As filed with the Securities and Exchange File No. 333-71411
Commission on September 30, 1999.
================================================================================
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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UBARTER.COM INC.
(Name of small business issuer in its charter)
Nevada 7389 91-1739746
(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
or organization) Code Number)
Steven M. White
Chief Executive Officer
Ubarter.com Inc.
21400 International Blvd., Suite 207 21400 International Blvd., Suite 207
Seattle, Washington 98198 Seattle, Washington 98198
(206) 870-9290 (206) 870-9290
(Address and telephone number of (Name, address and telephone number
principal executive offices and of agent for service)
place of business)
Copy to:
Michael Jay Brown, Esq.
Dorsey & Whitney LLP
U.S. Bank Building Center, Suite 4200
1420 Fifth Avenue
Seattle, Washington 98101
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Approximate date of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
Prospectus
UBARTER.COM INC.
21400 International Blvd., Suite 207
Seattle, Washington 98198
(206) 870-9290
COMMON STOCK
1,916,000 Shares
This prospectus covers 1,916,000 shares of common stock of Ubarter.com Inc.
which certain selling shareholders (named in this prospectus) may offer from
time to time. The shares offered by this prospectus consist of shares issued in
private placements, including transactions involving the exercise of warrants
and our acquisition of Barter Business Exchange, Inc.
The shares covered by this prospectus represent approximately 32% of our issued
and outstanding shares of common stock. We will not receive any of the proceeds
from the sale of the shares.
-----------------------
The shares being offered by this prospectus involve a high degree of risk. See
"Risk Factors" beginning on page 5.
-----------------------
Ubarter.com's common stock trades on the OTC Bulletin Board under the symbol
"UBTR."
-----------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The information in this prospectus is not complete and may be changed. The
selling shareholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities, and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
The date of this prospectus is ----------- --, 1999.
1
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
Prospectus Summary..............................................................................1
Risk Factors....................................................................................5
Recent Developments............................................................................13
Use of Proceeds................................................................................14
Market for Common Stock........................................................................14
Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................................15
Business.......................................................................................22
Management.....................................................................................30
Securities Ownership of Certain Beneficial Owners and Management...............................38
Certain Relationships and Related Transactions.................................................39
Description of Securities......................................................................40
Plan of Distribution...........................................................................41
Selling Shareholders...........................................................................42
Shares Eligible for Future Sale................................................................43
Legal Matters..................................................................................44
Experts........................................................................................44
Changes in Certifying Accountants..............................................................44
Additional Information.........................................................................44
Index to Financial Statements..................................................................46
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights information contained elsewhere in this
prospectus. The summary is not complete and may not contain all of the
information you may need to consider before investing in the common stock. You
should read this entire prospectus carefully. We effected a 2 for 1 stock split
on July 24, 1998. All references in this prospectus take this stock split into
effect when referring to the number of shares of common stock, or the per share
data.
THE COMPANY
Ubarter.com provides business-to-business barter services for retail,
professional, media and other corporate clients through our offices in Seattle,
Washington, Toronto, Ontario, Vancouver, British Columbia and Windsor, Ontario.
Through management of a private barter currency, Ubarter Dollars, we enable our
clients to sell their products or services to our other clients for Ubarter
Dollars. We have approximately 3,500 clients who offer products and services, as
of the date of this prospectus. In September 1999, we launched the initial phase
of our e-commerce solution to barter over the Internet.
THE OFFERING
The selling shareholders may offer from time to time up to 1,916,000 shares
of our common stock. We will receive no proceeds from the sale of the common
stock offered by this prospectus.
RISK FACTORS
There are significant risks associated with an investment in the common
stock, including among others, the risks associated with expansion, development,
introduction and implementation of our new e-commerce barter website, and
possible under-capitalization. See "Risk Factors."
SUMMARY FINANCIAL DATA
The following selected financial data are qualified in their entirety by
reference to, and you should read them in conjunction with, the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section of this prospectus and the audited financial statements and notes
included in this prospectus.
<TABLE>
Three Months Ended Years Ended
June 30 March 31
(Unaudited)
1999 1998 1999 1998
------------ ------------ ------------- -----------
Statement of Operations Data:
<S> <C> <C> <C> <C>
Revenue $ 909,300 $ 148,500 $ 504,500 $ 586,100
Operating Expenses 1,727,100 125,900 1,345,500 556,300
Income (Loss) From Operations (1,202,900) 5,400 (841,000) 29,800
Net Income (Loss) (1,200,000) 8,800 (798,000) 32,500
Net Income (Loss) Per Common Share(1) (.20) (.00) (0.14) 0.01
Average Common and Equivalent Shares (1) 5,956,667 4,099,566 5,521,583 2,632,424
- ---------------------
</TABLE>
(1) Adjusted to give effect to the 2 for 1 stock split on July 24, 1998. See
Note 2 to audited financial statements and Note 3 to condensed financial
statements.
3
<PAGE>
June 30
1999
(Unaudited)
-----------
Balance Sheet Data:
Cash and Cash Equivalents $ 115,900
Working Capital (Deficit) (2,425,600)
Total Assets 3,923,100
Current Liabilities 3,192,100
Long-Term Obligations, Net
of Current Portion 29,600
Stockholders' Equity 701,400
4
<PAGE>
RISK FACTORS
There are significant risks associated with an investment in our common
stock. Before making a decision concerning the purchase of our common stock, you
should carefully consider the following factors, among others, as you evaluate
our business and the forward-looking statements we make in this prospectus. Any
of these risk factors could materially and adversely affect our business,
financial condition or operating results, in which case the trading price of our
common stock could decline, and you could lose all or part of your investment.
We may face difficulties in achieving our growth strategy in our markets.
You should consider the risks and difficulties we expect to encounter as we
attempt to execute our business strategy, including the rapidly evolving nature
of the commercial barter market and the Internet market. These risks include
uncertainties about our ability to:
* attract a larger number of clients to execute barter transactions on
our offline trade exchange and on our e-commerce barter website
launched in September 1999;
* increase awareness of the benefits of bartering in general and the
specific services we can provide;
* strengthen the loyalty of our existing clients;
* successfully implement our plan to introduce our online e-commerce
barter website;
* respond effectively to competitive pressures;
* continue to develop and upgrade our technology;
* attract, integrate, retain and motivate qualified personnel;
* effectively execute our plan to acquire other barter exchange
companies in North America;
* respond effectively to increased business operation demands.
We may be unable to accomplish one or more of the above, which could cause our
business to suffer. In addition, accomplishing one or more of the above could be
very costly, which could harm our financial results.
5
<PAGE>
Funds may be insufficient to finance our plans for growth and our operations.
Our existing working capital and cash from financing activities will not be
sufficient to allow us to execute our business plan, including the further
development and implementation of our e-commerce barter website and acquisition
of other barter exchanges, and meet the demands for our services during fiscal
year 2000. In August 1999, we raised $1 million of short-term financing,
however, we still need to raise additional capital to finance our expansion
goals and operations and to repay the short-term financing. We believe a portion
of our capital resources, up to approximately $1.4 million, will come from the
exercise of outstanding warrants. Some of these warrants have an exercise price
of $1.50 and expire in June 2000 and some have an exercise price of $2.00 and
expire in September 2004. The perceived value of these warrants at any given
time is related to the market price of our common stock, which trades over the
counter through the OTC Bulletin Board. If we are unable to obtain the expected
portion of our financing through the exercise of warrants or other financings,
we may not be able to successfully implement our short-term or long-term plans
for expansion or to meet our working capital requirements. In addition, if we
are unable to repay the $1 million of short-term financing by June 1, 2000, the
lender would have the right to convert the loan into 1,333,333 shares, or
approximately 22% of our common stock based on the number of shares outstanding
at August 31, 1999. Excluding accrued interest owing on the loan at the time of
conversion, the conversion price per share of common stock would be $.75.
Accordingly, our current shareholders would, in the event of such a conversion,
experience significant dilution of their investment in Ubarter.com. See "Recent
Developments."
The full development and implementation of the Ubarter.com website will
require additional resources. We may not be able to obtain the working capital
necessary to develop our website fully. Furthermore, our website may not produce
material revenue even if successfully developed.
Additionally, we may not be successful in our efforts to acquire other
regional trade exchanges and expand as intended. One of our assumptions in
making acquisitions is that we will be able to use our common stock, rather than
cash, as consideration for any purchase. This assumption may prove to be
incorrect. If we do use shares of our common stock to make acquisitions, the
issuance of additional shares could be dilutive. Even if we succeed in our
expansion plans, we may experience rapid growth that requires additional funds
to expand our operations and organization. Our working capital requirements in
the foreseeable future will depend on a variety of factors including capital
requirements to implement and adjust our business plan.
We do not have current commitments for additional financing. We intend to
explore a number of options to secure alternative financing including the
issuance of additional equity. We might not succeed, however, in raising
additional equity capital or in negotiating and obtaining additional and
acceptable financing when we need it. Our ability to obtain additional capital
may depend on market conditions (including the market for Internet stocks),
national and global economies and others factors beyond our control. If adequate
capital were not available or were not available on acceptable terms at a time
when we needed it, our ability to execute our expansion plans, develop or
enhance our services or respond to competitive pressures would be significantly
impaired.
We face competition from numerous barter exchanges and other companies.
There are hundreds of independent barter exchanges in the United States and
Canada, some of which may have similar plans for international expansion in the
barter industry. Some of the established entities in the barter industry may
have more operating experience, larger client bases or greater financial,
marketing, technical and other resources. It is possible that a group of
independent barter exchanges could join forces to create a large national or
international barter company. Consequently, we will encounter competition in our
efforts to expand our business and to acquire desirable independent trade
exchanges.
6
<PAGE>
We believe the more market penetration we achieve, the higher the barrier
to entry will become for anyone contemplating a similar e-commerce solution for
barter. We face the risk, however, that existing or new competitors may develop
technologies or services or strategic alliances and affiliations that make our
services less marketable or less useful or desirable. Furthermore, we may not be
able to successfully enhance our services, develop new services or lower costs
when and as we need them.
Similarly, we expect to face competition in our efforts to develop
Ubarter.com into a premier e-commerce barter website. The market for
Internet-based services and products is relatively new, intensely competitive,
rapidly evolving and subject to rapid technological change. A number of
companies that have expertise in developing online commerce and in facilitating
person-to-person or business-to-business interaction, could be potential
competitors if they elected to enter the barter business. Certain Internet-based
companies with unique purchasing or sales models such as eBay and Priceline.com
have significant technical, financial and marketing resources and could be
potential competition for Ubarter.com. These companies would be strong
competitors if they decided to enter the barter business.
A key component of our future revenue growth depends on our ability to develop
and successfully implement a quality e-commerce barter website.
We intend to develop Ubarter.com into a premier e-commerce barter website
where businesses can trade products and services. We may not be successful in
our plans to implement, maintain and develop usage of the website. Our website
may encounter technical difficulties in implementation. Technical problems may
cause delays or require additional expenditures. For our website to be perceived
as a viable marketplace and a replacement for or supplement to current trade
exchanges, the website must provide accurate and timely information on a
consistent, easy-to-use and reliable basis. Other measures of quality of our
website include:
- the level of representative client participation;
- a sufficient range and availability of products and services offered
on our website;
- our ability to service high response rates for clients; and
- timely posting of changes and modifications to the inventory of
clients and products and services offered over our website.
We expect to derive revenues in the near term from the Ubarter.com website.
The success of our business will depend on end-user acceptance of our online
services. Our success will also depend on our ability to design, develop, test
and support new services and enhancements on a timely basis that meet changing
customer needs and our ability to respond to technological developments and
emerging industry standards. We may be unable to maintain adequate quality
control procedures, develop and market new services and enhancements that meet
changing customer needs, or respond to technological developments and emerging
industry standards.
In our effort to develop new and enhanced services and features for our website,
we may alienate current users or experience technical difficulties.
We believe our new website will be more attractive to clients if we develop
features that will, among other things, allow clients to access products and
services online 24 hours a day, seven days a week, and execute transactions
online. Accordingly, we intend to introduce additional or enhanced services and
features designed to attract new clients to our website while retaining current
clients. If we introduce services or features that do not function properly or
that our current clients do not perceive favorably, they may not continue to
visit our website. Clients may also choose a competitor's site over ours. We may
also experience difficulties that could delay or prevent us from introducing new
services or features. Furthermore, these services or features may contain errors
or problems that we discover after we have already introduced them. We may need
to modify significantly the design of these services or features on our website
to correct these errors. Errors could lead to significant dissatisfaction of
clients and result in adverse publicity.
7
<PAGE>
Our growth and success depend on continued growth in barter industry.
Industry sources, as well as our experience, indicate that for the last
several years the commercial barter industry has experienced a steady growth.
These sources have attributed the growing appeal of the barter industry among
business owners to increasing competitive pressures, the existence of surplus
inventory, unproductive assets, excess capacity and the ability to generate new
sales and reach new customers while conserving cash. Nevertheless, we believe
there has been low penetration by the barter industry into the market of
potential business customers. Although we are aware of no factors that would
lead us to conclude that the commercial barter industry will not continue to
grow at a steady rate, it is possible this growth will not continue. If the
growth of the barter industry were to decline, however, we would expect to face
heightened competition with weakened profitability and a reduced share of the
barter market, which could materially adversely affect our business, results of
operations and financial condition.
We may be unable to effectively manage our growth.
As we continue to expand our level of operations, we will need an effective
planning and management process to implement our business plan successfully.
With the introduction of our new website, we may experience a period of
significant expansion of our business. Depending on the amount and timing of any
increase in business, this expansion could place a strain on our management,
operational and financial resources. Some areas that could be put under strain
by growth include customer support, customer billing and website support and
maintenance. We have management, operating and financial systems in place, and
we intend to continue our efforts to improve these systems. There is a risk,
however, that such systems may be inadequate to support our existing and future
operations or that hiring, training and managing new employees will be more
difficult then we anticipate.
We have historical losses and anticipate future losses in the initial stage of
implementing our business strategy.
We are incurring losses from our operating activities. As of June 30, 1999,
we had an accumulated deficit of $2,109,500. We expect to increase our operating
expenses in an effort to expand our marketing, and we expect to increase our
level of expenditures to further develop online barter capability. These
anticipated increases in operating expense levels and developmental costs will
adversely affect operating results. We expect that we will continue to incur
losses during fiscal year 2000 and beyond. Further, if we successfully
accomplish our plan of acquiring existing trade exchanges, we believe these
acquisitions could result in additional operating losses and negative cash flows
until the acquisitions are successfully integrated into our operations. If we
acquire other trade exchanges, period-to-period comparisons of our financial
results may not be meaningful, and you should not rely on them as an indication
of future performance.
We may not be able to integrate successfully the operations from our recent
acquisition of Barter Business Exchange or from any future acquisitions.
We may not be successful in integrating the operations of Barter Business
Exchange or from any future acquisitions. The BBE acquisition was our first
significant acquisition. We therefore have limited experience with completing
and integrating acquisitions. There is risk that we will be unable to integrate
successfully the operations of Barter Business Exchange with our existing
business or that the anticipated benefits of the acquisition, or any future
acquisitions, may not be realized. Part of our business strategy includes growth
by acquisition, so we expect to pursue other acquisitions in the future. We may
be unable to identify, negotiate or finance future acquisitions. The Barter
Business Exchange acquisition and any future acquisitions present many risks and
uncertainties generally associated with acquisitions including:
8
<PAGE>
- adverse effects on our reported results of operations from
acquisition-related charges and amortization of goodwill and purchased
technology;
- increased fixed costs, which could impact profitability;
- increased debt;
- inability to maintain the key business relationships and the
reputation of the acquired businesses;
- potential dilution to current shareholders from the issuance of
additional equity securities;
- difficulties integrating operations, personnel, technologies, products
and information systems of the acquired businesses;
- maintenance of our standards, controls, procedures and policies;
- becoming responsible for significant liabilities of companies we
acquire;
- diversion of management's attention from other business concerns; and
- potential loss of key employees of acquired businesses.
We are currently facing all of these challenges in some degree relating to
the BBE acquisition, and we have not yet established our ability to meet them.
We do not have any understandings, commitments or agreements with respect
to any other material acquisition, and no material acquisition is being pursued,
as of the date of this prospectus.
We are dependent on key personnel.
The successful implementation of our business plan and the overall success
of our business will depend on the skills and efforts of our management
personnel and, to a large extent, the active participation of Steven White, our
Chief Executive Officer and President and Bob Bagga, our Chief Operating
Officer, as well as our other executive officers and key employees. We have
employment agreements in place with certain key employees and management. We
also have key-man insurance covering the life of Mr. White in the amount of $1
million. We do not have key man life insurance on other executives. Our future
success will depend on our ability to attract, train, retain and motivate
technical, managerial, marketing and customer support personnel. Competition for
these personnel may be intense, particularly for individuals with e-commerce
experience. We provide stock options, which further serve to retain and motivate
key employees. We nevertheless face the risk that we will be unable to attract,
integrate, retain and motivate qualified employees.
An established public trading market for our securities does not exist.
Our common stock trades on the OTC Bulletin Board. The OTC Bulletin Board
is an electronic quotation medium used by subscribing broker dealers to reflect
dealer quotations on a real-time basis. The over-the-counter market provides
significantly less liquidity than the Nasdaq Stock Market. Quotes for stocks
included on the OTC Bulletin Board are not listed in the financial sections of
newspapers as are those for the Nasdaq Stock Market. Further, quotation entries
on the OTC Bulletin Board may reflect an unpriced indicator of interest (such as
"bid wanted" or "offer wanted" indicators) on unsolicited non-dealer interest.
Therefore, prices for securities traded solely on the OTC Bulletin Board may be
difficult to obtain, and holders of common stock may be unable to resell their
securities at or near their original offering price or at any price.
9
<PAGE>
The National Association of Securities Dealers has recently enacted Rules
that limit quotations on the OTC Bulletin Board to securities of issuers that
are current in their reports filed with the Securities and Exchange Commission.
This rule becomes effective for our stock in May, 2000. The intent of this rule
is to make reliable and current financial and other information about issuers
available to the investing public. At this time, the impact these rule changes
may have on our securities or the trading of securities generally on the OTC
Bulletin Board cannot be determined. If at any time our securities are not
included on the OTC Bulletin Board and do not qualify for Nasdaq, quotes for the
securities may be included in the "pink sheets" for the over-the-counter market.
This trading market is even less liquid than the OTC Bulletin Board and holders
of common stock may be unable to obtain any quotations for securities.
"Penny stock" regulations impose certain restrictions on marketability of
securities.
The SEC has adopted regulations that generally define a "penny stock" to be
any equity security that is not traded on a national securities exchange or
Nasdaq and that has a market price of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exceptions. The
definition excludes the securities of an issuer that meets certain minimum
financial requirements. Generally, these minimum thresholds would be met by an
issuer with net tangible assets in excess of $2 million or $5 million,
(depending on whether the issuer has been operating continuously for less or
more than three years) or by an issuer with "average revenue" of at least $6
million for the last three years.
As long as we do not meet the relevant financial requirements and our
common stock is trading at less than $5.00 per share on the OTC Bulletin Board,
our securities are subject to the penny stock rules. These rules impose
additional sales practice requirements on broker-dealers who sell our securities
to persons other than established customers and accredited investors (generally,
investors with a net worth in excess of $1,000,000 or an individual annual
income exceeding $200,000, or, together with the investor's spouse, a joint
income of $300,000). For transactions covered by the penny stock rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any non-exempt transaction
involving a penny stock, the rules require, among other things, that the
broker-dealer deliver an SEC mandated risk disclosure document relating to the
penny stock market and the risks associated therewith prior to the transaction.
The broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative as well as current quotations
for the securities. If the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, the broker-dealer must send monthly statements
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the penny stock
rules may restrict the ability of broker-dealers to sell our securities and may
affect the ability of our shareholders to sell their securities in the secondary
market.
Volume of shares eligible for sale may depress the market price.
Of the 6,029,420 shares of common stock outstanding as of August 31, 1999,
we issued 1,439,400 under an exemption from the registration provisions of the
Securities Act of 1933 under Rule 504 of Regulation D. These Rule 504 shares are
eligible for resale, without limitation, in the open market. We issued the
remaining 4,590,020 shares in private transactions. These 4,590,020 shares are
restricted securities within the meaning of Rule 144 under the Securities Act of
1933. Of these shares, 1,916,000 shares (or approximately 32% of the shares
currently outstanding) are being registered for resale by the selling
shareholders pursuant to the registration statement to which this prospectus
relates. In addition, the remaining 2,674,020 shares of our common stock are
currently eligible for resale in the open market, subject to the volume and
other conditions of Rule 144. There are no contractual restrictions on the
resale of the outstanding common stock, except for some volume limitations on
the 150,000 shares issued in connection with the BBE acquisition. In addition,
we filed a registration statement on Form S-8 registering a total of 1,855,280
shares of common stock subject to outstanding stock options or reserved for
issuance under our stock option plan. Shares registered under the Form S-8
10
<PAGE>
registration statement will, subject to Rule 144 volume limitations applicable
to affiliates, be available for sale in the open market, unless such shares are
subject to vesting restrictions. The sale in the public market of the shares to
be registered for resale pursuant to the registration statement to which this
prospectus relates as well as the restricted shares, or the perception that
these sales may occur, may depress prevailing market prices of the common stock.
These factors may also make it more difficult for us to raise funds through
future offerings of common stock.
We will depend on the continued utility of the Internet and technology for our
e-commerce barter site.
The performance of the Ubarter.com website will be dependent on the
successful operation of the Internet and on certain third parties and services
(such as Internet service providers, Internet backbone providers and Web
browsers). Users may experience difficulties resulting from system failures
unrelated to our internal systems and services. If the Internet were to become
regularly unavailable for many hours at a time, or if its ability to handle
traffic loads were to deteriorate enough to cause frequent unavailability or
slow response times, there would be less traffic to our website. Furthermore,
the perception of the quality of our services could suffer. To date, the
Internet has proven highly resilient and responsive to rapid growth in its use,
and many of the world's telecommunications, software and hardware companies are
continually investing in capacity and improvements.
Our Internet services will be designed around certain standards, including,
for example, Internet security standards. Current and future success of our
services may become subject to additional industry standards as Internet
commerce rapidly evolves. As a result our business may incur additional costs of
unknown proportions as we are confronted with new technology standards. In
addition, we may not be successful in our efforts to enhance existing services
and to develop, introduce and market new services. Furthermore, our enhancements
and new services may not adequately meet the requirements of the marketplace and
achieve market acceptance. As the Internet develops, it is possible that
incompatibility or lack of appropriate features could impact our business.
We expect sales of our services will depend in large part on a robust
industry and infrastructure for providing Internet access and carrying the
rapidly increasing Internet traffic. Certain critical issues concerning the
commercial use of the Internet (including capacity to handle projected increases
in traffic, security, reliability, cost, ease of use, access and quality of
service) remain unresolved and may impact the growth of Internet use. The
Internet may not prove to be a viable commercial marketplace because of
inadequate development of the necessary infrastructure, such as a reliable
network backbone or timely development of complementary products, such as high
speed modems. Because global commerce and on-line exchange of information on the
Internet and other similar open wide area networks are new and evolving, we
cannot predict with any assurance whether the infrastructure or complementary
products necessary to make the Internet a viable commercial marketplace will
continue to be developed. Even if the necessary infrastructure and complementary
products are developed, we cannot predict whether the Internet will remain a
viable commercial marketplace. In addition, the widespread adoption of new
Internet or telecommunications technologies or standards could require us to
make substantial expenditures to modify or adapt our services. In this case, the
new Internet or telecommunications services or enhancements that we offer could
contain design flaws or other defects. Although we expect to be responsive to
changes in the Internet and technology, we may not be successful in achieving
widespread acceptance of our services before competitors offer services with
speed and performance equal to or greater than ours.
11
<PAGE>
Security and privacy concerns could subject us to liability or otherwise deter
consumers from using our Website.
Once we are able to conduct online barter transactions, we could be subject
to litigation and liability if third parties were able to penetrate our network
security or otherwise misappropriate our users' personal information. This
liability could include claims for unauthorized barter transactions,
impersonation or other similar fraud claims. It could also include claims for
other misuses of personal information, such as for unauthorized marketing
purposes. In addition, the Federal Trade Commission and certain states have been
investigating certain Internet companies regarding their use of personal
information. We could incur additional expenses if new regulations regarding the
use of personal information are adopted or should government agencies choose to
investigate our privacy practices.
The need to securely transmit confidential information over the Internet
has been a significant barrier to electronic commerce and communications over
the Internet. Any well-publicized compromise of security could deter more people
from using the Internet or from using it to conduct transactions that involve
transmitting confidential information, such as barter transactions and personal
information. Internet security concerns could frustrate our efforts to grow our
client base. We may also incur significant costs to protect against the threat
of security breaches or to alleviate problems caused by such breaches.
We face risks from potential government regulation of the barter industry and of
the Internet.
The barter industry is not currently subject to direct regulation by any
government agency, other than regulations generally applicable to businesses.
Certain tax regulations require U.S. barter exchanges to file with the Internal
Revenue Service, on an annual basis, the totals of the barter sales of their
clients. Similarly, there are currently few laws or regulations governing usage
of the Internet. It is possible that a number of laws and regulations may be
adopted with respect to the Internet, covering issues such as user privacy,
taxes and the pricing, quality and other characteristics of products and
services. The adoption of laws or regulations applicable to our business could
hinder the growth of the barter industry or the Internet. As a result, these
regulations could cause a decrease in the demand for our services and an
increase in our cost of doing business or otherwise have a material adverse
effect on our business, prospects, financial condition and results of
operations. Furthermore, the applicability to the Internet of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes, libel and personal privacy is uncertain and may take years to
resolve.
Our systems may be subject to Year 2000 problems.
We have reviewed our own information technology and other technology
systems to assess and remediate any Year 2000 problems. We believe all of our
systems and software are Year 2000 compliant. We cannot, though, be sure that
our internal systems will function properly in the Year 2000. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Discussion of the Year 2000 Issue."
Our quarterly operating results are subject to fluctuations and seasonality.
Our revenue and operating results may vary significantly from quarter to
quarter as a result of a number of factors, some of which are outside of our
control. These factors include:
12
<PAGE>
- the commitment of clients to the general concept of bartering and to
the concept of bartering online through our website;
- the budget cycles of our clients;
- the attractiveness to clients of our bartering services;
- changes in costs that we incur to attract and retain clients;
- changes in our fees or the fees of our competitors for bartering
services;
- the introduction of new services by us or by our competitors;
- unexpected costs and delays relating to the expansion of our
operations;
- the occurrence of technical difficulties and system downtime; and
- general economic and market conditions.
We do not believe our revenue will be subject to seasonal fluctuations as a
result of general patterns of retail advertising and direct marketing, which are
typically higher during the fourth calendar quarter. Expenditures by our clients
may though tend to be cyclical, reflecting overall economic conditions, client
buying patterns and changing marketing strategies.
As a result of the above factors, revenues and operating results are
difficult to forecast, and you should not rely on period-to-period comparisons
of results of operations as an indication of our future performance. We may
incur a significant shortfall in revenues in relation to our expectations. In
addition, in future periods our operating results may fall below the
expectations of public market analysts and investors. Should this occur, the
market price of our common stock would likely decline.
RECENT DEVELOPMENTS
On August 27, 1999, we raised $1 million of short-term financing from
Alpine Capital Group, LLC, a New York limited liability company ("Alpine"). We
issued to Alpine a $1 million convertible promissory note (the "Note")
convertible into 1,333,333 shares of our common stock in the event the Note is
not repaid in full by June 1, 2000, and a warrant (the "Warrant") to purchase
183,333 shares of our common stock at an exercise price of $2.00 per share. We
will use the proceeds to continue to fund development of our e-commerce site for
barter, for salaries and other employment expenses and for working capital
purposes. We continue to pursue additional financing activities. See "Risk
Factors - Funds may be insufficient to finance our plans for growth."
A summary of the principal terms of the Note is as follows: (i) interest
accrues at 5.5% per annum; (ii) due and payable on September 1, 2002; (iii) we
must repay the Note in full if we raise an aggregate of $2.5 million through a
public or private sale of our equity or debt securities on or before June 1,
2000; (iv) we may prepay the Note, in whole or in part, on or before June 1,
2000, without premium or penalty; (v) if the Note is not paid in full by June 1,
2000, Alpine will have the right to convert the unpaid principal balance into
1,333,333 shares of our common stock (the "Conversion Shares") at an effective
purchase price of $.75 per share; (vi) after June 1, 2000, Alpine will have
demand registration rights with respect to any Conversion Shares; and (vii) the
Conversion Shares are subject to adjustment in the event of certain stock
splits, reclassifications and other changes to our common stock.
13
<PAGE>
A summary of the principal terms of the Warrant is as follows: (i) the
Warrant is exercisable, in whole or in part, at $2.00 per share of our common
stock (subject to adjustment in the case of certain changes to our common
stock); (ii) the Warrant is exercisable from September 1, 1999 through and
including September 1, 2004; (iii) the shares issuable upon exercise of the
Warrant shall have certain piggyback registration rights in the event we file a
registration statement to complete an offering of its common stock; (iv) we may,
at our option, require Alpine to exercise the Warrant if during any
non-consecutive 20 business day period during the exercise period of the
Warrant, (A) the average of the averaged daily high and low prices of our common
stock exceeds $5.25 per share and (B) the daily volume of common stock traded is
not less than 30,000 shares; (v) if we require Alpine to exercise the Warrant,
Alpine will have demand registration rights with respect to the shares acquired
upon exercise; and (vi) the Warrant is not transferable.
USE OF PROCEEDS
We will not receive any proceeds from the sale by the selling shareholders
of the common stock offered by this prospectus. See "Plan of Distribution."
MARKET FOR COMMON STOCK
Our common stock trades on the OTC Bulletin Board under the symbol "UBTR."
The OTC Bulletin Board constitutes a limited and sporadic trading market and
does not constitute an "established trading market." See "Risk Factors -- An
established public trading market for our securities does not exist." The range
of high and low bid prices per share for our common stock for each quarter
during the period from February 12, 1998 (the date of our direct public
offering) through June 30, 1999, as published by the OTC Bulletin Board is set
forth below. The quotations merely reflect the prices at which transactions were
proposed, and do not necessarily represent actual transactions. Prices do not
include retail markup, markdown or commissions and may not represent actual
transactions. The trading prices have been adjusted to give effect to the 2 for
1 stock split effective July 24, 1998.
Quarterly Common Stock Price Ranges
-----------------------------------
Quarter Ended 1998
------------- ----
High Low
---------- ----------
March 31 $0.875 $0.688
June 30 4.00 0.688
September 30 6.75 0.875
December 31 3.56 0.875
Quarter Ended 1999
------------- ----
High Low
---------- ----------
March 31 $3.25 $1.4375
June 30 5.60 2.25
July 1 through
September 28, 1999 4.38 2.875
There were 69 record holders of our common stock as of August 6, 1999. We
estimate there were approximately 1000 beneficial owners of our common stock at
that date.
14
<PAGE>
Dividend Policy
We have not paid dividends on our common stock since our inception.
Dividends on common stock are within the discretion of the board of directors
and are payable from profits or capital legally available for that purpose. It
is our current policy to retain any future earnings to finance the operations
and growth of our business. Accordingly, we do not anticipate paying any
dividends on common stock in the foreseeable future.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements involving
risks and uncertainties based on our current expectations, estimates and
projections about the barter industry and the evolution of online Internet
commerce. All statements in this prospectus related to our changing financial
operations and expected future growth or profitability constitute
forward-looking statements. Forward-looking statements are subject to a number
of risks and uncertainties. Our actual results may differ significantly from
those anticipated or expressed in these statements. You should read the
following discussion and analysis in conjunction with the audited financial
statements (and notes thereto) and other financial information of the Company
appearing elsewhere in this prospectus for the years ended March 31, 1999 and
1998, and in conjunction with the unaudited condensed financial statements as of
June 30, 1999 and for the three months ended June 30, 1999 and 1998. The results
of interim periods are not necessarily an accurate indicator of results we will
obtain in a full fiscal year.
Overview
Ubarter.com provides business-to-business barter services for retail,
professional, media and other corporate clients through our offices in Seattle,
Washington, Toronto, Ontario, Vancouver, British Columbia and Windsor, Ontario.
We manage a private barter currency, Ubarter Dollars, to enable our clients to
sell their products or services to our other clients for Ubarter Dollars. We
have approximately 3,500 clients who offer products and services as of the date
of this prospectus. In September 1999, we launched the initial phase of our
e-commerce solution to barter over the Internet.
Substantially all of our revenues are derived from transaction fees paid in
cash by buyers and sellers in a barter transaction. We currently charge a 5%
cash fee on both sides (i.e. to both the seller and buyer) of most barter
transactions. Historically, we have also derived revenues from monthly and
set-up fees charged to clients. We do not anticipate charging set-up or monthly
fees for clients doing business over the Internet. Revenue from transaction fees
are billed on a monthly basis. We recognize revenue equal to the cash to be
received from our commission earned when the buyer has made an unconditional
commitment to pay and the earnings process has been completed by the
finalization of a transaction commission. Revenue is recognized for monthly fees
after the fees have been earned and collected.
A Ubarter Dollar is an accounting unit used to record the value of
transactions as determined by the buying and selling parties in barter
transactions. Ubarter Dollars denote the right to receive goods or services
available from other clients or the obligation to provide goods or services to
other clients. Ubarter Dollars may not be redeemed for cash. When BBE was
acquired, all of the BBE Trade Dollars were converted to Ubarter Dollars.
Ubarter.com uses the ratio of one Ubarter Dollar to one local currency
dollar (currently, United States or Canadian) in measuring and accounting for
purchases and sales. This one-to-one ratio is consistent with industry
standards. Ubarter.com does not recognize any accounting implications if
differences are noted between Ubarter Dollars and the applicable local currency
dollar prices that are within reasonable ranges that might exist between prices
of similar U.S. dollar or Canadian dollar transactions.
15
<PAGE>
Acquisition of Barter Business Exchange, Inc.
Effective March 1, 1999, Ubarter.com acquired all of the outstanding shares
of BBE. See "Business Acquisition of Barter Business Exchange in March 1999."
For the year ended February 28, 1999, BBE reported gross revenues of
approximately $2,732,000 and a net loss of $547,000. For the year ended February
28, 1998, BBE reported gross revenues of approximately $2,536,000 and a net loss
of $502,000. The audited consolidated statement of operations for fiscal 1999
included in this prospectus presents the results of operations of Ubarter.com
and excludes the results of operations of BBE which has been accounted for under
the purchase method of accounting. The audited consolidated financial statements
included in this prospectus combine Ubarter.com's balance sheet as of March 31,
1999 with the balance sheet of BBE as of February 28, 1999 (its last fiscal year
end). See Note 3 of Notes to Consolidated Financial Statements. Results of
operations of BBE are consolidated with Ubarter.com's from the effective date of
the purchase, March 1, 1999, however, because of the differing fiscal year-ends,
the results of operations of BBE for the fiscal year from March 1, 1999 through
February 28, 2000 will be consolidated with Ubarter.com's results of operations
for the fiscal year ended March 31, 2000. We estimated goodwill resulting from
the acquisition of BBE to be primarily associated with the acquired employees,
infrastructure and technological expertise of BBE. We are amortizing the
goodwill on a straight-line basis over the estimated life of the benefit, which
is 24 months. See Note 2 of Notes to Consolidated Financial Statements.
The following unaudited pro forma consolidated results of operations give
effect to the acquisition of BBE as if it had occurred as of the beginning of
the period. The pro forma results are not necessarily indicative of the actual
results of operations that would have occurred had the transaction been
consummated as indicated nor are they intended to indicate results that may
occur in future periods.
<TABLE>
1999 1998
-------------- --------------
<S> <C> <C>
Revenue $ 3,289,900 $ 3,219,900
Net loss (2,682,100) (1,739,800)
Net loss per share -- basic (0.49) (0.66)
Net loss per share -- diluted (0.49) (0.66)
Shares used in per share calculation-- basic and diluted 5,521,583 2,632,424
</TABLE>
16
<PAGE>
Results of Operations
The following table sets forth, for the periods presented, certain
historical summary financial information of Ubarter.com. This information should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto included elsewhere in this prospectus.
<TABLE>
Three Months Ended June 30, Year Ended March 31,
1999 1998 1999 1998
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 909,303 $ 148,500 $ 504,500 $ 586,100
Cost of revenue 385,000 17,200 -- --
Operating Expenses
Costs of corporate trading revenue 32,000 -- 43,900 45,500
Sales and marketing 83,500 -- 94,700 73,900
Product development 256,900 -- 216,300 29,900
General and Administrative 1,354,700 125,900 990,600 407,000
------------ ------------ ------------ -----------
1,727,100 125,900 1,345,500 556,300
Income (Loss) From Operations (1,202,900) 5,400 (841,000) 29,800
Net Income (Loss) (1,200,000) 8,200 (798,000) 32,500
Net Income (Loss) Per Common Share (0.20) 0.00 (0.14) 0.01
Average Common And Equivalent Shares (1) 5,956,667 4,099,566 5,521,583 2,632,424
</TABLE>
- ---------------------
(1) Adjusted to give effect to the 2 for 1 stock split on July 24, 1998. See
Note 2 of Notes to Consolidated Financial Statements.
Three Months Ended June 30, 1999 Compared to the Three Months Ended June 30,
1998
Our total revenue in the three months ended June 30, 1999 was $909,300
compared with total revenue of $148,500 in the three months ended June 30, 1998.
This was a 512% increase in the three months ended June 30, 1999 compared with
the three months ended June 30, 1998. Revenue increased primarily as a result of
the acquisition of Barter Business Exchange, Inc. (BBE) effective March 1, 1999.
Excluding revenues from BBE, our revenue decreased in the three months ended
June 30, 1999 compared with the comparable period in 1998 as a result of
concentrating a large portion of its financial and labor resources on the
development of its business-to-business e-commerce barter site. Much of the
effort, which in prior years focused on increasing transaction fees from barter
transactions, was shifted to website development and to e-commerce strategic
development activities in the three months ended June 30, 1999.
Corporate trade revenue is included as a separate component of total
revenue. Corporate trade revenue consists primarily of sales of inventories we
have purchased from trade exchange members. There is typically little or no
profit mark-up on such items. The revenue and corresponding expense for the
three months ended June 30, 1999 was $32,000 and for the three months ended June
30, 1998, was $17,200.
17
<PAGE>
Costs and Operating Expenses
Cost of revenue consists of the cost of inventories acquired for resale and
sold during the period. The cost of revenue for the three months ended June 30,
1999 was $385,100. These costs were all incurred by BBE. No costs were otherwise
incurred by us because inventory sales were made on consignment, as described
above. In the three months ended June 30, 1998, there were no revenue costs
because all sales of inventories were made on a consignment basis.
Costs and operating expenses (including depreciation) increased to
$1,727,100 in the three months ended June 30, 1999 from $125,900 in the three
months ended June 30, 1998. The increase in operating expenses related primarily
to recurring operating expenses incurred by BBE, significant increases in
product development and general administrative expenses and an increase in sales
and marketing expense in the three months ended June 30, 1999.
Product development expense increased to $256,900 in the three months ended
June 30, 1999 compared with minimal expenses in the three months ended June 30,
1998. Product development expenses consist primarily of payments to outside
contractors related to our website development and, to a lessor extent, of
depreciation on equipment used for development and overhead costs. Our policy is
to expense product development costs as they are incurred. The increase in the
three months ended June 30, 1999 was primarily attributable to our development
efforts, including retaining outside consultants related to technologies
necessary to support an e-commerce barter site. We expect to incur approximately
$2 million in product development costs in fiscal 2000 as our website is
launched and e-commerce functionality is enhanced.
General and administrative expenses increased to $1,354,700 in the three
months ended June 30, 1999 from $108,700 in the three months ended June 30,
1998. This increase was primarily due to recurring operating expenses incurred
by BBE, the addition of several key personnel and several new staff members in
our trading department and additional employees hired to work on developing our
website. In addition, we incurred substantially greater legal and other
professional fees, such as accounting and investor/public relations, as a result
of our public company status and to assist us in executing our business
strategy. Another significant noncash expense in the three months ended June 30,
1999 related to the amortization of the cost of goodwill resulting from the
acquisition of BBE. Amortization expense of $337,000 was recognized during the
three months ended June 30, 1999. Goodwill resulting from the acquisition of BBE
was estimated by management to be primarily associated with the acquired
employees, infrastructure and technological expertise. As a result of the rapid
technological changes occurring in the Internet industry and the intense
competition for qualified professionals, goodwill is amortized on a
straight-line basis over the estimated life of the benefit of 24 months.
Sales and marketing expense primarily consists of advertising and other
promotional costs. We expect sales and marketing expense to increase
significantly in fiscal 2000 primarily related to the launch of our website. We
currently have $135,000 of prepaid advertising which we expect to utilize in the
future promotion and marketing of our website.
18
<PAGE>
Comparison of Fiscal Year Ended March 31, 1999 to Fiscal Year Ended March 31,
1998
Revenue
Our total revenue in fiscal 1999 was $504,500 compared with total revenue
of $586,100 in fiscal 1998, a 14% decrease in fiscal 1999 from fiscal 1998.
Revenue decreased primarily as a result of Ubarter.com concentrating a large
portion of its financial and labor resources on the development of its
business-to-business e-commerce barter site. Much of our effort, which in prior
years focused on increasing transaction fees from barter transactions, was
shifted to website development and to e-commerce strategic development
activities in fiscal 1999.
Corporate trade revenue is included as a separate component of total
revenue. Corporate trade revenue consists primarily of sales of inventories we
have purchased from trade exchange members. There is typically little or no
profit mark-up on such items. The revenue and corresponding expense for fiscal
1999 and 1998 were $43,900 and $45,500, respectively.
The acquisition of BBE will significantly impact our gross revenues in
fiscal 2000. For its year ended February 28, 1999, BBE reported gross revenues
of $2,732,000.
Costs and Operating Expenses
Costs and operating expenses (including depreciation) increased to
$1,345,500 in fiscal 1999 from $556,300 in fiscal 1998. The increase in
operating expenses related primarily to significant increases in product
development and general administrative expenses and a modest increase in sales
and marketing expense in fiscal 1999.
Product development expense increased to $216,300 in fiscal 1999 compared
with $29,900 in fiscal 1998. Product development expenses consist primarily of
payments to outside contractors related to our website development and, to a
lessor extent, of depreciation on equipment used for development and overhead
costs. Our policy is to expense product development costs as they are incurred.
The increase in fiscal 1999 was primarily attributable to our development
efforts, including retaining outside consultants related to technologies
necessary to support an e-commerce barter site. We expect to incur approximately
$2 million in product development costs in fiscal 2000 as our website is
launched and e-commerce functionality is enhanced.
General and administrative expenses increased to $990,600 in fiscal 1999
from $407,000 in fiscal 1998. This increase was primarily due to the addition of
several key personnel and staff in fiscal 1999, including a Chief Financial
Officer, Chief Technology Officer and several new staff members in our trading
department and additional employees hired to work on developing our website. In
addition, we incurred substantially greater legal and other professional fees,
such as accounting and investor/public relations, as a result of our public
company status and to assist us in executing our business strategy. Another
significant noncash expense in fiscal 1999 related to the recognition of
stock-based compensation as a result of issuance of stock options to
non-employees and certain issuance costs related to employees. The value of the
options at the time of issuance (as estimated by Ubarter.com) totaled $379,000,
of which $173,000 was recognized as an operating expense during fiscal 1999. Our
audited consolidated financial statements contain a material adjustment to our
results of operation for the second quarter of fiscal 1999 relating to
stock-based compensation as a result of the issuance of stock options to
non-employees and certain issuance costs related to employees.
Sales and marketing expense primarily consists of advertising and other
promotional costs. Ubarter.com expects sales and marketing expense to increase
significantly in fiscal 2000 primarily related to the launch of our website. We
currently have $135,000 of prepaid advertising which we expect to utilize in the
future promotion and marketing of our website.
19
<PAGE>
Liquidity and Capital Resources
Since our inception in 1996, we have financed our operations primarily from
the sale of common stock and warrants and proceeds from the exercise of those
warrants. The operations of Cascade Trade Association which was merged into
Ubarter.com in November 1996 were financed primarily through internal cash flow.
At June 30, 1999, Ubarter.com had a working capital deficit of $2,425,600,
compared to a working capital deficit of $1,507,000 at March 31, 1999. Our
working capital was $413,000 at March 31, 1998. The decrease in working capital
resulted primarily from a (deficit) balance of Ubarter Dollars issued in excess
of earned that existed on the books of BBE. We assumed this negative balance in
conjunction with the acquisition of BBE on March 1, 1999. Excluding the deficit
balance of Ubarter Dollars, we had a working capital deficit of $33,700 at June
30, 1999.
In accordance with the guidelines established by the International
Reciprocal Trade Association, Ubarter.com has the right to borrow from its
exchange and spend within its exchange system. Such a practice is commonly used
by barter exchanges, worldwide, to cover inventory purchases, capital purchases,
operating expenses and to control the supply of trade dollars. Ubarter.com
engages in barter to pay for some operating costs. Ubarter.com is ultimately
obligated to provide products and services to clients to offset any amount of
Ubarter Dollars issued in excess of earned. Barter Business Exchange also
engaged in barter to pay for some of its operating costs. At June 30, 1999, we
had expended $2,391,900 of Ubarter Dollars in excess of the amount of Ubarter
Dollars earned by us compared with $2,148,000 at March 31, 1999 and $5,000 at
March 31, 1998. We consider the current level manageable. These amounts are
shown as a liability on our balance sheet as of June 30, 1999 and March 31, 1999
and 1998.
The cash provided by financing activities was $124,300 in the three months
ended June 30, 1999 compared with $147,100 in the three months ended June 30,
1998. Net cash provided by financing activities in three months ended June 30,
1999, resulted primarily from the exercise of warrants and proceeds from notes
payable. The net cash provided by financing activities in the three months ended
June 30, 1998 resulted from the issuance of common stock. The cash provided by
financing activities was $1,481,000 in fiscal 1999 compared with $282,000 in
fiscal 1998. Net cash provided by financing activities in fiscal 1999 resulted
primarily from the issuance of stock pursuant to the exercise of warrants or
sale of stock. The net cash provided by financing activities in fiscal 1998
resulted from the sale of common stock. We currently have a $67,000 revolving
note payable with a bank. The note payable is subject to annual renewal. There
was a balance of $67,000 at June 30, 1999. Borrowings under the note require
security deposits of cash and cash equivalents with the bank. We did not have
any credit facility in fiscal 1998.
The net cash used by operating activities was $379,000 in the three months
ended June 30, 1999 and $24,400 in the three months ended June 30, 1998. For the
three months ended June 30, 1999, Ubarter.com had a net loss of $1,200,000. The
primary adjusting items were $383,500 in depreciation and amortization of
goodwill, $94,000 of bad debts, and $140,000 net expenditure in trade dollars.
During the three months ended June 30, 1999, there were increases in accounts
receivable of $77,700 and increases in accounts payable and other liabilities of
$248,900. The cash used in operating activities of $24,400 for the three months
ended June 30, 1998, reflected a net loss of $27,600. The increase in cash used
in operations was primarily attributable to increased personnel and development
costs in the three months ended June 30, 1999 compared with the three months
ended June 30, 1998. In the three months ended June 30, 1999, Ubarter.com used
net cash of $72,700 for the acquisition of property, equipment and leaseholds,
compared to $2,600 in the three months ended June 30, 1998. The net cash used by
operating activities was $700,000 in fiscal 1999 and $48,000 in fiscal 1998.
20
<PAGE>
During fiscal 1999, Ubarter.com had a net loss of $798,000. The primary
adjusting items were a $135,000 increase in prepaid advertising and the
recognition of $173,000 in stock-based compensation cost. During fiscal 1999,
there were increases in accounts payable and other liabilities of $7,000 and we
recorded depreciation expense of $18,000. The cash used in fiscal 1998 reflected
a net income of $33,000, a deficit of $107,000 in net trade revenue earned over
trade costs, and $11,000 in depreciation. The increase in cash used in
operations was primarily attributable to increased personnel and development
costs in fiscal 1999 compared with fiscal 1998. In fiscal 1999, Ubarter.com used
net cash of $85,000 for the acquisition of property and equipment, compared to
$14,000 in fiscal 1998.
Ubarter.com maintains its major U.S. cash balances at one financial
institution located in Las Vegas, Nevada and maintains its major Canadian cash
balances at one financial institution located in Toronto, Canada. Funds not
required for our immediate needs may be invested in certificates of deposit,
short-term government obligations or money market funds.
As of June 30, 1999, we had no material commitments for capital
expenditures. Ubarter.com leases its U.S. office facilities in Seattle,
Washington and leases its Canadian office facilities in Toronto, Vancouver and
Windsor. Future minimum rental commitments as of June 30, 1999 pursuant to these
leases are approximately $350,000. See Note 9 of Notes to Consolidated Financial
Statements.
Our existing working capital and cash from financing activities will not be
sufficient to execute our business plan, including the development and
implementation of our e-commerce barter website and acquisition of other barter
exchanges, and meet the demands of our services during fiscal 2000. Unless we
are successful in raising additional capital, we may not be able to finance our
expansion goals, including further development of our website. There is no
assurance we will have or be able access sufficient capital or other resources.
Ubarter.com believes that a portion of its short-term capital resources, up to
approximately $1.4 million may be provided through the exercise of outstanding
warrants. Some of these warrants are exercisable at a price of $1.50 and expire
in June 2000 and some have an exercise price of $2.00 and expire in September
2004. The perceived value of these warrants at any given time is related to the
market price of our common stock, which trades over the counter on the OTC
Bulletin Board. If we are unable to obtain financing through the exercise of
warrants or other means, we may be unable to meet our working capital
requirements or implement our short-term plans for expansion. At September 1,
1999, warrants to purchase 94,000 shares of our common stock had been exercised
resulting in proceeds to us of $141,000.
We anticipate having to raise additional capital by equity issuance during
the next several years, as we expect to grow at rates that will require more
funds than will be generated by our operations. We do not have any commitments
for additional financing at this time. Our ability to obtain additional capital
may be dependent on market conditions, the national and international economies
and other factors outside our control. If adequate funds are not available or
are not available at acceptable terms, our long-term ability to finance
expansion, develop or enhance services or respond to competitive pressures would
be significantly limited.
On August 27, 1999, we raised $1 million of short-term financing. We issued
the lender a $1 million convertible promissory note convertible into 1,333,333
shares of our common stock in the event the note is not repaid in full by June
1, 2000, and a warrant to purchase 183,333 shares of our common stock at an
exercise price of $2.00 per share. See "Risk Factors - Funds may be insufficient
to finance our plans for growth" and "Recent Developments."
21
<PAGE>
Discussion of the Year 2000 Issue
Background. Many computer programs have been written using two digits
rather than four to identify the year. Any computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. Systems that do not properly recognize this information
could fail or generate miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities. This situation is
commonly referred as the year 2000 or "Y2K" problem.
Scope and Impact of Y2K on Ubarter.com. Ubarter.com utilizes both
proprietary software and software provided by outside vendors which may be
impacted by the Y2K problem. The operation of our trade exchange is dependent
upon the proper functioning of our computer software. We have assessed the
potential impact of the Y2K issue on us and do not believe that our business,
operations or financial condition will be materially impacted by the Y2K issue
as it relates to our proprietary software. Furthermore, it is expected that
potential impact of third parties' failure would not have a material impact on
Ubarter.com's business, operations or financial condition.
Remediation plans. Our principal software vendor has completed
reprogramming of its proprietary software. With respect to software supplied by
third parties, we have determined that such software is already Y2K compliant or
will be compliant well before the year 2000 or, alternatively, that any such
software will be replaced at a cost which is not material to our results of
operations.
Uncertainties and Contingencies. Ubarter.com presently believes that with
modifications to existing software and conversions to new software, the Y2K
issue can be mitigated. We do not believe that we will incur significant
operating expenses or be required to invest heavily in computer system
improvements to be Y2K compliant. However, even if such modifications or
conversions are not made, or are not completed timely, we believe we would be
able to continue operations manually. This would result in more cumbersome and
less efficient operations but is not currently expected to have a material
adverse effect on our business, operations or financial condition. However,
there is no guarantee that the software of other companies on which our software
relies will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with our systems, would not have a
material adverse effect on Ubarter.com and its operations. Significant
uncertainty exists concerning the potential costs and effects associated with
any year 2000 compliance.
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BUSINESS
The following "Business" section contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors including, but not limited to, those set forth in the "Risk Factors"
section and elsewhere in this prospectus.
General
Ubarter.com provides business-to-business barter services for retail,
professional, media and other corporate clients. Currently, we offer services
through our offices in Seattle, Washington, Toronto, Ontario, Vancouver, British
Columbia and Windsor, Ontario. We are developing an expanded and technologically
advanced business-to-business barter system which includes an Internet website
at http://www.ubarter.com, to provide our clients an e-commerce solution to
barter over the Internet. With the growing adoption of the Web, we believe the
creation of a Web-based barter community in which buyers and sellers are brought
together in an efficient and convenient manner offers us the opportunity to
expand significantly the number of clients and products and services we offer
through our barter system.
Our revenue is derived primarily from transaction fees. We charge a cash
fee on both sides (i.e. to both the seller and buyer) of each barter
transaction. We have approximately 3,500 clients who offer products and services
as of the date of this prospectus.
We manage a private barter currency, "Ubarter Dollars", to enable our
clients to sell their products or services to our other clients for Ubarter
Dollars. Trade dollars allow clients to purchase goods and services from other
exchange members instead of using cash. In turn, these clients then use their
Ubarter Dollars to purchase products and services for which they would otherwise
spend cash. We market products and services offered by our clients through
directories, newsletters, e-mail, faxes, trade brokers and other means. Sales
are generally conducted by clients directly, but can be facilitated by our trade
brokers. Generally, sales are made at or near prevailing retail prices.
By using our services, businesses are able to increase sales and market
share, decrease cash expenditures, reduce surplus inventory, take advantage of
underutilized capacity and increase cash flow. Barter is especially useful to
businesses where the variable costs of products or services are low such as
hospitality and professional businesses. For example, a hotel that has not
filled its rooms by the end of the day has lost potential revenue but still has
the same overhead associated with owning and maintaining its facility.
We sometimes engage in barter for our account. For example, we sometimes
acquire merchandise for our account and then remarket and trade the merchandise
to other clients for Ubarter Dollars. Typically, we do this to establish or
maintain client relationships, to take advantage of favorable opportunities and
to facilitate and enhance our barter business for clients. We also engage in
barter to pay for some of our operating costs.
Once we establish our web presence, we, like other companies doing business
on the Internet, plan to create a sense of community among our clients by
offering chat rooms and other networking events. We launched the initial phase
of our website in September 1999, subject to completion of beta testing and
depending on certain business considerations. We expect to launch the remaining
phases of our website throughout the remainder of fiscal 2000.
Through our data processing system, we act as a third party record keeper
of client barter transactions and account balances. When clients make barter
purchases and sales, we debit Ubarter Dollars from the buyer's account and
credit the seller's account. Clients receive a monthly account statement showing
all activity for the period. In the future, we intend to institute a direct
payment system by charging our clients' credit cards or through automatic
withdrawals from their bank accounts. We will encourage clients to use the
direct payment system by offering lower transaction fees if they elect direct
payment.
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Ubarter Dollars are based on the U.S. dollar in the United States and the
Canadian dollar in Canada. We will expand this "currency conversion" to other
countries as we move into other markets. We use the Ubarter Dollar as an
accounting unit to record the value of transactions as established by the
parties to the transactions. We do not redeem Ubarter Dollars for cash.
Ubarter.com was incorporated in Nevada in September 1996 under the name
International Barter Corp. for the purpose of merging with Cascade Trade
Association, a Seattle based trade exchange. Cascade Trade, founded in 1983 by
Steven White, Ubarter.com's President and Chief Executive Officer, had
approximately 500 clients in the Seattle area at the time of the merger.
Ubarter.com began a direct public offering of common stock after the merger and
became publicly traded in February 1998. In March 1999, we acquired all of the
outstanding stock of BBE, a large trade exchange in Canada. In April 1999,
International Barter Corp.'s name was changed to Ubarter.com Inc. to reflect our
change to an Internet-based business model.
Our principal executive offices are located at 21400 International Blvd.,
Suite 207, Seattle, Washington 98198. Our telephone number is (206) 870-9290 and
our website is located at http://www.ubarter.com.
Business Strategy
Our goal is to expand our position in the barter industry in North America
by focusing on customer service, by expanding the range and availability of
products and services offered through Ubarter.com, by increasing the number of
our clients, by expanding geographically and by establishing an efficient and
easy-to-use e-commerce barter site for clients. To achieve this, we are in the
process of instituting the following business strategy.
Develop technologically advanced multi-channel barter system, including an
online barter system. We are in the process of further developing front and back
end technology systems to create a technologically advanced barter system. The
focus of our new system will be to provide and facilitate online barter
transaction capability. With these systems, our clients will be able to execute
barter transactions through any of the following three channels:
* electronically through our Internet site,
* by speaking with a trade broker located at one of our offices or
* directly with another client using a Ubarter.com card.
Acquire key players in the barter industry. We intend to continue expanding
our business by acquiring other strategically located trade exchanges in the
United States and Canada and integrating these exchanges into our operations. In
considering acquisitions of trade exchanges we intend to look for candidates
with the following attributes:
* regional presence complimenting our presence,
* significant client base offering a wide variety of products and
services,
* sound credit management and
* positive cashflow.
These acquisitions would provide us with the critical mass of products and
services in their respective regions and, therefore, would support our online
growth plans.
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<PAGE>
Create strategic marketing alliances. We are and will pursue strategic
marketing alliances in order to obtain access to thousands of businesses which
do not engage in bartering and/or may be unaware of the advantages of bartering.
We have agreements in place, and intend to enter into more agreements, to create
strategic relationships with online and offline companies with numerous business
clients to which Ubarter.com will obtain access. Since these types of alliances
are critical to the growth of our client base, we are spending significant time
and resources developing these opportunities and working to build our brand
recognition.
Establish North American field sales presence. To grow our client base and
build brand recognition, we have initiated a plan to place two field sales
people in each of the largest 25 cities in North America, based on current
clients and clients we may obtain from strategic alliances and acquisitions. We
would like to complete this plan by the end of fiscal 2001. These account
executives would be responsible for registering new clients in their area.
Internet Site
In September 1999, we launched the initial phase of our
business-to-business e-commerce site for our barter business. In December 1998,
we retained MindCorps Inc., a website developer based in Seattle, to develop a
new Ubarter.com site. Founded in 1996 to develop web technologies, MindCorps is
a leader in delivering high-performance web-based business solutions, including
highly functional Internet stores and auctions and online interactive
communities.
We intend to launch the new Ubarter.com site in several phases over the
remainder of fiscal year 2000. We launched the initial phase in September 1999.
We intend for the first phase to allow new clients to register for membership,
all clients to post and update product or service offerings and anyone with
access to the Internet to browse through our directory of items, 24 hours a day,
7 days a week. The initial release will also have limited e-commerce
functionality. The location of the site is http://www.ubarter.com.
In July 1998, we launched an Internet website to the general public. The
website did not provide adequate functionality required by us and was
unsuccessful. We terminated the site later in 1998.
Clients
Ubarter.com has approximately 3,500 active clients in North America as of
the date of this prospectus. These clients are in businesses such as media and
advertising, travel and entertainment, printing, hospitality, professional
services, construction and trade services, healthcare and dining.
Our clients may engage in barter activity for a number of reasons including
their desire to accomplish the following goals:
* generate new sales, add new channels of distribution and increase
market share,
* decrease cash expenditures and thereby increase cash flow,
* reduce slow moving inventory,
* exchange unproductive assets and excess capacity for useful products
or services,
* reduce need for financing and
* maximize efficiencies.
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Our clients earn Ubarter Dollars which they are free to spend on any
products or services offered by our members in any denomination. The following
is a representative example of a barter transaction: A dentist needs to have her
office remodeled. Through Ubarter.com, she hires a contractor who agrees to
perform the remodeling work for $500 in Ubarter Dollars. The dentist has Ubarter
Dollars in her account to spend because she had previously provided dental work
to the owner of a vacation resort, a restaurant and a lawyer, all clients of
Ubarter.com, in exchange for Ubarter Dollars. The other clients originally
acquired Ubarter Dollars by providing services for other Ubarter.com clients.
Barter is especially useful to those businesses where the variable costs of
products or services are low such as hotels, media and other travel-related
businesses. For example, a hotel that has not filled its rooms by the end of the
day has lost potential revenue but still has the same overhead associated with
owning and maintaining its facility. A radio station or newspaper that has not
filled available advertising space has lost the opportunity to generate revenue
but still has incurred virtually the same costs. In short, businesses can
leverage their low variable cost products and services into more purchasing
dollars. For example, America Online Canada, one of our clients, sells Internet
services to new accounts for Ubarter Dollars. Their marginal cost of providing
these services is minimal, however they are able to use the Ubarter Dollars they
receive from the sale of Internet service to purchase printing and other
promotional materials.
In order to facilitate trading, we often grant Ubarter Dollar lines of
credit to creditworthy clients. We issue the credit lines under our own
guidelines. These guidelines include the financial stability of the client and
the demand for the client's product or service by other clients. Eventually, we
intend to process online credit applications and offer immediate lines of credit
based on past credit records of the client applying.
Sales, Marketing and Trading
Sales
The primary function of our sales department is to grow our client base. We
use standardized marketing and support materials, advertising, ongoing training,
promotion and support to expand our client base. The sales effort is led by our
Account Executives (AE). We have 10 AEs as of August 31, 1999. We anticipate
hiring additional AEs in the near future. These AEs are all based in one of our
four sales offices. AEs contact prospective clients to market the benefits of
barter and joining Ubarter.com. In addition, AEs attend various meetings and
networking events in their areas.
Marketing
Our marketing strategy is to promote our brand and attract buyers and
sellers to our barter system. Among other things, we issue press releases and
use an outside marketing firm to assist us in appearing in featured articles in
national publications as well as with radio and other print advertising. To
promote our services, we market products and services of existing clients
through directories, newsletters, e-mail, faxes, trade brokers and other means.
In addition, we have pursued strategic affiliations with companies with access
to large numbers of potential clients. We also have exclusive agreements with a
number of search engines on the web, such as Yahoo, Excite, America Online and
Lycos, for keyword searches using the word "barter."
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Trading
The trading department is responsible for facilitating and maximizing
barter transactions between clients. Trading and ongoing customer service is
handled by Trade Brokers (TB) and Customer Service Representatives (CSR). We
have 17 people in the trading department including TBs and CSRs as of August 31,
1999. Certain TBs are assigned to specific industries such as travel or media.
The trading department facilitates trading between clients by searching to
fill client needs or making clients aware of products that have become available
within the system. Our trading staff takes a proactive approach to marketing
products and services. Staff in the trading department have goals set by
management relating to trading volume as well as cash collection.
The duties of the TBs and CSRs will change significantly as our website
gains acceptance by our clients. TBs and CSRs will focus more on customer
service and support and managing key accounts. Clients on the Internet will have
access to an online directory of products and services and, as needed, will be
able to get support from TBs and CSRs.
Systems and Technologies
We currently rely on one software vendor to supply the software necessary
for the centralized processing of our trade transactions. We use TradeWorks(R)
and TradeWorks Online(R), products and services of DWW Software. This vendor
also supplies its software as a stand-alone product to other barter exchanges.
We believe that software and other materials are generally available for our
systems and services and that we could locate replacement software and materials
in the event we had to replace products of our vendors.
To execute our e-commerce strategy, we are working with Mindcorps to
develop a comprehensive and scalable proprietary system for our e-commerce site
and back-end systems.
Industry Overview and Competition
General
The modern commercial barter industry developed along with the development
of an accepted index of valuation for establishing barter credits and debits.
The accepted index of valuation in the industry is the "trade dollar." There are
two basic types of commercial barter businesses: corporate trade companies and
retail barter exchanges, such as Ubarter.com. Corporate trade companies
typically take ownership of products and services and redistribute to channels
outside the selling vendor's normal distribution channel. Barter exchanges, on
the other hand, act as third party record keepers for the exchange of products
and services among their members. For every transaction, barter exchanges debit
and credit trade dollars to the buyer's and seller's trade account. Members can
transact business directly between themselves or use the services of a trade
broker who matches buyers and sellers.
Barter Statistics
The International Reciprocal Trade Association ("IRTA"), a trade
association that prepares annual estimates of commercial bartering in the United
States and Canada, estimates that $600 billion of products and services are
bartered or traded annually worldwide, $200 billion of which occurs in North
America. These figures include products and services that are traded directly
between companies or countries as well as those traded through organized trade
companies. In 1996, the last year for which IRTA provides statistical
information, IRTA estimated that $9 billion of sales in North America were
transacted through organized business-to-business trading companies, including
corporate trade companies, which accounted for approximately $7.6 billion of
sales, and retail trade exchanges such as Ubarter.com, which accounted for
approximately $1.4 billion.
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IRTA estimates that trade volume conducted by corporate trade companies and
barter exchanges in North America grew steadily for the period from 1984 to
1995. According to the IRTA, the annual value of products and services bartered
by corporate trade companies and barter exchanges during the period from 1994 to
1996 was, on average, approximately $8.4 billion. Of this amount, barter
exchanges accounted for barter sales of $1.4 billion in 1996, compared with $1.2
billion in 1995 and $1.1 billion in 1994.
IRTA also estimates that in 1996 approximately 400,000 firms in North
America were members of retail trade exchanges and that there were approximately
450 retail trade exchanges in North America and another 200 worldwide. Most of
these trade exchanges are smaller companies with several hundred members and
several hundred thousand dollars of annual revenues.
We believe the commercial barter industry has significant growth potential
and that barter exchanges can capitalize on this growth potential. Because only
a relatively small percentage of businesses in the United States and Canada
currently use the services of a barter exchange, we believe there are
significant growth opportunities for well-positioned barter exchange companies
in the commercial barter market.
The Internet
The Internet has emerged as a mass communications and commerce medium
enabling millions of people worldwide to share information, create community
among individuals with similar interests and conduct business electronically.
The Internet Industry Almanac projects that the number of Internet users will
grow from approximately 100 million in 1997 to over 300 million by year end
2000. In addition to its emergence as a mass communications medium, the Internet
has features and functions that are unavailable in traditional media, which
enable online merchants to communicate effectively with customers and
advertisers to target users with specific needs and interests. As a result, the
Internet has emerged as an attractive medium for electronic commerce as well as
for barter.
Along with the overall growth of the Internet, business-to-business usage
is also growing rapidly, as businesses are increasingly leveraging the
Internet's ability to reach customers globally, deliver personalized content and
open new distribution channels. According to Forrester Research,
business-to-business electronic commerce is projected to grow from $43 billion
in 1998 to $1.3 trillion by 2003.
Competition
The barter industry is fragmented with over 450 retail trade exchanges in
North America. We believe ITEX Corporation (ITEX) of Portland, Oregon is the
largest retail trade exchange in North America with over 30,000 clients and
approximately 120 affiliated broker offices in North America. ITEX's strategy
has been to use license or similar arrangements in opening their regional
offices as opposed to our strategy of owning and operating all of our regional
offices. Other competing barter companies in North America include BarterCard,
BarterCorp, Barter Network Inc., Illinois Trade Association, Trade Exchange
America and ValueCard. For the most part, these companies are regional trade
exchanges which have not experienced significant growth in recent years. We are
aware of two exchanges that have attempted international expansion, ITEX and
Business Exchange International Corp. (BXI). In July 1998, ITEX acquired BXI.
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We believe we compete primarily on the basis of service, including the
number of available products and services and the liquidity of Ubarter Dollars.
We also compete on price to a lesser extent. Some of the existing competitors in
the barter industry are larger or have greater financial resources than us. We
expect to encounter competition in our efforts to expand our barter business and
to acquire desirable independent trade exchanges. Similarly, we expect to
encounter competition in our efforts to develop Ubarter.com into a premier
online e-commerce barter website. We expect competition to increase in the
future, as there are no substantial barriers to initial entry. We believe,
though, that the more market penetration we achieve, the higher the barrier to
entry will become for anyone contemplating a similar system.
We believe there are only a few companies that have attempted to establish
an online trade exchange, including companies such as Ebarter.com and
BarterExpress.com. Also, ITEX has a service that it has made available only to
its clients on the Internet called "ITEX Online." We believe a major shortcoming
of these online trade exchanges has been their inability to develop the critical
mass of product or services offerings to have significant sales or purchases
made on their sites. We believe Ubarter.com may have an advantage over these
companies, since Ubarter.com launched its online exchange with over 3,500
clients.
Certain Internet-based companies with unique purchasing or sales models
such as eBay and Priceline.com have significant technical, financial and
marketing resources and could be potential competition for us. These companies
would be strong competitors if they decided to enter the business-to-business
sector and compete with barter exchange companies. However, so long as these
companies do not create an exchange utilizing a private currency or change their
focus to the business-to-business sector, we do not believe these companies will
be significant competitors. In addition, since our clients are able to sell
their products or services without discounting their regular prices for Ubarter
Dollars, we believe the Ubarter.com private currency system may have an
advantage over online liquidators or auction sites.
Customer demands for wider availability of products and services, stronger
customer service, better computer servicing technology and the emergence of the
Internet as a medium for communication and business have resulted in a more
competitive industry. We believe the introduction of a global barter marketplace
on the Internet will encourage new clients to incorporate barter into their
business plans. We believe that in order to capture greater market share, barter
companies will need to expand into larger regional or national organizations
that possess the ability to offer a wider selection of products and services,
service a more diverse and dispersed clientele and have greater access to growth
capital.
Acquisition of Barter Business Exchange in March 1999
As a part of our acquisition strategy, we purchased BBE effective March 1,
1999. BBE, founded in 1992, was the largest retail trade exchange in Canada with
over 2,500 clients serviced by three offices and 40 employees. We acquired BBE
primarily for its management, infrastructure and technological expertise. The
acquisition allowed us to enter the Canadian market without having to go through
a slower start-up period associated with simply establishing our own presence in
Canada.
The total amount of consideration paid for BBE was CD$2,450,000
(US$1,641,500) (subject to certain adjustments discussed below). The aggregate
consideration paid included:
cash payments of CD$850,000 (US$563,300) and US$100,000 at closing,
issuance of a promissory note in the principal amount of CD$850,000
(US$563,300), which is subject to adjustment, if applicable, as
discussed below,
payment of CD$250,000 (US$167,500) Ubarter Dollars at closing, and
issuance of 150,000 shares of our common stock (having a value of
US$375,000 as of the closing date)
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The promissory note bears no interest and is payable March 1, 2000. The
principal amount of the note will be reduced by the amount, if any, that 10% of
the consolidated cash revenues of Ubarter.com for the period from March 1, 1999
to March 1, 2000, is less than CD$750,000. The 10% cash revenues do not include
trade dollar revenues but will include any incremental cash revenues to
Ubarter.com from any acquisitions of a majority interest in any entities during
the period and cash revenues derived from strategic alliances or joint ventures
during the period. Our obligations under the note are secured by a share pledge
agreement under which we pledged the BBE shares to Mr. Bagga.
If 10% of the consolidated cash revenues of Ubarter.com during the period
from March 1, 1999 to March 1, 2000, exceed CD$750,000 (US$500,000), we must pay
Mr. Bagga the amount over CD$750,000 (US$500,000) in equivalent value of our
common stock. These shares are to be registered and freely tradeable, with a
value per share equal to the closing trading price on the business day
immediately proceeding March 1, 2000.
We agreed to register the resale of the 150,000 shares issued to Mr. Bagga
after the closing of the acquisition. Upon registration, those shares are to
have a minimum aggregate value of CD$350,000 (US$234,500). If the minimum
aggregate value is below this amount, then we must make up the difference by
making, at our option, a cash payment or through issuing additional shares of
our common stock. Mr. Bagga has agreed not to sell any of those shares prior to
September 1, 1999, and, thereafter, not to sell more than 25,000 of those shares
per month without prior notice to Ubarter.com.
As a part of the acquisition, we entered into a two year employment
agreement with Mr. Bagga and named him as our Chief Operating Officer.
As part of our acquisition of BBE, we acquired a 50% interest in BBE
Windsor, which operated BBE's Windsor, Ontario office. On May 12, 1999, we
purchased the remaining 50% of the outstanding shares of BBE Windsor for
consideration consisting of: CD$16,400 (US$10,988), $65,000 Canadian Ubarter
Dollars and 20,000 shares of our common stock.
Regulatory
The barter industry is not currently subject to direct regulation by any
U.S. or Canadian government agency, other than regulations generally applicable
to businesses. Certain tax regulations require U.S. barter exchanges to report
to the Internal Revenue Service the totals of the barter sales of their clients
on an annual basis, since trade dollars received are taxable in the year
received. Similarly, there are currently few laws or regulations that directly
apply to access to, or commerce on, the Internet. It is possible that governing
bodies may adopt a number of laws and regulations governing such issues as user
privacy on the Internet and the pricing, characteristics and quality of products
and services offered over the Internet. It is also possible that government
authorities will adopt sales or other taxes involving Internet business.
Proprietary Rights
We rely on a combination of copyright and trademark laws, trade secrets,
software security measures, license agreements and nondisclosure and
confidentiality agreements to protect our proprietary rights and software
products. Much of our proprietary information may not be patentable. We do not
have any patents. We also rely on certain technology that we license from third
parties, including software we use to perform key functions in delivering our
services.
We have registered the Internet domain name "ubarter.com" and other related
domain names and intend to file trademark applications for the word "a-commerce"
(alternative commerce), "Quick Sale", "Ubarter Dollars" and "Udollars" and the
tag line "Where the world trades." We also have federal service mark
applications pending for "Ubarter.com."
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Research and Development
During the year ended March 31, 1999, we incurred product development
expenses of $216,300, primarily related to compensation for product development
staff and payments to outside contractors related to our website development.
During the year ended March 31, 1998, we incurred product development expenses
of $29,900, primarily related to website development. We expect to spend
approximately $2 million in product development costs in fiscal 2000 as our
website is further developed, launched and our e-commerce barter site is
expanded. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Employees
At August 31, 1999, we had 48 full-time employees. From time to time, we
may employ independent consultants or contractors to support our research and
development, marketing, sales and support and administrative organizations. No
collective bargaining units represent our employees. We believe our relations
with our employees are good. We anticipate that implementation of our business
strategy will require approximately 50 additional employees by the end of fiscal
2000.
MANAGEMENT
Directors and Executive Officers
The following table provides information as of September 1, 1999 concerning
our directors and executive officers.
<TABLE>
Name Age Position
---- --- --------
<S> <C> <C>
Steven M. White 41 Chief Executive Officer, President, Director and
Chairman of the Board
Richard L. Mayer (1) 60 Vice President, Chief Credit Officer, Secretary and
Director
Alan N. Zimmelman (1) 55 Vice President and Director
Glen T. White (1) 45 Director
Kevin R. Andersen 47 Chief Financial Officer
Bob Bagga 30 Chief Operating Officer
Eric T. Best (2) 28 Director Nominee
John A. Wade (2) 37 Director Nominee
</TABLE>
- ------------------------
(1) Messrs. Mayer, Zimmelman and Mr. Glen White are not standing for
re-election to our Board of Directors. Accordingly, following our September
30, 1999, annual meeting of shareholders, they will no longer be directors.
(2) Messrs. Best and Wade have been nominated for election to our Board of
Directors. Shareholders will vote on their nominations at our September 30,
1999 annual meeting of shareholders.
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Following is a discussion of the business background of each of our
directors and executive officers.
Steven M. White has been a member of the Board of Directors and has served
as President and Chief Executive Officer since September 1996. From July 1983
until its merger with Ubarter.com in November of 1996, Mr. White served as
President of Cascade Trade Association, a private company involved in the barter
business. He has over nineteen years experience in sales and management,
including over fifteen years affiliated with companies involved in the barter
business. He is currently serving as Chairman of the Board of Directors of the
National Association of Trade Exchanges for the 1999-2000 term and served as its
President for the 1998-1999 term. See "Certain Relationships and Related
Transactions - Merger with Cascade Trade Association."
Richard L. Mayer has been a member of the Board of Directors since
September 1996. He is not standing for re-election at the Annual Meeting. Mr.
Mayer joined Ubarter.com as a Vice President in November 1996 and was appointed
Corporate Secretary in November 1998 and Chief Credit Officer in March 1999.
From November 1995 until its merger with Ubarter.com, he was Vice President of
Marketing for Cascade Trade Association, a private company involved in the
barter business. He has over thirty years experience in sales and management,
including over six years affiliated with companies involved in the barter
business. From April 1989 to November 1995, he was the owner of Money Mailer of
the Sound, a private company involved in direct mail. From 1960 until 1989, he
was employed by General Electric Capital Corp.
Alan N. Zimmelman has been a member of the Board of Directors since
November 1997. He is not standing for re-election at the Annual Meeting. Mr.
Zimmelman joined Ubarter.com as its Vice President of Operations in November
1997. From November 1987 to August 1996, he was President of BXI West Los
Angeles, a private company involved in the barter business. He has over
twenty-six years experience in sales and management, including over ten years
affiliated with companies involved in the barter business, twelve years
affiliated with companies in the hotel industry and five years affiliated with
companies in hospital administration.
Kevin R. Andersen has served as Chief Financial Officer since joining
Ubarter.com in August 1998. Mr. Andersen has been partner with the firm of
Andersen Andersen & Strong L.C. since 1990. He was formerly with the national
accounting firm of Laventhol & Horwath where he served in the Las Vegas, Nevada
office and in the firm's national tax office in Washington D.C. Mr. Andersen was
on the Laventhol & Horwath Teaching Faculty and has been a Professor of Taxation
at the Washington College of Law. Mr. Andersen received a B.S. degree in
Accounting from the University of Utah in 1977, a Master of Accountancy
(Taxation) from UNLV in 1988, and has been a CPA since 1980.
Bob Bagga has served as Chief Operating Officer since joining Ubarter.com
in March 1999. Prior to joining Ubarter.com, Mr. Bagga was Chief Executive
Officer of Barter Business Exchange Inc. from 1997 and prior to that was Vice
President from 1992 to 1997. Mr. Bagga has been a member of the board of
directors of the International Reciprocal Trade Association since 1996. See
"Certain Relationships and Related Transactions - Acquisition of Barter Business
Exchange Inc."
Eric T. Best is co-founder and has served as Chief Officer Sales &
Marketing, MindCorps, Inc., Seattle, Washington, since October 1996. MindCorps,
Inc. works with companies in creating enterprise-scale Internet projects. Prior
to co-founding MindCorps Inc., Mr. Best was a Professional Consultant to
Microsoft in Internet development, business operations and marketing for The
Microsoft Network from June 1995 to October 1996. Prior to that, Mr. Best served
as Technical Advisor, Rural Telemedicine Network at the University of Washington
School of Medicine from June 1994 to June 1995.
John A. Wade is currently Secretary, Vice President, Finance and Chief
Financial Officer for FreeShop.com. FreeShop.com is a leading provider of direct
marketing services on the Internet. Prior to joining FreeShop.com in May 1998,
Mr. Wade served six years as the Chief Financial Officer/Chief Operating Officer
for Buzz Oates Enterprises, a real estate development company. Prior to that,
Mr. Wade served as the controller for A&A Properties, an asset management
corporation, the controller for Labels West, a manufacturing concern, and as an
auditor and taxation specialist at McGladrey and Pullen, an international
accounting firm.
32
<PAGE>
Significant Employees and Consultants
We employ several administrative, technical, sales and support personnel
who perform various day-to-day tasks and conduct operations. In addition,
Ubarter.com from time to time uses consultants or consulting firms to assist us
in developing our business plan and operations. The following individuals are
significant employees or consultants of Ubarter.com.
Liad Y. Meidar, 24, is President of Astra Ventures LLC and since October
1998, has performed the duties of the Company's Vice President, Strategic
Development. Ubarter.com retained Astra Ventures in October 1998 to advise the
Chief Executive Officer and Board of Directors on corporate planning, mergers
and acquisitions. From July 1997 to September 1998, Mr. Meidar was an investment
banker in the Financial Sponsors Group at BT Alex. Brown Incorporated where he
served financial sponsor clients in transactions involving high yield debt
issuances, senior debt underwriting and syndication and international
acquisitions. Mr. Meidar received a B.A. degree in Economics from Princeton
University in June 1997. See "Certain Relationships and Related Transactions -
Relationship with Astra Ventures LLC."
Dan C. Schneider, 45, has served as Chief Technology Officer since joining
Ubarter.com in August 1998. From 1985 to 1998, he worked at Darigold Inc. as
manager of its PC-related activities. He was responsible for the deployment of
UNIX-based, DOS-based, and Windows-based systems and networks, and managed
hardware and software support. In 1997, he developed the corporate website for
Darigold, and established a password-protected database allowing milk producers
to check daily quality control testing data. Mr. Schneider received a B.A.
degree in Business Administration from Central Washington University in 1977.
Board Committees and Meetings
The Board of Directors has not yet established a Compensation Committee or
an Audit Committee. Ubarter.com does not intend to establish a Nominating
Committee. When established, the Compensation Committee will make
recommendations concerning the salaries and incentive compensation of employees
of, and consultants to, Ubarter.com, and will administer Ubarter.com's 1998
Stock Option Plan. When established, the Audit Committee will be responsible for
reviewing the results and scope of audits and other services provided by
Ubarter.com's independent auditors.
Director Compensation
Except for grants of stock options and reimbursement of expenses,
Ubarter.com generally does not compensate its directors or officers for the
services they render us as directors. Ubarter.com does not compensate its
directors for committee participation or for performing special assignments for
the Board of Directors. Under the Company's 1998 Stock Option Plan, non-employee
directors receive stock options to purchase shares of common stock upon their
initial election to the board of directors and automatic grants of stock options
to purchase 5,000 shares of common stock each year upon their re-election at the
annual meeting of shareholders, exercisable at not less than the fair market
value of the Company's common stock on the day of grant. The options vest and
become exercisable on the one-year anniversary of the director's election or
re-election to the Board of Directors. Steven White received options to purchase
5,000 shares of common stock at an exercise price of $.813 per share for his
service as a director. If elected at the Annual Meeting, Messrs. Best and Wade
will each receive options to purchase 10,000 shares of common stock at the fair
market value of the Company's common stock on the day of their election to the
board of directors. Mr. White will not receive compensation or options for his
service as a director.
33
<PAGE>
Executive Compensation
The following table sets forth all compensation paid to or earned by our
President and Chief Executive Officer. None of our executive officers received
total annual salary, bonus and other compensation in excess of $100,000 in the
fiscal year ended March 31, 1999.
<TABLE>
Summary Compensation Table
--------------------------
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name and Principal Securities Underlying
Position Year Salary Bonus Options
-------- ---- ------ ----- -------
<S> <C> <C> <C> <C>
Steven M. White, 1999 $85,000
President and CEO 1998 $75,000 45,000
</TABLE>
Employment Contracts and Change in Control Agreements
Steven M. White. Pursuant to an Employment Agreement effective as of
November 24, 1998, we employ Steven White as President and Chief Executive
Officer. His term of employment commenced on December 1, 1998 and continues for
a period of three years. Mr. White's salary is $85,000 per annum, which may be
increased annually at the discretion of the Board of Directors.
Richard L. Mayer. Pursuant to an Employment Agreement effective as of
November 24, 1998, we employ Richard Mayer as Vice President and Chief Credit
Officer. His term of employment commenced on December 1, 1998, and continues for
a period of three years. Mr. Mayer's initial salary is $50,000 per annum, which
may be increased annually at the discretion of the Board of Directors.
Alan N. Zimmelman. Pursuant to an Employment Agreement effective as of
November 24, 1998, we employ Alan Zimmelman as a Vice President. His term of
employment commenced on December 1, 1998, and continues for a period of three
years. Mr. Zimmelman's initial salary is $50,000 per annum, which may be
increased annually at the discretion of the Board of Directors.
Kevin R. Andersen. Pursuant to an Employment Agreement effective as of
August 1, 1998, we employ Kevin Andersen on a part-time basis as Chief Financial
Officer. His term of employment commenced on August 1, 1998, and continues for a
period of three years. Mr. Andersen's base salary is $75,000 per annum, which
may be increased on a temporary basis for additional project-related accounting
duties, or increased annually at the discretion of the Board of Directors.
Bob Bagga. Pursuant to an Employment Agreement effective as of March 1,
1999, we employ Bob Bagga as Chief Operating Officer for a period of two years.
Mr. Bagga's base salary is CD$120,000 (approximately US$80,000) per annum, which
may be increased annually at the discretion of the Board of Directors.
Each of the agreements for Messrs. White, Zimmelman, Mayer, Andersen and
Bagga entitle them to receive options to purchase 40,000 shares of common stock
for each year of employment, which will vest 50% on the first anniversary of the
date of grant, 75% on the date which is 18 months from the grant date and be
fully vested on the second anniversary of the grant date. Mr. Andersen's initial
grant of 40,000 options were fully vested as of their date of grant. All
agreements contain a change of control provision that provides for the
continuing employment of the officer for the duration of the term of the
agreement in the event of a merger, acquisition of us or sale of substantially
all of our assets. Upon the change of control event the agreements provide that
in addition to any payments made for continued employment, individuals will
receive additional payments as follows: $150,000 each for Messrs. White, Bagga,
Mayer and Zimmelman, and $50,000 for Kevin Andersen.
34
<PAGE>
Stock Options
The following tables summarize option grants made by us to our Chief
Executive Officer during the fiscal year ended March 31, 1999, and the value of
options granted during fiscal 1999 and held by such person at March 31, 1999. No
stock options were exercised during fiscal 1999.
<TABLE>
Option Grants in Fiscal Year Ended March 31, 1999
-------------------------------------------------
Percent of
Number of Total Options
Securities Granted to Exercise
Underlying Employees or Base
Options In Fiscal Price Expiration
Name Granted Year 1998 ($/Share) Date(2)
---- ------- --------- --------- -------
<S> <C> <C> <C> <C>
Steven M. White, 45,000 (1) 14.4% $0.8125 June 1, 2003
President and CEO
</TABLE>
- -----------------------
- - The options are 50% vested on June 1, 1999, 75% vested on December 1, 1999
and are fully vested on June 1, 2001. Upon the occurrence of certain
defined accelerating events, these options would become immediately
exercisable.
<TABLE>
Aggregated Option Exercises During Year Ended
March 31, 1999 and Value of Options at March 31, 1999
-----------------------------------------------------
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money
Acquired on Value Options Options
Exercise Realized at March 31, 1999 at March 31, 1999(1)
-------- -------- ----------------- --------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven M. White -- -- -- 45,000 -- $75,960
</TABLE>
(1) "Value" has been determined based upon the difference between the per share
exercise price and the market value of the Common Stock at March 31, 1999.
Description of 1998 Stock Option Plan
We intend our 1998 Stock Option Plan to serve as an equity incentive
program for management, qualified employees, non-employee members of the board
of directors and independent advisors or consultants. Our board of directors
adopted the 1998 Stock Option Plan on June 1, 1998, and the shareholders
ratified this action at the annual meeting in November 1998. As of August 31,
1999, we had granted options to purchase an aggregate of 528,000 shares of
common stock under the 1998 Stock Option Plan. The following is a summary of the
principal features of the 1998 Stock Option Plan.
35
<PAGE>
Under the 1998 Stock Option Plan, the total number of shares of common
stock reserved for issuance is 1,155,040. The 1998 Stock Option Plan provides
for the issuance of Incentive Stock Options ("ISOs") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, or nonqualified
stock options. If any outstanding option expires or is terminated for any
reason, the shares of common stock allocable to the unexercised portion of that
option may again be subject to an option to the same optionee or to a different
person eligible under the 1998 Stock Option Plan.
The 1998 Stock Option Plan contains two separate components: (i) a
discretionary option grant program under which eligible individuals in our
employ or service (including officers and other employees, non-employee Board
members and independent advisors or consultants) may, at the discretion of the
plan administrators, be granted options to purchase shares of common stock; and
(ii) an option grant program under which option grants will automatically be
made at periodic intervals to eligible non-employee board members to purchase
shares of common stock at an exercise price equal to the fair market value on
the grant date.
The board of directors, or a committee of two or more members of the board,
administers the discretionary option grant program. Plan administrators have
sole authority to prescribe the form, content and status of options to be
granted, select the eligible recipients and determine the timing of option
grants and number of shares subject to each grant. Plan administrators also have
the sole authority to determine the exercise price, vesting schedule and term
for which any option will remain outstanding provided that the exercise price
for any option granted may not be less than the fair market value per share of
the common stock at the date of grant. The board of directors has the authority
to determine the terms and restrictions on all restricted option awards granted
under the 1998 Stock Option Plan, and in general, to construe and interpret any
provision of the 1998 Stock Option Plan.
Under the 1998 Stock Option Plan, the option holder may pay the exercise
price for outstanding option grants in cash or, upon approval of the plan
administrators, using the following alternative forms of consideration: (i)
shares of common stock valued at fair market value on the exercise date; (ii)
our withholding shares of common stock the option holder is otherwise entitled
to receive by virtue of some other agreement; (iii) delivery of an irrevocable
subscription agreement obligating the option holder to take and pay for the
shares of common stock to be purchased within one year of the date of such
exercise; (iv) through a same-day cashless exercise program; (v) a reduction in
the amount of any Ubarter.com liability to the optionee; or (vi) such other
consideration and method of payment for the issuance of shares to the extent
permitted by applicable laws.
Non-employee directors receive an initial grant of options as determined in
the discretion of the plan administrator. Thereafter, under the option grant
program, immediately after each annual meeting of shareholders, each elected
non-employee director is automatically granted a nonqualified stock option to
purchase 5,000 shares of common stock for each year included in the term for
which such he or she was elected.
Under the 1998 Stock Option Plan, no stock option can be granted for a
period longer than five years. Unless extended by the Plan administrators, until
the expiration date of the option, the right to exercise an option terminates
ninety days after the termination of an option holder's employment, contractual
or director relationship with the Company. If the option holder dies or is
disabled, the option will remain exercisable for a period of one year after the
termination of employment or relationship with the Company.
36
<PAGE>
We have made option grants outside the 1998 Stock Option Plan to Kevin
Andersen, our Chief Financial Officer and Astra Ventures, LLC. Under those
grants, 670,000 shares of common stock have been reserved for issuance. Mr.
Andersen was granted options to purchase 40,000 shares of our common stock at an
exercise price of $.8125 per share. All such options were fully vested as of the
time of grant, expire five years from the date of grant and were issued at less
than the fair market value of our common stock as of the date of grant. See Note
11 of Notes to Consolidated Financial Statements. Astra Ventures was granted
options to purchase 630,000 shares of common stock, all of which were fully
vested at the time of grant and expire five years from the date of grant. See
"Certain Relationships and Related Transaction - Relationship with Astra
Ventures LLC" and Note 11 of Notes to Consolidated Financial Statements."
Limitation of Liability
Our bylaws provide for the indemnification of officers and directors to the
fullest extent possible under Nevada Law, against expenses (including attorney's
fees), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding, arising because such person is or
was an agent of the Company. Our bylaws also allow us, to the maximum extent and
in the manner permitted by the Nevada Revised Statutes, to indemnify each of our
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising
because such person is or was an agent of the Company.
Our Articles of Incorporation limit or eliminate the personal liability of
officers and directors for damages resulting from breaches of their fiduciary
duty, except for damages resulting from acts or omissions that involve
intentional misconduct, fraud, a knowing violation of the law or the payment of
dividends in violation of the Nevada Revised Statutes.
Our four executive officers have entered into employment agreements which
provide that, in addition to all other rights of indemnification they may have
as officers of the Company, we will indemnify them for all reasonable expenses
and liabilities of any type or nature, including attorneys' fees, incurred in
connection with any action, suit or proceeding to which they may be a party by
reason of, or in connection with their positions as our officers. We have also
indemnified these officers against all amounts they might pay in settlement of
these legal proceedings provided that independent legal counsel selected by us
approve the settlement. We have not, however, indemnified these officers for
expenses relating to matters for which they are adjudged to be liable for
willful misconduct.
We maintain director and officer liability insurance with an aggregate
coverage amount of $1,000,000.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
37
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of August 31, 1999 for (a) each person we know
to be a beneficial owner of five percent or more of our common stock, (b) each
executive officer named in the Summary Compensation Table above and each
director, and (c) all directors and executive officers as a group. Except as
otherwise indicated, the shareholders listed in the table have sole voting and
investment power with respect to the Common Stock owned by them.
Amount and
Nature of
Name and Address(1) Beneficial Percentage
of Beneficial Owner Ownership of Shares
- ------------------- --------- ---------
Steven M. White(2) 1,360,396 22.5%
Richard L. Mayer(2) 36,500 *
Alan N. Zimmelman(2) 41,400 *
Glen T. White 10,000 *
New Horizons LP(3) 1,201,800 18.7%
248 West Park Avenue
Long Beach, NY 11561
Astra Ventures LLC(4) 631,500 9.5%
140 West 57th Street, Suite 8D
New York, NY 10019
Eric T. Best(5) -- --
John A. Wade(5)(6) 2,250 *
All executive officers and 1,640,546 26.7%
directors as a group(2)
(--- persons)
- --------------------------
* Less than one percent.
(1) The business address of Steven White and all other officers and directors
is 21400 International Blvd., Suite 207, Seattle, WA 98198.
(2) Includes the following number of shares which could be acquired within 60
days of August 31, 1999, through the exercise of stock options: Steven
White, 22,500 shares; Mr. Zimmelman, 22,500 shares; Mr. Mayer, 22,500
shares; and all directors and executive officers, 107,500 shares.
(3) Sors Inc., as general partner, is also deemed the beneficial owner of the
shares of the common stock owned by New Horizons LP because of its power to
vote and dispose of those shares. Includes 400,000 shares which could be
acquired through the exercise of outstanding warrants.
(4) Includes 630,000 shares which could be acquired within 60 days of June 30,
1999, through the exercise of stock options. Liad Y. Meidar, President and
controlling equity owner of Astra Ventures LLC is also deemed the
beneficial owner of the options owned by Astra Ventures LLC because of his
power to vote and dispose of those shares. See "Certain Relationships and
Related Transactions - Relationship with Astra Ventures LLC."
(5) Messrs. Best and Wade have been nominated to serve as directors. Our
shareholders will vote on their nominations at our annual meeting of
shareholders to be held on September 30, 1999. The business addresses of
Messrs. Best and Wade are c/o MindCorps, Inc., 1326 5th Ave., Suite 510,
Seattle, WA 98101 and c/o Freeshop.com, 95 So. Jackson Street, Ste. 300,
Seattle, WA 98104, respectively.
(6) Includes 2,250 shares of common stock owned by Mr. Wade's wife, which he is
deemed to beneficially own.
38
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Merger with Cascade Trade Association.
Prior to the November 1996 merger of Ubarter.com with Cascade Trade
Association, Steven White and Richard Mayer were executive officers of Cascade
Trade Association. In September 1996, Mr .White and Mr. Mayer were appointed
directors of Ubarter.com and Mr. White was appointed an officer. Mr. White was
the principal shareholder of Cascade Trade Association. In connection with the
merger, Mr. White was issued 1,800,000 shares of common stock of Ubarter.com.
Acquisition of Barter Business Exchange Inc.
For a description of certain transactions with Bob Bagga, our Chief
Operating Officer, relating to our acquisition of Barter Business Exchange, Inc.
effective March 1, 1999, see "Business -- Acquisition of Barter Business
Exchange in March 1999."
Relationship with Astra Ventures LLC.
We have entered into a consulting agreement with Astra Ventures LLC. Astra
Ventures has agreed to serve as our advisor through December 31, 2001, focusing
on potential acquisitions, strategic planning and business development. Liad Y.
Meidar is the President and controlling equity owner of Astra Ventures LLC. As a
part of the consulting arrangement with Astra Ventures, Mr. Meidar acts as our
Vice President, Strategic Development. For their services, Astra Ventures will
receive cash compensation of $100,000 per year and an aggregate total of 630,000
stock options on a fully diluted basis. All such options were fully vested as of
their date of grant and terminate on October 1, 2003. Of these options, 50,000
are exercisable at the price of $4.00; 40,000 at $6.00; 60,000 at $8.00; 80,000
at $10.00; 160,000 at $12.00; and 240,000 at $14.00. If we consummate a merger
or acquisition transaction during the term of the agreement or within one year
thereafter, Astra Ventures will receive a fee equal to 3% of the consideration
paid by us, payable in cash or, at Astra Ventures' option, in shares of our
common stock valued at fair market value. In connection with our acquisition of
Barter Business Exchange Inc. in March 1999, Astra Ventures elected to receive
options to purchase 40,000 shares of our common stock at an exercise price of
$2.75 per share in lieu of cash compensation. These options become 50% vested on
March 2, 2000, 75% vested on September 2, 2000 and fully vested on March 2,
2001. The options expire upon the earlier of (i) March 2, 2004 or (ii) in the
event the consulting agreement with Astra Ventures is terminated or not renewed,
on the expiration of 90 days from the date of termination of such agreement.
Relationship With New Horizons L.P.
New Horizons L.P. is one of our significant shareholders. The general
partner of New Horizons LP is Sors Inc., which is managed by Joseph MacDonald.
The spouse of Mr. MacDonald, Mary Martin, entered into a consulting agreement
with us in August 1998. In exchange for investor relations and consulting
services rendered and for reimbursement of expenses, we paid Ms. Martin $2,000
per month and granted her 40,000 options, which were fully vested as of their
grant date, and are exercisable at $.8125 per share. The agreement was
terminated in April 1999.
In July 1998, New Horizons L.P. purchased 400,000 units, consisting of one
share of common stock and one warrant, offered by us in a private placement for
$1.25 per unit. The warrants entitle New Horizons L.P. to purchase 400,000
shares of common stock at a price of $1.50 per share.
Loans With Certain Persons
In July and August 1999, Steve White, Alan Zimmelman and New Horizons L.P.
made non-interest bearing loans to us. All of the loans were repaid, in full, on
September 1, 1999. Mr. White's loan was in the amount of approximately $131,000.
Mr. Zimmelman's loan was in the amount of approximately $18,300. New Horizon's
loan was in the amount of approximately $16,300.
39
<PAGE>
DESCRIPTION OF SECURITIES
Our articles of incorporation, as amended, authorize our issuance of up to
25,000,000 shares of common stock, $.001 par value per share. On July 15, 1999,
our Board of Directors approved an amendment to our Articles of Incorporation,
as amended, that, if approved by our shareholders at our annual meeting of
shareholders scheduled to be held on September 30, 1999, would authorize to
issue, from time to time, as determined by the Board of Directors, up to
10,000,000 shares of preferred stock, $.001 par value per share. The following
description of our capital stock is intended to be a summary and does not
describe all provisions of our Articles of Incorporation or Bylaws of Nevada law
applicable to us. For a more thorough understanding of the terms of our capital
stock, you should refer to our Articles of Incorporation and Bylaws which are
included as exhibits to the registration statement of which this prospectus of a
part.
Common Stock
Each share of common stock has the same rights, privileges and preferences.
Holders of the shares of common stock have no preemptive rights to acquire
additional shares or other subscription rights. These shares have no conversion
rights and are not subject to redemption provisions or future calls by us.
The holders of shares of common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of shareholders. The
holders of common stock are not entitled to cumulate their votes for the purpose
of electing directors of the Company.
If we are liquidated, dissolved, or wound-up, the holders of the
outstanding shares of common stock are entitled to receive a pro rata share of
those of our net assets that are distributable after payment of all liabilities
then outstanding and the liquidation preference of any then outstanding
preferred stock.
Preferred Stock
If approved by our shareholders at our September 30, 1999 annual meeting of
shareholders, our Board of Directors will have the authority, without further
action by the stockholders, to issue up to 10,000,000 shares of preferred stock
in one or more series and to designate the rights, preferences, privileges and
restrictions of each series. The issuance of preferred stock could have the
effect of restricting dividends on the common stock, diluting the voting power
of the common stock, impairing the liquidation rights of the common stock or
delaying or preventing our change in control without further action by the
shareholders. We have no present plans to issue any shares of preferred stock.
Warrants
Warrants to purchase 800,000 shares of our common stock were issued to
three investors in a private placement in July 1998 at an exercise price of
$1.50 per share. 94,000 shares of common stock have been issued pursuant to
exercise of a portion of the warrants as of August 31, 1999. The warrants expire
on June 30, 2000 if not exercised by that date. The warrants are nontransferable
and may be exercised in whole or in part. We have no right to redeem the
warrants prior to the expiration of the exercise period. We have reserved an
equivalent number of shares of common stock for issuance on exercise of the
warrants.
The exercise price of the warrants and the number of shares to be obtained
upon the exercise of the warrants are subject to adjustment in certain
circumstances including a stock split of, or stock dividend on, or a
recapitalization of the common stock. In we are liquidated, dissolved or wound
up, holders of the warrants, unless exercised, will not be entitled to
participate in the distribution of our assets. Holders of the warrants have no
voting, preemptive, liquidation or other rights of a shareholder, and no
dividends will be declared on the warrants.
40
<PAGE>
The exercise price of the warrants is adjustable downward if we were to
issue (other than by stock dividend or stock split) or sell shares of its common
stock for a consideration per share less than the warrant purchase price. The
holders of the warrants have certain piggy-back registration rights. We have
agreed to pay all registration expenses incurred in connection with the
registration of the common shares issuable upon exercise of the warrants.
Alpine Note and Warrants
On August 27, 1999 we issued a convertible promissory note and warrant in
connection with obtaining a $1 million short-term loan. See "Recent
Developments."
Transfer Agent
Securities Transfer Corporation, 16910 Dallas Parkway, Suite 100, Dallas,
Texas 75248, serves as transfer agent for our common stock, and serves as
transfer and warrant agent for our warrants.
PLAN OF DISTRIBUTION
We are registering the shares covered by this prospectus on behalf of the
selling shareholders listed under "Selling Shareholders." The selling
shareholders will offer and sell the shares for their own accounts. We will not
receive any proceeds from the sale of the shares. We will bear all expenses and
fees of registration of the shares.
The selling shareholders may offer and sell the shares from time to time in
the over-the-counter market in regular brokerage transactions, in transactions
directly with market makers or in privately negotiated transactions, through put
or call options transactions, through short sales or a combination of such
methods of sales at prices relating to prevailing market prices or at negotiated
prices. Sales may be made to or through brokers or dealers who may receive
compensation in the form of discounts, concessions or commissions from the
selling shareholders or the purchasers of the shares. As of the date of this
prospectus, we are not aware of any agreement, arrangement or understanding
between any broker or dealer and the selling shareholders. There is no assurance
that the selling shareholders will sell any or all of the shares that they
offer.
The selling shareholders and any brokers or dealers who participate in the
sale of the shares may be deemed to be "underwriters' within the meaning of the
Securities Act of 1933, and any commissions received by them and any profits
realized by them on the resale of shares may be deemed to be underwriting
discounts or commissions under the Securities Act of 1933. Because the selling
shareholders may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, the selling shareholders will be subject to the
prospectus delivery requirements of the Securities Act of 1933. We have informed
the selling shareholders that the anti-manipulative provisions of Regulation M
promulgated under the Securities Exchange Act of 1934 may apply to their sales
in the market.
The selling shareholders may also resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act of
1933, provided they meet the criteria and conforms to the requirements of such
Rule.
Under the securities laws of certain states, the selling shareholders may
sell the shares only through registered or licensed brokers or dealers. In
addition, in certain states the selling shareholders may not sell the shares
unless the shares have been registered or qualified for sale in that state or an
exemption from registration or qualification applies.
We will pay all the expenses incident to the registration, offering and
sale of the shares to the public under this prospectus, other than commissions,
fees and discounts of underwriters, brokers, dealers and agents. We may at our
discretion withdraw the registration statement of which this prospectus
constitutes a part at any time.
41
<PAGE>
SELLING SHAREHOLDERS
The following table lists the selling shareholders and sets forth certain
information regarding beneficial ownership of common stock of each selling
shareholder and as adjusted to give effect to the sale of the shares.
Information concerning the selling shareholders may change from time to time.
The selling shareholders acquired the shares of common stock covered by this
prospectus in private placements, including transactions involving the exercise
of warrants and our acquisition of Barter Business Exchange. The shares are
being registered to permit public secondary trading of the shares, and the
selling shareholders may offer the shares for sale from time to time. See "Plan
of Distribution."
<TABLE>
Prior to
Offering After Offering
-------- --------------
Number of Shares Number of
Beneficial Owner(1) Shares Offered Shares Percentage(2)
- ------------------- ------ ------- ------ -------------
<S> <C> <C> <C> <C>
New Horizons, L.P.(3) 1,201,800 700,000 501,800 7.8%
Charon Management(4) 609,600 462,000 147,600 2.4%
Allied Hansard Capital Ltd.(5) 400,000 200,000 200,000 3.2%
Rand Coulson 276,000 184,000 92,000 1.5%
Andrew Titley 300,000 100,000 200,000 3.2%
John Titley 300,000 100,000 200,000 3.2%
Bob Bagga (6) 150,000 150,000 0 *
Mark Thomas 10,000 10,000 0 *
Susan Thomas 10,000 10,000 0 *
----------
Total shares offered 1,916,000
- ------------------------
* Less than one percent.
</TABLE>
(1) Beneficial ownership assumes the exercise of all warrants.
(2) Percentage of beneficial ownership is based upon 6,029,420 shares of common
stock outstanding as of August 31, 1999.
(3) Includes 400,000 shares underlying warrants unexercised as of August 31,
1999.
(4) Includes 106,000 shares underlying warrants unexercised as of August 31,
1999.
(5) Includes 200,000 shares underlying warrants unexercised as of August 31,
1999.
(6) Mr. Bagga is our Chief Operating Officer. See "Management" and "Certain
Relationships and Related Transactions-Acquisition of Barter Business
Exchange, Inc."
42
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Of the 6,029,420 shares of common stock outstanding as of August 31, 1999,
we issued 1,439,400 under an exemption from the registration provisions of the
Securities Act of 1933 under Rule 504 of Regulation D. These Rule 504 shares are
eligible for resale, without limitation, in the open market. We issued the
remaining 4,590,020 shares in private transactions. These 4,590,020 shares are
restricted securities within the meaning of Rule 144 under the Securities Act of
1933. Of these shares, 1,916,000 shares (or approximately 32% of the shares
currently outstanding) are being registered for resale by the selling
shareholders pursuant to the registration statement to which this prospectus
relates. In addition, the remaining 2,674,020 shares of our common stock are
currently eligible for resale in the open market, subject to the volume and
other conditions of Rule 144. There are no contractual restrictions on the
resale of the outstanding common stock, except for some volume limitations on
the 150,000 shares issued in connection with the BBE acquisition. In addition,
we filed a registration statement on Form S-8 registering a total of 1,855,280
shares of common stock subject to outstanding stock options or reserved for
issuance under our stock option plan. Shares registered under the Form S-8
registration statement will, subject to Rule 144 volume limitations applicable
to affiliates, be available for sale in the open market, unless such shares are
subject to vesting restrictions.
In general under Rule 144 as currently in effect, a person who has
beneficially owned restricted shares for at least one year (including the
holding period of any prior owner except an affiliate) would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (A) one percent of the number of shares of common stock then
outstanding (approximately 60,000 at August 31, 1999); or (B) the average weekly
trading volume of the common stock during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to such sale. Sales under Rule 144
are also subject to certain manner of sale provisions and notice requirements
and to the availability of current public information about us. Under Rule
144(k), a person who has not been an affiliate of ours at any time during the
three months before a sale, and who has beneficially owned the restricted shares
for at least two years is entitled to sell them without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
LEGAL MATTERS
Dorsey & Whitney LLP, Seattle, Washington, will pass upon the validity of
the shares of common stock offered hereby.
EXPERTS
The financial statements of Ubarter.com at March 31, 1999 and for the year
ended March 31, 1999, included in this prospectus have been audited by Moss
Adams LLP, independent auditors, as stated in their report appearing herein, and
are included in reliance upon the report of Moss Adams LLP, given on their
authority, as experts in accounting and auditing. The financial statements of
Ubarter.com at March 31, 1998 and for the year ended March 31, 1998, included in
this prospectus have been audited by Andersen Andersen & Strong LC, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of Andersen Andersen & Strong L.C., given on their
authority, as experts in accounting and auditing. The financial statements of
Barter Business Exchange as of February 28, 1999 and 1998 and for the years then
ended, included in this prospectus have been audited by Moss Adams LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of Moss Adams LLP, given on their
authority, as experts in accounting and auditing.
43
<PAGE>
CHANGES IN CERTIFYING ACCOUNTANTS
Andersen Andersen & Strong L.C. has audited our financial statements
annually since fiscal 1996. Subsequent to the completion of the 1998 fiscal year
audit, we retained a partner of Andersen Andersen & Strong L.C. to serve as our
Chief Financial Officer. Because it could no longer serve us as an independent
accounting firm for the 1999 fiscal year, the former accounting firm declined to
stand for re-election at the 1998 Annual Meeting of Shareholders. During January
1999, we engaged the firm of Moss Adams L.L.P. as our independent accountants
for the fiscal year ended March 31, 1999.
The reports of Andersen Andersen & Strong L.C. for prior fiscal years have
not contained an adverse opinion or disclaimer of opinion, nor were they
modified as to uncertainty, audit scope or accounting principles. There were no
disagreements with the former accountants on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure.
ADDITIONAL INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information on file at the Public Reference
Room of the Securities and Exchange Commission at 450 5th Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the Securities and Exchange
Commission at 1-800-SEC-0330. The Securities and Exchange Commission also
maintains an Internet site that contains the reports, proxy statements and other
information that we file electronically with the Securities and Exchange
Commission. The Securities and Exchange Commission's website is located at
http://www.sec.gov.
We have filed a registration statement with the Securities and Exchange
Commission with respect to the securities offered by this prospectus. This
prospectus, which constitutes a part of the registration statement, omits
certain of the information set forth in the registration statement in accordance
with the rules and regulations of the Securities and Exchange Commission. For
further information with respect to Ubarter.com and the securities offered by
this prospectus, we refer you the registration statement and the exhibits filed
as a part thereof. Statements contained in this prospectus as to the content of
any contract or other document are not necessarily complete, and in each
instance, we refer you the copy of such contract or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by this reference. You may inspect and copy the registration
statement at the Public Reference Room of the Securities and Exchange Commission
in Washington D.C. noted above, and at the regional offices of the Securities
and Exchange Commission located in Chicago, Illinois and New York, New York. You
may also review the registration statement and exhibits on the Securities and
Exchange Commission's Internet site at http://www.sec.gov.
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
Page No.
--------
<S> <C>
Ubarter.com Inc. Consolidated Financial Statements
Three Months Ended June 30, 1999 and 1998 (Unaudited)
Consolidated Balance Sheet as of June 30, 1999 and March 31, 1999 F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Cash Flows F-4
Notes to Interim Consolidated Financial Statements F-5
Years Ended March 31, 1999 and 1998
Independent Auditor's Report F-9
Report of Independent Certified Public Accountants F-10
Consolidated Balance Sheet F-11
Consolidated Statement of Operations F-12
Consolidated Statement of Shareholders' Equity F-13
Consolidated Statements of Cash Flows F-14
Notes to Consolidated Financial Statements F-15
Pro Forma Combined Financial Information reflecting the Acquisition of Barter Business Exchange Inc.
(unaudited)
Pro Forma Combined Balance Sheet as of December 31, 1998 F-30
Pro Forma Combined Statements of Operations,
Year Ended March 31, 1998 F-31
Pro Forma Combined Statements of Operations,
Nine Months Ended December 31, 1998 F-32
Notes to Unaudited Pro Forma Combined Financial Statements F-33
Barter Business Exchange Inc. Consolidated Financial Statements
Years Ended February 28, 1999 and 1998
Independent Auditor's Report F-35
Consolidated Balance Sheet F-36
Consolidated Statement of Operations F-37
Consolidated Statement of Stockholders' Deficit F-38
Consolidated Statement of Cash Flows F-39
Notes to Consolidated Financial Statements F-40
</TABLE>
<PAGE>
UBARTER.COM INC.
CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
F-1
<PAGE>
UBARTER.COM INC.
BALANCE SHEET
JUNE 30, 1999 AND MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
ASSETS
June 30, March 31,
1999 1999
------------------ -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 115,900 $ 442,700
Accounts receivable, net 289,400 305,700
Inventory 320,400 310,400
Other current assets 40,800 9,200
------------------ -----------------
Total current assets 766,500 1,068,000
------------------ -----------------
EQUIPMENT AND LEASEHOLDS, net 409,800 383,600
------------------ -----------------
OTHER ASSETS
Goodwill 2,587,900 2,750,900
Prepaid advertising and scrip inventory 135,000 135,000
Notes receivable 22,900 23,500
Other assets 1,000 28,700
------------------ -----------------
2,746,800 2,938,100
------------------ -----------------
$ 3,923,100 $ 4,389,700
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 285,700 $ 111,400
Accrued liabilities 289,100 28,200
Unearned revenue - 186,300
Trade dollars issued in excess of earned 2,391,900 2,147,900
Note payable to shareholder - 66,200
Current portion of long-term obligations 225,400 35,400
------------------ -----------------
Total current liabilities 3,192,100 2,575,400
------------------ -----------------
LONG-TERM OBLIGATIONS, net of current portion 29,600 81,600
------------------ -----------------
STOCKHOLDERS' EQUITY
Common stock 5,900 5,900
Additional paid-in capital 2,748,000 2,649,300
Subscribed shares 52,500 -
Accumulated deficit (2,109,500) (909,500)
Treasury stock (13,000) (13,000)
Accumulated other comprehensive income, net of tax 17,500 -
------------------ -----------------
701,400 1,732,700
------------------ -----------------
$ 3,923,100 $ 4,389,700
================== =================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-2
<PAGE>
UBARTER.COM INC.
STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
1999 1998
------------------- ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUE $ 909,300 $ 148,500
COST OF REVENUE 385,100 17,200
------------------- ------------------
GROSS PROFIT 524,200 131,300
------------------- ------------------
OPERATING EXPENSES
Cost of corporate trading revenue 32,000 17,200
Sales and marketing 83,500 -
Product development 256,900 -
General and Administrative 1,354,700 108,700
------------------- ------------------
1,727,100 125,900
------------------- ------------------
INCOME (LOSS) FROM OPERATIONS (1,202,900) 5,400
------------------- ------------------
OTHER INCOME (EXPENSE)
Interest expense (400) (1,400)
Interest income 3,300 4,200
------------------- ------------------
2,900 2,800
------------------- ------------------
LOSS BEFORE INCOME TAXES (1,200,000) 8,200
INCOME TAX BENEFIT (PROVISION) - 600
------------------- ------------------
NET INCOME (LOSS) $(1,200,000) $ 8,800
=================== ==================
NET INCOME (LOSS) PER COMMON SHARE
Basic $ (0.20) $ -
=================== ==================
Diluted $ (0.20) $ -
=================== ==================
AVERAGE COMMON AND EQUIVALENT SHARES
Basic 5,956,667 4,099,566
=================== ==================
Diluted 5,956,667 4,413,232
=================== ==================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-3
<PAGE>
UBARTER.COM INC.
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
June 30, June 30,
1999 1998
----------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,200,000) $ 8,800
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 383,500 2,700
Non-cash charges related to stock option grants 18,700 -
Foreign currency loss 17,500 -
Deferred income taxes - (600)
Bad debts 94,000 -
Net trade dollars expended 140,000 (30,900)
Change in operating assets and liabilities
Accounts receivable (77,700) 5,400
Prepaid advertising and other assets (3,900) -
Accounts payable and other liabilities 248,900 (9,800)
----------------- --------------
(379,000) (24,400)
----------------- --------------
CASH FROM INVESTING ACTIVITIES
Acquisition of equipment and leaseholds (72,700) (2,600)
Note receivable collections 600 -
----------------- --------------
(72,100) (2,600)
----------------- --------------
CASH FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 52,500 150,600
Proceeds from notes payable 233,600 -
Repayment of notes payable (161,800) (3,500)
----------------- --------------
124,300 147,100
----------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (326,800) 120,100
CASH AND CASH EQUIVALENTS
Beginning of period 442,700 382,600
----------------- --------------
End of period $ 115,900 $ 502,700
================= ==============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 700 $ 1,400
================= ==============
Income taxes $ - $ -
================= ==============
NON-CASH INVESTING AND FINANCING ACTIVITIES
Purchase of BBE (Windsor) stock for Trade Dollars
and Ubarter.com stock $ 134,900 $ -
================= ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-4
<PAGE>
UBARTER.COM INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal, recurring adjustments) considered necessary for fair
presentation have been included. The results of operations for the
three-month periods ended June 30, 1999 and 1998 are not necessarily
indicative of the results to be expected for the full year. The
consolidated financial statement combines the Company's balance sheet as of
June 30, 1999 with the balance sheet of Barter Business Exchange, Inc.
("BBE") as of May 31, 1999. The consolidated statement of operations
presents the results of operations of the Company for the three months
ended June 30, 1999, however, due to the differing year-ends, the results
of operations of BBE from March 1, 1999 (the date of purchase) through May
31, 1999 are consolidated with the Company's results of operations for the
first quarter of 1999. Certain prior year amounts have been reclassified to
conform with current year presentation. For further information, refer to
the financial statements and footnotes included in the company's report on
Form 10-KSB for the year ended March 31, 1999.
Note 2 - Trade Dollars
In accordance with the guidelines established by the International
Reciprocal Trade Association, the Company has the right to borrow from the
exchange and spend within the exchange systems. Such a practice is used by
barter exchanges, worldwide, to cover inventory purchases, capital
purchases, operating expenses and to control the supply of trade dollars in
the exchange economy. The Company is obligated to provide goods and
services to clients to offset any amounts of Trade Dollars issued in excess
of earned. At June 30, 1999 and March 31, 1999 and 1998, the Company had
expended $2,391,900 and $2,147,900 Trade Dollars respectively, in excess of
the amount of Trade Dollars earned by the Company.
Note 3 - Acquisition
The Company previously owned 50% of the outstanding common stock of Barter
Business Exchange (Windsor) Inc. ("BBE Windsor") (a subsidiary of Barter
Business Exchange, Inc.). On June 23, 1999, Ubarter.com acquired the
remaining 50% ownership for approximately $11,100 in cash, $43,800 in
Ubarter Trade Dollars, and 20,000 shares of Ubarter.com common stock valued
at $4.00 on the date of purchase. The purchase has been accounted for under
the purchase method of accounting. Under the purchase method of accounting,
the purchase price is allocated to the assets acquired and liabilities
assumed based on their estimated fair values at the date of acquisition.
The excess purchase price over the estimated fair value of the assets
acquired and liabilities assumed has been allocated to goodwill. The
Company estimated the economic useful life to be two years.
- --------------------------------------------------------------------------------
F-5
<PAGE>
UBARTER.COM INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 4 - Capital Stock
In May 1999, the Company received approximately $52,500 from the exercise
of E warrants to purchase 35,000 shares of common stock. As of June 30,
1999, these shares had not been issued by the Company and were thus,
classified as subscribed stock. In October of 1998, 10,980 shares were
repurchased for approximately $13,000 and classified as treasury stock.
On June 23, 1999, the Company issued 20,000 shares of common stock valued
at $4.00 per share as partial payment for equity ownership in BBE Windsor
(see Note 3). At June 30, 1999, the Company had 5,946,400 shares of common
stock issued and outstanding at a par value of $.001 per share, with total
authorized shares of 25,000,000.
On July 9, 1998, the Board of Directors authorized a 2-for-1 split of its
common stock to be distributed to stockholders of record at the close of
business on July 24, 1998. All per-share and shares outstanding data in the
accompanying consolidated financial statements have been restated to
reflect the stock split.
Note 5 - Income (Loss) Per Share
Following, is a reconciliation of the numerators of the basic and diluted
income (loss) per share for the three months ended June 30, 1999 and 1998:
<TABLE>
1999 1998
------------------- -------------------
<S> <C> <C>
Net income (loss) available to common shareholders $ (1,200,000) $ 8,800
=================== ===================
Weighted average shares 5,956,667 4,099,566
Effect of dilutive securities
Options - -
Warrants - 313,666
------------------- -------------------
5,956,667 4,413,232
=================== ===================
Basic income (loss) per share (based on
weighted average shares) $ (0.20) $ -
=================== ===================
Diluted income (loss) per share $ (0.20) $ -
=================== ===================
</TABLE>
Options and warrants to purchase shares of common stock were excluded from
the computation in 1999 because their effect would be anti-dilutive.
- --------------------------------------------------------------------------------
F-6
<PAGE>
UBARTER.COM INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 6 - Revenue
The following table summarizes the cash and trade (consisting of
Ubarter.com Trade Dollars) components of revenue for the three months ended
June 30, 1999 and 1998:
1999 1998
-------------- -------------
Trade $ 555,300 $ 70,200
Cash 386,000 78,300
-------------- -------------
$ 941,300 $ 148,500
============== =============
Note 7 - Stock Options
The Company adopted a Stock Option Plan (`the Plan") effective June 1, 1998
whereby, nonqualified and incentive stock options for up to 1,189,280
shares of common stock may be granted to Directors, Officers, Employees and
Consultants. Options granted under the Plan are not to have a life in
excess of five years from the date of grant and vest 50% after 12 months,
75% after 18 months, and 100% after 24 months from the date grant. The
provisions of the Plan allow the administrators to determine the vesting
period of options granted.
In June 1999, the Company granted options under the Plan to purchase
135,000 shares of common stock all at an exercise price of $4.88 per share
and to purchase 1,000 shares of common stock at an exercise price of $2.75
per share to certain of the Company's officers and employees.
Note 8 - Subsequent Events
In July and August of 1999, funds totaling approximately $166,000 were
loaned to the Company by three shareholders and officers. The loans are
payable on demand with interest accruing at the rate of 12% per annum on
the unpaid principal amount.
On August 27, 1999, the Company issued a $1,000,000 convertible note
payable to an investment group. The note is convertible to 1,333,333 share
of common stock at an exercise price of $0.75 per share and is convertible
if the note is not repaid in full by June 1, 2000. The note bears interest
at 5.5% per annum and matures on September 1, 2002. Additionally, the
investment group received a warrant to purchase 183,333 shares of common
stock at $2.00 per share. The warrant is exercisable from September 1, 1999
through September 1, 2004. The warrant agreement contains certain call
provisions and is non-transferable.
- --------------------------------------------------------------------------------
F-7
<PAGE>
UBARTER.COM INC.
INDEPENDENT AUDITORS' REPORTS
and
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
F-8
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
of Ubarter.com Inc.
We have audited the consolidated balance sheet of Ubarter.com Inc. and
subsidiary as of March 31, 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ubarter.com Inc.
and subsidiary as of March 31, 1999, and the results of their operations and
their cash flows for the year then ended, in accordance with generally accepted
accounting principles.
\s\ Moss Adams LLP
Seattle, Washington
June 16, 1999
F-9
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Ubarter.com Inc. (formerly International Barter Corp.) and Subsidiary
Seattle, Washington
We have audited the consolidated financial statements of Ubarter.com (formerly
International Barter Corp.) and subsidiary for the year ended March 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of International
Barter Corp. and subsidiary as of March 31, 1998 and the results of their
operations and their cash flows for the year then ended, in accordance with
generally accepted accounting principles.
\s\ Andersen Andersen & Strong L.C.
June 19, 1998
Salt Lake City, Utah
F-10
<PAGE>
UBARTER.COM INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
ASSETS
1999 1998
----------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 442,700 $ 382,600
Accounts receivable, net 305,700 63,300
Inventory 310,400 -
Other current assets 9,200 2,900
----------------- -----------------
Total current assets 1,068,000 448,800
----------------- -----------------
EQUIPMENT AND LEASEHOLDS, net 383,600 42,300
----------------- -----------------
OTHER ASSETS
Goodwill 2,750,900 -
Prepaid advertising 135,000 -
Notes receivable 23,500 32,800
Other assets 28,700 1,200
----------------- -----------------
2,938,100 34,000
----------------- -----------------
$4,389,700 $ 525,100
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 111,400 $ 9,300
Accrued liabilities 28,200 7,700
Unearned revenue 186,300 -
Trade dollars issued in excess of earned 2,147,900 5,400
Note payable to shareholder 66,200 -
Current portion of long-term obligations 35,400 13,100
----------------- -----------------
Total current liabilities 2,575,400 35,500
----------------- -----------------
LONG-TERM OBLIGATIONS 81,600 19,100
----------------- -----------------
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY
Common stock 5,900 3,800
Additional paid-in capital 2,649,300 540,700
Subscribed stock - 37,500
Accumulated deficit (909,500) (111,500)
Treasury stock (13,000) -
----------------- -----------------
1,732,700 470,500
----------------- -----------------
$4,389,700 $ 525,100
================= =================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-11
<PAGE>
UBARTER.COM INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
1999 1998
---------------- ---------------
<S> <C> <C>
REVENUE
Trade exchange revenue $ 460,600 $ 540,600
Corporate trading revenue 43,900 45,500
---------------- ---------------
504,500 586,100
---------------- ---------------
COSTS AND OPERATING EXPENSES
Cost of corporate trading revenue 43,900 45,500
Sales and marketing 94,700 73,900
Product development 216,300 29,900
General and administrative 990,600 407,000
---------------- ---------------
1,345,500 556,300
---------------- ---------------
INCOME (LOSS) FROM OPERATIONS (841,000) 29,800
---------------- ---------------
OTHER INCOME (EXPENSE)
Interest income 45,700 8,800
Interest expense (2,700) (4,900)
---------------- ---------------
43,000 3,900
---------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES (798,000) 33,700
INCOME TAXES - 1,200
---------------- ---------------
NET INCOME (LOSS) $(798,000) $ 32,500
================ ===============
AVERAGE COMMON AND EQUIVALENT SHARES
Basic 5,521,583 2,632,424
================ ===============
Diluted 5,521,583 2,949,942
================ ===============
NET INCOME (LOSS) PER COMMON SHARE
Basic $ (0.14) $ 0.01
================ ===============
Diluted $ (0.14) $ 0.01
================ ===============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-12
<PAGE>
UBARTER.COM INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
Additional
Common Stock Paid-In Subscribed Accumulated Treasury Stock
Shares Amount Capital Stock Deficit Shares Amount Total
---------- -------- ----------- ---------- ----------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1997 1,250,000 $ 1,300 $ 131,900 $150,000 $ (144,000) - $ - $ 139,200
2-for-1 common stock split
effective July 24, 1998 1,250,000 1,300 (1,300) - - - - -
---------- -------- ----------- ---------- ----------- ------- --------- -----------
BALANCE, March 31, 1997 2,500,000 2,600 130,600 150,000 (144,000) - - 139,200
Issuance of subscribed stock 600,000 600 149,400 (150,000) - - - -
Exercise of "A" and "B" warrants 492,900 400 188,900 37,500 - - - 226,800
Issuance of stock 240,000 200 71,800 - - - - 72,000
Net income - - - - 32,500 - - 32,500
---------- -------- ----------- ---------- ----------- ------- --------- -----------
BALANCE, March 31, 1998 3,832,900 3,800 540,700 37,500 (111,500) - - 470,500
Issuance of subscribed stock 100,000 100 37,400 (37,500) - - - -
Exercise of "B" warrants 563,500 500 278,000 - - - - 278,500
Exercise of "C" and "D" warrants 480,000 500 228,300 - - - - 228,800
Issuance of stock 800,000 800 999,200 - - - - 1,000,000
Issuance of stock in connection
with acquisition 150,000 200 374,800 - - - - 375,000
Stock options granted - - 190,900 - - - - 190,900
Treasury stock acquired - - - - - 10,980 (13,000) (13,000)
Net loss - - - - (798,000) - - (798,000)
---------- -------- ----------- ---------- ----------- ------- --------- -----------
BALANCE, March 31, 1999 5,926,400 $ 5,900 $2,649,300 $ - $ (909,500) 10,980 $ (13,000)$1,732,700
========== ======== =========== ========== =========== ======= ========= ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-13
<PAGE>
UBARTER.COM INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
1999 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(798,000) $ 32,500
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation 18,400 10,800
Non-cash charges related to stock option grants 172,800 -
Net trade dollars earned (3,700) (106,600)
Accrued interest on notes receivable (2,400) -
Change in operating assets and liabilities
Accounts receivable 38,700 (2,400)
Prepaid advertising and other assets (133,100) 4,800
Accounts payable and other liabilities 7,300 12,900
--------------- ---------------
(700,000) (48,000)
--------------- ---------------
CASH FROM INVESTING ACTIVITIES
Acquisition of equipment and leaseholds (84,800) (13,900)
Purchase of Barter Business Exchange Inc. stock (647,300) -
Notes receivable collections 11,700 -
--------------- ---------------
(720,400) (13,900)
--------------- ---------------
CASH FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 1,507,300 298,900
Treasury stock acquired (13,000) -
Repayment of notes payable (13,800) (16,700)
--------------- ---------------
1,480,500 282,200
--------------- ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 60,100 220,300
CASH AND CASH EQUIVALENTS
Beginning of period 382,600 162,300
--------------- ---------------
End of period $ 442,700 $382,600
=============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the year for:
Interest $ 2,700 $ 5,100
=============== ===============
Income taxes $ - $ -
=============== ===============
NON-CASH INVESTING AND FINANCING ACTIVITIES
Furniture purchased with trade dollars $ - $ 13,700
=============== ===============
See Note 3 for additional disclosure of noncash transaction
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-14
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 1 - Description Of Business And Organization
Ubarter.com Inc., formerly International Barter Corp., was incorporated on
September 18, 1996, in the State of Nevada. Ubarter.com Inc. ("the
Company") operates a trade exchange offering bartering services for retail,
professional, media and corporate clients. Operations are primarily
transacted in the State of Washington. Operations of the Company's
subsidiary, Barter Business Exchange Inc. (see Note 3), are primarily
transacted in the Canadian provinces of Ontario and British Columbia. The
Company acts as a third-party record-keeper of clients' transactions and
balances, which are denominated in Trade Dollars. A Trade Dollar is an
accounting unit used to record the value of trades as determined by the
buying and selling parties in barter transactions. Trade Dollars denote the
right to receive goods or services available from other clients or the
obligation to provide goods or services to other clients. Trade Dollars may
not be redeemed for cash. Trade Dollars are not legal tender, securities,
or commodities. Clients pay cash and Trade Dollar fees and commissions to
the Company. The Company typically receives a cash commission on all
transactions charging both the buyer and seller 5% on the purchase and
sale.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and, effective March 31, 1999, the balance
sheet of its wholly-owned subsidiary, Barter Business Exchange Inc. (BBE).
The Company's fiscal year end is March 31. BBE's fiscal year end is
February 28. For purposes of consolidation the difference in fiscal
year-ends is not significant. All significant intercompany accounts and
transactions have been eliminated.
Stock Split - On July 9, 1998 the Board of Directors authorized a 2-for-1
split of its common stock to be distributed to stockholders of record at
the close of business on July 24, 1998. All per-share and shares
outstanding data in the accompanying consolidated financial statements have
been restated to reflect the stock split.
Foreign Currency Translation - Financial statements of the Company's
Canadian subsidiary, BBE, are translated into U.S. dollars using the
exchange rate at the balance sheet date for assets and liabilities. The
functional currency of BBE is the local currency, the Canadian dollar.
Translation adjustments, if necessary, are recorded as a separate component
of Stockholders' Equity. There were no translation adjustments required as
of March 31, 1999 and 1998.
Comprehensive Income - In 1999, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income".
This statement establishes rules for the reporting of comprehensive income
and its components. The adoption of SFAS No. 130 had no impact on total
stockholders' equity as of March 31, 1999.
- --------------------------------------------------------------------------------
F-15
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 2 - Summary of Significant Accounting Policies (Continued)
Revenue Recognition - The Company recognizes revenue equal to the cash to
be received from the commission earned when the buyer has made an
unconditional commitment to pay and the earnings process has been completed
by the finalization of a trade transaction. Revenue is recognized for
monthly dues after the fees have been earned. Initiation and annual renewal
fees are nonrefundable, and are deferred and included in income over a
twelve month period.
Product Development Costs - Product development costs include expenses
incurred by the Company to develop, enhance, monitor and operate the
Company's website. Product development costs are expensed as incurred.
Trade Dollar Transactions - The Company uses the ratio of one Trade Dollar
to one local currency dollar (United States or Canadian) in measuring and
accounting for purchases and sales. This one-for-one ratio is the pervasive
standard with the Company and throughout the barter industry. The Company
does not recognize any accounting implications if differences are observed
between trade dollar and the applicable local currency dollar prices that
are within reasonable ranges that might exist between prices of similar
U.S. dollar or Canadian dollar transactions.
The negative Trade Dollar balance of the Company is shown as a liability in
the balance sheet. This occurs as a result of the Company "borrowing" trade
dollars through the issuance of Trade Dollars in excess of the amounts
earned by the Company.
Cash and Cash Equivalents - The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.
Inventory - At times, the Company acquires inventory for resale from
clients of the barter exchange. Inventory is stated at lower of cost
(first-in, first-out basis) or market.
Allowance for Uncollectible Accounts - The Company provides an allowance
for accounts receivable which are doubtful of collection. The allowance is
based upon management's periodic analysis of receivables, evaluation of
current economic conditions, and other pertinent factors. Ultimate losses
may vary from the current estimates and, as additions to the allowance
become necessary, are charged against earnings in the period in which they
become known. Losses are charged and recoveries are credited to the
allowance. At March 31, 1999 and 1998, the allowance for doubtful accounts
was $129,400 and $2,000, respectively.
Depreciation and Amortization - Equipment and leaseholds are stated at
cost. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets, generally five to seven years.
Leasehold improvements are amortized on a straight-line basis over the
shorter of the estimated useful lives or the term of the lease.
- --------------------------------------------------------------------------------
F-16
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 2 - Summary of Significant Accounting Policies (Continued)
Goodwill - Goodwill resulting from the acquisition of BBE was estimated by
management to be primarily associated with the acquired workforce,
infrastructure and technological expertise. As a result of the rapid
technological changes occurring in the Internet industry and the intense
competition for qualified professionals, goodwill is amortized on a
straight-line basis over the estimated life of the benefit of 24 months
(see Note 3).
Income Taxes - Income taxes are computed using the asset and liability
method. Under this method, deferred income tax assets and liabilities are
determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently
enacted tax rates and laws. Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, requires a valuation allowance against
deferred tax assets if, based on the weight of available evidence, it is
more likely than not that some or all of its deferred tax assets will not
be realized.
Basic and Diluted Net Income (Loss) per Share - Basic net income (loss) per
share is computed using the weighted average number of shares outstanding
during the period. Diluted net income (loss) per share is computed using
the weighted average number of common shares and common equivalent shares
outstanding during the period. Common equivalent shares consist of shares
issuable upon the exercise of stock options and stock warrants.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenue and
expenses during the reported period. Actual results could differ from those
estimates.
Concentration of Credit Risk - Financial instruments that potentially
subject the Company to significant concentration of credit risk consists
primarily of cash and accounts receivable. Cash is deposited with high
credit, quality financial institutions. Accounts receivable are typically
unsecured and are derived from revenues earned from customers primarily
located in the Pacific Northwest and the Canadian provinces of Ontario and
British Columbia. The Company performs ongoing credit evaluations of its
customers and maintains reserves for potential credit losses; historically,
such losses have been within management's expectations. At March 31, 1999
and 1998, no one customer accounted for 10% or more of the accounts
receivable balance.
Fair Value of Financial Instruments - The Company's financial instruments,
including cash, accounts receivable, accounts payable, notes payable and
long-term obligations are carried at cost, which approximates their fair
value because of the short-term maturity of these instruments.
- --------------------------------------------------------------------------------
F-17
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 2 - Summary of Significant Accounting Policies (Continued)
Advertising - The Company recognizes advertising expenses in accordance
with Statement of Position 93-7, "Reporting on Advertising Costs". As such,
the Company expenses the cost of communicating advertising in the period in
which the advertising space or airtime is used. Advertising expenses
amounted to $51,700 and $22,800 for the years ended March 31, 1999 and
1998, respectively.
Stock-based Employee Compensation - The Company accounts for stock-based
employee compensation arrangements in accordance with the provisions of
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock
Issued to Employees", and complies with the disclosure provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation". Under APB 25,
compensation cost is recognized over the vesting period based on the
difference, if any, on the date of grant between the fair value of the
Company's stock and the amount an employee must pay to acquire the stock.
Impairment of Long-Lived Assets - The Company evaluates the recoverability
of long-lived assets in accordance with "SFAS" No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed of". SFAS No. 121 requires
recognition of impairment of long-lived assets in the event the net book
value of such assets exceeds the future undiscounted cash flows
attributable to such assets.
Recent Accounting Pronouncements - In March 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-1 (SOP 98-1),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". This standard requires companies to capitalize qualifying
computer software costs which are incurred during the application
development stage and amortize them over the software's estimated useful
life. SOP 98-1 is effective for fiscal years beginning after December 15,
1998. The Company does not expect that the adoption of SOP 98-1 will have a
material impact on its consolidated financial statements.
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5
is effective for the Company's fiscal year ending March 31, 2000. SOP 98-5
requires costs of start-up activities and organization costs to be expensed
as incurred. Adoption is not expected to have a material effect on the
Company's consolidated financial statements.
- --------------------------------------------------------------------------------
F-18
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 2 - Summary of Significant Accounting Policies (Continued)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999. SFAS No. 133 requires that all
derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designed as part of a hedge transaction and, if it is, the
type of hedge transaction. The Company does not expect that the adoption of
SFAS No. 133 will have a material impact on its consolidated financial
statements because the Company does not currently hold any derivative
instruments.
Reclassifications - Certain prior year balances have been reclassified to
conform to the current year presentation.
Note 3 - Acquisition
Acquisition of Barter Business Exchange, Inc. - On March 2, 1999, the
Company entered into a stock purchase agreement to acquire all of the
outstanding capital stock of Barter Business Exchange Inc. (BBE), a
privately-held Canadian corporation which presently operates a trade
exchange in the Canadian Provinces of Ontario and British Columbia. The
total purchase price of approximately $1,270,200 is comprised of cash in
the amount of $663,300; a promissory note in the principal amount of
$66,200 (Note 7); Ubarter.com Trade dollars in the amount of $165,700; the
issuance of 150,000 shares of Ubarter.com common stock which had a value of
$375,000 at the acquisition date. In addition, the purchase agreement
provides for contingent consideration. The terms of the note payable
provide for additional payments of up to $500,000 dependent upon attainment
of certain operating results. Additionally, if 10% of the cash revenues, as
defined in the agreement, exceed $500,000, the Company will be required to
pay the amount exceeding $500,000 in common shares of the Company.
The purchase has been accounted for under the purchase method of
accounting. Under the purchase method of accounting, the purchase price is
allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the date of the acquisition. The excess purchase
price over the estimated fair value of the assets acquired and liabilities
assumed has been allocated to goodwill. The Company estimated the economic
useful life of the goodwill to be two years.
- --------------------------------------------------------------------------------
F-19
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 3 - Acquisition (Continued)
The consolidated financial statement combines the Company's balance sheet
as of March 31, 1999 with the balance sheet of BBE as of February 28, 1999.
The consolidated statement of operations presents the results of operations
of the Company and excludes the results of operations of BBE. Results of
operations of BBE will be consolidated with the Company from the date of
purchase, March 1, 1999. However, due to the differing year-ends, the
results of operations of BBE for the fiscal year from March 1, 1999 through
February 28, 2000 will be consolidated with the Company's results of
operations for the fiscal year ended March 31, 2000.
Statement of Cash Flows - The acquisition of BBE resulted in a non-cash
transactions which increased assets in the amount of $3,069,700 and
liabilities in the amount of $2,610,400. Non-cash consideration included
150,000 shares of the Company's common stock, trade dollars, and a note
payable (Note 7).
Unaudited Pro Forma Disclosures of Significant Acquisition - The following
unaudited pro forma consolidated results of operations give effect to the
acquisition of BBE as if it had occurred as of the beginning of the period.
<TABLE>
Year Ended
March 31,
------------------- ------------------
1999 1998
------------------- ------------------
<S> <C> <C>
Revenue $ 3,289,900 $ 3,219,900
Net loss $ (2,682,100) $(1,739,800)
Net loss per share - basic $ (0.49) $ (0.66)
Net loss per share - diluted $ (0.49) $ (0.66)
Shares used in per share calculation - basic and diluted 5,521,583 2,632,424
</TABLE>
Note 4 - Notes Receivable
At March 31, 1999 and 1998, the Company had notes receivable amounting to
$23,500 and $32,800 which bear interest ranging from 10% to 10.75%.
Although the Company periodically receives payments, the notes are
currently in default. The notes are collateralized by real estate.
- --------------------------------------------------------------------------------
F-20
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 5 - Equipment and Leaseholds
At March 31, 1999 and 1998, equipment and leaseholds consisted of the
following:
<TABLE>
1999 1998
---------------- ----------------
<S> <C> <C>
Computer equipment $ 183,100 $ 13,900
Equipment 121,800 81,200
Furniture and fixtures 141,500 29,000
Leasehold improvements 57,100 19,700
Automobile 25,600 25,600
---------------- ----------------
529,100 169,400
Less: accumulated depreciation (145,500) (127,100)
---------------- ----------------
$ 383,600 $ 42,300
================ ================
</TABLE>
Note 6 - Excess of Trade Dollars Issued Over Trade Dollars Earned
In accordance with the guidelines established by the International
Reciprocal Trade Association, the Company has the right to borrow from the
exchange and spend within the exchange systems. Such a practice is used by
barter exchanges, worldwide, to cover inventory purchases, capital
purchases, operating expenses and to control the supply of trade dollars in
the exchange economy. The Company is obligated to provide goods and
services to clients to offset any amounts of Trade Dollars issued in excess
of earned. At March 31, 1999 and 1998, the Company had expended $2,147,900
and $5,400 Trade Dollars respectively, in excess of the amount of Trade
Dollars earned by the Company.
Note 7 - Notes Payable
The Company has a $67,000 revolving note payable with a Canadian bank. The
note payable is subject to annual renewal. There were no borrowings
outstanding as of March 31, 1999. Borrowings on the line of credit are
secured by cash and cash equivalents on deposit with the bank.
In connection with the acquisition of BBE (Note 3), the Company has a
$66,200 note payable to a shareholder. The non-interest bearing note is due
on March 1, 2000.
- --------------------------------------------------------------------------------
F-21
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 8 - Long-Term Obligations
At March 31, 1999 and 1998, long-term obligations consisted of the
following:
<TABLE>
1999 1998
---------------- ----------------
<S> <C> <C>
Note payable to Financial Services, Inc. at $800 per
month, including interest at 10% per annum
(collateralized by real estate), due 2002 $ 18,400 $ 26,300
Note payable to bank, interest at prime plus 2 1/2%,
payable in monthly installments of $1,400 plus
interest, maturing July 2004, partially guaranteed
by a stockholder and collateralized by equipment 73,800 -
Capital lease for leasehold improvements, due in
monthly installments of $900, including imputed
interest of 19%, due December 2001 21,800 -
Note payable to bank, paid in full in 1999 - 5,900
Other 3,000 -
---------------- ----------------
117,000 32,200
Less current portion (35,400) (13,100)
---------------- ----------------
$ 81,600 $ 19,100
================ ================
</TABLE>
Maturities of long-term obligations for future years ending March 31 are as
follows:
<TABLE>
Capital
Principal Lease
Payments Obligation Total
------------- -------------- ---------------
<S> <C> <C> <C>
2000 $ 28,400 $ 10,800 $ 39,200
2001 25,400 10,800 36,200
2002 17,800 7,600 25,400
2003 16,700 - 16,700
2004 6,900 - 6,900
------------- -------------- ---------------
95,200 29,200 124,400
Amount representing interest - (7,400) (7,400)
------------- -------------- ---------------
$ 95,200 $ 21,800 $ 117,000
============= ============== ===============
</TABLE>
- --------------------------------------------------------------------------------
F-22
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 9 - Commitments
The Company leases office space under non-cancelable operating leases
expiring in May 2003. Future minimum lease payments under the leases are as
follows for the years ending March 31:
2000 $ 119,100
2001 91,400
2002 79,300
2003 75,500
2004 18,900
-------------
$ 384,200
Rent expense amounted to $23,500 and $20,900 for the years ended March 31,
1999 and 1998, respectively.
Note 10 - Stockholders' Equity
The Company is authorized to issue 25,000,000 shares of $.001 par value
common stock. As of March 31, 1999 and 1998, the Company has 5,915,420 and
3,832,900 shares of common stock outstanding, respectively.
During fiscal 1997, the Company completed a private placement (Offering) of
its common stock pursuant to which 600,000 shares were subscribed for
$150,000. Under the terms of the Offering, one "A" warrant and one "B"
warrant were issued with each issued share of common stock issued. During
fiscal 1998, "A" and "B" warrants were exercised for 492,900 shares of
common stock for $226,800. During the fiscal year 1999, the remaining
outstanding "B" warrants were exercised for 563,500 shares of common stock
with proceeds totaling $278,500.
During fiscal 1998, the Company completed a private placement (Placement)
of its common stock pursuant to which 240,000 shares of common stock were
issued for $72,000. Under the terms of the Placement, one "C" warrant and
one "D" warrant was issued with each one share of common stock issued.
During fiscal 1999, all outstanding "C" and "D" warrants were exercised for
480,000 shares of common stock with proceeds totaling $228,800.
- --------------------------------------------------------------------------------
F-23
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 10 - Stockholders' Equity (Continued)
During fiscal 1999, the Company received cash for common stock and warrants
through a private placement whereby, 800,000 units were sold at $1.25 per
unit. Each unit consists of one share of common stock and one "E" warrant
exercisable at $1.50 per share. The warrants expire June 20, 2000. At March
31, 1999, there were 800,000 "E" warrants issued and outstanding.
During fiscal 1999, a brokerage account was opened and funded for the sole
purpose of repurchasing up to 250,000 shares of the Company's common stock
in the open market. In October of 1998, 10,980 shares were repurchased for
approximately $13,000 and classified as treasury stock.
Note 11 - Stock Options
The Company adopted a Stock Option Plan ("the Plan") effective June 1, 1998
whereby, non-qualified and incentive stock options for up to 1,155,040
shares of common stock may be granted to Directors, Officers, Employees and
Consultants. Options granted under the Plan are not to have a life in
excess of five years from the date of grant and vest 50% after 12 months,
75% after 18 months, 100% after 24 months from the date of grant. The
provisions of the Plan allow the administrators to determine the vesting
period of options granted.
In June 1998, the Company granted options under the Plan to purchase 55,000
shares of common stock at an exercise price of $0.82 per share to the
Company's non-employee Director and to certain consultants. The options
granted to the non-employee Director vest 100% in November 1999, and the
options granted to the consultants are fully vested. The options expire
five years from the date of grant and were valued at $11,400, which was
recognized as expense in 1999.
In October 1998, the Company granted options to purchase 630,000 shares of
common stock to a consultant. The options are fully vested and expire five
years from the date of grant. The exercise prices of the options range from
$4.00 to $14.00 per share and have a weighted average exercise price of
$11.11 per share. The options were valued at $243,800. The Company is
recognizing consulting expense related to these options granted over the
consultant's contractual period of 39 months. In 1999, the Company
recognized consulting expense of $37,500 related to the stock options. The
consulting agreement also contains an anti-dilutive provision whereby the
consultant will be granted additional options from time to time so that the
options will equal approximately 10.4% of common stock outstanding on a
fully diluted basis.
- --------------------------------------------------------------------------------
F-24
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 11 - Stock Options (Continued)
In November 1998, the Company granted options under the Plan to purchase
25,000 shares of common stock at $2.00 per share to other service
providers. The options vest over one year and expire five years from the
date of grant. The options were valued at $11,400, which was recognized as
consulting expense during 1999.
The following table summarizes the Company's stock option activity:
Weighted-
Number Average
of Exercise
Shares Price
---------- -------------
Balance, April 1, 1998 - $ -
Options granted 1,069,000 7.80
Options forfeited (1,000) 2.75
Options exercised - -
---------- -------------
Balance, March 31, 1999 1,068,000 $ 7.17
========== =============
The following table summarizes information about options outstanding and
exercisable at March 31, 1999:
<TABLE>
Options Outstanding Options Exercisable
------------------------------------------------- -------------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ---------------------------- --------------- --------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
$ 0.8125 - $ 2.75 438,000 4.5 years $ 1.49 90,000 $ 0.81
$ 4.00 - $ 6.00 90,000 4.5 years 4.89 90,000 4.89
$ 8.00 - $ 10.00 140,000 4.5 years 9.14 140,000 9.14
$ 12.00 - $ 14.00 400,000 4.5 years 13.20 400,000 13.20
--------------- --------------- ------------- --------------- -------------
1,068,000 4.5 years $ 7.17 720,000 $ 9.82
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
F-25
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 11 - Stock Options (Continued)
The Company applies Accounting Principles Board Opinion No. 25 (APB No. 25)
in accounting for stock options. Accordingly, no compensation cost is
recognized from options issued under the Company stock option plan if the
exercise price equals the fair value at the date of grant. During 1999,
40,000 options were granted to one employee that were fully vested and had
an exercise price less than the fair value of the common stock on the date
of grant. Using the intrinsic value method required by APB No. 25 the
Company has recorded compensation expense in the amount of $112,500 in
1999.
An alternative method of accounting for stock options is SFAS No. 123 (Note
2). Under SFAS No. 123, employee stock options are valued at grant date
using the Black-Scholes option-pricing model and compensation cost is
recognized ratably over the vesting period. Had compensation cost for the
Company's stock option plan been determined based on the Black-Scholes
value at the grant dates for awards as prescribed by SFAS No. 123, pro
forma statement of operations for fiscal 1999 would have been as follows:
Year Ended March 31, 1999
- -------------------------------------------------------------------------------
Net loss
As Reported $ (798,000)
Pro forma $ (836,800)
Net loss per common share
As Reported $ (0.14)
Pro forma $ (0.15)
- -------------------------------------------------------------------------------
The effects of applying SFAS No. 123 for the pro forma disclosures are not
representative of the effects expected on reported net earnings and
earnings per share in future years. In addition, valuations are based on
highly subjective assumptions about the future, including stock price
volatility and exercise patterns.
The weighted average fair market value of an option granted during 1999 was
$1.69 using the Black-Scholes option-pricing model. The following
assumptions were applied in determining the pro forma compensation cost:
Year Ended March 31, 1999
- -------------------------------------------------------------------------------
Interest rate 6.0%
Dividend yield 0.0%
Expected volatility 122.8%
Expected useful life in years 5
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-26
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 12 - Income Taxes
The components of the provision for income taxes at March 31, 1999 and 1998
are as follows:
<TABLE>
1999 1998
---------------- ----------------
<S> <C> <C>
Current - Federal $ - $ -
Deferred - Federal - 1,200
---------------- ----------------
Income tax provision $ - $ 1,200
================ ================
</TABLE>
A reconciliation of the consolidated income tax provision to the amount
expected using the U.S. Federal statutory rate follows:
<TABLE>
1999 1998
---------------- ----------------
<S> <C> <C>
Expected amount using
U.S. Federal statutory rate $ - $ -
Non-deductible expenses - -
Depreciation and bad debts allowance - 1,200
---------------- ----------------
Effective tax $ - $ 1,200
================ ================
</TABLE>
Deferred tax assets (liabilities) consisted of the following at March 31,
1999 and 1998:
<TABLE>
1999 1998
---------------- ----------------
<S> <C> <C>
Deferred tax assets
Bad debt allowance $ 11,900 700
Stock options 58,800 -
Net operating loss carryforwards 746,100 10,100
---------------- ----------------
816,800 10,800
Deferred tax liability
Property and equipment (500) (300)
---------------- ----------------
816,300 10,500
Valuation allowance (816,300) (10,500)
---------------- ----------------
$ - $ -
================ ================
</TABLE>
As of March 31, 1999, the Company has domestic net operating loss
carryforwards of approximately $646,000 and Canadian net operating loss
carryforwards of approximately $1,212,200. The domestic carryforwards begin
to expire in fiscal year 2012. The Canadian carryforwards begin to expire
in fiscal year 2000. Deferred tax assets have been reduced by a valuation
allowance because of uncertainties as to future recognition of taxable
income to assure realization.
- --------------------------------------------------------------------------------
F-27
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 13 - Income (Loss) Per Share
Following is a reconciliation of the numerators of the basic and diluted
income (loss) per share for the years ended March 31, 1999 and 1998:
<TABLE>
1999 1998
---------------- ----------------
<S> <C> <C>
Net income (loss) available to common
stockholders $ (798,000) $ 32,500
Weighted average shares 5,521,583 2,632,424
Effect of dilutive securities:
Options - -
Warrants - 317,518
---------------- ----------------
5,521,583 2,949,942
================ ================
Basic income (loss) per share (based on weighted
average shares) $ (.14) $ .01
</TABLE>
1,028,000 options and 800,000 warrants to purchase shares of common stock
were excluded from the computation in 1999 because their effect would be
anti-dilutive.
Note 14 - Geographic Segment Information
1999 1998
------------- -------------
Assets
U.S. operations $ 700,700 $ 525,100
Canadian subsidiary 3,689,000 -
------------- -------------
$ 4,389,700 $ 525,100
============= =============
Note 15 - Revenue
The following table summarizes the cash and trade dollars components of
revenue for the years ended March 31, 1999 and 1998:
1999 1998
------------- -------------
Trade $ 263,900 $ 279,100
Cash 240,600 307,000
------------- -------------
$ 504,500 $ 586,100
============= =============
- --------------------------------------------------------------------------------
F-28
<PAGE>
UBARTER.COM INC.
PRO FORMA COMBINED FINANCIAL INFORMATION
Overview
On March 2, 1999, Ubarter.com Inc. (Ubarter.com) entered into a share purchase
agreement to acquire 100% of the outstanding shares of Barter Business Exchange
Inc. (BBE). BBE operates a trade exchange, offering bartering services for
retail, professional, media and corporate clients primarily in the Canadian
provinces of Ontario and British Columbia. The acquisition is being accounted
for using the purchase method of accounting and, accordingly, the purchase price
has been allocated to the tangible and intangible assets acquired and
liabilities assumed on the basis of their respective fair values on the
acquisition date.
The total purchase price of approximately US $1,270,200 is comprised of cash in
the amount of CN $850,000 (US $563,300) and US $100,000; a promissory note in
the principal amount of CN $100,000 (US $66,200); Ubarter.com Trade dollars
(barter dollars) in the amount of CN $250,000 (US $165,700); the issuance of
150,000 shares of the Ubarter.com's common stock which have a value of US
$375,000 at the acquisition date. For purposes of this pro forma combined
financial information, the excess purchase price over net tangible assets
acquired is based on the historical financial position and is assumed to be
amortized over an estimated average useful life of 24 months.
The unaudited pro forma balance sheet has been prepared to reflect the
acquisition as if it occurred on December 31, 1998. Ubarter.com's fiscal year
end is March 31. BBE's fiscal year end is February 28. The unaudited pro forma
statements of operations combine the operations of Ubarter.com for the fiscal
year ended March 31, 1998 and nine months ended December 31, 1998 with the
operations of BBE for the year ended February 28, 1998 and nine months ended
November 30, 1998 as if the acquisition occurred on March 1, 1997.
The unaudited pro forma financial statements are presented for illustrative
purposes only and are not necessarily indicative of the combined financial
position or results of operations in future periods or the results that actually
would have been realized had Ubarter.com and BBE been a combined company during
the specified periods.
The unaudited pro forma financial statements, including the notes thereto, are
qualified in their entirety by reference to, and should be read in conjunction
with, the historical financial statements of Ubarter.com for the year ended
March 31, 1998, included in its Registration Statement on Form 10-SB and
quarterly report on Form 10-QSB for the nine months ended December 31, 1998 and
the financial statements of BBE which are included elsewhere in this report.
F-29
<PAGE>
UBARTER.COM INC.
PRO FORMA COMBINED BALANCE SHEET
(Unaudited)
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
ASSETS
Historical
------------------------------------
Barter Business
Ubarter.com Inc. Exchange Inc.
December 31, November 30,
1998 1998 Adjustments Pro Forma
----------------- ----------------- ------------- --------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,141,300 $ 96,200 $ (335,000) (A) $ 902,500
Accounts receivable, net 63,400 262,200 325,600
Inventory - 289,500 289,500
Notes receivable, current portion 2,400 - 2,400
Trade dollars earned in excess of issued 18,100 - 18,100
Other current assets 1,200 10,300 11,500
----------------- -----------------
--------------
Total current assets 1,226,400 658,200 1,549,600
----------------- ----------------- --------------
EQUIPMENT AND LEASEHOLDS, net 59,600 290,400 350,000
----------------- ----------------- --------------
OTHER ASSETS
Investment - 26,300 26,300
Intangible assets - 64,600 2,215,000 (B) 2,279,600
Notes receivable, net of current portion 26,600 - 26,600
Prepaid advertising and scrip inventory 157,900 - 157,900
Note receivable 328,300 - (328,300) (A) -
Other assets 1,200 - 1,200
----------------- ----------------- --------------
514,000 90,900 2,491,600
----------------- ----------------- --------------
Total Assets $ 1,800,000 $ 1,039,500 $ 4,391,200
================= ================= ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 20,500 $ 37,900 $ 58,400
Accrued liabilities - 80,200 80,200
Unearned revenue - 184,500 184,500
Trade dollars issued in excess of earned - 1,571,700 $ 165,700 (A) 1,737,400
Current portion of long-term obligations 11,400 23,000 34,400
Other current liabilities 4,000 - 4,000
----------------- ----------------- --------------
Total current liabilities 35,900 1,897,300 2,098,900
----------------- ----------------- --------------
LONG-TERM OBLIGATIONS, net of current portion 9,300 87,000 66,200 (A) 162,500
----------------- ----------------- --------------
COMMITMENTS
STOCKHOLDERS' DEFICIT
Common stock 5,800 - 200 (A) 6,000
Additional paid-in capital 2,081,900 - 374,800 (A) 2,456,700
Treasury stock (13,000) - (13,000)
Subscribed shares 1,200 - 1,200
Accumulated deficit (321,100) (1,025,800) 1,025,800 (B) (321,100)
Accumulated other comprehensive income, net of tax - 81,000 (81,000) (B) -
----------------- ----------------- --------------
1,754,800 (944,800) 2,129,800
----------------- ----------------- --------------
Total Liabilities and Stockholders' Deficit $ 1,800,000 $ 1,039,500 $ 4,391,200
================= ================= ==============
</TABLE>
See accompanying notes to unaudited pro
forma combined financial statements.
F-30
<PAGE>
UBARTER.COM INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
YEAR ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
Historical
------------------------------------------
Barter Business
Ubarter.com Inc. Exchange Inc.
March 31, 1998 February 28, 1998 Adjustments Pro Forma
------------------- -------------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUE $ 684,100 $ 2,535,800 $ 3,219,900
COST OF REVENUE 143,500 597,700 741,200
------------------- -------------------- ---------------
Gross profit 540,600 1,938,100 2,478,700
------------------- -------------------- ---------------
OPERATING EXPENSES
Selling, general and administrative 500,100 2,335,400 $ 1,107,500 (C) 3,857,200
(85,800) (D)
Depreciation and amortization 10,700 83,000 93,700
------------------- -------------------- ---------------
510,800 2,418,400 3,950,900
------------------- -------------------- ---------------
Income (loss) from operations 29,800 (480,300) (1,472,200)
------------------- -------------------- ---------------
OTHER EXPENSE
Interest expense (4,900) (21,400) (26,300)
Interest income 8,800 - 8,800
------------------- -------------------- ---------------
3,900 (21,400) (17,500)
------------------- -------------------- ---------------
LOSS BEFORE INCOME TAXES 33,700 (501,700) (1,489,700)
INCOME TAX BENEFIT (PROVISION) (1,200) - (1,200)
------------------- -------------------- ---------------
NET INCOME (LOSS) $ 32,500 $ (501,700) $(1,490,900)
=================== ==================== ===============
NET INCOME (LOSS) PER
COMMON SHARE
Basic $ 0.02 (E) $ (1.02)
=================== ===============
Diluted $ 0.02 (E) $ (0.92)
=================== ===============
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 1,316,212 (E) 1,466,212
=================== ===============
Diluted 1,474,970 (E) 1,624,970
=================== ===============
</TABLE>
See accompanying notes to unaudited pro
forma combined financial statements.
F-31
<PAGE>
UBARTER.COM INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
NINE MONTHS ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
Historical
----------------------------------------
Barter Business
Ubarter.com Inc. Exchange Inc.
December 31, November 30,
1998 1998 Adjustments Pro Forma
------------------- ------------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUE $ 476,400 $ 1,928,000 $ 2,404,400
COST OF REVENUE 68,200 413,000 481,200
------------------- ------------------- ---------------
Gross profit 408,200 1,515,000 1,923,200
------------------- ------------------- ---------------
OPERATING EXPENSES
Selling, general and administrative 637,300 1,550,800 $ 830,600 (C) 2,958,100
(60,600) (D)
Depreciation and amortization 9,800 51,200 61,000
------------------- ------------------- ---------------
647,100 1,602,000 3,019,100
------------------- ------------------- ---------------
Loss from operations (238,900) (87,000) (1,095,900)
------------------- ------------------- ---------------
OTHER EXPENSE
Interest expense (2,800) (16,000) (18,800)
Interest income 29,200 - 29,200
Other - (77,900) (77,900)
------------------- ------------------- ---------------
26,400 (93,900) (67,500)
------------------- ------------------- ---------------
LOSS BEFORE INCOME TAXES (212,500) (180,900) (1,163,400)
INCOME TAX BENEFIT (PROVISION) 600 - 600
------------------- ------------------- ---------------
NET LOSS $ (211,900) $ (180,900) $(1,162,800)
=================== =================== ===============
NET LOSS PER SHARE
Basic and diluted $ (0.04) (E) $ (0.21)
=================== ===============
Weighted average shares outstanding
used in per share calculation 5,421,400 (E) 5,571,400
=================== ===============
</TABLE>
See accompanying notes to unaudited pro
forma combined financial statements.4
F-32
<PAGE>
UBARTER.COM INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
The acquisition is being accounted for using the purchase method of accounting
and, accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
respective fair values on the acquisition date.
Pro Forma Adjustments
The following adjustments were applied to the Ubarter.com Inc.'s (Ubarter.com)
historical financial statements and those of Barter Business Exchange Inc. (BBE)
to arrive at the pro forma combined financial information.
(A) To record consideration to consummate the acquisition totaling $1,270,200
(including $375,000 in Common Stock, $165,700 in barter dollars, promissory
note with a principal amount of $66,200 and $663,300 in cash) and eliminate
stockholders' deficit.
(B) To record excess of purchase price over the fair value of assets and
liabilities of $2,215,000. The book value of tangible assets acquired and
liabilities assumed are assumed to approximate fair value.
Total purchase price $ 1,270,200
Fair value of tangible assets acquire (1,039,500)
Fair value of tangible liabilities assumed 1,984,300
Purchase price allocated to goodwill $ 2,215,000
(C) To record amortization of the goodwill over the estimated useful life of 24
months.
(D) To eliminate compensation expense paid to a former BBE officer whose
employment was terminated.
(E) Pro forma basic net loss per share for the year ended March 31, 1999 and
for the nine months ended December 31, 1998 is computed using the weighted
average number Ubarter.com common shares outstanding during the period plus
shares of Common Stock assumed to be issued as part of the acquisition.
F-33
<PAGE>
BARTER BUSINESS EXCHANGE INC.
INDEPENDENT AUDITOR'S REPORT
and
CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999 AND 1998
F-34
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
of Barter Business Exchange Inc.
We have audited the accompanying consolidated balance sheet of Barter Business
Exchange Inc. and Subsidiaries as of February 28, 1999 and 1998 and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present
fairly, in all material respects, the financial position of Barter Business
Exchange Inc. and Subsidiaries as of February 28, 1999 and 1998, and the results
of their operations and their cash flows for the years then ended, in accordance
with generally accepted accounting principles.
\s\ Moss Adams, LLP
Seattle, Washington
April 17, 1999
F-35
<PAGE>
BARTER BUSINESS EXCHANGE INC.
CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
ASSETS
1999 1998
------------------ ------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 36,000 $ 99,600
Accounts receivable, net of allowance for doubtful
accounts of $92,800 in 1999 and $70,600 in 1998 281,100 299,400
Inventory 310,400 271,600
Other current assets 9,200 9,800
------------------ ------------------
Total current assets 636,700 680,400
------------------ ------------------
EQUIPMENT AND LEASEHOLDS, net 274,900 142,100
------------------ ------------------
OTHER ASSETS
Investment 26,500 70,200
Intangible assets 88,800 85,500
------------------ ------------------
115,300 155,700
------------------ ------------------
Total Assets $ 1,026,900 $ 978,200
================== ==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 93,000 $ 61,100
Accrued liabilities 22,300 12,400
Unearned revenue 186,300 206,000
Trade dollars issued in excess of earned 1,980,500 1,499,600
Current portion of long-term obligations 26,800 21,400
------------------ ------------------
Total current liabilities 2,308,900 1,800,500
------------------ ------------------
LONG-TERM OBLIGATIONS, net of current portion 71,800 -
------------------ ------------------
COMMITMENTS (Note 10)
STOCKHOLDERS' DEFICIT
Common stock - -
Accumulated deficit (1,428,200) (844,900)
Accumulated other comprehensive income, net of tax 74,400 22,600
------------------ ------------------
(1,353,800) (822,300)
------------------ ------------------
Total Liabilities and Stockholders' Deficit $ 1,026,900 $ 978,200
================== ==================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-36
<PAGE>
BARTER BUSINESS EXCHANGE INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED FEBRUARY 28, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
1999 1998
----------------- ------------------
<S> <C> <C>
REVENUE $ 2,731,500 $ 2,535,800
COST OF REVENUE 584,200 597,700
----------------- ------------------
Gross profit 2,147,300 1,938,100
----------------- ------------------
OPERATING EXPENSES
Selling, general and administrative 2,487,600 2,335,400
Depreciation and amortization 105,800 83,000
----------------- ------------------
2,593,400 2,418,400
----------------- ------------------
Loss from operations (446,100) (480,300)
----------------- ------------------
OTHER EXPENSE
Interest expense (23,200) (21,400)
Other (77,600) -
----------------- ------------------
(100,800) (21,400)
----------------- ------------------
NET LOSS $ (546,900) $ (501,700)
================= ==================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-37
<PAGE>
BUSINESS BARTER EXCHANGE INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
YEARS ENDED FEBRUARY 28, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
Accumulated
Other
Common Stock Accumulated Comprehensive Comprehensive
Shares Amount Deficit Income Income Total
---------- ----------- --------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, February 28, 1997 200 $ - $ (343,200) $ - $ - $ (343,200)
Net loss - - (501,700) (501,700) - (501,700)
Foreign currency translation
adjustments, net of tax
expense of $18,700 - - - 22,600 22,600 22,600
-----------------
Comprehensive income - - - $ (479,100) - -
---------- ----------- --------------- ================= ----------------- ---------------
BALANCE, February 28, 1998 200 - (844,900) 22,600 (822,300)
Net loss - - (546,900) (546,900) - (546,900)
Foreign currency translation
adjustments, net of tax
expense of $41,500 - - - 51,800 51,800 51,800
-----------------
Comprehensive income - - - $ (495,100) - -
=================
Cash dividends paid - - (36,400) - (36,400)
---------- ----------- --------------- ----------------- ---------------
BALANCE, February 28, 1999 200 $ - $ (1,428,200) $ 74,400 $ (1,353,800)
========== =========== =============== ================= ===============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-38
<PAGE>
BARTER BUSINESS EXCHANGE INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED FEBRUARY 28, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
1999 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(546,900) $(501,700)
Adjustments to reconcile net loss to cash from
operating activities
Depreciation and amortization 105,800 83,000
Loss on disposal of equipment 45,100 -
Write-down of investment 43,700 -
Non-compete agreement (43,500) -
Net change in operating assets and liabilities
Accounts receivable 18,300 6,900
Inventory (38,800) (118,100)
Other current assets 600 57,000
Accounts payable 31,900 (34,600)
Accrued liabilities 9,900 (36,500)
Unearned revenue (19,700) 15,800
Trade dollars issued in excess of earned 480,900 655,400
----------------- -----------------
87,300 127,200
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in common stock - (70,200)
Purchase of equipment and leaseholds (231,100) (59,000)
----------------- -----------------
(231,100) (129,200)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on long-term obligations 87,400 -
Repayment of long-term obligations (34,900) (50,600)
Dividends paid to company's stockholders (36,400) -
----------------- -----------------
16,100 (50,600)
----------------- -----------------
EFFECT OF EXCHANGE RATE CHANGES 64,100 40,800
----------------- -----------------
NET CHANGE IN CASH (63,600) (11,800)
CASH AND CASH EQUIVALENTS, beginning of year 99,600 111,400
----------------- -----------------
CASH AND CASH EQUIVALENTS, end of year $ 36,000 $ 99,600
================= =================
NON-CASH FINANCING ACTIVITIES
Purchase of equipment through capital lease obligations $ 26,700 $ -
================= =================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-39
<PAGE>
BARTER BUSINESS EXCHANGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 1 - Description of Business
The Company operates as a trade exchange offering bartering services for
retail, professional, media and corporate clients. Operations are primarily
transacted in the Canadian provinces of Ontario and British Columbia. The
Company is incorporated in the province of Ontario, Canada. The Company
acts as a third-party record-keeper of clients' transactions and balances,
which are denominated in Trade Dollars. A Trade Dollar is an accounting
unit used to record the value of trades as determined by the buying and
selling parties in barter transactions. Trade Dollars denote the right to
receive goods or services available from other clients or the obligation to
provide goods or services to other clients. Trade Dollars may not be
redeemed for cash. Trade Dollars are not legal tender, securities, or
commodities. Clients pay cash and Trade Dollar fees and commissions to the
Company. For these services, the Company typically receives a cash
commission of ten percent on the purchases made by clients.
Subsequent to February 28, 1999 the remaining shareholder of the Company
entered into an agreement to sell 100% of the outstanding shares to
Ubarter.com Inc. (formerly International Barter Corporation).
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company, its wholly-owned subsidiary Vancouver Barter
Business Exchange Inc., and its 50% owned subsidiary Barter Business
Exchange (Windsor) Inc. All intercompany transactions and balances have
been eliminated.
Functional Currency and International Operations - The functional currency
of the Company is the local currency, the Canadian dollar. The financial
statements are translated to United States dollars using year-end rates of
exchange for assets and liabilities, and average rates of exchange for the
year for revenues, costs, and expenses. Translation gains, which are net of
tax, are deferred and accumulated as a component of shareholders equity.
Trade Dollar Transactions - The Company uses the ratio of one Trade Dollar
to one Canadian dollar in measuring and accounting for purchases and sales.
This one-for-one ratio is the pervasive standard with the Company and
throughout the barter industry. The Company does not recognize any
accounting implications if differences are observed between trade dollar
and Canadian dollar prices that are within reasonable ranges that might
exist between prices of similar Canadian dollar transactions.
- --------------------------------------------------------------------------------
F-40
<PAGE>
BARTER BUSINESS EXCHANGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 2 - Summary of Significant Accounting Policies (Continued)
The negative Trade Dollar balance of the Company is shown as a liability in
the balance sheet. This occurs as a result of the Company "borrowing" trade
dollars through the issuance of Trade Dollars in excess of the amounts
earned by the Company.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents.
Inventory - Inventories are stated at lower of cost (first-in, first-out
basis) or market.
Revenue Recognition - The Company recognizes revenue equal to the cash to
be received from the commission earned when the buyer has made an
unconditional commitment to pay and the earnings process has been completed
by the finalization of a trade transaction. Revenue is recognized for
quarterly administrative fees after the fees have been earned. Initiation
and annual renewal fees are nonrefundable, and are deferred and included in
income over a twelve month period.
Depreciation - Equipment and leaseholds are stated at cost. Depreciation is
computed under accelerated methods over the estimated useful lives of the
assets, generally five to seven years. Leasehold improvements are amortized
on a straight-line basis over the term of the lease.
Intangible Assets - Goodwill represents the excess of the purchase price
over the fair value of assets acquired and is being amortized on a
straight-line basis over 5 years. Total goodwill of $111,800 is stated net
of accumulated amortization of $52,100 and $26,300 at February 28, 1999 and
1998, respectively.
In January 1999, the Company entered into a non-competition agreement with
a former shareholder, which is being amortized over the six month life of
the agreement. Accumulated amortization on the $43,500 agreement amounted
to $14,400 at February 28, 1999.
Income Taxes - Income taxes are computed using the asset and liability
method. Under this method, deferred income tax assets and liabilities are
determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently
enacted tax rates and laws. Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, requires a valuation allowance against
deferred tax assets if, based on the weight of available evidence, it is
more likely than not that some or all of its deferred tax assets will not
be realized.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenue and
expenses during the reported period. Actual results could differ from those
estimates.
- --------------------------------------------------------------------------------
F-41
<PAGE>
BARTER BUSINESS EXCHANGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 2 - Summary of Significant Accounting Policies (Continued)
Concentration of Credit Risk - Financial instruments that potentially
subject the Company to significant concentration of credit risk consist
primarily of cash and accounts receivable. Cash is deposited with high
credit, quality financial institutions. Accounts receivable are typically
unsecured and are derived from revenues earned from customers primarily
located in Canada. The Company performs ongoing credit evaluations of its
customers and maintains reserves for potential credit losses; historically,
such losses have been within management's expectations. At February 28,
1999 and 1998, no one customer accounted for 10% or more of the accounts
receivable balance.
Fair Value of Financial Instruments - The Company's financial instruments,
including cash, accounts receivable, accounts payable, notes payable and
capital lease obligations are carried at cost, which approximates their
fair value because of the short-term maturity of these instruments.
Advertising - The Company recognizes advertising expenses in accordance
with Statement of Position 93-7, Reporting on Advertising Costs. As such,
the Company expenses the cost of communicating advertising in the period in
which the advertising space or airtime is used. Advertising expenses
amounted to $202,700 and $220,542 for the years ended February 28, 1999 and
1998, respectively.
Comprehensive Income - In June 1997, the Financial Accounting Standards
Board (FASB) issued SFAS 130, Reporting Comprehensive Income, which was
adopted by the Company in the first quarter of fiscal 1999. SFAS 130
establishes standards for reporting comprehensive income and its components
in a financial statement. Comprehensive income as defined includes all
changes in equity (net assets) during a period from non-owner sources.
Accumulated other comprehensive income consists of the cumulative
translation adjustment resulting from the translation of the Company's
functional currency, the Canadian dollar, to its reporting currency, the
United States dollar.
Recent Accounting Pronouncements - In March 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-1 (SOP 98-1),
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. This standard requires companies to capitalize qualifying
computer software costs incurred during the application development stage;
such costs are amortized over the software's estimated useful life. SOP
98-1 is effective for fiscal years beginning after December 15, 1998. The
Company does not expect adoption of SOP 98-1 will have a material impact on
its consolidated financial statements.
- --------------------------------------------------------------------------------
F-42
<PAGE>
BARTER BUSINESS EXCHANGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 3 - Equipment and Leaseholds
Equipment and leaseholds consists of the following at February 28:
<TABLE>
1999 1998
------------- -------------
<S> <C> <C>
Computers and equipment $ 245,900 $ 187,100
Furniture and fixtures 140,400 75,300
Leasehold improvements 46,700 72,700
------------- -------------
433,000 335,100
Less accumulated depreciation and amortization (158,100) (193,000)
------------- -------------
$ 274,900 $ 142,100
============= =============
</TABLE>
Leaseholds improvements under capital lease totaled $26,700, and related
accumulated amortization was $4,800 as of February 28, 1999. There were no
assets under capital lease as of February 28, 1998.
Note 4 - Investment
During 1999 the Company wrote down an investment in common stock of another
company, which was historically recorded at cost. The write down of $40,100
is included in other expense, and reduced the carrying value of the
investment. The carrying value was further reduced $3,600 due to currency
translation, with the offsetting effect included in other comprehensive
income.
Note 5 - Note Payable to Bank
The Company has a $67,000 revolving note payable with a bank. The note
payable is subject to annual renewal. As of February 28, 1999 and 1998, no
borrowings were outstanding. Borrowings made throughout the year on the
line of credit are secured by cash and cash equivalents on deposit with the
bank.
Note 6 - Long-Term Obligations
<TABLE>
1999 1998
------------- -------------
<S> <C> <C>
Note payable to bank, interest at prime plus 2 1/2%,
payable in monthly installments of $1,400 plus interest,
maturing July 2004, partially guaranteed by the
stockholder and is collateralized by substantially
all assets of the Company $ 73,800 $ -
</TABLE>
- --------------------------------------------------------------------------------
F-43
<PAGE>
BARTER BUSINESS EXCHANGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 6 - Long-Term Obligations (Continued)
<TABLE>
1999 1998
------------- -------------
<S> <C> <C>
Capital lease for leasehold improvements, due in monthly
installments of $900, including imputed interest of 19%,
due December 2001 $ 21,800 $ -
Notes payable to bank, paid in full during 1999 - 21,400
Other 3,000 -
------------- -------------
98,600 21,400
Less current portion (26,800) (21,400)
------------- -------------
$ 71,800 $ -
</TABLE>
Maturities of long-term obligations for future years ending February 28 are
as follows:
<TABLE>
Capital
Principal Lease
Payments Obligation Total
------------- ------------- -------------
<S> <C> <C> <C>
2000 $ 19,800 $ 10,800 $ 30,600
2001 16,700 10,800 27,500
2002 16,700 7,600 24,300
2003 16,700 - 16,700
2004 6,900 - 6,900
------------- ------------- -------------
76,800 29,200 106,000
Less amount representing interest - (7,400) (7,400)
------------- ------------- -------------
$ 76,800 $ 21,800 $ 98,600
============= ============= =============
</TABLE>
Note 7 - Trade Dollars Issued In Excess Of Earned
In accordance with the guidelines established by the International
Reciprocal Trade Association, Barter Business Exchange Inc. has the right
to borrow from the exchange and spend within the exchange systems. Such a
practice is used by barter exchanges, worldwide, to cover inventory
purchases, capital purchases, operating expenses and to control the supply
of trade units (money) in the exchange economy. At February 28, 1999 and
1998, the Company had expended $1,980,500 and $1,499,600 Trade Dollars
respectively, in excess of the amount of Trade Dollars earned by the
Company.
- --------------------------------------------------------------------------------
F-44
<PAGE>
BARTER BUSINESS EXCHANGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 8 - Capital Stock
The Company has three classes of no-par value common stock: Common, Class
B, and Class C. The three classes of stock have an unlimited number of
shares authorized, Common has 200 shares outstanding, Class B and Class C
have zero shares outstanding. Class B shares have preference in dividend,
redemption, and liquidation over Common and Class C. Class C has preference
over Common. Class C and Class B have no voting rights.
Note 9 - Income Taxes
The following reconciliation of the difference between the actual benefit
for income taxes and the benefit computed by applying the Canadian
statutory rate to income before income taxes:
1999 1998
------------- -------------
Benefit at statutory rate $ 158,600 $ 145,500
Permanent differences (16,300) (15,900)
Provincial taxes 84,800 77,800
Change in valuation allowance (227,100) (207,400)
------------- -------------
$ - $ -
============= =============
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
components of the net deferred income tax assets, including effects of
currency translations, are as follows at February 28:
1999 1998
------------- -------------
Deferred tax assets
Property and equipment $ 2,900 $ 3,100
Income recognition methods - 90,600
Net operating loss carryforwards 533,500 234,200
------------- -------------
536,400 327,900
Valuation allowance (536,400) (327,900)
------------- -------------
$ - $ -
============= =============
The Company has accumulated net operating loss carryforwards as of February
28, 1999 and 1998 of approximately $1,212,200 and $531,800, respectively,
which can be offset against future income taxes payable. These loss
carryforwards expire at various dates beginning in 2000 through 2006.
- --------------------------------------------------------------------------------
F-45
<PAGE>
BARTER BUSINESS EXCHANGE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 10 - Commitments
The Company leases office space under non-cancelable operating leases
expiring in May 2003. Future minimum lease payments under the lease terms
are as follows for the years ended February 28:
2000 $ 108,000
2001 91,400
2002 79,300
2003 75,500
2004 18,900
-------------
$ 373,100
Rent expense amounted to $80,500 and $97,400 for the years ended February
28, 1999 and 1998, respectively.
F-46
<PAGE>
PART II
Item 24. Indemnification of Directors and Officers
As authorized by Section 78.751 of the Nevada General Corporation Law,
Ubarter.com may indemnify its officers and directors against expenses incurred
by such persons in connection with any threatened, pending or completed action,
suit or proceedings, whether civil, criminal, administrative or investigative,
involving such persons in their capacities as officers and directors, so long as
such persons acted in good faith and in a manner which they reasonably believed
to be in the best interests of Ubarter.com. If the legal proceeding, however, is
by or in the right of Ubarter.com, the director or officer may not be
indemnified in respect of any claim, issue or matter as to which he is adjudged
to be liable for negligence or misconduct in the performance of his duty to
Ubarter.com unless a court determines otherwise.
Under Nevada law, corporations may also purchase and maintain insurance or
make other financial arrangements on behalf of any person who is or was a
director or officer (or is serving at the request of the corporation as a
director or officer of another corporation) for any liability asserted against
such person and any expenses incurred by him in his capacity as a director or
officer. These financial arrangements may include trust funds, self insurance
programs, guarantees and insurance policies.
Article Twelfth of the Articles of Incorporation of Ubarter.com, as
amended, provides that no director or officer of Ubarter.com shall be personally
liable to Ubarter.com or any of its stockholders for damages resulting from
breaches of fiduciary duty as a director or officer for acts or omissions,
except for damages resulting from acts or omissions which involve intentional
misconduct, fraud, knowing violation of law, or the payment of dividends in
violation of the Nevada Revised Statutes.
Section 14 of Ubarter.com's bylaws provide for the indemnification of
officers and directors to the fullest extent possible under Nevada law, against
expenses (including attorney's fees), judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding,
arising by reason of the fact that such person is or was an agent of
Ubarter.com. Ubarter.com is also granted the power, to the maximum extent and in
the manner permitted by the Nevada Revised Statutes, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of Ubarter.com.
Ubarter.com maintains Director and Officer liability insurance with an
aggregate coverage amount of $1,000,000.
Item 25. Other Expenses of Issuance and Distribution
The estimated expenses for the issuance and distribution of the shares
registered by this prospectus are set forth in the following table:
Item Amount
SEC Registration Fee $ 1,843
Transfer Agent Fees 500
Legal Fees 20,000
Accounting Fees 6,500
Printing and Engraving Costs 1,000
Miscellaneous 157
Total $30,000
II-1
<PAGE>
Item 26. Recent Sale of Unregistered Securities
Since April 1, 1996, Ubarter.com has issued and sold the following
securities. All information has been adjusted to give effect to the 2 for 1
stock split effective July 24, 1998.
1. In November 1996, Ubarter.com merged with Cascade Trade Association.
In connection with the merger, Ubarter.com issued an aggregate of
2,000,000 shares of common stock to the two shareholders of Cascade
Trade Association. The issuance of the shares was exempt from
registration under the provisions of Section 4(2) of the Securities
Act of 1933. The shares were issued in a private placement not
involving a public offering.
2. During the period from January 1997 to March 1998, Ubarter.com sold an
aggregate of 500,000 shares of common stock to three persons for
consulting services rendered Ubarter.com. The issuance of the shares
was exempt from registration under the provisions of Section 4(2) of
the Securities Act. The shares were issued in a private placement not
involving a public offering.
3. During March 1997, Ubarter.com sold an aggregate of 600,000 units,
consisting of one share of common stock, one $.375 A Warrant and one
$.50 B Warrant, at a purchase price of $.25 per unit to 58 persons.
The aggregate purchase price of the units was $150,000. During the
period from February 1998 to March 1998, Ubarter.com issued 576,000
shares of common stock to certain existing shareholders for an
aggregate purchase price of $216,000 in connection with the exercise
of the A Warrants. During the period from February 1998 to March 1998,
Ubarter.com issued 23,400 shares of common stock to certain existing
shareholders for an aggregate purchase price of $11,700 in connection
with the exercise of the B Warrants. This offering of units, together
with issuances of common stock underlying the warrants, were exempt
from registration under Section 3(b) of the Securities Act pursuant to
Rule 504 promulgated thereunder. The aggregate offering price did not
exceed $1,000,000, and the offering was conducted in accordance with
Rules 501 and 502 promulgated under the Securities Act.
4. During February 1998, Ubarter.com sold an aggregate of 240,000 units,
consisting of one share of common stock, one $.40 C Warrant and one
$.55 D Warrant, at a purchase price of $.30 per unit to five persons.
The aggregate purchase price of the units was $72,000. This offering
of units was exempt from registration under Section 3(b) of the
Securities Act pursuant to Rule 504 promulgated thereunder. The
aggregate offering price did not exceed $1,000,000, and the offering
was conducted in accordance with Rules 501 and 502 promulgated under
the Securities Act.
5. During the period from June 1998 to September 1998, Ubarter.com issued
an aggregate of 557,000 shares of common stock to 32 existing
shareholders for an aggregate purchase price of $278,500 in connection
with the exercise of outstanding B Warrants. These issuances of common
stock underlying the warrants were exempt from registration under the
provisions of Section 4(2) of the Securities Act and or Rule 506
promulgated under the Securities Act. As shareholders and warrant
holders, these individuals and entities had pre-existing relationships
with Ubarter.com, had knowledge and information about the business of
Ubarter.com and had access to publicly available and other information
about Ubarter.com. These exercises of warrants did not involve the use
of general solicitation or advertising.
II-2
<PAGE>
6. During the period from July 1998 to September 1998, Ubarter.com issued
240,000 shares of common stock for an aggregate purchase price of
$96,000 to five existing shareholders in connection with the exercise
of outstanding C Warrants. During the same period, Ubarter.com issued
240,000 shares of common stock for an aggregate purchase price of
$132,000 to the same five persons upon exercise of outstanding D
Warrants. These issuances of common stock underlying the warrants were
exempt from registration under the provisions of Section 4(2) of the
Securities Act and or Rule 506 promulgated under the Securities Act.
As shareholders and warrant holders, these individuals and entities
had pre-existing relationships with Ubarter.com, had knowledge and
information about the business of Ubarter.com and had access to
publicly available and other information about Ubarter.com. These
exercises of warrants did not involve the use of general solicitation
or advertising.
7. During July 1998, Ubarter.com sold an aggregate of 800,000 units,
consisting of one share of common stock and one $1.50 E Warrant, at a
purchase price of $1.25 per unit to three persons. The aggregate
purchase price of the units was $1,000,000. The issuance of the shares
was exempt from registration under the provisions of Section 4(2) of
the Securities Act. The shares were issued in a private placement not
involving a public offering.
8. In March 1999, Ubarter.com issued 150,000 shares of common stock to
Bob Bagga as consideration, in part, for the acquisition of Barter
Business Exchange, Inc. These shares are to have a minimum aggregate
value of CD$350,000 (US$234,500) at the time they are registered for
secondary sale. The issuance of the shares was exempt from
registration under the provisions of Section 4(2) of the Securities
Act. The shares were issued in a private placement not involving a
public offering.
9. In May 1999, Ubarter.com issued 20,000 shares of common stock to two
individuals as consideration, in part, for the acquisition of BBE
Windsor, Inc. The issuance of the shares was exempt from registration
under the provisions of Section 4(2) of the Securities Act. The shares
were issued in a private placement not involving a public offering.
10. During the period from May 1999 through August 1999, Ubarter.com
issued 94,000 shares of common stock for an aggregate purchase price
of $141,000 to one existing shareholder in connection with the
exercise of outstanding E Warrants. These issuances of common stock
underlying the warrants were exempt from registration under the
provisions of Section 4(2) of the Securities Act and or Rule 506
promulgated under the Securities Act. As shareholders and warrant
holders, these individuals and entities had pre-existing relationships
with Ubarter.com, had knowledge and information about the business of
Ubarter.com and had access to publicly available and other information
about Ubarter.com. These exercises of warrants did not involve the use
of general solicitation or advertising.
II-3
<PAGE>
Item 27. Exhibits
2.1 Merger Agreement with Cascade Trade Association, dated as of
November 15, 1996 (previously filed as Exhibit 10.1 to this Form
SB-2).
2.2 Share Purchase Agreement dated February 28, 1999, among the
registrant, Barter Business Exchange Inc. and Bob Bagga
(Incorporated by reference to Exhibit 10.9 of the registrants'
Current Report on Form 8-K filed March 17, 1999).
2.3 Share Pledge Agreement dated March 2, 1999, among the registrant,
Barter Business Exchange Inc. and Bob Bagga (Incorporated by
reference to Exhibit 10.10 of the registrants' Current Report on
Form 8-K filed March 17, 1999).
2.4 Promissory Note dated March 2, 1999 by the registrant in favor of
Bob Bagga. (Incorporated by reference to Exhibit 10.11 of the
registrants' Current Report on Form 8-K filed March 17, 1999).
3.1 Articles of Incorporation, as amended (Incorporated by reference
to Exhibit 3.1 of the registrant's annual report on Form 10-KSB
for the year ended March 31, 1999).
3.2 Bylaws (Previously filed as Exhibit 3.4 to this Form SB-2).
4.1 Form of E Warrant issued in private placement (Previously filed).
4.2 Convertible Promissory Note dated August 27, 1999 (Incorporated
by reference to Exhibit 4.1 of the registrant's Current Report on
Form 8-K dated August 27, 1999).
4.3 Warrant to purchase 183,333 shares of common stock dated August
27, 1999 (Incorporated by reference to Exhibit 4.2 of the
registrant's Current Report on Form 8-K dated August 27, 1999).
5 Opinion of Dorsey & Whitney LLP.
10.1 Employment Agreement with Bob Bagga (Incorporated by reference to
Exhibit 10.6 of the registrant's annual report on Form 10-KSB for
the year ended March 31, 1999).
10.2 1998 Stock Option Plan with Form of Option Agreement (Previously
filed).
10.3 Employment Agreement with Steven White (Previously filed).
10.4 Employment Agreement with Alan Zimmelman (Previously filed).
10.5 Employment Agreement with Richard Mayer (Previously filed).
10.6 Employment Agreement with Kevin Andersen (Previously filed).
10.7 Amended and Restated Consulting Agreement with Astra Ventures LLC
(Incorporated by reference to Exhibit 10.7 of the registrant's
annual report on Form 10-KSB for the year ended March 31, 1999).
10.8 Premises Lease Agreement dated as of September 29, 1997
(Previously filed).
II-4
<PAGE>
10.9 Stock Option Grant to Astra Ventures, LLC (Incorporated by
reference to Exhibit 4.1 of the registrant's Registration
Statement on Form S-8 (Registration No. 333-85717).
10.10 Stock Option Grant to Kevin Andersen (Incorporated by reference
to Exhibit 4.2 of the registrant's Registration Statement on Form
S-8 (Registration No. 333-85717).
21 Subsidiaries of the registrant (Incorporated by reference to
Exhibit 21 of the registrant's annual report on Form 10-KSB for
the year ended March 31, 1999).
23.1 Consent of Moss Adams LLP.
23.2 Consent of Andersen, Andersen & Strong L.C.
23.3 Consent of Dorsey & Whitney LLP (included in Exhibit 5).
24 Power of Attorney (Previously Filed).
Item 28. Undertakings
The undersigned registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information set forth in
the registration statement; and
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the registration statement.
(2) For the purpose of determining any liability under the Securities Act,
to treat each post-effective amendment that contains a prospectus as a new
registration statement of the securities offered, and the offering of the
securities at that time as the initial bona fide offering of those securities.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described above in Item 24, or otherwise,
the registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
of the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of Seattle,
State of Washington, on the 30th day of September, 1999.
UBARTER.COM INC.
(Registrant)
By: /s/ Steven M. White
------------------------------------
Steven M. White
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
Signature Title Date
/s/ Steven M. White
- --------------------------- Chairman and Chief September 30, 1999
Steven M. White Executive Officer
/s/ Kevin R. Andersen
- --------------------------- Chief Financial Officer September 30, 1999
Kevin R. Andersen
*
- --------------------------- Director September 30, 1999
Alan N. Zimmelman
*
- --------------------------- Director September 30, 1999
Richard L. Mayer
*
- --------------------------- Director September 30, 1999
Glen T. White
* By: /s/ Steven M. White Attorney-in-Fact September 30, 1999
- ---------------------------
Steven M. White
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
5 Opinion of Dorsey & Whitney LLP.
23.1 Consent of Moss Adams LLP.
23.2 Consent of Andersen, Andersen & Strong L.C.
23.3 Consent of Dorsey & Whitney LLP
(included in Exhibit 5).
EXHIBIT 5
Ubarter.com, Inc.
21400 International Blvd., Suite 207
Seattle WA 98198-6086
Re: Amendment No. 1 to Registration Statement on Form SB-2
SEC File No. 333-71411
Ladies and Gentlemen:
We have acted as counsel to Ubarter.com, Inc., a Nevada corporation (the
"Company"), in connection with Amendment No. 1 to a Registration Statement on
Form SB-2 (SEC File No. 333-71411) (the "Registration Statement") to be filed
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended, relating to the sale by the Company of up to 1,916,000 shares of common
stock of the Company, par value $.001 per share (the "Common Stock"). The shares
of Common Stock will be sold from time to time by the selling shareholders named
in the Registration Statement.
We have examined such documents and have reviewed such questions of law as
we have considered necessary and appropriate for the purposes of our opinions
set forth below. In rendering our opinions set forth below, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures and the conformity to authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant hereto of all natural persons and, with respect to all parties
to agreements or instruments relevant hereto other than the Company, that such
parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Company and of public officials.
Based on the foregoing, we are on the opinion that the shares of Common
Stock to be sold by the selling shareholders pursuant to the Registration
Statement have been duly authorized by all requisite corporate action and that
the shares of Common Stock are validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus constituting part of the Registration
Statement.
Dated: September 30, 1999.
Very truly yours,
/s/ Dorsey & Whitney
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement, on Form SB-2 (File No. 333-71411) of our report dated
June 16, 1999, on the consolidated financial statements of Ubarter.com Inc. as
of and for the year ended March 31, 1999, and our report dated April 17, 1999,
on the consolidated financial statements of Barter Business Exchange Inc. as of
and for the years ended February 28, 1999 and 1998, which appear in the
Prospectus. We also consent to the reference to our Firm under the heading
"Experts" in the Prospectus.
/s/ MOSS ADAMS LLP
Seattle, Washington
September 29, 1999
EXHIBIT 23.2
[ANDERSEN ANDERSEN & STRONG, L.C. LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement, on Form SB-2 (File No. 333-71411) of our report dated
June 19, 1998 on the financial statements of Ubarter.com Inc. as of and for the
year ended March 31, 1999 which appear in the Prospectus. We also consent to the
reference to our Firm under the heading "Experts" in the Prospectus.
/s/ Andersen Andersen & Strong L.C.
September 30, 1999
Salt Lake City, Utah
A member of ACF International with affiliated offices worldwide
