
Step and K2 and subject to the approval of the shareholders of K2, are being
prepared on the following general terms and conditions. If the proposed
combination is completed, it is anticipated that the shareholders of First Step
will thereby acquire the majority of the issued and outstanding voting common
stock in the surviving entity. The transaction is subject to the prior approval
of the shareholders of the Company. There can be no assurance that the proposed
transaction, or any other business combination, will be completed.
Recent Technical Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations ("FAS 141") and
No. 142, Goodwill and Other Intangible Assets ("FAS 142"). FAS 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. Under FAS 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives (but with no maximum life). The amortization
provisions of FAS 142 apply to goodwill and intangible assets acquired after
June 30, 2001. With respect to goodwill and intangible assets acquired prior to
July 1, 2001, the Company is required to adopt FAS 142 effective January 1,
2002. The Company believes that the provisions of FAS 141 and FAS 142 will not
have a material effect on its results of operations and financial position.
9
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
3.1 Certificate of Incorporation of the Company*
3.1(a) Amendment to Certificate of Incorporation of the
Company*
3.1(b) Amendment to Certificate of Incorporation of the
Company**
3.2 By-laws of the Company*
3.2(b) Amendment to By-laws of the Company*
4.1 Common Stock Certificate*
4.2 Voting Agreement among Messrs. Centner, de Ganon,
Cleek and Szollose*
* Incorporated by reference from the Registrant's Registration Statement on
Form SB-2, No. 333-4319.
** Incorporated by reference from the Registrant's Form 10-KSB for its fiscal
year ended December 31, 2000.
(b) Reports on Form 8-K:
The Company filed one Current Report on Form 8-K during the period covered by
this Report. The Form 8-K, dated August 30, 2001, reported that, on August 29,
2001, the Company consummated the closing of an asset sale transaction with
Integrated Information Systems, Inc., a Delaware corporation ("IIS") pursuant to
which, among other things, IIS purchased certain fixed and intangible assets of
the Company, including certain of the Company's customer contracts, furniture,
fixtures, equipment and intellectual property, for an aggregate purchase price
of $444,000, of which $419,000 was paid in cash and $25,000 of which was paid
through the assumption by IIS of capital lease obligations of the Company. The
related Master Transaction Agreement dated as of August 20, 2001 between the
Company and IIS and a press release dated August 30, 2001 of the Company were
included as exhibits to the Form 8-K.
10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
K2 DIGITAL, INC.
Date: November 13, 2001
By: /s/ GARY BROWN
-----------------------------------
Gary Brown
Chief Operating Officer
(Principal Financial and
Accounting Officer)
11