UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-KSB
(Mark One)
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended March 31, 1999.
Or
[] Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from -------- to --------.
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Commission file number 0-24005
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UBARTER.COM INC.
(Name of small business issuer in its charter)
NEVADA 91-1739746
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
21400 International Blvd. #207
Seattle, WA 98198
(Address of principal executive offices) (Zip Code)
(206) 870-9290
(Issuer's telephone number)
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Securities Registered Under Section 12(b) of the Exchange Act:
None
Securities Registered Under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
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State issuer's revenues for most recent fiscal year: $504,500
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates based on the average bid and asked price as of June 1, 1999:
$17,361,000.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 5,915,420 shares of Common Stock as
of March 31, 1999.
Documents Incorporated by Reference
Portions of Company's Proxy Statement relating to its 1999 Annual Meeting of
Shareholders and the Current Report on Form 8-K/A (for event on March 2, 1999)
dated May 14, 1999 are incorporated by reference into Part III of this Form
10-KSB.
Transitional Small Business Format. Yes [ ] No [X]
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TABLE OF CONTENTS
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PART I
Page
<S> <C>
Item 1. Description of Business ............................................................... 4
Item 2. Description of Property ............................................................... 13
Item 3. Legal Proceedings ....................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders...................................... 13
PART II
Item 5. Market for Common Equity and Related Stockholder Matters................................. 14
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................. 16
Item 7. Financial Statements..................................................................... 31
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.................................................... 31
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act..................................... 32
Item 10. Executive Compensation ................................................................. 32
Item 11. Security Ownership of Certain Beneficial Owners and Management........................ 32
Item 12. Certain Relationships and Related Transactions.......................................... 32
Item 13. Exhibits and Reports on Form 8-K........................................................ 32
</TABLE>
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 we
believe that the expectations reflected in the forward-looking statements are
reasonable, we give 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 our filings with the Securities and Exchange Commission.
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PART I
Item 1. Description of Business
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 will include 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 offered
through our barter system.
As a result of our acquisition of Barter Business Exchange, Inc., the
largest trade exchange in Canada, in March 1999, we now have approximately 3,200
clients who offer over 7,000 products and services. We expect these clients to
transact approximately $25 million of annual trading volume and to generate over
$3 million of annual revenue, based on the historical trading volume and
revenues of the combined companies. 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 manage a private barter currency, "Ubarter Dollars(TM)", 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 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 trading 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 anticipate a soft launch of
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
year 2000.
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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.
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 trade dollar as an
accounting unit to record the value of barter 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, the largest 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, which is currently under construction and in internal beta testing,
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 in 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 developing front and back end
technology systems to create a technologically advanced barter system. The focus
of our new system will be to provide online barter transaction capability. Once
these systems are completed, our clients will be able to execute barter
transactions through any of the following three channels:
o electronically through our Internet site,
o by speaking with a trade broker located at one of our offices or
o 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
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and integrating these exchanges into our operations. In considering acquisitions
of trade exchanges we intend to look for candidates with the following
attributes:
o regional presence complimenting our presence,
o significant client base offering a wide variety of products and
services,
o sound credit management and
o 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.
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 an agreement 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
We are in the process of developing and preparing to launch a
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 expect to launch the first phase in September
1999, subject to completion of beta testing and depending on certain business
considerations. 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 will be:
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.
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Clients
Ubarter.com currently has approximately 3,200 active clients in North
America. 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:
o generate new sales, add new channels of distribution and increase
market share,
o decrease cash expenditures and thereby increase cash flow,
o reduce slow moving inventory,
o exchange unproductive assets and excess capacity for useful
products or services,
o reduce need for financing and
o maximize efficiencies
The key to a trade exchange over traditional barter transactions is that
members do not have to accept each others' products and services directly.
Historically, this has been one of the biggest drawbacks to one on one barter
transactions. 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 our barter exchange, she hires a
contractor who agrees to perform the remodeling work for $500 in Ubarter
Dollars. The dentist has these 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 these 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.
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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). Currently we have 11 AEs. We anticipate hiring
approximately another eight in the next several months. These AEs are all based
in one of our four regional 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." We believe these agreements
will ultimately generate significant traffic to our website when it is launched.
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
currently have 18 people in the trading department including TBs and CSRs.
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.
Once e-commerce can be conducted through our website, the duties of the TBs
and CSRs will change significantly. 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.
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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.
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 estimate penetration of
less than 2% of businesses worldwide and believe less than 5% of companies in
North America have engaged in organized barter at any time.
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.
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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.
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 will launch its online exchange with over 3,200
clients offering over 7,000 products and services.
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
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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 beyond single office operations 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, technological expertise, regional offices and
client base. 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:
o cash payments of CD$850,000 (US$563,300) and US$100,000 at
closing,
o 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,
o payment of CD$250,000 (US$167,500) Ubarter Dollars at closing,
and
o issuance of 150,000 shares of our common stock (having a value of
US$375,000 as of the closing date)
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 the 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
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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 $350,000. 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 have filed trademark applications for the word "a-commerce"
(alternative commerce), "Quick Sale", "Ubarter Dollars" and "Udollars" and the
tag line "Where the whole world trades." We also have federal service mark
applications pending for "Ubarter.com."
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
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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 March 31, 1999, we had 54 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
year 2000.
Item 2. Description of Property
Our executive offices are located in Seattle, Washington, under an
operating lease that expires in September 1999. We are in the process of
reviewing our lease options in Seattle as our current space is insufficient.
Ubarter.com's offices in Toronto, Ontario, Vancouver, British Columbia and
Windsor, Ontario are under leases expiring in May 2003. We believe that our
current regional offices are adequate and suitable for their current use and
that suitable additional facilities will be available, when needed, upon
commercially reasonable terms.
Item 3. Legal Proceedings
There are no legal actions pending, or, to our knowledge, threatened or
contemplated against Ubarter.com as of the date of this report. From time to
time, various claims and lawsuits which are incidental to our business may be
brought against us or by us in the future.
Item 4. Submission of Matters to a Vote of Security Holders
No meetings of security holders were held during the fourth quarter of our
fiscal year ended March 31, 1999.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
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 March 31, 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.
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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
There were 66 record holders of our common stock as of March 31, 1999. We
estimate there were approximately 875 beneficial owners of our common stock at
that date.
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.
Recent Sales 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
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<PAGE>
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.
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
15
<PAGE>
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.
Item 6. Management's Discussion and Analysis of Financial Condition And Results
of Operations
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. As a
result of our acquisition of Barter Business Exchange in March 1999, we now have
approximately 3,200 clients who offer over 7,000 products and services. In the
near future, we expect 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, we 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 our
change to an Internet-based business model.
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. As we launch our e-commerce site, 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 trade commission. Revenue is
recognized for monthly fees after the fees have been earned and collected.
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<PAGE>
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. 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. 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.
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 included in this
report 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
with this report 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 will be 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 of 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>
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>
17
<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 report.
<TABLE>
Year Ended March 31,
--------------------
1999 1998
---- ----
<S> <C> <C>
Revenue ................................... $ 504,500 $ 586,100
Operating Expenses
Costs of corporate trade 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
Net Income (Loss) ......................... (798,000) 32,500
Net Income (Loss) per share ............... (0.14) 0.01
Weighted average common share ............. 5,521,583 2,632,424
outstanding(1)
</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.
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. This was a 16% 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 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 fiscal 1999.
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 fiscal 1999 and 1998 were $43,900 and $45,500,
respectively.
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<PAGE>
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 year 1999 from $556,300 in fiscal year 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. Ubarter.com's 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 issuances 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. 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 March 31, 1999, Ubarter.com had a working capital deficit of $1,507,000.
Our working capital was $413,000 at March 31, 1998. The decrease in working
capital resulted primarily from a $1,981,000 (deficit) balance of trade dollars
issued in excess of earned that
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<PAGE>
existed on the books of BBE as of February 28, 1999. We assumed this negative
balance in conjunction with the acquisition of BBE on March 1, 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 of our 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 March 31,
1999, Ubarter.com had expended $2,148,000 of Ubarter Dollars in excess of the
amount of Ubarter Dollars earned by it compared with $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 March 31, 1999 and 1998.
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 exercise of warrants. 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 were no borrowings outstanding at
March 31, 1999. New 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 $700,000 in fiscal 1999 and
$48,000 in fiscal 1998. During 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
depreciation expense of $18,000 was recorded. 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 1999 compared with 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 March 31, 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 March 31, 1999 pursuant to
these leases are $384,000. See Note 9 of Notes to Consolidated Financial
Statements.
We believe our existing working capital and cash from financing activities
will be sufficient to fund our operating activities through the end of fiscal
year 2000. Unless we are successful in raising additional capital, we may not be
able to achieve 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
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<PAGE>
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 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 its working
capital requirements or implement its short-term plans for expansion.
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 its operations. Ubarter.com does 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 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 our 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
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. 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 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
21
<PAGE>
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.
Risk Factors
You should carefully consider the following factors, among others, as you
evaluate our business and the forward-looking statements we make in this
document. Any of these risk factors could materially and adversely affect our
business, financial condition or operating results. Forward-looking statements
are subject to a number of risks and uncertainties. We urge you to note the
description of our 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 our current expectations. Our
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. We
undertake 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.
We have had relatively small operations to date and 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 soon-to-be launched barter
e-commerce website;
* increase awareness of the benefits of bartering in general and the
specific services we can provide;
* strengthen the loyalty of our existing clients;
* effectively execute our plan to acquire other barter exchange
companies in North America;
* 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; and
* respond effectively to increased business operation demands.
We may be unable to accomplish one or more of these things, which could cause
our business to suffer. In addition, accomplishing one or more of these things
could be very costly, which could harm our financial results.
Funds may be insufficient to finance our plans for growth.
Our existing working capital and cash from financing activities will not be
sufficient to allow us to execute our business plan, including the development
of our e-commerce barter website and acquisition of other barter exchanges, and
meet the demands for our services during fiscal year 2000. We will need to raise
additional capital to finance our expansion goals and
22
<PAGE>
operations. We believe a portion of our 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 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.
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 fully our website. 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. For example, ITEX Corporation, a publicly traded barter
company, is attempting international 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, we will encounter competition in our
efforts to expand our business and to acquire desirable independent trade
exchanges.
There are no substantial barriers to initial entry into our business, and
therefore we expect competition from trade exchanges, and other companies to
increase in the future. We believe the more market penetration we achieve, the
higher the barrier to entry will become for anyone contemplating a similar
system. 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
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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
over our website;
* our 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 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 when launched 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, check trade
dollar balances and execute trades in real time. 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.
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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 nothing that would lead
us 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, 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 conditions.
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.
After 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
or 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 March 31,
1999, we had an accumulated deficit of $909,500. We expect to increase our
operating expenses in an effort to expand our marketing operations, 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. 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 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
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future acquisitions. The Barter Business Exchange acquisition and any future
acquisitions present many risks and uncertainties generally associated with
acquisitions including:
* 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 currently do not have any understandings, commitments or agreements with
respect to any other material acquisition and no material acquisition is
currently being pursued.
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 lives of Mr. White and Mr. Bagga in the
amount of $1 million and approximately $670,000, respectively. 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.
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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.
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 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 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.
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
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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 5,915,420 shares of common stock outstanding as of March 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 4,476,020 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, we expect to register for resale by certain shareholders
2,753,000 shares of our 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 our
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 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.
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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 telecommuting technologies or standards could require us to make
substantial expenditures to modify or adapt our services. In this case, the new
Internet or telecommuting 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.
Security and privacy concerns could subject us to liability or otherwise deter
consumers from using our Web site.
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 and be required to change our
current practices 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 transaction 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 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 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,
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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:
* 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.
Item 7. Financial Statements
Reference is made to the financial statements, the reports thereon, the
notes thereto and supplementary data commencing at pages F-1 of this Form
10-KSB, which financial statements, reports, notes and data are incorporated
herein by reference.
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Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Andersen Andersen & Strong L.C. has audited our financial statements
annually since fiscal 1996. Subsequent to the completion of the audit for the
fiscal year ended March 31, 1998, we hired 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 fiscal year ended March 31,
1999, 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.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act
The information set forth under the caption "Election of Directors,"
"Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in Ubarter.com's definitive Proxy Statement for its 1999 Annual
Meeting of Shareholders expected to be filed with the Securities and Exchange
Commission on or before July 29, 1999 (the "Proxy Statement") is incorporated
herein by reference.
Item 10. Executive Compensation
The information set forth under the caption "Executive Compensation and
Other Information," "Compensation of Directors" in the Proxy Statement is
incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the captions "Securities Ownership of
Certain Beneficial Owners" and "Securities Ownership of Management" in the Proxy
Statement is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
The information set forth under the caption "Certain Relationships and
Related Transactions between Management and the Company" in the Proxy Statement
is incorporated herein by reference.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Merger Agreement with Cascade Trade Association, dated as of November
15, 1996 (Incorporated be reference to Exhibit 10.1 of the registrant's
Registration Statement on Form SB-2 (Registration No. 333-71411).
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.
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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.
3.2 Bylaws (Incorporated be reference to Exhibit 3.4 of the registrant's
Registration Statement on Form SB-2 (Registration No. 333-71411).
4.1 Form of E Warrant issued in private placement (Incorporated be
reference to Exhibit 4.1 of the registrant's Registration Statement on
Form SB-2 (Registration No. 333-71411).
10.1 1998 Stock Option Plan with Form of Option Agreement (Incorporated be
reference to Exhibit 10.2 of the registrant's Registration Statement
on Form SB-2 (Registration No. 333-71411).*
10.2 Employment Agreement with Steven White (Incorporated be reference to
Exhibit 10.3 of the registrant's Registration Statement on Form SB-2
(Registration No. 333-71411).*
10.3 Employment Agreement with Alan Zimmelman (Incorporated be reference to
Exhibit 10.4 of the registrant's Registration Statement on Form SB-2
(Registration No. 333-71411).*
10.4 Employment Agreement with Richard Mayer (Incorporated be reference to
Exhibit 10.5 of the registrant's Registration Statement on Form SB-2
(Registration No. 333-71411).*
10.5 Employment Agreement with Kevin Andersen (Incorporated be reference to
Exhibit 10.6 of the registrant's Registration Statement on Form SB-2
(Registration No. 333-71411).*
10.6 Employment Agreement with Bob Bagga.*
10.7 Amended and Restated Consulting Agreement with Astra Advisors LLC. *
10.8 Premises Lease Agreement dated as of September 29, 1997 (Incorporated
be reference to Exhibit 10.8 of the registrant's Registration Statement
on Form SB-2 (Registration No. 333-71411).
21 Subsidiaries of the registrant.
23.1 Consent of Moss Adams LLP.
23.2 Consent of Andersen, Andersen & Strong L.C.
24 Power of Attorney (included on signature page).
27 Financial Data Schedule.
- --------------------------------
*Constitutes a management contract or compensatory plan or arrangement required
to be filed with this report.
(b) Reports on Form 8-K
1. A Current Report on Form 8-KSB was filed on February 19, 1999 to report
a change in the registrant's certified public accountant.
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2. A Current Report on Form 8-KSB was filed on March 17, 1999 to report the
acquisition of Barter Business Exchange effective March 1, 1999. The registrant
filed two amendments to that Current Report on Form 8-KSB, one on March 29, 1999
and one on May 14, 1999. The amended report filed on May 14, 1999, includes
audited financial statements for Barter Business Exchange and pro forma
consolidated financial statements for the acquisition.
3. A Current Report on Form 8-KSB was filed on May 14, 1999 to report the
registrant's name change to Ubarter.com Inc.
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SIGNATURES
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven M. White, as his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments to this Registration Statement on Form 10-KSB and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, grant unto said attorney-in-fact
and agent, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the foregoing as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitutes, may
lawfully do or cause to be done by virtue hereof.
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UBARTER.COM INC.
(Registrant)
By: /s/ Steven M. White
------------------------------------
Steven M. White
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ Seven M. White Chairman and Chief Executive June 30, 1999
- ------------------------ Officer
Steven M. White
/s/ Kevin R. Andersen Chief Financial Officer June 30, 1999
- ------------------------
Kevin R. Andersen
/s/ Alan Zimmelman Director June 30, 1999
- ------------------------
Alan Zimmelman
/s/ Richard Mayer Director June 30, 1999
- ------------------------
Richard Mayer
/s/ Glen T. White Director June 30, 1999
- ------------------------
Glen T. White
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EXHIBIT INDEX
2.1 Merger Agreement with Cascade Trade Association, dated as of November 15,
1996 (Incorporated be reference to Exhibit 10.1 of the registrant's
Registration Statement on Form SB-2 (Registration No. 333-71411).
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.
3.2 Bylaws (Incorporated be reference to Exhibit 3.4 of the registrant's
Registration Statement on Form SB-2 (Registration No. 333-71411).
4.1 Form of E Warrant issued in private placement (Incorporated be reference to
Exhibit 4.1 of the registrant's Registration Statement on Form SB-2
(Registration No. 333-71411).
10.1 1998 Stock Option Plan with Form of Option Agreement (Incorporated be
reference to Exhibit 10.2 of the registrant's Registration Statement on
Form SB-2 (Registration No. 333-71411).*
10.2 Employment Agreement with Steven White (Incorporated be reference to
Exhibit 10.3 of the registrant's Registration Statement on Form SB-2
(Registration No. 333-71411).*
10.3 Employment Agreement with Alan Zimmelman (Incorporated be reference to
Exhibit 10.4 of the registrant's Registration Statement on Form SB-2
(Registration No. 333-71411).*
10.4 Employment Agreement with Richard Mayer (Incorporated be reference to
Exhibit 10.5 of the registrant's Registration Statement on Form SB-2
(Registration No. 333-71411).*
10.5 Employment Agreement with Kevin Andersen (Incorporated be reference to
Exhibit 10.6 of the registrant's Registration Statement on Form SB-2
(Registration No. 333-71411).*
10.6 Employment Agreement with Bob Bagga.*
10.7 Amended and Restated Consulting Agreement with Astra Advisors LLC.*
10.8 Premises Lease Agreement dated as of September 29, 1997 (Incorporated be
reference to Exhibit 10.8 of the registrant's Registration Statement on
Form SB-2 (Registration No. 333-71411).
21 Subsidiaries of the registrant.
23.1 Consent of Moss Adams LLP.
23.2 Consent of Andersen, Andersen & Strong L.C.
35
<PAGE>
24 Power of Attorney (included on signature page).
27 Financial Data Schedule.
- -----------------------------
*Constitutes a management contract or compensatory plan or arrangement required
to be filed as an exhibit with this report.
<PAGE>
INDEPENDENT AUDITORS' REPORTS
and
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
<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
1
<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
2
<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.
3
- --------------------------------------------------------------------------------
<PAGE>
UBARTER.COM INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
1999 1998
----------- -----------
REVENUE
<S> <C> <C>
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
----------- -----------
NET 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.
4
- --------------------------------------------------------------------------------
<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" 492,900 400 188,900 37,500 -- -- -- 226,800
warrants
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. 5
- --------------------------------------------------------------------------------
<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. 6
- --------------------------------------------------------------------------------
<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.
7
- --------------------------------------------------------------------------------
<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.
8
- --------------------------------------------------------------------------------
<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.
9
- --------------------------------------------------------------------------------
<PAGE>
UBARTER.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
Note 2 - Summary of Significant Accounting Policies (Continued)
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.
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.
10
- --------------------------------------------------------------------------------
<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.
11
- --------------------------------------------------------------------------------
<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.
12
- --------------------------------------------------------------------------------
<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.
13
- --------------------------------------------------------------------------------
<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>
14
- --------------------------------------------------------------------------------
<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.
15
- --------------------------------------------------------------------------------
<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 20% of the
shares of common stock outstanding 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 generally are to
vest ratably over two years. The provisions of the Plan allow the
administrators to determine the vesting period and exercise price of
options granted. All options outstanding at March 31, 1999 are
non-qualified stock options.
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 certain
non-employee Directors. The options are fully vested and expire five years
from the date of grant. The options were valued at $11,400, which was
recognized as director compensation expense in 1999.
In October 1998, the Company granted options under the Plan 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.
16
- --------------------------------------------------------------------------------
<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:
<TABLE>
Weighted-
Number Average
of Exercise
Shares Price
---------------- ----------------
<S> <C> <C>
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
================ ===============
</TABLE>
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 $ 1.49 277,000 $ 0.83
$ 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 $ 7.17 907,000 $ 7.97
=============== ===============
</TABLE>
17
- --------------------------------------------------------------------------------
<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
----------------------------------------------------------------------
18
- --------------------------------------------------------------------------------
<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.
19
- --------------------------------------------------------------------------------
<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
<TABLE>
1999 1998
---------------- ----------------
<S> <C> <C>
Assets
U.S. operations $ 700,700 $ 525,100
Canadian subsidiary 3,689,000 -
---------------- ----------------
$ 4,389,700 $ 525,100
================ ================
</TABLE>
Note 15 - Revenue
The following table summarizes the cash and trade dollars components of
revenue for the years ended March 31, 1999 and 1998:
<TABLE>
1999 1998
---------------- ----------------
<S> <C> <C>
Trade $ 263,900 279,100
Cash 240,600 307,000
---------------- ----------------
$ 504,500 $ 586,100
================ ================
</TABLE>
20
- --------------------------------------------------------------------------------
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
INTERNATIONAL BARTER CORP.
FIRST. The name of the corporation is:
INTERNATIONAL BARTER CORP.
SECOND. Its registered office in the State of Nevada is located at 2533
North Carson Street, Carson City, Nevada 89706 that this Corporation may
maintain an office, or offices, in such other place within or without the State
of Nevada as may be from time to time designated by the Board of Directors, or
by the By-Laws of said Corporation, and that this Corporation may conduct all
Corporation business of every kind and nature, including the holding of all
meetings of Directors and Stockholders, outside the State of Nevada as well as
within the State of Nevada.
THIRD. The objects for which this Corporation is formed are: To engage in
any lawful activity, including, but not limited to the following:
(A) Shall have such rights, privileges and powers as may be conferred upon
corporations by any existing law.
(B) May at any time exercise such rights, privileges and powers, when not
inconsistent with the purposes and objects for which this corporation is
organized.
(C) Shall have power to have succession by its corporate name for the
period limited in its certificate of articles of incorporation, and when no
period limited, perpetually, or until dissolved and its affairs wound up
according to law.
(D) Shall have power to sue and be sued in any court of law or equity.
(E) Shall have power to make contracts.
(F) Shall have power to hold, purchase and convey real and personal estate
and to mortgage or lease any such real and personal estate with its franchises.
The power to hold real and personal estate shall include the power to take the
same by devise or bequest in the State of Nevada, or in any other state,
territory or country.
(G) Shall have power to appoint such officers and agents as the affairs of
the corporation shall require, and to allow them suitable compensation.
<PAGE>
(H) Shall have power to make By-Laws not inconsistent with the constitution
or laws of the United States, or of the State of Nevada, for the management,
regulation and government of its affairs and property, the transfer of its
stock, the transaction of its business, and the calling and holding of meetings
of its stockholders.
(I) Shall have power to wind up and dissolve itself, or be wound up or
dissolved.
(J) Shall have power to adopt and use a common seal or stamp, and alter the
same at pleasure. The use of a seal or stamp by the corporation on any corporate
documents is not necessary. The corporation may use a seal or stamp, if it
desires, but such use or nonuse shall not in any way affect the legality of the
document.
(K) Shall have power to borrow money and contract debts when necessary for
the transaction of its business, or for the exercise of its corporate rights,
privileges or franchises, or for any other lawful purpose of its incorporation;
to issue bonds, promissory notes, bills of exchange, debentures, and other
obligations and evidences of indebtedness, payable at a specified time or times,
or payable upon the happening of a specified event or events, whether secured by
mortgage, pledge or otherwise, or unsecured, for money borrowed, or in payment
for property purchased, or acquired, or for any other lawful object.
(L) Shall have power to guarantee, purchase, hold, sell, assign, transfer,
mortgage, pledge or otherwise dispose of the shares of the capital stock of, or
any bonds, securities or evidences of the indebtedness created by, any other
corporation or corporations of the State of Nevada, or any other state or
government, and, while owners of such stock, bonds, securities or evidences of
indebtedness, to exercise all the rights, powers and privileges of ownership,
including the right to vote, if any.
(M) Shall have power to purchase, hold, sell and transfer shares of its own
capital stock, and use therefor its capital, capital surplus, surplus, or other
property or fund.
(N) Shall have power to conduct business, have one or more offices, and
hold, purchase, mortgage and convey real and personal property in the State of
Nevada, and in any of the several states, territories, possessions and
dependencies of the United States, the District of Columbia, and any foreign
countries.
(O) Shall have power to do all land everything necessary and proper for the
accomplishment of the objects enumerated in its certificate or articles of
incorporation, or any amendment thereof, or necessary or incidental to the
protection and benefit of the corporation, and, in general, to carry on any
lawful business necessary or incidental to the attainment of the objects of the
corporation, whether or not such business is similar in nature to the objects
set forth in the certificate or articles of incorporation of the corporation, or
any amendment thereof.
<PAGE>
(P) Shall have power to make donations for the public welfare or for
charitable, scientific or educational purposes.
(Q) Shall have power to enter into partnerships, general or limited, or
joint ventures, in connection with any lawful activities, as may be allowed by
law.
FOURTH. That the total number of common stock authorized that may be issued
by the Corporation is Twenty-Five Thousand (25,000) shares of stock within
nominal par value and no other class of stock shall be authorized. Said shares
may be issued by the corporation from time to time for such considerations as
may be fixed by the Board of Directors.
FIFTH. The governing board of this corporation shall be known as directors,
and the number of directors may from time to time be increased or decreased in
such manner as shall be provided by the By-Laws of this Corporation, providing
that the number of directors shall not be reduced to fewer than one (1).
The name and post office address of the first board of Directors shall be
one (1) in number and listed as follows:
NAME POST OFFICE ADDRESS
---- -------------------
Robert Seligman 2533 North Carson Street
Carson City, Nevada 89706
SIXTH. The capital stock, after the amount of the subscription price, or
par value, has been paid in, shall not be subject to assessment to pay the debts
of the corporation.
SEVENTH. The name and post office address of the Incorporator signing the
Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
---- -------------------
Robert Seligman 2533 North Carson Street
Carson City, Nevada 89706
EIGHTH. The resident agent of this corporation shall be:
LAUGHLIN ASSOCIATES, INC.
The address of said agent, and, the registered or statutory address of this
corporation in the state of Nevada shall be:
<PAGE>
2533 North Carson Street
Carson City, Nevada 89706
NINTH. The corporation is to have perpetual existence.
TENTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
Subject to the By-Laws, if any, adopted by the Stockholders, to make, alter
or amend the By-Laws of the Corporation.
To fix the amount to be reserved as working capital over and above its
capital stock paid in, to authorize and cause to be executed, mortgages and
liens upon the real and personal property of this Corporation.
By resolution passed by a majority of the whole Board, to designate one (1)
or more committees, each committee to consist of one or more of the Directors of
the Corporation, which, to the extent provided in the resolution, or in the
By-Laws of the Corporation, shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the Corporation,
Such committee, or committees, shall have such name, or names, as may be stated
in the By-Laws of the Corporation, or as may be determined from time to time by
resolution adopted by the Board of Directors.
When and as authorized by the affirmative vote of the Stockholders holding
stock entitling them to exercise at least a majority of the voting power given
at a Stockholders meeting called for that purpose, or when authorized by the
written consent of the holders of at least a majority of the voting stock issued
and outstanding, the Board of Directors shall have power and authority at any
meeting to sell, lease or exchange all of the property and assets of the
Corporation, including its good will and its corporate franchises, upon such
terms and conditions as its board of Directors deems expedient and for the best
interests of the Corporation.
ELEVENTH. No shareholder shall be entitled as a matter of right to
subscribe for or receive additional shares of any class of stock of the
Corporation, whether now or hereafter authorized, or any bonds, debentures or
securities convertible into stock, but such additional shares of stock or other
securities convertible into stock may be issued or disposed of by the Board of
Directors to such persons and on such terms as in its discretion it shall deem
advisable.
TWELFTH. No director or officer of the Corporation shall be personally
liable to the Corporation or any of its stockholders for damages for breach of
fiduciary duty as a director or officer involving any act or omission of any
such director or officer; provided, however, that the foregoing provision shall
not eliminate or limit the liability of a director or officer (i) for acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law, or (ii) the payment of dividends in violation of Section 78.300
<PAGE>
of the Nevada Revised Statutes. Any repeal or modification of this Article by
the stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director or
officer of the Corporation for acts or omissions prior to such repeal or
modification.
THIRTEENTH. This Corporation reserves the right to amend, alter, change or
repeal any provision contained in the Articles of Incorporation, in the manner
now or hereafter prescribed by statute, or by the Articles of Incorporation, and
all rights conferred upon Stockholders herein are granted subject to this
reservation.
I, THE UNDERSIGNED, being the Incorporator hereinbefore named for the
purpose of forming a Corporation pursuant to the General Corporation Law of the
State of Nevada, do make and file these Articles of Incorporation, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunder set my hand this 18th day of September 1996.
<PAGE>
/s/ ROBERT SELIGMAN
-------------------------------------
Robert Seligman
STATE OF NEVADA )
) SS.
CARSON CITY )
On this 18th day of September, 1996 in Carson City, Nevada, before me, the
undersigned, a Notary Public in and for Carson City, State of Nevada, personally
appeared:
Robert Seligman
Known to me to be the person whose name is subscribed to the foregoing document
and acknowledged to me that he executed the same.
(Notary seal) /s/ LISA MARIE VANNUCCI
-----------------------------------------
Notary Public
I, Laughlin Associates, Inc. hereby accept as Resident Agent for the previously
named Corporation.
September 18, 1996 /s/ ROBERT SELIGMAN
- --------------------------- -------------------------------------
Executive Vice President
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES
(After Issuance of Stock)
INTERNATIONAL BARTER CORP.
We the undersigned President and Secretary of the above named corporation do
hereby certify:
That the Board of Directors of said corporation at a meeting duly convened, held
on the 29th day of September, 1996, adopted a resolution to amend the original
articles as follows:
Article Number Four is amended to read as follows:
That the total number of common stock authorized that may be issued by
the Corporation is Twenty Five Million (25,000,000) shares of stock with
par value of .001 per share. Said shares may be issued by the corporation
from time to time for such consideration as may be fixed by the Board of
Directors.
The number of shares of the Corporation outstanding and entitled to vote on an
amendment to the Articles of Incorporation is 25,000; that the said change and
amendment have been consented to and approved by a majority of the stockholders
holding at least a majority of each class of stock outstanding and entitled to
vote thereon.
/s/ Steven White
-----------------------------------------
President
/s/ Norman Fetz
-----------------------------------------
Secretary
State of Washington )
) ss.
County of King )
On this 22nd day of September, 1997, personally appeared before me, a Notary
Public, who acknowledged that he/she/they, executed the above instrument.
(Notary seal) /s/ Deanna Burnett Keener
[SEAL] -----------------------------------------
Notary Public
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock)
Filed by: --------------
FILED
In the Office of the
Secretary of State of the
STATE OF NEVADA
APR 21 1999
No. C19704-96
Dean Heller, Secretary of State
INTERNATIONAL BARTER CORP.
Name of Corporation
We the undersigned, Steve White, President, and Richard Mayer, Secretary of
International Barter Corp., do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened,
held on the 10th day of April, 1999, adopted a resolution to amend the original
articles as follows:
Article 1 is hereby amended to read as follows:
That the name of the Corporation is: Ubarter.com Inc.
The number of shares of the corporation outstanding and entitled to vote on
an amendment to the Articles of Incorporation is 5,776,400; that the said
change(s) and amendment have been consented to and approved by a majority vote
of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
/s/ Steve White
--------------------------------------------
Steve White, President
/s/ Richard Mayer
--------------------------------------------
Richard Mayer, Secretary
State of Washington )
) ss.
County of King )
On April 19, 1999, personally appeared before me, a Notary Public, Richard
Mayer, who acknowledged that he executed the above instrument.
[/s/ Illegible]
--------------------------------------------
Signature of Notary
Exhibit 10.6
EMPLOYMENT AGREEMENT
DATED: March 2, 1999
BETWEEN: International Barter Corp., a
Nevada Corporation ("Company")
AND: Bob Bagga ("Executive")
1.0 RECITALS
1.1 The Company desires to employ the Executive as its Chief Operating
Officer and Executive is willing to accept such employment by the Company, on
the terms and subject to the conditions set forth in this Agreement.
2.0 DEFINITIONS
2.1 "Effective Date" shall mean the date upon which the Executive's
employment with the Company commences, currently agreed as February 28, 1999.
2.2 "Termination Date" shall mean the date of the termination of
Executive's employment with the Company.
2.3 "Termination For Cause" shall mean termination by the Company of the
Executive's employment by the Company for cause at law; including but not
limited to by reason of the Executive's willful dishonesty towards, fraud upon,
or deliberate injury or attempted injury to the Company, or by reason of the
Executive's negligence which has resulted in injury to the Company, and material
breach of this Agreement by the Executive.
2.4 "Termination Other Than For Cause" shall mean termination by the
Company of the Executive's employment by the Company for any reason other than a
Termination for Cause.
2.5 "Voluntary Termination" shall mean termination by the Executive of the
Executive's employment by the Company other than (i) "Termination Upon a Change
in Control," and (ii) termination by reason of the Executive's death or
disability as described herein.
3.0 DUTIES
3.1 During the term of this Agreement, the Executive agrees to be employed
by and serve the Company as its Chief Operating Officer, and the Company agrees
to employ and retain the Executive in such capacities. In such capacity, the
Executive shall
1
<PAGE>
oversee the daily operations of the Company and render such managerial,
administrative and other services as are customarily associated with or incident
to such position and shall perform such duties and responsibilities for the
Company as the Chief Executive Officer or board of directors of the Company may
reasonably require, consistent with such position. The Executive shall devote a
substantial portion of his business time, energy, and skills to the affairs of
the Company and shall perform the duties and carry out the responsibilities
assigned to him, to the best of his ability, in a diligent, trustworthy,
businesslike and efficient manner for the purpose of advancing the business of
the Company. The Executive shall report to the Chief Executive Officer.
4.0 TERM OF EMPLOYMENT
4.1 Initial Term. The initial term of employment of the Executive by the
Company shall be for a period of two (2) year beginning with the Effective Date
("Initial Term"), unless terminated or renewed earlier pursuant to this
Agreement. This Agreement may be extended for additional consecutive one-year
periods by written agreement of the parties to this Agreement at least 90 days
prior to the expiration of the Initial Term. Notwithstanding anything contained
in this section, the term of employment is subject to termination pursuant to
the following provisions.
4.2 Termination For Cause. Termination For Cause may be effected by the
Company at any time during the term of this Agreement and shall be effected by
written notification to the Executive. Upon Termination For Cause, the Executive
shall be paid within 7 days of termination, all accrued salary and bonus plan
benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Company in which the Executive is a participant
to the full extent of the Executive's rights under such plans, accrued vacation
pay and any appropriate business expenses incurred by the Executive in
connection with his duties hereunder, all to the Termination Date, shall be paid
within 30 days of Termination Date or as required by applicable law. Subject to
this Agreement, the Executive shall not be paid any other compensation or
reimbursement of any kind, including without limitation, severance compensation.
4.2.1 In the event of Termination For Cause, all unvested stock options
granted by the Company shall terminate immediately. Vested options shall
terminate, to the extent not previously exercised, upon the occurrence of the
first of the following events: (i) the expiration of the option, as designated
by the plan administrators; or (ii) the expiration of 90 days from the date of
termination of Executive's employment or contractual relationship with the
Company.
4.3.1 Disability. If, during the term of this Agreement, the Executive, in
the reasonable judgment of the Company's board of directors, has failed to
perform his duties under this Agreement on account of illness or physical or
mental incapacity, and such illness or incapacity continues for a period of more
than three (3) consecutive months, the Company shall have the right to terminate
the Executive's employment hereunder by written notification to the Executive
thirty (30) days prior to the Termination Date. All accrued salary, bonus
compensation to the extent earned shall be promptly paid to the
2
<PAGE>
Executive upon termination. Additionally, in the event of termination by reason
of Disability, all amounts that would be payable to Executive during his Initial
Term of employment, or for the remainder of an additional one-year term if this
Agreement is renewed, shall be promptly paid, with a minimum 6-month payout.
Vested deferred compensation (other than pension plan or profit sharing plan
benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Company in which the Executive is a participant
to the full extent of the Executive's rights under such plans, accrued vacation
pay and any appropriate business expenses incurred by the Executive in
connection with his duties hereunder, all to the Termination Date, but the
Executive shall not be paid any other compensation or reimbursement of any kind,
including without limitation, severance compensation.
4.3.2 Death. In the event of the Executive's death during the term of this
Agreement, the Executive's employment shall be deemed to have terminated as of
the last day of the month during which his death occurs and the Company shall
pay, within 30 days of the death of the Executive or as required by applicable
law, to his estate or such beneficiaries as the Executive may from time to time
designate all accrued salary, bonus compensation to the extent earned, vested
deferred compensation (other than pension plan or profit sharing plan benefits
which will be paid in accordance with the applicable plan), any benefits under
any plans of the Company in which the Executive is a participant to the full
extent of the Executive's rights under such plans, accrued vacation pay and any
appropriate business expenses incurred by the Executive in connection with this
duties hereunder, all to the Termination Date. Additionally, in the event of
termination by reason of Death, all amounts that would be payable to Executive
during his Initial Term of employment, or for the remainder of an additional
one-year term if this Agreement is renewed, shall be promptly paid, with a
minimum 6-month payout. The Executive's estate shall not be paid any other
compensation or reimbursement of any kind, including without limitation,
severance compensation.
4.4 Voluntary Termination. In the event of a Voluntary Termination, the
Company shall promptly pay all accrued salary, bonus compensation to the extent
earned. Vested deferred compensation (other than pension plan or profit sharing
plan benefits which will be paid in accordance with the applicable plan), any
benefits under any plans of the Company in which the Executive is a participant
to the full extent of the Executive's rights under such plans, accrued vacation
pay and any appropriate business expenses incurred by the Executive in
connection with his duties hereunder, all to the Termination Date shall be paid
within 30 days of Termination Date or as required by applicable law, but no
other compensation or reimbursement of any kind, including without limitation,
severance compensation.
4.4.1 In the event of Voluntary Termination, all unvested stock options
granted by the Company shall terminate immediately. Vested options shall
terminate, to the extent not previously exercised, upon the occurrence of the
first of the following events: (i) the expiration of the option, as designated
by the plan administrator; or (ii) the expiration of 90 days from the date of
the termination of Executive's employment or contractual relationship with the
Company.
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4.5 Termination Upon a Change of Control. If there is a termination of the
Executive as a result of change in control (which for these purposes is defined
as the acquisition or issuance of a majority of the issued and outstanding
shares of the Company), then the Executive shall have the same termination
rights as Steven White (or such other person filling the role as President and
Chief Executive Officer), including a payout of the compensation provided for in
Section 5.1 of this Agreement in full, for the remainder of the Agreement,
provided that in no event will the amount of the payment be for less than 1
year, and provided that all deferred, vested and unvested options are paid out
to the Executive or retained by the Executive, at the sole discretion of the
Executive.
4.6 Payments Under Share Purchase Agreement. In the event of termination
for any reason hereunder other than the Voluntary Termination or Termination For
Cause, all amounts payable to Executive under the Share Purchase Agreement among
the Company, the Executive and Barter Business Exchange Inc. dated March 2, 1999
(the "Share Purchase Agreement"), including but not limited to any deferred
payments, will become due and payable within 30 calendar days of the termination
date. For purposes of valuing the deferred variable payment due under the Share
Purchase Agreement, if termination occurs prior to the 1 year anniversary of
this Agreement, the monthly average cash revenue amounts to the Termination
Date, multiplied by 12 shall be used as the 12 month cash revenue figure
payable.
5.0 SALARY, BENEFITS AND BONUS COMPENSATION
5.1 Base Salary. As payment for the services to be rendered by the
Executive as provided in this Agreement, the Company agrees to pay to the
Executive a "Base Salary" for the twelve (12) calendar months beginning the
Effective Date at the rate of C$120,000 per annum payable in 12 equal monthly
installments of C$10,000. The Executive's Base Salary shall be reviewed annually
by the Company's board of directors, and the Base Salary for each year
thereafter (or portion thereof) beginning the Effective Date.
5.2 Bonuses. The Executive shall be eligible to receive a bonus, for each
year (or portion thereof) during the term of this Agreement and any extensions
thereof, with the actual amount of any such bonus to be determined in accordance
with mutually agreed performance criteria. The first such bonus would be payable
at the end of the first year of this Agreement, and annually thereafter while
this Agreement is in full force and effect.
5.3 Additional Benefits. During the term of this Agreement, the Executive
shall be entitled to the following fringe benefits:
5.3.1 Executive Benefits. The Executive shall be eligible to participate in
such of the Company's benefits and deferred compensation plans as are now
generally available or later made generally available to executive officers of
the Company, including, without limitation, the Company's Stock Option Plan,
profit sharing plans,
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annual physical examinations, dental and medical plans, personal catastrophe and
disability insurance, financial planning, retirement plans and supplementary
executive retirement plans. For purposes of establishing the length of service
under any benefit plans or programs of the Company, the Executive's employment
with the Company will be deemed to have commenced on the Effective Date,
provided that the benefits paid hereunder shall be no less than those paid to
the Company's Chief Executive Officer. For purposes of the Company's Stock
Option Plan, the Executive's participation may not occur prior to April 1, 2000.
5.3.2 Vacation. The Executive shall be entitled to four (4) weeks of
vacation during each year during the term of this Agreement and any extensions
thereof, prorated for partial years.
5.3.3 Reimbursement for Expenses. During the term of this Agreement, the
Company shall reimburse the Executive for reasonable and properly documented
out-of-pocket business and/or entertainment expenses incurred by the Executive
in connection with his duties under this Agreement, subject to the Company's
policies in effect from time to time with respect to travel, entertainment and
other expenses. These expenses shall include, without limiting the generality of
the foregoing, car, car insurance, cellular phone, ETR toll route charges.
5.3.4 Position on Board. During the term of this Agreement, the Executive
shall have the right to be nominated to the board of directors of IBC in the
first proxy statement relating to an annual meeting mailed or distributed to
shareholders after closing.
6.0 SEVERANCE COMPENSATION
6.1 No Severance Compensation Upon Termination. In the event of a Voluntary
Termination or Termination For Cause, the Executive shall not be paid any
severance compensation, which does not include amounts payable under Sections
4.2 or 4.4.
7.0 CONFIDENTIALITY
7.1 The Executive agrees that all confidential and proprietary information
relating to the Company's business shall be kept and treated as confidential
both during and after the term of this Agreement, except as may be permitted in
writing by the Company's board of directors or as such information is within the
public domain or comes within the public domain without any breach of this
Agreement.
8.0 WITHHOLDINGS
8.1 All compensation and benefits to the Executive hereunder shall be
reduced by all federal, provincial, state, local and other withholdings and
similar taxes and payments required by applicable law.
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9.0 INDEMNIFICATION
9.1 Except as provided in paragraph 9.2 below, in addition to any rights to
indemnification to which the Executive is entitled to under the Company's
articles of incorporation and bylaws, the Company shall indemnify the Executive
at all times during the term of this Agreement and in good faith on behalf of
the Company, to the maximum extent permitted under applicable law, and shall pay
the Executive's expenses including solicitors fees on a solicitor/client basis
in defending any civil or criminal action, suit, or proceeding in advance of the
final disposition of such action, suit or proceeding.
9.2 The Company agrees to pay for officer and director liability insurance
for the Executive, and to maintain such insurance in place at all times, with
respect to each of the Company and Barter Business Exchange Inc., to the extent
reasonably available.
9.3 Executive represents and warrants that the Company will not incur any
liability in connection with the consummation of the transaction contemplated by
the Letter of Intent to any third party with whom the Executive or his agents
and affiliates have had discussions regarding the disposition of shares of
Barter Business Exchange Inc. For a period of one year from closing of the
acquisition of Barter Business Exchange Inc. by the Company, Executive agrees to
indemnify, defend and hold harmless the Company, its officers, directors,
shareholders, lenders and affiliates, from any claims by or liabilities to these
third parties, including any legal or other expenses incurred in connection with
the defense of these claims.
10.0 NOTICES
10.1 Any party may give any notice, request, demand, claim, instruction, or
other document under this section using any other means but no such notice,
request, demand, claim, instruction or other document shall be deemed to have
been duly given unless and until it actually is received by the individual for
whom it is intended at the address stated below. Any party may change its
address for any purpose by giving notice of the change of address to the other
party in the manner provided in this section>
If to COMPANY: With a copy to: And to:
International Barter Corp. Jones Law Group, PLLC Weir & Foulds
2300 130th Ave. N.E. Barristers & Solicitors
Suite A-103 130 King Street West
Bellevue, WA 98005 Suite 1600
Toronto, Ontario
Canada M5X 1J5
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If to EXECUTIVE: With a copy to:
Bob Bagga Thomas Powers
7 Fern Avenue Margolls Partnership
Richmond Hill, Ontario Barristers & Solicitors
Canada L4B 3R7 30 St. Clair Avenue West
Suite 1108
Toronto, Ontario
Canada M4V 3A1
11.0 NON-COMPETITION
11.1 Executive acknowledges that his duties and responsibilities will
require his substantive business efforts and agrees that during his term of
employment with the Company, he will not participate, whether as an owner,
shareholders, partner, consultant, entrepreneur, employee or otherwise, in any
business or any business activity connected with a barter trade organization, or
have any business pursuits or interests which materially interfere or engage
conflict with the performance of Executive's duties under this Agreement or
which compete with the Company. Nothing in this section shall prohibit the
Executive from investing in the stock of any competing corporation listed on a
national securities exchange or traded in the over-the-counter market, but only
if the Executive is not involved in the business of such corporation and
beneficially owns not more than an aggregate of five percent of the stock of
such corporation. In addition, the Executive may serve on the board of directors
of other corporations, so long as such board services does not materially
interfere or conflict with the performance of Executive's duties under this
Agreement and so long as these activities are not rendered for a competitor of
the Company. In addition, it is understood and agreed that the Executive shall
be entitled to fulfill his obligations and accept compensation from active Media
with respect to the following potential transactions: (i) Atlantic Promotions;
(ii) Kodak Canada; and (iii) Chrysler Canada. There will no further transactions
of this nature during the term of this Agreement.
12. NON-SOLICITATION
12.1 For a period of six (6) months from the Termination Date, Executive
agrees not to directly or through intermediaries solicit, encourage, entertain
or consider any inquiries or proposals, with respect to developing, obtaining or
acquiring any barter or trade business from the customers, clients or business
associates of Barter Business Exchange Inc., an Ontario corporation, or the
Company, whether such customers, clients or business associates are now existing
as of the date of this Agreement or may exist at the Termination Date.
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13.0 GENERAL PROVISIONS
13.1 This Agreement may not be amended, modified or changed, nor shall a
provision of the Agreement be deemed waived, except only by an instrument in
writing signed by the party against whom enforcement of a waiver, amendment,
change or modification is sought.
13.2 This Agreement is governed by Ontario law, and the parties hereby
attorn to the exclusive jurisdiction of the courts of such province.
13.3 If any term or provision of this Agreement or the application to any
person or circumstances shall to any extent be invalid or unenforceable in any
jurisdiction, the remainder of this Agreement and application of such term or
provision to persons or circumstances other than those to which it is held
invalid or unenforceable or in any other jurisdiction shall not be affected, and
each term or provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
13.4 This Agreement may be signed in as many counterparts as is necessary,
each of which shall be considered an original.
14.0 EXECUTING SIGNATURES
14.1 IN WITNESS WHEREOF, the parties have signed this Agreement.
COMPANY: EXECUTIVE
International Barter Corp.
- ---------------------------------- ----------------------------------------
By: Steven M. White, CEO Bob Bagga
Exhibit 10.7
AMENDED AND RESTATED
CONSULTING AGREEMENT
CONSULTING AGREEMENT dated as of April 19, 1999 by and between
INTERNATIONAL BARTER CORP., a Nevada corporation, with its principal place of
business at 21400 International Boulevard, Suite 207, Seattle, Washington, 98198
or, following its name change, Ubarter.com, Inc. (hereinafter together with all
of its affiliates referred to collectively as the "Company"), and ASTRA ADVISORS
LLC, with offices at 61 West 62nd Street, Apt. 19D, New York, New York 10023
(hereinafter referred to as the "Consultant"). This Agreement supersedes the
Agreement between International Barter Corp. and Liad Meidar dated October 1,
1998.
WHEREAS, the Company wishes to retain the Consultant and the Consultant
wishes to become a consultant to the Company, on the terms and conditions set
forth herein; and
WHEREAS the execution of this Agreement, has been approved by the Board of
Directors of the Company;
NOW, THEREFORE, the parties hereto agree as follows:
1. Term. The Company hereby retains the Consultant, and the Consultant
hereby accepts such retainer, for an initial term commencing as of the date
hereof and ending on the second anniversary of such date, unless sooner
terminated in accordance with the provisions of Section 4 or Section 5 (the
"Initial Term"); with such retainer to continue in accordance with the terms of
this Agreement from year to year thereafter (subject to termination as
aforesaid) unless written notice of non-renewal is given to Consultant prior to
ninety (90) days before the expiration of the Initial Term or any continuation
term (said Initial Term and any continuation thereof being hereinafter referred
to as the "Term").
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2. Services. The Consultant agrees to perform for the Company the following
services:
(a) to provide general consulting services to the Company in
connection with the development of new business ventures;
(b) to participate in efforts to raise capital for the Company, but
only to assist in presentations and not to source funds;
(c) to assist in developing a business plan for the Company and to
advise the Company with respect to its capital structure;
(d) to seek potential acquisition and investment opportunities for the
Company ("Target Companies");
(e) to perform a financial and strategic review of the Company and to
assist the Company in formulating its future strategy;
(f) to assist the Company in the performance of due diligence for a
Transaction (as hereinafter defined) involving a Target Company;
(g) to provide general consulting services on such matters as may be
requested by the Board of Directors of the Company; and
(h) to develop online marketing strategies for the Company.
The Consultant, through its agents, employees, managers, members or
affiliates, agrees to devote approximately fifteen hundred (1,500) hours per
twelve month period of the Term (a "Year") to the performance of Consultant
services. Consultant shall be free to pursue other ventures and is not expected
to devote full time efforts to this engagement. Consultant shall be solely
responsible for the amount of time spent and the periods during which the time
is expended.
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3. Compensation.
3.1 Retainer. The Company shall pay the Consultant during the Term a
retainer (the "Quarterly Retainer"), of $25,000 per quarter, payable on or
before July 1, 1999 and the first business day of each three month period next
following July 1, 1999. Such retainer shall be an advance payment for consulting
services to be rendered during the ensuing three months following payment. This
Agreement shall run for a term to expire December 31, 2001.
3.2 Additional Remuneration. (a) In the event that (i) any Transaction
is consummated during the Term or at any time within one year after the Term or
(ii) any agreement is entered into during the Term or during such one-year
period which subsequently results in a consummated Transaction, then, upon the
closing of each and every such Transaction, an additional fee (the "Transaction
Fee") shall be payable to the Consultant in an amount equal to 3.0% of the
Consideration (as hereinafter defined) paid in such Transaction. Such
Transaction Fee shall be payable in cash and, at Consultant's sole option, up to
50% of such fee may be payable in duly authorized, fully paid and non-assessable
shares of common stock ("Common Stock") $.001 par value per share or any other
equivalent voting common stock issued by the Company in lieu of the Common
Stock. The number of shares of Common Stock issuable to the Consultant with
respect to any consummated Transaction shall be determined by a fraction the
numerator of which shall be the dollar amount attributable to the Common Stock
portion of the Transaction Fee and the denominator of which shall be the Fair
Market Value (as hereinafter defined) of one share of Common Stock, calculated
in accordance with paragraph (c) of this section with respect to the calculation
of Fair Market Value for non-cash consideration.
(b) Subject to the immediately succeeding paragraph, "Consideration"
means the total proceeds and other consideration paid and to be paid or
contributed and to be
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contributed, directly or indirectly, in connection with a Transaction (which
consideration shall be deemed to include amounts paid or to be paid into escrow)
by the company including, without limitation: (i) cash; (ii) notes, securities
and other property (including all options, warrants or other instruments or
arrangements convertible into or exercisable for any of the foregoing) at the
Fair Market Value thereof; (iii) all interest bearing liabilities of any Target
Company not specifically excluded from the Transaction by agreement of the
Company and of any Target Company; (iv) payments to be made in installments; (v)
amounts paid or payable under consulting, supply, service, distribution,
licensing agreements, equipment or real property lease agreements, agreements
not to compete or similar arrangements.
(c) The Fair Market Value of non-cash consideration consisting of
securities issued by the Company (including any notes, options, warrants or
other instruments or arrangements convertible into, or exercisable for, any of
the foregoing) shall be determined based upon (i) the 20 trading day average
closing sale price for such securities on the registered national securities
exchange, NASDAQ, or other securities market providing the primary market for
such securities, (the "Determination Period"), (ii) if such securities are not
so traded on any day during the Determination Period, the price of such
securities with respect to such day shall be the mean between the high closing
bid and low closing asked prices as reported by the primary market for the
securities calculated in the same manner as above, or (iii) if such securities
are not so traded or reported, Fair Market Value shall be determined by
agreement between the Company and Consultant. In each case, the Determination
Period shall end on the day next preceding the closing of the relevant
Transaction. The Fair Market Value of (i) any non-cash Consideration other than
securities and (ii) any Consideration consisting of a contingent payment shall
in each case be determined by agreement by the Company and
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Consultant. If all or any portion of Consideration is to be paid over time, then
that portion of the Transaction Fee attributable thereto shall be payable as and
when such payments are made. No fee payable to any other financial adviser
either by the Company or any other entity shall reduce or otherwise affect the
fees payable hereunder to the Consultant.
(d) For purposes of this Agreement, the term "Transaction" shall mean,
whether in one or a series of transactions, (i) any merger, consolidation,
reorganization, recapitalization, leveraged buy-out, restructuring or other
business combination involving any one or more Target Companies, (ii) the
acquisition, directly or indirectly, through public or private purchases or
otherwise of all or any portion of securities, assets, liabilities, property
and/or business of any one or more Target Companies, (iii) the formation of a
joint venture or partnership for the purpose of combining all or any portion of
the securities, assets, liabilities, properties and/or business of Company and
any Target Company, and (iv) any management, consulting, supply, service,
distribution, licensing or similar arrangement involving the Company and any one
or more of the Target Companies entered into in relation to a Transaction.
3.3 Independent Contractor Status. The Consultant acknowledges and
agrees that, during the Term, the relationship between the Consultant and the
Company is that of an independent contractor and, accordingly, the Consultant's
employees, managers, agents, members or affiliates shall not be permitted to
participate in any group life, hospitalization or disability insurance plans,
health programs, pension plans or similar benefits (collectively, "Benefits
Programs") that may be available to employees of the Company generally unless
Consultant or it's employees, managers, agents, members or affiliates pay the
costs incurred for their share of such Benefits Programs; provided, however, the
Consultant shall participate in the Company's 1998 Stock Option Plan and any
other option plans sponsored by the Company.
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Nothing in this Agreement shall be construed as establishing the place and time
of performance of Consultant's services.
3.4 Expenses. The Company shall pay or reimburse the Consultant for
all reasonable out-of-pocket expenses actually incurred or paid by the
Consultant during the Term in the performance of the Consultant's services under
this Agreement; provided, however, Consultant shall bear the rental costs of its
office.
4. Normal Termination or Termination Upon Death or Disability. This
Agreement shall terminate by its terms on December 31, 2001, at which time all
undistributed consideration payable to Consultant shall be paid. If the
Consultant's President, Liad Meidar, dies during the Term, this Agreement shall
terminate as of the date of Mr. Meidar's death. If the Consultant by virtue of
ill health or other disability is unable to perform one thousand (1000) hours of
service per year for any consecutive twelve month period, the Company shall have
the right to terminate this Agreement upon notice in writing to the Consultant.
Upon such termination, the Consultant shall be entitled to receive any retainer
amounts received and any other benefits earned and accrued prior to the date of
termination and reimbursement for expenses incurred prior to the date of
termination. No provision of this Agreement shall limit any rights under any
Benefits Programs of the Company in which the Consultant or it's employees,
managers, agents, members or affiliates have participated in accordance with
Section 3.3, if any, for which such persons shall be eligible at the time of
such death or disability.
5. Termination for Cause. If the Consultant's President, Liad Meidar, (i)
is convicted of a felony or any crime involving the Company (other than pursuant
to actions taken at the direction or with the approval of the Company's Board of
Directors), (ii) if found by determination of the Board of Directors of the
Company to have engaged in (A) fraud,
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(B) misappropriation or (C) embezzlement in the performance of services
hereunder, the Company may, at any time within 30 days of the occurrence of any
of the events described in clauses (i), (ii) and (iii) above, by written notice
to the Consultant, terminate this Agreement. The Consultant shall have no right
to receive any compensation or benefit hereunder on and after the effective date
of the notice provided in the preceding sentence other than salary and other
benefits earned and accrued prior to the date of termination and reimbursement
for expenses incurred prior to the date of termination.
6. Stock Options. Consultant shall have the right to participate in the
Company's 1998 Stock Option Plan and any other Company Stock Option Plan (the
"Plan"). The Company shall issue options to Consultant as set forth in
accordance with Exhibit A hereto. The shares of Common Stock subject to such
options will represent the percentage of shares of common stock outstanding on a
fully diluted basis as set forth in Exhibit A. Such options granted shall be
immediately fully vested and shall have no minimum or maximum exercise date.
7. Tag-Along Rights. Consultant shall have tag-along rights with respect to
all stock which has been granted as compensation or otherwise pursuant to this
Agreement and with respect to all stock options, whether exercised or
unexercised.
(a) Grant of Tag-Along Right. If any Shareholder or group of
Shareholders holding in excess of twenty-five percent (25%) of the Corporation's
stock (the "Selling Majority") shall receive a purchase offer from a third-party
acquirer (the "Acquirer") and the above options are not exercised in full, then
Consultant shall have a right of co-sale with respect to any shares that the
Selling Majority proposes to sell to the Acquirer (the "Tag-Along Right"). Such
rights shall also apply not only to a sale but also any other transaction
involving an exchange of securities involving a transfer by the Selling Majority
and another company. The
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Selling Majority shall give the Consultant fifteen (15) days' advance written
notice of their intentions.
(b) Exercise of Tag-Along Right. Consultant may exercise the Tag-Along
Right by delivering a written request to the Selling Majority, no later than the
fifteenth (15th) day after the date on the Consultant is notified of a pending
sale. The written request shall constitute the Consultant's election to cause
the Acquirer to purchase all or a portion of the remaining Consultant's shares
and options at the same price per share and upon the same terms and conditions
as contained in the Purchase Offer.
(c) Anti-Dilution Provision. The following anti-dilution provision
shall apply during the term of this Agreement and the term of the Covenant Not
To Compete set forth in Section 9.11, herein, following any termination of this
Agreement. In the event of any recapitalization, sale, exchange or other
transaction involving the securities of the Company, the Company agrees that
Consultant's relative percentage interest in Company, taking into consideration
stock and options (whether exercised or not) (herein referred to as,
"Consultant's Options) shall not be diluted without prior written consent. In
the event of a breach of this provision, Company agrees to issue such additional
shares of common capital stock or options to purchase common capital stock
pursuant to the schedule attached as Exhibit A and held outright by Consultant
to bring the relative ownership interest of Consultant to the same percentage
interest owned prior to such dilution event. In other words, if prior to any
event involving the capitalization of Company, Consultant owns, directly or
indirectly, by way of stock or options, exercised or unexercised, a capital
interest equal to ten percent (10%) of the capital stock issued and outstanding,
then after any such event involving the capitalization of the Company, the
Company, or its affiliates, successors or assigns, shall take all steps
necessary to distribute to
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Consultant such stock and options so that Consultant shall continue to own ten
percent (10%) of the capital stock of the Company following such event.
If the outstanding shares of stock of the class then subject to the
Consultant's Options are increased or decreased, or are changed into or
exchanged for a different number or kind of shares or securities or other forms
of property (including cash) or rights, as a result of one or more
reorganizations, recapitalizations, spin-offs, stock splits, reverse stock
splits, stock dividends or the like, appropriate adjustments shall be made in
the number and/or kind of shares or securities or other forms of property
(including cash) or rights for which the Consultant's Options may thereafter be
exercised, all without any change in the aggregate exercise price applicable to
the unexercised portions of the Consultant's Options, but with a corresponding
adjustment in the exercise price per share or other unit. Such adjustments shall
be made by or under authority of the Company's board of directors whose
determinations as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company as a result of which the
outstanding securities of the class then subject to the Consultant's Options are
changed into or exchanged for property (including cash), rights or securities
not of the Company's issue, or any combination thereof, or upon a sale of
substantially all the property of the Company to, or the acquisition of stock
representing more than eighty percent (80%) of the voting power of the stock of
the Company then outstanding by, another corporation or person, the Company
shall undertake in writing in connection with such transaction for the
assumption of the Consultant's Options, or the substitution for the Consultant's
Options of an option covering the stock of a successor corporation or entity, or
a parent or a subsidiary thereof, with appropriate adjustments in
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accordance with the provisions herein as to the number and kind of shares
optioned and their exercise prices, in which event the Consultant's Options
shall continue in the manner and under the terms so provided.
8. Confidentiality.
(a) During the Restricted Period (defined, for purposes of this
Agreement as a term of two (2) years following the termination of this Agreement
for any reason and thereafter, the Consultant shall keep secret and retain in
strictest confidence, and shall not use for his benefit or the benefit of
others, except in connection with the business and affairs of the Company, all
confidential matters relating to the Company and its business learned by the
Consultant heretofore or hereafter directly or indirectly from the Company
including any information concerning the business, affairs, customers, clients,
sources of supply and customer lists of the Company (the "Confidential Company
Information") and shall not disclose them to anyone except with the Company's
express written consent and except for Confidential Company Information which
(i) is at the time of receipt publicly known, or thereafter becomes publicly
known, through no wrongful act of the Consultant or (ii) is received from a
third party not under an obligation to keep such information confidential and
without breach of this Agreement. These rights of the Company are in addition to
and without limitation to those rights and remedies available under common law
for protection of the types of such confidential information which constitute
"trade secrets" as construed under controlling law.
(b) During the Restricted Period, the Consultant shall not, without
the Company's prior written consent, directly or indirectly, knowingly solicit
or encourage to leave the employment of the Company, any employee of the Company
or hire any employee who has
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left the employment of the Company within one year of the termination of such
employee's employment with the Company.
(c) All memoranda, notes, lists, records and other documents (and all
copies thereof) constituting Confidential Company Information made or compiled
by the Consultant or made available to the Consultant concerning the Company
shall be the Company's property, shall be kept confidential in accordance with
the provisions of this Section 6.1 and shall be delivered to the Company at any
time on request.
9. Other Provisions.
9.1 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission or,
if mailed, five days after the date of deposit in the United States mails as
follows:
(i) If to the Company, to:
International Barter Corp. or Ubarter.com, Inc.
21400 International Boulevard
Suite 207
Seattle, Washington 98198
with a copy to:
Steven M. White, Chairman, Chief Executive
Officer and President
11
<PAGE>
c/o International Barter Corp. or Ubarter.com, Inc.
21400 International Boulevard
Suite 207
Seattle, Washington 98198
(ii)If to the Consultant, to:
Liad Y. Meidar, President
Astra Advisors LLC
61 West 62nd Street, 19D
New York, NY 10023
with a copy to:
Rogers & Wells, LLP
200 Park Avenue
New York, NY 10166
ATTN: Samuel M. Feder, Esq.
Any such person may by notice given in accordance with this Section to the other
parties hereto designate another address or person for receipt by such person of
notices hereunder.
9.2 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, written or oral, with respect thereto.
9.3 Waivers and Amendments. This Agreement may be amended, superseded,
cancelled, renewed or extended, and the terms hereof may be waived, only by a
12
<PAGE>
written instrument signed by the parties or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of any party of any such right, power or privilege nor
any single or partial exercise of any such right, power or privilege, preclude
any other or further exercise thereof or the exercise of any other such right,
power or privilege.
9.4 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Washington applicable to agreements
made and to be performed entirely within the State. In the event of a dispute
among the parties, venue shall lay in King County, Washington.
9.5 Assignment. This Agreement, and the Consultant's rights and
obligations hereunder, may be assigned by the Consultant to any corporation
majority owned by the Consultant provided that the Consultant remains solely
responsible for the performance of all of the services and compliance with all
of the provisions of this Agreement. Any assignment of this Agreement by
Consultant in violation of the terms hereof shall be null and void. In the event
of any sale, transfer or other disposition of all or substantially all of the
Company's assets or business, whether by merger, consolidation or otherwise, the
Company may assign this Agreement and its rights hereunder.
9.6 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors, permitted assigns,
heirs, executors and legal representatives.
9.7 Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original but all
13
<PAGE>
such counterparts together shall constitute one and the same instrument. Each
counterpart may consist of two copies hereof each signed by one of the parties
hereto.
9.8 Headings. The headings in this Agreement are for reference only
and shall not affect the interpretation of this Agreement.
9.9 Indemnification. The Company agrees to indemnify the Consultant
and its affiliates and their respective members, directors, officers, employees,
agents and controlling persons (the Consultant and each such person being an
"Indemnified Party") from and against any and all losses, claims, damages and
liabilities, joint or several, (collectively "Losses") to which such Indemnified
Party may become subject under any applicable federal or state law, or
otherwise, and related to or arising out of any Transaction contemplated by this
Agreement or the engagement of Consultant pursuant to and the performance by
Consultant of the services contemplated by, this Agreement and will reimburse
any Indemnified Party for all reasonable expenses (including reasonable counsel
fees and expenses) as they are incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a party
and whether or not such claim, action or proceeding is initiated or brought by
or on behalf of the Company.
The Company will not be liable under the foregoing indemnification
provision to the extent that any loss, claim damage, liability or expense is
found in a final judgment by a court to have resulted from the Consultant's bad
faith or gross negligence. The Company also agrees that no Indemnified Party
shall have any liability (whether direct or indirect, in contract or tort or
otherwise) to the Company or its security holders or creditors related to or
arising out of the engagement of the Consultant pursuant to, or the performance
by the Consultant of the services
14
<PAGE>
contemplated by, this Agreement except to the extent that any loss, claim,
damage or liability is found in a final judgment by a court to have resulted
from the Consultant's bad faith or gross negligence. Such indemnification shall
include, without limitation, any action pursued by anyone under the federal
securities laws or under the securities laws of any state and any action pursued
with respect to compliance with requirements to conform computer operations to
the Year 2000 and beyond.
If the indemnification of an Indemnified Party provided for in this letter
agreement is for any reason held unenforceable, the Company agrees to contribute
to the losses, claims, damages and liabilities for which such indemnification is
held unenforceable (i) in such proportion as is appropriate to reflect the
relative benefits to the Company, on the one hand, and the Consultant, on the
other hand, of the Transaction as contemplated (whether or not the Transaction
is consummated) or (ii) if (but only if) the allocation provided for in clause
(i) is for any reason held unenforceable, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) but also the
relative fault of the Company, on the one hand, and the Consultant, on the other
hand, as well as any other relevant equitable considerations; provided, however,
that to the extent permitted by applicable law, in no event shall the
Indemnified Parties be required to contribute an aggregate amount in excess of
the aggregate fees actually paid to the Consultant under this Agreement.
The Company agrees that, without Consultant's prior written consent, it
will not settle, compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding in respect of which
indemnification could be sought under the indemnification provision of this
Agreement (whether or not the Consultant or any other Indemnified Party is an
actual or potential party to such claim, action or proceeding), unless such
settlement,
15
<PAGE>
compromise or consent includes an unconditional release of each Indemnified
Party from all liability arising out of such claim, action or proceeding.
In the event that an Indemnified Party is requested or required to appear
as a witness in any action brought by or on behalf of or against the Company in
which such Indemnified Party is not named as a defendant the Company agrees to
reimburse Consultant for all reasonable out-of-pocket expenses incurred by it in
connection with such Indemnified Party's appearing and preparing to appear as
such a witness, including, without limitation, the fees and disbursements of its
legal counsel.
In the event of any action pursued by any third party for any reason
against the Indemnified Party, whether or not a lawsuit has been filed, Company
agrees to accept tender of defense and advance defense costs as they are
incurred. Indemnified Party shall have the right to approval any legal counsel
chosen to represent Indemnified Party.
9.10 Representations and Warranty. The undersigned parties, and each
of them, including the individuals signing this Agreement on behalf of the
parties, hereby represent and warrant that they have the full power and
authority to execute this Agreement on behalf of the respective parties without
any other authorization. In the case of International Barter Corporation, the
undersigned President represents that he has full authority of the Board of
Directors of such party and, to the extent necessary, the shareholders to offer
not only the stock and option grants but all other compensation contemplated in
this Agreement.
9.11 Covenant Not To Compete. Consultant recognizes and acknowledges
that the Company is placing its confidence and trust in Consultant. Accordingly,
Consultant covenants and agrees that neither it nor its principals, officers, or
members will not, during the term hereof and for a period of six (6) months
following any termination of this Agreement,
16
<PAGE>
either directly or indirectly, or otherwise through any corporation,
partnership, association, sole proprietorship or other entity:
(a) Own, manage, operate, control, serve as a consultant to, be
employed by, participate in, or be connected in any manner with the ownership,
management, operation or control of any business that competes, directly or
indirectly, with Company or any of Company's affiliates;
(b) Hire, offer to hire, entice away, or in any other manner persuade
or attempt to persuade any officer, employee or agent of Company or its
affiliates to alter or discontinue a relationship with Company or to do any act
inconsistent with the interests of Company or its affiliates;
(c) Solicit, divert, take away or in any customers or clients of
Company or its affiliates; (d) Solicit, divert, or in any other manner persuade
or attempt to persuade any supplier of Company or its affiliates to alter or
discontinue their relationship with Company or its affiliates.
For purposes of this Agreement, the term, "business" means, but is not
limited to: (i) the development, implementation, and provision of trade exchange
offering barter services to retail, professional, media, and corporate clients;
(ii) providing a centralized barter currency, centralized data processing,
standardized marketing and support materials, advertising, and ongoing training
and support to extend its client base in such business; (iii) offering trade
exchange services through the Internet; and (iv) marketing, promoting and
facilitating exchanges between its clients.
17
<PAGE>
For purposes of this Section 9.11, the term, "affiliates", means any person
or entity who: (i) is in direct or indirect control of Company (by virtue of
owning 25% or more of the outstanding voting securities of such person or
entity); or (ii) who has a direct or indirect contractual relationship with the
Company and such relationship is related to Company's business, as defined
herein.
Notwithstanding Consultant's obligations under this Section 9.11,
Consultant will be entitled to own, as a passive investor, up to five percent
(5%) of any publicly traded company without violating this provision.
Consultant and Company agree that this Section 9.11 does not impose an
undue hardship on Consultant and is not injurious to the public. They further
agree that this provision is necessary to protect the business of the Company
and its affiliates. The nature of Consultant's relationship with the Company is
such that Consultant shall have access to confidential information which is
valuable and confidential to the Company's business and therefore the Scope of
this Section 9.11 is reasonable in length of time and scope and adequate
consideration supports this covenant.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed their names as of the
day and year first above written.
ASTRA ADVISORS LLC
By /s/ Liad Y. Meidar
---------------------------------------
Liad Y. Meidar, President
INTERNATIONAL BARTER CORP.
By /s/ Steven M. White
---------------------------------------
Steven M. White, Chairman, Chief
Executive Officer & President
19
<PAGE>
Exhibit A
Options Granted to Consultant
For International Barter Corp. (Ubarter.com, Inc.) Common Capital Stock
Percentage Shares Outstanding based
on 6,050,000 shares of Common Stock
Strike Price Options outstanding
- ------------ ------- -----------
$ 4.00 50,000 0.8264%
$ 6.00 40,000 0.6612%
$ 8.00 60,000 0.9917%
$ 10.00 80,000 1.3222%
$ 12.00 160,000 2.6445%
$ 14.00 240,000 3.9669%
10.4129%
Exhibit 21
The sole subsidiary of the Company is Barter Business Exchange, a corporation
organized and existing under the laws of the Province of Ontario, Canada.
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS'
We consent to the inclusion in this Annual Report on Form 10-KSB of Ubarter.com
Inc. for the year ended March 31, 1999 of our report dated June 16, 1999.
Seattle, Washington
July 6, 1999
Exhibit 23.2
[ANDERSEN ANDERSEN & STRONG L.C.]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ANDERSEN ANDERSEN & STRONG L.C.
Salt Lake City, Utah
June 29, 1999
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<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Mar-31-1999
<PERIOD-END> Mar-31-1999
<CASH> 442,700
<SECURITIES> 0
<RECEIVABLES> 305,700
<ALLOWANCES> 129,400
<INVENTORY> 310,400
<CURRENT-ASSETS> 1,068,000
<PP&E> 529,100
<DEPRECIATION> 145,500
<TOTAL-ASSETS> 4,389,700
<CURRENT-LIABILITIES> 2,575,400
<BONDS> 0
0
0
<COMMON> 5,900
<OTHER-SE> 1,726,800
<TOTAL-LIABILITY-AND-EQUITY> 4,389,700
<SALES> 43,900
<TOTAL-REVENUES> 504,500
<CGS> 43,900
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 34,600
<INTEREST-EXPENSE> 2,700
<INCOME-PRETAX> (798,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (798,000)
<DISCONTINUED> 0
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<NET-INCOME> (789,000)
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