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U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------------------------------------------------------- FORM 10-QSB Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2001 Commission file number 10039 eB2B COMMERCE, INC. (Exact name of small business issuer as specified in its charter) NEW JERSEY 22-2267658 ---------------- ------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 757 THIRD AVENUE NEW YORK, NY 10017 (Address of Principal Executive Offices) (212) 703-2000 (Issuer`s telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] As of November 13, 2001, there were 20,837,297 shares of Common Stock, $0.0001 par value per share, of the registrant outstanding. Transitional Small Business Disclosure format Yes No x . -------------------------------------------------------------------------------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS eB2B COMMERCE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) September 30, December 31, 2001 2000 ASSETS (unaudited) Current Assets Cash and cash equivalents $ 3,005 $ 9,650 Accounts receivable, net 950 1,530 Other current assets 301 409 -------- ------- Total Current Assets 4,256 11,589 Property and equipment, net 3,329 4,272 Goodwill, net 1,872 54,104 Other intangibles, net 951 2,259 Capitalized product development costs, net 1,774 905 Other assets 114 90 -------- ------- Total Assets $ 12,296 $73,219 ======== ======= LIABILITIES AND STOCKHOLDERS` EQUITY Current Liabilities Current maturities of long-term debt $ - $ 1,000 Accounts payable 1,543 1,806 Accrued expenses and other current liabilities 3,443 4,892 Deferred income 533 592 -------- ------- Total Current Liabilities 5,519 8,290 Long-term debt, less current maturities -- 1,250 Capital lease obligations, less current maturities 136 212 Other liabilities 959 379 -------- ------- Total Liabilities 6,614 10,131 -------- ------- Commitments and contingencies Stockholders` Equity Undesignated preferred stock - no par value; 44,248,000 shares authorized; no shares issued and outstanding Preferred stock, convertible Series A - $.0001 par value; 2,000 shares authorized; 7 shares issued and outstanding - - Preferred stock, convertible Series B - $.0001 par value; 4,000,000 shares authorized; 2,610,771 and 2,803,198 shares issued and outstanding at September 30, 2001 and December 31, 2000, respectively - - Preferred stock, convertible Series C - $.0001 par value; 1,750,000 shares authorized; 762,999 shares issued and outstanding at September 30, 2001 - - Common stock - $.0001 par value; 200,000,000 shares authorized; 20,315,139 and 15,384,015 shares issued and outstanding at September 30, 2001 and December 31, 2000, respectively 2 2 Additional paid-in capital 154,483 144,459 Accumulated deficit (148,185) (79,005) Unearned stock-based compensation (618) (2,368) -------- ------- Total Stockholders` Equity 5,682 63,088 -------- ------- Total Liabilities and Stockholders` Equity $ 12,296 $73,219 ======== ======= See accompanying notes to the condensed consolidated financial statements. 2 -------------------------------------------------------------------------------- eB2B COMMERCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT FOR SHARE AND Three Months Ended Nine Months Ended PER SHARE DATA) September 30, September 30, 2001 2000 2001 2000 ---- ---- ---- ---- Revenue $ 1,501 $ 1,713 $ 5,044 $ 3,718 ------------ ------------ ------------ ------------ Costs and expenses Cost of revenue 694 855 2,459 1,991 Marketing and selling (exclusive of stock-based compensation expense of $127 and $394 for the three and nine months ended September 30, 2001, and $259 and $1,213 for the three and nine months ended September 30, 2000, respectively) 237 1,007 1,644 2,023 Product development costs (exclusive of stock-based compensation expense of $2 and $6 for the three and nine months ended September 30, 2001, and $63 and $189 for the three and nine months ended September 30, 2000, respectively) 257 672 1,604 2,456 General and administrative (exclusive of stock-based compensation expense of $95 and $1,441 for the three and nine months ended September 30, 2001, and $970 and $13,463 for the three and nine months ended September 30, 2000, respectively) 2,442 3,857 8,617 10,722 Restructuring charge 313 - 1,442 - Amortization of goodwill and other intangibles 3,402 3,368 10,205 6,195 Impairment of goodwill 43,375 - 43,375 - Stock-based compensation expense 224 1,292 1,841 14,865 ------------ ------------ ------------ ------------ Total costs and expenses 50,944 11,051 71,187 38,252 ------------ ------------ ------------ ------------ Loss from Operations (49,443) (9,338) (66,143) (34,534) Interest and other, net (1,527) 160 (3,037) 725 ------------ ------------ ------------ ------------ Net loss $ (50,970) $ (9,178) $ (69,180) $ (33,809) ============ ============ ============ ============ Net loss per common share $ (2.51) $ (.71) $ (3.90) $ (3.18) ============ ============ ============ ============ Weighted average number of common shares outstanding 20,342,288 13,004,153 17,728,796 10,629,495 ============ ============ ============ ============ See accompanying notes to the condensed consolidated financial statements 3 -------------------------------------------------------------------------------- eB2B COMMERCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) Nine Months ended September 30, 2001 2000 ---- ---- Operating Activities Net loss $(69,180) $(33,809) Adjustments to reconcile net loss to net cash used in operating activities Impairment of goodwill 43,375 - Depreciation and amortization 12,351 8,998 Amortization of debt issuance costs on convertible notes and related discount, conversion option and non cash interest 3,120 - Stock-based compensation expense 1,841 14,775 Write down of assets - 57 Shares and warrants issued for services - 90 Management of operating assets and liabilities Accounts receivable, net 580 (214) Accounts payable (263) 1,213 Accrued expenses and other liabilities 282 2,634 Other (642) (785) -------- -------- Net cash used in operating activities (8,536) (7,041) -------- -------- Investing Activities Product development costs (1,604) (1,647) Purchase of property and equipment (596) (989) Increase in software costs - (2,200) Proceeds from maturity of investments available-for-sale - 15,986 Cash acquired in acquisition - 419 -------- -------- Net cash (used in) provided by investing activities (2,200) 11,569 -------- -------- Financing Activities Proceeds from borrowings and issuance of convertible notes, net 6,466 2,500 Repayment of borrowings (2,250) (2,116) Payment of capital lease obligations (125) (119) Proceeds from exercise of options and warrants - 144 -------- -------- Net cash provided by financing activities 4,091 409 -------- -------- Net (decrease) increase in cash (6,645) 4,937 Cash and cash equivalents at beginning of period 9,650 9,907 -------- -------- Cash and cash equivalents at end of period $ 3,005 $ 14,844 ======== ======== Non-cash transactions Common stock, options and warrants issued or exchanged in connection with acquisitions $ - $ 59,145 Warrants issued in connection with private placement of convertible notes and availability of credit line $ 4,434 Equipment acquired under capital lease $ - $ 340 Shares issued in exchange for accounts payable $ 434 $ - Shares and warrants issued for services $ 48 $ 387 Cash paid during the period for Interest $ 136 $ 44 See accompanying notes to the condensed consolidated financial statements 4 -------------------------------------------------------------------------------- eB2B COMMERCE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. ORGANIZATION AND PLAN OF OPERATION eB2B Commerce, Inc (the "Company") utilizes proprietary software to provide a technology platform for large buyers and large suppliers to transfer business documents via the Internet to their small and medium-sized trading partners. These documents include, but are not limited to, purchase orders, purchase order acknowledgements, advanced shipping notices and invoices. The Company does not allow customers to take delivery of its proprietary software. The Company provides access via the Internet to its proprietary software, which is maintained on its hardware and on hosted hardware. The Company also offers professional services, which provide consulting and technical expertise to the same client base, as well as to other businesses that prefer to operate or outsource the transaction management and document exchange of their business-to-business relationships. In addition, the Company provides authorized technical education to its client base, and also designs and delivers custom computer courseware as well as web development training seminars. Since its inception, the Company has experienced significant losses from operations and negative cash flows from operations in the transaction management and document exchange services. Management has addressed the costs of providing these services throughout 2000 and thus far in 2001. While the Company continues to add customers to its service, it is focused primarily on adding trading partners who transact business with its largest existing customers. To address the continuing loss from operations and negative cash flows from operations, management enacted a plan for the Company, which included various cost cutting measures, principally staffing reductions and discretionary spending reductions in selling, marketing, general and administrative areas, during the third and fourth quarter of 2000 and into 2001. During the three-month periods ended June 30 and September 30, 2001, the Company recorded restructuring charges of $1,129,000 and $313,000, respectively, consisting primarily of severance costs in relation to the elimination of 38 full-time positions representing approximately 45% of the Company`s workforce and the elimination of a service contract related to hosting the Company`s new software platform. Based on the Company`s history of recurring operating losses and its market capitalization being less than its stockholders` equity as of September 30, 2001, management assessed the recoverability of goodwill and other intangibles based upon expectations of undiscounted future cash flows. Management determined that goodwill as of September 30, 2001 was impaired and accordingly reduced the carrying value by $43.4 million. From April 16 through May 2, 2001, the Company received financing of $7.5 million in the form of convertible notes and warrants (see Note 3, Financing). During the nine-month period ended September 30, 2001, the Company also issued 2,490,000 shares of currently unregistered Company common stock in lieu of $1,463,000 of payments to certain vendors. In the event that within periods ranging from one to two years these vendors receive gross proceeds of less than $1,463,000 from selling the Company`s 2,490,000 shares in the open market, the Company agreed to make a cash payment equal to the difference between the gross proceeds received by these vendors from the sale of the Company`s shares of common stock and the balance due to them. As of September 30, 2001, this difference was approximately $1,189,000, of which $230,000 was recorded as a current liability and $959,000 was recorded as a long-term liability in the Company`s balance sheet. In addition, the Company issued 665,000 shares of currently unregistered Company common stock in lieu of $160,000 of severance payments to certain former executives. 5 -------------------------------------------------------------------------------- NOTE 2. BASIS OF PRESENTATION The accompanying quarterly financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, all material adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included in the accompanying unaudited condensed consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation and certain other prior period balances have been reclassified to conform to the current period presentation. The accompanying unaudited condensed consolidated financial statements are not necessarily indicative of full year results. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading. This report should be read in conjunction with the consolidated financial statements and footnotes therein included in the audited annual report on Form 10-KSB for the fiscal year ended December 31, 2000. NOTE 3. FINANCING On May 2, 2001, the Company completed a private placement of convertible notes and warrants (the "Financing"). The gross proceeds of the Financing totaled $7.5 million. Pursuant to the Financing, the Company issued $7,500,000 of principal amount of 7% convertible notes (the "Convertible Notes"), convertible into an aggregate of 15,000,000 shares of Company common stock ($0.50 per share), and warrants to purchase an aggregate 15,000,000 shares of Company common stock at $0.93 per share (the "Private Warrants"). The Convertible Notes have a term of 18 months, which period may be accelerated in certain events. Interest is payable quarterly in cash, in identical Convertible Notes or in shares of common stock, at the option of the Company. With respect to the initial quarterly interest payment related to the June 30, 2001 quarter, the Company elected to pay interest in the form of 455,000 shares of common stock valued at approximately $85,000. As of September 30, 2001, the Company issued additional Convertible Notes of approximately $131,000 in relation to the quarterly interest due for the period from July 1, 2001 to September 28, 2001, the date the Convertible Notes were converted into equity as described below. In addition, all Convertible Notes were automatically converted into Series C preferred stock on September 28, 2001 when the Company received the required consent from the holders of the Company`s Series B preferred stock for the issuance of this new series. The Series C preferred stock is convertible into common stock on the same basis as the Convertible Notes. The Series C preferred stock has (i) anti-dilution provisions, (ii) a liquidation preference, and (iii) could be automatically converted by the Company in certain circumstances. The Private Warrants will be exercisable for a period of two years from September 28, 2001. At the Company`s October 17, 2001 Annual Shareholders` Meeting (the "Annual Meeting"), the Company received shareholder approval of the Financing, as required by the rules of NASDAQ. 6 -------------------------------------------------------------------------------- In connection with the closing of the Financing, the Company cancelled a $2,050,000 line of credit issued in April 2001 (the "Line of Credit"), pursuant to which it had not borrowed any funds. In connection with the Line of Credit, the Company paid a cash fee amounting to $61,500 in consideration of the availability of the Line of Credit. In addition, the issuer of the Line of Credit was issued warrants to purchase 900,000 shares of Company common stock at $0.50 per share for a period of five years in consideration of the availability of such line. These warrants were valued using the Black-Scholes option-pricing model at $549,000. The $61,500 cash fee paid and the non-cash amount related to the warrants of $549,000 were recorded as interest expense in the Company`s statement of operations for the three-month period ended June 30, 2001. In connection with the Financing and as compensation to the placement agents, the Company paid a cash fee amounting to $750,000 and issued (i) warrants to purchase 2,250,000 shares of Company common stock with an exercise price of $0.93 per share for a period of five years and (ii) unit purchase options to purchase Series C preferred stock convertible into an aggregate of 2,250,000 shares of Company common stock with an exercise price of $0.50 per share for a period of five years. These warrants and unit purchase options were valued using the Black-Scholes option-pricing model at $675,000 and $810,000, respectively. Additionally, other expenses directly related to the Financing, principally legal and accounting fees, were approximately $309,000. The $750,000 cash fee paid, the other direct expenses of $309,000, and the non-cash amounts related to the warrants of $675,000 and the unit purchase options of $810,000 have been capitalized as debt issuance costs in the Company`s balance sheet for an aggregate value of $2,544,000 and were amortized as interest expense in the Company`s statement of operations over the term of the Convertible Notes. The unamortized balance of $1,853,000 of debt issue cost was charged to additional paid-in capital on September 28, 2001, the date of the conversion of the Convertible Notes. The Company allocated $2,400,000 of the $6,750,000 net proceeds from the Financing to the Private Warrants using the Black-Scholes option-pricing model and recorded such amount as a discount on the Convertible Notes. The discount on the Convertible Notes was accreted as interest expense in the Company`s statement of operations over the term of the Convertible Notes. For the nine months ended September 30, 2001, the Company recorded interest expense of $658,000 related to such discount. The unamortized balance of the discount on the Convertible Notes, $1,742,000, was charged to additional paid-in capital at September 28, 2001. The remaining unallocated portion of the proceeds was used to determine the value of the 15,000,000 shares of Company common stock underlying the Convertibles Notes, or $0.29 per share. Since this value was $0.23 lower than the fair market value of the Company`s share of common stock as listed on NASDAQ on May 2, 2001, the date at which the Financing was closed, the $3,450,000 intrinsic value of the conversion option resulted in an additional reduction to the carrying amount of the Convertible Notes and a credit to additional paid-in capital in the Company`s stockholders` equity. For the nine months ended September 30, 2001, the Company recorded amortization expense of $1,137,000 related to such conversion feature. The unamortized balance of the conversion feature, $2,313,000, was charged to additional paid-in capital on September 28, 2001, the date of the conversion of the Convertible Notes. The assumptions used by the Company in determining the fair value of the above warrants and unit purchase options were as follows: dividend yield of 0%, risk-free interest of 6.5%, expected volatility of 80%, and expected life of 2 to 5 years. 7 -------------------------------------------------------------------------------- NOTE 4. ACQUISITIONS DynamicWeb Enterprises, Inc. On April 18, 2000, eB2B Commerce, Inc., a Delaware corporation ("eB2B"), merged with and into DynamicWeb Enterprises, Inc., a New Jersey corporation and an SEC registrant ("DWeb"), with the surviving company (i.e. the "Company") using the name "eB2B Commerce, Inc.". Pursuant to the Agreement and Plan of Merger between eB2B and DWeb, the shareholders of DWeb retained their shares in DWeb, while the shareholders of eB2B received shares, or securities convertible into shares, of common stock of DWeb representing approximately 89% of the equity of the Company, on a fully diluted basis. The transaction was accounted for as a reverse acquisition, a purchase business combination in which eB2B was the accounting acquirer and DWeb was the legal acquirer. Each share of common stock of DWeb remained outstanding and each share of eB2B common stock was exchanged for the equivalent of 2.66 shares of DWeb`s common stock. In addition, shares of eB2B preferred stock, warrants and options were exchanged for like securities of DWeb, reflective of the 2.66 to 1 exchange ratio. The management of eB2B remained the management of the Company. Netlan Enterprises, Inc. On February 22, 2000, eB2B completed the acquisition of Netlan Enterprises, Inc. and subsidiaries ("Netlan"). The acquisition was accounted for using the purchase method. At September 30, 2001, accumulated amortization related to the goodwill and other intangibles acquired in the Netlan and DWeb acquisitions totaled approximately $20.0 million. The following represents the summary unaudited pro forma condensed consolidated results of operations for the nine-month period ended September 30, 2000 as if the acquisitions had occurred at the beginning of the period presented (in thousands, except per share data): Nine Months Ended September 30, 2000 ------------------ Revenue $ 5,323 -------- Net loss $(41,179) -------- Basic and diluted net loss per common share $ (3.27) -------- The pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the period presented. In addition the pro forma results are not necessarily indicative of the results that will occur in the future. NOTE 5. RESTRUCTURING To address the continuing loss from operations and negative cash flows from operations, management enacted a plan for the Company. During the third and fourth quarters of 2000 and continuing into 2001 the Company reduced discretionary spending in selling, marketing, general and administrative areas. In the second and third quarters of 2001, the Company`s Board of Directors approved and the Company announced a restructuring plan that streamlined the organizational structure and reduced monthly cash charges by approximately $475,000. The restructuring plan called for the following cost cutting measures (in thousands): 8 -------------------------------------------------------------------------------- Selling & General & Marketing Administrative Other Total --------- -------------- ----- ----- Salaries & benefits $125 $190 $ - $315 Fees to outside contractors (1) - 50 70 120 Other expenses (2) 20 15 5 40 ---- ---- ---- ---- Total $145 $255 $ 75 $475 ==== ==== ==== ==== (1) including hosting, consulting, legal and recruiting (2) including travel, entertainment, trade shows, advertising, dues & subscriptions, and public relations As a result of this reorganization the Company recorded restructuring charges of $1,129,000 and $313,000 in the three-month periods ended June 30 and September 30, 2001 consisting of severance and contract termination costs totaling $982,000 and $42,000 and $147,000 and $271,000, respectively. The severance costs related to the elimination of 38 full-time positions representing approximately 45% of the Company`s workforce. The contract termination costs related primarily to expenses incurred as part the cancellation of certain long-term research subscription contracts and a contract with the Company`s website hosting provider. The following is a summary of the restructuring charge recognized in the nine-month period ended September 30, 2001 and the remaining accruals at September 30, 2001 (in thousands): Amounts paid Restructuring as of Balance at Charge September 30, 2001 September 30, 2001 -------------- ------------------ ------------------ Severance for 38 employees $1,024 $688 $ 336 Contract termination settlement 418 238 180 ------ ---- ------ Total charges $1,442 $926 $ 516 ====== ==== ====== The amount accrued for severance is based upon written severance agreements. Based upon the written severance agreements and the severance accrual remaining at September 30, 2001, the Company expects to pay $210,000 in the fourth quarter of 2001 and $126,000 in the first quarter of 2002. The remaining contract termination costs are expected to be paid $13,000 in the fourth quarter of 2001, $83,000 in the first quarter of 2002 and $84,000 in the second quarter of 2002. NOTE 6. GOODWILL AND OTHER INTANGIBLES Based upon the Company`s history of recurring operating losses and its market capitalization being less than its stockholders` equity as of September 30, 2001, management assessed the carrying value of goodwill and other intangibles and determined that such value may not be recoverable. If the sum of the expected undiscounted future cash flows were less than the carrying amount of the assets, the Company would recognize an impairment loss. The impairment loss is measured as the amount by which the carrying amount of the goodwill and other intangibles exceeds the fair value of the assets, as calculated utilizing the discounted future cash flows. In accordance with this policy, the Company recorded an impairment charge of $43,375,000. 9 -------------------------------------------------------------------------------- The net book values of goodwill and other intangibles associated with the DWeb and Netlan acquisitions as of September 30, 2001 are as follows (amounts in thousands): DWeb Netlan Total ---- ------ ----- Goodwill Balance - September 30, 2001 $ 41,283 $ 3,380 $ 44,663 Reclass from other intangibles 425 159 584 Impairment charge (40,088) (3,287) (43,375) -------- -------- -------- Adjusted balance $ 1,620 $ 252 $ 1,872 ======== ======== ======== Other Intangibles Balance - September 30, 2001 $ 1,376 $ 159 $ 1,535 Reclass of workforce as goodwill (425) (159) (584) -------- -------- -------- Adjusted balance $ 951 $ - $ 951 ======== ======== ======== Amortization expense related to goodwill for the nine-month period ended September 30, 2001 was approximately $9,441,000. The Company also changed the amortization period from five years to three years in accordance with applying Statement of Financial Accounting Standards ("SFAS") No. 121. The Company expects to record goodwill amortization in the 4th quarter of 2001 of $374,000. Thereafter, it will no longer be amortized, but rather reviewed for impairment in compliance with SFAS No. 142. Remaining other intangibles after the impairment review relate to a customer list acquired in April 2000 of $2,188,000, a non-compete agreement of $75,000 and the cost of acquiring the Company`s domain name and establishing the Company`s web-site in 2000 and 2001 of $22,000. Amortization expense related to other intangibles for the nine-month period ended September 30, 2001 was approximately $747,000. The estimated useful life of these assets is 36 months. Amortization expense in future periods will be approximately $179,000 in the 4th quarter of 2001, $717,000 in 2002 and $55,000 in 2003. NOTE 7. NET LOSS PER COMMON SHARE Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per common share has not been reflected since the assumed conversion of options, warrants and preferred shares would have been antidilutive. Had the Company reported net income at September 30, 2001 and 2000, options and warrants to purchase 58,441,354 and 21,643,286 common shares, and preferred shares convertible into 34,121,836 and 15,825,665 common shares, respectively, would have been included in the computation of diluted earnings per common share, to the extent they were not antidilutive. The unaudited pro forma net loss per common share presented in Note 4 herein has been computed in the same manner as net loss per common share. NOTE 8. PRODUCT DEVELOPMENT Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" requires companies to capitalize qualifying computer software costs 10 -------------------------------------------------------------------------------- incurred during the application development stage. All other costs incurred in connection with internal use software were expensed as incurred. The useful life assigned to capitalized product development costs, or generally two years, was based on the period such product is expected to provide future utility to the Company. As of September 30, 2001 and December 31, 2000, capitalized product development costs, net of accumulated amortization, were $1,774,000 and $905,000, respectively. For the nine-month periods ended September 30, 2001 and 2000, the Company charged to operations $1,604,000 and $2,456,000, respectively, for such costs. NOTE 9. RELATED PARTIES Two executive officers of a financial advisor to the Company (the "Financial Advisor") are directors of the Company. In addition, the Financial Advisor is a significant security holder of the Company. In connection with the closing of the Financing described in Note 3 herein, an affiliate of the Financial Advisor was paid a cash fee in the amount of $61,500 in consideration of the availability of the Line of Credit. In addition, an affiliate of the Financial Advisor was issued warrants to purchase 900,000 shares of Company common stock at $0.50 per share for a period of five years in consideration of the availability of such line. These warrants were valued using the Black-Scholes option-pricing model at $549,000. In consideration for acting as a placement agent for the Financing, the Financial Advisor received a cash fee in the amount of $637,500 and was issued (i) warrants to purchase 1,875,000 shares of Company common stock with an exercise price of $0.93 per share for a period of five years and (ii) unit purchase options to purchase Series C preferred stock convertible into an aggregate of 1,875,000 shares of Company common stock with an exercise price of $0.50 per share for a period of five years. These warrants and unit purchase options were valued using the Black-Scholes option-pricing model at $562,500 and $675,000, respectively. NOTE 10. SEGMENT REPORTING The following information is presented in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which established standards for reporting information about operating segments in the Company`s financial statements (in thousands): 11 -------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ---- ---- ---- ---- Revenue from external customers Transaction processing and related services $ 950 $ 950 $ 3,193 $ 2,015 Training and client educational services 551 763 1,851 1,703 -------- -------- -------- -------- $ 1,501 $ 1,713 $ 5,044 $ 3,718 ======== ======== ======== ======== EBITDA (1) Transaction processing and related services $ (1,519) $ (3,894) $ (8,491) $(10,989) Training and client educational services (60) 134 (75) 272 -------- -------- -------- -------- EBITDA (1,579) (3,760) (8,566) (10,717) Impairment of goodwill (43,375) - (43,375) - Depreciation and amortization (4,245) (4,232) (12,351) (8,998) Stock-related compensation (224) (1,292) (1,841) (14,865) Write-down of assets - (57) - (57) Interest, net (1,547) 163 (3,047) 828 -------- -------- -------- -------- Net Loss $(50,970) $ (9,178) $(69,180) $(33,809) ======== ======== ======== ======== (1) EBITDA is defined as net income (loss) adjusted to exclude: (i) provision (benefit) for income taxes, (ii) interest income and expense, (iii) depreciation, amortization and write-down of assets, and (iv) stock-related compensation. EBITDA is presented because management considers it an important indicator of the operational strength and performance of its business. The Company evaluates the performance of its operating segments without considering the effects of (i) debt financing interest expense and investment interest income, and (ii) non-cash charges related to depreciation, amortization and stock-related compensation, which are managed at the corporate level. Transaction processing and related services include revenue for processing transactions and consulting services. Revenue from transaction processing is recognized on a "pay per transaction" basis or based on a monthly subscription charge related to the overall number of transactions during the period. The revenue from these services is recognized in the month in which the services are rendered. Revenue from consulting services is recognized as services are rendered over the contract term. The revenue derived from training and client educational services is recognized as services are rendered for the respective seminars, typically one to five days. Deferred income includes amounts billed for the unearned portion of certain consulting contracts and training seminars. NOTE 11. RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations". SFAS No. 141 applies prospectively to all business combinations initiated after June 30, 2001 and to all business combinations accounted using the purchase method for which the date of acquisition is July 1, 2001, or later. This statement requires all business combinations to be accounted for using one method, the purchase method. Under previously existing accounting rules, business combinations were accounted for using one of two methods, the pooling-of-interests method or the purchase method. 12 -------------------------------------------------------------------------------- In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. Under SFAS No. 142, goodwill and some intangible assets will no longer be amortized, but rather reviewed for impairment on a periodic basis. The provisions of this Statement are required to be applied starting with fiscal years beginning after December 15, 2001. This Statement is required to be applied at the beginning of the Company`s fiscal year and to be applied to all goodwill and other intangible assets recognized in its financial statements at that date. Impairment losses for goodwill and certain intangible assets that arise due to the initial application of this Statement are to be reported as resulting from a change in accounting principle. Goodwill and intangible assets acquired after June 30, 2001, will be subject immediately to the provisions of this Statement. The Company is currently evaluating the impact of the new accounting standard on existing goodwill and other intangible assets and plans to adopt the new accounting standard in its financial statements for the fiscal year ending December 2002. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of long-lived assets, except for certain obligations of lessees. The provisions of this Statement are required to be applied starting with fiscal years beginning after June 15, 2001. Earlier application is encouraged. The Company is currently evaluating the impact of the new accounting standard and plans to adopt the new accounting standard in its financial statements for the fiscal year ending December 2002. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144, supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. This Statement also amends ARB No. 51, Consolidated Financial Statements, to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. The provisions of this Statement are required to be applied starting with fiscal years beginning after December 15, 2001. The Company is currently evaluating the impact of the new accounting standard on existing long-lived assets and plans to adopt the new accounting standard in its financial statements for the fiscal year ending December 2002. 13 -------------------------------------------------------------------------------- ITEM 2. MANAGEMENT`S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Forward Looking Statements The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements included in this report. It is intended to assist the reader in understanding and evaluating the financial position of the Company. This report contains forward-looking statements that reflect the current assumptions of the Company and expectations regarding future events. While these statements reflect the Company`s current judgment, they are subject to risks and uncertainties. Actual results may differ significantly from projected results due to a number of factors, including, but not limited to, the Company`s limited operating history; the Company`s ability to raise additional capital, if needed; the soundness of the Company`s business strategies relative to the perceived market opportunities; the Company`s ability to successfully develop, market, sell and improve its business to business transaction services to retailers, suppliers, buyers or sellers; the Company`s ability to compete effectively on price and support services; the risks associated with rapidly changing technologies, such as the Internet; and the Company`s assessment of its specific vertical industry`s need to become technology efficient. These factors and other risk factors are more fully discussed in the Company`s filings with the Securities and Exchange Commission, which you are strongly urged to read. The Company expressly disclaims any intent or obligation to update any forward-looking statements. When used in this report, the words "believes," "estimated," "estimates," "expects," "expected," "anticipates," "may" and similar expressions are intended to identify forward-looking statements. Overview The Company utilizes proprietary software to provide a technology platform for large buyers and large suppliers to transfer business documents via the Internet to their small and medium-sized trading partners. These documents include, but are not limited to, purchase orders, purchase order acknowledgements, advanced shipping notices and invoices. The Company does not allow customers to take delivery of its proprietary software. The Company provides access via the Internet to its proprietary software, which is maintained on its hardware and on hosted hardware. The Company also offers professional services, which provide consulting and technical expertise to the same client base, as well as to other businesses that prefer to operate or outsource the transaction management and document exchange of their business-to-business relationships. In addition, the Company is an authorized provider of technical education to its clients for products of Citrix, Lotus Development Corporation, Microsoft Corporation, and Novell Inc. The Company designs and delivers custom computer courseware for the same client base and provides education through delivery of web development training seminars. Revenue from transaction processing is recognized on a per transaction basis when a transaction occurs between a buyer and a supplier. The fee is based either on the volume of transactions processed during a specific period, typically one month, or calculated as a percentage of the dollar volume of the purchase related to the documents transmitted during a similar period. Revenue from related implementation, if any, and monthly hosting fees are recognized on a straight-line basis over the term of the contract with the customer. Deferred income includes amounts billed for implementation and hosting fees, which have not yet been earned. For related consulting arrangements on a time-and-materials basis, revenue is recognized as services are performed and costs are incurred in accordance with the billing terms of the contract. Revenues from related fixed price consulting arrangements are recognized using the percentage-of-completion method. Fixed price consulting arrangements are mainly short-term in nature and the Company does not have a history of incurring losses on these types of contracts. If the Company 14 -------------------------------------------------------------------------------- were to incur a loss, a provision for the estimated loss on the uncompleted contract would be recognized in the period in which such loss becomes probable and estimable. Billings in excess of revenue recognized under the percentage-of-completion method on fixed price contracts is included in deferred income. Revenue from training and client educational services is recognized upon the completion of the seminar and is based upon class attendance. If a seminar begins in one period and is completed in the next period, the Company recognizes revenue based on the percentage of completion method for the applicable period. Deferred income includes amounts billed for training seminars and classes that have not been completed. On February 22, 2000, eB2B completed its acquisition of Netlan. Pursuant to the Agreement and Plan of Merger (the "Netlan Merger"), Netlan`s stockholders exchanged 100% of their common stock for 46,992 shares of eB2B common stock (equivalent to 125,000 shares of Company common stock). Additionally, 75,188 shares of eB2B common stock (equivalent to 200,000 shares of Company common stock) were issued, placed into an escrow account, and were released to certain former shareholders of Netlan upon successful completion of escrow requirements, including continued employment with the Company. The purchase price of the Netlan Merger was approximately $1.6 million. The Company recorded approximately $4,896,000 of goodwill and approximately $334,000 of other intangibles in connection with this transaction. On April 18, 2000, eB2B Commerce, Inc., a Delaware corporation ("eB2B"), merged with and into Dynamic Web Enterprises, Inc. ("DWeb") , a New Jersey corporation, with the surviving company (i.e. the "Company") using the name "eB2B Commerce, Inc.". Pursuant to the Agreement and Plan of Merger between eB2B and DWeb (the "Merger"), the shareholders of DWeb retained their shares in DWeb, while the shareholders of eB2B received shares, or securities convertible into shares, of common stock of DWeb representing approximately 89% of the equity of the Company, on a fully diluted basis. The transaction was accounted for as a reverse acquisition. The reverse acquisition was accounted for as a purchase business combination in which eB2B is the accounting acquirer and DWeb is the legal acquirer. As a result of the reverse acquisition, (i) the financial statements of eB2B are the historical financial statements of the Company; (ii) the results of the Company`s operations include the results of DWeb after the date of the Merger; (iii) the acquired assets and assumed liabilities of DWeb were recorded at their estimated fair market value at the date of the Merger; (iv) all references to the financial statements of the "Company" apply to the historical financial statements of eB2B prior to the Merger and to the consolidated financial statements of the Company subsequent to the Merger; and (v) any reference to eB2B applies solely to eB2B Commerce, Inc., a Delaware corporation, and its financial statements prior to the Merger. The purchase price of the Merger was approximately $59.1 million, of which approximately $1.9 million was allocated to identifiable net liabilities assumed, $58.1 million was allocated to goodwill and $2.9 million was allocated to other intangibles. The goodwill resulting from the above purchase business combinations was being amortized over five years and other intangibles are being amortized over three years. Amortization related to the goodwill and other intangibles acquired in the Netlan and DWeb acquisitions for the three and nine-month periods ended September 30, 2001 and 2000, totaled approximately $3.4 million and $10.2 million and $3.4 million and $6.2 million, respectively. Based upon the Company`s history of recurring operating losses and its market capitalization being less than its stockholders` equity as of September 30, 2001, management assessed the recoverability of goodwill and other 15 -------------------------------------------------------------------------------- intangibles based upon expectations of future undiscounted cash flows. Management determined that goodwill as of September 30, 2001 was impaired based upon discounted future cash flows and accordingly reduced the carrying value by $43.4 million and changed the amortization period of goodwill from five years to three years. The Company`s financial condition and results from operations were significantly different during the nine-month period ended September 30, 2001 and 2000. For the nine months ended September 30, 2001, the Company`s results reflected the new operations of the Company, the operations of Netlan and the operations of Dweb. For the nine months ended September 30, 2000, the Company`s results included the operations of eB2B, the operations of Netlan from March 1, 2000 and the operations of DWeb from April 19, 2000. As a result, the Company believes that the results of operations for the nine months ended September 30, 2000 are not comparable to the results of operations for the same period in 2001 and the Company`s anticipated financial condition and results of operations going forward. Furthermore, the Company`s limited operating history makes the prediction of future operating results very difficult. The Company believes that period-to-period comparisons of operating results should not be relied upon as predictive of future performance. The Company`s prospects must be considered in light of the risks, expenses and difficulties encountered by companies at an early stage of development, particularly companies in new and rapidly evolving markets. The Company may not be successful in addressing such risks and difficulties. RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 Revenue for the three-month period ended September 30, 2001 decreased $212,000 or 12% to $1,501,000 as compared to $1,713,000 for the three-month period ended September 30, 2000. Revenue for the nine-month period ended September 30, 2001 increased $1,326,000 or 36% to $5,044,000 as compared to $3,718,000 for the nine-month period ended September 30, 2000. The Company`s transaction processing and related services` business segment generated revenue of $950,000 and $3,193,000 for the three and nine-month periods ended September 30, 2001 as compared to $950,000 and $2,015,000 for the three and nine-month periods ended September 30, 2000, an increase of $1,178,000 or 58% for nine-month period ended September 30, 2001 as compared to the comparable period of the prior year. This increase in revenue for the period is principally due to the following: (i) Increased revenue in 2001 as a result of the full nine-months of operations acquired from DWeb on April 18, 2000 and reflected from April 19, 2000. Had the Company acquired DWeb on January 1, 2000, the revenue from transaction processing and related services for the nine-month period ended September 30, 2000 would have been $1,045,000 higher than the revenue reported by the Company; (ii) Increased revenue in 2001 ($188,000 and $553,000 for the three and nine-month periods, respectively) as a result of an increase in the average fee paid per customer for transaction processing services as well as additions of new customers to the Company`s service, net of cancellations of this service by certain inactive or very low volume customers; and (iii) Increased revenue in 2001 ($0 and $205,000 for the three and nine-month periods, respectively) principally in connection with the growth experienced in the Company`s consulting services as compared to the same respective periods in 2000, as well as the development of certain other professional services, which the Company 16 -------------------------------------------------------------------------------- did not provide in 2000. These other professional services generated revenue of $24,000 and $97,000 for the three and nine-month period ended September 30, 2001. The Company eliminated these other professional services in order to improve its operating margins during the second quarter of 2001 as part of the implementation of its reorganization plan; partially offset by (iv) Decreased revenue in 2001 ($170,000 and $625,000 for the three and nine-month periods, respectively) in relation to consulting services acquired from Netlan on February 22, 2000 and reflected from March 1, 2000, which have been eliminated during the latter part of 2000. The Company`s training and client educational services` business segment generated revenue of $551,000 and $1,851,000 for the three and nine-month periods ended September 30, 2001 as compared to $763,000 and $1,703,000 for the three and nine-month periods ended September 30, 2000. The $212,000 or 28% decrease in the three-month period ended September 30, 2001 as compared to the three-month period ended September 30, 2000 is mainly attributable to the reduction of discretionary training spending by the Company`s largest customers in this business segment. The Company filed an insurance claim of approximately $110,000 for revenues lost in the three-month period ended September 30, 2001 due to cancellations caused by the September 11, 2001 terrorist attack in New York. The Company also expects to see a negative impact on its 4th quarter 2001 revenues but expects to record additional revenues in the first quarter of 2002 as customers reschedule the cancelled classes. The $148,000 or 9% increase in the nine-month period ended September 30, 2001 as compared to the comparable period in the previous year is chiefly associated with the full nine months of operations of Netlan in the 2001 period versus seven months of operations in the 2000 period as these operations were reflected from March 1, 2000, offset by the negative effect of the terrorist attack in New York. Had the Company acquired Netlan on January 1, 2000, the revenue from training and client educational services would have been $329,000 higher than the revenue reported in the nine-month period ended September 30, 2000. In the three and nine-month periods ended September 30, 2001, one customer accounted for approximately 19.6% and 21.1% of the Company`s total revenue, respectively. No other customer accounted for 10% or more of the Company`s total revenue for the three and nine-month periods ended September 30, 2001. Cost of revenue consists primarily of (i) salaries and benefits for employees providing technical support, (ii) salaries and benefits of personnel and consultants providing consulting and training services to clients and (iii) communication and hosting expenses associated with the transmittal and hosting of the Company`s transaction data. Total cost of revenue for the three and nine-month periods ended September 30, 2001 amounted to $694,000 and $2,459,000 as compared to $855,000 and $1,991,000 for the three and nine-month periods ended September 30, 2000, a decrease of $161,000 or 18% for the three-month period ended September 30, 2001 as compared to the prior year period and an increase of $468,000 or 23% for the nine-month period ended September 30, 2001 as compared to the comparable period of the prior year. The decrease in the three-month period ended September 30, 2001 compared to the prior year period resulted principally from the termination of a contract with the Company`s hosting provider. The increase in cost of revenue for the nine-month period ended September 30, 2001 compared to the prior year period reflected primarily the different scope of operations of the Company in 2001 as compared to the same periods in 2000, including full nine-month of the operations of Netlan and DWeb. 17 -----------------------------------------------------------------------------
aus der Diskussion:	Alles **KALTER KAFFEE** das hier wird eine 4000 % Chance *EBTB* Eb2B Comm Inc
Autor (Datum des Eintrages):	PUSHERKING  (14.11.01 21:34:09)
Beitrag:	25 von 31 (ID:4884743)
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