================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                -----------------

                                   FORM 10-KSB

         X    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
              EXCHANGE ACT OF 1934


                     For the fiscal year ended June 30, 2002

        ___   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934

                               -----------------


                          Category 5 Technologies, Inc.
             (Exact name of registrant as specified in its charter)



          Nevada                        0-25463                  88-0367792
  (State or other jurisdiction    (Commission File Number)    (I.R.S. Employer
       of incorporation)                                     Identification No.)


       2755 East Cottonwood Parkway, Suite 420, Salt Lake City,     Utah 84121
               (Address of principal executive offices)             (ZIP Code)


       Registrant's telephone number, including area code: (801) 365-1000



           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, $0.001 Par Value

                                -----------------


         Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X      No

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         The Issuer's revenues for the year ended June 30, 2002 were
$25,392,717.

         The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity as of
September 10, 2002, was approximately $2,874,000, based on the closing market
price of the Common Stock as reported by The National Association of Securities
Dealers Over-the-Counter Bulletin Board System ("OTCBB").

         The number of shares of the Registrant's common stock outstanding on
September 10, 2002, was 16,675,363.



                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None

<PAGE>

                          CATEGORY 5 TECHNOLOGIES, INC.
                                2002 FORM 10-KSB
                                TABLE OF CONTENTS
PART I........................................................................1

ITEM 1.       BUSINESS........................................................1

ITEM 2.       DESCRIPTION OF PROPERTY........................................15

ITEM 3.       LEGAL PROCEEDINGS..............................................15

RISK FACTORS................................................................ 16

PART II......................................................................26

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
              MATTERS........................................................26

SELECTED FINANCIAL DATA......................................................29

ITEM 6.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              AND RESULTS OF OPERATIONS......................................31

ITEM 7.       FINANCIAL STATEMENTS...........................................43

ITEM 8.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
              AND FINANCIAL DISCLOSURE.......................................66

PART III.....................................................................67

ITEM 9.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............67

ITEM 10.      EXECUTIVE COMPENSATION.........................................70

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
              MANAGEMENT.....................................................75

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................78

PART IV......................................................................81

ITEM 14.      EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON
              FORM 8-K.......................................................81

SIGNATURES...................................................................85

CERTIFICATION................................................................86

<PAGE>
         Certain of the matters and subject areas discussed in this annual
report on Form 10-K contain "forward-looking statements" that are subject to a
number of risks and uncertainties, many of which are beyond our control. All
statements, other than statements of historical fact included in this report
regarding our business strategy, future operations, financial position,
estimated revenues, projected costs, prospects, plans and objectives of
management as well as third parties are forward-looking statements. Generally,
when used in this report, the words "anticipate," "intend," "estimate,"
"expect," "project," and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
such identifying words. All forward-looking statements speak only as of the date
of this report. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we can give no assurance that such
expectations will prove to be correct. Important factors that could cause our
actual results to differ materially from our expectations are described below
and in our other filings with the SEC.

                                     PART I

ITEM 1.       Business


Merger with MindArrow Systems

          On September 30, 2002, the boards of directors of MindArrow Systems,
Inc. and Category 5 Technologies, Inc. have agreed on a merger of Category 5
with and into a subsidiary of MindArrow. Category 5 will become a wholly owned
subsidiary of MindArrow and Category 5 stockholders will receive, for each share
of Category 5 common stock that they own:

         o    2.3 shares of MindArrow common stock, representing 55.3% of the
              total outstanding shares of MindArrow immediately following the
              merger, and

         o    a warrant to acquire 0.5 shares of MindArrow common stock at an
              exercise price of $0.01 per share, vesting only upon the
              achievement of certain financial objectives by Category 5's
              subsidiary, ePenzio, Inc. following the merger.

The surviving company will be known as Avalon Digital Marketing Systems, Inc.
The merger was approced by the Stockholders of both companies on September 30,
2002.

Recent developments

         Our wholly-owned subsidiary, ePenzio, Inc., has historically generated
a substantial percentage of its revenue from selling products and services at
programs sponsored by other companies ("lead sources"). During the last year,
one of the larger lead sources has been Home, Inc. ePenzio was informed on May
10, 2002 that Home, Inc. may no longer allow ePenzio sales teams to participate
in Home, Inc. programs. Subsequently, on June 14, 2002, ePenzio and Home, Inc.
executed an agreement pursuant to which ePenzio's sales teams would have
continued to participate in Home, Inc.'s programs. However, in August 2002,
Home, Inc. terminated this contract. While it is unclear what the actual effect
on our revenues, profits, cash flow, or financial condition of the Company will
be as a result of the termination of the relationship between ePenzio and Home,
Inc., there is a substantial likelihood that revenues will decrease in the short
term as a result of this development. During the year ended June 30, 2002, the
six months ended June 30, 2001, and the year ended December 31, 2000, this
outside referral source provided customer referrals which generated in excess of
28%, 60%, and 88%, respectively, of our gross revenues. We have relationships
with other lead sources, and we intend to begin sending sales teams out with
these companies as soon as reasonably possible. While there can be no assurances
in this regard, it is anticipated that the loss of ePenzio's contractual
relationship with Home, Inc. may significantly affect the Company's results of
operations.

          On March 1, 2002, Category 5 completed its acquisition of FlashAlly,
LLC, and, in connection therewith, recorded an intangible asset of $1,535,000.
Since its acquisition of FlashAlly, Category 5 has determined that the assets
and goodwill associated with FlashAlly have been impaired. For the year ended
June 30, 2002, Category 5 wrote down assets valued at approximately $1.5 mission
on Category 5's balance sheet, resulting in reduced operating income of
approximately $1.5 million for the same period.

         Mr. William C. Gibbs served as the Chief Executive Officer
and Chairman of our board of directors; however, a dispute occurred between
Mr. Gibbs and us concerning his employment status and position as Chairman of
the board of directors. Mr. Paul Anderson assumed the duties of our Chief
Executive Officer and Chairman. Effective September 12, 2002, the parties
executed a Severance Agreement and Mutual General Release, pursuant to which Mr.
Gibbs' employment with us terminated effective August 31, 2002.

                                     Page 1
<PAGE>


Also, in June 2002, Mitchell Edwards resigned as President and acting Chief
Financial Officer. Should the merger with MindArrow be consummated, it is
anticipated that Robert Webber, President of MindArrow, will serve as President
and Chief Executive Officer of the combined entity and that Michael Friedl,
Chief Financial Officer of MindArrow, will serve as Chief Financial Officer.

         On August 7, 2002, we executed a Business Loan Agreement with Zions
First National Bank, and issued a Promissory Note of even date in favor of Zions
First National Bank in the principal amount of $2 million, pursuant to which we
are entitled to borrow from Zions up to $2 million. This Business Loan
Agreement, Promissory Note and the related Commercial Security Agreement
supercede and replace the Business Loan Agreement, Promissory Note and
Commercial Security Agreement by and between our subsidiary, ePenzio, Inc., and
Zions and dated September 11, 2001, pursuant to which ePenzio was entitled to
borrow up to $1 million from Zions. All outstanding principal borrowed and
interest accrued and unpaid under the Business Loan Agreement and Promissory
Note is due on September 1, 2003. Outstanding principal borrowed pursuant to the
Promissory Note accrues interest at the rate of 1% over Prime (4.750% on August
7, 2002).

General

         We were incorporated in the state of Nevada on August 9, 1996 under the
name Network Investor Communications, Inc., to engage in investor and public
relations for corporate clientele. On December 8, 1999, Network Investor
Communications, Inc. ceased operations due to its inability to continue business
as a corporate and investor relations firm. On May 29, 2001, we completed our
first acquisition when we acquired ePenzio, Inc. On July 23, 2001, we changed
our name from Network Investor Communications, Inc. to Category 5 Technologies,
Inc. Our headquarters are located at 2755 East Cottonwood Parkway, Suite 450,
Salt Lake City, Utah, 84121, and our telephone number is (801) 365-1000. Our web
site for www.c5technologies.com and the web site for ePenzio is www.epenzio.com.

         We are positioning ourselves to become a leading provider of innovative
website building tools, rich media marketing tools and complete
commerce-enabling services and technologies to brick and mortar businesses as
well as small to medium sized enterprises. We believe that there is a large and
growing market for technologies and services that enable existing and new
businesses and financial institutions to commence or improve their e-commerce
transactions. Our objective is to become a "one-stop Internet shop" for small
and medium sized enterprises by acquiring and enhancing relevant, complementary
Internet product and service businesses. We also believe that there is a unique
market opportunity to acquire compatible and synergistic technologies, services,
transaction platforms and customer bases, with a focus on high margin recurring
revenue, through the acquisition of undervalued public companies that are
profitable or near-profitable, and private companies that are profitable, but
cannot complete an IPO or a large capital raise due to market conditions. We
will focus its acquisition strategy on companies that provide vertical and
horizontal integration to gain critical mass.

         Since May 2001, we have completed several acquisitions in our
aggregation and consolidation strategy. Each of the acquisitions to date has
centered around our strategic objective to provide comprehensive
state-of-the-art technology for e-commerce applications to small- and
medium-sized enterprises. A summary of the acquisitions is as follows:
<TABLE>
<CAPTION>

         Company                           Acquired           Description
         -------                           --------           -----------

         <S>                            <C>                   <C>
         ePenzio, Inc.                  May 29, 2001          Merchant processing solutions

         Exposure International, LLC    January 9, 2002       Email marketing solutions

         Transaxis, S.A.                January 22, 2002      Credit card transaction processing

         Bottomline Online, Inc.        February 27, 2002     e-commerce shopping cart software

         FlashAlly, LLC                 March 1, 2002         Web design and presentation software

         CaptureQuest, Inc.             April 10, 2002        Rich-media marketing software and services
</TABLE>

         With these acquisitions, we have assembled a suite of technology and
marketing channels that:

                                     Page 2
<PAGE>


         o    Offer a marketing channel through seminars, workshops, multi-level
              marketing and telesales of our suite of
                  products;

         o    Give us a presence in England and Western Europe, and provide a
              payment processing solution in Great Britain and Europe;

         o    Add sophisticated e-mail and newsletter marketing and promotions
              technology;

         o    Add an early lead in next-generation website building tools
              utilizing Flash technology;

         o    Add next-generation rich-media marketing and promotions software,
              as well as a strong industry position as an infrastructure partner
              to major retailers;

         o    Provide a demonstrable, profitable revenue stream derived from
              innovations in direct-to-business marketing, packaging and
              delivery of "first generation" commerce services; and

         o    Add cutting edge "storefront" and e-commerce capability to
              websites built with our web building software.

         Acquisition of ePenzio, Inc.
         ----------------------------

         As of May 29, 2001, we completed our first acquisition in our
aggregation strategy, the acquisition of ePenzio, Inc., formerly Executive
Credit Services, L.C., a Salt Lake City based merchant services provider and
e-commerce enabler. ePenzio, Inc. provides credit card, debit card and
electronic check processing solutions to brick and mortar and Internet
businesses. ePenzio's proprietary marketing techniques and key industry
relationships enable ePenzio to market its various bankcard processing-solution
products and services nationwide. Although the average ePenzio customers are
small- to medium-sized businesses, ePenzio's diverse banking relationships allow
it to also satisfy the needs of businesses processing in excess of $1,000,000
per month. To date, ePenzio has established merchant accounts for more than
20,000 businesses and individuals. We anticipate that ePenzio will continue to
broaden its banking relationships to expand its target customer profile.

         ePenzio has strategic relationships to provide payment gateways to all
ePenzio Internet customers. This software product has been private labeled for
ePenzio under the name "Penzpay." The standard Penzpay gateway includes shopping
cart technology that integrates to most websites. In addition to the initial
account setup through their relationships, ePenzio offers ongoing customer
service and technical support to ePenzio customers. ePenzio markets its
processing and transaction solutions to companies, entrepreneurs and individuals
through a multifaceted sales channel, including entrepreneur seminars and
workshops, agents' offices, affiliate programs, and resellers.

         ePenzio was organized in Utah in 2000 and specializes in marketing and
providing credit card, debit card and electronic check processing solutions to
brick and mortar and Internet businesses. ePenzio's primary business activity
involves the marketing of electronic card processing systems and other related
products and services throughout the United States.

         In 1998, Executive Credit Services, L.C. was organized as a limited
liability company pursuant to the Utah Limited Liability Company Act. Effective
May 17, 2000, the members of Executive Credit Services formed ePenzio pursuant
to subchapter S of the Internal Revenue Code. All of the assets and liabilities
of Executive Credit Services were distributed to its members and thereafter
contributed to ePenzio in exchange for an aggregate of 1,000,000 shares of
ePenzio's common stock. Ownership percentages were unchanged and the income tax
basis in Executive Credit Services' assets and liabilities carried over to
ePenzio. Due to our acquisition of ePenzio on May 29, 2001, ePenzio became a C
corporation as it consolidated into Category 5.

         Effective December 7, 2000 and March 23, 2001, ePenzio formed two
wholly-owned subsidiaries, Olympus Financial, Inc., a Utah company, and Bring It
Home, Inc., a Utah company, respectively. Olympus finances a portion of the
purchases of ePenzio's products and services by its customers. Bring It Home
conducts marketing seminars for ePenzio's products.

         On May 29, 2001, we acquired ePenzio, the sole stockholder of Olympus
and Bring It Home, pursuant to a stock-for-stock exchange in which we issued

                                     Page 3

<PAGE>

9,000,000 shares of common stock to the stockholders of ePenzio in exchange for
all of the outstanding shares of ePenzio. Although we are the legal acquirer of
ePenzio and remain the registrant with the Commission, under United States
generally accepted accounting principles, because ePenzio is the operating
entity and its stockholders acquired voting control of Category 5, the
transaction is treated as a reverse acquisition, and ePenzio is considered the
"acquirer" of Category 5 for financial reporting purposes.

         Pursuant to that certain Amendment to Stock Purchase Agreement, dated
June 20, 2002, by and among the Category 5, ePenzio, Inc. and former
shareholders of ePenzio, Brad Crawford and Paul Anderson, which amends that
certain Stock Purchase Agreement dated May 29, 2001 by and among the same
parties, and pursuant to which Category 5 acquired ePenzio, the parties
clarified certain tax and purchase price provisions, in connection with which
Category 5 clarified responsibility for income taxes associated with
approximately $5 million in receivables and approximately $1.2 million
associated with the conversion of ePenzio from the cash to the accrual method of
accounting upon acquisition of ePenzio by Category 5, which aggregate tax
liability is estimated to be approximately $1.1 million, and Mr. Crawford and
Mr. Anderson agreed to a corresponding adjustment in the purchase price of
ePenzio in connection with which each of Mr. Crawford and Mr. Anderson agreed to
return to Category 5 500,000 shares of Category 5 common stock.

         Among other matters, this reverse acquisition accounting treatment
requires us to present the historical, financial and other information of
ePenzio and its subsidiaries, Olympus and Bring It Home, prior to May 29, 2001.
As a result, for all periods prior to May 29, 2001, we are presenting the
historical, financial and other information of ePenzio and its two subsidiaries,
which are combined with the results of Category 5, as those of Category 5. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Acquisition of ePenzio, Inc."

         Historically, ePenzio had a fiscal year end of December 31. Because
ePenzio was deemed the acquiring entity for accounting purposes, its fiscal year
survives for reporting purposes under relevant rules of the Commission. However,
the board of directors of Category 5 elected to retain the historical fiscal
year end of Category 5, June 30, effective for the period ending June 30, 2001.

         Acquisition of Exposure International Direct Marketing Systems, Inc.
         --------------------------------------------------------------------

         On January 9, 2002, we completed the purchase of the issued and
outstanding stock of Exposure International Direct Marketing Systems, Inc. for
$12,500, which had acquired the assets of Mancala, Inc. (d/b/a Word of Mouth),
under the approval of the Federal Bankruptcy Court. Exposure International
Direct Marketing System, Inc. holds certain intellectual property and software
that we may sell and/or license. The software is an advanced email marketing and
promotions product that enables businesses to communicate with existing and
prospective customers on a targeted, real-time basis. The software is tied to a
database that aggregates information and enables companies to perform
data-mining to further customize communications and promotions. Embedded in the
software are interactive tools such as contests and surveys, which enable
two-way communication with customers.

         The principal product is a newsletter which is template-driven and
which we believe is easy to use, enabling small businesses to rapidly create
professional newsletters which can be delivered instantaneously to existing
customers and prospects. We believe that "permission-based email," which is the
premise of Word of Mouth software, will result in high conversion and response
rates. We believe that the newsletter functionality, along with the interactive
features, will allow our customers (businesses) to communicate rapidly and
directly with their customers, increasing sales and retaining loyalty. We also
anticipate that this technology will allow businesses to learn more about their
customers and their preferences on a real-time basis.

         Acquisition of Transaxis, S.A.
         ------------------------------

         On January 22, 2002, we completed our acquisition of Transaxis, S.A., a
Swiss company. Pursuant to a stock purchase and exchange agreement, we acquired
all of Transaxis' outstanding capital stock for 15,000 restricted shares of
Category 5 common stock. We recorded $36,000 of intangible assets related
primarily to the acquisition of certain license agreements. Currently, Transaxis
provides processing solutions to merchants and financial institutions in England
and Western Europe. We anticipate that the acquisition of Transaxis will enable
us to offer our products and services to businesses and financial institutions

                                     Page 4

<PAGE>

internationally. The operations of Transaxis, S.A. are included in our results
as of the date of acquisition.

         Acquisition of Bottomline Online, Inc.
         --------------------------------------

         On February 27, 2002, we completed the acquisition of Bottomline
Online, Inc. Pursuant to a stock purchase and exchange agreement, we acquired
all of Bottomline Online, Inc.'s outstanding capital stock for 225,000
restricted shares of common stock. Bottomline Online, Inc. has developed
proprietary software to enable businesses to affordably create their own
Internet storefronts with full e-commerce capabilities. We recorded an increase
in net property and equipment of $573,750 related to the software obtained
through the Bottomline Online, Inc. acquisition. The operations of Bottomline
Online, Inc. are included in our results as of the date of acquisition.
BottomLine is a software company that has developed e-commerce software
utilizing Flash technology. We anticipate that Bottomline Online's shopping cart
and e-commerce technology functionality will integrate with the website tool of
another subsidiary, FlashAlly, LLC, to create a web presence for businesses
conducting commerce on the Internet.

         Acquisition of FlashAlly, LLC
         -----------------------------

         On March 1, 2002, we completed the acquisition of FlashAlly, LLC.
Pursuant to a membership exchange agreement, we acquired all of FlashAlly, LLC's
membership interests for 2,000,000 restricted shares of common stock. At
closing, 500,000 shares were issued to the former members of FlashAlly, LLC, and
the remaining 1,500,000 shares were deposited into an escrow account, to
indemnify Category 5 against certain representations and warranties made by
FlashAlly, LLC, and to serve as an earn out upon attainment by FlashAlly, LLC of
certain revenue and profitability targets. We recorded an intangible asset of
$1,535,000 related to the acquisition of FlashAlly, LLC. The operations of
FlashAlly, LLC are included in our results as of the date of acquisition.

         Since its acquisition of FlashAlly, the Company has determined that the
assets and goodwill associated with FlashAlly have been impaired. For the year
ended June 30, 2002, the Company wrote down assets valued at approximately $1.5
million on the Company's balance sheet, resulting in reduced operating income of
approximately $1.5 million for the same period.

         We have also entered into a royalty agreement with the former
FlashAlly, LLC members that requires us to make certain royalty payments to the
former members equal to 75% of the net income generated from the sale or license
of FlashAlly software to or through certain entities for a period of not fewer
than twelve months from March 2002. These royalty payments may be adjusted if
our stock price increases and will terminate if the 15-day average closing price
of our common stock equals or exceeds $15 per share. We have also agreed to make
royalty payments to the former members equal to $15 per person for sales of
FlashAlly software through us or our affiliates until the earlier of twelve
months or until the 15-day average closing price of Category 5 common stock
equals or exceeds $10 per share.

         We believe that FlashAlly has developed next-generation website design
and presentation software, and that this software could enable our customers to
create their own visually-appealing websites utilizing Macromedia's Flash
technology. We anticipate that Flash technology could allow even small
businesses to include unique animation and vector-based illustrations in their
Web presences, thereby increasing "stickiness," conversion rates and customer
retention. We anticipate that we may sell and/or license the product to small
and medium-sized businesses domestically and internationally.

         FlashAlly is a system that enables businesses to create multimedia
presentations that can be used as websites, burned onto CD Business Cards, or
sent via email. Because the system is used online and requires no programming
background, we believe that it is an ideal tool for small- and medium-sized
enterprises that lack the resources to hire IT directors or departments.

         FlashAlly's designers have created a library of over 100 unique design
templates utilizing the animation features of Flash technology. Users can
customize the look and feel of the templates, or use them as-is. Additionally,
there are royalty-free sound and image files, text, images, web links, and email
links that can be imported. We can host the resulting websites and projects
online, or customers can transport the website to another hosting server.
Presentations can also be downloaded to a desktop, sent via email, burned onto
CD Business Cards, or ordered on CDs with custom color labels and sleeves.

                                     Page 5

<PAGE>

         Acquisition of CaptureQuest, Inc.
         ---------------------------------

         On April 10, 2002, we closed the acquisition of CaptureQuest, Inc. We
acquired CaptureQuest for 3,105,769 shares of our common stock. At closing,
2,105,769 of these shares were issued to the former shareholders of
CaptureQuest, and the remaining 1,000,000 shares were deposited into an escrow
account, to indemnify Category 5 against certain representations and warranties
made by CaptureQuest, and to serve as an earnout upon attainment by CaptureQuest
of certain revenue and profitability targets during the 12 months following the
Closing. 250,000 of the total shares issued were granted traditional piggyback
registration rights. We granted each of the former CaptureQuest shareholders the
right to repurchase the CaptureQuest shares in the event Category 5 ceases to
operate, if Category 5 files for bankruptcy, or if Category 5's stock trades at
a price below $1.00 for a period of fifteen days after one year from the
closing. We also agreed that by September 25, 2002, we will contribute
$1,500,000 to CaptureQuest to be used for working and expansion capital.

         We believe that CaptureQuest has developed software that enables
businesses to conduct rich-media marketing and promotions campaigns, and allows
them to manage, assess, and measure the success of their online campaigns.
CaptureQuest's rich-media solutions are founded on a technology stack with the
CaptureQuest Popmercial technology as the core of that stack. In providing these
solutions, CaptureQuest has created the Adaptive Media System with the goal of
meeting clients' online marketing, communication, education, and advertising
objectives. The Adaptive Media System facilitates the front-end delivery of a
captivating rich-media campaign either online or via email. The Popmercial
campaigns are designed to captivate the attention of the viewer and to drive the
viewer towards a specific call to action. We believe that Popmercials
consistently achieve high open, view, and interaction rates.

         We anticipate that this system will also provide all of the required
back office capabilities necessary to create and manage campaigns and to
subsequently track and report what goes on with those campaigns. We believe that
the system will provide both the technical and creative know-how to effectively
plan for and execute a successful campaign.

         Finally, we believe that the Adaptive Media System will provide all of
the necessary tools, flexibility, and versatility to service companies in their
online marketing, advertising, education, and communication needs.
CaptureQuest's Adaptive Media System is designed with the goal of aiding clients
in meeting their online communication objectives. We believe that Adaptive Media
System provides an extensive, comprehensive, and flexible set of value added
rich-media solutions and tools. The Adaptive Media System offers the following
services and tools:

         o    Popmercial Technology-Email and Internet Popmercials ;

         o    Campaign Manager-Real-time tracking and reporting system, CQ's
              Direct Response System, the CQ Command Center, and the CQ
              Popmercial Generator; and

         o    Creative Reinforcement-New Media Reinforcement and Traditional
              Media Reinforcement.

         Change in Corporate Name
         ------------------------

         On June 8, 2001, we changed our name from Network Investor
Communications, Inc. to Category 5 Technologies, Inc., effective July 23, 2001.
We changed our name to provide us with a name that more accurately reflects our
recently-adopted strategy to become a leader in providing proprietary marketing
tools and commerce-enabling services and technologies to traditional brick and
mortar businesses as well as small and medium-sized enterprises.

Primary Products and Services

         Through our subsidiaries, we specialize in marketing and providing
credit card, debit card and electronic check processing solutions and other
merchant services to brick and mortar and Internet businesses. We believe our
proprietary marketing techniques and key industry relationships have proven
effective in marketing its various bankcard processing-solution products and
services nationwide. Although our average customers are small to medium-sized

                                     Page 6

<PAGE>

businesses, our diverse banking relationships allow us to also satisfy the needs
of businesses processing in excess of $1,000,000 per month. We are attempting to
broaden our banking relationships to expand our target customer profile.

         Our suite of merchant services currently includes the following:

         o    Merchant Accounts: We specialize in marketing and providing credit
              card, debit card and electronic check processing solutions to
              brick and mortar and Internet businesses. We have established
              relationships with various banks and financial institutions, which
              enable us to serve as a merchant account provider to certain
              customers seeking processing solutions, whether they need physical
              terminals or Internet payment gateways. Merchants with a business
              history of less than two years and merchants conducting business
              on the Internet are considered by most banks to be in a
              "high-risk" category. Obtaining Merchant Identification Numbers
              for these businesses has historically been very difficult through
              traditional banks. Having multiple banking relationships enables
              us to successfully procure Merchant IDs and account setup for many
              of our customers, regardless of credit history.

                    ePenzio is a registered Independent Sales
              Organization/Member Service Provider of a certain financing
              institution. The Independent Sales Organization/Member Service
              Provider relationship designates ePenzio as being registered with
              the Visa and MasterCard associations. Before an organization can
              sell Visa and/or MasterCard services, it must be approved by and
              registered with Visa and MasterCard. Without being properly
              registered, an organization cannot legally contract with a
              Visa/MasterCard member bank. Registration as an Independent Sales
              Organization also helps protect the ongoing residual income stream
              to survive the sale of a bank or other upstream organization.

                    In addition to the initial account setup through the banking
              relationships described above, we offer ongoing customer service
              and technical support to our customers.

         o    Payment Gateways: Currently, ePenzio private-labels a Plug'n Pay,
              Inc. Internet payment gateway under the name "Penzpay" to all of
              our customers requiring an online processing solution. The
              standard Penzpay gateway includes shopping cart technology that
              integrates to most websites. When ePenzio receives an application,
              it pays a fixed, up-front cost for the initial set-up of the
              gateway. Penzpay then collects a monthly, gateway-access fee
              directly from the customer to maintain the service. A portion of
              this fee is forwarded to us on an ongoing basis. The collective
              total of our portion of the fees collected from its accounts for
              gateway-access fees is currently approximately $17,000 per month.

         o    Web Design, Presentation Software and Hosting: Through ePenzio, we
              also directly or indirectly provides basic website design and
              hosting services to customers. Many customers to whom we provide
              Internet payment solutions either have no websites or have
              websites that have not been effective for their businesses. We
              believe that an increasing number of our customers will create
              their own websites through software developed by and sold through
              our recently-acquired subsidiary, FlashAlly, LLC, which has
              developed next-generation website design and presentation
              software.

                    We anticipate that we will sell and/or license website
              design and presentation software through our subsidiary,
              FlashAlly, LLC, which will enable our customers to create their
              own websites utilizing Macromedia's Flash technology. In addition,
              we believe that this software will enable our customers to create
              multimedia presentations that can be used as websites, burned onto
              CD business cards or sent via email. FlashAlly's designers have
              created a library of over 100 unique design templates utilizing
              the animation features of Flash technology, which our customers
              can customize or use as is. Moreover, there are available
              royalty-free sound and image files that can be imported, text
              images, web links, and email links. We can host the resulting
              websites and projects online, or the customer can transport the
              website to another hosting server.

         o    Email Marketing and Promotions: Through its subsidiary Exposure
              International, LLC, we anticipate that we will market software
              which will enable our customers to design and conduct email
              marketing campaigns and to communicate with their customers on a
              targeted, real-time basis. For example, this software will enable
              our customers to conduct contests and surveys and to engage in

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              two-way communication with their customers. A principal product of
              this software is a template-driven newsletter which we believe
              will enable our customers to create professional newsletters which
              can be delivered instantaneously to their own customers and
              prospects.

         o    Online Campaigns: Through the Adaptive Media System, designed by
              our recently-acquired subsidiary, CaptureQuest, Inc., we
              anticipate that we will offer our customers the software necessary
              to conduct rich-media marketing and promotions campaigns, allowing
              these customers to plan for, create, manage, assess, and measure
              the success of these online campaigns. The Adaptive Media System
              was designed by CaptureQuest to assist businesses in meeting their
              online marketing, advertising, education and communication needs.
              The Adaptive Media System offers the following services and tools:

              o   Popmercial Technology, for email and Internet Popmercials;

              o   Campaign Manager, which includes a real-time tracking and
                  reporting system, CaptureQuest's Direct Response System, the
                  CaptureQuest Command Center and the CaptureQuest Popmercial
                  Generator; and

              o   Creative Reinforcement, which includes New Media Reinforcement
                  and Traditional Media Reinforcement.

         o    Other Products: We also offer our traditional brick and mortar
              customers a variety of point-of-sale terminals and hardware
              accessories. Based on customer need and preference, we can offer
              many brands of point-of-sale terminals and hardware accessories
              available in the industry at competitive prices. In addition, we
              also offer its customers online shopping cart technology through
              software developed by our subsidiary, Bottomline Online, Inc.

Marketing Strategy

         Through our subsidiaries ePenzio, FlashAlly, and CaptureQuest, we
market our processing, transaction, rich-media advertising and multimedia tools
and services and solutions to companies, entrepreneurs, and individuals through
a multifaceted sales channel:

         o    Entrepreneur Seminars and Workshops - we conduct workshops for and
              partner with marketing companies in promoting websites, shopping
              carts, merchant accounts and other Internet business tools. A
              combination of direct mail, newspaper and radio is used to attract
              customers within a given market. These entrepreneur and e-business
              seminars are conducted nationwide, promoting various Internet
              products and services. Customers are given the opportunity to
              purchase tools to help start a new business or to create an
              Internet presence for a current brick and mortar business, while
              we provide two of the most important components, Merchant IDs and
              payment gateways.

         o    Agent Offices - We have established "agent offices" with various
              partners within the U.S. We provide processing services on varying
              levels through these "agent offices." Agent offices resell our
              products and services to customers of the agent office. Under an
              agent office agreement, sourcing of customers, leads and
              affiliates are the sole responsibility of the agent office. Agent
              offices are trained on product information and our sales
              procedures. We provide order forms, marketing brochures, contracts
              and applicable paperwork to the agent office. Agent offices are
              solely responsible for making sales, filling out applications and
              contracts, and submitting sales to us. We handle all fulfillment
              issues once an application or contract is received from the agent
              office. We also handle ongoing customer service for our products
              and services. These relationships allow us to increase overall
              volume while, at the same time, eliminating Independent Sales
              Organization fees agent offices would incur working directly with
              a bank. We pay commissions to agent offices based on the services
              we perform. Each relationship is customized based on the abilities
              and infrastructure of each agent office.

         o    Affiliate Program - Our affiliate program has proved to be a
              significant source for acquiring new merchants. Every new
              customer, once its account is established, is assigned an
              affiliate representative. This affiliate representative works
              directly with the customers to bring in leads and referrals. Once
              leads arrive, trained sales representatives contact the businesses
              referred. A commission, depending on the product sold, the price
              point and customer credit, is paid to the referrer. The referrer


                                     Page 8
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              has the opportunity to make up to $600 for each referral sold.
              This has proven to be an effective sales incentive while at the
              same time meeting its internal customer acquisition cost targets.

         o    Bank Affiliate Program - We believe most traditional banks turn
              down a significant percentage of new merchant account applications
              because they do not meet rather rigid bank criteria which are not
              conducive to most e-merchant profiles. We have a bank affiliate
              program which allows us to acquire these declined merchants either
              by requiring the merchant to establish a checking account with the
              bank that turned down the merchant account or by paying the bank a
              small fee for the referral.

         o    Resellers - We have reseller agreements with various web design
              firms, hosting companies and Internet Service Providers. These
              resellers either bundle our processing solution with their
              products or refer their customers to us for sale and fulfillment.

         o    Network Marketing - We have partnered with a number of network
              marketing organizations with the goal of providing their
              organizations and those they service with the latest multimedia
              and processing technologies available. Participants have the
              opportunity to purchase template based / automated solutions or
              custom solutions to meet their needs. These organizations are
              incented to promote the solutions via revenue sharing
              opportunities.

         o    Direct Sales - We have assembled a highly professional direct
              sales force that focuses on selling our custom multimedia and
              rich-media solutions. The sales force targets large enterprise
              companies that have specific sales or branding objectives.

Sources of Revenue

         Through ePenzio, CaptureQuest and FlashAlly, we have revenue streams
that occur at the time of the initial sale and recurring revenue that is
realized monthly over the life of each contract. We are developing other varying
revenue streams based on proposed new products and services. The major sources
of revenue are described below:

         Sale of Merchant Accounts and Credit Card Processing Solutions
         --------------------------------------------------------------

         Our primary source of revenue comes from the sale of merchant accounts
and credit card processing solutions. Customers have the choice of paying for
the merchant account and processing equipment or financing their purchase
through various financing options we have established. For sales originated by
us, we bill the account monthly for the duration of the contract. With accounts
sold to outside financing sources, lump sum payment is made to us in
approximately ten days. Financing of our products is mainly held to a 36-month
term.

         Recurring Fees
         --------------

         We also realize recurring revenue on merchant accounts we establish for
customers. Our banking agreements provide for up to a 50%/50% revenue split on
all discount rates, banking and processing fees collected by the banks. For
example, a typical merchant account might require the merchant to pay $10 per
month as a statement fee, $15 per month monthly minimum (depending on the
merchant's processing volume) and $0.30 per transaction processed. We would, in
this case, receive at least $12.50 per month for this active merchant ($5 from
the statement fee and $7.50 from the monthly minimum). We have thousands of
active merchants paying these monthly bank fees to support their merchant
accounts and expects recurring revenue from transactions to grow as percent of
overall revenues. We also realize recurring revenue on FlashAlly websites hosted
by us. We collect a monthly hosting fee ranging from $19.99-$29.99 for each
active website it hosts.

         Internet Gateway Fees
         ---------------------

         We receive recurring revenue from the monthly Internet gateway fees
that Internet merchants agree to pay. All merchants who purchase an Internet
payment gateway are charged a monthly gateway access fee. We keep 50% of the
monthly fees for every active merchant. We have thousands of active merchants
paying the monthly gateway access fees.

                                     Page 9
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         Rich Media Advertising
         ----------------------

         We receive revenue from the creation, delivery, tracking and reporting
of rich-media email and Internet advertising campaigns. The average rich-media
campaign costs $10,000 to create and $0.05 per piece to deliver, track and
report.

         Email List Brokering
         --------------------

         We receive revenue for procuring targeted, permission based email lists
for its rich-medial advertising clients. The commission for procuring these
lists ranges from $0.01-$0.10 per name procured.

         Multimedia Services
         -------------------

         We receive revenue for a host of multimedia services provided. Work
ranges from the template based to custom and covers website, interactive CD,
corporate branding/identity, custom database, and traditional print services.

         Other Revenue
         -------------

         Our revenue streams include the sale or re-sale of websites, hosting,
POS terminal reprogramming, pin pads and other miscellaneous products. We
maintain hosting servers to accommodate our customers looking for a hosting
solution. This revenue stream is expected to add to recurring revenue streams.
We are adding website programmers to provide basic website design and
development for merchant customers. Once this is done, website programming will
be added as a larger component of our overall revenue.

Growth Opportunities

         We have developed an approach to how we intend to continue our growth
in the future. The main components of our intended growth plan are as follows:

         o    International Expansion: To date, we have sold strictly within the
              United States market. Now that an effective system has been put
              into place to create and manage a domestic customer base, we will
              consider the prospect of international expansion. Given the proper
              financial, personnel, technical and other resources, we intend to
              initially seek to develop a presence in Canada. Subsequently, we
              intend to examine possibilities of developing a presence in
              Australia, New Zealand, and English-speaking countries in Europe.
              Once an effective model has been put in place for introduction
              into international markets, we believe we can market our products
              and services globally. We believe that we will benefit from lower
              customer acquisition costs and lower competition in international
              markets, because our marketing methods have not been utilized
              significantly outside the United States.

                     On January 22, 2002, we acquired Transaxis, S.A., a company
              with offices in Geneva, Switzerland and London, England. Transaxis
              provides processing solutions to merchants and financial
              institutions in England and Western Europe. We anticipate that the
              acquisition of Transaxis will enable us to offer our products and
              devices to businesses and financial institutions internationally.
              Transaxis and its assets are important components of our agreement
              with GlobalCollect, BV pursuant to which we will likely provide
              international transaction processing solutions, thus opening
              opportunities throughout the United Kingdom and Western Europe,
              and other countries as well. Employees of Transaxis have begun
              sourcing potential customers for FlashAlly and CaptureQuest
              products in the United Kingdom and Europe.

         o    Expanded Lead-Source Marketing Efforts: Currently, a significant
              portion of our new customers are derived from several lead sources
              with which we have formed alliances. We have explored the
              potential of duplicating and improving upon the marketing done by
              our lead sources. Successfully doing so will make us less reliant
              upon the marketing efforts of our lead sources and will allow us
              to obtain customers for a lower cost. Currently, we pay a
              significant portion of the revenues generated from each outside

                                    Page 10
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              sale to the source from which the original lead came. The only
              value we receive from this cost is that of the lead itself. We
              believe that the marketing expended to obtain this lead could be
              done by us for as little as half the amount we now pay the lead
              source.

                     Our wholly-owned subsidiary, ePenzio, Inc., has
              historically generated a substantial percentage of its revenue
              from selling products and services at programs sponsored by other
              companies ("lead sources"). During the last year, one of the
              larger lead sources has been Home, Inc. ePenzio was informed on
              May 10, 2002 that Home, Inc. may no longer allow ePenzio sales
              teams to participate in Home, Inc. programs. Subsequently, on June
              14, 2002, ePenzio and Home, Inc. executed an agreement pursuant to
              which ePenzio's sales teams would have continued to participate in
              Home, Inc.'s programs. However, on August 2002, Home, Inc.
              terminated this contract. While it is unclear what the actual
              effect on our revenues, profits, cash flow, or financial condition
              will be as a result of the termination of the relationship between
              ePenzio and Home, Inc., there is a substantial likelihood that
              revenues will decrease in the short term as a result of this
              development. During the year ended June 30, 2002, the six months
              ended June 30, 2001, and the twelve months ended December 31,
              2000, this outside referral source provided customer referrals
              which generated in excess of 28%, 60%, and 88%, respectively, of
              our gross revenues. We have relationships with other lead sources,
              and we intend to begin sending sales teams out with these
              companies as soon as reasonably possible. While there can be no
              assurances in this regard, it is anticipated that the loss of our
              contractual relationship with Home, Inc. may significantly affect
              the Company's results of operations.

         o    Vertical Integration of Products and Services Currently Being
              Purchased from Outside Sources: We currently market three products
              or services that we outsource to other suppliers. Some, if not
              all, of these products and services could be sold with higher
              gross margins if we were to supply them directly to customers.
              These products and services are discussed in the section below.

Products and Services in Development

         As discussed above, in order to increase revenues and better control
quality, we have begun development of, or are seeking to develop, new products
and services, and, in some cases, to develop internal capabilities and
competencies for products or services that we currently outsource. These
potential new products and services we are considering developing in the future
include the following:

         o    Product Financing: Most of our customers finance the products and
              services they purchase from us over periods ranging from twelve to
              thirty-six months. Much of this financing is done through banks
              and finance companies with whom we have established relationships.
              Initially, the customer completes finance documents, based upon
              which we analyze the customer's credit. Once a credit score is
              established, we offer to sell these installment contracts to one
              of several available finance companies. The finance company
              assigns an interest rate to each of the installment contracts and
              notifies us of the discount it will apply to the installment
              contracts before purchasing them. This discount can be as much as
              50%, and in cases of customers with very low credit scores,
              finance companies will decline to purchase the installment
              contracts.

                     By carrying and servicing the installment contracts for a
              period of three to six months, we decrease the discount finance
              companies charge to later purchase the installment contracts.
              Consequently, in 2000 ePenzio established a wholly-owned finance
              company, Olympus Financial, Inc., which allows us to better
              control the financing process. If we can sell a customer's
              installment contract for a fair price at the time of sale of the
              product, then we immediately sell it. If, however, we can sell the
              installment contract for more by holding the contract for an
              additional three to six months through Olympus, we will do so.
              This process has allowed us to better control our assets. Such a
              process requires large cash reserves, and we have only been able
              to execute it with a portion of our new business.

         o    Payment Processing: Currently, we use several payment processors
              for the processing needs of our customers. Previously, we received
              no revenue on an ongoing, residual basis from the monthly fees and
              discount rates charged these customers. On June 20, 2000, our
              subsidiary, ePenzio, completed negotiations that allowed it to
              begin receiving a small portion of these monthly fees and discount

                                    Page 11

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              rates. Over time, our portion of these fees and discount rates has
              grown to approximately $111,000 per month in revenue. We
              anticipate that, at some point, we will explore the possibilities
              of handling many of our customers' processing needs ourselves.
              This may allow us to better control the quality of the product our
              customers receive and may make it more cost effective for us to
              solicit customers with high monthly processing volumes. In
              addition, it may increase the revenues we generate from a service
              we already provide our customers.

         o    Website Hosting: To date, we have contracted with several
              companies to provide web hosting services to our customers and
              have received no portion of either the initial costs or the
              ongoing monthly hosting fees paid by the customer. We believe that
              we could establish or acquire a web hosting solution that would be
              at least as effective as those provided by our web partners.
              Again, this might allow us to better control the quality of the
              products our customers purchase while potentially increasing
              revenues.

Competition

         Our markets are becoming increasingly competitive. Our competitors
include application service providers, software vendors, systems integrators and
information technology consulting service providers who offer some or all of the
same products we do to the small business and entrepreneur markets.

         Most of these competitors do not yet offer a full range of Internet
professional services. Many are currently offering some of these services or
have announced their intention to do so. These competitors at any time could
elect to focus additional resources in our target markets, which could
materially adversely affect our business, prospects, financial condition and
results of operations. Many of our current and potential competitors have longer
operating histories, larger customer bases, longer relationships with clients
and significantly greater financial, technical, marketing and public relations
resources than us.

         Additionally, should we determine to pursue acquisition opportunities,
we may compete with other companies with similar growth strategies. Some of
these competitors may be larger and have greater financial and other resources
than we do. Competition for these acquisition targets could also result in
increased prices of acquisition targets and a diminished pool of companies
available for acquisition.

         There are relatively low barriers to entry into our business. We have
limited proprietary technology that would preclude or inhibit competitors from
entering our markets. In particular, we anticipate that new entrants will try to
develop competing products and services or new forums for conducting e-commerce
that could be deemed competitors. We believe, however, that we presently have a
competitive advantage due to our marketing strategies.

         Because of our unique marketing efforts and all-in-one Internet payment
solutions, it is difficult to identify our closest competitors. However, because
of the relatively low barriers to entry involved with becoming an independent
sales organization in the merchant processing industry, the list of companies
providing just merchant accounts is fairly extensive, and it comprises the
largest portion of companies competing for our target customer base. The
following is a list of our larger competitors:

         o    Cardservice International. Based in Moorpark, California, and
              Raleigh, North Carolina. Cardservice International is a provider
              of merchant credit card, ATM/debit card and check guarantee
              services, and offers secure transport of financial transactions
              for businesses in both the physical and Internet worlds.
              Cardservice's sales are driven by independently-owned sales agent
              offices throughout the United States.

         o    US Merchant Systems. Based in Newark, California, US Merchant
              Systems provides merchant accounts, credit card processing, ATM
              debit card processing, check verification and guarantee, secure
              Internet transaction processing, point-of-sale equipment, Internet
              storefront builders, shopping carts, and electronic check
              processing. It has solutions for both Internet and
              brick-and-mortar type businesses. US Merchant maintains an agent
              office program that is similar to that of Cardservice, but on a
              smaller scale. US Merchant markets its services to its customers
              mainly through affiliations with web hosting companies.

                                    Page 12

<PAGE>

         o    E-Commerce Exchange. Based in Irvine, California, E-Commerce
              Exchange provides a range of products that includes merchant
              accounts, credit card processing services, Internet payment
              gateways, point of sale terminals, Internet shopping carts,
              electronic check processing and E-Commerce Exchange markets mainly
              through unsolicited email messages and outbound telemarketing
              calls to consumers and small businesses.

         Our competitors also include smaller regional independent sales
organizations as well as agents and affiliates of larger merchant account and
merchant services providers. There are hundreds of individuals and small
companies throughout the nation who provide payment solutions, supported by
local banks, to their local businesses. The following is a list of a few of our
smaller competitors:

         o    Global Payments, Inc

         o    Netgateway, Inc.

         o    Total Merchant Services

         o    Innovative Merchant

         o    Payment Processing, Inc.

         o    Bankcard USA

         o    Electronic Commerce International

         o    Merchant Processing Services

         o    AMS Merchant Account Services

         o    #1 Merchant Accounts

         o    eHosts

         The following is a list of larger competitors of CaptureQuest, Inc., a
wholly-owned subsidiary of Category 5:

         o    WhiteSpeed. WhiteSpeed's sales pitch is similar to that of
              CaptureQuest in that WhiteSpeed offers "full rich-media email
              service from creation to delivery, tracking, and detailed
              reporting." Its digital products are listed as follows: Streaming
              video-banners, rich newsletter management, website creation,
              screensavers, games, and email streaming "TV-style" commercials.

         o    EyeWonder, Inc. EyeWonder utilizes EyeMail(TM) and EYERIS(TM)
              technology to deliver streaming video and audio via email, and
              plays the video and audio within the viewer's email client.

         o    Unicast Communications Corp. Based in New York City, New York,
              with offices in San Francisco, Chicago, Brazil and London, Unicast
              is an online advertising solutions provider, which provides an
              online format suite to its site network partners and its agency /
              advertiser customers. Unicast works with both advertisers and Web
              publishers, and this central position allows it to deliver, format
              and service both sides of the advertising equation.

         o    EyeBlaster, Inc. EyeBlaster provides an online ad management
              platform that allows agencies and advertisers to independently
              create and manage a wide variety of rich media formats including
              floating ads, window ads, expandable banners, and commercial
              breaks.

         The following is a list of larger competitors of our subsidiary,
         FlashAlly, LLC, a wholly-owned subsidiary of Category 5:

         o    Vermotion, Inc. Vermotion markets an application which enables
              companies to automate and transfer core business functions to the
              Internet, including customer management, order procurement,
              financial management, client services, data base marketing,
              product / supplier integration, Web Site management and
              comprehensive business reporting.


                                    Page 13

<PAGE>

         o    uSite. uSite markets technology which enables entrepreneurs and
              small businesses to establish an e-commerce presence on the
              Internet, including website design services, merchant accounts,
              payment gateways, and a warehouse that contains consumer products
              which customers can resell.

         o    Pacific Webworks, Inc. Pacific Webworks markets a PC-based
              application that allows small businesses to create e-commerce
              enabled websites.

         o    Internet Development Inc. Internet Development Inc. markets
              technology which gives companies with large sales forces a
              template system that gives each agent his or her own customizable
              website that reflects the branding and identity of the employer.
              Internet Development also offers a virtual office suite and an
              HTML email creator for email-based advertising.

         The main method in which we distinguish ourselves from our competitors
is through marketing and sales. The majority of our revenue is derived from
product sales at seminars, workshops and training classes held throughout the
nation. Other than Netgateway, Inc., very few, if any, of our competitors
conduct seminars and workshops. Instead, competitors rely on local salespeople,
"spam" emails and advertisements in trade publications. We also offer a complete
product line to enable our customers to have an Internet business presence and
accept credit cards through their websites. Other than Netgateway, Inc., very
few of our competitors offer the complete product line to enable "one-stop"
shopping for their customers. Some have websites, some have shopping carts, some
have Internet payment gateways, and some have banking relationships to provide
merchant accounts. Very few of our competitors have the broad suite of products
and services we offer.

Significant Customers

         We do not rely on any one customer or small group of customers. We work
to ensure that ours customer base is sufficiently diversified.

Dependence on Suppliers

         Our wholly-owned subsidiary, ePenzio, Inc., has historically generated
a substantial percentage of its revenue from selling products and services at
programs sponsored by other companies ("lead sources"). During the last year,
one of the larger lead sources has been Home, Inc. ePenzio was informed on May
10, 2002 that Home, Inc. may no longer allow ePenzio sales teams to participate
in Home, Inc. programs. Subsequently, on June 14, 2002, ePenzio and Home, Inc.
executed an agreement pursuant to which ePenzio's sales teams would have
continued to participate in Home, Inc.'s programs. However, in August 2002,
Home, Inc. terminated this contract. While it is unclear what the actual effect
on revenues, profits. cash flow, or financial condition will be as a result of
the termination of the relationship between ePenzio and Home, Inc., there is a
substantial likelihood that revenues will decrease in the short term as a result
of this development. During the year ended June 30, 2002, the six months ended
June 30, 2001, and the twelve months ended December 31, 2000, this outside
referral source provided customer referrals which generated in excess of 28%,
60%, and 88%, respectively, of our gross revenues. We have relationships with
other lead sources, and we intend to begin sending sales teams out with these
companies as soon as reasonably possible. While there can be no assurances in
this regard, we is anticipate that the loss of our contractual relationship with
Home, Inc. may significantly affect the our results of operations.

Seasonality

         Our revenues are subject to seasonal fluctuations. The first and second
calendar quarters are generally stronger than the third and fourth calendar
quarters. Customers seem less interested in attending workshops during the
period between July 15th through Labor Day, and again during the holiday season
from Thanksgiving Day through the first week of the following January.

Research & Development

         While we do not currently have a department dedicated to research and
development, we regularly investigate products, services, and techniques that
could enhance the suite of products we offer.


                                    Page 14
<PAGE>

Employees

         As of September 10, 2002, we employed a total of 89 employees, of which
88 are full-time employees.

Environmental Standards

         We believe our facilities and operations are within standards fully
acceptable to the Environmental Protection Agency and that all facilities and
procedures are in accordance with environmental rules and regulations, and
international, federal, state, and local laws.

Strategic Relationships

         As indicated above, we have established relationships with various
banks and financial institutions, which enable us to serve as a merchant account
provider to certain customers seeking processing solutions, whether they need
physical terminals or Internet payment gateways. Having multiple banking
relationships enables us to successfully procure Merchant IDs and account setup
for many of our customers, regardless of credit history.

ITEM 2.       Description of Property

         We currently do not own any real property. We do, however, lease
approximately 18,000 square feet of office space located at 2755 East Cottonwood
Parkway, Suite 450, Salt Lake City, Utah. During the entire term of this lease,
we will have paid approximately $20,283 per month in lease payments (based on
straight-line rents). The lease for this space will terminate on October 31,
2005. We also lease approximately 4,000 square feet of office space located at
5255 North Edgewood Drive, Suite 250, Provo, Utah for the operation of its
CaptureQuest subsidiary. This lease will expire on approximately August 31,
2004. During the course of this lease, we will have paid approximately
$4,500-$4,700 per month in lease payments, plus certain additional rents as
provided in the lease agreement. We believe that our current office space and
the condition of such properties are adequate for current needs.

ITEM 3.       Legal Proceedings

         On December 28, 2000, Online Exchange, Inc., a Missouri corporation,
and its president, Paul Schneider, filed a Petition for Declaratory Judgment for
Breach of Contract and Related Relief against Executive Credit Services, L.C.,
as well as its President, Paul Anderson, and then CEO, Brad Crawford, in the
Circuit Court of St. Louis County, Missouri (No. 00CC-004326). ePenzio is the
successor to Executive Credit Services. The basis of the Petition is a
Confidentiality and Marketing Agreement between the parties, dated November 23,
1999.

         In the Petition, Online requests (1) declaratory judgment that the
Marketing Agreement has been abandoned or is otherwise of no force and effect,
that the court determine the obligations of the parties subsequent to the
abandonment of the Marketing Agreement, and that Online be awarded its costs and
fees; (2) an order of the Court compelling ePenzio to provide the court with an
accounting of all information related to ePenzio's sale or lease of merchant
accounts to Online customers, including information related to any chargebacks,
and the award to Online of any referral fees due and owing from ePenzio, plus
costs and attorneys' fees; (3) judgment in favor of Online in an amount in
excess of $25,000 (the specific amount to be determined at trial), plus interest
and costs, for referral fees to which it is entitled from and after abandonment
of the Marketing Agreement in March 2000, based upon the claim that ePenzio
breached the agreement after March 2000; and (4) entry of judgment in Online's
favor in an amount in excess of $25,000 (the exact amount to be determined at
trial), plus interests and costs, on a theory of unjust enrichment.

         On February 6, 2001, ePenzio filed a motion to dismiss the action
pending in Missouri, on the basis that the parties agreed in the Marketing
Agreement that any legal action filed by any party to the Agreement to enforce
the terms of the Agreement must be filed in the Third Judicial District Court
for the State of Utah. The motion is pending.

         On January 26, 2001, Executive Credit Services, L.C. filed a complaint
in the Third Judicial District Court of Salt Lake County in the State of Utah
against Online and Paul Schneider in relation to the Marketing Agreement (Civil
No. 010900847). In the complaint, ePenzio requests (1) judgment against Online
for the principle amount of $174,430, plus all chargeback amounts accrued after
the date of the Complaint, plus pre and post judgment interest, as well as

                                    Page 15

<PAGE>

collection costs and (2) in the alternative, that the court imply a contract at
law and enter judgment against Online in the amount of $174,430, plus pre and
post judgment interests.

         On April 5, 2002, Category 5 filed a complaint against Netgateway, Inc.
in the Third Judicial District Court in and for Salt Lake County, State of Utah
(Case No. 020902991), in relation to the failure by Netgateway to perform its
obligations under that certain Termination and Release Agreement by and between
Category 5 and Netgateway and dated January 14, 2002, pursuant to which
Netgateway is obligated to pay to Category 5 a termination fee of approximately
$262,000. Category 5 has granted to Netgateway an indefinite extension to file
its answer to the complaint, pending an out-of-court resolution of the dispute
between the parties to the dispute.

         Mr. William C. Gibbs served as the Chief Executive Officer
and Chairman of our board of directors; however, a dispute occurred between
Mr. Gibbs and us concerning his employment status and position as Chairman of
the board of directors. Mr. Paul Anderson assumed the duties of our Chief
Executive Officer and Chairman. Effective September 12, 2002, the parties
executed a Severance Agreement and Mutual General Release, pursuant to which Mr.
Gibbs' employment with us terminated effective August 31, 2002.

         In the normal course of business, we have various legal claims and
other contingent matters. Although the final outcome of such matters cannot be
predicted, we believe the ultimate disposition of these matters will not have a
material adverse effect on our consolidated financial condition, liquidity or
results of operations.

Risk Factors

Future losses could impair our ability to raise capital.

         Although we recorded net income of $ $4,324,972 for the six months
ended June 30, 2001, and $1,700,995 for the year ended December 31, 2000, we
recorded a loss of $3,377,873 for the year ended June 30, 2002. We cannot assure
you that we will return to profitability in future periods. Losses in future
periods could impair our ability to raise capital as needed.

We are subject to compliance with securities laws, which exposes it to potential
liabilities.

         Historically, we have periodically offered and sold common stock to
investors pursuant to certain exemptions from the registration requirements of
the Securities Act of 1933, as well as those of various state securities laws.
The basis for relying on such exemptions is factual; that is, the applicability
of such exemptions depends upon our conduct and that of those persons contacting
prospective investors and making the offering. We have not received a legal
opinion to the effect that any of our prior offerings were exempt from
registration under any federal or state law. Instead, we have relied upon the
operative facts as documented by it as the basis for such exemptions, including
information provided by investors themselves.

         If any prior offering did not qualify for such exemption, an investor
would have the right to rescind its purchase of the securities if it so desired.
It is possible that if an investor should seek rescission, such investor would
succeed. A similar situation prevails under state law in those states where the
securities may be offered without registration in reliance on the partial
preemption from the registration or qualification provisions of such state
statutes under the National Securities Markets Improvement Act of 1996, which
does not preempt compliance with certain filing and notice requirements and
other conditions that rarely, but in some instances, must be satisfied prior to
making an offer in a specific state. If investors were successful in seeking
rescission, we would face severe financial demands that could adversely affect
us and, thus, the nonrescinding investors.

         Additionally, if we did not qualify for the exemptions upon which we
have relied, we may become subject to significant fines and penalties imposed by
the Commission under the Securities Act and state securities agencies.


                                    Page 16

<PAGE>

Our business strategies and financial projections are based on various factors
and assumptions, which may prove to be incorrect.

         This annual report describes our business strategy and plans. This is
based on a number of variables, hypotheticals and assumptions about various
matters, including the following:

         o    General Internet industry information from third-party sources,
              including information respecting level of usage, continued growth,
              security protocol development, and other matters;

         o    Our expectations regarding managerial and financial resources
              available to us;

         o    Anticipated results of advertising and marketing activities;

         o    Estimates of market size and characteristics;

         o    Competitive conditions;

         o    Future capital requirements; and

         o    Rates of growth.

         Such information is based on present circumstances, third party data
believed reliable but not fully verified or verifiable by management, our
estimates, and on events that have not occurred, which may not occur, or which
may occur with different sequences and consequences from those now assumed or
anticipated. All such information, estimates, and projections must be considered
in light of the emerging nature of the Internet industry and the uniqueness of
our business plan and strategy. If investors were to consult with their own
advisors or other industry experts, it should be expected that their views may
differ from those set forth herein. No assurance can be given that all material
assumptions have been considered. No representation or warranty of any kind is
made by us, and none should be inferred, respecting the future accuracy or
completeness of such forward-looking material.

Some of our marketing channels are unproven and may not be successful.

         We have recently commenced marketing products and services through a
new marketing channel using resellers and multi-level marketing. This marketing
channel is unproven and may not be successful. If it is unsuccessful, our
operating expenses may increase without a corresponding increase in sales.

We must successfully implement its marketing and business strategy in order to
generate sales.

         We intend to continue or begin to advertise to potential clients
through a variety of distribution channels, such as seminars, print and Internet
media advertising, direct marketing campaigns, cold calling, and co-marketing
arrangements with key industry partners. If these distribution channels prove
more costly or less effective than anticipated, our growth and ability to
generate revenues would be adversely affected.

         Our continued success depends on its ability to compete in an industry
that is highly competitive, with rapid technological advances and constantly
improving products in both price and performance. As most market areas in which
we operate continue to grow, we are experiencing increased competition, and
expects this trend to continue. Under our current competitive strategy, our
endeavors to remain competitive by growing existing businesses, developing new
businesses internally, increasing efficiency, improving access to new markets,
and reducing costs. Although our executive management team and board of
directors continue to review and monitor our strategic plans, we can give no
assurance that we will be able to continue to follow our current strategy or
that this strategy will be successful.

We cannot accurately predict our future revenues.

         There can be no assurance that we will be able to generate significant
revenues or that we will achieve or maintain profitability, or generate revenues
from operations in the future. We believe that our success will depend upon our
ability to generate and retain new merchant subscribers, which cannot be assured
and, in many circumstances, will be beyond our control. Our ability to generate
subscribers will depend on a variety of factors, including:


                                    Page 17

<PAGE>

         o    Our sales and marketing efforts as well as the co-marketing
              efforts of our strategic partners;

         o    The reliability and cost-effectiveness of our services;

         o    The level and growth of use of the Internet; and

         o    Customer service and support.

         Because of our recent rapid growth and the ongoing evolution of our
business model, we do not have historical financial data on which to base
planned operating expenses. We may be unable to adjust spending in a timely
manner to compensate for any unexpected shortfall in revenues. Therefore, any
significant shortfall of demand for our Internet services in relation to our
expectations would have an immediate adverse impact on our business, operating
results and financial condition.

We expect our operating results to fluctuate, which makes it difficult to
predict future performance.

         We expect a portion of our revenue stream to come from set-up and other
fees charged to new customers, which will fluctuate in amount. Registration for
Internet e-commerce services tends to be cyclical in nature. In addition, we
could potentially experience significant fluctuations in future operating
results caused by a variety of factors, many of which are outside of our
control, including:

         o    Demand for and market acceptance of new Internet services;

         o    The introduction or enhancement of Internet services or access by
              us or our competitors;

         o    Capacity utilization;

         o    Technical difficulties, system downtime, or Internet brownouts; o
              Fluctuations in data communications and telecommunications costs;

         o    Subscriber retention;

         o    The timing and magnitude of capital expenditures and requirements;

         o    Costs relating to the expansion or upgrading of operations,
              facilities, and infrastructure;

         o    Changes in our pricing policies and those of our competitors;

         o    Changes in regulatory laws and policies; and

         o    General economic conditions, particularly those related to the
              Internet industry.

         Because of the foregoing factors, we expect its future operating
results to fluctuate. As a result of such fluctuations, it will be difficult to
predict our operating results. Period-to-period comparisons of operating results
are not necessarily meaningful and should not be relied upon as an indicator of
future performance. In addition, a relatively large portion of our expenses will
be fixed in the short-term, particularly with respect to data communications and
telecommunications costs, depreciation, real estate and personnel. Therefore,
our future operating results will be particularly sensitive to fluctuations in
revenues because of these and other short-term fixed costs.

We may be unable to collect our receivables and retainages in amounts previously
estimated.

         In accordance with United States generally accepted accounting
principles, we have established reserves against its retainages and receivables.
We believe that the established reserves adequately allow for the estimated
uncollectable portion of the retainages and receivables. However, we may
experience collection rates below its established reserves, which could reduce
the amount of available funds and require additional reserves. Reduced available
funds could adversely affect our ability to successfully implement the
objectives of our business plan. There can be no assurance that we will be able
to collect our retainages and receivables in sufficient amounts. Failure to
collect adequate amounts of its retainages and receivables could materially
adversely affect our business and results of operations.


                                    Page 18

<PAGE>

There are low barriers to entry in our market, which could result in increased
competition in the future.

         The market for Internet-based services is relatively new, intensely
competitive and rapidly evolving. There are minimal barriers to entry, and
current and new competitors can launch new Internet products and services at a
relatively low cost within relatively short time periods. We expect competition
to persist and intensify and the number of competitors to increase significantly
in the future. Should we seek in the future to attempt to expand the scope of
its Internet services and product offerings, we will compete with a greater
number of Internet companies. Because the operations and strategic plans of
existing and future competitors are undergoing rapid change, it is difficult for
us to anticipate which companies are likely to offer competitive products and
services in the future.

The intense competition in our industry could reduce or eliminate the demand for
our services.

         The market for our services is intensely competitive and subject to
rapid technological change. We expect competition to intensify in the future.
Our primary source of competition comes from developers of other systems for
merchant account setup and e-commerce processing. In addition, other companies
may enter the market for our services. Our current and potential competitors may
make strategic acquisitions or establish cooperative relationships among
themselves or with other e-commerce service providers, thereby increasing the
ability of their services to address the needs of our prospective customers.

We will rely on certain key co-marketing alliances to generate clients,
end-users, and revenue.

         We have entered into certain key co-marketing arrangements with
strategic partners in order to leverage the industry and marketing expertise of
such partners. We expect that revenues generated from the sale of our products
and services through such strategic co-marketing arrangements will account for a
significant portion of our revenues for the foreseeable future. Some of these
arrangements provide, for the co-marketing partner, certain exclusive rights to
co-market our services in a particular industry, which might hinder us from
directly contacting potential clients in such industry. Our arrangements with
these co-marketing partners are relatively new and have not yet generated
material revenues. There can be no assurance that such arrangements will be
successful in generating such revenues. Further, if a co-marketing relationship
is terminated, we may be unable to replace such relationship with other
alliances that have comparable customer bases and user demographics.

We are dependent upon certain relationships with third parties, the loss of
which may be detrimental to our operations.

         We are dependent on certain banking relationships as well as strategic
relationships with third parties who provide payment gateways to our customers.
We must comply with certain bank covenants to maintain its banking
relationships. Failure of these financial institutions and third parties to
continue their relationships with us or to continue to provide services in a
satisfactory way to our customers could adversely impact our financial viability
and result in the loss of the business of the merchants to whom we sell products
and services. During the year ended June 30, 2002, one of the two of our
financing sources factored 52% of our financing contracts and the other factored
48%. We may in the future continue to finance operations by factoring financing
contracts. If these financial institutions and third party service providers do
not continue to provide services to our customers, we may not be able to find
other third-party service providers. In that instance, our customers may
terminate their agreements and move their business to our competitors, which
could have a significant effect on our revenues and earnings.

Our sales may suffer due to loss of certain outside referral source.

         Our wholly-owned subsidiary, ePenzio, Inc., has historically generated
a substantial percentage of its revenue from selling products and services at
programs sponsored by other companies ("lead sources"). During the last year,
one of the larger lead sources has been Home, Inc. ePenzio was informed on May
10, 2002 that Home, Inc. may no longer allow ePenzio sales teams to participate
in Home, Inc. programs. Subsequently, on June 14, 2002, ePenzio and Home, Inc.
executed an agreement pursuant to which ePenzio's sales teams would have
continued to participate in Home, Inc.'s programs. However, in August 2002,
Home, Inc. discontinued its performance under this contract. While it is unclear
what the actual effect on our revenues, profits, cash flow, or financial
condition will be as a result of the likely termination of the relationship


                                    Page 19

<PAGE>

between ePenzio and Home, Inc., there is a substantial likelihood that revenues
will decrease in the short term as a result of this development. During the year
ended June 30, 2002, the six months ended June 30, 2001, and the year ended
December 31, 2000, this outside referral source provided customer referrals
which generated in excess of 28%, 60%, and 88%, respectively, of our gross
revenues. We have relationships with other lead sources, and we intend to begin
sending sales teams out with these companies as soon as reasonably possible.
While there can be no assurances in this regard, we anticipate that the loss of
our contractual relationship with Home, Inc. may significantly affect our
results of operations.

We are subject to risks associated with research and development of new
products.

         In order to remain competitive and continue to increase revenues, we
must update our products and services, a process which could result in increased
research and development costs in excess of historical levels and the loss of
revenues and customers if the new products and services do not perform as
intended or are not acceptable in the marketplace. The electronic payments
market in which we compete is characterized by technological change, new product
introductions, evolving industry standards and changing customer needs.

         Our market experiences rapid technological change. Any delay in the
delivery of new products or services could render them less desirable to our
customers, or possibly even obsolete.

We may not adequately manage our growth and expansion.

         We have recently experienced a period of rapid growth. This growth may
continue at a substantial rate as we seek to expand its operations and begin
generating increased revenues. If we are not able to manage this growth, our
business and results of operations will likely suffer. To manage growth
effectively, we must:

         o    Expand our operating and financial procedures and controls;

         o    Replace or upgrade its operational, financial and management
              information systems;

         o    Attract, train, motivate, manage, and retain key employees;

         o    Expand its infrastructure;

         o    Enter into strategic relationships and agreements with vendors and
              co-marketers; and

         o    Increase substantially the size of the sales, marketing, customer
              development; and customer service departments.

         There can be no assurance that we will be successful in evaluating its
growth requirements to address these risks.

Some of our competitors are larger and have greater financial and operational
resources which may give them an advantage in our market.

         Many of our competitors are larger and have greater financial and
operational resources than us. This may allow them to offer better pricing terms
to customers in the industry, which could result in a loss of our potential or
current customers or could force us to lower our prices as well. Either of these
actions could have a significant effect on our revenues. In addition, our
competitors may have the ability to devote more financial and operational
resources than we can to the development of new technologies that provide
improved operating functionality and features to their product and service
offerings. If successful, their development efforts could render our product and
services offerings less desirable to customers, again resulting in the loss of
customers or a reduction in the price we can demand for its offerings.


                                    Page 20

<PAGE>

We may become subject to additional U.S. state taxes that cannot be passed
through to our merchant customers, in which case our profitability could be
adversely affected.

         Transaction processing companies like us may be subject to taxation by
various U.S. states on certain portions of the fees charged to customers for our
services. Application of this tax is an emerging issue in our industry and the
states have not yet adopted uniform regulations on this topic. If we are
required to pay such taxes and are not able to pass the tax expense through to
our merchant customers, our operating costs will increase, reducing our profit
margin.

We may become subject to government regulation and legal uncertainties that
could substantially impair our growth or expose us to unanticipated liabilities.

         The adoption and interpretation of any future or currently existing
regulations might have a negative impact on our business. The Internet industry
is relatively new. The applicability to the Internet of existing laws governing
issues such as property ownership, copyrights and other intellectual property
issues, taxation, libel, obscenity and personal privacy is uncertain. Due to the
increasing popularity and use of the Internet, it is possible that a number of
laws and regulations may be adopted with respect to the Internet or other online
services covering issues such as user privacy, content, copyrights, pricing of
products and services, taxation, advertising, intellectual property rights,
information security, distribution and characteristics and quality of products
and services. Any new legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and other online services could have a material adverse effect on our business,
prospects, financial condition and results of operations.

         The growth and development of the market for online commerce may prompt
more stringent consumer protection laws that may impose additional burdens on
those companies conducting business online. The adoption of any additional laws
or regulations, possibly including the taxation of Internet services and
transactions, may decrease the growth of use of the Internet or other online
services generally and could decrease the acceptance of the Internet as a
communications and commercial medium, which could, in turn, decrease the demand
for our products and services and/or increase our cost of doing business, or
otherwise have an adverse effect on our business, prospects, financial condition
and results of operations.

The international market for our future products and services is unproven and
the revenue generated by any future international operations may not be adequate
to offset the expense of establishing and maintaining those operations.

         Our long-term strategy includes a plan to expand our services into
international markets. The international market for Internet service providers
and our business model, products and services is unproven. Therefore, we cannot
assure you that we will be able to market, sell and provide our Internet
services successfully outside the United States. We could suffer significant
operating losses if the revenue generated by any international operations is not
adequate to offset the related expense.

We need to hire and retain qualified personnel to sustain our business.

         We are currently managed by a small number of key management and
operating personnel. We do not have employment agreements with most of our
employees. We do not maintain "key man" insurance on any employees. Our future
success depends, in part, on the continued service of our key executive,
management, and technical personnel, many of whom have only recently been hired,
and our ability to attract highly skilled employees. If key officers or
employees are unable or unwilling to continue in their present positions, our
business could be harmed. From time to time, we have experienced, and we expect
to continue to experience, difficulty in hiring and retaining highly skilled
employees. Competition for employees in our industry is intense. If we are
unable to retain key employees or attract, assimilate or retain other highly
qualified employees in the future, may have a material adverse effect on our
business and results of operations.


                                    Page 21

<PAGE>

We are dependent on the continued participation of certain key executives and
personnel to effectively execute our business plan and strategies and we must
effectively integrate our management team.

         Our performance is substantially dependent on the continued services of
the members of our management team, as well as on our ability to retain and
motivate our officers and key employees. Our future success also depends on our
continuing ability to attract and retain highly qualified technical and
managerial personnel. The market for highly qualified personnel is very
competitive. There can be no assurance that we will be able to retain existing
employees or that we will be able to attract, assimilate or retain sufficiently
qualified personnel in the future. The inability to attract and retain the
necessary technical, managerial, design, editorial, sales and marketing
personnel could have a material adverse effect on our business, financial
condition and operating results.

         We depend on the ability of our management team to effectively execute
our business plan and strategies. During the last several months, we have
significantly expanded our managerial, technical, financial, marketing,
operations, and customer service departments and have hired many of our key
employees and executives. Some of these key employees and executives have no
prior senior management experience in public companies. Because many members of
our management team have worked together only for a short period of time, we
must integrate these key executives and other employees into our operations. If
our management group is unable to effectively integrate its activities, or if we
are unable to integrate new employees into our operations, our business plan and
strategies will not be effectively executed and our operations could suffer.

Recent changes in senior management may negatively impact future operations if
the merger with Mindarrow Systems does not occur.

         In June 2002, Mitchell Edwards resigned as our President and acting
Chief Financial Officer. Should the merger with MindArrow Systems be
consummated, it is anticipated that Robert Webber, President of MindArrow, will
serve as President of the combined entity and that Michael Friedl, Chief
Financial Officer of MindArrow, will serve as Chief Financial Officer. In
addition, William C. Gibbs had been serving as our Chief Executive Officer and
Chairman of our board of directors. However, we are currently negotiating a
settlement of Mr. Gibbs' employment contract, and Paul Anderson has assumed the
duties of Chairman and Chief Executive Officer. Should the merger with MindArrow
not occur, the loss of our Chief Executive Officer and Chief Financial Officer
may negatively impact our operations unless and until we can recruit and retain
replacement senior management.

We are negotiating a settlement with our CEO, William Gibbs, which may be
disruptive to the combined company and result in substantial costs.

         Since June 2001, William C. Gibbs has served as the Chief Executive
Officer and Chairman of our board of directors. However, we are currently
negotiating a settlement of Mr. Gibbs' employment contract, and Paul Anderson
has assumed the duties of Chairman and Chief Executive Officer. We cannot
provide any assurance that this matter will be resolved prior to the closing of
the merger with MindArrow, or that a resolution will occur without the parties
seeking a legal remedy. Should litigation occur, such event may be disruptive to
the combined company and may result in substantial legal fees and other costs.

The demand for our services could be negatively affected by a reduced growth of
e-commerce or delays in the development of the Internet infrastructure.

         Our growth generally depends on the growing use and acceptance of the
Internet as a medium of commerce by merchants and customers. Rapid growth in the
use of and interest in the Internet is a relatively recent development. We
cannot be certain that acceptance and use of the Internet will continue to
develop or that a sufficiently broad base of merchants and consumers will adopt,
and continue to use, the Internet as a medium of commerce. The development of
the Internet as a commercial marketplace may occur more slowly than we
anticipate for a number of reasons, including potentially inadequate development
of the necessary network infrastructure or delayed development of enabling
technologies and performance improvements. If the number of Internet users or
their use of Internet resources continues to grow, it may overwhelm the existing


                                    Page 22

<PAGE>

Internet infrastructure and adversely affect the growth of the Internet as a
marketplace. Delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet activity could also
have a detrimental effect. These factors could result in slower response times
or adversely affect usage of the Internet, ultimately resulting in lower numbers
of e-commerce transactions and lower demand for our services.

We depend upon third parties to implement elements of our business.

         We depend substantially upon third parties for several critical
elements of its business, including:

         o    Payment processing companies, for merchant settlement services;

         o    Telecommunication services;

         o    Vendors of software and hardware for maintenance and upgrades of
              software, systems, and hardware used to deliver our products on
              the Internet;

         o    Finance companies; and

         o    Referrals.

         Any loss or interruption of service by such providers and suppliers
would have an adverse effect on our business and prospects.

We may be unable to raise necessary funds for operations.

         We anticipate that we may need to raise additional funds to meet its
cash flow and capital requirements. In the past, we have frequently experienced
cash flow shortages because we have not generated enough cash from operations to
cover its expenses. We may need to raise additional funds if we have
underestimated our capital needs or if we incur unexpected expenses. There can
be no assurance that such financings will be available in amounts or on terms
acceptable to us, if at all. Further, our lack of tangible assets to pledge
could prevent us from establishing debt-based sources of financing. The
inability to raise necessary funding would adversely affect our ability to
successfully implement our business plan. There can be no assurance that we will
be able to obtain additional financing to meet our current or future
requirements on satisfactory terms, if at all. Failure to obtain sufficient
capital could materially adversely affect our business and results of
operations.

Our operations could be hurt by terrorist attacks and other activity that make
air travel difficult or reduce the willingness of our target customers to attend
group meetings.

         We rely on frequent presentations of our preview training sessions and
Internet training workshops by a limited number of persons in various cities,
and these persons generally travel by air. In addition, these preview training
sessions and Internet training workshops involve large groups of persons in
upscale and sometimes marquis hotel facilities. Our business would be materially
and adversely affected by air travel becoming less available due to significant
cut backs in the frequency of service or significant increases in processing
times at airports due to security or other factors or by air travel becoming
unavailable due to governmental or other action as was the case during a brief
period during September 2001. In addition, our business would be materially and
adversely affected if our target customers were to become fearful of attending
large public meetings in large hotels.

Current management owns approximately 61% of our outstanding common stock and
their interests could conflict with those of other stockholders.

         Our current directors and executive officers own approximately 61% of
our outstanding common stock. A majority of the outstanding shares of our common
stock is required to approve the merger with MindArrow. As a result, the
directors and executive officers collectively may be able to substantially
influence all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. Such concentration
of ownership may also have the effect of delaying or preventing a change in
control.


                                    Page 23
<PAGE>


We may not pay dividends.

         We do not anticipate paying cash dividends on our common stock in the
foreseeable future. In addition, our current Business Loan Agreement with Zions
First National Bank does, and our future credit facilities and debt instruments
may, restrict its ability to pay cash dividends on our common stock. Moreover,
Category 5 is a holding company, and our ability to pay dividends is dependent
upon the receipt of distributions from our direct and indirect subsidiaries.

A change of control may be difficult.

         Our Amended and Restated Articles of Incorporation, as corrected,
contain, among other things, provisions authorizing the issuance of "blank
check" preferred stock. We are also subject to provisions of Nevada law which
may affect certain merger and other change of control transactions. These
provisions could delay, deter or prevent a tender offer, certain business
combinations or other changes of control involving Category 5 that our
stockholders might consider to be in their best interests.

Future acquisitions may be unsuccessful, result in disruptions to our business
or distractions of our management due to difficulties in assimilating acquired
personnel and operations, or strain or divert our resources from more profitable
operations.

         As part of our ongoing business strategy, we may acquire complementary
businesses or technologies. If we pursue any such acquisition, our ongoing
business may be disrupted and management's attention and resources may be
diverted from other business concerns. Such acquisitions may result in us
entering into markets or market segments in which we have limited prior
experience. Further, any such acquisition transaction may be expensive,
time-consuming, and complicated. Acquisitions involve a number of special risks,
including failure of management to integrate the acquired business, failure to
retain key personnel of the acquired business, and risks associated with
unanticipated events or liabilities, some or all of which could have a material
adverse effect on our business, financial condition, and results of operations.

         As part of our ongoing business strategy, we intend to consider
acquisitions, alliances, and transactions involving other companies that could
complement our existing business. However, we may not be able to identify
suitable acquisition parties, joint venture candidates, or transaction
counterparties. Also, even if we can identify suitable parties, we may not be
able to obtain the financing necessary to complete any such transaction or
consummate these transactions on terms that we find favorable.

Failure to protect our intellectual property could harm our name recognition
efforts and ability to compete effectively.

         Currently, we rely on a combination of patents, trademarks, copyrights
and common law safeguards including trade secret protection. To protect our
intellectual property rights in the future, we intend to continue to rely on a
combination of patents, trademarks, copyrights and common law safeguards,
including trade secret protection. We also rely on restrictions on use,
confidentiality and nondisclosure agreements and other contractual arrangements
with our employees, affiliates, customers, alliance partners and others. The
protective steps we have taken may be inadequate to deter misappropriation of
our intellectual property and proprietary information. A third party could
obtain our proprietary information or develop products or technology competitive
with us. We may be unable to detect the unauthorized use of, or take appropriate
steps to enforce our intellectual property rights. Effective patent, trademark,
copyright and trade secret protection may not be available in every country in
which we offer or intend to offer products and services to the same extent as in
the United States. Failure to adequately protect our intellectual property could
harm or even destroy our brands and impair our ability to compete effectively.
Further, enforcing our intellectual property rights could result in the
expenditure of significant financial and managerial resources and may not prove
successful.

We may have made, or may make in the future, acquisitions that are unsuccessful
or strain or divert resources from more profitable operations.

         We may not be able to successfully integrate any businesses that we
have acquired, or may acquire, into existing operations. If we cannot
successfully integrate acquisitions, our operating expenses may increase. This


                                    Page 24

<PAGE>

increase would affect our net earnings, which could adversely affect the value
of the outstanding securities. Moreover, these types of transactions may result
in potentially dilutive issuances of equity securities, the incurrence of
additional debt, and expenses related to impairment goodwill and amortization of
other intangible assets, all of which could adversely affect our profitability.
These transactions involve numerous other risks as well, including the diversion
of management attention from other business concerns, entry into markets in
which we have had no or only limited experience, and the potential loss of key
employees of acquired companies. Occurrence of any of these risks could have a
material adverse effect on us. We are still working to integrate personnel and
operations from Exposure International, LLC, Transaxis, S.A., Bottomline OnLine,
Inc., FlashAlly, LLC and CaptureQuest, Inc. that we acquired during the last
year.

We may be in breach of our purchase agreement with CaptureQuest if we do not
fund $1,500,000 to CaptureQuest by September 25, 2002.

         On April 10, 2002, we closed the acquisition of CaptureQuest, Inc. We
acquired CaptureQuest for 3,105,769 shares of common stock. At closing,
2,105,769 of these shares were issued to the former shareholders of
CaptureQuest, and the remaining 1,000,000 shares were deposited into an escrow
account to indemnify us against certain representations and warranties made by
CaptureQuest, and to serve as an earnout upon attainment by CaptureQuest of
certain revenue and profitability targets during the 12 months following the
closing. We granted to each of the former CaptureQuest shareholders the right to
repurchase the CaptureQuest shares if we cease to operate, file for bankruptcy,
or if our stock trades at a price below $1.00 for a period of fifteen days after
one year from the closing. Moreover, we agreed to contribute, on or before
September 25, 2002, $1,500,000 to CaptureQuest to be used for working capital.
We may not be able to fund the $1,500,000 to CaptureQuest for working capital on
September 25, 2002, or ever.

                                    Page 25


<PAGE>


                                     PART II

ITEM 5.       Market For Registrant's Common Equity And Related Stockholder
              Matters


Market Information

         Our common stock has traded on the Over-the-Counter Bulletin Board
(OTCBB) under the symbol CFVT since June 12, 2001. The following table presents
the high ask and low bid information for the Company's common equity for each
quarter since trading began, as reported on the OTCBB. The quotations set forth
in the table below reflect inter-dealer prices, without retail mark-up,
mark-down or commissions, and may not represent the actual transactions:

                                                              Low          High

         Fiscal 2001

         Quarter ended June 30, 2001 ......................   1.00         1.50

         Fiscal 2002

         Quarter ended September 30, 2001..................   0.70         2.18

         Quarter ended December 31, 2001...................   1.55         5.25

         Quarter ended March 31, 2002......................   1.60         3.20

         Quarter ended June 30, 2002.......................   0.70         2.70

         Source: www.otcbb.com and www.yahoo.com
         ---------------------------------------

         These quotations represent inter-dealer prices, without retail mark-up,
markdown or commission, and may not represent actual transactions.

Holders

         On September 10, 2002, there were approximately 120 holders of record
of our common stock.

Dividends

          Prior to the reverse acquisition of ePenzio by Category 5 on May 20,
2001, ePenzio declared and paid cash dividends on its common stock in the
amounts of $484,348, $822,005 and $627,929 for the six months ended June 30,
2001 and for the years ended December 31, 2000 and 1999, respectively, which is
equivalent to #0.05, $0.09 and $0.07 per share, respectively, based on the basic
weighted average number of shares outstanding during those periods. However,
since May 20, 2001, Category 5 has not declared or paid any cash dividends on
its common stock. Category 5 currently intends to retain any earnings for use in
its business and therefore does not anticipate paying any cash dividends in the
foreseeable future. Any future determination to pay cash dividends will be made
by Category 5's board of directors in light of Category 5's earnings, financial
position, capital requirements, contractual restrictions and such other factors
as the board of directors deems relevant.

          The Zions First National Bank #2 Million revolving line of credit
restricts the dividends that may be paid by Category 5 to its stockholders.
Nevada Revised Statutes Section 78.288 limits Category 5's ability to pay
dividends on its common stock if any such dividend would render Category 5
insolvent on either a cash flow basis or balance sheet basis.

<TABLE>
<CAPTION>

                            Equity Compensation Plan Information

                         Number of        Weighted-average        Number of securities
                        securities to    exercise price of             remaining
                         be issued          outstanding              available for
                        exercise of         and rights               under equity
                        outstanding                                  compensation
                          options                                        plans
                        warrants and                                  (excluding
                           rights                                     securities
                                                                     reflected in
                                                                      column (a)
------------------------------------------------------------------------------------------
                            (a)                 (b)                       (c)
------------------------------------------------------------------------------------------
<S>                      <C>              <C>                          <C>
Equity compensation
plans approved by
security holders         632,063          $        0.63                3,871,375

Equity compensation
plans not approved
by security holders    1,496,562 (1)      $        0.25                   -0-
------------------------------------------------------------------------------------------

     Total             2,128,625                                       3,871,375

</TABLE>


(1) On May 29, 2001, we issued to each of William C. Gibbs, Mitchell Edwards and
Edward Mooney an option to purchase 200,000 shares of our common stock each, as
an incentive to serve on our board of directors. One third of these options
vested on the date of grant, with the remaining two thirds vesting ratably on
May 29, 2002 and 2003. These options have an exercise price of $0.25 per share
and expire on May 29, 2011. On August 6, 2001, we issued to each of Mr. Gibbs,
our former Chairman and Chief Executive Officer, and Mr. Edwards, our former
President and Chief Financial Officer, an option to purchase 500,000 shares of
our common stock each. One third of these options vested on the date of grant,
with the remaining two thirds vesting ratably on August 6, 2002 and 2003. These
options have an exercise price of $0.25 per share and expire on August 6, 2011.
In connection with the termination of Mr. Edwards' employment with the Company
in June 2002, 103,438 of Mr. Edwards' total outstanding options were cancelled
and the remaining unvested options held by Mr. Edwards became vested. In
connection with the termination of Mr. Gibbs' employment with the Company in
September 2002, all unvested options held by Mr. Gibbs became vested.


Recent Sales of Unregistered Securities

         On April 9, 2001, prior to the reverse acquisition of ePenzio, Network
Investor Communications, Inc. issued to Peruvian Investments, LLC, 1,000,000
shares of Common Stock in exchange for $10,000. The Company issued the shares to
Peruvian Investments, an accredited investor, in reliance upon Section 4(2) of
the Securities Act of 1933, as amended, (the "1933 Act").

         On May 21, 2001, prior to the reverse acquisition of ePenzio, Network
Investor Communications, Inc. issued to Kings Peak Capital, LLC a warrant to
purchase 600,000 shares of Common Stock at an exercise price of $0.25 per share,
as part of the consulting agreement between the Company and Kings Peak. 300,000
shares of the warrant were exercisable on the date of grant, and 300,000 shares
were exercisable after December 31, 2001. The warrant expires May 31, 2006. We
issued the warrant to Kings Peak Capital, an accredited investor, in reliance
upon Section 4(2) of the 1933 Act.

         On May 29, 2001, prior to the reverse acquisition of ePenzio, Network
Investor Communications, Inc. issued to William C. Gibbs, a director and
executive officer of the Company, an option to purchase 200,000 shares of Common
Stock as an inducement to serve on the Company's board. The Option is
exercisable at a price of $0.25 per share. One third of the shares, or 66,667
shares, vested immediately upon grant and the remainder of the shares were to
vest one third on May 29, 2002 and one third on May 29, 2003. The option expires
ten years from the date of grant. Pursuant to a subsequent agreement between us
and Mr. Gibbs and us, all of these options vested effective September 12, 2002.
We issued the option to Mr. Gibbs, an accredited investor, in reliance upon
Section 4(2) of the 1933 Act.

         On May 29, 2001, prior to the reverse acquisition of ePenzio, Network
Investor Communications, Inc. issued to Mitchell L. Edwards, a director and
executive officer of the Company, an option to purchase 200,000 shares of Common
Stock as an inducement to serve on the Company's board. The Option is
exercisable at a price of $0.25 per share. One third of the shares, or 66,667
shares, vested immediately upon grant and the remainder of the shares were to
vest one third on May 29, 2002 and one third on May 29, 2003. The option expires
ten years from the date of grant. Pursuant to a subsequent agreement between Mr.
Edwards and us, 17,130 of these options were cancelled and the remaining
unvested options vested, effective August 6, 2002. We issued the option to Mr.
Edwards, an accredited investor, in reliance upon Section 4(2) of the 1933 Act.

         On May 29, 2001, prior to the reverse acquisition of ePenzio, Network
Investor Communications, Inc. issued to Edward P. Mooney, a director of the
Company, an option to purchase 200,000 shares of Common Stock as an inducement
to serve on the Company's board. The Option is exercisable at a price of $0.25
per share. One third of the shares, or 66,667 shares, vested immediately upon
grant and the remainder of the shares were to vest one third on May 29, 2002 and
one third on May 29, 2003. The option expires ten years from the date of grant.
We issued the option to Mr. Mooney, an accredited investor, in reliance upon
Section 4(2) of the 1933 Act.


                                    Page 26

<PAGE>
         On May 29, 2001, in connection with the reverse acquisition of ePenzio,
Network Investor Communications, Inc. issued 9,000,000 shares of its Common
Stock to the shareholders of ePenzio exchange for 1,000,000 shares of common
stock in ePenzio, representing all of the outstanding shares of ePenzio. We
issued the shares to accredited investors in reliance upon Section 4(2) of the
1933 Act.

         On August 6, 2001, we issued to William C. Gibbs, a director and
executive officer of the Company, an option to purchase 500,000 shares of Common
Stock. The Option is exercisable at a price of $0.25 per share. One third of the
shares, or 166,667 shares, vested immediately upon grant and the remainder of
the shares were to vest one third on August 6, 2002 and one third on August 6,
2003. Pursuant to a subsequent agreement between Mr. Gibbs and us, all of these
options vested effective September 12, 2002. The option expires ten years from
the date of grant. We issued the option to Mr. Gibbs, an accredited investor, in
reliance upon Section 4(2) of the 1933 Act.

         On August 6, 2001, we issued to Mitchell L. Edwards, a director and
executive officer of the Company, an option to purchase 500,000 shares of Common
Stock. The Option is exercisable at a price of $0.25 per share. One third of the
shares, or 166,667 shares, vested immediately upon grant and the remainder of
the shares were to vest one third on August 6, 2002 and one third on August 6,
2003. Pursuant to a subsequent agreement between Mr. Edwards and us, 86,308 of
these options were cancelled and the remaining unvested options vested,
effective August 6, 2002. The option expires ten years from the date of grant.
We issued the option to Mr. Edwards, an accredited investor, in reliance upon
Section 4(2) of the 1933 Act.

         On September 14, 2001, we issued to Strategic Growth International,
Inc. a warrant to purchase 350,000 shares of Common Stock at an exercise price
of $1.69 per share, pursuant to an Investor Relations Consulting Agreement dated
as of the same date and as amended on April 1, 2002. All 350,000 shares of the
warrant were exercisable on the date of grant. The warrant expires September 14,
2006. Because the parties cancelled the Investor Relations Consulting Agreement
at least 10 days prior to July 31, 2002, we have the right to cancel 125,000 of
the warrants. We issued the warrant to Strategic Growth International, an
accredited investor, in reliance upon Section 4(2) of the 1933 Act.

         On September 14, 2001, we issued to TerraNova Capital Partners, LLC, a
warrant to purchase 100,000 shares of Common Stock at an exercise price of $0.25
per share, in exchange for TerraNova's facilitation of our $820,000 bridge loan
consummated on November 21, 2001. All 100,000 shares of the warrant were
exercisable on the date of grant. The warrant expires September 14, 2006. We
issued the warrant to TerraNova Capital Partners, an accredited investor, in
reliance upon Section 4(2) of the 1933 Act.

         On November 21, 2001, we issued to TN Capital Equities, Ltd. warrants
to purchase an aggregate of 118,900 shares of Common Stock at an exercise price
of between $1.69 and $2.00 per share, in exchange for TN Capital's facilitation
of our $820,000 bridge loan consummated on November 21, 2001. All 118,900 shares
of the warrant were exercisable on the date of grant. The warrant expires
November 21, 2006. We issued the warrant to TN Capital Equities, Ltd., an
accredited investor, in reliance upon Section 4(2) of the 1933 Act.

         On November 21, 2001, pursuant to a Bridge Loan Subscription Agreement
entered into by us and 16 investors, we issued convertible promissory notes in
the aggregate principal amount of $820,000, along with warrants to purchase an
aggregate of 779,000 shares of Common Stock at an exercise price of $1.69 per
share, to the investors, in exchange for a $820,000 loan from the investors. The
convertible notes bear interest at a rate equal to eight percent per annum,
compounded quarterly, with all principal and accrued interest due and payable on
November 21, 2002. The notes are convertible into Common Stock, at the election
of the Investor, beginning nine months after issuance, at a conversion rate of
the lower of $2.00 per share of Common Stock or the per share purchase price of
a subsequent private placement of our Common Stock. The convertible notes and
warrants were issued to the 16 investors, each of whom is an accredited
investor, in reliance upon Section 4(2) of the 1933 Act.

         On January 22, 2002, we issued to the former shareholder of Transaxis,
S.A., a Swiss corporation, 15,000 shares of Common Stock in exchange for all the
outstanding capital stock of Transaxis, pursuant to a Stock Purchase and
Exchange Agreement between us, the former shareholder of Transaxis, Amathus
Holdings, Ltd., and David Hicks, dated January 20, 2002. We issued the shares to
Amathus Holdings, Ltd. in reliance upon Section 4(2) of the 1933 Act.

         On February 27, 2002, we issued to the former shareholders of
Bottomline Online, Inc. an aggregate of 225,000 of Common Stock in exchange for
all of the outstanding capital stock of Bottomline Online, pursuant to a Stock
Purchase and Exchange Agreement between us, Bottomline Online and the former
shareholders of Bottomline Online, dated February 27, 2002. We issued the shares
to the former shareholders of Bottomline Online, each of whom is an accredited
investor, in reliance upon Section 4(2) of the 1933 Act.

         On March 1, 2002, we issued to the former members of FlashAlly, LLC an
aggregate of 2,000,000 shares of Common Stock in exchange for all of the
outstanding membership interests of FlashAlly, pursuant to a Membership Exchange
Agreement between us, FlashAlly and the former members of FlashAlly, dated March
1, 2002. On March 1, 2002, 500,000 of the 2,000,000 shares were issued pro rata
to the former members of FlashAlly, LLC, and the remaining 1,500,000 shares were
deposited into an escrow account. We issued the shares to the former members of
FlashAlly in reliance upon Section 4(2) of the 1933 Act.

                                    Page 27
<PAGE>

         On April 10, 2002, we issued to the former shareholders of
CaptureQuest, Inc. an aggregate of 3,105,769 shares of Common Stock in exchange
for all of the outstanding shares of CaptureQuest common stock, pursuant to a
Stock Purchase and Exchange Agreement between us, CaptureQuest and the former
shareholders of CaptureQuest, dated April 10, 2002. On April 10, 2002, 2,105,769
of the 3,105,769 shares were issued pro rata to the former shareholders of
CaptureQuest, and the remaining 1,000,000 shares were deposited into an escrow
account. We issued the shares to the former shareholders of CaptureQuest in
reliance upon Section 4(2) of the 1933 Act.

         During the year ended June 30, 2002, we issued options to purchase an
aggregate of 1,997,000 shares of Common Stock (9,594 of which have since been
exercised and 458,781 of which have since been cancelled) to various employees,
consultants and a director of ours pursuant to either the Long-Term Incentive
Plan of Category 5 Technologies, Inc. or the Category 5 Technologies, Inc.
Director Option Plan. These options are exercisable at a price of $0.25 to $2.50
per share, with a weighted average exercise price of $0.63. The options are
exercisable over the next 7 years.

SELECTED FINANCIAL DATA

Summary Selected Historical Consolidated Combined Financial Data

         Set forth below is selected historical consolidated combined financial
data for the periods and as of the dates indicated. This selected historical
financial data is only a summary and we urge you to read this summary in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes
thereto for the year ended June 30, 2002, for the six months ended June 30,
2001, and for the year ended December 31, 2000, respectively, which are included
elsewhere in this report. Historical results are not necessarily indicative of
the results to be expected in the future.
<TABLE>
<CAPTION>

                                              Year Ended         Six Months Ended         Year Ended            Year Ended
                                            June 30, 2002         June 30, 2001        December 31, 2000     December 31, 1999
                                            -------------        ----------------      -----------------     -----------------

<S>                                              <C>                   <C>                   <C>                    <C>
 Revenue                                         $ 24,392,717          $ 10,595,967          $ 20,070,443           $ 9,900,507
 Costs and expenses                                27,907,356             6,409,758            18,383,679             8,750,418
                                         --------------------- ---------------------  --------------------  --------------------

 Income (loss) from  operations                    (3,514,639)            4,186,209             1,686,764             1,150,089
 (Provision) benefit for income taxes                (154,000)              140,000                     -                     -
 Interest income (expense) and other                  290,766                (1,237)               14,231                 4,308
                                         --------------------- ---------------------  --------------------  --------------------

 Net income (loss)                                 (3,377,873)            4,324,972             1,700,995             1,154,397
                                         ===================== =====================  ====================  ====================

 Pro forma earnings per share:
   Earnings as reported                            (3,377,873)            4,324,972             1,700,995             1,154,397
   Pro forma income taxes                                   -            (1,700,000)             (638,000)             (433,000)
                                         --------------------- ---------------------  --------------------  --------------------

   Pro forma earnings                              (3,377,873)            2,624,972             1,062,995               721,397
                                         ===================== =====================  ====================  ====================

 Weighted average shares, basic                    13,502,516             9,430,556             9,000,000             9,000,000
 Weighted average shares, diluted                  13,502,516            10,384,103             9,000,000             9,000,000
 Earnings per share, basic                       $      (0.25)         $       0.46          $       0.19           $      0.13
 Earnings per share, diluted                     $      (0.25)         $       0.42          $       0.19           $      0.13
 Cash dividends paid                             $          -          $    484,348          $    822,005           $   627,929
 Pro forma basic earnings per share              $      (0.25)         $       0.28          $       0.12           $      0.08
 Pro forma diluted earning per share             $      (0.25)         $       0.25          $       0.12           $      0.08


                                            June 30, 2002         June 30, 2001        December 31, 2000     December 31, 1999
                                            -------------         -------------        -----------------     -----------------
 Consolidated Combined
 Balance Sheet Data (1):
 Working capital (deficit)                       $   (517,973)         $  1,805,222          $  1,094,375           $   408,328
 Total assets                                      14,586,107             5,557,009             1,658,672               732,404
 Total liabilities                                  5,799,087               307,139               249,426               202,148
 Stockholders' equity                               8,787,020             5,249,870             1,409,246               530,256
</TABLE>


         (1) The selected financial data at and for the year ended June 30,
2002, the six months ended June 30, 2001 and the years ended December 31, 2000
and 1999 include data from (a) Executive Credit Services, L.C., the predecessor
of ePenzio, Inc., prior to May 17, 2000, (b) ePenzio, Inc., which was formed May
17, 2000, and (c) the reverse merger transacted May 29, 2001 between Category 5
(formerly Network Investor Communications, Inc.) and ePenzio, Inc. For
accounting purposes the business combination was treated as a recapitalization
of ePenzio, Inc., with ePenzio being treated as the accounting acquirer.
Effective July 23, 2001, Network Investor Communications, Inc. changed its name
to Category 5 Technologies, Inc.


                                    Page 28

<PAGE>


Selected Quarterly Financial Data
<TABLE>
<CAPTION>


                                                                Quarter ended
                                      -------------------------------------------------------------------
                                        September 30,       December 31,      March 31,        June 30,
                                            2001                2001            2002              2002
                                      -------------------------------------------------------------------

<S>                                       <C>              <C>              <C>              <C>
Sales                                     $ 4,356,205      $ 7,079,812      $ 7,908,122      $ 5,048,578
Gross profit                                1,873,830        3,728,766        2,669,157        1,684,196
Net income (loss) before income taxes          34,847        1,981,377          691,940       (5,932,032)
Net income (loss)                              34,847        1,281,377          467,940       (5,162,037)
Net income (loss) per common share:
 Basic                                    $         -      $      0.11      $      0.04      $     (0.30)
 Diluted                                  $         -      $      0.09      $      0.03      $     (0.30)


                                                                Quarter ended
                                      -------------------------------------------------------------------
                                        September 30,       December 31,      March 31,        June 30,
                                            2000                2000            2001              2001
                                      -------------------------------------------------------------------

Sales                                     $ 4,211,814      $ 2,977,011      $ 5,162,362      $ 5,433,335
Gross profit                                1,306,597        1,494,713        3,216,267        3,989,358
Net income (loss) before income taxes        (158,142)         707,480        1,841,725        2,343,247
Net income (loss)                            (158,142)         707,480        1,841,725        2,483,247
Net income (loss) per common share:
  Basic                                   $     (0.02)     $      0.08      $      0.20      $      0.26
  Diluted                                 $     (0.02)     $      0.08      $      0.20      $      0.22
Pro forma earnings per share:
  Earnings as reported                    $  (158,142)     $   707,480      $ 1,841,725      $ 2,483,247
  Pro forma income taxes                       62,000         (276,000)        (718,000)        (992,000)
                                      ---------------- ---------------- ---------------- ----------------
  Pro forma earnings                          (96,142)         431,480        1,123,725        1,491,247
                                      ================ ================ ================ ================
  Pro forma earnings per share            $     (0.01)     $      0.05      $      0.12      $      0.15
                                      ================ ================ ================ ================
  Pro forma diluted earnings per share    $     (0.01)     $      0.05      $      0.12      $      0.14
                                      ================ ================ ================ ================
</TABLE>

                                    Page 29
<PAGE>


ITEM 6.       Management's Discussion And Analysis Of Financial Condition And
              Results Of Operations

                 FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

     This discussion regarding the Company, including all documents incorporated
herein by reference, if any, contains "forward-looking statements" within the
meaning of the term in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, relating to
the Company regarding the future that are based on the beliefs of management as
well as assumptions made by, and information currently available to, our
management. Forward-looking statements are typically identified by use of the
words "anticipate," "believe," "estimate," "expect," "intend," "may," "will,"
"should," "project," "propose," "plan," and similar words and expressions. These
statements include, among other things, the following:

|X|      that there is a large and growing market for technologies and services
         that enable existing and new businesses and financial institutions to
         commence or improve their e-commerce transactions;

|X|      that there is a unique market opportunity to acquire compatible and
         synergistic technologies, services, transaction platforms and customer
         bases, with a focus on high margin recurring revenue, through the
         acquisition of undervalued public companies that are profitable or
         near-profitable, and private companies that are profitable, but cannot
         complete an IPO or a large capital raise due to market conditions;

|X|      that the Internet will continue to grow and develop in the United
         States and in foreign countries, in particular that e-commerce will
         increase;

|X|      that the size of our potential market will grow;

|X|      that our market position, future operations, margins, profitability,
         liquidity, and capital resources will likewise grow;

|X|      that our marketing techniques will be effective;

|X|      that our industry relationships will continue to develop, particularly
         with certain financial institutions;

|X|      that there will be increased demand for enabling services and
         technologies;

|X|      that our proprietary marketing techniques and key industry
         relationships have been effective in marketing its various bankcard
         processing-solution products and services nationwide;

|X|      that sales and revenues will increase during the fiscal year ending
         June 30, 2003 and beyond;

|X|      that email marketing and promotions products provided by us through our
         recently-acquired subsidiary, Exposure International, LLC, will enable
         our customers to communicate rapidly and directly with their customers,
         increasing sales and retaining loyalty;

|X|      that our customers will find this technology easy to use, enabling
         those customers to create professional newsletters to send to their
         customers and prospects and allowing our customers to learn about
         preferences of their customers on a real-time basis;

|X|      that the shopping cart and e-commerce technology of our subsidiary,
         Bottomline Online, Inc. will successfully integrate with the website
         design and presentation software of another recently-acquired
         subsidiary, Flash Ally, LLC;

|X|      that our domestic and international customers will be able to
         successfully create their own high-end Flash websites and presentations
         using the website design and presentation software of our recently
         acquired subsidiary, Flash Ally, LLC, thereby increasing "stickiness,"
         conversion rates and customer retention;

|X|      that the software and related system developed by another
         recently-acquired subsidiary of ours, CaptureQuest, Inc., will allow
         our customers to conduct rich-media marketing and promotions campaigns,
         to provide our customers with all back office capabilities necessary to
         create, manage, assess and measure the success of these campaigns, to
         provide our customers with the technical and creative know how to
         execute a successful campaign, and to provide our customers with all of
         the necessary tools, flexibility, and versatility to service our
         customers in their online marketing, advertising, education and
         communication needs;

|X|      that we intend to develop new products and services, as well as the
         internal capabilities and competencies necessary in order to provide
         directly to our customers some of those products sold by us but
         currently outsourced to other suppliers;

|X|      that we anticipate that we will finance a greater number of installment
         contracts through our wholly-owned subsidiary, Olympus Financial, Inc.,
         thereby avoiding significant discounts applied by various financing
         institutions which currently purchase some of our installment
         contracts;

|X|      that we anticipate that we will continue to receive a greater portion
         of monthly fees and discount rates historically paid to various payment
         processors for the processing needs of our customers;

|X|      that the acquisition of Transaxis, S.A. will enable us to offer its
         products and services to businesses and financial institutions
         internationally; and

|X|      that we anticipate that it may establish or otherwise obtain a
         web-hosting solution to provide web hosting services to its customers.

     Other important factors to consider in evaluating such forward-looking
statements include risk of product demand, market acceptance, economic
conditions, ability to obtain financing for our operations, competitive products
and pricing, compliance with financial covenants, difficulties in product
development, product delays and failure to meet certain milestones or delivery
requirements.

     The forward-looking statements reflect the current view of us or our
management respecting future events and are subject to certain risks,
uncertainties, and assumptions, including the meaningful and important risks and
uncertainties noted under the heading "Risk Factors" beginning on page 16 and
elsewhere in this report. You are cautioned that forward-looking statements are
not guarantees of future performance or results or events and involve certain
risks and uncertainties. Although we have attempted to identify important
factors that could cause actual results to differ materially, there may be other
factors that may cause the forward-looking statements not to come true as
anticipated, believed, estimated, expected, intended, projected, proposed, or
planned. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected, intended, projected, proposed, or planned.

     These cautionary statements are intended to be applicable to all
forward-looking statements and information whenever they appear in this report.
The forward-looking statements are made only as of the date of this report.
Except as required by law, neither we nor any other person undertakes to revise
the forward-looking statements and information to reflect events or
circumstances after the date thereof or to reflect the occurrence of
unanticipated events that occur with different results than expected.



         The following discussion should be read together with our consolidated
financial statements and related notes included elsewhere in this report.

Overview

         On May 29, 2001, we issued 9,000,000 shares of common stock to the
stockholders of ePenzio in exchange for 1,000,000 shares of ePenzio common
stock, representing all of the outstanding shares of ePenzio, pursuant to which
ePenzio became a wholly-owned subsidiary. Because ePenzio is the operating
entity and its stockholders acquired voting control of Category 5 as a result of
the ePenzio acquisition, ePenzio is considered the accounting acquirer of
Category 5 and the ePenzio acquisition is treated as a reverse acquisition for
financial reporting purposes. As a result, for all periods prior to May 29,
2001, we are presenting the historical, financial and other information of
ePenzio and its two subsidiaries, Olympus Financial, Inc. and Bring It Home,
Inc., which are combined with the results of Category 5, as those of Category 5.

         Historically, ePenzio had a fiscal year end of December 31. However, in
connection with the ePenzio acquisition, our board of directors elected to carry
forward Category 5's historical fiscal year end of June 30, effective for the
period ending June 30, 2001. This discussion includes the transition period
created thereby between December 31, 2000 and June 30, 2001.

         On October 23, 2001, we entered into an Agreement and Plan of Merger
with Netgateway, Inc., a Delaware corporation, and C5T Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of our, pursuant to which C5T
Acquisition Corp. would merge with and into Netgateway, with Netgateway as the
surviving corporation. In connection with the proposed merger between Netgateway
and C5T Acquisition Corp., we filed a registration statement on Form S-4 with
the Securities and Exchange Commission on November 11, 2001. However, the
respective boards of directors of Netgateway and us subsequently determined that
the merger was no longer in the best interests of their respective companies
and, on January 14, 2002, Category 5, C5T Acquisition Corp. and Netgateway
entered a Termination and Release Agreement that terminated the Agreement and
Plan of Merger. Pursuant to the Termination Agreement, Netgateway is required to
pay to us an expense reimbursement fee in the aggregate amount of $260,631, to
be paid in various monthly installments of at least $20,000. To date, we have
not received any portion of the expense reimbursement fee from Netgateway. On
January 18, 2002, we filed with the Securities and Exchange Commission a letter
withdrawing entirely the previously filed S-4.

         On January 9, 2002, we completed the purchase of the issued and
outstanding stock of Exposure International Direct Marketing Systems, Inc. for
$12,500, which had acquired the assets of Mancala, Inc. (d/b/a Word of Mouth),
under the approval of the Federal Bankruptcy Court. Exposure International
Direct Marketing System, Inc. holds certain intellectual property and software
that we may sell and/or license. The software is an advanced email marketing and
promotions product that enables businesses to communicate with existing and
prospective customers on a targeted, real-time basis. The software is tied to a
database that aggregates information and enables companies to perform
data-mining to further customize communications and promotions.

         On January 22, 2002, we complete the acquisition of Transaxis, S.A., a
Swiss company. Pursuant to a stock purchase and exchange agreement, we acquired
all of Transaxis' outstanding capital stock for 15,000 restricted shares of our
common stock. We recorded $36,000 of intangible assets related primarily to the
acquisition of certain license agreements. Currently, Transaxis provides
processing solutions to merchants and financial institutions in England and
Western Europe. We anticipate that the acquisition of Transaxis will enable us
to offer our products and services to businesses and financial institutions
internationally. The operations of Transaxis, S.A. are included in our results
as of the date of acquisition.

         On February 27, 2002, we completed the acquisition of Bottomline
Online, Inc. Pursuant to a stock purchase and exchange agreement, we acquired
all of Bottomline Online, Inc.'s outstanding capital stock for 225,000
restricted shares of our common stock. Bottomline Online, Inc. has developed
proprietary software to enable businesses to affordably create their own
Internet storefronts with full e-commerce capabilities. We recorded an increase
in net property and equipment of $573,750 related to the software obtained

                                    Page 30

<PAGE>

through the Bottomline Online, Inc. acquisition. The operations of Bottomline
Online, Inc. are included in our results as of the date of acquisition.

         On March 1, 2002, we completed its acquisition of FlashAlly, LLC.
Pursuant to a membership exchange agreement, we acquired all of FlashAlly, LLC's
membership interests for 2,000,000 restricted shares of our common stock. At
closing, 500,000 shares were issued to the former members of FlashAlly, LLC, and
the remaining 1,500,000 shares were deposited into an escrow account, to
indemnify us against certain representations and warranties made by FlashAlly,
LLC, and to serve as an earn out upon attainment by FlashAlly, LLC of certain
revenue and profitability targets. FlashAlly has developed next-generation
website design and presentation software, enabling businesses to create their
own websites. Currently, we recorded an intangible asset of $1,535,000 related
to the acquisition of FlashAlly, LLC. The operations of FlashAlly, LLC are
included in our results as of the date of acquisition. Since the acquisitions of
FlashAlly, the Company has determined that the assets and goodwill associated
with FlashAlly have been impaired. For the period ended June 30, 2002, the
Company wrote down assets valued at approximately $1.5 million on the Company's
balance sheet, resulting in reduced operating income of approximately $1.5
million for the same period.

         We have also entered a royalty agreement that requires us to make
certain royalty payments to the former members of FlashAlly equal to 75% of the
net income generated from the sale or license of FlashAlly software to or
through certain entities for a period of not fewer than twelve months from March
2002. These royalty payments may be adjusted if our stock price increases and
will terminate if the 15-day average closing price of our common stock equals or
exceeds $15 per share. We have also agreed to may royalty payments to the former
members of FlashAlly equal to $15 per sale of FlashAlly software through us or
our affiliates until the earlier of twelve months or until the 15-day average
closing price of our common stock equals or exceeds $10 per share.

         On April 10, 2002, we closed the acquisition of CaptureQuest, Inc. We
acquired CaptureQuest for 3,105,769 shares of common stock. At closing,
2,105,769 of these shares were issued to the former shareholders of
CaptureQuest, and the remaining 1,000,000 shares were deposited into an escrow
account to indemnify us against certain representations and warranties made by
CaptureQuest, and to serve as an earnout upon attainment by CaptureQuest of
certain revenue and profitability targets during the 12 months following the
closing. Of the total shares issued, 250,000 were granted traditional piggyback
registration rights. CaptureQuest has developed software that enables businesses
to conduct rich-media marketing and promotions campaigns. We granted to each of
the former CaptureQuest shareholders the right to repurchase the CaptureQuest
shares if we cease to operate, file for bankruptcy, or if our stock trades at a
price below $1.00 for a period of fifteen days after one year from the closing.
Moreover, we agreed to contribute, on or before September 25, 2002, $1,500,000
to CaptureQuest to be used for working capital.

         In July 2002, the boards of directors of MindArrow Systems, Inc. and
Category 5 Technologies, Inc. have agreed on a merger of Category 5 with and
into a subsidiary of MindArrow. Category 5 will become a wholly owned subsidiary
of MindArrow and Category 5 stockholders will receive, for each share of
Category 5 common stock that they own:

         o    2.3 shares of MindArrow common stock, representing 55.3% of the
              total outstanding shares of MindArrow immediately following the
              merger, and

         o    a warrant to acquire 0.5 shares of MindArrow common stock at an
              exercise price of $0.01 per share, vesting only upon the
              achievement of certain financial objectives by Category 5's
              subsidiary, ePenzio, Inc. following the merger.

         The surviving company will be known as Avalon Digital Marketing
Systems, Inc. The merger was approved by the stockholders of both companies on
September 30, 2002.

Bridge Note Financing

         On November 21, 2001, we closed on a bridge loan, raising approximately
$820,000. We received approximately $720,000 from the bridge loan after paying
all selling commissions, legal fees, accounting fees, and other expenses
incurred in the bridge loan. Each investor in the bridge loan purchased a
convertible promissory note that bears interest at the rate of 8% per year and
matures on November 20, 2002. At the investors' option, the convertible

                                    Page 31

<PAGE>

promissory notes will convert on a dollar-for-dollar basis into our common stock
at a share price equal to the lesser of $2.00 per share the price per share of
any private placement of shares of the Company's common stock that occurs
between November 2001 through November 2002. Following the merger with
MindArrow, those convertible notes still outstanding will be convertible into
shares of MindArrow common stock. Holders of such outstanding convertible notes
will be entitled to receive that number of shares of MindArrow common stock that
such holders would have received had such holders converted their notes into
Category 5 common stock immediately prior to the merger. In addition, each
investor also received a warrant to purchase 950 shares of Category 5 common
stock for each $1,000 the investor loaned to Category 5. The warrants are
exercisable any time within the next five years at $1.69 per share of common
stock and also have a cashless exercise feature. These warrants will be assumed
by MindArrow in connection with the merger if the merger is consummated.

Loss of Home, Inc. Contract

         Our wholly-owned subsidiary, ePenzio, Inc., has historically generated
a substantial percentage of its revenue from selling products and services at
programs sponsored by other companies ("lead sources"). During the last year,
one of the larger lead sources has been Home, Inc. ePenzio was informed on May
10, 2002 that Home, Inc. may no longer allow ePenzio sales teams to participate
in Home, Inc. programs. Subsequently, on June 14, 2002, ePenzio and Home, Inc.
executed an agreement pursuant to which ePenzio's sales teams would have
continued to participate in Home, Inc.'s programs. However, in August 2002,
Home, Inc. terminated this contract. While it is unclear what the actual effect
on our revenues, profits, cash flow, or financial condition will be as a result
of the termination of the relationship between ePenzio and Home, Inc., there is
a substantial likelihood that revenues will decrease in the short term as a
result of this development. During the year ended June 30, 2002, the six months
ended June 30, 2001, and the year ended December 31, 2000, this outside referral
source provided customer referrals which generated in excess of 28%, 60%, and
88%, respectively, of our gross revenues. We have relationships with other lead
sources, and intend to begin sending sales teams out with these companies as
soon as reasonably possible. While there can be no assurances in this regard, it
is anticipated that the loss of ePenzio's contractual relationship with Home,
Inc. may significantly affect our results of operations.

Results of Operations

   Year Ended June 30, 2002 Compared to the Twelve Months Ended June 30, 2001.
   ---------------------------------------------------------------------------

         Effective June 30, 2001, we changed our fiscal year end from December
31 to June 30 and issued audited financial statements for the six months ended
June 30, 2001. In order to make meaningful comparisons reflecting the
transitional period, the following table presents unaudited data for the twelve
months ended June 30, 2001:


                                    Page 32

<PAGE>
<TABLE>
<CAPTION>
                                                                               Twelve Months Ended
                                                 Year Ended                       June 30, 2001
                                                June 30, 2002       %              (unaudited)        %
                                             -----------------------------  -------------------------------

<S>                                                <C>             <C>            <C>               <C>
Revenues                                           $ 24,392,717    100%           $   17,835,015    100%
Cost of goods sold                                   14,436,768    59%                 8,222,990     46%
                                             -------------------            ---------------------
  Gross profit                                        9,955,949    41%                 9,612,025     54%
                                             -------------------            ---------------------
Selling, general and administrative                   8,691,739    36%                 4,880,311     27%
Bad debt expense                                      3,243,849    13%                         -     0%
Loss on impairment of goodwill                        1,535,000     6%                         -     0%
                                             -------------------            ---------------------
  Total operating expenses                           13,470,588    55%                 4,880,311     27%
                                             -------------------            ---------------------
  (Loss) income from operations                      (3,514,639)   -14%                4,731,714     27%
Interest income                                         473,992     2%                     4,270     0%
Interest (expense)                                     (183,226)    1%                    (1,674)    0%
                                             --------------------         -----------------------
  Net (loss) income before income taxes              (3,223,873)   -13%                4,734,310     27%
(Provision) benefit for income taxes:
  Current                                                     -     0%                         -     0%
  Deferred                                             (154,000)   -1%                   140,000     1%
                                             -------------------            ---------------------
  Net (loss) income                                  (3,377,873)   -14%                4,874,310     27%
                                             ===================            =====================
Pro forma earnings:
  Earnings as reported                               (3,377,873)   -14%                4,874,310     27%
  Pro forma income taxes (1)                                  -                       (1,710,000)    10%
                                             -------------------            ---------------------
 Pro forma net (loss) income                       $ (3,377,873)   -14%              $ 3,164,310     18%
                                             ===================            =====================
</TABLE>


(1)  Taxes as if the Company had been a "C" corporation for the periods
presented.

         Revenues

         Revenues increased by approximately $6.6 million, or approximately 37%,
for the year ended June 30, 2002 to $24.4 million, compared to $17.8 million for
the twelve months ended June 30, 2001. The increase in revenues is due to the
following two factors: (i) an increase in the volume of new accounts as a result
of additional relationships with third-party referral sources and (ii) revenue
generated by Bring It Home, Inc., a wholly-owned subsidiary of the Company,
through its resale of a third party's hosting and web-site design services, and
the sale of merchant accounts. The increase in revenues was partially offset by
an increase in the allowance for uncollectible accounts, which reduced the
amount of revenues recognized on accounts where collection is doubtful. Category
5 has historically recorded revenues net of a 35% reserve for uncollectible
accounts, but an increase in delinquencies in the quarter ended June 30, 2002
resulted in an increase in the reserve to 50%. This change reduced revenues for
the quarter by $1,030,415. Through Bring It Home, we are attempting to market
our own seminars in order to capture as much of the associated revenues from the
customer as possible. This allows us to retain the portion of the revenues that
otherwise would have gone to third-party referral sources. We initiated these
efforts through Bring It Home over the last seven months, and therefore we are
not able to estimate whether or not its efforts to market its own seminars will
continue to increase its total revenues. While we cannot say with certainty the
degree to which we experiences seasonality in our business because of our
limited operating history, our experience to date indicates that we experience
lower revenue during our first and second fiscal quarters. We believe this is
attributable to summer vacations and the Thanksgiving and December holiday
season.

         Our wholly-owned subsidiary, ePenzio, Inc., has historically generated
a substantial percentage of its revenue from selling products and services at
programs sponsored by other companies ("lead sources"). During the last year,
one of the larger lead sources was Home, Inc. ePenzio was informed on May 10,
2002 that Home, Inc. may no longer allow ePenzio sales teams to participate in
Home, Inc. programs. Subsequently, on June 14, 2002, ePenzio and Home, Inc.
executed an agreement pursuant to which ePenzio's sales teams would have

                                    Page 33
<PAGE>


continued to participate in Home, Inc.'s programs. However, in August 2002,
Home, Inc. terminated this contract. While it is unclear what the actual effect
on our revenues, profits, cash flow, or financial condition will be as a result
of the termination of the relationship between ePenzio and Home, Inc., there is
a substantial likelihood that revenues will decrease in the short term as a
result of this development. During the year ended June 30, 2002, the six months
ended June 30, 2001, and the year ended December 31, 2000, this outside referral
source provided customer referrals which generated in excess of 28%, 60%, and
88%, respectively, of our gross revenues. We have relationships with other lead
sources, and intend to begin sending sales teams out with these companies as
soon as reasonably possible. While there can be no assurances in this regard, it
is anticipated that the loss of ePenzio's contractual relationship with Home,
Inc. may significantly affect our results of operations.

         Cost of Revenues

         Cost of revenues increased by approximately $6.2 million, or
approximately 76%, for the year ended June 30, 2002 to $14.4 million, compared
to $8.2 million for the twelve months ended June 30, 2001. The increase in the
cost of revenues is due to the following two factors: (i) an increase in the
volume of new accounts as a result of relationships with third-party referral
sources and the costs associated with establishing such new accounts, including,
but not limited to, commissions to third parties and revenue-share arrangements
with third-party suppliers of hosting and web design software and merchant
accounts, and (ii) an increase in the cost to organize and market the Bring It
Home, Inc. seminars. As a percentage of revenues, costs of revenues increased
from 46% for the year ended June 30, 2001 to 59% for the twelve months ended
June 30, 2002.

         Gross Profit

         Gross profits increased by approximately $0.3 million, or approximately
4%, for the year ended June 30, 2002 to $9.9 million, compared to $9.6 million
for the twelve months ended June 30, 2001. Our gross profit percentage was
negatively impacted by the two factors described above in "Cost of Revenues" and
by the increase in the reserve for uncollectible accounts described above in
"Revenues." Our gross margin decreased to 41% for the year ended June 30, 2002,
from 54% in the same period in 2001.

         Selling, General and Administrative Expenses

         Selling, general and administrative expense increased by approximately
$3.8 million or approximately 78%, to $8.7 million for the year ended June 30,
2002, compared to $4.9 million for the twelve month period ended June 30, 2001.
This increase in Category 5's selling, general and administrative expenses is
primarily due to expenses associated with the launch of Bring It Home, Inc., and
increased salaries associated with more employees. Also, additional expenses
associated with the acquisitions of BottomLine Online, Inc., Exposure
International, LLC, Transaxis, S.A., CaptureQuest, Inc. and FlashAlly, LLC were
incurred during the nine months ended June 30, 2002. As a percentage of
revenues, Category 5's selling, general and administrative expenses increased to
36% for the twelve months ended June 30, 2002 from 27% for the same period in
2001.

         Income (loss) from Operations

         We incurred a loss from operations of $3,514,639 for the year ended
June 30, 2002, compared to income from operations of $4,731,714 for the twelve
months ended June 30, 2001. The loss resulted from many factors, including:

         o    The increase from 35% to 50% in the reserve for uncollectible
              accounts, which reduced revenue and gross profit in the quarter
              ended June 30, 2002 by $1,030,415;

         o    Costs associated with organizing and marketing Bring It Home
              seminars;

         o    Increases in costs related to the acquisitions completed during
              the year;

         o    The increase in delinquent accounts over historical averages,
              resulting in bad debt expense of $3,243,849; and

         o    The write off of $1,535,000 of goodwill associated with the
              acquisition of Flash Ally.


                                    Page 34

<PAGE>

Certain of these costs are nonrecurring, such as the costs associated with the
write down of goodwill. Management is examining the factors giving rise to
increased delinquencies and is taking measures with management believes are
designed to improved collectibility of accounts in the future.

         Other Income (Expense), Net

         Net interest income increased to $290,766 for the year ended June 30,
2002, compared to net interest income of $2,596 for the twelve months ended June
30, 2001. Other income for the twelve month period ended June 30, 2002 consisted
of interest income in the amount of $2,028 of interest paid by the Company's
financial lenders for deposits held in sweep accounts during the year and
$21,314 related to interest accrued on short-term investments and $450,650 of
interest income related to contracts receivable and interest expense of $183,226
for the twelve months ended June 30, 2002, which consisted of $29,310 of
interest related to funds borrowed under the Company's credit facility, and
$153,916 of accrued interest and amortization of the discount and prepaid loan
fees on the $820,000 convertible promissory notes sold on November 21, 2001.

         (Provision) Benefit for Income Taxes

         For the year ended June 30, 2002, we accrued $154,000 in deferred
income tax expense due to changes in the components of deferred tax assets and
liabilities. During most of the twelve months ended June 30, 2001, we did not
accrue current or deferred income tax liabilities or benefits because ePenzio
was taxed under subchapter S of the Internal Revenue Code and any such taxes
were the responsibility of the former shareholders of ePenzio. However, after
completion of the merger with ePenzio in May 2001, ePenzio became subject to
taxation as a C corporation. Accordingly, a deferred benefit for income taxes of
$140,000 was provided for the twelve months ended June 30, 2001. Had we been
taxed as a C corporation for the entire period, the provision for income taxes
would have increased by $1,710,000.

         Net Income (Loss)

         We incurred a net loss of $3,377,873 for the year ended June 30, 2002,
compared to pro forma net income of $3,164,310 for the twelve months ended June
30, 2001. The pro forma net income includes actual net income of $4,874,310,
reduced for a pro forma tax provision of $1,710,000 that would have been
expected to be paid if we were a taxed as a C corporation for the entire period.
The change from the previous year results from many factors described above. We
expect certain of the factors to be non-recurring, and will take measures
designed to improve cost containment and collectibility of receivables. However,
no assurances can be made that such measures will be successful in returning us
to profitability.

         Changes in Financial Condition

         At June 30, 2002, Category 5's total assets amounted to $14.6 million,
as compared to $5.6 million at June 30, 2001. The $9.0 million increase in total
assets during the twelve months ended June 30, 2002 was primarily the result of
increases of $1.0 million in short-term investments, $2.9 million in net
contract and trade receivables and retainages, $0.9 million in property and
equipment, $4.2 million in intangibles, offset by a $0.1 million decrease in
deferred tax assets. Cash and cash equivalents increased primarily due to the
sale of $820,000 of convertible promissory notes on November 21, 2001 and
borrowing under the line of credit. Contract and trade receivables increased
primarily due to our decision to sell fewer contracts to financing sources and
to instead service the contracts. Retainages receivable have increased due to
Category 5's continuing to sell contracts to finance companies that require
reserves on some purchase accounts.

         At June 30, 2002, our total liabilities amounted to $5.8 million, as
compared to $0.3 million at June 30, 2001. The $5.5 million increase in total
liabilities was primarily a result of the $0.9 borrowed under Category 5's Zions
Facility described below, an increase of $0.8 million in notes payable, an
increase of $0.9 million in our accounts payable (of which $0.3 million was
related to the termination of the Netgateway transaction), an increase in the
fair value allowance of $0.8 million and an increase of $0.3 million in deferred
revenue. Our short-term debt and accounts payable increased due to borrowings
and expenses incurred to fund our operations. The fair value allowance increased

                                    Page 35

<PAGE>

as our sales of receivables to financing companies include limited recourse
provisions, which are deemed non-hedging derivatives pursuant to the provisions
of SFAS No. 133, "Accounting for Derivative Instruments and Hedging." The
purpose of the limited recourse provisions are normal in the course of business
and sale of receivables, and are meant to facilitate the sale of receivables to
financing companies. The fair value of the recourse liability has been
determined using a best estimate method, and the fair value estimate was based
on historical recourse rates experienced by Category 5. The fair value of the
recourse obligation at June 30, 2002 is $0.8 million, which is included in
current liabilities as a fair value allowance. The change in the fair value of
the recourse liability is recognized in net income during the respective period,
and increases in the recourse liability are recorded as reductions of revenue.
Deferred revenue increased due to back end packages sold to customers
representing fees to be recognized over future months.

  Six Months Ended June 30, 2001 Compared to the Six Months Ended June 30, 2000
  -----------------------------------------------------------------------------

         Effective June 30, 2001, we changed our fiscal year end from December
31 to June 30 and issued audited financial statements for the six months ended
June 30, 2001. In order to make meaningful comparisons reflecting the
transitional period, the following table presents unaudited data for the six
months ended June 30, 2000:
<TABLE>
<CAPTION>

                                                                               Six months ended
                                               Six months ended                 June 30, 2000
                                                June 30, 2001       %             (unaudited)     %
                                             ----------------------------  -----------------------------
<S>                                             <C>                <C>        <C>                 <C>
Revenues                                        $     10,595,967   100%       $     12,881,619    100%
Cost of goods sold                                     3,390,342    32%              7,979,664     62%
                                             --------------------          --------------------
  Gross profit                                         7,205,625    68%              4,901,955     38%
                                             --------------------          --------------------
Selling, general and administrative                    3,019,416    28%              3,757,543     29%
                                             --------------------          --------------------
  (Loss) income from operations                        4,186,209    40%              1,144,412      9%
Interest income                                                -     0%                  6,810      0%
Interest (expense)                                        (1,237)    0%                      -      0%
                                             ---------------------       ----------------------
  Net (loss) income before income taxes                4,184,972    39%              1,151,222      9%
(Provision) benefit for income taxes:
Deferred                                                 140,000     1%                      -      0%
                                             --------------------          --------------------
Net (loss) income                                      4,324,972    41%              1,151,222      9%
                                             --------------------          --------------------
Pro forma earnings:
Earnings as reported                                   4,324,972    41%              1,151,222      9%
Pro forma income taxes (1)                            (1,710,000)                     (426,000)     3%
                                             --------------------          --------------------
Pro forma net income                            $      2,614,972    25%       $        725,222      6%
                                             --------------------          --------------------
</TABLE>

(1) Taxes as if the Company has been a "C" corporation for the periods
presented.

         Revenues

         Revenues decreased by $2.3 million, or 18%, for the six months ended
June 30, 2001 to $10.6 million, compared to $12.9 million for the six months
ended June 30, 2000. The decrease in revenues is due to the loss of two
third-party referral sources during the last six months of 2000. Revenues
generated by these two sources came mostly in the first six months of 2000.

         Cost of Revenues

         Cost of revenues decreased by $4.6 million, or 58%, for the six months
ended June 30, 2001 to $3.4 million, compared to $8.0 million for the six months
ended June 30, 2000. The decrease in the cost of revenues is due to the fact
that commissions are not paid on those customer installment contracts that are
not immediately purchased by finance companies. A portion of the installment
contracts executed by our customers are not immediately purchased by finance
companies. Instead, these installment contracts are held in a pool by our
wholly-owned subsidiary, Olympus, which are billed each month and are shown as
receivables. Because these installment contracts are not immediately purchased
by a finance company, a much lower commission is paid to third parties, thus
significantly decreasing the cost of revenues. As a percentage of revenues,

                                    Page 36


<PAGE>

costs of revenues decreased from 62% for the six months ended June 30, 2000 to
32% for the six months ended June 30, 2001. This decrease is primarily due to
the change in the commission structure to account for those installment
contracts not immediately purchased by finance companies.

         Gross Profit

         Gross profit increased by $2.3 million, or 47%, for the six months
ended June 30, 2001 to $7.2 million, compared to $4.9 million for the six months
ended June 30, 2000. Our gross profit was positively impacted by the change in
payment of commissions to third parties described above. Our gross margin
increased from 38% in the first six months of 2000 to 68% in the same period of
2001. Our gross profit margin was favorably impacted by the change in
commissions paid to third parties.

         Selling, General and Administrative

         Selling, general and administrative expenses decreased by $0.8 million
or 20%, to $3.0 million for the six months ended June 30, 2001, compared to $3.8
million for the six month period ended June 30, 2000. This decrease in selling,
general and administrative expenses is primarily due to improved pricing from
vendors such as printers, suppliers of office products and others that we
negotiated. As a percentage of revenues, selling, general and administrative
expenses decreased from 29% for the six months ended June 30, 2000 to 28% for
the same period in 2001.

         Income from Operations

         Income from operations increased by $3.1 million, or 266%, for the six
months ended June 30, 2001 to $4.2 million, compared to $1.1 million for the six
months ended June 30, 2000 based upon the above discussion of the financial
operations. Operating margins increased from 9% in the 2000 period to 41% in the
2001 period. For the six months ended June 30, 2000 and 2001, EBITDA was $1.1
million and $4.1 million, respectively.

         Other Income (Expense), Net

         Other income for the six month period ended June 30, 2001 consisted of
interest income in the amount of $6,810 as interest paid by our bank for
deposits held in sweep accounts. For the six-month period ended June 30, 2000,
we paid interest in the amount of $1,237 in relation to the loan from a
stockholder that was paid off in January 2001.

         Income Taxes

         As specified by the Commission, pro forma data has been provided since
ePenzio was formerly a subchapter S corporation. Pro forma earnings per share
have been calculated to include the adjustment for income taxes had the
operating subsidiary been a C corporation during the periods presented. The
benefit for income taxes for the six months ended June 30, 2001 was $140,000,
due to a loss attributable to the last month of the period, subsequent to the
conversion of ePenzio to a C corporation. There was no similar benefit for
income taxes during the same period in 2000, because ePenzio was a subchapter S
corporation during the entire period. Pro forma income taxes have been presented
to reflect income taxes as though the Company was a "C" corporation during the
entire period.

         Net Income

         Net income increased by $3.2 million, or 276%, for the six months ended
June 30, 2001 to $4.3 million, compared to $1.2 million for the six months ended
June 30, 2000. This increase in net income is due to the establishment of the
pool of installment contracts that are retained by Olympus and billed every
month, rather than being purchased immediately by a finance company, and the
resulting savings on commission expense.

                                    Page 37

<PAGE>

         Pro Forma Income Taxes and Pro Forma Net Income

         Pro forma income taxes increased by $1.3 million, or 301%, for the six
months ended June 30, 2001, to $1.7 million, compared to $0.4 million for the
six months ended June 30, 2000. Moreover, pro forma net income increased by $1.9
million, or 261%, for the six months ended June 30, 2001, to $2.6 million,
compared to $0.7 million for the six months ended June 30, 2000. The increase in
pro forma income taxes and the pro forma net income is due to the increase in
net income for the six month period June 30, 2001, as described above in "Net
Income."

Liquidity and Capital Resources

         At June 30, 2002, we had negative working capital of $517,973 compared
to working capital of $1,805,227 at June 30, 2001. This decrease in working
capital is principally due to the increase in current liabilities described
above, under the heading "Changes in Financial Condition" described above in the
comparison between the twelve month periods ended June 30, 2002 and 2001.

         During the year ended June 30, 2002, we used $1,442,269 of cash in
operating activities, used $115,298 of cash in investing activities and
generated $1,639,973 of cash in financing activities. During the six month
period ended June 30, 2001, we generated $729,481 of cash in operating
activities, used $33,217 of cash in its investing activities and used cash in
its financing activities of $542,148.

         Our liquidity is significantly impacted by credit and collections
issues. Our business generates large balances of receivables and, depending on
the quality of the credit and the cash needs, we sell certain of the
receivables, at a discount, to financing sources. We retain receivables that we
do not sell. A large portion of our customer base is made up of small businesses
with sub-prime credit. Accordingly, many of the receivables generated by these
customers may have high credit risk.

         During the quarter ended June 30, 2002, delinquencies on contract
receivables increased above historical rates, thus increasing the loss for the
year then ended, and reducing the balances that could be subsequently sold.

         At June 30, 2002, the working capital deficit was mitigated by the $3.4
million of net contracts receivable included in long-term assets. We may seek to
sell some or all of these to a financing source in order to generate cash in the
short term. There is no assurance that these receivables could be sold for their
carrying value, or at a discount that is acceptable to us, or at all. In
addition, further increases in delinquencies would negatively impact our cash
flow by reducing the amount of cash collected on these contracts.

         Our line of credit arrangement with Zions Bank is secured by qualifying
contracts receivable in the amount of 200% of the amount due on the line. In
addition, there are covenants for tangible net worth and debt coverage ratios.
At June 30, 2002, we are in violation of the debt coverage ratio, and have
sought a waiver of this violation. As of the date hereof, the bank has not
waived this violation, and if it were to demand payment of the entire balance,
our liquidity would suffer.

         We have $820,000 of convertible notes payable that are due in November
2002. The notes are convertible into our common stock at the option of the
holders, for the lower of $2 per share or the price of a private placement of
Category 5 stock. On September 10, 2002, our common stock closed at $0.62 per
share. If the price remains below $2 per share through November and a new price
is not established through a private placement, the investors will not likely
convert into common stock at that rate, and we will be required to repay the
notes.

         During the six month period ended June 30, 2001, the Company generated
$729,481 of cash from its operating activities, used $33,217 of cash in its
investing activities and used $542,148 of cash in its financing activities.
During the six month period ended June 30, 2000, the Company generated $753,063
of cash from its operating activities, used $129,028 of cash in its investing
activities and used $726,190 of cash from its financing activities. During the
twelve month period ended December 31, 2000, the Company generated $752,805 of
cash from its operating activities, used $133,825 of cash in its investing
activities and used $752,005 of cash in its financing activities. During the
twelve month period ended December 31, 1999, the Company generated $944,813 of
cash from its operating activities, used $132,625 of cash in its investing
activities and used $623,429 of cash in its financing activities.


                                    Page 38

<PAGE>

         The Company's investing activities during the six month period ended
June 30, 2001 included purchases of property and equipment of $33,217. The
Company's investing activities during the six month period end June 30, 2000
included purchases of property and equipment of $129,028. The Company's
investing activities during the twelve month periods ended December 31, 2000 and
1999 included purchases of property and equipment of $133,825 and $132,625,
respectively.

         The Company's financing activities during the six month period ended
June 30, 2001 included the payment on a stockholder loan in the aggregate amount
of $57,800 and dividends paid on the Company's common stock in the aggregate
amount of $484,348. The Company's financing activities during the six month
period ended June 30, 2000 included distributions made to the stockholders of
ePenzio (then an S corportation) in the aggregate amount of $726,190. The
Company's financing activities during the twelve month periods ended December
31, 2000 included receipt of a stockholder loan in the amount of $70,000 and
distributions made in the aggregate amount of $822,005. The Company's financing
activities during the twelve month period ended December 31, 1999 included
stockholder contributions in the amount of $4,500 and distributions made in the
aggregate amount of $627,929.

         Our wholly-owned subsidiary, ePenzio, Inc., has historically generated
a substantial percentage of its revenue from selling products and services at
programs sponsored by other companies ("lead sources"). During the last year,
one of the larger lead sources has been Home, Inc. ePenzio was informed on May
10, 2002 that Home, Inc. may no longer allow ePenzio sales teams to participate
in Home, Inc. programs. Subsequently, on June 14, 2002, ePenzio and Home, Inc.
executed an agreement pursuant to which ePenzio's sales teams would have
continued to participate in Home, Inc.'s programs. However, in August 2002,
Home, Inc. terminated this contract. While it is unclear what the actual effect
on our revenues, profits, cash flow, or financial condition will be as a result
of the termination of the relationship between ePenzio and Home, Inc., there is
a substantial likelihood that revenues will decrease in the short term as a
result of this development. During the year ended June 30, 2002, the six months
ended June 30, 2001, and the year ended December 31, 2000, this outside referral
source provided customer referrals which generated in excess of 28%, 60%, and
88%, respectively, of our gross revenues. We have relationships with other lead
sources, and intend to begin sending sales teams out with these companies as
soon as reasonably possible. While there can be no assurances in this regard, it
is anticipated that the loss of ePenzio's contractual relationship with Home,
Inc. may significantly affect our liquidity and capital resources.

         On March 1, 2002, we completed its acquisition of FlashAlly, LLC, and,
in connection therewith, recorded an intangible asset of $1,535,000. Since the
acquisition of FlashAlly, the Company has determined that the assets and
goodwill associated with FlashAlly have been impaired. For the period ended June
30, 2002, the Company wrote down assets valued at approximately $1.5 million on
the Company's balance sheet, resulting in reduced operating income of
approximately $1.5 million for the same period.

         On August 7, 2002, the Company obtained a $2 million revolving line of
credit from Zions First national bank (the "Zions Facility"). The annual interst
rate applied to the unpaid principle balance of the Zions Facility is 1% over
Prime (4.75% as of September 13, 2002). All accrued and unpaid interst and
principal owed under the Zions Facility are due on September 1, 2003. The Zions
Facility is secured by inventory, chattel paper, accounts and general
intangibles owned by the Company on or after August 7, 2002. Pursuant to the
Zions Facility, the Company may borrow up to the lesser of (i) $2 million or
(ii) 75% of the aggregate amount of the Company's Eligible Accounts (as
specifically defined by the Zions Facility). In addition to customary
affirmative and negative covenants, pursuant to the Zions Facility, the Company
must maintain a tangible net worth of not less than $5 million, and a debt
coverage ratio (defined as total earnings, before interest, taxes, depreciation
and amortization to total debt service coverage) of 1.5 to 1.0, measured on a
quarterly basis. As of September 13, 2002, the Company had drawn on the Zions
Facility in the amount of approximately $1 million.

         The Zions Facility replaces and supercedes the business Loan Agreement,
promissory Note and Commercial Security Agreement by and between the Company's
subsidiary, ePenzio, Inc. and Zions, dated September 11, 2001, pursuant to which
ePenzio was entitled to borrow up to $1 million from Zions.

         On November 21, 2001, the Company issued to sixteen accredited
investors an aggregate of $820,000 in convertible promissory notes. From the

                                    Page 39

<PAGE>

sale of the convertible promissory notes, the Company realized $714,000 after
payment of a commission in the amount of $82,000 to TerraNova Capital Partners
LLC, the Company's placement agent, and other transaction cost related to the
offering. Each convertible promissory note has a term of one year and bears
interest at a rate of 8% per annum. During the period of August 2002 through
November 2002, each convertible promissory note begins to be eligible to be
converted to the option of the holder, on a doller-for-dollar basis, into shares
of common stock, at a share price equal to $2 per share. In addition to the
convertible promissory note, each holder of a convertible promissory note
recived a warrant to purchase 950 share of common stock for each $1,000 of notes
purchased, exercisable at $1.69 per share, subject to adjustment as provided in
the warrant. These warrants expire in five years and include a cashless exercise
feature. Each warrant is immediately exercisable. Each holder of a convertible
promissory note and warrant has certain registration rights relating to the
shares of common stock that may be issued upon conversion of the notes and
exercise of the warrants.

         On April 10, 2002, we closed the acquisition of CaptureQuest, Inc. We
acquired CaptureQuest for 3,105,769 shares of common stock. We granted to each
of the former CaptureQuest shareholders the right to repurchase the CaptureQuest
shares if we cease to operate, file for bankruptcy, or if our stock trades at a
price below $1.00 for a period of fifteen days after one year from the closing.
Moreover, we agreed to contribute, on or before September 25, 2002, $1,500,000
to CaptureQuest to be used for working capital. We may not be able to fund the
$1,500,000 to CaptureQuest for working capital on September 25, 2002, or ever.

         The Company maintains trade credit arrangements with certain of its
suppliers. The unavailability of a significant portion of, or the loss of, the
Zions Facility and trade credit from suppliers would have a material adverse
effect on the Company's financial condition and operations. In the event of the
termination of contracts with all or most of the finance companies with which
the Company has developed such relationship, the Company may be unable to meet
its anticipated working capital needs or routine capital expenditures on a
short-term and long-term basis.

         The Company's management believes that cash from future operations and
borrowings available under its $2 million line of credit with Zions First
National Bank will be sufficient to meet the Company's anticipated working
capital needs, routine capital expenditures and current debt service obligations
for the next twelve months, with the possible exception of the Company's
obligation to fund $1.5 million to CaptureQuest on or before September 25, 2002.
The Company's cash and cash equivalents are available for working capital needs,
capital expenditures, strategic investments, mergers and acquisitions, and other
potential cash needs as they may arise. On a longer-term basis, if future cash
from operations and the Company's $2 million line of credit with Zions First
National bank and $820,000 loaned to the Company in the bridge financing that
closed on November 21, 2001 are not sufficient to meet its cash requirements,
the Company may be required to seek additional financing. There can be no
assurances that the Company will be successful in obtaining such additional
financing.

         Effects of Inflation

         The effects of inflation were not considered material during the year
ended June 30, 2002, the six months ended June 30, 2001, and the year ended
December 31, 2000.

Recent Accounting Pronouncements

         In August of 2001, the FASB issued SFAS No. 143, "Accounting for
Obligations Associated with the Retirement of Long-Lived Assets," which
establishes accounting standards for the recognition and measurement of an asset
retirement obligation and its associated asset retirement cost. It also provides
accounting guidance for legal obligations associated with the retirement of
tangible long-lived assets. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002, with early adoption permitted. We adopted SFAS No. 143
effective July 1, 2002 and do not expect that the adoption of this new standard
will have a significant impact on our results of operations and financial
position.

         In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt," and an amendment of that Statement, SFAS
No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements."

                                    Page 40

<PAGE>

This Statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of
Motor Carriers." This Statement amends SFAS No. 13, "Accounting for Leases," to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
Statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability
under change conditions. SFAS No. 145 is effective for fiscal years beginning
after May 15, 2002. We do not anticipate that the adoption of SFAS No. 145 will
have a significant impact on our consolidated financial statements.

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." This Statement is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002, though early adoption is encouraged. We are currently evaluating the
provisions of SFAS No. 146 and its potential impact on our consolidated
financial statements.

Quantitative And Qualitative Disclosures About Market Risk

         We do not believe that we currently have material exposure to interest
rate, foreign currency exchange rate or other relevant market risks.

         Interest Rate and Market Risk. Our exposure to market risk for changes
in interest rates relates primarily to its investment portfolio. As of June 30,
2002, our investment portfolio consisted primarily of cash and cash equivalents,
substantially all of which were held at one financial institution. We do not use
derivative financial instruments in our investment portfolio.

         Foreign Currency Exchange Risk. We do not believe that we currently
have material exposure to foreign currency exchange risk because of the relative
insignificance of our foreign subsidiaries. We intend to assess the need to use
financial instruments to hedge currency exposures on an ongoing basis. Category
5 does not use derivative financial instruments for speculative trading
purposes.



                                    Page 41

<PAGE>


ITEM 7.       Financial Statements


Index to Consolidated Combined Financial Statements

--------------------------------------------------------------------------------

                                                                         Page
                                                                         ----


Independent Auditors' Report                                             F-2





Consolidated Combined Balance Sheet as of
June 30, 2002 and 2001                                                   F-3



Consolidated Combined Statement of Operations for the
year ended June 30, 2002, the six months ended June 30, 2001 and
the year ended December 31, 2000                                         F-4



Consolidated Combined Statement of Equity for the
year ended June 30, 2002, the six months ended June 30, 2001 and         F-5
the year ended December 31, 2000



Consolidated Combined Statement of Cash Flows for the
year ended June 30, 2002, the six months ended June 30, 2001 and         F-6
the year ended December 31, 2000



Notes to Consolidated Combined Financial Statements                      F-7


--------------------------------------------------------------------------------


                                     Page 42

<PAGE>


                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors of
Category 5 Technologies, Inc.

         We have audited the consolidated combined balance sheets of Category 5
Technologies, Inc. and Subsidiaries as of June 30, 2002 and 2001 and the related
consolidated combined statements of operations, equity, and cash flows for the
year ended June 30, 2002, the six months ended June 30, 2001 and the year ended
December 31, 2000. These consolidated combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated combined financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated combined financial statements referred
to above present fairly, in all material respects, the consolidated combined
financial position of Category 5 Technologies, Inc. as of June 30, 2002 and 2001
and the related consolidated combined statements of operations, equity, and cash
flows for the year ended June 30, 2002, the six months ended June 30, 2001 and
the year ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.



         Salt Lake City, Utah

         Tanner+Co.

         September 10, 2002



                                    Page 43

<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Consolidated Combined Balance Sheet
--------------------------------------------------------------------------------

                                                              June 30,
                                                     2002               2001
                                               -----------------  --------------

Assets
Current assets:
   Cash and cash equivalents                      $     298,272    $    215,866
   Short-term investments                             1,000,000               -
   Receivables, net:
     Contract                                         1,751,701       1,270,752
     Trade                                              336,031         207,270
     Retainages                                         272,782         186,439
     Other                                              261,004           4,500
   Prepaid assets                                       265,629         227,539
                                               -----------------  --------------

     Total current assets                             4,185,419       2,112,366

Property and equipment, net                           1,111,356         170,561

Contract receivables - long-term, net                 3,400,363       2,542,503
Retainage receivables - long-term, net                1,664,548         567,461
Other long-term assets, net                           4,224,421          24,118
Deferred tax asset - long-term                                -         140,000
                                               -----------------  --------------

     Total assets                                 $  14,586,107    $  5,557,009
                                               -----------------  --------------

Liabilities and Shareholders' Equity
Current liabilities:
   Accounts payable                               $     886,722    $     60,223
   Accrued liabilities                                  640,592         207,468
   Deferred revenue                                     299,537               -
   Notes payable                                      1,783,997               -
   Fair value allowance                                 757,677          27,248
   Loans from shareholders                              198,867          12,200
   Deferred tax liability                               136,000               -
                                               -----------------  --------------

     Total current liabilities                        4,703,392         307,139

Long-term liabilities:
   Capital lease                                         87,695               -
   Deferred tax liability                             1,008,000               -
                                               -----------------  --------------
     Total long-term liabilities                      1,095,695               -

Commitments and contingencies (Notes 3 and 11)                -               -

Shareholders' equity:
   Preferred stock, $0.001 par value,
     25,000,000 shares authorized, no shares
     issued at June 30, 2002 and 2001                         -               -
   Common stock, $0.001 par value, 125,000,000
     shares authorized, 16,592,863 and
     11,500,000 shares issued at June 30, 2002
     and 2001, respectively                              16,593          11,500
   Additional paid-in capital                         6,945,230          35,300
   Retained earnings                                  1,825,197       5,203,070
                                               -----------------  --------------

     Total shareholders' equity                       8,787,020       5,249,870
                                               -----------------  --------------

     Total liabilities and shareholders' equity   $  14,586,107    $  5,557,009
                                               -----------------  --------------


        The accompanying notes are an integral part of these consolidated
                         combined financial statements.



                                     Page 44
<PAGE>



         Category 5 Technologies, Inc. and Subsidiaries
         Consolidated Combined Statement of Operations
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                            Year Ended       Six Months Ended         Year Ended
                                                          June 30, Six           June 30,            December 31,
                                                               2002                2001                   2000
                                                         ------------------  -----------------   ------------------

<S>                                                           <C>                <C>                  <C>
Revenues                                                      $ 24,392,717       $ 10,595,967         $ 20,070,443

Cost of goods sold                                              14,436,768          3,390,342           11,816,333
                                                         ------------------  -----------------   ------------------

     Gross profit                                                9,955,949          7,205,625            8,254,110
                                                         ------------------  -----------------   ------------------

Selling, general and administrative                              8,691,739          3,019,416            6,567,346
Bad debt expense                                                 3,243,849                  -                    -
Loss on impairment of goodwill (Note 5 and 9)                    1,535,000                  -                    -
                                                         ------------------  -----------------   ------------------

     Total operating expenses                                   13,470,588          3,019,416            6,567,346
                                                         ------------------  -----------------   ------------------

(Loss) income from operations                                   (3,514,639)         4,186,209            1,686,764

Interest income                                                    473,992                  -               14,231
Interest expense                                                  (183,226)            (1,237)                   -
                                                         -------------------------------------   ------------------

Net (loss) income before income taxes                           (3,223,873)         4,184,972            1,700,995

(Provision) benefit for income taxes:
   Current                                                               -                  -                    -
   Deferred                                                       (154,000)           140,000                    -
                                                         ------------------  -----------------   ------------------

Net (loss) income                                               (3,377,873)         4,324,972            1,700,995
                                                         ==================  =================   ==================

Net (loss) income per common share-basic                      $      (0.25)      $       0.46         $       0.19
                                                         ==================  =================   ==================

Net (loss) income per common share-diluted                    $      (0.25)      $       0.42         $       0.19
                                                         ==================  =================   ==================

Weighted average common shares outstanding-
     basic (Note 3)                                             13,502,516          9,430,556            9,000,000
                                                         ==================  =================   ==================

Weighted average common shares outstanding-
     diluted (Note 3)                                           13,502,516         10,384,103            9,000,000
                                                         ==================  =================   ==================

Pro forma net (loss) income per share:
     (Loss) income as reported                                  (3,377,873)         4,324,972            1,700,995
     Pro forma income taxes                                              -         (1,710,000)            (638,000)
                                                         ------------------  -----------------   ------------------

     Pro forma (loss) income                                  $ (3,377,873)      $  2,614,972         $  1,062,995
                                                         ==================  =================   ==================

Pro forma net (loss) income per share-basic                   $      (0.25)      $       0.28         $       0.12
                                                         ==================  =================   ==================

Pro forma net (loss) income per share-diluted                 $      (0.25)      $       0.25         $       0.12
                                                         ==================  =================   ==================
</TABLE>




        The accompanying notes are an integral part of these consolidated
                         combined financial statements.



                                     Page 45



<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Consolidated Combined Statement of Equity
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>



                                                       Common stock           Additional
                                              ----------------------------     Paid-in        Retained
                                                 Shares         Amount         Capital        Earnings         Total
                                              -------------  -------------  --------------  --------------  -------------

<S>                                              <C>            <C>           <C>             <C>            <C>
Balance at January 1, 2000                       9,000,000      $   9,000     $    37,800     $   483,456    $   530,256
   Dividends                                             -              -               -        (822,005)      (822,005)
   Net income                                            -              -               -       1,700,995      1,700,995
                                              -------------  -------------  --------------  --------------  -------------

Balance at December 31, 2000                     9,000,000          9,000          37,800       1,362,446      1,409,246
   Acquisition of Network Investor
     Communications, Inc.                        2,500,000          2,500          (2,500)              -              -
   Dividends                                             -              -               -        (484,348)      (484,348)
   Net income                                            -              -               -       4,324,972      4,324,972
                                              -------------  -------------  --------------  --------------  -------------

Balance at June 30, 2001                        11,500,000         11,500          35,300       5,203,070      5,249,870
   Stock issued for services                       737,500            738         281,888               -        282,626
   Issuance of warrants to
     consultants in exchange for services                -              -          35,000               -         35,000
   Exercise of stock options                         9,594              9             428               -            437
   Issuance of warrants in connection with debt          -              -         107,210               -        107,210
   Acquisition of Transaxis, S.A.                   15,000             15          35,985               -         36,000
   Acquisition of Bottomline Online, Inc.          225,000            225         573,525               -        573,750
   Acquisition of Flash Ally, L.L.C.             2,000,000          2,000       1,533,000               -      1,535,000
   Acquisition of CaptureQuest, Inc.             3,105,769          3,106       5,471,894               -      5,475,000
   Shares cancelled pursuant to amended Stock
     Purchase Agreement (Note 14)               (1,000,000)        (1,000)     (1,129,000)              -     (1,130,000)
   Net loss                                              -              -               -      (3,377,873)    (3,377,873)
                                              -------------  -------------  --------------  --------------  -------------

Balance at June 30, 2002                        16,592,863      $  16,593     $ 6,945,230     $ 1,825,197    $ 8,787,020
                                              =============  =============  ==============  ==============  =============
</TABLE>




        The accompanying notes are an integral part of these consolidated
                         combined financial statements.



                                     Page 46



<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Consolidated Combined Statement of Cash Flows
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                        Year ended      Six Months Ended      Year Ended
                                                                         June 30,            June 30,         December 31,
                                                                           2002                 2001              2000
                                                                     -----------------  -----------------  ----------------
<S>                                                                      <C>                <C>                <C>
Cash flows from operating activities:
   Net (loss) income                                                     $ (3,377,873)      $  4,324,972       $ 1,700,995
   Adjustments to reconcile net (loss) income to net cash
   (used in) provided by operating activities:
     Allowance for doubtful acounts                                         3,243,849                  -                 -
     Depreciation and amortization                                            428,973             34,438            63,887
     Fair value allowance                                                     757,677                  -                 -
     Loss on impairment of goodwill                                         1,535,000                  -                 -
     Amortization of debt discount and loan fees                              108,521                  -                 -
     Issuance of stock for services                                           282,626                  -                 -
     Issuance of stock options for services                                    35,000                  -                 -
     Issuance of warrants-debt cost                                            27,210                  -                 -
     Deferred taxes                                                           154,000           (140,000)                -
     Changes in operating assets and liabilities:
      Contract receivables, net                                            (4,041,150)        (3,848,651)                -
      Trade receivables                                                       (85,231)           486,169          (251,738)
      Retainages receivable                                                (1,689,939)          (202,417)         (542,087)
      Other receivables                                                      (256,504)             9,400           (13,900)
      Prepaid assets                                                          (38,090)           (49,943)         (177,596)
      Deposits                                                                (50,000)                 -            (4,034)
      Accounts payable                                                        825,749            (38,411)           70,197
      Accrued liabilities                                                     405,876            153,924           (92,919)
      Deferred revenue                                                        292,037                  -                 -
                                                                     -----------------  -----------------  ----------------

        Net cash (used in) provided by operating activities                (1,442,269)           729,481           752,805
                                                                     -----------------  -----------------  ----------------

Cash flows from investing activities:
   Purchases of property and equipment                                       (144,146)           (33,217)         (133,825)
   Cash acquired in acquisition of CaptureQuest                                28,848                  -                 -
                                                                     -----------------  -----------------  ----------------

        Net cash used in investing activities                                (115,298)           (33,217)         (133,825)
                                                                     -----------------  -----------------  ----------------

Cash flows from financing activities:
   Proceeds from note payable                                                 713,971                  -                 -
   Borrowings on line of credit                                               898,822                  -                 -
   Proceeds from shareholder loan                                              26,743            (57,800)           70,000
   Exercise of stock options                                                      437                  -                 -
   Dividends paid                                                                   -           (484,348)         (822,005)
                                                                     -----------------  -----------------  ----------------

        Net cash provided by (used in) financing activities                 1,639,973           (542,148)         (752,005)
                                                                     -----------------  -----------------  ----------------

Net increase (decrease) in cash                                                82,406            154,116          (133,025)
Cash, beginning of year                                                       215,866             61,750           194,775
                                                                     -----------------  -----------------  ----------------

Cash, end of year                                                        $    298,272       $    215,866       $    61,750
                                                                     =================  =================  ================

Supplemental disclosures of cash flow information:
   Interest paid                                                         $     18,407       $      1,674       $       113
                                                                     =================  =================  ================

Supplemental disclosures of non-cash investing activities:

   Fair value of assets and liabilities acquired:
     Receivables                                                         $     78,529       $          -       $         -
     Short-term investments                                                 1,000,000                  -                 -
     Property and equipment                                                   948,895                  -                 -
     Identifiable intangibles                                               5,962,029                  -                 -
     Less: liabilities assumed                                               (398,551)                 -                 -
     Fair market value of common stock issued                              (7,619,750)                 -                 -
                                                                     -----------------  -----------------  ----------------
     Cash acquired                                                       $    (28,848)      $          -       $         -
                                                                     =================  =================  ================

   Amendment of stock purchase agreement:
     Deferred tax liability                                              $  1,130,000                  -                 -
     Common stock                                                              (1,000)                 -                 -
     Additional paid-in capital                                            (1,129,000)                 -                 -


</TABLE>


        The accompanying notes are an integral part of these consolidated
                         combined financial statements.



                                     Page 47



<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Notes to Consolidated Combined Financial Statements
--------------------------------------------------------------------------------

1.       BUSINESS AND ORGANIZATION

         In 1998 Executive Credit Services, L.C. ("ECS") was organized as a
limited liability company pursuant to the Limited Liability Act within the State
of Utah. Effective May 17, 2000, the members of ECS formed ePenzio, Inc.
("ePenzio") and elected to be taxed pursuant to subchapter S of the Internal
Revenue Code and transferred all assets and liabilities from ECS to ePenzio.
Ownership percentages were unchanged and the income tax basis in ECS's assets
and liabilities carried over to ePenzio.

         Effective December 7, 2000 and March 23, 2001 ePenzio formed two
wholly-owned subsidiaries, Olympus Financial, Inc., a Utah company ("Olympus")
and Bring it Home, Inc., a Utah company ("BIH"), respectively. BIH conducts
marketing seminars for ePenzio's products. The consolidated combined financial
statements reflect the operations of the subsidiaries since their formation.

         On May 29, 2001, Network Investor Communications, Inc. ("NWIC") issued
9,000,000 shares of common stock in exchange for all the issued and outstanding
shares of ePenzio. Effective July 23, 2001, NWIC changed its name to Category 5
Technologies, Inc. For accounting purposes the business combination was treated
as a reverse merger or a recapitalization of ePenzio, with ePenzio being treated
as the accounting acquirer.

         Pursuant to that certain Amendment to Stock Purchase Agreement, dated
June 20, 2002, by and among the Compnay, ePenzio, Inc. and former shareholders
of ePenzio, Brad Crawford and Paul Anderson, which amends that certain Stock
Purchase Agreement dated May 29, 2001 by and among the same parties, and
pursuant to which the Company acquired ePenzio, the parties clarified certain
tax and purchase price provisions, in connection with which Category 5 claimed
responsibility for income taxes associated with approximately $5 million in
receivables and approximately $1.2 million associated with the conversion of
ePenzio from the cash to the accrual method of accounting upon acquisition of
ePenzio by Category 5, which aggregate tax liability is estimated to be
approximately $1.13 million, and Mr. Crawford and Mr. Anderson agreed to a
corresponding adjustment in the purchase price of ePenzio in connection with
which each of Mr. Crawford and Mr. Anderson agreed to return to the Company
500,000 shares of Category 5 common stock.

         Historically, ePenzio had a fiscal year end of December 31. Because
ePenzio was deemed the acquiring entity for accounting purposes, its fiscal year
survives for reporting purposes under relevant rules of the Commission. However,
the board of directors of Category 5 elected to retain the historical fiscal
year end of Category 5, June 30, effective for the period ending June 30, 2001.

         The Company's primary business activity involves the marketing of
electronic card processing systems and other related products and services
throughout the United States. Marketing efforts are assisted through the use of
third parties such as seminar companies, Internet service providers, and web
hostings which provide customer leads. Customers who purchase these products and
services either pay cash or enter into financing contracts with the Company.
These contracts regularly are sold to financing companies in the ordinary course
of business.

         FlashAlly is a system that enables businesses to create multimedia
presentations athat can be used as websites, burned onto CD Business Cards, or
sent via email. Because the system is used online and requires no programming
back ground, we believe that it is an ideal tool for small- and medium-sized
enterprises that lack the resources to hire IT directors or departments.

         CaptureQuest has developed software that enables business to conduct
rich-media marketing and promotions campaigns, and allows then to manage,
assess, and measure the success of their online campaigns. CaptureQuest's
rich-media solutions are founded on a technology stack with the CaptureQuest
Popmercial technology as the core of that stack. In providing these solutions,
CaptureQuest has created the Adaptive Media System with the goal of meeting
client's online marketing, communication, education, and advertising objectives.
The Adaptive Media System facilitates the front-end delivery of a captivating
rich-media campaign either online or via email. The Popmercial campaigns are
designed to captivate the attention of the viewer and to drive the viewer
towards a specific call to action.

                                    Page 48
<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Notes to Consolidated Combined Financial Statements
--------------------------------------------------------------------------------

2.       LIQUIDITY

         Category 5's liquidity is significantly impacted by credit and
collections issues. Its business generates large balances of receivables and,
depending on the quality of the credit and the cash needs, Category 5 sells
certain of the receivables, at a discount, to financing sources. Receivables
that it does not sell are retained by Category 5. A large portion of Category
5's customer base is made up of small businesses with sub-prime credit.
Accordingly, many of the receivables generated by these customers may have high
credit risk.

         During the quarter ended June 30, 2002, delinquencies on contract
receivables increased above historical rates, thus increasing the loss for the
year then ended, and reducing the balances that could be subsequently sold.

         At June 30, 2002, the working capital deficit was mitigated by the $3.4
million of net contracts receivable included in long-term assets. Category 5 may
seek to sell some or all of these to a financing source in order to generate
cash in the short term. There is no assurance that these receivables could be
sold for their carrying value, or at a discount that is acceptable to Category
5, or at all. In addition, further increases in delinquencies would negatively
impact Category 5's cash flow by reducing the amount of cash collected on these
contracts.

         Category 5's line of credit arrangement with Zions Bank is secured by
qualifying contracts receivable in the amount of 200% of the amount due on the
line. In addition, there are covenants for tangible net worth and debt coverage
ratios. At June 30, 2002, Category 5 is in violation of the debt coverage ratio,
and has sought a waiver of this violation. As of the date hereof, the bank has
not waived this violation, and if it were to demand payment of the entire
balance, Category 5's liquidity would suffer. Category 5 has $820,000 of
convertible notes payable that are due in November 2002. The notes are
convertible into Category 5 common stock at the option of the holders, for the
lower of $2 per share or the price of a private placement of Category 5 stock.
On September 10, 2002, Category 5's common stock closed at $0.62 per share. If
the price remains below $2 per share through November and a new price is not
established through a private placement, the investors will not likely convert
into common stock at that rate, and Category 5 will be required to repay the
notes.

         Subsequent to June 30, 2002, the Company has reduced personnel costs
and other selling and administrative expenses. In addition, the Company is
seeking to add new products and services to provide to its customers.

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

         The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All significant intercompany
account balances and transactions have been eliminated in consolidation.

Segment information

         The Company reports segments consistent with the way management
assesses segment performance. In determining the operating income or loss of
each segment, certain expenses, such as income taxes, general corporate expenses
and financing costs, are not allocated to operating segments.

Concentration of Credit Risk

         The Company maintains cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant credit risk
on cash and cash equivalents.

         Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of contract, trade and retainage
receivables. In the normal course of business, the Company provides credit terms


                                    Page 49

<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Notes to Consolidated Combined Financial Statements
--------------------------------------------------------------------------------

to its customers. Accordingly, the Company performs ongoing credit evaluations
of its customers and maintains allowances for possible losses which when
realized have been within the range of management's expectations.

         The Company transacts a substantial amount of its business with a few
financing companies. During the year ended June 30, 2002, the Company entered
into receivables purchase agreements with three financing companies that
comprise approximately 65% of total revenues.

         The Company obtains a substantial amount of referrals for revenue from
seminar companies. During the year ended June 30, 2002, approximately 73%
percent of the Company's revenues were obtained through referrals from seminar
companies.

         In August 2002, Home, Inc., the Company's largest seminar lead source,
discontinued their operations and terminated their relationship with the
Company.

Use of estimates

         The preparation of financial statements in conformity with US 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.

Cash and cash equivalents

         Cash equivalents include short-term, highly liquid instruments with
original maturities of 90 days or less. At June 30, 2002, the Company's cash and
cash equivalents were held by several banks. The Company does not believe that,
as a result of this concentration, it is subject to any unusual financial risk
beyond the normal risk associated with commercial banking relationships.

Short-term investments

         Marketable short-term investments are generally classified and
accounted for as available-for-sale. Management determines the appropriate
classification of debt and equity securities at the time of purchase and
reassesses the classification at each reporting date. Investments in debt and
equity securities as held-to-maturity are reported at amortized cost plus
accrued interest, and securities classified as available-for-sale are reported
at fair value with unrealized gains and losses, net of related tax, recorded as
a separate component of comprehensive income in shareholders' equity until
realized. Interest and amortization of premiums and discounts for debt and
equity securities are included in interest income. The Company does not hold
these securities for speculative or trading purposes. At June 30, 2002, the
estimated fair value of the investments approximated their cost, and the amount
of gross unrealized gains and losses were not significant.

Property and equipment

         Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets as
follows:

                                                Years
                                                -----

        Furniture and fixtures                  5-7
        Computer hardware and software            3
        Machinery and equipment                 5-7


                                    Page 50

<PAGE>

         Category 5 Technologies, Inc. and Subsidiaries
         Notes to Consolidated Combined Financial Statements
--------------------------------------------------------------------------------

         Leasehold improvements are amortized over the shorter of the term of
the related leases or estimated service lives. Upon sale or retirement of
assets, cost and related accumulated depreciation are removed from the balance
sheet and the resulting gain or loss is reflected in operations.

Other long-term assets

         Other long-term assets include deposits, identifiable intangibles and
goodwill. Intangibles consist of patents, licenses and identifiable intangible
assets related to non-compete agreements. Goodwill represents the excess of the
purchase price paid for subsidiaries over the fair value of the tangible and
identifiable intangible net assets acquired.

Impairment of assets

         The Company reviews property and equipment and other long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability is measured
by comparison of the asset's carrying amount to future undiscounted net cash
flows the assets are expected to generate. Cash flow forecasts are based on
trends of historical performance and management's estimate of future
performance, giving consideration to existing and anticipated competitive and
economic conditions. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the projected discounted future cash flows arising
from the assets or their fair values, whichever is more determinable.

Fair value of financial instruments

         The Company's financial instruments consist of cash, short-term
investments, receivables, payables, loans from shareholder, convertible notes,
line of credit and capital lease. The carrying amount of cash and payables
approximates fair value due to the short-term nature of these items. The loan
from shareholder, convertible note, line of credit and capital lease also
approximate fair value based on evaluations of market interest rates and the
short-term nature of the payable.

Fair value allowance

         In the normal course of business the Company sells its receivables to
financing companies. The Company's sales of receivables to financing companies
include limited recourse provisions, which are deemed non-hedging derivatives
pursuant to the provisions of Statement of Financial Accounting Standards No.
133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging." The
purpose of the limited recourse provisions are normal in the course of business
and are meant to facilitate the sale of receivables to financing companies. The
fair value of the recourse liability has been determined using a best estimate
method, and the fair value estimate was based on historical recourse rates
experienced by the Company. The fair value of the recourse obligation at June
30, 2002 is $757,677. Increases in the recourse liability are recorded as
reductions of revenue.

Revenue recognition

         Revenue is recognized when the following four criteria are met:
persuasive evidence of an arrangement exists, products are shipped and the
customer takes ownership and assumes the risk of loss, the selling price is
fixed or determinable, and collectibility is reasonably assured. Amounts
received prior to completion of services are recorded as deferred revenue. Gross
sales are reduced by estimated returns and chargebacks.

         Revenues from the sales of electronic card processing systems are
recognized when the service is complete and when either (1) the cash is received
from the customer, (2) the Company has received notice that the financing
company, which assumes the risk of the financing contract, has approved the

                                    Page 51

<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Notes to Consolidated Combined Financial Statements
--------------------------------------------------------------------------------

purchase of the contract, or (3) for contracts serviced by the Company, when
services are provided, net of an estimate of uncollectible accounts. Gross sales
from the purchase of the contracts are recorded at the net realizable amount or
net of the fair value allowance.

         Revenues from commissions received from third party service providers
are recognized when earned.

Income taxes

         Income taxes are accounted for under the asset and liability method.
Deferred income 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
bases using enacted tax rates in effect for the year in which the differences
are expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be ultimately
realized. Income tax expense (benefit) is the tax payable (receivable) for the
period plus the change during the period in the deferred tax assets and
liabilities.

Stock-based compensation

         The Company measures compensation expense for its equity incentive plan
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", and
provides pro forma disclosures of net income as if the fair value based method
prescribed by Statement of Financial Accounting Standards No. 123 ("FAS 123"),
"Accounting for Stock-Based Compensation", had been applied (Note 15).
Stock-based awards to non-employees are accounted for under the provisions of
SFAS No. 123 and related pronouncements.

Earnings per share

         Earnings per share are calculated on the weighted average number of
shares issued and outstanding. Diluted earnings per share are computed using the
weighted average number of shares determined for the basic computations plus the
number of shares of Common Stock that would be issued assuming all contingently
issuable shares having a dilutive effect on earnings per share were outstanding
for the year.

         The following table sets forth the computation of basic and diluted
earnings per share for the periods indicated:
<TABLE>
<CAPTION>


                                                            Year ended       Six months ended       Year ended
                                                              June 30,          June 30,            December 31,
                                                               2002               2001                 2000
                                                         -----------------  -----------------   -------------------

<S>                                                           <C>                <C>                  <C>
Net (loss) income                                             $(3,377,873)       $ 4,324,972          $  1,700,995
Weighted average common shares-basic                           13,502,516          9,430,556             9,000,000
Effect of dilutive securities:
    Employee stock options                                              -            953,547                     -
                                                         -----------------  -----------------   -------------------

    Weighted average common shares-diluted                     13,502,516         10,384,103             9,000,000
                                                         =================  =================   ===================

    Net loss per common share-basic:                          $     (0.25)       $      0.46          $       0.19
    Net loss per common share-diluted:                        $     (0.25)       $      0.42          $       0.19
</TABLE>

         For the year ended June 30, 2002, the average shares of stock options
outstanding were not included in the computation of diluted earnings per share
because to do so would have been antidilutive. However, weighted average number
of shares of stock options outstanding during the year ended June 30, 2002 was

                                    Page 52

<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Notes to Consolidated Combined Financial Statements
--------------------------------------------------------------------------------

2,713,253, of which 2,386,082 would have been included in the calculation of
diluted earnings per share if the effect had been dilutive.

Internal use software

         The Company capitalizes software development costs incurred from the
time technological feasibility of the software is established until the software
is ready for use to provide processing services to customers. Research and
development costs and other computer software maintenance costs related to
software development are expensed as incurred. No software costs were
capitalized in 2002 and 2001, respectively.

Advertising

         The Company expenses advertising costs as incurred. During the year
ended June 30, 2002, six months ended June 30, 2001 and year ended December 31,
2000, the Company incurred advertising costs of $98,733, $129,453 and $4,293,
respectively.

Recently issued Accounting Pronouncements

         The Financial Accounting Standards Board (FASB) also recently issued
SFAS No. 145, "Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Correction." The SFAS No. 145 rescinds SFAS No.
4, "Reporting Gains and Losses from Extinguishment of Debt", and amendment of
that Statement, and rescinds SFAS No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements." This Statement also rescinds SFAS No. 44,
"Accounting for Intangible Assets of Motor Carriers." This Statement amends SFAS
No. 13, "Accounting for Leases", to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic affects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
provisions of this Standard are not expected to have a significant effect on the
Company's financial position or operating results. SFAS No. 145 is effective for
fiscal years beginning after May 15, 2002. The Company does not anticipate that
the adoption of SFAS No. 145 will have a significant impact on the Company's
consolidated financial statements.

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." This Statement is to be
applied prospectively to exit or disposal activities initiated after December
31, 2002, though early adoption is encouraged. The Company's management is
currently evaluating the provisions of SFAS No. 146 and its potential impact on
the Company's consolidated financial statements.

Reclassifications

         Certain amounts in the prior period financial statements have been
reclassified to be consistent with the current year presentation.

4.       RECEIVABLES

         During the period ending 2001, the Company began servicing some of its
own receivables rather than selling all receivables to a third party financing
company. Contract receivables consist of receivables from customers on contracts
that the Company is servicing or has engaged a third party to service. Contract
receivables consist of the following:

                                    Page 53

<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Notes to Consolidated Combined Financial Statements
--------------------------------------------------------------------------------

                                                         June 30,
                                                   2002               2001
                                             -----------------  ----------------

Contract receivables - current                   $3,503,402          $1,955,752
    Allowance for doubtful accounts              (1,751,701)           (685,000)
                                             -----------------  ----------------
Contract receivables - current, net               1,751,701           1,270,752
                                             =================  ================

Contract receivables - long-term                 $6,800,726          $3,911,503
    Allowance for doubtful accounts              (3,400,363)         (1,369,000)
                                             -----------------  ----------------
Contract receivables - long-term, net             3,400,363           2,542,503
                                             =================  ================

         Trade receivables are comprised of primarily receivables related to
residuals and credit billing receivable.

         Current retainage receivable consist primarily of amounts held by the
Company's credit card merchant accounts.

         Other accounts receivable are comprised of the following:

                                                         June 30,
                                                     2002         2001
                                                  -----------   ---------

Netgateway settlement receivable (Note 5)         $260,631       $     0
Employee receivable                                    373         4,500
                                                  -----------    ---------
                                                   261,004         4,500
                                                  ===========    =========

         Long-term retainages consist of the reserves held by financing
companies that fund the majority of the financing contracts. As the Company
sells its financing contracts, the financing companies retain portions of the
funded amounts as reserves in the event of default. These reserves are to be
released to the Company as customers make monthly payments. The amounts to be
released are determined periodically by the finance companies in accordance with
the terms of the receivables purchase agreements. Long-term retainage
receivables consist of the following at:

                                                           June 30,
                                                    2002             2001
                                                   -----------     ----------

Retainage receivables - long-term                 $2,003,487         $567,461
    Allowance for doubtful accounts                 (338,939)               -
                                                  ------------    ------------
Contract receivables - long-term, net              1,664,548          567,461
                                                  ============    ============

5.       ACQUISITIONS

         On October 23, 2001, Category 5, Netgateway, Inc., a Delaware
corporation, and C5T Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of Category 5, entered into an Agreement and Plan of Merger, pursuant
to which C5T Acquisition Corp. would merge with and into Netgateway, with
Netgateway as the surviving corporation. In connection with the proposed merger
between Netgateway and C5T Acquisition Corp., Category 5 filed a registration
statement on Form S-4 with the Securities and Exchange Commission on November
11, 2001. However, the respective boards of directors of Category 5 and
Netgateway subsequently determined that the merger was no longer in the best

                                    Page 54

<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Notes to Consolidated Combined Financial Statements
--------------------------------------------------------------------------------

interests of their respective companies and, on January 14, 2002, Category 5,
C5T Acquisition Corp. and Netgateway entered a Termination and Release Agreement
that terminated the Agreement and Plan of Merger. Pursuant to the Termination
Agreement, Netgateway is required to pay to Category 5 an expense reimbursement
fee in the aggregate amount of $260,631. On January 18, 2002, Category 5 filed
with the Securities and Exchange Commission a letter withdrawing entirely the
previously filed S-4.

         On January 9, 2002, the Company completed its purchase of the issued
and outstanding membership interests of Exposure International Direct Marketing
Systems, Inc. for cash of $12,500, which had acquired the assets of Mancala,
Inc. (dba Word of Mouth), under the approval of the Federal Bankruptcy Court.
Exposure International Direct Marketing System, Inc. holds certain intellectual
property and software that the Company may sell and/or license. The software is
an advanced email marketing and promotions product that enables businesses to
communicate with existing and prospective customers on a targeted, real-time
basis. The software is tied to a database that aggregates information and
enables companies to perform data-mining to further customize communications and
promotions. The pre-acquisition revenue and net income of Exposure International
Direct Marketing System, Inc. are not material to the results of the Company
and, accordingly, no pro forma results have been presented.

         On January 22, 2002, the Company completed its acquisition of
Transaxis, S.A., a Swiss Company ("Transaxis"). Pursuant to a stock purchase and
exchange agreement, the Company acquired all of Transaxis' outstanding capital
stock for 15,000 restricted shares of our common stock. The Company recorded
$36,000 of intangible assets related primarily to the acquisition of certain
license agreements. Currently, Transaxis provides processing solutions to
merchants and financial institutions in England and Western Europe. The
operations of Transaxis are included in the Company's results as of the date of
acquisition. The pre-acquisition revenue and net income of Transaxis are not
material to the results of the Company and, accordingly, no pro forma results
have been presented.

         On February 27, 2002, the Company completed its acquisition of
Bottomline Online, Inc. ("Bottomline Online"). Pursuant to a stock purchase and
exchange agreement, the Company acquired all of Bottomline Online outstanding
capital stock for 225,000 restricted shares of common stock. Bottomline Online,
Inc. has developed proprietary software to enable businesses to affordably
create their own Internet storefronts with full e-commerce capabilities. The
Company recorded an increase in net property and equipment of $573,750 related
to the software obtained through the Bottomline Online acquisition. The
operations of Bottomline Online are included in the Company's results as of the
date of acquisition. The pre-acquisition revenue and net income of Bottomline
Online are not material to the results of the Company and, accordingly, no pro
forma results have been presented.

         On March 1, 2002, the Company completed its acquisition of Flash Ally,
LLC ("Flash Ally"). Pursuant to a LLC membership exchange agreement, the Company
acquired all of Flash Ally membership interests for 2,000,000 restricted shares
of common stock. At closing 500,000 shares were issued to the former members of
Flash Ally, and the remaining 1,500,000 shares were deposited into an escrow
account, to indemnify the Company against certain representations and warranties
made by Flash Ally, and to serve as an "earn out" upon attainment by Flash Ally
of certain revenue and profitability targets. The Company initially recorded
goodwill of $1,535,000 arising from the acquisition of Flash Ally, however, the
goodwill arising from the Flash Ally acquisition was subsequently written-off as
1) the estimated future cash flows related to Flash Ally indicated that an
impairment of the full value had occurred, and 2) the Flash Ally technology, as
a stand-alone product, was deemed unfeasible for use in the Company's software
product. The operations of Flash Ally are included in the Company's results as
of the date of acquisition. The pre-acquisition revenue and net income of Flash
Ally are not material to the results of the Company and, accordingly, no pro
forma results have been presented.

         On April 10, 2002, the Company completed its acquisition of
CaptureQuest, Inc. ("CaptureQuest" and "CaptureQuest Acquisition"), valued at
$5,475,000 through the issuance of 3,105,769 shares of the Company's common
stock. Pursuant to a stock purchase and exchange agreement, the Company acquired
all of CaptureQuest's outstanding capital stock for 3,105,769 restricted shares
of common stock. At closing 2,105,769 shares were issued to the former
shareholders of CaptureQuest, and the remaining 1,000,000 shares were deposited
into an escrow account, to indemnify the Company against certain representations

                                    Page 55

<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Notes to Consolidated Combined Financial Statements
--------------------------------------------------------------------------------

and warranties made by CaptureQuest, and to serve as an "earn out" upon
attainment by CaptureQuest of certain revenue and profitability targets. The
Capture Quest Acquisition was accounted for by the purchase method of
accounting. Results of operations of CaptureQuest, Inc. have been included in
the Company's consolidated combined financial statements since the date of
acquisition.

         The purchase price exceeded the fair value of the tangible and
identifiable intangible assets acquired by $2,187,947. The following is a
summary of the allocation of the purchase price:

        Cash                                                    $    28,848
        Investments                                               1,000,000
        Current assets                                               78,529
        Property and equipment                                      375,145
        Identifiable intangibles                                  2,203,082
        Goodwill                                                  2,187,947
        Accounts payable and accrued liabilities                   (398,551)
                                                                ------------

        Common stock issued                                     $  5,475,000
                                                                ============


         The Company is amortizing the acquired identifiable intangibles over
two years, the term associated with the non-compete agreements.

         Assuming the Capture Quest Aquisition had been made as of July 1, 2001,
the Company's pro forma consolidated revenues for the year ended June 30, 2002
would have been $25,229,395 (unaudited), the pro forma consolidated net loss
would have been $4,167,469 (unaudited) and the pro forma basic and diluted loss
per share would have been $0.48 (unaudited).

6.       SHORT-TERM INVESTMENTS

         A subsidiary of the Company obtained a $1,000,000 Certificate of
Deposit from OmniCorp Bank issued in March 22, 2002. The CD matures March 21,
2003 and has an annual interest rate of 8%.

7.       PREPAID EXPENSES

         Prepaid expenses and other assets consist of the following:

                                                       June 30,
                                                2002               2001
                                          -----------------  -----------------
Prepaid marketing                               $  167,861         $        -
Prepaid commissions                                 92,683            227,539
Prepaid interest and loan costs                      5,085                  -
                                          -----------------  -----------------

                                                $  265,629         $  227,539
                                          =================  =================


8.       PROPERTY AND EQUIPMENT

         Property and equipment consists of the following:


                                    Page 56

<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Notes to Consolidated Combined Financial Statements
--------------------------------------------------------------------------------

                                                   June 30,
                                            2002               2001
                                      -----------------  -----------------
Machinery and equipment                     $  597,948         $  174,801
Furniture and equipment                        127,936             64,309
Software                                       649,757             46,213
Leasehold improvements                          22,231             19,507
                                      -----------------  -----------------

                                             1,397,872            304,830
Less: accumulated depreciation
    and amortization                         (286,516)          (134,269)
                                      -----------------  -----------------

                                           $ 1,111,356         $  170,561
                                      =================  =================

         Depreciation and amortization of property and equipment totaled
$152,247, $34,438 and $63,887 for the year ended June 30, 2002, six months ended
June 30, 2001 and year ended December 31, 2000, respectively.

9.       OTHER LONG-TERM ASSETS

         Other long-term assets consist of the following:

                                                    June 30,
                                             2002              2001
                                        ----------------  ----------------
Goodwill                                    $ 2,187,947         $       -
Identifiable Intangibles                      2,237,082                 -
Deposits                                         74,118            24,118
                                        ----------------  ----------------

                                              4,499,147            24,118
Less: accumulated amortization                 (276,726)                -
                                        ----------------  ----------------

                                            $ 4,222,421         $  24,118
                                        ================  ================


         During the year ended June 30, 2002, the Company recorded goodwill
totaling $3,722,947 arising from the acquisition of CaptureQuest and Flash Ally,
and Company recorded a loss on impairment of goodwill related to the Flash Ally
subsidiary amounting to $1,535,000 (see Note 5).

         Amortization for other long-term assets totaled $276,726 for the year
ended June 30, 2002.

10.      ACCRUED LIABILITIES

         Accrued liabilities consist of the following:



                                                           June 30,
                                                   2002              2001
                                              ----------------  ----------------
Accrued payroll, vacation and benefits             $  439,424        $  153,983
Other accrued liabilities                             201,168            80,733
                                              ----------------  ----------------

                                                   $  640,592        $  234,716
                                              ================  ================



                                    Page 57

<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Notes to Consolidated Combined Financial Statements
--------------------------------------------------------------------------------


11.      COMMITMENTS AND CONTINGENCIES

Operating leases

         The Company leases office facilities in Salt Lake City, Utah and Provo,
Utah.

         On February 21, 2002, the Company entered into a sublease and agreement
("Sublease") to lease office space. The term of the Sublease is forty-four
months commencing on February 11, 2002 and terminating on October 31, 2005.
Monthly lease payments under the Sublease range from $0 for the first year to
$28,517 over the remainder of the lease term. As of June 30, 2002, the Company
has accrued $81,133 in Sublease payments computed using the average rent expense
over the term of the Sublease.

         The Company leases office space from a related party under a
non-cancelable lease agreement. The term of the lease is thirty-six months
commencing on September 1, 2001 and terminating on August 31, 2004, requires
monthly lease payments ranging from $4,473 to $4,745 over the lease term.

         Minimum future payments under these leases are as follows:

  Year Ending
  June 30,
     2003                                                    $   165,458
     2004                                                        386,900
     2005                                                        347,202
     2006                                                        114,069
                                                         ----------------

Total minimum lease payments                                 $ 1,013,629
                                                         ================

         Rental expense for operating leases totaled $296,711, $115,024 and
$173,740 for the year ended June 30, 2002, six months ended June 30, 2001 and
year ended December 31, 2000, respectively.

Legal claims

         The Company is aware of lawsuits related to its services. The amount,
if any, to be paid by the Company in connection with this litigation is
currently not estimable and the likelihood of an unfavorable outcome is not
currently determinable. Management believes these claims are without merit and
will not have a material adverse effect on the Company's financial position.

12.      NOTES PAYABLE

Convertible notes payable

         The Company issued $820,000 of convertible notes payable to 16
investors in November 2001 (the "Convertible Notes"). The convertible notes
payable are due in November 2002, and are presented in the accompanying
financial statements as notes payable. From August 2002 through November 2002,
the investors may convert the Convertible Notes into shares of the Company's
common stock at the lesser of $2.00 per share or the price per share of any
private placement of shares of the Company's common stock that occurs between
November 2001 through November 2002. The Convertible Notes accrue interest at
the rate of 8%. The Company also granted a total of 779,000 warrants to the 16
investors. The warrants granted are exercisable at $1.69 and expire in November
2006. The warrants have been valued at approximately $80,000 for the financial
statements and are classified as additional paid-in capital, and the cost is
being amortized over the term of the Convertible Notes as additional interest
expense. As of June 30, 2002, the remaining unamortized debt discount related to
the warrants is $33,331. As of June 30, 2002, the additional remaining debt
discount is $44,177.

                                    Page 58

<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Notes to Consolidated Combined Financial Statements
--------------------------------------------------------------------------------

Line of credit

         On September 11, 2001, through its wholly-owned subsidiary
ePenzio,Inc., the Company established a $1 million revolving line of credit from
Zions First National Bank (the "Zions Facility"). On August 7, 2002, the Company
obtained a renewal of the Zions Facility which increased the amount of the
credit facility to $2 million. The annual interest rate applied to the unpaid
principal balance of the Zions Facility is 1% over Prime (4.75% on June 30,
2002). Repayment of all accrued and unpaid interest and principal owed under the
Zions Facility was also extended due to September 1, 2003 from September 1,
2002. The Zions Facility is secured by all inventory, chattel paper, accounts
and general intangibles owned by ePenzio on or after September 11, 2001. As of
June 30, 2002, the Company had drawn on the Zions Facility in the amount of
$898,822. Pursuant to the Zions Facility, ePenzio may borrow up to the lesser of
(i) $1 million or (ii) 75% of the aggregate amount of ePenzio's Eligible
Accounts (as specifically defined by the Zions Facility). In addition to
customary affirmative and negative covenants, pursuant to the Zions Facility,
ePenzio must maintain a tangible net worth of not less than $1 million, and a
debt coverage ratio (defined as total earnings, before interest, taxes,
depreciation and amortization to total debt service coverage) of 1.5 to 1.0,
measured on a quarterly basis. The Company is not in compliance with such
covenants. The Company is currently pursuing debt covenants waivers.

Capital lease

         The Company's wholly-owned subsidiary, CaptureQuest, entered into a
long-term capital lease agreement during April 2001 for computer equipment. The
agreement is a thirty-six month lease ending March 2004 requiring monthly
payments of $10,393. The equipment is included in property and equipment as
follows at June 30, 2002:

        Equipment cost                                  $ 149,429
        Less: accumulated amortization                    (59,840)
                                                       --------------

        Net book value                                  $  89,589
                                                       ==============

         Future minimum lease payments under capital leases are as follows:


Year Ending
June 30,
     2003                                            $  182,397
     2004                                                93,537
                                                ----------------

Total minimum lease payments                            275,934
Less: amount representing interest                      (45,556)
                                                ----------------

Present value of capital lease obligations              230,378
                                                ================

Less: current portion                                  (142,683)
                                                ----------------

Capital lease obligation, long-term                  $   87,695
                                                ================


13.      RELATED PARTY TRANSACTIONS

Loans from Shareholders

         During May 2001, two of the Company's shareholder advanced $12,200 to
the Company at 8% interest, payable on demand.

         Two of the Company's shareholders made advances to a subsidiary of the
Company. At June 30, 2002, the amount due to the shareholders was $198,867.

                                    Page 59

<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Notes to Consolidated Combined Financial Statements
--------------------------------------------------------------------------------

Office Lease

         A subsidiary of the Company leases office space from a related party
under a three year lease agreement commencing September 1, 2001 (Note 11).

14.      SHAREHOLDERS' EQUITY

Common Stock

         Each share of common stock has the right to one vote. The holders of
common stock are also entitled to receive dividends whenever funds are legally
available and when declared by the Board of Directors, subject to prior rights
of holders of all classes of stock outstanding having priority rights as to
dividends.

         During the year ended June 30, 2002, the Company issued 737,500 common
shares in exchange for various services. The value of the shares issued is
$282,626. No shares were issued for services during the period ended June 30,
2001.

         On June 20, 2002, the Company and the former shareholders of ePenzio,
Inc. entered into an Amendment to Stock Purchase Agreement (the "Amended
Agreement"). Pursuant to the agreement, the Company will be responsible for the
income tax associated with $5,007,005 of ePenzio receivables the Company
recorded in connection with its acquisition of ePenzio and $1,200,000 of revenue
associated with the conversion by ePenzio from the cash to accrual methods
accounting at the time of the acquisition. The income tax liability is estimated
to be approximately $1,130,000. Under the Amended Agreement the former
shareholders returned an aggregate of 1,000,000 common shares to the Company to
be retired.

Warrants

         In May 2001, the Company issued 600,000 warrants to purchase common
stock in exchange for consulting services, exercisable at $0.25 per share. No
compensation expense was recorded as their was no determinable value for the
common stock.

         In September 2001, the Company issued 350,000 warrants to purchase
common stock in exchange for consulting services. The warrants are exercisable
at $1.69 per share. The Company recorded compensation of $35,000 related to
these warrants.

         In November 2001, the Company granted a total of 779,000 warrants to
the 16 investors in conjunction with convertible notes payable. The warrants
granted are exercisable at $1.69 and expire in November 2006. The warrants have
been valued at approximately $80,000 for the financial statements and are
classified as additional paid-in capital. In conjunction with convertible notes
payable, the Company issued an additional 218,900 of warrants as a "finders" fee
in September and November 2001. The warrants have been valued at approximately
$27,210 for the financial statements and are classified as additional paid-in
capital.

         At June 30, 2002, warrants to purchase 1,947,900 shares of common stock
of the Company were outstanding, as follows:


                                    Page 60

<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Notes to Consolidated Combined Financial Statements
--------------------------------------------------------------------------------

                             Exercise
                              Price
Date of Issue               per Share          Warrants       Expiration Date
-------------------      ----------------  --------------  ---------------------

May 1, 2001                       $ 0.25         600,000   May 21, 2006
September 14, 2001             0.25-1.69         450,000   September 14, 2006
November 21, 2001              1.69-2.00         753,025   November 21, 2006
November 29, 2001                   1.69         144,875   November 29, 2006
                                               ----------

                                                1,947,900
                                               ==========

         No warrants have been exercised as of June 30, 2002.

         The Company has reserved sufficient shares of common stock to meet its
stock option and warrant obligations.

15.      Stock Option Plan

         As a result of the reverse merger transaction the Company assumed an
option agreement with each of its two employee Directors. The terms of the
agreements provide the Directors the right to purchase up to an aggregate of
400,000 common shares at $0.25 per share. One-third of the options vested in May
2001, one-third vested in May 2002, and the remaining one-third will vest in May
2003. The options expire in May 2011. As of June 30, 2002, no exercises of these
stock options had occurred.

         As a result of the reverse merger transaction the Company assumed a
2001 Director Option Plan. The maximum aggregate number of shares of common
stock that may be optioned and sold under the plan is 1,000,000. Each new
outside Director shall be automatically granted an option to purchase 5,000
shares of common stock on January 1 of each year, if on such date the Director
has served on the Board for at least six months. The options expire ten years
after the date of grant, and the options are fully exercisable six months after
the date of grant. The exercise price shall be 100% of the fair market value per
share on the date of grant, and the options are exercisable only while the
outside Director remains a Director of the Company. As of June 30, 2002, no
stock options under the 2001 Director Stock Plan had been granted.

         In addition, the Company assumed an option agreement with a
non-employee Director in May 2001. The terms of the agreement provide the
outside Director the right to purchase up to an aggregate of 200,000 common
shares at $0.25 per share. One-third of the options vested in May 2001,
one-third vested in May 2002, and the remaining one-third will vest in May 2003.
The options expire in May 2011. As of June 30, 2002, no exercises of these stock
options had occurred.

         During July 2001, the Company's board of directors adopted a Stock
Option Plan (the "Plan"). Under the Plan, the Board of Directors may issue the
following types of stock compensation awards: stock options (non-qualified and
incentive), stock appreciation rights, performance shares of common stock,
restricted stock awards, and dividend equivalents. Options granted under this
Plan expire at the end of five years and vest in accordance with a vesting
schedule determined by the Company's Board of Directors, usually over three
years from the grant date. The Plan provides for grant of up to 3,000,000
shares. In October 2001, the Plan was amended and the number of options
available for grant was increased to 6,000,000, of which 3,871,375 shares were
reserved for future issuance at June 30, 2002.

         The following is a summary of stock option activity:

                                    Page 61

<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Notes to Consolidated Combined Financial Statements
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                            June 30,
                                              2002                            2001
                                   ---------------------------------------------------------------
                                                    Weighted                         Weighted
                                                     Average                          Average
                                      Shares     Exercise Price       Shares      Exercise Price
                                   ------------- ----------------  -------------  ----------------

<S>                                   <C>                 <C>           <C>                <C>
Outstanding - beginning of period       600,000           $ 0.25              -            $    -
    Granted at fair value             1,997,000             0.93        600,000              0.25
    Exercised                            (9,594)            0.25              -                 -
    Cancelled/forfeited                (458,781)            0.25              -                 -
                                   -------------                   -------------
Outstanding - end of period           2,128,625             0.89        600,000              0.25
                                   =============                   =============

Options exercisable at period-end       910,093             0.63        199,993              0.25
                                   =============                   =============
</TABLE>

         The following table summarizes information about stock options as of
June 30, 2002:
<TABLE>
<CAPTION>

                                 Options Outstanding at                                    Options Exercisable at
                                     June 30, 2002                                              June 30, 2002
                     -------------------------------------------------------    ------------------------------------
                                                               Weighted
  Range of                                 Weighted             Average                              Weighted
  Exercise                                  Average              Years                                Average
  Prices                 Shares         Exercise Price         Remaining            Shares        Exercise Price
------------------   ---------------  --------------------------------------    --------------- --------------------

<C>                       <C>                      <C>                 <C>             <C>                   <C>
$0.00 - $0.25             1,446,125                $ 0.25              8.30            735,301               $ 0.25
$0.26 - $1.13               132,500                  1.13              6.97             37,292                 1.13
$1.14 - $2.50               550,000                  2.50              4.70            137,500                 2.50
                     ---------------                                            ---------------

                          2,128,625                  0.89              7.29            910,093                 0.63
                     ===============                                            ===============
</TABLE>

         Had compensation expense for the Company's option plan been determined
based on fair value at the grant dates, as prescribed in SFAS No. 123, the
Company's net loss would have been as follows:
<TABLE>
<CAPTION>

                                                   Year Ended      Six Months Ended       Year Ended
                                                    June 30,          June 30,           December 31,
                                                      2002              2001                2000
                                                   ----------      ----------------      ------------
<S>                                             <C>                <C>                  <C>
Net (loss) income
  As reported                                   $  (3,377,873)     $  4,324,972         $  1,700,995
  Pro forma                                        (4,328,541)        4,324,972            1,700,995

Earnings per common share-basic-as reported     $       (0.25)     $       0.46         $       0.19

Earnings per common share-diluted-as reported   $       (0.25)     $       0.42         $       0.19

Earnings per common share-basic-pro forma       $       (0.32)     $       0.46         $       0.19

Earnings per common share-diluted-pro forma     $       (0.32)     $       0.42         $       0.19
</TABLE>

         The weighted-average grant-date fair value of options granted during
year ended June 30, 2002 and 2001 was $0.55 and $0.23 per share. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions:


                                    Page 62
<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Notes to Consolidated Combined Financial Statements
--------------------------------------------------------------------------------
                                                       June 30,
                                                2002            2001
                                                ----            ----

Risk-free interest rate                         3.80%           5.58%
Expected life (in years)                           5               5
Expected volatility                           100.00%         100.00%
Expected dividend yield                         0.00%           0.00%

16.      Employee Benefit Plan

         The Company offers an employee benefit plan under Section 401(k) of the
Internal Revenue Code. All full-time employees who have attained the age of 21
and have completed twelve months and 1,000 hours of service with the Company are
eligible to participate. The Company matches a percentage of the employee's
contributions, which is determined each year at the discretion of management. In
addition, the Company may contribute an annual amount at the discretion of
management. Vesting in these contributions is over a period of one to four
years. The expense related to the plan for the year ended June 30, 2002, six
months ended June 30, 2001 and the year ended December 31, 2000 was $76,617, $0
and $15,000, respectively.

17.      Income Taxes

         Components of income tax (benefit) provision reflected in the
consolidated statements of operations are as follows:
<TABLE>
<CAPTION>

                                                                             Year ended         Six months ended      Year ended
                                                                               June 30,              June 30,         December 31,
                                                                                2002                 2001               2000
                                                                          -----------------    ------------------   ---------------

   <S>                                                                         <C>                <C>                   <C>
   Expected tax benefit (expense) at federal statutory rate                    $ 1,096,000        $ (1,423,000)        $   (578,000)

   State income taxes, net of federal income tax benefit                           147,000             (92,000)             (60,000)

   Non-deductible impairment and depreciation                                     (707,000)                  -                    -

   Change in valuation allowance                                                  (690,000)            690,000

   Income attributable to period before
     conversion to "C" corporation                                                       -             965,000              638,000
                                                                          ----------------- ------------------- --------------------

   Income tax (expense) benefit                                                   (154,000)            140,000                    -
                                                                          ----------------- ------------------- --------------------
</TABLE>


         The components of deferred taxes included in the balance sheet are as
follows:
<TABLE>
<CAPTION>


                                                                         June 30,
                                                                  2002              2001
                                                            -----------------  ----------------
<S>                                                              <C>                <C>
Deferral of revenue related to Contract receiable                $(3,704,000)       $        -
Allowance for doubtful accounts - Contracts receivable             1,856,000           830,000
Allowance for doubtful accounts - Retainages                         197,000                 -
Accrued vacation                                                      33,000                 -
Net operating loss                                                   474,000
Valuation allowance                                                        -          (690,000)
                                                            -----------------  ----------------

   Total deferred (liability) assets                             $(1,144,000)       $  140,000
                                                            =================  ================
</TABLE>

                                    Page 63

<PAGE>


         Category 5 Technologies, Inc. and Subsidiaries
         Notes to Consolidated Combined Financial Statements
--------------------------------------------------------------------------------


         The Company has approximately $1.3 million in net operating loss carry
forwards which are available to offset future income through their expiration
beginning in 2001.

18.      Business Segments

         With the acquisition of CaptureQuest in April 2002, the Company began
tracking results in more than one segment. Accordingly, effective for the year
ended June 30, 2002, segment information has been prepared in accordance with
Financial Accounting Standards Board SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." Segments were determined based on
products and services provided by each segment. Accounting policies of the
segments are the same as those described in Note 3. There were no intersegment
sales or transfers for the periods below. The Company evaluates the performance
of its segments and allocates resources to them based primarily on gross profit.
The table below summarizes information about reportable segments.
<TABLE>
<CAPTION>

                                                                  Category 5
                                                                Technologies,
                                                                     Inc.           CaptureQuest      Consolidated
                                                              ------------------------------------  ----------------
<S>                                                               <C>                  <C>             <C>
As of and for the year ended June 30, 2002
Net sales                                                         $ 24,085,764         $  306,953      $ 24,392,717
Cost of sales                                                       14,339,584             97,184        14,436,768
Gross profit                                                         9,746,180            209,769         9,955,949
Operating expenses                                                  12,680,934            789,654        13,470,588
Other income                                                           270,953             19,813           290,766
(Provision) benefit for income taxes                                  (154,000)                 -          (154,000)
                                                              -----------------  -----------------  ----------------
Net loss                                                            (2,817,801)          (560,072)       (3,377,873)
                                                              =================  =================  ================
</TABLE>

         All sales of both segments were made to customers in the United States
of America. All of the Company's fixed assets were located in the United States.

19.      SUBSEQUENT EVENTS

         On August 7, 2002, the Company obtained a renewal of the Zions Facility
which increased the amount of the credit facility to $2 million. Repayment of
all accrued and unpaid interest and principal owed under the Zions Facility was
also extended due to September 1, 2003 from September 1, 2002.

         In August of 2002, Home, Inc., the Company's largest seminar lead
source, discontinued their operations and terminated their relationship with the
Company.

         In July 2002, the boards of directors of MindArrow Systems, Inc. and
Category 5 Technologies, Inc. have agreed on a merger of the Company with and
into a subsidiary of MindArrow. The Company will become a wholly owned
subsidiary of MindArrow and the Company stockholders will receive, for each
share of the Company common stock that they own:

         o    2.3 shares of MindArrow common stock, representing 55.3% of the
              total outstanding shares of MindArrow immediately following the
              merger, and

         o    a warrant to acquire 0.5 shares of MindArrow common stock at an
              exercise price of $0.01 per share, vesting only upon the
              achievement of certain financial objectives by Category 5's
              subsidiary, ePenzio, Inc. following the merger.

         The surviving company will be known as Avalon Digital Marketing
Systems, Inc. The merger was approved by the stockholders of both companies on
September 30, 2002.

                                    Page 64

<PAGE>

ITEM 8.  Changes In And Disagreements With Accountants On Accounting And
         Financial Disclosure

         On August 7, 2001 we notified our accountant, David T. Thomson, P.C.
that he was being dismissed as our independent auditor. The stated reasons were
that we wanted a larger auditing firm as we have experienced growth. Our board
of directors made the decision to change auditors.

         Effective August 7, 2001 we engaged Tanner + Co. as our independent
public auditors, replacing its former auditor, David T. Thompson, P.C. Such
appointment was accepted by Tanner + Co. Prior to such engagement, we had not
consulted Tanner + Co. on any prior matters, including any matters relative to
the application of accounting principles or any subject of disagreement with
David T. Thompson, P.C.

         The prior accountant's report of October 4, 2000 on the financial
statements for the years ended June 30, 2000 and 1999, was not qualified or
modified in any manner (other than a going concern qualification) and contained
no disclaimer of opinion or adverse opinion. There were no disagreements with
David T. Thompson, P.C. on any matter of accounting principle or practice,
financial disclosure or auditing scope or procedure as related to our financial
statements.

         During our two most recent fiscal years and during any subsequent
interim period preceding the date of resignation, we had no disagreements with
David T. Thompson, P.C. on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.

         As required by Item 304(a)(3) of Regulation S-B, Category 5 furnished
David T. Thompson, P.C. with the disclosures contained in the Current Report on
Form 8K/A, Amendment No. 2, we filed with the Commission on August 28, 2001, and
requested that David T. Thompson, P.C. provide us a letter addressed to the
Commission stating that either it agrees with the statements made by us herein
or that it does not agree with such statements and the respects in which it does
not agree. A copy of David T. Thompson's, P.C. letter dated August 28, 2001 was
included as an exhibit to our Form 8-K/A filed with the Commission on August 28,
2001.


                                    Page 65

<PAGE>
                               PART III

ITEM 9.       Directors And Executive Officers Of The Registrant

         Our directors and executive officers, their respective ages and
positions with us as of September 30, 2002 are as follows:

Name                          Age          Position
----                          ---          --------

Paul Anderson                 33           Director and President of ePenzio;
                                           Chairman of the Board of Directors
                                           and Chief Executive Officer

Brad Crawford                 44           Director and Chief Operating Officer
                                           of ePenzio

Tyler Thompson                28           Director and Executive Vice President
                                           of Sales and Marketing

Edward Mooney                 42           Director

Shelly Singhal                36           Director

Troy Kearl                    34           Director and Vice President of
                                           Product Development

Matthew Greene                33           Executive Vice President of ePenzio

Jade B. Millington            31           Vice President of ePenzio

         Paul Anderson has been a director since May 29, 2001 and the President
of ePenzio since May 1998. Since July 5, 2002, Mr. Anderson has been our Acting
Chairman and Chief Executive Officer. Since 1993, Mr. Anderson has been
responsible for having consulted with or trained entrepreneurs in the U.S. and
Canada in small business marketing and sales concepts. From 1993 to 1996, Mr.
Anderson worked as a corporate trainer for Freecom Communications. Mr. Anderson
was responsible for designing and delivering presentations to help small
business owners broaden their customer base and enhance their sales abilities at
Freecom Communications. In 1996, Mr. Anderson worked in a similar position with
Eleva, Incorporated. In 1997, he began consulting with independent sales
organizations in the bankcard industry in an effort to enhance their marketing
efforts and build their merchant bases. In 1998, Mr. Anderson co-founded
ePenzio.

         Brad Crawford has been a director since May 29, 2001 and the Chief
Operating Officer of ePenzio since May 1998. Prior to joining ePenzio, Mr.
Crawford founded and managed Dream Catcher, a Utah-based company. Dream Catcher
oversaw and supervised the management of various recreational assets. As the
founder, Mr. Crawford was responsible for all aspects of the business including
developing client relationships and regular reporting to other investors. Dream
Catcher is still an on-going concern. Before starting Dream Catcher, Mr.
Crawford founded Val-Dev, LC, a family-owned company involved in the development
and management of real estate. Prior to Val-Dev, Mr. Crawford founded and ran
other small companies with interests in automotive products, boats, and custom
woodwork.

         Tyler Thompson has been a director since April 23, 2002 and the
Executive Vice President of Sales and Marketing since May 1, 2002. Prior to our
acquisition of CaptureQuest, Inc. in March 2002, Mr. Thompson served as Chairman
and Chief Executive Officer of CaptureQuest, a rich-media technology and
solutions provider focusing on multimedia and rich-media advertising. From 1999
to 2000, Mr. Thompson owned and operated The Mulligan Group, an operational and
management consulting company which focused on building operational
infrastructures for Internet and high tech start-up companies. From 1998 to
1999, Mr. Thompson also worked with the Business Software Alliance, an industry
business software trade association, as its Director of Metrics. Mr. Thompson
received his Batchelor of Arts degree from Brigham Young University and a
Masters Degree in Business and Real Estate Development from MIT.

         Edward P. Mooney has served as a director since May 29, 2001. Since
April 2001 Mr. Mooney has served as Executive Vice President and a Director of
USA Broadband, Inc., a publicly-traded company serving the digital
entertainment, data and broadband marketplace. From April 1999 to April 2000,
Mr. Mooney served as Executive Vice President, Secretary and Treasurer of
RateXchange Corporation (formerly NetAmerica.com Corporation and NetAmerica
International). He served as a Director of RateXchange, a publicly-traded
company, and various of its operating subsidiaries from December 1998 until

                                    Page 66

<PAGE>

March 2000. Previously, Mr. Mooney served in various corporate and business
development roles for WorldPort Communications, Inc., a publicly traded
international telecommunications company, from September 1996 until April 1999,
including periods where he served as either an officer or director. From April
1999 until June 2001, Mr. Mooney has served as an employee and/or a consultant
to Maroon Bells Capital Partners, Inc., where he has specialized in strategic
planning, corporate valuations, corporate governance and financial analysis. Mr.
Mooney currently provides consulting services to, among others, Maroon Bells
Capital LLC and some of its clients. Mr. Mooney holds a Bachelor of Arts degree
in Geography from San Francisco State University and a Master of Arts degree in
Education from California State University, Long Beach.

         Shelly Singhal has been a director since February 2002. He is currently
Managing Director of Technology Investment Banking for SBI USA, LLC, a
successor-in-interest to SBI-E2-Capital (USA) Inc. Previously he was Managing
Director of Technology Investment Banking for BlueStone Capital Securities,
Inc., and Managing Director of Corporate Finance at Roth Capital Partners where
he was head of the E-Commerce Group and Manager of the Roth Capital Partners
Bridge Fund.

         Troy Kearl has been a director of Category 5 and its Vice President of
Product Development since March 1, 2002. From March 1993 until July 2001, Mr.
Kearl was founder and President of Uniq Studios, Inc. a media advertising,
design and marketing agency spanning both interactive and traditional media.
While at Uniq Mr. Kearl invented the "Intellidisc" technology, a proprietary,
patent-pending technology that combines CD-ROM and server content into one
medium having the delivery capabilities of each for delivery of comprehensive
messaging. Prior to computer programming, Mr. Kearl was employed from 1991 until
1992 as a Japanese translator for Sumitomo. Mr. Kearl attended the University of
Utah and has a minor in Japanese.

         Matthew Greene has been the Executive Vice President of ePenzio since
August 1999. Prior to joining ePenzio, Mr. Greene served as Acquisition Manager
for Booth Creek Golf and Golfstar Management, LLC, a start-up venture formed to
acquire golf courses and golf-related properties across the United States. From
July 1994 to March 1997, Mr. Greene worked in a marketing and sales position for
Freecom Communications. From March 1992 to October 1992, Mr. Greene served as
the Marketing Manager for Segufix, GmbH in Hamburg, Germany. Mr. Greene is a
graduate of Utah State University. He also obtained an MBA from the Marriott
School of Management at Brigham Young University.

         Jade B.  Millington has been the Vice President of ePenzio since August
1999. Prior to joining ePenzio,  from April 1998 to August 1999, Mr.  Millington
worked with Booth Creek Golf and Golfstar  Management,  LLC, a start-up  venture
formed to acquire golf  courses and  golf-related  properties  across the United
States.  From  May  1995  to  August  1997,  Mr.  Millington  worked  with  D.B.
Fitzpatrick & Co. Inc., an institutional  money management firm  specializing in
fixed-income  products.  Mr. Millington completed his Bachelor's degree at Boise
State University in Finance, graduating Magna Cum Laude, and obtained a MBA from
the Marriott School of Management at Brigham Young University.

Board Composition

         We currently have authorized seven directors. All directors are elected
to hold office until our next annual meeting of stockholders and until their
successors have been elected. Officers are elected and serve at the discretion


                                    Page 67

<PAGE>

of the board of directors. There are no family relationships among any of our
directors or executive officers. We have established the following board
committees:

         Audit Committee

         The audit committee currently consists of only Mr. Singhal. Mr. Mooney
recently resigned his seat on the audit committee. The audit committee
recommends to the board of directors the appointment of independent auditors,
reviews and approves the scope of the annual audit and other non-audit services
performed by the independent auditors, reviews the findings and recommendations
of the independent auditors and periodically reviews major accounting policies
and significant internal accounting control procedures.

         Compensation Committee

         The compensation committee consists of Messrs. Singhal and Mooney. The
compensation committee reviews and approves compensation and benefits for our
executive officers. The compensation committee also makes recommendations to the
board of directors regarding the administration of our stock plans.

Director Compensation

         We may reimburse directors for reasonable expenses pertaining to
attending meetings, including travel, lodging and meals but we do not pay
directors for their services as directors. On May 29, 2001, we granted to each
of William Gibbs and Edward Mooney a stock option to purchase 200,000 shares of
our common stock at an exercise price of $0.25 per share, the fair market value
of our common stock on the date of such grant. One third, or 66,667 shares,
vested immediately upon grant and one third have vested or will vest on each of
the next two anniversaries of the date of grant. Messrs. Gibbs and Mooney were
granted these options as an inducement to serve on our board of directors. These
options were not granted pursuant to the 2001 Director Option Plan. On June 24,
2002, we granted Shelly Singhal an option to purchase 50,000 shares of common
stock, at an exercise price of $1.13 per share, pursuant to the 2001 Director
Option Plan.

Section 16(A) Beneficial Ownership Reporting Compliance

         Based upon our review of forms filed by directors, officers and certain
beneficial owners of our common stock (the "Section 16 Reporting Persons")
pursuant to Section 16 of the Securities Exchange Act of 1934, as amended, we
have identified the following filings that were filed late by the Section 16
Reporting Persons during and with respect to the fiscal year ended June 30,
2002:

                                                 Number of
                                                transaction    Known failure
                                                not reported      to file
                                Number of       on a timely      required
   Name               Form(s)  late filings        basis          forms
-------------------------------------------------------------------------------

Mitch Edwards          F4/F5         2              2               2
Paul Anderson           F4           1              1               NA
Brad Crawford           F4           1              1               NA
Matthew Greene          F5           0              1               1
Jade Millington         F5           0              1               1
Tyler Thompson         F3/F5         0              1               2
Troy Kearl              F3           0              0               1
Shelly Singhal         F3/F5         0              1               2





                                    Page 68

<PAGE>


ITEM 10.      Executive Compensation

         The following table sets forth information regarding the compensation
of certain of our executive officers for the year ended June 30, 2002, the six
months ended June 30, 2001 and the twelve months ended December 31, 2000 and
1999 (hereinafter referred to as "named executive officers").


Summary Compensation Table
<TABLE>
<CAPTION>

                                                                   Annual Compensation
                                                               ----------------------------------
   Name and Principal Position               Year or Period    Salary       Bonus       Other (1)
   ---------------------------               --------------    ------       -----       ---------
<S>                                                <C>          <C>         <C>
Paul Anderson (2)
President and Chief
Executive Officer, Chief
Executive Officer of ePenzio                       2002         $ 175,000   $   -          **
                                                   2001*           53,192       -          **
                                                   2000            72,000       -          **
                                                   1999            47,500       -       24,000

Brad Crawford (3)
Chief Operating Officer of ePenzio                 2002           175,000       -          **
                                                   2001*           53,192       -          **
                                                   2000            72,000       -          **
                                                   1999            47,500       -       24,000

William C. Gibbs (4)
Former Chief Executive Officer                     2002           250,000       -          **
                                                   2001*           53,192       -          **

Mitchell Edwards (5)
Former President and Chief Financial Officer       2002           250,000       -          **
                                                   2001*           53,192       -          **

</TABLE>

         *    For the six-month period ended June 30, 2001.

         **   Less than 10% of total salary and bonus.

         (1)  Represents  Profit  Sharing Plan  benefits of $48,000  ($24,000 to
              each of Messrs. Anderson and Crawford).

         (2)  In June 1998, Mr. Anderson  co-founded  Executive Credit Services,
              L.C., a limited liability company,  which, on May 17, 2000, became
              ePenzio, Inc., an S corporation. On May 29, 2001, ePenzio became a
              subsidiary of Category 5 and converted to a C corporation. For the
              twelve months ended December 31, 1998, 1999 and 2000, Mr. Anderson
              received  distributions  from ePenzio or Executive Credit Services
              in  the  aggregate  amount  of  $13,500,  $318,795  and  $410,356,
              respectively. For the six months ended June 30, 2001, Mr. Anderson
              received  distributions  from ePenzio in the  aggregate  amount of
              $245,034.

         (3)  In June 1998, Mr. Crawford  co-founded  Executive Credit Services,
              L.C., a limited liability company,  which, on May 17, 2000, became
              ePenzio, Inc., an S corporation. On May 29, 2001, ePenzio became a
              subsidiary of Category 5 and converted to a C corporation. For the
              twelve months ended December 31, 1998, 1999 and 2000, Mr. Anderson
              received  distributions  from ePenzio or Executive Credit Services
              in  the  aggregate  amount  of  $16,200,  $303,135  and  $410,356,
              respectively. For the six months ended June 30, 2001, Mr. Anderson
              received  distributions  from ePenzio in the  aggregate  amount of
              $245,034.

                                    Page 69

<PAGE>

         Option/SAR Grants During the Year Ended June 30, 2002

         The following table sets forth information regarding stock options
granted during the year ended June 30, 2002 to the named executive officers of
Category 5 and ePenzio. No SARs were granted during this year.


                                           Percent of
                          Number of        Total Options
                          Securities        Granted to     Expercise
                          Underlying        Employees in    Price     Expiration
        Name             Options Granted      2002(1)      Per Share     Date
        ----             ---------------   -------------   ---------  ----------
 Paul Anderson                    -           0%             $ -         2006
 Brad Crawford                    -           0%               -         2006
 William Gibbs              500,000          25%            0.25         2006
 Mitchell Edwards           500,000          25%            0.25         2006


----------------------------------

         (1)  Total number of options granted to employees during the year ended
              June 30, 2002 was 1,997,000.

         Aggregated Option/SAR Exercises During Six Months Ended June 30, 2002
         ---------------------------------------------------------------------
And Option/SAR Values At June 30, 2002
---------------------------------------

         The following table sets forth information concerning the exercise of
stock options during the year ended June 30, 2002 by the named executive
officers of Category 5 and ePenzio and lists the value of their unexercised
options on June 30, 2002.

<TABLE>
<CAPTION>


                                                            Number of Securities           Value of Unexercised
                              Shares                       Underlying Unexercised          In-The-Money Options
                             Acquired         Value        Options of June 30, 2002          on June 30, 2002
        Name                on Exercise      Realized     Exercisable   Unexercisable   Exercisable   Unexercisable
        -----               -----------      --------     -----------   -------------   -----------   -------------

<S>                               <C>        <C>            <C>           <C>            <C>            <C>
 Paul Anderson                    -          $   -                -            -         $       -      $       -
 Brad Crawford                    -              -                -            -                 -              -
 William Gibbs                    -              -          299,997      400,003           164,998        220,002
 Mitchell Edwards                 -              -          233,316       66,684           128,324         36,676

</TABLE>
                                               ------------------------

         (1)  Based on the closing  price of our common stock as reported on the
              Over-the-Counter Bulletin Board on June 28, 2002, which was $0.80.


Compensation of Directors

         Members of our board of directors do not receive separate compensation
for services performed as directors. Our non-employee directors do, however,
receive reimbursement for expenses and options to purchase our common stock
pursuant to the 2001 Director Option Plan described below. There is no separate
compensation for committee meeting attendance.

         On June 8, 2001, the board of directors and a majority of our
stockholders adopted the Category 5 Technologies, Inc. 2001 Director Option Plan
for outside directors. Under the 2001 Director Option Plan, 1,000,000 shares
have been reserved for issuance of options. The Director Option Plan is designed
to work automatically with little or no discretionary administration. Only
outside directors are eligible to participate in the 2001 Director Option Plan.
The 2001 Director Option Plan provides that each newly-appointed or elected
outside director, who was not a director on the date on which the 2001 Director
Option Plan became effective, will be granted an option to purchase 25,000
shares of common stock on January 1 of each year after his or her appointment or
election (if, on such date, he or she has served as a director for at least six
months) for so long as he or she remains an outside director, or such other
grant as approved by the board of directors. The term of options granted
pursuant to the 2001 Director Option Plan is 10 years. Options granted under the
2001 Director Option Plan are exercisable only while the recipient remains a

                                    Page 70

<PAGE>

director (with limited exceptions, as provided in the 2001 Director Option
Plan). The exercise price per share must be 100% of the fair market value per
share on the date of grant, and each option shall be fully exercisable upon six
months following the date of grant. As of September 10, 2002, 950,000 shares
remained available for future option grants under the 2001 Director Option Plan.

         Options granted pursuant to the 2001 Director Option Plan are
nonqualified stock options. Nonqualified stock options have no special tax
status. An optionee generally recognizes no taxable income as the result of the
grant of such an option. Upon exercise of a nonqualified stock option, the
optionee normally recognizes ordinary income on the excess of the fair market
value on the date of exercise over the option exercise price. Upon the sale of
stock acquired by the exercise of a nonqualified stock option, any gain or loss,
based on the difference between the sale price and the fair market value on the
date of recognition of income, will be taxed as a capital gain or loss. In the
event of a sale of the option, the optionee recognizes ordinary income on the
difference between the option exercise price and the sale price. No tax
deduction is available to us with respect to the grant of the option or the sale
of stock acquired upon exercise of the option. We should be entitled to a
deduction equal to the amount of ordinary income recognized by the optionee as a
result of the exercise of the nonqualified stock option. Generally, option
recipients will be subject to the restrictions of Section 16(b) of the
Securities Exchange Act of 1934.

         On May 29, 2001, we granted to each of William Gibbs, Mitchell Edwards
and Edward Mooney a stock option to purchase 200,000 shares of our common stock
at an exercise price of $0.25 per share, the fair market value of our common
stock on the date of such grant. One third, or 66,667 shares, vested immediately
upon grant and one third have vested or will vest on each of the next two
anniversaries of the date of grant. Messrs. Gibbs, Edwards and Mooney were
granted these options as an inducement to serve on our board of directors. These
options were not granted pursuant to the 2001 Director Option Plan. On June 24,
2002, we granted to one director, Shelly Singhal, an option to purchase 50,000
shares of common stock at an exercise price of $1.13 per share, pursuant to the
2001 Director Option Plan.

Employee Benefit Plans

         We offer an employee benefit plan under Section 401(k) of the Internal
Revenue Code. All full-time employees who have attained the age of 21 and have
completed twelve months and 1,000 hours of service with the Company are eligible
to participate. We match a percentage of the employee's contributions, which is
determined each year at the discretion of management. In addition, we may
contribute an annual amount at the discretion of management. Vesting in these
contributions is over a period of one to four years. We also have a profit
sharing plan. All full time employees who have attained the age of 21 and have
completed 12 months and 1,000 hours of service with us are eligible to
participate. We make contributions to the profit sharing plan at the discretion
of management.

Employment Contracts, Termination Of Employment And Change-In Control
Arrangements

         Employment Agreements
         ---------------------


                      William C. Gibbs Employment Agreement

On June 1, 2001, Category 5 Technologies entered into an employment agreement
with William C. Gibbs. Pursuant to Mr. Gibbs' employment agreement, Mr. Gibbs
shall serve as Chief Executive Officer of Category 5 Technologies until December
31, 2004, unless the employment term is further extended or sooner terminated in
accordance with the terms of the agreement. Further, Category 5 Technologies
agreed to pay Mr. Gibbs an annual base salary of $250,000, subject to adjustment
as provided in the agreement. Such annualized base salary may be increased from
time to time in accordance with the normal business practices of Category 5
Technologies. However, upon the acquisition by Category 5 Technologies of
another company or its assets which result in Category 5 Technologies having
projected annualized revenues of at least $50 Million, Mr. Gibbs' annual base
salary shall be automatically increased to $350,000, and Mr. Gibbs shall be
entitled to receive a bonus equal to his then annual base salary. Mr. Gibbs is
also entitled to receive other bonuses, when and as declared by the Board of
Directors. Mr. Gibbs is entitled to all benefits normally provided to employees
of Category 5 Technologies similarly situated, including being added as a named
officer on Category 5 Technologies' existing directors' and officers' liability
insurance policy.

          In the case of termination of Mr. Gibbs' employment as a result of
death or disability, Mr. Gibbs (or his surviving spouse or estate, as
appropriate) is entitled to receive all of Mr. Gibbs' accrued benefits and a
termination payment equal to the greater of Mr. Gibbs' gross income for the year
preceding his termination due to death or disability, or $350,000, on an
annualized basis. If Mr. Gibbs terminates his employment for good reason (as
defined in Mr. Gibbs' employment agreement), or Mr. Gibbs' employment is
terminated by Category 5 Technologies for any reason other than death,
disability or cause (as defined in Mr. Gibbs' employment agreement), Mr. Gibbs
shall be entitled to a termination payment equal to the greater of two (2) times
(i) his gross income for the year preceding the termination date, or (ii)
$350,000, on an annualized basis. In the context of a change of control (as
defined in Mr. Gibbs' employment agreement), if Mr. Gibbs terminates his
employment for good reason, or Mr. Gibbs' employment is terminated by Category 5
Technologies for any reason other than death, disability or cause, Mr. Gibbs
shall be entitled to a termination payment equal to the greater of 2.99 times
(i) his gross income for the year preceding the termination date, or (ii)
$350,000, on an annualized basis. In the event Category 5 Technologies
terminates Mr. Gibbs' employment for cause, or Mr. Gibbs terminates his
employment without good reason (both as defined in Mr. Gibbs' employment
agreement), Mr. Gibbs shall be entitled to only those benefits that have accrued
through the date of termination.

          Mr. Gibbs employment was terminated effective August 31, 2002 per a
Severance Agreement and Mutual General Release, effective September 12, 2002.

                    Mitchell L. Edwards Employment Agreement

          On June 1, 2001, Category 5 Technologies entered into an employment
agreement with Mitchell L. Edwards. Pursuant to Mr. Edwards' employment
agreement, Mr. Edwards shall serve as President and Chief Financial Officer of
Category 5 Technologies until December 31, 2004, unless the employment term is
further extended or sooner terminated in accordance with the terms of the
agreement. Further, Category 5 Technologies agreed to pay Mr. Edwards an annual
base salary of $250,000, subject to adjustment as provided in the agreement.
Such annualized base salary may be increased from time to time in accordance
with the normal business practices of Category 5 Technologies. However, upon the
acquisition by Category 5 Technologies of another company or its assets which
result in Category 5 Technologies having projected annualized revenues of at
least $50 Million, Mr. Edwards' annual base salary shall be automatically
increased to $350,000, and Mr. Edwards shall be entitled to receive a bonus
equal to his then annual base salary. Mr. Edwards is also entitled to receive
other bonuses, when and as declared by the Board of Directors. Mr. Edwards is
entitled to all benefits normally provided to employees of Category 5
Technologies similarly situated, including being added as a named officer on
Category 5 Technologies' existing directors' and officers' liability insurance
policy.

          In the case of termination of Mr. Edwards' employment as a result of
death or disability, Mr. Edwards (or his surviving spouse or estate, as
appropriate) is entitled to receive all of Mr. Edwards' accrued benefits and a
termination payment equal to the greater of Mr. Edwards' gross income for the
year preceding his termination due to death or disability, or $350,000, on an
annualized basis. If Mr. Edwards terminates his employment for good reason (as
defined in Mr. Edwards' employment agreement), or Mr. Edwards' employment is
terminated by Category 5 Technologies for any reason other than death,
disability or cause (as defined in Mr. Edwards' employment agreement), Mr.
Edwards shall be entitled to a termination payment equal to the greater of two
(2) times (i) his gross income for the year preceding the termination date, or
(ii) $350,000, on an annualized basis. In the context of a change of control (as
defined in Mr. Edwards' employment agreement), if Mr. Edwards terminates his
employment for good reason, or Mr. Edwards' employment is terminated by Category
5 Technologies for any reason other than death, disability or cause, Mr. Edwards
shall be entitled to a termination payment equal to the greater of 2.99 times
(i) his gross income for the year preceding the termination date, or (ii)
$350,000, on an annualized basis. In the event Category 5 Technologies
terminates Mr. Edwards' employment for cause, or Mr. Edwards terminates his
employment without good reason (both as defined in Mr. Edwards' employment 18
agreement), Mr. Edwards shall be entitled to only those benefits that have
accrued through the date of termination.

        Mr. Edward's employment was terminated on June 20, 2002 per a Severance
Agreement and General Release.

                                   Troy Kearl

         On March 1, 2002, we entered into an employment agreement with Troy
Kearl. Pursuant to Mr. Kearl's employment agreement, Mr. Kearl shall serve as
Vice President of Product Development until December 31, 2002, unless the
employment term is further extended or sooner terminated in accordance with the
terms of the agreement. Further, we agreed to pay Mr. Kearl an annual base
salary of $140,000, subject to adjustment as provided in the agreement. Such
annualized base salary may be increased from time to time in accordance with the
normal business practices. Mr. Kearl is entitled to receive bonuses, when and as
declared by the board of directors. Mr. Kearl is entitled to all benefits
normally provided to employees similarly situated, including being added as a
named officer on our existing directors' and officers' liability insurance
policy. The employment agreement may be terminated upon the death or disability
(as defined in the agreement) of Mr. Kearl. In addition, Mr. Kearl's employment
may be terminated at any time for cause (as specifically defined in the
agreement) or by Mr. Kearl for good reason (as also specifically defined in the
agreement) or in the event Mr. Kearl's health is impaired, making continued
performance of his duties hazardous to his physical or mental health.

         Under Mr. Kearl's employment agreement, he is subject to customary
confidentiality, assignment of inventions, and non-competition provisions during
his employment and which confidentiality and non-competition provisions extend
beyond the termination of his employment for those periods provided in the
agreement.

                                    Page 71

<PAGE>

                                 Tyler Thompson

         On May 1, 2002,  we entered  into an  employment  agreement  with Tyler
Thompson.  Pursuant to Mr. Thompson's employment  agreement,  Mr. Thompson shall
serve as Executive Vice President until December 31, 2004, unless the employment
term is  extended  or  sooner  terminated  in  accordance  with the terms of the
agreement.  Further,  we agreed to pay Mr.  Thompson  an annual  base  salary of
$150,000,  subject to adjustment as provided in the agreement.  Such  annualized
base salary may be  increased  from time to time in  accordance  with the normal
business  practices.  However,  Mr.  Thompson is  entitled  to a minimum  salary
increase of $50,000 per year upon meeting benchmarks and/or performance criteria
established by the Company and Mr.  Thompson.  Mr.  Thompson is also entitled to
receive bonuses, when and as declared by the board of directors.  Moreover,  Mr.
Thompson is entitled to all benefits  normally  provided to employees  similarly
situated.  Mr.  Thompson is also entitled to life  insurance in the amount of $1
Million  and a car  allowance  in the  amount  of $800 per  month,  plus gas and
maintenance.

         In the case of termination of Mr. Thompson's employment as a result of
death or disability, Mr. Thompson (or his surviving spouse or estate, as
appropriate) is entitled to receive all of Mr. Thompson's accrued benefits and a
termination payment equal to the greater of Mr. Thompson's gross income for the
six months preceding his termination due to death or disability, or $150,000, on
an annualized basis. If Mr. Thompson terminates his employment for good reason
(as defined in Mr. Thompson's employment agreement), or Mr. Thompson's
employment is terminated for any reason other than death, disability or cause
(as defined in Mr. Thompson's employment agreement), Mr. Thompson shall be
entitled to a termination payment equal to the greater of Mr. Thompson's gross
income for the twelve months preceding such termination, or $150,000, on an
annualized basis. In the context of a change of control (as defined in Mr.
Thompson's employment agreement), if Mr. Thompson terminates his employment for
good reason, or Mr. Thompson's employment is terminated for any reason other
than death, disability or cause, Mr. Thompson shall be entitled to a termination
payment equal to the greater of Mr. Thompson's gross income for the twelve
months preceding such termination, or $150,000, on an annualized basis. In the
event we terminate Mr. Thompson's employment for cause, or Mr. Thompson
terminates his employment without good reason (both as defined in Mr. Thompson's
employment agreement), Mr. Thompson shall be entitled to only that salary and
those benefits that have accrued through the date of termination.

         Under Mr. Thompson's employment  agreement,  he is subject to customary
non-competition provisions during his employment and for 24 months following the
termination  of his  employment.  Mr.  Thompson  is also  subject  to  customary
assignment  of inventions  provisions  during his  employment,  and to customary
confidentiality provisions at all times during and after his employment.

                                 Matthew Greene

On May 1, 2002, Category 5 Technologies, Inc. executed an employment agreement
with Matthew Greene. Messr. Greene is employed in the position listed below in
exchange for the compensation of $90,000 annually. The term of the employment
agreement ends December 2003, which term is automatically extended for an
additional one-year period unless terminated by the Company or the individual at
least thirty day prior to December 31 of the then current year. The employment
agreement provides for bonues, when and as declared by the board of directors.
In addition, Messr. Greene is entitled to employment benefits afforded employees
of ePenzio in general, including health insurance, paid vacation and employer
contributions to the Company 401(k) plan. Messr. Greene is entitled to a monthly
car allowance of between $500, plus insurance, gas and maintenance.

Category 5 Technologies, Inc. may terminate the employment agreements of Messrs.
Green, Millington at any time for cause or in the event such individual becomes
disabled. Each of Messrs. Greene may terminate his employment with ePenzio for
good reason (as specifically defined in the employment agreements) or if such
individual cannot perform his duties due to impaired health. Under the
employment agreements, eachof Messrs. Greene is subject to customary
non-competition provisions during his employment and for two years following the
termination of his employment. Each of Messrs. Greene Millington is also subject
to customary assignment of inventions provisions during his employment, and to
customary confidentiality provisions at all times during and after his
employment with the Company.


         ePenzio Executive Officer Employment Agreements
         -----------------------------------------------

         On May 22, 2001, ePenzio executed employment agreements with each of
Paul Anderson, Brad Crawford, and Jade Millington. Each of Messrs. Anderson,
Crawford, and Millington is employed in the position(s) listed below in exchange
for the compensation indicated. Each of the employment agreements has a term
ending December 31, 2002, which term is automatically extended for additional
one-year periods unless terminated by either ePenzio or the individual at least
thirty days prior to December 31 of the then current year. Each of the
employment agreements provides for bonuses, when and as declared by the board of
directors. In addition, each of Messrs. Anderson, Crawford, and
Millington is entitled to employment benefits afforded employees of ePenzio in
general, including health insurance, paid vacation and employer contributions to
the ePenzio 401(k) plan. Each of Messrs. Anderson, Crawford, and
Millington is entitled to a monthly car allowance of between $400 and $800, and
coverage for insurance, gas and maintenance. Messrs. Anderson and Crawford are
also entitled to $1 million in life insurance coverage.

         ePenzio may terminate the employment agreements of Messrs. Anderson,
Crawford, and Millington at any time for cause or in the event such
individual becomes disabled. Each of Messrs. Anderson, Crawford, and
Millington may terminate his employment with ePenzio for good reason (as
specifically defined in the employment agreements) or if such individual cannot
perform his duties due to impaired health. Under the employment agreements, each
of Messrs. Anderson, Crawford, and Millington is subject to customary
non-competition provisions during his employment and for two years following the
termination of his employment. Each of Messrs. Anderson, Crawford, and
Millington is also subject to customary assignment of inventions provisions
during his employment, and to customary confidentiality provisions at all times
during and after his employment with ePenzio.

                                    Page 72

<PAGE>

    Officer              Position(s)                         Annual Base Salary
--------------------------------------------------------------------------------

  Paul Anderson       Chief Executive Officer                           $175,000

  Brad Crawford       Chief Operating Officer                           $175,000

  Jade Millington     Vice President and Chief Financial Officer         $80,000

         CHANGE-IN-CONTROL AGREEMENTS
         ----------------------------

         In the context of a change of control (as defined in Mr. Thompson's
employment agreement), if Mr. Thompson terminates his employment for good
reason, or Mr. Thompson's employment is terminated for any reason other than
death, disability or cause, he shall be entitled to a termination payment equal
to the greater of his gross income for the twelve months preceding his
termination or $150,000, on an annualized basis.


                                    Page 73


<PAGE>

ITEM 12.      Security Ownership Of Certain Beneficial Owners And Management


Significant Stockholders

         The following table sets forth certain information regarding beneficial
ownership of our common stock as of September 10, 2002:

         o    By each  person who is known to own  beneficially  more than 5% of
              our common stock;
         o    By each of our current directors;
         o    By each of our named executive officers;
         o    By all the directors and named executive officers as a group.

                                                       Shares
                                                    Beneficially
                                                       Owned(1)       Percentage
                                                    ------------      ----------
Principal Stockholders
----------------------
Peruvian Investments, LLC                              1,000,000            6.0%
23971 Catamaran Way
Laguna Niguel, California  92677

Crescent Advisors, LLC                                   900,000            5.4%
P.O. Box 683900
Park City, Utah  84068

Directors and Executive Officers
--------------------------------
William C. Gibbs (2)                                     916,666            5.4%

Mitchell Edwards (3)                                   1,046,562            6.1%

Paul Anderson                                          2,983,000           17.9%

Brad Crawford                                          2,983,000           17.9%

Edward P. Mooney(4)                                      883,333            5.1%
23971 Catamaran Way
Laguna Niguel, California  92677

Tyler Thompson(5)                                      1,573,015            9.4%

Shelly Singhal(6)                                         16,667             *

Troy Kearl(7)                                          1,033,334            6.2%

Other Executive Officers
------------------------

Matthew Greene(8)                                        617,000            3.7%

Jade B. Millington(9)                                    592,000            3.6%

Directors and Executive Officers as a Group           12,644,577           68.0%


         * Less than one percent.

                                    Page 74

<PAGE>

         (1)  Applicable  percentage  ownership is based on 16,675,316 shares of
              common stock outstanding as of September 10, 2002. Pursuant to the
              rules of the Securities and Exchange  Commission,  shares shown as
              "beneficially"  owned  include  (a)  shares  subject to options or
              warrants currently exercisable or which will be exercisable within
              60  days  of  August  9,  2002,  (b)  shares  attainable   through
              conversion of other  securities  within 60 days of August 9, 2002,
              (c)  shares  held by  unincorporated  entities  and in trusts  and
              estates over which an  individual  holds at least shared voting or
              investment  powers  and (d) shares  held in trusts and  estates of
              which at least ten  percent  of the  beneficial  interest  of such
              trust is attributable to specified persons in the immediate family
              of the individual(s) involved. This information is not necessarily
              indicative of beneficial  ownership for any other purpose.  To the
              best of our knowledge,  the directors and executive  officers have
              sole voting and investment power over the shares common stock held
              in their names, except as noted in the following footnotes.

         (2)  Includes  (i) 450,000 of 900,000  common  shares owned by Crescent
              Advisors,  L.L.C.,  which  provided  consulting and other advisory
              services  to  Category  5, and of which Mr.  Gibbs owns 50% of the
              outstanding  equity interests;  (ii) an option to purchase 200,000
              shares,  133,333 of which are currently exercisable at an exercise
              price of $0.25 per share  with the  remainder  vesting  on May 29,
              2003; and (iii) an option to purchase  500,000 shares,  333,333 of
              which are or will be exercisable at an exercise price of $0.25 per
              share on or before October 8, 2002, with the remainder  vesting on
              August 6, 2003.

         (3)  Includes  (i) 450,000 of 900,000  common  shares owned by Crescent
              Advisors,  L.L.C.,  which  provided  consulting and other advisory
              services  to  us,  and  of  which  Mr.  Edwards  owns  50%  of the
              outstanding  equity interests and (ii) currently vested options to
              purchase 596,562 shares of common stock held by Mr. Edwards.

         (4)  Includes  (i)  150,000  common  shares and a warrant  to  purchase
              600,000  shares,  all of which  are  currently  exercisable  at an
              exercise price of $0.25 per share and owned by Kings Peak Capital,
              L.L.C.,  of which Mr. Mooney is a principal and owner, and (ii) an
              option to purchase 200,000 shares,  133,333 of which are currently
              exercisable  at an  exercise  price of $0.25  per  share  with the
              remainder vesting on May 29, 2003.

         (5)  Includes an option to purchase  100,000 common  shares,  33,334 of
              which are currently  exercisable at an exercise price of $2.50 per
              share,  which the  remainder  vesting  ratably  on may 1, 2003 and
              2004.

         (6)  Includes an option to purchase  50,000  common  shares,  16,667 of
              which are currently exerciseable at an exercise price of $1.13 per
              share, with the remainder vesting on June 24, 2003.

         (7)  Includes an option to purchase  100,000 common  shares,  33,334 of
              which are currently  exercisable at an exercise price of $2.50 per
              share, with the remainder vesting ratably on February 25, 2003 and
              2004.

         (8)  Includes an option to purchase 100,000 shares, 50,000 of which are
              currently  exercisable  at an  exercise  price of $0.25 per share,
              with the remainder vesting ratably on August 6, 2003 and 2004.

         (9)  Includes an option to purchase 50,000 shares,  25,000 of which are
              currently  exercisable  at an  exercise  price of $0.25 per share,
              with the remainder vesting ratably on August 6, 2003 and 2004.

Change of Control

         Acquisition of ePenzio
         ----------------------

         On May 29,  2001,  we  acquired  ePenzio,  Inc.,  pursuant to the Stock
Purchase Agreement by and among Network Investor Communications,  Inc., ePenzio,
Inc.  and the  stockholders  of ePenzio,  Inc.,  dated May 16,  2001.  we issued
9,000,000  shares of common stock in exchange for  1,000,000  shares of ePenzio,
representing all of the outstanding shares of common stock of ePenzio.  Inasmuch
as ePenzio is the operating entity and its stockholders  obtained control of the

                                    Page 75

<PAGE>

voting  shares of  Category 5, the  transaction  is  accounted  for as a reverse
merger, or a recapitalization of ePenzio.

         Prior to the acquisition of ePenzio, Category 5 had approximately
2,500,000 shares of common stock outstanding. Immediately following the
acquisition, Category 5 had approximately 11,500,000 shares of common stock
outstanding, of which the former stockholders of ePenzio acquired 8,100,000, or
70%, of the outstanding shares in connection with the acquisition of ePenzio.

         Pursuant to the ePenzio acquisition agreement, the board of directors
of Category 5 was increased to five members, and the former sole director of
Category 5, Robert Deller, appointed William C. Gibbs, Mitchell Edwards, Edward
P. Mooney, Paul Anderson and Brad Crawford as directors, effective upon the
resignation of Mr. Deller as an officer and director of Category 5 on May 29,
2001.

         Acquisition of CaptureQuest
         ---------------------------

         On April 10, 2002, we entered into a Stock Purchase and Exchange
Agreement with CaptureQuest, Inc., a Utah corporation, and the shareholders of
CaptureQuest. Pursuant to the terms of the Exchange Agreement, we acquired all
of the outstanding capital stock of CaptureQuest in exchange for up to 3,105,769
shares of our common stock (the "Exchange Shares").

         Pursuant to the terms of the Stock Purchase and Exchange Agreement, we
agreed to appoint one nominee selected by the former shareholders of
CaptureQuest to our board of directors. At a Board Meeting on April 23, 2002,
Tyler Thompson, CEO of CaptureQuest, was appointed a director. In addition, we
have agreed to submit Mr. Thompson as a director to be elected to the board of
directors at the next annual meeting of Category 5's stockholders.

         Pursuant to the Stock Purchase and Exchange Agreement, the Exchange
Shares have been or will be distributed to the former CaptureQuest shareholders
in two tranches. In connection with the first tranche, on April 10, 2002, we
delivered to the former shareholders of CaptureQuest an aggregate of 2,105,769
Exchange Shares, a portion of which were provided certain registration rights
pursuant to a registration rights agreement by and among Category 5,
CaptureQuest and the former shareholders of CaptureQuest. In connection with the
second tranche, 1,000,000 of the remaining Exchange Shares were placed in escrow
to protect us against undisclosed liabilities, misrepresentations and breaches
of warranties, covenants and agreements on the part of CaptureQuest. Immediately
prior to the acquisition of CaptureQuest, we had approximately 14,481,500 shares
of common stock outstanding. As a result of the acquisition, the former
shareholders of CaptureQuest collectively acquired approximately 20.3% of our
outstanding shares of common stock.


                                    Page 76
<PAGE>


ITEM 13.      Certain Relationships And Related Transactions

         We have engaged in certain transactions with its officers, directors,
stockholders and affiliates. All transactions between us and our officers,
directors, principal stockholders and affiliates were reviewed and passed upon
by the board of directors. Following is a description of those transactions with
any officer or director.

Kings Peak Capital L.L.C. Advisory Agreement

         On May 21, 2001, we entered into an advisory agreement with Kings Peak
Capital, L.L.C. for 24 months with an automatic twelve-month renewal. Kings Peak
is one of our stockholders. Prior to accepting a position with us, our Chairman
and CEO, William C. Gibbs, was an owner and manager of Kings Peak; however, Mr.
Gibbs has disclaimed any interest in fees which Kings Peak may receive under the
Kings Peak advisory agreement. Edward Mooney, a director, is a member and
manager of Kings Peak.

         Pursuant to the Kings Peak advisory agreement, Kings Peak will provide
us with general corporate advisory services in connection with:

         o    Structuring  and  implementing  its  overall   corporate   finance
              strategy,  including market  positioning with respect to financial
              markets;

         o    Review and analysis of business plans,  corporate  materials,  and
              investor  relations  materials  for  distribution  to  prospective
              investors;

         o    Recruitment for board and other senior positions as requested; and

         o    Merger and acquisition identification, analysis and structuring.

         Kings Peak will also assist us on an ongoing, nonexclusive basis in
identifying placement agents, underwriters, lenders and other sources of
financing during the term of the Kings Peak advisory agreement. As compensation
to Kings Peak for these general corporate advisory services, we agreed to pay to
Kings Peak $10,000 per month and a warrant to purchase 600,000 shares of common
stock at an exercise price of $0.25 per share.

         Pursuant to the Kings Peak advisory agreement, Kings Peak will provide
us with financial advisory services in connection with identifying and
contacting, on a non-exclusive basis, certain venture capital, underwriters and
investment banking companies and other strategic investors that may provide us
with financing or assist us in equity or debt offerings. As compensation for
these financial advisory services, we have agreed to pay to Kings Peak a
structuring fee equal to:

         o    10% of gross proceeds from equity financings; and/or

         o    1.5% of gross proceeds of debt financings completed by one or more
              of the underwriters or placement agents  introduced to us by Kings
              Peak.

         In addition, we have agreed to pay to Kings Peak any compensation due
to Kings Peak for its assistance in identifying prospective investors, pursuant
to the placement terms and conditions of applicable offering memoranda.

         Pursuant to the Kings Peak advisory agreement, Kings Peak will provide
us with merger and acquisition services in connection with assisting us in
identifying potential merger and/or acquisition candidates. Kings Peak will
assist in contacting pre-approved target companies and in structuring such
transactions. As compensation for these merger and acquisition services, we have
agreed to pay to Kings Peak a merger and acquisitions success fee according to a
Lehman Formula based on the value of the transaction as follows:

         o    5% of the first $1 million in value;

         o    4% of the second $1 million in value;

         o    3% for the third $1 million in value;

         o    2% for the fourth $1 million in value; and

         o    1% of all value thereafter.

         In the event that we close a merger or acquisition that results from a
contact of Kings Peak with a value of $5 Million or greater, Kings Peak will
receive at closing a performance bonus of $100,000.

                                    Page 77

<PAGE>

         Pursuant to the Kings Peak advisory agreement, Kings Peak will provide
us with general business development services in connection with assisting us,
on a best-efforts basis, in the identification of new U.S. and international
business development opportunities, including but not limited to:

         o    New marketing and distribution channels;

         o    New  strategic  marketing,  co-marketing,  OEM  or  private  label
              agreements; and

         o    New technologies, hardware or software partners or equipment.

         As compensation for these general business development services, we
have agreed to negotiate, in good faith, in advance, a compensation schedule for
such services provided by Kings Peak on a case-by-case basis. In general, Kings
Peak will expect a fee of approximately 2.5% of the revenues for a one-year
period, which compensation will survive the termination of the Kings Peak
advisory agreement.

         Pursuant to the Kings Peak advisory agreement, Kings Peak may also
assist us in securing equipment leases or other equipment financing structures,
for which Kings Peak will be entitled to compensation that is negotiated in good
faith, in advance, on a case-by-case basis.

Crescent Advisors, LLC Advisory Agreement

         In February 2001, ePenzio, Inc. entered into an advisory agreement with
Crescent Advisors, LLC, pursuant to which Crescent Advisors provided advisory
services with respect to the exploration of strategic alternatives, including
potential partnerships, mergers, acquisitions, private placements or other
possible transactions. As consideration for Crescent's undertaking to provide
the services set forth in the advisory agreement, we issued to Crescent 900,000
shares of common stock and modified the agreement to terminate on-going or
additional payment obligations. The advisory agreement was amended on May 29,
2001. As provided in the advisory agreement, as amended, because Crescent
Advisors failed to satisfy certain performance criteria, former shareholders of
ePenzio are entitled to purchase all 900,000 shares of common stock issued to
Crescent Advisors pursuant to the advisory agreement, at a purchase price of
$0.01 per share.

         William C. Gibbs, a director and current Chief Executive Officer, owns
50% of the outstanding equity interests in Crescent Advisors. Paul Anderson,
Brad Crawford, Matt Greene and Jade Millington are the former ePenzio
shareholders entitled to purchase the 900,000 shares of common stock pursuant to
the advisory agreement. Messrs. Anderson, Crawford, Greene and Millington are
currently executive officers and/or directors.

Anderson/Crawford/SBI E2-Capital (USA), Ltd. Agreement

         On February 11, 2002, each of our directors Paul Anderson and Brad
Crawford granted SBI E2-Capital (USA), Ltd. a warrant to purchase 1,000,000
shares of our common stock currently owned by each such director. The warrant
was exercisable until August 10, 2002 at an exercise price of $1.00 per share.
SBI E-2 Capital (USA), Ltd is wholly owned by SBI E2-Capital (HK) Limited. SBI
E2-Capital (HK) Limited is a stockholder. Shelly Singhal, a current director, is
also a managing director and executive vice president of SBI E2-Capital (HK)
Limited. SBI E2-Capital did not exercise either of these warrants prior to their
termination in August 2002.

SBI-USA, LLC

         Shelly Singhal, a director, is also a managing director of SBI-USA,
LLC. We engaged SBI E-2 Capital (USA), Ltd., a predecessor in interest to
SBI-USA, LLC to provide significant financial services to it during the period
prior to the merger. Pursuant to an engagement letter dated July 2, 2002, as
amended effective July 2, 2002, among Category 5 and SBI-USA, LLC, as successor
in interest to SBI E2 Capital (USA), Ltd., in the event we merge or otherwise
effect a corporate reorganization with MindArrow, we must pay to SBI-USA, LLC a
cash fee equal to $175,000 payable as follows: (i) $25,000 in cash on July 2,
2002, (ii) $50,0000 in cash by July 15, 2002, and (iii) $100,000 in cash upon
delivery of the fairness opinion and closing of the merger agreement. We must
also reimburse SBI-USA, LLC for all expenses incurred in connection with
MindArrow transaction, which are capped at $25,000. As of the date hereof,
amounts received by SBI-USA, LLC under this engagement letter are approximately
$25,000.

         SBI-USA, LLC is a subsidiary of SBI E2-Capital (HK) Limited, of which
Mr. Singhal is Executive Vice President. SBI E2-Capital (HK) Limited holds

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<PAGE>

75,000 shares of MindArrow common stock. Mr. Singhal and certain associates hold
75,000 shares of MindArrow common stock. SBI-USA, LLC will receive a $20,000
referral fee from L.H. Friend, MindArrow's financial advisor in connection with
the merger.

Acquisition of FlashAlly, LLC

         In connection with our acquisition of all of the outstanding membership
interests in FlashAlly, LLC on March 1, 2002, we issued to Tyler Thompson an
aggregate of 539,681 shares of common stock in exchange for all of his
membership interests in FlashAlly. Mr. Thompson is a director and our Executive
Vice President of Sales and Marketing.

         In connection with its acquisition of FlashAlly, LLC, we entered a
royalty agreement that requires us to make certain royalty payments to former
members of FlashAlly, including Tyler Thompson, a Director and Executive Vice
President of Sales and Marketing of Category 5, equal to 75% of the net income
generated from the sale or license of FlashAlly software to or through certain
entities for a period of not fewer than twelve months from March 2002. These
royalty payments may be adjusted if our stock price increases, as provided in
the royalty agreement, and will terminate if at any time prior to the
termination of the royalty agreement in March 2003 the average closing price of
our common stock equals or exceeds $15 per share for a period of 15 days. We
have also agreed to make royalty payments to the former members of FlashAlly,
including Mr. Thompson, equal to $15 per sale of FlashAlly software through
Category 5 or our affiliates until the earlier of the termination of the royalty
agreement in March 2003 or the average closing price of our common stock equals
or exceeds $10 per share for a period of 15 days.

Acquisition of CaptureQuest, Inc.

         In connection with our acquisition of all of the outstanding  shares of
CaptureQuest,  Inc. on April 10, 2002,  we issued to each of Tyler  Thompson and
Troy  Kearl  1,000,000  shares  of  common  stock,  in  exchange  for all of the
outstanding common stock of CaptureQuest held by Mr. Thompson and Mr. Kearl. Mr.
Thompson is the former Chief Executive Officer of CaptureQuest. Messrs. Thompson
and Kearl are each  directors  and our  Executive  Vice  President  of Sales and
Marketing and Vice  President of Product  Development.  In  connection  with the
acquisition of CaptureQuest, we agreed to appoint Mr. Thompson as a director and
to submit Mr.  Thompson as a director  nominee  for the next  annual  meeting of
stockholders.

Amendment to Stock Purchase Agreement and Return of Category 5 Stock

         Pursuant to the Amendment to Stock Purchase Agreement, dated June 20,
2002, by and among Category 5, ePenzio, Inc., and former shareholders of
ePenzio, Brad Crawford and Paul Anderson, which amends the Stock Purchase
Agreement dated May 29, 2001 by and among those same parties, the parties
clarified certain tax and purchase price provisions. In connection with the
Amendment, the Company assumed responsibility for income taxes associated with
approximately $5 Million in receivables and approximately $1.2 Million
associated with the conversion of ePenzio from the cash to the accrual method of
accounting upon acquisition of ePenzio by the Company. The aggregate tax
liability assumed pursuant to the Amendment was estimated to be approximately
$1.1 Million, in exchange for which each of Mr. Crawford and Mr. Anderson agreed
to return to us 500,000 shares each of our common stock received by them in
connection with the acquisition of ePenzio by Category 5. Messrs. Crawford and
Anderson are currently Directors and executive officers of Category 5 or its
subsidiaries.

Interests in Lease Agreements

          Category5's wholly-owned subsidiary, CaptureQuest, Inc., leases
approximately 4,000 square feet of office space, in Provo, Utah, from EsNet
Properties, L.C. During the course of this lease, CaptureQuest will have paid
approximately $4,500-$4,700 per month in lease payments, plus certain additional
payments as provided in the lease agreement. Category 5 subleases approximately
18,000 square feet of office space in Salt Lake City, Utah, from Pliant
Corporation. During the course of this lease, Category 5 will have paid
approximately $20,283 per month in lease payments (based on straight-line
rents). EsNet also has an ownership interest in the Salt Lake City office
building in which Category 5 leases the office space. The father of Tyler
Thompson, Duff Thompson, has an ownership interest in EsNet. Tyler Thompson is a
Director and the Executive Vice President of Sales and Marketing of Category 5.


Loan from Tyler Thompson to CaptureQuest, Inc.

          Since the inception of Category 5's wholly-owned subsidiary,
CaptureQuest, Inc., until the date hereof, Tyler Thompson, a director and
Executive Vice President of Sales and Marketing of Category 5, has periodically
loaned funds to CaptureQuest for its operating expenses, with the understanding
that these amounts will be reimbursed to Mr. Thompson as soon as it is
reasonably practicable for CaptureQuest to do so. The largest aggregate amount
of indebtedness outstanding between July 1, 2001 and the date hereof owed to
Mr. Thompson is approximately $165,777, which also equals the current amount
outstanding.

                                    Page 79

<PAGE>

                                     PART IV

ITEM 14.      Exhibits, Financial Statements Schedules, And Reports On Form 8-K


         (A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:

1.       FINANCIAL STATEMENTS:

         Reference  is made to  Part  II,  Item 7,  for a  listing  of  required
         financial statements filed with this report ...................... 43

2.       FINANCIAL STATEMENT SCHEDULES:

         Financial  statement  schedules are omitted either because they are not
         applicable or the required information is included in the  accompanying
         consolidated financial statements or notes thereto.

3.       EXHIBITS:

         Exhibit #               Exhibit Description
         ---------               -------------------

         2.1         Agreement  and Plan of  Merger  dated  as of July 12,  2002
                     among Category 5  Technologies,  Inc.,  MindArrow  Systems,
                     Inc.  and  MindArrow   Acquisition  Corp.,  as  amended  by
                     Amendment No. 1 to the Agreement and Plan of Merger,  dated
                     as of August 9, 2002. (8)

         2.2         Stock Purchase and Exchange Agreement by and among Category
                     5   Technologies,   Inc.,   CaptureQuest,   Inc.   and  the
                     Shareholders of  CaptureQuest,  Inc., dated April 10, 2002.
                     (6)

         2.3         LLC  Membership  Exchange  Agreement,  between  Category  5
                     Technologies,  Inc. and FlashAlly,  LLC, Tyler Thompson and
                     Troy Kearl, dated March 1, 2002. (1)

         2.4         Stock Purchase and Exchange  Agreement  between  Category 5
                     Technologies,  Bottomline Online, Inc. and the stockholders
                     of Bottomline Online, dated February 27, 2002. (1)

         2.5         Stock Purchase and Exchange  Agreement  between  Category 5
                     Technologies, Inc., Transaxis, S.A., Amathus Holdings, Ltd.
                     and David Hicks, dated January 20, 2002. (1)

         2.6         Letter of Intent between Category 5 Technologies,  Inc. and
                     Exposure  International,  L.L.C.  dated  November 25, 2001.
                     (1)]

         2.7         Stock  Purchase   Agreement   between   Network   Investors
                     Communications, Inc., ePenzio, Inc. and the shareholders of
                     ePenzio, dated May 16, 2001. (9)

         3.1         Bylaws of Category 5 Technologies, Inc. (5)

         3.2         Amended  and  Restated   Certificate  of  Incorporation  of
                     Network Investor Communications, Inc. (2)

         3.3         Certificate  of  Correction  to the  Amended  and  Restated
                     Certificate of  Incorporation  of Category 5  Technologies,
                     Inc. (5)

       * 10.1        Category 5 Technologies, Inc. Long-Term Incentive Plan (2)

       * 10.2        Category 5 Technologies, Inc. 2001 Director Option Plan (2)

       * 10.3        Severance  Agreement  and Mutual  General  Release  between
                     Category 5 Technologies,  Inc. and William C. Gibbs,  dated
                     September 12, 2002. (1)

       * 10.4        Severance  Agreement and General Release between Category 5
                     Technologies,  Inc.  and Mitchell  Edwards,  dated June 20,
                     2002. (7)

       * 10.5        Amendment to Stock Purchase  Agreement  between  Category 5
                     Technologies,  Inc., ePenzio,  Inc., Paul Anderson and Brad
                     Crawford, dated June 20, 2002. (7)


                                    Page 80

<PAGE>

       * 10.6        Amendment  No.  1  to  the  Employment   Agreement  between
                     Category 5 Technologies,  Inc. and William C. Gibbs,  dated
                     October 31, 2001. (5)

       * 10.7        Amendment  No.  1  to  the  Employment   Agreement  between
                     Category 5 Technologies,  Inc. and Mitchell Edwards,  dated
                     October 31, 2001. (5)

       * 10.8        Option to Purchase  Common Stock issued to William C. Gibbs
                     and dated August 6, 2001 (500,000 shares). (5)

       * 10.9        Option to Purchase Common Stock issued to Mitchell  Edwards
                     and dated August 6, 2001 (500,000 shares). (3)

       * 10.10       Option to Purchase  Common Stock issued to William C. Gibbs
                     and dated May 29, 2001 (200,000 shares). (10)

       * 10.11       Option to Purchase Common Stock issued to Mitchell  Edwards
                     and dated May 29, 2001 (200,000 shares). (10)

         10.12       Option to Purchase Common Stock issued to Edward Mooney and
                     dated May 29, 2001 (200,000 shares). (10)

         10.13       Not used

       * 10.14       Option to Purchase  Common Stock  issued to Matthew  Greene
                     and dated August 6, 2001 (100,000 shares). (1)

       * 10.15       Option to Purchase  Common Stock issued to Jade  Millington
                     and dated August 6, 2001 (50,000 shares). (1)

       * 10.16       Option to Purchase  Common Stock  issued to Tyler  Thompson
                     and dated May 1, 2002 (100,000 shares). (1)

       * 10.17       Option to Purchase  Common  Stock  issued to Troy Kearl and
                     dated February 25, 2002 (100,000 shares). (1)

         10.18       Business Loan Agreement  (Asset Based) by and between Zions
                     First National Bank, a national  banking  association,  and
                     Category 5  Technologies,  Inc.,  dated  August 7, 2002 ($2
                     Million Line of Credit Facility). (1)

         10.19       $2 Million  Secured  Promissory  Note  issued by Category 5
                     Technologies,  Inc. in favor of Zions First  National Bank,
                     on August 7, 2002. (1)

         10.20       Commercial   Security   Agreement,   between   Category   5
                     Technologies,  Inc. and Zions First  National  Bank,  dated
                     August 7,  2002,  related  to the $2  Million  Zions  First
                     National Bank Credit Facility. (1)

         10.21       Business Loan Agreement  (Asset Based) by and between Zions
                     First National Bank, a national  banking  association,  and
                     ePenzio,  Inc. and dated  September  11, 2001,  ($1 Million
                     Line of Credit Facility). (3)

         10.22       $1 Million Secured Promissory Note issued by ePenzio,  Inc.
                     in favor of Zions First  National  Bank,  on September  11,
                     2001. (3)

                                    Page 81

<PAGE>

         10.23       Commercial  Security Agreement,  between ePenzio,  Inc. and
                     Zions  First  National  Bank,  dated  September  11,  2001,
                     related to the $1 Million Zions First  National Bank Credit
                     Facility. (3)

         10.24       Termination  and  Release   Agreement  between  Category  5
                     Technologies,  Inc.,  Netgateway,  Inc. and C5T Acquisition
                     Corp., dated January 14, 2002. (4)

         10.25       Form of Convertible Promissory Note. (5)

         10.26       Form of  Warrant to  Purchase  Common  Stock of  Category 5
                     Technologies, Inc. (5)

         10.27       Form of Bridge Loan Subscription Agreement. (5)

         10.28       Form of Registration Rights Agreement. (5)

         10.29       Engagement Agreement by and between Category 5 Technologies
                     and TerraNova  Capital Partners LLC, dated August 10, 2001.
                     (5)

         10.30       Confidentiality  and Marketing Agreement between Home, Inc.
                     and C5 Technologies, Inc., dated June 14, 2002. (7)

       * 10.31       Employment   Agreement  between  ePenzio,   Inc.  and  Paul
                     Anderson, dated May 22, 2001. (1)

       * 10.32       Employment   Agreement  between  ePenzio,   Inc.  and  Brad
                     Crawford, dated May 22, 2001. (1)

       * 10.33       Employment Agreement between Category 5 Technologies,  Inc.
                     and Troy Kearl, dated March 2, 2002. (1)

       * 10.34       Employment Agreement between Category 5 Technologies,  Inc.
                     and Tyler Thompson, dated April 10, 2002. (1)

       * 10.35       Employment Agreement between Category 5 Technologies,  Inc.
                     and Matthew A. Greene, dated May 1, 2002. (1)

         10.36       Consulting  Agreement,  by and  among  the  Company,  Peter
                     Kristensen and Mark Sansom, dated July 9, 2002. (1)

         10.37       Consulting Agreement by and among the Company, J. Pollack &
                     Co., and Jason Pollack, dated July 1, 2002. (1)

         10.38       Royalty Agreement between Category 5 Technologies, Inc. and
                     Tyler Thompson and Troy Kearl, dated March 1, 2002. (1)

         10.39       Letter Agreement between Category 5 Technologies,  Inc. and
                     SBI E2-Capital USA Ltd., dated July 2, 2002. (1)

         10.40       Amendment  to  and  Assignment  and  Assumption  of  Letter
                     Agreement,  between  Category  5  Technologies,  Inc.,  SBI
                     E2-Capital  USA Ltd. and SBI USA, LLC,  dated July 2, 2002.
                     (1)

         10.41       Letter Agreement between Category 5 Technologies,  Inc. and
                     European-American Securities, dated March 27, 2002. (1)

                                    Page 82

<PAGE>

         10.42       Sublease  Agreement  between Category 5 Technologies,  Inc.
                     and Pliant Corporation, dated February 20, 2002. (1)

         10.43       Lease  Agreement  between  CaptureQuest,   Inc.  and  EsNet
                     Management, dated May 8, 2001. (1)

         10.44       Warrant  to  Purchase  Common  Stock  issued to Kings  Peak
                     Capital, LLC, dated May 18, 2001 (600,000 shares). (1)

         10.45       Warrant to Purchase Common Stock issued to Strategic Growth
                     International,  Inc.,  dated  September  14, 2001  (350,000
                     shares). (1)

         10.46       Warrant  to  Purchase  Common  Stock  issued  to  TerraNova
                     Capital  Partners,  LLC, dated  September 14, 2001 (100,000
                     shares). (1)

         10.47       Warrant  to  Purchase  Common  Stock  issued to TN  Capital
                     Equities,  Ltd.,  dated November 21, 2001 (77,900  shares).
                     (1)

         10.48       Warrant  to  Purchase  Common  Stock  issued to TN  Capital
                     Equities,  Ltd.,  dated November 21, 2001 (41,000  shares).
                     (1)

         21.1        Subsidiaries of Catetory 5 Technologies, Inc. (1)

         23.1        Consent of Independent Auditors (1)

         99.1        Certification pursuant to Section 1350 of Chapter 33 of
                     Title 18 of the United States Code.

       *      Management contract or compensatory plan or arrangement.

      (1)     Filed herein

      (2)     Incorporated   by   reference   to  the   Annexes  of  Category  5
              Technologies, Inc.'s Revised Information Statement on Schedule 14C
              filed with the  Securities  and  Exchange  Commission  on July 19,
              2001.

      (3)     Incorporated  by reference to the Exhibits  filed with  Category 5
              Technologies,  Inc.'s  Transition  Report on Form 10-KSB/T for the
              period ended June 30, 2001.

      (4)     Incorporated  by reference to the Exhibits  filed with  Category 5
              Technologies,  Inc.'s  Current  Report on Form 8-K, filed with the
              Securities and Exchange Commission on January 18, 2002.

      (5)     Incorporated  by reference to the Exhibits  filed with  Category 5
              Technologies,  Inc.'s Quarterly Report on Form 10-QSB,  for period
              end December 31, 2001.

      (6)     Incorporated  by reference to the Exhibits  filed with  Category 5
              Technologies,  Inc.'s  Current  Report  on Form  8-K  and  Amended
              Current  Report  on Form  8-K/A,  filed  with the  Securities  and
              Exchange   Commission  on  April  25,  2002  and  June  24,  2002,
              respectively.

      (7)     Incorporated  by reference to the Exhibits  filed with  Category 5
              Technologies,  Inc.'s  Current  Report on Form 8-K, filed with the
              Securities and Exchange Commission on July 11, 2002.

      (8)     Incorporated  by  reference  to the  Appendices  to the Category 5
              Technology,   Inc.  Definitive  Proxy  Statement  filed  with  the
              Securities and Exchange Commission on September 16, 2002.

      (9)     Incorporated  by reference to the Exhibits  filed with  Category 5
              Technologies,  Inc.'s  Current  Report on Form 8-K, filed with the
              Securities and Exchange Commission on June 6, 2001.

      (10)    Incorporated   by  reference  to  the  Exhibits   filed  with  the
              Registration   Statement   on  Form  S-8  filed  by   Category   5
              Technologies,  Inc. with the Securities and Exchange Commission on
              August 23, 2001.

                                    Page 83

<PAGE>

          (B) REPORTS ON FORM 8-K

         On January 18, 2002, we filed a Current Report on Form 8-K with the
Securities and Exchange Commission, which report described the execution of a
Termination and Release Agreement between Netgateway, Inc., C5T Acquisition
Corp. and us, dated January 14, 2002 (the "Termination Agreement"). The
Termination Agreement terminated the Agreement and Plan of Merger entered into
by the parties on October 23, 2001.

         On April 24, 2002 and June 24, 2002, we filed a Current Report on Form
8-K and Amended Current Report on Form 8-K/A, respectively with the Securities
and Exchange Commission, which report describes the execution of a Stock
Purchase and Exchange Agreement (the "Exchange Agreement") by and among Category
5, CaptureQuest, Inc., a Utah corporation ("CaptureQuest"), and the shareholders
of CaptureQuest, date April 10, 2002. The Exchange Agreement acquired all of the
outstanding capital stock of CaptureQuest in exchange for up to 3,105,769 shares
of common stock of Category 5.

         On July  11,  2002,  we  filed a  Current  Report  on Form 8-K with the
Securities  and Exchange  Commission,  which report  describes  the execution of
Confidentiality  and Marketing Agreement between Home, Inc. and C5 Technologies,
Inc., dated June 14, 2002,  Amendment to Stock Purchase  Agreemnt by and between
Network Investors,  Inc., remnamed Category 5 Technologies,  Inc., ePenzio, Inc.
and the  shareholders  of  ePenzio,  Inc.,  dated  June 20,  2002 and  Severance
Agreement and General Release between Mitchell Edwards and C5 Technologies, Inc.
dated June 20, 2002.


                                    Page 84
<PAGE>


SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.





                                            CATEGORY 5 TECHNOLOGIES, INC.

    Dated: September 16, 2002               By   /S/ PAUL ANDERSON
                                            -----------------------------

                                            Paul Anderson
                                            Chief Executive Officer



         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacity and on the dates indicated.

<TABLE>
<CAPTION>


             Signature                              Title                                  Date
             ---------                              -----                                  ----


         <S>                                <C>                                     <C>
         /s/ PAUL ANDERSON                  Chairman of the Board                   September 16, 2002
         ---------------------------
             Paul Anderson



         /s/ BRAD CRAWFORD                  Director                                September 16, 2002
         ---------------------------
             Brad Crawford



         /s/ TYLER THOMPSON                 Director                                September 16, 2002
         ---------------------------
             Tyler Thompson



         /s/ TROY KEARL                     Director                                September 16, 2002
         ---------------------------
             Troy Kearl.



         /s/ SHELLY SINGHAL                 Director                                September 16, 2002
         ---------------------------
             Shelly Singhal



         /s/ MATTHEW CRUMLEY                Corporate Controller                    September 16, 2002
         ---------------------------        (Principal Accounting Officer)
             Matthew Crumley

</TABLE>

                                    Page 85
<PAGE>

                      Section 302 Certification: Form 10-K


CERTIFICATIONS*


I, Paul Anderson,  Chief  Financial  Officer of Category 5  Technologies,  Inc.,
certify that:

1. I have reviewed  this annual report on Form 10-K of Category 5  Technologies,
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: October 7, 2002


                                                   /s/ Paul Anderson
                                                   ------------------
                                                   Paul Anderson
                                                   Chief Executive Officer


* Provide a separate certification for each principal executive officer and
principal financial officer of the registrant. See Rules 13a-14 and 15d-14. The
required certification must be in the exact form set forth above.
                                    Page 86

<PAGE>
                      Section 302 Certification: Form 10-K


CERTIFICATIONS*


I, Matt Crumley, Controller of Category 5 Technologies, Inc., certify that:

1. I have reviewed  this annual report on Form 10-K of Category 5  Technologies,
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: October 7, 2002


                                                    /s/ Matt Crumley
                                                    -----------------
                                                   Matt Crumley
                                                   Corporate Controller and
                                                   Principal Accounting Officer


* Provide a separate certification for each principal executive officer and
principal financial officer of the registrant. See Rules 13a-14 and 15d-14. The
required certification must be in the exact form set forth above.



                                    Page 87