UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarter ended June 30, 1999.
[ ] Transaction Report under Section 13 or 15(d) of the Exchange Act for the
transaction period from ___________ to ____________.
-----------------------------------
Commission file number 0-24005
-----------------------------------
UBARTER.COM INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 91-1739746
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21400 International Blvd. #207
Seattle, WA 98198
(Address of principal executive offices)
-----------------------------------
(206) 870-9290
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 5,946,400 shares of Common Stock as
of August 6, 1999.
<PAGE>
UBARTER.COM INC.
For the Quarter Ended
June 30, 1999
INDEX TO FORM 10-QSB
<TABLE>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets:
June 30, 1999 and March 31, 1999..............................................................3
Statements of Operations:
For the Three Months Ended
June 30, 1999 and 1998........................................................................4
Statements of Cash Flow:
For the Three Months Ended
June 30, 1999 and 1998........................................................................5
Notes to Financial Statements ..................................................................6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................................................8
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.....................................................23
Item 6. Exhibits and Reports on Form 8-K.............................................................23
SIGNATURES ...........................................................................................24
</TABLE>
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
UBARTER.COM INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999 AND MARCH 31, 1999
ASSETS
<TABLE>
1999 1998
------------- --------------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
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
------------- --------------
Total Assets $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
------------- --------------
COMMITMENTS -- --
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
------------- --------------
Total Liabilities and Stockholders' Equity $3,923,100 $4,389,700
============= ==============
</TABLE>
See accompanying notes.
3
<PAGE>
UBARTER.COM INC.
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTH ENDED JUNE 30, 1999 AND 1998
<TABLE>
1999 1998
------------------- ------------
<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) $ 0.00
=================== ============
Diluted $ (0.20) $ 0.00
=================== ============
AVERAGE COMMON AND EQUIVALENT SHARES
Basic 5,956,667 4,099,566
=================== ============
Diluted 5,956,667 4,413,232
=================== ============
</TABLE>
See accompanying notes.
4
<PAGE>
UBARTER.COM INC.
STATEMENT OF CASH FLOW
THREE MONTH ENDED JUNE 30, 1999 AND 1998
<TABLE>
June 30, June 30,
1999 1998
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (1,200,000) $ (27,600)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 383,500 2,300
Non-cash charges related to stock option grants 18,700 --
Foreign currency loss 17,500 --
Deferred income taxes -- (300)
Bad debts 94,000 --
Net trade dollars expended 140,000 2,200
Change in operating assets and liablilites
Accounts receivable (77,700) (1,800)
Prepaid advertising and other assets (3,900) --
Accounts payable and other liabilities 248,900 (2,100)
---------------- ---------------
(379,000) (27,300)
---------------- ---------------
CASH FROM INVESTING ACTIVITIES
Acquisition of equipment and leaseholds (72,700) (19,700)
Note receivable collections 600 200
---------------- ---------------
(72,100) (19,500)
---------------- ---------------
CASH FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 52,500 --
Proceeds from notes payable 233,600 12,900
Repayment of notes payable (161,800) (4,600)
---------------- ---------------
124,300 8,300
---------------- ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (326,800) (38,500)
CASH AND CASH EQUIVALENTS
Beginning of period 442,700 162,300
---------------- ---------------
End of period $ 115,900 $ 123,800
================ ===============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 708 $ 1,297
================ ===============
Income taxes $ -- $ --
================ ===============
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Purchase of BBE (Windsor) stock for Trade Dollars
and Ubarter.com stock $ 134,900 $ --
================ ===============
</TABLE>
5
<PAGE>
UBARTER.COM INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Ubarter.com Inc. (the
"Company" or "Ubarter.com") 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, as amended, for the year ended March 31, 1999.
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
Ubarter Trade Dollars issued in excess of earned. At June 30, 1999 and March 31,
1999, the Company had expended $2,391,900 and $2,147,900 Ubarter Trade Dollars
respectively, in excess of the amount of Ubarter Trade Dollars earned by the
Company.
3 - ACQUISITION
The Company previously owned 50% of the outstanding common stock of Barter
Business Exchange (Windsor) Inc. ("BBE Windsor"). 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 recognized total goodwill of
$134,900 in the three months ended June 30, 1999. The Company estimated the
economic useful life to be two years.
6
<PAGE>
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. 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.)
In October 1998, 10,980 shares were repurchased for approximately $13,000 and
classified as treasury stock. 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.
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:
1999 1998
---------------- -----------
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 on
weighted average shares) $ (0.20) $ 0.00
================ ===========
Diluted income (loss) per share $ (0.20) $ 0.00
================ ===========
Options and warrants to purchase shares of common stock were excluded from the
computation in 1999 because their effect would be antidilutive.
6 - REVENUE
The following table summarizes the cash and trade (consisting of Ubarter
Dollars) components of revenue for the three months ended June 30, 1999 and
1998:
1999 1998
------------- -------------
Trade $ 523,300 $ 70,200
Cash 386,000 78,300
------------- -------------
$ 909,300 $ 148,500
7
<PAGE>
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 to certain of
the Company's officers and employees.
8 - COMPREHENSIVE INCOME
As of April 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for the reporting and display of
comprehensive loss and its components in the financial statements. Comprehensive
loss was $1,217,500 for the three-month period ended June 30, 1999, which
consisted of net loss and foreign currency translation adjustments. There was no
difference between comprehensive income (loss) and net income (loss) in periods
prior to the quarter ended June 30, 1999.
9 - SUBSEQUENT EVENT
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.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward Looking Statements
The discussion in this report contains forward-looking statements, including,
without limitation, statements, which are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Although the
Company believes that the expectations reflected in the forward-looking
statements are reasonable, it gives no assurance that such expectations will
prove to be correct. The forward-looking statements involve risks and
uncertainties that affect Ubarter.com's operations, financial performance and
other factors as discussed herein and in the Company's filings with the
Securities and Exchange Commission.
8
<PAGE>
Overview
Ubarter.com provides business to business barter services for retail,
professional, media and other corporate clients through the Company's offices in
Seattle, Washington, Toronto, Ontario, Vancouver, British Columbia and Windsor,
Ontario. The Company manages a private barter currency, Ubarter Trade Dollars,
to enable its clients to sell their products or services to the Company's other
clients for Ubarter Trade Dollars. In the near future, the Company expects to
offer an e-commerce solution to barter over the Internet.
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, the Company acquired all
of the outstanding stock of BBE, the largest trade exchange in Canada. In April
1999, International Barter Corp.'s name was changed to Ubarter.com Inc. to
reflect the Company's change to an Internet-based business model.
Substantially all of the Company's revenues are derived from transaction fees
paid in cash by buyers and sellers in a barter transaction. The Company
currently charges a 5% cash fee on both sides (i.e., to both the seller and
buyer) of most barter transactions. Historically, the Company has also derived
revenues from monthly and set-up fees charged to clients. As the Company
launches its e-commerce site, it does 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. The Company recognizes revenue equal to the cash
to be received from its 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 commission. Revenue is recognized for monthly fees
after the fees have been earned and collected.
A trade dollar is an accounting unit used to record the value of transactions as
determined by the buying and selling parties in barter transactions. Ubarter
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. Ubarter
Trade Dollars may not be redeemed for cash. When BBE was acquired, all of the
BBE Trade Dollars were converted to Ubarter Trade 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.
9
<PAGE>
Three Months Ended June 30, 1999 Compared to the Three Months Ended June 30,
1998
The Company's total revenue in the first quarter of fiscal 2000 was $909,300
compared with total revenue of $148,500 in the first quarter of fiscal 1999.
This was a 634% increase in fiscal 2000 from fiscal 1999. Revenue increased
primarily as a result of the inclusion of revenues from the Company's
acquisition of Barter Business Exchange Inc. ("BBE") effective March 1, 1999.
Excluding revenues from BBE, the Company's revenues decreased in the three
months ended June 30, 1999 compared with the comparable period in 1998 as a
result of the Company's continued concentration a large portion of its financial
and labor resources on the development of its business-to-business e-commerce
site for barter. Much of the effort, which in prior years focused on increasing
transaction fees from barter transactions, was shifted to its website
development and to e-commerce strategic development activities in the first
quarter of fiscal 2000.
Corporate trade revenue is included as a separate component of total revenue.
Corporate trade revenue consists primarily of sales generated by selling
consigned inventories on behalf of trade exchange members. There is typically
little or no profit mark-up on such items. The revenue and corresponding expense
for the first quarters of fiscal 2000 and 1999 were $32,000 and $17,200,
respectively.
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 first quarter of fiscal 2000 was
$385,100. These costs were all incurred by BBE. No costs were incurred by the
Company because inventory sales were made on consignment, as described above. In
the first quarter of fiscal 1999, there were no revenue costs because all sales
of inventories were made on a consignment basis.
Costs and operating expenses (including depreciation) increased to $1,759,100 in
the first quarter of fiscal 2000 from $125,900 in the first quarter of fiscal
1999. 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 first quarter of fiscal 2000.
Product development expense increased to $256,900 in the first quarter of fiscal
2000 compared with minimal expenses in the first quarter of fiscal 1999. Product
development expenses consist primarily of payments to outside contractors
related to the Company's website development and, to a lessor extent, of
depreciation on equipment used for development and overhead costs. Ubarter.com's
policy is to expense product development costs as they are incurred. The
increase in the first quarter of fiscal 2000 was primarily attributable to the
Company's development efforts, including retaining outside consultants related
to technologies necessary to support an e-commerce barter site. The Company
expects to incur approximately $2 million in product development costs in fiscal
2000 as the Company's website is launched and e-commerce functionality is
enhanced.
10
<PAGE>
General and administrative expenses increased to $1,386,700 in the first quarter
of fiscal 2000 from $125,000 in the first quarter of fiscal 1999. This increase
was primarily due to recurring operating expenses incurred by BBE, the addition
of several key personnel and several new staff members in the Company's trading
department and additional employees hired to work on developing the Company's
website. In addition, the Company incurred substantially greater legal and other
professional fees, such as accounting and investor/public relations, as a result
of the Company's public company status and to assist in executing the Company's
business strategy. Another significant noncash expense in the first quarter of
fiscal 2000 related to the amortization of the cost of goodwill resulting from
the acquisition of BBE. Amortization expense of $337,000 was recognized during
the first three months of fiscal 2000. 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
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 its website. The
Company currently has $135,000 of prepaid advertising which it expects to
utilize in the future promotion and marketing of its website.
Liquidity and Capital Resources
Since its inception in 1996, Ubarter.com has financed its 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. The
Company's working capital deficit was $1,507,400 at June 30, 1998. The decrease
in working capital resulted primarily from a $2,327,200 (deficit) balance of
Ubarter Trade Dollars issued in excess of earned that existed on the books of
BBE as of May 31, 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 Ubarter Trade Dollars. Ubarter.com engages
in barter to pay for some of its operating costs. Ubarter.com is ultimately
obligated to provide products and services to clients to offset any amount of
Ubarter Trade Dollars issued in excess of earned. BBE also engaged in barter to
pay for some of its operating costs. At June 30, 1999, Ubarter.com had expended
$2,391,900 of Ubarter Dollars in excess of the amount of Ubarter Dollars earned
by it compared with $2,147,900 at June 30, 1998. The Company considers the
current level manageable. These amounts are shown as a liability on the
Company's balance sheet as of June 30, 1999 and 1998.
11
<PAGE>
The cash provided by financing activities was $124,300 in the first quarter of
fiscal 2000 compared with $8,300 in the first quarter of fiscal 1999. Net cash
provided by financing activities in first quarter of fiscal 2000 resulted
primarily from the exercise of warrants and proceeds from notes payable. The net
cash provided by financing activities in the first quarter of fiscal 1999
resulted from the proceeds from notes payable. The Company currently has 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. The Company did not have any credit facility in the first quarter of
fiscal 1999.
The net cash used by operating activities was $379,000 in the first quarter of
fiscal 2000 and $27,300 in the first quarter of fiscal 1999. 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 first quarter of fiscal 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 $27,300 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 first quarter of fiscal 2000 compared with the first quarter of
fiscal 1999. In the first three months of fiscal 2000, Ubarter.com used net cash
of $72,700 for the acquisition of property, equipment and leaseholds, compared
to $19,700 in the first three months of fiscal 1999.
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 the
Company's immediate needs may be invested in certificates of deposit, short-term
government obligations, or money market funds.
As of June 30, 1999, the Company 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.
The Company believes its existing working capital and cash from financing
activities will be sufficient to fund its operating activities through the end
of fiscal year 2000, however, the Company is currently experiencing a
significant shortage in cash resources necessary to fund planned expenditures in
product development, salaries for existing and future personnel, and
professional fees and marketing. Unless the Company is successful in raising
additional capital, it may not be able to achieve its expansion goals, including
further development of the Company's website. There is no assurance that the
Company will have or be able to access sufficient capital or other resources.
Ubarter.com believes that a portion of its short-term capital resources, up to
$1.2 million may be provided through the exercise of outstanding E Warrants. The
E Warrants are exercisable at a price of $1.50 and expire in June 2000. The
perceived value of these warrants at any given time is related to the market
price of the Company's common stock, which trades over the counter on the OTC
Bulletin Board. If the Company is unable to obtain financing through the
exercise of warrants or other means, it may be unable to meet its working
capital requirements or implement its short-term plans for expansion.
12
<PAGE>
The Company anticipates having to raise additional capital by equity issuance
during the next several years, as it expects to grow at rates that will require
more funds than will be generated by its operations. Ubarter.com does not have
any commitments for additional financing at this time. The Company's ability to
obtain additional capital may be dependent on market conditions, the national
and international economies and other factors outside its control. If adequate
funds are not available or are not available at acceptable terms, the Company's
long-term ability to finance its expansion, develop or enhance services or
respond to competitive pressures would be significantly limited.
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 the Company's trade exchange is dependent upon the
proper functioning of its computer software. Management has assessed the
potential impact of the Y2K issue on Ubarter.com and does not believe that the
Company's business, operations or financial condition will be materially
impacted by the Y2K issue as it relates to the Company's 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. The Company's principal software vendor has completed
reprogramming of its proprietary software. With respect to software supplied by
third parties, the Company has 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 the
Company's 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. Management does not believe that Ubarter.com 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, Ubarter.com 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 the Company's business, operations or financial condition. However,
there is no guarantee that the software of other companies on which the
Company's software relies will be timely converted, or that a failure to convert
by another company, or a conversion that is incompatible with the Company's
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.
13
<PAGE>
Risk Factors
You should carefully consider the following factors, among others, as you
evaluate the Company and the forward-looking statements the Company makes in
this document. Any of these risk factors could materially and adversely affect
the Company's business, financial condition or operating results.
Forward-looking statements are subject to a number of risks and uncertainties.
The Company urges you to note the description of its plans, objectives and
strategies for future operations, assumptions underlying these plans, objectives
and strategies and other forward-looking statements included in the "Business"
section in this document. These descriptions and statements are based on the
Company's current expectations. The Company's actual results may differ
significantly from the results discussed in these forward-looking statements as
a result of certain factors, including those set forth in this "Risk Factors"
section and elsewhere in this document. The Company undertakes no obligation to
update publicly any forward-looking statements for any reason, even if new
information becomes available or other events occur in the future.
The Company has had relatively small operations to date and may face
difficulties in achieving its growth strategy in its markets.
You should consider the risks and difficulties the Company expects to encounter
as it attempt to execute its business strategy, including the rapidly evolving
nature of the commercial barter market and the Internet market. These risks
include uncertainties about the Company's ability to:
- attract a larger number of clients to execute barter transactions on
its offline trade exchange and on its soon-to-be launched barter
e-commerce website;
- increase awareness of the benefits of bartering in general and the
specific services it can provide;
- strengthen the loyalty of its existing clients;
- effectively execute its plan to acquire other barter exchange
companies in North America;
- successfully implement its plan to introduce online e-commerce barter
website;
- respond effectively to competitive pressures;
- continue to develop and upgrade its technology;
- attract, integrate, retain and motivate qualified personnel; and
- respond effectively to increased business operation demands.
The Company may be unable to accomplish one or more of these things, which could
cause its business to suffer. In addition, accomplishing one or more of these
things could be very costly, which could harm the Company's financial results.
14
<PAGE>
Funds may be insufficient to finance the Company's plans for growth.
The Company's existing working capital and cash from financing activities will
not be sufficient to allow it to execute its business plan, including the
development of its e-commerce barter website and acquisition of other barter
exchanges, and meet the demands for its services during fiscal year 2000. In
addition, the Company is currently experiencing a significant shortage in cash
resources necessary to fund planned expenditures in product development,
salaries for existing and future personnel, and professional fees and marketing.
The Company will need to raise additional capital to finance its expansion goals
and operations. The Company believes a portion of its capital resources, up to
$1.2 million, will come from the exercise of outstanding warrants. These
warrants have an exercise price of $1.50 and expire in June 2000. The perceived
value of these warrants at any given time is related to the market price of its
common stock, which trades over the counter through the OTC Bulletin Board. If
the Company is unable to obtain the expected portion of its financing through
the exercise of warrants or other financings, it may not be able to successfully
implement its short-term or long-term plans for expansion or to meet its working
capital requirements.
The full development and implementation of the Ubarter.com website will require
additional resources. The Company may not be able to obtain the working capital
necessary to develop fully its website. Furthermore, the Company's website may
not produce material revenue even if successfully developed.
Additionally, the Company may not be successful in its efforts to acquire other
regional trade exchanges and expand as intended. One of the Company's
assumptions in making acquisitions is that it will be able to use its common
stock, rather than cash, as consideration for any purchase. This assumption may
prove to be incorrect. If the Company does use shares of its common stock to
make acquisitions, the issuance of additional shares could be dilutive. Even if
the Company succeeds in its expansion plans, it may experience rapid growth that
requires additional funds to expand its operations and organization. The
Company's working capital requirements in the foreseeable future will depend on
a variety of factors including capital requirements to implement and adjust its
business plan.
The Company does not have current commitments for additional financing. The
Company intends to explore a number of options to secure alternative financing
including the issuance of additional equity. The Company might not succeed,
however, in raising additional equity capital or in negotiating and obtaining
additional and acceptable financing when it needs it. The Company's ability to
obtain additional capital may depend on market conditions (including the market
for Internet stocks), national and global economies and others factors beyond
its control. If adequate capital were not available or were not available on
acceptable terms at a time when the Company needed it, its ability to execute
its expansion plans, develop or enhance its services or respond to competitive
pressures would be significantly impaired.
The Company faces 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. For example, ITEX Corporation, a publicly traded barter
company, is attempting internet expansion. 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 another
international barter company. Consequently, the Company will encounter
competition in its efforts to expand its business and to acquire desirable
independent trade exchanges.
15
<PAGE>
There are no substantial barriers to initial entry into the Company's business,
and therefore it expects competition from trade exchanges, and other companies
to increase in the future. The Company believes the more market penetration it
achieves, the higher the barrier to entry will become for anyone contemplating a
similar system. The Company faces the risk, however, that existing or new
competitors may develop technologies or services or strategic alliances and
affiliations that make its services less marketable or less useful or desirable.
Furthermore, the Company may not be able to successfully enhance its services,
develop new services or lower costs when and, as it needs them.
Similarly, the Company expects to face competition in its 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 the Company's future revenue growth depends on its ability to
develop and successfully implement a quality e-commerce barter website.
The Company intends to develop Ubarter.com into a premier e-commerce barter
website where businesses can trade products and services. The Company may not be
successful in its plans to implement, maintain and develop usage of the website.
The Company's website may encounter technical difficulties in implementation.
Technical problems may cause delays or require additional expenditures. For the
Company's 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 the Company's website include:
- the level of representative client participation;
- a sufficient range and availability of products and services offered
over the Company's website;
- the Company's ability to service high response rates from clients; and
- timely posting of changes and modifications to the inventory of
clients and products and services offered over the Company's website.
The Company expects to derive revenues in the near term from the Ubarter.com
website. The success of the Company's business will depend on end-user
acceptance of its online services. The Company's success will also depend on its
ability to design, develop, test and support new services and enhancements on a
timely basis that meet changing customer needs and the Company's ability to
respond to technological developments and emerging industry standards. The
Company 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.
16
<PAGE>
In the Company's effort to develop new and enhanced services and features for
its website, the Company may alienate current users or experience technical
difficulties.
The Company believe its new website when launched will be more attractive to
clients if the Company develops features that will, among other things, allow
clients to access products and services online 24 hours a day, seven days a
week, check trade dollar balances and execute trades in real time. Accordingly,
the Company intends to introduce additional or enhanced services and features
designed to attract new clients to the Company's website while retaining current
clients. If the Company introduces services or features that do not function
properly or that its current clients do not perceive favorably, they may not
continue to visit the Company's website. Clients may also choose a competitor's
site over the Company's. The Company may also experience difficulties that could
delay or prevent the Company from introducing new services or features.
Furthermore, these services or features may contain errors or problems that the
Company discovers after it has already introduced them. The Company may need to
modify significantly the design of these services or features on its website to
correct these errors. Errors could lead to significant dissatisfaction of
clients and result in adverse publicity.
The Company's growth and success depend on continued growth in barter industry.
Industry sources, as well as the Company's 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,
the Company believes there has been low penetration by the barter industry into
the market of potential business customers. Although the Company is aware of
nothing that would lead it to conclude that the retail 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, the Company would
expect to face heightened competition with weakened profitability and a reduced
share of the barter market, which could materially adversely affect its
business, results of operations and financial conditions.
The Company may be unable to effectively manage its growth.
As the Company continues to expand its level of operations, it will need an
effective planning and management process to implement its business plan
successfully. After introduction of the Company's new website, it may experience
a period of significant expansion of its business. Depending on the amount and
timing of any increase in business, this expansion could place a strain on its
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. The Company has management, operating and financial
systems in place, and it intend to continue or efforts to improve these systems.
There is a risk, however, that such systems may be inadequate to support its
existing and future operations or that hiring, training and managing new
employees will be more difficult then the Company anticipates.
17
<PAGE>
The Company has historical losses and anticipates future losses in the initial
stage of implementing its business strategy.
The Company is incurring losses from its operating activities. As of March 31,
1999, the Company had an accumulated deficit of $909,500. The Company expects to
increase its operating expenses in an effort to expand its marketing operations,
and it expects to increase its level of expenditures to further develop online
barter capability. These anticipated increases in operating expense levels and
developmental costs will adversely affect operating results. The Company expects
that it will continue to incur losses during fiscal year 2000. Further, if it
successfully accomplishes its plan of acquiring existing trade exchanges, the
Company believes these acquisitions could result in additional operating losses
and negative cash flows until the acquisitions are successfully integrated into
its operations. If the Company acquires other trade exchanges, period-to-period
comparisons of the Company's financial results may not be meaningful, and you
should not rely on them as an indication of future performance. The Company may
not be able to integrate the operations from its recent acquisition of Barter
Business Exchange or from any future acquisitions.
The Company may not be successful in integrating the operations of Barter
Business Exchange or from any future acquisitions. The BBE acquisition was the
Company's first significant acquisition. The Company therefore has limited
experience with completing and integrating acquisitions. There is risk that the
Company will be unable to integrate successfully the operations of Barter
Business Exchange with its existing business or that the anticipated benefits of
the acquisition, or any future acquisitions, may not be realized. Part of its
business strategy includes growth by acquisition, so the Company expects to
pursue other acquisitions in the future. The Company 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:
- adverse effects on the Company's 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 the Company's standards, controls, procedures and
policies;
- becoming responsible for significant liabilities of acquired
companies;
- diversion of management's attention from other business concerns; and
- potential loss of key employees of acquired businesses.
The Company is currently facing all of these challenges in some degree relating
to the BBE acquisition, and the Company has have not yet established its ability
to meet them.
The Company currently does not have any understandings, commitments or
agreements with respect to any other material acquisition and no material
acquisition is currently being pursued.
18
<PAGE>
The Company is dependent on key personnel.
The successful implementation of the Company's business plan and the overall
success of its business will depend on the skills and efforts of its management
personnel and, to a large extent, the active participation of Steven White, its
Chief Executive Officer and President and Bob Bagga, its Chief Operating
Officer, as well as its other executive officers and key employees. The Company
has employment agreements in place with certain key employees and management.
The Company also has key-man insurance covering the lives of Mr. White and Mr.
Bagga in the amount of $1.0 million and approximately $670,000, respectively.
The Company does not have key man life insurance on other executives. The
Company's future success will depend on its 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. The Company provides stock options, which further
serve to retain and motivate key employees. The Company nevertheless faces the
risk that it will be unable to attract, integrate, retain and motivate qualified
employees.
An established public trading market for the Company's securities does not
exist.
The Company's 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.
Furthermore, the National Association of Securities Dealers has enacted recent
changes 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. The intent of this change is to make reliable and current financial
and other information about issuers available to the investing public. The NASD
has proposed additional changes to the OTC Bulletin Board. The proposed changes,
if and when implemented, will require broker-dealers and market makers to review
current information about an issuer before making recommendations to a customer
in the security and to provide certain disclosure information on the trade
confirmation for all customer transactions. At this time, the impact these rule
changes may have on the Company's securities or the trading of securities
generally on the OTC Bulletin Board cannot be determined. If at any time its
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 would
exclude a security 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.
19
<PAGE>
As long as the Company does not meet the relevant financial requirements and its
common stock is trading at less than $5.00 per share on the OTC Bulletin Board,
the Company's securities are subject to the penny stock rules. These rules
impose additional sales practice requirements on broker-dealers who sell its
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 the Company's
securities and may affect the ability of the Company's shareholders to sell
their securities in the secondary market.
Volume of shares eligible for sale may depress the market price.
Of the 5,915,420 shares of common stock outstanding as of March 31, 1999, the
Company 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. The Company
issued the remaining 4,476,020 shares in private transactions. These 4,476,020
shares are restricted securities within the meaning of Rule 144 under the
Securities Act of 1933. Of these shares, the Company expects to register for
resale by certain shareholders 2,753,000 shares of its common stock, including
800,000 shares issuable upon exercise of outstanding warrants and 150,000 shares
of common stock issued in the BBE acquisition. Assuming exercise of all of the
warrants and effectiveness of the registration statement relating to the resale
of the shares, shareholders may sell up to 2,753,000 shares, which will
represent approximately 40% of the Company's issued and outstanding shares of
common stock. All of the remaining restricted shares, including shares held by
affiliates, became eligible in March 1999, 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. The sale in the public market of the shares to be registered for
resale 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 the Company to raise funds through future
offerings of common stock.
The Company will depend on the continued utility of the Internet and technology
for its 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 the
Company's 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 the Company's website.
Furthermore, the perception of the quality of the Company's 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.
20
<PAGE>
The Company's Internet services will be designed around certain standards,
including, for example, Internet security standards. Current and future success
of the Company's services may become subject to additional industry standards as
Internet commerce rapidly evolves. As a result the Company's business may incur
additional costs of unknown proportions as the Company is confronted with new
technology standards. In addition, the Company may not be successful in its
efforts to enhance existing services and to develop, introduce and market new
services. Furthermore, the Company's 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 the Company's business. The Company
expects sales of its 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, the Company 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, the
Company cannot predict whether the Internet will remain a viable commercial
marketplace. In addition, the widespread adoption of new Internet or
telecommuting technologies or standards could require the Company to make
substantial expenditures to modify or adapt its services. In this case, the new
Internet or telecommuting services or enhancements that the Company offers could
contain design flaws or other defects. Although the Company expects to be
responsive to changes in the Internet and technology, it may not be successful
in achieving widespread acceptance of its services before competitors offer
services with speed and performance equal to or greater than the Company's.
Security and privacy concerns could subject the Company to liability or
otherwise deter consumers from using its Web site.
Once the Company is able to conduct online barter transactions, it could be
subject to litigation and liability if third parties were able to penetrate the
Company's network security or otherwise misappropriate its 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. The Company could incur additional expenses and be
required to change its current practices if new regulations regarding the use of
personal information are adopted or should government agencies choose to
investigate the Company's 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 transaction and personal
information. Internet security concerns could frustrate the Company's efforts to
grow its client base. The Company may also incur significant costs to protect
against the threat of security breaches or to alleviate problems caused by such
breaches.
21
<PAGE>
The Company faces 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 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 and the
pricing, quality and other characteristics of products and services and taxes.
The adoption of laws or regulations applicable to the Company's 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 the Company's services and
an increase in its cost of doing business or otherwise have a material adverse
effect on the Company's 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.
The Company's systems may be subject to Year 2000 problems.
The Company has reviewed its own information technology and other technology
systems to assess and remediate any Year 2000 problems. The Company believes all
of its systems and software are Year 2000 compliant. The Company cannot, though,
be sure that its 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."
The Company's quarterly operating results are subject to fluctuations and
seasonality.
The Company's 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 its
control. These factors include:
- the commitment of clients to the general concept of bartering and to
the concept of bartering online through the Company's website;
- the budget cycles of the Company's clients;
- the attractiveness to clients of the Company's bartering services;
- changes in costs that the Company incurs to attract and retain
clients;
- changes in the Company's fees or the fees of its competitors for
bartering services;
- the introduction of new services by the Company or by its competitors;
- unexpected costs and delays relating to the expansion of the Company's
operations;
- the occurrence of technical difficulties and system downtime; and
- general economic and market conditions.
22
<PAGE>
The Company does not believe its 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 the Company's 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 the Company's future performance. The Company
may incur a significant shortfall in revenues in relation to its expectations.
In addition, in future periods the Company's operating results may fall below
the expectations of public market analysts and investors. Should this occur, the
market price of the Company's common stock would likely decline.
PART II -OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(1) During the quarter ended June 30, 1999, "E" warrants were exercised at the
exercise price of $1.50 per share. 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 the Company, had knowledge and information about
the business of the Company and had access to publicly available and other
information about the Company. These exercises of warrants did not involve the
use of general solicitation or advertising.
(2) In May 1999, the Company 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.
(3)Pursuant to the Company's 1988 Stock Option Plan, the Company granted stock
options to certain employees to purchase an aggregate of 135,000 shares of
common stock at an exercise price of $4.88 per share. The granting of stock
options did not require registration under the Securities Act.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27. Financial Data Schedule
No reports on Form 8-K were filed during the three months ended June 30, 1999.
23
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UBARTER.COM INC.
August 16, 1999 /s/ Steven M. White
--------------------------------------------
President and CEO
/s/ Kevin R. Andersen
--------------------------------------------
Kevin R. Andersen
Chief Financial Officer
24
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Mar-31-2000
<PERIOD-END> Jun-30-1999
<CASH> 115,900
<SECURITIES> 0
<RECEIVABLES> 441,700
<ALLOWANCES> 129,400
<INVENTORY> 320,400
<CURRENT-ASSETS> 766,500
<PP&E> 601,800
<DEPRECIATION> 192,000
<TOTAL-ASSETS> 3,923,100
<CURRENT-LIABILITIES> 2,575,400
<BONDS> 255,000
0
0
<COMMON> 5,900
<OTHER-SE> 701,400
<TOTAL-LIABILITY-AND-EQUITY> 3,923,100
<SALES> 909,300
<TOTAL-REVENUES> 909,300
<CGS> 42,100
<TOTAL-COSTS> 385,100
<OTHER-EXPENSES> 1,727,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,200
<INCOME-PRETAX> (1,200,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,200,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,200,000)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
